Grow Up

Kevin Lewis

June 29, 2022

Targeting Impact versus Deprivation
Johannes Haushofer et al.
NBER Working Paper, June 2022

Targeting is a core element of anti-poverty program design, with benefits typically targeted to those most “deprived” in some sense (e.g., consumption, wealth). A large literature in economics examines how to best identify these households feasibly at scale, usually via proxy means tests (PMTs). We ask a different question, namely, whether targeting the most deprived has the greatest social welfare benefit: in particular, are the most deprived those with the largest treatment effects or do the “poorest of the poor” sometimes lack the circumstances and complementary inputs or skills to take full advantage of assistance? We explore this potential trade-off in the context of an NGO cash transfer program in Kenya, utilizing recent advances in machine learning (ML) methods (specifically, generalized random forests) to learn PMTs that target both a) deprivation and b) high conditional average treatment effects across several policy-relevant outcomes. We find that targeting solely on the basis of deprivation is generally not attractive in a social welfare sense, even when the social planner's preferences are highly redistributive. We show that a planner using simpler prediction models, based on OLS or less sophisticated ML approaches, could reach divergent conclusions. We discuss implications for the design of real-world anti-poverty programs at scale.


The Effect of Labor Market Liberalization on Political Behavior and Free Market Norms
Ran Abramitzky et al.
NBER Working Paper, June 2022

We study the effects of labor market liberalization on political behavior and attitudes towards free-market capitalism and socialism, exploiting a reform whereby the Israeli socialist communities called kibbutzim shifted from equal sharing to market-based wages. Our identification strategy relies on this reform's sharp and staggered implementation in different kibbutzim. We first examine changes in behavior associated with this labor market liberalization and document that the reform led to a shift in electoral voting patterns, resulting in decreased support for left-wing political parties and increased support for the center and right parties in national elections. Using annual survey data on attitudes over 25 years, we show that the reform led to increased support for free-market policies such as full privatization and differential wages. Moreover, it decreased support for socialist policies such as the joint ownership of production means. Yet, the reform increased support for the safety net to support weak members through mutual guarantee. These effects appear to be driven by an increase in living standards and work ethics that resulted from the reform. We conclude that introducing market-based wages led to a shift in attitudes towards a market economy with compassion, revealing a change in members’ support from their traditional democratic socialist model to a social democratic model.

Rent seeking and the decline of the Florentine school
Ennio Piano & Tanner Hardy
Public Choice, forthcoming

Economists have claimed that the invisible hand of competition is behind the historical episodes of outstanding artistic achievement, from Shakespearean theater to musical composition in Mozart’s Vienna. Competition, the argument goes, acts on producers of the arts just as it does on producers of mundane commodities. By pitting one artist against all others for the public’s purse and the critics’ praise, rivalry encourages them to supply more refined products. While often left unstated, the same argument implies that the absence of competition will be detrimental to the quality of artists’ output. We extend that insight to explain the decline of the Florentine school of painting in the Late Renaissance period. The rise of the Medici family as Florence’s ruling dynasty turned the previously competitive market for paintings into a monopsony. That development, we argue, strengthened the benefits to local painters of forming a cartel to reclaim the rents captured by the monopsonist. The result was the creation of a local painters’ guild that restricted competition, ultimately contributing to a decline in the quality and influence of Florentine painting. 

The Relative Effectiveness of Teachers and Learning Software: Evidence from a Field Experiment in El Salvador
Konstantin Büchel et al.
Journal of Labor Economics, July 2022, Pages 737-777

This study provides evidence on the relative effectiveness of computer-assisted learning (CAL) software and traditional teaching. Based on a field experiment in Salvadoran primary schools, we evaluate three interventions that aim to improve learning in mathematics: (i) additional teacher-led classes, (ii) additional CAL classes monitored by a supervisor, and (iii) additional CAL classes instructed by a teacher. We find that CAL lessons lead to larger learning gains and are less sensitive to class size as well as student ability than teacher-centered classes. Our results highlight the value of CAL in an environment with heterogeneous classes and poorly qualified teachers.

Can Education be Standardized? Evidence from Kenya
Guthrie Gray-Lobe et al.
University of Chicago Working Paper, June 2022

We examine the impact of enrolling in schools that employ a highly-standardized approach to education, using random variation from a large nationwide scholarship program. Bridge International Academies not only delivers highly detailed lesson guides to teachers using tablet computers, it also standardizes systems for daily teacher monitoring and feedback, school construction, and financial management. At the time of the study, Bridge operated over 400 private schools serving more than 100,000 pupils. It hired teachers with less formal education and experience than public school teachers, paid them less, and had more working hours per week. Enrolling at Bridge for two years increased test scores by 0.89 additional equivalent years of schooling (EYS) for primary school pupils and by 1.48 EYS for pre-primary pupils. These effects are in the 99th percentile of effects found for at-scale programs studied in a recent survey. Enrolling at Bridge reduced both dispersion in test scores and grade repetition. Test score results do not seem to be driven by rote memorization or by income effects of the scholarship.

Maternal Mortality and Women’s Political Power
Sonia Bhalotra et al.
NBER Working Paper, June 2022

Millions of women continue to die during and soon after childbirth, even where the knowledge and resources to avoid this are available. We posit that raising the share of women in parliament can trigger action. Leveraging the timing of gender quota legislation across developing countries, we identify sharp sustained reductions of 8–12 percent in maternal mortality. Investigating mechanisms, we find that gender quotas lead to increases in percentage points of 5–8 in skilled birth attendance and 4–8 in prenatal care utilization, alongside a decline in fertility of 6–7 percent and an increase in the schooling of young women of about 0.5 years. The results are robust to numerous robustness checks. They suggest a new policy tool for tackling maternal mortality.


Democracy and the Supply of Labor
David Brown
Studies in Comparative International Development, June 2022, Pages 149–170

The average number of hours we spend at work varies dramatically by country. Previous research focuses on tax policy, social security, and labor market regulation to explain the differences. This paper builds on previous work by focusing on politics. Specifically, it examines the relationship between democracy and the average number of hours worked per person employed. Using data on the supply of labor from the Penn World Tables 9.1, I find there is an important difference between democracies and dictatorships: as GDP/capita increases, individuals in democracies spend fewer hours at work than their counterparts in dictatorships. The results are robust to various specifications of the model that account for selection bias and data that are missing not at random (MNAR). These findings imply that the elections, civil rights, and the political liberties associated with democracy influence the amount of time people spend at work.

Cutting Out the Middleman: The Structure of Chains of Intermediation
Matthew Grant & Meredith Startz
NBER Working Paper, June 2022

Distribution of goods often involves multiple intermediaries engaged in sequential buying and reselling. Why do these chains of intermediation exist, and what are their implications for consumers? We show that multi-intermediary chains arise in response to internal economies of scale in trade costs. This suggests that chains will be longer on average in developing countries, and can account for empirical patterns in firm size and prices that we document using original data on imported consumer goods in Nigeria. While policy wisdom often calls for shortening chains, we show that this has ambiguous welfare implications. Equilibrium distribution structures are not generally efficient, and policies and technologies that lead to shorter chains will not necessarily benefit consumers, even when intermediaries hold market power. Instead, there is a fundamental trade-off: shorter chains have lower marginal cost but also fewer sellers, which can reduce competition, product availability, and access to retailers. We embed this insight in a quantifiable model of endogenous intermediation chains, which we calibrate for distribution of Chinese-made apparel in Nigeria, and describe changes in chain structure in response to counterfactual changes in regulation and e-commerce technologies. We find that cutting out middlemen has heterogeneous welfare impacts but may harm remote consumers.

A Penny for Your Thoughts
Walker Hanlon et al.
NBER Working Paper, May 2022

How do communication costs affect the production of new ideas and inventions? To answer this question, we study the introduction of the Uniform Penny Post in Great Britain in 1840. This reform replaced the previous system of expensive distance-based postage fees with a uniform low rate of one penny for sending letters anywhere in the country. The result was a large spatially-varied reduction in the cost of communicating across locations. We study the impact of this reform on the production of scientific knowledge using citation links constructed from a leading academic journal, the Philosophical Transactions, and the impact on the development of new technology using patent data. Our results provide quantitative causal estimates showing how a fall in communication costs can increase the rate at which scientific knowledge is exchanged and new ideas and technologies are developed. This evidence lends direct empirical support to an extensive theoretical literature in economic growth and urban economics positing that more ideas can emerge from communication between individuals.


Agricultural revolution and industrialization
Angus Chu, Pietro Peretto & Xilin Wang
Journal of Development Economics, forthcoming

This study explores how agricultural technology affects the endogenous takeoff of an economy in the Schumpeterian growth model. Due to the subsistence requirement for agricultural consumption, an improvement in agricultural technology reallocates labor from agriculture to the industrial sector. Therefore, agricultural improvement expands firm size in the industrial sector, which determines innovation and triggers an endogenous transition from stagnation to growth. Calibrating the model to data, we find that without the reallocation of labor from agriculture to the industrial sector in the early 19th century, the takeoff of the US economy would have been delayed by about four decades.

Colonial Origins and Fertility: Can the Market Overcome History?
David Canning, Marie Christelle Mabeu & Roland Pongou
Harvard Working Paper, March 2022

Can market incentives overcome the long-term impact of historical institutions? We address this question by focusing on the role of colonial reproductive policies in shaping fertility behavior in Africa. Exploiting the arbitrary division of ancestral ethnic homelands and the resulting discontinuity in institutions across the British-French colonial borders, we find that women in former British areas are more likely to delay sexual debut and marriage, and have fewer children. However, these effects disappear in areas with high market access, where the opportunity cost of childbearing appears to be high irrespective of colonizer identity. This heterogeneous impact of colonial origins is robust across different measures of access to international and domestic markets. Examining causal mechanisms, we collect archival data on colonial reproductive laws and policies to conduct an event-study analysis. We find that the effect of colonial origins on fertility is entirely driven by differences in the timing of colonial population policies and their lasting impact on the use of modern methods of birth control. We find little evidence that the fertility effect of British colonization operates through education or income. While British colonization is linked to higher female education, this occurs mainly in areas with higher market access while the fertility effects do not. Again, while income levels differ, the fertility gap between British and French colonies opened prior to 1980, whereas the income gap only opened after 1990. Our analysis highlights the heterogeneous nature of the colonial origins of comparative fertility behavior, and implies that economic incentives may overcome historical determinism. 

Financial Developments in London in the Seventeenth Century: The Financial Revolution Revisited
Nathan Sussman
Journal of Economic History, June 2022, Pages 480-515

A novel series of interest rates paid by the Corporation of London shows that interest rates in London declined by 350 basis points during the seventeenth century. The decline followed a similar pattern in Europe. Records from the Corporation’s archive provide evidence for financial development: an increase in the number and volume of debt instruments, an increase in the number of lenders, and the development of a secondary market. Econometric analysis establishes that increasing the debt instruments’ liquidity contributed to the convergence of interest rates between London and Amsterdam.


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