2018 Theses Doctoral

Essays on Development Economics

Krishnaswamy, Nandita

This dissertation consists of three empirical essays on agricultural incentives, risk, and rural labor markets.
Chapter 1 empirically estimates the effect of agricultural price support policies on crop choice and input (mis-)allocation, with important implications for spillover effects to other sectors. 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 rice. 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.
Chapter 2 (with Emily Breza and Supreet Kaur) demonstrates the influence of collective action - specifically, through social sanctions imposed by informal labor unions - on labor supply in rural labor markets. A distinguishing feature of the labor market is social interaction among co-workers---providing the ingredients for social norms to develop and constrain behavior. We use a field experiment to test whether social norms against accepting wage cuts distort workers' labor supply during periods of unemployment. We undertake our test in informal spot markets for casual daily labor in India. We partner with 183 existing employers, who offer jobs to 502 randomly-selected laborers in their respective local labor markets. The job offers vary: (i) the wage level and (ii) the extent to which the offer is observable to other workers. We document that unemployed workers are privately willing to accept work at wages below the prevailing wage, but rarely do so when this choice is observable to other workers. In contrast, observability plays no role in affecting take-up of jobs at the prevailing wage. The consequences of this behavior are substantial: workers are giving up 38% of average weekly earnings in order to avoid being seen as breaking the social norm. In a supplementary exercise, we document that workers are willing to pay to punish anonymous laborers who have accepted a wage cut. Costly punishment occurs both for workers in one's own labor market, and for workers in distant other labor markets---suggesting the internalization of norms in moral terms. Our findings support the presumption that, even in the absence of formal labor institutions, collusive norms can constrain labor supply behavior at economically meaningful magnitudes.
Chapter 3 investigates how households use engagement in criminal activity to smooth consumption in the face of agricultural risk. About 400,000 barrels of oil are stolen per day in the Niger Delta region. Much of this oil is stolen by militia groups with the help of local youth (who have the requisite knowledge about the terrain and placement of the pipelines). I use exogenous variation in households' access to oil pipelines, together with local shocks to agricultural productivity (both self-reported and due to variation in rainfall) to show that a proxy for theft from oil pipelines increases in the vicinity of households located close to pipelines that suffer unanticipated crop losses. This coincides with non-food expenditure-smoothing for these households (relative to households that are far from pipelines). Finally, I look at heterogeneity by household characteristics to identify households that are more likely to be affected by agricultural shocks or more likely to be targets for militia recruitment - households with young unemployed men and young men who are not in school, and households that lack financial infrastructure in their vicinity (which I take to be a proxy for a household's ability to access credit when faced with economic shocks). The findings from this paper suggest that there is potential for large spillover savings - in terms of reducing theft of oil from pipelines - for any policy that provides credit or other kinds of risk-mitigation mechanisms to households.