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The Limits of Meritocracy
We show that too much meritocracy, modeled as accuracy of performance ranking in contests, can be a bad thing: in contests with homogeneous agents, it reduces output and is Pareto inefficient. In contests with sufficiently heterogeneous agents, discouragement and complacency effects further reduce the benefits of meritocracy. Perfect meritocracy may be optimal only for intermediate levels of heterogeneity.
IMF-Supported Programs in Low-Income Countries: Fragile Versus Non-Fragile States
This paper examines the macroeconomic frameworks of IMF-supported programs with low-income countries from 2009 to 2022, focusing on how macroeconomic targets and their achievement differ between fragile and conflicted-affected states (FCS) and non-FCS. Key findings include similar program targets for FCS and non-FCS, optimism in all dimensions considered other than inflation, and no significant correlation between targets and outcomes. For variables other than inflation, country-independent targets equal to the mean or median outcomes of other programs outperform program projections as predictors of actual outcomes. This underscores the challenges in setting realistic, country and program-specific targets in IMF-supported programs with low-income countries. Finally, we discuss potential caveats, including GDP rebenchmarking, non-linear relationship between initial conditions and targets, and repeat programs. We do not study, and make no claims about, causality.
The Effects of Higher Bank Capital Requirements on Credit in Peru
This paper offers novel evidence on the impact of raising bank capital requirements in the context of an emerging market: Peru. Using quarterly bank-level data and exploiting the adoption of bank-specific capital buffers, we find that higher capital requirements have a short-lived, negative impact on bank credit in Peru, although this effect becomes statistically insignificant in about half a year. This finding is robust to estimating different specifications to address concerns about the exogeneity of capital requirements. The fact that the reform was gradual and pre-announced and that banks were highly profitable at the time could explain the short-lived effects on credit.
The Limits of Meritocracy
We show that too much meritocracy, modeled as accuracy of performance ranking in contests, can be a bad thing: in contests with homogeneous agents, it reduces output and is Pareto inefficient. In contests with sufficiently heterogeneous agents, discouragement and complacency effects further reduce the benefits of meritocracy. Perfect meritocracy may be optimal only for intermediate levels of heterogeneity.
The Effects of Higher Bank Capital Requirements on Credit in Peru
This paper offers novel evidence on the impact of raising bank capital requirements in the context of an emerging market: Peru. Using quarterly bank-level data and exploiting the adoption of bank-specific capital buffers, we find that higher capital requirements have a short-lived, negative impact on bank credit in Peru, although this effect becomes statistically insignificant in about half a year. This finding is robust to estimating different specifications to address concerns about the exogeneity of capital requirements. The fact that the reform was gradual and pre-announced and that banks were highly profitable at the time could explain the short-lived effects on credit.
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