Research
Followers of The Pied Piper of Pensioners (joint work with Dan Bernhardt and Mario Sanclemente)
Using survey and administrative data, we study followers of H&L, a massively popular Chilean pension advisor, establishing that financial literacy is not a panacea for poor retirement decision-making. We detail the dynamics of who follows H&L and why. Followers are wealthy, well-educated, and financially sophisticated. H&L differentially draws sophisticated investors, but exposure to H&L also causally increases financial sophistication. Nonetheless, followers earn mean annual returns 1.4-1.9% below all buy-and-hold strategies, and they are aware of this underperformance. Moreover, performance does not materially affect renewal rates, and 77% renew. Perversely, the reasons given for following are high returns, loss minimization, and trust.
We document the impact of recommendations by a hugely influential Chilean pension advisor, H&L, on pension investments by individuals, domestic stock market outcomes, and pension fund manager investment strategies. Following H&L's retirement portfolio recommendations, pension investors shifted amounts that, in a week, often exceeded 100% of monthly domestic stock trading volume. The market believed the recommendations—domestic stock prices responded, but they did so without trade: the massive portfolio shifts did not generate abnormally-high trading volume. To accommodate H&L's impact, pension managers adjusted portfolio compositions, making them more similar, and shifted holdings of liquid assets rather than domestic stocks.
The social value of information in economies with mandatory savings (joint work with Pablo F. Beker)
We study the value of public information in a stochastic exchange economy where agents trade assets to reallocate risk and mandatory (retirement) savings imposes a lower bound on the market value of some agents’ holdings of a financial asset. Since equilibrium prices depend on the agents’ beliefs about the states of nature, the arrival of information shifts the agents’ mandatory savings constraints. We show the arrival of public information can generate an ex-ante Pareto improvement relative to an uninformative equilibrium even when ex-post improvements are not possible.
Revisiting the impact of uncertainty in the private provision of public goods (joint work with Etienne Billette de Villemeur and Sebatián Cea-Echenique)
We revisit the consequences of uncertainty in the private provision of a public good. We show that, despite the risk aversion of agents and the decreasing returns to scale in the production function of the public good, uncertainty may improve welfare. This may hold true even if uncertainty leads to a reduction in the aggregate amount of donations for the production of the public good. This may also hold true when uncertainty makes the production of the public good more costly on average. Our findings suggest that regulation and control over the production process for public goods might not always be a desirable policy.