We argue that in pharmaceutical markets, variation in the arrival time of consumer heterogeneity creates differences between a producer’s ability to extract consumer surplus with preventives and treatments, potentially distorting R&D decisions. If consumers vary only in disease risk, revenue from treatments—sold after the disease is contracted, when disease risk is no longer a source of private information—always exceeds revenue from preventives. The revenue ratio can be arbitrarily high for sufficiently skewed distributions of disease risk. Under some circumstances, heterogeneity in harm from a disease, learned after a disease is contracted, can lead revenue from a treatment to exceed revenue from a preventative. Calibrations suggest that skewness in the US distribution of HIV risk would lead firms to earn only half the revenue from a vaccine as from a drug. Empirical tests are consistent with the predictions of the model that vaccines are less likely to be developed for diseases with substantial disease-risk heterogeneity.
The poor and disadvantaged are widely seen as having weak organizations and low rates of participation in community
associations, impeding their political representation and economic advancement. Many policy initiatives aim to build civic
participation among the disadvantaged by funding local community associations. Taking advantage of random assignment
in a program supporting women’s community associations in Kenya, we find little evidence that outside funding expanded
organizational strength, but substantial evidence that funding changed group membership and leadership, weakening the
role of the disadvantaged. The program led younger, more educated, and better-off women to enter the groups.New entrants,
men, and more educated women assumed leadership positions. The departure of older women, the most socially marginalized
demographic group, increased substantially. The results are generalized through a formal model showing how democratic
decision making by existing members of community associations can generate long-run outcomes in which the poor and
disadvantaged either do not belong to any associations or belong to weak organizations.
We estimate the impact on pilgrims of performing the Hajj pilgrimage to Mecca. Our
method compares successful and unsuccessful applicants in a lottery used by
Pakistan to allocate Hajj visas. Pilgrim accounts stress that the Hajj leads to a feeling
of unity with fellow Muslims, but outsiders have sometimes feared that this could be
accompanied by antipathy toward non-Muslims. We find that participation in the
Hajj increases observance of global Islamic practices such as prayer and fasting while
decreasing participation in localized practices and beliefs such as the use of amulets
and dowry. It increases belief in equality and harmony among ethnic groups and
Islamic sects and leads to more favorable attitudes toward women, including greater
acceptance of female education and employment. Increased unity within the Islamic
world is not accompanied by antipathy toward non-Muslims. Instead, Hajjis show
increased belief in peace, and in equality and harmony among adherents of different
religions. The evidence suggests that these changes are more a result of exposure to
and interaction with Hajjis from around the world, rather than religious instruction
or a changed social role of pilgrims upon return.
We model the current system of refugee protection based on the 1951 Convention
Relating to the Status of Refugees as a Pareto improving contract that bound states to
provide a more efficient level of the global public good of refugee protection. Our analysis
suggests that the increase in economic migration since the 1951 Convention was adopted has
made it more difficult for host states to distinguish between refugees and those who migrate
in search of economic opportunities. The response of states to this screening problem has
been to shade on performance of their obligations under the 1951 Convention by, inter alia,
increasing the standards of proof of their refugee status determination procedures, resulting
in more false negatives and refoulement of refugees. We show that the choice of standard
of proof can exhibit strategic complementarity; as more states use a high standard of proof,
the best response of other states may be to increase their standard of proof. We also model
potential reform schemes in which wealthy states pay poorer states to host refugees that
initially travel to the wealthy states, and argue that such transfer systems could ameliorate
the screening problem by inducing self-selection among those who migrate and result in
increased protection of refugees. However, such reforms could also make some developing
countries worse-off by increasing their burden of hosting refugees without fully compensating
them for their increased costs.
Most countries prohibit the export of certain antiquities. This practice often leads to
illegal excavation and looting for the black market, which damages the items and
destroys important aspects of the archaeological record. We argue that long-term leases
of antiquities would raise revenue for the country of origin while preserving national
long-term ownership rights. By putting antiquities into the hands of the highest value
consumer in each period, allowing leases would generate incentives for the protection of
A randomized evaluation suggests that a program which provided official textbooks to randomly
selected rural Kenyan primary schools did not increase test scores for the average student. In
contrast, the previous literature suggests that textbook provision has a large impact on test scores.
Disaggregating the results by students’ initial academic achievement suggests a potential
explanation for the lack of an overall impact. Textbooks increased scores for students with high
initial academic achievement and increased the probability that the students who had made it to
the selective final year of primary school would go on to secondary school. However, students
with weaker academic backgrounds did not benefit from the textbooks. Many pupils could not
read the textbooks, which are written in English, most students’ third language. The results are
consistent with the hypothesis that the Kenyan education system and curricular materials are
oriented to the academically strongest students rather than to typical students. More generally,
many students may be left behind in societies that combine 1) a centralized, unified education
system; 2) the heterogeneity in student preparation associated with rapid expansion of education;
and 3) disproportionate elite power.
Supporters of the anti-globalization movement argue that "globalization has dramatically increased inequality between and within nations" (Mazur, 2000), and in particular that it has marginalized the poor in developing countries and left behind the poorest countries. Meanwhile, more moderate mainstream politicians argue that the poor must invest in education to take advantage of globalization (Clinton, 2000).
Such views are difficult to reconcile with a standard Heckscher-Ohlin trade model with two countries, two goods, and two factors (skilled and unskilled labor, or alternatively capital and labor). Under a simple model, globalization should benefit the poor in poor countries and reduce inequality in poor countries, and within the developing world the poorest countries and least educated workers should have the greatest opportunity to benefit from globalization.
Restrictions on migration of low-skilled workers to richer countries are arguably the
largest distortion in the world economy and the most costly to the world’s poor. Yet rich
countries seem unlikely to eliminate these restrictions due to concerns about the impact
of migration on inequality among natives, public finances, and native culture. A rapidly
growing new type of migration may not be subject to these concerns. Many "new rich"
countries issue special visas for foreigners, women in particular, to work as private
household workers. "Old rich" countries often choose low levels of enforcement against
illegal immigrants working in this sector. We argue that by allowing high-skilled native
women to increase market labor supply, this type of immigration increases the wages of
low-skilled natives and provides a fiscal benefit by correcting tax distortions toward
home production. Calibration suggests welfare gains to natives from a program, such as
Hong Kong’s or Singapore’s, under which roughly 7% of the labor force are foreign
private household workers, may increase the ratio of native low-skilled workers by 3.9%
and increase native welfare by 1.2% of income, roughly 100 times the level estimated by
Borjas and increases the relative wages of native low-skilled to high-skilled by 3.9%.
Paradoxically, however, even if these programs are pareto improving, they may conflict
with ethical norms requiring stronger social obligations to long-term residents than to
other foreigners. Short-term programs may be more acceptable.
Water-related diseases, particularly diarrhea in young children, kill two million people
annually. To address this problem, donors and governments often provide infrastructure such as
communal standpipes, wells, and protected springs in rural areas, where piping water into homes
is infeasible. We study the impact of source water quality improvements achieved via spring
protection in rural Kenya using a randomized evaluation. Spring protection leads to large
improvements in source water quality as measured by the fecal indicator bacteria E. coli. Water
quality gains at the home are smaller on average, but this finding depends critically on
households’ water source choices. At households that only used the sample spring at baseline,
71% of the spring water quality benefits are translated into home water gains, suggesting that recontamination
in transport and storage may be less of a concern than is sometimes claimed.
Consistent with this view, the home water quality gains from spring protection are no larger for
households with better baseline sanitation or hygiene knowledge. Changes in household water
source choices after spring protection are used to derive revealed preference estimates of the
willingness to pay for improved water quality using a travel cost approach. The average
willingness to pay for the moderate gains in home water quality due to spring protection is at
least US$3.27 per household per year. We find no significant child health effects of spring
The 2003 United Nations Global Report on Human Settlements estimates that 924 million people, or 31.6% of the world’s urban population, lived in slums in 2001. Although forecasts are difficult, it is generally agreed that this number could greatly increase in coming years in the absence of strong policy interventions. These trends underscore the importance of slum upgrading strategies for addressing the growing problems of urban poverty.
Upgrading projects focus on providing basic services to improve the well-being of low income communities, including a range of infrastructure interventions frequently undertaken in conjunction with social interventions, such as the regularization of areas with insecure tenure. Other infrastructure improvements include water, sanitation, waste collection, housing, access roads, footpaths, storm drainage, lighting, public telephones, schools, health posts and community centers. Social improvements can include better provision of health and education services, day care, training, and social protection programs. With the projected increases in slum population, the demand for urban upgrading interventions is expected to grow.
Intestinal helminths – including hookworm, roundworm, whipworm, and schistosomiasis – infect more than one–quarter of the world's population. Studies in which medical treatment is randomized at the individual level potentially doubly underestimate the benefits of treatment, missing externality benefits to the comparison group from reduced disease transmission, and therefore also underestimating benefits for the treatment group. We evaluate a Kenyan project in which school–based mass treatment with deworming drugs was randomly phased into schools, rather than to individuals, allowing estimation of overall program effects. The program reduced school absenteeism in treatment schools by one–quarter, and was cheaper than alternative ways of boosting school participation. Deworming substantially improved health and school participation among untreated children in both treatment schools and neighboring schools, and these externalities are large enough to justify fully subsidizing treatment. Yet we do not find evidence that deworming improved academic test scores.
Some argue that sovereign debt incurred without the consent of the people and not for their benefit, such as that of apartheid South Africa, should be considered odious and not transferable to successor governments. We argue that an institution that truthfully announced whether regimes are odious could create an equilibrium in which successor governments suffer no reputational loss from failure to repay odious debt and hence creditors curtail odious lending. Equilibria with odious lending could be eliminated by amending creditor country laws to prevent seizure of assets for failure to repay odious debt and restricting foreign assistance to countries not repaying odious debt. Shutting down the borrowing capacity of illegitimate regimes can be viewed as a form of economic sanction and has two advantages over most sanctions: it helps rather than hurts the population, and it does not create incentives for evasion by third parties. However, an institution empowered to assess regimes might falsely term debt odious if it favored debtors, and if creditors anticipate this, they would not make loans to legitimate governments. An institution empowered only to declare future lending to a particular government odious would have greater incentives to judge truthfully. A similar approach could be used to reduce moral hazard associated with World Bank and IMF loans.
Colombia's PACES program provided over 125,000 pupils from poor neighborhoods with vouchers that covered approximately half the cost of private secondary school. Vouchers were renewable annually based on satisfactory performance. Since many vouchers were allocated by lottery, we use differences in outcomes between lottery winners and losers to assess program effects. Three years into the program, lottery winners were 15 percentage points more likely to have attended private school, had completed .1 more years of schooling, and were about 10 percentage points more likely to have finished 8th grade, primarily because they were less likely to repeat grades. The program did not significantly affect dropout rates. Lottery winners scored .2 standard deviations higher on standardized tests. There is some evidence that winners worked less than losers and were less likely to marry or cohabit as teenagers. On average, lottery winners increased their educational expenditure by about 70% of the value of the voucher. Since winners also worked less, they devoted more total resources to education. Compared to an equivalent expansion of the public education system, the voucher program increased annual government educational expenditure by about $24 per winner. But the costs to the government and to participants were probably much less than the increase in winners' earnings due to greater educational attainment.
According to WHO, while 50 percent of global health research and development (R&D) in 1992 was undertaken by private industry, less than 5 percent of that was spent on diseases specific to less developed countries (LDCs).1,2 Despite this, private industry has produced major drug discoveries and developments for serious LDC disease threats, including malaria, TB, hepatitis B, river blindness, meningitis, leprosy, sleeping sickness and trachoma. Moreover, the development of globally–applicable drugs and vaccines has led to important advances in public health in developing countries. At the same time, the simple fact is that every company in the biopharmaceutical industry has a limited number of research and development programmes in their portfolio. These projects are regularly reviewed against each other using a variety of analytical tools. Fundamentally the process tends to favour those projects with a higher probability of success and which, if successful, would serve markets with a larger value. As a result, there is underinvestment in and comparative neglect of some diseases concentrated in LDCs, such as tuberculosis and malaria, despite their high global disease burden. It is therefore generally agreed that new mechanisms and incentives are needed to encourage industrial R&D in such diseases. In this paper, we summarize some recent thinking about ways to stimulate industrial R&D for neglected infectious diseases, and we argue that enlarging the value of the market for drugs and vaccines for these diseases is a critical step toward stimulating R&D.
This paper reports some preliminary cost–effectiveness estimates for vaccine purchase commitments. Besides assessing the merit of a purchase program, this analysis can be used to examine the cost–effectiveness of purchasing vaccines with different characteristics, and thus to help establish eligibility requirements and identify prices at which vaccines with different characteristics might be purchased.
This paper compares retrospective and prospective analyses of the effect of flip charts on test scores in rural Kenyan schools. Retrospective estimates that focus on subjects for which flip charts are used suggest that flip charts raise test scores by up to 20 percent of a standard deviation. Controlling for other educational inputs does not reduce this estimate. In contrast, prospective estimators based on a study of 178 schools, half of which were randomly selected to receive charts, provide no evidence that flip charts increase test scores. One interpretation is that the retrospective results were subject to omitted variable bias despite the inclusion of control variables. If the direction of omitted variable bias were similar in other retrospective analyses of educational inputs in developing countries, the effects of inputs may be even more modest than retrospective studies suggest. Bias appears to be reduced by a differences–in–differences estimator that examines the impact of flip charts on the relative performance of students in flip chart and other subjects across schools with and without flip charts, but it is not clear that this approach is applicable more generally.
Today, the United States government spurs research mainly through direct funding and the granting of patents. Both methods are vitally important, but each causes serious problems–and each has proved inadequate in spurring the research needed to develop effective vaccines against HIV, tuberculosis and malaria.
This paper examines the effect of reduced transaction costs in the international trading of assets on the ability of governments to issue debt. We examine a model in which governments care about the welfare of their citizens, and thus are more inclined to default if a large proportion of their debt is held by foreigners. Reductions in transaction costs make it easier for domestic citizens to share risk by selling debt to foreigners. This may increase tendencies for governments to default, and thus raise their cost of credit and reduce welfare. We find that even in the absence of transaction costs, home bias in placement of government debt may persist, because in the presence of default risk the return on government debt is correlated with the tax burden required to pay the debt. Asset inequality may reduce this home bias, and by increasing foreign ownership, increase incentives for default. Finally, if foreign creditors are less risk averse than domestic creditors, there may be one equilibrium in which domestic creditors hold the asset and default risk is low, and another in which foreign creditors hold the asset and default risk is high.
Developing countries with highly unequal income distributions, such as Brazil or South Africa, face an uphill battle in reducing inequality. Educated workers in these countries have a much lower birthrate than uneducated workers. Assuming children of educated workers are more likely to become educated, this tends to increase the proportion of unskilled workers, reducing their wages, and thus their opportunity cost of having children, creating a vicious cycle. A model incorporating this effect generates multiple steady–state levels of inequality, suggesting that in some circumstances, temporarily increasing access to educational opportunities could permanently reduce inequality. Empirical evidence suggests that the fertility differential between the educated and uneducated is greater in less equal countries, consistent with the model.
In response to the widespread consensus on the importance of social capital, and to concerns about the scarcity of institutions giving voice to disadvantaged groups, some donors have begun programs designed to strengthen indigenous community organizations. We use a prospective, randomized evaluation to examine a development program explicitly targeted at building social capital among rural women's groups in western Kenya. The program increased turnover among group members. It increased entry into group membership and leadership by younger, more educated women, by women employed in the formal sector, and by men. The analysis suggests that providing development assistance to indigenous community organizations of the disadvantaged may change the very characteristics of these organizations that made them attractive to outside funders.