behavioral contract theory abstract this review provides a critical survey of psychology and economics behavioral economics research in contract theory first i introduce the theories of individual decision making most

multi tasking and inequity aversion in the linear exponential normal moral hazard model this paper analyzes the impact of wage comparisons among inequity averse agents on optimal incentive intensities in a linear exponential normal moral hazard model with multi tasking we consider individual and team production tasks that differ in that only individual production causes wage inequality if the tasks are substitutes in the agents effort cost functions the principal might want to balance incentives and reduce the agents overall inequality exposure we show that team production incentives can then be muted below the level that results from noisy measurement and risk aversion alone even though team production does not cause wage inequality

testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

education social mobility and religious movements the islamic revival in egypt muslim societies have been reshaped in recent decades by an islamic revival we document a contemporaneous decline in social mobility among educated youth in egypt the epicentre of the movement in the arab world we then develop a model to show how an unexpected decline in social mobility combined with inequality can produce a religious revival led by the educated middle class the principal idea is that religion helps individuals to cope with unfulfilled aspirations by adjusting their expectations based reference point by raising aspirations economic development may make societies more prone to religious revivals this article is protected by copyright all rights reserved

witchcraft weather and economic growth in renaissance europe between the thirteenth and nineteenth centuries as many as one million individuals in europe were executed for the crime of witchcraft the majority of the trials and executions took place during the sixteenth and seventeenth centuries during this period the speed and volume of executions were astonishing in one german town as many as 400 people were killed in a single day midelfort 1972 the trials were ubiquitous conducted by both ecclesiastical and secular courts by both catholics and protestants the victims were primarily women primarily poor and disproportionately widows the persecutions took place throughout europe starting and ending earlier in southwest europe than in the northern and eastern areas and spread even across the atlantic ocean to salem massachusetts although witchcraft trials in europe and america largely ended by the late eighteenth century witchcraft accusations and killings still take place in many countries today particularly in the developing world for example witchcraft is often blamed for aids deaths in sub saharan africa ashforth 2001 and miguel 2003 shows that negative economic shocks are associated with increases in witch killing in modern tanzania belief in the witch and fear of her is enduring while much work has been done on the motivations behind the european trials the large scale causes remain unknown the existing work has primarily been concerned with the factors that played into trials on a small scale why a certain individual was targeted or why a certain type of individual was targeted in a given area this work has indicated that there was a diverse set of issues that played into trials on an individual level more broadly however there are few causal explanations for why witchcraft trials happened at all and on such a large scale in so many

understanding cultural persistence and change when does culture persist and when does it change we examine a determinant that has been put forth in the anthropology literature the variability of the environment from one generation to the next a prediction which emerges from a class of existing models from evolutionary anthropology is that following the customs of the previous generation is relatively more beneficial in stable environments where the culture that has evolved up to the previous generation is more likely to be relevant for the subsequent generation we test this hypothesis by measuring the variability of average temperature across 20 year generations from 500 1900 looking across countries ethnic groups and the descendants of immigrants we find that populations with ancestors who lived in environments with more stability from one generation to the next place a greater importance in maintaining tradition today these populations also exhibit more persistence in their traditions over time

social preferences under risk equality of opportunity versus equality of outcome this paper axiomatizes a utility function for social preferences under risk in the model a single parameter captures a preference for equality of opportunity i e equality of exante expected payoffs relative to equality of outcome i e equality of ex post payoffs in a deterministic environment the model reduces to the model of fehr and schmidt 1999 the model is consistent with recent experiments on probabilistic dictator games

norms and contracting we argue that contracts establish the norms of a relationship and that individuals incur disutility when deviating from these norms in a laboratory experiment we allow agents to make simple contracts before they play one of four games and the most effective contract always includes an unenforceable handshake agreement to take the first best action in three games a contract with only this handshake agreement is at least weakly optimal the handshake is particularly effective in games with strategic complements our results highlight an explanation for contractual incompleteness establishing a norm can effectively substitute for weak enforceable restrictions this paper was accepted by brad barber teck ho and terrance odean special issue editors

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

rain and the democratic window of opportunity according to the economic approach to political transitions negative transitory economic shocks can give rise to a window of opportunity for democratic change we examine this hypothesis using yearly rainfall variation over the 1980 2004 period in 41 sub saharan african countries we find that a 25 drop in rainfall increases the probability of a transition to democracy during the following two years by around 3 percentage points a 5 fall in income due to low rainfall raises the probability of democratization by around 7 percentage points we also find that rainfall does not affect transitions from democracy to autocracy

the empirics of microfinance what do we know microfinance has received a lot of attention recently both from policy makers as well as in academic circles two of the main topics that have been hotly debated are explaining joint liability group lending and its implications for reducing information asymmetries and the trade off between the financial sustainability and outreach of microfinance programmes this feature contains three novel empirical contributions providing new insights with respect to why and how joint liability group lending works it also contains the first large scale systematic analysis of the trade off between financial performance and outreach of microfinance institutions

optimal incentive contracts under inequity aversion we analyze the classic moral hazard problem with the additional assumption that agents are inequity averse the presence of inequity aversion alters the structure of optimal contracts when the concern for equity becomes more important there is convergence towards linear sharing rules the sufficient statistics result is violated depending on the environment contracts may be either overdetermined i e include non informative performance measures or incomplete i e neglect informative performance measures finally our model delivers a simple rationale for team based incentives implying wage compression 2010 elsevier inc

historical frontiers and the rise of inequality the case of the frontier of granada the authors acknowledge financial support from the spanish ministry of science and technology grant eco2009 13357 the spanish ministry of economics and competitiveness grant eco2012 35430 and the andalusian council of innovation and science excellence project sej 4546

a theory of political transitions we develop a theory of political transitions inspired by the experiences of western europe and latin america nondemocratic societies are controlled by a rich elite the initially disenfranchised poor can contest power by threatening revolution especially when the opportunity cost is low for example during recessions the threat of revolution may force the elite to democratize democracy may not consolidate because it is redistributive and so gives the elite an incentive to mount a coup highly unequal societies are less likely to consolidate democracy and may end up oscillating between regimes and suffer substantial fiscal volatility

can group incentives alleviate moral hazard the role of pro social preferences abstract incentivizing unobservable effort in risky environments such as in insurance credit and labor markets is vital as moral hazard may otherwise cause significant welfare losses including the outright failure of markets ensuring incentive compatibility through state contingent contracts between principal and agent however is undesirable for risk averse agents we provide a theoretical intuition on how pro social preferences between agents in a joint liability group contract can ensure incentive compatibility two independent large scale behavioral experiments framed in an insurance context support the hypotheses derived from our theory in particular effort decreases when making agents payoff less state dependent but this effect is mitigated with joint liability in a group scheme where agents are additionally motivated by pro social concerns activating strategic motives slightly increases effort further particularly in non anonymous groups with high network strength the results support existing evidence on joint liability groups and further suggest that even if peer pressure to ensure effort provision is absent such group policies can improve efficiency when agents are pro social

the economics of career concerns part i comparing information structures many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns this paper models career concerns through agents trying to manipulate the market assessment of their future productivity the information flow from current actions to market assessment is therefore crucial in determining the nature of these incentives improved information may either increase or reduce incentives the impact of information provides a major distinction between the explicit and implicit incentives model the paper derives general results on comparisons of information structures which serve as counterparts to the standard results on information structures in the principal agent model sufficient statistic impact of a blackwell garbling comparison of inclusive information structures 1999 the review of economic studies limited

do political protests matter evidence from the tea party movement can protests cause political change or are they merely symptoms of underlying shifts in policy preferences this paper studies the effect of the tea party movement in the united states which rose to prominence through a series of rallies across the country on april 15 tax day 2009 to identify the causal effect of protests we use an instrumental variables approach that exploits variation in rainfall on the day of the coordinated rallies weather on tax day robustly predicts rally attendance and the subsequent local strength of the movement as measured by donations media coverage social networking activity and later events we show that larger rallies cause an increase in turnout in favor of the republicans in the 2010 congressional elections and increase the likelihood that incumbent democratic representatives retire incumbent policymaking is affected as well representatives respond to large protests in their district by voting more conservatively in congress finally the estimates imply significant multiplier effects for every protester republican votes increase by seven to fourteen votes together our results show that protests can build political movements that ultimately affect policy and they suggest that it is unlikely that these effects arise solely through the standard channel of private information revelation

printing and protestants an empirical test of the role of printing in the reformation the causes of the protestant reformation have long been debated this paper seeks to revive and econometrically test the theory that the spread of the reformation is linked to the spread of the printing press i test this theory by analyzing data on the spread of the press and the reformation at the city level an econometric analysis that instruments for omitted variable bias with a city s distance from mainz the birthplace of printing suggests that cities with at least one printing press by 1500 were at minimum 29 percentage points more likely to be protestant by 1600

adopting a new religion the case of protestantism in 16th century germany using a dataset of territories and cities of the holy roman empire in the sixteenth century this article investigates the determinants of adoption and diffusion of protestantism as a state religion a territory s distance to wittenberg the city where martin luther taught is a major determinant of adoption this finding is consistent with a theory of strategic neighbourhood interactions introducing the reformation was a risky enterprise for territorial lords and had higher prospects of success if powerful neighbouring states committed to the new faith the actual spatial and temporal patterns of expansion of protestantism are analysed in a panel dataset

inherited trust and growth this paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation we show that inherited trust of descendants of us immigrants is sig nificantly influenced by the country of origin and the timing of arrival of their forebears we thus use the inherited trust of descendants of us immigrants as a time varying measure of inherited trust in their country of origin this strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects jel n11 n12 n31 n32 o47 z13

workers of the world unite franchise extensions and the threat of revolution in europe 1820 1938 abstract we test the hypothesis that the extension of the voting franchise in europe was related to the threat of revolution we contend that international diffusion of regime contention and information about revolutionary events happening in neighboring countries generate the necessary variation in the perceived threat of revolution using two samples of european countries covering the period from 1820 to 1938 we find robust evidence which is consistent with the threat of revolution hypothesis we also find some evidence that war triggered suffrage reform

an economic analysis of the protestant reformation this paper seeks to explain the initial successes and failures of protestantism on economic grounds it argues that the medieval roman catholic church through doctrinal manipulation the exclusion of rivals and various forms of price discrimination ultimately placed members seeking the z good spiritual services on the margin of defection these monopolistic practices encouraged entry by rival firms some of which were aligned with civil governments the paper hypothesizes that protestant entry was facilitated in emergent entrepreneurial societies characterized by the decline of feudalism and relatively unstable distribution of wealth and repressed in more homogeneous rent seeking societies that were mostly dissipating rather than creating wealth in these societies the roman church was more able to continue the practice of price discrimination informal tests of this proposition are conducted by considering primogeniture and urban growth as proxies for wealth stability

religious competition and reallocation using novel microdata we document an important unintended consequence of the protestant reformation a reallocation of resources from religious to secular purposes to understand this process we propose a conceptual framework in which the introduction of religious competition shifts political markets where religious authorities provide legitimacy to rulers in exchange for control over resources consistent with our framework religious competition changed the balance of power between secular and religious elites secular authorities acquired enormous amounts of wealth from monasteries closed during the reformation particularly in protestant regions this transfer of resources had significant consequences first it shifted the allocation of upper tail human capital graduates of protestant universities increasingly took secular especially administrative occupations protestant university students increasingly studied secular subjects especially degrees that prepared students for public sector jobs rather than church sector specific theology second it affected the sectoral composition of fixed investment particularly in protestant regions new construction shifted from religious toward secular purposes especially the building of palaces and administrative buildings which reflected the increased wealth and power of secular lords reallocation was not driven by preexisting economic or cultural differences our findings indicate that the reformation played an important causal role in the secularization of the west

moral hazard and nonmarket institutions dysfunctional crowding out or peer monitoring the authors examine a situation in which insurance is characterized by moral hazard when market insurance is provided supplementary mutual assistance between family and friends unobservable to market insurers will occur when nonmarket insurers have no better information than market insurers the mutual assistance not only crowds out market insurance but is also harmful and therefore dysfunctional alternatively when nonmarket insurers can observe each other s effort perfectly mutual assistance is beneficial these results point to the potential importance of peer monitoring mechanisms in mitigating moral hazard copyright 1991 by american economic association

the institutional foundations of religious politics evidence from indonesia this paper explores the foundations of religious influence in politics and society we show that an important islamic institution fostered the entrenchment of islamism at a critical juncture in indonesia the world s largest muslim country in the early 1960s rural elites transferred large amounts of land into waqf inalienable charitable trusts in islamic law to avoid expropriation by the state regions facing a greater threat of expropriation exhibit more prevalent waqf land and islamic institutions endowed as such including mosques and religious schools these endowments provided conservative forces with the capital needed to promote islamist ideology and mobilize against the secular state we identify lasting effects of the transfers on the size of the religious sector electoral support for islamist parties and the adoption of local sharia laws these effects are shaped by greater demand for religion in government but not by greater piety among the electorate waqf assets also impose costs on the local economy particularly in agriculture where these endowments are associated with lower productivity overall our findings shed new light on the origins and consequences of islamism

people s opium religion and economic attitudes since max weber there has been an active debate on the impact of religion on people s economic attitudes much of the existing evidence however is based on cross country studies in which this impact is confounded by differences in other institutional factors we use the worldvalues surveys to id entify the relationship between intensity of religious beliefs and economic attitudes controlling for country fixed effects we study several economic attitudes towardcooperation the government working women legal rules thriftiness andthe market economy we also distinguish across religious denominations differentiating on whether a religion is dominant in a country we find that on average religious beliefs are associated with good economic attitudes where good is defined as conducive to higher per capita income andgrowth yet religious people tendto be more racist andless favorable with respect to working women these effects differ across religious denominations overall we find that christian religions are more positively associatedwith attitudes conducive to economic growth r 2003 elsevier science b v all rights reserved jel classification a1 e0 n4 z1

law state power and taxation in islamic history abstract the ruler s power varied greatly in islamic history over time and space we explain these variations through a political economy approach to public finance identifying factors affecting economic power and its constraints an influential interest group capable of affecting the ruler s power was the legal community ulam this community could increase the ruler s ability to extract a surplus from the citizenry by conferring legitimacy thereby lowering the cost of collecting taxes it could also limit power through legal constraints on taxation we show how changes in legitimacy and legal constraints affected the economic power of rulers in representative episodes of islamic history and identify general trends and dynamic processes underlying the relationship between the state and the legal community

separating moral hazard from adverse selection and learning in automobile insurance longitudinal evidence from france the identification of information problems in different markets is a challenging issue in the economic literature this paper performs tests of residual asymmetric information in the french automobile insurance market for the 1995 1997 period this market is characterized by the presence of a regulated experiencerating scheme bonus malus contract choices are strongly associated with the bonus malus of policyholders we have access to longitudinal survey data with dynamic information both on claims and accidents we propose a causality test to distinguish pathways through which a positive correlation arises between contract choice and accidents we find evidence of moral hazard among a sub group of policyholders with significant driving experience 5 15 years we distinguish this moral hazard estimate from adverse selection and learning policyholders with less experience have a combination of learning and moral hazard whereas no residual information problem is found for policyholders with more than 15 years of experience

luther and the girls religious denomination and the female education gap in nineteenth century prussia martin luther urged each town to have a girls school so that girls would learn to read the gospel thereby evoking a surge of building girls schools in protestant areas using county and town level data from the first prussian census of 1816 we show that a larger share of protestants decreased the gender gap in basic education this result holds when using only the exogenous variation in protestantism due to a county s or town s distance to wittenberg the birthplace of the reformation similar results are found for the gender gap in literacy among the adult population in 1871

club goods and group identity evidence from islamic resurgence during the indonesian financial crisis this paper tests a model in which group identity in the form of religious intensity functions as ex post insurance i exploit relative price shocks induced by the indonesian financial crisis to demonstrate a causal relationship between economic distress and religious intensity koran study and islamic school attendance that is weaker for other forms of group identity consistent with ex post insurance credit availability reduces the effect of economic distress on religious intensity religious intensity alleviates credit constraints and religious institutions smooth consumption shocks across households and within households particularly for those who were less religious before the crisis

on reputation a microfoundation of contract enforcement and price rigidity we study the impact of reputational incentives in markets characterised by moral hazard problems social preferences have been shown to enhance contract enforcement in these markets while at the same time generating considerable wage and price rigidity reputation powerfully amplifies the positive effects of social preferences on contract enforcement by increasing contract efficiency substantially this effect is however associated with a considerable bilateralisation of market interactions suggesting that it may aggravate price rigidities surprisingly reputation in fact weakens the wage and price rigidities arising from social preferences thus in markets characterised by moral hazard reputational incentives unambiguously increase mutually beneficial exchanges reduce rents and render markets more responsive to supply and demand shocks

repayment performance in group lending evidence from jordan abstract using data from a survey of 160 urban borrowing groups of the microfund for women in jordan we investigate the effect of screening peer monitoring group pressure and social ties on borrowing groups repayment behavior as an indirect test of different theoretical models the dependent variable used captures the intensity of default measured by the total number of days of late repayment after each due date allowing us to use count data models with cluster standard errors as theory predicts our empirical analysis suggests that peer monitoring group pressure and social ties reduce delinquency the paper uncovers interesting evidence about the role of social ties and religion most notably in an area where religion contributes to attitudes and beliefs of individuals we find that religiosity improves repayment performance

deciding for others reduces loss aversion we study risk taking on behalf of others both when choices involve losses and when they do not a large scale incentivized experiment with subjects randomly drawn from the danish population is conducted we find that deciding for others reduces loss aversion when choosing between risky prospects for which losses are ruled out by design subjects make the same choices for themselves as for others in contrast when losses are possible we find that the two types of choices differ in particular we find that subjects who make choices for themselves take less risk than those who decide for others when losses loom this finding is consistent with an interpretation of loss aversion as a bias in decision making driven by emotions and that these emotions are reduced when making decisions for others

market structure and inefficiency in the foreign exchange market abstract this paper investigates the intradaily operational efficiency of the us foreign exchange market by conducting computer simulation experiments with market structure the numbers of market makers brokers and customers the results indicate significant operational inefficiencies which can be explained by temporary inventory imbalances inherent in a decentralized market the results also suggest that much of this inefficiency could be alleviated through a centralization of price information jel f31 g15

social connections and group banking lending to the poor is expensive due to high screening monitoring and enforcement costs group lending advocates believe lenders overcome this by harnessing social connections using data from finca peru i exploit a quasi random group formation process to find evidence of peers successfully monitoring and enforcing joint liability loans individuals with stronger social connections to their fellow group members i e either living closer or being of a similar culture have higher repayment and higher savings furthermore i observe direct evidence that relationships deteriorate after default and that through successful monitoring individuals know who to punish and who not to punish after default

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

credit reporting relationship banking and loan repayment how does information sharing between lenders affect borrowers repayment behavior we show in a laboratory credit market that information sharing increases repayment rates as borrowers anticipate that a good credit record improves their access to credit this incentive effect of information sharing is substantial when repayment is not third party enforceable and lending is dominated by one shot transactions if however repeat interaction between borrowers and lenders is feasible the incentive effect of credit reporting is negligible as bilateral banking relationships discipline borrowers information sharing nevertheless affects market outcome by weakening lenders ability to extract rents from relationships copyright 2007 the ohio state university

community based risk management arrangements a review summary risk and its consequences pose a formidable threat to poverty reduction efforts this article reviews a plethora of community based risk management arrangements across the developing world these types of arrangements are garnering greater interest in light of the growing recognition of the relative prominence of household or individual specific idiosyncratic risk as well as the increasing shift towards community based development funding the article discusses potential advantages such as targeting cost and informational and disadvantages such as exclusion and inability to manage correlated risk of these arrangements and their implications for the design of community based social protection programs and policies

trust social capital and economic development many argue that elements of a society s norms culture or social capital are central to understanding its development however these notions have been difficult to capture in economic models here we explore ap ossible role for trustworthiness as corresponding to social capital individuals are trustworthy when they perform in accordance with promises even if this does not maximize their payoffs the usual focus on incentive structures in motivating behaviour plays no role here instead we emphasize more deep seated modes of behaviour and consider trustworthy agents being socialized to act as they do to model this socialization we borrow from a process of preference evolution pioneered by bisin and verdier 2001 the model developed endogenously accounts for social capital and explores its role in the process of economic development it captures in a simple formal way the interaction between social capital and the economy s productive processes the results obtained caution against rapid reform and provide an explanation for why late developing countries may not easily be able to transplant the modes of production that have proved useful in the west

on the origins of gender roles women and the plough the study examines the historical origins of existing cross cultural differences in beliefs and values regarding the appropriate role of women in society we test the hypothesis that traditional agricultural practices influenced the historical gender division of labor and the evolution of gender norms we find that consistent with existing hypotheses the descendants of societies that traditionally practiced plough agriculture today have less equal gender norms measured using reported gender role attitudes and female participation in the workplace politics and entrepreneurial activities our results hold looking across countries across districts within countries and across ethnicities within districts to test for the importance of cultural persistence we examine the children of immigrants living in europe and the united states we find that even among these individuals all born and raised in the same country those with a heritage of traditional plough use exhibit less equal beliefs about gender roles today jel codes d03 j16 n30 copyright 2013 oxford university press

the economic effects of the protestant reformation testing the weber hypothesis in the german lands following max weber many theories have hypothesized that protestantism should have favored economic development with its religious heterogeneity the holy roman empire presents an ideal testing ground for this hypothesis using population figures of 272 cities in the years 1300 1900 i find no effects of protestantism on economic growth the finding is precisely estimated robust to the inclusion of various controls and does not depend on data selection or small sample size denominational differences in fertility behavior and literacy are unlikely to be major confounding factors protestantism has no effect when interacted with other likely determinants of economic development instrumental variables estimates considering the potential endogeneity of religious choice are similar to the ols results

backlash the unintended effects of language prohibition in u s schools after world war i do forced assimilation policies always succeed in integrating immigrant groups this article examines how a specific assimilation policy language restrictions in elementary school affects integration and identification with the host country later in life after world war i several u s states barred the german language from their schools affected individuals were less likely to volunteer in world war ii and more likely to marry within their ethnic group and to choose decidedly german names for their offspring rather than facilitating the assimilation of immigrant children the policy instigated a backlash heightening the sense of cultural identity among the minority

risk aversion and the propensities for self insurance and self protection for a risk averse individual the methods for reducing the expected financial impact of a loss include reducing the severity of any loss that occurs self insurance and reducing the probability of the occurrence of a loss self protection the literature on this topic has pointed to several anomalies whereby the use of self protection and self insurance yield quite unsimilar results for example ehrlich and becker 5 show that self insurance is always a substitute for market insurance an insurance company s indemnifying a loss whereas self protection and market insurance might be complements dionne and eeckhoudt 4 show that a more risk averse consumer would always invest more in self insurance activities but not necessarily more in self protection activities they argue 4 42 that this result is counterintuitive and provides an exception to the widely accepted result that increased risk aversion reduces risky activities ehrlich and becker 5 639 argue that the incentive to self protect is not so dependent on attitude towards risk both of the above papers seem to take for granted that self protection activities reduce the riskiness of the final wealth distribution however as we argue below this is not the case if riskiness is defined as in rothschild and stiglitz 14 even if we use the variance as our risk measure we do not always reduce risk via self protection dionne and eeckhoudt suggest that these results might not be robust enough to extend to models that incorporate random initial wealth risk and state dependent preferences we show that the model seems to be very robust we also explain why self protection is not at all an exception to the long standing result of arrow 1 whereby more risk averse individuals undertake a lower

insurance self protection and the economics of terrorism abstract this paper investigates the rationale for public intervention in the terrorism insurance market it argues that government subsidies for terror insurance have the effect of discouraging self protection and limiting the negative externalities associated with self protection cautious self protective behavior by a target can hurt public goods like national prestige if it is seen as giving in to the terrorists and may increase the loss probabilities faced by others by encouraging terrorists to substitute toward more vulnerable targets we argue that these externalities in protection are essential for normative analysis of government intervention in insurance markets and may also explain why availability problems in this market have engendered much stronger government responses than similar problems in other catastrophe insurance markets

behavioral foundations of microcredit experimental and survey evidence from rural india microcredit is an innovative financial tool designed to reduce poverty and fix credit market imperfections we use experimental measures of time discounting and risk aversion for villagers in south india to highlight behavioral features of microcredit conditional on borrowing from any source women with present biased preferences are more likely than others to borrow through microcredit institutions microcredit contracts require loan repayments in regular fixed installments and they harness peer pressure to encourage discipline these innovations mirror mechanisms highlighted in behavioral approaches to saving suggesting that microcredit s popularity stems partly from modes of encouragement and self discipline absent in typical lending mechanisms

piece rate contracts for other regarding workers when workers are paid with piece rates inequality arises naturally we consider workers who care about income comparisons and are either status seeking or inequality averse we identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise and also circumstances under which workers inequality attitudes lead firms to set lower piece rates than they would otherwise the key behavioral assumption for both of these results to hold when workers are identical is behindness aversion the property that changes in inequality matter more to the worker when he is behind than when he is ahead jel d01 j33 m52

risk sharing commitment and information an experimental analysis this paper describes and analyzes the results of a unique field experiment especially designed to test the eects of the level of commitment and information available to individuals when sharing risk we find that limiting exogenously provided commitment is associated with less risk sharing while limiting information on defections can be associated with more risk sharing these results can be understood by distinguishing between intrinsic and extrinsic incentives and by recognizing that social sanctions are costly to inflict or that individuals suer from time inconsistent preferences comparing the groups formed within our experiment with the real life risk sharing networks in a few villages allows us to test the external validity of our experiment and suggests that the results are salient to our understanding of risk sharing arrangements observed in developing countries jel classification numbers c93 d71 d81 o12

luther and suleyman this paper emphasizes that the evolution of religious institutions in europe was influenced by the expansionary threat posed by the ottoman empire between the mid 15th century and the early 17th century various historical accounts have suggested that the ottomans rise helped the protestant reform movement as well as its various offshoots such as zwinglianism anabaptism and calvinism survive their infancy and mature utilizing a comprehensive dataset on violent conflicts for the period between 1451 and 1650 i find strong empirical support for the idea that ottoman military engagements in continental europe lowered the number and extent of violent conflicts among and within the european states ottomans influence in europe extended to the feud between the protestant reformers and the catholic establishment during the time between the birth of lutheranism and the end of the thirty years war the likelihood and timing of military engagements between the protestant reformers and the counter reformation forces depended negatively and statistically significantly on ottomans military activities in europe

incentives predestination and free will i introduction max weber s 1930 the protestant ethic and the spirit of capitalism argues that the protestant reformation set the stage for post medieval economic growth using an occupational study of germans from 1895 weber shows that protestants dominate the mercantile or capitalist occupations in that country at that time period weber also argues that between 1600 and 1900 protestant countries advanced faster than their catholic neighbors and that this was the result of calvin s urging acceptance of material success and the dogma of predestination 1 an ocean of work beginning with rachfahl 1909 and sombart 1913 has since attacked weber s theological generalizations see giddens 1992 for a review tawney 1926 and robertson 1933 argue weber s causal interpretation is wrong and that economic growth laid the framework for protestantism not protestantism for economic growth samuelsson 1961 disputes the very correlation between protestantism and economic success which is the basis of the weberian hypothesis the correlation between protestantism and economic success is certainly weaker than weber suggests even in the german data that weber himself uses furthermore more modem data tends to find only a modest link between protestantism and economic success as in winter 1974 and tomes 1994 2 however for centuries there were gaps in economic success between protestant and catholic nations and new findings on early modem data tend to confirm differences between protestants and catholics at least within the u s as weber s arch critic samuelsson himself writes there is some truth in the contention that the protestant countries and especially those adhering to the reformed church were particularly vigorous economically given that there was some correlation between protestantism and economic success before the mid to late 20th century the question then becomes why this correlation existed some elements of protestant theology clearly encourage capitalism usury doctrines became less rigid under calvinism nelson 1972 avarice was de emphasized as a sin weber claims that luther s concept of a calling includes worldly success and that this is a prominent difference with catholic doctrine although this theological claim has been subject to much debate e g sombart 1915 there still appears to be some basic truth to this point one of the largest theological gaps between the denominations is that calvinism accepts the dogma of predestination while catholicism argues for a dogma of free will 3 for the purposes of this paper we will follow weber and accept broad brush definitions of doctrine rather than getting mired in the more subtle features of the two doctrines under predestination a spiritual elite is preordained before the beginning of time and will receive eternal life 4 under free will it is only through a lifetime of good actions that individuals are accepted into heaven 5 weber argues that predestination creates a more lasting basis for economic growth than the dogma of free will in this paper we present a model that formally treats weber s claim under particular circumstances and show how predestination could create the correlation between protestantism and growth that existed in the pre modern era our model also suggests conditions under which a more successful society would favor the doctrine of predestination which can be seen as a formalization of tawney s and robertson s view that economic growth created the reformation in this essay both free will and predestination create incentives which spur good behavior 6 under the doctrine of free will good behavior is motivated by an increased probability of getting into heaven under the doctrine of predestination this incentive is irrelevant because individual actions do not determine spiritual outcomes instead an individual s actions are motivated by a desire to receive positive behavior from others by convincing them that he is part of the spiritual elite

how the west invented fertility restriction europeans restricted their fertility long before other parts of the world did so by raising the marriage age of women and ensuring that a substantial proportion remained celibate the european marriage pattern emp reduced childbirths by up to 40 we analyze the rise of this first socio economic institution in history that limited fertility through delayed marriage our model emphasizes changes in agricultural production following the black death the production of meat wool and dairy pastoral products increased while grain production declined women had a comparative advantage producing pastoral goods they often worked as servants in husbandry where they remained unmarried long after they had left the parental household in a malthusian world this translated into lower population pressure raising average wages by up to a quarter the black death thus set into motion a virtuous circle of higher wages and fertility decline that underpinned europe s high per capita incomes we demonstrate the importance of this effect in a calibration of our model

determinants of democracy a panel study of over 100 countries from 1960 to 1995 finds that improvements in the standard of living predict increase in democracy as measured by a subjective indicator of electoral rights the propensity for democracy rises with per capita gdp primary schooling and a smaller gap between male and female primary attainment for a given standard of living democaracy tends to fall with urbnization and with a greater reliance on natrual resources democracy has little relation to country size but rises with the middle class share of income the apparently strong relation of democracy to colonial heritage mostly disappears when the economic variables are held constant similarly the allowance for these economic variables weakens the interplay between democracy and religious affiliation however negative effects from muslim and non religious affiliations remain intact

relative performance or team evaluation optimal contracts for other regarding agents this paper derives optimal incentive contracts for agents with other regarding preferences it offers a behavioral explanation for the empirically observed lack of relative performance evaluation we analyze a principal multi agent model and assume that agents are inequity averse or status seeking we show that team contracts can be optimal even if the agents performance measures are positively correlated such that relative performance evaluation would be optimal with purely self interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other regarding preferences furthermore optimal incentive contracts for other regarding agents can be low powered as compared to contracts for purely self interested agents

spousal control and intra household decision making an experimental study in the philippines i elicit causal effects of spousal observability and communication on financial choices of married individuals in the philippines when choices are private men put money into their personal accounts when choices are observable men commit money to consumption for their own benefit when required to communicate men put money into their wives account these strong treatment effects on men but not women appear related more to control than to gender men whose wives control household savings respond more strongly to the treat ment and women whose husbands control savings exhibit the same response changes in information and communication interact with underlying control to produce mutable gender specific outcomes

war and conflict in economics theories applications and recent trends we review the main economic models of war and conflict these models vary in details but their implications are qualitatively consistent highlighting key commonalities across a variety of conflict settings recent empirical literature employing both laboratory and field data in many cases confirms the basic implications of conflict theory however this literature also presents important challenges to the way economists traditionally model conflict we finish our review by suggesting ways to address these challenges

liquidity constraints and imperfect information in subprime lending ditions for precisely the population that is most likely to have a difficult time obtaining credit those with low incomes and poor credit histories these consumers who typically cannot qualify for regular bank loans comprise the so called subprime market because the company we study originates subprime loans its loan applications and transaction records provide an unusual win dow into the consumption and borrowing behavior of households that are rationed in primary credit markets moreover we track loan repayments allowing us to analyze the difficulties in lending to the subprime population we begin by documenting the importance of short term liquidity constraints for individuals in our sample we present two pieces of evidence both are based on purchasing behavior and indicate a high sensitivity to cash on hand first we document a dramatic degree of demand seasonality associated with tax rebates overall demand is almost 50 percent higher during tax rebate season than during other parts of the year this seasonal effect varies with household

earthquakes religion and transition to self government in italian cities this article presents a unique historical experiment to explore the dynamics of institutional change in the middle ages we have assembled a novel data set where information on political institutions for northern central italian cities between 1000 and 1300 is matched with detailed information on the earthquakes that occurred in the area and period of interest exploiting the panel structure of the data we document that the occurrence of an earthquake retarded institutional transition from autocratic regimes to self government the commune in cities where the political and the religious leaders were the same person episcopal see cities but not in cities where political and religious powers were distinct non episcopal see cities such differential effect holds for destructive seismic episodes and for events that were felt by the population but did not cause any material damage to persons or objects ancillary results show that seismic events provoked a positive and statistically significant differential effect on the construction and further ornamentation of religious buildings between episcopal and non episcopal see cities our findings are consistent with the idea that earthquakes interpreted in the middle ages as manifestation of the will and outrage of god represented a shock to people s religious beliefs and as a consequence enhanced the ability of political religious leaders to restore social order after a crisis relative to the emerging communal institutions this interpretation is supported by historical evidence

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

was weber wrong a human capital theory of protestant economic history max weber attributed the higher economic prosperity of protestant regions to a protestant work ethic we provide an alternative theory protestant economies prospered because instruction in reading the bible generated the human capital crucial to economic prosperity we test the theory using county level data from late nineteenth century prussia exploiting the initial concentric dispersion of the reformation to use distance to wittenberg as an instrument for protestantism we find that protestantism indeed led to higher economic prosperity but also to better education our results are consistent with protestants higher literacy accounting for most of the gap in economic prosperity

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

climate and the slave trade african societies exported more slaves in colder years lower temperatures reduced mortality and raised agricultural yields lowering slave supply costs our results help explain african participation in the slave trade which predicts adverse outcomes today we use an annual panel of african temperatures and port level slave exports to show that exports declined when local temperatures were warmer than normal this result is strongest where african ecosystems are least resilient to climate change cold weather shocks at the peak of the slave trade predict lower economic activity today we support our interpretation using the histories of whydah benguela and mozambique

optimal social health insurance with supplementary private insurance abstract this paper investigates the structure of a national health service in which there is compulsory social insurance covering a package of essentials a given part of individuals health expenditure and supplementary private policy topping up the remaining services the latter insurance contract provides for a co payment by patients limiting the so called third party payer effect thus an individual s health expenditure is divided into three parts the first covered by social insurance the second by a private policy and the third out of pocket such mixed system design has received increasing attention in recent years and has been adopted by several industrialized countries the conditions for optimal rates of social insurance coverage and of private coinsurance are analysed and discussed the optimality requirements refer to efficiency as well as equity concerns

which countries have state religions among 188 countries 72 had no state religion in 2000 1970 and 1900 58 had a state religion throughout and 58 had 1 or 2 transitions we use a hotelling spatial competition model to analyze the likelihood that the religion market would be monopolized similar forces influence a government s decision to establish a state religion consistent with the model the probability of state religion in 1970 and 2000 is increasing with the adherence rate to the main religion has a nonlinear relation with population and has little relation with per capita gdp the probability of state religion decreases sharply under communism but lagged communism has only a weak effect with costly adjustment for institutions the probability of state religion in 1970 or 2000 depends substantially on the status in 1900 this persistence is much stronger for countries with no major regime change than for countries with such a change

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

optimal incentives for teams much of the existing theory of incentives describes a static relationship that lasts for just one transaction this static assumption is not only unrealistic but the resulting predictions appear to be at odds with many work organizations the current paper introduces possible long term interaction among agents and studies how the design of explicit incentives and work organizations can exploit and interact with the implicit incentives generated by the repeated interaction of the agents the optimal incentive scheme is shown to display observed features of the increasingly popular teams such as the use of low powered group incentives

credit market consequences of improved personal identification field experimental evidence from malawi we implemented a randomized field experiment in malawi examining borrower responses to being fingerprinted when applying for loans this intervention improved the lender s ability to implement dynamic repayment incentives allowing it to withhold future loans from past defaulters while rewarding good borrowers with better loan terms as predicted by a simple model fingerprinting led to substantially higher repayment rates for borrowers with the highest ex ante default risk but had no effect for the rest of the borrowers we provide unique evidence that this improvement in repayment rates is accompanied by behaviors consistent with less adverse selection and lower moral hazard jel d14 d82 g21 o12 o16

kinship cooperation and the evolution of moral systems across the social sciences a key question is how societies manage to enforce cooperative behavior in social dilemmas such as public goods provision or bilateral trade according to an influential body of theories in psychology anthropology and evolutionary biology the answer is that humans have evolved moral systems packages of functional psychological and biological mechanisms that regulate economic behavior including a belief in moralizing gods moral values negative reciprocity and emotions of shame guilt and disgust based on a stylized model this article empirically studies the structure and evolution of these moral traits as a function of historical heterogeneity in extended kinship relationships the evidence shows that societies with a historically tightly knit kinship structure regulate behavior through communal moral values revenge taking emotions of external shame and notions of purity and disgust in loose kinship societies on the other hand cooperation appears to be enforced through universal moral values internalized guilt altruistic punishment and an apparent rise and fall of moralizing religions these patterns point to the presence of internally consistent but culturally variable functional moral systems consistent with the model the relationship between kinship ties economic development and the structure of the mediating moral systems amplified over time

informational differences between limit and market orders for a market maker markets for exchange typically evolve over time and the organized security exchanges in the united states have evolved in such a manner as to give specialists a major role as market makers specialists are responsible for maintaining a fair and orderly market in the securities listed on an exchange they specify prices to reflect supply and demand and adjust these prices in response to shifts in supply and demand

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

revolt on the nile economic shocks religion and political power using centuries of nile flood data i document that during deviant nile floods egypt s highest ranking religious authority was less likely to be replaced and relative allocations to religious structures increased these findings are consistent with historical evidence that nile shocks increased this authority s political influence by raising the probability he could coordinate a revolt i find that the available data provide support for this interpretation and weigh against some of the most plausible alternatives for example i show that while nile shocks increased historical references to social unrest deviant floods did not increase a proxy for popular religiosity together the results suggest an increase in the political power of religious leaders during periods of economic downturn publication abstract

persuasion in politics we present a model of the creation of social networks such as political parties trade unions religious coalitions or political action committees through discussion and mutual persuasion among their members the key idea is that people are influenced by those inside their network but not by those outside once created networks can be rented out to politicians who seek votes and support for their initiatives and ideas which may have little to do with network members core beliefs in this framework political competition does not lead to convergence of party platforms to the views of the median voter rather parties separate their messages and try to isolate their members to prevent personal influence from those in the opposition this abstract was borrowed from another version of this item

repeated insurance contracts and moral hazard abstract an attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims we argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard

the mission human capital transmission economic persistence and culture in south america this article examines the long term consequences of a historical human capital intervention the jesuit order founded religious missions in 1609 among the guarani in modern day argentina brazil and paraguay before their expulsion in 1767 missionaries instructed indigenous inhabitants in reading writing and various crafts using archival records as well as data at the individual and municipal level i show that in areas of former jesuit presence within the guarani area educational attainment was higher and remains so by 10 15 250 years later these educational differences have also translated into incomes that are 10 higher today the identification of the positive effect of the guarani jesuit missions emerges after comparing them with abandoned jesuit missions and neighboring franciscan guarani missions the enduring effects observed are consistent with transmission mechanisms of structural transformation occupational specialization and technology adoption in agriculture

presidential address institutions and culture how and why does distant political and economic history shape the functioning of current institutions this paper argues that individual values and convictions about the scope of application of norms of good conduct provide the missing link evidence from a variety of sources points to two main findings first individual values consistent with generalized as opposed to limited morality are widespread in societies that were ruled by non despotic political institutions in the distant past second well functioning institutions are often observed in countries or regions where individual values are consistent with generalized morality and under different identifying assumptions this suggests a causal effect from values to institutional outcomes the paper ends with a discussion of the implications for future research jel a10 d7 e00

fairness risk preferences and independence impossibility theorems the most widely used economic models of social preferences are specified only for certain outcomes there are two obvious methods of extending them to lotteries if we do so by expected utility theory so that the independence axiom is satisfied our results imply that the resulting preferences do not exhibit ex ante fairness if we do so by replacing certain outcomes with their expected utilities for each individual so that individual risk preferences are preserved then ex ante fairness may be preserved but neither the independence axiom nor ex post fairness is satisfied both ex ante and ex post fairness can be satisfied but then the individual does not have well defined preferences over own lotteries

group versus individual liability short and long term evidence from philippine microcredit lending groups abstract group liability in microcredit purports to improve repayment rates through peer screening monitoring and enforcement however it may create excessive pressure and discourage reliable clients from borrowing two randomized trials tested the overall effect as well as specific mechanisms the first removed group liability from pre existing groups and the second randomly assigned villages to either group or individual liability loans in both groups still held weekly meetings we find no increase in short run or long run default and larger groups after three years in pre existing areas and no change in default but fewer groups created after two years in the expansion areas