Research:

Working Papers

Sharing Risk to Avoid Tragedy: Informal Insurance and Irrigation in Village Economies - R&R at Journal of Development Economics

Abstract: Irrigation provides insurance against aggregate weather shocks, which can interact with other institutions functioning in village communities. I study this relationship in a model of joint co-operation over irrigation and risk sharing under limited commitment. The model dynamics show that if access to irrigation can be regulated by villagers, the two institutions reinforce each other. However, non-excludable irrigation crowds out risk sharing (as is the case with management by government agencies). I estimate the framework on data from three villages in India and use it to quantify the mutually reinforcing effects and the welfare impact of irrigation public policy.

Mutual Insurance and Land Security in Rural Ghana (joint with Georgios Manalis)

Abstract: We study the impact of land rights' formalization on the functioning of informal insurance and land re-allocations in Ghana's rural communities. First, we provide empirical evidence suggesting that communities holding more formal land titles enjoy higher land security, as measured by number of disputes due to multiple claims over land. Second, we find that land re-allocations are more intense in those places, leading to increases in agricultural productivity and average consumption. Third, we show that communities with higher formality of land rights enjoy improved risk-sharing against idiosyncratic shocks. Motivated by this evidence, we develop a dynamic model of land and risk sharing subject to limited commitment constraints, where the equilibrium degree of co-operation is determined by the degree of formal land rights chosen. We show that the model can rationalize our empirical findings and can serve as a useful quantitative laboratory. Most interestingly, we find that although positive in the data, the effects of increasing land rights may be highly non-linear as at some point they may lead to a complete unraveling of informal co-operation in rural economies.

The Macroeconomic Impact of Agricultural Input Subsidies (joint with Laszlo Tetenyi) - preliminary results.

Abstract: We quantitatively evaluate general equilibrium effects of input subsidy programs in agriculture. First, we present cross-country evidence that staple-targeting subsidy programs improve both the productivity of staples and food security, increase both the relative price of cash crops and the share of land devoted to their cultivation, and increase the share of people employed in manufacturing. We confirm these findings in micro-data from Malawi. Then, we build a dynamic general equilibrium model with financial frictions, transaction costs, subsistence consumption constraints and heterogeneous agents making occupational choice between working as labourers in urban areas, and as staple or cash crop farmers in rural areas. Quantifying the model for the case of African input subsidy programs we show the importance of financial development and infrastructure on the optimal policy.

Publications

College Education and Income Contingent Loans in Equilibrium (joint with Kazushige Matsuda) [Online Appendix] - Journal of Monetary Economics, forthcoming.

Abstract: In 2009 the US government introduced a major income-contingent loans (ICLs) program for financing higher education. We investigate its welfare implications in the presence of income shocks, and endogenous dropout risk and college enrollment. While ICLs provide valuable income insurance and thereby increase college enrollment, they may also lead to adverse selection of individuals with lower ability and generate a moral hazard cost of lowering educational effort and labor hours. We evaluate this insurance-incentives trade-off in a calibrated heterogeneous agent model. We show that ICLs increase welfare and that the social costs of adverse selection and moral hazard are mild.

Risky Human Capital Accumulation with Endogenous Skill Premium (short note) - Economic Theory Bulletin, forthcoming.

Abstract: I investigate the welfare properties of a model with risky human capital accumulation, imperfect substitution between skill types and endogenous skill premium. I show that whenever the insurance markets are incomplete, pecuniary externalities render the competitive equilibrium constrained inefficient with a sub-optimal level of human capital.

A Note on Pessimism in Education and its Economic Consequences - Journal of Economic Inequality, 2021.

Abstract: Investigating interaction of the lumpy nature of educational investments and informational frictions on returns to and costs of education, I show that pessimistic beliefs can be self-confirmed in equilibrium. Among some of its consequences, I argue that the commonly pursued research methods may not always identify the true underlying skill distributions.

Can Welfare Abuse Be Welfare Improving? - Journal of Public Economics, September 2016.

Abstract: I analyze quantitatively a model of labor search with unemployment insurance (UI), savings, voluntary quits and various labor attachment requirements. In particular, I study welfare consequences of a powerful reform giving UI entitlement to workers quitting their jobs voluntarily in order to search for another one. Results of the model calibrated to the US labor market show that there are significant welfare gains associated with pursuing a generous entitlement policy for quitters as compared to the US status-quo. Moreover, I employ the assumption of monetary search costs and show that it can explain the empirically documented unemployed worker search behavior. Finally, by inducing different unemployment benefit eligibility requirements, the model identifies a concrete policy that could help us understand differences in the unemployment rate, match quality and income inequality between the US and Europe.

Work in Progress

Decentralization of Local Public Goods and Conflict: Evidence from Irrigation in India (joint with Krzysztof Krakowski)

Social Contract Change (joint with Francesco Carli & Raul Santaeulalia-Llopis)