Working papers

Working papers and work-in progress

Information Avoidance, Echo Chambers and Uninformed Decisions (with Fabrizio Adriani). Draft available upon request.

We study how agents select information sources in a model with potentially delusional agents. Agents have access to multiple sources of information of different informativeness about the underlying state of the world. Before investing in a common project with uncertain productivity, agents select which information sources to pay attention to. Once they receive the signals about the future productivity of the project and before the investment decision takes place, they decide whether to exactly recall the signal received or to engage in costly denial. We show that if in the low state the expected productivity is negative, multiple equilibria coexist: one in which agents are fully informed and one where agents pay attention only to the information source most likely to reveal favourable information. From a welfare perspective, full information is always desirable both in the high state and in the low state. This model provides a rationale for the rise of echo chambers.

Endogenous Information Acquisition in an Investment-Trading Game (with Evangleos Litos and Anastasia Papadopoulou). Draft available upon request.

In an investment trading game where the profitability of the new investment (the fundamental) is a random variable, entrepreneurs’ higher-order beliefs about the future asset price of the realised investment enter into their investment decisions. The financial market uses aggregate investment as a signal of the underlying fundamental. If agents have dispersed information, endogenous strategic complementarity in actions emerges owing to the information spillover and generates inefficiency in the economy. We introduce endogenous information acquisition and study what information is acquired and how it affects the equilibrium outcome.

Collateral requirements, cost of credit, and firms’ discouragement from applying for bank loans (with Gianfranco Atzeni and Luca Deidda). Draft available soon. 

Using the BEEPS dataset on Eastern European and Central Asian firms, we investigate how the collateral requirements and the cost of credit expected by firms might discourage them from applying for credit. Based on the data, we identify four reported discouragement reasons: (A) high probability of rejection, (B) high cost of credit, (C) high cost of application, (D) and other reasons. We develop a simple statistical model to derive the following set of predictions about the impact of expected collateral requirements and cost of credit on discouragement. First, collateral requirements and cost of credit should induce discouragement across all reported reasons. Second, higher expected collateral requirements and cost of credit should have a lower effect when the reported reason is (A). If the firm already fears rejection, a higher collateral requirement or a higher cost of credit should play little role. Third, collateral requirements should have a larger impact when the reported reason is (B). If the firm is discouraged by the high cost of credit rather than the fear of rejection, an increase in the expected collateral requirements becomes more significant as it may add the risk of rejection as an additional concern for the firm. We test these predictions using a multinomial logit model and we find robust evidence that supports all of them.

Adoption of Environmental Practices and Firm Access to Bank Credit (with Gianfranco Atzeni and Andrea Carosi). Draft available soon.

Leveraging on a large dataset from EBRD that collects detailed information on business characteristics, financial performance, management practices, and development prospects of enterprises for 26 industries across various regions of the world, we estimate a model of firm access to credit that incorporates firm management of environmental practices. This model allows us to identify whether and to what extent these environmental practices influence the firm's ability to secure credit. We find evidence that firms with a lower Environmental Impact Index (EII), i.e., environmentally friendly firms, exhibit a higher likelihood of obtaining credit. Moreover, conditionally, upon applying for a loan, a marginal increase in a firm’s EII leads to a decrease in the probability of loan approval by 0.9% for firms with low EII and by 1.4% for firms with high EII. The EII also negatively affects the firm's decision to apply for a loan. Specifically, firms with a higher EII are also less likely to apply for credit in the first place, with a marginal decrease in the probability of applying for a loan of around 2.1% for firms with a high EEI.

Sleeping projects

The Effect of US Homestead Exemption Level on Peer to Peer Lending (with Gianfranco Atzeni).

Information Acquisition and Endogenous Network Formation in an (Anti)-Coordination Game (with Matteo Foschi).

An Experimental analysis of the relationship between risk-reward preferences, life stage and financial literacy (with Dan Ladley, Evangelos Litos, Anastasia Papadopoulou and James Rockey).