UC Berkeley

This dissertation examines how market failures in low-income countries contribute to low firm and worker productivity, and interact with psychological biases. Chapter I of this dissertation, joint with Luisa Cefala, Pedro Naso and Michel Ndayikeza, investigates the existence of a missing market for training in general human capital, and measures the distortions that arise from this market being missing. In low-income countries, contracts in labor markets are often short-term. Because of this, employers might underinvest in training workers in productivity enhancing general skills because the fact that there is weak labor market attachments mean they cannot guarantee that after training the worker they will capture returns from the training. We conduct two field experiments with agricultural employers in Burundi who can train casual laborers in improved, labor-intensive, agricultural techniques. In the first experiment, we offer employers in some local labor markets (villages) incentives to train workers and show that this generates sizable labor market spillovers. In the second experiment, we show that making it less likely that workers separate after training makes empoyers more likely to train.

Chapter II of this dissertation explores the implications of other missing markets on employers' decisions of who to hire in their business. The modal firm in low- and middle-income countries has no employees that are not family members. While this is often attributed to informational or contractual frictions, an alternate view is that pressure to offer financial assistance to extended family in the form of employment may distort employers' hiring decisions. In this chapter field experiments with employers in Zambia to test whether pressure impacts firm hiring and examine its productivity implications. A sample of urban firms are offered the chance to receive a 3-month subsidy for hiring a full-time permanent employee. A subset of firms is then randomized to receive plausible deniability in their hiring decision: receiving a poster that suggests the firm may not have been eligible for the subsidy if it hired a relative. This increases the probability of choosing to hire a non-related employee, rather than a related one. In the second experiment, I show that it is socially very costly for employers to hire a non-relative: when they have plausible deniability, the subsidy required to get a firm to choose a non-relative rather than a relative falls substantially. Finally, I show that in a common agricultural job where productivity is measurable - maize shelling - the same worker is more likely to shirk when working for a related employer. These findings suggest that social pressure to hire relatives may distort the composition of employment as well as productivity in developing countries.

Chapter III of this dissertation, joint with Ned Augenblick, Kelsey Jack, Supreet Kaur and Felix Masiye, investigates how limited recourse to credit markets and low savings in low-income savings interacts with psychological biases of savers. In this chapter, we propose that individuals may fail to recall and use information they already know when making decisions. We empirically investigate whether such ``retrieval failures'' distort consumption smoothing behavior among Zambian farmers, who derive their income from one annual harvest and then spend it down over the course of the year. We document that individuals underestimate upcoming spending. In order to improve recall, we randomize an intervention that prompts individuals to think through their future expenses associatively in categories---without providing any external information or guidance. Treated individuals increase ``remembered'' expenses, immediate spending drops and, two months after the intervention, treated households hold higher savings.