Political Economy

Displaying 45 Items

Category: Political Economy

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.

Too Good To Be True? Retention Rules for Noisy Agents

(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.”  

Multiple Threats to Peace

October 2010.

Summary. This paper studies costly conflict in a world of complete information, in which society can commit to divisible transfers among all potentially warring groups. The difficulty in preventing conflict arises from the possibility that there may be several conflictual divisions of society, each based on a different marker, such as class, geography, religion, or ethnicity.

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.

 

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.

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. 

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.

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.

Nit-Piketty

CesIfo Economic Studies 2015.

Summary. Yes, capital must displace labor, but not because r > g. This article is based on this blog post, Branko Milanovic objected here; I replied. Piketty replies to some of his critics here.

 

Coalition Formation

(with Rajiv Vohra),  in Handbook of Game Theory Vol 4 (H.P. Young and S. Zamir, eds), Elsevier North Holland, 2014.

Summary. This chapter surveys a sizable and growing literature on coalition formation. We refer to theories in which one or more groups of agents (“coalitions”) deliberately get together to jointly determine within-group actions, while interacting noncooperatively across groups. The chapter describes a variety of solution concepts, using an umbrella model that adopts an explicit real-time approach. Players band together, perhaps disband later and re-form in shifting alliances, all the while receiving payoffs at each date according to the coalition structure prevailing at the time. We use this model to nest two broad approaches to coalition formation, one based on cooperative game theory, the other based on noncooperative bargaining. Three themes that receive explicit emphasis are agent farsightedness, the description of equilibrium coalition structures, and the efficiency implications of the various theories.

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.

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.

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).

Linking Conflict to Inequality and Polarization

(with Joan Esteban), American Economic Review 101, 1345–1374, 2011.

Summary. In this paper we study a behavioral model of conflict that provides a basis for choosing certain indices of dispersion as indicators for conflict. We show that a suitable monotone transform of the equilibrium level of conflict can be proxied by a linear function of the Gini coefficient, the Herfindahl-Hirschman fractionalization index, and a specific measure of polarization due to Esteban and Ray.

Comparing Polarization Measures

(with J. Esteban), M. Garfinkel and S. Skaperdas (eds), Oxford Handbook of the Economics of Peace and Conflict, Oxford University Press, 2011.

Summary. We review some alternative measures of unidimensional polarization, grouped into two families: polarization and bi-polarization measures. We take as a base for our analysis the set of axioms that characterize the measure of polarization developed in Esteban and Ray (Econometrica 1994) and Duclos, Esteban and Ray (Econometrica 2013),

A Model of Ethnic Conflict

(with Joan Esteban),  Journal of the European Economic Association 9, 496–521, 2011.

Summar. We present a model of conflict in which discriminatory government policy or social intolerance is responsive to various forms of ethnic activism, including violence. The model allows for both financial and human contributions to conflict and allows for a variety of individual attitudes (“radicalism”) towards the cause. The main results concern the effects of within-group heterogeneity in radicalism and income, as well as the correlation between radicalism and income, in precipitating conflict.

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.

A Remark on Color-Blind Affirmative Action

(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.

Costly Conflict Under Complete Information

unpublished manuscript, June 2009.

Summary. This paper studies costly conflict in a world of complete information, in which society can commit to divisible transfers among all potentially warring groups. The difficulty in preventing conflict arises from the possibility that there may be several conflictual divisions of society, each based on a different marker, such as class, geography, religion, or ethnicity. It is shown that this diversity of societal markers is particularly conducive to social instability when potential conflict is over private, divisible resources. In contrast, when conflict is over public goods, such diversity promotes social stability.

On the Salience of Ethnic Conflict

(with Joan Esteban), American Economic Review 98:5, 2185–2202, 2008. Online Appendix.

Summary. “In much of Asia and Africa, it is only modest hyperbole to assert that the Marxian prophecy has had an ethnic fulfillment.” — Donald Horowitz (1985).

Polarization, Fractionalization and Conflict

(with Joan Esteban), Journal of Peace Research 45, 163-182, 2008.

Summary. We provide a theoretical framework that distinguishes between the occurrence of conflict and its severity, and clarifies the role of polarization and fractionalization in each of these cases.

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.

Group Decision-Making in the Shadow of Disagreement

(with Kfir Eliaz and Ronny Razin), Journal of Economic Theory 132, 236–273, 2007.

Summary.  A model of group decision-making is studied, in which one of two alternatives must be chosen. Our model is distinguished by three features: private information regarding valuations, differing intensities in preferences, and the option to declare neutrality to avoid disagreement. There is always an equilibrium in which the majority is more aggressive in pushing its alternative, thus enforcing their will via both numbers and voice. However, under general conditions an aggressive minority equilibrium inevitably makes an appearance, provided that the group is large enough. Such equilibria invariably display a “tyranny of the minority”: the increased aggression of the minority always outweighs their smaller number, leading to the minority outcome being implemented with larger probability than the majority alternative.

 

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.

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.

An Extension of a Measure of Polarization, With an Application to the Income Distribution of Five OECD Countries

(with Joan Esteban and Carlos Gradín), Journal of Economic Inequality 5, 1–19, 2007.

Summary. We introduce an extension of the Esteban and Ray [Econometrica, 62:819–851 1994] measure of polarization that can be applied to density functions. As a by-product we also derive the Wolfson [Am. Econ. Rev., 84:353–358 1994] measure as a special case. This derivation has the virtue of casting both measures in the context of a (statistically) unified framework. We study the polarization of the distribution of household income for five OECD countries (LIS database): US, UK, Canada, Germany and Sweden.

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.

Polarization: Concepts, Measurement, Estimation

(with Jean-Yves Duclos and Joan Esteban), Econometrica 72, 1737–1772, 2004.

Summary. We develop the measurement theory of polarization for the case in which income distributions can be described using density functions. The main theorem uniquely characterizes a class of polarization measures that fits into what we call the “identity-alienation” framework, and simultaneously satisfies a set of axioms. Here is a link to a somewhat expanded version, which was published in C. Barrett (ed), The Social Economics of Poverty: Identities, Groups, Communities and Networks, London: Routledge (2005).

Coalition Formation as a Dynamic Process

(with Hideo Konishi), Journal of Economic Theory 110, 1–41, 2003.

Summary. We study coalition formation as an ongoing, dynamic process, with payoffs generated as coalitions form, disintegrate, or regroup.

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.

Collective Action and the Group Size Paradox

(with Joan Esteban), American Political Science Review  95, 663–672, 2001.

Summary. According to the Olson paradox, larger groups may be less successful than smaller groups in furthering their interests. We address the issue in a model with three distinctive features: explicit intergroup interaction, collective prizes with a varying mix of public and private characteristics, and nonlinear lobbying costs. The interplay of these features leads to new results. When the cost of lobbying has the elasticity of a quadratic function, or higher, larger groups are more effective no matter how private the prize. With smaller elasticities, a threshold degree of publicness is enough to overturn the Olson argument, and this threshold tends to zero as the elasticity approaches the value for a quadratic function. 

Coalitional Power and Public Goods

(with Rajiv Vohra), Journal of Political Economy 109, 1355-1384, 2001.

Summary. We study the provision of public goods when all agents have complete information and can write binding agreements. The focus is on coalition formation as a potential source of inefficiency.

Social Decision Rules are Not Immune to Conflict

(with Joan Esteban), Economics of Governance 2, 59–67, 2001.

Summary. Why is rent-seeking so endemic in societies? Might it not be possible to design a Pareto-improving social decision rule that sidesteps the inefficient waste of resources resulting from conflict? We assume that a benevolent planner knows the effectiveness of each rent-seeker, that the cost of expending resources is isoelastic, and that it is the same across all players. But she does not know the precise value of this elasticity. We show that this minimal lack of information leads to the impossibility of a Pareto-improving social decision rule, as long as there are at least four agents.

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.

Wealth Constraints, Lobbying and the Efficiency of Public Allocation

(with Joan Esteban), European Economic Review 44, 694-705, 2000.

Summary. We formalize a model in which individuals lobby before the government in order to bene”t from some productivity-enhancing government action (infrastructures, direct subsidies, permissions, in short). The government honestly tries to allocate these permissions to the agents that will make the best use of them, as revealed by the intensity of their lobbying. If the marginal cost of resources varies with wealth, the amount of information transmitted through lobbying will depend on the degree of inequality. In this paper, we summarize the main approach and examine the special case of equal wealth. We show that the nature of signaling equilibria is critically a!ected by per-capita wealth.

Conflict and Distribution

(with Joan Esteban), Journal of Economic Theory 87, 379-415, 1999.

Summary. We develop a behavioral model that links the level and pattern of social conflict to the society-wide distribution of individual characteristics. The model can be applied to groups that differ in characteristics such as wealth, ethnicity, religion, and political ideology. We settle questions of existence and uniqueness of conflict equilibrium. Conflict is seen to be closely connected with the bimodality of the underlying distribution of characteristics. However, in general, the conflictdistribution relationship is nonlinear and surprisingly complex. Our results on conflict patterns also throw light on the phenomena of extremism and moderation.

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.

Egalitarianism and Incentives

(with Kaoru Ueda), Journal of Economic Theory 71, 324-348, 1996.

Summary. A group of agents is collectively engaged in a joint productive activity. Each agent supplies an observable input, and output is then collectively shared among the members according a social welfare function. However, individual actions are taken on a selfish basis, and the collective decision is only made after inputs are chosen. This leads to inefficiency. The aim of this paper is to show formally that, contrary to popular belief, the degree of inefficiency decreases in the extent of egalitarianism embodied in the social welfare function.

On the Measurement of Polarization

(with Joan Esteban), Econometrica  62, 819–851, 1994.

Summary. This paper is concerned with the conceptualization and measurement of polarization. Suppose that a population is grouped into significantly-sized “clusters’,” such that each cluster is “similar” in terms of the attributes of its members, but different clusters have “dissimilar” attributes. In that case we would say that the society is “polarized.” We study these intuitive criteria carefully, and provide a theory of measurement.

A Non-Cooperative Theory of Coalitional Bargaining

(with Kalyan Chatterjee, Bhaskar Dutta and Kunal Sengupta),  Review of Economic Studies 60, 463-477, 1993.

Summary. We explore a sequential-offers model of n-person coalitional bargaining with transferable utility and with time discounting. Our focus is on stationary equilibria of the resulting non-cooperative game. Efficient stationary equilibria converge to a point in the core as the discount factor approaches 1. For strictly convex games, this is the egalitarian solution of Dutta and Ray (Econometrica 1989).

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.

A Concept of Egalitarianism Under Participation Constraints

(with Bhaskar Dutta), Econometrica 57, 615-635, 1989.

Summary. We introduce a new solution concept for transferable-utility games in characteristic function form, when individuals collectively believe in equality as a desirable social goal, although in their private actions they behave selfishly. This latter consideration implies that an “egalitarian solution” must satisfy core-like participation constraints, while the former implies that such a solution is also a Lorenz-maximal element of the constrained set. Despite the well-known fact that the Lorenz ordering is incomplete, we show that the egalitarian solution is unique whenever it exists.

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.