Research

Why do apology laws fail (Job Market Paper)

Apologies are considered as a cheap and strong mechanism to restore broken relationships. Between 1999 and 2011, the number of US states with apology laws, legislation that excludes the admissibility of apologies in court, increased from 2 to 38, along with all the Australian jurisdictions, the United Kingdom, most of the Canadian provinces, and Hong Kong. Legislators’ hope is that by passing these laws apologies will be encouraged, with the consequence that civil disputes will settle more often and lawsuits will be prevented. However, recent evidence from US shows that these laws have had the opposite effect: apology laws have increased the number of lawsuits. In this paper we provide an explanation for why apology laws fail that is consistent with the best available evidence. We show that apology laws may reduce settlements by encouraging insincere apologies which in turn induce plaintiffs not to accept apologies. We contribute to show on which type of relationships apology laws fail: apology laws preclude the settlement of cases that are socially valuable to be settled. Moreover, for the cases where these laws increase litigation we show that apology laws induce more miscarriages of justice and deter inter-party communication.

International Trade and Forced Labor (with Facundo Albornoz and Matthias Dahm)

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.

Waiting for others: Long delays in social learning

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.