Working Papers

Shelby Grossman and Dan Honig. “Evidence from Lagos on Discrimination across Ethnic, Religious, and Class Identities in Informal Trade.” pdf

Work on the informal economy has largely ignored the welfare consequences of informal market dynamics. We seek to connect scholarship on the informal economy to theories of inter-group interaction, testing for inter-group biases in the rice and housing markets in Lagos. We find evidence of pro-coethnic bias, but that sharing an ethnicity only benefits higher-class coethnics, giving them immunity from a penalty that otherwise applies to higher class buyers. We show evidence suggesting this discrimination is driven by taste-based motives and is not, surprisingly, consistent with maximizing profits for sellers.

Nathaniel Leff, Jeffry Frieden, and Shelby Grossman. “Trust and Envy: The Political Economy of Business Groups in Developing Countries.pdf

Diversified business groups play a major role in the economies of many developing countries. Business group members, often from the same communal, ethnic, or tribal group, have or develop inter-personal relations that make it easier to obtain information and monitor compliance related to transactions that require a strong measure of trust. This in-group cohesion facilitates profitable and productive economic activity. However, it can create resentment among other members of society who are barred from membership in a group that is, of necessity, exclusive. This envy can fuel a self-reinforcing cycle of societal hostility and group protectiveness that can deprive society of the economic benefits the groups can provide. There are several possible reactions such as ‘affirmative action’ programs that can slow or stop the cycle of envy and group vulnerability.