Working papers results

We consider an uncertainty averse, sophisticated decision maker facing a recurrent decision problem where information is generated endogenously. In this context, we study self-confirming strategies as the outcomes of a process of active experimentation. We provide inter alia a learning foundation for self-confirming equilibrium with model uncertainty (Battigalli et al., 2015). We also argue that ambiguity aversion tends to stifle experimentation, increasing the likelihood that decision maker get stuck into suboptimal certainty traps.

This paper addresses theoretically the question whether culture has an effect on economic performance in team production, and which would be the optimal team culture. The members of the team are guided both by economic incentives and by personal norms, weighed according to their prevailing level of materialism. We assume that personal norms evolve following a dynamics driven by a combination of psychological mechanisms such as consistency and conformism. The different vectors of materialism, consistency and conformity shared by the group result in a continuum of cultures with different combinations of individualism and collectivism. Our main results show how team culture turns out to be a fundamental determinant for group performance. When income distribution is not completely egalitarian or the members of the team display heterogeneous levels of skills, culture matters in the sense that there exists an optimal culture that maximizes team production and its characteristics depend on the specific distributions of income and skills. A higher average productivity or a more inegalitarian dispersion of remunerations requires a more collectivist culture. And a higher dispersion of individual productivities requires a more individualist culture.

We use impulse response functions computed from linear and nonlinear, Markov switching models to investigate the strength of four alternative contagion channels. These are the flight-to-quality, flight-to-liquidity, risk premium, and correlated information channels. We study the differences among estimates and impulse response functions across linear and nonlinear models to identify and measure cross-asset contagion. An application to weekly Eurozone data for a 2007-2014 sample, reveals that a two-state Markov switching model shows accurately estimated but economically weak contagion effects in a crisis regime. These results are mainly explained by a flight-to-quality channel. Furthermore, we extend our analysis the analysis to investigate whether European market may be subject to contagion when exposed to external shocks, such as those originated from the US subprime crisis.

We propose a Bayesian panel model for mixed frequency data whose parameters can change over time according to a Markov process. Our model allows for both structural instability and random effects. We develop a proper Markov Chain Monte Carlo algorithm for sampling from the joint posterior distribution of the model parameters and test its properties in simulation experiments. We use the model to study the effects of macroeconomic uncertainty and financial uncertainty on a set of variables in a multi-country context including the US, several European countries and Japan. We find that for most of the variables financial uncertainty dominates macroeconomic uncertainty. Furthermore, we show that uncertainty coefficients differ if the economy is in a contraction regime or in an expansion regime.

Recent cases in the US (Meritor, Eisai) and in the EU (Intel ) have revived the debate on the use of price-cost tests in loyalty discount cases. We draw on existing recent economic theories of exclusion and develop new formal material to argue that economics alone does not justify applying a price-cost test to predation but not to loyalty discounts. Still, the latter contain features (they reference rivals and allow to discriminate across buyers and/or units bought) that have a higher exclusionary potential than the former, and this may well warrant closer scrutiny and more severe treatment from antitrust agencies and courts.

In this paper, we run a laboratory experiment where the information set is relatively rich, and, in particular, it includes audits on other taxpayers. At the same time, the implementation of the Bayesian updating process for the subjective probability to be audited is fairly simple. By doing so, we are able to elicit a range of consistent but heterogeneous probability beliefs and to distinguish between Bayesian and non-Bayesian subjects. We obtain two major results concerning Bayesian subjects. First, they exhibit strong and robust short-run BoCE. Second, they are seemingly not affected by audits on other taxpayers in their compliance decision. These results are robust to different definitions of Bayesianity and to different specifications. They conflict with the evidence that Bayesian agents do perceive correctly the chance to be audited. In turn, this suggests that existing explanations of the BoCE are not entirely satisfactory and that alternative theories, possibly based on the Duality approach, are needed.

We investigate how Internal Labor Markets (ILMs) allow organizations to accommodate shocks calling for costly labor adjustments. Using data on workers' mobility within French business groups, we find that adverse shocks affecting affliated firms boost the proportion of workers redeployed to other group units rather than external firms. This effect is stronger when labor regulations are stricter and destination-firms are more efficient or enjoy better growth opportunities. Affiliated firms hit by positive shocks rely on the ILM for new hires, especially high-skilled workers. Overall, ILMs emerge as a co-insurance mechanism within organizations, providing job stability to employees as a by-product.

The risk-neutral pricing formula provides the valuation of random payoffs in continuous-time markets. Despite the variety of payoffs, no arbitrage price dynamics are driven by the same (possibly stochastic) interest rate. We formalize this intuition by showing that no arbitrage prices constitute the solution of a differential equation, where interest rates are prominent. To achieve this goal, we introduce the notion of weak time-derivative, which permits to differentiate adapted processes. This instrument isolates drifts of semimartingales and it is null for martingales. Finally, we reformulate the eigenvalue problem of Hansen and Scheinkman (2009) by employing weak time-derivatives.

We experimentally test the impact of expanding access to basic bank accounts in Uganda, Malawi, and Chile. Over two years, 17%, 10%, and 3% of treatment individuals made five or more deposits, respectively. Average monthly deposits for them were at the 79th, 91st, and 96th percentiles of baseline savings. Survey data show no clearly discernible intention-to-treat effects on savings or any downstream outcomes. This suggests that policies merely focused on expanding access to basic accounts are unlikely to improve welfare noticeably since impacts, even if present, are likely small and diverse.

Consider a network of firms where a firm T is given the opportunity to innovate a product (first-generation innovation). If successful, this firm can temporarily sell this innovation to her direct neighbors because this will give her access to a larger market. However, if her direct neighbors innovate themselves on top of firm T's innovation (second-generation innovations), then firm T loses the right to sell her initial innovation to the remaining firms in the market. We analyze this game where each firm (T and her direct neighbors) has to decide at which price they want to sell their innovation. We show that the optimal price policy of each firm depends on the level of property rights protection, the position of firm T in the network, her degree and the size of the market. We then analyze the welfare implications of our model where the planner that maximizes total welfare has to decide which firm to target. We show that it depends on the level of property rights protection and on the network structure in a non-trivial way.