Choices and Preferences at the Individual, Household, and Community Levels

Abstract

This dissertation consists of three essays that examine choices and preferences at the individual, household and community levels. The first chapter, "Labor Market Outcomes with Heterogeneous Preferences and Search Frictions: The Case of Chinese Migrant and Urban Workers", examines decision-making at the individual level. Neither Rosen's classical compensating differential model nor newly developed search models could explain the particular pattern of wage and job characteristics distributions in China, where migrant and urban workers coexist and dominate different sectors. In the theoretical part of this paper, I expand the model by Lang and Majumdar (2003) to show that wages need not be compensating when preferences are heterogeneous, and that the group more averse to undesirable working conditions need not earn less when reservation utilities differ and/or when employers practice taste-based discrimination. In the empirical part, I substantiate the assumption in my theoretical modeling that urban workers are more averse to undesirable working conditions using a discrete choice experiment, where 225 workers in China made hypothetical choices between jobs characterized by different wage levels and working conditions. I backed out preference parameters and willingness to accept measures for job attributes. I find that consistent with my assumption, urban workers need to be compensated more to accept outdoor jobs and jobs in second line cities. I also find that migrant workers have more dispersed preferences that vary with personal characteristics such as gender and education. The second chapter, "Where Did the Money and Time go? De-mystifying the Negative impact of Remittances on Human Capital Investment in the Kyrgyz Republic", examines how households’ allocation of financial and labor resources affects human capital formation in the Kyrgyz Republic. International migration and remittances from overseas may encourage human capital investment and improve educational outcomes in developing countries. Empirical studies, however, have shown mixed evidence. In our study, we focus on the case of Kyrgyz Republic, one of the largest remittances-receiving countries in Asia. I used a 5-year panel dataset that tracks the same 3,000 households and 8,000 individuals in the country to examine the impact of remittances on both household educational expenditure and attendance rate of school age children. I used instrumental variables and fixed-effects regressions to correct for potential selection bias. I find that remittances have a negative impact on human capital formation -- namely both educational expenditure and school attendance rate are lower for households that receive a higher amount of remittances. To explore the possible channels of the negative effects, I further regressed itemized household expenditures and the time use pattern of school-age children on remittances. I find that the negative effects can at least be partly attributed to increased expenditure on durable goods and increased hours of child labor on farm work as a compensation for adult labor insufficiency induced by out-migration. My finding calls for the monitoring of farm labor hours of school-age children. Moreover, implementation and scaling up of financial literacy programs that help parents balance short-term expenditures (durable goods) and long-term investments (education, health) can be beneficial. In addition, targeted investment to improve the quality of education services in the country may help increase perceived return to schooling and may therefore improve human capital investment. The final chapter, "Kinship, Social Preferences and Voting in Rural China: A Lab-in-the-Field Experiment", goes beyond individuals and households to examine communities and how social preferences and social network can affect collective decision-making. Economists have come to understand that human choices are not only driven by self-interest but also “social preferences” -- a person's concern over resources allocated to other people. Moreover, such preferences may be affected by the environment in which such choices are made, especially social networks and social pressure. I performed a lab-in-the-field experiment in rural China, where I recruited 162 Chinese farmers to vote in 7 variants of allocation games in randomly assigned groups and with real-world social contacts, with and without pressure. I find that social network and social pressure combined have significant yet heterogeneous effects on social preferences. The source of heterogeneity includes the assignment with in-group or out-group members, membership in dominant lineages, individual characteristics as defined by age and gender, and the degree of kinship between individuals within a social group. My study not only provides empirical evidence for the social preference theories but also urges policy makers to be careful in choosing an appropriate voting method. In addition, constraining the power of dominant lineage and having better educated villagers more involved in village affairs could be welfare improving.