Nonlinear Pricing in Village Economies
with E. Pastorino (February 2020, Econometrica)
Abstract: This paper examines the prices of basic staples in rural Mexico. We document that nonlinear pricing in the form of quantity discounts is common, that quantity discounts are sizable for basic staples, and that the well-known conditional cash transfer program Progresa has significantly increased quantity discounts, although the program, as documented in previous studies, has not affected unit prices on average. To account for these patterns, we propose a model of price discrimination that nests those of Maskin and Riley (1984) and Jullien (2000), in which consumers differ in their tastes and, because of subsistence constraints, in their ability to pay for a good. We show that under mild conditions, a model in which consumers face heterogeneous subsistence or budget constraints is equivalent to one in which consumers have access to heterogeneous outside options. We rely on known results to characterize the equilibrium price schedule, which is nonlinear in quantity. We analyze the effect of nonlinear pricing on market participation as well as the impact of a market-wide transfer, analogous to the Progresa one, when consumers are differentially constrained. We show that the model is structurally identified from data on prices and quantities from a single market under common assumptions. We estimate the model using data on three commonly consumed commodities from municipalities and localities in Mexico. Interestingly, we find that relative to linear pricing, nonlinear pricing is beneficial to a large number of households, including those consuming small quantities, mostly because of the higher degree of market participation that nonlinear pricing induces. We also show that the Progresa transfer has affected the slopes of the price schedules of the three commodities we study, which have become steeper as consistent with our model, leading to an increase in the intensity of price discrimination. Finally, we find that a reduced form of our model, in which the size of quantity discounts depends on the hazard rate of the distribution of quantities purchased in a village, accounts for the shift in price schedules induced by the program.
Holy Cows or Cash Cows? The Economic Return to Livestock in Rural India
with B. Augsburg (January 2018, Economic Development and Cultural Change)
Abstract: This paper revisits recent claims that poor households owning cattle in developing countries settings do not behave according to the tenets of capitalism. We point out that the discussion was based on evidence from one single year only, while cows and buffalos are assets whose return varies through time. In drought years, when fodder is scarce and more expensive, milk production is lower and profits are low. In nondrought years, when fodder is abundant and cheaper, milk production is higher and profits can be considerably higher. Therefore, the return on cows and buffalos, like that of many stocks traded on Wall Street, is positive in some years and negative in others. The fact that in a given year the observed return on a risky asset is negative could certainly not be used as a contradiction of one of the basic tenets of capitalism. We report evidence from 3 years of data on the return on cows and buffalos in the district of Anantapur and show that in one of the 3 years returns are very high, while in drought years they are predominantly negative.
Frank Ramsey’s A Mathematical Theory of Saving
(March 2015, The Economic Journal)
Abstract: In 1928, Frank Ramsey, a British mathematician and philosopher, at the time aged only 25, published an article (Ramsey, 1928) whose content was utterly innovative and sowed the seeds of many subsequent developments. Beside the theory of optimal growth, as developed in Cass (1965) and Koopmans (1965), one could argue that the essence of several subsequent influential theories, such as the permanent income/life cycle theory of consumption to model individual saving choices, were already contained in that seminal article. In this note, I first summarise the content of Ramsey’s paper and then relate it to subsequent developments in economics. Before starting, however, I cannot help mentioning the modernity and originality one perceives in Ramsey’s writings when going through the original texts. His papers and contributions are astonishingly ahead of their time. This is true for his article on optimal taxation, (Ramsey, 1927), which is reviewed elsewhere in this issue and for his article on ‘Truth and probability’ (Ramsey, 1926), in which he discusses choices under uncertainty decades ahead of Von Neumann and Morgenstern (1944) and even proposes an experimental way to disentangle preferences and probability assessments from choices. In this note, I discuss how the article on saving and optimal growth anticipated several branches of the literature that followed in subsequent decades. The treatment of individual consumption and saving choices, for instance, is a very modern one. Interestingly, Ramsey’s article refers explicitly to conversations with John Maynard Keynes, who was Ramsey’s colleague at Cambridge and the Economic Journal‘s editor, in formulating part of the main proposition. And yet, in his General Theory, Keynes (1936) used a much more simplistic and stylised theory of consumption, which had profound implications for the working of his model of the macroeconomy.
Admixture in Latin America: Geographic Structure, Phenotypic Diversity and Self-Perception of Ancestry Based on 7,342 Individuals
with A. Ruiz-Linares, K. Adhikari, V. Acuña-Alonzo, M. Quinto-Sanchez, C. Jaramillo, W. Arias, M. Fuentes, M. Pizarro, P. Everardo, F. de Avila, J. Gómez-Valdés, P. León-Mimila, T. Hunemeier, V. Ramallo, C.C. Silva de Cerqueira, M. Burley, E. Konca, M. Zagonel de Oliveira, M.R. Veronez, M. Rubio-Codina, S. Gibbon, N. Ray, C. Gallo, G. Poletti, J. Rosique, L. Schuler-Faccini, F. M. Salzano, M. Bortolini, S. Canizales-Quinteros, F. Rothhammer, G. Bedoya, D. Balding, and R. Gonzalez-José (September 2014, PLOS Genetics)
Abstract: The current genetic makeup of Latin America has been shaped by a history of extensive admixture between Africans, Europeans and Native Americans, a process taking place within the context of extensive geographic and social stratification. We estimated individual ancestry proportions in a sample of 7,342 subjects ascertained in five countries (Brazil, Chile, Colombia, México and Perú). These individuals were also characterized for a range of physical appearance traits and for self-perception of ancestry. The geographic distribution of admixture proportions in this sample reveals extensive population structure, illustrating the continuing impact of demographic history on the genetic diversity of Latin America. Significant ancestry effects were detected for most phenotypes studied. However, ancestry generally explains only a modest proportion of total phenotypic variation. Genetically estimated and self-perceived ancestry correlate significantly, but certain physical attributes have a strong impact on self-perception and bias self-perception of ancestry relative to genetically estimated ancestry.