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Category: Economics

Published September 8, 2011

Pretending to Be Poor

This is the title of a new paper in Economic Development and Cultural Change by Jean-Marie Baland, Catherine Guirkinger, and Charlotte Mali. Because EDCC does not publish abstracts, here is the abstract of a previous version:

“From field observations of credit cooperatives in Cameroon, we find that a substantial number of members take loans that are fully collateralized by savings they held in the same institutions. 20% of the loans observed fall into this category. The price paid in terms of net interest payments is not negligible as it represents 13% of the amount borrowed. As traditional arguments such as credit rating or time inconsistent preferences cannot explain such behavior in our specific setting, we propose a new rationale based on in-depth interviews with members of the cooperatives. Those interviews indicate that some members systematically use credit as a way to pretend that they are too poor to have available savings. By doing so, they can successfully oppose request for financial help from friends and relatives. We develop a signaling model to analyze the conditions under which this behavior is an equilibrium outcome.”

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Published September 7, 2011

The Economics of Trash

An excellent essay in Foreign Affairs by one of our incoming Masters of Public Policy students:

“The streets of India’s major cities look dirty, piles of waste rot in the corners of buildings, and plastic bottles crunch underfoot. But the grit hides an informal waste collection system so effective that, despite an increase in the sale of disposable, non-organic consumer goods in India in recent years, the trash that ends up in the hands of municipal garbage facilities is over 50 percent organic — that is, mostly food waste. In 2009, food scraps made up only 21 percent of non-recycled waste in the United States. India’s ubiquitous trash-pickers may seem to some an unfortunate byproduct of Western-style consumption, but where others see garbage many Indians see opportunity. In an informal glass market in Bangalore, I was offered three rupees for a green glass bottle. By selling three bottles, I could have earned enough for a local bus ride.

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Published September 7, 2011

Corruption in Developing Countries

That is the title of a new working paper by Ben Olken and Rohini Pande:

“Recent years have seen a remarkable expansion in economists’ ability to measure corruption. This, in turn, has led to a new generation of well-identified, microeconomic studies. We review the evidence on corruption in developing countries in light of these recent advances, focusing on three questions: how much corruption is there, what are the efficiency consequences of corruption, and what determines the level of corruption. We find robust evidence that corruption responds to standard economic incentive theory, but also that effects of anti-corruption policies often attenuate as officials find alternate strategies to pursue rents.”

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