credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

semicollusion in the norwegian cement market abstract a model of semicollusion where firms collude on prices and compete on capacities is tailor made to the characteristics of the norwegian cement market and tested on this particular market for the period 1927 1982 the results indicate that the rapid increase in capacity and thereby in exports in the period 1956 1967 the late phase of the price cartel best can be explained by the market sharing agreement each firm overinvested in capacity to receive a large quota in the domestic market

household coping in war and peacetime cattle sales in rwanda 1991 2001 abstract the economic literature has given due attention to household coping strategies in peacetime in contrast little is known about such strategies in wartime this paper studies the use of cattle as a buffer stock by rwandan households during 1991 2001 a period characterized by civil war and genocide it is found that the probability of selling cattle increases upon the occurrence of both peacetime and wartime covariant adverse income shocks the peacetime cattle sales are largely explained by shifts in the household asset portfolio in contrast in 1994 the year of the genocide almost half of the cattle sales were motivated by the need to buy food however we argue that the effectiveness of this coping strategy was severely reduced due to the wartime conditions first during the year of ethnic violence cattle prices plummeted to less than half of their pre genocide value second we find that households most targeted in the violence did not sell cattle we discuss several explanations for this latter finding

disadvantageous collusion and government regulation abstract the semi collusion model indicates that when firms collude on outputs and compete on capacities cartel members may be worse off why do rational firms choose such kind of disadvantageous collusion in order to solve the puzzle this article uses taiwan s flour cartel case to investigate firms incentives and finds that government regulation seems to be the primary reason to create such a predicament

extreme weather and civil war does drought fuel conflict in somalia through livestock price shocks climate change leads to more frequent and more intense droughts in somalia in a global context weather shocks have been found to perpetuate poverty and fuel civil conflict by relating regional and temporal variations in violent conflict outbreaks and drought incidence and severity we show that this causality is also valid for somalia at the local level we find that livestock price shocks drive drought induced conflicts through reducing the opportunity costs of conflict participation our estimation results indicate that a temperature rise of around 3 2 degree celcius corresponding to the median ipcc scenario for eastern africa by the end of the century would lower cattle prices by about 4 percent and in turn increase the number of violent conflict by about 58 percent hence climate change will further aggravate somalia s security challenges and calls for decisive action to strengthen both drought and conflict resilience especially in pastoralist and agropastoralist livelihoods

business cycles with staggered prices and international trade in intermediate inputs abstract international trade in intermediate inputs and increasingly in goods produced at multiple stages of processing has been widely studied in the real trade literature we assess the role of this feature of modern world trade in accounting for some stylized facts about international business cycles our model with staggered prices and trade in intermediates across four stages of processing does well in explaining the observed international correlations in aggregate quantities and it performs much better than a single stage model with no trade in intermediates the model in itself does not provide a full account of the cyclical behavior of the real exchange rate but compared to the single stage model it moves in the right direction

agricultural production amid conflict separating the effects of conflict into shocks and uncertainty abstract this paper examines the effect of conflict on agricultural production of small farmers first an inter temporal model of agricultural production is developed in which the impact of conflict is transmitted through violent shocks and uncertainty brought about by conflict we test the model using a unique household survey applied to 4800 households in four micro regions of colombia our findings suggest households learn to live amid conflict albeit at a lower income trajectory when presence of non state armed actors prolongs farmers shift to activities with short term yields and lower profitability from activities that require high investments if violence intensifies in regions with presence of non state armed actors farmers concentrate on subsistence activities

sunk costs and strategic commitment a proposed three stage equilibrium dixit s i980 paper in this journal the role of investment in entry deterrence has attracted considerable interest from economists concerned with constructing a modern theory of strategic behaviour towards entry in fact the paper has spawned quite an industry of commitment models in which the equilibrium payoffs in some final period game can be influenced by strategic commitments made by the players in an earlier period for similar models with important insights into strategic entry deterrence see eaton and lipsey i980 i98i schmalensee i98i the purpose of this note is to argue that when the instrument of stragetic commitment takes the form of sunk costs which both entrant and incumbent have to bear as it does in dixit s paper and in many other examples a three stage model rather than the two stage model presented by dixit is required although the proposed equilibrium differs from dixit s its qualitative features are the same it may or may not be profitable to deter entry and if it is the first mover may still prefer to play an accommodation strategy and allow entry to take place following dixit we restrict our attention to the asymmetric case in which one firm the incumbent makes the first move the two stage game involves the first mover sinking part of its costs in advance so that in the second stage equilibrium it will have a current cost advantage over the entrant which must incur the full cost of producing any desired output level the second period cost asymmetry ensures the incumbent a lar ger share of the post entry market which may be sufficient to deter entry altogether the problem with the two stage game lies in the nature of sunk costs sunk costs by definition are committed before the production period takes place if they were expended as a flow simultaneously with production they would not be sunk the installation of capacity is the natural example employed by dixit and well illustrates the point if installed capacity is a sunk cost which it must be for the incumbent to acquire any strategic advantage at all then the entrant s installed capacity is equally sunk and must also be committed before the production period takes place given this observation the post entry final period equilibrium should not be modelled as if the entrant were simultaneously incurring both variable and sunk costs but the incumbent only incurs variable costs this implies too great an asymmetry in favour of the incumbent the final period equilibrium should involve both firms incurring only variable

the cost of fear the welfare effect of the risk of violence in northern uganda although the effects of insecurity are believed to be important these have never been directly measured previous estimates of the costs of conflict have only captured the joint effect of violence and insecurity the distinction is important for understanding the origins of the costs and for policy design spatially disaggregated measures of insecurity are created based on the spatial temporal variation in the placement of violence these are used to generate the first estimates of the relative causal contributions of the risk and experience of violence the article also provides the first micro data based counterpart to the cross country literature on the costs of conflict

taxation of interest income deregulation and the banking industry removing interest rate ceilings on bank deposits or reducing the tax rate applicable to the interest earned on such deposits are alternative means of increasing the after tax return to depositors these alternatives however have differing impacts on the structure of a competitive banking industry this paper develops a model which focuses on a bank s choice between paying an explicit interest rate on its deposits and paying a return in the form of services the model allows banks to differ in their production technologies and depositors in their marginal tax rates and preferences for services the effects of tax rate changes and a ceiling on the explicit deposit interest rate are analyzed coinciding with the rise in market interest rates to levels significantly above regulation ceiling rates on bank and savings and loan deposits has been a move to reduce the level of taxation on interest income general proposals to reduce the tax on interest income seem to have gained support as a means of increasing after tax rates of return in order to increase aggregate savings while proposals to allow banks and savings and loans to offer tax free savings certificates are supported as a means of reducing the cost of funds for such thrift institutions for example the tax exempt all savers certificates were designed to yield higher after tax rates of return for some individuals while simultaneously lowering the cost of funds to the issuing institutions as a means of providing a higher return to depositors an obvious alternative to reducing the tax on interest income would be to speed the removal of interest rate ceilings which apply to deposits at banks and savings and loans tax changes and deregulation would both affect the banking industry by leading to changes in the after tax interest rate on deposits the composition of deposit return between explicit taxable interest payments and the provision at below cost of nontaxable services might also be affected along with the optimum level of deposits for an individual bank and the size of the banking industry unfortunately none of these implications all of which are relevant for analyzing recent tax and deregulation proposals have been studied within the framework of a model of the banking industry this paper develops a model which focuses on the bank s choice between paying an explicit interest rate on its deposits and paying a return in the form of services previous models have often ignored this choice assuming that only the total return and not its composition mattered to the bank kareken 11 klein

microcredit and adjustment to environmental shock evidence from the great famine in ireland the great famine of ireland from 1845 to 51 ranks as one of the most lethal of all time claiming approximately one eighth of the country s population utilizing famine relief commission reports to develop a micro level dataset of blight severity i find that in the short run districts more severely infected by blight experienced larger population declines and accumulations of buffer livestock by small to medium sized farms in the medium and long runs however worse affected districts experienced greater substitutions toward other tillage crops and grazing livestock particularly by small to medium sized farms using annual reports of the irish loan funds i further find that access to microfinance credit was an important factor in non demographic adjustment to blight worse affected districts with at least one microfinance fund during the famine experienced substantially smaller relative population declines and larger relative increases in buffer livestock during and immediately after the famine and greater relative medium and long run substitutions toward other crops and grazing livestock than worse affected districts without a fund

saving and economic shocks in rural pakistan abstract this paper adapts the recent methodology of paxson to study saving rates in rural pakistan particular attention is paid to differences in marginal rates of financial and physical saving and how these vary across income groups and by direction of income shocks households exhibit more difficulty in smoothing consumption after successive shocks than with a single shock the study also observes marginal rates of saving out of international remittances and lump sum pensions unlike domestic remittances international remittances appear to be treated much as transitory income shocks

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

on the workings of a cartel evidence from the norwegian cement industry using the institutional set up of the norwegian cement industry in particular its sharing rule we are able to identify the workings of a cartel in some detail given data on prices production and exports we are able to identify marginal costs as well as the effectiveness of the cartel we compare our marginal cost estimates which are derived from an equilibrium condition to detailed cost accounting data and find that our estimate of marginal cost is very much in line with the data we then show that the cement cartel has been ineffective in the sense that the sharing rule induces overproduction and exporting below marginal costs in this sense it is consumers not firms that benefi tf rom the sharing rule we find that the ineffectiveness of the cartel is becoming so large that domestic welfare of a merger to monopoly would in fact be positive at around 1968 which is exactly when the merger actually took place however we also show that competition would have resulted in even higher welfare gains over the entire sample

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

consumption versus asset smoothing testing the implications of poverty trap theory in burkina faso abstract despite solid theoretical foundations for the notion that poor borrowing constrained households will intertemporally manage assets to smooth consumption the consumption smoothing hypothesis has not always withstood empirical scrutiny this paper reassesses the intertemporal asset management problem with a poverty trap model and shows that we would expect to see asset smoothing not consumption smoothing in the neighborhood of critical asset levels at which optimal accumulation behavior bifurcates we then employ threshold estimation techniques to empirically confirm the co existence of consumption and asset smoothing regimes using a household panel data set from west africa households above the estimated threshold almost completely insulate their consumption from weather shocks whereas those below the threshold do not these results not only indirectly provide evidence of the existence of poverty traps but also speak to the level and incidence of the costs of uninsured risk

effects of conflict on agriculture evidence from the boko haram insurgency abstract we investigate the effects of conflict on agriculture using the boko haram insurgency as a case study we identify the output input infrastructure and human capital effects as direct effects and the loss of talent and other environmental factors as indirect effects identified market effects include effects on product and input prices and increased risk premiums by combining a nationally representative panel dataset on nigerian agriculture with armed conflict data we find that the increased intensity of boko haram attacks significantly reduces total output and productivity but not land use and reduces the outputs of specific staple crops such as sorghum cassava soya and yam conflict is also found to reduce the hours of hired labor for men and women but does not affect the use of family labor agricultural wages are however significantly affected because it reveals if why and how conflict affects agriculture this study has important implications for post crisis recovery and agricultural development

is informal risk sharing less effective for the poor risk externalities and moral hazard in mutual insurance abstract poor farm households are less keen to adopt high risk high return technologies than rich households yet the poor are more vulnerable to income shocks we develop a model of endogenous risk taking to explain these facts in autarky poor households adopt less risky production plans and obtain lower expected returns but face higher relative risk than the rich the introduction of risk sharing generates negative risk externalities between agents at the first best the social planner imposes a homogeneous level of risk taking in the group at the second best risk taking is not enforceable and increases with insurance generating moral hazard interestingly the poor s risk taking behavior is more sensitive to insurance the social planner thus mitigates risk taking by applying a lower insurance coverage in poor groups the introduction of risk sharing therefore reinforces the gap between rich and poor in terms of expected income and absolute risk while the effect on relative risk is ambiguous

famine and household coping strategies abstract households faced with risks to their entitlement to food will plan strategically to minimize their impact the task of doing this will be particularly demanding during famines this paper reviews the evidence on household strategies for coping with famine in africa and identifies some distinctive patterns in these strategies which can be used to examine household objectives at times of crisis the management of resources to meet these objectives and limits to the effectiveness of coping strategies in particular it examines the role of asset management and trade offs between maintaining current food consumption levels and protecting the future income generating capacity of the household

is consumption insured against illness evidence on vulnerability of households to health shocks in rural ethiopia abstract low and volatile incomes and absence of well developed financial markets make consumption smoothing an important issue in low income countries based on the theory of full insurance and using 2 years of panel data this study examines the impact of illness on the consumption of rural households and the capacity of existing risk sharing mechanisms in insuring consumption against health shocks in the rural areas of ethiopia the results show that illness has a statistically significant negative impact on the stability of consumption and the capacity of households or existing intra and interhousehold risk sharing arrangements in insuring consumption against illness varies across different consumption items the regression results show that the hypothesis of consumption insurance cannot be rejected in the case of total food consumption implying that basic items that come from own production and from external sources gifts are better insured and insensitive to the illness of the head however the

consumer benefited cartels under strategic capital investment competition abstract the purpose of this paper is to refute the genrally accepted idea that a cartel raises producers surplus at the expense of consumers surplus if firms in an industry expect that a cartel in which the output is allocated on the bases of the capital equipment will be formed then each firm tries to make a larger capital investment than before which may lead to larger consumers surplus through this argument i shall present one of the reasons why heavy industries had excess capacity in postwar japan

income and livelihoods in the war in afghanistan we explore the impact of the insurgency and military deployment on the livelihoods of local communities in afghanistan we use monthly wages and commodity prices at the provincial level over the period 2003 09 and look for their response to conflict events and isaf deployment overall we find that prices are more sensitive to deployment than to attacks commodity prices are not significantly affected by insurgent violence which is consistent with coping strategies already in place on the opposite military deployment is associated with an increase in the levels of wages and commodity prices as isaf is a new source of uncertainty

entry barriers and economic welfare the relationship between economic welfare and the number of firms in a quasi cournot market is examined in the first place we presuppose the existence of a strong first best government that can enforce the marginal cost principle to the firms along with regulating the number of firms it is shown that there exist excessive number of firms at the free entry quasicournot equilibrium vis a vis the first best welfare maximizing number of firms the thrust of this result essentially survives even if we replace a utopian first best government by a secondbest government that leaves the firms to pursue their respective profit maximization freely and engages solely in regulating the number of firms it can be shown that the excess entry prevails again in this second best world recent studies in the theoretical industrial organization literature have uncovered several instances which cast serious doubt on the reasonableness of a widespread belief that increasing competition will increase welfare stiglitz 1981 p 184 it has been shown that there are cases which are not altogether unreasonable where social welfare will be increased by strengthening rather than weakening the protection of incumbent firms from the threat of potential entry this is in sharp contrast with the traditional belief 2 what is not known however is how robust these pathologies in fact are we intend to settle this problem by proving two excess entry theorems in the quasi cournot parametric conjectural variations homogeneous oligopoly model seade 1980a b in the first place we presuppose the existence of a strong first best government that could costlessly enforce the marginal cost pricing principle by firms in an oligopolistic market and regulate entry in pursuit of first best social welfare optimization it is shown that the number of firms at the free entry equilibrium exceeds the first best welfare optimizing number of firms the result has already been noted by von weizsacker 1980a b and others in terms of numerical examples our theorem 1 asserts that this phenomenon always holds true for the family of quasi cournot models at hand an implication of this result is that the existence of entry barriers which protect incumbent firms from potential competitors is not necessarily welfare decreasing in sharp contrast with the traditional belief a problem remains with theorem 1 however in that an omnipotent first best government does not exist in reality and the first best ideal is unrealizable in the actual economy therefore even if the intervention by a first best government with a view to restricting the number of firms within an industry may be welfare improving it does

using weather variability to estimate the response of savings to transitory income in thailand this paper measures the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income time series information on regional rainfall is used to construct estimates of transitory income due to rainfall shocks the relationship between these measures of transitory income and savings indicates that farm households save a significantly higher fraction of transitory income than nontransitory income jel d91 016 the incomes of farm households in developing countries are notorious for being both low and uncertain policies that increase the incomes of farmers may well be different

forced displacement and technology adoption an empirical analysis based on agricultural households in bosnia and herzegovina we use the bosnian living standards measurement study lsms survey to show that conflict induced displacement of agricultural households dramatically affects the adoption of new technologies in agriculture we exploit the heterogeneity in the level of violence in the pre war location to account for selection bias this natural experiment seems to be a source of exogenous variation in our case because violence aims at ethnic cleansing without economic consideration we find that the displaced are less likely than stayers to adopt fertiliser and pesticide

the unintended consequence of an export ban evidence from benin s shrimp sector summary the inability of benin to comply with eu standards led to a ban on its shrimp exports we show that the ban had a negative impact on the income of fishmongers and fishermen in the short run but also several years after it was lifted the impact persisted because exports to the eu did not revive and the local shrimp demand could not fully compensate for the loss of the eu market a small number of local actors coped with the ban by moving out of the sector but the large majority were locked in the local fishery sector

shocks and asset dynamics in ethiopia abstractthis article uses household survey panel data of 416 rural households to study asset dynamics in the northern highlands of ethiopia and the response of assets to shocks the period under examination 1996 2003 was marked by severe environmental shocks including a series of droughts the article empirically studies the nature of household asset paths over time using as the point of departure the theory on precautionary savings behavior results indicate that the response of assets to weather shocks the differential effect of these shocks on liquid and less liquid forms of wealth holdings and the nature of asset dynamics are all consistent with the implications of a precautionary motive for holding wealth

consumer benefiting exclusive territories i investigate the effect of exclusive territories which are typical vertical controls imposed by upstream firms using shipping spatial models i consider an industry that consists of many independent local markets an upstream monopolist restricts competition between downstream firms using exclusive territories i find that exclusive territories reduce the prices of final products in all local markets in quantity setting competition in price setting competition they raise prices in half the local markets reduce them in other markets and also reduce the total consumer surplus jel classification l42 r32 a propos de territoires exclusifs qui profitent aux consommateurs l auteur analyse les effets de la regle des territoires exclusifs qui est souvent imposee comme controle vertical par les entreprises en amont a l aide de modeles spatiaux de livraison on considere le cas d une industrie composee de plusieurs marches locaux independants un monopoleur en amont reduit la concurrence entre entreprises en aval en imposant la regle des territoires exclusifs on decouvre que cette regle reduit les prix du produit final dans tous les marches locaux s il y a concurrence par les quantites s il y a concurrence par les prix la regle accroit les prix dans la moitie des marches locaux les reduit dans les autres et reduit aussi le surplus au consommateur

price hike of staple food nutritional impact and consumption adjustment evidence from the 2005 2010 rice price increase in rural bangladesh this paper studies the nutritional impact of the rice price increase between 2005 and 2010 on households in rural bangladesh and their resulting adjustment in consumption of rice non rice food and

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society