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Tom Cunningham ~ College Fellow, Harvard Economics Department

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tcunning@fas.harvard.edu
Littauer Center M-30,
Harvard University,
Cambridge MA, 02138
+1 617 501 5249



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Tom Cunningham

College Fellow, Economics Dept, Harvard University


Projects / Working Papers:
  • (2011) Comparisons and Choice (Job Market Paper)
    A person appears to be taller when they stand next to someone short, and an object appears to be brighter when it is seen against a dark background. These comparison effects have been found to be common throughout human perception: when judging the magnitude of some stimulus, in the presence of a comparator, an increase in the magnitude of the comparator generally causes a decrease in the estimated magnitude of the original stimulus. This paper demonstrates the implications of comparison effects for economic choice, allowing judgment to be influenced by comparison between the alternatives in a choice set. I first formalise a framework in which decisions can be affected by the choice set currently under consideration, as well as by choice sets encountered previously or concurrently. Within this framework there exists a natural way to identify mistakes due to framing, using evidence from joint choice. The comparison effect is formalised as a simple condition on the marginal rate of substitution. This model unifies many otherwise disparate empirical findings, including the contrast and anchoring effects, response range effects, joint vs separate reversals, decoy, scope neglect and common difference effects. I further show that a comparison effect can be derived as a byproduct of Bayesian inference, and discuss whether it can be thought of as a rational heuristic, given that judgment is affected by comparators even when they are randomly generated. In the second half of the paper I apply the model to equilibrium in an imperfectly competitive market, and derive predictions for the level and dispersion of markups. I discuss evidence from the existing IO literature supporting the predictions. Finally I introduce an unusual dataset containing costs and prices for 3,500 goods, collected by hand from a drugstore, which shows a very tight connection between cost and markup, as predicted.
  • (2011) Handicapping Politicians: the optimal majority rule in incumbency elections
    (Joint with Ines Moreno de Barreda, Francesco Caselli, and Massimo Morelli)
    We present a model of electoral competition between an incumbent and a challenger in which everything is symmetric except that voters receive more information about the quality of the incumbent than that of the challenger. The information is received with noise, and is subject to manipulation through costly e ffort by the incumbent. In equilibrium we show that this model predicts an incumbency advantage, such that incumbents are more likely to be elected than challengers even when their qualities are drawn from identical symmetric distributions, and elected by voters with rational expectations. We also show that a supermajority re-election rule, which sets a threshold for re-election somewhere greater than 50%, improves welfare, mainly through discouraging low-quality politicians from sending high signals
  • (2009) 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, often 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.

Published Papers
  • (2009) Leader Behaviour & the Natural Resource Curse (with Francesco Caselli)
    Oxford Economic Papers 61 (4) 628--650
    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 proportionately. We argue that these mechanisms cannot be fully understood without simultaneously studying leader behaviour.

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