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Sticky Gravity

Wed, 08 Apr 2026 11:05:00 GMT

800/2026 Mario Larch, Leandro Navarro, and Dennis Novy

International trade flows show strong persistence over time. Standard static gravity models cannot rationalize this persistence and lack a micro-foundation for including lagged trade flows as a determinant of current trade. We develop a structural dynamic gravity framework in which persistence arises from firms' sluggish adjustment of destination-specific prices, analogous to sticky prices in macroeconomics but operating at the bilateral level. The model delivers a gravity equation with lagged trade flows as a structural feature rather than an ad hoc add-on. We propose a novel estimation approach for dynamic gravity models that explicitly accounts for persistence. Empirically, we show that ignoring persistence can lead standard gravity estimates to substantially understate the effects of trade policy changes. As an application, we find that the estimated trade impact of regional trade agreements can increase by 30 percent or more once persistence is taken into account.

Responsive Public Policy

A Scorecard for the Seven New Towns

Tue, 31 Mar 2026 10:04:00 GMT

Nikhil Datta, Amrita Kulka

The government’s new town strategy is one part of its efforts to address the UK’s housing shortage through large-scale development. However, the success of such projects depends less on the quantity of housing built and more on where it is built. Our analysis highlights stark differences across the proposed sites. Proposed locations in Manchester and Leeds benefit from strong existing demand and connectivity, making them well-positioned for rapid and successful development. Others, particularly Tempsford and Enfield, face significant structural challenges that may limit their viability.

Responsive Public Policy

Appropriate Entrepreneurship? The Rise of China and the Developing World

Wed, 18 Mar 2026 10:19:59 GMT

799/2026 Josh Lerner, Junxi Liu, Jacob Moscona, David Y. Yang

Global innovation and entrepreneurship have traditionally been dominated by a handful of high-income countries, especially the US. This paper investigates the international consequences of the rise of a new hub for innovation, focusing on the dramatic ascent of high-potential entrepreneurship and venture capital in China. First, using comprehensive global data, we show that as the Chinese venture industry rose in importance in certain sectors, entrepreneurship increased substantially in other emerging markets. Using a broad set of country-level economic indicators, we find that this effect was driven by country-sector pairs most similar to their counterparts in China. The estimates are similar when exploiting Chinese sector-specific policies that affected the likelihood of entrepreneurship. Second, turning to mechanisms, we show that the baseline findings are driven by local investors and by new firms that more closely resemble existing Chinese companies. Third, we find that this growth in emerging market investment had wide-ranging economic consequences, including a rise in serial entrepreneurship, cross-sector spillovers, innovation, and broader measures of socioeconomic well-being. Together, our findings suggest that many developing countries benefited from the more "appropriate" businesses and technology that resulted from a rise of an innovation hub in an emerging economy.

Designing and Building Institutions

Greenwashing or Pragmatism?

Wed, 18 Mar 2026 10:15:56 GMT

798/2026 Junxi Liu, Shaoting Pi, Ao Wang

Shareholder support for environmental and social (ES) proposals increased by more than 50% between 2010 and 2020, yet the content of such proposals can vary substantially. We first document that there has been a large retreat in big-ask proposals (e.g., demanding operational changes for firms). The big-ask proposals fell from about 40% of ES ballots to roughly 5%, being replaced by small-ask proposals (e.g., requesting additional disclosure), and the increase in overall support rate is driven by favorable votes on small asks compared to big asks. However, we caution against interpreting these trends as greenwashing. Investigating both sides of shareholder democracy (proponents and voters), we develop and estimate a structural model in which ES proponents choose a portfolio of proposal types, anticipating vote outcomes. The model captures a feedback: changes in voting reshape the mix of sponsored proposals, and that mix, in turn, shapes observed support rates. Counterfactuals based on resubmission-style benchmarks suggest that the early part of the decade featured an oversupply of big-ask proposals and a moderate undersupply of small-ask proposals; the subsequent decline in big asks reflects an equilibrium correction toward small asks that are expected to receive meaningful support to generate incremental progress in ES. Therefore, the correction, along with growing voter support, suggests a shift towards a more pragmatic approach to ES issues rather than greenwashing.

Designing and Building Institutions

Do petrol retailers “price gouge” during oil price spikes?

Tue, 17 Mar 2026 11:23:00 GMT

Johannes Brinkmann, Nikhil Datta

On 28th February 2026, the United States launched Operation "Epic Fury", attacking Iran in a coordinated effort with Israel. This unsurprisingly had large impacts on global oil prices, as it disrupted a key shipping route through the Strait of Hormuz, through which approximately 20% of global oil production passes. Brent crude oil prices spiked almost immediately, increasing from $72 per barrel at the close of 27th February to $103 per barrel at the close of 13th March. Amid concerns about the cost to consumers, the Chancellor asked the Competition and Markets Authority (CMA) to remain on "high alert" for profiteering by petrol retailers, warning that she "will not tolerate any company exploiting the current situation to make excess profits at consumers' expense". In response, the Petrol Retailers Association (PRA), which represents approximately 65% of UK forecourts, argued that such language was "incorrect and inflammatory". This raises a broader question: what does the economic evidence suggest about the behaviour of petrol retailers during periods of oil price changes?

Responsive Public Policy

Perceptions of Workplace Sexual Harassment and Support for Policy Action

Fri, 13 Mar 2026 10:26:00 GMT

797/2026 Sonia Bhalotra, Matthew Ridley

Workplace sexual harassment is highly prevalent and harms women and the economy. We survey the UK population to provide the first estimates under a single definition of the prevalence of sexual harassment, its harms, people's awareness of sexual harassment law, and indicators of policy effectiveness including reporting and redressal. In a separate survey, we elicit participants' beliefs over these quantities and document the distribution of beliefs. We then experimentally vary information on prevalence, harms and policy (in)effectiveness and estimate impacts on indicators of stated and revealed preferences for policy and civil society action. Finally, we compare policymakers’ beliefs with citizens'.

Gender, Health and Wellbeing

When Teachers Break the Rules: Imitation, Reciprocity, and Community Structure in the Transmission of Ethical Behavior

Fri, 06 Mar 2026 16:44:34 GMT

796/2026 Victor Lavy, Moses Shayo

We study how teachers' rule violations in grading affect students' ethical behavior. Using administrative data from high-stakes exams, combining teacher-assigned internal scores with externally graded national exam scores, we track teacher grading violations and subsequent student cheating. We explore three potential mechanisms: imitation (learning that rules can be broken), positive reciprocity (responding favorably to favorable treatment), and negative reciprocity (retaliating against unfavorable treatment). Exploiting within-student variation in exposure to different teachers, we find students are significantly more likely to cheat when teachers break the rules to their detriment (systematically undergrading), consistent with both imitation and negative reciprocity. However, when teachers systematically overgrade, responses vary by community structure. In heterogeneous communities, overgrading increases student cheating, suggesting imitation dominates. In homogeneous communities, students respond by cheating less, consistent with positive reciprocity dominating. This pattern holds across multiple homogeneity measures, including surname concentration and residential clustering. Survey measures of mutual respect and support between students and teachers confirm this pattern.

Designing and Building Institutions

The Accuracy and Malleability of Parental Beliefs about Child Socio-Emotional Health

Fri, 06 Mar 2026 16:41:00 GMT

795/2026 Audrey Bousselin, Isabelle Brocas, Giorgia Menta, Eugenio Proto

We document systematic parental under-reporting of children's socio-emotional difficulties relative to children's self-reports, using representative data from Luxembourg, the United Kingdom, and Australia. To study the origins of this discrepancy, we develop a simple theoretical framework showing how parent-child gaps can arise from information frictions and differences in reporting styles. We complement the model with a novel survey design that elicits both parental beliefs about children's latent socio-emotional wellbeing and parental beliefs about children's self-reports, allowing us to disentangle the different sources of the discrepancy. Using a new survey from Luxembourg, we estimate that approximately 70% of the observed gap is attributable to information frictions. Consistent with a Bayesian model of signal extraction, belief accuracy declines when children experience high levels of distress. The precision of second-order beliefs is negatively correlated with parental education, income, and employment, and - paradoxically - with more accurate priors about aggregate parental under-reporting, a pattern we refer to as the Capacity Paradox. As predicted by the model, a randomized information intervention shifts both first- and second-order beliefs only among parents with weak priors and generates heterogeneous effects on intended parental investments. These findings highlight the central role of second-order beliefs in understanding parental misperceptions and the potential for targeted information policies to improve parental awareness of children's socio-emotional wellbeing.

Gender, Health and Wellbeing

Social Media vs. Democracy: Evidence from the January 6th Insurrection

Wed, 04 Mar 2026 11:44:08 GMT

794/2026 Karsten Müller, Carlo Schwarz, Zekai Shen

Social media platforms are often credited with empowering grassroots movements in the pursuit of political freedoms. In this paper, we show how social media can also be exploited by political elites to undermine democratic institutions, using the January 6th , 2021 Capitol insurrection as a case study. We present three main findings. First, by exploiting plausibly exogenous variation in Twitter usage, we document that social media exposure predicts participation in the Capitol attack, donations for anti-democratic causes, beliefs in election fraud, and support for the January 6th rioters. Second, Donald Trump's tweets questioning the election's integrity were followed by spikes in "Stop the Steal" activity on Twitter and pro-Trump donations originating from high Twitter usage counties. Third, the insurrection and Trump's account deletion were followed by a decrease in the public expression of toxic political and "Stop the Steal" messaging by pro-Trump users on Twitter, but had little effect on privately held beliefs about the election outcome and pro-Trump donations.

Designing and Building Institutions

The Content Moderator’s Dilemma: Removal of Toxic Content and Distortions to Online Discourse

Wed, 04 Mar 2026 11:39:11 GMT

793/2026 Mahyar Habibi, Dirk Hovy, Carlo Schwarz

There is an ongoing debate about how to moderate toxic speech on social media and the impact of content moderation on online discourse. This paper proposes and validates a methodology for measuring the content-moderation-induced distortions in online discourse using text embeddings from computational linguistics. Applying the method to a representative sample of 5 million US political Tweets, we find that removing toxic Tweets significantly alters the semantic composition of content. The magnitudes of the distortions are comparable to removing 4 out of 67 topics from the online discourse at random. This finding is consistent across different embedding models, toxicity metrics, and samples. Importantly, we demonstrate that these effects are not solely driven by toxic language but by the removal of topics often expressed in toxic form. We propose an alternative approach to content moderation that uses generative Large Language Models to rephrase toxic Tweets, preserving their salvageable content rather than removing them entirely. We show that this rephrasing strategy reduces toxicity while mitigating distortions in online content.

Designing and Building Institutions