Essays in Empirical contracting and development

This dissertation's first essay explores the design and effects of incentive contracts in contexts with multiple products and multiple parties. Using data from a multi-product manufacturer in India, I test how incentives to two parties in its distribution network--salespersons and retailers--affect product sales. While profit maximization suggests equalization of returns, sales increases from salesperson incentives are six times those for retailer incentives. I provide evidence that differences in substitutability across products for the two parties, and the consequent differential costs of incentive provision, explain this disparity. The essay also traces the mechanisms by which incentives affect sales. Shifts in the allocation of salesperson effort between products and between retailers in different geographies, complementarities in effort, and information revelation through repeated interactions are all shown to be important. Finally, the essay argues that firms take these hidden incentive costs and interactions between parties into account when designing incentive systems. The second essay continues to explore the effects of repeated interactions on sales in the retail distribution context. It shows that the existence of a relationship between the retailer and the salesperson increases retailer purchases and that these increases are sustained by an implicit contract. The contract is driven by a combination of salesperson discretion over the timing of inventory supply and retailer desire for favorable supply patterns. The third essay, written jointly with Brian Wendell and Eric Werker, examines the impact of the AIDS epidemic on African nations through 2005 using the male circumcision rate to identify plausibly exogenous variation in HIV prevalence. Significant medical evidence confirms that male circumcision reduces the risk of contracting HIV. We find that national male circumcision rates for African countries are both a strong predictor of HIV/AIDS prevalence and uncorrelated with other determinants of economic outcomes. Two-stage least squares regressions do not support the hypothesis that AIDS has had any measurable impact on economic growth or savings in African nations. We find weak evidence that AIDS has lead to a decline in fertility, a slow-down in education gains, as measured by youth literacy, and a rise in poverty, as measured by malnutrition.