Journal Issue: World Bank Economic Review, Volume 33, Issue 2
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Volume
33
Number
2
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1564-698X
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World Bank Economic Review
1564-698X
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Income Mobility, Income Risk, and Welfare
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Krebs, Tom; Krishna, Pravin; Maloney, William F.
This paper presents a framework for the quantitative analysis of individual income dynamics, mobility, and welfare, with ex ante identical individuals facing a stochastic income process and market incompleteness, implying that they are unable to insure against persistent shocks to income. We show how the parameters of the income process can be estimated using repeated cross-sectional data with a short panel dimension and use a simple consumption-saving model for quantitative analysis of mobility and welfare. Our empirical application, using data on individual incomes from Mexico, provides striking results. Most of the measured income mobility is driven by measurement error or transitory income shocks and is therefore (almost) welfare neutral. Only a small part of measured income mobility is due to either welfare-reducing income risk or welfare-enhancing catching-up of low-income individuals with high-income individuals, both of which, nevertheless, have economically significant effects on social welfare. Strikingly, roughly half of the mobility that cannot be attributed to measurement error or transitory income shocks is driven by welfare-reducing persistent income shocks. Decomposing mobility into its fundamental components is thus crucial from the standpoint of welfare evaluation.
Product Standards and Firms’ Export Decisions
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Ferro, Esteban; Fernandes, Ana M.; Wilson, John S.
Two novel datasets are used to estimate the effect of product standards on firms’ export decisions. The first covers all exporting firms in 42 developing countries. The second covers pesticide standards for 243 agricultural and food products in 80 importing countries over 2006–2012. The analysis shows that product standards affect significantly foreign market access. An increase in the stringency of standards in the destination country, relative to the exporting country, lowers firms’ probability of exporting, deters exporters from entering new markets, and fosters exit from existing markets. Smaller exporters are more affected in their market entry and exit decisions by the relative stringency of destination standards than larger exporters. Networks of other exporters from the same country can help overcome the negative effects of the relative stringency of destination standards on exporter entry and exit.
Energy-Saving Effects of Progressive Pricing and Free CFL Bulb Distribution Program
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Elahi, Raihan; Iimi, Atsushi; Kitchlu, Rahul; Costolanski, Peter
In Africa, about 70 percent of the total population still lives without electricity. Significant resources are needed to meet the gap. Demand-side management is crucial to curb the increasing demand even in developing countries. A traditional approach is to raise prices, but promoting energy-efficient products such as compact fluorescent lamp (CFL) bulbs is also a win-win proposition. While end-users can reduce their spending, power utilities can avoid costly investments in new generation capacity. This paper estimates the effects of progressive pricing as well as CFL distribution program in Ethiopia. It is found that the increasing block tariff structure reduced the demand: the price elasticity is estimated at 0.29. This is particularly useful to influence large-volume users, who are presumably the rich. The CFL program is also found effective to contain the electricity demand. The estimated impact is about 45 kWh per customer. This is significant energy savings particularly for low-volume users.
Cash Transfers and Health
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Holtemeyer, Brian; Evans, David K.; Kosec, Katrina
How do cash transfers conditioned on health clinic visits and school attendance impact health-related outcomes? Examining the 2010 randomized introduction of a program in Tanzania, this paper finds nuanced impacts. An initial surge in clinic visits after 1.5 years—due to more visits by those already complying with program health conditions and by non-compliers—disappeared after 2.5 years, largely due to compliers reducing above-minimal visits. The study finds significant increases in take-up of health insurance and the likelihood of seeking treatment when ill. Health improvements were concentrated among children ages 0–5 years rather than the elderly, and took time to materialize; the study finds no improvements after 1.5 years, but 0.76 fewer sick days per month after 2.5 years, suggesting the importance of looking beyond short-term impacts. Reductions in sick days were largest in villages with more baseline health workers per capita, consistent with improvements being sensitive to capacity constraints. These results are robust to adjustments for multiple hypothesis testing.
Biased Policy Professionals
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Banuri, Sheheryar; Dercon, Stefan; Gauri, Varun
Although the decisions of policy professionals are often more consequential than those of individuals in their private capacity, there is a dearth of studies on the biases of policy professionals: those who prepare and implement policy on behalf of elected politicians. Experiments conducted on a novel subject pool of development policy professionals (public servants of the World Bank and the Department for International Development in the UK) show that policy professionals are indeed subject to decision-making traps, including the effects of framing outcomes as losses or gains, and, most strikingly, confirmation bias driven by ideological predisposition, despite having an explicit mission to promote evidence-informed and impartial decision making. These findings should worry policy professionals and their principals in governments and large organizations, as well as citizens themselves. A further experiment, in which policy professionals engage in discussion, shows that deliberation may be able to mitigate the effects of some of these biases.
When Rebels Attack
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Tandon, Sharad
Households were adversely affected by the mostly nonviolent capture of Yemen’s capital in 2014. Although socioeconomically advantaged households were initially better able to cope with the shock than other households, the capture resulted in a decline in expenditure for the entire population within three months. Struggling households turned to several coping strategies—they increasingly made purchases on credit, increased their reliance on self-employment to deal with a decline in the economic climate, and reduced both the quantity and quality of foods consumed. Furthermore, there was evidence of a loss of autonomy for women, where women were less likely to oversee food purchases and more likely to be in the household during the survey interview. These results demonstrate that the capture of territory without widespread violence can result in a decline in standards of living and further illustrate the manners in which households were able to cope with the shock.
Public Mosquito Abatement
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Thuilliez, Josselin; Dumont, Yves
Mosquito abatement is a public good. A simultaneous model of mosquito abundance and abatement response is developed. We then use data from a cluster randomized controlled experiment conducted over the period 2012–2014 in urban areas of Réunion in France to study the impact of WHO-recommended mechanical elimination techniques, which involve removing sources of stagnant water around the house, on a number of outcomes, including objective entomological indices and self-declared protective behaviors. Empirical results document that households reduce their protective behavior in response to public control. This study holds implications for arboviral disease control, including Zika control.
The More Stringent, the Better? Rationing Car Use in Bogotá with Moderate and Drastic Restrictions
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Bonilla, Jorge A.
Rationing car use based on license plate number has become a popular policy in several cities around the world to address traffic congestion and air pollution. This paper studies the effects of the moderate and drastic driving restrictions imposed as part of the Pico y Placa program on car use and air pollution in Bogotá. Using data on ambient carbon monoxide, gasoline consumption, and vehicle sales and registrations, no evidence of an improvement in air quality or a reduction in car use is found in either phase of the program. On the contrary, there is some indication that, relative to the moderate phase, gasoline consumption, vehicle ownership, and carbon monoxide in the morning peak tended to increase slightly when drastic restrictions were implemented.
An Employment Guarantee as Risk Insurance? Assessing the Effects of the NREGS on Agricultural Production Decisions
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Gehrke, Esther
Uninsured risk constrains households in their production decisions in many developing countries. Similarly to crop insurance, employment guarantees can support farmers in managing agricultural production risks. Evidence from representative panel data of Andhra Pradesh, India, suggests that the National Rural Employment Guarantee Scheme (NREGS) reduces households’ uncertainty about future income streams because it provides employment opportunities in rural areas independently of weather shocks and crop failure. Therewith the NREGS makes an ex-post labor supply response to agricultural shocks more efficient. Households with access to the NREGS are found to shift their production toward riskier but also more profitable crops. The observed shifts in agricultural production do considerably raise the profitability of agricultural production and hence the incomes of smallholder farmers. The findings are not driven by changes in the labor or cost intensity of those crops, which supports the idea that the causal mechanism underlying the observed changes is indeed an insurance effect.
Can Solar Lanterns Improve Youth Academic Performance? Experimental Evidence from Bangladesh
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Kudo, Yuya; Shonchoy, Abu S.; Takahashi, Kazushi
We conducted an experimental intervention in unelectrified areas of northern Bangladesh to investigate the effectiveness of solar products in improving children’s educational achievement. We found that treated households substituted solar lanterns for kerosene-based lighting products, helping to decrease total household expenditure. Solar lanterns increased the children’s home-study hours, particularly at night and before exams. The solar lanterns initially led to an increase in school attendance, but this effect diminished over time. However, the increased study hours and initial improvement in school attendance did not translate into improved academic performance. Varying the number of solar products within the treated households did not alter these results. Analyses that exploited the school grade treatment intensity also provided no evidence suggesting that spillover effects explained the “no academic performance effects.” These findings suggest that improving the home-study environment solely through the provision of solar products may have a limited impact on children’s educational achievement.
Gender-Neutral Inheritance Laws, Family Structure, and Women’s Status in India
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Mookerjee, Sulagna
This paper examines whether economic empowerment of women improves their autonomy within their marital household, and investigates the mechanism, by exploiting variation from a legal reform aimed at improving women’s inheritance rights in India. Results suggest that the reform increased women’s participation in decision-making but at the expense of the older generation of household members and not at the expense of their husbands. Two channels are proposed to explain this phenomenon. First, this can be driven by a shift in the family structure from traditional joint families to nuclear households. Such a change is consistent both with the increase in women’s decision-making authority, which they can exert to move out of the joint household, as well as with men’s incentives, since men have weaker financial links with their parents post-reform. Second, even within joint families, the amendments empowered young couples at the expense of the older generation of household members.
Deterring Kickbacks and Encouraging Entry in Public Procurement Markets
(Published by Oxford University Press on behalf of the World Bank, 2019-06) Knack, Stephen; Biletska, Nataliya; Kacker, Kanishka
There is little systematic evidence on the links between procurement systems and outcomes such as competition and corruption levels. This paper adds to the evidence, using data on 34,000 firms from the World Bank's Enterprise Surveys, in 90 countries with procurement systems data from Public Expenditure and Financial Accountability (PEFA) assessments. We find that in countries with better public access to complete, reliable, and timely procurement information, firms are more likely to participate in public procurement markets. Firms report paying less in kickbacks to officials in countries where exceptions to open competition in tendering must be explicitly justified, and where there are effective and independent complaints mechanisms. These findings—particularly on kickbacks—are robust to the inclusion of numerous controls and to a range of sensitivity tests. However, due to data limitations we are unable to rule out the possibility that these estimates may reflect in part endogeneity bias.