Working papers results

The economic impact of exported institutions depends on the underlying cultural environment of the receiving country. We present evidence that cultural proximity between the exporting and the receiving country positively affects the adoption of new institutions and the resulting long-term economic outcomes. We obtain this result by combining new information on pre-Napoleonic kingdoms with county-level census data from nineteenthcentury Prussia. This environment allows us to exploit a quasi-natural experiment generated by radical Napoleonic institutional reforms and deeply rooted cultural heterogeneity across Prussian counties. We show that counties that are culturally more similar to France, in terms of either religious affiliation or historical exposure to French culture, display better long-term economic performance. We analyze a range of alternative explanations and suggest that our findings are most easily explained by cultural proximity facilitating the adoption of new institutions.

This paper documents time-variation in the relation between oil price and U.S. equity returns based on both reduced-form and structural analyses. Our reduced-form analysis suggests that a positive correlation between equity returns and oil price has emerged starting from the financial crisis. Based on our structural analysis, we find that oil-specific demand shocks have had positive effects on the U.S. stock market since 2008 as opposed to oil supply shocks, which have no large effects on stock re turns. We also show that the time variation in the parameters of the structural VAR is very well explained by the level of the U.S. short-term interest rate and shifts in consumer confidence.

We model theoretically and quantify empirically the impact of informational frictions on managerial decisions in the context of mergers and acquisitions. In particular, we focus on how bid premiums and methods of payment are affected by the bidder and target firms' degrees of opacity. To this end, we model the negotiation between bidder and target as a signaling game with two-sided private information. We then empirically test the model's predictions concerning the effects of target and bidder opacity on the simultaneous determination of the method of payment and the bid premium, by conditioning cross-sectionally on the basis of firms' stock trading properties, which we interpret as representative of individual firm opacity. Consistently with the predictions of our model, we find, by studying a sample of bids by and for U.S. publicly listed firms over the period 1985-2014, that both the likelihood of a stock bid and the bid premium increase with the opacity of the target, while the opacity of the bidder is related to lower bid premiums.

We model an order book with liquidity rebates (make fees) and trading fees (take fees) that faces intermarket competition, and use the models insights to explain changes in market quality and market shares following changes in make-take fees. As predicted by our model, we document that fee changes by one venue affect market quality and market shares for all venues that compete for order flow. Furthermore, we document cross-sectional differences in changes in market quality and market shares following a simultaneous decrease in both make and take fees consistent with traders in large (small) capitalization stocks being more sensitive to the change in make (take) fees.

Today, income inequality in Sub-Saharan Africa is exceptionally high. In this paper, we study whether present-day inequality can be traced back to the colonial period by reconstructing income distributions in a sample of representative colonies. To do so, we use data from colonial records to build new social tables for French colonies in West and Central Africa and we combine them with available information on British colonies in East and Southern Africa. We find that inequality in Africa is not a recent phenomenon. Income inequality was extremely high during the colonial period, in particular because of the huge income differential between Africans and European settlers. Nevertheless, it tended to reduce over time and the post-colonial period is characterized by much lower inequality. Interestingly, the decline of inequality is not necessarily a consequence of independence: the trends toward reduction started under colonial rule.

We characterize consistent random choice rules in terms of the optimality of the support. We then proceed to study stochastic choice in a consumer theory setting. We prove a law of demand for stochastic choice. We then move to a temporal setting where we characterize the softmax decision criterion.

The purpose of this note is to discuss the relation between model uncertainty in risk analysis and decision theory.

We introduce a new approach for the estimation of high-dimensional factor models with regime-switching factor loadings by extending the linear three-pass regression filter to settings where parameters can vary according to Markov processes. The new method, denoted as Markov-Switching three-pass regression filter (MS-3PRF), is suitable for datasets with large cross-sectional dimensions since estimation and inference are straightforward, as opposed to existing regime-switching factor models, where computational complexity limits applicability to few variables. In a Monte- Carlo experiment, we study the finite sample properties of the MS-3PRF and find that it performs favorably compared with alternative modelling approaches whenever there is structural instability in factor loadings. As empirical applications, we consider forecasting economic activity and bilateral exchange rates, finding that the MS-3PRF approach is competitive in both cases.

We study whether providing information about immigrants affects people's attitude towards them. First, we use a large representative cross-country experiment to show that, when people are told the share of immigrants in their country, they become less likely to state that there are too many of them. Then, we conduct two online experiments in the U.S., where we provide half of the participants with five statistics about immigration, before evaluating their attitude towards immigrants with self-reported and behavioral measures. This more comprehensive intervention improves people's attitude towards existing immigrants, although it does not change people's policy preferences regarding immigration. Republicans become more willing to increase legal immigration after receiving the information treatment. Finally, we also measure the same self-reported policy preferences, attitudes, and beliefs in a four-week follow-up, and we show that the treatment effects persist.

We study a decision maker characterized by two binary relations. The first reflects his judgments about well-being, his mental preferences. The second describes the decision maker's choice behavior, his behavioral preferences, the ones that govern choice (see Rubin- stein and Salant, 2008a,b). Specififically, in the context of decision making under uncertainty, we propose axioms that may describe the rationality of these two relations. These axioms allow a joint representation by a single set of probabilities and a single utility function. It is mentally rational to prefer f over g if and only if the expected utility of f is at least as high as that of g for all probabilities in the set. It is behaviorally rationalizable to choose f over g if and only if the expected utility of f is at least as high as that of g for some probability in the set. In other words, mental and behavioral preferences admit, respectively, a representation a la Bewley (2002) and a la Lehrer and Teper (2011). Our results also provide foundation for a decision analysis procedure called robust ordinal regression and proposed by Greco, Mousseau, and Slowinski (2008).