index insurance quality and basis risk evidence from northern kenya the number of index insurance pilots in developing countries has grown tremendously in recent years but there has been little progress in our understanding of the quality of those products basis risk or remaining uninsured risk is a widely recognized but rarely measured feature of index insurance product quality this article uses eight semi annual seasons of longitudinal household data to examine the distribution of basis risk associated with an index based livestock insurance ibli product in northern kenya we find that ibli coverage reduces exposure to covariate risk due to large shocks and mitigates downside risk substantially for many households even at commercial premium rates but index insurance is no magic bullet insured households continue to face considerable basis risk examining the components of basis risk we find that ibli reduces exposure to covariate risk due to high loss events by an average of 63 the benefits of reduced covariate risk exposure are relatively small however due to high exposure to seemingly mostly random idiosyncratic risk even in this population often thought to suffer largely from covariate shocks the result is that ibli policyholders are left with an average of 69 of their original risk due to high loss events this research underscores the need for caution when promoting index insurance as a risk mitigation tool as well as the importance of product quality evaluation

demand heterogeneity for index based insurance the case for flexible products abstract a substantial literature has analyzed the challenges around weather index insurance yet an important design issue has been generally overlooked most index insurance products have so far been characterized by a one size fits all payout structure intended for a representative farmer at the cost of ignoring considerable heterogeneity in risk profiles this paper provides unique evidence on the ways in which heterogeneity in farmers risk exposure affects their demand for insurance we analyze a set of flexible insurance products against excess rainfall and exploit the substantial variation in insurance portfolios demanded by farmers we explore the relevance of alternative sources of heterogeneity by extending a simple expected utility decision model and relying on structural estimation to test their significance we find important aspects of farmer heterogeneity directly affecting their demand for insurance we quantify the benefits of a flexible scheme by comparing farmer welfare to that achieved under alternative counterfactual insurance options

compound risk aversion ambiguity and the willingness to pay for microinsurance abstract index insurance in which payments are based on an index correlated with but not identical to individual losses has been faced with an unexpectedly low uptake despite its promise as a tool for poverty alleviation this paper offers new insights into the behavioral impediments to the uptake of index insurance we start from the observation that an index insurance contract appears to the farmer as a compound lottery with uncertainty about individual production outcomes as well as about the validity of the index as a reflection of individual losses adopting the smooth model of ambiguity aversion to this insurance problem we show that in theory this compound lottery structure per se will dampen the demand for index insurance using framed field experiments with cotton farmers in southern mali we elicited the coefficients of risk aversion and compound risk aversion the experimental results find that almost 60 of farmers are compound risk averse and that the distribution of compound risk aversion is such that it would nearly cut in half the potential demand for the standard index insurance contracts our results highlight the importance of designing contracts with minimal basis risk under compound risk aversion such a reduction in basis risk would not only enhance the value and productivity impacts of index insurance but would also assure that the contracts are purchased and have their anticipated impacts

veto players and the choice of monetary institutions i argue that two types of veto players matter in the choice of monetary institutions party veto players and subnational governments which are strong in federal systems but weak in unitary systems a crucial issue is whether voters can readily identify the manipulation of the economy with party players a second issue concerns the national party veto player s ability to control either fiscal or monetary policy in one party unitary governments identification and control are clear parties where such governments are common prefer flexible exchange rates and dependent central banks in multiparty coalition governments in unitary systems identification is traditionally difficult and the ability to target benefits to specific constituencies under fiscal policy makes fiscal policy autonomy more attractive for coalition governments such governments prefer central banks that are politically independent but that finance government debt under federalism parties that constitute the central government have less control over fiscal policy and they prefer flexible exchange rates subnational governments do not support a dependent central bank that gives more power to the central government

plata o plomo bribe and punishment in a theory of political influence we present a model where groups attempt to influence policies using both bribes plata spanish for silver and the threat of punishment plomo spanish for lead we then use it to make predictions about the quality of a country s public officials and to understand the role of institutions granting politicians with immunity from legal prosecution the use of punishment lowers the returns from public office and reduces the incentives of high ability citizens to enter public life cheaper plomo and more resources subject to official discretion are associated with more frequent corruption and less able politicians this predicts that violence in a country will typically go together with corruption and worse politicians moreover the possibility of punishment changes the nature of the influence game so that even cheaper plata can lower the ability of public officials protecting officials from accusations of corruption immunity will decrease the frequency of corruption if the judiciary is weak and may increase the quality of politicians these predictions cannot emerge from a traditional model where only bribes are used the positive evils and dangers of the representative as of every other form of government may be reduced to two heads first general ignorance and incapacity or to speak more moderately insufficient mental qualifications in the controlling body secondly the danger of its being under the influence of interests not identical with the general welfare of the community

are crop yields normally distributed the evidence for nonnormality of crop yields is reassessed three methodological problems are identified in typical yield distribution analyses i misspecification of the nonrandom components of yield distributions ii missreporting of statistical significance and iii use of aggregate timeseries ats data to represent farm level yield distributions one or more of these problems infect virtually all evidence against normality to date the positive contribution of the article is a set of principles that must be followed in any valid investigation of yield normality

where and how index insurance can boost the adoption of improved agricultural technologies abstract remote sensing and other advances have led to an outpouring of programs that offer index insurance to small scale farmers with the expectation that this insurance will enable adoption of improved technologies and boost living standards despite these expectations the evidence to date on the uptake and impacts of insurance is mixed this paper steps back and considers theoretically where index insurance might be most effective and whether it should be offered as a standalone contract or explicitly interlinked with credit contracts emerging from this analysis is a set of nuanced recommendations based on the structure of risk and the property rights collateral environment

indigenous land rights in sub saharan africa appropriation security and investment demand abstract we discuss the links between rights appropriation tenure security and investment demand in sub saharan africa common assertions regarding indigenous tenure are 1 a insecurity of tenure leads to suboptimal investment incentives and 2 b appropriation of land rights in the public domain is rent dissipating we argue that land use and investment decisions among african farmers often have two motives productivity and rights appropriation the usual assertions thus seem contradictory we offer a conceptual model to show that indigenous tenure may provide equal or higher investment incentives than private rights and may promote modes of rights appropriation that are productive rather than wasteful

modeling consumer demand for variety consumers are often observed to purchase more than one variety of a product on a given shopping trip the simultaneous demand for varieties is observed not only for packaged goods such as yogurt or soft drinks but in many other product categories such as movies music compact disks and apparel multinomial mn choice models cannot be applied to data exhibiting the simultaneous choice of more than one variety the random utility interpretation of either the mn logit or probit model uses a linear utility specification that cannot accommodate interior solutions with more than one variety alternative chosen to analyze data with multiple varieties chosen requires a nonstandard utility specification standard demand models in the economics literature exhibit only interior solutions we propose a demand model based on a translated additive utility structure the model nests the linear utility structure while allowing for the possibility of a mixture of corner and interior solutions where more than one but not all varieties are selected we use a random utility specification in which the unobservable portion of marginal utility follows a log normal distribution the distribution of quantity demanded the basis of the likelihood function is derived from these log normal random utility errors the likelihood function for this class of models with mixtures of corner and interior solutions is a mixed distribution with both a continuous density portion and probability mass points for the corners the probability mass points must be calculated by integrals of the log normal errors over rectangular regions we evaluate these high dimensional integrals using the ghk approximation we employ a bayesian hierarchical model allowing household specific utility parameters our utility specification related to the approach of wales and woodland 1983 who employ a translated quadratic utility function wales and woodland were only able to study at the most three varieties because there was no practical way to evaluate the utility function at that time in addition the quadratic utility specification is not a globally valid utility function making welfare computations and policy experiments questionable hendel 1999 and dube 1999 present an alternative approach in the utility function which is constructed by summing up over unobservable consumption occasions while only one variety is consumed on each occasion the marginal utilities of varieties change over the consumption occasions giving rise to a simultaneous purchase of multiple varieties our bayesian inference approach allows us to obtain individual household estimates of utility parameters household utility estimates are used to compute the value of each variety we compute a compensating value for the removal of each flavor that is we compute the monetary equivalent of the household s loss in utility from removal of a flavor these calculations show that households highly value popular flavors and would incur substantial utility losses from removal of these flavors from the yogurt assortment next we consider the implications of our model for retailer assortment and pricing policies given limited shelf space only a subset of the possible varieties can be displayed for purchase at any one time if consumers value variety then a retailer with lower variety must compensate the consumers in some way such as a lower price level we see this trade off between price and variety across different retailing formats discount or warehouse format retailers often have both lower variety and lower prices to measure this trade off we explore the utility loss from reduction in variety and find the reductions in price that will compensate for this utility loss these price reduction calculations must be based on a valid utility structure heterogeneity in tastes is critical in these utility computations and policy experiments we find that a relatively small fraction of households with extreme preferences dominate the compensating value computations that is some households are observed to purchase mostly or exclusively one variety these households must be heavily compensated for the removal of this variety from the assortment in some retailing contexts customization of the assortment is possible at the customer level we show that such customization virtually eliminates any utility loss from reduction in variety

determinants of inflationary performance corporatist structures vs central bank autonomy studies by economists have shown that countries with autonomous central banks experience lower inflation than others banian laney and willett 1983 and bade and parkin 1987 one reason for this may be that countries with autonomous central banks are less likely to monetize their deficits burdekin and wahar 1990 studies by political scientists have used measures of the strength of corporatist structures to explain macroeconomic outcomes cameron 1984 however neither economics nor political science research has employed measures of both central bank autonomy and the strength of corporatist structures to explain comparative inflation rates the present paper tests whether measures of corporatist structures and central bank autonomy explain the comparative inflation performance of eighteen industrialized countries this issue is of great importance for students of piecemeal monetary reform in countries where the central banking structure is susceptible to reorganization the results of this paper should inform parties who are active in the reformation and reorganization of central banks in lesser developed and nascent market economics throughout the world

land tenure and productivity farm level evidence from papua new guinea does land tenure form affect farm level productivity the answer from farm level data for an oil palm project in papua new guinea is in the affirmative analysis of farm level output controlling for all measured inputs shows systematic differences in productivity across three land tenure types namely farms under customary purchase agreements those under the land settlement scheme and those under village owned land schemes the empirics suggest that the higher productivity is due to benefits from economies of scale and absence of income sharing enjoyed by farms with improved tenure security

stable governments and the allocation of policy portfolios different members of coalition governments typically have responsibility for different aspects or dimensions of policy such responsibilities are allocated as portfolios to government members given a distribution of such portfolios final government policy is derived as the accumulation of individual members decisions in regard to their respective responsibilities we develop a portfolio allocation model of government formation and policy decision in multiparty legislatures in particular we focus on stable portfolio allocations where a stable allocation is one that yields a policy that no legislative coalition is willing or able to overturn several notions of stability are considered and related to the usual concept of the core among the results are that although stable allocations are not guaranteed such allocations can exist with minority governments and that final policy outcomes associated with stable governments need not be centrist

patterns of rainfall insurance participation in rural india take up of an innovative rainfall insurance policy offered to smallholder farmers in rural india decreases with basis risk between insurance payouts and income fluctuations increases with household wealth and decreases with binding credit constraints these results are consistent with the predictions of a simple neoclassical model with borrowing constraints other patterns are less consistent with the benchmark model for example participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance take up decisions and risk averse households are less not more likely to purchase insurance these results may reflect household uncertainty about the product given their limited experience with it

political accountability and the room to maneuver a search for a causal chain many studies of the room to maneuver make no provision for popular evaluation of policy they assert rather than demonstrate popular satisfaction with policy choices and macroeconomic outcomes the authors present a framework that explicitly models channels for popular preferences to influence policies and outcomes results for economic policy making in britain do not support the room to maneuver thesis in the authors sample 1981 to 1997 the british government was responsive to changes in political evaluations and its policy choices effectively fed back into popular evaluations of government policy however this accountability mechanism worked outside the real economy shifts in popular evaluations induced changes in policy but had no impact on inflation and economic growth government capacity to shape macroeconomic outcomes was limited and popular influence over economic policy was ineffectual this form of accountability probably existed because british citizens had difficulty gauging the real impacts of their government s policies

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

estimating multiple discrete choice models an application to computerization returns buyers in many markets face multiple discrete choices they can purchase multiple units as well as multiple brands at the same time this paper presents a multiple discrete choice model for the analysis of differentiated products demand users maximize profits by choosing the number of units of each brand they purchase i estimate the model using micro level data on the demand for personal computers i use the estimated demand structure to assess the welfare gains from computerization and technological innovation in peripherals the estimated return on investment in personal computers is 92 moreover a 10 increase in the performance to price ratio of microprocessors leads to a 2 2 gain in the estimated user surplus the personal computer pc market is of interest to industrial organization economists because of its size the continual technological change and above all because of the farreaching implications of pcs on the economy as a whole several distinct features make pc demand difficult to model pcs are a differentiated durable good in constant technological evolution moreover buyers make multiple discrete choices firms according to our data spread their purchases of pcs over different brands at the same time they buy pcs in blocks several units of each brand that they have chosen the aim of the paper is to present a model that captures these features and to use this model to estimate the welfare gains from computerization classical discrete choice models allow one choice among mutually exclusive alternatives in contrast the proposed framework allows users to demand multiple units and multiple brands the model can be applied to other cases of multiple discrete choices e g the composition of airline fleets car holdings per household the fields of the faculty in economics departments household cereals consumption or any other good consumed in more than one variety during a relevant time period although pervasive multiple discrete choice problems have received little attention because of their complexity a central issue regarding the pc market is the current controversy in the economics literature about the computerization puzzle this puzzle stems from the empirical finding that computerization has had no effect on firm productivity griliches and siegel 1991 and morrison and berndt 1990 contrary to those results hendel 1994 and lichtenberg 1995 using more disaggregate data than most previous studies report excess returns to computerization this indicates that data aggregation may have created the computerization puzzle in this paper i present a model consistent with the basic

political parties and the business cycle in the united states 1948 1984 this paper tests the existence and the extent of a politically induced business cycle in the u s in the post world war ii period the cycle described in this paper is different from the traditional political business cycle of nordhaus it is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts from an explicit optimization problem we derive a system of equations for output and money growth then we successfully test the non linear restriction imposed by the theory on the parameters of the system of equations we cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations

trade and the variety of democratic institutions students of comparative politics have long acknowledged the importance of such institutional factors as electoral systems parliamentary versus presidential rule and the strength of parties but they have either regarded the institutions as given or have explained them entirely in domestic terms associating proportional representation for example with the intensity of social cleavages in economically advanced democracies however these institutional aspects can be plausibly linked to dependence on trade proportional representation the parliamentary system strong parties and large electoral districts have survival value for developed democracies exposed to trade that the recently revived agitation for proportional representation in the united kingdom has been cast explicitly in terms of economic necessity and dependence on trade adds force to this argument and suggests the need for further historical research on other cases of institutional adaptation and change

checks and balances private information and the credibility of monetary commitments the authors develop and test several new hypotheses about the anti inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government policies theory provides strong reason to believe that while central bank independence will prove more effective as a commitment mechanism in countries where multiple players in government have veto power checks and balances the number of veto players will have no effect on the credibility of exchange rate pegs conversely the authors argue that central bank independence does not solve the problems of commitment that arise when citizens are imperfectly informed about the contribution of government policy to inflation exchange rate pegs however mitigate these problems the authors present extensive evidence from cross country tests using newly developed data that provide strong support for their propositions

political parties and monetary commitments we argue that political parties will choose monetary institutions in order to help them win elections and retain office increased levels of economic openness in the industrial democracies have complicated the pursuit of office by altering the policy preferences of constituents and decreasing the ability of cabinet ministers to deliver promised economic outcomes we contend that monetary commitments can help political parties manage diverse constituent interests restore policy effectiveness and ultimately maintain their position in office therefore we expect that fixed exchange rates and central bank independence can improve cabinet durability especially under conditions of economic openness in the first section we discuss how fixed exchange rates and central bank independence can insulate cabinets from the political shocks of increased economic openness to determine the political value of these commitments we then test the effect of exchange rate commitments and central bank independence on cabinet durability in the second section in the third section we use the results of our statistical models to generate expected cabinet durability for the countries in our sample under alternative institutional configurations by comparing the expected durabilities we show that most monetary reforms have helped or at least not hurt expected cabinet durability

the use of structural models in econometrics costas meghir has been supported by the cowles foundation and the institution for social and policy studies isps at yale university

elections and the fed is there a political monetary cycle to understand the political causes of macroeconomic policy it is necessary to examine the institutions that actually make such policy and the incentives those institutions face an explanation of the political causes of united states monetary policy must treat the various institutions that are influential in the monetary policy process which are at a minimum the federal reserve fed and the executive including the president the treasury department and other advisors in the executive office of the president the reelection motive has proven useful in modeling presidential incentives in this article i investigate whether electoral incentives associated with the theory of the political business cycle pbc can help to explain the behavior of the fed over the last quarter century the political business cycle has had a curious hold on modern political economy while the empirical evidence in favor of the cycle is far from overwhelming its theoretical importance leads to continuing empirical

a political explanation of variations in central bank independence although central banks possess a similar function across the industrial democracies their institutional structures their levels of independence differ greatly my explanation of this variation emphasizes the informational asymmetries of monetary policymaking government ministers have informational advantages in the policy process potentially creating conflicts with backbench legislators and in a multiparty government coalition partners an independent central bank can help alleviate these conflicts politicians will choose an independent bank 1 if government ministers party legislators and coalition partners have different monetary policy incentives and 2 if government ministers fear that party legislators and coalition partners will withdraw their support over a policy dispute i statistically test the argument against the cross national variation of central bank institutions i also use the theoretical framework to examine episodes of institutional choice and reform in germany britain and italy

measuring the production efficiency of alternative land tenure contracts in a mixed crop livestock system in ethiopia abstract in this paper we test the hypothesis that land held under varying configurations of property rights will be farmed at different levels of production efficiency production data were collected from 477 plots in a fairly productive mixed farming system in the ethiopian highlands interspatial measures of total factor productivity based on the divisia index were used to measure the relative production efficiency of three informal and less secure land contracts rented share cropped and borrowed relative to lands held under formal contract with the ethiopian government although the informally contracted lands are farmed 10 16 less efficiently the analysis indicates that farmers of such lands actually apply inputs more rather than less intensively i e more inputs per unit of land the gap in total factor productivity thus results from the inferior quality of inputs or lack of skills in applying them rather than a lack of incentive to allocate inputs to mixed crop livestock farming for this reason we find no empirical basis to support the hypothesis that land tenure is a constraint to agricultural productivity

property rights and productivity the case of joint land titling in vietnam this paper explores the effect of land titling on agricultural productivity in vietnam and the productivity effects of single versus joint titling for husband and wife using a plot fixed effects approach our results show that obtaining a land title is associated with higher yields for both individually and jointly held titles we conclude that there is no tradeoff between joint titling and productivity and so joint titles are potentially an effective way to improve women s bargaining power within the household with no associated efficiency losses

politics and business cycles in industrial democracies politics alberto alesina influences from political competition on macroeconomic policy are often thought to be a source of economic fluctuations politicians are described as being driven by two not mutually exclusive main motivations they want to be reelected and they harbour political or ideological biases when such theories are confronted with actual cycles in a number of industrial countries the pattern of inflation unemployment output and budget deficits indicates that partisan policy making is a fairly widespread phenomenon with more limited evidence that electoral preoccupations result in major fluctuations the combination of partisanship and electoral cycles may easily result in socially undesirable outcomes in particular the degree of politico institutional stability and the independence of the central bank have a bearing on macroeconomic outcomes these observations raise a number of important questions about the design of political institutions

agricultural decisions after relaxing credit and risk constraints the investment decisions of small scale farmers in developing countries are conditioned by their financial environment binding credit market constraints and incomplete insurance can limit investment in activities with high expected profits we conducted several experiments in northern ghana in which farmers were randomly assigned to receive cash grants grants of or opportunities to purchase rainfall index insurance or a combination of the two demand for index insurance is strong and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture the binding constraint to farmer investment is uninsured risk when provided with insurance against the primary catastrophic risk they face farmers are able to find resources to increase expenditure on their farms demand for insurance in subsequent years is strongly increasing with the farmer s own receipt of insurance payouts with the receipt of payouts by others in the farmer s social network and with recent poor rain in the village both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance imperfect trust that promised

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

a partisanship theory of fiscal and monetary regimes this paper indicates that income redistribution motivated by the distributive ideals of liberal political p arties create unanticipated disincentives for productive effort thi s suggests that newly elected liberal parties are likely to engage in monetary surprises in order to compensate for the adverse effects of these disincentives on real income estimated reaction from function s support these predictions a measure of income redistribution the change in the ratio of the social expenditures of government to gnp has a positive significant effect on money growth in addition when the presidency changes from conservative to liberal there is a posit ive and significant increase on money growth copyright 1987 by ohio state university press

dynamics of demand for index insurance evidence from a long run field experiment this paper estimates how experimentally manipulated experiences with a novel financial product rainfall index insurance affect subsequent insurance demand using a seven year panel we develop three main findings first recent experience matters for demand consistent with overinference from small samples second spillovers also matter in the sense that the recent payout experience of village co residents affects insurance demand about as much as one s own recent payout experience third the spillover effect decays as time passes while the effect of one s own experience does not we discuss implications of this analysis for commercial sustainability of this complicated but promising risk management technology

multiple discreteness and product differentiation demand for carbonated soft drinks for several of the largest supermarket product categories such as carbonated soft drinks canned soups ready to eat cereals and cookies consumers regularly purchase assortments of products within the category consumers often purchase multiple products and multiple units of each alternative selected on a given trip this multiple discreteness violates the single unit purchase assumption of multinomial logit and probit models the misspecification of such demand models in categories exhibiting multiple discreteness would produce incorrect measures of consumer response to marketing mix variables in studying product strategy these models would lead to misleading managerial conclusions we use an alternative microeconomic model of demand for categories that exhibit the multiple discreteness problem recognizing the separation between the time of purchase and the time of consumption we model consumers purchasing bundles of goods in anticipation of a stream of consumption occasions before the next trip we apply the model to a panel of household purchases for carbonated soft drinks