This proposal outlines an empirical research and teaching agenda in development economics, focusing on three areas: price effects, human capital, and the environment. In each of these areas, the proposed research models common features of developing countries such as missing credit markets or limited integration with world markets and then tests the predictions using household data. The first area addressed by this proposal is price effects in rural economies. The starting point is that villages are often isolated, semi-closed economies. Thus, prices are determined by local supply and demand, and policies that affect supply and demand can have important indirect effects through prices. The proposed research examines the price effects of government transfers to the poor in Mexico, comparing cash versus in-kind transfers. Inkind transfers add supply to the economy, so they should reduce the price of the transferred goods relative to if cash transfers were used. This pecuniary effect can significantly enhance or diminish the net transfer to the poor, depending on whether the poor are consumers or producers of the transferred goods. The second area is human capital, with an emphasis on the determinants of health. The themes of this research are how health is jointly determined with fertility and marriage; how missing markets affect health; and gender gaps in health. One proposed project examines the unintended effect that access to contraception has on breastfeeding. The effect could be positive or negative: Breastfeeding temporarily reduces fecundity so is a substitute for modern birth control, but better birth control also allows women to space births further apart and breastfeed the older child longer. This has important health implications in poor countries because breastfeeding protects infants from contaminated food and water. A second project examines the effect of cousin marriage, which is common in Muslim societies, on the health of offspring. The project also examines the economic benefits of cousin marriage; for example, informal contracts between the bride and groom's families may be more enforceable within extended families. Another project tests the hypothesis that the reason mothers often invest more in children's human capital than fathers do is that they receive more old age support from their children and hence earn a higher return on investment in their children's human capital. The third area addressed in this proposal is environmental degradation. Reducing deforestation in developing countries is possibly one of the most cost-effective ways to reduce global carbon emissions; forests store a large amount of carbon, and the opportunity cost of averted deforestation in poor countries (e.g., less land to cultivate crops) is relatively low. This research uses a randomized experiment to study one approach to reducing deforestation: paying private forest owners for avoiding deforestation on their land. In addition to assessing the overall program effect, the research examines how the effectiveness of incentive payments depends on the time profile of forest owners' opportunity costs, which theoretically should be quite important when credit markets are imperfect. Broader impact This research has important policy implications. The pecuniary effects of transfer programs are an important consideration for policy makers choosing whether to deliver transfers in cash or in-kind, particularly when the targeted communities are isolated from larger markets. In the research on contraception, if we find that birth control discourages breastfeeding, then as birth control becomes more available, campaigns to encourage breastfeeding may become more important. Alternatively, if contraception leads to a longer duration of breastfeeding, then the benefits of family planning services may be larger than previously thought. The project on cousin marriage will help policy makers to assess the health risks facing Muslim populations and to design policies on genetic counseling in these communities. Finally, the research on deforestation speaks to an important area in environmental policy-making. Recently, the United Nations launched a major initiative through which rich countries will pay poor countries for avoided deforestation. This research will provide evidence on one promising way to reduce deforestation, namely cash transfers to individuals that are conditional on their not clearing their forest land.
