Four Essays on Interhousehold Transfers and Institutions in Post-Communist Romania

Abstract: This thesis consists of four essays related to different social and economic aspects in postcommunist Romania: Paper 1: In many developing and transitional countries, inter-household transfers in general and gifts in particular are sizable and very important. We use unique Romanian data that enables us to isolate pure gifts from other kinds of private transfers. We find that social norms are important for explaining the occurrence of gifts. However, we find different motives for gifts to the rich and the poor. Middle- and high-income households are part of reciprocal networks and receive more the higher their incomes and the more they give to others. The poor may be excluded from reciprocal networks, but they still receive, since there is a social duty to give. Paper 2: This paper investigates the determinants of formal group membership and informal network participation. We are particularly interested in the effect of heterogeneity, be it in terms of inequality or ethnicity. We find that inequality has a negative effect on formal group membership. Also, we find that inequality acts differently on poor and rich people: when inequality increases, it is the relatively poor persons who do not participate in groups and informal networks. Finally, we explore separately the determinants in different types of formal groups, and we find that in ethnically fragmented communities there is a lower participation in groups that involve close social interactions. Paper 3: Using Romanian survey data we investigate the determinants of individual life satisfaction, with an emphasis on the role of public and private transfers received. A possible concern is that these transfers are unlikely to be exogenous to life satisfaction. We use a recursive simultaneous equations model to account both for this potential problem and for the fact that public transfers are themselves endogenous in the private transfer equation. We find that public and private transfers received do not matter for overall life satisfaction, whereas we find a crowding out effect of private transfers by the public ones. However, we find that people are happier when giving private transfers. Paper 4: Tragic images of Romanian institutionalized children shocked Western audiences when broadcasted for the first time in the early 1990s, immediately after the fall of Ceausescu. We use a unique census that covers all institutionalized children in 1997, and find that institutionalized children are significantly less likely to be enrolled in school compared to their non-institutionalized same-age peers. We identify a special group of institutionalized children: the social orphans, i.e., children who have living parents but have no contact with them. We find that among healthy children, those in permanent institutional care, i.e. social orphans and orphans, are significantly less likely to be enrolled in school than noninstitutionalized children, while if we only look at children who suffer from a severe medical problem, we do not find significant differences between the two groups. That is probably because both groups are at high risk of poor education.