Crime and moral hazard: Does more policing necessarily induce private negligence?

Even risk-neutral individuals can insure themselves against crimes by combining direct expenditure on security with costly diversification. In such cases — and even when one of these options is infeasible — greater policing often actually encourages private precautions.     

Why has unemployment risen in the New South Africa?1

We document the rise in unemployment in South Africa since the transition in 1994. We describe how changes in labour supply interacted with stagnant labour demand to produce unemployment rates that peaked between 2001 and 2003. Meanwhile, compositional changes in employment at the sectoral level widened the gap between the skill‐level of the employed and the unemployed. Using nationally representative panel data, we show that stable unemployment rates mask high individual‐level transition rates in labour market status. Our analysis highlights several key constraints to addressing unemployment in South Africa. We conclude that unemployment is near equilibrium levels and is unlikely to self‐correct without policy intervention.     

A Property of the Core

For any transferable utility game in coalitional form with nonempty core we show that, given any allocation outside the core, there is an allocation in the core that indirectly dominates it.Journal of Economic LiteratureClassification Number: C71.     

Petty services,profit‐led growth and rural–urban migration in a developing economy

This paper develops a structuralist urban dual economy model for a developing economy consisting of a capitalist formal sector and a “petty” or informal service sector. The petty service sector plays an important role in wage determination and capital accumulation in the formal sector. The urban dual economy is situated in the midst of a rural area endowed with generous amount of surplus labour. The rural area augments urban labour supply over time through rural–urban migration. The paper, therefore, incorporates rural–urban migration within a structuralist framework and highlights its implication for growth and structural change in urban spaces of developing economies riddled with persistent formal–informal duality.     

Female labour force participation and labour saving gadgets

Abstract

We show under what conditions women would migrate out of the household sector into formal sector jobs, in response to increased ability to use labour saving household gadgets, which raise the productivity of female labour engaged in household tasks. We model a small open economy with three outputs: one labour-intensive manufactured export (cloth), one capital-intensive intermediate good (gadgets) and one non-traded ‘household-sector good’ (meals) which requires both female labour and household gadgets for production. A terms-of-trade improvement capturing greater world demand for labour-intensive manufactured exports enables greater adoption of labour-saving household gadgets in response to changing relative prices. If the elasticity of substitution between female labour and household gadgets exceeds a threshold, this will result in women migrating from the household to formal sector employment. What matters is not the actual date of invention of these labour-saving appliances (female labour force participation may not grow significantly until long after) but their increased adoption by the small economy in response to changing relative prices.     

Inequality and Growth: What Can the Data Say?

This paper describes the correlations between inequality and the growth rates in cross-country data. Using non-parametric methods, we show that the growth rate is an inverted U-shaped function of net changes in inequality: changes in inequality (in any direction) are associated with reduced growth in the next period. The estimated relationship is robust to variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model but it could also reflect the nature of measurement errors, and, in general, efforts to interpret this evidence causally run into difficult identification problems. We show that this non-linearity is sufficient to explain why previous estimates of the relationship between the level of inequality and growth are so different from one another.     

NEOCLASSICAL GROWTH AND THE DISTRIBUTION OF CONSUMPTION

Abstract.  The neoclassical growth model is used to compare an economy with growing per capita income with an economy with stationary per capita income, in terms of equity in distribution of consumption. The economies have the same initial conditions including the same initial wealth distribution. The outcome of the comparison depends on the nature of structural differences between the economies. Even with convergence in wealth distribution in the growing economy, the consumption distribution there may be less equitable and dynasties with least initial levels of wealth may be worse off than dynasties with same initial wealth levels in the stationary economy.     

Borrower Targeting under Microfinance Competition with Motivated Microfinance Institutions and Strategic Complementarity

We examine how increased competition among motivated microfinance institutions (MFIs) impacts the poorest borrowers' access to microfinance. We find that competition depends on inequality, technology, and the possibility of double‐dipping (borrowing from several sources). Without competition, even a motivated MFI may lend to the not‐so‐poor in preference to poor borrowers. If double‐dipping is feasible, competition may encourage lending to the poor. The presence of double‐dipping is critical for MFI competition to have a positive effect. When double‐dipping is feasible, MFI coordination may worsen borrower targeting whenever inequality is intermediate. We discuss policy implications dealing with double‐dipping, MFI coordination, and competition.