Humanitarian Relief and Civil Conflict

We examine the effects of famine relief efforts (food aid) in regions undergoing civil war. In our model, warlords seize a fraction of all aid entering the region. How much they loot affects their choice of army size; therefore the manner in which aid is delivered influences warfare. We identify a delivery plan for aid which minimizes total recruitment in equilibrium.Humanitarian aid, food aid, civil war, warlords, famine

Taxes, Inequality and the Size of the Informal Sector

In this note we develop a simple heterogeneous-agent model with incomplete markets to explain the prevalence of a large, low-productivity, informal sector in developing countries. In our models, taxes levied on formal sector agents are used to finance the provision of a productive public infrastructure, which creates a productivity premium from formalization. Our model offers endogenous differentiation of rich and poor countries. Complete formalization is an equilibrium only in countries with the appropriate initial conditions. We discuss existence of this equilibrium and highlight the ambiguous effect of taxes.Informal sector, Technology adoption, Infrastructure, Inequality, Taxation, Development

Why Banning the Worst Forms of Child Labour Would Hurt Poor Countries

Although it is intuitive and morally compelling that the worst forms of child labour should be eliminated, banning them in poor countries is unlikely to be welfare improving and can come at the expense of human capital accumulation. We show that the existence of harmful forms of child labour, in fact, has an economic role: it helps keep wages for child labour high enough to allow human capital accumulation. Therefore, unless appropriate mechanisms are designed to mitigate the decline in child labour wages caused by reduced employment options for children, a ban on harmful forms of child labour will likely prove undesirable in poor countries. We perform our analysis within a simple two-period model of parental investment in children's education and nutritional quality.Child labour, Human capital, Nutrition, Development

Addressing the Food Aid Curse

In this paper, we build a model of agrarian economies in which a kleptocratic government taxes farmers to maximize its life-time utility. The model is a dynamic general equilibrium model in which the subsistence of farmers requires a minimum level of consumption. We analyze the effect that a benevolent food aid agency can have in such an environment. If it expects the food aid agency to intervene, the kleptocratic government will starve its farmers, in a clear case of the Samaritan's dilemma. We show that the likelihood of man-made famines, however, can be greatly reduced if the food aid agency intervenes with probability slightly lower than one. No aid agency devoted to saving lives, however, can commit to such policy. We propose a solution to this food aid curse.Food aid, famines, commitment

Child Labor, Idiosyncratic Shocks, and Social Policy

In this paper, we measure the welfare effects of banning child labor in an economy with strong idiosyncratic shocks to employment. We then design two different policies: an unemployment insurance program and a universal basic income system. We show that they can often lead to an endogenous elimination of child labor. We work within a dynamic, general equilibrium model calibrated to South Africa in the 1990s.Child labor, Idiosyncratic shocks, Unemployment insurance, Universal basic income, Heterogeneous agents, Child labor ban

Warlords, Famine and Food Aid: Who Fights, Who Starves?

We examine the effects of famine relief efforts (food aid) in regions undergoing civil war. In our model, warlords seize a fraction of all aid and use it to feed soldiers. They hire their troops within a population of farmers heterogeneous in skills. We determine the equilibrium distribution of labor in this environment and study how the existence and allocation strategies of a benevolent food aid agency affect this equilibrium. Our model allows us to precisely predict who will fight and who will work in every circumstance.Food aid, civil war, warlords, famine

The Economics of Child Trafficking

In this paper, we highlight the economic effects of the existence of child trafficking. We show that the risk of child trafficking on the labor market acts as a deterrent to supply child labor, unless household survival is at stake. An imperfectly enforceable legislation aiming at fighting child trafficking, by raising the expected gains parents derive from sending their children to work, will cause a rise in the number of child laborers. We show that it can even cause the incidence of child trafficking to rise. Our findings are consistent with the view that the fight against child trafficking can only be won by effectively combining legislation with other policy measures, including better quality for education, redistribution, or appropriately targeted poverty alleviation programs.Child labor, Exploitation, Poverty, Law enforcement, Trafficking

Leland & Pyle Meet Foreign Aid? Adverse Selection and the Procyclicality of Financial Aid Flows

Official development assistance (grants and subsidized loans from foreign aid agencies) is the main source of external finance in developing countries. These financial aid flows are positively correlated with the recipients' business cycles, which is puzzling because it reinforces already strong and costly macroeconomic fluctuations in the recipient countries. We propose an explanation related to a familiar corporate finance theory of inside equity commitments. We assume that donor agencies and recipient governments value projects differently, and that donors know less than recipients do about projects. We show that donors can make an aid recipient idientify high-return projects by conditioning aid on the recipient's committing some of its own funds to the selected projects. This commitment makes recommending bad projects costly. Contributing "counterpart funds" is more difficult during economic downturns, however - which leads to aid procyclicality. This simple model of investment financing and aid provision produces aid contracts consistent with those used by aid agencies, rationalizes observed aid flow patterns, and yields a rich set of testable empirical predictions.Aid, Altruism, Adverse selection, Counterpart funds, Capital flow procyclicality

Unemployment Insurance Generosity: A Trans-Atlantic Comparison

The goal of this paper is to establish if unemployment insurance policies are more generous in Europe than in the United States, and by how much. We take the examples of France and one particular American state, Ohio, and use the methodology of Pallage, Scruggs and Zimmermann (2008) to find a unique parameter value for each region that fully characterizes the generosity of the system. These two values can then be used in structural models that compare the regions, for example to explain the differences in unemployment rates.unemployment insurance, labor market policy evaluation

Measuring Unemployment Insurance Generosity

Unemployment insurance policies are multidimensional objects. They are typically defined by waiting periods, eligibility duration, benefit levels and asset tests when eligible, which make intertemporal or international comparisons difficult. To make things worse, labor market conditions, such as the likelihood and duration of unemployment matter when assessing the generosity of different policies. In this paper, we develop a methodology to measure the generosity of unemployment insurance programs with a single metric. We build a first model with such complex characteristics. Our model features heterogeneous agents that are liquidity constrained but can self-insure. We then build a second model that is similar, except that the unemployment insurance is simpler: it is deprived of waiting periods and agents are eligible forever with constant benefits. We then determine which level of benefits in this second model makes agents indifferent between both unemployment insurance policies. We apply this strategy to the unemployment insurance program of the United Kingdom and study how its generosity evolved over time.Social policy, generosity, unemployment insurance, measurement