essays in development economics

171 Pages·2016·10.6 MB·English

ESSAYS IN DEVELOPMENT
ECONOMICS
Erika Deserranno
A thesis submitted to the Department of Economics of the
London School of Economics for the degree of Doctor of
Philosophy. London, September 2015
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Declaration
IcertifythatthethesisIhavepresentedforexaminationforthePhDdegreeoftheLondon
School of Economics and Political Science is solely my own work other than where I have
clearly indicated that it is the work of others (in which case the extent of any work carried
out jointly by me and any other person is clearly identified in it). The copyright of this thesis
rests with the author. Quotation from it is permitted, provided that full acknowledgment is
made. This thesis may not be reproduced without my prior written consent. I warrant that
this authorization does not, to the best of my belief, infringe the rights of any third party.
Statement of Conjoint Work
I confirm that Chapter 2 was jointly co-authored with Oriana Bandiera (Professor at the
London School of Economics), Robin Burgess (Professor at the London School of Economics),
Imran Rasul (Professor at the University College London), Munshi Sulaiman (Researcher at
BRAC Africa), Ricardo Morel (Researcher at BRAC Africa). I contributed 50% of the work.
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Acknowledgment
Theworkcontainedinthisthesishasbenefitedfromthehelpandsupportofmanypeople.
IamimmenselygratefultoOrianaBandieraforherinvaluablesupportandadvicethroughout,
as well as to Robin Burgess and Johannes Spinnewijn for their comments, suggestions and
support. I am also very grateful to the members of The Suntory and Toyota International
Centres for Economics and Related Disciplines (STICERD) for providing me with a great
environment to work and to be in, and to the participants of the Development and Labour
economics LSE brown bag seminars.
I thank the BRAC Uganda team, in particular Munshi Sulaiman, Ricardo Morel, Moza-
mmel Huq, Sharmin Sharif and Gulshan ara Khanom, for their invaluable help with the CHP
and the Agriculture Extension projects and for their hospitality during the time I spent in
Uganda. Without their support and encouragement it would not have been possible to carry
out such ambitious projects.
Thanks go to all my friends and colleagues for their invaluable support, especially Laura
Derksen, Pedro Souza, Enrico Mallucci, Luca Metelli, Ameet Morjaria, Joao Pessoa, Fabio
Pinna, Alessandro Scandura and Roberto Sormani.
I gratefully acknowledge financial support from the LSE Department of Economics, the
Economic and Social Research Council, IGC for the experiment described in the first Chapter
and ATAI for for the experiment described in the second Chapter. I also would like to thank
Unicredit & Universities Foundation for their financial support over the course of these years.
This thesis would not exist without the support of my parents, Geert and Natalina, my
brothers, Lorenzo and Dario, my uncles Dario and Franco, and all the rest of the family. I
also want to thank all my friends around the world who have always been there for me.
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Abstract
Thisthesiscontainsthreechaptersthatfallunderthebroadbannerofdevelopmenteconomics,
with a particular focus on the study of mechanisms and strategies that improve public goods
delivery.
The first chapter studies the role of financial incentives as signals of job attributes when
these are unknown to potential applicants. I create experimental variation in expected earn-
ings and use it to estimate the effect of financial incentives on candidates’ perception of a
newly created health worker position in Uganda and, through this, on the size and compo-
sition of the applicant pool. I find that more lucrative positions are perceived as entailing a
lowerpositiveexternalityforthecommunity,anddiscourageagentswithstrongprosocialpref-
erences from applying. While higher financial incentives attract more applicants and increase
the probability of filling a vacancy, they hamper retention and performance. This is because
the signal they convey reduces the ability to recruit the most socially motivated agents, who
are found to stay longer on the job and to perform better.
The second chapter analyzes the role of social connections on the targeting choices of
delivery agents. During the expansion of an agriculture extension program in Uganda, we
randomly selected one delivery agent out of two eligible candidates per community. We
find that social connections matter: relative to farmers connected only to the non-selected
candidate, thoseconnectedonlytotheselecteddeliveryagentbenefitmorefromtheprogram.
They are indeed more likely to receive advice, training and more likely to adopt improved
seeds, a new beneficial technology. We show that these results are consistent with delivery
agents (a) putting positive weight on the utility of farmers connected to them (altruism) and
(b)puttinganegativeweightontheutilityoffarmersconnectedtotherivalcandidate(spite).
This sheds light on the importance of both positive and negative social preferences in shaping
program delivery.
The third chapter studies the effect of movement restrictions on education. The evidence
is based on the construction of the West Bank Separation Barrier in 2003. The exposure of
an individual to the Barrier is determined both by her locality of residence and by whether
she was in school or about to start school when the Barrier was built. Using a difference-in-
differences approach, I find that movement restrictions increase the probability of dropping
out from elementary and preparatory school by 3.7 and 6 percentage points respectively,
i.e. a 50% increase relative to localities with no movement restrictions, while the proportion
of children who have never attended school increased by 3.6 percentage points. Among all
households, the poorest ones are the most affected, indicating that movement restrictions not
only deteriorate the average education level but also increase income inequality.
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Contents
Chapter 1: Financial Incentives as Signals: Experimental Evidence from the
Recruitment of Health Promoters
1. Introduction - page 8
2. Context and Research Design - page 13
2.1. The Health Promoter Position - page 13
2.2. Experimental Variation - page 15
2.3. Recruitment Experiment - page 17
2.4. Information Experiment - page 18
4. Validation of the Experiment - page 19
5. Treatment Effects on Job Perceptions - page 22
6. Treatment Effects on Selection - page 24
6.1. Selection in the Applicant Pool - page 25
6.2. Selection in the Pool of Appointed Workers - page 29
7. Treatment Effects on Retention - page 31
8. Treatment Effects on Performance - page 34
10. Conclusions - page 37
Chapter 2: Social Connections and the Delivery of Development Programs
1. Introduction - page 90
2. Context, Research Design and Data - page 94
2.1. The Agriculture Program - page 94
2.2. Research design, Sample and Data - page 95
3. The Effects of the Agriculture Program - page 99
3.1. The Effect on Adoption and Productivity - page 99
3.2. The Constraints Relaxed by the Agriculture Program - page 100
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4. Social Connections and Program Delivery - page 101
4.1. Identification - page 101
4.2. Results: Individual Outcomes - page 102
4.3. Results: Aggregate Outcomes - page 106
5. Conclusions - page 106
Chapter 3: Movement Restrictions and Education, Evidence from Palestine
1. Introduction - page 130
2. Movement Restrictions in the West Bank - page 133
3. Data and Identification Strategy - page 135
3.1. Data - page 135
3.2. Identification Strategy - page 135
3.3. Summary Statistics - page 137
4. The Effect of Movement Restrictions on Education - page 138
4.1. Simple Difference-in-Differences - page 138
4.2. Difference-in-Differences with Fixed Effects and Controls - page 139
4.3. Extended Difference-in-Differences - page 142
5. Threats to Identification and Robustness Checks - page 142
5.1. Anticipation - page 142
5.2. Sample Selection: Migration - page 143
5.3. Omitted Variables - page 144
5.4. Reversion to the Mean - page 145
5.5. Quality of Education - page 146
6. Conclusions - page 146
Bibliography - page 162
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Chapter 1
Financial Incentives as Signals:
Experimental Evidence from the
Recruitment of Health Promoters
1 Introduction
Understanding how individuals respond to incentives is a central question in economics. In
standard economic theory, financial incentives affect agents’ behavior by increasing the mon-
etary payoff from accomplishing a task. Recent theory points out that, in the presence of
incomplete information about a job, financial incentives can also affect agents’ effort by con-
veying a signal about the characteristics of the job (Benabou and Tirole 2003; Sliwka 2007).
Morelucrativepositionsmay, forinstance,beperceivedasmoredifficultandlessenjoyable, or
maysignaldistrustorexploitativeintentionsonthepartoftheprincipal. Thisisanalogousto
the well-known concept that increasing the price of a new product can change the way people
perceive this new product—e.g., its quality—and this signal can affect consumers’ decisions
(Milgrom and Roberts 1986).
In this paper, I test whether offering stronger financial incentives for a prosocial job
changes agents’ perceptions of the job and thereby their behavior in the labor market. To
thisend, Icreateexogenousvariationinexpectedtotalearningsforabrand-newpositionthat
involves a social task, which entails positive social externalities, and a business task, which
entails purely private benefits. I find that higher expected total earnings—or, equivalently,
stronger financial incentives—signal the business-oriented nature of the job and decrease the
expected social output.1 This crucially affects the size and composition of the applicant pool.
On the one hand, financial incentives increase the aggregate number of applicants. On the
other hand, they discourage applications from agents with strong prosocial preferences, who
are found to stay longer on the job and to perform better.2
These results can be rationalized by the presence of incomplete information on the side
of the agents in my setting. For well-known positions and recruiters, financial incentives do
1Financial incentives are defined here as any type of monetary reward that induces agents to work harder,
i.e., higher wages, higher total earnings (see efficiency wage theory), higher performance reward.
2A large theoretical and empirical literature, both in economics and in psychology, suggests that prosocial
motivation aligns interests of workers with those of mission-driven organizations.
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not convey a signal, i.e., they increase the monetary payoffs without distorting expectations
about the prosocial nature of the job. In this scenario, incentives attract workers who value
remuneration without displacing workers with strong prosocial preferences, leading to an
increaseinthenumberofapplicants. Incontrast, ifthepositionisunfamiliar, raisingfinancial
incentives discourages prosocially motivated agents if these agents perceive more lucrative
positions as less “social.”3 In this scenario, the effect on the number of applicants becomes
ambiguous.
The field experiment was implemented during the expansion of BRAC’s health program
in rural villages of Uganda. The program consists in recruiting Community Health Promoters
(henceforth, CHPs)toprovidetheirowncommunitywithbasichealthservices. Animportant
aspectofthejobisthatBRAC,asmanyotherNGOs, doesnotpayastipend; rather, itallows
CHPs to sell household products (e.g., oil, salt, soap) at a margin. Unlike government health
workers, thisimpliesthatBRAC’sagentshavetwotasks: onethathasaprosocialcomponent,
i.e., the home-based health services, and one that has purely private benefits, i.e., the sale
of goods. This nonprofit entrepreneurial model of community delivery, which is increasingly
popular and has been evaluated by Bjorkman-Nykvist et al. (2014), is financially sustainable
and easy to implement.4
Because both BRAC and the CHP position are nonexistent in the villages prior to the
experiment, the job’s potential candidates are unable to know precisely ex ante the relative
importance of the social versus the business task, the social output of the job, the difficulty
of the two tasks, the intentions of the recruiter, etc. The setting is thus ideal for illustrating
whether financial incentives affect the perception of these job characteristics.
To test this, I create exogenous variation in whether the position is advertised as being
high, medium or low paying, while the actual incentives do not change. This design, which
follows a similar methodology as the one used in Ashraf et al. (2014b), is made feasible by the
significant variation in earnings among workers (they earn a profit margin for each product
they sell but receive no base payment). While information on earnings needs to be conveyed
to potential candidates before recruitment, BRAC does not know ex ante how much each
candidate would earn if hired and has flexibility on how to advertise the position.
Variation in expected total earnings from the CHP position is created by randomly reveal-
ing a different point of the true income distribution of existing health promoters: either the
3This can happen in a number of different scenarios. For instance, financial incentives may signal that
agents need to devote more time to profit-oriented activities. Moreover, a large literature shows that workers
tend to supply labor to the social sector at lower-than-market wages in return for the opportunity to provide
goods with positive social externalities (e.g., Weisbrod 1983; Preston 1989). As a consequence, weak financial
incentives may be perceived as associated to social-sector positions. All this is more formally described in a
simple theoretical framework that I develop in Appendix A to guide the empirical analysis.
4TheproductsareboughtbyBRACatthewholesaleprice,soldtotheCHPsatapricethatishigherthan
the wholesale price but lower than the market price, and subsequently sold to the community at the market
price. Each sale yields a profit for the CHP and generates funds for BRAC that are used to cover the costs of
training and monitoring the CHPs.
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