Abstract We investigate the effects of trade secret (TS) protection on supplier exclusivity in vertical industrial relations. We show that manufacturers limit their suppliers’ buyer networks under weak TS protection to safeguard sensitive information while encouraging supplier investment. Using worldwide automotive parts contracts data, we find that weak TS protection constrains suppliers to serve only a few Original Equipment Manufacturers (OEMs), sometimes leading to exclusivity, especially for parts with intermediate relationship-specificity. This association strengthens with greater OEM bargaining power, aligning with theoretical insights. We validate these findings by examining supplier attributes, including size, cartel involvement, and ownership structure.
Abstract Joint household decision-making becomes more common as economies develop. Can external intervention advance this transition? We study this question in the context of female employment in India. We randomized which spouse was given a ticket enabling enrollment in a women’s weaving job, and cross-randomized the other to receive no information about the ticket, information, or information and discussion with their spouse. Academic and local experts predict information and discussion should raise enrollment. Instead, information had no effect, and discussion roughly halved enrollment. We do not find an effect of giving the wife the job ticket rather than the husband. Our results show that interventions toward joint decision-making about an opportunity can lower take-up.
Abstract Social norms and formal institutions governing marriage markets vary widely across societies. This paper examines how polygyny norms in Sub-Saharan Africa shape marriage market responses to aggregate economic shocks and their resulting welfare implications. Unlike monogamous markets, polygynous markets feature intense competition for brides between young bachelors and older married men seeking a second (junior) wife. I show, both theoretically and empirically, that the latter group is more responsive than the former to aggregate income shocks in areas where the shadow price of marrying a junior wife is low. This difference in sensitivity leads to distinct equilibrium outcomes: adverse shocks increase the incidence of child marriage in monogamous areas but have no detectable effect in polygynous areas. These divergent equilibrium outcomes generate stark differences in the long-term effects of such shocks on female education, literacy, and the utilization of preventive care services.
Abstract Political polarization is a growing concern in many countries. Are mass protests merely a sign of increasing cleavages, or do they polarize societies? In this paper, we estimate the impact of Nazi marches in 1932 Hamburg, using granular data from 622 voting precincts during 6 elections. We show propaganda can persuade—but it does by raising the share of areas with high levels of Nazi support. Importantly, marches can also backfire, repelling voters. Thus, protest marches lead to polarization. These effects diffused through social networks, measured as contagion patterns across neighborhoods from the 1918 Spanish flu outbreak. The electoral effects of social spillovers are of similar importance as direct exposure, and grow over time.
Abstract Social media has created new, highly competitive markets for attention. But to what extent does attention on social media generate tangible economic returns and how are these returns characterized? Using a daily dataset of Twitter activity and campaign contributions for US Members of Congress (2019-2020), we show that attention on Twitter, as measured by likes, increases small donations. However, the effect is highly skewed: only a few members benefit substantially, consistent with a winner-takes-all market. These results are confirmed using a geography-based causal design tracking donation patterns across counties, showing that the increase in donations from attention on Twitter comes disproportionately from high Twitter usage areas.
Abstract We investigate the channels through which inflation expectations affect household spending by conducting surveys featuring hypothetical scenarios involving an increase in inflation expectations. Most households did not adjust their current spending plans, often because they perceived inflation expectations as irrelevant or adhered to a fixed budget. Among those who did adjust, most decreased their spending, primarily due to wealth effects. Few households increased spending as prescribed by the traditional intertemporal substitution channel. We also document that financial conditions, cognitive ability, and subjective mental models—such as stagflationary expectations—help predict spending responses and the mechanisms households cite. Our findings provide insights into the discussion of using inflation expectations as a policy tool and highlight key frictions to incorporate into theoretical models.
At the aggregate level, the observation that deviations from purchasing power parity (PPP) are too persistent to be accounted for solely by nominal rigidities has long been a puzzle. In addition, microeconomic evidence suggests that deviations from the law of one price (LOP) are less persistent than PPP deviations. To reconcile these two empirical anomalies, we incorporate the behavioral inattention approach into a two-country sticky-price model. Our model shows that firms' behavioral inattention to the aggregate component of real marginal costs generates an endogenous dependence of LOP deviations on PPP deviations. We find strong supporting evidence for this particular formulation of behavioral inattention. Calibrating our model with the estimated degree of attention, we show that our model can fully account for the two empirical anomalies. PPP deviations are more than twice as persistent as those implied by nominal rigidities alone, while the persistence of LOP deviations is about two-thirds that of PPP deviations.
We study the feasibility of opening new mines in ethnically diverse countries without escalating the risk of conflict. We propose a theoretical model in which ethnic groups can organize themselves to fight at the national or the local level. Our model yields two key insights. First, peace cannot be guaranteed in the presence of ethnic segregation and spatial resource inequality. Second, once the peace-maximizing policies are implemented, local conflict risks depend on local resource rents and local ethnic groups as well as the country's entire ethnic and mining geography. We validate key concepts from our model using granular spatial data from Sierra Leone and the rest of sub-Saharan Africa and employing a shift-share identification strategy. We then apply these concepts to simulate the potential impact of planned mining projects in Sierra Leone and confirm that projects in the right locations can promote peace. We offer policy recommendations for making the mining industry a facilitator of peace and prosperity.
Abstract Most comparative analyses explaining the 1970s and 1990s/2000s inflation performance, focusing on good/bad policy versus good/bad luck, assume that price and wage-setting institutions remained constant. While studies acknowledge institutional changes, they typically overlook sources of intrinsic persistence of wage and price inflation. This paper contributes to this ongoing debate by revisiting the U.S. business cycle. We account for time variations in pricing and wage-setting behavior due to institutional changes and for switches in inflation-intrinsic persistence, which we formally represent as changes in the shape of the hazard function. By analyzing how policy and shocks interact within different institutional settings in our model economy, we trace the existing contrasting evidence back to an identification problem that biases regime estimates and leads to misleading interpretations. Once we account for persistence switches, the empirical outcomes strongly support, but refine, the luck interpretation over the policy interpretation. The 1970s were characterized not only by larger shocks but also by more pronounced transmission mechanisms of supply shocks, driven by the price- and wage-setting institutions of the time. Additionally, the data suggest reinterpreting the monetary regimes more in line with the central bankers’ view and show that structural changes in price and wage adjustments play essential and opposite roles in the Great Inflation. Finally, our analysis yields two important general findings. First, it emphasizes the critical role that changes in price and wage-setting institutions play in influencing the propagation of shocks. Second, it validates the use of a generalized time-dependent rule to represent nominal rigidities.
Health matters for marital outcomes, but health information may remain concealed until marriage. Our matching model, which incorporates socioeconomic status (SES) and health, predicts that the removal of health information should shift sorting toward SES, potentially reducing child health and welfare, particularly for those with low SES. We empirically examine this in the context of rural China, following the repeal of compulsory premarital health examinations (PHE). Our difference-in-differences estimation, which compares provinces with varying levels of exposure based on pre-policy PHE rates, confirms a larger shift in sorting patterns in provinces with higher treatment intensity. The decrease in health-based assortative matching negatively affects child health outcomes, which is followed by a decline in postmarital subjective well-being. Women and low-SES individuals experience larger losses than their counterparts within the same highly affected provinces, highlighting persistent gender and socioeconomic disparities.
We conducted a randomized trial in Indonesia to study how information about labor intermediary quality shapes migration behavior. All else equal, intermediary-specific quality disclosure reduces the migration rate, cutting use of low-quality providers. Those who do migrate receive better pre-departure preparation and have improved experiences abroad. These results are not driven by changes in beliefs; nor does selection explain improved outcomes for those who migrate with quality disclosure. Our findings are consistent with an increase in the option value of search: with better ability to screen offers, workers search longer, select better intermediaries, and have better migration experiences.
Abstract This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply correlation aversion. Greater persistence provides information about future consumption but reduces opportunities to hedge consumption risk. I show that, for recursive preferences that exhibit a preference for early resolution of uncertainty, correlation aversion is equivalent to increasing relative risk aversion. To quantify correlation aversion, I develop the concept of the persistence premium, which measures how much an individual is willing to pay to eliminate persistence in consumption. I provide an approximation of the persistence premium in the spirit of Arrow–Pratt, which provides a quantitative representation of the trade-off between information and hedging. I show that correlation-averse preferences have a variational representation, linking correlation aversion to concerns about model misspecification. I present several applications. I first illustrate how correlation aversion shapes portfolio choices, and then show how the persistence premium can improve the calibration of macro-finance models. In an optimal taxation model, I show that recursive preferences—unlike standard preferences—lead to redistributive tax policies that increase social mobility.
Abstract We study how political parties engage in political targeting of resources by coordinating politicians across multiple levels of government. We combine thousands of election outcomes from the Indian state of West Bengal with 300 million payments from a welfare scheme jointly controlled by state and local governments. We show that the state government gives disproportionate funding to co-partisan local councils, which target payments to raise votes for national candidates. Welfare payments are diverted to reward local councilors who successfully deliver votes, and to recruit opposition councilors. The ruling party recruits candidates only where it lacks a majority, systematically expanding its control.
The paper is structured around three main contributions. First, it takes advantage of a unique survey on Afghan asylum seekers in Germany to provide novel descriptive insights into asylum seekers' beliefs about their outcomes and the associated intention to overstay. Second, it estimates asylum seekers' perceived ex ante returns on overstaying and option values of regularisation, deportation, and experimentation. Third, it assesses and rejects the cost-effectiveness argument for assisted voluntary return policies. Instead, it estimates a sizeable willingness-to-pay of asylum seekers for investments that would guarantee their regularisation.
We provide detailed estimates of how the marginal propensity to consume out of wealth (MPC) varies along the distribution of household wealth and by asset composition, and analyse the sources of MPC heterogeneity across euro area countries. To do this, we (1) build a household-level panel dataset combining wealth and consumption surveys for five European countries, and (2) use instrumented household-level panel regressions. First, we find heterogeneity across the wealth distribution with lower MPCs for high-wealth households. Second, we account for asset composition and show the significant role of housing wealth in all countries. We show that our results are indicative of a collateral channel. Third, cross-country differences in MPCs are mostly explained by country-specific institutional and socio-economic characteristics in Germany (compared to Spain) and by differences in consumption behaviours for Belgium, Cyprus and Italy. We show that MPC heterogeneity is related to homeownership rates, mortgage markets, demographics, and wealth inequality. Finally, we investigate to what extent heterogeneous MPC and wealth inequality affect consumption inequality.
Stark and Byra identify a mistake in how capital income is calculated in the supplementary files of Battisti et al. and point out that our wage bargaining equation does not correspond to the Nash bargaining solution in the presence of wage taxation. We acknowledge both points and thank the authors for pointing out these issues. The bargaining solution we use in Battisti et al. is the Kalai proportional bargaining solution with fixed surplus shares, not Nash bargaining. In our reply, we show that if we calibrate the model to wage tax rates, correcting the coding mistake has only a minor effect on our original results if maintaining the original Kalai bargaining. If we also switch to the Nash bargaining solution, the estimated gains from immigration become smaller. Welfare effects depend on the precise nature of bargaining and tend to be larger with Kalai proportional bargaining. Under Nash bargaining, average total welfare gains from immigration are 0.37% for both low-skilled and high-skilled natives, instead of 1.25% for high-skilled and 1.00% for low-skilled natives in Battisti et al.
This paper develops a dynamic equilibrium model of crime with heterogeneous agents and human capital accumulation. Agents decide whether to commit crimes by comparing potential gains with the expected punishment. Public security policies are defined as pairs of a size of the police force and an average sentence length. We propose a micro-founded public security technology linking expenditures on police to the probability of apprehension of a criminal. We illustrate the relevance of this theoretical framework by using an estimated version of the model using US data to (i) characterize the socially optimal public security policy; (ii) explore potential complementarities across public security and educational policies; and (iii) show that comparative statics exercises often lead, under reasonable parameter values, to recommendations that differ from those obtained in a global optimality analysis. These results highlight the relevance of equilibrium considerations in the economic analysis of crime. The paper gives a methodological first step towards building a manageable model of crime that can bring together different pieces of evidence-and equilibrium considerations-when evaluating the trade-offs across policy alternatives.
Using data from the euro area SAFE, a novel survey of firms' inflation expectations including a randomized controlled trial, we show that firms' inflation expectations exhibit significant heterogeneity, challenging the predictions of full-information rational expectations models. At the same time, we document that firms form beliefs consistent with rational Bayesian updating under incomplete information, with geographic location playing a dominant role in shaping expectations. Firms extrapolate from regional and national inflation to form euro area inflation expectations. A basic "Lucas island" model calibrated to euro area data replicates key empirical moments and highlights the structural "pass-through" from national to aggregate expectations. Our findings underscore challenges in anchoring inflation expectations in a heterogeneous monetary union.
We document political interdependence driven by international migration. To examine whether elections in residence countries impact emigrant turnout in homeland elections, we assemble a novel dataset covering 1,267 elections across 43 origin countries and 217 residence countries. Exploiting the quasi-random timing of elections between countries, we find that emigrant turnout increases by 7 percentage points in homeland elections held after residence country elections, compared to those held before. This is consistent with a model of salience where exposure to competitive residence country elections and expanded media coverage increases interest in the political process and drives emigrants to participate in their homeland elections.
German history over the past 125 years has been turbulent. Marked by two world wars, revolutions and major regime changes, as well as a hyperinflation and three currency reforms, expropriations and territorial divisions, it comprises extreme shocks to study the role of historical events, taxation, asset price changes, portfolio heterogeneity in affecting the wealth distribution in the long run. Combining tax and archival data, household surveys, historical national accounts, and rich lists, we document that the top 1% wealth share has fallen by half, from close to 50% in 1895 to 26% today. Nearly all of this decline was the result of changes that occurred between 1914 and 1952. Using a novel decomposition framework, we show that collapsing equity prices after World War I and in the Great Depression as well as taxation in the aftermath of World War II stand out as great equalizers in 20th century German history. After unification in 1990, two trends have left their mark on the German wealth distribution. Households at the top made substantial capital gains from rising business wealth while the middle-class had large capital gains in the housing market. The wealth share of the bottom 50% has halved since 1990. Our findings speak to the importance of historical shocks to the valuation of existing wealth and taxation in driving the evolution of the wealth distribution over the long run. In addition, our data revisions reveal that Germany's current wealth-income ratio is about 120 percentage points higher than previously thought.
