Mukesh Eswaran

Professor Emeritus
Bureau of Research and Economic Analysis of Development (BREAD), Senior Fellow
Theoretical Research in Economic Development (ThRed), Associate

I am a professor emertius in the Vancouver School of Economics at the University of British Columbia in Vancouver, Canada. I am Senior Fellow of the Bureau of Research and Economic Analysis of Development (BREAD).

My research interests are in the application of economic theory to understand economic phenomena. Primary areas of my interest are economic development and the economics of gender. Other areas of interest are evolutionary economics and, more recently, the economics of religion.


Why Gender Matters in Economics
Princeton University Press, 2014

Please click on paper titles for abstracts and full text downloads.


In this paper I investigate why, despite rampant sexual assaults against women, it is an adamant fact that only a minuscule fraction of their male assailants are convicted. The model embodies the crucial aspect of the criminal justice system based on common law that prosecutors are not the victims' advocates but, rather, prosecute to serve the public interest. In a simple sequential game framework, I examine the effects of a pervasive feature of sexual assault cases: the police's exaggerated belief, contrary to facts, of the falsity of women's reports of assault. This distortion in beliefs adversely affects their endogenous investigational effort on the assaults and on the suspects. Along with the victims' lack of private representation in the court system this, in turn, generates a self-confirming equilibrium in which women's reports are largely disbelieved, police disbelief ironically encourages some false reporting, few victims choose to report the crimes, and the conviction rate on those cases that are reported and proceed to trial is low. A second feature of sexual assault cases, namely, the sharp attrition in active files as they pass through the criminal justice system (to the extent that it is exogenous) is shown to worsen the outcome-again, through an endogenous investigational response of the police. When the police are allowed to also investigate victims (either in order to discredit them or to prepare for trial), I find that police disbelief of women's reports induces a de facto substitution of the investigation of victims for the investigation of suspects, worsening the already appalling miscarriage of justice. An attempt to reduce the alleged false reporting by punishing women who are deemed to have lied is shown to be counterproductive. In fact, the attempt is likely to reduce the already-low reporting by genuine victims, inducing a further decrease in conviction rates and an endogenous increase in the frequency of sexual assaults. I finally discuss the policy implications that arise out of the analysis.

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We investigate whether for-profit firms can alleviate extreme poverty at the "base of the pyramid" of the income distribution in poor countries.  The scope for market penetration is enhanced when multi-nationals capable of performing R&D for appropriate technologies team up with local enterprises to provide marketing and distribution. For the (severely credit-constrained) potential customers, the willingness to pay for a product is divorced from the latter's productivity-enhancing aspects.  We show that partnerships with non-governmental organizations (NGOs) dedicated to poverty alleviation are more effective than even mergers with local for-profit firms.  NGOs that elicit the trust of the target clientele determine their marketing and distribution effort by a products potential to reduce poverty and hence by its productivity-enhancing capabilities.  This circumvents the credit market constraints of the buyers and, by increasing the market size, provides multinationals with the incentive to innovate for appropriate technologies.  Furthermore, since pecuniary externalities increase the profitability of sequential technologies, partnerships with NGOs-by dint of their greater potential for common agency— alleviate extreme poverty by facilitating a Big Push at the base of the pyramid more effectively than do mergers with local for-profit firms. Corporate social responsibility forms no part of the argument offered here.

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This paper offers a theory of decentralized, non-state-sponsored terrorism that is characteristic of contemporary reality, and that explains the rise of homegrown terrorism. We argue that the sense of social identity is a prime motivator of non-strategic terrorist activities, and we investigate its consequences and implications for defense against terrorism. Terrorist responses to perceived affronts to identity increase with altruism towards in-groups and with endogenous intensity of hate towards out-groups. We show that, while out-group spite is the more essential feature of identity pertinent to decentralized terrorism, the intensity of terrorist actions is magnified by in-group altruism because it plays an important role in overcoming the potential free-riding of terrorists. This makes individual terrorist activities possible without coordination. We use our formulation to provide an alternative explanation for why counter-terrorism measures often fail, and frequently can have a backlash effect of increasing terrorism. Our results point to the need for western democracies to reformulate their foreign policies to take account of the role these policies play in instigating contemporary terrorism.

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We analyze recent proposals from social scientists suggesting that when sacred values are involved in conflicts, progress towards negotiation can be made if the contending parties make symbolic gestures acknowledging the sacred values of their rivals. We incorporate this possibility in a model in which the allocation of a sacred good can be resolved either by direct conflict or by negotiations made possible through (costly) symbolic gestures. We identify conditions under which a negotiated outcome may obtain. Extreme asymmetries in military power and bargaining strength are shown to militate against the possibility of negotiation.  Furthermore, for a negotiated solution to be feasible, perceptions regarding the preferences of the organization mediating the negotiations are very important. While isolating some of the root causes for the recalcitrance of conflicts over sacred goods, our model provides cautious optimism for the role of symbolic gestures.

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Countries world wide face an imminent global health crisis. As resistant bacteria render the current stock of antibiotics ineffective and the pipeline of back-up drugs runs dry, pharmaceutical companies are abandoning their research in antibiotics.  In this paper we ask: Why are pharmaceutical companies closing antibiotic research labs when the stakes are so high? Implementing a simple dynamic framework, we show that the environment for new antibiotics is relatively hostile, compared to other medicines, due to market failures that result in excessive use and acceleration of natural selection. The analysis reveals, however, that increased competition between drugs can actually slow down the rate of resistance without, in some cases, diluting research incentives. This result, which is bolstered by scienti…fic evidence, arises from a fundamental interplay between economic and biological externalities. We propose a patent-antitrust regime for aligning drug research and usage with those of the social planner, which implies an alternative justi…cation of the patent system.
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Though economics claims that sunk costs should not figure in current decision-making, there is ample evidence to suggest that people squander resources by honoring bygones. We argue that such wastage of resources was tolerated in our evolutionary past by Nature because it served fitness-enhancing functions. In this paper, we propose and model two such functions: the first in a non-strategic setting and the second in a strategic one. In the former, we demonstrate how the honoring of sunk costs could have arisen as a commitment device that Nature found expedient when the emotional and rational centers of the brain conflict over temptations that may sabotage long-term investments. By applying this idea to the self-concept, we argue that this model provides a rationale for cognitive dissonance, a well-established phenomenon in social psychology. The strategic reason we offer for the salience of sunk costs is that it provides the producers of goods an edge in contests over their output with potential interlopers. In either scenario, we show that Nature would have hardwired a concern for bygones.

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We propose a theory of the origins of India’s caste system by explicitly recognizing the productivity of women in complementing their husbands’ occupation-specific skills. The theory explains the core features of the caste system:  its hereditary and hierarchical nature, and its insistence on endogamy (marriage only with castes).  Endogamy is embraced by a group to minimize an externality that arises when group members marry outsiders.  We demonstrate why the caste system requires gender asymmetries in punishments for violations of endogamy and tolerates hypergamy (marrying up) more than hypogamy (marrying down).  Our model also speaks to other aspects of caste, such as commensality restrictions and arranged/child marriages.  We suggest that India's caste system is so unique because the Brahmins sought to preserve and orally transmit the Hindu scriptures for over a millennium with no script.  We show that economic considerations were of utmost importance in the emergence of the caste system.

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In this paper we propose an explanation for how the sense of ownership may have evolved in humans. We see it as an evolutionary response to a fundamentally economic problem: survival under competition for scarce resources. We suggest that natural selection contrived a sense of ownership over first possession or over the fruits of one’s action—an entrenched characteristic of the innate sense of self—in order to provide a strategic advantage in confrontation with others seeking to appropriate them. Our results show that, in the evolutionarily stable equilibrium, the value placed on the ownership of property is not the same across individuals: it depends on the role of the individual in the interaction. Specifically, a person who has either acquired first possession of a resource or has produced the output values it more highly than one who seeks to appropriate it. We show that this nuanced sense of ownership increased the incentives to undertake productive investments. The legalization of ownership is, in historic time, a relatively recent institutional contrivance for codifying and fine-tuning the problems pertaining to ownership. It is our contention that evolution has shaped this instrument, albeit more bluntly, in humans in the Pleistocene and probably much earlier. Furthermore, our results provide novel explanations for the endowment effect in the psychological literature. Furthermore, they have important implications such as the impact of Protestantism on the economic growth identified in empirical studies.

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We propose that the experimental findings informing the recent arguments for a Universal Moral Grammar can be explained through the concept of awareness of culpability of the self in an evolutionary context. We argue that the doctrine of double effect, which is usually invoked to explain such findings as those in trolley experiments, is really a derivative principle. By incorporating the tacit but crucial role played by the awareness of culpability of the self of the decision-maker in these dilemmas, we are able to understand why this doctrine carries force. In addition, we provide an argument to show how and why moral codes can differ across societies. One conclusion our argument points to is that moral behavior is the result of a special feature of the general-purpose evolutionary vehicle of self, namely, its proclivity to minimize its culpability. Finally, by explaining some puzzling anomalies that arise in the context of the doctrine of double effect, our analysis arrives at a theory of the origin of morality: the evolutionary imperative to temper self-orientation.

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Winter 2019

ECON482 The Economic Consequences of Religion Sections

Analysis of the economic aspects of religious behaviour, the structure of religious organizations, the effects of competition in the religious marketplace, the economic benefits of religion, and some of the ill-effects of religion (such as religious strife and terrorism).