Economics

Portfolios of the Poor: How the World's Poor Live on $2 a Day

Portfolios of the Poor: How the World's Poor Live on $2 a Day
Arabic translation.

Jonathan Morduch, Daryl Collins, Stuart Rutherford, & Orlanda Ruthven
05/24/2016

Portfolios of the Poor: How the World's Poor Live on $2 a Day (Princeton University Press, 2009) tackles the fundamental question of how the poor make ends meet. Over 250 families in Bangladesh, India, and South Africa participated in this unprecedented study of the financial practices of the world's poor.

These households were interviewed every two weeks over the course of a year, reporting on their most minute financial transactions. This book shows that many poor people have surprisingly sophisticated financial lives, saving and borrowing with an eye to the future and creating complex "financial portfolios" of formal and informal tools.

Indispensable for those in development studies, economics, and microfinance, Portfolios of the Poor will appeal to anyone interested in knowing more about poverty and what can be done about it.

Failure vs. Displacement: Why an Innovative Anti-Poverty Program Showed no Net Impact in South India

Failure vs. Displacement: Why an Innovative Anti-Poverty Program Showed no Net Impact in South India
September 2015. Journal of Development Economics 116: 1-16.

Jonathan Morduch, Jonathan Bauchet, & Shamika Ravi
05/24/2016

We analyze a randomized trial of an innovative anti-poverty program in South India, part of a series of pilot programs that provide “ultra-poor” households with inputs to create new, sustainable livelihoods (often tending livestock). In contrast with results from other pilots, we find no lasting net impact on income or asset accumulation in South India. We explore concerns with program implementation, data errors, and the existence of compelling employment alternatives. The baseline consumption data contain systematic errors, and income and consumption contain large outliers. Steps to address the problems leave the central findings largely intact: Wages for unskilled labor rose sharply in the area while the study was implemented, blunting the net impact of the intervention and highlighting one way that treatment effects depend on factors external to the intervention itself, such as broader employment opportunities.

Economics and the Social Meaning of Money

Economics and the Social Meaning of Money
2017. Chapter 1 in Nina Bandelj, Frederick F. Wherry, & Viviana Zelizer, eds. Money Talks. Princeton University Press.

Jonathan Morduch
05/01/2016

Economic analyses of household choices usually assume that money is fungible—that a dollar is a dollar, no matter how it was earned or by whom. But, in practice, families often earmark money earned by a particular family member or generated from a particular job. Viviana Zelizer’s The Social Meaning of Money thoroughly documents the importance of earmarking and the social relations that explain why and how. More recently, the US Financial Diaries project documents the frequency of earmarking in a sample of low- and moderate-income households in ten sites across America.   Earmarking income for particular purposes generally leads to spending patterns that deviate from patterns delivered by household-level optimization with full fungibility. Not surprisingly, economists have been slow to embrace notions of earmarking.  That, though, may be changing, as behavioral economics and game theory provide examples of how “anomalous” empirical results can open doors to the acceptance of richer theoretical approaches.

Race and the Housing Cycle: Differences in Home Equity Trends Among Long-Term Homeowners

Race and the Housing Cycle: Differences in Home Equity Trends Among Long-Term Homeowners
2016. Housing Policy Debate 26(3): 456-73.

Jacob Faber and Ingrid Gould Ellen
01/10/2016

During the past decade, housing markets across the United States experienced dramatic upheaval. Housing prices rose rapidly throughout much of the country from 2000 until the start of 2007 and then fell sharply during the next two years. Many households lost substantial amounts of their equity during this downturn; in aggregate, U.S. homeowners lost $7 trillion in equity from 2006 to 2009. Aggregate home equity holdings had fallen back to 2000 levels by early 2009. While this intense volatility has been well documented, there remain unanswered questions about the variation in experiences across racial groups, particularly among those who purchased their homes before the boom and kept them through the collapse of the market. Did this housing market upheaval widen the already large racial and ethnic gaps in housing wealth? Using the American Housing Survey, we analyze differences in the changes in home equity experienced by homeowners of different races and ethnicities between 2003 and 2009. We focus on homeowners who remained in their homes over this period and find that blacks and Hispanics gained less home equity than whites and were more likely to end the period underwater. Black-white gaps were driven in part by racial disparities in income and education and differences in types of homes purchased. Latino-white disparities were most dramatic during the market’s bust.

Credit is Not a Right

Credit is Not a Right
in Microfinance, Rights, and Global Justice (edited by Tom Sorell and Luis Cabrera). Cambridge University Press.

Gershman, John and Jonathan Morduch
08/01/2015

Muhammad Yunus, the microcredit pioneer, has proposed that access to credit should be a human right. We approach the question by drawing on fieldwork and empirical scholarship in political science and economics. Evidence shows that access to credit may be powerful for some people some of the time, but it is not powerful for everyone all of the time, and in some cases it can do damage. Yunus’s claim for the power of credit access has yet to be widely verified, and most rigorous studies find microcredit impacts that fall far short of the kinds of empirical assertions on which his proposal rests. We discuss ways that expanding the domain of rights can diminish the power of existing rights, and we argue for a right to non-discrimination in credit access, rather than a right to credit access itself.

 

Corporate Inversions and Economic Performance

Corporate Inversions and Economic Performance
National Tax Journal 68 (4), 1073-1097

Rao, Nirupama.
07/11/2015

This paper assesses the economic factors associated with corporate inversions, including the 48 inversions that have occurred since the analysis of Desai and Hines (2002). The analysis presented here is observational, not causal, as it examines how the business activities of firms that chose to invert changed after expatriation. In addition to statistically assessing the equity market’s reaction to inversion announcements, this paper examines how firms alter their patterns of employment and investment after inversion. In particular, the paper follows how the foreign shares of an inverting firm’s employment and investment change following inversion, relative to comparable non-inverting firms. The behavior of inverting firms following expatriation is assessed going back to 1980 as well as only after the 2004 policy change, which made expatriation through merger with a foreign firm with substantive foreign business activities more attractive. The results suggest that inverting firms have higher shares of the employees and capital expenditures located abroad after inversion relative to changes experienced by similar non-inverting firms. Further, these increases are not attributable to one-time changes due to the inclusion of a new foreign partner’s existing workforce and ongoing investments; foreign shares of employment and investment are higher two and more years after inversion relative to the first year just after inversion when any one-time increases would register.

Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays

Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays
March-April 2016. Journal of Money, Credit and Banking 48(2-3).

Sewin Chan, Andrew Haughwout, Andrew Hayashi and Wilbert van der Klaauw
06/01/2015

The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and HELOCs at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage non-recourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for both housing and non-housing debts. Our analysis highlights the interconnectedness of debt repayment decisions.

Do Homeowners Mark to Market? A Comparison of Self-reported and Market-based Home Value Estimates During the Housing Boom and Bust

Do Homeowners Mark to Market? A Comparison of Self-reported and Market-based Home Value Estimates During the Housing Boom and Bust
Real Estate Economics, forthcoming.

Sewin Chan, Sam Dastrup & Ingrid Gould Ellen
06/01/2015

This paper examines homeowners’ self-reported values in the American Housing Survey and the Health and Retirement Study from the start of the recent housing price run-ups through recent price declines. We compare zip code level market-based estimates of housing prices to those derived from homeowners’ self-reported values. We show that there are systematic differences which vary with market conditions and the amount of equity owners hold in their homes. When prices have fallen, homeowners systematically state that their homes are worth more than market estimates suggest, and homeowners with little or no equity in their homes state values above the market estimates to a greater degree. Over time, homeowners appear to adjust their assessments to be more in line with past market trends, but only slowly. Our results suggest that underwater borrowers are likely to understate their losses and either may not be aware that their mortgages are underwater or underestimate the degree to which they are.

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