Homophily and infection: static and dynamic effects [paper], joint with Fabrizio Panebianco and Paolo Pin, Games and Economic Behavior, 2025
We analyze the effect of homophily in the diffusion of a harmful state between two groups of agents that differ in immunization rates. Homophily has a very different impact on the steady state infection level (that is increasing in homophily when homophily is small, and decreasing when high), and on the cumulative number of infections generated by a deviation from the steady state (that, instead, is decreasing in homophily when homophily is small, and increasing when high). If immunization rates are endogenous, homophily has the opposite impact on the infection level of the two groups. However, the sign of the group-level impact is reversed if immunization is motivated by infection risk or peer pressure. If motivations are group-specific, homophily can decrease immunization in both groups.
Third party interests, resource value, and the likelihood of conflict [paper], joint with Giacomo Battiston and Riccardo Franceschin, European Journal of Political Economy, 2025
Resource wealth induces predation incentives but also conflict-deterring third-party involvement. As a result, the relation between resource value and conflict probability is a priori unclear. This paper studies such relation with a flexible theoretical framework involvin a potential aggressor and a powerful third party. First, we show that, if the third party's incentives to intervene are suciently strong, conflict probability is hump-shaped in the resource value. Second, we theoretically establish that resource value increases the third party's incentive to side with the resource-rich defendant in case of intervention, providing another mechanism for stabilization when the resource value is high. Third, we explain how our theory relates to policy-relevant case studies involving conflict-ridden areas and powerful third parties, focusing on US and Chinese foreign policies.
The social value of overreaction to information [paper], joint with Daniele D’Arienzo, Journal of Mathematical Economics, 2024
We study the welfare effects of overreaction to information in markets with asymmetric information as well as the impact of a simple intervention in the form of a tax or a subsidy on trade volume. A large enough level of overreaction is always welfare decreasing: in these situations, introducing a tax can improve welfare. However, a small degree of overreaction can increase welfare. This is because of the interplay of two competing externalities: an information externality, due to the informational role of prices, and a pecuniary externality, due to the allocative role of prices. Depending on the balance of these externalities, a trade volume subsidy may be optimal.
Multilateral market power in input-output networks [paper]
NEW TITLE, previously "Supply and demand function competition in input-output networks"
Extended abstract in EC 2024, Young Italian Economist Award at SIE 2022
This paper studies competition among firms connected in an input-output network, where firms have multilateral market power, that is, they can potentially affect prices both on input and output markets, to an extent that is endogenously determined. In equilibrium, the price impact is proportional to the number of cycles in the network whose links measure the strenght of the input-output connection across each good pair. Considering multilateral market power affects the model's predictions in two key areas: the quantification of distortions due to market power, and the evaluation of the welfare impact of mergers.
We study how sector-specific shocks propagate in a production economy with input-output linkages and heterogeneous time to build. We show that, depending on the sector and network characteristics, one-time idiosyncratic shocks can induce a non-monotonic response of aggregate output as it converges back to steady state--a phenomenon we term 'endogenous oscillations'--and get amplified over time. We study the conditions on the network structure that generate this behavior. We introduce a measure to quantify the magnitude of such endogenous oscillations generated by a single small productivity shock. We quantify the model on US input-output data, showing that for some sectors a single shock can generate aggregate fluctuations. In particular, the magnitude of oscillations is twice as large as it would be if convergence to the steady state were always monotonic.
We consider a version of Pandora's box problem in which the distributions of the various alternatives' utilities are ranked by first-order stochastic dominance and possibly correlated. Under independence, Weitzman's optimal search rule prescribes inspecting the dominant alternative first. We show that, with correlation, this sampling order remains optimal if there are two alternatives, each with only two possible utility levels. Next, we show that, with three possible utility levels for each alternative, inspecting the dominated alternative first can be optimal: we provide sufficient conditions for this to happen.
Time to build and dynamic diffusion in production networks (paper)
In a production network economy, time to build decreases the volatility generated by productivity shocks, while it increases the volatility generated by demand shocks. This happens because time to build changes the propagation mechanism of demand shocks: since quantities are pre-determined, demand shocks directly affect prices, a channel absent without time to build.
Third parties and the non-monotonicity of the resource curse: Evidence from US military influence and oil value [paper], joint with Giacomo Battiston and Riccardo Franceschin
The relationship between resource value and conflict in a territory is affected by the interest of powerful third parties, which could deter predators. By employing widely-used measures of resource value and geologic predictors of oil presence, as well as a measures of third party presence, we examine this relationship, providing evidence of non-monotonicity in countries exposed to a powerful third party. We show that conflict probability is nonmonotonic in the value of oil in a country, in areas under US military influence. As we show, US influence in the data proxies for a higher probability of intervention in case of conflict, which may deter predator conflict in countries with large resource value.
Common ownership in production networks [paper] (joint with Fernando Vega-Redondo)
We characterize the firm-level welfare effects of a small change in ownership overlap, and how it depends on the position in the production network. In our model, firms compete in prices, internalizing how their decisions affect the firms lying downstream as well as those that have common shareholders. While in a horizontal economy the common-ownership effects on equilibrium prices depend on firm markups alone, in the more general case displaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative question of what are the welfare implications of affecting the ownership structure, we show that, if costs of adjusting it are large, the optimal intervention is proportional to the Bonacich centrality of each firm in the weighted network quantifying interfirm price-mediated externalities. Finally, we also explain that the parameters of the model can be identified from typically available data, hence rendering our model amenable to empirical analysis.
Social Learning, overreaction and the wisdom of the crowds (joint with Daniele d'Arienzo), LAGV prize at ASSET 2021
How do departures of individual beliefs from Bayesian rationality impact welfare and informational efficiency in financial markets? We allow agents posterior beliefs to depart from the rational expectations hypothesis and to over/underreact to information. We study a financial market with sequential trading and unit demand and supply. Because agents over-react to news, prices aggregate more efficiently private information, relative to the rational case. As a consequence, a small level of overreaction decreases the likelihood of informational cascades, increases the informational content of prices, and it increases welfare.
Endogenous skill-biased innovation (joint with Giovanni Immordino and Fabrizio Panebianco)