Abstracts

Deconstructing debt supply shocks using treasury auction announcements  - Utso PAL MUSTAFI (CEMFI) 

Abstract: Although public debt in the US is at a historical high, the economic effects of changes in public debt supply are unclear. There are two main reasons why. First, debt supply is jointly determined with the rest of the economy - the Treasury takes multiple economic factors into account while implementing debt management policy. Second, debt supply changes combine two distinct phenomena - a change in the total level of debt, and a change in issuance across maturities for a given level of debt. In this paper, I use a novel identification design to estimate shocks to the level and maturity structure of public debt supply in the US. Using high-frequency changes in Treasury futures prices around auction announcements, I first isolate exogenous changes in public debt supply. Next, I use narrative evidence to identify subsets of announcements that have high information on either debt level or maturity. Exploiting differences in the variance of level and maturity shocks across subsets, I estimate a factor model and separately identify the two shocks. I find that an increase in debt level and maturity leads to higher bond returns and yields. An increase in debt level leads to lower output and employment while an increase in debt maturity leads to higher output and employment.

Balance sheet policies and Central Bank losses in a HANK model - Charles LABROUSSE (Paris School of Economics)

Abstract: What are the effects of central bank balance sheet expansion, and should we worry about central bank losses? Using a Heterogeneous Agent New Keynesian model incorporating money in utility and an endogenous zero lower bound (ZLB), we study the fiscal-monetary interaction of central bank balance sheet policies. We find that the overall efficiency of QE and QT policies depends on the combina- tion of the expected future size of the balance sheet and the fiscal transmission of central bank losses. First, permanent balance sheet expansions stimulate the economy in the long-run and, by anticipation, increase inflation and output during the ZLB episode, as they interact with distortionary taxes and imperfect capital markets. Second, at the end of the ZLB, the central bank incurs losses: issuing securities to offset these losses is more welfare-enhancing than raising taxes.

Wealth tax, entrepreneurship and market power - Matteo CREMONINI (Bocconi University)

Abstract: I study the equity-efficiency trade-off of top wealth taxation in an economy with heterogeneous workers and entrepreneurs, where wealthier entrepreneurs own firms that produce at a larger scale and impose larger markups. Implementing a wealth tax on the wealthiest entrepreneurs only, and uniformly redistributing the tax revenues, reduces aggregate production, labor demand and equilibrium wage workers receive. Furthermore, the wealth tax reduces the aggregate markup in the economy, increasing the labor share of income accruing to workers. I show that top wealth taxation induces smaller redistributive effects and higher production losses when entrepreneurs impose homogeneous and constant markups, independently on their firms’ scale of production. I quantify the magnitude of these effects in a static framework with occupational choice, calibrated to the US economy, and in a dynamic model in which entrepreneurs accumulate wealth by investing in their own firms.

Ignorance is Bliss? Domain Dependence of Temporal Risk Preferences - Sarat Chandra AKELLA (HEC Paris)

Abstract: We report the results of an experimental investigation of preferences for non-instrumental information in the context of temporal risk resolution. Operating in the domain of both gains and losses, we fix the date of realization of the outcome and ask subjects to choose between two-stage lotteries that resolve completely in the present, gradually, or completely later. We find a predominant preference for early resolution in both domains, at the aggregate level. However, for gains, while this preference becomes stronger at higher winning probabilities, the opposite is true for losses—higher the probability of losing, weaker the preference for early resolution. At the individual level, we observe greater heterogeneity when facing losses, driven by a minority of subjects who prefer delayed resolution, an example of information avoidance. To refine our understanding of the heterogeneity in preferences, we carry out latent class analysis in each domain, adopting the framework of recursive expected utility.

A Theory of Misperceived Social Preferences and Norms - Raquel Lorenzo VIDAL (Universitat Pompeu Fabra)

Abstract: This paper offers a unifying approach to study how different forms of social preferences, which naturally correspond to different real-life scenarios, might generate different social outcomes. More specifically, I study to what extent social beliefs (beliefs about others’ actions and what others think should be done) can affect collective behavior through a psychological cost of not conforming to others. I provide an informative distinction between cases where a society may sustain diverse collective behaviors and cases where the social norm that may arise in a society is unique. Multiplicity of social norms and belief-driven behavior can only arise when agents care about what others think should be done, or, when they have systematic biases in how they perceive observable information about others (e.g. stereotyping or projection bias). Additionally, the framework can accommodate situations of pluralistic ignorance.

Disappointment, Risk Aversion and Dynamic Depletion of Self-Control - Agustin TROCCOLI MORETTI (University of Warwick)

Abstract: Research in psychology and neuroscience provides compelling evidence that negative emotions hinder individuals’ ability to exert self-control. Similarly, a growing body of empirical research in economics suggests that poverty can induce negative emotional states, which generate behaviours that perpetuate it. This paper introduces a history-dependent model of dynamic choice in which the decision maker experiences more stringent internal conflicts when emotionally distressed, but who is otherwise a completely standard economic agent. From a decision-theoretic perspective, the way we incorporate emotions necessitates relaxing the von Neumann-Morgenstern independence axiom and introducing revised versions of classical axioms of dynamic choice. In terms of choice behaviour, our agent doesn’t only dislike risk by her pure risk aversion, but also because it can deplete self-control in subsequent choices. This will lead agents to avoid temptations dynamically: even when not tempted, they will like to abstain from contingencies that cause emotional distress, and hence normatively inferior future choices. Similarly, our agent’s risk attitude will depend on the availability of future temptations, and we identify a disappointment premium that individuals will demand to accept risks, which is always non-negative irrespective of the agent’s underlying intrinsic risk preference.

Trade-displaced or trade-stuck? Self-employment, outside options and trade shock adaptation - Romaine LOUBES (Paris School of Economics)

Abstract: Do trade shocks still displace workers when they are self-employed and thus have decision-making power over job exit? The answer matters for low-income countries, where self-employment rates are highest. In this paper, I study an import tariff shock affecting self-employed retailers in Rwanda using censuses of formal and informal establishments and job-level data. Workers exposed to the shock do not leave their jobs despite sizeable hourly earnings decreases. Instead, they implement specific adjustment strategies like reallocating hours across multiple jobs. I rationalize these novel responses into a model of time allocation with multiple job holdings. It predicts that reallocation depends on the quality of outside employment options, which I test by examining gender heterogeneity, after showing that women retailers have worse outside options than men. Consistently, while men shift hours away from affected jobs toward other paid occupations, women abandon other jobs to increase hours at the affected job and face persistent negative income effects. Although self-employment protects workers from trade-driven displacement, it keeps the most vulnerable groups stuck in declining sectors, making trade adjustment assistance crucial.

Human Costs of Competition in Informal Markets: Evidence from South Africa - Leonard LE ROUX (Sciences Po)

Abstract:  A growing literature in economics has focused on understanding the drivers of violence through studying the governance of and competition between criminal organisations operating in markets for illegal goods. However, little work has been done on the conditions under which violence can emerge as a result of competition in legal markets in developing countries. This paper studies the interactions of economic competition and violence in the context of the informal commuter transport industry in South Africa. As in many other developing countries, this industry plays a crucial role in urban mobility in light of inadequate public transport provision in rapidly growing cities. The minibus taxi industry is also characterized by severe and persistent violence in the form of targeted assassinations of taxi owners and drivers. Using geocoded administrative data on operating licenses, novel collected data on prices, and a unique dataset of violent crimes in the taxi industry, this paper asks whether there is an underlying economic structure that explains outbreaks of violence.

Coffee booms and schooling: Evidence from Rwandan coffee washing stations - Daniel KAMMER (University of Konstanz)

Abstract: Do aggregate income shocks, such as those caused by coffee price booms, affect children’s schooling in Rwanda? This paper examines the impact of coffee price fluctuations on educational decision making in Rwanda, where coffee exports contribute significantly to household incomes. By using a quasi-natural experiment, the recent boom and bust periods in global coffee prices from 2010 onwards, I investigate the short and long run effects of coffee price changes on school enrollment and attainment. My results indicate that during boom periods, children in coffee-growing regions are more likely to be enrolled in school and complete more years of schooling by the age of 18. Moreover, by exploring heterogeneity in treatment effects, I show that these effects are primarily driven by children residing near privately organized and specialty coffee washing stations, rather than cooperative and non-specialty coffee washing stations. I provide evidence that income effects are the main mechanism and dominate increased opportunity costs of schooling.

Political Accountability and Bureaucratic Selection - Antonio LEON (Queen Mary)

Abstract: The selection of public sector employees is a key determinant of the state’s effectiveness. Given that politicians hold sway over bureaucracies, could increases in political accountability improve bureaucratic selection? This paper exploits randomized anti-corruption audits in Brazil to investigate this possibility. Our findings demonstrate that audits enhance the quality of the bureaucracy, especially for frontline positions that directly affect public service delivery and require qualifications to be performed effectively. The improvement occurs for positions hired discretionarily and hired via civil service examination. The allocation of public sector jobs to politically connected individuals remains the same. The effects are driven by a greater incentive to perform well in office, as opposed to changes in the politician in power.

Affirming the Racial Divide? The Political Consequences of Affirmative Action in Brazil - Laura PEREZ CERVERA (Queen Mary)

Abstract: Does racial affirmative action, by making race a salient dimension in the allocation of resources, foster racial voting? In this paper, I investigate such unintended consequence of affirmative action by studying the implementation of the first race-targeted affirmative action policy in Brazil, the Law of Quotas, which mandated the reservation of half of admission seats in federal universities to underrepresented groups. To build my argument, I start documenting that the expansion of racial quotas in federal universities increased the enrolment rate of non-White students, while displacing White students. I then combine granular voting data with electorate demographics and predicted race of candidates from official pictures to investigate the effect of the policy on racial voting. I find that the expansion of racial quotas led to racial divide in Brazilian politics, whereby non-White voters increased support for candidates of their same race. Consistent with the literature, I find that this translated into a selection of lower-quality policymakers.

Illusion of Justice: Evidence from Corruption Trials - Ali BAKHTAWAR (Aix-Marseille School of Economics)

Abstract: This paper presents causal evidence on the potential for anti-corruption campaigns to be exploited as instruments of political persecution and consolidation of political power by incumbent governments. Employing a regression discontinuity design, the study examines the conviction rates of opposition politicians in Pakistan's Anti-Corruption courts, finding that those narrowly winning elections face a higher likelihood of conviction in corruption cases than those politicians narrowly defeated. The prosecution of political opponents appears to drive these results. Judges who convict opposition members are more likely to receive promotions suggesting the importance of career incentives in mediating this effect. The evidence suggests that the focus on prosecuting opposition politicians can inadvertently crowdout the pursuit of legitimate corruption cases. In jurisdictions facing a congestion, this shift in priority often results in fewer convictions of non-politician bureaucrats, who might otherwise be held accountable. Conversely, political allies of the incumbent who narrowly win elections have a reduced probability of conviction, they in fact appear to benefit from winning. These findings highlight the dual nature of anti-corruption campaigns, which, while intended to foster accountability, can also be weaponized to undermine democracy and entrench authoritarian rule.

Human Capital and Incentives: Training in Imperfect Labour Markets - Giacomo ROSTAGNO (HEC Paris)

Abstract: This paper presents a simple theory of training, investigating its role as a comprehensive human resource practice. We examine how strategic timing and targeted training provision can help employers incentivize workers. When employers hold private information about employees, training programs can partially convey this information to competing employers, leading to higher future wages for workers. Although precise information transmission increases worker incentives, it can also reduce firm profits. Therefore, companies must carefully balance their training programs. We confirm the robustness of our findings through various extensions and compare training programs to other human capital practices. Finally, we derive and discuss testable implications.

Information Discrimination: Shaping Markets through Tailored Algorithms - Pia ENNUSCHAT (Universitat Pompeu Fabra)

Abstract: I consider a model of information intermediation in monopolistic markets where the information provider is not the sole source of information. A monopolist sells through a platform that has information about consumers’ preferences not available elsewhere. The platform provides information to consumers conditional on their preferences and their outside information. This problem is complex, and I show when a relaxed solution applies. For those settings, efficiency is highest when information is designed in a buyer optimal way. I characterize bounds on the welfare set. When the relaxed solution does not apply, I show that in general environments the relaxed solution is useful for to obtain robust welfare predictions.

Contract Terms Monotonicity in Matching Markets - Cyril ROUAULT (ENS Paris-Saclay)

Abstract: We investigate how adding contract terms affects stable allocations in the doctor-hospital matching market. Surprisingly, expanding term options may decrease doctors’ welfare, even if the added terms are used. We propose removing specific terms to achieve a Pareto improvement for doctors. We analyze two preference domains: lexicographic and continuous, and identify conditions guaranteeing that if one of the added terms is used, at least one doctor is better off. Under continuous preferences, some doctors may always be worse off. Lastly, we investigate the incentives for hospitals to offer contract terms. When a mechanism generates the hospital-optimal stable allocation, hospitals are incentivized to expand the set of terms they offer. 

Job Flexibility and Informality - Angelica MARTINEZ LEYVA (University of Warwick)

Abstract: Around 60% of women in Mexico are engaged in informal jobs. Moreover, Mexico stands out as the country with the highest annual working hours in the world. In this paper, I study to what extent women choose to work in the informal sector and how much of the hours gap between informal and formal jobs can be accounted for by women’s need for flexibility. To do this, first, I show that there is a significant informality gap in the number of hours worked. While this gap is almost nonexistent for men, the informality gap in hours worked for women is around 10.5 hours. To estimate the elasticity of informality with respect to flexibility, I use the death of the grandmother as a shock to flexibility through childcare availability. Women are more likely to switch to informal jobs in order to adjust their number of hours. Given the rigidity of job contracts in the formal sector, there is a minimal adjustment in the intensive margin for women who remain in the formal sector. Finally, I build a sector choice and labor supply model that incorporates time allocation between home and market hours. This model features two sectors, formal and informal, each characterized by distinct flexibility levels. I explore policy counterfactuals aimed at improving workplace flexibility within the formal sector and subsidized childcare.

Labor Market Power in Sub-Saharan Africa: The Role of Small Firms, Self-Employment, and Migration - Samuel MARSHALL (University of Warwick)

Abstract: What role does labor market power play in the low levels of output in Sub-Saharan Africa?  Unlike developed countries, labor markets in low-income countries are characterized by a large number of small firms, high rates of self-employment and costly migration. I develop a general equilibrium spatial monopsony framework that accounts for each of these features. The model is identified through Tanzania's 2010 sectoral minimum wage law which specified different levels for twenty industries and a national floor for all others. I find that labor market power is concentrated in rural areas where there are fewer firms and workers face higher migration costs. Less competitive wages in rural areas causes a misallocation of workers into self-employment where they are less productive. At the same time, self-employment plays an important role in diminishing labor market power. I consider several policy counterfactuals aimed at reducing the share of labor in self-employment. Eliminating migration frictions increases welfare, but reduces output through an increase in the self-employment labor share. Alternatively, increasing the number or productivity of firms in rural areas has a positive effect on both welfare and output. This suggests that governments in low-income countries should target policies of rural development rather than policies that reduce migration frictions.

Rural-to-Urban Migration with Search Frictions and Informal Labour: Application to South Africa - Thomas MONNIER (CREST)

Abstract: Does informal employment lead to labour misallocation in developing countries? On the one hand, the informal sector shields low-productivity firms from competition and diverts workers from more productive matches in the presence of search frictions. On the other, it can protect workers from unemployment risk and firms' labour market power, and act as a stepping-stone for rural migrants in a context of rapid urbanization. To bring these different channels together, I develop a general-equilibrium model of long-term internal mobility based upon frictional job search-and- matching, that I estimate with South African micro data. Preliminary results suggest that enforcing firms' formal status reduces both aggregate welfare and output. Overall, I argue for labour market policies that are more mindful of the organic role informal employment can play in a country's development process.