Private Allocations Research Articles

Private and public liquidity provision in over‐the‐counter markets

We show that trade frictions in over‐the‐counter (OTC) markets result in inefficient private liquidity provision. We develop a dynamic model of market‐based financial intermediation with a two‐way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient due to a congestion externality operating through market liquidity in the OTC market. This inefficiency can lead to liquidity that is suboptimally low or high compared to the second best, providing a rationale for the regulation and public provision of liquidity. Moreover, our model characterizes a transmission channel of quantitative easing or tightening that operates through liquidity premia.

Is Democracy Detrimental for the Environment in Developing Countries? Evidence from Kenya

What was the impact of the democratization wave that hit Sub-Saharan Africa in the early 1990s on the distribution of economic resources? This paper focuses on closed canopy forests of Kenya. Anecdotal and case studies show that these forests have su ffered severe destruction since the early 1990s. In this paper, I bring new evidence to investigate whether the sudden introduction of multi-party elections in the Moi era raised political motives to allow district access to government forest land. Closed canopy forests in the forest reserves of Kenya are owned and managed by the central government. I create two novel data sets to understand this issue. First, using Landsat satellite imagery I create a panel data of forest cover. Second, to uncover the possible mechanisms, I assemble a detailed panel data of forest land allocations by the government. Satellite imagery reveals that deforestation increased after the introduction of multi-party politics. This has been driven by more deforestation in loyal districts and little in opposition districts. The government administrative data shows that after the introduction of political competition, forest land has been primarily transferred for private use (to individuals/communities) rather than for public use (e.g. building schools). Further, within the private allocations, it is land used for squatter settlements that have increased since the introduction of political competition. Lastly, I find a correlation that in swing districts that greater access to forest land leads to higher votes for the ruling party in the next election. The findings shed light on understanding how weak political institutions can lead to serious pathologies in resource allocation.

Private and Public Liquidity Provision in Over-the-Counter Markets

We show that trade frictions in OTC markets result in inefficient private liquidity provision. We develop a dynamic model of market-based financial intermediation with a two-way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient because investors and firms fail to internalize how their actions affect liquidity in secondary markets. This inefficiency can lead to liquidity that is suboptimally low or high compared to the second best. Our analysis provides a rationale for the regulation and public provision of liquidity and the effect of quantitative easing or tightening on capital markets and investment.

Consumption smoothing in island economies: Can public insurance reduce welfare?

In this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment. We show that this type of insurance can improve the wellbeing of private situations, but it can also deteriorate it. We also describe how different characteristics of the environment affect the role of public insurance. Using data on the Mexican PROGRESA program, we document the impact that some government programs have in crowding out private transfers.

Gender differences in distributive justice: The role of self-presentation revisited

Kidder, Bellettirie, and Cohn's [(1977) “Secret Ambitions and Public Performances: The Effects of Anonymity on Reward Allocations Made by Men and Women,” Journal of Experimental Social Psychology, Vol. 13, pp. 70–80] self-presentational account of gender differences in distributive justice was examined. Men and women attending two, primarily white, northeastern universities distributed a jointly earned reward between themselves and a hypothetical co-worker who was either a stranger or a friend and whose inferior task performance resulted from either low ability or low effort. Subjects made their allocations under both public and private conditions. Men allocated more equitably (i.e., according to co-worker input) in public than women did, whereas women allocated more equitably in private than men did, only when working with strangers who exerted low effort. In addition, among female subjects, private allocations to low-effort strangers were more equitable than public allocations. Among male subjects, however, public allocations to low-effort strangers were more equitable than private allocations. The conditions under which men make equitable allocations and women make equal allocations, and possible reasons for these differences, are discussed.

Public policy and health resource distribution

Despite federal health programs of the thirties, the Great Society programs and the establishment of health planning agencies in the sixties, health resources continue to accumulate in wealthier areas. According to a rational decision-making model public resources would be expected therefore to be directed toward those poorer areas with perceived needs. This paper explores the distribution of public and private health resources among towns of Connecticut. Using a rational decision-making model, the distribution of these resources is tested in a series of stepwise regression equations against the socioeconomic and health characteristics of the population. Private allocations of health resources (such as physician distribution) respond to socioeconomic factors while public resources do not show a clear pattern of overcoming the maldistribution effected by private actions. We find little evidence to support the hypothesis that Connecticut's town and state decision makers in health were following a rational model such as is the basis for health planning. Some other more complex model, such as a bureaucratic politics model, would explain better public policy decisions in health resource allocation.