Household Behavior with Imperfect Labor Markets

A household model with differential asset endowments and idiosyncratic transactions costs in accessing labor markets is developed to (1) explain membership of farm households to alternative labor regimes (sellers, employers, or self-sufficient in labor), (2) test for recursivity between production and consumption decisions selectively by labor regime, and (3) identify the determinants of differential labor productivity across labor regimes. The model is applied to a 1994 household survey of the Mexican land reform sector.     

Making Conditional Cash Transfer Programs More Efficient: Designing for Maximum Effect of the Conditionality

Conditional cash transfer programs are now used extensivelyto encourage poor parents to increase investments in their children’shuman capital. These programs can be large and expensive, motivatinga quest for greater efficiency through increased impact of theprograms’ imposed conditions on human capital formation.This requires designing the programs’ targeting and calibrationrules specifically to achieve this result. Using data from theProgresa randomized experiment in Mexico, this article showsthat large efficiency gains can be achieved by taking into accounthow much the probability of a child’s enrollment is affectedby a conditional transfer. Rules for targeting and calibrationcan be made easy to implement by selecting indicators that aresimple, observable, and verifiable and that cannot be manipulatedby beneficiaries. The Mexico case shows that these efficiencygains can be achieved without increasing inequality among poorhouseholds.     

GROWTH, POVERTY, AND INEQUALITY IN LATIN AMERICA: A CAUSAL ANALYSIS, 1970–94

Taking advantage of consistent poverty and income inequality data for 12 Latin American countries between 1970 and 1994, we analyze the determinants of changes in the incidence of urban and rural poverty and in Gini coefficients over spells of years, stressing in particular the role of aggregate income growth. We find that income growth reduces urban and rural poverty but not inequality. We also find that income growth is more effective in reducing urban poverty if the levels of inequality and poverty are lower, and the levels of secondary education higher. We show that there is an asymmetry in the impact of growth on poverty and inequality, with recession having strong negative effects on both poverty and inequality. Since growth does not reduce inequality, economic cycles create ratchet effects on the level of inequality. However, post-structural adjustment growth is quite effective at reducing poverty, particularly if inequality is low.     

Social articulation as a condition for equitable growth

A formal model is developed to establish the structural conditions that result in growth being progressive or regressive on the personal distribution of income. These conditions include (1) intersectoral investment priorities between wage goods and luxuries, and (2) the state of the levels and distribution of incomes which determines the social origin of demand for different sectors of the economy. The particular combinations of investment and income structures that result in equalizing (social articulation) or unequalizing growth (social disarticulation) are derived. We show empirically that the structural conditions that allowed rapid but unequalizing growth in Brazil between 1968 and 1977 were those of social disarticulation.     

Designing credit agent incentives to prevent mission drift in pro-poor microfinance institutions

Credit agents in microfinance institutions (MFIs) must be given incentives to acquire information on potential borrowers and select them in accordance with the MFI's objectives. We show that while giving incentives has no cost in for-profit MFIs, it is costly in pro-poor MFIs: When repayment and wealth are positively correlated, a pro-poor MFI cannot obtain the selection of poor clients in the proportion it wishes with incentives based solely on repayment. It then becomes necessary to audit the share of very poor borrowers selected by an agent in order to provide the latter with adequate incentives. When audit costs are large, pro-poor MFIs may have to forego selection on wealth — and use other targeting devices such as working in impoverished geographical locations. Driven by donor concerns with ‘mission drift’ away from the poor, audits on the wealth status of clients have been introduced at the level of MFIs. We show that introducing pro-poor incentives requires extending such audits to the level of credit agents.     

Household Behaviour under Market Failures: How Natural Resource Management in Agriculture Promotes Livestock Production in the Sahel

Improved water harvesting and soil erosion control using theremarkably simple practice of contour stone bunding is shownto increase grain yields by 41% in low rainfall regions of BurkinaFaso. Empirical results show that yield increases in food cropshelp food-buying farm households import-substitute in food consumption,reduce livestock production and increase seasonal migration,which is more compatible with seasonal agriculture than withthe yearlong livestock activity. Self-sufficient households,by contrast, can take advantage of higher yields to free resourcesfrom food production and allocate these to expand their livestockeconomy, thus benefiting more from the region's comparativeadvantage. We also show that greater effectiveness in cooperationin the management of common property resources helps increaseincome derived from livestock for all categories of households.However, not all forms of cooperation are effective. When cooperationis only formal, individual activities such as crops, non-agriculturalemployment and seasonal migration are pursued, as opposed tolivestock activities that rely on effective community managementof common property resources.     

Economic and Welfare Impacts of Climate Change on Developing Countries

The impact of global climate change on developing countries is analyzed using CGE-multimarket models for three archetype economies representing the poor cereal importing nations of Africa, Asia, and Latin America. The objective is to compare the effects of climate change on the macroeconomic performance, sectoral resource allocation, and household welfare across continents. Simulations help identify those underlying structural features of economies which are the primary determinants of differential impacts; these are suggestive of policy instruments to countervail undesirable effects. Results show that all these countries will potentially suffer income and production losses. However, Africa, with its low substitution possibilities between imported and domestic foods, fares worst in terms of income losses and the drop in consumption of low income households. Countervailing policies to mitigate negative effects should focus on integration in the international market and the production of food crops in Africa, and on the production of export crops in Latin America and Asia.     

Can conditional cash transfer programs serve as safety nets in keeping children at school and from working when exposed to shocks?

Income shocks on poor households are known to induce parents to take their children out of school and send them to work when other risk-coping instruments are insufficient. State dependence in school attendance further implies that these responses to short-run shocks have long-term consequences on children's human capital development. Conditional cash transfer (CCT) programs, where the condition is on school attendance, have been shown to be effective in increasing educational achievements and reducing child work. We ask the question here of whether or not children who benefit from conditional transfers are protected from the impacts of shocks on school enrollment and work. We develop a model of a household's decision regarding child school and work under conditions of a school re-entry cost, conditional transfers, and exposure to shocks. We take model predictions to the data using a panel from Mexico's Progresa experience with randomized treatment. Results show that there is strong state dependence in school enrollment. We find that the conditional transfers helped protect enrollment, but did not refrain parents from increasing child work in response to shocks. These results reveal that CCT programs can provide an additional benefit to recipients in acting as safety nets for the schooling of the poor.