ec aa t : l e ...€¦ · ecaa t : l ei debraj ray, university of warwick, summer slides:...

EC�AA T�� : L�� E�� I��

Debraj Ray, University of Warwick, Summer ��

Slides �: Introduction

Slides �: Personal Inequality: Occupational Choice

Slides �: Functional Inequality: The Falling Labor Share

Slides �: Inequality and Conflict

Slides �s: Supplement: More on Cross-Group Violence

Postscript [if there is time]: Publishing without Perishing

T�� A�� I��

The Grabbing and Opportunity Cost E�ects Dube-Vargas ��, Mitra-Ray ��

An increase in rival income increases violence directed against rival group.

An increase in own income reduces violence directed against rival group.

Motive Versus Means Esteban-Ray ��, ��, Huber-Mayoral ��

The class marker is a two-edged sword:

it breeds resentment, but harder for the poor to revolt

Within- vs Cross-Group ethnic division) perverse synergy of money and labor

A� I��: H��-M�� V��

Recurrent episodes of violence

Partition era of the ��s, and earlier

Continuing through the second half of the twentieth century.

Indian history, and the relative size of Hindu population, suggest:

Religion is a highly salient cleavage

Hindu groups generally dominant in propagating conflict

Does economics (or income comparisons) have anything to do with this?

S�� E�� L��

Thakore (��) on Bombay riots [land]

Das (��) on Calcutta riots [land]

Rajgopal (��), Khan (��) on Bhiwandi and Meerut riots [textiles]

Engineer (��), Khan (��) on Jabbalpur, Kanpur, Moradabad

[bidis, brassware]

Upadhyaya (��) on Varanasi riots [sari dealers]

Wilkinson (��) on Varanasi [wholesale silk]

Field et al (��) on Ahmedabad [housing]

Hindu-Muslim income ratios (NSS exp data):

State Exp.�� -� ��-�

H/M Min Max H/M Min Max H/M Min MaxAP �.�� .�� .�� .�� .�� .�� .�� .�� .��

Bihar �.�� .�� .�� .�� .�� .�� .�� .�� .��Gujarat �.�� .�� .�� .�� .�� .�� .�� .�� .��Haryana �.� �.�� .�� .�� .�� .�� .�� .�� .��

Karnataka �.�� .�� .�� .�� .�� .�� .�� .�� .��Kerala �.�� .�� .�� .�� .�� .�� .�� .�� .��

MP �.�� .�� .�� .�� .�� .�� .�� .�� .��Maharashtra �.�� .�� .�� .�� .�� .�� .�� .�� .��

Orissa �.�� .�� .�� .�� .�� .�� .�� .�� .��Punjab �.�� .�� .�� .�� .�� .�� .�� .�� .��

Rajasthan �.�� .�� .�� .�� .�� .�� .�� .�� .��Tamil Nadu �.�� .�� .�� .�� .�� .�� .�� .�� .��

UP �.�� .�� .�� .�� .�� .�� .�� .�� .��West Bengal �.�� .�� .�� .�� .�� .�� .�� .�� .��

S�� E�� L��

Bombay riots [land] (Thakore ��)

Calcutta riots [land] (Das ��)

Bhiwandi and Meerut riots [textiles] (Rajgopal ��, Khan ��)

Jabbalpur, Kanpur, Moradabad riots [bidis, brassware] (Engineer ��, Khan ��)

Varanasi riots [sari dealers] (Upadhyaya ��)

Varanasi riots [wholesale silk] (Wilkinson ��)

Ahmedabad [housing] (Field et al ��)

Example: Engineer (��) on Meerut riots:

“If [religious zeal] is coupled with economic prosperity, as has happened in Meerut,

it has a multiplying e�ect on the Hindu psyche. The ferocity with which business

establishments have been destroyed in Meerut bears testimony to this

observation. Entire rows of shops belonging to Muslims . . .were reduced to ashes.”

And yet. . .

Wilkinson (��):

“Despite the disparate impact of riots on Hindus and Muslims, however, little hard

evidence suggests that Hindu merchants and financial interests are fomenting

anti-Muslim riots for economic gain. . . ”

Horowitz (��, p. ��):

“The role that commercial competition is said to play is said to be a covert,

behind-the-scenes role, which makes proof or disproof very di�cult.”

D��

Conflict data. Varshney-Wilkinson (TOI ��-��)

our extension (TOI ��-��).

extension by Iyer et al (TOI ��-��)

Income data. NSS consumer expenditure data.

Rounds �� (��), �� (��-�), �� (��-��), �� (��-��), �� (��-��).

Controls:

Various sources, in particular Reports of the Election Commission of India.

Five-period panel at the regional level; �� regions.

Poisson, negative binomial, OLS.

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9 10 11 12log Muslim expenditure

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9 10 11 12log Hindu expenditure

log

Cas

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Casualties, �-Year Average Starting Just A�er

[Poiss] [Poiss] [NegBin] [NegBin] [OLS] [OLS]

H Exp ⇤⇤⇤-�.�� ⇤⇤⇤-�.�� ⇤⇤-�.�� -�.�� ⇤⇤-�.�� ⇤-�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

M Exp ⇤⇤⇤�.�� ⇤⇤⇤�.�� ⇤⇤�.�� ⇤⇤�.�� ⇤⇤⇤�.�� ⇤⇤⇤ �.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Pop �.�� .�� .�� .�� -�.�� -�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

RelPol ⇤�.�� ⇤�.�� .�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Gini H -�.�� .�� -��.��(�.��) (�.��) (�.��)

Gini M �.�� -�.�� -��.��(�.��) (�.��) (�.��)

Lit, Urb Y Y Y Y Y Y

Muslim exp " ��) Cas " �–��.Hindu exp " ��) Cas # -�– -��.

V��

Other measures of conflict (number of riots, killed)

Three-period, five-period panel

Urban alone, Ahmedabad included or excluded, BJP seatshare

The use of Hindu-Muslim expenditure ratios.

Examination of the lag structure.

Political controls

Endogeneity (instrument H-M exp ratio by national returns to occupations)

Ruling out other interpretations; e.g., funding.

Di�erent regression specifications

O�� M�� C��

Killed and Riot Outbreaks, �-Year Average Starting Just A�er

[Poiss] [NegBin] [OLS]Kill Riot Kill Riot Kill Riot

H exp -�.�� -�.�� -�.�� ⇤-�.�� -�.�� ⇤⇤-�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

M exp �.�� ⇤�.�� ⇤⇤�.�� ⇤⇤�.�� ⇤⇤�.�� ⇤⇤⇤�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Pop ⇤-�.�� .�� .�� .�� -�.�� -�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

RelPol �.�� .�� .�� ⇤�.�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniH -�.�� -�.�� .�� .�� -�.�� -�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniM �.�� -�.�� -��.�� -�.�� -��.�� -��.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Lit, Urban Y Y Y Y Y Y

T�� U�� H��-M�� E��

[Poiss] [NegBin] [OLS]Cas Kill Riot Cas Kill Riot Cas Kill Riot

M/H ⇤⇤⇤�.�� .�� ⇤�.�� ⇤⇤�.�� ⇤⇤�.�� ⇤⇤�.�� ⇤⇤⇤�.�� ⇤�.�� ⇤⇤⇤�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Pop �.�� -�.�� .�� .�� .�� .�� -�.�� -�.�� -�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Pce -�.�� .�� -�.�� .�� .�� -�.�� .�� .�� -�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

RelPol ⇤�.�� .�� .�� .�� .�� ⇤�.�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniH -�.�� -�.�� -�.�� .�� .�� .�� -��.�� -�.�� -�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniM �.�� .�� -�.�� -�.�� -��.�� -�.�� -��.�� -��.�� -��.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Lit, Urb Y Y Y Y Y Y Y Y Y

V�� L��

[�] [�] [�] [�] [�] [�]Cas-� Cas-� Cas Cas�� Cas�� Cas��

H exp �.�� .�� -�.�� ⇤⇤⇤-�.�� ⇤⇤⇤-��.�� ⇤⇤⇤-��.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

M exp -�.�� -�.�� ⇤�.�� ⇤⇤⇤�.�� ⇤⇤⇤�.�� ⇤⇤⇤�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Pop �.�� .�� ⇤⇤�.�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

RelPol -�.�� -�.�� ⇤⇤�.�� ⇤⇤�.�� ⇤⇤�.�� ⇤⇤⇤�.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

BJP Y Y Y Y Y Y


Ginis Y Y Y Y Y Y

E��

Reverse causation? Anecdotal evidence on who su�ers:

[Wilkinson ��] ��–��: Muslims were �� of the population, but su�ered

�� of the �� deaths

�� of the �� injuries

�� of the estimated property damage

Omitted Variables?

Gulf funding of conflict (via remittances)

Income recovery from past conflict

E��

Instrument: Occupational Groupings

�� broad occupational categories from the NSS: (�) Agricultural Production and

Plantations, (�) Livestock Production, (�) Fishing, (�) Mining and Quarrying (Coal; Crude Petrol and

Natural Gas; Metal Ore; Other), (�) Manufacture of Food Products and Inedible Oils, (�) Manufacture of

Beverages, Tobacco and Tobacco products, (�) Manufacture of Textiles (Cotton; Wool, Silk, Artificial; Jute,

Veg. Fibre; Textile Products), (�) Manufacture of Wood and Wooden Products, (�) Manufacture of Paper,

Paper Products, Publishing, Printing and Allied Industries, (��) Manufacture of Leather, and of Leather

and Fur Products, (��) Manufacture of Rubber, Plastic, Petroleum, Coal ; Chemicals and Chemical

Products, (��) Manufacture of Non-Metallic Mineral Products, (��) Basic Metal and Alloy Industries, (��)

Manufacture of Metal Products and Parts, except Machinery and Transport Equipments, (��)

Manufacture of Machinery, Machine Tools and Parts except Electrical Machinery, (��) Manufacture of

Electrical Machinery, Appliances, Apparatus and Supplies and Parts, (��) Manufacture of Transport

Equipments and Parts and (��) Other Manufacturing Industries.

E��

Instrument:

Construct average national returns for Hindus and Muslims in each category.

Use NSS national expenditure averages to do this.

Use regional employment to get H- and M-indices by region.

IV �� H- �� M-��

First Stage Second StageCas Kill Riot Cas Kill Riot

M/H ind ***�.�� ***�.�� ***�.��(�.��) (�.��) (�.��)

M/H ***��.�� ***��.�� ***��.��(�.��) (�.��) (�.��)

Pce *-�.�� *-�.�� *-�.�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

Pop -�.�� -�.�� -�.�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

RelPol **-�.�� **-�.�� *-�.�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniH ***-�.�� ***-�.�� ***-�.�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniM ***�.�� ***�.�� ***�.�� **-��.�� **-��.�� **-��.��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

BJP Y Y Y Y Y Y


A G�� M��?

A counter-view:

Rise in Muslim income just a proxy for overall Hindu stagnation.

Could imply an increase in social unrest quite generally

Therefore not interpretable as directed violence.

Test by using GOI dataset on Crime in India

Has data on “all riots”.

(Doesn’t publish data on religious violence!)

A G�� M��?

Placebo using all conflict:

[1]Poisson

[2]Poisson

[3]Neg. Bin.

[4]Neg. Bin.

[5]OLS

[6]OLS

HExp ***�.�� -�.�� .��(�.��) (�.��) (�.��)

MExp -�.�� -�.�� -�.��(�.��) (�.��) (�.��)

M/H -�.�� -�.�� -�.��(�.��) (�.��) (�.��)

Pce *�.�� -�.�� .��(�.��) (�.��) (�.��)

Pop �.�� .�� .�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

RelPol *-�.�� *-�.�� .�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniH **-�.�� *-�.�� .�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

GiniM -�.�� -�.�� .�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)


E�� P��-G��, W�� D��

Muslim expenditure; all regions

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E�� P��-G��, W�� D��

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Hindu expenditure; all regions

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�-period Poisson FE (urban hh, excluding region containing Ahmedabad)

[�] [�] [�] [�] [�] [�]

H pce ***-�.�� ***-�.�� **-�.��(�.��) (�.��) (�.��)

M pce **�.�� **�.�� *�.��(�.��) (�.��) (�.��)

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Pop �.�� .�� .�� .�� .�� .��(�.��) (�.��) (�.��) (�.��) (�.��) (�.��)

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Gini H -�.�� -�.��(�.��) (�.��)

Gini M -�.�� -�.��(�.��) (�.��)

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Log-Likelihood -�,��.�� -�,��.�� -�,��.�� -�,��.�� -�,��.�� -�,��.��

Number of observations ��

T�� F�� S�� D��

There are many ways of approaching these phenomena:

None in itself fully satisfactory.

My focus: the failure of aspirations.

T�� G�� T��

Netherlands, ��-��, ��

United Kingdom, ��-��, ��

United States, mid-��th c, ��

United States, mid-��th c, ��

Brazil, mid-��s, ��

Korea, late ��s, ��

China, ��!, �–�

R�� E�� D�� A�� L�� O�� . . .

Social basis for individual preferences:

Absurd to think about inequality, unrest, conflict, etc. without this.

Unclear if such exposure to the lives of others leads to betterment or to despair.

“The French found their position all the more intolerable as it became better.”

de Tocqueville, ��

A��

Multidimensional reference point:

a = (y, F ),

y = personal outcomes

F = social distribution of outcomes.

Payo�s: a serves as anchor for payo� function:

u(c) + w0(z) + w1(e),

where z is future outcome and ek = max{zk � ak, 0}.

�-way: aspirations �! outcomes �! aspirations.

A�� M��

A single-dimensional illustration:

z

w0

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w1

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w0(z) + w1(z-a)

w0(z)

A�� M��


z

w0

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w1

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A�� M��


z

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a1

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z

w0

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w1

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w0(z) + w1(z-a)

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A�� M��

: A single-dimensional illustration

z

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w1

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w0(z) + w1(z-a)

z1z0

u(y) - u(y-k(z))

w0(z)

A��, I�� F��

The milestone nature of aspirations generates sudden tip-overs.

za

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u(y) - u(y-k(z))

w0(z)

A��, I�� F��


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Proposition. For every wealth w, there is a threshold a(w) below which

aspirations are met, and above which frustrated. When met, investment grows with

aspirations. But once frustrated, investment jump discontinuously downward and

therea�er remain insensitive to or decline with aspirations.

More generally, aspirations are multidimensional.

[individual]: income, health, education, housing

[collective]: public goods, power, religious/cultural/ethnic dominance.

... and a research program can be built around this framework:

poverty traps (Appadurai ��, Dalton et al ��, Ray ��, ��)

growth and inequality (Bogliacino and Ortoleva ��, Genicot and Ray ��)

socio-economic mobility (Esteban et al ��)

risk-taking (Bondi and Ray, in prep.)

doubling-down in the face of bad shocks (Genicot and Ray, in prep.)

“appropriate goal-setting” (Schwenkenberg ��, Kearney ��, Besley ��, Goux ��)

violent conflict (Mitra and Ray ��, Genicot and Ray, in prep.)

O� A�� C��

�. Are aspirations determined by our social surroundings, or can we control them?

�. Can we use frustrated aspirations to understand discontent in societies that

exhibit rapid changes in per-capita income?

�. If uneven growth leads to social unrest via the channel of frustrated aspirations,

do we expect those frustrations to be directed against those that benefit the most

from growth, or against a third party?

�. Are political leaders who are unable (or unwilling) to control high and rising

economic inequality, able to create “second-best” release valves by directing

animosities in “orthogonal directions”?

O�� R�� I��

Frustrated aspirations and discontent with growing inequality:

Are frustrations directed at beneficiaries, or against third parties?

Are political leaders who are unable (or unwilling) to control high and rising

economic inequality, able to create “second-best” release valves by directing

animosities in “orthogonal directions”?

O�� R�� I��

Two-dimensional aspirations:

�: economic investments, typically private.

�: cultural/religious/nationalistic investments, o�en group-based.

O�� R�� I��

Resources

Private Investments Group Dominance

O�� R�� I��

zz0 r

Resources


r1

Payoff Payoff

z1

O�� R�� I��

zz2z0 r

Resources


r2 r1

Payoff Payoff

z1

O�� R�� I��

za z1 r

Resources


r0

Payoff Payoff

O�� R�� I��

za z1z2 r

Resources


r0 r1

Payoff Payoff

O�� R�� I��

Proposition �Over the income cross-section, dominance investments initially fall, droppingdiscontinuously as aspirations switch from failure to success; then rise again.

With high economic inequality, aggregate dominance investments rise.

D��

Why does the aspirations-based model deliver this prediction?

In a “concave setting,” an increase in inequality must increase the marginal

return to investment, thereby unambiguously reducing the orthogonal response.

Here, private investment drops. The freed-up resources are then deployed

“sideways,” towards another, relatively reachable objective.

Is inequality unambiguous in its e�ects?

No. To some degree, higher inequality will spur more investment of the

economic kind. But it must then pass through a phase of “orthogonal collective

action.”

With extremely high inequality, conflict could fall again owing to income e�ects.

ec aa t : l e ...€¦ · ecaa t : l ei debraj ray, university of warwick, summer slides:...

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