Resumen de Essays on development, social networks, and information
This thesis comprises two separate research interests. The first one deals with understanding how risk-sharing arrangements affect household behavior in village economies. The second one refers to how trust and uncertainty about the benefits of cooperation affect network formation.
Fertilizer subsidies play a critical role in developing countries, where fertilizer use keeps lagging behind the rates recommend by agricultural experts. Which factors are restricting farmers from using the recommended amounts of fertilizer? In Chapter 1, I show the importance of risk-sharing arrangements in holding down fertilizer use in rural India and analyze how public policy can use fertilizer subsidies to fight the inefficiencies associated with these arrangements. I study a model of risk sharing in which households' choices of effort and fertilizer are private. Private information generates a moral hazard problem: risk sharing induces households to free-ride on each other's efforts. Moreover, effort provision is related to fertilizer use through a relationship of complementarity. Thus, risk sharing (which induces farmers to curtail their effort) decreases the productivity of fertilizer, ultimately leading to fertilizer being under-demanded. A fertilizer subsidy increases welfare because, by inducing farmers to buy more fertilizer, it pushes them to exert more effort, thereby weakening the bite of the moral hazard problem. I test this theory in the context of 18 villages in the Indian semi-arid tropics, with data coming from survey interviews conducted from 2009 to 2014. The effect of risk sharing on fertilizer used and hours worked is large: when going from no sharing to full insurance, average fertilizer used drops by four times and average hours worked drop by more than six times. Moreover, I show that a subsidy that would cut the observed prices of fertilizer in half would generate a consumption-equivalent gain in welfare of 51%.
Social networks play a key role in shaping many economic outcomes, such as information transmission, trade in decentralized markets, and social learning. Which factors are important in determining the relationships that end up forming? In Chapter 2, I analyze, together with Juan Camilo Cardenas, Danisz Okulicz, and Tomás Rodríguez-Barraquer, how people's trust affects the social networks they form. We measure trust for 72 members of a cohort of first-year undergraduates before they had a chance to meet and socialize. We measure people's trust using both a standard trust experiment and survey questions. After four months, we elicit five social networks among the students. Moreover, we retrieve and control for a large set of observables, including many characteristics which are likely to play a role in network formation and may be correlated with trust. We find that trust poorly explains the formation of the networks we retrieve. In particular, the effect of homophily in socio-economic background can go so far as being one order of magnitude bigger than the effect of trust.
In Chapter 3, I study theoretically how uncertainty about the benefits of cooperation affects coalition formation. Two agents can agree to cooperate while holding a common prior belief about whether the other is a lemon or a peach. Each agent prefers cooperating with a peach to autarky but would stay in autarky rather than cooperating with a lemon. A utilitarian social planner can draw a noisy public signal of whether the agents are lemons before they might agree to cooperate. Drawing a signal can decrease expected welfare. Moreover, the relationship between the welfare gain of drawing a signal and the noise of the signal can have at most one discontinuity and be non-monotonic.
