Using Behavioral Insights For a Better Understanding of Economic Decisions (Regarding Savings, Inequality and Dishonesty)

This dissertation consists of three essays on behavioral economics, with a general aim of enriching our understanding of economic decisions using behavioral insights and experimental methodology. Each essay takes on one particular topic with this general aim.

The first chapter studies savings behavior of the poor. In this project, partnering with a savings product provider in Kenya, we tested the extent to which behavioral interventions and financial incentives can increase the saving rate of individuals with low and irregular income. Our experiment lasted for six months and included a total of twelve conditions. The control condition received weekly reminders and balance reporting via text messages. The treatment conditions received in addition one of the following interventions: (1) reminder text messages framed as if they came from the participant’s kid (2) a golden colored coin with numbers for each week of the trial, on which participants were asked to keep track of their weekly deposits (3) a match of weekly savings: The match was either 10% or 20% up to a certain amount per week. The match was either deposited at the end of each week or the highest possible match was deposited at the start of each week and was adjusted at the end. Among these interventions, by far the most effective was the coin: Those in the coin condition saved on average the highest amount and more than twice as those in the control condition. We hypothesize that being a tangible track-keeping object; the coin made subjects remember to save more often. Our results support the line of literature suggesting that saving decisions involve psychological aspects and that policy makers and product designers should take these influences into account.

The second chapter is related to views towards inequality. In this project, we investigate how the perceived fairness of income distributions depends on the beliefs about the process that generated the inequality. Specifically, we examine how two crucial features of this process affect fairness views: (1) Procedural justice - equal treatment of all, (2) Agency - one's ability to determine his/her income. We do this in a lab experiment by varying the equality of opportunity (procedural justice), and one's ability to make choices, which consequently influence subjects’ ability to influence their income (agency). We then elicit ex-post redistribution decisions of the earnings as a function of these two elements. Our results suggest both agency and procedural justice matter for fairness. Our main findings can be summarized as follows: (1) Highlighting the importance of agency, we find that inequality resulting from risk is considered to be fair only when risk is chosen freely; (2) Highlighting the importance of procedural justice, we find that introducing inequality of opportunity significantly increases redistribution, however the share of subjects redistributing none remain close to the share of subjects redistributing fully revealing an underlying heterogeneity in the population about how fairness views should account for inequality of opportunity.

The third chapter is on morality. In this project, we study whether religious rituals act as an internal reminder for basic moral principles and thus affect moral judgments. To this end, we conducted two survey experiments in Turkey and Israel to specifically test the effect of Ramadan and Yom Kippur. The results from the Turkish sample how that Ramadan has a significant effect on moral judgments to some extent for those who report to believe in God. Those who believe in God judged the moral acceptability of ten out of sixty one actions significantly differently in Ramadan, whereas those who reported not to believe in God significantly changed their judgments only for one action in Ramadan. Our results extends the hypothesis established by lab experiments that religious reminders have a significant effect on morality, by testing it in the field in the natural environment of religious rituals.

This thesis is part of a broader collaborative research agenda with both colleagues and advisors. The programming, analyses, and writing, as well as any errors in this work, are my own.

Europeanization of Inequality and Europeanization of Reference Groups

In this article we take advantage of the availability of European Union Statistics on Income and Living Conditions (EU-SILC) data to address both weak and strong versions of the Europeanization of reference groups thesis. The former proposes that common standards of evaluation emerge as a consequence of knowledge of conditions in other societies. The latter argues that people increasingly perceive themselves as part of a larger European stratification system. Our analysis leads us to reject both versions of the thesis. Material deprivation rather than having a uniform effect is highly dependent on national context. If a process of convergence is underway, it is one that as yet has had a limited impact. In circumstances where the Europeanization of inequality is raising issues relating to both national and transnational forms of legitimacy, it is important to understand that there is no necessary relationship between such Europeanization and the Europeanization of reference groups.

Economic globalization, inequality and body mass index:a cross-national analysis of 127 countries

This article investigates to what extent the worldwide increase in body mass index (BMI) has been affected by economic globalization and inequality. We used time-series and longitudinal cross-national analysis of 127 countries from 1980 to 2008. Data on mean adult BMI were obtained from the Global Burden of Metabolic Risk Factors of Chronic Diseases Collaborating Group. Globalization was measured using the Swiss Economic Institute (KOF) index of economic globalization. Economic inequality between countries was measured with the mean difference in gross domestic product per capita purchasing power parity in international dollars. Economic inequality within countries was measured using the Gini index from the Standardized World Income Inequality Database. Other covariates including poverty, population size, urban population, openness to trade and foreign direct investment were taken from the World Development Indicators (WDI) database. Time-series regression analyses showed that the global increase in BMI is positively associated with both the index of economic globalization and inequality between countries, after adjustment for covariates. Longitudinal panel data analyses showed that the association between economic globalization and BMI is robust after controlling for all covariates and using different estimators. The association between economic inequality within countries and BMI, however, was significant only among high-income nations. More research is needed to study the pathways between economic globalization and BMI. These findings, however, contribute to explaining how contemporary globalization can be reformed to promote better health and control the global obesity epidemic. © 2013 Copyright Taylor and Francis Group, LLC.

Effectiveness of Criminal Justice Liaison and Diversion Services for Offenders With Mental Disorders: A Review

Objective: The authors evaluated and synthesised the best-available evidence relating to the effectiveness of CJLD service models with respect to changes in mental health status and/or criminal recidivism.Methods: Research examining the effectiveness of CJLD services when compared to traditional Criminal Justice System (CJS) responses was reviewed and systematically appraised according to Campbell/Cochrane guidelines. Key outcomes included a reduction in offending and post-intervention changes in mental health. Results: Comprehensive searches of published and unpublished literature identified 6571 studies which varied considerably in terms of their methodological approach and overall quality. Ten studies met the inclusion criteria. The synthesised findings indicated that, when compared to traditional CJS outcomes, CJLD services appeared to be effective in terms of identifying MDOs and impacting positively on criminal justice and mental health outcomes.Conclusions: Although the evidence may be deemed to be moderate in terms of methodological rigour, overall, the findings suggest that CJLD services can be beneficial. The effectiveness of services depends upon the model of service delivery, the availability of community services and the engagement of MDOs.The successful implementation of CJLD services requires a clearer recognition of the importance of system of care principles.

Justice, Truth and Oral History: Legislating the Past 'From Below' in Northern Ireland

Drawing on the ‘from below’ perspective which has emerged in transitional justice scholarship and practice
over the past two decades, this article critically examines the dealing with the past debate in Northern
Ireland. The paper begins by offering an outline of the from below perspective in the context of post-conflict
or post-authoritarian societies which are struggling to come to terms with past violence and human rights
abuses. Having provided some of the legal and political background to the most recent efforts to deal with
the past in Northern Ireland, it then critically examines the relevant past-related provisions of the Stormont
House Agreement, namely the institutions which are designed to facilitate ‘justice’, truth recovery and the
establishment of an Oral History Archive. Drawing from the political science and social movement
literature on lobbying and the ways in which interests groups may seek to influence policy, the paper then
explores the efforts of the authors and others to contribute to the broader public debate, including through
drafting and circulating a ‘Model Bill’ on dealing with the past (reproduced elsewhere in this issue) as a
counterweight to the legislation which is required from the British government to implement the Stormont
House Agreement. The authors argue that the combination of technical capacity, grass-roots
credibility and ‘international-savvy’ local solutions offers a framework for praxis from below in other
contexts where activists are struggling to extend ownership of transitional justice beyond political elites.
Keywords: transitional justice; from below; dealing with the past; legislation; truth
recovery; prosecutions; oral history

Market failure, inequality and redistribution

We consider the following question: does market failure justify redistribution? We argue that the general answer to this question is no, in the sense that policies for correcting market failures do not aim at producing a "desirable" income distribution. This follows from the fact that, by construction, market failure is a deviation from "efficiency" that does not involve any notion of a desirable distribution of welfare (or income). However, there are special cases where a "corrective measure" involving redistribution can offset a market failure, so this can provide a form of efficiency- based justification for redistribution.

Poverty, Inequality and Natural Resources Degradation

The present study is an attempt to understand the link between natural resource degradation and poverty among people dependent on these resources. This is done by examining the impact of depletion of marine resources on the livelihood and socio-economic condition of the small-scale marine fishery community in South Kerala. In Kerala, nearly ten lakh fisherfolk depend on the marine fishery resources for their livelihood. The overall level of education of the small-scale fishing community is lower than that of the State’s rural population. Almost all the households surveyed, is one way or other, depend on fishery resources for livelihood. Low levels percapita income and high levels of inequality imply the existence of a large proportion of poor people in the community who are vulnerable to external shocks. The study reveals that poverty was comparatively higher among households with no fishing assets, with only one earner, with more than two children, and depending entirely on pensions/remittances. The study has not provided any evidence to show that poverty in the community is the result of depletion of marine resources.

Inequality and GM crops: a case study of Bt cotton in India

Critics of genetically modified (GM) crops often contend that their introduction enhances the gap between rich and poor farmers, as the former group are in the best position to afford the expensive seed as well as provide other inputs such as fertilizer and irrigation. The research reported in this paper explores this issue with regard to Bt cotton (cotton with the endotoxtin gene from Bacillus thuringiensis conferring resistance to some insect pests) in Jalgaon, Maharashtra State, India, spanning the 2002 and 2003 seasons. Questionnaire–based survey results from 63 non–adopting and 94 adopting households of Bt cotton were analyzed, spanning 137 Bt cotton plots and 95 non–Bt cotton plots of both Bt adopters and non–adopters. For these households, cotton income accounted for 85 to 88% of total household income, and is thus of vital importance. Results suggest that in 2003 Bt adopting households have significantly more income from cotton than do non–adopting households (Rp 66,872 versus Rp 46,351) but inequality in cotton income, measured with the Gini coefficient (G), was greater amongst non–adopters than adopters. While Bt adopters had greater acreage of cotton in 2003 (9.92 acres versus 7.42 for non–adopters), the respective values of G were comparable. The main reason for the lessening of inequality amongst adopters would appear to be the consistency in the performance of Bt cotton along with the preferred non–Bt cultivar of Bt adopters—Bunny. Taking gross margin as the basis for comparison, Bt plots had 2.5 times the gross margin of non–Bt plots of non–adopters, while the advantage of Bt plots over non–Bt plots of adopters was 1.6 times. Measured in terms of the Gini coefficient of gross margin/acre it was apparent that inequality was lessened with the adoption of Bunny (G = 0.47) and Bt (G = 0.3) relative to all other non–Bt plots (G = 0.63). Hence the issue of equality needs to be seen both in terms of differences between adopters and non–adopters as well as within each of the groups.

Inequality and economic growth in Latin

Latin America is the region that bears the highest rates of inequality in the world. Deininger and Squire (1996) showed that Latin American countries achieved only minor reductions in inequality between 1960 and 1990. On the other hand, East Asian countries, recurrently cited in recent literature on this issue, have significantly narrowed the gap in income inequality, while achieving sustained economic growth. These facts have triggered a renewed discussion on the relationship between income inequality and economic growth. According to the above literature, income inequality could have an adverse effect on countries’ growth rates. The main authors who spouse this line of thinking are Persson and Tebellini (1994), Alesina and Rodrik (1994), Perotti (1996), Bénabou (1996), and Deininger and Squire (1996, 1998). More recently, however, articles were published that questioned the evidence presented previously. Representatives of this new point of view, namely Li and Zou (1998), Barro (1999), Deininger and Olinto (2000) and Forbes (2000), believe that the relation between these variables can be positive, i.e., income inequality can indeed foster economic growth. Using this literature as a starting point, this article seeks to evaluate the relation between income inequality and economic growth in Latin America, based on a 13-country panel, from 1970 to 1995. After briefly reviewing the above articles, this study estimates the per capita GDP and growth rate equations, based on the neoclassical approach for economic growth. It also estimates the Kuznets curve for this sample of countries. Econometric results are in line with recent work conducted in this area – particularly Li and Zou (1998) and Forbes (2000) – and confirm the positive relation between inequality and growth, and also support Kuznets hypothesis.

Essays on health care reform, wealth inequality, and demography

This thesis contains three chapters. The first chapter uses a general equilibrium framework to simulate and compare the long run effects of the Patient Protection and Affordable Care Act (PPACA) and of health care costs reduction policies on macroeconomic variables, government budget, and welfare of individuals. We found that all policies were able to reduce uninsured population, with the PPACA being more effective than cost reductions. The PPACA increased public deficit mainly due to the Medicaid expansion, forcing tax hikes. On the other hand, cost reductions alleviated the fiscal burden of public insurance, reducing public deficit and taxes. Regarding welfare effects, the PPACA as a whole and cost reductions are welfare improving. High welfare gains would be achieved if the U.S. medical costs followed the same trend of OECD countries. Besides, feasible cost reductions are more welfare improving than most of the PPACA components, proving to be a good alternative. The second chapter documents that life cycle general equilibrium models with heterogeneous agents have a very hard time reproducing the American wealth distribution. A common assumption made in this literature is that all young adults enter the economy with no initial assets. In this chapter, we relax this assumption – not supported by the data – and evaluate the ability of an otherwise standard life cycle model to account for the U.S. wealth inequality. The new feature of the model is that agents enter the economy with assets drawn from an initial distribution of assets. We found that heterogeneity with respect to initial wealth is key for this class of models to replicate the data. According to our results, American inequality can be explained almost entirely by the fact that some individuals are lucky enough to be born into wealth, while others are born with few or no assets. The third chapter documents that a common assumption adopted in life cycle general equilibrium models is that the population is stable at steady state, that is, its relative age distribution becomes constant over time. An open question is whether the demographic assumptions commonly adopted in these models in fact imply that the population becomes stable. In this chapter we prove the existence of a stable population in a demographic environment where both the age-specific mortality rates and the population growth rate are constant over time, the setup commonly adopted in life cycle general equilibrium models. Hence, the stability of the population do not need to be taken as assumption in these models.

Income inequality and credit markets

Includes bibliography