An Economic and Ethical Approach to Charity and to Charity Endowments

We examine how and why donors divide gifts between people in the present (across distance) and between the present and future (across time). US donors tend to give less to charities that benefit the poor and more to charities that benefit the non-poor (such as museums, universities, and arts organizations). Many of these wealthier charities have created endowments that benefit not only present persons, but also future persons. We develop a shorthand framework for linking time to distance in charitable allocations that incorporates a “proximity preference,” i.e., charity that prefers those who are nearer to us whether by reason of physical distance, psychic-identity, or temporal distance. Even though ethical considerations suggest that recipients' level of need should be the dominant factor in allocating gifts, donors also express preferences, ceteris paribus, for benefits arriving sooner rather than later, and for recipients who are ``closer'' rather than farther away.     

Poverty and probability: aspiration and aversion to compound lotteries in El Salvador and India

Some experimental participants are averse to compound lotteries: they prefer simple lotteries that depend on only one random event, even when the simple lotteries offer lower expected value. This paper proposes that many behavioral “investments” represent more compound risk for poorer people—who often face multiple dimensions of deprivation—than for richer people. As a result, identical aversion to compound lotteries can prevent investment among poorer people, but have no effect on richer people. The paper reports five studies: two initial studies that document that aversion to compound lotteries operates as an economic preference, two “laboratory experiments in the field” in El Salvador, and one Internet survey experiment in India. Poorer Salvadoran women who choose a compound lottery are 27 percentage points more likely to have found formal employment than those who chose a simple lottery, but lottery choice is unrelated to employment for richer women. Poorer students at the national Salvadoran university choose more compound lotteries than richer students, on average, implying that aversion to compound lotteries screened out poorer aspirants but not richer ones. Poorer and lower-caste Indian participants who choose compound lotteries are more likely than those who choose simple lotteries to have a different occupation than their parents, which is not the case for better-off participants. These findings suggest that the consequences of aversion to compound lotteries are different in the context of poverty and disadvantage.     

The Magic of the Personal Touch: Field Experimental Evidence on Money and Appreciation as Gifts*

In this paper, we use two field experiments in professional settings to explore the effort levels of individuals in response to gifts. We extend the literature by looking at non‐financial gifts that signal worker appreciation and gifts that combine financial and non‐financial elements with or without a personal touch. We find that while money and appreciation are individually effective, these only work well together when they are combined with a personal touch. This suggests that responses to gifts are sensitive to the presentation of the gift as well as to interpersonal elements; these are factors that have so far been largely ignored in the literature but are easy to incorporate into existing principal–agent models.     

Trust, trustworthiness, and risk in rural Paraguay

This dissertation looks at the relationship between trust, trustworthiness, and risk aversion in a rural Paraguayan setting. The first chapter of this dissertation looks at theft between farmers. Rural areas of developing countries often lack effective legal enforcement. However, villagers who know each other well and interact repeatedly may use implicit contracts to minimize crime. I construct a dynamic limited-commitment model in which a thief cannot credibly commit to forego stealing from his fellow villagers but may be induced to limit his stealing by the promise of future gifts from his potential victim. Using a unique survey from rural Paraguay which combines traditional data on production with information on theft, gifts, and trust, as well as with experiments measuring trust and trustworthiness, I test whether the data is consistent with predictions from the dynamic model. The results provide evidence that, in contrast with predictions from a one-period model with an anonymous thief, farmers do implicitly contract with one another to limit theft. Farmers who have more close family members in their village give fewer gifts, and farmers with plots which are more difficult to steal from give fewer gifts, experience less theft, and trust more. Gift-giving increases when trust is lower and the threat of theft is greater, turning the social capital literature on its head. The second chapter of this dissertation looks at a different linkage between trust, trustworthiness, and risk. Trusting behavior in general and play in the traditional trust experiment specifically depend both on trust beliefs and on levels of risk aversion. I ran two experiments with a diverse set of subjects in fifteen villages of rural Paraguay, the traditional trust experiment and a new experiment measuring only risk aversion. I find that risk attitudes are highly predictive of play in the trust game. In addition, omitting risk aversion as a regressor in trust regressions significantly changes the coefficients of important explanatory variables such as gender and wealth. The chair of this dissertation committee was Ethan Ligon and the other committee members were George Akerlof and Elisabeth Sadoulet.     

Equilibrium selection in bargaining models

This paper examines evolutionary equilibrium selection in bargaining models. We show that random best-response and continuous best-response learning dynamics give rise to (different) simple sufficient conditions for identifying outcomes as stochastically stable. This allows us to characterize the implications of these dynamics in simple bargaining games.     

Why do People Care about Sea Lions? A Fishing Game to Study the Value of Endangered Species

Previous research proposes that human beings are motivated to protect endangered species for various reasons: consumptive use value, non-consumptive use value, non-use value, and intrinsic value. However, it has been difficult to tease apart these values at the behavioral level. Using an innovative fishing game, we study an important tradeoff between one kind of use value (monetary value) and one kind of non-use value (existence value) of the endangered Steller sea lion. In the fishing game, players make repeated decisions on how much pollock to harvest for profit in each period in a dynamic ecosystem. The population of the endangered sea lion depends on the population of pollock, which in turn depends on the harvesting behavior of humans. The data show that in general, people responded to the financial value (as a tourist resource), but not the existence value, of the sea lion by cutting down commercial fish harvesting to keep more sea lions in the ecosystem. However, not all people behaved the same regarding the existence value. Females displayed a higher existence value than males, as did people who reported stronger pro-environmental attitudes than those with weaker pro-environmental attitudes. Our findings have multiple implications on public opinion elicitation and public policy design.     

The Effectiveness of Distributive Policy in a Competitive Economy

I consider an abstract social system made of individual owners endowed with nonpaternalistic interdependent preferences, who interact by means of individual gifts and by exchanges on competitive markets. The existence of equilibrium is established. I identify the set of allocations that are decentralizable in the sense that they are general equilibria for some vectors of market prices and initial endowments. This set is characterized in a simple way from the social endowment and individual market and distributive preferences. Decentralizable allocations are all accessible to distributive policy, unless public transfers are confined to some neighborhood of 0. In the latter case, distributive policy remains free to perform local redistributions of wealth across the components of the graph of equilibrium gifts.     

Social norms and gift behavior: Theory and evidence from Romania

In many developing and transitional countries with limited public income redistribution, inter-household transfers in general, and gifts in particular, are sizable and very important. We use unique Romanian survey data that enables us to isolate pure gifts from other private transfers. We explicitly focus on the importance of community-wide social norms, and find that they indeed play a major role for both the occurrence and the values of gifts. More exactly, our results suggest that the overall predominant gift motive among Romanian households is a norm of reciprocity. Moreover, this norm seems to be dominating for gifts to middle- and high-income households. Even though poor households receive to the same extent, norms of both impure altruism and reciprocity tend to be important. Hence, although the poor may not reciprocate gifts to the same extent as the rich, they still receive, since there is a social norm to give, especially to the poor.     

Veblen’s Two Types of Instinct and the Cognitive Foundations of Evolutionary-Institutional Economics

In this article, I provide a detailed examination of Thorstein Veblen’s conception of instincts, what he believed were the “prime movers in human behavior.” I outline the meaning of his division of instincts into simple and complex forms, and also document his account of their operational function and evolutionary origins. I then evaluate this understanding in relation to the new field of evolutionary psychology, and demonstrate how Veblen conceived of these instincts as interacting with habits and institutions. Finally, I illustrate one method of how the bio-cognitive level of behavioral reality could be integrated with the socio-institutional level of behavioral reality, and how an intermediate-interactive level between these two could have been generated. By doing so, I emphasize the need for scientifically accurate cognitive foundations to evolutionary-institutional economics (EIE)     

In search of welfare-improving gifts

Gift giving is thought to decrease welfare. Recipients are sometimes stuck with gifts they would not have purchased because the giver does not perfectly know the recipient's preferences and in-kind gifts cannot be costlessly refunded. Such gifts are welfare reducing compared to giving cash if, in addition, recipients possess full information as to which stores carry their desired goods and the ability to reach these stores costlessly. We replace these two latter assumptions with the more realistic assumptions of uncertainty about the location of goods and search costs. In contrast to existing economic models, gifts in our model enhance expected welfare. Moreover, gift giving cannot be replaced by a profit-maximizing trader nor the introduction of nearby specialty stores carrying gift goods. We use our model to explain a number of stylized facts about gift giving, the organization of retail trade and in-kind government transfers.     

The formation of risk sharing networks

This paper examines the formation of risk sharing networks in the rural Philippines. We find that geographic proximity–possibly correlated with kinship–is a major determinant of mutual insurance links among villagers. Age and wealth differences also play an important role. In contrast, income correlation and differences in occupation are not determinants of network links. Reported network links have a strong effect on subsequent gifts and loans. Gifts between network partners are found to respond to shocks and to differences in health status. From this we conclude that intra-village mutual insurance links are largely determined by social and geographical proximity and are only weakly the result of purposeful diversification of income risk. The paper also makes a methodological contribution to the estimation of dyadic models.     

Do ICT Influence Economic Growth and Human Development in European Union Countries?

This study analyzes the influence of the introduction of Information and Communication Technologies (ICT) on economic growth and human development in the countries that make up the European Union 27. The remarkable interest that the European Commission has shown in the Information Society (IS) and the introduction of ICT inspired us to analyze to what extent ICT had established themselves in these countries. More specifically, countries are grouped in accordance with some of the main IS indicators published by Eurostat to ascertain whether or not there are different groups of countries with different levels of development and where ICT have been implemented to different degrees. We determine whether they have achieved different levels of economic and human development. This enables us to confirm (or reject) the main theories that suggest ICT have a strong influence on economic and human development. Results show the existence of four clearly distinct groups of countries which register significant differences.     

The efficiency of voluntary incentive policies for preventing biodiversity loss

Habitat loss is a primary cause of loss of biodiversity but conserving habitat for species presents challenges. Land parcels differ in their ability to produce returns for landowners and landowners may have private information about the value of the land to them. Land parcels also differ in the type and quality of habitat and the spatial pattern of land use across multiple landowners is important for determining the conservation value of parcels. This paper analyzes the relative efficiency of simple voluntary incentive-based policies in achieving biodiversity conservation objectives. This topic is important not just for biodiversity conservation but for any effort to provide a public good requiring coordination across multiple decision-makers who have some degree of private information. We develop a method that integrates spatially explicit data, an econometric model of private land-use decisions, landscape simulations, a biological model of biodiversity as a function of landscape pattern, and an algorithm that estimates the set of efficient solutions. These methods allow us to simulate landowner responses to policies, measure the consequences of these decisions for biodiversity conservation, and compare these outcomes to efficient outcomes to show the relative efficiency of various policy approaches. We find substantial differences in biodiversity conservation scores generated by simple voluntary incentive-based policies and efficient solutions. The performance of incentive-based policies is particularly poor at low levels of the conservation budget where spatial fragmentation of conserved parcels is a large concern. Performance can be improved by encouraging agglomeration of conserved habitat and by incorporating basic biological information, such as that on rare habitats, into the selection criteria.     

Environmental risk and welfare valuation under imperfect information

Consumers are often uninformed, or unsure, about the ambient level of environmental risk. An optimal policy must jointly determine efficient levels of self-protection, information provision, and public risk mitigation efforts. Unfortunately, conventional welfare measures are not amenable to welfare analysis in the presence of imperfect information. We develop a theoretical welfare measure, called quasi-compensating variation, that is a natural extension of compensating variation (CV). We show that this welfare measure offers not only a money metric of the “value of information,” but also a means to appropriately evaluate the welfare effects of various policies when consumers are imperfectly informed about ambient risk. This welfare measure allows us to obtain a number of results that the traditional CV measure fails to offer. In particular, we show that the consumer’s willingness to pay for a (small) environmental risk reduction is higher for those who underestimate ambient risk than for those who overestimate or are perfectly informed if the marginal return to self-protection increases with ambient risk.     

THE IMPACT OF FINANCIAL HELP AND GIFTS ON HOUSING DEMAND AND COST BURDENS

Financial transfers are an important source of income for many households and recipients may use these funds to pay for housing services. This paper examines the separate impact of financial help and substantial gifts on both housing demand and housing cost burden. The results indicate receiving gifts has a positive and statistically significant impact on housing demand. Households receiving help or gifts have substantially higher housing cost burdens, all else being held constant. These findings have implications for the financial well-being of recipient households and ultimately, the mortgage industry . ( JEL R20, R21)     

Primates’ fertilization systems and the evolution of the human brain

Since the time of Darwin and Wallace, the origin of the human brain has been a controversial issue in evolutionary biology. The development of the human brain has been a matter of dispute between those who attribute it to the forces of natural selection and those who emphasize the role of sexual selection. Building on Darwin’s original insights, in this paper we argue that the uniquely human cognitive capabilities are likely to have been initially spurred by sexual selection. We consider the incentive properties of fertilization systems and, pursuing this ‘economic’ perspective, we compare human gender relations with those of other primates. We argue that, because of its potential egalitarian nature and its consequent quasi-monogamic gender relationships, the human fertilization system is much more likely to have given selective advantages to investments in emotional and rational intelligence, thus favoring the development of many fundamental human capabilities. Even if our brain was initially spurred by sexual selection, after some time, unlike the famous case of the peacock’s tail, it proved extremely useful also in the domain of natural selection. Thus, differently from explanations based on the effects of either natural or sexual selection alone, we show that favorable selection complementarities may have had a crucial role in the evolution of the human brain.      

Why do people tell the truth? Experimental evidence for pure lie aversion

A recent experimental literature shows that truth-telling is not always motivated by pecuniary motives, and several alternative motivations have been proposed. However, their relative importance in any given context is still not totally clear. This paper investigates the relevance of pure lie aversion, that is, a dislike for lies independent of their consequences. We propose a very simple design where other motives considered in the literature predict zero truth-telling, whereas pure lie aversion predicts a non-zero rate. Thus we interpret the finding that more than a third of the subjects tell the truth as evidence for pure lie aversion. Our design also prevents confounds with another motivation (a desire to act as others expect us to act) not frequently considered but consistent with much existing evidence. We also observe that subjects who tell the truth are more likely to believe that others will tell the truth as well.     

Risk breeds risk aversion

We examine whether exposure to a more or less risky environment affects people’s subsequent risk-taking behavior. In a laboratory setting, all subjects went through twelve rounds of multiple-price-list decisions between a risky alternative and a safe alternative. In the first six rounds, subjects were randomly assigned to a high-, moderate-, or low-risk environment, which differed in the variances of the lotteries they were exposed to. In the last six rounds, subjects in all treatments made decisions on an identical set of lotteries. We found that subjects who had experienced a riskier environment exhibited a higher degree of risk aversion. Our experimental design allows us to conclude that this effect is driven by the risk environment per se, rather than the realized outcomes of the risk. This finding has important theoretical and policy implications.