Publications

2007
Field, Erica M, Attila Ambrus, and Mzimo Torero. 2007. Muslim family law, prenuptial agreements and the emergence of dowry in Bangladesh.Abstract
To explain trends in dowry levels in Bangladesh, we draw attention to a widespread institutional feature of marriage contracts previously ignored in the literature: the mehr or traditional Islamic brideprice, which functions as a prenuptial agreement in Bangladesh due to the default practice in which it is only payable upon divorce. We develop a model of marriage contracts in which mehr serves as a barrier to husbands from exiting marriage, in which dowry can be divided into a standard price component and a term that ex ante compensates grooms for the cost of mehr chosen by the couple. The contracts are welfare improving because they induce husbands to internalize the social costs of divorce for women. We investigate how mehr and dowry respond to exogenous changes in the costs of polygamy and divorce, and show that both decrease when costs of divorce increase for men. This is in contrast with the predictions of models in which dowry serves only the traditionally considered roles of price or bequest. To test the model’s predictions empirically, we use novel data collected on marriage contracts between 1956 and 2004 from a large household survey from the Northwest region of the country, and make use of key changes in Muslim Family Law between 1961 and 1999. We show that major changes in dowry levels took place precisely after the legal changes, corresponding to simultaneous changes in levels of mehr. We argue that the documented pattern of responses can only be explained if dowries include a component of compensation for mehr, hence our study provides strong evidence of the role of legal rules governing marital separation in explaining dowry trends in Bangladesh.
Desai, Mihir A, and Dhammika Dharmapala. 2007. Taxes, Institutions and Foreign Diversification Opportunities.Abstract
Investors can access foreign diversification opportunities through either foreign portfolio investment (FPI) or foreign direct investment (FDI). By combining data on US outbound FPI and FDI, this paper analyzes whether the composition of US outbound capital flows reflect efforts to bypass home country tax regimes and weak host country investor protections. The cross-country analysis indicates that a 10% decrease in a foreign country’s corporate tax rate increases US investors’ equity FPI holdings by 21%, controlling for effects on FDI. This suggests that the residual tax on foreign multinational firm earnings biases capital flows to low corporate tax countries toward FPI. A one standard deviation increase in a foreign country’s investor protections is shown to be associated with a 24% increase in US investors’ equity FPI holdings. These results are robust to various controls, are not evident for debt capital flows, and are confirmed using an instrumental variables analysis. The use of FPI to bypass home country taxation of multinational firms is also apparent using only portfolio investment responses to within-country corporate tax rate changes in a panel from 1994 to 2005. Investors appear to alter their portfolio choices to circumvent home and host country institutional regimes.
Also NBER Working Paper No. 13132. Download PDF
Desai, Mihir A, Pol Antràs, and Fritz C Foley. 2007. Multinational Firms, FDI Flows and Imperfect Capital Markets.Abstract
This paper examines how costly financial contracting and weak investor protection influence the cross-border operational, financing and investment decisions of firms. We develop a model in which product developers have a comparative advantage in monitoring the deployment of their technology abroad. The paper demonstrates that when firms want to exploit technologies abroad, multinational firm (MNC) activity and foreign direct investment (FDI) flows arise endogenously when monitoring is nonverifiable and financial frictions exist. The mechanism generating MNC activity is not the risk of technological expropriation by local partners but the demands of external funders who require MNC participation to ensure value maximization by local entrepreneurs. The model demonstrates that weak investor protections limit the scale of multinational firm activity, increase the reliance on FDI flows and alter the decision to deploy technology through FDI as opposed to arm’s length licensing. Several distinctive predictions for the impact of weak investor protection on MNC activity and FDI flows are tested and confirmed using firm-level data.
Also NBER Working Paper No. 12855. Download PDF
Cooper, Richard N. 2007. Living with Global Imbalances.Abstract
The U.S. economy and the economies of the rest of the world intersect through international transactions. These have received more attention in the Brookings Papers, although again largely with a U.S. focus. I will address this intersection with respect to the large global imbalances that exist today, although I will deviate from the usual practice here by adopting a rest-of-the-world rather than a U.S. perspective.In this brief paper I want to cast doubt on two related propositions that are widely accepted as truths: that Americans save too little, and that the U.S. current account deficit is unsustainably large, risking a disorderly adjustment that would be damaging to the world economy in the relatively near (but usually unspecified) future. These remarks should not be treated as new truths, but as plausible alternative hypotheses about how the world works these days, how we reached our current circumstances, and what the future may bring.
Also Brookings Papers on Economic Activity, 2:2007.Download PDF
Field, Erica M, Nava Ashraf, and Jean N Lee. 2007. Gender, Intrahousehold Decisionmaking, and the Demand for Children.Abstract
We present evidence from a field experiment in Lusaka, Zambia that male involvement in the decision to seek out family planning services leads to substantial reductions in utilization. This phenomenon appears to be driven by average differences by gender in the demand for children rather than by a general distrust of or lack of information about family planning technologies among men. Study participants were offered a voucher that granted access to an appointment with a family planning nurse without a wait in line. Demand for family planning services is high, as evidenced by the 41 percent overall rate at which these vouchers were redeemed. Women were randomly assigned to receive the voucher either by themselves in private, or together with their husbands. Takeup among women assigned to receive the vouchers with their husbands was 9 percentage points (18 percent) lower than among women randomly assigned to receive the vouchers alone. We find evidence that this reduction in takeup was larger if husbands wanted more children than their wives, and stronger evidence that this reduction was larger among young couples than among older couples with completed fertility. There is no evidence that assignment to couples treatment reduces voucher use for women whose husbands want no more children, and evidence for a 12 percentage point reduction in use in the subsample of women whose husbands do want more children. Taken together, these results suggest that the unitary and collective bargaining models do not sufficiently richly describe the bargaining process over fertility within the household. Furthermore, policies or technologies that shift relative control of contraceptive methods from men to women may significantly increase contraceptive use and reduce average fertility in some contexts.
Baum, Matthew, Tim Groeling, and Martie Haselton. 2007. Political Scandal, Gender, and Tabloid News: An Experimental Examination of the Evolutionary Origins of Consumer Preferences.Abstract
Building on recent work in evolutionary psychology, we predict substantial gender-related differences in demand for scandalous political news. We argue that individuals’ self-images can alter their motivation to seek information about potential sexual competitors and mates, even when those figures are “virtual”—appearing in mass media. Individuals perceiving themselves as attractive will seek negative news about attractive same-gender individuals, whereas individuals perceiving themselves as unattractive will seek negative information about the opposite gender. We test our hypotheses in three ways. First, we investigate partially disaggregated national opinion data regarding news attention. Second, we conduct an experiment in which we asked participants to choose the two most interesting stories from a menu of headlines. We varied the gender and party affiliation of the individual featured in the story. Each participant saw a headline promoting a DUI arrest of an attractive male or female “rising star” from one of the two parties. Finally, we repeat the experiment with a national sample, this time also varying the valence of the tabloid story. We find strong correlations between respondents’ self-image and their likelihood of seeking and distributing positive or negative information about “virtual” competitors and mates.
Baum, Matthew, and Tim Groeling. 2007. Shot by the Messenger: An Experimental Examination of the Effects of Party.Abstract
Research has shown that messages of intra-party harmony tend to be ignored by the news media, while internal disputes, especially within the governing party, generally receive prominent coverage. We examine how messages of party conflict and cooperation affect public opinion regarding national security, as well as whether and how the reputations of media outlets matter. We develop a typology of partisan messages in the news, determining their likely effects based on the characteristics of the speaker, listener, news outlet, and message content. We hypothesize that criticism of the president by his fellow partisan elites should be exceptionally damaging (especially on a “conservative” media outlet), while opposition party praise of the president should be the most helpful (especially on a “liberal” outlet). We test our hypotheses through an experiment and a national survey on attitudes regarding the Iraq War. The results show that credible communication (i.e., “costly” rhetoric harmful to a party) is more influential than “cheap talk” in moving public opinion. Ironically, news media outlets perceived as ideologically “hostile” can actually enhance the credibility of certain messages relative to “friendly” news sources.
Baum, Matthew, and Tim Groeling. 2007. Iraq and the Fox Effect: An Examination of Polarizing Media and Public Support for International Conflict. In .Abstract
The causes and consequences of public support, or the lack thereof, for the overseas application of military force is a subject of longstanding scholarly debate. The most widely accepted explanations emphasize rational public responses to events as they unfold. Such “event-based” explanations hold that a president’s ability to sustain public support for a U.S. military engagement depends primarily on its degree of success, the number of or trend in U.S. casualties, or the U.S. goals in a given conflict. Yet, recent research into the framing of foreign policy has shown that public perceptions concerning, success or failure, the implications of casualties, and the offensive or defensive nature of U.S. military engagements are often endogenous to the domestic political circumstances surrounding them, including the efforts of political and media elites to frame events to their own advantage. In this study, we develop and test a series of hypotheses concerning media coverage of, and public opinion regarding, the war in Iraq. In the former case, in prior research (Baum and Groeling 2004, 2005) we report evidence that journalists’ preferences lead traditional news programs to disproportionately feature instances of members of the presidential party criticizing their fellow partisan president and, albeit to a somewhat lesser extent, of the opposition party praising him. Moreover, because they represent costly speech, presidential party attacks are highly credible to consumers, as is opposition party praise. In contrast, in more ideologically narrow “new media” outlets, we anticipate that the balance will likely differ substantially. We test our hypotheses concerning media coverage through a comprehensive content analysis of all coverage of the war from September 2004 through February 2007 appearing on the CBS Evening News, NBC Nightly News and FOX’s Special Report with Brit Hume. We test our public opinion hypotheses using that same dataset, as well as an expert survey on conditions in Iraq and national opinion toward the Iraq War broken down by party. We find significant differences in both the composition and impact of partisan messages on public opinion across outlets.
Cole, Shawn. 2007. Fixing Market Failures or Fixing Elections? Agricultural Credit in India.Abstract
How vulnerable are economic interventions to political capture, how are captured resources used, and how costly are the resulting distortions? This paper answers these questions in the context of the credit market in India. Integrating theories of political budget cycles with theo- ries of tactical electoral redistribution yields a compelling framework to test for the presence of capture. I …nd that government-owned banks are subject to substantial capture: the amount of agricultural credit lent by public banks is 5-10 percentage points higher in election years than in years following an election, and in election years more loans are made to districts in which the ruling state party had a narrow margin of victory (or a narrow loss) in the previous election. This targeting does not occur in non-election years. Politically motivated loans are costly: they are less likely to be repaid, and election year credit booms do not measurably a¤ect agricultural output.
Alesina, Alberto, Andrea Ichino, and Loukas Karabarbounis. 2007. Gender Based Taxation and the Division of Family Chores.Abstract
Gender Based Taxation (GBT) satisfies Ramsey’s optimal criterion by taxing less the more elastic labor supply of (married) women. This holds when different elasticities between men and women are taken as exogenous and primitive. But in this paper we also explore differences in gender elasticities which emerge endogenously in a model in which spouses bargain over the allocation of home duties. GBT changes spouses’ implicit bargaining power and induces a more balanced allocation of house work and working opportunities between males and females. Because of decreasing returns to specialization in home and market work, social welfare improves by taxing conditional on gender. When income sharing within the family is substantial, both spouses may gain from GBT.
Antràs, Pol, and Robert W Staiger. 2007. Offshoring and the Value of Trade Agreements.Abstract
We study the trade policy choices of governments in an environment in which some of the trade ‡flows being taxed or subsidized involve the exchange of customized inputs, and the contracts governing these transactions are incomplete. We show that the second-best policies that emerge in this environment entail free trade in fi…nal goods but not in intermediate inputs, since import or export subsidies targeted to inputs can alleviate the international hold-up problem. We next show that the Nash equilibrium policy choices of governments do not coincide with internationally efficient choices, and that the Nash policies imply an inefficiently low level of intermediate input trade across countries. The reason is that in our environment trade policy choices serve a dual role: they can enhance investment by suppliers but, because of ex-post bargaining over prices, they can also be used to redistribute pro…ts across countries. The inefficiencies inherent in the Nash policy choices of governments not only result in suboptimal input subsidies, but also in positive distortions in fi…nal-good prices, even when countries cannot affect world (untaxed) prices in those goods. As a result, an international trade agreement that brings countries to the efficiency frontier will necessarily increase trade in inputs, but it may require a reduction in …final-goods trade. When governments are not motivated by the impact of their policies on ex-post negotiated international input prices, the resulting policy choices are efficient, and hence a modifi…ed terms-of-trade interpretation of the purpose of trade agreements can be offered, but only when governments maximize real national income. If governments preferences are sensitive to political economy (distributional) concerns, the purpose of a trade agreement becomes more complex, and cannot be reduced to solving a simple terms-of-trade problem.
Antràs, Pol, and Ricardo J Caballero. 2007. Trade and Capital Flows: A Financial Frictions Perspective.Abstract
The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes, in the sense that trade integration reduces the incentives for capital to ‡ow to capital-scarce countries. In this paper we show that in a world with heterogeneous …nancial development, the classic conclusion does not hold. In particular, in less …nancially developed economies (South), trade and capital mobility are complements. Within a dynamic framework, the complementarity carries over to (…nancial) capital ‡ows. This interaction implies that deepening trade integration in South raises net capital in‡ows (or reduces net capital out‡ows). It also implies that, at the global level, protectionism may back…re if the goal is to rebalance capital ‡ows, when these are already heading from South to North. Our perspective also has implications for the e¤ects of trade integration on factor prices. In contrast to the Heckscher- Ohlin model, trade liberalization always decreases the wage-rental in South: an anti-Stolper- Samuelson result.
Antràs, Pol, Mihir A Desai, and Fritz C Foley. 2007. Multinational Firms, FDI Flows and Imperfect Capital Markets.Abstract
This paper examines how costly …nancial contracting and weak investor protection in‡uence the cross-border operational, …nancing and investment decisions of …rms. We develop a model in which product developers can play a useful role in monitoring the deployment of their technology abroad. The analysis demonstrates that when …rms want to exploit technologies abroad, multinational …rm (MNC) activity and foreign direct investment (FDI) ‡ows arise endogenously when monitoring is nonveri…able and …nancial frictions exist. The mechanism generating MNC activity is not the risk of technological expropriation by local partners but the demands of external funders who require MNC participation to ensure value maximization by local entrepreneurs. The model demonstrates that weak investor protections limit the scale of multinational …rm activity, increase the reliance on FDI ‡ows and alter the decision to deploy technology through FDI as opposed to arm’s length licensing. Several distinctive predictions for the impact of weak investor protection on MNC activity and FDI ‡ows are tested and con…rmed using …rm-level data.
Barro, Robert J. 2007. On the Welfare Costs of Consumption Uncertainty.Abstract
Satisfactory calculations of the welfare cost of aggregate consumption uncertainty require a framework that replicates major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with rare but large disasters is such a framework. In the baseline simulation, the welfare cost of disaster risk is large—society would be willing to lower real GDP by about 20% each year to eliminate all disaster risk. In contrast, the welfare cost from usual economic fluctuations is much smaller, though still important—corresponding to lowering GDP by around 1.5% each year.
Alt, James, and David Dreyer Lassen. 2007. Political and Judicial Checks on Corruption: Evidence from American State Governments.Abstract
The paper investigates the effects of checks and balances on corruption. Within a presidential system, effective separation of powers is achieved under divided government, with the executive and legislative branches being controlled by different political parties. When government is unified, no effective separation exists even within a presidential system, but, we argue, can be partially restored by having an accountable judiciary. Our empirical findings show that divided government and elected, rather than appointed, state supreme court judges are associated with lower corruption and, furthermore, that the effect of an accountable judiciary is stronger under unified government, where government cannot control itself.
Carter, Prudence L. 2007. Keepin' It Real: School Success beyond Black and White. Oxford University Press. WebsiteAbstract
How can we help African American and Latino students perform better in the classroom and on exams? In Keepin' It Real: School Success Beyond Black and White, Prudence Carter argues that what is needed is a broader recognition of the unique cultural styles and practices that non-white students bring to the classroom. Based on extensive interviews and surveys of students in New York, she demonstrates that the most successful negotiators of our school systems are the multicultural navigators, culturally savvy teens who draw from multiple traditions, whether it be knowledge of hip hop or of classical music, to achieve their high ambitions.
Winner of the 2006 Oliver Cromwell Cox Award, Finalist for the 2005 C. Wright Mills Award, and Honorable Mention of the ASA Race, Gender, and Class Section's 2007 Distinguished Contribution to Scholarship Book Award
Johnston, Alastair Iain. 2007. Social States: China in International Institutions, 1980-2000. Princeton University Press. WebsiteAbstract
"Constructive engagement" became a catchphrase under the Clinton administration for America's reinvigorated efforts to pull China firmly into the international community as a responsible player, one that abides by widely accepted norms. Skeptics questioned the effectiveness of this policy and those that followed. But how is such socialization supposed to work in the first place? This has never been all that clear, whether practiced by the Association of South East Asian Nations (ASEAN), Japan, or the United States. Social States is the first book to systematically test the effects of socialization in international relations—to help explain why players on the world stage may be moved to cooperate when doing so is not in their material power interests. Alastair Iain Johnston carries out his groundbreaking theoretical task through a richly detailed look at China's participation in international security institutions during two crucial decades of the "rise of China," from 1980 to 2000. Drawing on sociology and social psychology, this book examines three microprocesses of socialization—mimicking, social influence, and persuasion—as they have played out in the attitudes of Chinese diplomats active in the Conference on Disarmament, the Comprehensive Nuclear Test Ban, the Convention on Conventional Weapons, and the ASEAN Regional Forum. Among the key conclusions: Chinese officials in the post-Mao era adopted more cooperative and more self-constraining commitments to arms control and disarmament treaties, thanks to their increasing social interactions in international security institutions.Alastair Iain JohnstonExecutive Committee; Faculty Associate; Governor James Noe and Linda Noe Laine Professor of China in World Affairs, Department of Government, Harvard University
Johnston, Alastair Iain. Social States: China in International Institutions, 1980-2000. Princeton, NJ: Princeton University Press, 2007.
Aghion, Philippe, Drew Fudenberg, and Richard Holden. 2007. Subgame Perfect Implementation with Almost Perfect Information.Abstract
The theory of incomplete contracts has been recently questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of this mechanism to the introduction of small amounts of asymmetric information. Our main result is that the mechanism may not yield (even approximately) truthful revelation as the amount of asymmetric information goes to zero.
Aghion, Philippe, Yann Algan, and Pierre Cahuc. 2007. Can Policy Influence Culture? Theory and Evidence from Looking at the Minimum Wage-Unionization Rate Trade-off.Abstract
Can public policy a¤ect culture, such as beliefs and norms of cooperation? We investigate this question by evaluating how state regulation of minimum wage interacts with unionization behavior and social dialogue. International data shows a negative correlation between union density and the quality of labor relations on one hand, and state regulation of the minimum wage on the other hand. To explain this relation, we develop a model of learning of the quality of labor relations. State regulation crowds out the possibility for workers to experiment negotiation and learn about the true cooperative nature of participants in the labor market. This crowding out e¤ect can give rise to multiple equilibria: a "good" equilibrium characterized by strong beliefs in cooperation, leading to high union density and low state regulation; and a "bad" equilibrium, characterized by distrustful labor relations, low union density and strong state regulation of the minimum wage. We then use surveys on social attitudes and unionization behavior to document that minimum wage legislation and union density do a¤ect beliefs about the scope of cooperation in the labor market.
Lamont, Michèle, and Mario Luis Small. 2007. Cultural Diversity and Poverty Eradication.Abstract
This paper examines the relationship between culture and poverty, paying special attention to cultural diversity, economic development, and the challenges facing the reduction of poverty in a culturally complex world. Over the last several decades, anthropologists, sociologists, political scientists, and even economists have examined the relationship between culture and poverty in an international context, producing a remarkably diverse and in recent years increasingly sophisticated literature (Rao and Walton 2004). Yet the term “culture” has meant different things to different scholars, and part of our challenge is to assess those meanings against what we know about poverty and development. We cannot hope in these few pages to cover all this work, address all its complexities, or even summarize it faithfully. Instead, we cover a narrow but critical set of issues we find especially important for those attempting to reduce poverty or its consequences in the globalized world in which we live.
Background paper prepared for the World Report on Cultural Diversity, UNESCO.Download PDF