Research Seminars

Uncertainty shocks cause economic activity to contract and more so, if an effective lower bound on interest rates constrains monetary policy. In this paper, we investigate whether countries within currency unions are also particularly prone to suffer from the adverse effects of heightened uncertainty because they lack monetary independence. First, we estimate a Bayesian VAR on quarterly panel data for 16 Euro Area countries. We find that country-specific uncertainty shocks impact economic activity adversely. Second, we calibrate a DSGE model of a small open economy and show that it can account for the evidence. Finally, we show that currency union membership strongly reduces the effects of uncertainty shocks because it anchors long-run expectations of the price level and thus alleviates precautionary price setting in the face of increased uncertainty.

We investigate how information regarding production externalities (e.g. ecolabels) can be presented to create market pressure on firms to reduce said externalitites. Specifically, we ask whether integrating information regarding externalities and consumer product ratings into one rating, can result in pressure to reduce externalities from all consumers, not just ‘green/activist’ consumers. Theoretically we show that an equilibrium exists where producers invest in both high product quality and low production externality. However, we show that with separate ratings, this equilibrium requires a high share of ’green’ consumers who only wish to purchase products with low production externalities, whereas with combined ratings it does not. Experimentally we confirm the prediction that both separate and combined ratings help overcome the product quality asymmetric information problem, and find investments in externality reduction were substantially higher in the combined rating treatment.

We investigate Italy's teacher assignment system, where teachers can rank geographical regions (municipalities, districts, or provinces), leading to ties in their rank order lists (ROLs). The geographical structure significantly influences teachers' priority rights at different schools as well. Analyzing administrative data, we identify systematic violations of teachers' priority rights, resulting from the way ties in teachers' ROLs are resolved—a mechanism initially introduced to mitigate efficiency losses from random tie-breaking. To address these issues, we propose a new assignment mechanism that completely respects priority rights and Pareto improves over random tie-breaking. Additionally, our mechanism is strategy-proof for the teachers, unlike the current mechanism. Using administrative data, we quantitatively evaluate the potential improvements in fairness and welfare that could arise from implementing our proposed mechanism.

We analyze the impact of individual attitudes on market dynamics in a laboratory experiment with 320 participants under risk and imprecision, where imprecision is modelled in either probabilities, outcome realizations, or a combination of both. In two stages, we first elicit individual reservation prices for risky and imprecise lotteries and then analyze price dynamics in a continuous double auction environment with risky and imprecise fundamentals. Our results underpin the importance of whether imprecision is modelled in probabilities or outcomes on the individual level: On average, we find imprecision-in-outcomes seeking, but neutrality towards imprecision in probabilities, the combination of probabilities and outcomes, and risk. In markets, however, individual attitudes are overridden by market dynamics as past price developments are the main predictor for current realized prices. We find no significant differences between treatments with respect to market variables such as trading volume, volatility, and the dispersion of final asset holdings. Yet, at the market closing, we observe significant overpricing in the risk condition, as well as underpricing in conditions with imprecision in probabilities (supporting ambiguity aversion) and the combination of imprecise probabilities and outcomes, respectively.

This study examines how children spend their time differently across four categories of activities: chores, care, learning, and leisure. In particular, I am interested in the difference that between the decision to perform the activities and the hours they dedicate among boys and girls. The data used in this study is taken from the Tanzanian Integrated Labor Force (ILFS) survey, specifically the Time-Use module. The choice of country in particular is an attempt to describe the dynamic of time-use within a household in one of the developing countries, specifically from Sub-Saharan Africa. To estimate the probability of performing the role and time spent on each category, I use Cragg’s double hurdle model to handle the zero-inflated nature of the dependent variable. This study contributes to the understanding of gender gap issues in time use among children.

Do investors benefit when managers have a long-term perspective? The conventional narrative suggests that they do. This paper exploits the characteristics of language used in annual reports and offers a nuanced answer. Motivated by real option theory, our results indicate that long-term orientation tilts investment policy towards intangible assets that increase the firm’s valuable real options that are associated with greater idiosyncratic volatility, is associated with higher equity and debt value, and generally increases firm value when uncertain sentiment is high. These associations either disappear, or change sign, when uncertain sentiment is low. Overall, consistent with the implications of real option theory, our findings suggest that corporate long-termism is value-enhancing only when accompanied by high uncertainty.

This paper investigates the role of education as a possible barrier to the utilization of social protection programs. We focus on a large-scale free health insurance innovation in the province of Khyber Pakhtunkhwa, Pakistan. We are able to combine household panel data including detailed health information as well as household census data with administrative data on insurance enrollment and utilization. We show descriptively as well as controlling for temporal and spatial differences in the enrolment campaign, that education positively correlates with the utilization of the scheme, and that this correlation exists for both male and female education. Moreover, we exploit data on public school construction and use the establishment of girl schools as an instrument for local female education for causal inference. We find that female education significantly increases health insurance utilization on the individual as well as household level. The results suggest that this pro-poor social health protection program entails implicit barriers, making it less egalitarian than possibly intended.

The application of Agent-Based Modelling to Game Theory allows us to benefit from the strengths of both approaches, and to enrich the study of games when solutions are difficult to elicit analytically. Using an agent-based approach to sequential games, however, poses some issues that result in a few applications of this type. We contribute to this aspect by applying the agent-based approach to a lobbying game involving environmental regulation and firms’ choice of abatement. We simulate this game and test the robustness of its game-theoretical prediction against the results obtained. We find that while theoretical predictions are generally consistent with the simulated results, this novel approach highlights a few differences. First, the market converges to a green state for a larger number of cases with respect to theoretical predictions. Second, simulations show that it is possible for this market to converge to a polluting state in the very long run. This result is not envisaged by theoretical predictions. Sensitivity experiments on the main model parameters confirm the robustness of our findings.

Reducing out-of-pocket costs of medication has been shown to lead to higher use initiation rates in childhood. Less is known, however, about the potentially asymmetric effects of increases in such costs, resulting from a loss in insurance coverage. This paper looks at the expiration of prescription drug copay waivers for children in Slovakia to investigate changes in pharmaceutical use resulting from increasing out-of-pocket costs. Leveraging age thresholds for copay waivers, this paper uses event study analyses to show that increases in out-of-pocket costs reduce prescription drug use, as well as average spending. Using a dataset capturing the universe of prescriptions filled between 2016–2018, we are further able to understand these effects among both chronic and non-chronic users. We trace the effects of these changes in prescription drug use to down-stream health consequences for children, as measured by GP visits and hospitalizations. Linking these data to social security records, we are further able to understand spillovers onto parental health and employment.

Under social-genetic assortative mating (SGAM), socio-economic status (SES) and genetically inherited traits are both assets in marriage markets, become associated in spouse pairs, and are passed together to future generations. This gives a new explanation for persistent intergenerational inequality and observed genetic differences between rich and poor. We model SGAM and test for it in large surveys in two countries. Spouses of earlier-born siblings have genetics predicting more education. This effect is mediated by individuals' own education and income. Thus, shocks to SES are reflected in the DNA of subsequent generations. Under SGAM, genetic variation is endogenous to economic institutions.

We study the effect of a CZK 80,000 (36%) increase in parental allowance, a universal basic income-type benefit, on the labor supply of parents of young children in the Czech Republic. Drawing a parental allowance does not preclude labor market activity, which allows us to study the income effect. The reform led to a 6 percentage point (15%) decrease in labor market participation of mothers of young children. The effect is particularly strong among mothers with only one child (10 p.p., 28%) and among university-educated mothers (16 p.p., 36%). We observe a virtually identical reduction in hours worked. We found no effect on the labor supply of fathers of young children.

Luckman et al. (2018) experimentally tested the conjecture that a single model of risky intertemporal choice can account for both risky and intertemporal choices, and under the conditions of their experiment, found evidence supporting it. Given the existing literature, that is a remarkable result which warrants (conceptual) replication. A key reason to be sceptical about the result is that Luckman et al. (2018), following a well-established tradition in psychology, had first-year psychology students participate that were rewarded with non-monetary course credits (see also Luckman et al. 2020), casting shadows of doubt on whether their participants were properly incentivised. Proper incentivization is a long-standing bone of contention among experimentally working economists and psychologists and it is widely accepted among economists that the elicitation of risk preferences and time preferences is very much a function of the way that experimenters incentivize choices. Another reason to be sceptical is that the experiment was not properly powered up; hence the no-difference results reported by the authors might be spurious. In our conceptual replication, we find significant differences between the risky and intertemporal choices at both the group and individual level. We find further that there is no significant difference between choices made by participants that are paid a flat incentive and participants that are paid under the random incentive scheme, at the group level. We find that order effects matter for intertemporal choices, but not for risky choices. At the individual level, we find evidence in favour of the model that assumes a common value function, but separate choice functions. This result is robust across the incentive systems, and order of presentation, but sensitive to different prior distributions. Other semi-nested models are sensitive to the different orders of presentation as well as incentive systems.

We consider settings such as innovation-oriented R&D where agents must explore across different projects with varying but uncertain payoffs. How does providing partial data on project payoffs affect individual performance and social welfare? While data can typically reduce uncertainty and improve welfare, we present a simple theoretical framework where data provision can decrease group and individual payoffs. In particular, we predict that when data shines a light on sufficiently attractive (but not optimal) projects, it can crowd-out exploration activity, lowering individual and group payoffs as compared to the case where no data is provided. We test our theory in an online lab experiment where we show that data provision on the true value of one project can hurt individual payoffs by 12% and reduce the group's likelihood of discovering the optimal outcome by 48%. Our results provide a theoretical and empirical foundation outlining the conditions under which the streetlight effect emerges, where data leads agents to look under the lamppost rather than engage in individually and socially beneficial exploration.

Women are underrepresented in business, academic, and political decision-making bodies across the world. To investigate the causal effect of gender representation on multilateral negotiations, we experimentally manipulate the composition of triads in a majoritarian, divide-the-dollar game. We document a robust gender gap in earnings, driven largely by the exclusion of women from alliances rather than differential shares within alliances. Experiments with different subject pools show that distinct bargaining dynamics can underlie the same inequitable outcomes: While gender-biased outcomes can be caused by outright discrimination, they can also be driven by more complex dynamics related to differences in bargaining strategies. We identify two fundamental gender differences in bargaining dynamics. First, men are more likely to make opening offers and enjoy a payoff advantage for doing so, yet women that propose first do not and may even suffer backlash. Second, mixed-gender alliances are less stable when the excluded party is male rather than female. These findings show that there is no “one-size-fits-all” solution to the gender gap we uncovered and highlight the importance of studying bargaining dynamics in detail.

We provide causal evidence that mandatory portfolio disclosure helps investors evaluate and select hedge fund managers. Using a staggered difference-in-differences analysis, we demonstrate that investor capital flows better predict fund performance among funds that publicly disclose their portfolio holdings. Additional cross-sectional analyses suggest that this gain in selection ability varies with the informational value of disclosure. Furthermore, examining investor-level allocations, we find that institutional investors earn higher returns on their allocations to disclosing funds. Overall, these results help contribute to the cost-benefit analysis of mandatory portfolio disclosure.

Minimizing the semivariance of a portfolio is analytically intractableand numerically challenging due to the endogeneity of the semicovariance matrix. In this paper, we introduce a smoothed estimator fort he portfolio semivariance. The extent of smoothing is determined by a single tuning constant, which allows our method to span an entire set of optimal portfolios with limit cases represented by the minimum semivariance and the minimum variance portfolios. The methodology is implemented through an iteratively reweighted algorithm, which is computationally efficient for optimization problems with many assets. Our numerical studies confirm the theoretical convergence of the smoothed semivariance estimator to the true semivariance. The resulting minimum smoothed semivariance portfolio performs well in- and out-of-sample compared to other popular selection rules.

Increasing evidence points to the fact that the behavioral measures we use to elicit risk attitudes fail us. In recent years evidence has accumulated that our measures 1. correlate poorly with self-reported risk attitudes, real-world risk behaviors, and among themselves; 2. introduce distinct measurement errors and behavioral biases; 3. are not robust to sit-resit exercises.

Why do Risk Elicitation Tasks (RET) show so little predictive validity? Despite the large number of studies comparing risk elicitation procedures, the extent to which current RETs are able to capture self-reported or out-of-the-lab behavior is still partly unknown. Since each study can cover only a limited subset of tasks and self-reported or real-world behaviors, the map of the cross-correlations across tasks and behavior is far from being complete.

Luckily, the data to create such a map already exists. Experimental economists have been routinely eliciting risk attitudes for over three decades. In this presentation, I describe what we know so far about the psychometric validity of elicited risk attitudes, present a comprehensive, large dataset of the external validity of RETs, and describe two experimental designs (no data yet) aimed at tackling two of the main problems identified in the previous analyses -- measurement error and risk perception and modeling.

The ongoing effort, code and paper can be found at https://github.com/paolocrosetto/METARET and all data can be explored interactively at https://paolocrosetto.shinyapps.io/METARET_APP/

Entry in a homogeneous Cournot-oligopoly is excessive if there is business stealing. This prediction assumes that production costs reduce profits and welfare equally. However, this need not be the case. If there is asymmetric information, suppliers or employees can utilize their superior knowledge to extract informational rents. Rent payments reduce profits and deter entry, but affect neither the optimal number of firms nor welfare directly. Therefore, entry becomes insufficient if informational rents are large enough. In the context of a moral hazard model, we show that insufficient entry occurs if entry costs are sufficiently high. Such costs lower the number of firms and, thereby, raise informational rents.

This paper investigates the dependencies and comovements between the S&P 500 and WTI by means of time-varying conditional comoments from April 1983 to December 2021 at the daily level. The conditional comoments mark a new pattern between the two markets’ dependencies since the 2008 global financial crisis (GFC). We employ three macroeconomic sentiment measures, including VIX (representing fear), economic policy uncertainty (representing uncertainty), and expected business condition index (representing expectation), to investigate the underlying mechanism for the new emerging stock-oil co-movements, using the time-varying parameter vector autoregression (TVP-VAR) to investigate the time-varying impulse responses, and the nonlinear autoregressive distributed lag (NARDL) model to analyze the asymmetries in the short- and long-run effects of the sentiment indices for the pre- and post-GFC periods. The conditional comoments of both markets change direction since the GFC, with crude oil showing a stronger dependence on the S&P 500’s return, skewness, and tail events than its counterpart. Overall, the time-varying impulse responses show heightened short-lived responses to the three sentiment indices after the 2008 GFC, with an asymmetric response from the conditional comoments of WTI (negative) and S&P 500 (positive) to the positive shocks in the fear index during the post-GFC period. The NARDL regression results prove that the explanatory power of the three sentiment indices increase largely after the GFC, pointing to the strong short-run asymmetries, and the ever-increasing effect of VIX . Further investigations reveal that oil-specific fear index (OVX) has weaker effect on stock-oil comoments than VIX.

This project aims to document inmates' knowledge, perceptions, and preferences and examine how they differ from the general population and how they change over time. The project will also test selected theories explaining the causes of criminal behavior in a unified framework. The analysis will be based on survey, experimental, and administrative data collected from inmates in Czech prisons. Data collection includes two waves of surveys with around 500 inmates and 220 students and one wave of surveys with 1000 subjects representing the general population. Surveying inmates twice is key to measuring how their knowledge, perceptions, and preferences evolve during their incarceration.

Merged data of changes in real estate ownerships from the Cadastre Portal of the Slovak Republic and databases of taxplayers from the Financial Administration of the Slovak Republic revealed many sold properties over last 5 years, for which a capital gains tax was not paid. To improve the tax compliance, reminder letters were sent to potential evaders. In addition, reminder letters were also sent to former owners of properties that were sold in the current reporting period. On top of a baseline letter, we focused on behavioural effects of deterrence and morale and an explanatory effect of a graphical leaflet. The letters significantly increased the number of taxpayers paying the tax but there was no significant difference between the baseline letter and its behavioural modifications and the leaflet even backfired.