Monday, June 18, 2012

New NBER Working Papers on Development and Behavioural Economics

The Behavioralist Goes to School: Leveraging Behavioral Economics to Improve Educational Performance
Steven D. Levitt, John A. List, Susanne Neckermann, Sally Sadoff

NBER Working Paper No. 18165
Issued in June 2012
NBER Program(s):   ED   PE

A long line of research on behavioral economics has established the importance of factors that are typically absent from the standard economic framework: reference dependent preferences, hyperbolic preferences, and the value placed on non-financial rewards. To date, these insights have had little impact on the way the educational system operates. Through a series of field experiments involving thousands of primary and secondary school students, we demonstrate the power of behavioral economics to influence educational performance. Several insights emerge. First, we find that incentives framed as losses have more robust effects than comparable incentives framed as gains. Second, we find that non-financial incentives are considerably more cost-effective than financial incentives for younger students, but were not effective with older students. Finally, and perhaps most importantly, consistent with hyperbolic discounting, all motivating power of the incentives vanishes when rewards are handed out with a delay. Since the rewards to educational investment virtually always come with a delay, our results suggest that the current set of incentives may lead to underinvestment. For policymakers, our findings imply that in the absence of immediate incentives, many students put forth low effort on standardized tests, which may create biases in measures of student ability, teacher value added, school quality, and achievement gaps.

The European Origins of Economic Development
William Easterly, Ross Levine

NBER Working Paper No. 18162
Issued in June 2012
NBER Program(s):   EFG   POL

A large literature suggests that European settlement outside of Europe shaped institutional, educational, technological, cultural, and economic outcomes. This literature has had a serious gap: no direct measure of colonial European settlement. In this paper, we (1) construct a new database on the European share of the population during the early stages of colonization and (2) examine its impact on the level of economic development today. We find a remarkably strong impact of colonial European settlement on development. According to one illustrative exercise, 47 percent of average global development levels today are attributable to Europeans. One of our most surprising findings is the positive effect of even a small minority European population during the colonial period on per capita income today, contradicting traditional and recent views. There is some evidence for an institutional channel, but our findings are most consistent with human capital playing a central role in the way that colonial European settlement affects development today.


Ulrich Morawetz said...

thank you for the link to the Easterly and Levine. Unfortunately, though, I have no access to the paper. But from reading the abstract I have a question: he places where Europeans settled, were mostly the particularly pleasant places. Wouldn't it be natural that the economic development happens just there, independent from the Europeans?
Probably this is issue is addressed in the paper, but how did they disentangle?

Mark McG said...

Hi Ulrich,

Here is an ungated version.

To address the endogeneity issue you raise, the authors use the following instruments (which you may or may not believe).


"(1) pre-colonial population density, (2) latitude, and (3) the disease environment facing Europeans... To this list of common determinants of European settlement, we add one very important new variable: indigenous mortality from European diseases."

Ulrich Morawetz said...

Hello Mark,

thank you for providing the link to the ungated version and in particular for quoting where Easterly and Levine explain how they address the eindogeneity.

Their IVs will certainly make it in my list for IV examples.

Best regards, Ulrich