The Production Engel (Job Market Paper)

Poorer households devote a larger percentage of their incomes towards staple food consumption, a fact known as Engel’s Law. This paper uncovers a new Engel curve, showing that Engel’s Law also holds for production. Global living standards data show that staple food production is non-homothetic in developing economies: poorer households devote a larger percentage of their land towards producing staple foods. I explain this pattern through non-separability between consumption preferences and production outcomes caused by wedges between the buying and selling prices for food. Microdata from Vietnam show that regions for which these wedges are larger also have more non-homothetic “production Engel” curves. I structurally estimate a model in which consumption preferences directly impact production choices to quantify the effects of the production Engel. Price wedges reduce agricultural productivity by 5.15% and total welfare by 4.14%. However, demand-side policies, such as consumption subsidies for the poor, can help mitigate these losses.

This paper studies how risk-aversion and imperfect insurance markets impact the effects of land redistribution policies. Agriculture is inherently risky, yet farmers in developing countries often lack access to formal insurance mechanisms; this is especially true for those who are land-poor. In order to study the impacts of land redistribution under risk and uncertainty, I develop a quantitative portfolio choice model which highlights how land redistribution alters production decisions for rural farmers with heterogeneous levels of access to insurance. Using detailed district-level cropping data and household-level consumption expenditure surveys from India, I structurally estimate the model and find that land-poor households make less-risky crop choices, with lower returns, but that increasing access to insurance mechanisms increases the likelihood of poorer households opting into higher-return portfolios. These results suggest that any negative effects of land redistribution on agricultural output can be mitigated by increasing access to insurance mechanisms.

Competition in Microcredit Markets

This paper provides an empirical test to pre-existing theories which argue that competition in microcredit markets crowds out poorer borrowers. I exploit exogenous variation in the market entry of a large for-profit microfinance institution from a pre-existing randomized experiment to analyze the differential impacts of competition for poor and rich households (proxied by housing quality). Preliminary empirical evidence suggests that competition causes poorer households to be crowded out of formal credit markets and turn to informal sources as a way of smoothing consumption. Total consumption expenditure and business profits fall for poorer households and these households turn to selling business assets as a result. However, there is no adverse impact on female empowerment for poorer households hurt by microfinance competition.