Published papers
Public Goods and Future Audiences, Journal of Economic Behavior and Organization, 224, 580-597 (with Giuseppe Attanasi, Frédéric Moisan and Donald Robertson). (working paper version)
Individuals' decisions to behave prosocially (or the contrary) can often be observed by other individuals, with no direct connection to them, but who may nevertheless be influenced by them (e.g. through social media). Does knowing that they may be viewed as role models by other, notably younger, people affect the way individuals behave? Does it make them more likely to behave prosocially? We study how participants' behavior in an experimental public good game is affected when they know that information about their choices and outcomes, together with different sets of information about their identity, will be transmitted the following year to a set of new, unknown, first-year students at the same university. When subjects know their photo, choices and outcomes will be transmitted, they contribute significantly less. We explore different possible explanations and are able to rule out several. We argue that the most convincing are based on non-standard social image concerns (i.e. individuals are not trying to signal prosocial motivations).
Overconfidence, Stability and Investments , Journal of Economic Behavior and Organization, 145, 474-494 (with Xiaojian Zhao). Working paper version
The available evidence from numerous studies suggests that overconfidence varies significantly across countries. We develop a model that endogenizes these differences and examines their economic consequences. A crucial determinant of differences in overconfidence is the degree of expected stability of the environment, with greater changefulness giving rise to more overconfident beliefs. When stability is endogenized, multiple equilibria can emerge, “dynamism” and overconfidence reinforcing each other in one case, stability and realistic self-assessment in another. Evidence from 38 countries is consistent with this relationship. Our model also sheds light on differences in overconfidence across individuals. We conduct a large-scale survey in China and find evidence consistent with the model’s cross-sectional implications.
Merchant Guilds, Taxation and Social Capital , European Economic Review, 83, 90-110 (with Salvatore Piccolo). Working paper version
We develop a theory of the emergence of merchant guilds as an efficient mechanism to foster cooperation between merchants and rulers, building on the complementarity between merchant guilds’ ability to enforce monopoly over trade and their social capital. Unlike existing models, we focus on local merchant guilds, rather than alien guilds, accounting for the main observed features of their behavior, internal organization and relationship with rulers. Our model delivers novel predictions about the emergence, variation, functioning, and eventual decline of this highly successful historical form of network. Our theory reconciles previous explanations and the large body of historical evidence on medieval merchant guilds. In doing so, we also shed novel light on the role of the guilds’ social capital, and its importance for taxation, welfare, and the development of towns and their government in medieval Europe.
Network Cognition , Journal of Economic Behavior and Organization, 123, 78-96 (with Edoardo Gallo and Sanjeev Goyal). Working paper version
We study individual ability to memorize and recall information about friendship networks using a combination of experiments and survey-based data. In the experiment subjects are shown a network, in which their location is exogenously assigned, and they are then asked questions about the network after it disappears. We find that subjects exhibit three main cognitive biases: (i) they underestimate the mean degree compared to the actual network; (ii) they overestimate the number of rare degrees; (iii) they underestimate the number of frequent degrees. We then analyze survey data from two ‘real’ friendship networks from a Silicon Valley firm and from a University Research Center. We find, somewhat remarkably, that individuals in these real networks also exhibit these biases.
Collective Memory, Cultural Transmission, and Investments , American Economic Review, 98(1), 534-560. Working paper version
I study the intergenerational transmission of collective memory as a mechanism for cultural transmission, in the presence of social externalities associated with individual cultural investment decisions (learning and internalizing cultural norms and values). The younger generation's investment decisions are based on beliefs about the quality of existing institutions, norms and values; these beliefs are influenced by the information (memory) received from the older generation. I find that in culturally homogeneous societies it can be optimal to suppress "negative" memories while emphasizing and elaborating "positive" ones. However, the ability to bias collective memory in this way has important costs: it may generate cultural over-optimism and over-investment in some cases, and the reverse, cultural pessimism and under-investment, in other cases. The scope for welfare-enhancing manipulation of collective memory is reduced, moreover, in culturally heterogeneous societies.
Start-up Finance, Monitoring, and Collusion , RAND Journal of Economics, vol. 36, n.2, 255-274. Working paper version
I examine optimal financial contracts between entrepreneurs, financial intermediaries (venture capitalists), and other investors that allocate both cash flow rights and control rights to (i) motivate the venture capitalist to efficiently monitor the entrepreneur, (ii) ensure that the efficient decision is made at the interim stage concerning project continuation and refinancing, and (iii) deter collusion between the entrepreneur and the venture capitalist at the expense of the other investors. The combination of asymmetric information at the interim stage with the possibility of collusion yields optimal (collusion-proof) contracts that are consistent with several commonly observed characteristics of venture capital financing.
Debt, Incentives and Performance: Evidence from UK Panel Data , Economic Journal, vol.113, 1-17 (with Donald Robertson). Working paper version
A large body of theoretical literature suggests that capital structure plays an important role as a managerial incentive mechanism. What of the evidence for the agency approach? Cross-sectional empirical studies have identified a positive effect of leverage on expected performance (measured by Q) for firms with low growth opportunities. However, this evidence does not take into account the endogeneity of capital structure decisions. Our paper investigates the determinants of capital structure and performance, allowing for endogeneity and dynamics. Our results suggest that conclusions reached by previous studies which did not take into account the endogeneity issue should be treated with caution.
Implicit Contracts, Managerial Incentives, and Financial Structure , Journal of Economics and Management Strategy, vol. 10, n. 3, 359-390. Working paper version
This paper examines how managers may be given incentives to exert effort, and to implement efficient implicit contracts with workers. Under certain assumptions, this can be achieved by tying managerial compensation to shareholder value. However, if reputation effects are weak, it is more efficient to adopt an incentive scheme in which the manager is punished by outside investor intervention when performance falls below a critical level, and otherwise retains control, receiving a fixed reward. The required form of outside intervention can be implemented through a financial structure combining "hard" debt with a relatively dispersed ownership structure.
Handbook and book chapters
The Impact of Venture Capital on Innovation, in D. Cumming (ed.) Oxford Handbook of Venture Capital , Oxford University Press (with Nina Yin).
Venture Capitalists, Monitoring and Advising, in D. Cumming (ed.) Venture Capital: Investment Strategies, Structures and Policies , Wiley.
Working Papers
Shame, Guilt, and Motivated Self-Confidence (with Junjie Ren and Xiaojian Zhao).
The available evidence from anthropology, economics, and psychology suggests that sensitivity to the emotions of shame and guilt varies across cultures. So does (over)confidence in ability and skills. Is there a connection between these observations? We address this question theoretically and empirically. We find significant evidence, consistent with our model, of a negative relationship between the cultural importance of shame relative to guilt and individual confidence. The relationship holds across countries, and for US immigrants relative to the culture of origin countries.
Status and Hierarchy: Field Evidence from Vervet Monkeys (with Xiu Chen, Riccardo Pansini and Xiaojian Zhao)
Experimental evidence with humans and with other primates suggests a preference for interacting with higher-status individuals. For two years we studied wild vervet monkeys. In our treatment phase, some individuals are granted an advantaged role in cooperation to obtain food. Relative to an earlier, control phase, advantaged individuals receive more socially positive behaviors, while “alpha” (highest rank) individuals receive fewer. The increase is focused on lower-ranking advantaged individuals. Alpha individuals become more aggressive, but less influential. Overall, our results support a “signaling” rather than a “preference” hypothesis for how status affects behavior.
Public Goods and Future Audiences (with Giuseppe Attanasi, Frédéric Moisan and Donald Robertson).
Individuals' decisions to behave prosocially (or the contrary) can often be observed by other individuals, with no direct connection to them, but who may nevertheless be influenced by them (e.g. through social media). Does knowing that they may be viewed as role models by other, notably younger, people affect the way individuals behave? Does it make them more likely to behave prosocially? We study how participants' behavior in an experimental public good game is affected when they know that information about their choices and outcomes, together with different sets of information about their identity, will be transmitted the following year to a set of new, unknown,first-year students at the same university. When subjects know their photo, choices and outcomes will be transmitted, they contribute significantly less. We consider different possible explanations, and show that the most convincing is based on image concerns: subjects in the photo treatment care about being perceived as smart and successful by future students.
Strong Intrinsic Motivation (with Aldo Rustichini).
A large literature in psychology, and more recently in economics, has argued that monetary rewards can reduce intrinsic motivation. We investigate whether the negative impact persists when intrinsic motivation is strong, and test this hypothesis experimentally focusing on the motivation to undertake interesting and challenging tasks, informative about individual ability. We find that this type of task can generate strong intrinsic motivation, that is impervious to the effect of monetary incentives, particularly when the individual is "racing against himself". In our experiments, monetary incentives have no significant impact on performance. In a second experiment using the same kind of task but a setting designed to weaken intrinsic motivation, monetary incentives do have a significant, positive, effect on performance. This result confirms that our experimental setup may, with appropriate conditions, replicate the known crowding out effects.
Venture Capital and Knowledge Transfer (with Nina Yin).
This paper explores a new role for venture capitalists, as knowledge intermediaries. A venture capital investor can communicate valuable knowledge to an entrepreneur, facilitating innovation. The venture capitalist can also communicate the entrepreneur's innovative knowledge to other portfolio companies. We study the costs and benefits of these two forms of knowledge transfer, and their implications for investment, innovation, and product market competition. The model also sheds light on the choice between venture capital and other forms of finance, and the determinants of the decision to seek patent protection for innovations. Our analysis provides a rationale for the use of contingencies (specifically, patent approval) in VC contracts documented by Kaplan and Stromberg (2003), and for recent evidence on patterns of syndication among venture capitalists.
When to Pay More: Status and Culture in Principal-Agent Interactions (with Josepa Miquel-Florensa).
We study the role of status in an experimental Principal-Agent game. Status is awarded to subjects based on either talent or luck. In each randomly matched principal-agent pair, the principal chooses the agent’s
status-contingent piece rate for a task in which talent matters for performance (an IQ test). We perform the experiment in Cambridge (UK) and in HCMV (Vietnam). We find that in Cambridge piece rate offers are significantly higher for high-status agents (only) when status signals talent. However, these higher offers are not payoff-maximizing for the principals. In contrast, Vietnam piece rate offers are significantly higher for high-status agents (only) when status is determined by luck. We explore possible explanations, and the implications for status and incentives.
Innovation, Spillovers and Venture Capital Contracts .
Innovative start-ups and venture capitalists are highly clustered: Silicon Valley is probably the best-known example. Clusters differ in the contracts they use, and in how they perform. I explore the link between
spillovers, contractual design and performance. I find that more "incomplete" contracts, with fewer contingencies linking entrepreneurs’ rewards to performance benchmarks, become optimal when positive spillovers are large. The contracts enable the innovative entrepreneur and his investor to extract some of the surplus they generate through positive spillovers for new entrants. This provides a new rationale for contractual incompleteness, and may help to explain observed contractual practice in Silicon Valley.
Charitable Giving, Self-Image and Personality (with Carlos Cueva).
We provide an experimental test of the role of self-signaling in decisions to donate to charity. Our data strongly supports the theoretical prediction of a non-monotonic, hill-shaped relationship between self-confidence, proxied by the Social Potency personality trait, and prosocial behavior motivated by image concerns. Making self-image concerns more salient can more than double donations by individuals with medium self-confidence.
Noblesse Oblige? Moral Identity and Prosocial Behavior in the Face of Selfishness (with Benoît Monin).
What makes individuals conform or diverge after observing prosocial or selfish behavior by others? We study experimentally how social comparison (observing a peer’s behavior) interacts with identity motives for
cooperation. Participants play two games. We increase the strength of the identity motive by inducing subjects in a treatment condition to infer their identity from behavior in the first game. Cooperators who observe a peer
defect donate 28% more to their unknown partner in the second game in the treatment than in the control group. Our results are consistent with the predictions of Bénabou and Tirole (2011), and show that the "sucker-to-saint effect" identified by Jordan and Monin (2008) can have important behavioral consequences.
Selected older Working Papers
Social Capital and Collusion: The Case of Merchant Guilds, CESIfo Working Paper No. 1037 (with Sheilagh Ogilvie).
Household Saving and Wealth in China: Some Evidence from Survey Data. DAE Working Paper 9112, University of Cambridge.
Income, Occupation and Education in China. DAE Working Paper 9107, University of Cambridge.