Abstract: Agricultural price support policies are a popular way to alleviate the risk inherent in volatile prices, but, at the same time, may distort input allocation responses to agricultural productivity shocks across multiple sectors. This could reduce productivity in the agricultural sector in developing countries. I empirically test for misallocation in the Indian agricultural setting, with national price supports for rice and wheat. I first motivate the setting using a two-sector, two-factor general equilibrium model and derive comparative statics. I then use annual variation in the level of the national price supports for rice and wheat relative to market prices, together with exogenous changes in district-level agricultural productivity through weather shocks, in a differences-in-differences framework. I derive causal effects of the price supports on production patterns, labor allocation, wages, and output across sectors. I find that rice area cultivated, rice area as a share of total area planted, rice yields, and rice production all increase, suggesting an increase in input intensity (inputs per unit area) dedicated to both staple crops. Wheat shows a similar increase in input intensity. The key input response is a reallocation of contract labor from the non-agricultural sector during peak cultivation periods, which results in an increase in wages in equilibrium in the non-agricultural sector (especially in response to price supports for the labor-intensive crop, rice, of 23%). The reallocation of labor reduces agricultural productivity by 82% of a standard deviation, and simultaneously reduces gross output in non-agricultural firms by 2.6% of a standard deviation. I also find that rice- and wheat-producing households do not smooth consumption more effectively in response to productivity shocks in the presence of price supports.
“A Supply Side Rationale for Wage Floors: Evidence on Worker Collusion” (with Emily Breza and Supreet Kaur)
Abstract: While the presence of wage floors in village labor markets has been long discussed in the development literature, potential micro-foundations have remained elusive. We posit that collusive pressure among workers dampens individual labor supply below the prevailing wage. We design a field experiment to test whether some workers find it privately optimal to take up jobs at wages lower than the prevailing wage, but do not do so because this would result in sanctions from co-villagers. In 185 Indian villages, we partner with local landowners, who offer employment to randomly-selected workers during the agricultural lean season. The job offers vary, at the village-level, both the wage rate (the prevailing wage, or 10% below the prevailing wage) and the observability of the offers (in public on the street where co-workers can observe the wage offer, or in private within the worker’s home). The observability level has no impact on take-up of jobs at the prevailing wage, with about 23% of workers accepting such jobs. In contrast, observability plays a drastic role in affecting job take-up at wage cuts: take-up of work below the prevailing wage falls from 18% in private to 4% in public. The effects are stronger for workers whose main occupation is agricultural labor—with virtually zero take-up of wage cuts in public. In surveys, the majority of laborers state that accepting wage cuts will lead to anger and sanctions from other workers in the village. To our knowledge, this provides the first piece of positive evidence for any micro-foundation for wage rigidity in village labor markets.
“End Heuristics in Retrospective Voting: Evidence From a Conditional Cash Transfer Experiment” (with Sebastian Galiani, Nadya Hajj, Patrick J. McEwan, and Pablo Ibarrarán), Submitted
Additional coverage: “Electoral Reciprocity in Programmatic Redistribution: Experimental Evidence”, VoxEU Post, 10/22/2016
Abstract: A Honduran field experiment allocated cash transfers that varied in their amount and timing. Voters were not indifferent to timing. Two groups of villages received similar cumulative payments per registered voter, but one received larger “catch-up” payments closer to election day. The latter treatment had larger effects on voter turnout and incumbent party vote share in the 2013 presidential elections. The results are consistent with lab experiments showing that individuals err in their retrospective evaluations of payment sequences. In Honduras, voters apparently used the amount of the final payment as an end heuristic for the sum of all payments received.
SELECTED RESEARCH IN PROGRESS
“Does Wage Compression Exacerbate Earnings Inequality?” (with Emily Breza and Supreet Kaur), In the field.
“Economic Opportunity and Motivation for Crime: Theft From Oil Pipelines in Nigeria"