The Appearance Of Moderation, Credit Market Discrimination, Literacy Traps, And A Note On Product Boycotts

Abstract

There has been a progression in the field of economics from modeling the individual as an atomistic entity, to one born with a social identity. This dissertation is a collection of four chapters that examine how the individual's social environment constrains choice and institutions can play a role in overcoming these constraints. To approach this line of economics topics are explored from ethnic conflict and cooperation, discrimination, literacy traps and the ambiguous effect of consumer activism. The first chapter models the individual's choice of culture as a way to modify her innate identity. Culture norms are shown to impact the level and stability of cooperation that is attainable in two otherwise uncooperative social groups. The chapter demonstrates that even when individuals are given a choice to shed unproductive characteristics the option may not be chosen. The implication is that individuals of one social identity may be trapped in a Pareto inferior equilibrium. It is shown that coordination from an outside party is may be necessary for social change. The model also demonstrates how the incentives of the various identities may conflict leading to social norms that discourage progressive change among individuals of various groups. The second chapter is an empirical test for taste based discrimination in small firm access to US credit markets. It uses the Federal Reserve Bank's Survey of Small Business Finances. One unique element of the chapter is that it explicitly controls for the possibility that loan officers statistically discriminate. Previous tests did not allow for statistical discrimination and thus suffered omitted various bias. Additionally this chapter explores the possibility of selection bias. Evidence of both types of discrimination are documented and when selection bias is controlled for, evidence of taste based discrimination increased. The third chapter, jointly written with Atal, V., Basu, K. and Lee, T. demonstrates the possibility for a community to get caught with a low level of literacy trap. Individuals in the community do not find it worthwhile to invest in skills because others in the community do not have skills. The model demonstrates the importance of institutions and policy that can solve the coordination problem in the individual's education strategy. The fourth chapter presents a model in which consumer activism impacts the price of using child labor. By incorporating social externalities, the impact of consumer activism on child labor becomes ambiguous.