Mortality risks and child labor

In this paper, we investigate the role of young adult mortality on child labor and educational decisions. We show that, in the absence of appropriate insurance mechanisms, the level of child labor is inefficient. It may be too high if parents are not very altruistic and anticipate positive transfers from their children in the future, but it can also be too low, in particular when parents expect to make positive transfers to their children in the future. Imperfect capital markets unambiguously increase the equilibrium level of child labor. We also show that a cash transfer conditional on child’s schooling can always restore efficiency regarding child labor.

On the Distributive Impact of Privatizing the Commons: The Case of Renewable Resources

The privatization of a natural resource is often proposed as a solution to the degradation of natural resources under open access, known as the Tragedy of the Commons. However, this efficiency improvement may come at a distributional cost (Weitzman, 1974) as traditional users of the resource lose income and employment unless they are given a large enough share of the property rights. The present paper demonstrates that, in the case of renewable resources, traditional users may gain from privatization even if they are denied ownership of the resource. Indeed, a private owner maximizes profits by preserving the resource, which results in long-term increases in employment. Hence, the short term losses to traditional users from lower labor demand and loss of rent, must be weighted against the long term gains from employment creation. We also derive the conditions under which privatization is Pareto-improving, benefiting both the new and traditional owners of the natural resource.Renewable resources, Common access, Privatization, Employment Creation

Awareness and AIDS: A Political Economy Model

We present a simple political economy model that explains two major puzzles of government policies to combat HIV/AIDS epidemic: the lack of policy response in many countries where the epidemic is massive and the reversal of the downward trend in HIV prevalence in the countries that have adopted early agressive prevention campaigns. The model builds on the assumption that the unaware citizens impose a negative externality on the aware by increasing the risk of contagion. Prevention campaigns raise awareness of the current generation, which then partially transmit this awareness to the next generation, thus creating political support for the next-period awareness campaigns. The economy has two steady-state equilibria: the "good" one (with high awareness and low prevalence) and the "bad" one (low awareness, high prevalence). The "good" equilibrium is fragile, i.e. a sufficiently large exogenous drop in HIV prevalence undermines the next-generation political support for campaigns and makes the economy drift away towards the "bad" equilibrium.HIV/AIDS, voting, overlapping generations, awareness

Commons as Insurance and the Welfare Impact of Privatization

It is shown here that despite the efficiency gains from privatization, when markets are incomplete, all individuals may be made worse off by privatization, even when the resource is equitably privatized. Such market incompleteness is common in the developing world and can explain the often encountered resistance to efficiency enhancing privatizing reforms, especially in the case of village level landholdings and forests. The advantage of commonly held property arises because of its superior insurance properties (which tend to provide income maintenance in low states). Sufficient conditions are established under which any feasible insurance scheme under private property cannot ex ante Pareto dominate allocations under the commons.common property, privatisation, insurance

Socially Disadvantaged Groups and Microfinance in India

In this paper we provide an empirical analysis of the performance of microfinance groups, known as Self-Help groups, based on an original census we carried out in a poor area of Northern India. We examine whether traditionally disadvantaged villagers, such as members of lower castes or landless farmers, are less likely to have access to groups. We also analyze their performance in terms of access to bank loans, which is an important benefit of the groups. We nd evidence of the attrition process being selective against lower castes: they have a lower probability of becoming a permanent member of a group. The net effects in terms of their expected access to a bank loan remain however relatively limited. By contrast, even though landless farmers are more likely to fail or leave the groups, they tend to benet disproportionately. In expected terms, they receive more than two times the amounts of bank loans given to farmers owning more than one acre. Overall, the program therefore has positive and important distributional implications.

Inequality and Inefficiency in Joint Projects

A group of agents voluntarily participates in a joint project, in which efforts are not perfectly substitutable. The output is divided according to some given vector of shares. A share vector is unimprovable if no other share vector yields a higher sum of payoffs. When the elasticity of substitution across efforts is two or lower, only the perfectly equal share vector is unimprovable, and all other vectors can be improved via Lorenz domination. For higher elasticities of substitution, perfect equality is no longer unimprovable. Our results throw light on the connections between inequality and collective action.Inequality, Collective Action, Substitutability

REPAYMENT INCENTIVES AND THE DISTRIBUTION OF GAINS FROM GROUP LENDING

Group loans with joint liability have been a distinguishing feature of many micronance programs. While such lending has benetted millions of borrowers, major lending insti- tutions have acknowledged their limited impact among the very poor and have recently favored individual contracts. This paper attempts to understand these empirical patterns using a model in which there is a single investment project and access to credit is limited by weak repayment incentives. We show that in the absence of large social sanctions, the poorest borrowers are o ered individual and not group contracts. When both types of contracts are feasible, the relative gains from group loans are shown to be decreasing in loan size. We compare the role of bank enforcement with social sanctions and nd that bank enforcement is more e ective in increasing outreach while social sanctions raise the welfare of infra-marginal borrowers. Finally, we explore the welfare e ects of group size and nd that those requiring small loans are better served by larger groups but group size e ects are, in general, ambiguous.microcredit, joint-liability, group lending, repayment incentives, social sanctions.

Forest Degradation in the Himalayas: Determinants and Policy Options

This paper summarizes findings from a decade-long project on forest degradation in the mid-Himalayan region of India and Nepal. The analysis is based on LSMS data for Nepal and field work in Indian states of Uttaranchal and Himachal Pradesh comprising sample surveys of forests, households and village communities, besides commissioned anthropological studies for select villages. The purpose was to ascertain the nature and magnitude of deforestation and degradation from ground-level forest measurements, its implications for living standards of local communities, the contribution of different factors commonly alleged such as local poverty, inequality, economic growth, demographic changes, property rights and lack of collective action by local communities. Principal findings, policy implications and questions for future research are discussed.