New assistant professor's work strives to understand how institutions and culture affect development and development policy in Central America and Central Africa.
Assistant Professor Eduardo Montero

Assistant Professor Eduardo Montero joined Harris’ faculty at the start of the 2021-2022 academic year. A development economist with broad research interests, his work strives to understand how institutions and culture affect development and development policy in Central America and Central Africa. He has studied the origins and consequences of mistrust in medicine in Central Africa, coffee certifications in Costa Rica, and gang violence and extortion in El Salvador.

We recently sat down with him to learn more:

You’re an economist, but most of your work focuses more on institutions and cultural norms. What’s the connection?

My interest in how culture and institutions affect economic development was shaped by my upbringing. I am originally from Costa Rica, and also lived in Venezuela and Mexico.

Growing up, I saw stark differences in development and opportunities across these three countries; understanding why this was always fascinated me. And I’ve learned that it is not possible to understand these countries’ disparate development paths without acknowledging the dramatic differences in their historical experiences, institutions, and culture. For instance, Costa Rica abolished its army in 1948, set up inclusive democratic institutions, and developed a culture that emphasizes environmental sustainability and preservation. In the decades since, Costa Rica has been quite stable despite upheaval in other Central American nations. It has avoided the violence and authoritarianism that has plagued other countries, including Venezuela.

Understanding which specific institutions and cultural norms drive these development divergences has been a central question in my research.

Why Harris?

It is hard to think of a better environment for studying how institutions and cultural norms matter for development policy. Many faculty at Harris are leaders in my specific sub-field of Development Economics, including Chris Blattman, Oeindrila Dube, Michael Kremer, James Robinson, Raul Sanchez de la Sierra, and many more. The best research tends to be interdisciplinary, and the broader environment at Harris and the University of Chicago offers an invaluable chance to bring insights from other fields into my work.

Finally, the students at Harris have such interesting backgrounds, and they are especially interested in international development. I am excited to teach them and to learn a lot from them, too!

In one of your research projects, you’ve taken an exhaustive look at the effects of extortion in El Salvador. What did you find?

Sometimes we might not realize it here in the United States, but extortion by organized gangs is actually a pervasive aspect of daily life in many countries. It’s also understudied, in part because gang extortion is difficult to systematically measure and is rarely reported to the police. Little is known, for instance, about how competition between gangs for territory impacts extortion and what the resulting economic effects of extortion are for firms and consumers.

In a recent paper with Zach Brown, Carlos Schmidt-Padilla, and Mica Sviatschi, we use unique administrative data on extortion payments provided to us by a major wholesale distributor in El Salvador. The data includes records of over 50,000 extortion payments made when truck drivers were stopped by gangs over the period 2012 to 2019.

At roughly the mid-point of that timeline, a non-aggression pact was forged between gangs to respect each other’s territories, so we used the dataset to examine how this collusion between gangs affects extortion payments in areas where gangs previously competed.

We find that, while the non-aggression pact led to a large reduction in gang-on-gang violence, it increased extortion by almost 20%. And, much of that increase in extortion payments gets passed through to retailers and consumers in the form of higher prices. For example, we found a large increase in prices for pharmaceutical drugs and a corresponding increase in hospital visits for chronic illnesses. This research sheds important light on how gang collusion affects extortion and points to increased extortion and consumer prices as an unintended consequence of policies that foster gang truces.

You’ve also looked at the impacts of Fair Trade certification for coffee. Does it help support coffee workers?

Coffee is historically one of the main products of Costa Rica and continues to be an important (and well known!) export of the country. I’ve always been interested in understanding what policies can help coffee workers.

You’ve probably heard of Fair Trade (FT) certification or seen it on coffee bags. FT is a popular certification that offers consumers willing to pay a higher coffee price the opportunity to (potentially) improve the lives of coffee producers in developing countries. The higher price paid by consumers enables FT to use two primary mechanisms to improve economic conditions for coffee producers and, by extension, coffee workers.

First, FT passes through a small price premium paid to coffee producers that aims to cover livable wages for coffee workers and the costs of sustainable production. Second, it ensures a guaranteed minimum price paid to coffee producers regardless of the volatility in the global price of coffee, which reduces risk and creates greater stability for smaller coffee producers.

However, there seemed to be little quantitative evidence for FT’s impacts on coffee producers and their workers. In a project with Raluca Dragusanu and Nathan Nunn, we gathered detailed data on the production of all Costa Rican coffee mills from 1999 to 2014 and found that when global coffee prices are lower, FT certification is associated with a higher sales price, greater sales, and more revenues due to the guaranteed minimum price. We also find that certification reduces the probability of a mill closing down, consistent with FT certification reducing risks faced by producers. Looking at household incomes, we also found that FT certification is associated with higher incomes for farm owners but not for unskilled coffee workers. Ultimately, FT appears to be accomplishing some of its stated goals, but the poorest and largest group within the coffee sector – unskilled workers – do not gain as much from FT as one might expect.

What did you find when you investigated cooperative property rights systems in El Salvador? And what are “cooperative property rights,” anyway?

In the US, we tend to think of land rights as being privately held by individuals. But that’s not the way property rights work everywhere. Different societies around the world have used many different forms of property rights. In the case of Central America, it’s common for workers in agricultural production industries to own land "cooperatively," where workers jointly own the land and make decisions via majority voting. I had always been interested in studying the consequences of these other understudied forms of property rights relative to the more common private individual rights.

In one study, I explore the lasting consequences of the 1980 land reform in El Salvador, where the military government at the time reorganized a set of large properties into agricultural cooperatives but left another set of very similar properties as individually owned. This lets me compare these sets of similar properties to isolate how cooperative property rights differ from individual property rights in land. I find that, in this setting, cooperative property rights lead to increases in worker equity, and a specialization away from cash crops towards staple crops that benefit workers relatively more. Thus, despite strong prior beliefs that economists may have that individual property rights are always preferable to cooperative property rights, the results suggest that this is not necessarily the case.

Are you teaching this year? How do you approach teaching?

My first quarter teaching will be Winter 2023. One of my main goals in teaching economic development is to encourage students and myself to broaden our worldview and critically question traditional views of developing countries.

When coming away from one of my courses, I want my students and myself to see the importance of understanding how other cultures, customs, and developmental history have shaped people’s choices and decisions in developing countries. This capacity to understand context has important implications for how economic policies need to be different in different places and for different people. It also makes many “economically irrational” things seem much less irrational than they appear once one factors in market failures, institutional failures, or cultural norms.

What else do you want the Harris community to know about you?

I am really excited to get to know everyone, and I would love any recommendations for Latin restaurants, yoga spots, coffee shops, and favorite things to do in Chicago!