This monograph examines the – at times, seemingly irrational – decision-making behaviour of entrepreneurs in the East African agricultural market. It seeks to reconcile empirical observations made between 2011 and 2014 in the towns of Oyam and Kapchorwa, two communities with centuries of entirely separate agricultural history, with a larger decision-making framework. Drawing on decision sciences, development economics, and other literatures, various theoretical frameworks are explored to explain the domain-specific decision-making observed in Uganda. First, two largely rational, cost-focused decision-making scenarios are described, with the context and domain-specific boundaries of each described. Next, a third, economically sub-optimal decision-making scenario is described, with the factors distinguishing it from the first two explained. In other words, the agricultural entrepreneurs behave as econs1 (exhibiting the anticipated behaviour) in the first two instances, but exhibit System 1 thinking2 (demonstrating unexpected behaviour) in the final instance. A comprehensive discussion reconciles the seemingly-conflicting empirical observations by segregating them by context and arguing the two decision-making systems employed, while contradictory, can and do co-exist as domain-specific approaches.

This thesis contains three chapters that fall under the broad banner of development economics, with a particular focus on the study of mechanisms and strategies that improve public goods delivery. The first chapter studies the role of financial incentives as signals of job attributes when these are unknown to potential applicants. I create experimental variation in expected earnings and use it to estimate the effect of financial incentives on candidates’ perception of a newly created health worker position in Uganda and, through this, on the size and composition of the applicant pool. I find that more lucrative positions are perceived as entailing a lower positive externality for the community, and discourage agents with strong prosocial preferences from applying. While higher financial incentives attract more applicants and increase the probability of filling a vacancy, they hamper retention and performance. This is because the signal they convey reduces the ability to recruit the most socially motivated agents, who are found to stay longer on the job and to perform better. The second chapter analyzes the role of social connections on the targeting choices of delivery agents. During the expansion of an agriculture extension program in Uganda, we randomly selected one delivery agent out of two eligible candidates per community. We find that social connections matter: relative to farmers connected only to the non-selected candidate, those connected only to the selected delivery agent benefit more from the program. They are indeed more likely to receive advice, training and more likely to adopt improved seeds, a new beneficial technology. We show that these results are consistent with delivery agents (a) putting positive weight on the utility of farmers connected to them (altruism) and (b) putting a negative weight on the utility of farmers connected to the rival candidate (spite). This sheds light on the importance of both positive and negative social preferences in shaping program delivery. The third chapter studies the effect of movement restrictions on education. The evidence is based on the construction of the West Bank Separation Barrier in 2003. The exposure of an individual to the Barrier is determined both by her locality of residence and by whether she was in school or about to start school when the Barrier was built. Using a difference-indifferences approach, I find that movement restrictions increase the probability of dropping out from elementary and preparatory school by 3.7 and 6 percentage points respectively, i.e. a 50% increase relative to localities with no movement restrictions, while the proportion of children who have never attended school increased by 3.6 percentage points. Among all households, the poorest ones are the most affected, indicating that movement restrictions not only deteriorate the average education level but also increase income inequality.

I present a thesis in three chapters on the topics of Macroeconomics and Finance. In the first chapter, I study the ex ante effects of the fear of future financial crises. Crises are modelled through multiple equilibria driven by a self-fulfilling fall in asset prices. I study the effects of allowing agents to anticipate such an event. In a financial crisis, capital is pushed away from experts and towards less productive households, worsening the allocation of capital. Anticipation of this lowers asset prices, investment, and growth today, even if experts are currently well enough capitalised to survive a crisis. The possibility of future crises also creates a state-dependent“financial crisis accelerator” which can amplify business-cycle shocks. In the model, prudential policy can simultaneously increase growth and stabilise the economy, in contrast with common arguments that prudential policy should decrease growth. In the second chapter, I present evidence that countries which experienced greater declines in total factor productivity (TFP) during the Great Recession experienced milder contractions in hours worked. Thus I show that there is a tension between the crisis manifesting itself either as a problem with productivity or with labour markets. Additionally, countries with larger falls in real wages tend to be those with TFP, and not labour market, problems. Inspired by these facts, I build a model of sticky wages, and prove that wage adjustment determines the extent to which a financial crisis leads to declines in TFP or hours worked. Larger falls in real wages protect labour markets from reductions in hours. However, lower real wages reduce the incentive to reallocate resources across firms during the crisis, leading to larger declines in productivity. In the final chapter, I introduce financial frictions into the labour market matching model, and study interactions between the two frictions. I demonstrate a feedback between asset and labour markets which amplifies the model’s response to exogenous shocks. Shocks which increase equity holders’ net worth allow them to fund more vacancies, raising market tightness and lowering the ease with which firms can hire workers. This increases the value of being an existing firm, causing stock prices to appreciate. This increases experts’ net worth further, amplifying the initial shock in a mechanism akin to the traditional financial accelerator. I derive an arbitrage equation in my model similar to the standard free entry condition. I show that any matching model which possesses this arbitrage equation, including the standard matching model, is able to match 82% of the volatility in US market tightness if calibrated to match the volatility in asset prices.

The aim of this study is to assess the performance of the Algerian public industrial sector and identify the reasons for its inefficiency. The study is based on an empirical analysis of six public industrial enterprises: SONIC (pulp and paper), SNMC (construction materials), SNIC (light chemical), SONATRACH (hydrocarbons), SNS (iron and steel) and SONACOME (mechanical engineering). In this representative study of public industrial enterprises, 171 plants and complexes were investigated. In order to measure the efficiency of these public enterprises, input utilisation (raw materials, intermediate inputs, fixed capital and labour) is analysed. Given that Algeria is a capital-scarce econcny, emphasis is placed on fixed capital utilisation via the calculations of U1 (ratio of actual over planned output), U2 (ratio of planned over technical output) and U3 (ratio of actual over technical number of shifts or time utilisation of fixed capital). It was found that the average rate of fixed capital utilisation for the public enterprises studied was 72.81%, 76.64% and 71.27% as measured by U1, U2 and U3, respectively. With this information and according to evidence provided by the plant managers, it was concluded that the different inputs were inefficiently used in all the public enterprises studied and, by and large in the entire Algerian public industrial sector. Four causes of inefficient utilisation of inputs were identified: organisational factors, shortages of inputs, allocative inefficiencies and demand shortages. The potential for significant increases in industrial output and employment, therefore, exists. A cross country comparison among Turkey, Egypt and Algeria showed that several causes of inefficiency encountered in Algeria were also observed in the other, more experienced countries characterised by similar economic systems. From this study, some policy recommendations directly related to the problems encountered, emerged.

The present thesis is divided in three chapters. The first focuses on Education Economics. The second and the third on Household Finance. The following paragraphs describe the contents of each chapter in more detail. The first essay compares and contrasts aggregate and individual level analyses to investigate the relationship between economic fluctuations and tertiary education enrollments in Italy. It shows that aggregate enrollments follow a procyclical pattern. Consistently, it finds that Italian young individuals living with their parents implement a procyclical enrollment decision. The paper tries to reconcile the empirical evidence with theoretical predictions, and investigates a number of different channels. It proposes a rather novel, nevertheless theory consistent interpretation for the evidence found. The paper argues that Italian individuals living with their parents implement a procyclical behaviour because they can't access credit to finance their education. It supports this statement with consistent empirical evidence. The second essay studies whether labour income volatility crowds out investment in risky assets in Italian households. Justified by the literature on limited participation, the paper makes use of reduced form estimations to show that Italian households hedge their labour income risk on the risky assets market. It contributes by proposing a novel measure of labour income volatility, ground on the literature on labour income dynamics. On a methodological perspective, the paper adds to the literature by estimating reduced form models using a recent estimation technique, never implemented before in this branch of research. It shows that the new methodology overcomes some of the limitations of the techniques previously applied in the literature. The third essay, co-authored with Professors Sule Alan and Eric Smith, focuses on the subprime credit market in the United Kingdom. Making use of a unique database centered on a randomized trial experiment, the paper identifies the causal effect of an increase in the cost of credit on individual credit demand and default probability.

In this thesis, I examine the impact of energy price shocks in the United Kingdom using a New-Keynsian Dynamic Stochastic General Equilibrium (DSGE) model and a classic Real Business Cycle (RBC) model. The models are augmented with real rigidities and driven by exogenous shocks. Chapter 1 examines a DSGE model with New-Keynesian Philips Curve with three outputs of energy (petrol and utility), and non-energy output, using filtered data (1981:Q1-2014:Q4) of the UK. Chapter 2 examines a two-sector (RBC) model of energy intensive output and non-energy intensive output, using unfiltered data (1990:Q1-2014:Q4) of the UK. The models are econometrically estimated using indirect inference test that includes Monte Carlo simulation. I show how the study can be quantitatively applied by evaluating the effects of different shocks on output, relative prices and interest rate. I also show how energy price shocks affect output, asset prices and aggregate consumption in a classic RBC model. By decomposition, the changes in these variables caused by each of the structural shocks showed that a fall in output during the financial crisis period 2008:Q2 to 2009:Q4 was driven by energy price shocks and sector-specific productivity shocks. Conversely, in the DSGE model with NKPC, the changes in these variables caused by each of the structural shocks showed that a fall in output during the financial crisis period 2008:Q2 to 2009:Q4 was driven by domestic demand shocks (consumption preference, government spending and capital adjustment cost), oil prices shock and world demand shock. I found why the energy price shock reduces GDP in the models: In NKPC model with stationary shocks this is only a temporary terms of trade shock and so GDP only falls briefly, such that, the UK can borrow against such a temporary fall. In the RBC two-sector model, I found, it must be that the terms of trade rise permanently when world energy price increase as it is non-stationary and there is no other way to balance the current account than to reduce absorption due to lack of substitute for energy inputs. Finally, I found that the RBC two-sector model with non-stationary shocks performs better than NKPC model with stationary shocks. The performance can be credited to using unfiltered-data on the RBC model. This thesis show how estimated models can create additional input to the policymaker’s choice of models through the economic shocks’ effects of the macroeconomic variables.

This thesis represents largely the two sides to both theory and econometrics of dynamic macroeconomics, namely stationary and non-stationary models and data. The stationary part concludes with Chapter 3 and in Chapter 4, I look at the non-stationary side. More speci�cally, I preview the thesis in Chapter 1 highlighting the modelling and econometric approaches commonly found in the economics literature; also I report some key results. In Chapter 2, I provide a comprehensive, but certainly far from being exhaus- tive, review of the literature dating back to the publication of Stanley Jevon�s (1866) The Coal Question, but with the main discussion beginning with Harold Hotelling�s (1931) The Economics of Exhaustible Resources. I develop a two-sector open economy extension to the Kydland and Prescott (1982), Long and Plosser (1983) and Kim and Loungani (1992) models in Chapter 3 and estimate it on H-P �ltered annual U.S. data covering 64 years, with the main purpose of discovering how energy price along with other supply-side and demand-side shocks (imported and domestic) impacts on the U.S. economy. The model presented only contains the current account and I restrict trade to balance in every pe- riod. I �nd that model �ts the data for my benchmark variables of interest in the auxiliary model: output, real exchange rate, energy use, and consumption. When more variables and in particular sectoral variables are added, meanwhile, to the auxiliary model, I �nd that the model�s performance especially as it relates to this estimated model parameters did not �t. What I take from this is that the estimated structural parameters are not globally applicable within this economic environment. This model is then further extended by including the capital account in Chapter 4 before re-estimation, but now also on non-stationary data, which I suppose is more repre- sentative of reality. I focus on the �t of the model to output and the economy�s measure i of competitiveness: the real exchange rate. I �nd that the energy price and technology shocks have major e¤ects on the U.S. output and relative competitiveness. The mecha- nisms by which these e¤ects are transmitted are two-fold. First is via the terms of trade occurring as a resource drain on the economy as the U.S. would need to �nd extra resource to commit to the import of crude oil. The second is via household�s reduced investment activity. Both channels can be explained by the fact that the substitution away from oil is happening at too slow a pace because of low estimated elasticities parameters. This agrees with Hamilton who argued that oil shock works via demand contraction. I have in this thesis veri�ed his conjecture via a well-motivated and detailed microfounded dynamic stochastic general equilibrium (DSGE) model. Finally, I review the thesis speculating on possible future extensions in Chapter 5.

This dissertation sets out to introduce a new calibration procedure building on Jermann (1998) and the iterative shock identification scheme of Benk et al. (2005) in Chapter 1. It incorporates the use of Simulated Annealing, a global optimization algorithm, into the Jermann (1998) calibration methodology that is applied to search for the combination of structural parameters within a bounded parameter space that yields the lowest distance between a vector of US data moments and its simulated moments counterpart in the frequency domain. It also extends the methodology of Jermann (1998) with the identification scheme of Benk et al. (2005) to obtain convergent estimates for shock parameters. After illustrating the workings of this new calibration methodology on the two sector business cycle model of Dang et al. (2011) with endogenous growth and human capital in Chapter 2 this dissertation sets out in Chapter 3 to introduce an extended version of the model of Dang et al. (2011) and to explain a number of real business cycle (RBC) problems that include the Gali (1999) labor response, the basic consumption-output and labor-output relationship, and the lack of an internal propagation mechanism as pointed out by Cogley and Nason (1995) and Rotemberg and Woodford (1996). This extension follows the suggestions of King and Rebelo (2000) to incorporate an external labor margin through a human capital investment sector and a physical capital utilization margin in the form of physical capital utilization rate to improve the performance of the standard RBC model. In the model introduced in Chapter 3 the physical capital utilization rate is further amended by the introduction of entrepreneurial capacity as in Friedman (1976) and Lucas (1988). The added margin of physical capital utilization is intra-temporal in nature, which enables the new calibration scheme to improve on the ability of the model significantly to explain the underlying real business cycle problems and US data moments in the frequency domain. Lastly, in Chapter 4 a simple monetary extension of the model in Chapter 3 is presented. In this chapter it is shown that the added physical capital utilization in a monetary model combined with the proposed calibration scheme is successful in explaining the empirical negative long term relationship between in ation and output.

The thesis examines both pecuniary and non-pecuniary benefits to higher education in the UK and empirically tests the model of demand for higher education. The leading theme in this research is the interest in the microeconomic aspect of higher education at empirical level. It sets out to investigate the expectations of individuals in terms of what they can gain from education. It considers various aspects of higher education, including casual effect on pecuniary and non pecuniary returns and demand of higher education participation. This thesis is based on 1958 British National Child Development Survey in the UK. It is composed by three empirical chapters, each on corresponding to a self-contained paper, applying different methodologies and making a unique contribution of these overall objectives. The first empirical chapter focus on the returns to education justified by the importance accorded as an explanation of wage differentials. The second empirical chapter deals with the returns to higher education on health. The third empirical chapter explores the relationship between higher education decision and expected wage income and personal and family characteristics. The main powerful findings of this thesis are: First, the economic return of education rises with the greater disparity of the educational groups as age increases. Females attending higher education usually enjoy higher returns than males, and the gap constantly increases over the years. Second, attending higher education may be an effective way to improve population health and reduce the likelihood of health damaging behaviours. Third, the hypothesis that individuals’ higher education decision only depends on their expectation on future wage income is highly rejected.

The thesis investigates how firm entry and exit into industry influences macroeconomic productivity. The first contribution is to show that firm entry and exit dynamics cause endogenous productivity movements over the business cycle due to the slow response of incumbent firms to macroeconomic conditions. The second contribution is to show that these productivity effects persist into the long run because of firm dynamics’ effect on industry competition. Therefore the thesis argues that slow firm responses cause amplified productivity effects in the short run and that these effects can persist into the long run. A key distinction of the research is to develop an analytically tractable dynamic general equilibrium model. This provides a precise explanation of productivity movements, without using numerical simulation. A crucial feature of the modelling is that firm dynamics have a time-to-build lag, so entry and exit are noninstantaneous. This causes a short-run period during which shocks to the economy are borne by inert incumbent firms and this is responsible for amplified short-run productivity effects. However, over time firms are able to enter and exit which ameliorates the amplification effect. Thus this process alone does not explain persistent effects on productivity. In order to understand persistent effects, the thesis explains that one must consider the effect of entry and exit on the competitive pressure of incumbents. When this is taken into account it shows that firms change their pricing behaviour in response to entry and exit, and the result is that long-run pricing markups change which in turn affect long-run productivity. Chapter 1 demonstrates the empirical relevance of the relationship between productivity, firm entry and output in US data. Chapter 2 develops a structural model to explain shortrun movements in productivity and firm dynamics. Developing chapter 2, chapter 3 explains the long-run effect of firm dynamics on productivity through entry’s effect on competition.