International Trade and Forced Labor (with Facundo Albornoz, Matthias Dahm and Todd Landman), Economics and Politics, forthcoming.
We explore the link between trade liberalization and forced labor theoretically and empirically. We provide a theoretical framework predicting that the net effect of trade on the use of forced labor depends on which sectors improve their relative terms of trade: (i) if goods produced with forced labor benet, then the use of cheap forced labor increases (forced labor demand channel); (ii) if goods produced with free labor benet, then the use of forced labor decreases (free labor demand channel). These countervailing forces are consistent, on one hand, with calls for import prohibitions on products made using forced labor and, on the other hand, with the hope that trade opportunities induce economic progress. Our empirical analysis provides causal evidence on these countervailing forces in a cross-country setting. To account for potential endogeneity problems in the relationship between trade exposure and the incidence of forced labor, we implement an Instrumental Variable (IV) approach where we estimate bilateral trade fows according to a gravity model of trade. Our analysis shows that the labor demand channel dominates the forced labor pool channel in low-income countries; such that exposure to trade generally increases the use of forced labor in those countries. However, we also find that the effect of trade depends on the factor intensity of exports and the configuration of trade partners: if export goods have an intensive use of unskilled labor, trade with high income (low income) countries reduces (increases) the use of forced labor.
Why do apology laws fail (with Daniel Seidmann) (submitted)
Apology laws, which exclude evidence of an apology from trial, were widely introduced to reduce litigation. The evidence shows, rather, that these laws have been counterproductive: increasing litigation, primarily by discouraging plaintiffs from dropping their claims. We explain this evidence by extending settlement negotiation models to allow the plaintiff to quit at any stage and by introducing defendants who care about their future relationship with the plaintiff. Apology laws oversubsidize apologies, preventing any defendant type from credibly signaling via an apology; and no plaintiff type then quits before trial.
Waiting for others: Long delays in social learning (submitted)
Does waiting to observe others’ action delay profitable choices? If so, for how long? We characterize long delays in a social learning environment. In contrast with previous work, we show the existence of equilibria in which agents end up adopting a profitable and risky policy with substantial delay. These results point to social learning as a plausible explanation for delays evidenced in the adoption of policy measures during the Covid-19 pandemic. Next, we allow agents to choose the quality of their information before deciding. We show how in this setting long delays may also exists, and how our equilibrium sheds light on the investment timing patterns evidenced in the venture capital industry.
Segregation and Beliefs in a Just World
Recent evidence shows a negative association between social mobility and residential segregation based on income. In this paper we provide a theory that explains this link based on beliefs in a just world. Our argument is that segregated communities exhibit more polarized and pessimistic views that hard work pays off than integrated ones because families in those communities learn differently about the value of effort. This polarization and pessimism in segregated communities make in turn mobility lower, as those families with low beliefs in effort have higher income inertia. We model agents as trying to learn the relative importance of effort and predetermined factors in the generation of income. They learn from two sources, by socialization in neighbourhoods and from their dynastic income mobility experience. In a dynamic model, we characterize conditions on initial beliefs under which the society exhibits in the long run income segregation with low rates of social mobility, or income integration with high social mobility rates. We provide evidence for U.S. that support our theoretical results. Using survey-data with beliefs in a just world we show that more segregated communities are correlated with more polarized and pessimistic views about the value for effort.