Party On: The Labor Market Returns to Social Networks in Adolescence

We investigate the returns to adolescent friendships on earnings in adulthood. Using data from the National Longitudinal Study of Adolescent to Adult Health, we document that individuals make investments to accumulate friends in addition to educational investments. Because both education and friendships are jointly determined in adolescence, OLS estimates of their returns are biased. To estimate the causal returns to friendships, we implement a novel procedure that assumes the returns to schooling range from 5 to 15% (as the literature has documented), and instrument for friendships using homophily (similarity) measures among peers to obtain bounds on the returns to friendships. We find that having one more friend in adolescence increases earnings between 7 and 14%, which is substantially larger than the OLS estimates: measurement error and omitted variables lead to significant downward bias

The Impact of Simple Institutions in Experimental Economies with Poverty Traps

We introduce an experimental approach to study the effect of institutions on economic growth. In each period, agents produce and trade output in a market, and allocate it to consumption and investment. Productivity is higher if total capital stock is above a threshold. The threshold externality generates two steady states – a suboptimal poverty trap and an optimal steady state. In a baseline treatment, the economies converge to the poverty trap. However, the ability to make public announcements or to vote on competing and binding policies, increases output, welfare and capital stock. Combining these two simple institutions guarantees that the economies escape the poverty trap

Topics in Household Decision-Making

Outcomes for children depend importantly on parental decisions regarding inputs. This relationship is perhaps most obvious in developing countries where families face liquidity constraints and income uncertainty. To better understand potential risk sharing mechanisms within the household, I first present theoretical evidence of the relationship between a parent’s risk aversion and child quality in the context of a collective household model. I then estimate the effect of an experimental measure of risk aversion on a child’s well-being using the Mexican Family Life Survey. I find that a mother and father’s risk aversion increase investments in male children and decrease investments in female children, which is consistent with the patterns of old age support in Mexico.In my second chapter, I examine whether HIV testing leads to revisions in the subjective likelihood of being HIV positive as well as the likelihood of surviving across various time horizons. This study is based on the Malawi Diffusion and Ideational Change Project (MDICP), which allows me to use randomized financial incentives as instrumental variables for the decision to learn one’s HIV status. I find that women who learn their HIV negative status believe they are negative at the time of testing but appear to overestimate their likelihood of having contracted HIV in the two-year period after learning their HIV status. My third chapter examines the relationship between learning one’s HIV negative status and decisions made within households in the MDICP. Using the financial incentives as instrumental variables for the decision to learn one’s HIV status, we find that there is no effect on marital stability two years after a woman learns her HIV negative status, but that the marriage is less likely to stay intact if the husband discovers he is HIV negative. We also find a significant increase in the share of expenditures that are spent on children's schooling and a decrease in the share spent on children's medical expenditures. This paper illustrates that HIV testing can be an effective policy tool for increasing the incentives to invest in children’s welfare and human capital