Discussion Papers

Discussion Paper No. 207
December 4, 2019

Rural Transformation, Inequality, and the Origins of Microfinance

Author:

Suesse, Marvin (Trinity College Dublin)
Wolf, Nikolaus (HU Berlin and CEPR)

Abstract:

What determines the development of rural financial markets? Starting from a simple theoretical framework, we derive the factors shaping the market entry of rural microfinance institutions across time and space. We provide empirical evidence for these determinants using the expansion of credit cooperatives in the 236 eastern counties of Prussia between 1852 and 1913. This setting is attractive as it provides a free market benchmark scenario without public ownership, subsidization, or direct regulatory intervention. Furthermore, we exploit features of our historical set-up to identify causal effects. The results show that declining agricultural staple prices, as a feature of structural transformation, leads to the emergence of credit cooperatives. Similarly, declining bank lending rates contribute to their rise. Low asset sizes and land inequality inhibit the regional spread of cooperatives, while ethnic heterogeneity has ambiguous effects. We also offer empirical evidence suggesting that credit cooperatives accelerated rural transformation by diversifying farm outputs.

Keywords:

microfinance; credit cooperatives; rural transformation; land inequality; prussia

JEL-Classification:

G21; N23; O16; Q15

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Discussion Paper No. 206
December 4, 2019

Nonparametric Regression with Selectively Missing Covariates

Author:

Breunig, Christoph (Emory University)
Haan, Peter (DIW Berlin and FU Berlin)

Abstract:

We consider the problem of regressions with selectively observed covariates in a nonparametric framework. Our approach relies on instrumental variables that explain variation in the latent covariates but have no direct e ffect on selection. The regression function of interest is shown to be a weighted version of observed conditional expectation where the weighting function is a fraction of selection probabilities. Nonparametric identifi cation of the fractional probability weight (FPW) function is achieved via a partial completeness assumption. We provide primitive functional form assumptions for partial completeness to hold. The identi fication result is constructive for the FPW series estimator. We derive the rate of convergence and also the pointwise asymptotic distribution. In both cases, the asymptotic performance of the FPW series estimator does not suff er from the inverse problem which derives from the nonparametric instrumental variable approach. In a Monte Carlo study, we analyze the finite sample properties of our estimator and we demonstrate the usefulness of our method in analyses based on survey data. We also compare our approach to inverse probability weighting, which can be used alternatively for unconditional moment estimation. In the empirical application, we focus on two diff erent applications. We estimate the association between income and health using linked data from the SHARE survey data and administrative pension information and use pension entitlements as an instrument. In the second application we revisit the question how income aff ects the demand for housing based on data from the Socio-Economic Panel Study. In this application we use regional income information on the residential block level as an instrument. In both applications we show that income is selectively missing and we demonstrate that standard methods that do not account for the nonrandom selection process lead to signi ficantly biased estimates for individuals with low income.

Keywords:

selection model; instrumental variables; fractional probability weighting; nonparametric identification; partial completeness; incomplete data; series estimation; income distribution; health

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Discussion Paper No. 205
December 4, 2019

The Dynamic Impact of FX Interventions on Financial Markets

Author:

Menkhoff, Lukas (HU Berlin and DIW Berlin)
Rieth, Malte (DIW Berlin)
Stöhr, Tobias (Kiel Institute for the World Economy)

Abstract:

Evidence on the effectiveness of FX interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Applying this approach to the most important, freely floating currencies, we find that FX intervention shocks significantly affect exchange rates and that this impact persists for months. We show for Japan and the US that interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.

Keywords:

foreign exchange intervention; structural VAR; exchange rates; interest rates; stock prices

JEL-Classification:

F31; F33; E58

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Discussion Paper No. 204
November 29, 2019

Organizing for Entrepreneurship: Field-Experimental Evidence on the Performance Effects of Autonomy in Choosing Project Teams and Ideas

Author:

Boss, Viktoria (TUHH)
Ihl, Christoph (TUHH)
Dahlander, Linus (ESMT Berlin)
Jayaraman, Rajshri (ESMT Berlin and University of Toronto)

Abstract:

Organizations constantly strive to unleash their entrepreneurial potential to keep up with market and technology changes. To this end, they engage employees in practices like corporate crowdsourcing, incubators, accelerators or hackathons. These organizational practices emulate independent “green-field” entrepreneurship by relinquishing hierarchical control and granting employees autonomy in the choices of how to conduct work. We aim to shed light on two such choices that are fundamental in differentiating hierarchical from entrepreneurial modes of organizing work: (1) choosing projects ideas to work on and (2) choosing project teams to work with. Both of these choices are typically pre-determined in hierarchies and self-determined in entrepreneurship. We run a field experiment in an entrepreneurship course carefully designed to disentangle the separate and joint effects of granting autonomy in both choosing teams and choosing ideas compared to a pre-determined base case. Our results show that high autonomy in choosing implies a trade-off between personal satisfaction and objective performance. Self-determined choices along both dimensions promote subjective well-being in a complementary way, but their joint performance impact is diminishing. After ruling out alternative explanations related to differing project qualities and homophilic team choices, the detrimental performance impact of too much choice seems to be related to the implied cognitive burden and overconfidence.

Keywords:

teams; ideation; entrepreneurial performance; field experiment

JEL-Classification:

L23; L26; M5

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Discussion Paper No. 203
November 29, 2019

Menstrual Health, Worker Productivity and Well-being among Female Bangladeshi Garment Workers

Author:

Czura, Kristina (LMU Munich)
Menzel, Andreas (CERGE-EI Prague)
Miotto, Martina ( CERGE-EI Prague )

Abstract:

We conducted a randomised controlled trial (RCT) on a sample of 1,000 female garment workers in three factories in Bangladesh, off ering access to free sanitary pads at work to 500 of the workers. We cross-randomised participation in information sessions for hygienic menstrual health care implemented by an experienced local NGO, and we vary the salience of commonly perceived taboos in the pad collection process. We find e ffects of the free pads and information sessions on self-reported pad use, but not of the taboo variations. We find eff ects on absenteeism and adherence to traditional restrictive and health-adverse taboos surrounding menstruation, but not on worker turnover or self-reported well-being at work.

Keywords:

menstrual health; taboos; productivity; export manufacturing

JEL-Classification:

O14; O15; O35; M54; J32; J81

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Discussion Paper No. 202
November 27, 2019

Leadership in a Public Goods Experiment with Permanent and Temporary Members

Author:

Angelova, Vera (TU Berlin)
Güth, Werner (MPI for Research on Collective Goods, Bonn)
Kocher, Martin G. (University of Vienna)

Abstract:

We experimentally analyze leading by example in a public goods game with two permanent and two temporary group members. Our results show that leadership when permanent and temporary members interact leads to lower contributions than interaction without leadership.

Keywords:

cooperation; leadership; social dilemma; public goods provision; experiment

JEL-Classification:

C91; D03; D64

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Discussion Paper No. 201
November 22, 2019

Longevity and Patience

Author:

Falk, Armin (University of Bonn)
Hermle, Johannes (UC Berkley)
Sunde, Uwe (LMU Munich)

Abstract:

Why does patience vary across individuals and countries? We provide evidence on a widely-hypothesized mechanism, namely that higher longevity fosters patience. Using data on patience for 80,000 individuals in 76 countries, this paper relates exogenous variation in longevity across gender-age-country cells to variation in patience. We find that a ten-year increase in life expectancy implies a 5-percentage point higher discount factor. This relationship emerges for various sub-samples and is unaffected by other determinants including lifetime experiences regarding economic development, institutional quality, or violence. We provide a model to discuss the implications for the emergence of poverty traps.

Keywords:

time preferences; mortality; poverty traps

JEL-Classification:

D10; J10; O10

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Discussion Paper No. 200
November 20, 2019

Don’t Expect Too Much – High Income Expectations and Over-Indebtedness

Author:

Klühs, Theres (Leibniz University of Hannover) 
Koch, Melanie (DIW Berlin)
Stein, Wiebke (Leibniz University of Hannover) 

Abstract:

Household indebtedness is rising worldwide. This study investigates one possible driver of this increase that is rooted in the theory of permanent income: high income expectations. We collect data from an emerging country, Thailand, as (over-) indebtedness in markets with incomplete financial infrastructure and social security can be devastating. Furthermore, our sample of rural households is exposed to a high degree of uncertainty, which makes expectation formation prone to behavioral biases. We implement a new measure for high income expectations and show that it is strongly and robustly related to both objective and subjectively felt over-indebtedness. Controlling for various household characteristics, unexpected shocks, and other possible confounding factors reduces the concern about reverse causality. In an additional lab-in-the-field experiment, we explicitly find that overconfidence, a specific form of biased expectation, is related to overborrowing. 

Keywords:

household debt; lab-in-the-field experiment; emerging markets

JEL-Classification:

D14; D84; D91

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Discussion Paper No. 199
November 13, 2019

Weber Revisited: The Protestant Ethic and the Spirit of Nationalism

Author:

Kersting, Felix (HU Berlin)
Wohnsiedler, Iris (HU Berlin)
Wolf, Nikolaus (HU Berlin)

Abstract:

We revisit Max Weber's hypothesis on the role of Protestantism for economic development. We show that nationalism is crucial to both, the interpretation of Weber's Protestant Ethic and empirical tests thereof. For late 19th century Prussia we reject Weber’s suggestion that Protestantism mattered due to an “ascetic compulsion to save”. Moreover, we find that income levels, savings, and literacy rates differed between Germans and Poles, not between Protestants and Catholics using pooled OLS and IV regressions as well as IV mediation analysis. We suggest that this result is due to anti-Polish discrimination.

Keywords:

Max Weber; protestantism; nationalism

JEL-Classification:

N13; N33; O16; Z12

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Discussion Paper No. 198
November 8, 2019

Reciprocity in Dynamic Employment Relationships

Author:

Fahn, Matthias (JKU Linz and CESifo)

Abstract:

This paper explores the optimal provision of dynamic incentives for employees with reciprocal preferences. Building on the presumption that a relational contract can establish a norm of reciprocity, I show that generous upfront wages that activate an employee’s reciprocal preferences are more important when he is close to retirement. In earlier stages, “direct” performance-pay promising a bonus in exchange for effort is used more extensively. Then, a longer remaining time horizon increases the employer’s commitment which is generally determined by her future profits. Moreover, since future profits are affected by the employee’s reciprocal preferences, the norm of reciprocity already shapes the incentive system at the beginning of his career. I also show that more competition might magnify the use of reciprocity-based incentives, and that a formal commitment to paying nondiscretionary wages in the future can boost the employer’s credibibility.

Keywords:

reciprocity; relational contracts; dynamic incentives

JEL-Classification:

C73; D21; D86; D90; D91

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