Essays in Development Economics

Abstract

This dissertation consists of four chapters, in two halves. The common, broad theme is the importance of time in problems which we often analyze statically. In the first half, we consider the role of time in insurance. The gains from insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard insurance products also transfer income across time. We consider the theoretical implications of this transfer across time in Chapter 2, and test them empirically in Chapter 1. We show that the intertemporal transfer can help explain low insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop insurance product which removes it. The product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the insurance and deducts the premium from farmer revenues at harvest time. The take-up rate is 72%, compared to 5% for the standard upfront contract, and take-up is highest among poorer farmers. Additional experiments and outcomes indicate that liquidity constraints, present bias, and counterparty risk are all important constraints on the demand for standard insurance. In the second half, we consider the implications of time for policies on investments in durables. Such investment decisions are forward looking, so expectations over future policies matter. In Chapter 3 we argue public infrastructure often substitutes for, or complements, private durables. In such cases, private investment in durables depends on expectations over future public infrastructure. In turn, private investment affects future demand for, and hence investment in, public infrastructure. This creates a dynamic coordination game which can have multiple equilibria. If governments can commit early to future public infrastructure, they may do so. If they cannot, they may be driven to second best policies, such as early construction of public infrastructure. In Chapter 4 we consider Pigouvian taxation of durables. Dynamically and statically optimal Pigouvian subsidies on durables will differ in a growing economy. For durables with positive externalities, statically optimal subsidies will typically grow, whereas dynamically optimal policies may commit to eventually reducing subsidies.