Working papers results

Creativity is often highly concentrated in time and space, and across different domains.
What explains the formation and decay of clusters of creativity? We match data on notable
individuals born in Europe between the XIth and the XIXth century with historical city data.
The production and attraction of creative talent is associated with city institutions that protected economic and political freedoms and promoted local autonomy. Instead, indicators of local economic conditions such as city size and real wages, do not predict creative clusters. We also show that famous creatives are spatially concentrated and clustered across disciplines, that their spatial mobility has remained stable over the centuries, and that creative clusters are persistent but less than population.

We consider a game with sequential moves played by agents who are randomly drawn from large populations and matched. We assume that, when players are uncertain about the strategy distributions of the opponents, preferences over actions at any information set admit a smooth-ambiguity representation in the sense of Klibanoff, Marinacci, and Mukerji (Econometrica, 2005). This may induce dynamically inconsis- tent preferences and calls for an appropriate definition of sequential best response. We take this into account in our analysis of self-confirming equilibrium (SCE) and rationalizable SCE in sequential games with feedback played by agents with non-neutral ambiguity attitudes. Battigalli, Cerreia-Vioglio, Maccheroni, and Marinacci (Amer. Econ. Rev., 2015) show that the set of SCE's of a simultaneous-move game with feedback expands as ambiguity aversion increases. We show by example that SCE in a sequential game is not equivalent to SCE applied to the strategic form of such game, and that the previous monotonicity result does not extend to general sequential games. Still, we provide sufficient conditions under which the monotonicity result holds for (rationalizable) SCE.

The Wold decomposition of a weakly stationary time series extends to the multivariate case by allowing each entry of a weakly stationary vectorial process to linearly depend on the components of a vector of shocks. Since univariate coefficients are replaced by matrices, we propose a modelling approach based on Hilbert A-modules defined over the algebra of squared matrices. The Abstract Wold Theorem for Hilbert A-modules, that we prove, delivers two orthogonal decompositions of vectorial processes: the Multivariate Classical Wold Decomposition, which exploits the lag operator as isometry, and the Multivariate Extended Wold Decomposition, where a scaling operator is employed. The latter enables us to disentangle the heterogeneous levels of persistence of a weakly stationary vectorial process. Hence, the persistent components of the macro-financial variables into consideration are related to the overlapping of different sources of randomness with specific persistence. We finally provide a simple application to V AR models.

It is argued that crises open up a window of opportunity to implement policies that otherwise would not have the necessary political backing. The argument goes that the political cost of deep reforms declines as crises unravel structural problems that need to be urgently rectified and the public is more willing to bear the pains associated with such reforms. This paper casts doubt on this prevalent view by showing that not only the crises-reforms hypothesis is unfounded in the data, but rather crises are associated with slowing structural reforms depending on the institutional environment. In particular, we look at measures of liberalization in international trade, agriculture, network industries, and financial markets. We find that, after a financial crisis, democracies neither open nor close their economy. On the contrary, autocracies reduce liberalizations in multiple economic sectors, as the fear of regime change might lead non-democratic rulers to please vested economic interests.

We establish sufficient conditions that ensure the uniqueness of Tarski-type fifixed points of monotone operators. Several applications are presented.

We propose a new theoretical approach to the study of editing rules applied by decision makers when dealing with repeated lotteries. Under the assumption that decision makers detect statedominance among simply two-outcome lotteries and always prefer n draws of a dominating lottery to n draws of a dominated lottery, we study editing rules beyond the use of acceptance rates. We derive an appropriate experimental methodology based on loss and gain differences, which also allows us to quantify the strength of preferences. An experiment supports previous findings showing that editing might depend on the risk profile of the underlying lottery. Moreover, we provide evidence that acceptance rates could lead to different conclusions than our methodology, because they generally do not account for the strength of preferences.

We extend the epistemic analysis of dynamic games of Battigalli and Siniscalchi (1999, 2002, 2007) from finite dynamic games to all simple games, that is, finite and infinite-horizon games with finite action sets at non-terminal stages and compact action sets at terminal stages. We prove a generalization of Lubin's (1974) extension result to deal with conditional probability systems and strong belief. With this, we can provide a short proof of the following result: in every simple dynamic game, strong rationalizability characterizes the behavioral implications of rationality and common strong belief in rationality.

Employing a wide range of individual-level surveys, we study the extent of cultural and institutional heterogeneity within the EU and how this changed between 1980 and 2008. We present several novel empirical regularities that paint a complex picture. While Europe has experienced both systematic economic convergence and an increased coordination across national and subnational business cycles since 1980, this was not accompanied by cultural nor institutional convergence. Such persistent heterogeneity does not necessarily spell doom for further political integration, however. Compared to observed heterogeneity within member states themselves, or in well functioning federations such as the US, cultural diversity across EU members is a similar order of magnitude. The main stumbling block on the road to further political integration may not be heterogeneity in fundamental cultural traits, but other cleavages, such as national identities.

Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2008-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks cut credit to healthy firms (but not to zombie firms) and are more likely to prolong a credit relationship with a zombie firm, compared to stronger banks. (ii) In areas-sectors with more lowcapital banks, zombie firms are more likely to survive and non-zombies are more likely to go bankrupt; (iii) Nevertheless, bank under-capitalization does not hurt the growth rate of healthy firms, while it allows zombie firms to grow faster. This goes against previous in

uential findings that, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.

This paper develops a theoretical model of voters' and politicians' behavior based on the notion that voters focus disproportionately on, and hence overweight, certain attributes of policies. We assume that policies have two attributes and that voters focus more on the attribute in which their options differ more. First, we consider exogenous policies and show that voters' focusing polarizes the electorate. Second, we consider the endogenous supply of policies by office-motivated politicians who take voters' distorted focus into account. We show that focusing leads to inefficient policies, which cater excessively to a subset of voters: social groups that are larger, have more distorted focus, are more moderate, and are more sensitive to changes in a single attribute are more influential. Finally, we show that augmenting the classical models of voting and electoral competition with focusing can contribute to explain puzzling stylized facts as the inverse correlation between income inequality and redistribution or the backlash effect of extreme policies.