Bribery: Who Pays, Who Refuses, What Are The Payoffs?

We provide a theoretical framework for understanding when an official angles for a bribe, when a client pays, and the payoffs to the client’s decision. We test this frame work using a new data set on bribery of Peruvian public officials by households. The theory predicts that bribery is more attractive to both parties when the client is richer, and we find empirically that both bribery incidence and value are increasing in household income. However, 65% of the relation between bribery incidence and income is explained by greater use of officials by high–income households, and by their use of more corrupt types of official. Compared to a client dealing with an honest official, a client who pays a bribe has a similar probability of concluding her business, while a client who refuses to bribe has a probability 16 percentage points lower. This indicates that service improvements in response to a bribe merely offset service reductions associated with angling for a bribe, and that clients refusing to bribe are punished. We use these and other results to argue that bribery is not a regressive tax.http://deepblue.lib.umich.edu/bitstream/2027.42/40178/3/wp792.pd

LIQUIDITY EFFECTS WITH LONG LIVED PRODUCTION PROJECTS

This paper explores the effects of monetary shocks on the allocation of factors of production. We analyze these effects when money plays a role in improving the timing of the transactions undertaken by entrepreneurs. Such improvement is facilitated by money? important role in providing liquidity to entrepreneurs. Using a model in which production processes take time to mature and where credit contracts are not enforceable, we show the consequences of monetary shocks for the allocation of resources and the real business cycle. Our analysis reveals that such shocks disrupt the allocation of resources with important effects on total factor productivity.Liquidity effects, long lived projects

Measurement Error in Access to Markets

Studies in the microeconometric literature increasingly utilize distance to or time to reach markets or social services as determinants of economic issues. These studies typically use self-reported measures from survey data, often characterized by non-classical measurement error. This paper is the first validation study of access to markets data. New and unique data from Peru allow comparison of self-reported variables with scientifically calculated variables. We investigate the determinants of the deviation between imputed and self-reported data and show that it is non-classical and dependent on observable socio-economic variables. Our results suggest that studies using self-reported measures of access may be estimating biased effects.

Bribery: Who Pays, Who Refuses, What Are the Payoffs?

We provide a theoretical framework for understanding when an official angles for a bribe, when a client pays, and the payoffs to the client's decision. We test this framework using a new data set on bribery of Peruvian public officials by households. The theory predicts that bribery is more attractive to both parties when the client is richer, and we find empirically that both bribery incidence and value are increasing in household income. However, 65% of the relation between bribery incidence and income is explained by greater use of officials by high-income households, and by their use of more corrupt types of official. Compared to a client dealing with an honest official, a client who pays a bribe has a similar probability of concluding her business, while a client who refuses to bribe has a probability 16 percentage points lower. This indicates that service improvements in response to a bribe merely offset service reductions associated with angling for a bribe, and that clients refusing to bribe are punished. We use these and other results to argue that bribery is not a regressive tax.

Internal Migration and Borrowing Constraints: Evidence from Peru

The decision to migrate has received substantial attention from both theoretical and empirical perspectives. Underlying most analyses is the desire to understand why individuals relocate within their own country, or more drastically, migrate to another country. While there are numerous reasons to migrate, economists have focused their research on the notion that there are gains to be made from migration: ceteris paribus, migrants are expected to earn more than non-migrants (Todaro, 1989). This paper utilizes a rich data set from Peru to assess the determinants of migration. We find that, when controlling for self- selection, migrants do not earn more than “stayers.”Economic Development, Migration, Credit Constraints.

LONG TERM EFFECTS OF CIVIL CONFLICT ON WOMEN'S HEALTH OUTCOMES IN PERU

We investigate the long term effects of Peru's internal conflict on women's outcomes. According to Peru's Truth and Reconciliation Commission (CVR), the conflict was responsible for over 69,000 deaths and disappearances from 1980-2000 and between 500,000 to 1 million internally displaced persons. This conflict affected households' ability to generate income because of the death or disappearance of income earners and loss of productive assets. Using data from Peru's Demographic and Health Surveys and district-level conflict data published by the CVR, we find long-term effects of the conflict on some indicators of women's health, particularly on height and anemia.

Experimental Economics: A Revolution in Understanding Behaviour

What is the best compensation package to offer employees? How should choice among investments in pension plans be structured? Should a government use auctions to sell natural resources? Is it possible to design a market to reduce non-point source pollution in Quebec’s watersheds? What holds people back from trying technologies that are completely new to them? Over the last two decades a revolution has occurred in the advancement of our ability to answer questions such as these. This revolution is called experimental economics. Experimental economics is the use of a controlled laboratory environment to understand decisions people make. In an economics experiment, people make decisions in a laboratory. They are paid according to the outcome of their decisions, and their decisions are analyzed to determine the effect of an institutional or environmental change that is being tested. Through the analysis of behaviour in controlled economics experiments, much has been learned about behaviour when outcomes are uncertain: for example, new notions about preferences toward risk and consumption over time have been developed. Much has also been learned about how people behave in strategic environments: for example, bidding behaviour in auctions is better understood, and the strategies people use as they learn how to trust each other have been observed. The purpose of this report is to describe the methodology of experimental economics and to detail its major uses. We will focus on the ability to measure behaviours in a wide variety of situations important to organizations. We will show, with examples from our own work, how feedback between the laboratory and the field can result in new understanding of decisions in an effort to affect the cycle of poverty in a developing country in fundamentally new ways. What is the best compensation package to offer employees? How should choice among investments in pension plans be structured? Should a government use auctions to sell natural resources? Is it possible to design a market to reduce non-point source pollution in Quebec’s watersheds? What holds people back from trying technologies that are completely new to them? Over the last two decades a revolution has occurred in the advancement of our ability to answer questions such as these. This revolution is called experimental economics. Experimental economics is the use of a controlled laboratory environment to understand decisions people make. In an economics experiment, people make decisions in a laboratory. They are paid according to the outcome of their decisions, and their decisions are analyzed to determine the effect of an institutional or environmental change that is being tested. Through the analysis of behaviour in controlled economics experiments, much has been learned about behaviour when outcomes are uncertain: for example, new notions about preferences toward risk and consumption over time have been developed. Much has also been learned about how people behave in strategic environments: for example, bidding behaviour in auctions is better understood, and the strategies people use as they learn how to trust each other have been observed. The purpose of this report is to describe the methodology of experimental economics and to detail its major uses. We will focus on the ability to measure behaviours in a wide variety of situations important to organizations. We will show, with examples from our own work, how feedback between the laboratory and the field can result in new understanding of decisions in an effort to affect the cycle of poverty in a developing country in fundamentally new ways.

Learning-by-Doing in an Ambiguous Environment

We experimentally test whether risk aversion or ambiguity aversion can explain decisions in a learning-by-doing game. We first measure subjects' preferences toward risk and ambiguity, and then use these measures to predict behavior in the game. We find that ambiguity averse subjects pay more often to resolve ambiguity, and we find that less risk averse subjects earn more in the game. Our results, in light of a previous field study of farmers in a developing economy, provide further evidence of a link between ambiguity aversion and technology choice, as well as a link between risk aversion and farm profitability. Une étude expérimentale a été menée afin de tester si l’aversion au risque ou l’aversion à l’ambiguïté peuvent expliquer les décisions prises par les sujets lors d’un jeu d’apprentissage par essais. Nous avons d’abord mesuré la préférence des sujets face au risque et à l’ambiguïté, et avons ensuite utilisé ces mesures pour prédire le comportement des sujets au cours du jeu. Nous avons pu constater que les sujets qui éprouvent de l’aversion à l’ambiguïté décident de payer plus souvent afin de clarifier cette ambiguïté. D’autre part, nous avons constaté que moins les sujets éprouvent de l’aversion au risque, plus leurs gains lors du jeu sont élevés. À la lumière d’une étude sur le terrain ayant eu lieu avec des fermiers travaillant dans une économie en développement, nos résultats confirment l'évidence d'un lien entre l'aversion à l'ambiguïté et les choix technologiques, ainsi que d'un lien entre l'aversion au risque et la rentabilité d'une ferme.learning-by-doing, technology choice, risk preferences, risk measurement instruments, ambiguity aversion, experimental economics, apprentissage par essais, choix technologiques, préférences vis-à-vis du risque, instruments de mesure du risque, aversion à l’ambiguïté, économie expérimentale

HEALTH, AGING AND SOCIO-ECONOMIC CONDITIONS IN MEXICO

We investigate the long-term effect of childhood and adult socio-economic conditions on the health of the elderly in Mexico. We utilize a panel of individuals aged 50 and above from the Mexican Health and Aging Survey to examine whether the transition from good health in 2001 to good health in 2003 is affected by the conisions under which the individual lived at the age of 10, accounting for education and income. We find that socio-economic conditions affect the health of the elderly in Mexico. Individuals with higher levels of income and from higher childhood socio-economic backgrounds are more likely to remain in good health, conditional on their health in 2001. Our paper contributes to the literature of the long-term effects of socio-economic status by considering the case of the elderly in a developing country.

The Effect of an Additional Alternative on Measured Risk Preferences in a Laboratory Experiment in Peru

We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk preferences with a series of choices between two gambles. We added a third gamble, which was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing the subjects to appear to be more risk loving. We found that subjects in a traditional laboratory environment did not choose the dominated gamble, but their choices were affected by its presence. Une étude expérimentale a été menée dans le but de vérifier l’incidence qu’un choix supplémentaire peut avoir sur les préférences mesurées des fermiers des zones rurales du Pérou à l’égard du risque. Au cours de notre expérience, les sujets étaient appelés à exprimer leurs préférences face au risque en fonction d’une série de choix entre deux loteries. Nous avons ajouté une troisième loterie, laquelle était toujours dominée par une des deux loteries existantes. Nous avons pu constater que, le quart du temps, les sujets choisissaient cette nouvelle loterie, de sorte que, dans certains cas, les sujets semblaient être plus enclins au risque. Nous avons constaté, dans un environnement de laboratoire traditionnel, que les sujets ne choisissaient pas la loterie dominée, mais que leurs choix étaient influencés par sa présence.rural development, technology choice; risk preferences, risk measurement instruments, experimental economics, choix de la technologie, développement rural, économie expérimentale, instruments de mesure du risque, préférences à l’égard du risque