October 10-11, 2014
Seema Jayachandran, Northwestern University, Ben Olken, MIT, and Duncan Thomas, Duke University, Organizers

David Atkin, Yale University and NBER; Benjamin Faber, University of California, Berkeley and NBER; and Marco Gonzalez-Navarro, University of Toronto

Retail Globalization and Household Welfare: Evidence from Mexico

The arrival of global retail chains in developing countries is causing a radical transformation in the way that households source their consumption. Faber, Atkin, and Gonzalez-Navarro draw on a new and unique collection of Mexican microdata to estimate the effect of foreign supermarket entry on household welfare and its underlying channels. The richness of the data allow the authors to estimate a general expression for the welfare gains from retail FDI, and to decompose the total effect into several distinct components. To base their estimates on plausibly exogenous variation in foreign retail entry they propose an event study design that exploits data on the universe of foreign store locations and opening dates in combination with high frequency data on barcode-level store prices, consumption quantities, and household incomes in those same locations over the period 2002-2014. The authors find that foreign retail entry causes large and significant welfare gains for the average household that are mainly driven by a reduction in the cost of living. A substantial share of this price index effect is due to pro-competitive effects on consumer prices charged by domestic stores. They find little evidence of significant changes in average municipality level incomes, wages or employment. The authors do, however, find evidence of adverse effects on the incomes of traditional retail sector workers. Finally, they present evidence that the gains from retail FDI are positive for all income groups but regressive, and quantify the opposing forces that underlie this finding.

Samuel Bazzi, Boston University; Arya Gaduh, University of Arkansas; Alexander Rothenberg, RAND Corporation; and Maisy Wong, University of Pennsylvania

Skill Transferability, Migration, and Development: Evidence from Population Resettlement in Indonesia

Geographic mobility has been a core feature of the development process throughout history. The impact of labor mobility on productivity depends on how transferable skills are. Bazzi, Gaduh, Rothenberg, and Wong use a large rural-to-rural resettlement program in Indonesia as a natural experiment to estimate the elasticity of productivity with respect to skill transferability across locations. Between 1979 and 1988, the Transmigration Program in Indonesia relocated two million voluntary migrants from the Inner Islands of Java and Bali to newly created rural settlements in the Outer Islands. The authors develop a novel proxy for skill transferability that measures how similar agroclimatic endowments are between migrants’ origins and destinations. The exogenous assignment of migrants across settlements with different agroclimatic endowments provides a measurable and exogenous source of comparative advantage to address identification problems in multi-sector Roy models. The authors find that Transmigration villages exhibit significantly higher rice productivity and income growth (as proxied by nighttime light intensity) one to two decades later if they were assigned migrants from regions with more similar agroclimatic endowments. They explore several mechanisms for adapting to dissimilarity and find relatively more support for adaptation via learning and crop adjustments. Their results have important policy implications, suggesting that skill specificity may constrain labor reallocation across regions that differ in potential productivity and hence perceived spatial arbitrage opportunities.

Rebecca Dizon-Ross, MIT

Parents' Perceptions and Children's Education: Experimental Evidence from Malawi

Many models of human capital investment incorporate individual-level characteristics, like ability, that affect the returns to investment. The implication is that efficient investments depend on individual characteristics. However, the literature has paid limited attention to the fact that it is perceived, not true, characteristics that determine investments. Dizon-Ross uses data from a field experiment conducted in Malawi to assess whether parents have inaccurate perceptions about their children's academic abilities, and whether parents' inaccurate perceptions distort their investments in their children's education. The author finds that the divergence between parents' beliefs about their children's achievement and their children's true achievement is large, and that this creates a wedge between parents' desired investments (how they want to invest) and their actual investments (how they invest in reality). Providing parents with information significantly impacts their investments, causing them to become more closely aligned with their children's achievement. Poorer, less-educated parents have less accurate perceptions about their children's academic abilities than richer, more-educated parents, and update their beliefs more in response to improved information. Inaccurate perceptions may thus exacerbate inequalities between richer and poorer families.

Abhijit Banerjee, MIT and NBER; Xin Meng, Australian National University; Tommaso Porzio, Yale University; and Nancy Qian, Yale University and NBER

Aggregate Fertility and Household Savings: A General Equilibrium Analysis Using Micro Data (NBER Working Paper 20050)

Banerjee, Meng, Porzio, and Qian use micro data and an overlapping generations (OLG) model to show that general equilibrium (GE) forces are critical for understanding the relationship between aggregate fertility and household savings. First, the authors document that parents perceive children as an important source of old-age support and that, in partial equilibrium (PE), increased fertility lowers household savings. Then, they construct an OLG model that parametrically matches the PE empirical evidence. Finally, they extend the model to conduct a GE analysis and show that under standard assumptions and with the parameters implied by the data, GE forces can substantially offset the PE effects. Thus, focusing only on the PE can substantially overstate the effect of aggregate fertility on household savings.

Ufuk Akcigit, University of Pennsylvania and NBER; Harun Alp, University of Pennsylvania; and Michael Peters, Yale University

Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries

Firm dynamics in poor countries show striking differences to those of rich countries. While some firms indeed experience growth as they age, many firms are simply stagnant in that they neither exit nor expand. Akcigit, Alp, and Peters interpret this fact as a lack of selection, whereby producers with little growth potential survive because innovating firms do not expand enough to force them out of the market. The authors' theory stresses the role of imperfect delegation and the acquisition of managerial time. If managerial effort provision is non-contractible, entrepreneurs of will benefit little from delegating decision power to outside managers, as they spend most of their time monitoring their managerial personnel. As the return to managerial time is higher in big firms, improvements in the degree of contract enforcement will raise the returns of growing large and increase the degree of creative destruction. To discipline the quantitative importance of this mechanism, the authors incorporate such incomplete managerial contracts into an endogenous growth model and calibrate it to firm level data from India. Improvements in the process of delegation can explain a sizable fraction of the difference between US and Indian lifecycles of plants.

Adnan Khan, London School of Economics; Asim Ijaz Khwaja, Harvard University and NBER; and Ben Olken

Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors

Despite the importance of performance-based payment systems, there is little rigorous evidence on their impact in a civil service. In tax, high-powered incentives for tax collectors could increase revenues, but come at a high political cost if collectors exert excessive pressure on taxpayers. Khan, Khwaja, and Olken report the results of the first large-scale, randomized field experiment designed to investigate these issues. Working with the entire property tax department in Punjab, Pakistan, the authors experimentally allocated collectors in the entire 482 property tax units into one of three performance-pay schemes or a control group. The authors find that incentivized units experience an average of 9 percent higher revenue growth than controls, and the effects persist over the two years of the experiment. Yet these units do not report greater taxpayer discontent. The performance pay scheme that rewarded purely on revenue collection does better, increasing revenue growth by 13 percent, with relatively little penalty for customer satisfaction and assessment accuracy compared to the two other schemes that explicitly rewarded these dimensions. Digging deeper into the findings reveals an interesting heterogeneity: most taxpayers in incentivized areas do not get reassessed or pay higher taxes, but do report higher level of bribes and instances of corruption. In contrast, conditional on their property being reassessed, taxpayers in incentivized areas pay higher tax and report less corruption. These results are consistent with a simple model of collusion between collector and taxpayer, in which taxpayers in incentivized areas either have to pay higher bribes to avoid being reassessed, or pay substantially higher taxes if the bargaining process breaks down. Their results suggest that while incentives for tax collectors can substantially boost revenue collected and lead to little overall discontent, they do empower the tax collector in a manner that can both lead to increased revenue and rents at the expense of the taxpayer.

Sandip Mitra, Indian Statistical Institute; Dilip Mookherjee, Boston University and NBER; Máximo Torero, International Food Policy Research Institute; and Sujata Visaria, Hong Kong University of Science and Technology

Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers

In an experiment where potato farmers in randomly chosen villages in two Indian districts were provided information about prices at which middlemen resold their output, Mitra, Mookherjee, Torero, and Visaria find no significant average treatment effects on traded quantities or revenues, but both became more responsive to market price variations. The results confirm predictions of a model of ex post bargaining and sequential price competition between village middlemen and external middlemen, where farmers lack direct access to wholesale markets. Alternative explanations such as collusion, simultaneous price competition and insurance via relational contracts between middlemen and farmers can be ruled out.

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