Patrick Francois

China has sustained incredible double-digit economic growth over three decades. In Chapter 2, I investigate one common explanation for this: meritocratic promotion, where officials at the same level compete with each other on the basis of relative GDP growth, and the winners are rewarded with promotion up the administrative hierarchy. This tournament competition generates strong incentives for politicians to boost growth. However, studying prefecture leaders, I find no evidence of meritocracy. My null result is stable across different definitions of promotion, regression models, and measures of GDP growth. I rule out possible alternative explanations. Meritocracy is not being implemented separately for politically connected and unconnected leaders, or for leaders who are environmentally friendly. Moreover, the 2012 corruption crackdown has not effected a structural change in promotion criteria.In Chapter 3, I reanalyze the literature on meritocratic promotion. Replicating five papers, I find that the evidence for prefecture leaders is not robust to reasonable specification choices. I conclude that my null result is not contradicted by the literature. However, I do find some evidence of meritocracy for county leaders, and propose a model where county-level meritocracy can be an explanation for China’s economic growth, by incentivizing county leaders and selecting higher-level leaders based on ability to grow the economy.The co-authored Chapter 4 studies the role of tax collector discretion in preventing tax evasion in China. The motivating puzzle is that firms bunch above, rather than below, notches in the corporate tax schedule. We propose a model where tax collectors use an enforcement technology, discretion over prepayments, to prevent firms from evading. Tax collectors assign higher prepayment rates to suspected tax evaders, as a signal to deter evasion. In response, firms do not evade, and bunch above the notch. To corroborate this interpretation, we study a policy reform that removed tax collector discretion over prepayments. Following the reform, bunching above the notches decreased substantially. Without their enforcement technology, tax collectors were no longer able to prevent evasion.

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Civil wars are a recurring phenomenon undermining development in weak states. Faced with the possibility of costly conflict, why don’t leaders share power? I investigate the role of an unexplored commitment problem, both theoretically and empirically. The model features a leader who can appease challengers by sharing power, but doing so increases their effectiveness at launching a rebellion. I show that commitment worsens as the opposition becomes stronger, and derive testable non-monotonic implications of group strength and distributional shocks on power-sharing and conflict. As challengers become stronger, the likelihood of inclusion (positive transfers) increases up to a threshold, beyond which the leader prefers to exclude an opposing group and face conflict. I test the model using data on politically relevant ethnic groups in Africa and Asia, their access to executive power, and armed organizations claiming to represent them. To that end, I use three complementary strategies: (i) within-country variation in population share to proxy for group strength; (ii) quasi-randomly split groups across countries; and (iii) conflict-inducing distributional economic shocks within a country, by combining geo-referenced data on the ethnic homelands, cropland maps and international prices. The empirical findings strongly accord with predictions of the theory. I then structurally estimate the model parameters and explore policy relevant counterfactuals, including the effects of democratization, changes in military capacity, financial aid, sanctions and quotas.

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Poor child health outcomes and high fertility rates are viewed as major obstacles to development in most developing countries. Chapters 2 and 3 of my thesis investigate the determinants of these outcomes in the Indian context. The second chapter looks at the impact of political cycles on infant mortality in India. This study shows that children born 0-12 months before scheduled state assembly elections have 13.4% lower mortality risks as compared to children not born before scheduled elections and that the effect is higher for children born in more politically competitive regions. In addition, the chapter presents some evidence that mothers who gave birth before elections have more regular antenatal check-ups and at least one tetanus injection during their pregnancy. Children born before scheduled assembly elections are also less likely to suffer from low birth weight. My third chapter tests the effect of female employment on fertility in India. The results show that female employment in manufacturing has a negative impact on fertility once the endogeneity in female employment is accounted for. However female employment in agriculture and aggregate female labour force participation has no such effects. The fourth chapter is joint work with Dr. Viktoria Hnatkovska and Dr. Amartya Lahiri. This chapter examines the evolution of gender gaps in India between 1983 and 2010 in education, occupation choices and wages. The chapter shows that the gaps have shrunk quite sharply between men and women in education and choice of occupations and wages. The gaps have narrowed most sharply for the youngest cohorts in the workforce, suggesting that measured gaps will continue to decline over the next two decades.

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This thesis investigates the impact of social capital and institutions on economic development in China. Specifically, Chapters Two and Three address issues regarding social capital and cooperation, and Chapter Four studies the effect of a specific institution on economic status. In Chapter Two, I study whether social capital has an effect on household decisions to participate in Rotating Labor Associations (ROLAs) in rural China. I find that households in communities with higher levels of social capital are more likely to participate in ROLAs using household data collected from the Gansu province in China. The presence of village temple prior to 1949 is employed as an instrument for social capital. Numerous falsification exercises are performed to evaluate the efficacy of the instrumental variables approach. In Chapter Three (joint with Kathy Baylis and Yazhen Gong), we compare the effect of bridging versus bonding social capital on the management of a common pool resource. We develop a theoretical model and show that bonding social capital increases vulnerability to social sanction, while by giving communities an outside option, bridging social capital can reduce people’s vulnerability to social sanction, and reducing the enforcement capability of the community. However, bridging social might decrease people’s consumption by providing financial support to those who have few options to self-insure against risk. We then show that the empirical analysis using household level data on firewood collection from the Yunnan province in China supports the theoretical findings. In Chapter Four, I study the long-term impact of class identity (chengfen) on individuals’ income and households’ wealth in urban China. The Chinese government launched movements to make income and consumption in cities substantially homogeneous and assigned an inheritable class identity to each family in the 1950s. The government then implemented class-based discriminatory policies against the rich and middle class until 1978. This chapter shows that individuals with poor class origins have significantly lower income and family assets per capita than those from the rich class in 2002, however individuals with revolutionary background and Chinese Community Party (CCP) members from the poor class do not have lower income than those from the rich.

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Institutions are the key to economic development. While the community of developmenteconomists appear to have converged on this assessment, our understanding of thespecific role of institutions remains extremely limited. In particular, economists haveavoided the question of how government institutions interact with cultural factors thatvary around the world. The three papers in this thesis address this question with respectto ethnic identity and social norms.Chapters 2 and 3 focus on the role of ethnic diversity in determining the effectivenessof governance in Sub-Saharan Africa. The existing literature has demonstrated atenuous link between diversity and ineffective governance, but many questions remain.Chapter 2 demonstrates that ethnic diversity has a significant negative effect on theprovision of piped drinking water and electricity across a large sample of countries fromSub-Saharan Africa. In addition, it is demonstrated that the geographic scale of diversitymeasurement is critical to the analysis. Local diversity is negatively associated withan inherently local good, piped water, whereas regional diversity is negatively associatedwith a good provided regionally, electricity. This link between the scale of provision andthe measurement of diversity is a key finding that should inform future work on diversity.Chapter 3 extends this analysis to consider why ethnic diversity matters for the provisionof public goods. Including the two mechanisms suggested in the literature withina single model demonstrates that the key difference between them is the distribution ofhousehold access across ethnic groups. The empirical section of the chapter then providesevidence that ineffective governing institutions are the critical factor connectinglocal ethnic diversity to low levels of piped drinking water across Sub-Saharan Africa.Finally, chapter 4 focuses on the dynamic interaction between government institutionsand social norms of honesty. While government institutions can be effective inpromoting social capital development, there exists a social capital trap. For countrieswith social capital below this level, advances in government institutions will not improvethe social environment. Further, social divisions caused by ethnic heterogeneityor economic inequality may increase the minimum level of social capital necessary toescape this institutional trap.

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I develop three models that are designed to aid in the analysis of environments in which agents i) benefit from interacting with others, and ii) optimally choose their characteristics mindful of the fact that such choices will influence the quality of interaction that they can expect. Of central interest is the ways in which a concern for interaction affects the efficiency with which agents choose their characteristics. The first two models contrast with previous work in that each agents' relevant characteristics are both unobserved and endogenously determined. The first model provides an explanation for credentialism in the labour market, and demonstrates how a concern for interaction can lead to over-investment in the relevant characteristic. The second model is motivated by human capital development in the presence of peer effects, and demonstrates how a concern for interaction can exacerbate an inherent under-investment problem. The third model retains the feature of unobserved characteristics, and contrasts with previous work by embedding frictions in the process by which agents compete for partners. The model is set in a labour market and demonstrates that outcomes of interest (equilibrium matching patterns, income, inequality and welfare) are generally not monotonic in the level of frictions.

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The wireless telecommunications industry has seen extraordinary growth over the last decade and associated with the widespread adoption of wireless phone service are peculiar pricing schemes such as three-part tariffs and on-net/off-net pricing. This dissertation examines the interaction of consumer behavior and pricing schemes in the wireless telecommunications industry.Chapter 2 addresses in a theoretical model the interaction of consumers' consumption patterns over the billing cycle with the monopolist's provision of access. The service provider designs a menu of contracts to screen privately informed consumers who learn about their actual demand in a sequential manner over the billing period. The model shows that the distorted contracts in the profit-maximizing menu of tariff options are characterized by an increasing marginal price schedule. Three-part pricing schemes commonly observed in the wireless telecommunications industry consisting of a fixed monthly fee, an allowance of minutes and a positive marginal price for minutes consumed in excess of the allowance can be reconciled with rational consumer behavior if the consumer model accounts for the sequential consumption pattern over the billing cycle.Chapter 3 examines termination-based price discrimination, where the price a mobile customers pays for a call to a subscriber on another network (off-net) exceeds the price for a call to a subscriber on the same network (on-net). A standard Hotelling-type model of network competition is combined with closed user groups such as a family or a group of friends who are able to internalize tariff-mediated network externalities when choosing their network. The model results show that termination differentials can reduce social welfare and contradict the commonly held belief that the presence of closed user groups can mitigate networks' market power.The empirical analysis in Chapter 4 presents a structural consumer model of tariff choice and consumption in the presence of three-part tariffs. Econometric results based on individual consumer records suggest that consumers tend to exhibit significant tariff-specific preferences and that the pricing parameters of three-part tariffs have much larger effect on cellular plan choice than on the consumption of cellular calling minutes.

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The three essays of this thesis consider a firm’s choice of advertising campaign when advertising may be conditioned on the preferences of individual consumers. In essay one, I show that a monopolist will use such advertising to turn sub-marginal consumers, who are not quite willing to pay for the good, into marginal consumers who are indifferent to paying for the good or going without it. The second essay considers the use of targeted advertising in duopoly, when one of the firms does not have access to advertising. I find that advertising will target those consumers most likely to switch to the non-advertising firm. Each firm sets a price just high enough to capture the consumers on either side of the advertising 'barrier’. The third essay looks at targetedadvertising in the context of Canadian public health. When the goals of government and industry are aligned, advertising by the firm may be an alternative superior to government advertising in the form of a public health education campaign.

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