David Hémous, Green innovation policies: economics and climate change, In: UBS Center Public Paper Series, No. 10, 2021. (Working Paper)
Climate change already has a negative impact on the environment and our societies, and this impact will get worse over the course of this century. How much worse? This will depend on our ability to reduce greenhouse gas emissions. Achieving the necessary reduction in emissions, while maintaining (and improving) worldwide living standards can only be achieved through innovation. Fortunately, innovation is not manna from heaven; it is conducted by scientists and firms and it reacts to market and policy incentives. It is therefore up to governments to steer it toward clean technologies. In this public paper, I will review recent economic research on the role of innovation in the design of climate policy. After a quick introduction to the challenges posed by climate change, I will show that current technological trends – though promising – are unlikely to be sufficient to limit warming to 2°C. Can policy then effectively boost green innovation? Recent evidence shows that this is definitely the case. How should global climate policy be designed to leverage this innovation response? What about unilateral policies? Some innovations are “grey”: they permit the replacement of particularly dirty technologies with less dirty but still polluting ones. The shale gas
revolution is an example. Can these “grey” innovations backfire? |
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David Autor, David Dorn, Gordon H Hanson, On the persistence of the China shock, In: NBER Working Paper Series, No. 29401, 2021. (Working Paper)
We evaluate the duration of the China trade shock and its impact on a wide range of outcomes over the period 2000 to 2019. The shock plateaued in 2010, enabling analysis of its effects for nearly a decade past its culmination. Adverse impacts of import competition on manufacturing employment, overall employment-population ratios, and income per capita in more trade-exposed U.S. commuting zones are present out to 2019. Over the full study period, greater import competition implies a reduction in the manufacturing employment-population ratio of 1.54 percentage points, which is 55% of the observed change in the value, and the absorption of 86% of this net job loss via a corresponding decrease in the overall employment rate. Reductions in population headcounts, which indicate net out-migration, register only for foreign-born workers and the native-born 25-39 years old, implying that exit from work is a primary means of adjustment to trade-induced contractions in labor demand. More negatively affected regions see
modest increases in the uptake of government transfers, but these transfers primarily take the form of Social Security and Medicare benefits. Adverse outcomes are more acute in regions that initially had fewer college-educated workers and were more industrially specialized. Impacts are qualitatively - but not quantitatively - similar to those caused by the decline of employment in coal production since the 1980s, indicating that the China trade shock holds lessons for other episodes of localized job loss. Import competition from China induced changes in income per capita across local labor markets that are much larger than the spatial heterogeneity of income effects predicted by standard quantitative trade models. Even using higher-end estimates of the consumer benefits of rising trade with China, a substantial fraction of commuting zones appears to have suffered absolute declines in average real incomes. |
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Sandro Ambühl, Can incentives cause harm? Tests of undue inducement, In: SSRN, No. 2830171, 2021. (Working Paper)
Around the world, laws limit incentives for transactions such as human research participation, egg donation, or gestational surrogacy. A key reason is the notion of undue inducement - the conceptually vague and empirically largely untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives bias information search. Yet, such behavior is also consistent with Bayes-rational behavior. I develop a criterion that indicates whether choices admit welfare weights on benefit and harm that justify permitting the transaction but capping incentives. In my experimental data, no such weights exist. |
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Alessandro Bonatti, L Elisa Celis, Gregory S. Crawford, David Dinielli, Paul Heidhues, Michael Luca, Tobias Salz, Monika Schnitzer, Fiona M Scott, Katja Seim, Michael Sinkinson, Jidong Zhou, More competitive search through regulation, In: Policy Discussion Paper, No. 2, 2021. (Working Paper)
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Gregory S. Crawford, Jacques Crémer, David Dinielli, Amelia Fletcher, Paul Heidhues, Michael Luca, Tobias Salz, Monika Schnitzer, Fiona M Scott Morton, Katja Seim, Michael Sinkinson, Consumer protection for online markets and large digital platforms, In: Policy Discussion Paper, No. 1, 2021. (Working Paper)
Consumer protection law is vital for ensuring that market-based economies work in the economic interest of consumers as well as businesses, and thus to the benefit of civil society. This is the case for online markets just as it is for offline markets. However, despite broad consensus on these points, too little has been done to ensure that the various standards applicable in offline markets are sufficient or adequate to guarantee efficiency and fairness in online markets. This paper outlines eleven key features of online markets that might necessitate standards additional to or different from those that are applicable offline, and provides a menu of possible policies in relation to each. Many of these are general to all online markets, but some are specific to the largest digital platfoms. Many if not most of our policy proposals could be enacted through minor changes to existing law or regulation or through decisional law interpreting existing legislation. Some have already been implemented in some jurisdictions. What is needed in all jurisdictions, however, is a regulator or regulators with sufficient expertise around technical issues such as A/B testing and algorithmic decision-making to understand, anticipate, and remedy the myriad ways that online firms can disadvantage consumers. |
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Julian Teichgräber, Simon Žužek, Jannik Hensel, Optimal short-time work: screening for jobs at risk, In: Working paper series / Department of Economics, No. 402, 2022. (Working Paper)
Short-time work - a wage subsidy conditional on hour reductions - has become an important tool of labor market policy in many European countries. As the scope of these policies expanded, concerns about side effects due to adverse selection increased. We develop a model of job retention policies in the presence of asymmetric information to study
selection into these programs. The social planner wants to prevent excessive job destruction but cannot observe which jobs are truly at risk. We do not restrict the social planner to use hour reductions a priori. Instead, we show that hour reductions of short-time work policies act as a screening mechanism to mitigate the adverse selection problem. This perspective of short-time work as a policy response to an underlying adverse selection problem provides an entirely new rationale for these policies. Our approach can be used to revisit recent empirical findings which rely on employment effects to evaluate existing short-time work schemes. In our model, however, average employment effects across groups are not sufficient to determine whether the policy is efficient. Indeed, we show that an optimal short-time work policy cannot avoid a small degree of adverse selection. This is particularly important in light of recent evidence that firms with small revenue shocks and no discernible employment effects have participated in short-time work programs at large costs to the public. In our model, these costs are information rents which are required to screen for jobs at risk. We calibrate our model to German data before the financial crisis and find that the optimal short-time
work policy would have reduced separations by 1.2 - 2.4 percentage points. |
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Chang-Tai Hsieh, Nicholas Li, Ralph Ossa, Mu-Jeung Yang, Gains from trade liberalization with flexible extensive margin adjustment, In: SSRN, No. 3970457, 2021. (Working Paper)
We propose a new sufficient statistic to measure the ex-post welfare gains from trade in CES models featuring any productivity distribution or pattern of selection into production and exporting. Our statistic is based on a single data moment, the change in the market share of continuing domestic producers, and a single structural parameter, the elasticity of substitution between products. We apply our statistic to measure Canada's gains from the Canada-US Free Trade Agreement using data on observed firm selection and simulated firm selection in a calibrated model with a flexible extensive margin. We find that welfare gains are substantially smaller than implied by welfare formulas that assume that the extensive margin behaves according to a standard Melitz-Pareto model with iso-elastic import demand. |
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Alessandro Ferrari, Francisco Queirós, Firm heterogeneity, market power and macroeconomic fragility, In: CSEF Working Papers, No. 627, 2021. (Working Paper)
We investigate how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long-lasting recessions. We propose a theory in which the positive interaction between firm entry, competition and factor supply can give rise to multiple steady-states. We show that when firm heterogeneity is large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven poverty trap. Calibrating our model to incorporate the well-documented trends in increasing firm heterogeneity we find that, relative to 2007, an economy with the 1985 level of firm heterogeneity is 5 to 9 times less likely to experience a very persistent recession. We use our framework to study the 2008-09 recession and show that the model can rationalize the persistent deviation of output and most macroeconomic aggregates from trend, including the behavior of net entry, markups and the labor share. Post-crisis cross-industry data corroborates our proposed mechanism. Firm subsidies can be powerful in preventing quasi-permanent recessions and can lead to a 21% increase in welfare. |
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Jianfei Cao, Christian Hansen, Damian Kozbur, Lucciano Villacorta, Inference for dependent data with learned clusters, In: ArXiv.org, No. 2107.14677, 2021. (Working Paper)
This paper presents and analyzes an approach to cluster-based inference for dependent data. The primary setting considered here is with spatially indexed data in which the dependence structure of observed random variables is characterized by a known, observed dissimilarity measure over spatial indices. Observations are partitioned into clusters with the use of an unsupervised clustering algorithm applied to the dissimilarity measure. Once the partition into clusters is learned, a cluster-based inference procedure is applied to a statistical hypothesis testing procedure. The procedure proposed in the paper allows the number of clusters to depend on the data, which gives researchers a principled method for choosing an appropriate clustering level. The paper gives conditions under which the proposed procedure asymptotically attains correct size. A simulation study shows that the proposed procedure attains near nominal size in finite samples in a variety of statistical testing problems with dependent data. |
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Damian Kozbur, Dimension-free anticoncentration bounds for Gaussian order statistics with discussion of applications to multiple testing, In: ArXiv.org, No. 2107.10766, 2021. (Working Paper)
The following anticoncentration property is proved. The probability that the k-order statistic of an arbitrarily correlated jointly Gaussian random vector X with unit variance components lies within an interval of length ε is bounded above by 2εk(1 + E[‖X‖∞ ]). This bound has implications for generalized error rate control in statistical high-dimensional multiple hypothesis testing problems, which are discussed subsequently. |
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Alessandro Ferrari, Matteo Fiorini, Joseph Francois, Bernard Hoekman, Lisa Maria Lechner, Miriam Manchin, Filippo Santi, EU trade agreements and non-trade policy objectives, In: RSC Working Papers series, No. 2021/48, 2021. (Working Paper)
The EU’s common commercial policy is used as an instrument to realize its values in EU trading partners, reflected in the inclusion of sustainable trade and development chapters in EU preferential trade agreements (PTAs). In this paper we ask if including non-trade provisions (NTPs) in EU PTAs has a systematic positive effect on non-trade outcomes in partner countries. We analyze the relationship between bilateral trade flows, the coverage of NTPs in EU PTAs and the performance of EU partner countries on several non-trade outcome variables using synthetic control methods. We find no robust evidence of a causal effect of including NTPs in EU PTAs on indicators of non-trade outcomes. |
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Harald Mayr, Cheap search, picky workers? Evidence from a field experiment, In: Working paper series / Department of Economics, No. 403, 2022. (Working Paper)
Search frictions impede the labor market. Despite this indisputable fact, it is a priori unclear how job search costs affect search duration and unemployment: lower search costs make it easier to find a job, reducing search duration and unemployment, but may also increase the reservation wage, increasing search duration and unemployment. I collaborate with a recruiting company to directly test the effects of lower search costs in a field experiment among approximately 400 IT professionals in Switzerland. I find that workers are more likely to search for detailed job information, but not to file a job application, when search costs are lower. These findings are consistent with an increase in the reservation wage. Lower search costs might lead to picky workers, but fail to ultimately reduce search duration and unemployment. |
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Simon Jantschgi, Heinrich H Nax, Bary S R Pradelski, Marek Pycia, Markets and transaction costs, In: Working paper series / Department of Economics, No. 405, 2022. (Working Paper)
Transaction costs are omnipresent in markets yet are often omitted in economic models. We show that their presence can fundamentally alter incentives and welfare in markets in which the price equates supply and demand. We categorize transaction costs into two types. Asymptotically uninfluenceable transaction costs—such as fixed and price fees—preserve the key asymptotic properties of markets without transaction costs, namely strategyproofness, efficiency, and robustness to misspecified beliefs and to aggregate uncertainty. In contrast, influenceable transaction costs—such as spread fees—lead to complex strategic behavior (which we call price guessing) and may result in severe market failure. In our analysis of optimal design we focus on transaction costs that are fees collected by a platform as revenue. We show how optimal design depends on the traders’ beliefs. In particular, with common prior beliefs, any asymptotically uninfluenceable fee schedule can be scaled to be optimal, while purely influenceable fee schedules lead to zero revenue. Our insights extend beyond markets equalizing demand and supply. |
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Simon Jantschgi, Heinrich H Nax, Bary S R Pradelski, Marek Pycia, On market prices in double auctions, In: Working paper series / Department of Economics, No. 404, 2022. (Working Paper)
We address some open issues regarding the characterization of double auctions. Our model is a two-sided commodity market with either finitely or infinitely many traders. We first unify existing formulations for both finite and infinite markets and generalize the characterization of market clearing in the presence of ties. Second, we define a mechanism that achieves market clearing in any, finite or infinite, market instance and show that it coincides with the k-double auction by Rustichini et al. (1994) in the former case. In particular, it clarifies the consequences of ties in submissions and makes common regularity assumptions obsolete. Finally, we show that the resulting generalized mechanism implements Walrasian competitive equilibrium. |
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Cédric Chambru, Paul Maneuvrier-Hervieu, Introducing HiSCoD: a new gateway for the study of historical social conflict, In: Working paper series / Department of Economics, No. 407, 2022. (Working Paper)
Social conflict pervades human society and fulfils a number of essential functions in its development and transformation, including the creation of new norms and institutions. The Historical Social Conflict Database (HiSCoD) is an ongoing project designed to provide to scholars and society at large with a set of resources for analysing social conflict from the Middle Ages to the late 19th century. Based on original archival research and existing repositories, the aim is to provide a global database of social conflict in past societies by collecting, aggregating, documenting and harmonising data. As of today, the database contains data more than 20,000 instances of conflict, from fiscal scuffles to urban revolts involving thousands of individuals. For every event, we provide information on the date, location, type of conflict, and, when possible, number of participants, participation of women, and a summary of events. Each individual event is documented through a hierarchical system of forms using XML-EAD technology. This article describes the data collection process and presents some descriptive statistics. |
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Cédric Chambru, Emeric Henry, Benjamin Marx, The dynamic consequences of state-building: evidence from the French Revolution, In: Working paper series / Department of Economics, No. 406, 2022. (Working Paper)
How do radical reforms of the state shape economic development over time? In 1790, France’s first Constituent Assembly overhauled the kingdom’s organization to set up new administrative entities and local capitals. In a subset of departments, new capitals were chosen quasi-randomly as the Assembly abandoned its initial plan to rotate administrative functions across multiple cities. We study how exogenous changes in local administrative presence affect the state’s coercive and productive capacity, as well as economic development in the ensuing decades. In the short run, proximity to the state increases taxation, conscription, and investments in law enforcement capacity. In the long run, the new capitals and their periphery obtain more public goods and experience faster economic development. One hundred years after the reform, capitals are 40% more populated than comparable cities in 1790. Our results shed new light on the intertemporal and redistributive impacts of state-building in the context of one of the most ambitious administrative reforms ever implemented. |
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Christian Ewerhart, A game-theoretic implication of the Riemann hypothesis, In: Working paper series / Department of Economics, No. 410, 2023. (Working Paper)
The Riemann Hypothesis (RH) is one of the major unsolved problems in pure mathematics. In this note, a parameterized family of non-cooperative games is constructed with the property that, if RH holds true, then any game in this family admits a unique Nash equilibrium. We argue that this result is not degenerate. Indeed, neither is the conclusion a tautology, nor is RH used to define the family of games. |
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Mhamed Ben Salah, Cédric Chambru, Maleke Fourati, The colonial legacy of education: evidence from Tunisia, In: Working paper series / Department of Economics, No. 411, 2022. (Working Paper)
We study the effect of exposure to colonial public primary education on contemporary education outcomes in Tunisia. We assemble a new data set on the location of schools with the number of pupils by origin, along with population data during the French protectorate (1881–1956). We match those with contemporary data on education at both district and individual level. We find that the exposure of local population to colonial public primary education has a long-lasting effect on educational outcomes, even when controlling for colonial investments in education. A one per cent increase in Tunisian enrolment rate in 1931 is associated with a 1.69 percentage points increase in literacy rate in 2014. Our results are driven by older generations, namely individuals who attended primary schools before the 1989/91 education reform. We suggest that the efforts undertaken by the Tunisian government after independence to promote schooling finally paid off after 40 years and overturned the effects of history. |
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Saish Nevrekar, Efficiency effects on coalition formation in contests, In: Working paper series / Department of Economics, No. 412, 2022. (Working Paper)
This paper studies the problem of endogenous coalition formation in contests: how players organize themselves in groups when faced with the common objective of securing a prize by exerting costly effort. The model presented adopts an axiomatic approach by assuming certain properties for the winning probability that imply efficiency gains from cooperation in contest settings. Efficiency gains are said to be generated if any coalition experiences increasing marginal returns with aggregate effort until a threshold. These properties identify a wide class of generalised Tullock contest success functions. We analyse a sequential coalition formation game for an arbitrary number of symmetric players and exogenous effort. If coalitions generate sufficient efficiency gains, then any equilibrium always consists of two or more coalitions where at least two coalitions are of unequal size. This result extends to endogenous efforts if the cost functions are sufficiently convex. |
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Giampiero Marra, Matteo Fasiolo, Rosalba Radice, Rainer Winkelmann, A flexible copula regression model with Bernoulli and Tweedie margins for estimating the effect of spending on mental health, In: Working paper series / Department of Economics, No. 413, 2022. (Working Paper)
Previous evidence shows that better insurance coverage increases medical expenditure. However, formal studies on the effect of spending on health outcomes, and especially mental health, are lacking. To fill this gap, we reanalyze data from the Rand Health Insurance Experiment and estimate a joint non-linear model of spending and mental health. We address the endogeneity of spending in a flexible copula regression model with Bernoulli and Tweedie margins and discuss its implementation in the freely available GJRM R package. Results confirm the importance of accounting for endogeneity: in the joint model, a $1000 spending in mental care is estimated to reduce the probability of low mental health by 1.3 percentage points, but this effect is not statistically significant. Ignoring endogeneity leads to a spurious (upwardly biased) estimate. |
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