Department of Economics

[No abstract]

We study the optimality of human groundwater extraction from many of the world's 3,400 aquifers, where institutional or market failures may produce non-optimal extraction decisions. We use remote sensing and economic data to estimate a dynamic model of water extraction for each aquifer, recover the discount factor that rationalizes observed groundwater extraction, and compare it against Ramsey and market benchmarks. Three- to four-fifths of aquifers are extracted more rapidly than is optimal, decreasing aquifer present value by several percent, and creating trillions of dollars in present value welfare losses. Policies that guarantee users constant water quantities indefinitely, through subsidies or prior appropriation, or policy rules that fully discount future extraction, generate larger welfare costs. A sustainable extraction path that maintains current fill forever generates meaningfully lower welfare than the optimal extraction path, because most aquifer stocks are already inefficiently low.

Abstract We present a theory of choice in which attention to the features of options is determined by the decision maker’s categorization of the current problem in a set of problems she solved in the past. Categorization depends on goal-relevant and contextual problem-level features. The model yields heterogeneity in attention and choice in a given problem based on different past experiences and instability when changes in irrelevant context cause recategorization. We show that heterogeneous and unstable representations of a choice problem unify major biases in judgment and decision making.

Abstract Accumulating evidence indicates that environmental temperature substantially affects economic outcomes and violence, but the reasons for this linkage are only partially understood. We study whether temperature directly influences behaviour by evaluating the effect of thermal stress on multiple dimensions of economic decision-making, judgement and destructive behaviour with 2,000 participants in Kenya and the United States who were randomly assigned to different temperatures in a laboratory. The main finding is that most major dimensions of economic decision-making are unaffected by temperature. We also find that heat significantly increases willingness to voluntarily destroy other participants’ assets in the Kenyan sample.

Abstract We study the consequences of “regime-induced” exchange rate depreciations by comparing outcomes for peggers versus floaters to the U.S. dollar in response to a dollar depreciation. Pegger currencies depreciate relative to floater currencies and these depreciations are strongly expansionary. The boom is associated with a fall in net exports, and (if anything) an increase in interest rates in the pegger countries. This suggests that expenditure switching and domestic monetary policy are not the main drivers of the boom. We show that a large class of existing models cannot match our estimated responses and develop a model with imperfect financial openness that can. Following a depreciation, uncovered interest parity deviations lower the costs of borrowing from abroad and stimulate the economy, as in the data. The model is consistent with (unconditional) exchange rate disconnect and the Mussa fact, even though exchange rates have large effects on the economy.

OBJECTIVES: Cohort studies of ageing and cognitive decline typically do not begin fielding comprehensive cognitive assessments until older adulthood. However, for identifying preventable dementia risk factors, there is strong value in beginning at earlier ages. The case is especially compelling in sub-Saharan Africa, where the number of older individuals is expected to triple in the next three decades, and where risk factors may operate more intensively at earlier ages. This study reports on the adaptation and validity of the Harmonised Cognitive Assessment Protocol (HCAP) approach in the Kenya Life Panel Survey (KLPS), collected among middle-aged respondents. DESIGN: To evaluate the validity of the HCAP approach in Kenya, this study assesses model fit statistics from confirmatory factor analyses (CFA) and tests measurement invariance by respondent characteristics. SETTING: Both rural and urban areas in Kenya. PARTICIPANTS: A sample of n=5878 individuals from the KLPS, who have been surveyed regularly since they were schoolchildren in the 1990s. The HCAP assessment was administered in 2023 at an average age of 37 years (10-90 range 34 to 41). PRIMARY AND SECONDARY OUTCOME MEASURES: For each individual, the CFA generates a general cognitive performance score, and cognitive performance scores for five distinct domains, including memory, executive functioning, language, orientation to time and place, and visuospatial functioning. RESULTS: Fit of the models to the data was adequate for general cognitive performance (root mean squared error of approximation (RMSEA)=0.03; comparative fit index (CFI)=0.94; standardised root mean residual (SRMR)=0.05), language (RMSEA=0.02; CFI=0.95; SRMR=0.05) and good for memory (RMSEA=0.05; CFI=0.99; SRMR=0.02) and executive functioning (RMSEA=0.03; CFI=0.98; SRMR=0.03). The CFA indicate that the factor structure is consistent with findings from other countries and that reliability for the general cognitive performance score was high. Statistical models also suggest invariance at the scalar level for leading demographic (gender, age) and socioeconomic (education, occupational complexity) characteristics. CONCLUSIONS: This study demonstrates that the cognitive functioning of mid-age Kenyans appears to be well captured by the adapted protocol. While there is a moderate decline in cognitive performance among older individuals, this relationship appears to be mediated by education, indicating that this KLPS HCAP provides a valuable baseline for studying future cognitive decline.

We describe a sequential mechanism that fully implements the set of efficient outcomes in environments with quasi-linear utilities. The mechanism asks agents to take turns in defining prices for each outcome, with a final player choosing an outcome for all: Price and Choose. The choice triggers a sequence of payments from each agent to the preceding agent. We present several extensions. First, payoff inequalities may be reduced by endogenizing the order of play. Second, our results extend to a model without quasi-linear utility, to a setting with an outside option, robustness to max-min behavior, and caps on prices. (JEL C72, D11, D44, D71, D82)

We present an experimental study of decentralized two‐sided matching markets with no transfers. Experimental participants are informed of everyone's preferences and can make arbitrary nonbinding match offers that get finalized when a period of market inactivity has elapsed. Several insights emerge. First, stable outcomes are prevalent. Second, while centralized clearinghouses commonly aim at implementing extremal stable matchings, our decentralized markets most frequently culminate in the median stable matching. Third, preferences' cardinal representations impact the stable partners with whom participants match. Last, the dynamics underlying our results exhibit strategic sophistication, with agents successfully avoiding cycles of blocking pairs.

Two-point time-series data, characterized by baseline and follow-up observations, are frequently encountered in health research. We study a novel two-point time-series structure without a control group, which is driven by an observational routine clinical dataset collected to monitor key risk markers of type-2 diabetes (T2D) and cardiovascular disease (CVD). We propose a resampling approach called "I-Rand" for independently sampling one of the two-time points for each individual and making inferences on the estimated causal effects based on matching methods. The proposed method is illustrated with data from a service-based dietary intervention to promote a low-carbohydrate diet (LCD), designed to impact risk of T2D and CVD. Baseline data contain a pre-intervention health record of study participants, and health data after LCD intervention are recorded at the follow-up visit, providing a two-point time-series pattern without a parallel control group. Using this approach we find that obesity is a significant risk factor of T2D and CVD, and an LCD approach can significantly mitigate the risks of T2D and CVD. We provide code that implements our method.

Sharing knowledge is a basic tenet of the scientific community, yet publication bias arising from the reluctance or inability to publish negative or null results remains a long-standing and deep-seated problem, albeit one that varies in severity between disciplines and study types. Recognizing that previous endeavors to address the issue have been fragmentary and largely unsuccessful, this Consensus View proposes concrete and concerted measures that major stakeholders can take to create and incentivize new pathways for publishing negative results. Funders, research institutions, publishers, learned societies, and the research community all have a role in making this an achievable norm that will buttress public trust in science.