Ajit Mishra

HIERARCHIES, INCENTIVES AND COLLUSION IN A MODEL OF ENFORCEMENT

This paper considers a model of enforcement with corruptible enforcers in a principal-supervisor-agent framework. We look at how different reward and penalty schemes lead to different outcomes (agents compliance) by affecting the supervisors choice of effort and honesty. It is shown that the organizational structure of the agency also influences the effort-honesty choice of the supervisors. A vertical hierarchical structure (with. corrupt supervisors monitoring another corrupt supervisor) can be optimal in certain cases. Likewise, an arrangement where more than one supervisor monitor the agent, can also be optimal. The organizational issues assume importance when there are constraints on the size of rewards and penalties

On measuring vulnerability to poverty

There is a growing interest on dynamic and broader concepts of deprivation such as vulnerability, which takes in to account the destitution of individuals from future shocks. We use the framework of decision making under uncertainty to arrive at a new measure of vulnerability to poverty. We highlight the importance of current standard of living to better capture the notion of vulnerability. In conceptualizing the new class of measures of vulnerability, we thus move beyond the standard expected poverty measures that is commonly found in the literature. We also axiomatically characterize the new class of measure and discuss some of its properties.

Group Inequality and Conflict

This paper presents a theoretical model to show how distributional concerns can engender social conflict. We have a two period model, where the cost of conflict is endogenous in the sense that parties involved have full control over the level of conflict they can create. Our analysis highlights the crucial role of future inequality. It is shown equality of assets or income in the current period does not stop conflict from taking place if the anticipated future inequality is significant. Further we find that the impact of inequality on conflict is not straightforward. Since conflict is costly for both groups, societies with low levels of inequality show no conflict, groups engage in conflict only when inequality exceeds a certain threshold level. Additionally the model shows that the link between inequality and conflict may be non-monotonic.

Corruption and Informality

The paper considers several determinants of the size of the informal sector and explores the implications of corruption. It focuses attention on an issue that has not received much attention before, namely, the link between informality and corruption. We show that corruption affects both the size and composition of the informal sector in a significant manner. While small firms locate in the informal sector to avoid the fixed costs associated with the formal sector, we find that even larger firms might prefer informality because of their superior access to corruption. The paper shows that there is a U shaped relationship between a firm’s share of its sales in the informal sector and the scale of its operations. We also show that imperfections in the credit market and wealth inequality are likely to be associated with a larger informal sector. We use a large cross-country firm level survey data to provide supporting evidence. The results of our exercise have considerable policy implications that extend beyond the micro level framework of this study to the wider macro economy.

Group inequality and conflict; a simple model

This paper presents a theoretical model to show how distributional concerns can engender social conflict. We have a two period model, where the cost of conflict is endogenous in the sense that parties involved have full control over the level of conflict they can create. Our analysis highlights the crucial role of future inequality. It is shown equality of assets or income in the current period does not stop conflict from taking place if the anticipated future inequality is significant. Further we find that the impact of inequality on conflict is not straightforward. Since conflict is costly for both groups, societies with low levels of inequality show no conflict, groups engage in conflict only when inequality exceeds a certain threshold level. Additionally the model shows that the link between inequality and conflict may be non-monotonic.

Law enforcement and wrongful arrests with endogenously (in)competent officers

Economic intuition suggests that enforcement errors incentivize crimes, therefore officers must be penalized for committing such errors. Legal scholars argue that if penalties for errors are severe, officers may become timid while policing (thereby encouraging crime). We evaluate these arguments in a model where officers invest in competence. Competence increases the officers ability to identify criminals. Low sanctions for errors encourages bold policing by officers but may still raise the equilibrium level of crime because it also discourages investments in competence. Granting immunity to only competent officers (“qualified immunity”) reduces both errors and crimes when competence is observable. (JEL K4, K42, L5)