Clive Bell

The Long-Run Economic Costs of AIDS: Theory and an Application to South Africa

Most existing estimates of the macroeconomic costs of AIDS, as measured by the reduction in the growth rate of gross domestic product, are modest. For Africa-the continent where the epidemic has hit the hardest-they range between 0.3 and 1.5 percent annually. The reason is that these estimates are based on an underlying assumption that the main effect of increased mortality is to relieve pressure on existing land and physical capital so that output per head is little affected. The authors argue that this emphasis is misplaced and that, with a more plausible view of how the economy functions over the long run, the economic costs of AIDS are almost certain to be much higher. Not only does AIDS destroy existing human capital, but by killing mostly young adults, it also weakens the mechanism through which knowledge and abilities are transmitted from one generation to the next. The children of AIDS victims will be left without one or both parents to love, raise, and educate them. The model yields the following results. In the absence of AIDS, the counterfactual benchmark, there is modest growth, with universal and complete education attained within three generations. But if nothing is done to combat the epidemic, a complete economic collapse will occur within three generations. With optimal spending on combating the disease, and if there is pooling, growth is maintained, albeit at a somewhat slower rate than in the benchmark case in the absence of AIDS. If pooling breaks down and is replaced by nuclear families, growth will be slower still. Indeed, if school attendance subsidies are not possible, growth will be distinctly sluggish. In all three cases, the additional fiscal burden of intervention will be large, which reinforces the gravity of the findings.

Credit markets and interlinked transactions

Publisher Summary This chapter presents a discussion on credit markets and interlinked transactions. The chapter discusses a general specification of a credit contract, which is then specialized to yield the three main models to have appeared in the literature. In so doing, most of the important themes and ideas are introduced. The chapter discusses some of the relevant evidence that establishes the empirical importance of interlinking. Following a discussion of the reasons for interlinking, the principal-agent and bargaining theoretic approaches are compared and contrasted in the context of resource allocation, innovation, and welfare. The exposition refers to rural life and its principal actors: farmers, laborers, landlords, tenants, moneylenders, and traders. Much of the analysis, however, can be applied readily to urban life, though the balance of emphasis between the problems of “hidden information” and “hidden actions” must then be shifted in favor of the former. Two themes identified above recur throughout this chapter and exert considerable influence over its analytical approach and emphasis. First, where information is concerned, there is the distinction between not knowing what sort of person one is dealing with, which may result in adverse selection, and not knowing what actions that person will take if a contract is sealed, which may result in moral hazard. Second, the problems of contractual enforcement and willful, or strategic, default by borrowers are given a prominent place in the analysis. A third theme stems from these departures from the framework of complete and competitive markets—namely, how the scope for strategic behavior is resolved in equilibrium. The principal-agent formulation appears in a number of guises throughout the chapter. Strategic default has had a prominent place in the analysis of this chapter.

Post-Independence India: A Case of Finance-Led Industrialization?

This paper examines whether financial intermediaries have played a leading role in influencing Indias economic performance. After describing the evolution and functions of the financial sector, we construct a set of vector autoregressive and vector error correction models to evaluate the strength and direction of the links between measures of formal intermediation and various economic aggregates. The results suggest that (i) the financial sector was instrumental not only in promoting aggregate investment and output, but also in the steady shift toward industry that has characterized Indias development; (ii) the operative channel was one of debt accumulation rather than improvements in total factor productivity; and (iii) its contributions went beyond the passive support of fiscal policy.

Fragmented duopoly: Theory and applications to backward agriculture

Abstract The central aim of this paper is to provide a formal description of the idea of ‘market fragmentation’, which is so widely used to describe markets in backward agriculture. We begin by describing a ‘fragmented duopoly’ in which each seller has a captive set of customers and there is a non-captive set who may buy from either seller. The Nash-Cournot equilibria of the system are analyzed; and then the model is generalized to allow for the endogenous determination of the captive sets. The subgame perfect equilibrium of the model provides a useful background for studying familiar topics like fragmentation, interlinkage and disguised unemployment from a new point of view.

Child Labor and the Education of a Society

We examine economic growth, inequality and education when the wellspring of growth is the formation of human capital through a combination of the quality of child-rearing and formal schooling. The existence of multiple steady states is established, including a poverty trap, wherein children work full-time and no human capital accumulation takes place, with continuous growth at an asymptotically steady rate as an alternative. We show that a society can escape from the poverty trap into a condition of continuous growth through a program of taxes and transfers. Temporary inequality is a necessary condition to escape in finite time, but long-run inequalities are avoidable provided sufficiently heavy, but temporary taxes can be imposed on the better-off. Programs aiming simply at high attendance rates in the present can be strongly non-optimal.

Rationing and Adjustment in the Market for Tenancies: The Behavior of Landowning Households in Thanjavur District

A large proportion of peasants cultivate only their own land, even when there are active markets for tenancies as well as labor. However, rationing of tenancies can occur under moral hazard or adverse selection. A model that includes as possible outcomes both rationing and full adjustment through trading is analyzed and estimated using data from South India. On this basis, households can be characterized as rationed or adjusted, and confidence intervals for these assignments can be calculated. While some households achieved full adjustment, a majority were rationed in the tenancy market, many of them completely.

Regional heterogeneity, migration, and shadow prices

Abstract This paper deals with some spatial influences on social scarcities: first, the existence of ‘regional’ goods, which usually implies differences in consumer prices; second, differences in preferences across locations; and third, a rigid wage in one region, which may result in ex post inequalities among migrants who were identical ex ante. It is shown that, in general, the shadow wage depends on regional differences in the cost of living and preferences, and that the effect of a shift from ex ante to ex post social welfare on the shadow wage is unclear. In this connection, the assumption that the marginal product of labor is (locally) constant proves to be much stronger than is commonly recognized.

Economic Growth, Education, and AIDS in Kenya: A Long-Run Analysis

The AIDS epidemic threatens Kenya with a long wave of premature adult mortality, and thus with an enduring setback to the formation of human capital and economic growth. To investigate this possibility, the authors develop a model with three overlapping generations, calibrate it to the demographic and economic series from 1950 until 1990, and then perform simulations for the period ending in 2050 under alternative assumptions about demographic developments, including the counterfactual in which there is no epidemic. Although AIDS does not bring about a catastrophic economic collapse, it does cause large economic costs-and many deaths. Programs that subsidize post-primary education and combat the epidemic are both socially profitable-the latter strikingly so, due to its indirect effects on the expected returns to education-and a combination of the two interventions profits from a modest long-run synergy effect.

The Economic Implications of Epidemics Old and New

The outbreak of Severe Acute Respiratory Syndrome (SARS) in the winter of 2002–03 raised the specter of a new, unknown and uncontrollable infectious disease that spreads quickly and is often fatal. Certain branches of economic activity, notably tourism, felt its impact almost at once, and investor expectations of a safe and controlled investment climate were brought into question. Part of the shock of SARS was the abrupt reversal of a mounting legacy of disease control that had altered societies’ expectations from coping with waves of epidemics of smallpox, cholera, and measles, among other diseases, to complacency with the virtual elimination of disease epidemics. This paper analyzes the economic implications of the Great Plague in the fourteenth century, the 1918–19 influenza epidemic, the HIV/AIDS curse and SARS to demonstrate the short- and long-term effects of different kinds of epidemics. The magnitude and nature of economic effects vary according to the duration and characteristics of the

The Macroeconomics of Targeting: The Case of an Enduring Epidemic

What is the right balance among policy interventions in order to ensure economic growth over the long run when an epidemic causes heavy mortality among young adults? We argue that, in general, policies to combat the disease and promote education must be concentrated, in certain ways, at first on some subgroups of society. This concentration involves what we term the macroeconomics of targeting. The central comparison is then between programs under which supported families enjoy the benefits of spending on health and education simultaneously (DT), and those under which the benefits in these two domains are sequenced (ST). When levels of human capital are uniformly low at the outbreak, DT is superior to ST if the mortality rate exceeds some threshold value. Outside aid makes DT more attractive; but DT restricts support to fewer families initially and so increases inequality. A summary account of the empirical evidence is followed by an application of the framework to South Africa.