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Featured Journal Publications

Women’s fertility and labor market responses to a health innovation

Bhalotra, Sonia, Venkataramani, Atheendar and Walther, Selma, Journal of the European Economic Association

We investigate women’s fertility, labor, and marriage market responses to a health innovation that led to reductions in mortality from treatable causes, and especially large declines in child mortality. We find delayed childbearing, with lower intensive and extensive margin fertility, a decline in the chances of ever having married, increased labor force participation, and an improvement in occupational status. Our results provide the first evidence that improvements in child survival allow women to start fertility later and invest more in the labor market. We present a new theory of fertility that incorporates dynamic choices and reconciles our findings with existing models of behavior.

Self-fulfilling prophecies, quasi-non-ergodicity & wealth inequality

Jean-Philippe Bouchaud and Roger E. A Farmer, Journal of Political Economy

We construct a model of an exchange economy in which agents trade assets contingent on an observable signal, the probability of which depends on public opinion. The agents in our model are replaced occasionally and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi-non-ergodic process and that people continue to disagree with each other forever. These disagreements generate large wealth inequalities that arise from the multiplicative nature of wealth dynamics which make successful bold bets highly profitable

A model of the Fed’s view on inflation

Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin and Giovanni Ricco, The Review of Economics and Statistics

We develop a medium-size semistructural time series model of inflation dynamics that is consistent with the view, often expressed by central banks, that three components are important: a trend anchored by long-run expectations, a Phillips curve, and temporary fluctuations in energy prices. We find that a stable long-term inflation trend and a well-identified steep Phillips curve are consistent with the data, but they imply potential output declining since the new millennium and energy prices affecting headline inflation not only via the Phillips curve but also via an independent expectational channel.

Searching with Friends

Stefano Caria, Simon Franklin, Marc Witte, Journal of Labor Economics

We study how active labor market policies affect the exchange of information and support among jobseekers. Leveraging a unique social network survey in Ethiopia, we find that a randomized job-search assistance intervention reduces information sharing and support between treated jobseekers and their active job-search partners. Due to lower job-search support, untreated individuals search less and, suggestively, have worse employment outcomes. These results are consistent with a model of networks where unemployed individuals form job-search partnerships to exploit the complementarities of job search.

Identification and inference of network formation games with misclassified links

Luis Candelaria and Takuya Ura, Journal of Econometrics

This paper considers a network formation model when links are potentially misclassified. We focus on a game-theoretical model of strategic network formation with incomplete information, in which the linking decisions depend on agents’ exogenous attributes and endogenous network characteristics. In the presence of link misclassification, we derive moment conditions that characterize the identified set for the preference parameters associated with homophily and network externalities. Based on the moment equality conditions, we provide an inference method that is asymptotically valid when a single network of many agents is observed. Finally, we apply our misclassification-robust method to study the preference parameters of a lending network in rural villages in southern India.

The Human Side of Structural Transformation

Tommaso Porzio, Federico Rossi and Gabriella Santangelo, American Economic Review

We document that nearly half of the global decline in agricultural employment was driven by new cohorts entering the labor market. A new dataset of policy reforms supports an interpretation of these cohort effects as human capital. Using a model of frictional labor reallocation, we conclude that human capital growth led to a sharp decline in the agricultural labor supply, accounting, at fixed prices, for 40 percent of the decrease in agricultural employment. This aggregate effect is halved in general equilibrium and it reflects the role of human capital as both a mediating factor and an independent driver of labor reallocation.

Migrants and firms : evidence from China

Clement Imbert, Marlon Seror, Yifan Zhang and Yanos Zylberberg, American Economic Review

How does rural-urban migration shape urban production in developing countries? We use longitudinal data on Chinese manufacturing firms between 2000 and 2006, and exploit exogenous variation in rural-urban migration induced by agricultural income shocks for identification. We find that, when immigration increases, manufacturing production becomes more labor intensive and productivity declines. We investigate the reorganization of production using patent applications and product information. We show that rural-urban migration induces both labor-oriented technological change and the adoption of labor intensive product varieties.

Gravity and heterogeneous trade cost elasticities

Natalie Chen and Dennis Novy, The Economic Journal

How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to popular trade cost variables such as currency unions, trade agreements and World Trade Organization membership. While we estimate that these variables are associated with increased bilateral trade on average, we find substantial heterogeneity. Consistent with the predictions of our framework, trade cost effects are strong for ‘thin’ bilateral relationships characterised by small import shares, and weak or even zero for ‘thick’ relationships.

Markups, quality, and trade costs.

Natalie Chen and Luciana Juvenal, Journal of International Economics

This paper examines how trade costs induced by geographic distance or bilateral tariffs impact the markups of exports differentiated by quality. It relies on a data set that combines Argentinean firm-level wine exports with experts’ wine ratings as a measure of quality. Exporters price discriminate across destinations by raising markups in more distant markets, and by lowering them in high-tariff countries. However, the response of markups to changes in trade costs is heterogeneous and weaker for higher quality exports. These empirical patterns can be predicted by trade models featuring demand functions more convex than log-concave, but less than superconvex. They demonstrate that the variation in firm-level export unit values across markets is not only driven by quality differences but also by markup variation conditional on quality.

Third party intervention and strategic militarization

Adam Meirowitz, Massimo Morelli, Kristopher W. Ramsay and Francesco Squintani, Quarterly Journal of Political Science

Codified at the 2005 United Nations World Summit, the doctrine of Responsibility to Protect articulates an ideal of international interventions motivated by compassion for victims and a desire to bring stability to hot-spots around the world. Despite this consensus, practitioners and scholars have debated the importance of unintended consequences stemming from the expectation of third-party intervention. We analyze how third-party intervention shapes the incentives to arm, negotiate settlements, and fight wars in a parsimonious game theoretic model. Among the unintended consequences we find: interventions that indiscriminately lower the destructiveness of war increase the probability of conflict and increasing the cost of arming makes destructive wars more likely. Other interventions, however, can have much more beneficial effects and our analysis highlights peace-enhancing forms of third-party intervention. From a welfare perspective, most interventions do not change the ex-ante loss from war, but do have distributional effects on the terms of peace. As a result R2P principles are hard to implement because natural forms of intervention create incentives that make them largely self-defeating.

Sieve BLP: A Semi-Nonparametric Model of Demand for Differentiated Products (In Press)

Ao Wang, Journal of Econometrics

We develop a semi-nonparametric approach to identify and estimate the demand for differentiated products. The proposed method adopts a random coefficients discrete choice logit model (i.e., mixed logit model) in which the distribution of random coefficients is nonparametrically specified. Our method minimizes misspecification error in the distribution to which routinely used parametric approach is subject. In addition, it overcomes the practical challenge of dimensionality in the number of products that remains the main hurdle in the nonparametric estimation of demand functions. We propose a sieve estimation procedure (referred to as sieve BLP) that remains simple to implement. Extensive Monte Carlo simulations show its robust finite-sample performance under various data generating processes. We use the method to investigate the welfare implications of a sugar tax in the ready-to-eat cereal industry in the US. This application underscores the usefulness of sieve BLP due to its ability to allow for flexibly specified individual heterogeneity in demand, especially when the researcher aims to quantify the distributional effects of a policy change

Approximate Maximum Likelihood for Complex Structural Models (In Press)

Eric Renault (with Veronika Czellar and David T. Frazier), Journal of Econometrics

Indirect Inference (I-I) is a popular technique for estimating complex parametric models whose likelihood function is intractable, however, the statistical efficiency of I-I estimation is questionable. While the efficient method of moments, Gallant and Tauchen (1996), promises efficiency, the price to pay for this efficiency is a loss of parsimony and thereby a potential lack of robustness to model misspecification. This stands in contrast to simpler I-I estimation strategies, which are known to display less sensitivity to model misspecification due in large part to their focus on specific elements of the underlying structural model. In this research, we propose a new simulation-based approach that maintains the parsimony of I-I estimation, which is often critical in empirical applications, but can also deliver estimators that are nearly as efficient as maximum likelihood. This new approach is based on using a constrained approximation to the structural model, which ensures identification and can deliver estimators that are consistent and nearly efficient. We demonstrate this approach through several examples, and show that this approach can deliver estimators that are nearly as efficient as maximum likelihood, when feasible, but can be employed in many situations where maximum likelihood is infeasible.

On the Quantity and Quality of Girls: Fertility, Parental Investments and Mortality

Sonia Bhalotra (with S Anukriti and Eddy H F Tam), The Economic Journal

Access to prenatal sex-detection technology in India has led to a phenomenal increase in abortion of girls. We find that it has also narrowed the gender gap in under-five mortality, consistent with surviving girls being more wanted than aborted girls. For every three aborted girls, one additional girl survived to age five. Mechanisms include moderation of son-biased fertility stopping and narrowing of gender gaps in parental investments. However, surviving girls are more likely to be born in lower-status families. Our findings have implications not only for counts of missing girls but also for the later life outcomes of girls.

Pre-colonial warfare and long-run development in India

James Fenske (with Mark Dincecco, Anil Menon, Shivaji Mukherjee), The Economic Journal

Does pre-colonial history - and in particular the role of interstate warfare - help explain long-run development patterns across India? To address this question, we construct a new geocoded database of historical conflicts on the Indian subcontinent. We document a robust positive relationship between pre-colonial conflict exposure and local economic development today. Drawing on archival and secondary data, we show that districts that were more exposed to pre-colonial conflict experienced greater early state-making, followed by lower political violence and higher investments in physical and human capital in the long term.

In vaccines we trust? The effects of the CIA's vaccine ruse on immunization in Pakistan

Andreas Stegmann (with Monica Martinez-Bravo), Journal of the European Economic Association

In July 2011, the Pakistani public learnt that the Central Intelligence Agency (CIA) had used a vaccination campaign as cover to capture Osama Bin Laden. The Taliban leveraged on this information and launched an anti-vaccine propaganda campaign to discredit vaccines and vaccination workers. We evaluate the effects of these events on immunization by implementing a difference-in-differences strategy across cohorts and districts. We find that vaccination rates declined between 23% and 39% in districts in the 90th percentile of Islamist support relative to those in the 10th percentile. These results suggest that information discrediting vaccination campaigns can negatively affect trust in health services and demand for immunization.

How distorted food prices discourage a healthy diet

Roberto Pancrazi, Thijs Van Rens and Marija Vukotic, Science Advances

Public policy making for the prevention of diet-related disease is impeded by a lack of evidence on whether poor diets are a matter of personal responsibility or a choice set narrowed by environmental conditions. An important element of the environment is market imperfections in food retail that distort prices. We use a rich dataset on quantities and prices of food purchases in the United States and a structural model of dietary choices to examine variation in diets across households that have different levels of income and live in different neighbourhoods. We find that price distortions account for one-third of the gap between the recommended and actual intake of fruits and vegetables. A feasible fiscal intervention that remedies these distortions makes all consumers better off.

A theory of power wars

Helios Herrera (with Massimo Morelli and Salvatore Nunnari), Quarterly Journal of Political Science

We present a theory of war onset and war duration in which power is multidimensional and can evolve through conflict. The resources players can secure without fighting are determined by their political power, while the ability of appropriating resources with violence is due to their military power. When deciding whether to wage a war, players evaluate the consequences on the current allocation of resources as well as on the future distribution of military and political powers. We deliver three main results: a key driver of war is the mismatch between military and political power; dynamic incentives may amplify static incentives, leading forward-looking players to be more belligerent; and a war is more likely to last for longer if political power is initially more unbalanced than military power and the politically under-represented player is militarily advantaged. Our results are robust to allowing the peaceful allocation of resources to be a function of both political and military powers. Finally, we provide empirical correlations on interstate wars that are consistent with the theory.

The origin of the state: land productivity or appropriability?

Omer Moav (with Luigi Pascali and Joram Mayshar), Journal of Political Economy

The conventional theory about the origin of the state is that the adoption of farming increased land productivity, which led to the production of food surplus. This surplus was a prerequisite for the emergence of tax-levying elites and, eventually, states. We challenge this theory and propose that hierarchy arose as a result of the shift to dependence on appropriable cereal grains. Our empirical investigation, utilizing multiple data sets spanning several millennia, demonstrates a causal effect of the cultivation of cereals on hierarchy, without finding a similar effect for land productivity. We further support our claims with several case studies.

Pre-colonial warfare and long-run development in India

James Fenske (with Mark Dincecco, Anil Menon and Shivaji Mukherjee), The Economic Journal

Does pre-colonial history - and in particular the role of interstate warfare - help explain long-run development patterns across India? To address this question, we construct a new geocoded database of historical conflicts on the Indian subcontinent. We document a robust positive relationship between pre-colonial conflict exposure and local economic development today. Drawing on archival and secondary data, we show that districts that were more exposed to pre-colonial conflict experienced greater early state-making, followed by lower political violence and higher investments in physical and human capital in the long term.

Gender identity, coworking spouses and relative income within households

Natalia Zinovyeva (with Maryna Tverdostup), American Economic Journal: Applied Economics

Bertrand, Kamenica, and Pan (2015) document that in the United States there is a discontinuity to the right of 0.5 in the distribution of households according to the female share of total earnings, which they attribute to the existence of a gender identity norm. We provide an alternative explanation for this discontinuity. Using linked employer-employee data from Finland, we show that the discontinuity emerges as a result of equalization and convergence of earnings in coworking couples, and it is associated with an increase in the relative earnings of women, rather than a decrease as predicted by the norm.

Urban water disinfection and mortality decline in lower-income countries

Sonia Bhalotra (with Alberto Diaz-Cayeros, Grant Miller, Alfonso Miranda, Atheendar S. Venkataramani), American Economic Journal: Economic Policy

Historically, improvements in municipal water quality led to substantial mortality decline in today's wealthy countries. However, water disinfection has not consistently produced large benefits in lower-income countries. We study this issue by analyzing a large-scale municipal water disinfection program in Mexico that increased water chlorination coverage in urban areas from 58 percent to over 90 percent within 18 months. We estimate that the program reduced childhood diarrheal disease mortality rates by 45 to 67 percent. However, inadequate sanitation infrastructure and age (degradation) of water pipes may have attenuated these benefits substantially.

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

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

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

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

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.

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.