Michael Porcellacchia

mporcellacchia@gmail.com

PostDoc at Kiel Institute since September 2022

Econ PhD in 2022 from Northwestern University

Areas of Expertise:

Political Economy

Geoeconomics, Conflict, Non-democracies

Applied Theory

Game Theory, Bargaining, Contract Theory

Working Papers

Spheres of Influence (with Matteo Camboni)

We propose and test a theory of how geopolitical risk and the economic balance between great powers shape geoeconomic fragmentation. In our model, countries design foreign policies to pursue their goals while managing the risk of coercion by two great powers. As geopolitical risk rises, some remain non-aligned, while others make significant concessions to one great power. These alignments endogenously create two distinct spheres of influence gravitating around the two powers. Changes in the balance of power affect fragmentation in a non-trivial way: as the world becomes less unipolar (e.g., with China's rise), countries deepen their alignments, pushing the spheres of influence farther apart. Paradoxically, China's growth may lead countries in the US sphere to offer even greater concessions to the US. Empirically, we test the model and show it correctly predicts alignment shifts following two shocks to the balance of power: the USSR's collapse and China's rise.

Digital Chokepoints (with Christoph Trebesch and Benjamin Wache)

Submarine cables are a vital infrastructure of the global economy, carrying over 95% of intercontinental data, from financial transactions to AI applications. Yet they are also highly vulnerable to sabotage, espionage, and sanctions. This paper presents the first systematic effort to map and quantify dependence, vulnerability, and hegemonic dominance in global telecom networks over 150 years. We produce the CableHist dataset, covering all international undersea cables — telegraph, telephone, and internet — from 1850 to 2025, as well as all satellites in orbit. Using a network traffic model, we estimate countries’ dependence on foreign cables and their exposure to disruption. We find that hegemonic powers have long dominated telecom networks and that they repeatedly weaponized this control. We also show that geopolitical tensions trigger strategic—but economically redundant—investments aimed at increasing security and independence. Finally, we conduct scenario analysis showing how vulnerable today's undersea cable system is, with risks being particularly high in the East China Sea, the Mediterranean Sea, and the Indian Ocean.

International Power Rankings (with Matteo Camboni)

Throughout history, powerful countries used their coercive resources to obtain favorable policies from other countries (geopolitical rents). This paper proposes and tests a theory of geopolitical competition, studying how geopolitical rents depend on the power of all competing countries. Our theory shows that the equilibrium geopolitical rent obtained by a country is not just determined by its power or relative power, but rather by its Weaker Powers Index (WPI), i.e., the combined share of power held by all weaker competitors. Specifically, higher WPI implies higher rent. Specializing the theory, we show that when the WPI of a country increases, it should trade more, conclude more economic and military deals, have better diplomatic and political relations, and send more aid. In our empirical analysis, we confirm these predictions using bilateral data on international interactions and trade. Finally, we show that the theory can accurately predict the effect of the rise of China and the collapse of the Soviet Union on the United States and other major powers and that it offers a re-interpretation of some well-known patterns in international relations, including Thucydides' Trap, status consciousness, arms races, and hegemonic stability.

Favoritism, Social Stratification, and Internal Conflicts (with Matteo Camboni)

Motivated by both contemporary and historical evidence, we develop a model for studying optimal taxation, ruler selection, and internal conflicts in (ethnically-)divided societies. We show that the political environment generates social stratification, reinforces inequality, and fuels internal conflicts. First, we show that the ruler optimally creates a ranking among social groups and demands lower taxes from higher ranks. This divide-and-conquer strategy (political favoritism) creates social stratification even among identical social groups and reinforces inequality by assigning higher ranks (thus lower taxes) to wealthier/stronger groups. Second, we show that the ruler's extractive capacity increases in society's fractionalization and the ruler's power. Nevertheless, social groups select the strongest group as the ruler to minimize their tax burden. Finally, we show that these political considerations generate a novel class of conflicts, status conflicts, where resource appropriation/destruction aims at climbing society's ranking, thus obtaining a more favorable fiscal treatment or even the rulership.

Work in Progress

Escaping Thucydides' Trap: The Geography of Hot and Cold War (with Matteo Camboni)

Will China's Rise lead to a new cold war with the US or even a hot one? Our paper suggests that while tensions will rise, they are likely to fall short of an all-out war. We document two new stylized facts. Two great powers (GPs) reaching similar capabilities usually become rivals. But they are unlikely to go to war when their spheres of influence (SoI), i.e., the set of countries where the GP is stronger than its competitor, are sufficiently far apart. We rationalize these facts by studying arms races and conflicts in a model where two GPs compete for alignment from the other countries. We first show that a GP's payoff jumps up when it expands its SoI. Thus, similarity triggers rivalries: two GPs with sufficiently similar powers will engage in a race to expand their SoI. Second, we show that the payoff that a GP obtains from the countries in its SoI decreases when its competitor becomes weaker. Thus, geography can act as a buffer: turning a cold war into a hot war is unprofitable when the size of each GP's SoI is not too responsive to the competitor's power (e.g., they are far apart).

Alliance Politics and Peace: Deterrence, Strategic Ambiguity, and Geopolitical Competition (with Lorenzo Stanca)

This paper studies how the stability of the international system is affected by alliance politics, i.e., the great powers' conflicting objectives of expanding their network of alliances. We assume that great powers can offer different degrees of commitment, from an explicit security commitment, like the US with NATO countries, to an ambiguous stance, like the US with Taiwan. Explicit guarantees have a direct deterrent effect on any potential threat to an ally, however, they expose the protector to moral hazard. We show that with only one protector and ambiguity-averse players, the unique equilibrium requires the protector to offer a fully ambiguous commitment. However, with multiple potential protectors, alliance politics pushes them to offer increasingly more explicit security commitments, even if abandoning ambiguity increases the chances of war. We argue that this logic can be applied to understand the US policy towards Taiwan, the proliferation of security commitments in periods of intense geopolitical competition, and what this mean for international stability.

Publications

Monitoring Team Members: Information Waste and the Transparency Trap (with Matteo Camboni)
American Economic Journal: Microeconomics 17.3 (2025): 324-368

We study a moral hazard problem where a firm incentivizes a team of complementary workers using an incentive scheme based on individual and team performance measures. Our analysis reveals that firms' concerns about low trust among teammates can justify three otherwise puzzling practices: information waste, targeted monitoring, and a self-promotion trap. First, we show that firms primarily use individual-performance bonuses, ignoring relevant information about team output. Second, we demonstrate that firms monitor some workers more closely than others, even when workers are ex-ante homogeneous. Finally, we show that workers optimally engage in a self-defeating race toward higher effort transparency; this results in the firm obtaining the same high payoffs as in the firm-preferred equilibrium (i.e., absent trust concerns) at their expense. The key novel trade-off driving our results is the one between the classical information rents of moral hazard problems and the strategic insurance rents that arise from trust concerns.