SERI Working Paper No. 21

Abstract: Firms strategically disclose product information in order to attract consumers, but recipients often find it costly to process all of it, especially when products have complex features. We study a model of competitive information disclosure by two firms vying for a consumer who may save on attention costs by systematically ignoring some information. We find that for a large class of parameters, it is an equilibrium for the firms to provide the consumer with her first-best level of information–i.e., as much as she would learn if she herself controlled information provision. Importantly, this is not true if the consumer could costlessly process information, or if there were only one firm. Our key contribution is to identify a novel channel through which an interaction of firm competition with consumer inattention encourages information disclosure: information on one firm substitutes for information on the other, which nullifies the profitability of a unilateral withholding of information. Our results have implications for a broad range of applications.

Updated: February 21, 2022 

SERI Working Paper No. 22

Abstract: In a novel framework, this paper captures the effects of perceived self-efficacy beliefs, built on the basis of the socio-economic background, on human capital investments and skill distribution. Ex ante children are homogeneous, but depending on parental education and job status, parents form different beliefs on the returns to their children’s education. An unskilled (poor) parent underestimates the probability of her child getting a skilled job upon getting education and overestimates the corresponding income. The skilled (rich) parents do the opposite. We find that the steady-state mass of educated adults, skilled workers, and income inequality depend on the degree of bias and the degree of affinity for the well-being of the child. In economies with low child affinity, irrespective of the degree of bias, there is always a poverty trap. For moderate child affinity, behavioral biases may give rise to multiple equilibria as well as lower the steady-state inequality. For huge child affinity, even a small bias induces poor adults to invest with a higher probability than the rich.

Updated: February 21, 2022 

SERI Working Paper No. 15

Abstract: The literature documenting the effect of electoral gender quotas on policy is extensive, and yet its potential mechanisms remain under-explored. In this paper, we examine the relative importance of differential preference of women leaders (supply) vis-a-vis greater demand expressed by women voters in the presence of female leadership in explaining the gender quota effect. We compile data on household level allocation of a politically salient good—toilets—for the entire rural population (over 25 million households) of Uttar Pradesh, the largest state of India. We argue and show that women exhibit a greater preference for toilets than men and this gender gap is significantly larger for Muslims than Hindus. Additionally, women in female headed households, relative to male headed ones, are more likely to express greater demand. We use the religious and gender identities of council presidents and household heads as proxies for toilet preference to disentangle demand and supply effects. Using a fuzzy regression discontinuity design, we find that gender quota among Muslim leaders has a large and statistically significant positive effect on toilet provision, while for Hindu leaders it doesn’t have any average effect. Hindu female leaders, however, allocate disproportionately more toilets to Muslim female headed households. We establish that greater demand expressed by households explains most of the heterogeneous effects of gender quota across Hindu and Muslim Sarpanches, while we do not find any evidence of the supply mechanism. Our results have important policy implications and can reconcile the mixed evidence on the effects of gender quotas in elections.

Updated: June 4, 2021 

SERI Working Paper No. 8

Abstract: We model the behavior of a decision maker who exercises self-control to address an intrapersonal conflict between what she wants to do (her “want-self”) and what she thinks she should do (her “should-self”). In any menu, her expression of self-control involves, first, eliminating a subset of alternatives that are worst according to her should-self which, if chosen, induces guilt. Then, amongst the remaining alternatives, she chooses the best one according to her want-self. We characterize the model behaviorally and determine the extent to which the preferences of the two selves and the alternatives eliminated in any menu are uniquely identified. We compare and contrast the model’s implications for “non-standard” choices with existing models of self-control.

Updated: June 2, 2021 

SERI Working Paper No. 6

Abstract: A principal contracts with an agent to complete a task. The agent’s ability to complete the task is uncertain and is learnt from the agent’s performance in projects that the principal finances. Success however also depends on the quality of the project at hand, and quality is privately observed by the agent who is biased towards implementation. We characterize the optimal sequence of rewards in a relationship that tolerates an endogenously determined finite number of failures and incentivizes the agent to implement only good projects by specifying rewards for success as a function of past failures. The fact that success becomes less likely over time suggests that rewards for success should increase with past failures. However, this means that the agent can earn a rent by deviating and implementing a bad project, which is sure to fail. We show that this rent decreases with past failures and implies that optimal rewards are front-loaded. The optimal contract resembles the arrangements used in venture capital, where entrepreneurs must give up equity share in exchange for further funding following failure.

Updated: June 2, 2021 

SERI Working Paper No. 9

Abstract: Two alternatives P and Q are in contention. There are two states and each state identifies a location of P and Q on the unidimensional policy space. Voters have noisy information about the state. We provide a characterization of limit equilibrium outcomes as the electorate increases unboundedly. If P lies on the same side of Q in both states, then information aggregation is guaranteed. If P is to the right of Q in one state and to the left of Q in the other, then there are three distinct equilibrium sequences, only one of which is full information equivalent. This shows how distributional uncertainty leads to failure of information aggregation.

Updated: June 2, 2021 

SERI Working Paper No. 3

Abstract: In developing countries where medical infrastructure and service delivery system, and the market for health insurance are underdeveloped, one important mechanism to cope with the consequences of health shocks is the intra household substitution of labour. Most of the available studies have evaluated intra-household labour substitution in response to a health shock using low frequency data. This paper, using a panel of high frequency monthly data from the rural households in the semi-arid tropics of India, investigates the impacts of short-term illness shocks on individual’s labour supply and wage earnings. It also evaluates compensating intra-household labour supply responses to short-term illness shocks of other non-ill members of the household. We find that an illness shock reduces an individual’s monthly wage earnings by 4.3% via the decline in the individual’s days of employment in the labour market. Further, an illness shock to the household-head causes a compensating increase in the spouse’s labour supply in wage labour market and livestock activities. Similarly, an illness shock to the spouse induces the household-head to devote more time to domestic and livestock activities.

Updated: February 24, 2021 

SERI Working Paper No. 4

Abstract: I analyze the impact of endogenizing social and private learning in a herding problem. Private learning is modeled à la rational inattention literature. I find a non-monotone relationship between social and private learning. They are substitutes when private learning is sufficiently cheap and become complement for higher private learning costs and eventually becomes uninformative. This happens because an increase in private learning costs makes social learning less informative. As an implication, only the reduction of the cost of private learning unambiguously increases welfare contrary to the herding result, where restricting social learning initially is optimal.

 Updated: February 4, 2021 

SERI Working Paper No. 7

Abstract: In the Lead Bank Scheme of India, a public sector bank, known as the Lead Bank of the district, reduces bottlenecks in financial service delivery. Another public sector bank, known as the Convenor Bank of the state, monitors the effort of Lead Banks across districts within a state. Given this organizational design, for some districts, defined as aligned districts, Lead and Convenor banks fall within the boundary of the same firm. I find that in aligned districts credit uptake is higher by 21%, consistent with higher effort by Lead Bank personnel owing to lower monitoring costs (Williamson, 1981) and higher career concerns (Holmstrom and Roberts, 1998) within a firm. I conduct two tests to identify the impact of alignment within a district on financial inclusion outcomes. First, using a plausibly exogenous (to district characteristics) change in alignment status of a district, I find that credit increases by nearly 28% when a district becomes aligned. Further, after an exogenous negative income shock of bad rainfall, saving withdrawals are lower in aligned districts, consistent with higher credit availability (Eswaran and Kotwal, 1990). The results show how organizational pressure within commercial banks in India may distort credit lending across districts.

Updated: February 4, 2021 

SERI Working Paper No. 1

Abstract: In a sequencing environment with incomplete information, we study the impact of imposing a lower bound on the utility function of agents. We call this the “acceptable utility bound”. Such a bound guarantees a minimum acceptable utility to every agent and acts as a veil of protection. Our primary motive is to identify the class of outcome efficient and strategy-proof mechanisms which satisfy the “acceptable utility bound”. We identify a necessary and sufficient condition to obtain such a class of mechanisms. This is followed by our characterization result where the set of mechanisms satisfying outcome efficiency, strategy-proofness and the acceptable utility bound are termed as “relative pivotal mechanisms”. The paper also provides relevant theoretical applications involving specific lower bounds namely; bounds with initial order, identical cost bounds and expected cost bounds. We also offer insights on the issue of feasibility and/or budget balance.

Updated: February 3, 2021 

SERI Working Paper No. 22

Abstract: In a novel framework, this paper captures the effects of perceived self-efficacy beliefs, built on the basis of the socio-economic background, on human capital investments and skill distribution. Ex ante children are homogeneous, but depending on parental education and job status, parents form different beliefs on the returns to their children’s education. An unskilled (poor) parent underestimates the probability of her child getting a skilled job upon getting education and overestimates the corresponding income. The skilled (rich) parents do the opposite. We find that the steady-state mass of educated adults, skilled workers, and income inequality depend on the degree of bias and the degree of affinity for the well-being of the child. In economies with low child affinity, irrespective of the degree of bias, there is always a poverty trap. For moderate child affinity, behavioral biases may give rise to multiple equilibria as well as lower the steady-state inequality. For huge child affinity, even a small bias induces poor adults to invest with a higher probability than the rich.

Updated: February 21, 2022 

SERI Working Paper No. 19

Abstract: We create new measures of monetary policy shocks for India using high-frequency derivatives data and study their transmission. These shocks capture two distinct dimensions of the Reserve Bank of India’s (RBI) monetary policy announcements. In addition to reacting to surprise changes (or non-changes) in the RBI’s policy rate, financial markets also infer substantial information about the future path of the policy rate from RBI’s communication. We analyze official statements and the corresponding media narrative on prominent RBI announcement dates to help understand how markets use RBI communication to update their expectations. Overall, bond and stock markets react strongly to these monetary shocks, but exhibit notable heterogeneity across governor regimes. Finally, we use the monetary shocks as external instruments to identify the impact on macroeconomic variables in a structural vector auto-regression. We find some evidence of the conventional transmission of monetary policy to prices but not to output.

Updated: November 12, 2021 

SERI Working Paper No. 18

Abstract: We empirically examine whether violation of hypergamy – which occurs when the wife’s economic status equals or exceeds that of her husband’s – causally affects domestic violence using microdata from India. Identifying the causal effect of hypergamy violation on domestic violence, however, is challenging due to unmeasured confounding and reverse causality. To overcome these difficulties, we utilize a nonparametric bounds approach. Relying on fairly weak assumptions, we find strong evidence that violation of hypergamy leads to a significant increase in domestic violence. Further, we provide suggestive evidence that this result arises because violation of hypergamy is likely to undermine patriarchal beliefs and norms about gender roles, and also because it is likely to increase men’s likelihood of using domestic violence as an instrument to sabotage their wives’ labor market prospects. Our findings suggest that policies that seek to empower women and promote gender equality might paradoxically increase women’s exposure to domestic violence.

Updated: September 18, 2021 

SERI Working Paper No. 10

Abstract: The stagnancy of women’s workforce participation in urban India is alarming and puzzling, considering the pace of economic development experienced in the previous decade. We investigate the extent to which the low workforce participation of women can be explained by growing instances of officially reported crimes against women. We employ a fixed effects strategy using district-level panel data between 2004-2012. To address additional concerns of endogeneity, we exploit state-level regulations in alcohol sale and consumption and provide estimates from two different strategies – an instrumental variable approach and a border-analysis. Our findings indicate that a one standard deviation increase in sexual crimes per 1000 women reduces the probability that a woman is employed outside her home by 9.4%. While we find some evidence of heterogeneity across regions and religions, overall, the deterrent effect seems to affect women equally across all economic, demographic and social groups.

Updated: June 2, 2021 

SERI Working Paper No. 12

Abstract: Domestic violence is common, costly, yet widely accepted. Neither legal prohibition nor economic growth can stop it. Can participatory theater – a novel, cultural intervention – make it socially unacceptable? Community-based participatory theater gives communities the means, in fictional but nonetheless familiar situations, of analyzing oppression, interrogating the oppressors, rehearsing resistance, and negotiating standards of behavior. This paper is the first large-scale impact evaluation. We use an endogenous treatment model and a random sample of over 3,000 married couples in West Bengal, India to estimate the impact on domestic violence of village exposure to Jana Sanskriti, one of the world’s largest participatory theater organizations. We find that it reduced physical abuse by a quarter and reduced by half the proportion of husbands who viewed wife beating as legitimate. By motivating individuals to rescript stories of oppression and rethink their collective representations of domestic violence and masculinity, participatory theater triggered durable social change.

Updated: June 2, 2021 

SERI Working Paper No. 11

Abstract: This paper studies the decline in labor market turnover over recent decades, in particular, the job finding and separation rates. I analyze the role of an increase in specialization of jobs in accounting for this decline, where specialization is defined as the impact of mismatch on match productivity. Combining individual level data from NLSY79 and NLSY97 with data on skills from ASVAB and O*NET, I empirically estimate job specialization and show that the specialization has increased over time. To quantify the impact of this increasing specialization on labor market turnover, I build an equilibrium search and matching model with two-sided ex-ante heterogeneity and endogenous separations. The calibrated model shows that higher job specialization leads to a decline in both job finding and separation rates. As specialization increases, firms and workers become more selective in forming matches. Thus, well-matched firms and workers choose to remain in their matches longer, while bad matches get destroyed faster. Since higher specialization leads to an increase in the proportion of good matches in the economy, it results in a decline in the labor market turnover.

Updated: June 2, 2021 

SERI Working Paper No. 5

Abstract: We study possible worker-to-employer discrimination manifested via social preferences. We run a well-powered, model-based experiment, wherein we recruit 6,000 white American workers from Amazon’s M-Turk platform for a real-effort task. We randomly (and unobtrusively) reveal the racial identity of their non-fictitious employer, who may either be white or black. We find evidence of race-based altruism towards black employers. However, the workers display significant racial discrimination in reciprocity – a small gift induces workers to put higher effort for white employers relative to black. Our results suggest that taste-based discrimination favoring ingroup can have significant adverse effects on outgroup employers.

Updated: February 5, 2021 

SERI Working Paper No. 13

Abstract: In this paper we examine whether students’ and teachers’ identity play any role in the learning outcome of students. Specifically, we ask if a student benefits by learning from a teacher of her same gender. Unlike the existing literature which explains such interaction through role model effect or Pygmalion effect, we explain such interaction in terms of gender based sorting behaviour across private and public schools. Our results are driven by two critical differences between male and female individuals. For male and female teachers, the difference comes from their differential transaction costs of traveling to schools at remote locations. For students, the difference between male and female members comes from the differential returns to education accrued to their parents; for girl students, a lower fraction of the return comes to their parental families as they start living with their husband’s family after their marriages. These factors create a sorting pattern which makes the female teachers and students of the highest quality attend private schools in urban location. This creates a positive gender matching effect only for urban, private schools. We find support for our theoretical predictions when we test them using Young Lives Survey (YLS) data collected from Andhra Pradesh.

Updated: June 3, 2021 

SERI Working Paper No. 2

Abstract: What explains the low enrolment of women in science and economics? We combine administrative and survey data on a sample of high-income workers in India who have completed the same elite graduate programme to estimate the return to studying different undergraduate degrees – across science, business and economics, and the humanities. We find evidence of a large earnings premium to studying science and economics, yet disproportionately low female enrolment in these subjects. Using data on the subjective expectations of undergraduate students who are in the process of selecting a major, we model major choice as a function of major-specific and job-specific attributes. We identify significant gender differences in the preferences for different attributes as well as in the expectations of future outcomes, especially of grades. Women are willing to pay twice as much as men for course enjoyment and higher grades, even as they expect lower grades in science and economics. This suggests that in addition to pervasive norms about which subjects are better suited for women, women also suffer from a relative confidence gap in their major-specific abilities.

Updated: February 3, 2021 

SERI Working Paper No. 22

Abstract: In a novel framework, this paper captures the effects of perceived self-efficacy beliefs, built on the basis of the socio-economic background, on human capital investments and skill distribution. Ex ante children are homogeneous, but depending on parental education and job status, parents form different beliefs on the returns to their children’s education. An unskilled (poor) parent underestimates the probability of her child getting a skilled job upon getting education and overestimates the corresponding income. The skilled (rich) parents do the opposite. We find that the steady-state mass of educated adults, skilled workers, and income inequality depend on the degree of bias and the degree of affinity for the well-being of the child. In economies with low child affinity, irrespective of the degree of bias, there is always a poverty trap. For moderate child affinity, behavioral biases may give rise to multiple equilibria as well as lower the steady-state inequality. For huge child affinity, even a small bias induces poor adults to invest with a higher probability than the rich.

Updated: February 21, 2022 

SERI Working Paper No. 20

Abstract: How does trade within a country respond to aggregate shocks? Using novel administrative data, we show that COVID-19 induced shutdown in March 2020 led to a collapse in domestic trade across regions in India. Well after the movement restrictions were lifted, trade continues to suffer while GDP recovers as plants shift from inter- to intra-region sales and input-sourcing. Plants more dependent on inter-region sales (inputs) lead this regional realignment. Additionally, products with a higher pre-pandemic scope to expand into the home market witness greater realignment, accounting for 7.6 percent of the sales growth in the last quarter of 2020.

Updated: February 4, 2021 

SERI Working Paper No. 7

Abstract: In the Lead Bank Scheme of India, a public sector bank, known as the Lead Bank of the district, reduces bottlenecks in financial service delivery. Another public sector bank, known as the Convenor Bank of the state, monitors the effort of Lead Banks across districts within a state. Given this organizational design, for some districts, defined as aligned districts, Lead and Convenor banks fall within the boundary of the same firm. I find that in aligned districts credit uptake is higher by 21%, consistent with higher effort by Lead Bank personnel owing to lower monitoring costs (Williamson, 1981) and higher career concerns (Holmstrom and Roberts, 1998) within a firm. I conduct two tests to identify the impact of alignment within a district on financial inclusion outcomes. First, using a plausibly exogenous (to district characteristics) change in alignment status of a district, I find that credit increases by nearly 28% when a district becomes aligned. Further, after an exogenous negative income shock of bad rainfall, saving withdrawals are lower in aligned districts, consistent with higher credit availability (Eswaran and Kotwal, 1990). The results show how organizational pressure within commercial banks in India may distort credit lending across districts.

Updated: February 4, 2021 

SERI Working Paper No. 14

Abstract: Voters in decentralized democracies make voting decisions in multiple elections across tiers, often on the same day. Theories of decentralization implicitly presume that they have sufficient cognitive capacity to follow separate decision-making processes for different elections. Exploiting variation in the timing of Indian national and state elections, we find that voters’ cognitive costs are significantly higher when they need to vote for multiple elections at the same time than otherwise. We estimate the importance of cognitive constraints shaping voters’ decision-making processes, final decisions, and electoral outcomes across tiers. Consistent with the predictions of a model of behaviorally constrained voters, we show that simultaneous elections increase political parties’ salience among voters and increase straight-ticket voting, without significantly affecting turnout. Consequently, the likelihood of the same political party winning constituencies in both tiers increases by 21.6%. We rule out alternative mechanisms that might explain this result. Our findings suggest that, in the presence of behavioral voters, election design can shape the experience of decentralization in democracies.

Updated: June 4, 2021 

SERI Working Paper No. 16

Abstract: We study the role of formal institutions of contract enforcement in facilitating investments in small and medium firms(MSME). In a framework where established entrepreneurs can enforce contracts informally using their network ties and hierarchical advantage, we argue that an efficient formal judiciary helps entrepreneurs without any ties to informal business networks, disproportionately more. We test our theoretical prediction using a novel administrative panel-data from Indian courts and the nationally representative MSME survey data. Empirically, we treat entrepreneurs from disadvantaged castes (SC-ST) as those without traditional business-network ties. We find that improvement in court quality has a disproportionately larger impact on the investment decisions of SC-ST entrepreneurs. On average, if the time taken for a court to clear all existing cases reduces by 1 year, the initial gap in the probability of investing, between SC-ST and other entrepreneurs, gets reduced by 0.6-0.7 percentage points.

Updated: September 18, 2021