César Martinelli

Small firms, borrowing constraints, and reputation

This paper presents a simple model relating firm age with firm size and access to credit markets. Lending to new firms is risky because lenders have had no time to accumulate observations about them. As a result, interest rates are high and loans are small for entering firms. As firms need credit to operate, credit markets impose a limit on the scale of operation of new firms. Reputation building by the firms allows markets to overcome these difficulties over time. Large firms face lower interest rates than small firms, and credit markets fluctuations are shown to have different effects on firms of different size.

Sequencing of Economic Reforms in the Presence of Political Constraints

This paper presents a model portraying a country in a political deadlock about economic reform proposals in which certain measures hurt strongly-organized interests. We show that when governments are unable to precommit and interest groups have veto power, only far-reaching reforms (even if quite costly) have hope of success. The model intends to explain why in recent years several Latin American countries have opted for radical reform.

Deception and Misreporting in a Social Program

We investigate empirically the extent of misreporting in a poverty-alleviation program in which self-reported information, followed by a household visit, is used to determine eligibility. Underreporting may be due to a deception motive, and overreporting to an embarrassment motive. We find that underreporting of goods and desirable home characteristics is widespread, and that overreporting is common with respect to goods linked to social status. Larger program benefits encourage underreporting and discourage overreporting. The effect of benefits on underreporting is significant under a variety of specifications. We also investigate the effects of education and gender on misreporting.

RATIONAL IGNORANCE AND VOTING BEHAVIOR

We model a two-alternative election in which voters may acquire information about which is the best alternative for all voters. Voters differ in their cost of acquiring information. We show that as the number of voters increases, the fraction of voters who acquire information declines to zero. However, if the support of the cost distribution is not bounded away from zero, there is an equilibrium with some information acquisition for arbitrarily large electorates. This equilibrium dominates in terms of welfare any equilibrium without information acquisition – even though generally there is too little information acquisition with respect to an optimal strategy profile.

Simple Plurality versus Plurality Runoff with Privately Informed Voters

Abstract. This paper compares two voting methods commonly used in presidential elections: simple plurality voting and plurality runoff. In a situation in which a group of voters have common interests but do not agree on which candidate to support due to private information, information aggregation requires them to split their support between their favorite candidates. However, if a group of voters split their support, they increase the probability that the winner of the election is not one of their favorite candidates. In a model with three candidates, due to this tension between information aggregation and the need for coordination, plurality runoff leads to higher expected utility for the majority than simple plurality voting if the information held by voters about the candidates is not very accurate.

Do School Subsidies Promote Human Capital Investment among the Poor

We investigate the hypothesis that conditioning transfers to poor families on school attendance leads to a reallocation of household resources which enhances the human capital of the next generation, via the effect of the conditionality on the shadow price of human capital and (possibly) via the effect of the transfers on household bargaining. We introduce a model to study the effects of conditional transfers on intra-household allocations, and provide suggestive evidence of the importance of price effects using data from a conditional transfer program in Mexico.

Anonymity in large societies

In a social choice model with an infinite number of agents, there may occur “equal size” coalitions that a preference aggregation rule should treat in the same manner. We introduce an axiom of equal treatment with respect to a measure of coalition size and explore its interaction with common axioms of social choice. We show that, provided the measure space is sufficiently rich in coalitions of the same measure, the new axiom is the natural extension of the concept of anonymity, and in particular plays a similar role in the characterization of preference aggregation rules.

Electoral Accountability and Responsive Democracy

We consider a canonical two-period model of elections with adverse selection (hidden preferences) and moral hazard (hidden actions), in which neither voters nor politicians can commit to future choices. We prove existence of electoral equilibria, and we show that office holders mix between “taking it easy†and “going for broke†in the first period. Even in the presence of a finite horizon, we establish that increasing office motivation leads to arbitrarily high expected policy outcomes. We conclude that the mechanism of electoral accountability has the potential to achieve responsiveness of democratic politics when electoral incentives are sufficiently large.

A Representation Theorem for General Revealed Preference

We provide a representation theorem for revealed preference of an agent whose consumption set is contained in a general topological space (separable Hausdorff space). We use this result to construct a revealed preference test that applies to choice over infinite consumption streams and probability distribution spaces, among other cases of interest in economics. In particular, we construct a revealed preference test for best-responding behavior in strategic games.

Political Economics of Broadcast Media

We offer a tractable model of broadcast media as a three-sided platform, serving entertainment and news to viewers, commercial opportunities to advertisers, and electoral influence to politicians. We characterize the profit maximization decision of a media firm, and study the effect on social welfare of changes in the value of electoral influence, via induced changes in commercial advertising, the entertainment value of media, and political distortions.