Knowledge that Transforms

We study how electoral incentives affect policy choices on secondary issues, which only minorities of voters care intensely about. We develop a model in which office and policy-motivated politicians vote in favor of or against regulations on these issues. We derive conditions under which politicians flip-flop, voting according to their policy preferences at the beginning of their terms but in line with the preferences of single-issue minorities as they approach reelection. To assess the evidence, we study U.S. senators' votes on gun control, the environment, and reproductive rights. In line with the model's predictions, we find that election proximity has a pro-gun effect on Democratic senators and a pro-environment effect on Republican senators; these effects arise for senators who are not retiring, do not hold safe seats, and represent states where the single-issue minority is of intermediate size. Also in line with our theory, election proximity does not affect votes on reproductive rights due to the presence of single-issue minorities on both sides.

Abstract At the zero lower bound, the New Keynesian model predicts that output and inflation collapse to implausibly low levels and that government spending and forward guidance have implausibly large effects. To resolve these anomalies, we introduce wealth into the utility function; the justification is that wealth is a marker of social status, and people value status. Since people partly save to accrue social status, the Euler equation is modified. As a result, when the marginal utility of wealth is sufficiently large, the dynamical system representing the zero-lower-bound equilibrium transforms from a saddle to a source, which resolves all the anomalies.

This paper studies the relationship between immigration and offshoring by examining whether an influx of foreign workers reduces the need for firms to relocate jobs abroad. Using a Danish natural experiment and their employer-employee matched data set covering the universe of workers and firms (1995–2011), our findings show that an exogenous influx of immigrants into a municipality reduces firm-level offshoring at both the extensive and intensive margins. While the multilateral relationship is negative, a subsequent bilateral analysis shows that immigrants have connections in their country of origin that increase the likelihood that firms offshore to that particular foreign country.

Abstract This paper contributes to the debate on the impact of juvenile crime punishment on high school completion and adult recidivism using administrative data from a southern U.S. state. We exploit random assignment of cases to judges and use idiosyncratic judge stringency in imprisonment to estimate the causal effect of incarceration. We find that juvenile incarceration increases the propensity of being convicted for a drug offense in adulthood while it lowers the propensity to be convicted of a property crime. Juvenile incarceration has also a detrimental effect on high school completion for earlier cohorts, but it has no impact on later cohorts.

Abstract Evidence on the effectiveness of foreign exchange (FX) interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Generally we find, for freely floating currencies, that FX intervention shocks significantly affect exchange rates and that this impact persists for months. The signaling channel dominates the portfolio channel. Moreover, interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.

Abstract The relationship between ethnic heterogeneity and economic growth is complex. Empirical research working with cross-country data finds a negative, or statistically insignificant, relationship. However, analysis at the city level finds a positive effect of diversity on wages and productivity. Generally there is a trade-off between the economic benefits of diversity and the costs of heterogeneity. Using cells of fixed size, we find that the relationship between diversity and growth is positive for small geographical areas. In the case of Africa, we argue that the explanation is the increase in trade at the boundaries between ethnic groups due to ethnic specialization.

In this paper, we analyze the effect of light conditions on road accidents and estimate the long-run consequences of different time regimes for road safety. Identification is based on variation in light conditions induced by differences in sunrise and sunset times across space and time. We estimate that darkness causes annual costs of more than £500 million in Great Britain. By setting daylight saving time year-round, 8% of these costs could be saved. Thus, focusing solely on the short-run costs related to the transition itself underestimates the total costs of the current time regime.

Incentivized experiments are often used to identify the time preferences of households in developing countries. We argue theoretically and empirically that experimental measures may not identify preference parameters, but are a useful tool for understanding financial shocks and constraints. Using data from an experiment in Mali, we find that subject responses vary with savings and financial shocks, meaning they provide information about credit constraints and can be used to test models of risk sharing.

Abstract Self-control problems constitute a potential explanation for the underinvestment in preventive health in low-income countries. Behavioral economics offers a tool to solve such problems: commitment devices. We conduct a field experiment to evaluate the effectiveness of different types of theoretically motivated commitment contracts in increasing preventive doctor visits by hypertensive patients in rural India. Despite achieving high take-up of such contracts in some treatment arms, we find no effects on actual doctor visits or individual health outcomes. A substantial number of individuals pay for commitment but fail to follow through on the doctor visit, losing money without experiencing health benefits. We develop and structurally estimate a prespecified model of consumer behavior under present bias with varying levels of naiveté. The results are consistent with a large share of individuals being partially naive about their own self-control problems: sophisticated enough to demand some commitment but overly optimistic about whether a given level of commitment is sufficiently strong to be effective. The results suggest that commitment devices may in practice be welfare diminishing, at least in some contexts, and serve as a cautionary tale about their role in health care.

Abstract We present experimental evidence on the impact of the use of double-fortified salt in school meals on anemia, cognition, and the learning outcomes of primary school children in rural Bihar, one of the poorest regions of India. We find that a year-long intervention had statistically significant positive impacts on hemoglobin levels and reduced anemia by 20%; however, these health gains did not translate into significant impacts on cognitive performance, test scores, and school attendance. Treatment effects on anemia and test scores were larger for children with higher school attendance. The findings indicate that school-based health interventions are a cost-effective and scalable approach for reducing anemia among school children in resource-constrained countries.