January 22, 2004

Letter to LeGrand

Well, I mentioned below that I had corresponded with Julian LeGrand, the author of Motivation, Agency, and Public Policy, by e-mail. I posted a (longish) review of his book below, but I wanted to post my e-mail in case anyone found it interesting:

From: Richard Vermillion
Sent: Wed 07/01/2004 06:53
To: Legrand,J
Subject: Motivation, Agency, and Public Policy

Professor Le Grand,

I just finished reading your book, Motivation, Agency, and Public Policy, and I wanted to let you know how much I enjoyed it. The framework you propose, analyzing policies based on their implicit assumptions about human behavior, is truly useful in an area typically dominated by useless Left/Right dichotomies. And while I would have hoped for some additional technical content, I would certainly trade it for the level of accessibility and readability that you achieved. I only wish someone would analyze US policies and history through the same lens.

I had one question/comment about the "backward-bending" supply curves that you discuss in the Annex to Chapter 4. I was struck by the similarity of this curve to the curves that describe aggregate labor supply in the presence of child labor. As originally described in Basu and Van (1998), if you assume the luxury and substitution axioms, you get a supply curve similar to the S-shaped ones you show. (Actually, they tend to look slightly different because they assume inelastic supply at the adult clearing wage and the child clearing wage, but they still provide multiple equilibria). López-Calva (http://www.nipnetwork.org/docs_meeting2000/Calva.PDF) extended this work and proposed a model that assumes "that a parent who sends her child to the labor market is likely to face a social stigma that reduces her own welfare" and that the "stigma is lower the higher the aggregate incidence of child labor", resulting in similarly shaped curves.

While household decisions about child labor would seem to have nothing to do with "knightly" provision of social services, the similarities in results seem too enticing to ignore. First, both describe two modes of supply, the transition between which is governed by a threshold and a social norm. In knightly supply, the threshold is based on self-sacrifice and the positive norm is altruism; in child labor, the threshold is based on subsistence consumption and the negative norm is a stigma for sending children to work. Second, by providing multiple equilibria, both are open to criticisms of exploitation. Finally, because of this, policy-makers have an interest in manipulating which mode dominates, and yet sometimes have difficulty doing so.

Anyway, my question is, have you considered these similarities? Is there something that relates these two things at a fundamental level, or is it just an interesting coincidence? Are they just examples of relatively mundane crowding-out, or do they say more about how norms tend to interact with rational utility maximization?

Thanks for the excellent work, hope these comments are relevant.

Excuse the first paragraph — while I meant everything I said, I was also trying to be nice since I don't know the guy. Anyway, I don't feel comfortable posting his reply, since I didn't ask him before hand, but basically he said that he read the paper that I pointed him to and definitely thought there was something to it and asked that I keep him informed if I decided to do anymore "work" on the subject. He obviously had me confused with someone who does this for a living, but I'll take it as a complement....

Posted by richard at January 22, 2004 08:16 PM