What is the Causal Effect of Information and Learning about a Public Good on Willingness to Pay?

In this study we elicit agents’ prior information set regarding a public good, exogenously give information treatments to survey respondents and subsequently elicit willingness to pay for the good and posterior information sets. The design of this field experiment allows us to perform theoretically motivated hypothesis testing between different updating rules: non-informative updating, Bayesian updating, and incomplete updating. We find causal evidence that agents imperfectly update their information sets. We also field causal evidence that the amount of additional information provided to subjects relative to their pre-existing information levels can affect stated WTP in ways consistent overload from too much learning. This result raises important (though familiar) issues for the use of stated preference methods in policy analysis.

Understanding the Economics of Investments in the Social Determinants of Health

Briefing 9 - Understanding the economics of investments in the social determinants of health This document, commissioned by Public Health England, and written by the UCL Institute of Health Equity, examines how to use measures of economic investment to improve and increase local investment in the social determinants of health. The paper provides information to support decision-making on actions to address the social determinants of health and the development of business cases for investment. It supplements the evidence reviews in this series, which include information on the economic impacts of actions on health inequalities, and should help the reader to be an intelligent customer and commissioner of economic analyses and to understand their limitations. The paper covers: - The rationale for understanding, measuring and taking into account the economic impact of decisions and interventions that impact on the social determinants of health.- The benefits and limitations of various ‘economic measures of impact’ – commonly used terms which can be confusing, sometimes leading to misinterpretation of which measure of economic impact is appropriate for what purpose.- What is currently known about the economic impact of intervening in the social determinants of health.- Good practice and further resources which will support better decisions. The briefing is available to download above. This document is part of a series. An overview document which provides an introduction to this and other documents in the series, and links to the other topic areas, is available on the ‘Local Action on health inequalities’ project page. A video of Michael Marmot introducing the work is also available on our videos page.

The effects of poor financial information systems on the long term sustainability of local public services. Empirical evidence from the Catalan Municipalities

In this paper we describe the existence of financial illusion in public accountingand we comment on its effects for the future sustainability of local publicservices. We relate these features to the lack of incentives amongst publicmanagers for improving the financial reporting and thus management of publicassets. Financial illusion pays off for politicians and managers since it allowsfor larger public expenditure increases and managerial slack, these beingarguments in their utility functions. This preference is strengthen by the shorttime perspective of politically appointed public managers. Both factors runagainst public accountability. This hypothesis is tested for Spain by using anunique sample. We take data from around forty Catalan local authorities withpopulation above 20,000 for the financial years 1993-98. We build this databasis from the Catalan Auditing Office Reports in a way that it can be linkedto some other local social and economic variables in order to test ourassumptions. The results confirm that there is a statistical relationship between the financialillusion index (FI as constructed in the paper) and higher current expenditure.This reflects on important overruns and increases of the delay in payingsuppliers, as well as on a higher difficulties to face capital finance. Mechanismsfor FI creation have to do among other factors, with delays in paying suppliers(and thereafter higher future financial costs per unit of service), no adequateprovision for bad debts and lack of appropriate capital funding either forreposition or for new equipments. For this, it is crucial to monitor the way inwhich capital transfers are accounted in local public sheet balances. As a result,for most of the Municipalities we analyse, the funds for guaranteeing continuityand sustainability of public services provision are today at risk.Given managerial incentives at present in public institutions, we conclude thatpublic regulation recently enforced for assuring better information systems inlocal public management may not be enough to change the current state of affairs.

The value of useless information

There are many situations in which individuals have a choice of whether or notto observe eventual outcomes. In these instances, individuals often prefer to remainignorant. These contexts are outside the scope of analysis of the standard vonNeumann-Morgenstern (vNM) expected utility model, which does not distinguishbetween lotteries for which the agent sees the final outcome and those for which hedoes not. I develop a simple model that admits preferences for making an observationor for remaining in doubt. I then use this model to analyze the connectionbetween preferences of this nature and risk-attitude. This framework accommodatesa wide array of behavioral patterns that violate the vNM model, and thatmay not seem related, prima facie. For instance, it admits self-handicapping, inwhich an agent chooses to impair his own performance. It also accommodatesa status quo bias without having recourse to framing effects, or to an explicitdefinition of reference points. In a political economy context, voters have strictincentives to shield themselves from information. In settings with other-regardingpreferences, this model predicts observed behavior that seems inconsistent witheither altruism or self-interested behavior.

The role of awareness, information gathering and processing in school choice

This paper studies the determinants of school choice, focusing on the role of information. Weconsider how parents' search efforts and their capacity to process information (i.e., tocorrectly assess schools) affect the quality of the schools they choose for their children. Usinga novel dataset, we are able to identify parents' awareness of schools in their neighborhoodand measure their capacity to rank the quality of the school with respect to the officialrankings. We find that parents education and wealth are important factors in determiningtheir level of school awareness and information gathering. Moreover, these search effortshave important consequences in terms of the quality of school choice.

Let's (not) talk about sex: The effect of information provision on gender differences in performance under competition

We study how gender differences in performance under competition areaffected by the provision of information regarding rival s gender and/ordifferences in relative ability. In a laboratory experiment, we use two tasks thatdiffer regarding perceptions about which gender outperforms the other. Weobserve women s underperformance only under two conditions: 1) tasks areperceived as favoring men and 2) rivals gender is explicitly mentioned. Thisresult can be explained by stereotype-threat being reinforced when explicitlymentioning gender in tasks in which women already consider they are inferior.Omitting information about gender is a safe alternative to avoid women sunderperformance in competition.

Two-sided learning in New Keynesian models: Dynamics, (lack of) convergence and the value of information

This paper investigates the role of learning by private agents and the central bank(two-sided learning) in a New Keynesian framework in which both sides of the economyhave asymmetric and imperfect knowledge about the true data generating process. Weassume that all agents employ the data that they observe (which may be distinct fordifferent sets of agents) to form beliefs about unknown aspects of the true model ofthe economy, use their beliefs to decide on actions, and revise these beliefs througha statistical learning algorithm as new information becomes available. We study theshort-run dynamics of our model and derive its policy recommendations, particularlywith respect to central bank communications. We demonstrate that two-sided learningcan generate substantial increases in volatility and persistence, and alter the behaviorof the variables in the model in a significant way. Our simulations do not convergeto a symmetric rational expectations equilibrium and we highlight one source thatinvalidates the convergence results of Marcet and Sargent (1989). Finally, we identifya novel aspect of central bank communication in models of learning: communicationcan be harmful if the central bank's model is substantially mis-specified.

Heterogeneous information and trade policy

Protectionism enjoys surprising popular support, in spite of deadweight losses. At thesame time, trade barriers appear to decline with public information about protection.This paper develops an electoral model with heterogeneously informed voters whichexplains both facts and predicts the pattern of trade policy across industries. In themodel, each agent endogenously acquires more information about his sector of employment. As a result, voters support protectionism, because they learn more about thetrade barriers that help them as producers than those that hurt them as consumers.In equilibrium, asymmetric information induces a universal protectionist bias. Thestructure of protection is Pareto inefficient, in contrast to existing models. The modelpredicts a Dracula effect: trade policy for a sector is less protectionist when there ismore public information about it. Using a measure of newspaper coverage across industries, I find that cross-sector evidence from the United States bears out my theoreticalpredictions.

Turnout, political preferences and information: Experimental evidence from Perú

Electoral institutions that encourage citizens to vote are widely used around the world. Yet littleis known about the effects of such institutions on voter participation and the composition of the electorate.In this paper, I combine a field experiment with a change in Peruvian voting laws to identify theeffect of monetary (dis-)incentives on voting. Using the random variation in the fine for abstention andan objective measure of turnout at the individual level, I estimate the elasticity of voting with respectto cost to be -0.21. Consistent with the theoretical model presented, the reduction in turnout inducedby the reduction in the fine is driven by voters who (i) are in the center of the political spectrum, (ii)are less interested in politics, and (iii) hold less political information. However, voters who respondto changes in the cost of abstention do not have different preferences for policies than those who voteregardless of the cost. Further, involvement in politics, as measured by the decision to acquire politicalinformation, seems to be independent of the level of the fine. Additional results indicate that thereduction in the fine does not affect the incidence of vote buying, but increases the price paid for avote.

The importance of relative performance feedback information: Evidence from a natural experiment using high school students

We study the effect of providing relative performance feedback information onperformance, when individuals are rewarded according to their absolute performance. Anatural experiment that took place in a high school offers an unusual opportunity to testthis effect in a real-effort setting. For one year only, students received information thatallowed them to know whether they were performing above (below) the class average aswell as the distance from this average. We exploit a rich panel data set and find that theprovision of this information led to an increase of 5% in students grades. Moreover, theeffect was significant for the whole distribution. However, once the information wasremoved, the effect disappeared. To rule out the concern that the effect may beartificially driven by teachers within the school, we verify our results using nationallevel exams (externally graded) for the same students, and the effect remains.

Research joint ventures and optimal R&D policy with asymmetric information

When to allow Research Joint Ventures (RJVs) or not is an importantinstrument in the development of an optimal R&D policy. Theregulator, however, is unlikely to know all the relevant informationto regulate R&D optimally. The extent to which there existappropriability problems between the firms is one such variable thatis private information to the firms in the industry. In a duopolysetting we analyze the characteristics of a second-best R&D policywhere the government can either allow RJVs or not and give lump-sumsubsidies to the parties involved. The second-best R&D policy withoutsubsidies will either block some welfare improving RJVs or allow somewelfare reducing ones. With lump-sum subsidies, the second-best policytrades off the expected subsidy cost with allowing welfare decreasingRJVs or blocking welfare increasing ones.