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EOPP: Economic Organisation and Public Policy Programme

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News Archive 2010

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EOPP: Recent Publications
Tim Besley: The Logic of Political Violence


This paper (joint with Torsten Persson) is forthcoming in The Quarterly Journal of Economics

Abstract:

This paper offers a unified approach for studying political violence whether it emerges as repression or civil war. We formulate a model where an incumbent or opposition can use violence to maintain or acquire power to study which political and economic factors drive one-sided or two-sided violence (repression or civil war). The model predicts a hierarchy of violence states from peace via repression to civil war, and suggests a natural empirical approach. Exploiting only within-country variation in the data, we show that violence is associated with shocks that can affect wages and aid. As in the theory, these effects are only present where political institutions are non-cohesive.


Link to article.

News Posted: 27 October 2010      [Back to the Top]

EOPP: Recent Publication
Henrik Kleven: Unwilling or Unable to Cheat? Evidence from a Tax Audit Experiment in Denmark


This paper is forthcoming in Econometrica

Abstract:

This paper analyzes a tax enforcement field experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, threat-of-audit letters were randomly assigned and sent to tax filers in both groups. We present three main empirical findings. First, using baseline audit data, we find that the tax evasion rate is close to zero for income subject to third-party reporting, but substantial for self-reported income. Since most income is subject to third-party reporting, the overall evasion rate is modest. Second, using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.


Link to article.

News Posted: 14 October 2010      [Back to the Top]

EOPP Recent Publications
Henrik Kleven: Transfer Program Complexity and the Take Up of Social Benefits


This paper is forthcoming in the American Economic Journal: Economic Policy

Abstract:

This paper models complexity in social programs as a byproduct of efforts to screen between deserving and undeserving applicants. While a more rigorous screening technology may have desirable effects on targeting efficiency, the associated complexity introduces transaction costs into the application process and may induce incomplete take up. The paper integrates the study of take up with the study of classification errors of type I and type II, and argues that incomplete take up can be seen as a form of type I error. We consider a government interested in ensuring a minimum income level for as many deserving individuals as possible, and characterize optimal programs when policy makers can choose the rigor of screening (and associated complexity) along with a benefit level and an eligibility criterion. It is shown that optimal program parameters reflect a trade-off at the margin between type I errors (including non-takeup) and type II errors. Optimal programs that are not universal always feature a high degree of complexity. Although it is generally possible to eliminate take up by the undeserving (type II errors), policies usually involve eligibility criteria that make them eligible and rely on complexity to restrict their participation. Even though the government is interested only in ensuring a minimum benefit level, the optimal policy may feature benefits that are higher than this target minimum. This is because benefits generically screen better than either eligibility criteria or complexity.


Link to article.

News Posted: 14 October 2010      [Back to the Top]

EOPP: Recent Publications
Maitreesh Ghatak: Thanks for Nothing? Not-for-Profits and Motivated Agents.


This paper (joint with Hannes Mueller) has been published in the Journal of Public Economics.

Abstract:

We re-examine the labor donation theory of not-for-profits and show that these organizations may exist not necessarily because motivated workers prefer to work in them, or that they dominate for-profits in terms of welfare, but because the excess supply of motivated workers makes the non-profit form more attractive to managers. We show that if Firms had to compete for motivated workers then not-for-profit would be competed out by for-profit Firms. Therefore, in the choice between not-for-profit and for-profit provision, other than incentive problems, the distribution of rents between management and workers, and consequently, the relative scarcity of motivated workers may play an important role.


Link to article.

News Posted: 14 October 2010      [Back to the Top]

EOPP Upcoming Special Event
Summer School on Empirical Methods for Economic Development (23-26 June 2010)

Oriana Bandiera is organizing the Second AMID Summer School on Empirical Methods for Economic Development on June 23-26 at the LSE.

The school is intended for PhD students, post-docs and junior faculty members. The aim is to provide young researchers with a detailed overview of the main methods used in empirical development research. Participants will also have the opportunity to discuss their own research projects with leading researchers in a relaxed and open atmosphere.

Lectures will be delivered by Esther Duflo (MIT), Greg Fischer (LSE), Radha Iyengar (LSE), and Eliana La Ferrara (Bocconi) on topics including difference in difference estimators, event studies, instrumental variables, randomised control trials and regression discontinuity approaches. Selected projects by participants will be presented and discussed during the day.

For further details, go to the website http://econ.lse.ac.uk/staff/bandiera/amid_summerschool_programme.htm


News Posted: 14 June 2010      [Back to the Top]

EOPP Upcoming Special Events
CEPR Public Policy Symposium (18-19 June 2010)

Oriana Bandiera and Henrik Kleven, along with Thomas Piketty (Paris School of Economics and CEPR) and Emmanuel Saez (University of California, Berkeley and CEPR) are organizing a symposium on public economics to bring together economists in the field from across Europe and key researchers from outside the region.

The symposium will feature a keynote lecture entitled 'Public Finance and Development' to be given by Professor Timothy Besley.

The conference hopes to provide a unique opportunity for researchers from different universities and countries to discuss their work in a relaxed atmosphere and to develop long-term collaborative relationships. It also aspires to provide young researchers with the opportunity to meet and discuss their work with senior economists.

For further details, go to the website http://www.cepr.org/meets/wkcn/3/3540/


News Posted: 14 June 2010      [Back to the Top]

EOPP Special Event
Conference on The Formation of Family and its Intergenerational Consequences (14-15 June 2010)

The Conference on The Formation of Family and its Intergenerational Consequences was organised by the Departments of Economics and Management and sponsored by STICERD. The key organizers were Leonardo Felli, Ignacio Palacios-Huerta, Maitreesh Ghatak, and Yona Rubinstein. Distinguished speakers included Gary Becker, Pierre-Andre Chiappori, Bernard Salanie, among others.

For further informaiton on the conference programme and to view the papers presented visit the conference page the conference page


News Posted: 13 June 2010      [Back to the Top]

Award to EOPP Associate
Johannes Spinnewijn wins CESifo Affiliate Award

Johannes Spinnewijn has won the Distinguished CESifo Affiliate Award during this year's CESifo Annual Area Conferences. Each year, the award is presented to a young economist for the " scientific originality, policy relevance and quality of exposition of their paper presented at the conference." in his or her specialist research area.

Johannes Spinnewijn's winning paper for the Employment and Social Protection Research Area was entitled Unemployed but Optimistic: Optimal Insurance Design with Biased Beliefs

Further information about the award can be found on the CESifo website.


News Posted: 04 June 2010      [Back to the Top]

EOPP: Recent Publications
Gerard Padro-i-Miquel: Conflict and Deterrence under Strategic Risk

A paper by Gerard Padro-i-Miquel (joint with Sylvain Chassang) entitled 'Conflict and Deterrence under Strategic Risk' will be published in Quarterly Journal of Economics.

The authors examine the determinants of cooperation and the effectiveness of deterrence when fear is a motive for conflict. They contrast results obtained in a complete information setting to those obtained in a setting with strategic risk, where players have different information about their environment. These two strategic settings allow them to identify and distinguish the role of predatory and pre-emptive incentives as determinants of cooperation and conflict. In their model, weapons unambiguously facilitate peace under complete information. In contrast, under strategic risk, the authors show that increases in weapon stocks can have a non-monotonic effect on the sustainability of cooperation. They also show that under strategic risk, asymmetry in military strength can facilitate peace, and that anticipated peace-keeping interventions may improve incentives for peaceful behaviour.


News Posted: 29 March 2010      [Back to the Top]

EOPP: Recent Publications
Robin Burgess: Can Openness Mitigate the Effects of Weather Shocks? Evidence from India's Famine Era

A paper by Robin Burgess (joint with Dave Donaldson (MIT)) entitled 'Can Openness Mitigate the Effects of Weather Shocks? Evidence from India's Famine Era' is forthcoming in the American Economic Review Papers and Proceedings.

Rural citizens of developing countries are often highly exposed to weather shocks that affect the incomes they earn and the food they eat, often resulting in widespread hunger and loss of life. There exists intense debate over what role openness to trade in food might play in mitigating or exacerbating the mortality impact of weather and death. However there exists a fundamental ambiguity in this regard as openness makes nominal incomes more responsive to production shocks (due to both increased specialization and dampened offsetting price movements), but consumer prices less volatile, such that the net effect on real incomes is unclear. This paper employs a colonial era Indian district-level database for the period 1875 to 1919 to provide some preliminary insights into the weather-trade-death relationship. The results suggest that the arrival of railroads in Indian districts dramatically constrained the ability of rainfall shocks to cause famines in colonial India.


News Posted: 16 March 2010      [Back to the Top]

EOPP: Recent Publications
Oriana Bandiera: Heterogeneous Class Size Effects: New Evidence from a Panel of University Students

A paper by Oriana Bandiera (joint with Valentino Larcinese (LSE) and Imran Rasul (UCL) 'Heterogeneous Class Size Effects: New Evidence from a Panel of University Students' is forthcoming in the Economic Journal.

Over the last decade, many countries have experienced dramatic increases in university enrolment, which, when not matched by compensating increases in other inputs, have resulted in larger class sizes. Using administrative records from a leading UK university, this paper presents evidence on the effects of class size on students' test scores. The authors observe the same student and faculty members being exposed to a wide range of class sizes from less than 10 to over 200. They therefore estimate non-linear class size effects controlling for unobserved heterogeneity of both individual students and faculty. The authors find that -(i) at the average class size, the effect size is -.108; (ii) the effect size is however negative and significant only for the smallest and largest ranges of class sizes and zero over a wide range of intermediate class sizes from 33 to 104; (iii) students at the top of the test score distribution are more affected by changes in class size, especially when class sizes are very large. This paper presents evidence to rule out class size effects being due solely to the non-random assignment of faculty to class size, sorting by students onto courses on the basis of class size, omitted inputs, the difficulty of courses, or grading policies. The evidence also shows the class size effects are not mitigated for students with greater knowledge of the UK university system, this university in particular, or with greater family wealth.


News Posted: 16 March 2010      [Back to the Top]

EOPP: Recent Publications
Oriana Bandiera, Robin Burgess, Selim Gulesci and Munshi Sulaiman: Participation in Adolescent Training Programs

A paper by Oriana Bandiera, Robin Burgess, Selim Gulesci and Munshi Sulaiman (joint with Markus Goldstein (World Bank) and Imran Rasul (UCL)) entitled 'Participation in Adolescent Training Programs: New Evidence from Uganda' is forthcoming in the Journal of the European Economic Association, Papers and Proceedings.

Almost one third of the population in less developed countries is under age 15. Hence improving the effectiveness of policy interventions that target adolescents might be especially important. This paper analyzes the intention to participate in training programs of adolescent girls in Uganda, a country with perhaps the most skewed age distribution anywhere in the world. The training program the authors focus on is BRAC's Adolescent Development Program, which emphasizes the provision of life skills training, entrepreneurship training, and microfinance. The paper presents evidence on the individual and household determinants of the intention to participate of adolescent girls into this program. In particular, it is shown how: (i) individual demographics, skills, beliefs, and life satisfaction; and, (ii) household resources and experiences with NGOs in the past, determine the intent to participate. We discuss how these factors vary across and within villages, and whether and how they affect the likelihood to attend per se, and the intended frequency of attendance. The results have implications for the design, management, and evaluation of similar programs throughout East Africa.


News Posted: 16 March 2010      [Back to the Top]

EOPP: Recent Publications
Tim Besley, Daniel Sturm and Torsten Persson: Political Competition, Policy and Growth: Theory and Evidence from the United States

A paper by Tim Besley, Daniel M. Sturm and Torsten Persson (IIES) entitled 'Political Competition, Policy and Growth: Theory and Evidence from the United States' is forthcoming in the Review of Economic Studies.

This paper develops a simple model to analyze how a lack of political competition may lead to policies that hinder economic growth. The authors test the predictions of the model on panel data for the US states. In these data, the authors find robust evidence that lack of political competition in a state is associated with anti-growth policies: higher taxes, lower capital spending and a reduced likelihood of using right-to-work laws. The paper also documents a strong link between low political competition and low income growth.


News Posted: 16 March 2010      [Back to the Top]

Recent Publications
Tim Besley: Estimating the Peace Dividend: The impact of violence on house prices in Northern Ireland


This paper joint with Hannes Mueller is forthcoming in the American Economic Review


News Posted: 10 March 2010      [Back to the Top]

Award to STICERD Director
John von Neumann Award 2010 given to Prof. Tim Besley

The 2010 John von Neumann Award has been given to Prof. Tim Besley for his research on political institutions by the Rajk László College for Advanced Studies at Corvinus University of Budapest. The award was established in 1995 and is presented annually to leading scholars whose influential works have had a substantial impact on the studies and intellectual activity of the students at the College.

Previous award holders include John Harsanyi (UC Berkeley), Hal Varian (University of Michigan), Janos Kornai (Harvard University and Budapest College), Jean Tirole (University of Toulouse), Oliver Williamson (UC Berkeley) Jon Elster (Columbia University), Avinash K. Dixit (Princeton University), Maurice Obstfeld (UC Berkeley), Gary S. Becker (University of Chicago), Glenn C. Loury (Brown University), Matthew Rabin (UC Berkeley), Daron Acemoglu (MIT), Kevin Murphy (University of Chicago) and Philippe Aghion (Harvard University).

Further information on Prof. Besley's research can be found on Tim Besley's website. For more information on the John von Neumann Award see the Rajk László College for Advanced Studies website.


News Posted: 16 February 2010      [Back to the Top]

Recent Publications: The Financial Express
What crisis has taught economics

In his latest article for the Financial Express, Maitreesh Ghatak looks at the legacy of Paul Samuelson, who pioneered the use of formal models in economics.

Read the articles:
What crisis has taught economics, published Jan 09, 2010

News Posted: 09 January 2010      [Back to the Top]