Research
Working papers
Supply and demand function competition in input-output networks [paper]
How does a firm's position in the input-output network affect its market power? This paper studies oligopolistic competition among firms connected in an input-output network, as a game in schedules. Many standard models are special cases, if firms can perceive prices to be more or less rigid than they actually are: Cournot, Bertrand, and models in which firms have one-sided market power, that is, they take input prices as given, a very common assumption. Under a tractable parametric functional form, the game has an equilibrium in linear schedules. Allowing two-sided market power has important consequences in three key areas: the quantification of distortions due to market power, the evaluation of the welfare impact of horizontal and vertical mergers, and the diffusion of productivity changes. The discrepancy in predictions is more important the more important the vertical (input-output) dimension is.
Homophily and infection: static and dynamic effects [paper], joint with Fabrizio Panebianco and Paolo Pin, R&R at Games and Economic Behavior
We analyze the effect of homophily in an epidemics between two groups of agents that differ in vaccination rates ("vaxxers" and "anti--vaxxers"). The steady state infection rate is hump-shaped in homophily, while the cumulative number of agents infected during an outbreak is increasing when homophily is large. If vaccination rates are endogenous, homophily has the opposite impact on the two groups, but the qualitative behavior of the aggregate is unchanged. However, the sign of the impact is the opposite if vaccination is motivated by infection risk or by peer pressure.
The social value of overreaction to information [paper], joint with Daniele D’Arienzo, R&R at Journal of Mathematical Economics
We study the welfare effects of overreaction to information in the form of diagnostic expectations in markets with asymmetric information, and the effect of a simple intervention in the form of a tax or a subsidy. A large enough level of overreaction is always welfare-decreasing and can rationalize a tax on financial transactions. A small degree of overreaction to private information can both increase or decrease welfare. This is because there are two competing externalities: an information externality, due to the informational role of prices, and a pecuniary externality, due to the allocative role of prices. When the information externality prevails on the pecuniary externality, the loading on private information in agents' trades is too small compared to the welfare optimum: in this case, a small degree of overreaction is welfare-improving.
Dynamic diffusion in production networks (paper)
I show three properties in which a dynamic input-output economy with time to build differs from a static economy: first, a standard result in a Cobb-Douglas production networks is that productivity shocks diffuse downstream while demand shocks diffuse upstream. This fact interacts with the discount rate to generate a potentially quite different aggregate impact in different sectors. With time to build the direction of the diffusion is the opposite, and demand shocks also diffuse downstream. Second, I show that time to build leads to less comovement across sectors. Third, I provide bounds on the recovery time of the economy hit by a shock.
Third party interests, resource value, and the likelihood of conflict [paper], joint with Giacomo Battiston and Riccardo Franceschin
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 involving a resource holder, a predator, and a powerful third party. First, we show that, if third-party incentives to intervene are sufficiently 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, exploiting widely-used measures of resource value and geologic predictors of oil presence, we provide evidence for our theoretical results. Using data on military bases and arms' trade, we show suggestive evidence that US military inuence drives a non-monotonicity of conflict probability in oil value.
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.
Work in progress
Common ownership in production networks (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)
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)
Time to Build and Shock Propagation in Production Networks (joint with Francisco Queiros)