NBER Working Papers by Li-An Zhou

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Working Papers

April 2013More Trusting, Less Trust? An Investigation of Early E-Commerce in China
with Hongbin Cai, Ginger Z. Jin, Chong Liu: w18961
Trust is vital for market development, but how can trust be enhanced in a marketplace? A common view is that more trusting may help to build trust, especially in less developed economies. In this paper, we argue that more trusting may lead to less trust. We set up a rational expectation model in which a marketplace uses buyer protection to promote buyer trusting. Our results show that buyer protection may reduce trust in equilibrium and even hinder market expansion because it triggers differential entry between honest and strategic sellers and may induce more cheating from strategic sellers. Using a large transaction-level data set from the early years of (an eBay equivalent in China), we find evidence that is consistent with the model predictions. Stronger buyer protection lea...
October 2009Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment
with Hongbin Cai, Yuyu Chen, Hanming Fang: w15396
We report results from a large randomized natural field experiment conducted in southwestern China in the context of insurance for sows. Our study sheds light on two important questions about microinsurance. First, how does access to formal insurance affect farmers' production decisions? Second, what explains the low takeup rate of formal insurance, despite substantial premium subsidy from the government? We find that providing access to formal insurance significantly increases farmers' tendency to raise sows. We argue that this finding also suggests that farmers are not previously insured efficiently through informal mechanisms. We also provide several pieces of evidence suggesting that trust, or lack thereof, for government-sponsored insurance products is a significant barrier for farmer...
November 2007Do Multinationals' R&D Activities Stimulate Indigenous Entrepreneurship? Evidence from China's "Silicon Valley"
with Hongbin Cai, Yasuyuki Todo: w13618
Using a unique firm-level dataset from China's "Silicon Valley," we investigate how multinational enterprises (MNEs) affect local entrepreneurship and R&D activities upon entry. We find that R&D activities of MNEs in an industry stimulate entry of domestic firms into the same industry and enhance R&D activities of newly entering domestic firms. By contrast, MNEs' production activities or domestic firms' R&D activities do not have such effect. Since MNEs are technologically more advanced than domestic firms, our findings suggest that diffusion of MNEs' advanced knowledge to potential indigenous entrepreneurs through MNEs' R&D stimulates entry of domestic firms.

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