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Tom Cunningham ~ LSE Economics PhD Student

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t@e@cunningham.lse@ac@uk
Desk 16D in the CEP, LSE
Ph +44 7 9906 42058







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Tom Cunningham ~ LSE Economics PhD Student
10 Aug 10


Projects / Working Papers:
  • (May 2010) Flexible Sensitivity.
    Experimental studies of decision-making have found two strong regularities which seem to hold across many domains: narrow bracketing and diminishing sensitivity. Prospect theory and hyperbolic discounting theory can be seen as applications of these principles to the domains of risk and time respectively. A weakness is that these theories evaluate each alternative independently, giving a unique ranking of alternatives, meaning these theories cannot address the widespread evidence of intransitivities and preference reversals. I propose an alternative rule for sensitivity: range-based sensitivity, instead of diminishing sensitivity. This rule reproduces most of the predictions of diminishing sensitivity, but also is consistent with many observed intransitivities and preference reversals. The rule is that the marginal utility of a dimension (e.g., time, money) is inversely proportional to the range presented along that dimension. Intuitively, a given distinction comes to seem less important as it becomes proportionately smaller.
  • (2009) Leader Behaviour & the Natural Resource Curse (with Francesco Caselli) Oxford Economic Papers
    We discuss political economy mechanisms which can explain the resource curse, in which an increase in the size of resource rents causes a decrease in the economy’s total value added. We identify a number of channels through which resource rents will alter the incentives of a political leader. Some of these induce greater investment by the leader in assets that favour growth (infrastructure, rule of law, etc.), others lead to a potentially catastrophic drop in such activities. As a result, the effect of resource abundance can be highly non-monotonic. We argue that it is critical to understand how resources affect the leader’s "survival function," i.e. the reduced-form probability of retaining power. We also briefly survey decentralised mechanisms, in which rents induce a reallocation of labour by private agents, crowding out productive activity more than pro- portionately. We argue that these mechanisms cannot be fully understood without simultaneously studying leader behaviour.
  • (May 08) Accounting for the Resource Curse
    A substantial literature has found a robust negative correlation between economic growth and the share of income coming from resource exports, generally interpreted as a 'curse of natural resources'. I decompose aggregate growth into growth rates in the resource and non-resource sectors, and investigate how far the original correlation can be explained by other economic phenomena: (i) lower growth in the resource sector, (ii) reversion to the mean in resource extraction, and (iii) resource-funded capital accumulation. I conclude that about half of the resource curse is accounted for through these channels.
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