informal and formal credit markets and credit rationing in cote d ivoire this paper endeavours to shed light on the respective roles of the formal and the informal credit markets in developing countries we use survey data for manufacturing firms in cote d ivoire documenting their access to informal credit markets their investments and their financing we confront these data with a simple moral hazard model of credit rationing because of socio cultural effects the magnitude of moral hazard problems and the cost of credit can be different in the informal credit market we offer a structural econometric estimation of this model our empirical results point at severe moral hazard problems for all firms and reduced cost of credit in the informal market our point estimate suggests that moral hazard problems can be alleviated in the informal credit market policy implications of our results are sketched copyright 2001 oxford university press

support systems for the diffusion of renewable energy technologies an investor perspective concern over climate change impacts and the projected depletion of fossil fuels has urged more governments to adopt policies that stimulate the diffusion of renewable energy technologies ret with an increasingly diverse suite of support instruments the question emerges as to which instruments or combinations are able to achieve faster more substantial diffusion results although various support instruments were extensively addressed in policy studies there is still no consensus this is partly because many policy studies take a policy maker approach in comparing support instruments leaving relationships between policy design and policy results as a black box this paper proposes an investor oriented perspective to analyze the diffusion potential of support systems for ret the main argument is that it is not the type of support instrument but rather its risk profitability characteristics that influence investor behavior and the rate of diffusion the two instruments most frequently discussed and compared are the feed in tariff and the quota model the analysis in this paper concludes that policy design is crucial while often feed in tariffs are applauded and quota system feared feed in tariffs may also bring about disappointing diffusion results when poorly designed while quota systems may be also conceived as attractive instruments for independent power producers

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

entrepreneurial human capital and the long run survival of firms in india abstract this paper analyses the characteristics of entrepreneurs that contribute to firms survival in less developed countries ldcs the study which relies on data collected in a 1971 survey of entrepreneurs in south india and a follow up survey of surviving firms in 1993 finds that entrepreneurial human capital greatly influences firm survival the results indicate that firms founded by older entrepreneurs in higher castes are most likely to survive but that increased education of the founding entrepreneur reduces survival these results provide evidence that opportunities of entrepreneurs outside the firm ignored in most theories are important in firm survival

relative wealth concerns and entrepreneurship we develop a model of entrepreneurship in which market frictions limit the possibilities for diversifying entrepreneurial risk a concern for relative standing arises even though individuals consume only standard commodities in contrast to complete markets an increase in sector specific aggregate risk increases entrepreneurship due to relative wealth concerns a change in the profile of the economy to include more risk averse people results in an even greater increase in entrepreneurship thus relative wealth concerns mitigate the reduction in entrepreneurship arising from the non diversifiability of entrepreneurial risk we examine the effects of uncertainty about economic policies such as market based reforms on entrepreneurship

banking development socioeconomic structure and income inequality abstract using rich unique data from the italian local credit markets provinces this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link exploiting the italian historical banking regulation to instrument for the local presence of bank branches we find that local banking development mitigates income inequality however the finance inequality nexus manifests itself only in relatively advanced areas when we study the structural channels of influence we uncover evidence that banking development can reduce inequality by affecting geographical mobility and urbanization while it has modest effects through the development of material infrastructures and human capital

renewable energy finance and project ownership the impact of alternative development structures on the cost of wind power abstract this paper uses traditional financial cash flow techniques to examine the impact of different ownership and financing structures on the cost of renewable energy specifically wind power most large non hydroelectric renewable energy projects are developed owned and financed by private non utility generators recently however us utilities have begun to consider owning and financing their own wind power facilities rather than purchasing power from independent renewable energy suppliers utilities in other countries have also expressed interest in direct renewable energy investments a primary justification for utility ownership of wind turbine power plants is that utility self financing and ownership is cheaper than purchasing wind energy from non utility renewable energy suppliers the results presented in this paper support that justification although some of the estimated cost savings associated with utility ownership are a result of suboptimal utility analysis procedures and implicit risk shifting financing terms and variables are shown to significantly impact wind power costs

cheap children and the persistence of poverty this paper develops a theory of fertility that offers an explanation for the persistence of poverty within and across countries if educated individuals have a comparative advantage in raising educated children then parental fertility choice is shown to give rise to a poverty trap in which the poor choose high fertility rates with low investment in child quality moreover the impact of child quality choice on economic performance is amplified by the diluting effect of higher fertility on physical capital accumulation the theory proposes insights regarding the effects of inequality globalisation and life expectancy on economic growth and demographic transitions this paper develops a theory of fertility and child educational choice that offers an explanation for the persistence of poverty within and across countries the joint determination of the quality education and quantity of children in a household is studied under the key assumption that individuals productivity as teachers increases with their own human capital in contrast the minimum time cost associated with raising a child regardless of the child s quality the quantity cost is not affected by parental education as a result the price of child quantity relative to the price of child quality increases with individuals wages in particular for low wage individuals for whom the opportunity cost of time is low children of minimal quality are cheap this assumption therefore generates a comparative advantage for the poor in child quantity whereas high wage educated individuals have a comparative advantage in raising quality children consistent with the well known evidence poor households thus choose relatively high fertility rates with relatively low investment in their offspring s education and therefore their offspring are poor as well in contrast high income families choose low fertility rates with high investment in education and therefore high income persists in the dynasty evidence from the us provided by hanushek 1992 suggests that a trade off between quantity and quality of children does indeed exist hanushek argues that movements in family size could explain over half the variance in some test scores and that the elasticity of achievements with respect to the number of children in the family is 0 03 implying that the annual achievement growth of each child in a family will fall about 2 when a second child is added and about 0 5 when a sixth child is added 1

endogenous growth and the emergence of equity finance abstract this paper characterises the development of equity markets as a dynamic process that both influences and is influenced by the development of the real sector of the economy in overlapping generations economy borrowers seek funds to run risky investment projects by drawing up contracts which may take the form of either equity or debt issue in the presence of information asymmetry between borrowers and lenders the optimal contract is determined by trading off information dilution costs against bankruptcy costs significantly the equilibrium choice of contract depends on the state of the economy which in turn depends on the contracting regime based on this analysis the paper provides a theory of the joint determination of real and financial development with the ability to explain the emergence of a stock market along the path of real development

retrospectives the coining of privatization and germany s national socialist party the concept of privatization attracted much attention in the late 1970s and early 1980s as margaret thatcher s privatization policies were implemented in the united kingdom my goal here is not to comment on the merits of privatization as a policy but rather to investigate the history of the term privatization in economics and to shed some light on the context in which the word was coined although the origin of the term is often attributed to a 1969 book by peter drucker i will show that this attribution is incorrect and that the terminology of privatization played an evolving role in german economic policy from the 1930s through the 1950s

wealth inequality and collective action abstract we study the effect of inequality in the distribution of endowments of private inputs e g land wealth that are complementary in production with collective inputs e g contribution to public goods such as irrigation and extraction from common property resources on efficiency in a class of collective action problems we focus on characterizing the joint surplus maximizing level of inequality making due distinction between contributors and non contributors in a framework that allows us to consider a wide variety of collective action problems ranging from pure public goods to impure public goods to commons we show that while efficiency increases with greater equality within the groups of contributors and non contributors so long the externalities positive or negative are significant there is an optimal degree of inequality between these groups

finance and income inequality in kazakhstan evidence since transition with policy suggestions abstractkazakhstan gained independence in 1990 and has undergone significant changes in economic social and trade conditions since then we analyse the effects of financial development on income inequality in kazakhstan incorporating economic growth foreign investment education and the role of democracy as the drivers we establish that income inequality in kazakhstan is impaired by financial development in summary we send three messages for policy purposes first strengthening financial sector is necessary to close the gap between haves and have nots second attracting fdi beyond the hydrocarbon sector is necessary to alleviate inequality finally adaptation of education system to the new social and economic environment would help in improving income distribution

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

can democracy induce development a constitutional perspective we examine the constitutional design required for democratic societies to overcome poverty traps restricting agenda setting by ensuring subsistence levels of consumption and applying simple majority voting as a decision rule will not enable a society to overcome poverty we show that a combination of suitable constitutional rules can however overcome poverty and induce economic well being besides majority voting these rules include rotating agenda setting agenda repetition and tax protection rules we thus highlight the crucial role of democratic institutions for economic development

financial frictions occupational choice and economic inequality we develop a quantitative theory of entrepreneurship income inequality and nancial frictions disciplined with household data from brazil the theory extends lucas 1978 by modeling heterogeneity in two skills working and managerial skills consistently with the evidence the theory implies three occupational categories workers employers and self employed entrepreneurs we nd that the correlation between working and managerial skills matters importantly for the distribution of earnings across occupations and for the quantitative implications of nancial frictions we also nd

macroeconomic implications of conspicuous consumption a sombartian dynamic model this chapter presents a dynamic general equilibrium model in which consumers have status preference i investigate the manner in which capital accumulation is impeded by conspicuous consumption a la corneo and jeanne j public econ 66 55 71 1997a following the literature social norms are given as either bandwagon type or snob type i then show that when the economy is characterized by a bandwagon type social norm capital accumulation exhibits interesting patterns those patterns include for example an oscillating convergence path the rise of the economy feeds its decay through conspicuous consumption and that decay suppresses conspicuous consumption and engenders prosperity as predicted by sombart liebe luxus und kapitalismus reprinted 1967 deutscher taschenbuch verlag munchen 1912

inequality control rights and rent seeking sugar cooperatives in maharashtra this paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members the two key assumptions are constraints on lump sum transfers from poorer members and disproportionate control rights wielded by wealthier members transfers of rents to the latter are achieved by depressing prices paid for inputs supplied by members and diverting resulting retained earnings the theory predicts that increased heterogeneity of landholdings in the local area causes increased inefficiency by inducing a lower input price and a lower level of installed crushing capacity predictions concerning the effect of the distribution of local landownership on sugarcane price capacity levels and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the indian state of maharashtra over the period 1971 93

models as economies the distinction between actual economies and stylized general equilibrium models is no t sharp general equilibrium models with such key elements as uncerta inty spatial separation private information limited communication and limited commitment provide a catalogue that one can use to inter pret actual economies further a general equilibrium model can provi de a framework one can use to trace out the logic of some premise for joint economy wide phenomena a web to tie together seemingly unrel ated observations also in tolerating wide variations in environment s general equilibrium models provide laboratories one can use to con duct relatively inexpensive policy experiments copyright 1987 by royal economic society

broken dreams unmet expectations of investors in the philippine electricity restructuring and privatization abstract over the last three decades privatization and restructuring of electricity sectors has been a hot topic the expectation was that prices would fall due to increased competition and that generators would become more innovative and efficient however the enthusiasm for deregulation wavered after events such as the debacle in california the fall of enron and the setbacks of ontario in the philippines comprehensive legislation was passed in 2001 but the implementation has been rather slow and controversial this paper looked at the allegation of politicizing power rates and found a logical alternative to the perceived conspiracy angle based on market data it is highly probable that depressed market rates was a result of coping mechanisms of new players trying to adjust to the restructured industry

electricity privatization the case of india abstract privatization is resorted to by developing country governments mainly to augment resource mobilization either on their own initiative or under the dictat of the world bank and less as a recipe for efficiency improvement the present paper discusses the electricity privatization in india as a case study and outlines the practical problems faced when the theoretical issues of privatization come up against the messiness of the real world such as high cost of private power compared to the low cost of public power and the goal conflicts of public and private utilities it suggests a different model to make privatization feasible

dualism and macroeconomic volatility this paper develops a simple macroeconomic model that shows that combining capital market imperfections together with unequal access to investment opportunities across individuals can generate endogenous and permanent euctuations in aggregate gdp investment and interest rates reducing inequality of access may be a necessary condition for macroeconomic stabilization moreover countercyclical escal policies have a role to play in our model savings are underutilized in slumps because of the limited debt capacity of potential investors therefore the government should issue public debt during recessions in order to absorb those idle savings and enance investment subsidies or tax cuts for investors the most important single fact about saving and investment activities is that in our industrial society they are generally done by different people and for different reasons for years there might tend to be too little investment leading to deeation losses excess capacity and unemployment for other years there might tend to be too much investment leading to periods of chronic ineation unless prudent and proper public policies in the escal and monetary eelds are followed paul a samuelson economics 8th edition 1970 pp 196 198

the poor are twice cursed wealth inequality and inefficient credit market abstract this paper investigates the role of unobservable wealth differences on credit market equilibrium given there is also asymmetric information concerning effort preferences and choices in equilibrium poor but able entrepreneurs may subsidise the rich and incompetent or be excluded as a result investment may exceed or fall short of the optimal level low inequality may deliver conditions for perfect screening and an efficient level of investment the equilibrium with cross subsidisation is consistent with otherwise puzzling empirical observations

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

energy demand and supply in the developing world 1990 2020 three decades of explosive growth many recent scenarios of future world energy demand and supply assume a lower growth of energy demand in the developing world than has been the case in recent decades such scenarios are based on experience with declining energy intensities in the industrial world this paper suggests a more plausible scenario in which energy demands in the developing world continue to double every decade new technologies and improvements in efficiency will continue to lower the real cost of energy services driving an expansion of these services to new consumers whose consumption has been limited by high prices low incomes and administrative induced constraints given initial low consumption levels and the income elastic nature of most energy services particularly transport even modest rates of economic growth will induce large increases in demand the availability of energy supplies will not constrain this surge rapid growth will create trade environmental and financial issues but over the long run these can be managed through appropriate policies and technological progress

robust comparative statics in large dynamic economies we consider infinite horizon economies populated by a continuum of agents subject to idiosyncratic shocks this framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by bewley aiyagari and huggett models of entry exit and industry dynamics in the spirit of hopenhayn s work and dynamic models of occupational choice and search models as special cases robust and easy to apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the markov processes governing the law of motion of the idiosyncratic shocks

land and the transition from a dual to a modern economy tenurial contracts in agriculture can be an initial source of wealth accumulation for dynasties of poor credit constrained individuals the income from such contracts can be invested in education of offspring who then can find work in the formal manufacturing sector this process allows the economy to develop into a modern economy with a large manufacturing sector an excessive number of poor individuals competing for scarce land however drives up the rental price of land which then slows the process of accumulation and forces the economy to converge to a less efficient dual equilibrium in such cases a policy of land redistribution coupled with a temporary education subsidy may be needed to push the economy to a modern equilibrium

why are capitalists the bosses this paper addresses the question why does capital typically hire labor rather than the other way around it models a situation in which a capitalist owner of money capital can choose between lending out his capital for production and using it to set up production under his own supervision it is demonstrated that the moral hazard of potential borrowers on account of limited liability provides the capitalist with the incentive to become a firm owner supervising hired labor the capitalist s choice is endogenized in terms of his opportunity cost of time it is argued that moral hazard with respect to the use of borrowed capital is an important determinant of the social hierarchy in the workplace copyright 1989 by royal economic society

capital accumulation with tangible assets abstract the paper develops a neoclassical growth model with capital accumulation and a retradable tangible asset in an overlapping generations framework it analyzes its effect on the dynamics of capital accumulation two period lived consumers hold portfolios consisting of real capital and the tangible asset it is shown that the possibility of trading the tangible asset as an alternative to capital may cause the coexistence of stable steady states with high and low levels of capital and with disjoint basins of attraction thus the so called poverty trap may appear purely endogenously generated as a consequence of asset trading alone the possibility of the occurrence of the poverty trap is reduced as factors of production become more substitutable however the result is robust for continua of homogeneous as well as heterogeneous consumers

property rights and the political organization of agriculture we propose a general equilibrium model where the economic organization of agriculture and the political equilibrium determining the security of property rights are jointly determined in particular because the form of organization may affect the probability and distribution of benefits from future property challenges it may be shaped in anticipation of this impact property rights security may then be secured at the expense of economic efficiency the model provides a framework for understanding why in some contexts land is redistributed primarily via land sales and tenancy markets but via politics and conflict in others we test some implications of the theory using a five decade panel dataset that traces changes in the extent of tenancy and tenancy reform across 15 indian states

the 2005 lawrence r klein lecture emergent class structure this article presents a model of the emergent class structure in which a society inhabited by inherently identical households may be endogenously split into the rich bourgeoisie and the poor proletariat for some parameter values the model has no steady state where all households remain equally wealthy in this case the model predicts emergent class structure or the rise of class societies even if every household starts with the same amount of wealth the society will experience symmetry breaking and will be polarized into two classes in steady state where the rich maintain a high level of wealth partly due to the presence of the poor who have no choice but to work for the rich at a wage rate strictly lower than the fair value of labor the nonexistence of the equal steady state means that a one shot redistribution of wealth would not be effective as wealth inequality and the class structure would always reemerge thus the class structure is an inevitable feature of capitalism for other parameter values on the other hand the model has the unique steady state which is characterized by perfect equality in this case the model predicts dissipating class structure or the fall of class societies even if the society starts with significant wealth inequality labor demand by the rich employers pushes up the wage rate so much that workers will escape from the poverty and eventually catch up with the rich eliminating wealth inequality and the class structure in the long run in an extension we introduce self employment which not only provides the poor with an alternative to working for the rich but also provides the rich with an alternative to investment that creates jobs due to this dual nature of self employment the effects of self employment turn out to be quite subtle yet within the present framework it is possible to offer a complete characterization of the steady states even in the presence of self employment

microeconomic determinants of income inequality in rural pakistan abstract inequality matters for poverty reduction however it is often unclear what policy could do to change the distribution of income as to date there is little quantitative evidence about the household characteristics that determine the level of income inequality and its changes over time this paper sets out to identify these determinants by adapting a regression based inequality decomposition technique and applying it to panel data from rural pakistan land ownership is key to explaining the level of inequality but not its changes in contrast higher education drives changes but not the level of inequality household location affects both reflecting growing differences in market access across regions

reaching out access to and use of banking services across countries the authors 1 present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities 2 show that these indicators predict household and firm use of banking services 3 explore the association between the outreach indicators and measures of financial institutional and infrastructure development across countries and 4 relate these banking outreach indicators to measures of firms financing constraints in particular they find that greater outreach is correlated with standard measures of financial development as well as with economic activity controlling for these factors the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach government ownership of financial institutions translates into lower access while more concentrated banking systems are associated with greater outreach finally firms in countries with higher branch and atm penetration and higher use of loan services report lower financing obstacles thus linking banking sector outreach to the alleviation of firms financing constraints

a financial contracting approach to the role of supermarkets in farmers credit access traditional moneylenders monitor farmers to ensure that their investment is not diverted modern farming contracts offered by supermarkets in developing countries often entail a loan component and monitoring arises as well however unlike moneylenders supermarkets do care about the attributes of the product whether such attributes are obtained is influenced largely by the advice and the extension services received by farmers we build a financial contracting model where we show that supermarkets optimally undertake both the monitoring and the advisory missions this contract is shown to potentially enhance credit access for small farmers but sometimes also involves excessive monitoring

who are china s entrepreneurs it has been increasingly recognized that entrepreneurship plays a crucial role in successful economies the schumpeterian approach to growth aghion and howitt 1997 advances the view that entrepreneurial dynamism is the key to innovation and growth a growing body of policy work emphasizes the important role of entrepreneurs in economic development world bank 2003 yet research on entrepreneurship in economics is rather limited there are three distinct perspectives on entrepreneurship in social sciences the first perspective focuses on the role of economic political and legal institutions in fostering or restricting entrepreneurship institutional problems are seen in credit constraints that make it impossible to borrow and set up businesses insecurity of property rights that provides insufficient incentives for entrepreneurs and regulatory burdens that make setting up new enterprises difficult the second perspective focuses on the sociological variables shaping entrepreneurship for example sociologists study the role of values and social networks in promoting or discouraging entrepreneurial activities social networks may work through a variety of channels such as family friends or ethnic groups the third perspective emphasizes individual characteristics of entrepreneurs psychologists have studied the traits associated with entrepreneurship such as a personal need for achievement belief in the effect of personal effort on outcomes attitudes towards risk and individual self confidence although there are studies on each perspective little work looks at each of these factors taking the other into account this is precisely what we do in this paper using a new data set of chinese entrepreneurs and a matching sample of non entrepreneurs with similar age gender and educational characteristics the survey covers both entrepreneurs and non entrepreneurs in order to understand how they differ in individual characteristics family background social networks values and beliefs and perceptions of the institutional environment the data further allow us to separate chinese entrepreneurs into two groups by necessity and by opportunity and to differentiate non entrepreneurs in three groups those who never thought to be entrepreneurs those who thought but never became entrepreneurs and those who became entrepreneurs but eventually failed this is a richer data set than a previous survey in russia

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

number of siblings credit constraints and entrepreneurship in china with an under developed financial market borrowing from relatives becomes an important funding source in starting one s own business in china this paper examines the positive effect of number of

limited enforcement financial intermediation and economic development a quantitative assessment we present a model of economic development where the importance of financial differences caused by limited enforcement can be measured economies where enforcement is poor direct less capital to the production sector and employ less efficient technologies calibrated simulations reveal that the resulting effect on output is large furthermore the model correctly predicts that the average scale of production should rise with the quality of enforcement finally we find that the importance of limited enforcement rises with the importance of capital in production

infrastructure and cluster development a case study of handloom weavers in rural ethiopia abstract clustering is an important structure of production in the rural nonfarm sector based on a primary survey of rural handloom clusters in ethiopia this article examines the mechanism and performance of clustering given weak financial institutions clustered producers and traders use trade credits to ease working capital constraints moreover geographical clustering enables entrepreneurs with limited capital to enter the business through shared workspaces and fine division of labour an improvement in infrastructure can further enhance firm performance in a cluster in towns with electricity access producers work longer hours by sharing lit workspaces at lower rental cost

how important are banks for development national banks in the united states 1870 1900 abstract do banks matter for growth and if so how this paper examines the effects of national banks in the united states from 1870 to 1900 i use the discontinuity in entry caused by a large minimum size requirement to identify the effects of banking for the counties on the margin between getting a bank and not gaining a bank increased production per person by 10 national banks in rural areas improved agriculture over manufacturing moving counties toward geographic comparative advantage since these banks made few long term loans the evidence suggests that the provision of working capital and liquidity matters for growth

an unconditional quantile regression based decomposition of spatial welfare inequalities in ghana abstractghana has witnessed tremendous economic growth since the 1990s and attained the millennium development goals target of halving poverty this notwithstanding inequality in ghana increased over the same period suggesting growth benefits were not equitably distributed this study provides evidence on the determinants of household consumption expenditure and factors that explain rural urban welfare gaps between 1998 and 2013 the study employs an unconditional quantile regression and recently proposed decomposition technique based on re centred influence functions we find significant spatial differences in consumption expenditure across selected quantiles with rural urban inequalities driven largely by differences in returns to households endowments

credit market imperfections and persistent unemployment abstract this paper develops the thesis that credit market frictions may be an important contributor to high unemployment in europe when a change in the technological regime necessitates the creation of new firms this can happen relatively rapidly in the u s where credit markets function efficiently in contrast in europe job creation is constrained by credit market imperfections so unemployment rises and remains high for an extended period the data show that there has not been slower growth in the most credit dependent industries in europe relative to the u s but the share of employment in these industries is lower than in the u s this suggests that although credit market imperfections are unlikely to have been the major cause of the increase in european unemployment they may have played some role in limiting european employment growth

a comparison between economic systems with an application to transition abstract this paper develops a general equilibrium theory of endogenous firm and class formation under non contractibility with heterogeneous individuals a collectivist economy a private ownership economy and a mixed economy are compared on the basis of identical economic fundamentals methodological symmetry each economic system generates specific inefficiencies so that none dominates the others in general the main trade off is between the welfare loss associated with risk taking in the private ownership economy and the informational problems in the collectivist economy we then use this framework to study the political economy of transition between economic systems and provide detailed welfare results

power shortages in developing countries impacts and policy implications abstract this paper is concerned with the short and long run economic impacts of power supply inadequacy in developing countries the paper provides an overview of the methodology for assessing the economic costs of power shortages and presents monetary estimates of some components of these costs for several developing countries particularly india and pakistan the final section discusses the policy implications of the problem including the need for significant changes in investment planning and resource mobilization strategies efficiency improvements pricing reforms and the integration of public and private power suppliers

why did the ruble collapse in august 1998 the factors that led to the collapse of the ruble are analyzed it is argued that it resulted from exogenous factors closely related to the unanticipated asian financial crisis interacting with inherited weaknesses in fundamentals of fiscal policy that made the russian economy while progressively being brought to macroeconomic stability nonetheless vulnerable to a large external shock it is contended that instead of the policy mistake of august 1998 requiring a default of domestic debt and moratorium on payment of foreign commercial debt a decision by russian authorities to offer temporary exchange controls sanctioned by the imf and the u s treasury as an emergency measure would have been a better alternative obviating the de facto partial and unilateral resort to controls that the moratorium and default implied

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

a closer look at financial development and income distribution this paper analyzes the under investigated relationship uniting financial development and income distribution we use a novel approach taking into account for the first time the specific channels linking banks capital markets and income inequality the time varying nature of the relationship and reciprocal causality we construct a set of annual indicators of banking and capital market size robustness efficiency and international integration we then estimate the determinants of income distribution using a panel bayesian structural vector autoregressive svar model for a set of 49 countries over the 1994 2002 period we uncover a significant causality running from financial sector development to income distribution in addition the banking sector seems to exert a stronger impact on inequality finally the relationship appears to depend on characteristics of the financial sector rather than on its size

inequality and growth uncovering the main conclusions from the empirics abstractthis paper is a critical survey of the empirical literature on the effects of inequality on economic growth we conclude that it is most likely that the disparities found in the results are due to differences in the type of countries and time periods included in the samples the variable used to measure inequality the structure of the data and the estimation techniques these findings suggest that the mechanisms that link inequality to growth are likely to operate differently in different circumstances an element that may offer important guidelines for both policy makers and researchers

understanding declining mobility and inter household transfers among east african pastoralists we model interhousehold transfers between nomadic livestock herders as the state dependent consequence of individuals strategic interdependen ce resulting from the existence of multiple opposing externalities a public good security ext ernality among individuals sharing a social e g ethnic identity in a potentially hostile en vironment creates incentives to band together self interested interhousehold wealth transfers fro m wealthier herders to poorer ones may emerge endogenously within a limited wealth space as a mea ns to motivate accompanying migration by the recipient the distributional reach and size o f the transfer are limited however by a resource appropriation externality related to the use of com mon property grazing lands when this effect dominates it can induce transfers from households who want to relieve grazing pressures caused by others herds our model augments the extant li terature on transfers and is perhaps more consistent with the limited available empirical evi dence on heterogeneous and changing transfers patterns among east african pastoralists the core principles of our model possibly apply more broadly for example to long distance migrants or e ven among foot soldiers in street gangs

is democracy more expropriative than dictatorship tocquevillian wisdom revisited abstract we reexamine the incentive effect of political democracy on the tax rate by defining a political regime over two dimensions the extent of the franchise and the extent that the redistribution of tax revenues is biased towards the rich standard tocquevillian models assume that even if there is limited franchise there is no redistribution bias from this it follows that democracy is more expropriative than oligarchy because a poorer median voter opts for higher taxes introducing the realistic assumption of a redistribution bias we find a countervailing effect democratization decreases exploitation by the rich on the disenfranchised poor since tax revenues are redistributed over a larger base the median voter may gain less from redistributive taxation we call this the olson effect

access to finance an unfinished agenda recent data compilations show that many poor and non poor people in many developing countries face a high degree of financial exclusion and high barriers in access to finance theory and empirical evidence point to the critical role that improved access to finance has in promoting growth and reducing income inequality an extensive literature shows the channels through which finance promotes enterprise growth and improves aggregate resource allocation there is less evidence at the household level however and on the effectiveness of policies to overcome financial exclusion the article summarizes recent efforts to measure and analyze the impact of access to finance and discusses the unfinished research agenda

esther duflo 2010 john bates clark medalist esther duflo winner of the 2010 john bates clark medal has made extraordinary contributions to development economics she exemplifies and has played a vital role in the renaissance of development economics over the past decade she has erected and inspired a research apparatus all over the developing world that integrates large scale field experiments with economic theory to yield important insights for development policy and our understanding of behavior and institutions in developing countries i ll divide my discussion of esther s work into four categories educational production the economic lives of the poor women as decisionmakers and a broad category of market and policy failures i will then offer some thoughts on esther s role as a scholar activist

more equal but less mobile education financing and intergenerational mobility in italy and in the us a centralised and egalitarian school system reduces the cost of education for poor families and so it should reduce income inequality and make intergenerational mobility easier in this paper we provide evidence that italy compared to the usa displays less income inequality as expected given the type of school system but also less intergenera tional upward mobility between occupations and between education levels we explore some of the reasons which can explain this puzzling result and conclude that in a world in which family background is important for labor market success a centralised and egalitarian tertiary education does not necessarily help poor children and may take away from them a fundamental tool to prove their talent and to compete with rich children 1999 elsevier science s a all rights reserved

credit constraints job mobility and entrepreneurship evidence from a property reform in china this paper provides new evidence on the impact of private property rights on entrepreneurship i explore this issue in the context of a housing reform in urban china that allowed state employees renting state owned housing the opportunity to buy their homes at subsidized prices using the reform as an exogenous change in the capital constraints and mobility costs that inuence individuals entry

policies and impact an analysis of village level microfinance institutions this paper uses variation in policies and institutional characteristics to evaluate the impacts of village level microfinance institutions in rural thailand to identify impacts we use policies related to the successful unsuccessful provision of services as exogenous variation in effective financial intermediation we find that institutions particularly those with good policies can promote asset growth consumption smoothing and occupational mobility and can decrease moneylender reliance specifically cash lending institutions production credit groups and especially women s groups are successful in providing intermediation and its benefits to members while buffalo banks and rice banks are not the policies identified as important to intermediation and benefits the provision of savings services especially pledged savings accounts emergency services and training and advice surprisingly much publicized policies such as joint liability default consequences or repayment frequency had no measured impacts jel 012 016

focusing effect and the poverty trap abstract i build a dynamic consumption savings model in which agents choices are distorted by the focusing effect agents overweight the utility of goods in which their options differ more i show that the consumption savings choice depends both on the marginal return on savings and on the total return on savings implying that the incentive to save may increase with the initial level of wealth as a consequence a salience based poverty trap may exist when the marginal return on savings is sufficiently high and sufficiently flat i also consider the case of a perfect credit market and show that a poverty trap may emerge when the salience of consumption is bounded above i discuss policy implications in particular imposing upon an agent a punishment for decreasing savings below a threshold leads to a higher level of savings even when the threshold triggering the punishment is not binding

introduction to development theory abstractthisarticle introduces the symposium on economic development theory 2007 elsevier inc all rights reserved jel classi cation o11 o12keywords development economics development economics a subject that studies institutions growth inequality and povertyin the developing world is a large lively and exciting area of research the objective of thissymposium is to put together some contributions in economic theory with a distinct focus ondevelopment questions much of early development economics as typi ed in the work of paul rosenstein rodan arthurlewis ragnarnurkse tiborscitovsky allynyoung gunnarmyrdal harveyleibenstein alberthirschman amartyasenandothers wastheoretical thoughnotnecessarilyinthesenseofformalmodel building theseauthorsallfelttheneedtobringnewconceptsintoeconomictheory ideas that would capture the essential features of underdevelopment and provide explanationsof the development process existing economic theory with its focus on competitive markets depersonalized exchange steady technical progress and balanced growth simply did not seemrightwhenmatchedwiththegroundrealitiesofunderdevelopment fragmented imperfect orjustplain missing markets highly personalized transactions in credit insurance or agrarian tenancy ambiguousornonexistentpropertyrights andwidespreadevidenceofpovertytrapsandhistoricallock ins a fair bit of modern economic theory was born in some of these early development writings young s article 40 on increasing returns was perhaps the rst systematic study of noncon vexities in economic growth rosenstein rodan s celebrated paper 32 on post war interven tion in europe provided a conceptual foundation for modern thinking on coordination failures

deregulation and restructuring of the global electricity supply industry and its impact upon power plant suppliers abstract this paper analyses the deregulation and restructuring of the global electricity supply industry and its impact upon fuel usage generation technologies and suppliers of power plant deregulation encouraged the growth of new independent power producers whose business requirements transformed the power plant industry the plant suppliers had to develop new capabilities and services to compete in the global market economies of scale and scope became crucial given the cost of developing the new technologies and providing the services required by the operators this led to the global consolidation of the power plant industry because only large integrated power engineering companies had the necessary resources and capabilities to compete in the new global environment

educational policy in a credit constrained economy with skill heterogeneity an overlapping generations model where agents choose whether to become educated when young is presented education enhances productivity but needs to be financed by borrowing because of the possibility of default lenders may ration credit we characterize the steady state equilibrium with and without credit constraints and show that credit constraints are associated with lower education and a lower real interest rate we then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium

a schumpeterian model of top income inequality top income inequality rose sharply in the united states over the last 40 years but increased only slightly in france and japan why we explore a model in which heterogeneous entrepreneurs broadly

income distribution and macroeconomics fertility adjustment prior to education investment abstract this paper develops a theory in which households prepare for future education by adjusting the quantity of children they intend to raise income inequality lowers output per worker only if the inequality is attributed in some part to unexpected disturbances after childbirth

one kind of freedom poverty dynamics in post apartheid south africa abstract a 1993 south african living standards survey documented the legacy of apartheid in the form high levels of inequality and human insecurity drawing on a 1998 re survey of households in the 1993 study this paper explores whether this legacy has been superseded or whether apartheid s end has been only one kind of freedom that has left households in a poverty trap from which they cannot escape after proposing a theoretically grounded dynamic poverty typology that distinguishes stochastic from structural poverty transitions the paper goes on to estimate that significant numbers of the south african poor are potentially trapped in a structural poverty trap and lack the means to escape poverty over time

inequality mobility and redistributive politics abstract this paper develops a model where income inequality and intergenerational mobility are jointly determined via redistributive politics the model includes two key factors accessibility of tertiary education for poor born agents and multiple self fulfilling expectations of agents given these factors the model provides predictions of cross country differences in inequality and mobility consistent with empirical observations

social interactions and segregation in skill accumulation this paper studies human capital investment in a spatial setting with interpersonal complemen tarities a mixture of local and global social interactions affect the cost of acquiring education and the return to human capital is determined endogenously in the market we study how spa tially segregated investment equilibria are affected by an increase in the relative importance of global vis a vis local interactions per capita income level equality and welfare are shown to improve if the skilled constitute a majority to begin with and if not these implications are reversed we also examine the effects of wider local neighborhoods and lower mobility costs and study a related two group model based on social distance jel d31 o15 d85

learning about the prospects for mobility economic and political dynamics following fundamental policy reform abstract the political left turn in latin america which lagged its transition to liberalized market economies by a decade or more challenges conventional economic explanations of voting behavior this paper generalizes the forward looking voter model to a broad range of dynamic possibly non concave income processes under full information the model implies support for redistributive policies materializes rapidly if few prospects of upward mobility are present in contrast modeling voters evolving beliefs about an unknown income dynamic process shows a slow and polarizing shift toward redistributive preferences simulation using fitted income dynamics suggests that this imperfect information perspective accounts for latin america s right to left political shift and offers additional insights about political dynamics in the face of economic polarization

financing the energy sector in developing countries context and overview abstract traditional business as usual financing methods will no longer be adequate to meet the unprecedented demands for capital to finance energy sector expansion in the developing countries in recognition many countries are opening up their power sectors to private investment initially through the establishment of independent power projects but in some cases through sector privatization project financing has many advantages but further sectoral reorganization including tariff reform will be needed to attract resources on the scale required especially from domestic investors in oil and gas in contrast to power private capital from the international oil companies has always played a major role in the developing countries however sharply increasing investment requirements require a growing role for external finance there should in principle be no shortage of investible funds to finance energy sector expansion in developing countries so long as host countries establish conditions which are attractive to private investors the augmented role of private finance requires a continuing if different role for the public sector in both host countries and official aid agencies

project finance risk evaluation of the electric power industry of serbia abstract from the aspect of the development of a country the energy sector represents a domain of strategic interest generation and use of energy resources most often belongs to the public sector and are most often under the influence of the government in most countries this paper analyzes the risks that are characteristic to the business of the public enterprise electric power industry of serbia eps eps has started its restructuring and is adjusting to changes and challenges imposed by the launched reforms in the energy sector however due to certain limitations it is still not possible to implement its complete restructuring and modernization the paper aims to point at the risks a potential strategic partner faces the risks have been identified as commercial financial and political classification immanent for project finance and their evaluation was done using failure mode and effects analysis fmea risk analysis was performed based on current conditions for two potential scenarios that predict different types of changes in the analyzed period the results of the analysis show that the potential strategic partner should pay special attention to price risks estimation investments project activity neglect quasi risks and debt collection

credit market frictions and political failure we study how an excessively favorable regulatory environment for banks could arise even with a perfectly competitive credit market in a median voter world in our occupational choice model with heterogeneous wealth endowments market failure due to unobservability of entrepreneurial talent endogenously creates a misalignment between surplus maximizing reforms and reforms that are preferred by the median voter who is a worker this is in contrast to the world without market failure where the electorate unanimously vote in favor of surplus maximizing institutional reforms this paper illustrates how market failure could lead to political failure even in the benchmark political system that is free from capture by interest groups

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

household inequality entrepreneurial dynamism and corporate financing economic theories provide conflicting hypotheses on how wealth inequality affects entrepreneurial dynamism to empirically investigate its impact we construct local measures of household wealth inequality based on financial rents home equity and 1880 farmland we identify its effects on entrepreneurship by instrumenting it with land distribution under the 1862 homestead act or us states removal of death taxes wealth inequality decreases firm entry and exit and the proportion of high tech businesses across metropolitan statistical areas there is also less redistribution into public goods supportive of entrepreneurship such as schooling and the judiciary income per capita consequently grows more slowly

the economics of consanguineous marriages the institution of consanguineous marriage a marriage contracted between close biological relatives has been a basic building block of many societies in different parts of the world this paper argues that the practice of consanguinity is closely related to the practice of dowry and that both arise in response to an agency problem between the families of a bride and a groom when marriage contracts are incomplete dowries transfer control rights to the party with the highest incentives to invest in a marriage when these transactions are costly however consanguinity can be a more appropriate response since it directly reduces the agency cost the paper s model predicts that dowry transfers are less likely to be observed in consanguineous unions it also emphasizes the effect of credit constraints on the relative prevalence of dowry payment and consanguinity an empirical analysis using data from bangladesh delivers robust results consistent with the predictions of the model

russian retrospectives on reforms from yeltsin to putin the kamikaze crew of liberal reformers picked by former president boris yeltsin in the early 1990s succeeded in overturning the planned economy and the authoritarian political arrangements of seven decades of soviet communism however the resulting breakdown of political cohesion and the urgency of restoring stability prompted yeltsin to select vladimir putin as his successor the consolidating impetus under putin who was elected president in early 2000 has raised concerns about the continuation of economic and political reforms under his leadership in this essay nine russian interviewees look back on the reform issues under yeltsin and look ahead on the unfolding political economy scenario under putin they include three principle economic reformers under yeltsin three economic policy analysts and three banking professionals

debt constrained asset markets we develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature if an agent defaults on a contract he can be excluded from future contingent claims markets trading and can have his assets seized he cannot be excluded from spot markets trading however and he has some private endowments that cannot be seized all information is publicly held and common knowledge and there is a complete set of contingent claims markets since there is complete information an agent cannot enter into a contract in which he would have an incentive to default in some state in general there is only partial insurance variations in consumption may be imperfectly correlated across agents interest rates may be lower than they would be without constraints and equilibria may be pareto ranked

imf conditionality government partisanship and the progress of economic reforms the international monetary fund imf often seeks to influence countries domestic public policy via varying levels of conditionality linking financial support to borrowing governments commitment to policy reforms when does extensive conditionality encourage domestic economic reforms and when does it impede them we argue that rather than universally benefiting or harming reforms the effects of stricter imf conditionality depend on domestic partisan politics more imf conditions can pressure left wing governments into undertaking more ambitious reforms with little resistance from partisan rivals on the right under right governments however more conditions hinder reform implementation by heightening resistance from the left while simultaneously reducing leaders ability to win their support through concessions or compromise using data on post communist imf programs for the period 1994 2010 we find robust evidence supporting these claims even after addressing the endogeneity of imf programs via instrumental variables analysis

risk bearing and the theory of income distribution this paper develops the stochastic theory of distribution with a dynamic model which focuses on the role of incomplete insurance in generating inequality unlike previous work our approach takes explicit account of the reason for market incompleteness in modeling agents behaviour in particular the amount of risk borne is endogenous using a model of growth with altruism in which agents are risk averse and there is moral hazard we show that lineage wealth follows a markov process which converges globally to an ergodic distribution this also represents the long run population distribution of wealth we discuss the role of particular assumptions such as availability of production loans and unboundedness of utility in yielding the qualitative properties of the distribution of wealth the choice of occupation and the prevention of poverty traps