Financial Inclusion and Financial Deepening – An Effective Tool Against Income Inequality?
As almost anyone who has walked into a bank to apply for a loan can confirm, the process of credit issuance is a complicated one. It often involves thorough background digging into one’s financial history, asset holdings, employment, and other factors that are considered indicators on the ability of the loan holder to pay back their obligation to the lender. From the banks’ point of view, this screening process is not entirely an exact science either, although the general consensus is that money attracts money - the fact that the rich have an easier time obtaining credit is well established and even backed up by literature in the field.
My Guy is Stronger than Yours
The western world political arena seems to have entered the age of extremes. The latest examples drawn from the current US electoral process indicate that this political divergence not only is limited to the rise in popularity of radical left and right wing parties, but has also spilled over within party lines. A new paper by Professor David Dorn (et al.), titled “Importing Political Polarization?” examines whether the increasing tendency of US voters to support politicians with legislation proposals on the extremes of the spectrum is being influenced by unfavorable international trade shocks. Through the polarization effect mechanism the paper finds that voters in districts most affected by adverse trade shocks, such as increased competition from countries with cheaper labour, do not change partisanship; instead they tend to vote for more extreme candidates within the same party.
The Tale of the Middleman
The publication of the Panama Papers clearly pointed out that even countries with consolidated legal protections against corruption have difficulty preventing corrupt transactions when intermediaries of a large size like Mossack Fonseca are involved. A recent paper by Elton Dusha, MIPP researcher and Professor of Economics at Universidad de Chile, builds an economic framework to capture intermediation, and models its impact on the prices of government issued licenses as well as policy measures to combat corruption. The findings suggest that for countries with high red tape costs, auditing government officials will in turn increase the need for intermediaries. Instead, measures to fight corruption should aim at increasing a country’s per capita income, combined with reduced red tape costs, which result in better overall long-term payoffs.
The Culprit Inside Our Living Rooms
How safe is Chile with regards to petty crime? A comparison between crime rates in the country and the people’s perception of crime reveals a stark contrast: in the past decade, crime rates in Chile have declined by 42%, while the general opinion on the topic of crime among Chileans and foreigners alike remains unchanged. In one recent study, 44% of the people interviewed feared they would be victimized in the following year, although 90% of them had never in the past been victims of a crime. Economists continue to look at different factors that might be fuelling this discrepancy, with one of them being the role of media reporting on crime related news. As the huge gap between individual beliefs about the frequency of crimes and the actual crime rates is not isolated to Chile, we turn our attention to a recent paper by Luigi Minale and Nicola Mastrorocco which provides empirical evidence on the influence that media crime reporting has on crime perceptions in Italy; and on the impact of information upon shaping people’s beliefs and their decision making.
A Choice that Matters
A key change introduced in Chile’s new education reforms is assigning the Ministry of Education the role of public coordinator, expecting it to act as an unbiased regulator when matching students with schools, based on revealed preferences by the parents. But as previous experience has shown, finding a fair, strategy proof student assignment model is not an easy task. In their 2003 paper, "School Choice: A Mechanism Design Approach", economists Tayfun Sönmez and Atila Abdulkadiroğlu give a thorough analysis of the problems inherent in previous school choice models and propose as a solution a Mechanism Design approach, based on the Nobel Prize winning Gale-Shapley student optimal stable mechanism.
Public-Private Partnerships: Not So Private After All?
As the debate over hospital concessions in Chile is still ongoing, recent economic research on Public Private Partnerships finds that this type of outsourcing to the private sector might not be as helpful for exhausted government budgets as conventional wisdom suggests. A recent paper co-authored by MIPP researcher and Professor of Economics, Ronald Fischer (Universidad de Chile), provides additional insight to the theoretical modelling of PPPs by analyzing the structure of the PPP contracts. In this paper, the authors design an optimal contract, in which it is assumed that the most cost-efficient way to finance PPPs is through the collection of user fees.
From Social Disorder to Civil Wars: The Far Reaching Effects of Segregation
Although a present-day legal platform that legitimizes segregation may no longer exist, different forms of segregation are currently observed in all corners of the world. In their 2015 Journal of Development Economics paper, "Segregation and conflict: An empirical analysis", Alejandro Corvalán and Miguel Vargas explore the effect of segregation on the escalation of conflict and provide an empirical analysis of the link between the two, by studying the different mechanisms that affect the motivation for conflict when group concentrations are prevalent.