Utilizing 1.54 million judicial judgments from enterprise-to-enterprise litigation between 2014 and 2019 in China, we provide evidence of municipal leaders exerting influence over the courts to favor enterprises connected to them. By leveraging variations in enterprise connections resulting from official turnover, we show that enterprises with connections to party leaders have higher chances of winning in business litigation than unconnected enterprises. We also examine the impact of the staggered roll-out of circuit courts, a top-down institutional reform, on cronyism in the courtroom. Our findings show that this reform has effectively reduced the judicial advantage enjoyed by connected enterprises by two-thirds. By contrast, the trial live-broadcasting reform increases visibility but is not associated with a reduction in the effect of political connections, suggesting that different forms of judicial bias require different monitoring approaches.

In this paper, we characterize a forecasting model where forecasters cannot perfectly distinguish between the two persistent components (trends and cycles) in a dynamic setting. In this model, forecasters jointly update their beliefs about the two components: noisy information about one component is used to update beliefs about the other component. We present diagnostic empirical facts on forecasting behaviors and show that these facts are consistent with our model's predictions while contradicting those of existing models in the expectation formation literature. To validate our model, we exploit the Federal Reserve's 2012 adoption of explicit inflation targeting as a policy shock. Structural estimation reveals that this policy change altered the underlying data generation process, and the corresponding changes in forecasting behavior indeed align with our model's predictions. Finally, we revisit the standard Forecast Error-Forecast Revision regression approach in this literature. We examine its robustness within our enriched framework and reveal that trend-cycle confusion can interact with behavioral bias and generate horizon-dependent overreaction patterns documented in empirical studies.

Abstract Does news media coverage of autocracies hinge on their relationship with those regimes? Exploiting a large-scale media crackdown in May 2019 in China, in which multiple influential UK- and US-based news sites were blocked, we find that news outlets adopted a more negative tone in their coverage of China and reported more frequently on sensitive topics such as human rights, after being blocked, compared to those with no access change. Such effects are absent in news on economic topics and opinion articles. We investigate several mechanisms underlying these findings, including reduced self-censorship, diminished journalistic resources and changes in readership composition after losing access.

We characterize how forecasters form expectations when they cannot perfectly distinguish between trends and cycles. This model is motivated by a set of findings from the Survey of Professional Forecasters, which reveal various patterns in forecasting behaviors across different forecast horizons. These facts are inconsistent with the common assumption in the expectation formation literature that trends are stable or observable. Our framework can be applied to account for changes in forecasting behavior following the introduction of explicit inflation targeting in 2012. We also extend the model to incorporate behavioral biases so as to address empirical puzzles documented in the literature.

Using firm-level earnings forecasts and managerial guidance data, we construct guidance surprises for analysts, i.e., differences between managerial guidance and analysts' initial forecasts. We document new evidence on expectation formation: (i) analysts overreact to managerial guidance and the overreaction is state-dependent, i.e., it is stronger for negative guidance surprises but weaker for surprises that are larger in size; and (ii) forecast revisions are neither symmetric in guidance surprises nor monotonic. We organize these facts with a model where analysts are uncertain about the quality of managerial guidance. We show that a reasonable degree of ambiguity aversion is necessary to account for the documented heterogeneous overreaction pattern.

Over the past decades the number of news outlets has increased dramatically, but the quality of news products has declined. We propose a model to reconcile these facts where consumers’ attention allocation decisions not only depend on but also affect news outlets’ quality choices. When competition is intensified by new entries, the informativeness of the news industry rises. Thus, attention is diverted from existing outlets, reducing their incentives to improve news quality, which begets a downward spiral. Furthermore, when attention becomes cheaper, a larger number of news outlets can be accommodated in equilibrium, but news quality still falls. (JEL D83, L15, L82)

Using 1.4 million judgments of enterprise-to-enterprise litigations from 2014 to 2019 in China, we study the impacts of judicial reforms on biased court decisions. We find that the introduction of circuit courts, a top- down institutional reform, effectively curbed cronyism in the courtroom, i.e., favoritism received by enterprises that are connected to local party officials; however, this reform did not mitigate the home court advantage that local enterprises enjoy. In contrast, the implementation of live online trial broadcasts, a technological innovation that enhances transparency and mobilizes grassroots participation in monitoring local courts, did not reduce corruption but substantially suppressed home bias. The contrasting impacts of these reforms suggest that different monitoring approaches are necessary to correct different types of judicial bias.

Asymmetric information and diverse preferences for reform create an agency problem between opposition leaders and citizens. Dissatisfied citizens are unsure of how bad the current situation is but infer this information from the scale of the leader's reform proposal. Because radical leaders have an incentive to exaggerate and mislead, to command credibility, they must paradoxically radicalize the proposal further as a way of signaling the necessity of change. Radicalism motivated by signaling is costly, as it reduces a movement's chances of success. This mechanism also contributes to leadership radicalization when the leaders of movements arise as a compromise among diverse interests.

We propose a regime change model in which people are uncertain about both the quality of a specific regime and governance in general. The poor perceive the current regime as bad, rationally infer that all governments are bad, and therefore believe mass movements are futile. The middle class are more sanguine about the prospect of good government, and believe that collective action is effective because they expect many fellow citizens to share the same view. This coordination game with incomplete information does not admit monotone equilibrium but exhibits multiple interval equilibria, where middle class people are more likely to attack the regime.

We study how rumors mobilize individuals who take collective action. Rumors may or may not be informative, but they create public topics on which people can exchange their views. Individuals with diverse private information rationally evaluate the informativeness of rumors about regime strength. A rumor against the regime can coordinate a larger mass of attackers if individuals can discuss its veracity than if they cannot. Communication can be so effective that a rumor can have an even greater impact on mobilization than when the same story is fully believed by everybody. However, an extreme rumor can backfire and discourage mobilization.

Crises, such as revolutions and currency attacks, rarely occur; but when they do they typically arrive in waves. The rarity of crises is an important contagion mechanism in a multiple-country dynamic global game model. When players are uncertain about the true model of the world, observing a rare success elsewhere can substantially change their expectations concerning the payoffs from attacking or defending the regime. Such dramatic revisions in beliefs, amplified by strategic complementarity in actions, may lead to a series of attacks in other countries. The crisis period can be long-lasting, but will eventually come to an end. (JEL D74, D83, F33, G01)

We provide an analytical framework for the new media environment, where a larger number of media firms offer free content and compete for attention by investing in news quality and readers allocate their attention among multiple news sources. We revisit the effects of increased competition on media quality, and show that new entry reduces both the accuracy of news gathering and the clarity of news reporting by the incumbents. Nevertheless, the overall influence of the media industry unambiguously increases and readers become better informed.

We examine how agents allocate attention between private and public signals to reduce the uncertainty about observation noises when coordination is an important concern. In this setting, the attention allocation may not be monotone in endowed attention capacity. Agents may decrease their attention on or even ignore the more accurate signal when capacity increases. As a result, social welfare may decrease when they have more attention to process information. And it can be even higher when agents possess a finite amount of capacity than when they have an infinite amount of capacity. We derive sufficient and necessary conditions under which multiple equilibria emerge and study the implications of equilibrium multiplicity for macroeconomic policies.

This paper examines the welfare properties of “beauty contest” games with rationally inattentive agents. Agents allocate attention between private and public signals to reduce the uncertainty about observation noises. In this setting, social welfare may not necessarily increase with the capacity to process information, and can actually decrease as a result of attention misallocation. Strikingly, social welfare can be even higher when agents possess a finite amount of capacity than when they have an infinite amount of capacity. We derive sufficient and necessary conditions under which multiple equilibria emerge and study the implications of equilibrium multiplicity for macroeconomic policies.

We study the role rumors play in revolutions using a global game model. Agents with diverse private information rationally evaluate the informativeness of rumors about the regime strength. Without communication among agents, wild rumors are discounted and agents are generally less responsive to rumors than to trustworthy news. When agents can exchange views on the informativeness of rumors, a rumor against the regime would coordinate a larger mass of attackers than that without communication. The effect of communication can be so large that rumors can have a greater impact on mobilization than does fully trustworthy information.