| This dissertation addresses three challenging issues in development economics: the role of informal networks in financing investment in Russia; the effect of coordination and preemption motives on the timing of exchange rate crises; the failure of informal networks to provide full insurance against adverse consumption shocks in rural India.; The first chapter empirically demonstrates the existence of liquidity constraints for Russian enterprises using plant-level data, and shows that larger management ownership reduces sensitivity of a firm's investment to its internal funds. The policy implication is that managers should be given shares as it would secure their future position and encourage them to acquire firm-specific human capital such as network contacts that help ease firm's liquidity constraint, despite moral hazard problems.; The second chapter (joint with Jay Surti) analyzes the timing of a speculative attack against a pegged exchange rate. It assumes a finite number of speculators who have preemption motive and endogenous timing. These more realistic elements have been absent in the prior literature. We prove that under complete information, preemption motive dominates, producing a unique equilibrium with immediate sales. However, if speculators are uncertain about being able to exhaust central bank reserves and are pessimistic enough, the attack may be delayed indefinitely.; The third chapter (joint with Jay Surti) studies the effect of the caste system on the provision of consumption insurance against idiosyncratic income shocks via informal networks in Indian villages. Using household survey data, we find that the consumption of the lowest caste is disproportionately affected by such shocks, that is, more households are affected and to a greater extent. While the higher caste households smooth consumption perfectly within themselves, the lowest caste households fail to do so. |
