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571. Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment

Author:
Dean Karlan and Jonathan Zinman
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Information asymmetries are important in theory but difficult to identify in practice. We estimate the presence and importance of adverse selection and moral hazard in a consumer credit market using a new field experiment methodology. We randomized 58,000 direct mail offers issued by a major South African lender along three dimensions: 1) an initial "offer interest rate" featured on a direct mail solicitation; 2) a "contract interest rate" that was revealed only after a borrower agreed to the initial offer rate; and 3) a dynamic repayment incentive that extended preferential pricing on future loans to borrowers who remained in good standing. These three randomizations, combined with complete knowledge of the Lender's information set, permit identification of specific types of private information problems. Our setup distinguishes adverse selection from moral hazard effects on repayment, and thereby generates unique evidence on the existence and magnitudes of specific credit market frictions. We find evidence of moral hazard and weaker evidence for adverse selection. A rough calibration suggests that perhaps 7% to 16% of default is due to asymmetric information problems. Asymmetric information may help explain the prevalence of credit constraints even in a market that specializes in financing high-risk borrowers at very high rates.
Topic:
Civil Society, Development, Markets, and Poverty
Political Geography:
South Africa

572. Discord in Pakistan's Northern Areas

Publication Date:
04-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
Almost six decades after Pakistan's independence, the constitutional status of the Federally Administered Northern Areas (Gilgit and Baltistan), once a part of the former princely state of Jammu and Kashmir and now under Pakistani control, remains undetermined, with political autonomy a distant dream. The region's inhabitants are embittered by Islamabad's unwillingness to devolve power to its elected representatives, and a nationalist movement, which seeks independence, is gaining ground. The rise of sectarian extremism is an alarming consequence of this denial of basic political rights. Taking advantage of the weaknesses in the imposed dispensation, religious organisations espousing a narrow sectarian agenda are fanning the fires of sectarian hatred in a region where Sunnis, Shias and Ismailis have peacefully coexisted for several centuries.
Topic:
Conflict Resolution, Civil Society, and Government
Political Geography:
Pakistan, Asia, and Kashmir

573. Pakistan: Karachi's Madrasas and Violent Extremism

Publication Date:
03-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
More than five years after President Pervez Musharraf declared his intention to crack down on violent sectarian and jihadi groups and to regulate the network of madrasas (religious schools) on which they depend, his government's reform program is in shambles. Banned sectarian and jihadi groups, supported by networks of mosques and madrasas, continue to operate openly in Pakistan's largest city, Karachi, and elsewhere. The international community needs to press President Musharraf to fulfil his commitments, in particular to enforce genuine controls on the madrasas and allow free and fair national elections in 2007. It should also shift the focus of its donor aid from helping the government's ineffectual efforts to reform the religious schools to improving the very weak public school sector.
Topic:
Civil Society, Government, and Religion
Political Geography:
Pakistan, Asia, and Karachi

574. Indonesia: How GAM Won in Aceh

Publication Date:
03-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
When local elections were held in Aceh on 11 December 2006, conventional wisdom (shared by Crisis Group) was that candidates from the Free Aceh Movement (Gerakan Aceh Merdeka, GAM) would not do well. They might pick up two or three of the nineteen district races, but the biggest prize – the provincial governorship – was almost certainly out of reach. The old Jakarta-linked parties would benefit from deep pockets, established structures and a split in the former insurgency's leadership. Polls just before formal campaigning began showed GAM's governor/deputy governor slate – Irwandi Yusuf and Muhammad Nazar – virtually out of contention. But GAM won overwhelmingly, in what an analyst called “a perfect storm between the fallout from the peace accord and the failure of political parties to understand the changing times”. The challenge now is to govern effectively and cleanly in the face of high expectations, possible old elite obstructionism and some GAM members' sense of entitlement that it is their turn for power and wealth.
Topic:
International Relations, Civil Society, and Politics
Political Geography:
Indonesia and Asia

575. Islam and Identity in Germany

Publication Date:
03-2007
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
The experience of Germany, with the largest Muslim population in Western Europe after France, shows that a significant Muslim population at the heart of Europe need not produce either violent Islamist groups or destabilising social unrest. Politicians now acknowledge it is a country of immigration, with a large and permanent Turkish and Muslim component. Citizenship is at last on offer, if still under difficult conditions. Neither political nor jihadi currents of Islamism have had much appeal for those of Turkish origin, three quarters of the Muslim population, and the handful of terrorist suspects that have been found have been either German converts or dual nationals of Arab origin. But there are issues that must still be addressed more effectively if the genuine integration that will ensure social peace and stability is to be created. While the political system has been preoccupied with finding, or creating, a single Islamic interlocutor for itself, more important are practical issues, especially education and jobs, which matter to the many still disadvantaged among the more than two million of Turkish origin and the hundreds of thousands of others of Muslim background.
Topic:
Civil Society, Demographics, and Religion
Political Geography:
Europe, France, Germany, and Western Europe

576. When Dictators Die

Author:
Mark Falcoff
Publication Date:
01-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The recent passing of Chilean dictator Augusto Pinochet and the events surrounding his last illness, death, and burial remind us that we are living through the last moments of a Latin American drama which began nearly a half-century ago with the Cuban Revolution. The only thing lacking to bring the curtain down once and for all is the disappearance of Fidel Castro, who began the whole business. Though no one knows precisely when that eventuality will occur, the Cuban strongman's unprecedented decision last July to transfer effective power to his younger brother Raúl and his failure to reappear publicly after abdominal surgery after nearly six months suggest it cannot be far off.
Topic:
International Relations, Civil Society, and Government
Political Geography:
South America, Cuba, and Latin America

577. The Truth about the Drug Ads

Author:
John E. Calfee
Publication Date:
03-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Looming on the horizon is a political battle over direct-to-consumer advertising (DTCA) of prescription drugs.The Prescription Drug User Fee Act (PDUFA) is up for renewal, as it has been every five years since 1997. First passed in 1992, PDUFA authorizes the Food and Drug Administration (FDA) to collect fees from pharmaceutical companies submitting new drugs for approval, as well as a separate annual fee for each prescription drug on the market. (Before PDUFA, taxpayers alone funded FDA product reviews.) Because user fees cover most salaries of FDA drug regulators, the pharmaceutical industry, Congressional leaders, and the FDA itself all support renewal. But this time around, Congress is expected to tack on provisions dealing with drug safety and other matters, especially DTCA.
Topic:
Civil Society, Economics, Government, and Markets

578. Iraq in Books, Part II

Author:
Michael Rubin
Publication Date:
03-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The following article is the second of two installments by Michael Rubin in AEI's On the Issues series. The two articles originally appeared as a review essay in the Spring 2007 edition of Middle Eastern Quarterly.
Topic:
Civil Society, Development, and Education
Political Geography:
Iraq and Middle East

579. Iraq in Books, Part I

Author:
Michael Rubin
Publication Date:
03-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The following article is the first of two installments by Michael Rubin in AEI's On the Issues series. The two articles originally appeared as a review essay in the Spring 2007 edition of Middle Eastern Quarterly.
Topic:
Civil Society, Development, and Education
Political Geography:
Iraq and Middle East

580. The Wrong Kind of Bipartisanship?

Author:
Frederick M. Hess
Publication Date:
01-2007
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The No Child Left Behind Act (NCLB) is due for reauthorization in 2007. In the nick of time, a bipartisan conventional wisdom has emerged that conveniently excuses the shortcomings of this awkwardly assembled law.
Topic:
Civil Society, Development, Education, and Politics