Research
Research interests: Development economics (primary); household finance, social networks (secondary)
PUBLICATIONS
"The Dual Role of Insurance in Input Use: Mitigating Risk Versus Curtailing Incentives." Journal of Development Economics
Insurance can encourage the use of risk-increasing inputs, but it can also decrease people's incentives to exert effort when the latter is difficult to monitor. This effort reduction can be associated with a decrease in the use of effort-complementary inputs. I study a model of risk-sharing that allows for both effects of insurance on input use and use the latest ICRISAT panel to structurally estimate it. Median fertilizer use is almost three times higher under no sharing than under full insurance for reasonable levels of risk aversion. A subsidy that halves fertilizer prices increases farmers' welfare by 37% in consumption-equivalent terms.
JEL Codes: O12 O13 O33 Q16
Media: GlobalDev World Bank Blogs
"Born to Be (Sub)Prime: An Exploratory Analysis ." (Joint with Helena Bach, Pietro Campa, Giacomo De Giorgi, and Jaromir Nosal.) AEA Papers and Proceedings
We study how inheriting parents' credit histories affects the initial credit scores, access to credit, and life cycle borrowing of young individuals entering the credit market. We establish that inherited histories significantly positively affect initial scores, which in turn are very persistent. Inherited histories only affect outcomes through initial credit scores, which then have significant persistent effects on credit use and access, such as having a mortgage. Our results are consistent with mechanisms of self-fulfilling liquidity traps: low credit scores mean lack of access to credit, reinforcing low credit scores. Future research should address the contribution of such mechanisms to wealth inequality.
JEL Codes: D14 G20 G50 G51
WORK IN PROGRESS
"Farming, Non-Farm Enterprises, and Migration: Incomplete Markets and Misallocation." (Joint with Giacomo De Giorgi and Salvatore Di Falco.)
When insurance markets are incomplete, non-farm enterprises (NFEs), as well as temporary migration, may offer consumption-smoothing opportunities to farmers in village economies. After experiencing uninsured negative shocks to agricultural productivity, farmers may respond by creating NFEs and allocating more work time to them. These "necessity entrepreneurs'' accumulate specialized skills that increase their productivity in the non-farm sector (e.g., through learning by doing). We outline a dynamic model of household-farm labor supply decisions where each household chooses (1) how much labor time to allocate to farming, (2) whether to operate and how much labor time to allocate to an NFE, and (3) whether to dispatch temporary migrants. Using the latest ICRISAT panel data from rural India, we confirm the main predictions of our model and structurally estimate it. In counterfactual exercises, we show how the departure from market completeness shape the labor allocation and skill distribution in village economies. The use of NFEs as a consumption-smoothing device might shed light on why households in developing countries engage in both farming and low-productivity non-farm activities.
JEL Codes: J43 O17 Q12 Q54
"Risk-Sharing and Land Misallocation" (Joint with Alessandro Ruggieri.) Draft coming soon!
We study the impact of incomplete consumption risk-sharing on land misallocation in rural economies. We develop a general equilibrium model of land cultivation choices, where heterogeneous farmers face idiosyncratic output shocks and insure themselves by participating in a risk-sharing arrangement. Incomplete insurance distorts farmers’ choices, leading them away from maximizing expected profits and resulting in land misallocation. Using the latest ICRISAT panel data from rural India, we quantify the losses attributable to limited risk-sharing. We find that completing insurance markets can substantially improve allocative efficiency in land markets, leading to output and welfare gains of 30% and 38%, respectively.
JEL Codes: O11, D61, Q12, D52
"Employment Protection, Moral Hazard, and Technology Adoption." (Joint with Alessandro Ruggieri.)
Information frictions in employer-employee relationships can impact workers’ incentives to exert effort. Employment protection can introduce rigidities that amplify the effects of these frictions, affecting the profitability of different technologies. We combine an efficiency wage model with a theory of firm technology choice to illustrate how employment protection legislation can increase the adoption of labor-saving technologies, such as automation.
JEL Codes: D21, D24, J08, J65, O31, O33
"Trust and the Dynamics of Network Formation." (Joint with Juan Camilo Cárdenas, Danisz Okulicz, Tomás Rodríguez, and Tatiana Velasco.)
We evaluate the effect of reciprocal trust within pairsgauged by total potential earnings in a trust experiment—on the probability of relationship formation, in comparison with well—known determinants of social ties, such as time of exposure and homophily along demographic traits. We measured trust and trustworthiness for every individual in an incoming cohort of undergraduate students before they began interacting. Using relationship data sourced from surveys and campus entry/exit times between one month and two years after the trust experiment, we find that reciprocal trust is neither a statistically nor an economically significant factor in determining students' social networks. Instead, time of exposure and prior acquaintance play important and persistent roles as determinants of relationship formation.
JEL Codes: C83 C91 D85 Z13
"Better Not to Know: Uncertainty and Coalition Formation."
How does uncertainty about the gains from trade affect coalition formation and welfare? Two agents can agree to form a coalition and hold a common prior belief about whether the other is a lemon or a peach. Each agent prefers trading with a peach to autarky but would stay in autarky rather than trading with a lemon. Drawing a noisy public signal of whether the agents are lemons before they make a choice can decrease expected utilitarian welfare. I characterize how the welfare gain of the signal changes as a function of its noise.
JEL Codes: C71 D80 D83 D85
An even older version of the paper with networks