Empirical studies in behavioral and development economics
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Date
10/07/2019Author
Eigner, Johannes Franz
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Abstract
The chapters of this thesis comprise three separate studies on topics in behavioral
and development economics. The first chapter discusses the impact of advantageous
and disadvantageous income inequality on self-reported life satisfaction. The second
chapter analyses the effect of access to financial services in rural India on agricultural
outcomes. In the third chapter I introduce a new instrumental variable to identify
the effect of peer expenditure on household consumption.
Chapter 1. Spiteful Preferences or Inequality Aversion: What drives
the Comparison Income Effect? In this chapter I use happiness data to distinguish
between spiteful and inequality averse preferences. Both are consistent with
the Easterlin paradox but have quite different implications for the relationship between
happiness and income inequality. Empirical evidence suggests that happiness
is decreasing in the income of relevant others (i.e. comparison income). On its own,
this relationship provides insufficient evidence to pin down the underlying preferences
but a remedy is available. The simple comparison income model is nested in
a more general utility function which accounts for several types of interdependent
preferences. Using data from the German Socio-Economic Panel (SOEP) survey, I
demonstrate that the full model has more predictive power than the reduced one.
Moreover, aversion to income inequality appears to drive the comparison income
effect. The results are robust to several alternative model specifications.
Chapter 2. Rural Banks and Agricultural Production: Evidence from
India’s Social Banking Experiment In this chapter, we study the effects of
improved access to banking services on agricultural production in India. We exploit
a series of policy rules during the 1980s to generate a time-varying instrument for
rural branch expansion at the district level. We find that a 1% growth in rural
banks increased aggregate yields by 0.4%. This effect is driven by an uptake in the
cultivation of higher-yielding varieties of cereal crops, as well as an increase in the
area share allocated to cash crops. Banks also attenuate the effect of lagged rainfall
on output, via changes in the use of irrigation.
Consumption-savings decisions with interdependent preferences. Staying
ahead or catching up? In the third chapter, I estimate the effect of expenditure
disparity on household consumption using a novel instrumental variable. In a
life-cycle setting, households are assumed to care about the distance to others above
and below them in the expenditure distribution. To solve the endogeneity problem
arising from correlated and exogenous effects, I instrument expenditure disparity
with the share of households who receive unexpected windfall income. Using SOEP
data, the average household is found to have envious and prideful preferences in that
growing disparity to those who spend more and reduction in the disparity to others
who spend less is associated with consumption expenditure growth.