(with S. Subramanian), May 2020.
Summary. This is an interim report on the Covid-19 crisis in India and policy responses to it.
Displaying 27 Items
(with S. Subramanian), May 2020.
Summary. This is an interim report on the Covid-19 crisis in India and policy responses to it.
Summary. We present a theory of long run inequality and automation driven by capital accumulation rather than technical progress. At the heart of the theory is a singularity condition that guarantees automation in the production of automated technologies. If that condition is satisfied, the functional share of capital approaches 100% in the long run.
(with Francisco Espinosa), November 2019. 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 Paula Onuchic), October 2019.
A sender is about to come into possession of an object of heterogeneous quality. Prior to knowing that quality, she commits to a categorization. That is, she partitions the set of qualities into subsets — some possibly singletons — and verifiably commits to reveal the element in which the quality belongs. The categories must be monotone. Our main results fully describe the profit-maximizing categorization for any pair of priors over object quality held by sender and receiver. We apply these results to the design of educational grades.
(with Parikshit Ghosh), October 2019.
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.
(with Garance Genicot), December 2019. Forthcoming, Annual Review of Economics.
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.
(with Youcheng Lou, Sahar Parsa, Duan Li and Shouyang Wang), May 2019, forthcoming, Journal of Economic Theory.
Summary. We study a financial market with asymmetric, multidimensional trader signals that have general correlation structure. Each of a continuum of traders belongs to one of finitely many “information groups.” There is a multidimensional aggregate signal for each group. Each trader observes an idiosyncratic signal about the fundamental, built from this group signal. Correlations across group signals are arbitrary. Several existing models serve as special cases, and new applications become possible. We establish existence and regularity of linear equilibrium, and demonstrate that the equilibrium price aggregates information perfectly as noise trade vanishes. Combines and extends results in Parsa and Ray (2017) and Lou, Li and Wang (2017), both mimeo. Online Appendix.
(with Rajiv Vohra), Journal of Political Economy 128, 1789-1825 (2020).
Dedicated to Tapan Mitra — advisor, colleague and dear friend, whose sense of aesthetics, minimalism and rigor has been an inspiration to us. Tapan Mitra died on February 3, 2019.
Summary. A strategic situation with payoff-based externalities is one in which a player’s payoff is a function of her own action and the payoffs of other players. Every action profile therefore induces an interdependent utility system. A strategic situation is continuous if each such utility system is continuous. If each utility system is bounded, with a unique payoff solution for every action profile, we call the strategic situation coherent, and if the same condition also applies to every subset of players, we call the situation sub-coherent. A coherent, sub-coherent and continuous situation generates a standard normal form, referred to as a game of love and hate. Our central theorem states that every equilibrium of a game of love and hate is Pareto optimal, in sharp contrast to the general prevalence of inefficient equilibria in the presence of externalities. While externalities are restricted to flow only through payoffs there are no other constraints: they could be positive or negative, or of varying sign. We further show that our coherence, sub-coherence and continuity requirements are tight.
(with Rajiv Vohra) Econometrica 87(5), 1763–1779 Online Appendix.
Summary. The stable set of von Neumann and Morgenstern can be extended to cover farsighted coalitional deviations, as proposed by Harsanyi (1974), and more recently reformulated by Ray and Vohra (2015). However, while coalitional deviations improve on existing outcomes, coalitions might do even better by moving elsewhere. Or other coalitions might intervene to impose their favored moves. We show that every farsighted stable set satisfying some reasonable, and easily verifiable, properties is unaffected by the imposition of this stringent maximality requirement.
(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.
(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.
August 2013, revised February 2018.
Summary. When future generations enter hedonistically into current welfare, a social planner should overweight the future relative to the individual, even if every individual has the same discount factor.
(with Laura Mayoral), revised July 2019.
Summary. This paper studies costly conflict over private and public goods. Oil is an example of the former, political power an example of the latter. Groups involved 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 an empirical setting
(with Arthur Robson), American Economic Review 108, 489–520 (2018).
Summary. Certified random order (a) distributes the gain from first authorship evenly over the alphabet, (b) allows either author to signal when contributions are extremely unequal, (c) will invade an environment where alphabetical order is dominant, (d) is robust to deviations, (e) may be ex-ante more efficient than alphabetical order, and (f) is no more complex than the existing alphabetical system modified by occasional reversal of name order.
(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.
(with Nikhil Vellodi and Ruqu Wang), March 2018. Online Appendix.
Summary. We study a model of time preferences in which agents discount both past and future payoffs to obtain their lifetime felicity. Agents derive utility from their current lifetime felicity, as well the anticipated felicity of a distinguished future self. These postulates permit an agent to anticipate future regret in current decisions, and generate a set of novel testable implications in line with empirical evidence.
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.
El Trimestre Económico 84. 761-769, 2017.
Summary. A translation into Spanish of my post on the event of Kenneth Arrow’s death. The original post is available here.
(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.)
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.
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.
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.
(with Rajiv Vohra), Econometrica 83, 977–1011, 2015. Online Appendix.
Summary. We propose a definition of farsighted stability in coalitional games, in the spirit of von Neumann-Morgenstern stability and its modification by Harsanyi. We provide a necessary and sufficient condition for the existence of a farsighted stable set containing just a single-payoff allocation. We then conduct a comprehensive analysis of the existence and structure of farsighted stable sets in simple games.
(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.
(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.
(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.