Skip to main content Skip to navigation

Featured Journal Publications

Organising competition for the market

Michael Waterson (with Elisabetta Iossa and Patrick Rey), Journal of the European Economic Association

We study competition for the market in a setting where incumbents (and, to a lesser extent, neighbouring incumbents) benefit from a cost or information advantage. We first compare the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find the timing of tenders interrelates with the likelihood of monopolisation. For high incumbency advantages and/or discount factors, monopolisation is expected, in which case synchronous tendering is preferable as it strengthens the pressure that entrants exercise on the monopolist. For low incumbency advantages and/or discount factors, other firms remain active, in which case staggered tendering is preferable as it maximises competitive pressure coming from the other firms. We use bus tendering in London to illustrate our insights and draw policy implications.

Collective reputation in trade: Evidence from the Chinese dairy industry

Ludovica Gazze (with Jie Bai and Yukun Wang), Review of Economics and Statistics (forthcoming)

The existence of collective reputation implies an important externality. Among firms trading internationally, quality shocks about one firms products could affect the demand of other firms from the same origin country. We study such reputation spillover in the context of a large-scale scandal that affected the Chinese dairy industry in 2008. Leveraging detailed firm-product level administrative data and official quality inspection reports, we document sizable reputation spillovers on uncontaminated firms. We further investigate potential mechanisms that could mediate the strength of collective reputation, including information accuracy, observability of the supply chain and prior export experience.

Patent-Based News Shocks

Marija Vukotic (with Danilo Cascaldi-Garcia), Review of Economics and Statistics (forthcoming)

We exploit firm-level data on patent grants and subsequent reactions of stocks to identify technological news shocks. Changes in stock market valuations due to announcements of individual patent grants represent expected future increases in the technology level, which we refer to as patent-based news shocks. Our patent-based news shocks resemble diffusion news, in that they do not affect total factor productivity in the short run but induce a strong permanent effect after five years. These shocks produce positive comovement between consumption, output, investment, and hours. Unlike the existing empirical evidence, patent-based news shocks generate a positive response in inflation and the federal funds rate, in line with a standard New Keynesian model. Patenting activity in electronic and electrical equipment industries, within the manufacturing sector, and computer programming and data processing services, within the services sector, play crucial roles in driving our results.

The Selection of Talent: Experimental and Structural Evidence from Ethiopia

Stefano Caria (with Girum Abebe and Esteban Ortiz-Ospina), American Economic Review (2021)

We study how search frictions in the labor market affect firms' ability to recruit talented workers. In a field experiment in Ethiopia, we show that an employer can attract more talented applicants by offering a small monetary incentive for making a job application. Estimates from a structural model suggest that the intervention is effective because the cost of making a job application is large, and positively correlated with jobseeker ability. We provide evidence that this positive correlation is driven by dynamic selection. In a second experiment, we show that local recruiters underestimate the positive impacts of application incentives.

The Relative Efficiency of Skilled Labor across Countries: Measurement and Interpretation

Federico Rossi, American Economic Review 2021 (forthcoming)

I study how the relative efficiency of high- and low-skill labor varies across countries. Using micro data for countries at different stages of development, I document that differences in relative quantities and wages are consistent with high-skill workers being relatively more productive in rich countries. I exploit variation in the skill premia of foreign-educated migrants to discriminate between two possible drivers of this pattern: cross-country differences in the skill bias of technology and in the relative human capital of skilled labor. I find that the former is quantitatively more important, and discuss the implications of this result for development accounting

On the Direction of Innovation

Francesco Squintani, Journal of Political Economy (2021)

How are resources allocated across different R&D areas (i.e., problems to be solved)? As a result of dynamic congestion externalities, the competitive market allocates excessive resources into those of high return, being those with higher private (and social) payoffs. Good problems are tackled too soon, and as a result the distribution of open research problems in the socially optimal solution stochastically dominates that of the competitive equilibrium. A severe form of rent dissipation occurs in the latter, where the total value of R&D activity equals the value of allocating all resources to the least valuable problem solved. Resulting losses can be substantial

How to Improve Tax Compliance? Evidence from Population-Wide Experiments in Belgium

Clement Imbert, Journal of Political Economy (2021)

We study the impact of simplification, deterrence, and tax morale on tax compliance. We ran four natural field experiments varying the communication of the tax administration with the universe of income taxpayers in Belgium throughout the tax process. A consistent picture emerges across experiments: (i) simplifying communication substantially increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective and often backfires. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard enforcement measures. We find that simplification is far more cost-effective, allowing for substantial savings on enforcement costs.

Gender Differences in Job Search: Trading off Commute against Wage

Roland Rathelot , The Quarterly Journal of Economics (2020)

We relate gender differences in willingness to commute to the gender wage gap. Using French administrative data on job search criteria, we first document that unemployed women have a lower reservation wage and a shorter maximum acceptable commute than their male counterparts. We identify indifference curves between wage and commute using the joint distributions of reservation job attributes and accepted job bundles. Indifference curves are steeper for women, who value commute around 20% more than men. Controlling in particular for the previous job, newly hired women are paid after unemployment 4% less per hour and have a 12% shorter commute than men. Through the lens of a job search model where commuting matters, we estimate that gender differences in commute valuation can account for a 0.5 log point hourly wage deficit for women, that is, 14% of the residualized gender wage gap. Finally, we use job application data to test the robustness of our results and to show that female workers do not receive less demand from far-away employers, confirming that most of the gender gap in commute is supply-side driven.

Anonymity or Distance? Job Search and Labour Market Exclusion in a Growing African City

Stefano Caria, The Review of Economic Studies (2020)

We show that helping young job-seekers signal their skills to employers generates large and persistent improvements in their labour market outcomes. We do this by comparing an intervention that improves the ability to signal skills (the ‘job application workshop’) to a transport subsidy treatment designed to reduce the cost of job search. In the short-run, both interventions have large positive effects on the probability of finding a formal job. The workshop also increases the probability of having a stable job with an open-ended contract. Four years later, the workshop significantly increases earnings, job satisfaction, and employment duration, but the effects of the transport subsidy have dissipated. Gains are concentrated on individuals who generally have worse labour market outcomes. Overall, our findings highlight that young people possess valuable skills that are unobservable to employers. Making these skills observable generates earnings gains that are far greater than the cost of the intervention.

Can Rationing Increase Welfare? Theory and an Application to India's Ration Shop System

Lucie Gadenne, American Economic Journal: Economic Policy (2020)

In many developing countries, households can purchase limited quantities of goods at a fixed subsidized price through ration shops. This paper asks whether the characteristics of developing countries explain why governments use such systems. I find an equity-efficiency trade-off: an efficiency-maximizing government will never use ration shops, but a welfare-maximizing one might to redistribute and provide insurance. Welfare gains of ration shops will be highest for necessity goods and goods with high price risk. I calibrate the model for India and find that ration shops are welfare improving for three of the four goods sold through the system today.

Teachers’ Pay for Performance in the Long-Run: The Dynamic Pattern of Treatment Effects on Students’ Educational and Labour Market Outcomes in Adulthood

Victor Lavy, The Review of Economic Studies (2020)

This article examines the dynamic effects of a teachers’ pay for performance experiment on long-term outcomes at adulthood. The program led to a gradual increase in university education of the treated high school students, reaching an increase of 0.25 years of schooling by age 28–30. The effects on employment and earnings were initially negative, coinciding with a higher rate of enrolment in university, but became positive and significant with time. These gains are largely mediated by the positive effect of the program on several high school outcomes, including quantitative and qualitative gains in the high-stakes matriculation exams.

Forced Migration and Human Capital: Evidence from Post-WWII Population Transfers

Sascha O. Becker (with Irena Grosfeld, Pauline Grosjean, Nico Voigtländer & Ekaterina Zhuravskaya), American Economic Review (2020)

We study the long-run effects of forced migration on investment in education. After World War II, millions of Poles were forcibly uprooted from the Kresy territories of eastern Poland and resettled ( primarily) in the newly acquired Western Territories, from which the Germans were expelled. We combine historical censuses with newly collected survey data to show that, while there were no pre-WWII differences in educational attainment, Poles with a family history of forced migration are significantly more educated today than other Poles. These results are driven by a shift in preferences away from material possessions toward investment in human capital.

Ben-Porath Meets Lazear: Microfoundations for Dynamic Skill Formation

Costas Cavounidis (with Kevin Lang), Journal of Political Economy (2020)

We provide microfoundations for dynamic skill formation with a model of investment in multiple skills, when jobs place different weights on skills. We show that credit constraints may affect investment even when workers do not exhaust their credit. Firms may invest in their workers’ skills even when there are many similar competitors. Firm and worker incentives can lead to overinvestment. Optimal skill accumulation resembles—but is not—learning by doing. An example shows that shocks to skill productivity benefiting new workers but lowering one skill’s value may adversely affect even relatively young workers, and adjustment may be discontinuous in age.

The Race to the Base

Sinem Hidir (with Dan Bernhardt & Peter Buisseret), American Economic Review (2020)

We study multi-district legislative elections between two office-seeking parties when one party has an initial valence advantage that may shift and even reverse during the campaign; and, each party cares not only about winning a majority, but also about its share of seats. When the initial imbalance favoring one party is small, each party targets the median voter. For moderate imbalances, the advantaged party maintains the centre-ground, but the disadvantaged party retreats to target its core supporters; and for large imbalances, the advantaged party advances toward its opponent, raiding its moderate supporters in pursuit of an outsized majority

Information Design in the Holdup Problem

Daniele Condorelli (with Balazs Szentes), Journal of Political Economy (2020)

We analyze a bilateral trade model where the buyer chooses the distribution of her valuation for the good. The seller, after observing the buyer’s distribution but not the realized valuation, makes a take-it-or-leave-it offer. If distributions are costless, the price and the payoffs of both the buyer and the seller are shown to be 1/e in the unique equilibrium outcome. The buyer’s equilibrium distribution generates a unit-elastic demand, and trade is ex post efficient. These properties are shown to be preserved even when different distributions are differentially costly as long as the cost is monotone in the dispersion of the distribution.

Endogenous Partial Insurance and Inequality

Roberto Pancrazi (with Eric Mengus), Journal of European Economic Association (2019)

In this paper, we propose a model of endogenous partial insurance and we investigate its implications for macroeconomic outcomes, such as wealth inequality, asset accumulation, interest rate, and consumption smoothing. To this end, we include participation costs to state-contingent asset markets into an otherwise standard Aiyagari (1994) model. We highlight the resulting nonmonotonic relationship between wealth and insurance-market participation when insurance is costly. Poor households remain uninsured, middle-class households participate in the insurance market, whereas rich households decide to self-insure by only purchasing risk-free assets. After theoretically characterizing the endogenous partial insurance equilibrium, we quantify its effect, emphasizing the roles of a participation channel and an interest rate channel.

Did Austerity Cause Brexit?

Thiemo Fetzer, American Economic Review (2019)

This paper documents a significant association between the exposure of an individual or area to the UK government’s austerity-induced welfare reforms begun in 2010, and the following: the subsequent rise in support for the UK Independence Party, an important correlate of Leave support in the 2016 UK referendum on European Union membership; broader individual-level measures of political dissatisfaction; and direct measures of support for Leave. Leveraging data from all UK electoral contests since 2000, along with detailed, individual-level panel data, the findings suggest that the EU referendum could have resulted in a Remain victory had it not been for austerity

Early Life Circumstance and Adult Mental Health

James Fenske, Journal of Political Economy

We show that psychological well-being in adulthood varies with circumstance in early life. Combining a time series of real producer prices of cocoa with a nationally representative household survey in Ghana, we find that a one standard deviation rise in the cocoa price in early life decreases the likelihood of severe mental distress in adulthood by 3 percentage points (half the mean prevalence) for cohorts born in cocoa-producing regions relative to those born in other regions. Impacts on related personality traits are consistent with this result. Maternal nutrition, reinforcing childhood investments, and adult circumstance are likely operative channels of impact.

Measuring and Bounding Experimenter Demand

Christopher Roth (with Johannes Haushofer and Jonathan de Quidt), American Economic Review

We propose a technique for assessing robustness to demand effects of findings from experiments and surveys. The core idea is that by deliberately inducing demand in a structured way we can bound its influence. We present a model in which participants respond to their beliefs about the researcher's objectives. Bounds are obtained by manipulating those beliefs with "demand treatments." We apply the method to 11 classic tasks, and estimate bounds averaging 0.13 standard deviations, suggesting that typical demand effects are probably modest. We also show how to compute demand-robust treatment effects and how to structurally estimate the model.

Erasing Ethnicity? Propaganda, Nation Building and Identity in Rwanda

Sharun W. Mukand (with Arthur Blouin), Journal of Political Economy (2019)

This paper examines whether propaganda broadcast over radio helped to change inter-ethnic attitudes in post-genocide Rwanda. We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behaviour is not cosmetic, and reflects a deeper change in inter-ethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments

Dispute Resolution Institutions and Strategic Militarization

Francesco Squintani (with Adam Meirowitz, Massimo Morelli & Kristopher W. Ramsay), Journal of Political Economy (2019)

Engagement in a destructive war can be understood as the “punishment” for entering into a dispute. Institutions that reduce the chance that disputes lead to war make this punishment less severe. This may incentivize hawkish policies like militarization and potentially offset the benefits of peace brokering. We study a model in which unmediated peace talks are effective at improving the peace chance for given militarization but lead to more militarization and ultimately to a higher incidence of war. Instead, a form of third-party mediation inspired by work of Myerson effectively brokers peace in emerged disputes and also minimizes equilibrium militarization.

Leadership with Trustworthy Associates

Francesco Squintani (with Torun Dewan), American Political Science Review (2018)

Group members value informed decisions and hold ideological preferences. A leader takes a decision on their behalf. Good leadership depends on characteristics of moderation and judgment. The latter emerges (endogenously) via advice communicated by “trustworthy associates.” Trustworthy advice requires ideological proximity to the leader. A group may choose a relatively extreme leader with a large number of such associates. Paradoxically, this can happen though it is in the group’s collective interest to choose a moderate leader. To assess whether these insights persist when political groups compete, we embed our analysis in a model of elections. Each of two parties chooses a leader who implements her preferred policy if elected. We find that a party may choose an extreme leader who defeats a moderate candidate chosen by the opposing party. Our results highlight the importance of party cohesion and the relations between a leader and her party. These can be more important to electoral success than proximity of a leader’s position to the median voter.

The Changing Returns to Crime: Do Criminals Respond to Prices?

Mirko Draca (with Koutmeridis, Theodore and Machin, Stephen), Review of Economic Studies (2018)

To what extent does crime follow the pattern of potential gains to illegal activity? This article presents evidence on how criminals respond to this key incentive by reporting crime–price elasticities estimated from a comprehensive crime dataset containing detailed information on stolen items for London between 2002 and 2012. Evidence of significant positive crime–price elasticities are shown, for a panel of 44 consumer goods and for commodity related goods (jewellery, fuel, and metal crimes). The reported evidence indicates that potential gains are a major empirical driver of criminal activity and a crucial part of the economic model of crime. The changing structure of goods prices helps to explain over 10–15% of the observed fall in property crime across all goods categories, and the majority of the sharp increases in the commodity related goods observed between 2002 and 2012.

Early Life Circumstance and Adult Mental Health

Fenske James (with Achyuta Adhvaryu & Anant Nyshadham), Forthcoming - Journal of Political Economy (2018)

We show that psychological well-being in adulthood varies with circumstance in early life. Combining a time series of real producer prices of cocoa with a nationally representative household survey in Ghana, we find that a one standard deviation rise in the cocoa price in early life decreases the likelihood of severe mental distress in adulthood by 3 percentage points (half the mean prevalence) for cohorts born in cocoa-producing regions relative to those born in other regions. Impacts on related personality traits are consistent with this result. Maternal nutrition, reinforcing childhood investments, and adult circumstance are likely operative channels of impact.

Reallocation, Competition, and Productivity: Evidence from a Financial Liberalization Episode

Liliana Varela,, The Review of Economic Studies (2018)

This article studies the impact of distortions in the access to international capital markets on competition and productivity. I show that a reduction in these distortions leads to an increase in aggregate productivity through two different channels. First, firms that were previously credit constrained respond to better financing terms by increasing their investment in technology, a reallocation effect. Secondly, non-constrained firms also expand their investment in technology because of increased competition, a pro-competitive effect. I provide evidence for these two channels using firm-level census data from the deregulation of international financial flows in Hungary.

Movers and Shakers

Akerlof, Robert and Richard Holden,, The Quarterly Journal of Economics (2016)

Most projects, in most walks of life, require the participation of multiple parties.While it is difficult to unite individuals in a common endeavor, some people, whomwe call “movers and shakers,” seem able to do it. The paper specifically examinesmoving and shaking of an investment project, whose return depends both on itsquality and the total capital invested in it. We analyze a model with two types ofagents: managers and investors. Managers and investors initially form social connections.Managers then bid to buy control of the project and the winning bidderputs effort into making investors aware of it. Finally, a subset of aware investors aregiven the chance to invest and they decide whether to do so after receiving privatesignals of the project’s quality. We first show that connections are valuable sincethey make it easier for a manager to “move and shake” the project (i.e., obtain capitalfrom investors). When we endogenize the network, we find that, while managersare identical ex ante, a single manager emerges as most connected; he consequentlyearns a rent. In extensions, we move away from the assumption of ex ante identicalmanagers to highlight forces that lead one manager or another to become a moverand shaker. Our theory sheds light on a range of topics including: entrepreneurship,venture capital, and anchor investments.

Endogenous Entry to Security-Bid Auctions

Bernhardt, Dan, Takeharu Sogo, and Tingjun Liu,, American Economic Review (2016)

We endogenize entry to a security-bid auction, where participationis costly, and bidders must decide given their private valuationswhether to participate. We first consider any minimum reservesecurity-bid of a fixed expected value that weakly exceeds the asset’svalue when retained by the seller. Demarzo, Kremer and Skrzypacz(2005) establish that with a fixed number of bidders, auctionswith steeper securities yield the seller more revenues. Counterintuitively,we find that auctions with steeper securities also attractmore entry, further enhancing the revenues from such auctions.We then establish that with optimal reserve securities, auctionswith steeper securities always yield higher expected revenues.

Trade-Induced technical Change: The Impact of Chinese Imports on Innovation, IT and Productivity, The Review of Economic Studies

Draca, Mirko, Nick Bloom, and John Van Reenen,, The Review of Economic Studies (2016)

We examine the impact of Chinese import competition on broad measures of technical change - patenting, IT and TFP – using new panel data across twelve European countries from 1996-2007. In particular, we establish that the absolute volume of innovation increases within the firms most affected by Chinese imports in their output markets. We correct for endogeneity using the removal of product-specific quotas following China’s entry into the World Trade Organization in 2001. Chinese import competition led to increased technical change within firms and reallocated employment between firms towards more technologically advanced firms. These within and between effects were about equal in magnitude, and account for 15% of European technology upgrading over 2000-2007 (and even more when we allow for offshoring to China). Rising Chinese import competition also led to falls in employment and the share of unskilled workers. In contrast to low-wage nations like China, developed countries imports had no significant effect on innovation.

In Defence of Factions

Francesco Squintani (with Torun Dewan), American Journal of Political Science (2018)

Engagement in a destructive war can be understood as the “punishment” for entering into a dispute. Institutions that reduce the chance that disputes lead to war make this punishment less severe. This may incentivize hawkish policies like militarization and potentially offset the benefits of peace brokering. We study a model in which unmediated peace talks are effective at improving the peace chance for given militarization but lead to more militarization and ultimately to a higher incidence of war. Instead, a form of third-party mediation inspired by work of Myerson effectively brokers peace in emerged disputes and also minimizes equilibrium militarization.

Patent Rights and Innovation Disclosure

Francesco Squintani (with Hugo A. Hopenhayn), Review of Economic Studies (2016)

This article studies optimal patents with respect to the timing of innovation disclosure. In a simple model, we identify forces that lead firms to either suboptimally patent too early or too late in equilibrium, and we determine conditions so that stronger patents induce earlier or later equilibrium disclosure. Then, by solving an infinite multistage patent game with a more explicit structure, we describe innovation growth, and derive detailed predictions that can be used for policy experiments. As an application, we calibrate our multistage game using summary statistics from the seeds breeding industry. We find that weaker patent rights may result in welfare gains of 46% relative to the status quo. The gains are achieved because weaker patents reduce competition, thus leading firms to postpone patenting.