Thiemo Fetzer, Christina Palmou & Jakob Schneebacher

We study how businesses adjust to significant rises in energy costs. This matters for both the current energy crisis and the longer-term shift towards Net Zero. Using firm-level real-time survey and administrative data backed by a pre-registered analysis plan, we examine how firms respond to the energy price shock triggered by Russia’s invasion of Ukraine along output, price, input, process and survival margins. We find that, on average, firms pass on some cost increases, build up cash reserves, and face higher debt, but do not yet see layoffs or bankruptcies. However, effects are highly heterogeneous by size and industry: for instance, small firms tend to increase cash reserves and prices, while large firms invest more in capital. We estimate separate elasticities for many small industry cells and subsequently use k-means clustering techniques on the estimated effects to identify high- dimensional firm-adaptation archetypes. These estimates can help tailor firm support in the energy transition both in the short and the long term. More generally, the machinery developed in this paper enables policymakers to evaluate and adjust economic policy in near-real time.

Tingjun Liu & Dan Bernhardt

We consider a classical auction setting in which an asset/project is sold to buyers who privately receive signals about expected payoffs, and payoffs are more sensitive to the signal of the bidder who controls the asset. We show that a seller can increase revenues by sometimes allocating cash-flow rights and control to different bidders, e.g., with the highest bidder receiving cash flows and the second-highest receiving control. Separation reduces a bidder’s information rent, which depends on the importance of his private information for the value of his awarded cash flows. As project payoffs are most sensitive to the information of the bidder who controls the project, allocating cash flow to another bidder lowers bidders’ informational advantage. As a result, when signals are close, the seller can increase revenues by splitting rights between the top two bidders.

Eleanya Nduka & Modupe Jimoh

This study utilizes novel data to investigate the impact of cooking energy sources and indoor air pollution on the happiness, life satisfaction, physical, and mental health of women in Nigeria. The existing body of literature relies on ambient air pollution data, which can be limiting in resource-constrained settings. To address this gap, we employ a direct approach, measuring Carbon Monoxide (CO) levels in participants’ blood using the Rad-57 CO-oximeter. Our analysis reveals strong positive correlations between the utilization of clean cooking energy and women’s reported happiness and life satisfaction. Additionally, the study finds that clean cooking energy usage is associated with a significant reduction in mental health problems among women. These findings highlight a substantial disparity in wellbeing based on access to clean cooking energy sources. Furthermore, exposure to carbon monoxide, as measured in this study, demonstrates a detrimental effect on women’s health and overall well-being. Consequently, policymakers and stakeholders should prioritize initiatives that promote household energy access and facilitate the transition to clean cooking practices, especially in rural areas where the use of polluting fuels and exposure to indoor air pollution remain prevalent concerns.

Thiemo Fetzer, Benjamin Guin & Felipe Netto

This paper uncovers if and how insurance companies react to shocks to collateral in their portfolio of securitized assets. We address this question in the context of commercial real estate cash flow shocks, which are informationally opaque to holders of commercial mortgage-backed securities (CMBS). Using detailed micro data, we show that cash flow shocks during the COVID-19 pandemic predict CRE mortgage delinquency, especially those stemming from lease expiration of offices, reflecting lower demand for these properties. Insurers react to such cash flow shocks by selling more exposed CMBS—mirrored by a surge in small banks holding CMBS—and the composition of their CMBS portfolio affects their trading behavior in other assets. Our results indicate that institutional investors actively monitor underlying asset risk, and even gain an informational advantage over some banks.

Matilde Casamonti & Natalia Zinovyeva

We analyze the impact of evaluator and candidate gender on the language used in academic evaluations using data on 295,000 evaluation reports for applicants seeking professorial promotion across all academic fields in Italy. In this context, candidates are assessed by a national-level committee composed of five randomly selected evaluators from the corresponding field. We observe that the language used in evaluation reports varies significantly with applicants’ productivity and professional ties to evaluators, but we find no indication that the language of the assessments depends on the gender of either the candidates or the evaluators.

Leonardo Melosi, Hiroshi Morita, Anna Rogantini Picco and Francesco Zanetti

Announcing a large fiscal stimulus may signal the government’s pessimism about the severity of a recession to the private sector, impairing the stabilizing effects of the policy. Using a theoretical model, we show that these signaling effects occur when the stimulus exceeds expectations and are more noticeable during periods of high economic uncertainty. Analysis of a new dataset of daily stock prices and fiscal news in Japan supports these predictions. We introduce a method to identify fiscal news with different degrees of signaling effects and find that such effects weaken or, in extreme cases, even completely undermine the stabilizing impact of fiscal policy.

Nicolas Bottan & Dan Bernhardt

This paper studies the impact of relative assessment on performance using a quasiexperiment: club-level swimming competitions in the US. By exploiting the age group structure, where swimmers are assessed against peers within their age group and experience a significant shift in relative standing upon aging up, we identify the causal effects of being assessed against better-performing peers. Using a regression discontinuity design, we find that swimmers, on average, swim significantly slower after aging up. This effect is similar across genders and is most pronounced among swimmers in the middle and top of the ability distribution, while those in the bottom third show no significant change. Our findings highlight the importance of considering the psychological impacts of relative assessment in competitive environments.

Devesh Rustagi

Does self-governance, a hallmark of democratic societies, foster norms of generalized cooperation? Does this effect persist, and if so, why? I investigate these questions using a natural experiment in Switzerland. In the middle-ages, the absence of an heir resulted in the extinction of a prominent noble dynasty. As a result, some Swiss municipalities became self-governing, whereas the others remained under feudalism for another 600 years. Evidence from a behavioral experiment, World Values Survey, and Swiss Household Panel consistently shows that individuals from historically self-governing municipalities exhibit stronger norms of cooperation today. Referenda data on voter-turnout allow me to trace these effects on individually costly and socially beneficial actions for over 150 years. Furthermore, norms of cooperation map into prosocial behaviors like charitable giving and environmental protection. Uniquely, Switzerland tracks every family’s place of origin in registration data, which I use to demonstrate persistence from cultural transmission in a context of historically low migration.

Arthur Blouin, Anandi Mani, Sharun W. Mukand and Daniel Sgroi

Can inequality in rewards result in an erosion in broad-based support for meritocratic norms? We hypothesize that unequal rewards between the successful and the rest, drives a cognitive gap in their meritocratic beliefs, and hence their social preferences for redistribution. Two separate experiments (one in the UK and the other in the USA) show that the elite develop and maintain “meritocratic bias” in the redistributive taxes they propose, even when not applied to their own income: lower taxes on the rich and fewer transfers to the poor, including those who failed despite high effort. These social preferences at least partially reflect a self-serving meritocratic illusion that their own high income was deserved. A Wason Card task confirms that individuals maintain their illusion of being meritocratic, by not expending cognitive effort to process information that may undermine their self-image even when incentivized to do otherwise.

Thiemo Fetzer, Jacob Edenhofer and Prashant Garg

Support for right-wing populist parties is characterised by considerable regional heterogeneity and especially concentrated in regions that have experienced economic decline. It remains unclear, however, whether the spatial externalities of local decline, including homelessness and crime, boost support for populist parties, even among those not directly affected by such decline. In this paper, we contribute to filling this gap in two ways. First, we gather novel data on a particularly visible form of local decline, high-street vacancies, that comprise 83,000 premises in England and Wales. Second, we investigate the influence of local decline on support for the right-wing populist UK Independence Party (UKIP) between 2009 and 2019. We find a significant positive association between high-street vacancy rates and UKIP support. These results enhance our understanding of how changes in the lived environment shape political preferences and behaviour, particularly in relation to right-wing populism.

Hyungmin Park & Francesco Squintani

We study the choice of multiple advisors, balancing political alignment, competence, and diverse perspectives. An imperfectly informed leader can consult one or two advisors. One has views closely aligned with the leader’s, but his information is imprecise or correlated with the leaders own. The other is more biased but has independent or more precise information. We identify a trade-off between consulting the more aligned or the better informed expert, even when this entails small costs. Subtle comparative statics emerge : When the leader consults both advisors, increasing the bias of the more biased expert may result in the dismissal of the other advisor. The leader may opt to delegate consulting and decision-making, but only to the advisor who collects superior information in equilibrium. We then study the uncertain trade-off case where the most informed advisor is not necessarily also more biased. We find that reducing the probability that the better-informed expert is more biased may lead to hiring also the other advisor. The leader may delegate to the advisor with uncertain bias, although he is more biased in expectation, because he more easily aggregates information in equilibrium.

Sonia R. Bhalotra, David J. Deming, Farah Said, Joseph Vecci & Ben Weidmann

This paper develops a novel method to identify the causal contribution of managers to team performance. The method requires repeated random assignment of managers to multiple teams and controls for individuals’ skills. A good manager is someone who consistently causes their team to produce more than the sum of their parts. Good managers have roughly twice the impact on team performance as good workers. People who nominate themselves to be in charge perform worse than managers appointed by lottery, in part because self-promoted managers are overconfident, especially about their social skills. Managerial performance is positively predicted by economic decision-making skill and fluid intelligence – but not gender, age, or ethnicity. Selecting managers on skills rather than demographics or preferences for leadership could substantially increase organizational productivity.

Adam Di Lizia

How does social influence affect consumer ratings? Using a dataset from the popular Steam gaming platform I investigate how quality judgements depend on pre-existing consumer assessments. In 2019, Steam introduced a new review system which decreased the exposure of users to previous ratings. Firstly, I find that user ratings are dependent on average ratings. A 10 percent increase in average rating increases the probability a review is positive by 5.4% before the policy change, but only by 2.8% after. The result is not due to selection, and is robust to a wide range of alternative specifications. Secondly, the effect is heavily asymmetric: individual reviewers are more negative when exposed to a lower average rating, but do not respond to a higher one. This negativity compounds and inflates the gap between lower rated and higher rated games. Overall, these social influence effects are driven by less experienced users on the platform. Finally, using estimates of owner data, I run a structural model of game choice. A 1% increase in rating is equivalent to a 2.5 dollar price reduction. This suggests social influence has large implications for buyers and sellers.

Gabriele Guaitoli & Roberto Pancrazi

The widening income gap between older and younger individuals is a key topic in political and academic discussions. Research often focuses on labor earnings, neglecting other income sources and cross-country comparisons. This paper fills these gaps by analyzing disposable income trends in 2004-2018 across 32 countries using the Luxembourg Income Study Database. Key findings: (1) The age-income gap has increased in richer countries but decreased in poorer ones; (2) Higher employment rates among older individuals drive this disparity in richer countries; (3) Increased female labor market participation mildly affected the employment margin, while rising education and later retirement did not.

Amira Elasra

This paper investigates the association between sets of inputs and the educational outcomes of English adolescents. By linking the Longitudinal Study of Young People in England and Ofsted data, the paper employs the Context-Input-Process-Outcome model to compare the correlation of students and school inputs with their cognitive and non-cognitive outcomes. Using Nonlinear Canonical Correlation Analysis, the paper compares the characteristics of the high achievers to those of the low achievers revealing consistency with current findings in the literature. The results reveal that student inputs exert a greater influence than school inputs in revealing these characteristics. Specifically, unlike low achievers high achievers tend to exhibit positive attitudes toward school, benefit from supportive home learning environments, express greater eagerness to pursue university education, and belong to higher socio-economic backgrounds.

Dan Bernhardt & Shaoting Pi

Hedge fund activists often aim to convince other shareholders to vote for a particular corporate policy, while majority shareholders recognize that activist recommendations serve their own interests, not necessarily maximizing firm value. We show how an activist can increase the likelihood of a favorable vote by delegating the tasks of acquiring information and making recommendations to another activist. This choice balances motivating the delegated activist to acquire costly information against ensuring shareholders trust the recommendation. We characterize how the hedge fund activist’s bias affects the delegation bias, information acquisition, recommendation and shareholder voting decisions, and firm value.

Devesh Rustagi

Does markets exposure foster or erode civic values and rules necessary to constrain opportunistic behavior? Using a natural experiment on market location from Ethiopia, I compare individuals who are from the same clan and attend the same market but vary in their exposure to that market. I find a positive effect of market exposure on civic values and rule formation. This result arises because individuals trade primarily in livestock, which is prone to cooperation problem from asymmetric information and weak state capacity. I use vignette studies to show that societies develop different types of exchange structures to mitigate this problem, which then shapes civic values and rules. In societies far from markets, there is no need for civic values and rules, as individuals rarely attend markets and sell livestock eponymously within their social network. In societies near markets, ephemeral and impersonal nature of market exchange creates a demand for civic values and community sanctioning as lubricants to conclude exchange, otherwise individuals end up losing gains from trade. Exposure to markets without asymmetric information has no effect on civic values and rules, suggesting that prosperity and contact hypothesis are not the channels.

Thiemo Fetzer Oliver Vanden Eynde Austin L Wright

Managing military operations across and between teams of partner nations remains a first-order challenge to security and development during conflict. NATO, under the umbrella of the International Security Assistance Force (ISAF), brought together troops from 28 countries to help enhance security provision in Afghanistan. ISAF units were given responsibility for specific operational units. The assignment of responsibilities to different national armed forces could lead to coordination problems. We explore whether the provision of security is affected by horizontal frictions (when different countries are responsible for different sides of borders) or vertical frictions (when different countries control different levels of the operational hierarchy). We find that both horizontal frictions and vertical frictions reduce military support activities, including aid projects. They are also associated with higher levels of insurgent violence. These findings indicate that misalignment between units within military organizations can undermine the effectiveness of security and development interventions during war, with broader implications for managing complex teams under risk.

Hanno Kase, Leonardo Melosi & Matthias Rottner

We leverage recent advancements in machine learning to develop an integrated method to solve globally and estimate models featuring agent heterogeneity, nonlinear constraints, and aggregate uncertainty. Using simulated data, we show that the proposed method accurately estimates the parameters of a nonlinear Heterogeneous Agent New Keynesian (HANK) model with a zero lower bound (ZLB) constraint. We further apply our method to estimate this HANK model using U.S. data. In the estimated model, the interaction between the ZLB constraint and idiosyncratic income risks emerges as a key source of aggregate output volatility.

Michael Waterson & Olga Wojciechowska

We examine bidders’ behaviour in auction sales of the iPhone4 on eBay in the context of a significant shortage of the product at listed price, leading to achieved prices significantly above the posted price, on average. We examine the behaviour of sellers then test the direct prediction of the successive auctions model that bidders increase their bids over successive auctions and are influenced by the effects of information gained from previous auctions, finding that bidders indeed react both to their direct experience and to experience gained from studying previous auctions. In addition, the results are suggestive of bidders being reluctant to reveal their true valuation of the product initially but that they do so only over time. Our results are novel in being able to track individual bidders’ behaviour rather than simply auction outcomes.

Marcus Miller

As the world experiences a fourth industrial revolution - in Information Technology - we look back at how things turned out in the first Industrial Revolution, which began when Adam Smith was writing The Wealth of Nations. For the historical record, we draw on the recent study of Power and Progress by Daron Acemoglu and Simon Johnson, who describe how the benefits of innovation were – or were not - spread across society in Britain at that time. This paper focuses on the case of India under colonial rule, however, where two themes emerge. First, how the transfer of technology under the control of a private company – based in London and granted monopoly powers by the British government - was enough to stymie the ‘virtuous spiral of Smithian growth’ for a century or more. Second, how two centuries of colonial control also deprived the indigenous population of what Amartya Sen has claimed is the key insurance against famine - namely democratic accountability. The paper end with brief remarks on how industrial policy in India of today could help spread the benefits of the current IT revolution.

See-Yu Chan

What contributed to the decline in employment-to-employment (EE) transition rate in the UK in recent decades? This paper empirically examines potential channels that caused the sluggish EE mobility from 2000-2019. First, I break down the observed fall in EE mobility relative to unemployed-to-employment (UE) transition into changes in relative search intensity and worker’s acceptance rate. I find the vast majority of the persistent decline after 2010 was due to fall in job acceptance. Second, I estimate a dynamic job ladder model using UK survey data to examine the relative importance of changes in employment and job offer distribution in reducing job acceptance. Results reveal that the falling job acceptance in the 2000s was attributed to workers moving up the job ladder; while acceptance remained low in the 2010s as a result of deterioration in offer qualities. Counterfactual exercise shows that if the attractiveness of poaching offers did not deteriorate after 2010, the EE mobility would have returned to levels in early 2000s. Finally, I test the contribution of composition changes to the fall in EE rate by implementing a between-within decomposition using a structural framework, which accounts for both worker heterogeneity and sectoral compositions. Results rule out demographic changes or structural transformation as main drivers of the fall in EE rates.

Immanuel Feld & Thiemo Fetzer

Climate action requires significant public- and private sector investment to achieve meaningful reductions in carbon emissions. This paper documents that large-scale austerity, coupled with barriers to flows of data and a lack of (digital) skills in (local) government, may have been a significant barrier to delivering climate action in the form of retrofitting. Decomposing heterogeneity in estimated treatment effects of a large-scale energy efficiency savings program that was rolled out through a regression discontinuity design in the early 2010s, we find that both the extent of austerity-induced local budget cuts and poor digital connectivity – may be responsible for up to 30% fewer retrofit installations that counterfactually would have taken place had it not been for austerity

Eleonora Alabrese & Thiemo Fetzer

Do opinion polls sway turnout and shape political competition in majoritarian systems? Can they strengthen the persistence of safe seats? Analysing national opinion polls during UK general elections and the perceived safeness of constituencies, we find that pre-election polls significantly affect voter turnout. Non-competitive elections predicted by national polls suppress turnout, especially in areas with low perceived electoral competition. This reinforces the advantage of trailing parties in their strongholds, potentially fuelling party demand for safe seats that may give rise to demands for gerrymandering. This can exacerbate spatial polarization of the electoral landscape, with implications for governance regarding opinion polling.

Carlo Perroni, Kimberley Scharf, Sarah Smith, Oleksandr Talavera & Linh Vi

Combining longitudinal postcode-level data on charitable donations made through a UK giving portal with publicly available data on local crime and neighborhood characteristics, we study the relationship between local crime and local residents’ charitable giving and we investigate the possible mechanisms underlying this relationship. An increase in local crime corresponds to a sizeable increase in the overall size of unscheduled charitable donations. This effect is mainly driven by the responses of female and gender unclassified donors. Donation responses also reflect postcode variation in socio-economic characteristics, levels of mental health, and political leanings, but mainly so for female and gender-unidentified donors.

Margot Belguise

Politicians often use red herrings to distract voters from scandals. When do such red herrings succeed? I develop a model in which an incumbent runs for re-election and potentially faces a scandal. Some incumbents enjoy telling “tales” (attention-grabbing stories) while others use tales to distract voters from the scandal. Multiple equilibria can arise: one with a norm of tale-telling in which red herrings succeed and another with a norm against tale-telling in which they fail. Increased media attention to tales has a nonmonotonic effect, facilitating red herrings at low attention levels, but serving a disciplinary function at high levels.

Mark Dincecco, James Fenske, Bishnupriya Gupta & Anil Menon

We study the relationship between exposure to historical conflict involving heavy weaponry and male-favoring gender norms. We argue that the physical nature of such conflict produced cultural norms favoring males and male offspring. We focus on spatial variation in gender norms across India, a dynamic developing economy in which gender inequality persists. We show robust evidence that areas with high exposure to pre-colonial conflict are significantly more likely to exhibit male favoring gender norms as measured by male-biased sex ratios and crimes against women. We document how conflict-related gender norms have been transmitted over time via male-favoring folkloric traditions, the gender identity of temple gods, and male-biased marriage practices, and have been transmitted across space by migrants originally from areas with high conflict exposure.

Lory Barile & Michalis Drouvelis

A substantial body of literature has shown that women shy away from competition against men, which has been put forward as an explanation for the significant gender differences observed in career promotions and salary negotiations. It is therefore of crucial importance to understand the conditions under which the gender gap in competitiveness can be reduced. In this study, we explore the role of priming. Our findings replicate previous work showing that, in the absence of primes, women compete less than men. By contrast, introducing a priming task can eliminate gender disparities in competitiveness, ceteris paribus; however, the effects are stronger when neutral primes are used. We perform sentiment analysis and attribute this to the more negative emotions triggered in the neutral priming condition, making women more competitive. Overall, our results indicate that costless and simple tools such as priming can be adopted by organisations aiming at reducing gender inequalities in the workplace.

Dan Bernhardt, Stefan Krasa & Francesco Squintani

We develop a model of strategic voting in a spatial setting with multiple candidates when voters have both expressive and instrumental concerns. The model endogenizes the strategic coordination of voters, yet is flexible enough to allow the analysis of political platform competition by policy-motivated candidates. We characterize all strategic voting equilibria in a three-candidate setting. Highlighting the utility of our approach, we analyze a setting with two mainstream and a spoiler candidate, showing that the spoiler can gain from entering, even though she has no chance of winning the election and reduces the winning probability of her preferred mainstream candidate

Juliana Carneiro, Martin Foureaux Koppensteiner & Lıvia Menezes

In this paper, we estimate the causal effect of transitory individual-level health shocks on schooling outcomes in Brazil. We focus on dengue fever, which, despite putting half of the world’s population at risk, has received relatively little attention, possibly due to its low mortality. We link individual register data on dengue infections with detailed individual records from the Brazilian school census and use a fixed effects estimation strategy to estimate the effect of dengue infections on grade retention and dropout. We find that dengue infections during the school year have a substantial negative effect on measures of student success, with an increase in grade retention of 3.5 percent and an increase in dropout of 4.6 percent. Using information on monthly attendance from the monitoring system of conditionalities of the Brazilian cash transfer Bolsa Famılia, we provide evidence that infections reduce school attendance.

Thiemo Fetzer, Callum Shaw & Jacob Edenhofer

Formal conceptions of state capacity have mostly focused on indirect measures of state capacity – by, for instance, using the state’s fiscal or extractive capacity as a proxy for its overall capacity. Yet, this input or extractive view of state capacity falls short, especially since cross-country empirical evidence suggests that similar levels of fiscal capacity, measured by tax revenues as a percentage of GDP, can produce starkly different outputs – both in classic economic terms and in broader terms that citizens would recognize as desirable outcomes, including quality of life, health, security, equality of opportunity, and intergenerational mobility. This paper argues that a central step towards addressing these shortcomings of the conventional view is to account for a crucial and largely ignored boundary of the state or dimension of state capacity: its capacity to gather, process, and deploy information in its conduct of fiscal policy. Specifically, we study how the presence or lack of such informational capacity constrains governments in responding to crises, such as the recent energy price shock. Our framework provides the analytical toolkit to examine how the informational boundary of the state shapes the incentives for policymakers to resort to untargeted and/or distortionary policy instruments, as opposed to targeted and non-distortionary ones, in responding to crises. The policy response to the energy crisis following the invasion of Ukraine provides the empirical context upon which we bring this theoretical framework to bear on data, though the latter can be straightforwardly extended to other recent crises.

Jonathan Cave & Stephen Gibson

Impact assessments (IAs) of government regulatory policy proposals set out their expected costs, benefits and risks and who is likely to face those impacts. In the UK, primary legislation can confer powers on Government ministers and other bodies to enact Statutory Instruments (SIs) and other secondary legislation. Because SIs have the same effect as Acts of Parliament, but face significantly less scrutiny, there has been a trend to increase the use of this mechanism and to use them for areas of policy or principle, rather than purely administrative procedures. However, the different timing and treatment of primary and secondary legislation has important implications for the assessment of the impacts of the proposed measures in IAs. This paper outlines the rationale for a compound (primary and secondary) approach to introducing legislation, identifies different types of subordination and considers the implications for estimating their expected impacts in an IA - particularly when the assessment of the secondary measure happens after some of the uncertainty related to the possible outcomes of the primary measure has been resolved and this can be taken into account in the secondary decision(s). It points out the limitations of the conventional NPV-based approach to assessing the impacts of compound measures and proposes the use of a real options approach to IAs to address this concern. In particular it suggests that the real options approach should be used in cases where there are; uncertain outcomes, different possible timings, irreversible policy decisions and distortions due to the use of standard discount rates. Primary legislation creates the opportunity but not the obligation to pursue secondary measures and should be assessed taking these future options into account.

Hyungmin Park

I investigate the motives behind economic growth under a dictatorship, exploring the tradeoff between pursuing higher future gains, which come with growing threats from the demand for democracy from the emerging middle class, and accepting lower gains for a relatively more stable regime. I propose a model where a dictator invests and acquires a rent, citizens educate their children for skilled jobs, and these children adopt democratic values through education. I find that a dictator invests in an underdeveloped economy for future gains. As the economy matures, investment decreases because more citizens get democratic values from higher education. Democracy follows an opposite investment trend: little investment is made when the economy is underdeveloped, but more investment is made as it develops. The analysis is generalised to cases where the dictator is legitimised by higher economic growth than in democracies, and where the dictator oppresses the middle class through high taxation.

Natalie Chen, Dennis Novy, Carlo Perroni, and Horng Chern Wong

Using firm-level data from France, we document that the shift of economic activity from manufacturing to services over the last few decades has been urban-biased : structural change has been more pronounced in areas with higher population density. This bias can be accounted for by the location choices of large services firms that sort into big cities and large manufacturing firms that increasingly locate in suburban and rural areas. Motivated by these findings, we estimate a structural model of city formation with heterogeneous firms and international trade. We find that agglomeration economies have strengthened for services but weakened for manufacturing. This divergence is a key driver of the urban bias but it dampens aggregate structural change. Rising manufacturing productivity and falling international trade costs further contribute to the growth of large services firms in the densest urban areas, boosting services productivity and services exports, but also land prices.

Timothy Besley, Thiemo Fetzer & Hannes Mueller

This paper estimates the size of the media multiplier, an easily generalizable model-based measure of how far media coverage magnifies the economic response to shocks. We combine monthly aggregated and anonymized credit card activity data from 114 card issuing countries in 5 destination countries with a large corpus of news coverage in issuing countries reporting on violent events in the destinations. To define and quantify the media multiplier we estimate a model in which latent beliefs, shaped by either events or news coverage, drive card activity. According to the model, media coverage can more than triple the economic impact of an event. We document, through our model, that this effect is highly heterogenous and depends on the broader media representation of countries in each others news. We speculate about the role of the media in driving international travel patterns an.

Thiemo Fetzer, Pedro CL Souza, Oliver Vanden Eynde, Austin L. Wright

How domestic constituents respond to signals of weakness in foreign wars remains an important question in international relations. In this paper, we study the impact of battlefield casualties and media coverage on public demand for war termination. To identify the effect of troop fatalities, we leverage the otherwise exogenous timing of survey collection across 26,776 respondents from nine members of the International Security Assistance Force (ISAF) in Afghanistan. Quasi-experimental evidence demonstrates that battlefield casualties increase coverage of the Afghan conflict and public demand for withdrawal, with heterogeneous effects consistent with an original theoretical argument. Evidence from a survey experiment replicates the main results. To shed light on the media mechanism, we leverage a news pressure design and find that major sporting matches occurring around the time of battlefield casualties drive down subsequent coverage, and significantly weaken the effect of casualties on support for war termination. These results highlight the crucial role that media play in shaping public support for foreign military interventions.

Michael Waterson

This paper analyses the consumer impacts of arbitrage focusing on the significant role of internet platforms as monopolistic arbitrageurs between essentially competitive sub-markets that have not been previously linked. As arbitrageurs, there is the potential for them to create consumer benefit, but for a series of reasons, we show that consumer welfare may not be enhanced and that particular sections of the community may be disadvantaged by their actions.

Arun Advani, Cesar Poux, Anna Powell-Smith and Andy Summers

The Register of Overseas Entities (ROE) was introduced by the government in Spring 2022 with the commitment that it would require anonymous foreign owners of UK property to reveal their real identities. We use data released by Companies House and HM Land Registry to assess to what extent the ROE is currently delivering on this aim. We identify and quantify several major gaps in the scope and operation of the register and make recommendations for how the register could be improved.

Peter J. Hammond

Consider a continuum of independent and identically distributed random variables corresponding to the points of the unit interval [0; 1]. Known technical diffculties are complemented by showing directly that the random sample path is almost surely not a Lebesgue measurable function. This refutes the common claim that, because of some version of the "law of large numbers", the integral of each sample path equals the common mean of each random variable. To obtain a valid and useful result, we apply to the continuum of random variables the Monte Carlo method of numerical integration based on limits as the sample size tends to infinity of empirical finite sample averages of the realized random values. The resulting "Monte Carlo integral" is almost surely a degenerate random variable concentrated on the mean. A suitably modified version works when the different indexed random variables are merely independent with cumulative distribution functions that are measurable w.r.t. the index. Further generalizations to Monte Carlo integrals of conditionally independent random variables result, under conditions discussed in Hammond and Sun (2008, 2021), in non-degenerate random integrals that are measurable w.r.t. the conditioning -algebra.

Sascha O. Becker, Hans-Joachim Voth

Can weakened religiosity lead to the rise of totalitarianism? The Nazi Party set itself up as a political religion, emphasizing redemption, sacrifice, rituals, and communal spirit. This had a major impact on its success: Where the Christian Church only had shallow roots, the Nazis received higher electoral support and saw more party entry. shallow Christianity reflects the geography of medieval Christianization and the strength of pagan practices, which we use as sources of exogenous variation. We also find predictive power at the individual level : Within each municipality, the likelihood of joining the Nazi Party was higher for those with less Christian first names.

Carlo Ciccarelli, James Fenske, and Jordi Martí Henneberg

We show that the spread of the railway network slowed the decline of fertilityin Europe during the late nineteenth and early twentieth centuries. We construct novel data on market access across sub-national regions in Europe and use both a panel fixed effects approach and an instrumental variables strategy that leverages variation in market access stemming from access to distant markets. We find that greater market access predicts higher fertility, with a standardized magnitude of 0.14. Consistent with an interpretation that market access increased fertility by raising incomes relative to the returns to child quality and the opportunity cost of childbearing, we show that our results are driven by locations that achieved higher levels of income per capita despite lagging in human capital and female labor force participation.

Margot Belguise, Yuchen Huang & Zhexun Mo

Recent empirical evidence contends that meritocratic ideals are mainly a Western phenomenon. Intriguingly, the Chinese people appear to not differentiate between merit- and luck-based inequalities, despite their rich historical legacy of meritocratic institutions. We propose that this phenomenon might be due to the Chinese public’s greater adherence towards the status quo. In order to test this hypothesis, we run an incentivized redistribution experiment with elite university students in China and France, by varying the initial split of payoffs between two real-life workers to redistribute from. We show that Chinese respondents consistently and significantly choose more non-redistribution (playing the status quo) across both highly unequal and relatively equal status quo scenarios than our French respondents. Additionally, we also show that the Chinese sample does differentiate between merit- and luck-based inequalities, and does not redistribute less than the French absent status quo conformity. Ultimately, we contend that such a phenomenon is indicative of low political agency rather than apathy, inattention, or libertarian beliefs among the Chinese. Notably, our findings show that Chinese individuals’ conformity to the status quo is particularly pronounced among those from families of working-class and farming backgrounds, while it is conspicuously absent among individuals whose families have closer ties to the private sector.

Danilo Cascaldi-Garcia, Marija Vukotic & Sarah Zubairy

When is receiving positive news regarding future technological advancements most impactful on the economy: during recessions or economic booms? A recession might represent an opportune time for investing in relatively cheaper, productivity enhancing activities. However, tighter financial constraints during recessions might hinder the ability to secure funds for these activities. We explore this dichotomy by exploiting patent-based innovation shocks, which are constructed using changes in stock market valuations of firms that obtain patent grants. We find that aggregate patent-based innovation shocks have a greater impact on the economy during recessions, leading to a more significant increase in private investment. Additionally, our exploration of firm-level data uncovers supporting evidence that firms tend to boost their capital investment and R&D expenditures in response to these innovation shocks, particularly during recessions. The financial constraints of firms play a crucial role, with capital investments by firms with low default risk driving the larger impact observed during recessions

Sascha O. Becker, Jared Rubin, and Ludger Woessmann

We use the elements of a macroeconomic production function—physical capital, human capital, labor, and technology—together with standard growth models to frame the role of religion in economic growth. Unifying a growing literature, we argue that religion can enhance or impinge upon economic growth through all four elements because it shapes individual preferences, societal norms, and institutions. Religion affects physical capital accumulation by influencing thrift and financial development. It affects human capital through both religious and secular education. It affects population and labor by influencing work effort, fertility, and the demographic transition. And it affects total factor productivity by constraining or unleashing technological change and through rituals, legal institutions, political economy, and conflict. Synthesizing a disjoint literature in this way opens many interesting directions for future research.

Saraswata Chaudhuri and Eric Renault

Several modern textbooks report that, thanks to the availability of heteroskedasticity robust standard errors, one observes the near-death of Weighted Least Squares (WLS) in cross-sectional applied work. We argue in this paper that it is actually possible to estimate regression parameters at least as precisely as Ordinary Least Squares (OLS) and WLS, even when using a misspecified parametric model for conditional heteroskedasticity. Our analysis is valid for a general regression framework (including Instrumental Variables and Nonlinear Regression) as long as the regression is de ned by a conditional expectation condition. The key is to acknowledge, as first pointed out by Cragg (1992) that, when the user-specific heteroskedasticity model is misspecified, WLS has to be modified depending on a choice of some univariate target for estimation. Moreover, targeted WLS can be improved by properly combining moment equations for OLS and WLS respectively. Efficient GMM must be regularized to take into account the possible multicollinearity of estimating equations when errors terms are actually nearly homoscedastic.

Johannes Böken, Mirko Draca, Nicola Mastrorocco & Arianna Ornaghi

Social media has changed the structure of mass communication. In this paper we explore its role in influencing political donations. Using a daily dataset of campaign contributions and Twitter activity for US Members of Congress 2019-2020, we find that attention on Twitter (as measured by likes) is positively correlated with the amount of daily small donations received. However, this is not true for everybody: the impact on campaign donations is highly skewed, indicating very concentrated returns to attention that are in line with a ‘winner-takes-all’ market. Our results are confirmed in a geography-based causal design linking member’s donations across states.

Mark Harrison

Economic warfare was a product of the total wars of the twentieth century. Four lessons are discussed: (1) Modern economies are resilient under attack. (2) The action of economic warfare is slow. (3) Economic warfare is powerful—eventually. (4) The threat of economic warfare is also powerful—although not always as hoped. To conclude, economic warfare belongs to wars of attrition. In such wars, economic and military measures are complements, not substitutes.

Marcus Miller

For path-breaking insights on how prices can guide the efficient allocation of resources and on how innovation and investment can spur economic growth, Adam Smith is justly renowned. He was, however, well aware of problems posed by market dominance – specifically in banking and, more generally, wherever getting to the scale that delivers increasing returns leads to monopolistic behaviour. For the historical record, we draw on the recent wide-ranging survey by Acemoglu and Johnson on how the benefits of innovation have been spread across society since the Industrial Revolution. We also consider these issues in the context of geo-political competition.

Dilek Sevim, Victoria Baranov, Sonia Bhalotra, Joanna Maselko & Pietro Biroli

We investigate the impacts of a perinatal psychosocial intervention on trajectories of maternal mental health and child skills, from birth to age 3. We find improved maternal mental health and functioning (0.17 – 0.29 SD), modest but imprecisely estimated improvements in parental investments (0.07 to 0.11 SD), and transitory improvements in child socioemotional development (0.06 to 0.39 SD). We also find negligible influence of the intervention on physical health and cognitive development. Estimates of a skill production function reveal that the intervention is associated with reduced productivity of maternal mental health and narrowed depression gaps in mother and child outcomes.

Thiemo Fetzer & Ivan Yotzov

This paper documents that surprise election outcomes – measured as deviations between realised vote shares and expected vote shares based on a newly constructed dataset of opinion polls and party and candidate vote shares close to election day – are causing non-negligible short-term contractions in economic activity. We find that, on average, a percentage point higher surprise is associated with a 0.37 percentage point lower year-on- year growth rate one year after the election. These effects are only present in countries with strong democracies and seem to operate mainly through increased economic policy uncertainty and lower investment growth over a window of up to eight quarters after an election. In addition, surprise performances of left-wing political parties and in elections with transitions to left-wing governments (pre-defined from the Parlgov Database) are associated with the largest effects on the economy.

Thiemo Fetzer, Ludovica Gazze & Menna Bishop

Which households are most affected by energy price shocks? What can we learn about the distributional implications of carbon taxes? How do interventions in energy markets affect these patterns? This paper introduces a measurement framework that leverages granular property-level data representing more than 50% of the English and Welsh housing stock. We use this ex-ante measurement framework to investigate these questions and set out an empirical evaluation framework to study the causal effects of the energy crisis more broadly. We find that the energy price shock has a more pronounced effect on relatively more affluent areas highlighting the likely progressive impact of carbon taxation. We document that commonly used untargeted interventions in energy markets significantly weaken market price signals for able-to-pay households. Alternative, more targeted policies are cheaper, easily implementable, and could better align energy saving incentives.

Nathan Canen and Kyungchul Song

Counterfactual predictions are challenging when the policy variable goes beyond its pre-policy support. However, in many cases, information about the policy of interest is available from different (“source”) regions where a similar policy has already been implemented. In this paper, we propose a novel method of using such data from source regions to predict a new policy in a target region. Instead of relying on extrapolation of a structural relationship using a parametric specification, we formulate a transferability condition and construct a synthetic outcome-policy relationship such that it is as close as possible to meeting the condition. The synthetic relationship weighs both the similarity in distributions of observables and in structural relationships. We develop a general procedure to construct asymptotic confidence intervals for counterfactual predictions and prove its asymptotic validity. We then apply our proposal to predict average teenage employment in Texas following a counterfactual increase in the minimum wage.

Jonathan Cave, Michael Waterson & Giuliana Battisti

This paper aims to examine quantitatively and qualitatively the impact of five key general purpose technologies in order to gain insights into what factors may arise in relation to 5G as a potential example. We first attempt a definition of what constitutes a general-purpose technology, providing a potential framework for analysis of impact mechanisms then take this to the five case studies. It is difficult to capture the impacts of such technologies because their scope is broad and commonly a suitable base case from which to measure impact is missing. In addition, there are in each case antecedents and complementary developments which influence their impact. However, our analysis points to a range of factors that must be considered in relation to potential new candidate technologies, including a range of potential governmental interventions.

Riccardo Degasperi

Surprises in the price of oil futures computed on the day of OPEC announcements have been used as an exogenous measure of shifts in market beliefs about future oil supply to identify shocks to oil supply expectations. I show that these surprises capture not only revisions in market expectations about oil supply, but also revisions in expectations about oil demand. This conflation of supply and demand components invalidates the use of the surprises as an exogenous measure of shocks to oil supply expectations. I show that imposing an additional restriction on the sign of the co-movement between surprises in oil futures and changes in stock prices within the day of the OPEC announcement disentangles the two underlying shocks. Accordingly, I derive two robust instruments for the identification of shocks to oil supply and demand expectations that combine the surprises with this additional sign restriction, and I test them on a set of empirical specifications modelling the oil market and the global economy. A negative shock to oil supply expectations has deep and long-lasting stagflationary effects on global economic conditions that are stronger and more immediate than previously reported. These effects represent a challenge for monetary authorities that seek to stabilise both prices and output. I show that information effects are a prominent feature of the oil market and need to be accounted for when estimating the effects of shocks to oil supply expectations.

Sonia Bhalotra, Irma Clots-Figueras and Lakshmi Iyer

We investigate the impact of the political representation of minority groups on the incidence of ethnic conflict in India. We code data on Hindu-Muslim violence and Muslim political representation in India and leverage quasi-random variation in legislator religion generated by the results of close elections. We find that the presence of Muslim legislators results in a large and significant decline in Hindu-Muslim conflict. The average result is driven by richer states and those with greater police strength. Our results suggest that the political empowerment of minority communities can contribute to curbing civil conflict.

Eugenia Nazrullaeva & Mark Harrison

Who is targeted by preventive repression and why? In the Soviet Union, the KGB applied a form of low-intensity preventive policing, called profilaktika. Citizens found to be engaging in politically and socially disruptive misdemeanors were invited to discuss their behavior and to receive a warning. Using novel data from Lithuania, a former Soviet republic, in the late 1950s and the 1970s, we study the profile and behaviors of the citizens who became subjects of interest to the KGB. We use topic modeling to investigate the operational focuses of profilaktika. We find that profilaktika began as a way of managing specific threats or “known risks” that arose from the experience of postwar Sovietization. The proportion of “unknown risks” – people without risk factors in their background or personal records – increased by the 1970s. These people were targeted because of their anti-Soviet behaviour, which the KGB attributed to “contagious” foreign influences and the spread of harmful values.

Jan David Bakker, Nikhil Datta, Richard Davies and Josh De Lyon

Brexit continues to affect the UK economy. The results in this report are updates to the original study of Bakker et al. (2022), showing that higher non-tariff barriers due to Brexit are affecting food price inflation and costing households in the UK. While the original paper used data up to January 2022, this report updates the dataset through to March 2023. The methodology is otherwise identical so for more details please consult the original paper (appended to this paper).

John Geanakoplos & Herakles Polemarchakis

Any finite conversation no matter how crazy it sounds can be given context in which it is a rational dialogue

Thiemo Fetzer

The invasion of Ukraine has led to an unprecedented increase in energy prices in much of Western Europe with policy makers actively intervening in energy markets to cushion the shock. The UK’s policy response stands out: the energy price guarantee (EPG) was entirely untargeted and is, in real terms, much less generous to those living in properties with low energy efficiency. Using granular data and following a documented research approach this paper documents that areas more exposed to the energy price shock saw a notable increase in burglaries and anti-social behaviour: the energy price shock is responsible for a 6 to 10 percent increase in burglaries and a 9 to 24 percent increase in police reported anti-social behaviour between October 2022 to March 2023 inclusive. A quantification of policy alternatives suggests that a more targeted energy support package and/or a more energy efficient housing stock could have resulted in a drastically less pronounced uptick in crime.

Alexander Klein & Nicholas Crafts

This paper examines long-run unconditional convergence of labour productivity in manufacturing across 48 contiguous U.S. states. For that purpose, we construct a detailed panel data set of state industry pairs with over 120 industries covering the period 1880-2007. We find that unconditional 𝛽- convergence in manufacturing productivity was pervasive and rapid – 7.6% per year in 1880-2007 – and that manufacturing accounts for most of the unconditional convergence contribution to overall productivity growth over the long run: 61% in 1880-1940 and 91% in 1958-2007. We also examined broad U.S. regions and found that in the South the contribution of unconditional 𝛽-convergence in manufacturing to aggregate productivity growth before World War II was weak not because of a slower convergence rate but a much smaller manufacturing sector.

Sonia Bhalotra, Leticia Nunes & Rudi Rocha

Hospitals are under increasing pressure as they bear a growing burden of chronic disease while also dealing with emergency cases that do not all require hospital care. Many countries have responded by introducing alternative facilities that provide 24/7 care for basic and medium-complexity cases. Using administrative data, we investigate impacts of the opening of these intermediate facilities (UPA) in the state of Rio de Janeiro in Brazil. We find that an UPA opening in the catchment area of a hospital reduces hospital outpatient procedures and admissions and that this is associated with improved hospital performance. There is a decline in inpatient mortality, particularly mortality from the more complex conditions that hospitals are best equipped to deal with. There is no discernible change in the risk profile of cases going to hospital, and no concurrent policy changes that can account for these findings. In order to capture displacement effects, we investigate city-level population outcomes. We find that two-thirds of the decline in hospital mortality is offset by deaths in UPAs. Looking at individual death causes, we see a net decline in deaths from congestive heart failure.

Wiji Arulampalam, Anjor Bhaskar and Nisha Srivastava

We examine the link between a mother’s autonomy - the freedom and ability to think, express, make decisions, and act, independently - and the nutritional status of her children. We design a novel statistical framework that accounts for the cultural and traditional environment to create a measure of maternal autonomy treating this as a latent characteristic that is fixed in the short term. Using data from India, we deal with two econometric challenges: (i) creation and measurement of the ‘autonomy’ index, and (ii) endogeneity caused by selection due to son preference. We find : (i) one standard deviation (SD) higher autonomy score is associated with a 0.16 SD higher Height-for-Age Z-scores (HAZ); and an (ii)10% lower prevalence of stunting (HAZ <-2 SD). The latter is equivalent to the prevention of approximately 300,000 children from stunting, indicating the important role of maternal autonomy.

Arun Advani, Andy Summers & Hannah Tarrant

Information about the share of total income held by the richest 1%, or other top income groups, is increasingly used to discuss inequality levels and trends within and between nations. A top income share is the ratio of the total income held by the top income group divided by total personal income (the ‘income control total’). We compare two approaches to estimating income control totals: the ‘external’ approach used by the World Inequality Database, and an augmented ‘internal’ approach. We argue in favour of the latter, with reference to five desirable properties that a top share series would ideally possess. The choice matters: our augmented ‘internal’ approach yields estimates of the UK top 1% share that are around 2 percentage points higher than the ‘external’ approach.

Michael Greenstone, Rohini Pande, Anant Sudarshan and Nicholas Ryan

Market-based environmental regulations are seldom used in developing countries, where pollution is the highest but state capacity is often low. We experimentally evaluate a new particulate matter emissions the first in the world, covering industrial plants in a large Indian city. There are three main findings. First, the market functioned well: permit trade was active and plants obtained permits to meet their compliance obligations almost perfectly. Second, treatment plants, randomly assigned to the emissions market, reduced pollution emissions by 20% to 30%, relative to control plants. Third, the market, holding emissions constant, reduces abatement costs by 11% to 14%. These cost estimates are based on a model that estimates heterogeneous plant marginal abatement costs from plant bids for emissions permits. More broadly, we find that emissions can be reduced at small increases in abatement costs. The pollution market therefore has health benefits that exceed costs by at least twenty-five times.

Thijs van Rens, Petra Hanson, Oyinlola Oyebode, Lukasz Walasek, Thomas M Barber and Lena Al-Khudairy

This review aims to examine (i) the aetiology of obesity ; (ii) how and why a perception of personal responsibility for obesity so dominantly frames this condition and how this mindset leads to stigma ; (iii) the consequences of obesity stigma for people living with obesity, and for the public support for interventions to prevent and manage this condition ; and (iv) potential strategies to diminish our focus on personal responsibility for the development of obesity, to enable a reduction of obesity stigma, and to move towards effective interventions to prevent and manage obesity within the population. Recent Findings We summarise literature which shows that obesity stems from a complex interplay of genetic and environment factors most of which are outside an individual’s control. Despite this, evidence of obesity stigmatisation remains abundant throughout areas of media, entertainment, social media and the internet, advertising, news outlets, and the political and public health landscape. This has damaging consequences including psychological, physical, and socioeconomic harm. Summary Obesity stigma does not prevent obesity. A combined, concerted, and sustained effort from multiple stakeholders and key decision-makers within society is required to dispel myths around personal responsibility for body weight, and to foster more empathy for people living in larger bodies. This also sets the scene for more effective policies and interventions, targeting the social and environmental drivers of health, to ultimately improve population health.

Thiemo Fetzer

Preserving heritage is an important part of maintaining collective identity for future generations. Yet, in the context of the climate crisis, it is imperative to understand to what extent there is a tangible trade-off between conserving character vis-a-vis averting the worst of climate change – a much more existential threat to those future generations. Studying data for more than half of the English housing stock, I show that conservation area status – a special area based designation to preserve the unique character of a neighborhood – not to be confused with preservation of historic buildings – in England may be responsible for up to 3.2 million tons of avoidable CO2 emissions annually. Using a suite of micro-econometric methods I show that properties in conservation areas have a notable worse energy efficiency; experience lower investment in retrofitting and consume notably higher levels of energy owing to poor energy efficiency. Effect sizes are very consistent comparing engineering based energy consumption estimates with actual consumption data. Effects can be directly attributed to planning requirements for otherwise permitted development that only apply to properties by virtue of them being located inside a conservation area.

Aviad Heifetz, Enrico Minelli & Herakles Polemarchakis

Purely affective interaction allows the welfare of an individual to depend on her own actions and on the profile of welfare levels of others. Under an assumption on the structure of mutual affection that we interpret as nonexplosive mutual affection, we show that equilibria of simultaneous-move affective interaction are Pareto optimal independently of whether or not an induced standard game exists. Moreover, if purely affective interaction induces a standard game, then an equilibrium profile of actions is a Nash equilibrium of the game, and this Nash equilibrium and Pareto optimal profile of strategies is locally dominan.

Rocco d’Este, Mirko Draca & Christian Fons-Rosen

Special interest influence via lobbying is increasingly controversial and legislative efforts to deal with this issue have centred on the principle of transparency. In this paper we evaluate the effectiveness of the current regulatory framework provided by the US Lobbying Disclosure Act (LDA). Specifically, we study the role of ex-Congressional officials who join US lobbying firms in positions that could be related to lobbying activity but without officially registering as lobbyists themselves. We find that firm lobbying revenues increase significantly when these potential ‘shadow lobbyists’ join, with effects in the range of 10-20%. This shadow lobbyist revenue effect is comparable to the effect of a registered lobbyist at the median of the industry skill distribution. As such, it is challenging to reconcile the measured shadow lobbyist effect with the 20% working time threshold for registering as a lobbyist. Based on our estimates, the unaccounted for contributions of unregistered lobbyists can be valued at $149 million USD in revenue terms and this effect is concentrated within the industry’s largest and most active firms.

Eleonora Alabrese, Federica Liberini, Francesco Porcelli, Michela Redoano & Antonio Russo

We study the provision of information by local governments that supports individual compliance with nationwide regulation, and how this provision relates to the electoral process. We use information about individual mobility (compliance with the lockdown) and Facebook posts by Italian local governments during the Covid 19 pandemic. We show that in municipalities where mayors were up for reelection, local governments provided significantly more covid-related information. This information caused a significant decrease in mobility and excess mortality. However, these effects seem to arise only in the northern regions of the country, where the impact of the pandemic was more severe.

Marta Santamaría, Jaume Ventura and Uğur Yeşilbayraktar

We use the new dataset of trade flows across 269 European regions in 24 countries constructed in Santamaría et al. (2020) to systematically explore for the first time trade patterns within and across country borders. We focus on the differences between home trade, country trade and foreign trade. We document the following facts: (i) European regional trade has a strong home and country bias, (ii) geographic distance and national borders are important determinants of regional trade, but cannot explain the strong regional home bias and (iii) the home bias is heterogeneous across regions and seems to be driven by political regional borders.

Thijs van Rens, Petra Hanson, Oyinlola Oyebode, Lukasz Walasek, Thomas M Barber and Lena Al-Khudairy

Lockdowns’ to control the spread of COVID-19 in the UK affected many aspects of life and may have adversely affected diets. We aimed to examine (1) the effect of lockdowns on fruit and vegetable consumption, as a proxy for healthy diets more generally, and on weight and well-being, (2) whether any subgroup was particularly affected and (3) the barriers and facilitators to a healthy diet in lockdown. We find no evidence for decreased fruit and vegetable consumption during lockdown compared with afterwards. If anything, consumption increased by half a portion daily among women, particularly among those who normally have a long commute. This finding, combined with a significant increase in physical activity, suggests that behaviours were healthier during lockdown, consistent with higher self-reported health. However, well-being deteriorated markedly, and participants reported being heavier during the lockdown as well. Our qualitative data suggest that an abundance of resources (more time) supported higher fruit and vegetable consumption during lockdown, despite increased access issues. Our results may assuage concerns that lockdowns adversely affected diets. They may point to the impact of commuting on diet, particularly for women. We add longitudinal evidence to a growing body of literature on the adverse effect of lockdown on mental health.

Robin Burgess, Michael Greenstone, Nicholas Ryan and Anant Sudarshan

Falling off-grid solar prices and an expanding grid are revolutionizing choices for nearly a billion people without electricity. Using experimental price variation, we estimate demand for all electricity sources in Bihar, India, during a four-year period when electrification leapt from 27% to 64%. We find that: (i) household surplus from electrification increased five-fold; (ii) both solar and the grid boost electrification but households gain more surplus from the grid; (iii) grid investments and subsidies strongly reduce demand for off-grid solar. When we extend the model to eight African countries where grid infrastructure is weaker and subsidies lower we find that off-grid solar often provides higher surplus than the grid.

Mario Forni, Luca Gambetti and Giovanni Ricco

We propose a novel external-instrument SVAR procedure to identify and estimate the impulse response functions, regardless of the shock being invertible or recoverable. When the shock is recoverable, we also show how to estimate the unit variance shock and the ‘absolute’ response functions. When the shock is invertible, the method collapses to the standard proxy-SVAR procedure. We show how to test for recoverability and invertibility. We apply our techniques to a monetary policy VAR. It turns out that, using standard specifications, the monetary policy shock is not invertible, but is recoverable. When using our procedure, results are plausible even in a parsimonious specification, not including financial variables. Monetary policy has significant and sizeable effects on prices.

Thomas Martin & Daniel Sgroi

Does imagining what life could have been in the absence of a shock change current satisfaction? To answer this we collect field data through a survey that covers the period before, during and after the COVID-19 lockdown, exploiting the features of a natural experiment combined with induced variation stemming from a randomized control trial (RCT). Our data covers first year students studying before the COVID-19 pandemic, during the full COVID-19 lockdown period, and during the partial COVID-19 lockdown period. The RCT directs a subset of students to imagine how satisfied they could have been in the absence of COVID-19. The control group are instead asked about their current satisfaction. We find that imagining life in the absence of a shock (COVID-19) can impact current satisfaction : the higher individuals think their satisfaction would have been in the absence of the shock, the lower their current satisfaction. However, the natural experiment component of our study suggests that counterfactual reasoning may mislead. By comparing the satisfaction of COVID-19 students asked to imagine university life without COVID-19, with the reported satisfaction of equivalent students just before the arrival of COVID-19, we show students typically over-exaggerate how satisfied they would have been if a negative shock had not happened.

Johannes Boken, Lucie Gadenne, Tushar Nandi & Marta Santamaria

Do community networks shape firm-to-firm trade in emerging economies? We study the role of communities in facilitating firm-to-firm trade and firm outcomes using data on firm-to-firm transactions and firm owners’ community (castes) affiliations for the universe of medium- and large- sized firms in West Bengal, India. We find that firms are substantially more likely to trade, and trade more, with firms from their own caste. Studying the mechanisms underlying this effect, we find evidence consistent both with castes alleviating trade frictions and taste-based discrimination by firms against those outside their community. Guided by these stylized facts, we develop a model of firm- to- firm trade in which communities affect pair productivity and matching costs and estimate the model using our reduced-form estimates. A counterfactual extending the positive effects of castes on trade to all potential supplier-client pairs would increase the number of network links by 60% and increase average firm-to-firm sales by 20%.

Marcus Miller

Francis Fukuyama’s bold prediction that Western liberal democracy is ‘the final form of human government’ was promptly challenged by Samuel Huntington, who foresaw the future as a continuing clash of civilisations. This latter view has found support in the recent Beijing declaration by China and Russia of a ‘New World Order’ with distinct spheres of influence for different cultures. After discussing the contrast between such historical perspectives (of ‘immaculate convergence’ versus cultural diversity), we outline two accounts of how forms of governance emerge from competitive struggle ( either domestically or between nation states). However, to set the scene for applying these perspectives to current events, the paper begins with a summary of three eras of political economy post World War II - including the current ‘age of the strongman’, to use the terminology of Gideon Rachman. Subsequently, these various perspectives are employed to see what light they may throw on the disastrous turn of events following the Beijing declaration, with a focus on Russia, where the history of a powerful central state has played a crucial role. How enduring the Russian example may prove in the Darwinian struggle of cultural competition is, of course, a key issue for our time.

Oliver R. Browne, Ludovica Gazze, Michael Greenstone & Olga Rostapshova

New technologies allow perfect detection of environmental violations at near-zero marginal cost, but take-up is low. We conducted a field experiment to evaluate enforcement of water conservation rules with smart meters in Fresno, CA. Households were randomly assigned combinations of enforcement method (automated or in-person inspections) and fines. Automated enforcement increased households’ punishment rates from 0.1 to 14%, decreased water use by 3%, and reduced violations by 17%, while higher fine levels had little effect. However, automated enforcement also increased customer complaints by 1,102%, ultimately causing its cancellation and highlighting that political considerations limit technological solutions to enforcement challenges.

Ben Lockwood, Martin Simmler, and Eddy H.F. Tam

We study the impact of commercial property taxation on vacancy rates and rents in the UK, using a new data-set, and exploiting exogenous variations in property tax rates from reliefs in the UK system: small business rate relief (SBRR), retail relief and empty property relief. We estimate that the retail relief reduces vacancies by 85%, and SBRR relief by up to 49%, while empty property exemption increases them by up to 89%. The effect of retail relief on clusters of urban properties (the "High St") is no different to its overall effect. SBRR increases (decreases) the likelihood that a property is occupied by a small (large) business. We also use data on asking prices for rental properties to study the effect of reliefs on rental rates. Rental rates move in the opposite direction to vacancy rates, except in the case of empty property relief. All these findings are consistent with a novel model of directed search in the commercial property market, also presented in the paper.

Ben Lockwood, Francesco Porcelli, Michela Redoano & Antonio Schiavone

We exploit a data disclosure project by the Italian government (OpenCivitas) which allowed mayors to view each other’s detailed expenditure data through a dedicated website. We interpret views on the website as generating a directed network. Mayors in the network are on average younger, more educated, they are more likely to come from larger cities which more often are in the northern regions and are more likely to be affliated to traditional parties, although populist parties usually rely more on the web for communication and political activities. Using directed dyadic models we find that mayors tend to form links with mayors of similar age who manage similar-sized cities and most often in their same region. However, links are more likely to be formed when mayors don’t share the same gender, education and party affliation. Mayors in this network do not engage in yardstick competition with neighbouring municipalities while all the other mayors do, and rather compete with each other, despite the physical distance. We show that this network existed before the website opened, but we find that after data disclosure yardstick competition within the network becomes strongly driven by mayors who are up for re-election. This was not the case before data disclosure. For the other municipalities, yardstick competition between neighbours remains uncorrelated with mayors’ term limits.

Thiemo Fetzer, Ludovica Gazze, Menna Bishop

Which households will be most affected by the energy price shock? How large are the energy, financial, and environmental benefits of improved energy efficiency of the British residential building stock? How do policies or interventions in price setting in energy markets affect these incentives? We develop a measurement and ex-ante modelling approach using granular property-level micro data representing around 50% of the English and Welsh building stock. This allows us to quantify the likely impact of recent energy price shocks on energy bills and how these bills would look like if energy savings measures were implemented. We find, on average, that the energy price shock acts as a form of progressive taxation hitting better-off regions more than poorer ones, in absolute terms. We estimate that on aggregate, 30% of energy consumption could be saved if buildings were upgraded to their highest energy efficiency standard. At market prices, these savings range between GBP 10 to 20 billion pounds per year with the highest energy savings largely concentrated in the wealthiest parts of the UK However, current policies weaken incentives for households to invest in energy efficiency upgrades. Current policies, such as the energy price cap, appears to be very regressive. Alternative, more targeted policies, are cheaper, easily implementable and could align incentives better.

Fatih Kansoy

This paper examines whether and to what extent publications of the Federal Open Market Committee (FOMC) minutes contain significant information for the expectation of future monetary policy in the US. We construct measure of new surprise series with intradaily data for the Fed futures contracts and the responses of stock markets, fixed income markets and exchange rates to these surprises during 2004–2017. We find that the release of FOMC minutes affects the market volatility and financial asset prices respond significantly to FOMC minutes announcements. Finally, volatility and the volume of reactions increase during the zero lower bound. Specifically, this research finds that the release of FOMC minutes induces “higher than normal” volatility and shows that financial markets respond quickly and significantly to the release of FOMC minutes.

Lory Barile, John Cullis & Philip Jones

This paper begins by listing three uncomfortable implications of the standard expected utility model of individual decision-making concerning participation in fiscal crimes : that tax evasion and benefit fraud can be treated identically; fiscal crimes should be endemic; and that all individuals, depending on parameter values, should be either honest or dishonest. Levitt and List’s (2007) utility function relating to decisions with a moral dimension is adapted to offer insight into these implications involving an individuals optimal honesty and moral hinterland. Predictions are developed that include moral costs as a determinant of dishonest intentions and are tested with reference to some 2,942 questionnaire responses to a 2016 national (UK) survey. This paper offers insight into the way moral costs inform perceptions of the intrinsic value of doing the right thing thereby providing a richer analysis of fiscal crimes. The account has particular relevance for policy prescriptions that involve aspects of shame.

Ben Lockwood, Francesco Porcelli, Michela Redoano & Antonio Schiavone

We exploit the introduction of an open data online platform - part of a transparency program initiated by the Italian Government in late 2014 - as a natural experiment to analyse the effect of data disclosure on mayors’ expenditure and public good provision. First, we analyse the effect of the program by comparing municipalities on the border between ordinary and special regions, exploiting the fact that the latter regions did not participate in the program. We find that mayors in ordinary regions immediately change their behaviour after data disclosure by improving the disclosed indicators, and that the reaction depends also on their initial relative performance, a yardstick competition effect. Second, we investigate the effect of mayors’ attention to data disclosure within treated regions by tracking their daily accesses to the platform, which we instrument with the daily publication of newspaper articles mentioning the program. We find that mayors react to data disclosure by decreasing spending via a reduction of service provision, resulting in an aggregate decrease in efficiency. Overall, mayors seem to target variables that are disclosed on the website at the expense of variables that are less salient.

Eyal G. Frank & Anant Sudarshan

The loss of a keystone species can theoretically lead to large social costs because their complex ecosystem interactions may be important for environmental quality. We quantify these effects for the case of vultures in India where they play an important public health role by removing livestock carrion from the environment. The expiration of a patent for a common chemical painkiller led to its increased use in cattle, unexpectedly rendering carcasses fatal to vultures, leading to a catastrophic and near-total population collapse. Using habitat range maps for the affected species, we compare high to low vulture suitability districts before and after the patent for the painkiller expired. We find that, on average, all-cause death rates increased by more than 4% in vulture-suitable districts after the vultures nearly went extinct. We find suggestive evidence that feral dog populations and rabies increased, and that water quality deteriorated in the affected regions. These mechanisms are consistent with the loss of the scavenging function of the vultures. Quantifying the costs of biodiversity losses has critical implications for optimal investments into species conservation and rehabilitation.

Lucrezia Reichlin, Giovanni Ricco & Matthieu Tarbé

We study the monetary- fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.

Mirko Draca, Colin Green & Swarnodeep Homroy

Political donations in the UK have been subject to comprehensive disclosure since 2001. We study the data produced as part of this disclosure policy to evaluate the role of private and public political finance over time. Total political donations have grown by 250% since 2001, reaching over £100 million in real terms for the first time in 2019. This increase has been driven by donations from private individuals, who now account for approximately 60% of donations in election years compared to 40-50% up to the late 2010s. Furthermore, ‘superdonors’ (those contributing more than £100,000) have been a prominent driver of the rise, increasing their own share from approximately 36% in 2017 to 46% in 2019. We also show that private donations to Labour fell sharply in the final stages of Jeremy Corbyn’s leadership. Overall, these trends have benefited the Conservative Party, leading to an historic resource gap between the two main parties emerging circa 2019. We calculate that the ‘resource gap’ between parties now stands at approximately £27 million compared to an historic average of £8-10 million (even when taking account of publicly-funded ‘Short’ money provided to the Opposition).

Osea Giuntella, Sally McManus, Redzo Mujcic, Andrew J. Oswald, Nattavudh Powdthavee & Ahmed Tohamy

This paper documents a longitudinal crisis of midlife among the inhabitants of rich nations. Yet middle-aged citizens in our data sets are close to their peak earnings, have typically experienced little or no illness, reside in some of the safest countries in the world, and live in the most prosperous era in human history. This is paradoxical and troubling. The finding is consistent, however, with the prediction -- one little-known to economists -- of Elliott Jaques (1965). Our analysis does not rest on elementary cross-sectional analysis. Instead the paper uses panel and through-time data on, in total, approximately 500,000 individuals. It checks that the key results are not due to cohort effects. Nor do we rely on simple life-satisfaction measures. The paper shows that there are approximately quadratic hill-shaped patterns in data on midlife suicide, sleeping problems, alcohol dependence, concentration difficulties, memory problems, intense job strain, disabling headaches, suicidal feelings, and extreme depression. We believe the seriousness of this societal problem has not been grasped by the affluent world’s policy-makers.

Eman Abdulla, King Yoong Lim, Diego Morris & Faten Saliba

This paper examines the nexus between gender equality, climate change, and innovation at the firm level. Based on three hypotheses derived from a novel theoretical framework linking climate change and gender equality to within-firm innovation activities, we use a cross-section dataset of 87, 996 firms across 36 industries in 103 countries, surveyed across different waves during the 2010-2020 periods to implement an instrumental variable strategy and show that environmental policies unambiguously induce firm-level process and product innovation, through its influence on the endogenous bargaining power of women in society and firms. We document that female productivity has both a direct effect on innovation (0.1-1.3% increase in the likelihood of innovation) and an indirect effect (serving as the intermediation for the environment-innovation nexus). Contrarily, greenhouse gas emissions by themselves have an ambiguous effect on innovation. The type of greenhouse gas emissions and the measure of innovation both contribute to this ambiguity. Overall, our results show that it is not the physics of climate change that induces innovation but rather the countervailing human responses to policies that mitigate climate change that stimulate innovation.

Sonia Bhalotra & Damian Clarke

The occurrence of twin births has been widely used as a natural experiment. With a focus upon the use of twin births for identification of causal effects in economics, this chapter provides a critical review of methods and results.

Arun Advani, David Burgherr & Andy Summers

Using administrative data on the globally connected super-rich in the UK, we study the effect of a large tax reform on migration behaviour. Prior to 2017, off shore investment returns for `non-doms' - individuals tax resident in the UK but with connections to other countries - were untaxed. Average off shore investment returns for these individuals exceeded £420,000; even without considering other types of income, this puts them in the top 0.2% of the population. A reform in 2017 brought long-stayers and UK-born non-doms into the standard tax system, reducing their effective net of average tax rate by between 8.8% and 13.0%. We nd that migration responses were limited : our central estimate of the migration elasticity is 0.02, and across a range of specifications we can rule out elasticities larger than 0.5. Using reforms for the UK-born super-rich who were living abroad, we find that migration elasticities are limited even for recent arrivals, for whom our central estimate is 0.18. Assuming similar elasticities for all non-doms, abolition of the preferential regime would increase tax revenue collected from non-doms by £3.2bn (84%).

Eleonora Alabrese

A central challenge for social scientists consists in explaining why people vote and what are the consequences of their behaviour. Exploiting variation in national opinion polls across UK general elections, and in the degree of safeness of British constituencies over time, I provide evidence of a significant impact of pre-election polls on electoral outcomes and shed light on a novel mechanism. I find that opinion polls affect voters’ behaviour via their interaction with the recent electoral history of a constituency : first, turnout decreases when the polls predict non-competitive elections, and this effect is stronger in safe seats. Second, the composition of local vote shares and parties’ performance is also impacted by anticipated election closeness and the effects vary heterogeneously depending on whether polls predictions are aligned with the past electoral outcomes of a constituency. Finally, the causal impact on voters’ participation is confirmed with consistent individual-level evidence.

Juliana Carneiro, Matthew A. Cole and Eric Strobl

This paper examines the impact of foetal exposure to air pollution from agricultural fires on Brazilian students cognitive performance later in life. We rely on comparisons across children who were upwind and downwind of the fires while in utero to address concerns around sorting and temporary income shocks. Our findings show that agricultural fires increase P M2.5, resulting in significant negative effects on pupils’ scores in Portuguese and Maths in the 5th grade through prenatal exposure. Back-of-the-envelope calculations suggest that a 1% reduction in P M2.5 from agricultural burning has the potential to increase later life wages by 2.6%.

Costas Cavounidis, Kevin Lang & Russell Weinstein

African Americans face shorter employment durations than similar whites. We hypothesize that employers discriminate in acquiring or acting on ability-relevant information. In our model, monitoring black but not white workers is self-sustaining. New black hires were more likely red by previous employers after monitoring. This reduces firms' beliefs about ability, incentivizing discriminatory monitoring. We confirm our predictions that layoffs are initially higher for black than non-black workers but that they converge with seniority and decline more with AFQT for black workers. Two additional predictions, lower lifetime incomes and longer unemployment durations for black workers, have known empirical support.

Sonia Bhalotra, Adeline Delavande, Paulino Font-Gilabert, and Joanna Maselko

We investigate the importance of subjective expectations of returns to and effort costs of the two principal investments that mothers make in newborns : breastfeeding and stimulation. We find heterogeneity across mothers in expected effort costs and expected returns for outcomes in the cognitive, socio- emotional and health domains, and that this contributes to explaining heterogeneity in investments. We find no significant differences across women in preferences for child developmental outcomes. We simulate the impact of alternative policies on investments. Our findings highlight the relevance of interventions designed to address maternal depression and reduce perinatal fatigue alongside interventions that increase perceived returns to investments.

Martin Mugnier & Ao Wang

We study a nonlinear two-way fixed effects panel model that allows for unobserved individual heterogeneity in slopes (interacting with covariates) and (unknown) flexibly specified link function. The former is particularly relevant when the researcher is interested in the distributional causal effects of covariates, and the latter mitigates potential misspecification errors due to imposing a known link function. We show that the fixed effects parameters and the (nonparametrically specified) link function can be identified when both individual and time dimensions are large. We propose a novel iterative Gauss-Seidel estimation procedure that overcomes the practical challenge of dimensionality in the number of fixed effects when the dataset is large. We revisit two empirical studies in trade (Helpman et al., 2008) and innovation (Aghion et al., 2013), and find non-negligible unobserved dispersion in trade elasticity (across countries) and the effect of institutional ownership on innovation (across firms). These exercises emphasize the usefulness of our method in capturing flexible (and unobserved) heterogeneity in the causal relationship of interest that may have important implications for the subsequent policy analysis.

Sascha O. Becker, Sharun Mukand and Ivan Yotzov

Persecution, pogroms, and genocide have plagued humanity for centuries, costing millions of lives and haunting survivors. Economists and economic historians have recently made new contributions to the understanding of these phenomena. We provide a novel conceptual framework which highlights the inter-relationship between the intensity of persecution and migration patterns across dozens of historical episodes. Using this framework as a lens, we survey the growing literature on the causes and consequences of persecution, pogroms, and genocide. Finally, we discuss gaps in the literature and take several tentative steps towards explaining the differences in survival rates of European Jews in the 20th century

Amrita Kulka, Aradhya Sood & Nicholas Chiumenti

Persecution, pogroms, and genocide have plagued humanity for centuries, costing millions of lives and haunting survivors. Economists and economic historians have recently made new contributions to the understanding of these phenomena. We provide a novel conceptual framework which highlights the inter-relationship between the intensity of persecution and migration patterns across dozens of historical episodes. Using this framework as a lens, we survey the growing literature on the causes and consequences of persecution, pogroms, and genocide. Finally, we discuss gaps in the literature and take several tentative steps towards explaining the differences in survival rates of European Jews in the 20th century

Bhaskar Chakravorty, Apurav Yash Bhatiya, Clement Imbert, Maximilian Lohnert, Poonam Panda & Roland Rathelot

This paper presents evidence on the short and long-term impact of the COVID-19 crisis on India’s rural youth. We interviewed about 2,000 vocational trainees from Bihar and Jharkhand three times after the first national lockdown in 2020, between June 2020 and December 2021. We find that a third of respondents who were in salaried jobs pre-lockdown lost their jobs, and half of those who worked out of state returned home shortly after the lockdown. We report a stark difference between men and women: while many male workers took up informal employment, most female workers dropped out of the labor force. In the second part of the paper, we use a randomised experiment to document the effects of a government-supported digital platform designed to provide jobs to low-skilled workers. The platform turned out to be difficult to use and publicised only a few job ads. We find no effect on job search intensity or employment. Our findings suggest that bridging the gap between rural young workers and urban formal labor markets requires more active and targeted policy interventions, especially for female workers

Li Liu, Ben Lockwood & Eddy Tam

This paper studies the effect of the VAT threshold on firm growth in the UK, using exogenous variation over time in the threshold, combined with turnover bin fixed effects, for identification. We find robust evidence that annual growth in turnover slows by about 1 percentage point when firm turnover gets close to the threshold, and weaker evidence of higher growth when the threshold is passed. Growth in firm costs shows a similar pattern, indicating that the response to the threshold is likely to be a real response rather than an evasion response. Firms that habitually register even when their turnover is below the VAT threshold (voluntary registered firms) have growth that is unaffected by the threshold, whereas firms that select into the Flat-Rate Scheme have a less pronounced slowdown response than other firms. Similar patterns of turnover and cost growth around the threshold are also observed for non-incorporated businesses. Finally, simulation results clarify the relative contribution of "non-crossers" ( firms who eventually register for VAT) and "non-crossers" (those who permanently stay below the threshold) in explaining our empirical findings

Arthur Blouin & Sharun W. Mukand

he difficulty in resurrecting inter-ethnic cooperation in the aftermath of violence and genocide is one of the biggest challenges facing post-conflict societies. Using experimental data from post-genocide Rwanda and Burundi, this paper shows that an unwarranted tendency to blame others for negative outcomes is a behavioural barrier that makes reconciliation difficult. We show that individuals systematically (and mistakenly) blame accidental negative shocks (noise) to the deliberate intent of individuals (bias). This victimhood bias wherein individuals ascribe noise to bias is much larger for (a) individuals for whom ethnic identity is salient; (b) for those who have had greater exposure to inter-ethnic violence. Further, we observe that both inter-ethnic contact and economic development are associated with a decline in this victimhood bias. Finally, those with a lower victimhood bias are more likely to behave cooperatively in inter-ethnic relationships. Our results suggest that insurance agreements that limit negative shocks and reduce noise, can encourage reconciliation by mitigating feelings of victimhood.