Shawn A. Cole
Associate Professor of Business Administration, Marvin Bower Fellow
Shawn Cole is an associate professor in the Finance Unit at Harvard Business School, where he teaches a second-year elective course “Business at the Base of the Pyramid.”
His research examines corporate and household finance in emerging markets, with a focus on banking, microfinance, insurance, and the relationship between financial development and economic growth. He has worked in China, India, Indonesia, South Africa, and Vietnam. He is an affiliate of the National Bureau of Economic Research, MIT’s Jameel Poverty Action Lab, and the Bureau for Research and Economic Analysis of Development.
He has taught FIN1 and FIN2 in the core curriculum, as well various executive education courses, and currently teaches a portion of the PhD-level development class in the department of Economics.
Before joining the Harvard Business School, Professor Cole worked at the Federal Reserve Bank of New York in the economic research department. He currently serves on the Boston Federal Reserve's Community Development Research Advisory Council, and has served as an external advisor to the Gates Foundation, and as the chair of the endowment management committee of the Telluride Association, a non-profit educational organization.
He received a Ph.D. in economics from the Massachusetts Institute of Technology in 2005, where he was an NSF and Javits Fellow, and an A.B. in Economics and German Literature from Cornell University.
Do Voters Demand Responsive Governments? Evidence from Indian Disaster Relief
Using rainfall, public relief, and election data from India, we examine how governments respond to adverse shocks and how voters react to these responses. The data show that voters punish the incumbent party for weather events beyond its control. However, fewer voters punish the ruling party when its government responds vigorously to the crisis, indicating that voters reward the government for responding to disasters. We also find evidence suggesting that voters only respond to rainfall and government relief efforts during the year immediately preceding the election. In accordance with these electoral incentives, governments appear to be more generous with disaster relief in election years. These results describe how failures in electoral accountability can lead to suboptimal policy outcomes.
Liability Structure in Small-Scale Finance: Evidence from a Natural Experiment
Microfinance, the provision of small individual and business loans, has witnessed dramatic growth, reaching over 150 million borrowers worldwide. Much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending. Yet, very little is known about the optimal contract structure of such loans--there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. We find evidence that the lending model matters: for the same borrower, required monthly loan installments are 11 percent less likely to be missed under the group liability setting, relative to individual liability. In addition, compulsory savings deposits are 20 percent less likely to be missed under group liability contracts.
Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers
This paper uses a series of experiments with commercial bank loan officers to test the effect of performance incentives on risk-assessment and lending decisions. We first show that, while high-powered incentives lead to greater screening effort and more profitable lending, their power is muted by both deferred compensation and the limited liability typically enjoyed by credit officers. Second, we present direct evidence that incentive contracts distort judgment and beliefs, even among trained professionals with many years of experience. Loans evaluated under more permissive incentive schemes are rated significantly less risky than the same loans evaluated under pay-for-performance.