A Study of How Economic Attitudes Are Shaped by Environmental Shocks and Life Experiences

Social attitudes, attitudes toward financial risk and attitudes toward deferred gratification are thought to influence many important economic decisions over the life-course. In economic theory, these attitudes are key components in diverse models of behavior, including collective action, saving and investment decisions and occupational choice. The relevance of these attitudes have been confirmed empirically. Yet, the factors that influence them are not well understood. This research evaluates how these attitudes are affected by large disruptive events, namely, a natural disaster and a civil conflict, and also by an individual-specific life event, namely, having children.

By implementing rigorous empirical strategies drawing on rich longitudinal datasets, this research project advances our understanding of how life experiences shape these attitudes. Moreover, compelling evidence is provided that the observed changes in attitudes are likely to reflect changes in preferences given that they are not driven just by changes in financial circumstances. Therefore the findings of this research project also contribute to the discussion of whether preferences are really fixed, a usual assumption in economics.

In the first chapter, I study how altruistic and trusting attitudes are affected by exposure to the 2004 Indian Ocean tsunami as long as ten years after the disaster occurred. Establishing a causal relationship between natural disasters and attitudes presents several challenges as endogenous exposure and sample selection can confound the analysis. I take on these challenges by exploiting plausibly exogenous variation in exposure to the tsunami and by relying on a longitudinal dataset representative of the pre-tsunami population in two districts of Aceh, Indonesia. The sample is drawn from the Study of the Tsunami Aftermath and Recovery (STAR), a survey with data collected both before and after the disaster and especially designed to identify the impact of the tsunami. The altruistic and trusting attitudes of the respondents are measured by their behavior in the dictator and trust games. I find that witnessing closely the damage caused by the tsunami but without suffering severe economic damage oneself increases altruistic and trusting behavior, particularly towards individuals from tsunami affected communities. Having suffered severe economic damage has no impact on altruistic behavior but may have increased trusting behavior. These effects do not seem to be caused by the consequences of the tsunami on people’s financial situation. Instead they are consistent with how experiences of loss and solidarity may have shaped social attitudes by affecting empathy and perceptions of who is deserving of aid and trust.

In the second chapter, co-authored with Ryan Brown, Duncan Thomas and Andrea Velasquez, we investigate how attitudes toward financial risk are affected by elevated levels of insecurity and uncertainty brought on by the Mexican Drug War. To conduct our analysis, we pair the Mexican Family Life Survey (MxFLS), a rich longitudinal dataset ideally suited for our purposes, with a dataset on homicide rates at the month and municipality-level. The homicide rates capture well the overall crime environment created by the drug war. The MxFLS elicits risk attitudes by asking respondents to choose between hypothetical gambles with different payoffs. Our strategy to identify a causal effect has two key components. First, we implement an individual fixed effects strategy which allows us to control for all time-invariant heterogeneity. The remaining time variant heterogeneity is unlikely to be correlated with changes in the local crime environment given the well-documented political origins of the Mexican Drug War. We also show supporting evidence in this regard. The second component of our identification strategy is to use an intent-to-treat approach to shield our estimates from endogenous migration. Our findings indicate that exposure to greater local-area violent crime results in increased risk aversion. This effect is not driven by changes in financial circumstances, but may be explained instead by heightened fear of victimization. Nonetheless, we find that having greater economic resources mitigate the impact. This may be due to individuals with greater economic resources being able to avoid crime by affording better transportation or security at work.

The third chapter, co-authored with Duncan Thomas, evaluates whether attitudes toward deferred gratification change after having children. For this study we also exploit the MxFLS, which elicits attitudes toward deferred gratification (commonly known as time discounting) by asking individuals to choose between hypothetical payments at different points in time. We implement a difference-in-difference estimator to control for all time-invariant heterogeneity and show that our results are robust to the inclusion of time varying characteristics likely correlated with child birth. We find that becoming a mother increases time discounting especially in the first two years after childbirth and in particular for those women without a spouse at home. Having additional children does not have an effect and the effect for men seems to go in the opposite direction. These heterogeneous effects suggest that child rearing may affect time discounting due to generated stress or not fully anticipated spending needs.

Public goods in networks

This paper considers incentives to provide goods that are non-excludable along social or geographic links. We find, first, that networks can lead to specialization in public good provision. In every social network there is an equilibrium where some individuals contribute and others free ride. In many networks, this extreme is the only outcome. Second, specialization can benefit society as a whole. This outcome arises when contributors are linked, collectively, to many agents. Finally, a new link increases access to public goods, but reduces individual incentives to contribute. Hence, overall welfare can be higher when there are holes in a network. © 2006 Elsevier Inc. All rights reserved.

Essays on the Market for Professional Fundraising

This dissertation contributes to the economic literature on the market for professional fundraising with two theoretical and one empirical essays. The second chapter rationalizes the decision of charities to outsource fundraising. The third chapter shows theoretically how liquidity considerations affect the contractual choices and campaign results between charities and professional solicitors. The fourth chapter tests the empirical implications of the theory, using a unique dataset I collected from the North Carolina Secretary of State website.

Eliciting and Aggregating Forecasts When Information is Shared

Using the wisdom of crowds---combining many individual forecasts to obtain an aggregate estimate---can be an effective technique for improving forecast accuracy. When individual forecasts are drawn from independent and identical information sources, a simple average provides the optimal crowd forecast. However, correlated forecast errors greatly limit the ability of the wisdom of crowds to recover the truth. In practice, this dependence often emerges because information is shared: forecasters may to a large extent draw on the same data when formulating their responses.

To address this problem, I propose an elicitation procedure in which each respondent is asked to provide both their own best forecast and a guess of the average forecast that will be given by all other respondents. I study optimal responses in a stylized information setting and develop an aggregation method, called pivoting, which separates individual forecasts into shared and private information and then recombines these results in the optimal manner. I develop a tailored pivoting procedure for each of three information models, and introduce a simple and robust variant that outperforms the simple average across a variety of settings.

In three experiments, I investigate the method and the accuracy of the crowd forecasts. In the first study, I vary the shared and private information in a controlled environment, while the latter two studies examine forecasts in real-world contexts. Overall, the data suggest that a simple minimal pivoting procedure provides an effective aggregation technique that can significantly outperform the crowd average.

Investing in the Homeland: Foreign Assets and Patterns of Immigrant Economic Incorporation

This dissertation consists of three separate studies that examine patterns of immigrant incorporation in the United States. The first study tests competing hypotheses derived from conflicting theoretical frameworks−transnational perspective and cross-national framework− to determine whether transnational engagement and incorporation are concurrent processes among Chinese, Indian, and Mexican immigrants. This study measures transnational engagement and incorporation as home and home country asset ownership using multi-panel, nationally representative data from the New Immigrant Survey (NIS) collected in 2003 and 2007. Results support a cross-border framework and indicate that transnational asset ownership decreases among all immigrant groups, while U.S. asset ownership increases. Findings from this study also indicate that due to disadvantaged pre-migration SES and low human capital, Mexican immigrants are less likely than other immigrants to own home country assets during the year after receiving their green card.

The second study examines the doubly disadvantaged position of elderly immigrants in the U.S. wealth distribution by applying the life course perspective to the dominance-differentiation theory of immigrant wealth stratification. I analyze elderly immigrant wealth in respect to U.S.-born seniors and younger immigrant cohorts using two data sets: the Survey of Income and Program Participation (SIPP) and the New Immigrant Survey (NIS). The Survey of Income and Program Participation (2001 to 2005) is a nationally representative survey of U.S. households. The first series of analyses reveals a significant wealth gap between U.S.- and foreign-born seniors which is most pronounced among the wealthiest households in my sample; however, U.S. tenure explains much of this difference. The second series of analyses suggests that elderly immigrants experience greater barriers to incorporation compared to their younger counterparts.

In the third study, I apply a transnational lens to the forms-of-capital and opportunity structure models of entrepreneurship in order to analyze the role of foreign resources in immigrant business start-ups. I propose that home country property use represents financial, social, and class resources that facilitate immigrant entrepreneurship. I test my hypotheses using survey data on Latin American immigrants from the Comparative Immigrant Entrepreneurship Project. Findings from these analyses suggest that home country asset ownership provides financial and social capital that is related to an increased likelihood of immigrant entrepreneurship.

The Market for Apples: A Theory of Identity and Consumption

This paper presents an economic model of the effects of identity and social norms on consumption patterns. By incorporating qualitative studies in psychology and sociology, I propose a utility function that features two components – economic (functional) and identity elements. This setup is extended to analyze a market comprising a continuum of consumers, whose identity distribution along a spectrum of binary identities is described by a Beta distribution. I also introduce the notion of salience in the context of identity and consumption decisions. The key result of the model suggests that fundamental economic parameters, such as price elasticity and market demand, can be altered by identity elements. In addition, it predicts that firms in perfectly competitive markets may associate their products with certain types of identities, in order to reduce product substitutability and attain price-setting power.

A theory of buyer-seller networks

This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a "link," to exchange goods. Networks - buyers, sellers, and the pattern of links connecting them - are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall welfare.

Impact of economic, regulatory, and patent policies on innovation in cancer chemoprevention.

Chemoprevention agents are an emerging new scientific area that holds out the promise of delaying or avoiding a number of common cancers. These new agents face significant scientific, regulatory, and economic barriers, however, which have limited investment in their research and development (R&D). These barriers include above-average clinical trial scales, lengthy time frames between discovery and Food and Drug Administration approval, liability risks (because they are given to healthy individuals), and a growing funding gap for early-stage candidates. The longer time frames and risks associated with chemoprevention also cause exclusivity time on core patents to be limited or subject to significant uncertainties. We conclude that chemoprevention uniquely challenges the structure of incentives embodied in the economic, regulatory, and patent policies for the biopharmaceutical industry. Many of these policy issues are illustrated by the recently Food and Drug Administration-approved preventive agents Gardasil and raloxifene. Our recommendations to increase R&D investment in chemoprevention agents include (a) increased data exclusivity times on new biological and chemical drugs to compensate for longer gestation periods and increasing R&D costs; chemoprevention is at the far end of the distribution in this regard; (b) policies such as early-stage research grants and clinical development tax credits targeted specifically to chemoprevention agents (these are policies that have been very successful in increasing R&D investment for orphan drugs); and (c) a no-fault liability insurance program like that currently in place for children's vaccines.

Economic return of clinical trials performed under the pediatric exclusivity program.

CONTEXT: In 1997, Congress authorized the US Food and Drug Administration (FDA) to grant 6-month extensions of marketing rights through the Pediatric Exclusivity Program if industry sponsors complete FDA-requested pediatric trials. The program has been praised for creating incentives for studies in children and has been criticized as a "windfall" to the innovator drug industry. This critique has been a substantial part of congressional debate on the program, which is due to expire in 2007. OBJECTIVE: To quantify the economic return to industry for completing pediatric exclusivity trials. DESIGN AND SETTING: A cohort study of programs conducted for pediatric exclusivity. Nine drugs that were granted pediatric exclusivity were selected. From the final study reports submitted to the FDA (2002-2004), key elements of the clinical trial design and study operations were obtained, and the cost of performing each study was estimated and converted into estimates of after-tax cash outflows. Three-year market sales were obtained and converted into estimates of after-tax cash inflows based on 6 months of additional market protection. Net economic return (cash inflows minus outflows) and net return-to-costs ratio (net economic return divided by cash outflows) for each product were then calculated. MAIN OUTCOME MEASURES: Net economic return and net return-to-cost ratio. RESULTS: The indications studied reflect a broad representation of the program: asthma, tumors, attention-deficit/hyperactivity disorder, hypertension, depression/generalized anxiety disorder, diabetes mellitus, gastroesophageal reflux, bacterial infection, and bone mineralization. The distribution of net economic return for 6 months of exclusivity varied substantially among products (net economic return ranged from -$8.9 million to $507.9 million and net return-to-cost ratio ranged from -0.68 to 73.63). CONCLUSIONS: The economic return for pediatric exclusivity is variable. As an incentive to complete much-needed clinical trials in children, pediatric exclusivity can generate lucrative returns or produce more modest returns on investment.

Distribution of important and word-cued autobiographical memories in 20-, 35-, and 70-year-old adults.

For word-cued autobiographical memories, older adults had an increase, or bump, from the ages 10 to 30. All age groups had fewer memories from childhood than from other years and a power-function retention for memories from the most recent 10 years. There were no consistent differences in reaction times and rating scale responses across decades. Concrete words cued older memories, but no property of the cues predicted which memories would come from the bump. The 5 most important memories given by 20- and 35-year-old participants were distributed similarly to their word-cued memories, but those given by 70-year-old participants came mostly from the single 20-to-30 decade. No theory fully accounts for the bump.

Global value Chains, rising power firms and economic and social upgrading

© Emerald Group Publishing Limited.Purpose – The purpose of this paper is to introduce the global value chain (GVC) approach to understand the relationship between multinational enterprises (MNEs) and the changing patterns of global trade, investment and production, and its impact on economic and social upgrading. It aims to illuminate how GVCs can advance our understanding about MNEs and rising power (RP) firms and their impact on economic and social upgrading in fragmented and dispersed global production systems. Design/methodology/approach – The paper reviews theGVCliterature focusing on two conceptual elements of the GVC approach, governance and upgrading, and highlights three key recent developments in GVCs: concentration, regionalization and synergistic governance. Findings – The paper underscores the complicated role of GVCs in shaping economic and social upgrading for emerging economies, RP firms and developing country firms in general. Rising geographic and organizational concentration in GVCs leads to the uneven distribution of upgrading opportunities in favor of RP firms, and yet economic upgrading may be elusive even for the most established suppliers because of power asymmetry with global buyers. Shifting end markets and the regionalization of value chains can benefit RP firms by presenting alternative markets for upgrading. Yet, without further upgrading, such benefits may be achieved at the expense of social downgrading. Finally, the ineffectiveness of private standards to achieve social upgrading has led to calls for synergistic governance through the cooperation of private, public and social actors, both global and local. Originality/value – The paper illuminates how the GVC approach and its key concepts can contribute to the critical international business and RP firms literature by examining the latest dynamics in GVCs and their impacts on economic and social development in developing countries.