Publications by Type: Journal Article

Kremer, Michael, and Dan Levy. 2008. “Peer Effects and Alcohol Use among College Students.” Journal of Economic Perspectives 22 (3): 189-206. Publisher's VersionAbstract

This paper examines the extent to which college students who drink alcohol influence their peers. We exploit a natural experiment in which students at a large state university were randomly assigned roommates through a lottery system. We find that on average, males assigned to roommates who reported drinking in the year prior to entering college had a Grade Point Average (GPA) one quarter-point lower than those assigned to nondrinking roommates. The effect of initial assignment to a drinking roommate persists into the second year of college and possibly grows. The effect is especially large for students who drank alcohol themselves in the year prior to college. In contrast to the males, females' GPAs do not appear affected by roommates' drinking prior to college. Furthermore, students' college GPA is not significantly affected by roommates' high school grades, admission test scores, or family background. These findings are more consistent with models in which peers change people's preferences than with models in which peers change people's choice sets. Surprisingly, the policy of segregating drinkers by having substance-free housing could potentially lower average GPA in the university.

Field, Erica, and Rohini Pande. 2008. “Repayment Frequency and Default in Microfinance: Evidence From India.” Journal of the European Economic Association 6 (2-3): 501-509. Publisher's VersionAbstract

In stark contrast to bank debt contracts, most micro-finance contracts require that repayments start nearly immediately after loan disbursement and occur weekly thereafter. Even though economic theory suggests that a more flexible repayment schedule would benefit clients and potentially improve their repayment capacity, micro-finance practitioners argue that the fiscal discipline imposed by frequent repayment is critical to preventing loan default. In this paper we use data from a field experiment which randomized client assignment to a weekly or monthly repayment schedule and find no significant effect of type of repayment schedule on client delinquency or default. Our findings suggest that, among micro-finance clients who are willing to borrow at either weekly or monthly repayment schedules, a more flexible schedule can significantly lower transaction costs without increasing client default.

Field, Erica, Matthew Levinson, Rohini Pande, and Sujata Visaria. 2008. “Segregation, Rent Control, and Riots: The Economics of Religious Conflict in an Indian City.” American Economic Review 98 (2): 505-510. Publisher's Version
Andrabi, Tahir, Jishnu Das, and Asim Ijaz Khwaja. 2008. “A Dime a Day: The Possibilities and Limits of Private Schooling in Pakistan.” Comparative Education Review 52 (3): 329-355. Publisher's Version comparative_education_review_vol_52_no_3_khwaja_2008_-_hks.pdf
Duflo, Esther, and Rohini Pande. 2007. “Dams.” Quarterly Journal of Economics 122 (2): 601-646. Publisher's VersionAbstract

This paper studies the productivity and distributional effects of large irrigation dams in India. Our instrumental variable estimates exploit the fact that river gradient affects a district's suitability for dams. In districts located downstream from a dam, agricultural production increases, and vulnerability to rainfall shocks declines. In contrast, agricultural production shows an insignificant increase in the district where the dam is located but its volatility increases. Rural poverty declines in downstream districts but increases in the district where the dam is built, suggesting that neither markets nor state institutions have alleviated the adverse distributional impacts of dam construction.

Bond, Phillipe, and Rohini Pande. 2007. “Coordinating Development: Can Income-based Incentive Schemes Eliminate Pareto Inferior Equilibria?.” Journal of Development Economics 83 (2): 368-391. Publisher's VersionAbstract

Individuals' inability to coordinate investment may significantly constrain economic development. In this paper we study a simple investment game characterized by multiple equilibria and ask whether an income-based incentive scheme can uniquely implement the high-investment outcome. A general property of this game is the presence of a crossover-investment point at which an individual's incomes from investment and non-investment are equal. We show that arbitrarily small errors in the government's knowledge of this crossover point can prevent unique implementation of the high-investment outcome. We conclude that informational requirements are likely to severely limit a government's ability to use income-based incentive schemes as a coordination device.

Djankov, Simeon, Rema Hanna, Marianne Bertrand, and Sendhil Mullainathan. 2007. “Obtaining a Driver's License in India: An Experimental Approach to Studying Corruption.” Quarterly Journal of Economics 122 (4): 1639-1676. Publisher's VersionAbstract

We study the allocation of driver's licenses in India by randomly assigning applicants to one of three groups: bonus (offered a bonus for obtaining a license quickly), lesson (offered free driving lessons), or comparison. Both the bonus and lesson groups are more likely to obtain licenses. However, bonus group members are more likely to make extralegal payments and to obtain licenses without knowing how to drive. All extralegal payments happen through private intermediaries (“agents”). An audit study of agents reveals that they can circumvent procedures such as the driving test. Overall, our results support the view that corruption does not merely reflect transfers from citizens to bureaucrats but distorts allocation.

Chandra, Amitabh, and Douglas Staiger. 2007. “Productivity Spillovers in Health Care: Evidence from the Treatment of Heart Attacks.” Journal of Political Economy 115 (1): 103-140. Publisher's VersionAbstract

A large literature in medicine documents variation across areas in the use of surgical treatments that is unrelated to outcomes. Observers of this phenomenon have invoked “flat of the curve medicine” to explain it and have advocated for reductions in spending in high‐use areas. In contrast, we develop a simple Roy model of patient treatment choice with productivity spillovers that can generate the empirical facts. Our model predicts that high‐use areas will have higher returns to surgery, better outcomes among patients most appropriate for surgery, and worse outcomes among patients least appropriate for surgery, while displaying no relationship between treatment intensity and overall outcomes. Using data on treatments for heart attacks, we find strong empirical support for these and other predictions of our model and reject alternative explanations such as “flat of the curve medicine” or supplier‐induced demand for geographic variation in medical care.

Khwaja, Asim, Tahir Andrabi, Jishnu Das, and Tristan Zajonc. 2006. “Religious School Enrollment in Pakistan: A Look at the Data.” Comparative Education Review (August 2006) 50 (3): 446-477. Publisher's VersionAbstract

In recent years, policy makers have expressed growing concern about Pakistan’s religious schools, which are commonly known as madrasas.1 These concerns have been fueled considerably by reports and articles in the popular press contending that madrasa enrollment is high and increasing. The “rise” is generally attributed to either an increasing preference for religious schooling among families or a lack of other viable schooling options for the household.2 Yet while these theories have widespread currency, none of the reports and articles that we have reviewed have based their analysis on publicly available data sources or established statistical methodologies. Given the importance that is placed on the subject by policy makers in Pakistan and internationally, it is troubling that these theories remain unconfirmed.

Khwaja, Asim, Tahir Andrabi, and Maitreesh Ghatak. 2006. “Subcontractors for Tractors: Theory and Evidence on Flexible Specialization, Supplier Selection, and Contracting.” Journal of Developmental Economics April 2006. 79 (2): 273-302. Publisher's VersionAbstract

Buyer–Seller networks are pervasive in developing economies yet remain relatively understudied. Using primary data on contracts between the largest tractor assembler in Pakistan and its suppliers we find large variations in prices and quantities across suppliers of the same product. Surprisingly, “tied” suppliers – those that choose higher levels of specific investments – receive lower and more unstable orders and lower prices. These results are explained by developing a simple model of flexible specialization under demand uncertainty. A buyer faces multiple suppliers with heterogeneous types to supply customized parts. Specific investments raise surplus within the relationship but lower the seller's flexibility to cater to the outside market. Higher quality suppliers have a greater likelihood of selling outside and so this cost is greater for them. Therefore even if a buyer typically prefers high types, some low type suppliers might be kept as marginal suppliers because of their greater willingness to invest more in buyer-specific assets. Further empirical examination shows that the more tied suppliers are indeed of lower quality.

Levy, Dan, Johanne Boisjoly, Michael Kremer, and Jacque Eccles. 2006. “Empathy or Antipathy? The Impact of Diversity.” American Economic Review 96 (5): 1890-1905. Publisher's VersionAbstract

Mixing across racial and ethnic lines could spur understanding or inflame tensions between groups. We find that white students at a large state university randomly assigned African American roommates in their first year were more likely to endorse affirmative action and view a diverse student body as essential for a high-quality education. They were also more likely to say they have more personal contact with, and interact more comfortably with, members of minority groups. Although sample sizes are too small to provide definitive evidence, these results suggest students become more empathetic with the social groups to which their roommates belong.

Pande, Rohini. 2006. “Profits and Politics: Coordinating Technology Adoption in Agriculture.” Journal of Development Economics, December 2006 81 (2): 299-315.Abstract

This paper examines the political economy of coordination in a simple two-sector model in which individuals' choice of agricultural technology aspects industrialization. We demonstrate the existence of multiple equilibria; the economy is either characterized by the use of a traditional agricultural technology and a low level of industrialization or the use of a mechanized technology and a high level of industrialization. Relative to the traditional technology, the mechanized technology increases output but leaves some population groups worse off. We show that the distributional implications of choosing the mechanized technology restrict the possibility of Pareto-improving coordination by an elected policymaker, even when we allow for income redistribution.

Pande, Rohini, Tim Besle, and Vijayendra Rao. 2005. “Participatory Democracy in Action: Survey Evidence from South India.” Journal of European Economics Association Papers and Proceedings, May 2005 3 (2): 648-657.Abstract

We use household and village survey data from South India to examine who participates in village meetings called by elected local governments, and what effect these meetings have on beneficiary selection for welfare programs. Our main finding is that it is the more disadvantaged social groups who attend village meetings and that holding such meetings improves the targeting of resources towards the neediest groups.

Pande, Rohini, Robin Burgess, and Grace Wong. 2005. “Banking for the Poor: Evidence from India.” Journal of European Economic Association 3 (2-3): 268-278.Abstract

State led credit and savings programs have been implemented in numerous low income countries, but their success in reaching the poor remains widely debated. We report on research which exploits the policy features of the Indian social banking program to provide evidence on this issue. State-led branch expansion into rural unbanked locations reduced poverty across Indian states. In addition, the enforcement of directed bank lending requirements was associated with increased bank borrowing among the poor, in particular low caste and tribal groups.

Pande, Rohini. 2005. “Can Rural Banks Reduce Poverty? Evidencefrom the Indian Social Banking Experiment.” American Economic Review, June 2005 95 (3): 780-795.Abstract
We exploit the introduction and removal of a nation-wide bank branch licensing rule which sought to increase and equalize bank branch presence across Indian states to estimate the effect of rural bank openings on poverty. Between 1977 and 1990, to qualify for a license to open a branch in a census location which already had one or more bank branches an Indian bank had to open four branches in locations with no bank branches.This policy caused banks to open relatively more rural branches in Indian states with lower initial Önancial development between 1977 and 1990. The reverse was true outside this period. We use these policy-induced trend reversals in the relationship between a state's initial financial development and rural branch expansion as instruments for rural branch expansion and find that rural branch expansion in India significantly reduced rural poverty.
Pande, Rohini, Lena Edlund, and Laila Haider. 2005. “Unmarried Parenthood and RedistributivePolitics.” Journal of European Economic Association, March 2005 3 (1): 95-119.Abstract

Political survey data for nine West European countries show that women have become increasingly left-wing compared to men, and that this trend is positively correlated with the rise of non-marriage in these countries.This pattern is mirrored in German longitudinal data (GSOEP), where transitions out of marriage make women, but not men, significantly more left-leaning. Analysis of public spending data for high-income OECD countries (1980-1998) suggests that the political impact of non-marriage extends to the allocation of State resources with increases in non-marriage first reducing and then increasing State redistribution towards children.

Khwaja, Asim, and Atif Mian. 2005. “Unchecked Intermediaries: Price Manipulation in an Emerging Stock Market.” Journal of Financial Economics 78 (2005): 203-241. Publisher's VersionAbstract

How costly is the poor governance of market intermediaries? Using unique trade level data from the stock market in Pakistan, we find that when brokers trade on their own behalf, they earn annual rates of return that are 50-90 percentage points higher than those earned by outside investors. Neither market timing nor liquidity provision by brokers can explain this profitability differential. Instead we find compelling evidence for a specific trade-based ‘‘pump and dump’’ price manipulation scheme: When prices are low, colluding brokers trade amongst themselves to artificially raise prices and attract positive-feedback traders. Once prices have risen, the former exit leaving the latter to suffer the ensuing price fall. Conservative estimates suggest these manipulation rents can account for almost a half of total broker earnings. These large rents may explain why market reforms are hard to implement and emerging equity markets often remain marginal with few outsiders investing and little capital raised.

Khwaja, Asim, and Atif Mian. 2005. “Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market.” Quarterly Journal of Economics 120 (4): 1371-1411.Abstract

Corruption by the politically connected is often blamed for economic ills, particularly in less developed economies. Using a loan-level data set of more than 90,000 firms that represents the universe of corporate lending in Pakistan between 1996 and 2002, we investigate rents to politically connected firms in banking. Classifying a firm as political if its director participates in an election, we examine the extent, nature, and economic costs of political rent provision. We find that political firms borrow 45 percent more and have 50 percent higher default rates. Such preferential treatment occurs exclusively in government banks - private banks provide no political favors. Using firm fixed effects and exploiting variation for the same firm across lenders or over time allows for cleaner identification of the political preference result. We also find that political rents increase with the strength of the firm's politician and whether he or his party is in power, and fall with the degree of electoral participation in his constituency. We provide direct evidence against alternative explanations such as socially motivated lending by government banks to politicians. The economy wide costs of the rents identified are estimated to be 0.3 to 1.9 percent of GDP every year.

Pande, Rohini, Timothy Belsey, Lupin Rahman, and Vijayendra Rao. 2004. “The Politics of Public Good Provision: Evidence from Indian Local Governments.” Journal of the European Economic Association Papers and Proceedings. 2004 2 (2-3): 416-426. Publisher's Version
Khwaja, Asim. 2004. “Is Increasing Community Participation Always a Good Thing?.” Journal of the European Economic Association 2 (2-3): 427-436. Publisher's VersionAbstract

This paper considers the impact of community participation on outcomes of development projects. It first offers a theoretical framework for participation by using the property rights literature to model how participation in an activity, in addition to involving information exchange, also results in greater influence in the activity. The model predicts that community participation may not always be desirable. The paper then uses primary data on development projects in Northern Pakistan to provide empirical support for this prediction. It shows that while community participation improve project outcomes in nontechnical decisions, increasing community participation in technical decisions actually leads to worse project outcomes.