- The Welfare Cost of Lawlessness: Evidence from Somali Piracy, joint with Tim Besley and Hannes-Felix Mueller. Journal of the European Economics Association, Volume 13, Issue 2, pages 203 – 239, April 2015.In spite of general agreement that establishing the rule of law is central to properly functioning economies, little is known about the cost of law and order breakdowns. This paper examines this in a specific context by estimating the effect of Somali piracy attacks on shipping costs using data on shipping contracts in the dry bulk market. We study shipping routes whose shortest path exposes them to the risk of piracy and find that the increase in attacks in 2008 lead to an 8 to 12 percent increase in shipping costs. From this, we estimate the welfare loss due to piracy. Based on a fairly conservative estimate, generating around 120 USD million of revenue for Somali pirates led to a welfare loss in excess of 630 USD million, making piracy an expensive way of making transfers.
- Washington Post, Brad Plumer, The economics of Somali piracy, 13.03.2013.
- Financial Times, Tim Hartford, Lessons for pirates – from tax collectors, 18.01.2013.
- Foreign Policy, Paul Collier, It’s Lonely Being No. 1 – Is there hope for Somalia?, 18.06.2012.
- VoxEU The Welfare Cost of Lawlessness: Evidence from Somali Piracy, 18.06.2012.
- IGC,The Economic Costs of Piracy, 18.06.2012.
- Group Lending Without Joint Liability, joint with Jon de Quidt and Maitreesh Ghatak. In Journal of Development Economics, pages 217-236, May 2016.This paper contrasts individual liability lending with and without groups to joint liability lending. We are motivated by an apparent shift away from the use of joint liability by microfinance institutions, combined with recent evidence that a) converting joint liability groups to individual liability groups did not affect repayment rates, and b) an intervention that increased social capital in individual liability borrowing groups led to improved repayment performance. First, we show that individual lending with or without groups may constitute a welfare improvement over joint liability, so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how the lender’s lower transaction costs in group lending can encourage insurance by reducing the amount borrowers have to pay to bail one another out. Third, we discuss how group meetings might encourage insurance, either by increasing the incentive to invest in social capital, or because the time spent in meetings can facilitate setting up insurance arrangements. Finally, we perform a simple simulation exercise, evaluating quantitatively the welfare impacts of alternative forms of lending and how they relate to social capital.
- Take what you can: property rights, contestability and conflict, joint with Samuel Marden, Economic Journal, Volume 127, Issue 601, 757–783, May 2017.
Weak property rights are strongly associated with underdevelopment, low state capacity and civil conflict. In economic models of conflict, outbreaks of violence require two things: the prize must be both valuable and contestable. This paper exploits spatial and temporal variation in contestability of land title to explore the relation between (in)secure property rights and conflict in the Brazilian Amazon. Our estimates suggest that, at the local level, assignment of secure property rights eliminates substantively all land related conflict, even without changes in enforcement. Changes in land use are also consistent with reductions in land related conflict.
- On the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution, joint with Rabah Arezki and Frank Pisch, Journal of International Economics, Volume 107, 34–59, July 2017.
This paper provides empirical evidence of the newly found comparative advantage of U.S. manufacturing following the so-called shale gas revolution. The revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world owing to the physical properties of natural gas. Estimation results of gravity models show that the U.S. manufacturing exports have grown by about 6 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins with new manufacturing sector capacity being added in the energy intensive industries. These results are robust to an array of checks.
- Who Voted for Brexit? A Comprehensive District-Level Analysis, joint with Sascha Becker and Dennis Novy, Economic Policy, 32(92), 601–650, October 2017. On 23 June 2016, the British electorate voted to leave the European Union. We analyze vote and turnout shares across 380 local authority areas in the United Kingdom. We find that fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their age and education profiles, the historical importance of manufacturing employment as well as low income and high unemployment. Migration was relevant only from Eastern European countries, not from older EU states or non-EU countries. Severity of fiscal cuts, which largely reflect bad funda- mentals, are also associated with Vote Leave. We confirm the above findings at the much finer level of wards within cities. Our results cast doubt on the notion that short-term campaigning events had a meaningful influence on the vote.
- Market Structure and Borrower Welfare in Microfinance, joint with Jon de Quidt and Maitreesh Ghatak, forthcoming, Economic Journal. Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.
- More than an Urban Legend: The long-term socio-economic Effects of Unplanned Fertility Shocks, joint with Amar Shanghavi and Oliver Pardo, forthcoming, Journal of Population Economics. An earlier version of the paper had the title “An Urban Legend?! Power Rationing, Fertility and its Effects on Mothers”, and circulates as CEP Working Paper 1247, 2013.
This paper studies one dimension of the social cost of bad public infrastructure in developing countries. We use an extensive period of power rationing in Colombia throughout 1992 as a natural experiment and exploit exogenous spatial variation in the intensity of power rationing as an instrumental variable. We show that power rationing induced a “mini baby boom” nine months later. In particular, it increased the probability that a mother had a baby by five percent. We estimate that every tenth power outage baby was not adjusted for 12 years later, resulting in an overall increase in total fertility. This increase has indirect social costs, as women who were exposed to the shock and had an additional child find themselves in worse socio-economic conditions more than a decade later.
- Social Insurance and Conflict: Evidence from India, EOPP Working Paper Number 53, 2014.Can public interventions persistently reduce conflict? This paper studies whether social insurance is effective in reducing conflict. Adverse income shocks have been empirically and theoretically identified as robust drivers of conflict. An effective social insurance system moderates the impact of adverse shocks on household incomes, and hence, could attenuate the link between these shocks and conflict. This paper shows that a public employment program in India provides social insurance. The program guarantees 100 days of employment at minimum wages providing an alternative source of income following bad harvests. This has an indirect pacifying effect. By moderating the link between productivity shocks and incomes, the program uncouples productivity shocks and conflict. An earlier version entitled “Can Workfare Programs Moderate Violence? Evidence from India” was circulated as Working Paper in October 2013 and as EOPP Working Paper Number 53, 2014.
- Commercialization and the Decline of Joint Liability Microcredit 2016, joint with Jon de Quidt and Maitreesh Ghatak, revise and resubmit.Numerous authors point to an apparent decline in joint liability microcredit, and rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. In this paper, we first show using the well-known MIX Market dataset that there is indeed evidence for a decline. Second, we show theoretically that a plausible cause is commercialization: an increase in competition and a shift from non-profit to for-profit lending, both of which are present in the data, drive lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data. Commercialization does indeed seem to be a contributor to the decline of joint liability.
- Fracking Growth, CEP Working Paper 1278, 2014.This paper estimates the effect of the shale oil and gas boom in the United States on local economic outcomes. The main source of exogenous variation to be explored is the location of previously unexplored shale deposits. These have become technologically recoverable through the use of hydraulic fracturing and horizontal drilling. I use this to estimate the localised effects from resource extraction. A key observation is that, despite rising labour costs, there is no Dutch disease contraction in the tradable goods sector, while the non-tradable goods sector contracts. I reconcile this finding by providing evidence that the resource boom may give rise to local comparative advantage, through locally lower energy cost. This allows a clean separation of the energy price effect distinct from the local resource extraction effects.Media coverage
- Royal Economic Society Media Briefing, Fracking Boosts Jobs, Wages and Energy-Intensive Manufacturing: Evidence from United States, April 2014.
- Britain in 2015, ESRC, Interview, November 2014.
- LSE United States Politics Blog
- Did Eastern European immigration cause an increase in anti-European sentiment in the UK?, joint with Sascha Becker.The 2004 accession of 8 Eastern European countries (plus Cyprus and Malta) to the European Union (EU) was overshadowed by feared mass migration of workers from the East due to the EU’s rules on free mobility of labour. While many incumbent EU countries imposed temporary restrictions on labour mo- bility, the United Kingdom did not impose any such restrictions. We document that following accession at least 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. Places that received large numbers of migrants from Eastern Europe saw a significant increase in anti-European sentiment after 2004, measured by vote shares for the UK Inde- pendence Party (UKIP) in elections to the European Parliament. We show that the migration wave depressed wages at the lower end of the wage distribution and contributed to increased pressure on public services and housing.