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Review of Economic Studies 2024年1月-8月文章信息（包括摘要）：
Philipp Ager, James J Feigenbaum, Casper W Hansen, Hui Ren Tan, How the Other Half Died: Immigration and Mortality in U.S. Cities, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 1–44, https://doi.org/10.1093/restud/rdad035
Fears of immigrants as a threat to public health have a long and sordid history. At the turn of the 20th century, when immigrants made up one-third of the population in crowded American cities, contemporaries blamed high urban mortality rates on the newest arrivals. We evaluate how the implementation of country-specific immigration quotas in the 1920s affected urban health. Cities with larger quota-induced reductions in immigration experienced a persistent decline in mortality rates, driven by a reduction in deaths from infectious diseases. The unfavourable living conditions immigrants endured explains the majority of the effect as quotas reduced residential crowding and mortality declines were largest in cities where immigrants resided in more crowded conditions and where public health resources were stretched thinnest.
Donald W K Andrews, Soonwoo Kwon, Misspecified Moment Inequality Models: Inference and Diagnostics, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 45–76, https://doi.org/10.1093/restud/rdad033
This paper is concerned with possible model misspecification in moment inequality models. Two issues are addressed. First, standard tests and confidence sets for the true parameter in the moment inequality literature are not robust to model misspecification in the sense that they exhibit spurious precision when the identified set is empty. This paper introduces tests and confidence sets that provide correct asymptotic inference for a pseudo-true parameter in such scenarios, and hence, do not suffer from spurious precision. Second, specification tests have relatively low power against a range of misspecified models. Thus, failure to reject the null of correct specification does not necessarily provide evidence of correct specification. That is, model specification tests are subject to the problem that absence of evidence is not evidence of absence. This paper develops new diagnostics for model misspecification in moment inequality models that do not suffer from this problem.
Marina Azzimonti, Vincenzo Quadrini, International Spillovers and Bailouts, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 77–128, https://doi.org/10.1093/restud/rdad025
We study how cross-country macroeconomic spillovers caused by sovereign default affect equilibrium bailouts. Because of portfolio diversification, the default of one country causes a macroeconomic contraction in other countries, which motivates a bailout. But why do creditor countries choose to bailout debtor countries instead of their own private sector? We show that this is because an external bailout could be cheaper than a domestic bailout. We also show that although anticipated bailouts lead to higher borrowing, they can be Pareto improving not only ex post (after a country has defaulted) but also ex ante (before the country chooses its debt).
Francesco Bianchi, Cosmin Ilut, Hikaru Saijo, Diagnostic Business Cycles, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 129–162, https://doi.org/10.1093/restud/rdad024
A large psychology literature argues that, due to selective memory recall, decision-makers’ forecasts of the future are overly influenced by the perceived news. We adopt the diagnostic expectations (DE) paradigm [Bordalo et al. (2018), Journal of Finance, 73, 199–227] to capture this feature of belief formation, develop a method to incorporate DE in business cycle models, and study the implications for aggregate dynamics. First, we address (1) the theoretical challenges associated with modelling the feedback between optimal actions and agents’ DE beliefs and (2) the time-inconsistencies that arise under distant memory (i.e. when news is perceived with respect to a more distant past than just the immediate one). Second, we show that under distant memory the interaction between actions and DE beliefs naturally generates repeated boom–bust cycles in response to a single initial shock. We also propose a portable solution method to study DE in dynamic stochastic general equilibrium models and use it to estimate a quantitative DE New Keynesian model. Both endogenous states and distant memory play a critical role in successfully replicating the boom–bust cycle observed in response to a monetary policy shock.
Olivier Bochet, Manshu Khanna, Simon Siegenthaler, Beyond Dividing the Pie: Multi-Issue Bargaining in the Laboratory, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 163–191, https://doi.org/10.1093/restud/rdad031
We design a laboratory experiment to study bargaining behaviour when negotiations involve multiple issues. Parties must discover both trading prices and agreement scopes, giving rise to unexplored information structures and bargaining strategies. We find that bargainers often trade the efficient set of issues despite lacking information about individual aspects. However, beneficial agreements critically hinge on integrated negotiations that allow deals on bundles of issues. Moreover, access to more information boosts agreement rates in small-surplus negotiations but can also backfire as it triggers increased risk-taking and conflicting fairness preferences in large-surplus negotiations. Finally, successful negotiations display a specific bargaining convention that emerges endogenously. It involves alternating offers that meet the other side’s most recent demand halfway.
Gregory Casey, Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 192–228, https://doi.org/10.1093/restud/rdad001
I develop a directed technical change model of economic growth and energy efficiency in order to study the impact of climate change mitigation policies on energy use. I show that the standard Cobb–Douglas production function used in the environmental macroeconomics literature overstates the reduction in cumulative energy use that can be achieved with a given path of energy taxes. I also show that, in the model, the government combines energy taxes with research and development (R&D) policy that favors output-increasing technology—rather than energy efficiency technology—to maximize welfare subject to a constraint on cumulative energy use. In addition, I study energy use dynamics following sudden improvements in energy efficiency. Exogenous shocks that increase energy efficiency also decrease the incentive for subsequent energy efficiency R&D and increase long-run energy use relative to a world without the original shock. Subsidies for energy efficiency R&D, however, permanently alter R&D incentives and decrease long-run energy use.
Fergus Cumming, Lisa Dettling, Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 229–258, https://doi.org/10.1093/restud/rdad034
This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Our empirical strategy exploits variation in households’ eligibility for a rate adjustment, coupled with the large reductions in the monetary policy rate that occurred during the Great Recession in the U.K. and U.S. We estimate that each one percentage point drop in the policy rate increased birth rates amongst households eligible for a rate adjustment by 3%. Our results provide new evidence on the nature of monetary policy transmission to households and suggest a new mechanism via which mortgage contract structures can affect both aggregate demand and supply.
Marcela Eslava, John Haltiwanger, Nicolas Urdaneta, The Size and Life-Cycle Growth of Plants: The Role of Productivity, Demand, and Wedges, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 259–300, https://doi.org/10.1093/restud/rdad029
What determines the distribution of establishments in terms of size and life-cycle growth? How are those determinants related to aggregate productivity? We provide novel answers by developing a framework that uses price and quantity information on establishments’ outputs and inputs to jointly estimate the demand and production parameters, and subsequently, establishments’ quality-adjusted productivity, deriving both micro-level and aggregate implications. We find that the dominant source of variation in establishment size is variation in quality/product appeal but that variation in technical efficiency plays an important supporting role. Multiple factors dampen dispersion in establishment size including dispersion in input (quality-adjusted) prices, markups, and residual wedges. Relatively moderate dampening factors induce large aggregate allocative efficiency losses relative to their absence. We show that joint estimation of the parameters of the demand and production function crucially affects inferences on the determinants of the size distribution of firms and their implications for aggregate productivity.
Ester Faia, Vincenzo Pezone, The Cost of Wage Rigidity, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 301–339, https://doi.org/10.1093/restud/rdad020
Private efficiency of wage rigidity has taken centre stage in economics. Measuring its effects has proven elusive for lack of actual wage data. Using a unique confidential labour contract-level dataset matched with firm-level high-frequency asset prices, we find robust evidence that firms’ stock prices and employment fluctuate more in response to monetary policy announcements, the higher the degree of wage rigidity. Hand-collected information on the periods across renegotiations of collective bargaining agreements allow us to construct an accurate and predetermined measure of wage rigidity. We find that the amplification induced by wage rigidity is stronger for firms with high labour intensity, low profitability, and a large share of workers with more rigid contracts.
Gabriele Gratton, Barton E Lee, Liberty, Security, and Accountability: The Rise and Fall of Illiberal Democracies, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 340–371, https://doi.org/10.1093/restud/rdad030
We study a model of the rise and fall of illiberal democracies. Voters value both liberty and economic security. In times of crisis, voters may prefer to elect an illiberal government that, by violating constitutional constraints, offers greater economic security but less liberty. However, violating these constraints allows the government to manipulate information, in turn reducing electoral accountability. We show how elements of liberal constitutions induce voters to elect illiberal governments that remain in power for inefficiently long—including forever. We derive insights into what makes constitutions stable against the rise of illiberal governments. We extend the model to allow for illiberal governments to overcome checks and balances and become autocracies. We show that stronger checks and balances are a double-edged sword: they slow down autocratization but may make it more likely. We discuss the empirical relevance of our theoretical framework and its connection to real world examples.
Fuhito Kojima, Ning Sun, Ning Neil Yu, Job Matching with Subsidy and Taxation, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 372–402, https://doi.org/10.1093/restud/rdad032
In markets for indivisible resources such as workers and objects, subsidy and taxation for an agent may depend on the set of acquired resources and prices. This paper investigates how such transfer policies interfere with the substitutes condition, which is critical for market equilibrium existence and auction mechanism performance among other important issues. For environments where the condition holds in the absence of policy intervention, we investigate which transfer policies preserve the substitutes condition in various economically meaningful settings, establishing a series of characterisation theorems. For environments where the condition may fail without policy intervention, we examine how to use transfer policies to re-establish it, finding exactly when transfer policies based on scales are effective for that purpose. These results serve to inform policymakers, market designers, and market participants of how transfer policies may impact markets, so more informed decisions can be made.
Kory Kroft, Jean-William Laliberté, René Leal-Vizcaíno, Matthew J Notowidigdo, Salience and Taxation with Imperfect Competition, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 403–437, https://doi.org/10.1093/restud/rdad028
This paper studies commodity taxation in a model featuring heterogeneous consumers, imperfect competition, and tax salience. We derive new formulas for the incidence and marginal excess burden of commodity taxation highlighting interactions between tax salience and market structure. We estimate the necessary inputs to the formulas by using Nielsen Retail Scanner and Consumer Panel data covering grocery stores and households in the U.S. and detailed sales tax data. We estimate a large amount of pass-through of taxes onto consumer prices and find that households respond more to changes in prices than taxes. We also estimate significant heterogeneity in tax salience across households. We calibrate our new formulas using these results and conclude that essentially all of the incidence of sales taxes falls on consumers, and the marginal excess burden of taxation is larger than estimates based on standard formulas that ignore imperfect competition and tax salience.
Peter Maxted, A Macro-Finance Model with Sentiment, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 438–475, https://doi.org/10.1093/restud/rdad023
This paper incorporates diagnostic expectations into a general equilibrium macroeconomic model with a financial intermediary sector. Diagnostic expectations are a forward-looking model of extrapolative expectations that overreact to recent news. Frictions in financial intermediation produce non-linear spikes in risk premia and slumps in investment during periods of financial distress. The interaction of sentiment with financial frictions generates a short-run amplification effect followed by a long-run reversal effect, termed the feedback from behavioural frictions to financial frictions. The model features sentiment-driven financial crises characterized by low pre-crisis risk premia and neglected risk. The conflicting short-run and long-run effect of sentiment produces boom–bust investment cycles. The model also identifies a stabilizing role for diagnostic expectations. Under the baseline calibration, financial crises are less likely to occur when expectations are diagnostic than when they are rational.
Magne Mogstad, Joseph P Romano, Azeem M Shaikh, Daniel Wilhelm, Inference for Ranks with Applications to Mobility across Neighbourhoods and Academic Achievement across Countries, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 476–518, https://doi.org/10.1093/restud/rdad006
It is often desired to rank different populations according to the value of some feature of each population. For example, it may be desired to rank neighbourhoods according to some measure of intergenerational mobility or countries according to some measure of academic achievement. These rankings are invariably computed using estimates rather than the true values of these features. As a result, there may be considerable uncertainty concerning the rank of each population. In this paper, we consider the problem of accounting for such uncertainty by constructing confidence sets for the rank of each population. We consider both the problem of constructing marginal confidence sets for the rank of a particular population as well as simultaneous confidence sets for the ranks of all populations. We show how to construct such confidence sets under weak assumptions. An important feature of all of our constructions is that they remain computationally feasible even when the number of populations is very large. We apply our theoretical results to re-examine the rankings of both neighbourhoods in the U.S. in terms of intergenerational mobility and developed countries in terms of academic achievement. The conclusions about which countries do best and worst at reading, math, and science are fairly robust to accounting for uncertainty. The confidence sets for the ranking of the fifty most populous commuting zones by measures of mobility are also found to be small. These confidence sets, however, become much less informative if one includes all commuting zones, if one considers neighbourhoods at a more granular level (counties, census tracts), or if one uses movers across areas to address concerns about selection.
Julien Sauvagnat, Fabiano Schivardi, Are Executives in Short Supply? Evidence from Death Events, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 519–559, https://doi.org/10.1093/restud/rdad027
Using exhaustive administrative data on Italian social security records, we construct measures of local labour market thickness for executives that vary by industry and location. We show that firm performance is strongly and persistently affected by executive death, but only in thin local labour markets. The new executives hired after death events in thin local labour markets have lower education levels and are more likely to be replaced. These predictions are consistent with a simple model of executive search in which market thickness determines the arrival rate of applications for executive positions.
Daniela Vidart, Human Capital, Female Employment, and Electricity: Evidence from the Early 20th-Century United States, The Review of Economic Studies, Volume 91, Issue 1, January 2024, Pages 560–594, https://doi.org/10.1093/restud/rdad021
This paper revisits the link between electrification and the rise in female labour force participation (LFP), and presents theoretical and empirical evidence showing that electrification triggered a rise in female LFP by increasing market opportunities for skilled women. I formalize my theory in an overlapping generations model and find that my mechanism explains one quarter of the rise in female LFP during the rollout of electricity in the U.S. (1880–1940), and matches the slow decline in female home production hours during this period. I then present micro-evidence supporting my theory using newly digitized data on the early electrification of the U.S.
Daron Acemoglu, Martin Kaae Jensen, Equilibrium Analysis in Behavioural One-Sector Growth Models, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 599–640, https://doi.org/10.1093/restud/rdad043
Rich behavioural biases, mistakes, and limits on rational decision-making are often thought to make equilibrium analysis much more intractable. We establish that this is not the case in the context of one-sector growth models such as Ramsey–Cass–Koopmans or Bewley–Aiyagari models. We break down the response of the economy to a change in the environment or policy into two parts: the direct response at the given (pre-tax) prices, and the equilibrium response which plays out as prices change. Our main result demonstrates that under weak regularity conditions, regardless of the details of behavioural preferences, mistakes and constraints on decision-making, the long-run equilibrium will involve a greater capital-labour ratio if and only if the direct response (from the corresponding consumption-saving model) involves an increase in aggregate savings. One implication of this result is that, from a qualitative point of view, behavioural biases matter for long-run equilibrium if and only if they change the direction of the direct response. We provide detailed illustrations of how this result can be applied and generate new insights using models of misperceptions, self-control and temptation, and naive and sophisticated quasi-hyperbolic discounting.
Gaurab Aryal, Charles Murry, Jonathan W Williams, Price Discrimination in International Airline Markets, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 641–689, https://doi.org/10.1093/restud/rdad037
We develop a model of inter-temporal and intra-temporal price discrimination by monopoly airlines to study the ability of different discriminatory pricing mechanisms to increase efficiency and the associated distributional implications. To estimate the model, we use unique data from international airline markets with flight-level variation in prices across time, cabins, and markets and information on passengers’ reasons for travel and time of purchase. The current pricing practice yields approximately 77% of the first-best welfare. The source of this inefficiency arises primarily from private information about passenger valuations, not dynamic uncertainty about demand. We also find that if airlines could discriminate between business and leisure passengers, total welfare would improve at the expense of business passenger surplus. Also, replacing the current pricing that involves screening passengers across cabin classes with offering a single cabin class has minimal effect on total welfare.
Vladimir Asriyan, Victoria Vanasco, Security Design in Non-Exclusive Markets with Asymmetric Information, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 690–719, https://doi.org/10.1093/restud/rdad038
We study the problem of a seller (e.g. a bank) who is privately informed about the quality of her asset and wants to exploit gains from trade with uninformed buyers (e.g. investors) by issuing securities backed by her asset cash flows. In our setting, buyers post menus of contracts to screen the seller, but the seller cannot commit to trade with only one buyer, i.e. markets are non-exclusive. We show that non-exclusive markets behave very differently from exclusive ones: (1) separating contracts are never part of equilibrium; (2) mispricing of claims faced by the seller is always greater than in exclusive markets; (3) there is always a semi-pooling equilibrium where all sellers issue the same debt contract priced at average-valuation, and sellers of low-quality assets issue remaining cash flows at low-valuation; (4) market liquidity can be higher or lower than in exclusive markets, but (5) the average quality of originated assets is always lower. Our model’s predictions are consistent with empirical evidence on the issuance and pricing of mortgage-backed securities, and we use the theory to evaluate recent reforms aimed at enhancing transparency and exclusivity in markets.
Scott R Baker, Nicholas Bloom, Stephen J Terry, Using Disasters to Estimate the Impact of Uncertainty, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 720–747, https://doi.org/10.1093/restud/rdad036
Uncertainty rises in recessions and falls in booms. But what is the causal relationship? We construct cross-country panel data on stock market returns to proxy for first- and second-moment shocks and instrument these with natural disasters, terrorist attacks, and political shocks. Our IV regression results reveal a robust negative short-term impact of second moments (uncertainty) on growth. Employing multiple vector autoregression estimation approaches, relying on a range of identifying assumptions, also reveals a negative impact of uncertainty on growth. Finally, we show that these results are reproducible in a conventional micro–macro business cycle model with time-varying uncertainty.
Debopam Bhattacharya, Pascaline Dupas, Shin Kanaya, Demand and Welfare Analysis in Discrete Choice Models with Social Interactions, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 748–784, https://doi.org/10.1093/restud/rdad053
Many real-life settings of individual choice involve social interactions, causing targeted policies to have spillover effects. This article develops novel empirical tools for analysing demand and welfare effects of policy interventions in binary choice settings with social interactions. Examples include subsidies for health-product adoption and vouchers for attending a high-achieving school. We show that even with fully parametric specifications and unique equilibrium, choice data, that are sufficient for counterfactual demand prediction under interactions, are insufficient for welfare calculations. This is because distinct underlying mechanisms producing the same interaction coefficient can imply different welfare effects and deadweight-loss from a policy intervention. Standard index restrictions imply distribution-free bounds on welfare. We propose ways to identify and consistently estimate the structural parameters and welfare bounds allowing for unobserved group effects that are potentially correlated with observables and are possibly unbounded. We illustrate our results using experimental data on mosquito-net adoption in rural Kenya.
Gabriel Chodorow-Reich, Adam M Guren, Timothy J McQuade, The 2000s Housing Cycle with 2020 Hindsight: A Neo-Kindlebergerian View, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 785–816, https://doi.org/10.1093/restud/rdad045
With “2020 hindsight,” the 2000s housing cycle is not a boom–bust but a boom–bust–rebound. Using a spatial equilibrium regression in which house prices are determined by income, amenities, urbanization, and supply, we show that long-run city-level fundamentals predict not only 1997–2019 price and rent growth but also the amplitude of the boom–bust–rebound. This evidence motivates our model of a cycle rooted in fundamentals. Households learn about fundamentals by observing “dividends” but become over-optimistic in the boom due to diagnostic expectations. A bust ensues when beliefs start to correct, exacerbated by a price–foreclosure spiral that drives prices below their long-run level. The rebound follows as prices converge to a path commensurate with higher fundamental growth. The estimated model explains the boom–bust–rebound with a single shock and accounts quantitatively for the dynamics of prices, rents, and foreclosures in cities with the largest cycles. We draw implications for asset cycles more generally.
Nuno Coimbra, Hélène Rey, Financial Cycles with Heterogeneous Intermediaries, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 817–857, https://doi.org/10.1093/restud/rdad039
We develop a dynamic macroeconomic model with heterogeneous financial intermediaries and endogenous entry. Time-varying endogenous macroeconomic risk arises from the risk-shifting behaviour of the cross-section of financial intermediaries. When interest rates are high, a decrease in interest rates stimulates investment and decreases aggregate risk. In contrast, when they are low, further stimulus can increase financial instability while inducing a fall in the risk premium. In this case, there is a trade-off between stimulating the economy and financial stability. This provides a model of the risk-taking channel of monetary policy.
Victor Couture, Cecile Gaubert, Jessie Handbury, Erik Hurst, Income Growth and the Distributional Effects of Urban Spatial Sorting, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 858–898, https://doi.org/10.1093/restud/rdad048
We explore the impact of rising incomes at the top of the distribution on spatial sorting patterns within large U.S. cities. We develop and quantify a spatial model of a city with heterogeneous agents and non-homothetic preferences for neighbourhoods with endogenous amenity quality. As the rich get richer, demand increases for the high-quality amenities available in downtown neighbourhoods. Rising demand drives up house prices and spurs the development of higher quality neighbourhoods downtown. This gentrification of downtowns makes poor incumbents worse off, as they are either displaced to the suburbs or pay higher rents for amenities that they do not value as much. We quantify the corresponding impact on well-being inequality. Through the lens of the quantified model, the change in the income distribution between 1990 and 2014 led to neighbourhood change and spatial resorting within urban areas that increased the welfare of richer households relative to that of poorer households, above and beyond rising nominal income inequality.
José-Luis Cruz, Esteban Rossi-Hansberg, The Economic Geography of Global Warming, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 899–939, https://doi.org/10.1093/restud/rdad042
Global warming is a worldwide and protracted phenomenon with heterogeneous local economic effects. We propose a dynamic economic assessment model of the world economy with high spatial resolution to assess its consequences. Our model features several forms of adaptation to local temperature changes, including costly trade and migration, local technological innovations, and local natality rates. We quantify the model at a 1∘×1∘ resolution and estimate damage functions that determine the impact of temperature changes on a region’s fundamental productivity and amenities conditional on local temperatures. Welfare losses from global warming are very heterogeneous across locations, with 20% losses in parts of Africa and Latin America but also gains in some northern latitudes. Overall, spatial inequality increases. Uncertainty about average welfare effects is significant but much smaller for relative losses across space. Migration and innovation are shown to be important adaptation mechanisms. We use the model to study the impact of carbon taxes, abatement technologies, and clean energy subsidies. Carbon taxes delay consumption of fossil fuels and help flatten the temperature curve but are much more effective when an abatement technology is forthcoming.
Andrea Ferrero, Richard Harrison, Benjamin Nelson, House Price Dynamics, Optimal LTV Limits and the Liquidity Trap, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 940–971, https://doi.org/10.1093/restud/rdad040
This paper studies the optimal design of a macro-prudential instrument, a loan-to-value (LTV) limit, and its implications for monetary policy in a model with nominal rigidities and financial frictions. The analysis accounts for both an effective lower bound on the nominal interest rate and an upper bound on the ability of LTV limits to stimulate credit demand. The welfare-based loss function features a role for macro-prudential policy to enhance risk-sharing. Optimal LTV limits are strongly countercyclical. In a house price boom-bust episode, the active use of LTV limits alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap.
David Figlio, Paola Giuliano, Riccardo Marchingiglio, Umut Ozek, Paola Sapienza, Diversity in Schools: Immigrants and the Educational Performance of U.S.-Born Students, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 972–1006, https://doi.org/10.1093/restud/rdad047
We study the effect of exposure to immigrants on the educational outcomes of U.S.-born students, using a unique dataset combining population-level birth and school records from Florida. This research question is complicated by the substantial school selection of U.S.-born students, especially among White and comparatively affluent students, in response to the presence of immigrant students in the school. We propose a new identification strategy, comparing sibling outcomes with the inclusion of family fixed effects, to partial out the unobserved non-random selection of native-born families into schools. We find that the presence of immigrant students has a positive effect on the academic achievement of U.S.-born students, especially for students from disadvantaged backgrounds. Moreover, the presence of immigrants does not negatively affect the performance of affluent U.S.-born students, who typically show a higher academic achievement compared to immigrant students. We provide suggestive evidence on potential channels.
Simone Galperti, Aleksandr Levkun, Jacopo Perego, The Value of Data Records, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 1007–1038, https://doi.org/10.1093/restud/rdad044
Many e-commerce platforms use buyers’ personal data to intermediate their transactions with sellers. How much value do such intermediaries derive from the data record of each single individual? We characterize this value and find that one of its key components is a novel externality between records, which arises when the intermediary pools some records to withhold the information they contain. Our analysis has several implications about compensating individuals for the use of their data, guiding companies’ investments in data acquisition, and more broadly studying the demand side of data markets. Our methods combine modern information design with classic duality theory and apply to a large class of principal-agent problems.
Pedro Gete, Franco Zecchetto, Mortgage Design and Slow Recoveries: The Role of Recourse and Default, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 1039–1084, https://doi.org/10.1093/restud/rdad055
We show that mortgage recourse systems, by discouraging default, magnify the impact of nominal rigidities. They cause deeper and more persistent recessions. This mechanism can account for up to 31% of the recovery gap during the Great Recession between the U.S., mostly a non-recourse economy, and Spain, a recourse economy. General equilibrium effects explain most of the differences between mortgage systems. With recourse, highly indebted homeowners dramatically cut consumption in a crisis, and account for a larger share of the aggregate consumption decline. However, without recourse, mortgages would be more expensive for riskier households, and homeownership rates would be lower.
Soheil Ghili, Ben Handel, Igal Hendel, Michael D Whinston, Optimal Long-Term Health Insurance Contracts: Characterization, Computation, and Welfare Effects, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 1085–1121, https://doi.org/10.1093/restud/rdad054
Reclassification risk is a major concern in health insurance where contracts are typically 1 year in length but health shocks often persist for much longer. While most health systems with private insurers pair short-run contracts with substantial pricing regulations to reduce reclassification risk, long-term contracts with one-sided insurer commitment have significant potential to reduce reclassification risk without the negative side effects of price regulation, such as adverse selection. We theoretically characterize optimal long-term insurance contracts with one-sided commitment, extending the literature in directions necessary for studying health insurance markets. We leverage this characterization to provide a simple algorithm for computing optimal contracts from primitives. We estimate key market fundamentals using data on all under-65 privately insured consumers in Utah. We find that dynamic contracts are very effective at reducing reclassification risk for consumers who arrive at the market in good health, but they are ineffective for consumers who come to the market in bad health, demonstrating that there is a role for the government insurance of pre-market health risks. Individuals with steeply rising income profiles find front-loading costly, and thus relatively prefer ACA-type exchanges. Switching costs enhance, while myopia moderately compromises, the performance of dynamic contracts.
Marco Grotteria, Follow the Money, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 1122–1161, https://doi.org/10.1093/restud/rdad041
I study, both empirically and theoretically, the economic and financial consequences of corporate lobbying. Firms lobby politicians to increase their share of government contracts, but political competition creates firm-level risk, inflating their cost of capital and reducing their incentive to invest in research and development (R&D). I document an annual 6–8% return premium for stocks of high-lobbying firms, which compensates investors for political risk. An estimated model in which firms can lobby and innovate and investors are risk averse replicates key features of corporate lobbying in the U.S., including the well-established paradox that lobbying contributions are small relative to the policies at stake. The model predicts that if investors ceased seeking compensation for political risk, R&D investment would increase by 6% and the innovation rate by 0.4% points. The risk-premium costs of lobbying are quantitatively and economically important even if the resources “wasted” on lobbying are objectively small.
Yuichiro Kamada, Fuhito Kojima, Fair Matching under Constraints: Theory and Applications, The Review of Economic Studies, Volume 91, Issue 2, March 2024, Pages 1162–1199, https://doi.org/10.1093/restud/rdad046
This paper studies a general model of matching with constraints. Observing that a stable matching typically does not exist, we focus on feasible, individually rational, and fair matchings. We characterize such matchings by fixed points of a certain function. Building on this result, we characterize the class of constraints on individual schools under which there exists a student-optimal fair matching, the matching that is the most preferred by every student among those satisfying the three desirable properties. We study the numerical relevance of our theory using data on government-organized daycare allocation.
Jason Allen, Robert Clark, Brent Hickman, Eric Richert, Resolving Failed Banks: Uncertainty, Multiple Bidding and Auction Design, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1201–1242, https://doi.org/10.1093/restud/rdad062
The FDIC resolves insolvent banks with scoring auctions. Although the structure of the scoring rule is known to bidders, they are uncertain about how the FDIC trades off different bid components. Scoring-rule uncertainty motivates bidders to submit multiple bids for the same failed bank. To evaluate the effects of uncertainty and multiple bidding for FDIC costs, we develop a methodology for analysing multidimensional bidding when the auctioneer’s scoring weights are unknown to bidders. We estimate private valuations for failed-bank assets during the great financial crisis and compute counterfactuals in the absence of scoring uncertainty. Our findings imply a substantial reduction in FDIC resolution costs of between 29.8% ($8.2 billion) and 44.6% ($12.3 billion). These savings can reduce policy-driven banking-sector distortions, since FDIC resolution costs are covered either through special levies on banks or through loans from the US Treasury. Our analyses also shed new light on optimal bid portfolio choice in combinatorial auctions.
Cristina Arellano, Yan Bai, Gabriel Mihalache, Deadly Debt Crises: COVID-19 in Emerging Markets, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1243–1290, https://doi.org/10.1093/restud/rdad058
Emerging markets have experienced large human and economic costs from coronavirus disease 2019, and their tight fiscal space has limited the support extended to their citizens. We study the impact of an epidemic on economic and health outcomes by integrating epidemiological dynamics into a sovereign default model. The sovereign’s option to default tightens fiscal space and results in an epidemic with limited mitigation and depressed consumption. A quantitative analysis of our model accounts well for the dynamics of fatalities, social distancing, consumption, sovereign debt, and spreads in Latin America. We find that because of default risk, the welfare cost of the pandemic is about a third higher than it is in a version of the model with perfect financial markets. We study debt relief programs and find a compelling case for their implementation. These programs deliver large social gains, improving health and economic outcomes for the country at no cost to international lenders or financial institutions.
Martha J Bailey, Hilary Hoynes, Maya Rossin-Slater, Reed Walker, Is the Social Safety Net a Long-Term Investment? Large-Scale Evidence From the Food Stamps Program, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1291–1330, https://doi.org/10.1093/restud/rdad063
We use novel, large-scale data on 17.5 million Americans to study how a policy-driven increase in economic resources affects children's long-term outcomes. Using the 2000 Census and 2001–13 American Community Survey linked to the Social Security Administration's NUMIDENT, we leverage the county-level rollout of the Food Stamps program between 1961 and 1975. We find that children with access to greater economic resources before age five have better outcomes as adults. The treatment-on-the-treated effects show a 6% of a standard deviation improvement in human capital, 3% of a standard deviation increase in economic self-sufficiency, 8% of a standard deviation increase in the quality of neighbourhood of residence, a 1.2-year increase in life expectancy, and a 0.5 percentage-point decrease in likelihood of being incarcerated. These estimates suggest that Food Stamps’ transfer of resources to families is a highly cost-effective investment in young children, yielding a marginal value of public funds of approximately sixty-two.
Abhijit Banerjee, Emily Breza, Arun G Chandrasekhar, Esther Duflo, Matthew O Jackson, Cynthia Kinnan, Changes in Social Network Structure in Response to Exposure to Formal Credit Markets, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1331–1372, https://doi.org/10.1093/restud/rdad065
We show that the entry of formal financial institutions can have far-reaching and long-lasting impacts on informal lending and social networks more generally. We first study the introduction of microfinance in 75 villages in Karnataka, India, 43 of which were exposed to microfinance. Using difference-in-differences, we show that networks shrank more in exposed villages. Moreover, links between households that were both unlikely to borrow from microfinance were at least as likely to disappear as links involving likely borrowers. We replicate these surprising findings in the context of a randomised controlled trial (RCT) in Hyderabad, where a microfinance institution randomly selected 52 of 104 neighbourhoods to enter first. Four years after all neighbourhoods were treated, households in early-entry neighbourhoods had credit access longer and had larger loans. We again find fewer social relationships between households in these neighbourhoods, even among those ex-ante unlikely to borrow. Because the results suggest global spillovers, atypical in usual models of network formation, we develop a new dynamic model of network formation that emphasizes chance meetings, where efforts to socialize generate a global network-level externality. Finally, we analyse informal borrowing and the sensitivity of consumption to income fluctuations. Households unlikely to take up microcredit suffer the greatest loss of informal borrowing and risk sharing, underscoring the global nature of the externality.
David Rezza Baqaee, Emmanuel Farhi, Kunal Sangani, The Darwinian Returns to Scale, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1373–1405, https://doi.org/10.1093/restud/rdad061
How does an increase in market size, say due to globalization, affect welfare? We study this question using a model with monopolistic competition, heterogeneous markups, and fixed costs. We characterize changes in welfare and decompose changes in allocative efficiency into three different effects: (1) reallocations across firms with heterogeneous price elasticities due to intensifying competition, (2) reallocations due to the exit of marginally profitable firms, and (3) reallocations due to changes in firms’ markups. Whereas the second and third effects have ambiguous implications for welfare, the first effect, which we call the Darwinian effect, always increases welfare regardless of the shape of demand curves. We nonparametrically calibrate demand curves with data from Belgian manufacturing firms and quantify our results. We find that mild increasing returns at the microlevel can catalyze large increasing returns at the macrolevel. Between 70 and 90% of increasing returns to scale come from improvements in how a larger market allocates resources. The lion’s share of these gains are due to the Darwinian effect, which increases the aggregate markup and concentrates sales and employment in high-markup firms. This has implications for policy: an entry subsidy, which harnesses Darwinian reallocations, can improve welfare even when there is more entry than in the first best.
Simone Cerreia-Vioglio, Roberto Corrao, Giacomo Lanzani, Dynamic Opinion Aggregation: Long-Run Stability and Disagreement, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1406–1447, https://doi.org/10.1093/restud/rdad072
This article proposes a model of non-Bayesian social learning in networks that accounts for heuristics and biases in opinion aggregation. The updating rules are represented by non-linear opinion aggregators from which we extract two extreme networks capturing strong and weak links. We provide graph-theoretic conditions for these networks that characterize opinions’ convergence, consensus formation, and efficient or biased information aggregation. Under these updating rules, agents may ignore some of their neighbours’ opinions, reducing the number of effective connections and inducing long-run disagreement for finite populations. For the wisdom of the crowd in large populations, we highlight a trade-off between how connected the society is and the non-linearity of the opinion aggregator. Our framework bridges several models and phenomena in the non-Bayesian social learning literature, thereby providing a unifying approach to the field.
Harold L Cole, Dirk Krueger, George J Mailath, Yena Park, Trust in Risk Sharing: A Double-Edged Sword, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1448–1497, https://doi.org/10.1093/restud/rdad071
We analyse efficient risk-sharing arrangements when the value from deviating is determined endogenously by another risk-sharing arrangement. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any coalition formed (joined) after deviations rely on a belief in future cooperation which we term “trust”. We treat the contracting conditions of original and deviation coalitions symmetrically and show that higher trust tightens incentive constraints since it facilitates the formation of deviating coalitions. As a consequence, although trust facilitates the initial formation of coalitions, the extent of risk sharing in successfully formed coalitions is declining in the extent of trust and efficient allocations might feature resource burning or utility burning: trust is indeed a double-edged sword.
Emanuele Colonnelli, Niels Joachim Gormsen, Tim McQuade, Selfish Corporations, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1498–1536, https://doi.org/10.1093/restud/rdad057
We study how perceptions of corporate responsibility influence policy preferences and the effectiveness of corporate communication when agents have imperfect memory recall. Using a new large-scale survey of U.S. citizens on their support for corporate bailouts, we first establish that the public demands corporations to behave better within society, a sentiment we label “big business discontent.” Using random variation in the order of survey sections and in the exposure to animated videos, we then show that priming respondents to think about corporate responsibility lowers the support for bailouts. This finding suggests that big business discontent influences policy preferences. Furthermore, we find that messages which paint a positive picture of corporate responsibility can “backfire,” as doing so brings attention to an aspect on which the public has negative views. In contrast, reframing corporate bailouts in terms of economic tradeoffs increases support for the policy. We develop a memory-based model of decision-making and communication to rationalize these findings.
Alejandro Cuñat, Robert Zymek, Bilateral Trade Imbalances, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1537–1583, https://doi.org/10.1093/restud/rdad052
If sectoral trade flows obey structural gravity, countries’ bilateral trade imbalances are the result of macro trade imbalances, “triangular trade”, or pairwise asymmetric trade barriers. Using data for 40 major economies and the Rest of the World, we show that large and pervasive asymmetries in trade barriers are required to account for most of the observed variation in bilateral imbalances. A dynamic quantitative trade model suggests that eliminating these asymmetries would significantly reduce bilateral (but not macro) imbalances and have sizeable impacts on welfare. We provide evidence that the asymmetries we measure are in part related to the policy environment: trade inside the European Single Market appears to be subject to more bilaterally symmetric frictions. Extending the same symmetry to all parts of the global economy would give a large boost to the real incomes of several non-E.U. countries.
Jan Eeckhout, Alireza Sepahsalari, The Effect of Wealth on Worker Productivity, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1584–1633, https://doi.org/10.1093/restud/rdad059
We propose a theory that analyzes how a workers’ asset holdings affect their job productivity. In a labor market with uninsurable risk, workers choose to direct their job search trading off productivity and wages against unemployment risk. Workers with low asset holdings have a precautionary job search motive, they direct their search to low productivity jobs because those offer a low risk at the cost of low productivity and a low wage. Our main theoretical contribution shows that the presence of consumption smoothing can reconcile the directed search model with negative duration-dependence on wages, a robust empirical regularity that the canonical directed search model cannot rationalize. We calibrate the infinite horizon economy and find this mechanism to be quantitatively important. We evaluate a tax financed unemployment insurance (UI) scheme and analyze how it affects welfare. Aggregate welfare is inverted U-shaped in benefits: the insurance effect UI dominates the incentive effects for low levels of benefits and vice versa for high benefits. In addition, when UI increases, total production falls in the economy while worker productivity increases.
Donn L Feir, Rob Gillezeau, Maggie E C Jones, The Slaughter of the Bison and Reversal of Fortunes on the Great Plains, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1634–1670, https://doi.org/10.1093/restud/rdad060
In the late nineteenth century, the North American bison was brought to the brink of extinction in less than two decades. We demonstrate that the loss of the bison had immediate, negative consequences for the Native Americans who relied on them and ultimately resulted in a persistent reversal of fortunes. Once amongst the tallest people in the world, the generations of bison-reliant people born after the slaughter lost their entire height advantage. By the early twentieth century, child mortality was 16 percentage points higher and the probability of reporting an occupation 19 percentage points lower in bison nations compared with nations that were never reliant on the bison. Throughout the latter half of the twentieth century and into the present, income per capita has remained 25% lower, on average, for bison nations. This persistent gap cannot be explained by differences in agricultural productivity, self-governance, or application of the Dawes Act. We provide evidence that this historical shock altered the dynamic path of development for formerly bison-reliant nations. We demonstrate that limited access to credit constrained the ability of bison nations to adjust through re-specialization and migration.
Andrew Garin, Filipe Silvério, How Responsive Are Wages to Firm-Specific Changes in Labour Demand? Evidence from Idiosyncratic Export Demand Shocks, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1671–1710, https://doi.org/10.1093/restud/rdad069
Do firms adjust wages in response to changes in their own demand level or to changes in competitive pressure from rival employers? We study how exporters adjust wages in response to unexpected product demand shocks during the 2008–9 Great Recession. Using rich data on Portuguese firms’ pre-recession export shipments, we measure firm-level shocks to export demand during the Recession. We show that shocks constructed at the firm level are not necessarily firm-specific and can be decomposed into a common component affecting all producers in a product market and an idiosyncratic component affecting individual firms within markets based on the locations of their pre-recession customers. We demonstrate that while both components impact firms’ output and their workers’ wages, the common component spills over from firms to their labour market rivals, whereas the idiosyncratic component does not. We find that 10–15% of firms’ idiosyncratic demand passes through to their employees’ wage growth with no effect on retention rates, implying significant dependence of wages on noncompetitive quasi-rents. Moreover, we find that wages respond primarily to shifts in internal labour demand when labour markets are thin, but they respond more to competition from other employers when labour markets are fluid. These results indicate that employers’ ability to set wages hinges on the underlying competitiveness of the labour market.
Germán Gieczewski, Svetlana Kosterina, Experimentation in Endogenous Organizations, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1711–1745, https://doi.org/10.1093/restud/rdad064
We study policy experimentation in organizations with endogenous membership. An organization decides when to stop a policy experiment based on its results. As information arrives, agents update their beliefs, and enter or leave the organization based on their expected flow payoffs. Unsuccessful experiments make all agents more pessimistic, but also drive out conservative members. We identify sufficient conditions under which the latter effect dominates, leading to excessive experimentation. In fact, the organization may experiment forever in the face of mounting negative evidence. Ex post heterogeneous payoffs exacerbate the problem, as optimists can join forces with guaranteed winners. Control by shareholders who own all future payoffs, however, can have a corrective effect. Our results contrast with models of collective experimentation with fixed membership, in which under-experimentation is the typical outcome.
Federico Huneeus, Richard Rogerson, Heterogeneous Paths of Industrialization, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1746–1774, https://doi.org/10.1093/restud/rdad066
Industrialization experiences differ substantially across countries. We use a benchmark model of structural change to shed light on the sources of this heterogeneity and, in particular, the phenomenon of premature deindustrialization. Our analysis leads to three key findings. First, benchmark models of structural change robustly generate hump-shaped patterns for the evolution of the industrial sector. Second, heterogeneous patterns of catch-up in sectoral productivities across countries can generate variation in industrialization experiences similar to those found in the data, including premature deindustrialization. Third, differences in the rate of agricultural productivity growth across economies can account for the majority of the variation in peak industrial employment shares.
Sergey Kovbasyuk, Giancarlo Spagnolo, Memory and Markets, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1775–1806, https://doi.org/10.1093/restud/rdad067
In many environments, including credit and online markets, records about participants are collected, published, and erased after some time. We study the effects of erasing past records in a dynamic market where the quality of sellers follows a Markov process, and buyers leave feedback about sellers to an information intermediary. When the average quality of sellers is low, unlimited records lead to a market breakdown in the long run. We consider the information design problem and characterize information policies that can sustain trade and that maximize social welfare. These policies hide some information from the market in order to foster socially desirable experimentation. We show that these outcomes can be implemented by appropriately deleting past records. Crucially, positive and negative records play opposite roles with different intensities and must have different lengths: negative records must be deleted sufficiently late, and positive ones sufficiently early.
Andreas I Mueller, Damian Osterwalder, Josef Zweimüller, Andreas Kettemann, Vacancy Durations and Entry Wages: Evidence from Linked Vacancy–Employer–Employee Data, The Review of Economic Studies, Volume 91, Issue 3, May 2024, Pages 1807–1841, https://doi.org/10.1093/restud/rdad051
This article explores the relationship between the duration of a vacancy and the starting wage of a new job, using linked data on vacancies, the posting establishments, and the workers eventually filling the vacancies. The unique combination of large-scale, administrative worker, establishment, and vacancy data is critical for separating establishment- and job-level determinants of vacancy duration from worker-level heterogeneity. Conditional on observables, we find that vacancy duration is negatively correlated with the starting wage and its establishment component, with precisely estimated elasticities of −0.07 and −0.21, respectively. While the negative relationship is qualitatively consistent with search-theoretic models where firms use the wage as a recruiting device, these elasticities are small, suggesting that firms’ wage policies can account only for a small fraction of the variation in vacancy filling across establishments.
José Azar, Emiliano Huet-Vaughn, Ioana Marinescu, Bledi Taska, Till von Wachter, Minimum Wage Employment Effects and Labour Market Concentration, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 1843–1883, https://doi.org/10.1093/restud/rdad091
This paper shows that more highly concentrated labour markets experience more positive employment effects of the minimum wage. In the most concentrated labour markets, employment rises following a minimum wage increase. The paper establishes its main findings by studying the effects of local minimum wage increases on a key low-wage retail sector, and using data on labour market concentration that covers the entirety of the U.S. with fine spatial variation at the occupation level. The results carry over to the fast-food sector and the entire low-wage labour market and are robust to using proxies of labour market concentration available for a broader range of industries, such as the number of establishments and population density. A model of oligopsonistic competition can explain these effects: there is more room to increase wages in high-concentration areas where wages tend to be further below marginal productivity. These findings provide evidence supporting monopsonistic wage setting as an explanation for the near-zero minimum wage employment effect documented in prior work.
Abhijit Banerjee, Emily Breza, Arun G Chandrasekhar, Benjamin Golub, When Less Is More: Experimental Evidence on Information Delivery During India’s Demonetisation, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 1884–1922, https://doi.org/10.1093/restud/rdad068
In disseminating information, policymakers face a choice between broadcasting to everyone and informing a small number of “seeds” who then spread the message. While broadcasting maximises the initial reach of messages, we offer theoretical and experimental evidence that it need not be the best strategy. In a field experiment during the 2016 Indian demonetisation, we delivered policy information, varying three dimensions of the delivery method at the village level: initial reach (broadcasting versus seeding); whether or not we induced common knowledge of who was initially informed; and number of facts delivered. We measured three outcomes: the volume of conversations about demonetisation, knowledge of demonetisation rules, and choice quality in a strongly incentivised policy-dependent decision. On all three outcomes, under common knowledge, seeding dominates broadcasting; moreover, adding common knowledge makes seeding more effective but broadcasting less so. We interpret our results via a model of image concerns deterring engagement in social learning, and we support this interpretation with evidence on differential behaviour across ability categories.
Felipe Benguria, Felipe Saffie, Sergio Urzua, The Transmission of Commodity Price Super-Cycles, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 1923–1955, https://doi.org/10.1093/restud/rdad078
We examine two key channels through which commodity price super-cycles affect the economy: a wealth channel, through which higher commodity prices increase domestic demand, and a cost channel, through which they induce wage increases. By exploiting regional variation in exposure to commodity price shocks and administrative firm-level data from Brazil, we empirically disentangle these transmission channels. We introduce a dynamic model with heterogeneous firms and workers to further quantify the mechanisms and evaluate welfare. A counterfactual economy in which commodity booms are purely endowment shocks experiences only 30% of the intersectoral labour reallocation between tradables and nontradables, and 40% of the within-tradable labour reallocation between domestic and exported production. Finally, the consumption-equivalent welfare gain of a commodity super-cycle is twice as large in the counterfactual economy.
Alan Benson, Simon Board, Moritz Meyer-ter-Vehn, Discrimination in Hiring: Evidence from Retail Sales, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 1956–1987, https://doi.org/10.1093/restud/rdad087
We propose a simple model of racial bias in hiring that encompasses three major theories: taste-based discrimination, screening discrimination, and complementary production. We derive a test that can distinguish these theories based on the mean and variance of workers’ productivity under managers of different pairs of races. We apply this test to study discrimination at a major U.S. retailer using data from 48,755 newly hired commission-based salespeople. White, black, and Hispanic managers within the same store are significantly more likely to hire workers of their own race, consistent with all three theories. For black–Hispanic pairs, productivity variance is lower for same-race pairs than cross-race pairs, implying that screening discrimination dominates. For white–Hispanic pairs, mean productivity is higher for same-race pairs, indicating a combination of screening discrimination and complementary production. For white–black pairs, biased hiring implies the presence of discrimination, but productivity results suggest the effects of the three forms of discrimination offset one another.
Benjamin Bernard, Continuous-Time Games with Imperfect and Abrupt Information, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 1988–2052, https://doi.org/10.1093/restud/rdad077
This paper studies two-player games in continuous time with imperfect public monitoring, in which information may arrive both gradually and continuously, governed by a Brownian motion, and abruptly and discontinuously, according to Poisson processes. For this general class of two-player games, we characterize the equilibrium payoff set via a convergent sequence of differential equations. The differential equations characterize the optimal trade-off between value burnt through incentives related to Poisson information and the noisiness of incentives related to Brownian information. In the presence of abrupt information, the boundary of the equilibrium payoff set may not be smooth outside the set of static Nash payoffs. Equilibrium strategies that attain extremal payoff pairs as well as their intertemporal incentives are elicitable from the limiting solution. The characterization is new even when information arrives through Poisson events only.
Javier Bianchi, César Sosa-Padilla, Reserve Accumulation, Macroeconomic Stabilization, and Sovereign Risk, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2053–2103, https://doi.org/10.1093/restud/rdad075
In the past three decades, governments in emerging markets have accumulated large amounts of international reserves, especially those with fixed exchange rates. This article proposes a theory of reserve accumulation that can account for these facts. Using a model of endogenous sovereign default with nominal rigidities, we argue that the interaction between sovereign risk and aggregate demand amplification generates a macroeconomic-stabilization hedging role for international reserves. We show that issuing debt to purchase reserves during good times allows the government to stabilize aggregate demand when sovereign spreads rise and rolling over the debt becomes more expensive. We provide empirical evidence consistent with the model’s predictions.
Ben Broadbent, Federico Di Pace, Thomas Drechsel, Richard Harrison, Silvana Tenreyro, The Brexit Vote, Productivity Growth, and Macroeconomic Adjustments in the U.K., The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2104–2134, https://doi.org/10.1093/restud/rdad086
The U.K. economy experienced significant macroeconomic adjustments following the 2016 referendum on its withdrawal from the European Union. To understand these adjustments, this paper presents empirical facts using novel U.K. macroeconomic data and estimates a small open economy model with tradable and non-tradable sectors. We demonstrate that the referendum outcome can be interpreted as news about a future decline in productivity growth in the tradable sector. An immediate fall in the relative price of non-tradable goods induces a temporary “sweet spot” for tradable producers. Economic activity in the tradable sector expands in the short run, while the non-tradable sector contracts. Aggregate output, consumption, and investment growth decelerate.
Ivan A Canay, Magne Mogstad, Jack Mountjoy, On the Use of Outcome Tests for Detecting Bias in Decision Making, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2135–2167, https://doi.org/10.1093/restud/rdad082
The decisions of judges, lenders, journal editors, and other gatekeepers often lead to significant disparities across affected groups. An important question is whether, and to what extent, these group-level disparities are driven by relevant differences in underlying individual characteristics or by biased decision makers. Becker (1957, 1993) proposed an outcome test of bias based on differences in post-decision outcomes across groups, inspiring a large and growing empirical literature. The goal of our paper is to offer a methodological blueprint for empirical work that seeks to use outcome tests to detect bias. We show that models of decision making underpinning outcome tests can be usefully recast as Roy models, since heterogeneous potential outcomes enter directly into the decision maker’s choice equation. Different members of the Roy model family, however, are distinguished by the tightness of the link between potential outcomes and decisions. We show that these distinctions have important implications for defining bias, deriving logically valid outcome tests of such bias, and identifying the marginal outcomes that the test requires.
James Cloyne, Nicholas Dimsdale, Natacha Postel-Vinay, Taxes and Growth: New Narrative Evidence from Interwar Britain, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2168–2200, https://doi.org/10.1093/restud/rdad081
The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918–39, has remained a particularly interesting and contentious case—not least because of its high-debt environment and turbulent business cycle. This debate has often focused on the effects of government spending, but little is known about the effects of tax changes. In fact, a number of tax reforms in the period focused on long-term and social objectives, often reflecting the personality of British Chancellors. Based on extensive historiographical research, we apply a narrative approach to the interwar period in Britain and isolate a new series of exogenous tax changes. We find that tax changes have a sizable effect on GDP, with multipliers exceeding 2 within two years. Our estimates provide new evidence on the effects of tax changes, contribute to the historical debate about fiscal policy in the interwar period and are also consistent with the sizable tax multipliers found after World War II.
Gauti B Eggertsson, Ragnar E Juelsrud, Lawrence H Summers, Ella Getz Wold, Negative Nominal Interest Rates and the Bank Lending Channel, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2201–2275, https://doi.org/10.1093/restud/rdad085
We investigate the bank lending channel of negative nominal policy rates from an empirical and theoretical perspective. For the empirical results, we rely on Swedish data, including daily bank-level lending rates. We find that retail household deposit rates are subject to a lower bound (DLB). Empirically, once the DLB is met, the pass-through to mortgage lending rates and credit volumes is substantially lower and bank equity values decline in response to further policy rate cuts. We construct a banking sector model and use our estimate of the pass-through of negative policy rates to lending rates as an identified moment to parameterize the model and assess the impact of negative policy rates in general equilibrium. Using the theoretical framework, we derive a sufficient statistic for when negative policy rates are expansionary and when they are not.
Doireann Fitzgerald, Stefanie Haller, Yaniv Yedid-Levi, How Exporters Grow, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2276–2306, https://doi.org/10.1093/restud/rdad070
We use customs data for Irish firms to show that in successful episodes of export market entry, there are statistically and economically significant post-entry dynamics of quantities, but not of mark-ups. To match these moments, we structurally estimate a model where firms can invest in future customer base through two channels: by selling more today, and by spending on marketing and advertising. Our estimates suggest that customer base is insensitive to lagged sales, so firms have no incentive to engage in dynamic pricing to accumulate customers. Instead, investment in customer base through marketing and advertising explains the dynamics of quantities. The ratio of advertising and marketing expenditures to sales implied by the model is consistent with data from other sources. Our estimated model generates long-run export responses to permanent tariff changes that are bigger than short run responses, as well as responses that are increasing in the expected persistence of tariff shocks, contributing to our understanding of the International Elasticity Puzzle.
Tarek A Hassan, Jesse Schreger, Markus Schwedeler, Ahmed Tahoun, Sources and Transmission of Country Risk, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2307–2346, https://doi.org/10.1093/restud/rdad080
We use textual analysis of earnings conference calls held by listed firms around the world to measure the amount of risk managers and investors at each firm associated with each country at each point in time. Flexibly aggregating this firm-country-quarter-level data allows us to systematically identify spikes in perceived country risk (“crises”) and document their source and pattern of transmission to foreign firms. While this pattern usually follows a gravity structure, it often changes dramatically during crises. For example, while crises originating in developed countries propagate disproportionately to foreign financial firms, emerging market crises transmit less financially and more to traditionally exposed countries. We apply our measures to show that elevated perceptions of a country’s riskiness, particularly those of foreign and financial firms, are associated with significant falls in local asset prices, capital outflows, and an increased likelihood of a sudden stop.
Alex Imas, Kristof Madarász, Superiority-Seeking and the Preference for Exclusion, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2347–2386, https://doi.org/10.1093/restud/rdad079
We propose that a person’s desire to consume an object or possess an attribute increases in how much others want but cannot have it. We term this motive imitative superiority-seeking and show that it generates preferences for exclusion that help explain a host of market anomalies and make novel predictions in a variety of domains. In bilateral exchange, trade becomes more zero-sum, leading to an endowment effect. People’s value of consuming a good increases in its scarcity, which generates a motive for firms and organizations to engage in exclusionary policies. A monopolist producing at constant marginal cost can increase profits by randomly excluding buyers relative to the standard optimal mechanism of posting a common price. In the context of auctions, a seller can extract greater revenues by randomly barring a subset of consumers from bidding. Moreover, such non-price-based exclusion leads to higher revenues than the classic optimal sales mechanism. A series of experiments provides direct support for these predictions. In basic exchange, a person’s willingness to pay for a good increases as more people are explicitly barred from the opportunity to acquire it. In auctions, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Consistent with our predictions, exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Our model of superiority-seeking generates “Veblen effects,” rationalizes attitudes against redistribution and provides a novel motive for social exclusion and discrimination.
Ralph S J Koijen, Robert J Richmond, Motohiro Yogo, Which Investors Matter for Equity Valuations and Expected Returns?, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2387–2424, https://doi.org/10.1093/restud/rdad083
Based on an asset demand system, we develop a framework to quantify the impact of market trends and changes in regulation on asset prices, price informativeness, and the wealth distribution. Our leading applications are the transition from active to passive investment management and climate-induced shifts in asset demand. The transition from active to passive investment management had a large impact on equity prices but a small impact on price informativeness because capital did not flow from more to less informed investors on average. This finding is based on a new measure of investor-level informativeness that identifies which investors are more informed about future profitability. Climate-induced shifts in asset demand have a potentially large impact on equity prices and the wealth distribution, implying capital gains for passive investment advisors, pension funds, insurance companies, and private banking and capital losses for active investment advisors and hedge funds.
Qingmin Liu, Yu Fu Wong, Strategic Exploration: Pre-emption and Prioritization, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2425–2461, https://doi.org/10.1093/restud/rdad084
This paper analyses a model of strategic exploration in which competing players independently explore a set of alternatives. The model features a multiple-player multiple-armed bandit problem and captures a strategic trade-off between pre-emption—covert exploration of alternatives that the opponent will explore in the future—and prioritization—exploration of the most promising alternatives. Our results explain how the strategic trade-off shapes equilibrium behaviours and outcomes, for example, in technology races between superpowers and R&D competitions between firms. We show that players compete on the same set of alternatives, leading to duplicated exploration from start to finish, and they explore alternatives that are a priori less promising before more promising ones are exhausted. The model also predicts that competition induces players to implement unreliable technologies too early, even though they should wait for the technologies to mature. Coordinated exploration is impossible even if the alternatives are equally promising, but it can emerge in equilibrium following a phase of pre-emptive competition if there is a short deadline. With asymmetric capacities of exploration, the weak player conducts extensive instead of intensive exploration—exploring as many alternatives as the strong player does but never fully exploring any.
Pooya Molavi, Alireza Tahbaz-Salehi, Andrea Vedolin, Model Complexity, Expectations, and Asset Prices, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2462–2507, https://doi.org/10.1093/restud/rdad073
This paper analyses how limits to the complexity of statistical models used by market participants can shape asset prices. We consider an economy in which the stochastic process that governs the evolution of economic variables may not have a simple representation, and yet, agents are only capable of entertaining statistical models with a certain level of complexity. As a result, they may end up with a lower-dimensional approximation that does not fully capture the intertemporal complexity of the true data-generating process. We first characterize the implications of the resulting departure from rational expectations and relate the extent of return and forecast-error predictability at various horizons to the complexity of agents’ models and the statistical properties of the underlying process. We then apply our framework to study violations of uncovered interest rate parity in foreign exchange markets. We find that constraints on the complexity of agents’ models can generate return predictability patterns that are simultaneously consistent with the well-known forward discount and predictability reversal puzzles.
Louis Preonas, Market Power in Coal Shipping and Implications for U.S. Climate Policy, The Review of Economic Studies, Volume 91, Issue 4, July 2024, Pages 2508–2537, https://doi.org/10.1093/restud/rdad090
Economists have widely endorsed pricing CO2 emissions to internalize climate change-related externalities. Doing so would significantly affect coal, the most carbon-intensive energy source. However, U.S. coal markets exhibit an additional distortion: the railroads that transport coal to power plants can exert market power. This article estimates how coal-by-rail markups respond to changes in coal demand. I identify markups in a major intermediate goods market using both reduced-form and structural methods. I find that rail carriers reduce coal markups when downstream power plant demand changes due to a drop in the price of natural gas (a competing fuel). My results imply that decreases in coal markups have increased recent U.S. climate damages by $11.9 billion, compared to a counterfactual where markups did not change. Incomplete pass-through would likely erode the environmental benefits of an incremental carbon tax, shifting the tax burden towards upstream railroads. Still, a non-trivial tax would likely increase welfare.
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