Working papers results

Why, in the face of scandals and misbehaviors, do partisan supporters hardly change their minds about their favored candidates? We study individuals’ online engagement with negative news on candidates in the 2016 US Presidential Election. Compared to independents, partisan users avoid commenting bad news on their favorite candidate, but seek them on its opponent, a political “ostrich effect”. When they do comment on bad news about their candidate, they try to rationalize them, display a more negative sentiment, and are more likely to cite scandals of the opponent. This behavior is consistent with the predictions of a model of online interactions where paying attention to non-consonant news is emotionally or psychologically costly, while paying attention to consonant ones is pleasing. Because users enjoy receiving positive feedback on their views, intrinsic biases that drive ideological segregation are amplified on social media.

We explore how business groups use internal labor markets (ILMs) in response to changing economic conditions. We show that following the exit of a large industry competitor, groupaffiliated firms expand and gain market share by increasing their reliance on the ILM to ensure swift hiring, especially of technical managers and skilled blue collar workers. The ability to take advantage of this shock to growth opportunities is greater in firms with closer access to their affiliates’ human capital, as geographical proximity facilitates employee relocations across units. Overall, our findings point to the ILM as a prominent mechanism making affiliation with a business group valuable at times of change. For the ILM to perform its role in the face of industry shocks, group sectoral diversification must be combined with geographical proximity between affiliates. 

We study the implications of employment targets on firm dynamics during the privatization of the East German economy. Exploiting novel contract-level data, we document three stylized facts. First, the policy distorted firm size choices and generated bunching of firms around their committed employment target. Second, exploiting heterogeneous labor preferences of privatizers, we show that assigning tight commitments to firms causes an increase in employment growth and leads to higher productivity growth. Finally, tighter commitments also result in significant costs by leading to increased firm exit. We interpret these results through the lens of a dynamic model with endogenous productivity growth at the firm level. The model highlights that while tight commitments distort the employment decision statically and lead to a higher exit probability, they also induce a “catch-up” increase in productivity growth. This is because although firm profits are lower under tight commitments, marginal profits with respect to  productivity are higher. We calibrate the model to our data and find that the policy lead to a 3 percentage points higher aggregate TFP growth thanks to the productivity improvements of firms with tight contracts. 

We investigate the impact of prices on ratings using Airbnb data. We theoretically illustrate two opposing channels: higher prices reduce the value for money, worsening ratings, but they increase the taste-based valuation of the average traveler, improving ratings. Results from panel regressions and a regression discontinuity design suggest a dominant value-for-money effect. In line with our model, hosts strategically complement lower prices with higher effort more when ratings are relatively low. Finally, we provide evidence that, upon entry, strategic hosts exploit the dominant value-for-money effect. The median entry discount of seven percent improves medium-run monthly revenues by three percent.

 

 

 

We compute new estimates for Total Factor Productivity (TFP) growth in the United States and in five European countries. Departing from standard methods, we account for positive profits and use firm surveys to proxy for unobserved changes in factor utilization. These novelties have a major impact, especially in Europe, where our estimated TFP growth series are less volatile and less cyclical than the ones obtained with standard methods. Based on our approach, we provide annual industry-level and aggregate TFP series, as well as the first estimates of utilization-adjusted quarterly TFP growth in Europe.

We revisit the role of temporary layoffs in the business cycle, motivated by their unprecedented surge during the pandemic recession.We first measure the contribution of temporary layoffs to unemployment dynamics over the period 1979 to the present. While many have emphasized a stabilizing effect due to recall hiring, we quantify an important destabilizing effect due to "loss-of-recall", whereby workers in temporary-layoff unemployment lose their job permanently and do so at higher rates in recessions. We then develop a quantitative model that allows for endogenous flows of workers across employment and both temporary-layoff and jobless unemployment. The model captures well pre-pandemic unemployment dynamics and shows how loss-of-recall enhances the recessionary contribution of temporary layoffs. We also show that with some modification the model can capture the pandemic recession. We then use our structural model to show that the Paycheck Protection program generated significant employment gains. It did so in part by significantly reducing loss-of-recall.

We study strategic reasoning in a signaling game where players have common belief in an outcome distribution and in the event that the receiver believes that the sender's first-order beliefs are independent of her payoff-type. We characterize the behavioral implications of these epistemic hypotheses through a rationalizability procedure with second-order belief restrictions. Our solution concept is related to, but weaker than Divine Equilibrium (Banks and Sobel, 1987). First, we do not obtain sequential equilibrium, but just Perfect Bayesian Equilibrium with heterogeneous off-path beliefs (Fudenberg and He, 2018). Second, when we model how the receiver may rationalize a particular deviation, we take into account that some types could have preferred a different deviation, and we show this is natural and relevant via an economic example.

A start-up and an incumbent negotiate over an acquisition price under asymmetric information about the start-up's ability to succeed in the market. The acquisition may result in the shelving of the start-up's project or the development of a project that would otherwise never reach the market because of financial constraints. Despite this possible pro-competitive effect, the optimal merger policy commits to standards of review that prohibit high-price takeovers, even if they may be welfare-beneficial ex post. Ex ante this pushes the incumbent to acquire startups lacking the financial resources to develop independently, and increases expected welfare.

A central aspect of strategic reasoning in sequential games consists in anticipating how co-players would react to information about past play, which in turn depends on how co-players update and revise their beliefs. Several notions of belief system have been used to model how players' beliefs change as they obtain new information, some imposing considerably more discipline than others on how beliefs at different information sets are related. We highlight the differences between these notions of belief system in terms of introspection about one's own conditional beliefs, but we also show that such differences do not affect the essential aspects of rational planning and the behavioral implications of strategic reasoning, as captured by rationalizability.

We propose that the mathematical representation of situations of strategic interactions, i.e., of games, should separate the description of the rules of the game from the description of players’ personal traits. Yet, we note that the standard extensive-form partitional representation of information in sequential games does not comply with this separation principle. We offer an alternative representation that extends to all (finite) sequential games the approach adopted in the theory of repeated games with imperfect monitoring, that is, we describe the flow of information accruing to players rather than the stock of information retained by players, as encoded in information partitions. Mnemonic abilities can be represented independently of games. Assuming that players have perfect memory, our flow representation gives rise to information partitions satisfying perfect recall. Different combinations of rules about information flows and of players mnemonic abilities may give rise to the same information partition . All extensive-form representations with information partitions, including those featuring absentmindedness, can be generated by some such combinations.