Beliefs dynamics in communication networks

We study the dynamics of individual beliefs and information aggregation when agents communicate via a social network. We provide a general framework of social learning that captures the interactive effects of three main factors on the structure of individual beliefs resulting from such a dynamic process; that is historical factors—prior beliefs, learning mechanisms—rational and bounded rational learning, and the topology of communication structure governing information exchange. More specifically, we provide conditions under which heterogeneity and consensus prevail. We then establish conditions on the structures of the communication network, prior beliefs and private information for public beliefs to correctly aggregate decentralized information. The speed of learning is also established, but most importantly, its implications on efficient information aggregation. Keywords: Learning, social networks, public beliefs, speed of learning, information aggregation

Poverty persistence and informal risk management: Micro evidence from urban Ethiopia

Two factors that have received limited attention in poverty dynamic studies are the role of risk in causing poverty mobility and attrition bias. Controlling for the attrition bias, we study poverty dynamics in urban Ethiopia with an emphasis on the effect of idiosyncratic shocks and informal risk management strategies. We used a unique panel data spanning a decade. Our results show the adverse impact of uninsured idiosyncratic shocks on welfare. We find unemployment of household head propels households to persistent poverty. We also observe poor households using ineffective risk management strategies which have negative consequences on welfare than their non-poor counterparts. Further, we find strong poverty state dependence which is mainly driven by households' heterogeneity. The overall results of our study suggest that public insurance programmes that support poor households during 'bad times' may improve welfare by providing consumption insurance. Indeed, policies focusing on household heterogeneities such as exposure to risk, lack of education, personal skills and capacities, could have long lasting effects

Optimal health investment with separable and non-separable preferences

UNU-MERIT Working Papers intend to disseminate preliminary results of research carried out at UNU-MERIT and MGSoG to stimulate discussion on the issues raised. Optimal health investment with separable and non-separable preferences