Search

We investigate conditions under which a government facing a large set of small private agents can implement its desired outcome when it has only a limited commitment ability to policy actions. We show that, in static contexts, more commitment ability always improves equilibrium outcomes and, in some widely used macro models, an arbitrarily small commitment ability suffices to implement a unique outcome. This contrasts with repeated settings where reputation forces make necessary a more substantial commit- ment ability to obtain a unique outcome and, paradoxically, more commitment ability may lead to worse outcomes and/or to a wider set of equilibria. We derive implications for models of bailouts, inflation bias, and capital taxation.

We document that since 1997, the rate of startup formation has precipitously declined for firms operated by U.S. PhD recipients in science and engineering. These are supposedly the source of some of our best new technological and business opportunities. We link this to an increasing burden of knowledge by documenting a long-term earnings decline by founders, especially less experienced founders, greater work complexity in R&D, and more administrative work. The results suggest that established firms are better positioned to cope with the increasing burden of knowledge, in particular through the design of knowledge hierarchies, explaining why new firm entry has declined for high-tech, high-opportunity startups.

In the face of rising income inequality (Acemoglu & Autor, 2011; Atkinson, Piketty, & Saez, 2011; Piketty, 2014; World Economic Forum, 2014), one recent proposal is to provide consumers with information about the income inequality across those involved in the production of each good, at the point of purchase. This has been shown to depress overall inequality (Hill, 2020), though its impact depends crucially on whether people are willing to pay more for goods whose production involves less income inequality. Here we investigate this largely unexplored empirical question through an incentivised, behavioural choice experiment on a representative sample of the English population. We find that a large majority are willing to pay significantly more for goods associated with less inequality. How much more people are willing to pay varies with political leaning and increases with the extent of the inequality reduction, but is positive across the political spectrum and for all studied inequality differences. Moreover, it is typically higher when inequality is reported in more intuitive and informa- tive formats. Our results bode well for the effectiveness of product-level inequality information provision as a tool for moderating income inequality, promising impacts even in markets where all goods involve relatively high inequality levels and potential participation across the political spectrum.

Crossmodal sensory correspondences between shape and taste are well-established (e.g., angular–bitter, rounded–sweet). However, the extent to which these correspondences reliably influence consumer taste judgments is less clear, as are the processes underlying the effects. This research addresses both issues. Across seven experiments, we show that whether shape–taste correspondences influence taste judgments depends on their associative strength in memory, and that a significant shape–taste correspondence spontaneously affects taste judgments only when its associative strength reaches a sufficient threshold. We further demonstrate the effects in a child development context, in which children’s age, as a naturally occurring proxy of associative strength, moderates shape–taste crossmodal effects on taste judgments. We also demonstrate that the generation of shape–taste crossmodal effects is driven by a simple spreading activation model that is moderated by associative strength, is highly automatic, and occurs even when cognitive and visual resources are constrained. The findings suggest that 1) managers must go beyond establishing simple crossmodal correspondences to determine whether sufficient thresholds are met, 2) the shape–taste associations can apply to products marketed to older children, and 3) the effects are likely to occur even in cognitively noisy retail environments.

We study the estimation of dynamic economic models for which some of the state variables are observed only occasionally by the econometrician—a common problem in many fields, ranging from industrial organization to marketing to finance. If such occasional state observations are serially correlated, the likelihood function of the model becomes a potentially high-dimensional integral over a nonstandard domain. We propose a method that generalizes the recursive likelihood function integration procedure (RLI; Reich, 2018) to numerically approximate this integral, and demonstrate its statistical efficiency in several well-understood examples from finance and industrial organization. In extensive Monte Carlo studies, we compare the performance of our approach to a recently suggested method of simulated moments. In all our demonstrations, we consistently and efficiently identify all model parameters, and we find that the additional variance of our estimator when going from full to occasional state observations is small for the parameters of interest.

This paper explores the effects of online customer ratings on debt capacity. Using a large sample of Parisian restaurants, we find a positive and economically significant relation between customer ratings and bank debt. We use the locally exogenous variation in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Customer ratings affect financial policy through a reduction in cash flow risk and higher resilience to demand shocks. Restaurants with good ratings use their extra debt capacity to invest in tangible assets. Finally, favorable online ratings relax credit constraints mostly for moderately constrained restaurants.

This article comments on the judgment no 12193 rendered by the Sezioni Unite of the Corte di Cassazione on 8 May 2019, where the recognition and registration, in Italy, of a foreign parental order inscribing the nonbiological parent as the children’s legal father were denied on the ground that they violated the prohibition of surrogacy under Italian law, which was considered to be of public policy. It scrutinises this judgment in two steps. First, it criticises the court’s methodology in the construction of the notion of public policy both in general and with particular regard to the surrogacy ban. Second, it examines whether the best interests of the children involved were sufficiently taken account of, and it finds that they were not. It concludes that, contrary to what the law prescribes, this judgment failed to give voice to the children born via surrogacy abroad and living with parents of the same sex.

We examine whether a firm’s decision to disclose non-financial proprietary information depends on peer disclosures of similar information. Using a sample of 5,035 unique clinical trials by U.S. pharmaceutical firms over the 2007-2014 period, we find that the firm is less likely to disclose its own clinical trial results if peers have published clinical trial results pertaining to the same medical condition. Conditional on disclosing clinical trial results, the firm is also less likely to disclose the trial results on time when peers have disclosed their clinical trial results. Our cross-sectional tests suggest that proprietary costs of disclosure play an important role in the relation between peer disclosures and the firm’s own disclosure. In particular, the negative relation is more pronounced when proprietary costs of disclosure are higher. Taken together, our findings provide new evidence on the interplay between peer and own disclosures of non-financial proprietary information.

Do the rich always get richer by investing in a cryptocurrency for which new coins are issued according to a proof-of-stake (PoS) protocol? We answer this question in the negative: Without trading, the investor shares in the cryptocurrency are martingales that converge to a well-defined limiting distribution and, hence, are stable in the long run. This result is robust to allowing trading when investors are risk neutral. Then, investors have no incentive to accumulate coins and gamble on the PoS protocol but weakly prefer not to trade. This paper was accepted by Kay Giesecke, finance.

We provide a new methodology to empirically investigate the respective roles of systematic and idiosyncratic skewness in explaining expected stock returns. Using a large number of predictors, we forecast the cross-sectional ranks of systematic and idiosyncratic skewness which are easier to predict than their actual values. Compared to other measures of ex ante systematic skewness, our forecasts create a significant spread in ex post systematic skewness. A predicted systematic skewness risk factor carries a significant risk premium that ranges from 7% to 12% per year and is robust to the inclusion of downside beta, size, value, momentum, profitability, and investment factors. In contrast to systematic skewness, the role of idiosyncratic skewness in pricing stocks is less robust. Finally, we document how the determinants of systematic and idiosyncratic skewness differ.

We study the effect of dividend taxes on the payout and investment policies of publicly listed firms. To do so, we exploit a unique setting in Switzerland where, following the corporate tax reform of 2011, some but not all firms were suddenly able to pay tax-exempt dividends to their shareholders. Using a difference-in-differences specification, we show that treated firms swiftly and permanently increase their dividend payout by around 30% compared to control firms after the tax cut. When studying the effect of agency conflicts, we show that the impact on the payout is less pronounced for firms in which the controlling shareholders have more voting rights than cash-flow rights. We find a significant positive abnormal stock return after the announcement of the payment of a tax-exempt dividend. However, reducing dividend taxes does not boost investment. This is due to a significant drop in retained earnings and to the fact that equity issuances do not surge after the tax cut. Our evidence is consistent with models where the marginal source of finance is retained earnings, and inconsistent with the neoclassical theory of dividend taxation.

Energy efficiency projects are often executed by specialized entities, namely energy service companies (ESCOs). A typical ESCO's core business is conducted using performance-based contracts, whereby payment terms depend on the energy savings achieved. Despite their success in public, commercial, and industrial sectors, ESCOs in the residential sector are involved in fewer projects and face several challenges. First, an energy efficiency project often leads to changed consumption behavior; hence it is more difficult to evaluate the energy savings that are due to the project itself. The second challenge is that residential clients are more risk averse and, thus, less willing to contract for projects whose outcomes are uncertain. Third, a lack of monitoring protocols leads to ESCO's moral hazard problems. This paper studies ESCO contract design issues, focusing primarily on the residential market for energy efficiency. As opposed to other sectors, coordinating contracts do not exist. We show, however, that simple piecewise linear contracts work reasonably well. To improve their profitability, ESCOs can reduce uncertainty about the technology employed and/or develop ways of verifying post-project energy efficiency. Since policy makers are understandably keen to promote energy efficiency, we show also how regulations and monetary incentives can reduce inefficiencies in ESCOs' relationships and thereby maximize environmental benefits.

The correlation across US states in house price growth increased dramatically between 1976 and 2000. This paper shows that the contemporaneous geographic integration of the US banking market, via the emergence of large banks, was a primary driver of this phenomenon. To this end, we first theoretically derive an appropriate measure of banking integration across state pairs and document that house price growth correlation is strongly related to this measure of financial integration. Our IV estimates suggest that banking integration can explain up to one third of the rise in house price correlation over the period.

We investigate the conflict between the ex ante and ex post criteria of social welfare in a new framework of individual and social decisions, which distinguishes between two sources of uncertainty, here interpreted as being objective and subjective, respectively. This framework makes it possible to endow the individuals and society not only with ex ante and ex post preferences, as is usually done, but also with interim preferences of two kinds, and correspondingly, to introduce interim forms of the Pareto principle. After characterizing the two social welfare criteria, we present two compromises between them, one based on the ex ante criterion and absorbing as much as possible of the ex post criterion (Theorem 1), the other based on the ex post criterion and absorbing as much as possible of the ex ante criterion (Theorem 2). Both solutions translate the assumed Pareto conditions into weighted additive utility representations, as in Harsanyi’s Aggregation Theorem, and both attribute to the individuals common probability values on the objective source of uncertainty, and different probability values on the subjective source. We discuss these solutions in terms of the by now classic spurious unanimity argument and a novel informational argument labeled complementary ignorance. The paper complies with the standard economic methodology of basing probability and utility representations on preference axioms.

International audience; The digital economy has now a widespread impact on the whole economy and leads companies to transform and adopt new competition rules. The objectives of this paper are (1) to analyze these evolutions; and (2) to understand the role of information systems in these changes. The authors have investigated two opposite environments: a pure Internet player selling a SaaS offering, and a traditional business that distributes products through a physical network of thousands of outlets. Our results show that both the Internet players and traditional companies experience changes in the industry value chain, a growing importance of services, and develop new business models focused on an extended value proposition and cooperation with customers. The role of information systems is characterized by the evolution of the IT infrastructure, the expansion of inter-organizational information systems and digital platforms and the development of new IT capabilities.

Previous research suggests that when social exclusion is communicated in an explicit manner, consumers express preferences for helping, whereas when it is communicated in an implicit manner, they express preferences for conspicuous consumption. However, this may not always hold true. In the present research, we put forward a theoretical framework explaining that exclusion effects depend on the extent to which exclusion is communicated in a culturally normative or counter-normative manner, rather than whether it is communicated in an explicit or implicit manner. We show that exclusion communicated in a cultural norm-congruent manner produces preferences for helping, whereas exclusion communicated in a cultural norm-incongruent manner produces preferences for conspicuous consumption. We further show that the differential needs—self-esteem and power threatened by normative and counter-normative exclusion explain these distinct preferences.

We test the trade finance channel of exports by controlling for the bank credit channel. Using Turkey’s July 2012 adoption of Basel II as a quasi-natural experiment, we examine whether shocks to trade financing costs affect exports. With data for 16,662 Turkish exporters shipping 2,888 different products to 158 countries, we find that the share of letters-of-credit-based exports decreases (increases) when the associated risk weights for counterparty exposure increase (decrease) after the adoption of Basel II. However, growth of firm-product-country-level exports remains unaffected. Trade financing might have a lesser role in exports than previously suggested by the previous literature. © The Author 2017. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

High frequency arbitrage opportunities sometimes arise when the price of one asset follows, with a lag, changes in the value of another related asset due to information arrival. These opportunities are toxic because they expose liquidity suppliers to the risk of being picked off by arbitrageurs. Hence, more frequent toxic arbitrage opportunities and a faster arbitrageurs' response to these opportunities impair liquidity. We find support for these predictions using high frequency triangular arbitrage opportunities in the FX market. In our sample, a 1% increase in the likelihood that a toxic arbitrage terminates with an arbitrageur's trade (rather than a quote update) raises bid-ask spreads by about 4%.

We derive several popular systemic risk measures in a common framework and show that they can be expressed as transformations of market risk measures (e.g., beta). We also derive conditions under which the different measures lead to similar rankings of systemically important financial institutions (SIFIs). In an empirical analysis of US financial institutions, we show that (1) different systemic risk measures identify different SIFIs and that (2) firm rankings based on systemic risk estimates mirror rankings obtained by sorting firms on market risk or liabilities. One-factor linear models explain most of the variability of the systemic risk estimates, which indicates that systemic risk measures fall short in capturing the multiple facets of systemic risk.