Essays On Risk, Uncertainty, and Information

This dissertation presents a three-part study in modern empirical development economics. In each part, I tackle an important economics issue that affects the developing world—agricultural risk, principle-agent problems in firms, and poor public service delivery. I use randomized control trails (RCT) to uncover the causal impact of interventions designed to relieve constraints and improve outcomes for stakeholders./nThe first chapter evaluates a novel microfinance product that is designed to help small-holder farmers manage uninsured agricultural risk. I run a large-scale RCT involving 300,000 microfinance clients in Bangladesh with one of the country’s largest microcredit institutions. Microfinance clients were randomly given pre-approval to take a loan if they experienced flooding in their local area. I show that this unique type of microcredit improves household welfare through two channels: an ex-ante insurance effect, where households increase investment in risky production, and an ex-post effect, where households are better able to maintain consumption and asset levels after a shock. I also document that households value this product, taking costly action to preserve their guaranteed access. Importantly, the extension of this additional credit improves loan repayment rates and MFI profitability, suggesting that this product can be sustainably extended to households already connected to microcredit networks./nThe second chapter examines the problem of moral hazard in employer–employee contracting and how this may be an important barrier to firm efficiency and growth in the developing world. To do so, we run an RCT with a fleet of 255 minibuses/n(matatus) in Nairobi, Kenya, where we introduce monitoring devices that track real-time vehicle location, daily productivity, and safety statistics. We randomize whether minibus owners have access to these monitoring data using a novel mobile app. This information allows owners in the treatment group to observe a more precise signal of driver effort, the amount of revenue drivers collected in fares, and the extent to which the driver engages in reckless driving. We find that treated vehicle owners modify the terms of the contract by decreasing the rental price they demand. Drivers respond by working more hours, decreasing behaviors that damage the vehicle, and under-reporting revenue by less. These changes improve firm profits and reduce management costs, thereby helping treated firms grow. The device also improves owners’ trust in their drivers, which drivers say makes their job easier. Finally, we investigate whether these gains to the company come at the expense of passenger safety, in an environment where accidents are common. While we do not find any evidence that conditions deteriorate, offering detailed information on driving behavior also does not improve safety. Only by incentivizing drivers through an additional cash treatment do we detect safety improvements./nFinally, the third chapter investigates the problem of poor road safety that plagues the developing world. Road traffic accidents are rapidly increasing, claim- ing more than 1.35 million lives annually and causing up to 50 million injuries. However, little is known about effective ways to improve road traffic safety in con- texts where policing and government capacity are limited. To address this problem, we use an RCT to examine whether dissemination of safety information to passengers of public transit vehicles can reduce unsafe driving. We find that passengers are not more likely to choose a safe bus after receiving safety information, but are will- ing to switch their bus choice in response to monetary incentives. However, there is some evidence that passengers who care about safety are more likely to choose a bus they already believed was safe ex-ante, suggesting that the failure to respond to safety information may be due to skepticism about the quality of safety information provided. This emphasizes the importance of disseminating information through channels that every-day passengers are familiar with and trust./nJointly, the three parts of this dissertation aim to apply careful research strategies, in conjunction with economic theory, to provide policy-relevant evidence to- wards improving outcomes in the developing world.

Advisor: Sadoulet, Elisabeth