Working Papers

Climate Change and Cooperation: an Efficiency-Based Perspective 

Abstract  The emissions of greenhouse gases produced by a country contribute to global warming and therefore constitute a source of negative externalities for other countries. I study three different forms of Climate Protocols and find to what extent each of them makes countries internalize their negative spillovers, cut emissions, and contrast global warming. The first protocol consists of a global tax on production, the second of a joint investment initiative into productive capital, and the third combines joint capital investment and state-and-policy-contingent inter-country transfers. Under log utility and full capital depreciation, the third protocol is the only one that attains the social optimum. The first protocol leads to reduced emissions, while the second protocol provides consumption insurance across countries (in relative terms). All protocols improve upon the laissez-faire scenario. If the protocol's design must be robust against the unilateral withdrawal of signatory countries, the first protocol attains higher welfare than the second one. 

Public Debt and Growth in a Democracy with Partisan Politics (with Lancia F. and Russo A.)

Abstract  We examine the strategic relationship between public investments and pork barrel spending, along with public debt, when spending-biased political parties alternate stochastically in power. The driving force of the model is the intergenerational conflict over the allocation and financing of the public budget. Successive generations of voters choose fiscal policies through repeated elections. We characterize the Markov-perfect equilibrium of the voting game and show that the party biased towards public investments exhibits less discipline compared to the party favoring pork barrel spending. The increased growth resulting from public investments raises the likelihood of indebtedness, ultimately restraining public spending in the long run. Our findings shed light on the coexistence of rising debt and political cycles observed in modern economies.

Optimal Welfare-to-Work Programs with Worker Profiling

Abstract  Profiling plays a crucial role in welfare-to-work programs by categorizing unemployed individuals based on their job-finding probability and referring them to the appropriate labor-market policies. An optimal profiling strategy is obtained by incorporating dynamic learning about recipients' abilities within a principal-agent framework. The paper finds that the optimal profiling approach allows a certain percentage of low-skilled workers to perceive themselves as high-skilled, leading to their inclusion in delegated job searches alongside genuinely high-skilled workers (positive type II error). This occurs when the government prioritizes incentivizing overly optimistic low-skilled workers to actively search for employment, rather than directing them to passive labor-market policies. Conversely, high-skilled workers are consistently accurately classified as such, ensuring they are not referred to passive policies (no type I error). The implementation of an optimal profiling strategy in the United States is estimated to result in average per-capita net-present savings of $27,925. 

Other Projects

Dynamic Network Games (with S. Ruìz Palazuelos)

Abstract We provide sufficient conditions for the existence of a stationary Nash equilibrium in a network game where each node’s utility is a function of her friends, and her friends of friends. In each period, each node strategically decides which link to create upon payment of a flow cost. In every period, a node is also subject to an iid shock that enables her to erase an existing link. The equilibrium is stationary when no new link is created, nor any existing link is deleted. In case multiple equilibria exist, we specify initial conditions for the network to converge to any specific equilibrium.

Measuring Social Cohesion in Social Networks (with S. Ruìz Palazuelos)

Abstract Statistical metrics designed to quantify clustering patterns typically concentrate on triads, which are groups of precisely three nodes at a time. While these measures are valuable, a graph's clustering characteristics may possess attributes that go beyond what can be discerned when we confine our analysis to these specific measures. We propose a more general measure of social cohesion based on a combination of different network properties. The proposed measure goes beyond the clustering coefficient, the typical measure of social cohesion in networks.

Worker Profiling and Reemployment Services 

Abstract  A risk-neutral government, who provides risk-averse unemployed workers with welfare support, finds it optimal to match workers with active or passive labor-market policies, based on workers' human capital. However, when human capital is subject to two-sided uncertainty, the government can decide either to detect it via profiling, or to form expectations about it and match workers and policies accordingly. The paper delivers two findings. First, the government's return from worker's search is increasing and concave in expectations, due to hyperbolic decreasing incentive costs and linear increasing labor taxes upon reemployment. Second, the concavity of returns causes the value of information to be negative for high-end expectations, whenever the loss from putting low-skilled workers at rest outweighs the gain from lowering search incentives to high-skilled workers. If so, profiling should not fully detect human capital, but rather boost the expectations of a share of low-skilled workers and persuade them to search for re-employment at a lower incentive cost for the government.