Knowledge that Transforms

This paper evaluates an experiment in which individuals in rural Malawi were randomly assigned monetary incentives to learn their HIV results after being tested. Distance to the HIV results centers was also randomly assigned. Without any incentive, 34 percent of the participants learned their HIV results. However, even the smallest incentive doubled that share. Using the randomly assigned incentives and distance from results centers as instruments for the knowledge of HIV status, sexually active HIV-positive individuals who learned their results are three times more likely to purchase condoms two months later than sexually active HIV-positive individuals who did not learn their results; however, HIV-positive individuals who learned their results purchase only two additional condoms than those who did not. There is no significant effect of learning HIV-negative status on the purchase of condoms.

Due to betrayal aversion, people take risks less willingly when the agent of uncertainty is another person rather than nature. Individuals in six countries (Brazil, China, Oman, Switzerland, Turkey, and the United States) confronted a binary-choice trust game or a risky decision offering the same payoffs and probabilities. Risk acceptance was calibrated by asking individuals their “minimum acceptable probability” (MAP) for securing the high payoff that would make them willing to accept the risky rather than the sure payoff. People's MAPs are generally higher when another person, rather than nature, determines the outcome. This indicates betrayal aversion. (JEL C72, D81, Z13)

This paper exploits the division of Germany after the Second World War and the reunification of East and West Germany in 1990 as a natural experiment to provide evidence for the importance of market access for economic development. In line with a standard new economic geography model, we find that, following division, cities in West Germany close to the East-West German border experienced a substantial decline in population growth relative to other West German cities. We show that the model can account for the quantitative magnitude of our findings and provide additional evidence against alternative possible explanations. (JEL F15, N94, R12, R23)

Economists have long concerned themselves with environmental influences, such as neighborhood, peers and family on individuals' beliefs and behaviors. However, the impact of children on parents' behavior has been little studied. Parenting daughters, psychologists have shown, increases feminist sympathies. I test the hypothesis that children, much like neighbors or peers, can influence adult behavior. I demonstrate that the propensity to vote liberally on reproductive rights is significantly increasing in a congress person's proportion of daughters. The result demonstrates not only the relevance of child to parent behavioral influence, but also the importance of personal ideology in a legislator's voting decisions as it is not explained away by voter preferences.

The theory of mechanism design can be thought of as the “engineering” side of economic theory. Much theoretical work, of course, focuses on existing economic institutions. The theorist wants to explain or forecast the economic or social outcomes that these institutions generate. But in mechanism design theory the direction of inquiry is reversed. We begin by identifying our desired outcome or social goal. We then ask whether or not an appropriate institution (mechanism) could be designed to attain that goal. If the answer is yes, then we want to know what form that mechanism might take. In this paper, I offer a brief introduction to the part of mechanism design called implementation theory, which, given a social goal, characterizes when we can design a mechanism whose predicted outcomes (i.e., the set of equilibrium outcomes) coincide with the desirable outcomes, according to that goal. I try to keep technicalities to a minimum, and usually confine them to footnotes.

The introduction of the precious metals for the purposes of money may with truth be considered as one of the most important steps towards the improvement of commerce, and the arts of civilised life; but it is no less true that, with the advancement of knowledge and science, we discover that it would be another improvement to banish them again from the employment to which, during a less enlightened period, they had been so advantageously applied. —David Ricardo (1816)

This paper provides the first real-world evidence of Giffen behavior, i.e., upward sloping demand. Subsidizing the prices of dietary staples for extremely poor households in two provinces of China, we find strong evidence of Giffen behavior for rice in Hunan, and weaker evidence for wheat in Gansu. The data provide new insight into the consumption behavior of the poor, who act as though maximizing utility subject to subsistence concerns. We find that their elasticity of demand depends significantly, and nonlinearly, on the severity of their poverty. Understanding this heterogeneity is important for the effective design of welfare programs for the poor. (JEL D12, O12).

There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.

Modeling Competition and Market Equilibrium in Insurance: Empirical Issues by Pierre-Andre Chiappori and Bernard Salanie. Published in volume 98, issue 2, pages 146-50 of American Economic Review, May 2008

Hurricane Katrina displaced approximately 650,000 people and destroyed or severely damaged 217,000 homes along the Gulf Coast. Damage was especially severe in New Orleans, and the return of displaced residents to this city has been slow. The fraction of households receiving mail (which, in the absence of reliable population estimates, is a good indicator for returns) was 49.5 percent in August 2006, and 66.0 percent in June 2007 (Greater New Orleans Community Data Center, 2007). Low-income minority families appear to have been slower than others to return (William H. Frey and Audrey Singer, 2006). In this paper, we examine the determinants of returning to New Orleans in the 18 months after the hurricane. The data come from a study of low-income parents, mainly African American women, who were enrolled in a community college intervention prior to the hurricane. Although the sample is not representative of the pre-Katrina population of the city, it nonetheless is of great interest. The relatively slow return of low income, primarily African American, residents is a politically charged issue. One (extreme) view is that the redevelopment plans are designed to discourage low-income minority residents from returning. A quite different view is that members of this group have found better opportunities outside of New Orleans, and do not want to return. Because few data sets trace individuals from before to after the hurricane, this debate has taken place largely without the benefit of evidence.