Robin Burgess is Co-Director of newly launched International Growth Centre (IGC)

International Development Secretary Douglas Alexander MP today launched the new International Growth Centre (IGC), to be led by the University of Oxford and the London School of Economics (LSE), to provide practical help to promote economic growth in developing countries. The Executive Director of the Centre will be Gobind Nankani while Professor Paul Collier of the University of Oxford and Professor Robin Burgess of the LSE will be Co-Directors. Other distinguished names associated with IGC are Lord Sir Nicholas Stern and Professor Tim Besley of LSE, Professor Stefan Dercon of Oxford, Nobel Laureate Mike Spence of Stanford and Professor Kenneth Rogoff of Harvard.

The Centre will be funded by the Department for International Development (DFID), which will provide £37million over the next three years. At the launch at the LSE on 10 December, Mr Alexander described the Centre as a ‘global brains trust’, which could improve the ability of developing countries to cope with effects of the economic downturn and provide innovative research on growth.

As well as commissioning and conducting research, the Oxford-LSE hub will seek to create a global network of experts by forging partnerships with individuals, networks and institutions from all over the world. The IGC, together with its partners, will be a unique resource providing a ‘hotline’ to the advice from world experts for developing countries that need practical support on issues, such as finance, agricultural yields, the energy sector or policies for the economy as a whole.

Research Award Granted: Gerard Padro

Gerard Padro has been awarded an ESRC First Grant in June 2008 with effect from October 2008 for the research project Strategic Risk, Civil War and Intervention: A Dynamic Global Games Approach.

Research Award Granted: Henrik Kleven

Henrik Kleven has been awarded an ESRC Grant for November 2008 - November 2010 for the research project entitled “An Experimental Evaluation of Tax Evasion and Tax Enforcement in Denmark”

Oriana Bandiera awarded Research Grant

Oriana Bandiera has been awarded the British Academy Research Development Award for September 2008‐June 2010

Tim Besley (joint with Neil Meads and Paulo Surico) ''Insiders versus Outsiders in Monetary Policymaking'' forthcoming AER (Papers and Proceedings)

A paper by Timothy Besley (joint with Neil Meads and Paulo Surico) “Insiders versus Outsiders in Monetary Policymaking” is forthcoming in American Economic Review(Papers and Proceedings)

Oriana Bandiera (joint with Iwan Barankay and Imran Rasul) ''Social Connections and Incentives in the Workplace: Evidence from Personnel Data''

A paper by Oriana Bandiera (joint with Iwan Barankay and Imran Rasul) “Social Connections and Incentives in the Workplace: Evidence from Personnel Data” is forthcoming in Econometrica

The authors present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm’s overall performance, they explore how the effects of social connections vary with the strength of managerial incentives and worker’s ability. To do so, they combine panel data on individual worker’s productivity from personnel records with a natural field experiment in which we engineered an exogenous change in managerial incentives, from fixed wages, to bonuses based on the average productivity of the workers managed. The authors find that when managers are paid fixed wages, they favor workers to whom they are socially connected irrespective of the worker’s ability, but when they are paid performance bonuses, they target their effort towards high ability workers irrespective of whether they are socially connected to them or not. Although social connections increase the performance of connected workers, they find that favoring connected workers is detrimental for the firm’s overall performance.

Journal Editorship: Maitreesh Ghatak

Starting November 2008, Maitreesh Ghatak will be taking up the position of Co-Editor of Journal of Development Economics.

Policy Paper: Maitreesh Ghatak 'Where is Credit Due?'

Maitreesh Ghatak, in this article in Financial Express, analyses the role and functioning of credit markets in developing countries, a subject that evokes much dispute among economists. Are firms credit-constrained? How does one best measure returns to firms: as return to ability of entrepreneur or return to capital stock?

For further details see

http://www.financialexpress.com/news/where-is-credit-due/378205/

EOPP welcomes its new members!

We would like to extend a very warm welcome to Dr Greg Fisher, who completed his PhD from MIT, and has joined our faculty this year.

We would also like to welcome all our new student members - Philippe Bracke, Nathan Foley-Fisher, Aki Ishihara, Justin Kueh, Ines Moreno-de Barreda, Sarah Sandford, Miriam Sinn, Daniel Stein, Oliver Vanden-Eynde.

We hope you all have a very enjoyable and productive stay here!

CEPR Annual Symposium at STICERD, LSE

The Centre for Economic Policy Research (CEPR) annual symposium of the Development Economics Programme was held at the LSE, on October 3 and 4, 2008 in R505 in STICERD, which is on the 5th floor of the Lionel Robbins Building.

For more information visit the CEPR symposium website pages

Henrik Kleven (joint with Claus Thustrup Kreiner and Emmanuel Saez): ''The Optimal Taxation of Couples,'' forthcoming Econometrica

A paper by Henrik Kleven (joint with Claus Thustrup Kreiner and Emmanuel Saez) The Optimal Income Taxation of Couples is forthcoming in Econometrica.

This paper explores the optimal income taxation of couples, where each couple is modeled as a unitary agent supplying labor along two dimensions: the labor supply of a primary earner and the labor supply of a secondary earner. The authors show that, if second-earner labor force participation is a signal of the couple being better off (as when second-earner entry reflects high labor market opportunities), optimal tax schemes display positive tax rates on secondary earnings along with negative jointness whereby the tax rate on one person decreases with the earnings of the spouse. Conversely, if second-earner participation is a signal of the couple being worse off (as when second-earner entry reflects low home production ability), they obtain a negative tax rate on the secondary earner along with positive jointness: the second-earner subsidy is being phased out with primary earnings. These results imply that, in either case, the tax distortion on the secondary earner is declining in primary earnings, which is therefore a general property of an optimum. The authors also prove that the second-earner tax distortion tends to zero asymptotically as primary earnings become large.

Timothy Besley (joint with Torsten Persson): 'The Origins of State Capacity: Property Rights, Taxation and Politics', forthcoming in AER

A paper by Timothy Besley (joint with Torsten Persson) The Origins of State Capacity: Property Rights, Taxation and Politics is forthcoming in the American Economic Review.

Economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes, assumptions which cannot be taken for granted in many states, neither historically nor in today's developing world. In this paper the authors develop a framework where "policy choices" in market regulation and taxation are constrained by past investments in the legal and fiscal capacity of the state. They study the economic and political determinants of such investments and find that legal and fiscal capacity are typically complements. Their theoretical results show that, among other things, common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity of both forms. Their preliminary empirical results uncover a number of correlations in cross-country data which are consistent with the theory.

Oriana Bandiera and Andrea Prat (joint with Tommaso Valletti): 'Active and Passive Waste in Government Spending: Evidence from a Policy Experiment'

A paper by Oriana Bandiera and Andrea Prat (joint with Tommaso Valletti) Active and Passive Waste in Government Spending: Evidence from a Policy Experiment is forthcoming in the American Economic Review.

The authors propose a distinction between active waste and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker (as in the case of bribery) whereas passive waste does not (as in the case of inefficiency due to red tape). To assess the empirical relevance of both forms of waste, the authors analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. A revealed preference argument implies that if public bodies with higher costs are more likely to buy from the procurement agency rather than from traditional suppliers, cost differences are more likely to be due to passive waste. The authors find that: (i) Some public bodies pay systematically more than others for observationally equivalent goods and such price differences are sizeable; (ii) Differences are correlated with governance structure: the central administration pays at least 22 per cent more than semi-autonomous agencies (local government is at an intermediate level); (iii) The variation in prices across public bodies is principally due to variation in passive rather than active waste; (iv) Passive waste accounts for 83 per cent of total estimated waste.

Elected to BREAD Board: Robin Burgess and Maitreesh Ghatak

Robin Burgess and Maitreesh Ghatak have recently been elected to the Board of Directors of BREAD (Bureau for Research and Economic Analysis of Development). Together with Tim Besley, LSE now has the maximum number of faculty members (three) in the BREAD Board. The only other institution to have three BOARD members is Harvard University.

Andrea Prat (joint with Amil Dasgupta) ''Information aggregation in financial markets with career concerns'', forthcoming in JET

A paper by Andrea Prat (joint with Amil Dasgupta) Information aggregation in financial markets with career concerns, is forthcoming in the Journal of Economic Theory.

Abstract: What are the equilibrium features of a dynamic financial market in which traders care about their reputation for ability? The authors modify a standard sequential trading model to include traders with career concerns. They show that this market cannot be informationally efficient: there is no equilibrium in which prices converge to the true value, even after an infinite sequence of trades. They characterize the most revealing equilibrium of this game and show that an increase in the strength of the traders’ reputational concerns has a negative effect on the extent of information that can be revealed in equilibrium but a positive effect on market liquidity.

Oriana Bandiera (joint with Iwan Barankay and Imran Rasul) ''Social Capital in the Workplace: Evidence on its Formation and Consequences''

A paper by Oriana Bandiera (joint with Iwan Barankay and Imran Rasul) "Social Capital in the Workplace: Evidence on its Formation and Consequences" is forthcoming in Labour Economics.

Abstract: The existence of social ties between co-workers affect many aspects of firm and worker behavior, such as how workers respond to a given set of incentives, the optimal compensation structures for workers at different tiers of the firm hierarchy, and the optimal organizational design for the firm. This paper presents evidence on the social capital in one particular firm, as embodied in the friendship ties among its workers. The authors describe the structure of the friendship network as a whole and present evidence on the determinants of social ties. Finally, they review evidence from a field experiment they conducted in the firm to highlight one particular mechanism through which social capital significantly affects worker performance.

Tim Besley delivers the Richard Ely Distinguished Lecture Series 2008

Tim Besley has been invited to give 3 lectures in the prestigious Richard Ely Distinguished Lecture Series during the week of 14th April 2008 at Johns Hopkins University. More details can be found at www.econ.jhu.edu.

Status Incentives by Timothy Besley and Maitreesh Ghatak

"Status Incentives" by Tim Besley and Maitreesh Ghatak will be published in the American Economic Review, Papers and Proceedings, in May 2008.

Abstract: When economists study incentives in organizations, the main focus has been on using monetary payments in exchange for performance on specific measurable dimensions. But organizations use a wide variety of means to motivate their workers. One such method which has not been studied much to date, is the explicit creation of status rewards attached to good performance. In this paper, the authors consider the role of such status awards as an incentive device.

Lord Stern's Maiden Speech in the House of Lords

The text and video link to Lord Stern of Brentford's Maiden Speech last Thursday, 6 March is now available.

• Full text of speech
  
  
• Video

Polarisation and Conflict Conference at LSE

The final meeting of the Polarisation and Conflict (PAC) Project, sponsored by the Community Sixth Framework was held at STICERD on 7 and 8 March 2008. Participants include Gerald Schneider, Eliana La Ferrara, Oeindrila Dube, Timothy Besley, James Fearon, Marta Reynal-Querol, Saumitra Jha, Benjamin Olken, Edward Miguel, Kalle Moene.

In addition there was a presentation of PAC findings by Joan Esteban and Gerald Schneider and a Roundtable with James Fearon, Anke Hoeffler and Edward Miguel.

Robin Burgess (joint with Philippe Aghion, Stephen Redding et al): ''The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj"

A paper by Robin Burgess (joint with Philippe Aghion, Stephen Redding and Fabrizio Zilibotti) "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," has recently been accepted for publication in the American Economic Review 2008

The authors study whether the effects on registered manufacturing output of disman- tling the License Raj - a system of central controls regulating entry and production activity in this sector - vary across Indian states with different labor market reg- ulations. The effects are found to be unequal across Indian states with different labor market regulations. In particular, following delicensing, industries located in states with pro-employer labor market institutions grew more quickly than those in pro-worker environments.

Henrik Kleven: 'Evaluation of Four Tax Reforms in the United States: Labour Supply and Welfare Effects for Mothers', Journal of Public Economics

A paper by Henrik Kleven, (joint with Nada Eissa and Claus Thustrup Kreiner) "Evaluation of Four Tax Reforms in the United States: Labour Supply and Welfare Effects for Mothers," has recently been published in the Journal of Public Economics,92, 2008, pp.795-816.

An emerging consensus is that labor force participation is more responsive to taxes and transfers than hours worked. To understand the implications of participation responses for the welfare analysis of tax reform, this paper embeds this margin of labor supply in an explicit welfare theoretic framework. The authors apply the framework to examine the welfare effects on single mothers in the United States following four tax acts passed in 1986, 1990, 1993, and 2001. They propose a simulation method combining features of fully structural microsimulation studies and simple deadweight loss calculations. Their approach accounts for the observed heterogeneity in the microdata, but is simple to implement because we do not need to specify utility functions and estimate utility parameters. They find that each of the four tax acts created substantial welfare gains, and that the gains were concentrated almost exclusively on the participation margin. Their results imply that standard approaches not modeling the participation decision can make large errors.

Gerard Padro-i-Miquel: The Control of Politicians in Divided Societies: The Politics of Fear, Review of Economic Studies, October 2007

A paper by Gerard Padró-i-Miquel, "The Control of Politicians in Divided Societies: The Politics of Fear," has recently been published in The Review of Economic Studies, October 2007

Autocrats in many developing countries have extracted enormous personal rents from power. In addition, they have imposed ineficient policies including pervasive patronage spending. The author presents a model in which the presence of ethnic identities and the absence of institutionalized succession processes allow the ruler to elicit support from a sizeable share of the population despite large reductions in welfare. The fear of falling under an equally ineficient and venal ruler that favors another group is enough to discipline supporters. The model predicts extensive use of patron- age, ethnic bias in taxation and spending patterns and unveils a new mechanism through which economic frictions translate into increased rent extraction by the leader. These predictions are consistent with the experiences of bad governance, ethnic bias, wasteful policies and kleptocracy in post-colonial Africa.

Tim Besley elected to serve as President of the European Economic Association

Tim Besley, Kuwait Professor of Economics and Political Science, has been elected to serve as President of the European Economic Association for the period 2008-2011. Serving on the EEA's Executive Committee for a total of four years, Tim will undertake the roles of Vice President in January 2008, and then President - Elect in 2009 followed by President in 2010.

Tim will be succeeding Nick Stern who will be President in 2009.

Oriana Bandiera has been awarded the IZA Young Labour Economist Award 2007

Dr Oriana Bandiera has been awarded the IZA Young Labor Economist Award (2007) during an IZA reception held at the Annual Meetings of the Allied Social Science Associations (ASSA) in New Orleans. The award honors Dr Bandiera along with her co-authors, Iwan Barankay (University of Warwick) and Imran Rasul (University College London), for their joint paper "Social Preferences and the Response to Incentives: Evidence from Personnel Data" (Quarterly Journal of Economics, 2005).

The IZA Young Labor Economist Award is presented to young researchers who have written and published an outstanding paper in labor economics. Nominations for the award are sent by IZA Research Fellows, these are then screened by the IZA Program Directors, who each propose three papers. On the basis of these proposals, the prize-winner(s) are selected.

More information on the award can be found at http://www.iza.org/ylea.

Journal Editorship: Oriana Bandiera

Starting January 2008, Oriana Bandiera will be taking up the position of Co‐Editor of BE Journal of Economic Analysis and Policy and the position of Associate Editor, Economic Journal