Development Economies

September 25-26
Duncan Thomas of Duke University, Abhijit Banerjee of MIT, Eliana La Ferrara, Universita' Bocconi, and Mushfiq Mobarak, Yale University, Organizers

Jing Cai, University of Michigan, and Adam Szeidl, Central European University

Interfirm Relationships and Business Performance

Cai and Szeidl organize regular business meetings for randomly selected managers of young Chinese firms to study the effect of business networks on firm performance. The researchers randomize 2,700 managers into several groups that hold monthly meetings, and a "no-meetings" control group. They survey all firms before and after the one-year intervention. They find that: (1) The meetings increase firm sales by 7.7 percentage points, and also increase profits, employment, and the number of business partners. (2) The meetings help diffuse randomly distributed business-relevant information. (3) Managers create more business partnerships with, and exhibit higher trust towards, those they meet every month than those they meet at one-time cross group meetings. (4) Firms randomized into groups with larger peer firms exhibit higher growth. Experimenter demand effects and other omitted variables are unlikely to explain all the results. The authors discuss policy implications for business associations in developing countries.

Francesco Amodio, McGill University, and Miguel Angel Martinez-Carrasco, Universidad de Piura

Input Allocation, Workforce Management and Productivity Spillovers: Evidence from Personnel Data

This paper shows how input heterogeneity triggers productivity spillovers at the workplace. In an egg production plant in rural Peru, workers produce output combining effort with inputs of heterogeneous quality. Exploiting quasi-random variation in the productivity of inputs assigned to workers, Amodio and Martinez-Carrasco find evidence of a negative causal effect of an increase in coworkers' daily output on own output and its quality. They show both theoretically and empirically that the effect captures free riding among workers, which originates from the way the management informs its decisions on whether and who to dismiss. Evidence also suggests that the provision of monetary and social incentives can offset negative productivity spillovers. The researchers' study and results show that production and human resource management practices interact in the generation of externalities at the workplace. Counterfactual analyses suggest productivity gains from the implementation of alternative input assignment schedules and dismissal policies to be up to 20%.

Koichiro Ito, University of Chicago, and Shuang Zhang, University of Colorado Boulder

Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China

This paper provides among the first revealed preference estimate of willingness to pay (WTP) for clean air in developing countries. Ito and Zhang's first approach exploits panel variation in air pollution in Chinese cities along with product-by-store level transaction data in air purifier markets. They first estimate the nationwide average of marginal willingness-to-pay (MWTP) for removing 1 ug/m3 PM10 for a year, and WTP for removing the average level of PM10 (100 ug/m3 of PM10). The researchers' second approach leverages the Huai River heating policy, which created discontinuous quasi-experimental variation in air pollution between the north and south of the river. Using a spatial regression discontinuity design, the researchers estimate the local average of MWTP for removing 1 ug/m3 PM10 that is generated by the Huai River policy. Combining their estimates on MWTP for clean air with estimates on the pollution-health relationship, the authors find that the lower bound of health valuation in China is substantially higher than previously understood for developing countries. These findings provide important policy implications for optimal environmental regulation.

Emily L. Breza, Columbia University, and Arun G. Chandrasekhar, Stanford University

Social Networks, Reputation and Commitment: Evidence from a Savings Monitor Experiment (NBER Working Paper No. 21169)

Breza and Chandrasekhar study whether individuals save more when information about their savings is shared with another village member (a "monitor"). The researchers focus on whether the monitor's effectiveness depends on her network position. Central monitors may be better able to disseminate information, and more proximate monitors may pass information to individuals who interact with the saver frequently. In 30 villages, the authors randomly assign monitors. Average monitors increase savings by 35%. A one-standard deviation more central monitor increases savings by 14%; increasing proximity from social distance three to two increases savings by 16%. The increased savings persist over a year after the intervention's end, and monitored savers better respond to shocks. In 30 other villages, savers choose their monitors. Proximate and central monitors are chosen. Information flows. 63% of monitors tell others about the saver's progress. 15 months later, others know more about the saver's progress and believe she is responsible if the saver was assigned a more central monitor.

Juan Carlos Suárez Serrato and Xiao Yu Wang, Duke University, and Shuang Zhang, University of Colorado Boulder

The One Child Policy and Promotion of Mayors in China

Suárez Serrato, Wang, and Zhang analyze the promotion of local officials in China based on the incentives to implement the One Child Policy. The researchers develop a tournament model where provincial governors promote city mayors on the basis of a non-contractible, self-reported measure of performance (reported birth rate) that is subject to mayor manipulation. The authors show that if the objective of the central government is partially motivated by screening high ability mayors for higher office, then the performance measure will be predictive of promotion. Moreover, they show that OCP performance will have a smaller effect on promotion in areas which are more competitive, and where performance is more informative of ability. The researchers test these predictions empirically and find that the promotion rule is consistent with a screening motive. Finally, they use a retrospective measure of performance and show that mayors are less likely to misreport their performance in years where population audits take place and that actual performance is less predictive of promotion than reported performance. These results show that, while mayor promotions were consistent with a meritocratic objective, misreporting on performance presented a significant obstacle to the selection of high ability leaders in China, contrary to the the extant belief that China's meritocratic system allowed the country to develop despite a lack of democratic accountability.

Joram Mayshar, Hebrew University; Omer Moav, University of Warwick; Zvika Neeman, Tel Aviv University; and Luigi Pascali, Universitat Pompeu Fabra

Cereals, Appropriability and Hierarchy

Mayshar, Moav, Neeman, and Pascali propose that the development of social hierarchy following the Neolithic Revolution was an outcome of the ability of the emergent elite to appropriate cereal crops from farmers and not a result of land productivity, as argued by conventional theory. The researchers argue that cereals are easier to appropriate than roots and tubers, and that regional differences in the suitability of land for different crops explain therefore differences in the formation of hierarchy and states. A simple model illustrates the authors main theoretical argument. Their empirical investigation shows that land suitability for cereals relative to suitability for tubers explains the formation of hierarchical institutions and states, whereas land productivity does not.

Christian Dippel, University of California, Los Angeles; Daniel Trefler, University of Toronto; and Avner Greif, Stanford University

The Rents from Trade and Coercive Institutions: Removing the Sugar Coating (NBER Working Paper No. 20958)

The 19th century collapse of world sugar prices should have depressed wages in the British West Indies sugar colonies. It did not. Dippel, Greif, and Trefler explain this by showing how lower prices weakened the power of the white planter elite and thus led to an easing of the coercive institutions that depressed wages e.g., institutions that kept land out of the hands of peasants. Using unique data for 14 British West Indies sugar colonies from 1838 to 1913, the researchers examine the impact of the collapse of sugar prices on wages and incarceration rates. They find that in colonies that were poorly suited for sugar cane cultivation (an exogenous colony characteristic), the planter elite declined in power and the institutions they created and supported became less coercive. As a result, wages rose by 20% and incarceration rates per capita were cut in half. In contrast, in colonies that were highly suited for sugar cane there was little change in the power of the planter elite — as a result, institutions did not change, the market-based mechanisms of standard trade theory were salient, and wages fell by 24%. In short, movements in the terms of trade induced changes in coercive institutions, changes that are central for understanding how the terms of trade affects wages.

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