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.
(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.
(with Francisco Espinosa), revised January 2022, forthcoming American Economic Journal: Microeconomics.Supplementary Appendix.
Summary. An agent who privately knows his type (good or bad) seeks to be retained by a principal. A principal seeks to retain good agents. Agents signal their type with some ambient noise, but can alter this noise, perhaps at some cost. Our main finding, that we examine in several extensions, is that in equilibrium,the principal treats extreme signals in either direction with suspicion, and retains the agent if and only if the signal falls in some intermediate bounded set. In short, she follows the maxim: “if it seems too good to be true, it probably is.”
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.
(with Dilip Mookherjee and Silvia Prina), American Economic Journal: Microeconomics4, 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.
(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association8, 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.
(with Rajiv Sethi), Journal of Public Economic Theory 12, 399-406, 2010.
Summary. Elite educational institutions have turned to criteria that meet diversity goals without being formally contingent on applicant identity. Under weak and generic conditions, such color-blind affirmative action policies must be nonmonotone in student test scores.
(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association8, 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.
(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.
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.
(with Dilip Mookherjee), Review of Economic Studies70, 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.
(with Anindita Mukherjee), Journal of Development Economics47, 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.
(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.
(with Anindita Mukherjee), Journal of Development Economics37, 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.
(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.
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.
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.