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Essays in Development Economics ESSAYS IN DEVELOPMENT ECONOMICS Erika Deserranno A thesis submitted to the Department of Economics of the London School of Economics for the degree of Doctor of Philosophy. London, September 2015 0 1 Declaration I certify that the thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgment is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. Statement of Conjoint Work I confirm that Chapter 2 was jointly co-authored with Oriana Bandiera (Professor at the London School of Economics), Robin Burgess (Professor at the London School of Economics), Imran Rasul (Professor at the University College London), Munshi Sulaiman (Researcher at BRAC Africa), Ricardo Morel (Researcher at BRAC Africa). I contributed 50% of the work. 2 Acknowledgment The work contained in this thesis has benefited from the help and support of many people. I am immensely grateful to Oriana Bandiera for her invaluable support and advice throughout, as well as to Robin Burgess and Johannes Spinnewijn for their comments, suggestions and support. I am also very grateful to the members of The Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) for providing me with a great environment to work and to be in, and to the participants of the Development and Labour economics LSE brown bag seminars. I thank the BRAC Uganda team, in particular Munshi Sulaiman, Ricardo Morel, Moza- mmel Huq, Sharmin Sharif and Gulshan ara Khanom, for their invaluable help with the CHP and the Agriculture Extension projects and for their hospitality during the time I spent in Uganda. Without their support and encouragement it would not have been possible to carry out such ambitious projects. Thanks go to all my friends and colleagues for their invaluable support, especially Laura Derksen, Pedro Souza, Enrico Mallucci, Luca Metelli, Ameet Morjaria, Joao Pessoa, Fabio Pinna, Alessandro Scandura and Roberto Sormani. I gratefully acknowledge financial support from the LSE Department of Economics, the Economic and Social Research Council, IGC for the experiment described in the first Chapter and ATAI for for the experiment described in the second Chapter. I also would like to thank Unicredit & Universities Foundation for their financial support over the course of these years. This thesis would not exist without the support of my parents, Geert and Natalina, my brothers, Lorenzo and Dario, my uncles Dario and Franco, and all the rest of the family. I also want to thank all my friends around the world who have always been there for me. 3 Abstract This thesis contains three chapters that fall under the broad banner of development economics, with a particular focus on the study of mechanisms and strategies that improve public goods delivery. The first chapter studies the role of financial incentives as signals of job attributes when these are unknown to potential applicants. I create experimental variation in expected earn- ings and use it to estimate the effect of financial incentives on candidates' perception of a newly created health worker position in Uganda and, through this, on the size and compo- sition of the applicant pool. I find that more lucrative positions are perceived as entailing a lower positive externality for the community, and discourage agents with strong prosocial pref- erences from applying. While higher financial incentives attract more applicants and increase the probability of filling a vacancy, they hamper retention and performance. This is because the signal they convey reduces the ability to recruit the most socially motivated agents, who are found to stay longer on the job and to perform better. The second chapter analyzes the role of social connections on the targeting choices of delivery agents. During the expansion of an agriculture extension program in Uganda, we randomly selected one delivery agent out of two eligible candidates per community. We find that social connections matter: relative to farmers connected only to the non-selected candidate, those connected only to the selected delivery agent benefit more from the program. They are indeed more likely to receive advice, training and more likely to adopt improved seeds, a new beneficial technology. We show that these results are consistent with delivery agents (a) putting positive weight on the utility of farmers connected to them (altruism) and (b) putting a negative weight on the utility of farmers connected to the rival candidate (spite). This sheds light on the importance of both positive and negative social preferences in shaping program delivery. The third chapter studies the effect of movement restrictions on education. The evidence is based on the construction of the West Bank Separation Barrier in 2003. The exposure of an individual to the Barrier is determined both by her locality of residence and by whether she was in school or about to start school when the Barrier was built. Using a difference-in- differences approach, I find that movement restrictions increase the probability of dropping out from elementary and preparatory school by 3.7 and 6 percentage points respectively, i.e. a 50% increase relative to localities with no movement restrictions, while the proportion of children who have never attended school increased by 3.6 percentage points. Among all households, the poorest ones are the most affected, indicating that movement restrictions not only deteriorate the average education level but also increase income inequality. 4 Contents Chapter 1: Financial Incentives as Signals: Experimental Evidence from the Recruitment of Health Promoters 1. Introduction - page 8 2. Context and Research Design - page 13 2.1. The Health Promoter Position - page 13 2.2. Experimental Variation - page 15 2.3. Recruitment Experiment - page 17 2.4. Information Experiment - page 18 4. Validation of the Experiment- page 19 5. Treatment Effects on Job Perceptions- page 22 6. Treatment Effects on Selection- page 24 6.1. Selection in the Applicant Pool - page 25 6.2. Selection in the Pool of Appointed Workers- page 29 7. Treatment Effects on Retention- page 31 8. Treatment Effects on Performance- page 34 10. Conclusions - page 37 Chapter 2: Social Connections and the Delivery of Development Programs 1. Introduction - page 90 2. Context, Research Design and Data - page 94 2.1. The Agriculture Program - page 94 2.2. Research design, Sample and Data - page 95 3. The Effects of the Agriculture Program - page 99 3.1. The Effect on Adoption and Productivity - page 99 3.2. The Constraints Relaxed by the Agriculture Program - page 100 5 4. Social Connections and Program Delivery - page 101 4.1. Identification - page 101 4.2. Results: Individual Outcomes - page 102 4.3. Results: Aggregate Outcomes - page 106 5. Conclusions - page 106 Chapter 3: Movement Restrictions and Education, Evidence from Palestine 1. Introduction - page 130 2. Movement Restrictions in the West Bank - page 133 3. Data and Identification Strategy - page 135 3.1. Data - page 135 3.2. Identification Strategy - page 135 3.3. Summary Statistics - page 137 4. The Effect of Movement Restrictions on Education - page 138 4.1. Simple Difference-in-Differences - page 138 4.2. Difference-in-Differences with Fixed Effects and Controls - page 139 4.3. Extended Difference-in-Differences - page 142 5. Threats to Identification and Robustness Checks - page 142 5.1. Anticipation - page 142 5.2. Sample Selection: Migration - page 143 5.3. Omitted Variables - page 144 5.4. Reversion to the Mean - page 145 5.5. Quality of Education - page 146 6. Conclusions - page 146 Bibliography - page 162 6 7 Chapter 1 Financial Incentives as Signals: Experimental Evidence from the Recruitment of Health Promoters 1 Introduction Understanding how individuals respond to incentives is a central question in economics. In standard economic theory, financial incentives affect agents' behavior by increasing the mon- etary payoff from accomplishing a task. Recent theory points out that, in the presence of incomplete information about a job, financial incentives can also affect agents' effort by con- veying a signal about the characteristics of the job (Benabou and Tirole 2003; Sliwka 2007). More lucrative positions may, for instance, be perceived as more difficult and less enjoyable, or may signal distrust or exploitative intentions on the part of the principal. This is analogous to the well-known concept that increasing the price of a new product can change the way people perceive this new product|e.g., its quality|and this signal can affect consumers' decisions (Milgrom and Roberts 1986). In this paper, I test whether offering stronger financial incentives for a prosocial job changes agents' perceptions of the job and thereby their behavior in the labor market. To this end, I create exogenous variation in expected total earnings for a brand-new position that involves a social task, which entails positive social externalities, and a business task, which entails purely private benefits. I find that higher expected total earnings|or, equivalently, stronger financial incentives|signal the business-oriented nature of the job and decrease the expected social output.1 This crucially affects the size and composition of the applicant pool. On the one hand, financial incentives increase the aggregate number of applicants. On the other hand, they discourage applications from agents with strong prosocial preferences, who are found to stay longer on the job and to perform better.2 These results can be rationalized by the presence of incomplete information on the side of the agents in my setting.
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