Work in Progress

“On Fraud and Certification of Green Production” (with Esther Blanco), submitted, invited R&R. 

We present a novel model of fraud and certification in credence products. We focus on settings where firms decide between a low or a high quality version of a credence product together with an advertising strategy. This results in four production-advertising possibilities (low, genuine high, fraudulent high and certified high quality) that have not been considered simultaneously in the literature. We characterize a unique pooling perfect Bayesian equilibrium of the resulting game. We find that fraud cannot arise for large costs of high-quality production relative to fraud costs, since consumers´ beliefs reduce the likelihood of fraud in equilibrium. Changes in certification and high-quality production costs affect consumers’ beliefs differently, and increases in the former and decreases in the latter can broaden the likelihood of fraud. These novel results are robust to different market structures and question the general desirability of public subsidies for promoting high-quality production in credence markets.   

"Environmental Taxes under Economies of Scale" (with Yu Pang), submitted 

Regulating polluters in a monopolistically competitive framework involves a trade-off between exploiting scale economies and mitigating environmental impacts. This paper extends the Dixit-Stiglitz-Krugman model of monopolistic competition by considering that production generates pollution and firms take into account that their price choices affects rivals’ payoffs and vice versa. This alternative approach improves the consistency of the laissez-faire solution with empirical evidence. While optimal pollution is always lower than under laissez-faire, both optimal production and the number of firms can be higher or lower depending on the parameters measuring economies of scale. Neither pollution taxes not emission standards constitute entry impediments: while an emission standard does not change the number of firms in the long run equilibrium, however, the pollution tax induces entry. There is no systematic preference of one policy versus the other in social welfare terms, but neither instrument implements the social optimum.

"Incentives for Green Technology Adoption, Imperfect Compliance, and Risk Aversion" (with Fernando Peinado and José Luis Zofío), submitted

In this paper, we study the incentives to adopt environmentally friendly technologies as a response to di¤erent policy instruments, under imperfect compliance and risk aversion. Previous work has analyzed technology investment incentives and compliance issues under risk neutrality. However, the decision whether to exceed a regulation entails risks, since agents are exposed to a penalty with some probability. Also, there may be uncertainty regarding the impact of green technology adoption on firms' abatement costs. Therefore, preferences for risk matter. Under taxes, we find that adoption decisions are independent of risk preferences under perfect knowledge of future abatement costs, even if the enforcement policy is so weak that induces imperfect compliance. However, adoption incentives are altered by the degree of risk aversion in the case of emissions permits, and also under uncertainty about future abatement costs.

"Final Countdown?  An Experimental Collective Risk Dilemma with Horizon Uncertainty" (with Hubert J. Kiss and A. Pinter), submitted

In this paper, we experimentally analyze the incentives to avoid a collective catastrophe when subjects face uncertainty about the exact time at which the loss may occur. We study three versions of a Collective Risk Dilemma: (i) a benchmark scenario where subjects know the ending period by which they have to complete collective efforts to avoid a sure loss of a big portion of their remaining assets; (ii) a risky scenario where subjects do not know the exact ending period, but they are at least aware of its probability distribution; and (iii) an ambiguous scenario where subjects do not know the exact ending period nor the probability distribution. Both uncertainty treatments result in significantly larger efforts than those found under certainty. However, these additional contributions may not be enough to avoid the collective disaster. 

"Economic Decisions with Uncertain Consequences, Self-Deception, and Strategic Pricing" (with Adrián Caballero-Castillejo), in progress

In this paper, we present a model of consumption in which individuals are uncertain about some characteristics of the products that may affect their future utility. In contrast with traditional models of decision theory, we consider the possibility that individuals form and keep distorted beliefs in order to alleviate their concern and anxiety about their future. We explore how this behavior may alter the pricing decisions of a monopolistic firm, which could take advantage from belief distortion.