Development Economics

Displaying 69 Items

Category: Development Economics

Contracts, Wage Differentials and Involuntary Unemployment

Studies in Microeconomics 12(1) 10–31, 2024. Dedicated to Ashok Kotwal.

Summary. I study a simple model of labour markets with imperfect monitoring and efficiency wages that provide work incentives. Involuntary unemployment is an outcome, but it is just one particular instance of many inter-firm wage differentials that pervade the equilibrium. The goal of this paper is to study the relationship between firm size, work standards, wages paid, contractual utility for workers, and capital intensity in production. Under certain conditions: (a) larger firms pay higher wages and demand higher individual effort levels; (b) despite these opposing effects, larger firms offer a higher net contractual utility and (c) larger firms are more capital intensive, even when production functions are homothetic in capital and labour.

 

Measuring Upward Mobility

(with Garance Genicot). This version February 2023. Forthcoming, American Economic Review. [Slides]

Summary. We develop a measure of upward mobility that distills central features of the relative and absolute approaches to measuring mobility. The former is embodied in the Growth Progressivity axiom: transfers of instantaneous growth rates from relatively rich to poor individuals increases upward mobility. The absolute approach is embodied in the Growth Alignment axiom: mobility increases with higher growth for all individuals. These axioms, along with standard auxiliary restrictions, identify a simple one-parameter family of upward mobility measures, linear in individual growth rates and exhibiting geometrically declining weights on baseline incomes. A serendipitous implication of our measure is that it does not rely on panel data, which greatly expands our analytical scope to data-poor settings.

The Social Equilibrium of Relational Arrangements

(with Parikshit Ghosh),  forthcoming, Journal of Institutional and Theoretical Economics, Special Issue on Relational Contracts.

Summary. Building on Ghosh and Ray (1996), we study norms within partnerships that exhibit gradually increasing cooperation, thus serving to deter deviations. But socially beneficial gradualism may be undermined by partners renegotiating to greater cooperation from the outset. We show that incomplete information regard- ing partner patience ameliorates this tension even as it adds to the anonymity of the environment.

Growth, Automation and the Long-Run Share of Labor

(with Dilip Mookherjee), Review of Economic Dynamics 46, 1-26, https://doi.org/10.1016/j.red.2021.09.003 (2022).. Supplementary Appendix.

Summary. We describe a minimal set of sufficient conditions for progressive automation and for the labor share of income to converge to zero in the long run: (i) an asymmetry between physical and human capital: individual claims on the former can be reproduced linearly, while human capital consists of embodied skills; (ii) the technical feasibility of sectoral automation; (ii) a self-replication condition on the production function for robot services; (iv) asymptotic homotheticity (more generally neutrality) of demand, and (v) a minimal degree of patience or intergenerational altruism among a fraction of households. However, human labor is displaced gradually, and real wages could rise indefinitely. Technical progress is not needed for our results, but our findings extend to endogenous technical progress even if such progress is not biased ex ante in favor of automation.

Groups in Conflict: Private and Public Prizes

(with Laura Mayoral),  Journal of Development Economics 154, https://doi.org/10.1016/j.jdeveco.2021.102759 (2022).

 Supplementary Appendix.

Summary. This paper studies costly conflict over private and public goods. Oil is an example of the former, political and civil rights an example of the latter. Our theory predicts that groups in conflict are likely to be small when the prize is private, and large when the prize is public. We examine these implications empirically by constructing a global dataset at the ethnic group level and studying conflict along ethnic lines. Our theoretical predictions find significant confirmation in this setting, and the analysis sheds new light on group size and collective action in the context of violent conflict.

India’s Lockdown

(with S. Subramanian and Lore Vandewalle), August 2020, Centre for Economic Policy Research, Policy Brief 102, April 2020.

We discuss the modalities and wisdom of India’s lockdown as a response to the covid-19 pandemic. Here is a related video interview.

 

Decoding India’s Low Covid-19 Case Fatality Rate

(with Minu Philip and S. Subramanian),  Journal of Human Development and Capabilities 22, 27-51 (2021).

Summary. India’s case fatality rate (CFR) under covid-19 is strikingly low, trending from 3% or more, to a current level of under 1.8%. The world average rate is far higher. Several observers have noted that this difference is at least partly due to India’s younger age distribution. In this paper, we use age-specific fatality rates from comparison countries, coupled with India’s distribution of covid-19 cases to “predict” what India’s CFR would be with those age-specific rates. In most cases, those predictions are lower than India’s actual performance, suggesting that India’s CFR is, if anything, too high rather than too low.

India’s Lockdown: An Interim Report

(with S. Subramanian), May 2020, Indian Economic Review, https://doi.org/10.1007/s41775-020-00094-2

Summary. The world has continued to change rapidly since the last version of this article was written on May 20, 2020. Yet, as this article goes to press, we are aware of two realities; first, that we cannot perennially chase a moving target, but second, that nothing about the fundamental trends that we have identified appear to have changed. India is firmly in the throes of a vicious pandemic that we can only hope will abate with the development of an effective vaccine. Our plea for the widespread provision of adequate health and medical facilities, adequate protection for the elderly, and transfers to those severely affected by the lockdown are absolutely unchanged in the face of the latest data. In contrast, the brutal enforcement of a lockdown with none of these accompanying measures can only worsen outcomes for the poorest and most vulnerable among the population.

A Sovereign Fund for India

(with Parikshit Ghosh), October 2019.  Forthcoming in Kaushik Basu, Maitreesh Ghatak, Kenneth Kletzer, Sudipto Mundle and Eric Verhoogen (eds), Development, Distribution, and Markets: Essays in Honour of Pranab Bardhan, Oxford University Press.

We propose that India build up a sovereign fund, to be invested in portfolios of equity, bonds and other financial assets, and managed professionally as any fund would be managed, subject to certain constraints that we describe in this paper. The proposal to access Indian corporate value consists of two parts: I. A one-time directive that will require every publicly traded Indian company to issue new shares to the government, equal to some fraction (say 10–20%) of their outstanding shares in the mar- ket. II. An ongoing obligation to transfer some given fraction (again 10–20%) of every new share issue — whether in the form of an initial public offering or an expansion of the existing share base — to the India Fund.

Aspirations and Economic Behavior

(with Garance Genicot), Annual Review of Economics 12, 715-746 (2020). [Slides from a 2023 review lecture]

This paper reviews the literature on aspirations in economics, with a particular focus on socially determined aspirations. The core theory builds on two fundamental principles: (a) aspirations can serve to inspire, but still higher aspirations can lead to frustration and resentment; and (b) aspirations are largely determined by an individual’s social environment. We discuss the implications of this framework for the study of interpersonal inequality, social conflict, fertility choices, risk taking and goal-setting.

Hindu-Muslim Violence in India: A Postscript from the 21st Century

(with Anirban Mitra), in Advances in the Economics of Religion (J-P Carvalho, S. Iyer and J. Rubin, eds.) Volume 158, International Economic Association Series, Palgrave Macmillan (2019).

Summary.  We revisit and extend the core issues studied in Mitra and Ray (2014). The main reason behind this retrospection is to check if the robust empirical patterns recorded there persist once we consider a longer time frame extending into the 21st century. We make three observations: (i) There is a clear economic component to violence, roughly along the lines of our earlier paper; (ii)  There is a new aspect which is assuming salience now — namely, a strong political component which is manifesting itself through the presence of BJP legislators; (iii) Ahmedabad exemplifies the ascendancy of this political component. 

Missing Unmarried Women

(with Siwan Anderson), Journal of the European Economic Association 2019 17(5), 1585–1616; jvy027, https://doi.org/10.1093/jeea/jvy027

Summary. We provide systematic estimates of the excess female mortality faced by older unmarried women in developing regions. We place these estimates in the context of the missing women phenomenon. There are approximately 1.5 million missing women between the ages of 30 and 60 years old each year. We find that 35% of these missing women of adult age can be attributed to not being married. These estimates vary by region. India has the largest proportion of missing adult women who are without a husband, followed by the countries in East Africa. By contrast, China has almost no missing unmarried women. We show that 70% of missing unmarried women are of reproductive age and that it is the relatively high mortality rates of these young unmarried women (compared to their married counterparts) that drive this phenomenon.

Conflict and Development

(with Joan Esteban) Annual Reviews of Economics  9, 263-293, 2017.

Summary. In this review, we examine the links between economic development and social conflict. By economic development, we refer broadly to aggregate changes in per capita income and wealth or in the distribution of that wealth. By social conflict, we refer to within-country unrest, ranging from peaceful demonstrations, processions, and strikes to violent riots and civil war. We organize our review by critically examining three common perceptions: that conflict declines with ongoing economic growth; that conflict is principally organized along economic differences rather than similarities; and that conflict, most especially in developing countries, is driven by ethnic motives.

Aspirations and Inequality

(with Garance Genicot) Econometrica 85, 485-519, 2017. Online Appendix. 2009 version.

Summary. This paper develops a theory of socially determined aspirations, and the interaction of those aspirations with growth and inequality. The interaction is bidirectional: economy-wide outcomes determine individual aspirations, which in turn determine investment incentives and social outcomes. Thus aspirations, income, and the distribution of income evolve jointly.

Information and Enforcement in Informal Credit Markets

(with Parikshit Ghosh), Economica 83, 59–90, 2016.

Summary. We study loan enforcement in informal credit markets with multiple lenders but no sharing of credit histories, and derive the dynamics of loan size and interest rates for relational lending. In the presence of a sufficient fraction of ‘natural defaulters’, the rest of the market can be incentivized against default by micro-rationing—sharper credit limits and possibly higher interest rates that serve as gateways into new borrowing relationships. When there are too few natural defaulters in the market, this can be supplemented by macro-rationing—random exclusion of some borrowers. When information collection is endogenized, multiple equilibria may arise. (Published version of unpublished notes from 2001.)

Aspirations And The Development Treadmill

Journal of Human Development and Capabilities 17, 309–323, 2016.

Summary. I describe a positive theory of socially determined aspirations, and some implications of that theory for the study of economic inequality and social conflict. The main contribution of the theory is that it attempts to describe, in the same explanatory arc, how a change in aspirations can be inspirational in some circumstances, or a source of frustration and resentment in others. These different reactions arise from the aspirational gap: the difference between socially generated aspirations and the current socio-economic standard that the individual enjoys. Ever-accelerating economic development can cut both ways in terms of inspiration and frustration.

Anatomy of a Contract Change

with Rajshri Jayaraman and Francis de Vericourt, American Economic Review 106, 316-358, 2016. Online Appendix.

Summary. We study a contract change for tea pluckers. Base wages increased while incentive piece rates were lowered or kept unchanged. Yet, in the following month, output increased by 20–80%. This response contradicts the standard model, is only partly explicable by greater supervision, and appears to be “behavioral.” But in subsequent months, the increase is comprehensively reversed. Our findings suggest that behavioral responses may be ephemeral, and should ideally be tracked over an extended period. 

Poverty and Self-Control

(with Doug Bernheim and Sevin Yeltekin), Econometrica 83 (5), 1877-1911, 2015. Online Appendix. A link to the 1999 version, which only had numerical results.

Summary. Poverty can perpetuate itself by undermining the capacity for self-control.  Our main result demonstrates that low initial assets can limit self-control, trapping people in poverty, while those with high initial assets can accumulate indefinitely.

 

Implications of an Economic Theory of Conflict: Hindu-Muslim Violence in India

(with Anirban Mitra), Journal of Political Economy 122, 719-765, 2014.

Summary. We model intergroup conflict driven by economic changes within groups. We show that if group incomes are low, increasing group incomes raises violence against that group and lowers violence generated by it. We then apply the model to data on Hindu-Muslim violence in India. Our main result is that an increase in per capita Muslim expenditures generates a large and significant increase in future religious conflict. An increase in Hindu expenditures has a negative or no effect. These findings speak to the origins of Hindu-Muslim violence in post-Independence India. Online Appendix. Sequel.

Gender Differentials in Eye Care: Access and Treatment

(with Rajshri Jayaraman and Shing-Yi Wang), Economic and Political Weekly 49 No. 25, June 21, 2014. 

Summary. Two potential sources of gender bias in health care are (a) females access treatment later than males and (b) they receive differential care at the medical facility. We explore both of these for eye care at a large Indian medical facility.  At presentation, women have worse diagnoses than men for indicators of symptomatic illness, such as myopia and cataract. There is no difference in treatment.

The Age Distribution of Missing Women in India

(with Siwan Anderson), Economic & Political Weekly 47, No. 47-48, December, 2012.

Summary. Relative to developed countries, there are far fewer women than men in India. Estimates suggest that among the stock of women who could potentially be alive today, over 25 million are “missing”. Sex selection at birth and the mistreatment of young girls are widely regarded as key explanations. We provide a decomposition of missing women by age across the states. While we do not dispute the existence of severe gender bias at young ages, our computations yield some striking findings. First, the vast majority of missing women in India are of adult age. Second, there is significant variation in the distribution of missing women by age across different states. Missing girls at birth are most pervasive in some north-western states, but excess female mortality at older ages is relatively low. In contrast, some north-eastern states have the highest excess female mortality in adulthood but the lowest number of missing women at birth.

Ethnicity and Conflict: An Empirical Study

(with Joan Esteban and Laura. Mayoral), American Economic Review 102, 1310-1342, 2012. Online Appendix.

Summary. We examine empirically the impact of ethnic divisions on conflict, by using a specification based on Esteban and Ray (2011). That theory links conflict intensity to three indices of ethnic distribution: polarization, fractionalization, and the Gini-Greenberg index. The empirical analysis verifies that these distributional measures are significant correlates of conflict. These effects persist as we introduce country-specific measures of group cohesion and of the importance of public goods, and combine them with the distributional measures exactly as described by the theory.

A Theory of Occupational Choice with Endogenous Fertility

(with Dilip Mookherjee and Silvia Prina), American Economic Journal: Microeconomics  4, 1–34, 2012.

Summary. Theories based on partial equilibrium reasoning alone cannot explain the widespread negative cross-sectional correlation between parental wages and fertility, without restrictive assumptions on preferences and childcare costs. We argue that incorporating a dynamic general equilibrium analysis of returns to human capital can help explain observed empirical patterns.

Ethnicity and Conflict: Theory and Facts

(with Joan Esteban and Laura Mayoral), Science 336, 858 – 865, 2012.

Summary. Over the second half of the 20th century, conflicts within national boundaries became increasingly dominant. Many (if not most) such conflicts involved violence along ethnic lines. On the basis of recent theoretical and empirical research, we provide evidence that preexisting ethnic divisions do influence social conflict. Our analysis also points to particular channels of influence. Specifically, we show that two different measures of ethnic division—polarization and fractionalization—jointly influence conflict, the former more so when the winners enjoy a “public” prize (such as political power or religious hegemony), the latter more so when the prize is “private” (such as looted resources, government subsidies, or infrastructures).

Missing Women: Age and Disease

(with Siwan Anderson), Review of Economic Studies 77, 1262-1300, 2010. Online Appendix,

Summary. Relative to developed countries and some parts of the developing world, most notably sub-Saharan Africa, there are far fewer women than men in India and China. It has been argued that as many as a 100 million women could be missing. The possibility of gender bias at birth and the mistreatment of young girls are widely regarded as key explanations. We provide a decomposition of these missing women by age and cause of death. While we do not dispute the existence of severe gender bias at young ages, our computations yield some striking new findings: (1) the vast majority of missing women in India and a significant proportion of those in China are of adult age; (2) as a proportion of the total female population, the number of missing women is largest in sub-Saharan Africa, and the absolute numbers are comparable to those for India and China; (3) almost all the missing women stem from disease-by-disease comparisons and not from the changing composition of disease, as described by the epidemiological transition.

Aspirations, Segregation and Occupational Choice

(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association 8, 139–168, 2010.

Summary. This paper examines steady states of an overlapping generations economy with a given distribution of household locations over a one-dimensional interval. The paper studies steady state configurations of skill acquisition, both with and without segregation, and studies the macroeconomic and welfare effects of segregation on aggregate economic outcomes.

Uneven Growth: A Framework for Research in Development Economics

Journal of Economic Perspectives 24 (3), Summer, 45-60, 2010.

Summary. In many developing countries, economic growth has been fundamentally uneven. This article takes the reality of “uneven growth” seriously, and uses it as an organizing device for a research program in Development Economics.

Social Interactions And Segregation In Skill Accumulation

(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association 8, 1–13, 2010.

Summary. This paper studies human capital investment in a spatial setting with interpersonal complementarities. A mixture of local and global social interactions affect the cost of acquiring education, and the return to human capital is determined endogenously in the market.

Poverty and Disequalization

(with Dilip Mookherjee) Journal of Globalization and Development 1, Article 3, 2010.

Summary. We study the intergenerational transmission of inequality using a model in which parents can make both financial and occupational bequests to their children. An equal steady state with high per capita skill can co-exist with unequal steady states with low per capita skill. We investigate dynamics starting from arbitrary initial conditions.

Inequality and Markets: Some Implications of Occupational Diversity

(with Dilip Mookherjee), American Economic Journal Microeconomics 2 38–76, 2010.

Summary. This paper studies income distribution in an economy with borrowing constraints. If the span of occupational investments is large, long-run wealth distributions display persistent inequality. With a “rich” set of occupations, so that training costs form an interval, the distribution is unique and the average return to education must rise with educational investment. 

Informal Insurance in Social Networks

(with Francis Bloch and Garance Genicot), Journal of Economic Theory 143, 36-58, 2008.

Summary. This paper studies bilateral insurance schemes across networks of individuals.  We investigate the structure of self-enforcing insurance networks. Network links play two distinct and possibly conflictual roles. They act as conduits for both transfers and information; affecting the scope for insurance and the severity of punishments upon noncompliance. Their interaction leads to a characterization of stable networks as suitably “sparse” networks. Thickly and thinly connected networks tend to be stable, whereas intermediate degrees of connectedness jeopardize stability.

A Dynamic Incentive-Based Argument for Conditional Transfers

(with Dilip Mookherjee), Economic Record 84, S2–S16, 2008.

Summary. We compare the long-run (steady state) effects of replacing unconditional transfers to the poor by transfers conditional on education of children. Conditional transfers (funded by taxes on earnings of the skilled) are shown to generate higher long run output per capita and higher (utilitarian and Rawlsian) welfare.

Introduction to Development Theory

Journal of Economic Theory 137, 1-10, 2007.

Summary. This article introduces a symposium on economic development theory, published as a special issue of the Journal of Development Economics.

Development Economics

The New Palgrave Dictionary of Economics, edited by Lawrence Blume and Steven Durlauf, 2007.

Summary. Entry for the New Palgrave.

Reciprocity in Groups and the Limits to Social Capital

(with Francis Bloch and Garance Genicot), American Economic Review 97 (Papers and Proceedings), 65–69, 2007.

Summary. Based on our earlier work on risk sharing in groups and networks (Garance Genicot and Debraj Ray, 2003, 2005 and Francis Bloch, Garance Genicot and Debraj Ray, 2006), this paper proposes a simple model of mutual help in groups and networks. We argue that, if social capital can promote cooperation among groups of individuals, it can also hurt it. When groups of individuals can jointly deviate from a social norm, the fact that they have built strong ties among themselves may in fact make deviations easier, and weaken cooperation in society as a whole.

Beyond Nandigram: Industrialisation in West Bengal

(with Abhijit Vinayak Banerjee, Pranab Bardhan, Kaushik Basu, Mrinal Datta Chaudhuri, Maitreesh Ghatak, Ashok Sanjay Guha, Mukul Majumdar and Dilip Mookherjee), Economic and Political Weekly Commentary, April 2007.

Summary. If we are to learn the right lessons from the tragedy of Nandigram, then we must ensure that the government is involved in the land acquisition process and that we correctly deal with three sets of issues: the size and form of compensation, the eligibility for compensation and the credibility of the process.

Contracts and Externalities: How Things Fall Apart

(with Garance Genicot), Journal of Economic Theory 131, 71-100, 2006.

Summary. A single principal interacts with several agents, offering them contracts. The outside-option payoffs of the agents depend positively on how many uncontracted or “free” agents there are. We study how such a principal, unwelcome though he may be, approaches the problem of contract provision to agents when coordination failure among the latter group is explicitly ruled out. Agents cannot resist an “invasion” by the principal and hold to their best payoff. It is in this sense that “things [eventually] fall apart”.

Bargaining Power and Enforcement in Credit Markets

(with Garance Genicot), Journal of Development Economics 79, 398-412, 2006.

Summary. In a credit market with enforcement constraints, we study the effects of a change in the outside options of a potential defaulter on the terms of the credit contract, as well as on borrower payoffs. The results crucially depend on the allocation of “bargaining power” between the borrower and the lender. We prove that there is a crucial threshold of relative weights such that if the borrower has power that exceeds this threshold, her expected utility must go up whenever her outside options come down. But if the borrower has less power than this threshold, her expected payoff must come down with her outside options.  These disparate findings within a single model permit us to interpret existing literature on credit markets in a unified way.

 

Inequality, Lobbying, and Resource Allocation

(with J. Esteban), American Economic Review 96, 257–279 (2006). Supplementary Notes.

Summary. This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They lobby the government for preferential treatment. The government—even if it honestly seeks to maximize economic efficiency—may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies. Broadly speaking, both poorer economies and unequal economies display greater public misallocation. The paper warns against the conventional wisdom that this is so because such governments are more “corrupt.”

On the Dynamics of Inequality

Economic Theory 29, 291–306, 2006.

Summary. The dynamics of inequality are studied in a model of human capital accumulation with credit constraints. This model admits a multiplicity of steady state skill ratios that exhibit varying degrees of inequality across households. The main result studies nonstationary equilibrium paths, and shows that an equilibrium sequence of skill ratios must converge monotonically to the smallest steady state that exceeds the initial ratio for that sequence. This paper, in honor of Mukul Majumdar, publishes notes from 1990, which contain a different proof of the main result.

Aspirations, Poverty and Economic Change

in Abhijit Banerjee, Roland Benabou and Dilip Mookherjee, What Have We Learned About Poverty?, Oxford University Press, 2006.

Summary. Introduces the idea of aspirations as a socially determined reference point. The paper argues that reachable aspirations serve to inspire, while still higher aspirations could lead to frustration.

Informal Insurance, Enforcement Constraints, and Group Formation

(with Garance Genicot), in G. Demange and M. Wooders (eds), Network and Group Formation, Cambridge: Cambridge University Press, 2005.

Summary. This paper, largely based on Genicot and Ray (2003), discusses group formation in the context of informal insurance arrangements with enforcement constraints.

Persistent Inequality

(with Dilip Mookherjee), Review of Economic Studies 70, 369-393, 2003.

Summary. When human capital accumulation generates pecuniary externalities across professions, and capital markets are imperfect, persistent inequality in utility and consumption is inevitable in any steady state. 

Group Formation in Risk-Sharing Arrangements

 (with Garance Genicot), Review of Economic Studies 70, 87-113, 2003.

Summary. We study informal insurance within communities, explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group. We therefore consider self-enforcing risk-sharing agreements that are robust not only to single-person deviations but also to potential deviations by subgroups. Variant on an Example in the paper. A conjecture related to the paper.

Contractual Structure and Wealth Accumulation

(with Dilip Mookherjee), American Economic Review 92, 818–849, 2002. Online Appendix.

Summary. Can historical wealth distributions affect long-run output and inequality despite “rational” saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and “history” does not matter eventually.

Strategy for Economic Reform in West Bengal

(with Abhijit Banerjee, Pranab Bardhan, Kaushik Basu, Mrinal Datta Chaudhuri, Maitreesh Ghatak, Ashok Sanjay Guha, Mukul Majumdar and Dilip Mookherjee), Economic and Political Weekly Special Article, October 12, 2002

Summary. During the last two decades West Bengal has led the rest of the country with regard to agricultural performance and implementation of panchayat institutions. But these developments have begun to level out. This paper reviews performance of these different sectors, discusses possible explanatory factors, and makes a number of suggestions for policy reforms.

Is Equality Stable?

(with Dilip Mookherjee), American Economic Review (Papers and Proceedings) 92, 253–259, 2002.

Summary. We explore the view, further developed in our other work, that inequality is an inevitable consequence of the market mechanism.

Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra

(with Abhijit Banerjee, Dilip Mookherjee and Kaivan Munshi), Journal of Political Economy 109, 138-190, 2001.

Summary. This paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members. . Predictions concerning the effect of the distribution of local landownership on sugarcane price, capacity levels, and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the Indian state of Maharashtra over the period 1971–93.

Credit Rationing in Developing Countries: An Overview of the Theory

(with Parikshit Ghosh and Debraj Ray), Chapter 11 in Readings in the Theory of Economic Development, edited by Dilip Mookherjee and Debraj Ray, London: Blackwell, 383–301l, 2000.

Summary. This paper surveys the theoretical development literature on credit markets.

What’s New in Development Economics?

The American Economist 44, 3-16, 2000.

Summary. This essay is meant to describe the current frontiers of development economics, as I see them. I might as well throw my hands up at the beginning and say there are too many frontiers. In recent years, the subject has made excellent use of economic theory, econometric methods, sociology, anthropology, political science and demography and has burgeoned into one of the liveliest areas of research in all the social sciences.

History and Coordination Failure

(with Alicia Adserà), Journal of Economic Growth 3, 267–276, 1998.

Summary. An extensive literature discusses the existence of a virtuous circle of expectations that might lead communities to Pareto-superior states among multiple potential equilibria. It is generally accepted that such multiplicity stems fundamentally from the presence of positive agglomeration externalities. We examine a two-sector model in this class, and look for intertemporal perfect foresight equilibria. It turns out that under some plausible conditions, positive externalities must coexist with external diseconomies elsewhere in the model, for there to exist equilibria that break free of historical initial conditions. Our main distinguishing assumption is that the positive agglomeration externalities appear with a time lag(that can be made vanishingly small). Then, in the absence of external diseconomies elsewhere, the long-run behaviour of the economy resembles that predicted by myopic adjustment. This finding is independent of the degree of forward-looking behavior exhibited by the agents.

Vertical Linkages between Formal and Informal Financial Institutions

(with Maria Floro), Review of Development Economics 1, 34-56, 1997.

Summary. The paper investigates vertical linkages between formal and informal financial institutions. Specifically, it studies a policy that expands formal credit to informal lenders, in the hope that this will improve loan terms for borrowers who are shut out of the formal sector. Special attention is paid to the Philippines. It is argued that the effects of stronger vertical links depend on the form of lender competition. In particular, if the relationship between lenders is one of strategic cooperation (sustained by threats of reprisal in a repeated setting), an expansion of formal credit may worsen the terms faced by informal borrowers.

Cooperation in Community Interaction without Information Flows

(with Parikshit Ghosh), Review of Economic Studies 63, 491–519, 1996.

Summary. We study cooperative behavior in communities where the flow of information regarding past conduct is limited or missing. Players are initially randomly matched with no knowledge of each other’s past actions; they endogenously decide whether or not to continue
the repeated relationship. We define social equilibrium in such communities. Such equilibria
are characterized by an initial testing phase, followed by cooperation if the test is successful. It is precisely the presence of myopic types that permit cooperation, by raising barriers to entry into new relationships.

Labor Tying

(with Anindita Mukherjee), Journal of Development Economics 47, 207-239, 1995.

Summary. The co-existence of seasonal fluctuations in income and imperfect credit markets suggests that tied contracts should dominate rural labor markets. However,  empirical observation from India suggests that this is far from being the case, and indeed, that there is a declining trend in  labor tying. In our model,  casual labor markets are always active despite the presence of  seasonality, and a variety of implications are derived that  link economic growth, changing information flows, and the decline of labor tying over time.

Dynamic Equilibria With Unemployment Due to Undernourishment

(with Peter Streufert), Economic Theory 3, 61-85, 1993.

Summary. We describe steady states of a dynamic model with unemployment due to undernourishment. For many aggregate land stocks, there is a continuum of steady states, We suggest that certain land reforms can reduce unemployment.

Quantity Controls

(with Arunava Sen), in B. Dutta (ed), Welfare Economics and India, Oxford University Press, 1993.

Summary. We explore the role and necessity of quantity controls in decentralizing Pareto-optimal allocations in a market setting.

Wages and Involuntary Unemployment in the Slack Season of a Village Economy

(with Anindita Mukherjee), Journal of Development Economics 37, 227-264, 1992.

Summary. We model slack season wages in a village economy, in the presence of involuntary unemployment. Our model draws its inspiration from sociological notions of ‘everyday peasant resistance’.  A continuum of equilibrium wage configurations is obtained. These configurations, barring one, involve wages exceeding reservation wages, despite the presence of involuntary unemployment.

Why Does Asset Inequality Affect Unemployment? A Study of the Demand Composition Problem

(with Jean-Marie Baland), Journal of Development Economics 35, 69-92, 1991.

Summary. This paper is devoted to a general equilibrium analysis of the relationship between the inequality in asset holdings and the aggregate levels of output and employment in a developing economy. Since luxuries and basic goods compete for the use of the same scarce resources, unemployment is conceived as a mechanism whereby the market demand for basic goods can be limited to a sufficiently low level so that the high demand for luxuries can be met. The ambiguous effects of capital accumulation on employment are also examined.

Repeated Principal-Agent Games with Eviction

(with Bhaskar Dutta and Kunal Sengupta), in P. Bardhan (ed.), The Economic Theory of Agrarian Institutions, Clarendon Press, Oxford (1989).

Summary. We study repeated principal-agent problems in which the agent can be evicted and replaced by another identical agent. Thus current output, which is perfectly observed, can be used for incentives as well as efficiency wages. We describe conditions under which eviction threats will be used in equilibrium, in addition to output-based incentives.

Interlinkages and the Pattern of Competition

(with Kunal Sengupta), in P. Bardhan (ed.) The Economic Theory of Agrarian Institutions, Clarendon Press, Oxford, 1989.

Summary. This paper provides a broad set of conditions interlinked contracts will not be observed. These conditions are given to throw better light on the circumstances in which interlinkage will indeed be observed.

Inequality as a Determinant of Malnutrition and Unemployment, II. Policy

(with Partha Dasgupta), Economic Journal 97, 177-188, 1987.

Summary. This is the second part of a two-part article which develops a theory of involuntary unemployment and the incidence of undernourishment, relates these in turn to the production and distribution of income, and ultimately to the distribution of productive assets. In this part, we study policy options such as land reform.

Inequality as a Determinant of Malnutrition and Unemployment, I. Theory

(with Partha Dasgupta), Economic Journal 96, 1011-1034, 1986.

Summary. This is the first part of a two-part article which develops a theory of involuntary unemployment and the incidence of undernourishment, relates these in turn to the production and distribution of income, and ultimately to the distribution of productive assets. In this part, we study the general equilibrium of such a framework and describe its properties.

An Economic Theory of Malnutrition

(with Partha Dasgupta), in I.S. Gulati and M. Shroff (eds.), Economic Theory and Underdevelopment: Essays in Honour of I.G. Patel, 1986.

Summary. An initial, sketchy version of the Dasgupta-Ray papers on involntary unemployment and undernutrition.

Intertemporal Borrowing to Sustain Exogenous Consumption Standards under Uncertainty

Journal of Economic Theory 33, 72-87, 1984.

Summary. Consider an agent who is attempting to maintain a given consumption level over time. in the face of a stochastic technology. He is permitted to borrow and lend at given rates of interest. The main results are: (i) if the borrowing rate of interest exceeds the lending rate. the expected net indebtedness of the agent must grow unboundedly large, unless the consumption target is attainable with at most one loan, and (ii) the probabilities of the two events: becoming increasingly indebted, and accumulating unbounded wealth, sum to unity.

Survival, Growth and Technical Progress in a Small Resource-Importing Economy

International Economic Review 25, 275-295, 1984.

Summary. This paper studies a small open economy with steadily rising prices of an imported resource. Consider any consumption plan, such as one that involves a minimum consumption (“survival”) or growth at some arithmetic or proportional rate. For any such plan, a criterion is provided, involving the plan itself, the resource price path, and the technology, which will permit a “planner” to deduce whether this plan is feasible. Choice among these plans requires, of course, a sharper ethical criterion.