Working Papers

Recent Working Papers

1035. Kyle Greenberg (US Military Academy, West Point), Parag A. Pathak (MIT), Tayfun Sönmez (Boston College), "Mechanism Design meets Priority Design: Redesigning the US Army’s Branching Process Through Market Design." (06/2021; PDF)

Abstract: Army cadets obtain occupations through a centralized process. Three objectives – increasing retention, aligning talent, and enhancing trust – have guided reforms to this process since 2006. West Point’s mechanism for the Class of 2020 exacerbated challenges implementing Army policy aims. We formulate these desiderata as axioms and study their implications theoretically and with administrative data. We show that the Army’s objectives not only determine an allocation mechanism, but also a specific priority policy, a uniqueness result that integrates mechanism and priority design. These results led to a re-design of the mechanism, now adopted at both West Point and ROTC.

1034. Uzi Segal (Boston College), "For all or exists?" (04/2021; PDF)

Abstract: This paper shows that in some axioms regarding the mixture of random variables, the requirement that the conclusions hold for all values of the mixture parameter can be replaced by requiring the existence of only one non-trivial value of the parameter, which needs not be fixed. This is the case for the independence, betweenness, and the mixture symmetry axioms.

1033. Maria Arbatskaya (Emory University), Hideo Konishi (Boston College), "Dynamic Team Contests with Complementary Efforts." (04/2021; PDF)

Abstract: In this paper, we study dynamic team contests. In the framework of a Tullock contest between two teams generating impacts according to the Cobb-Douglas effort aggregation function, we examine how equilibrium efforts and winning probabilities depend on the timing of the actions. We show that in contrast to synchronous contests, asynchronous contests with publicly observable actions do not result in the same equilibrium outcome as the one-stage contest; they are strategically unbalancing, leading to more lopsided contests. The results have implications about the design of team contests with complementary efforts.

1032. Benoit S Y Crutzen (Erasmus School of Economics), Hideo Konishi (Boston College), Nicolas Sahuguet (HEC Montreal), "The Best at the Top? Candidate Ranking Strategies Under Closed List Proportional Representation." (04/2021; PDF)

Abstract: Under closed-list proportional representation, a partyís electoral list determines the order in which legislative seats are allocated to candidates. When candidates differ in their ability, parties face a trade-off between competence and incentives. Ranking candidates in decreasing order of competence ensures that elected politicians are most competent. Yet, party list create incentives for candidates that may push parties not to rank candidates in decreasing competence order. We examine this trade-off in a game-theoretical model in which parties rank their candidate on a list, candidates choose their campaign effort, and the election is a team contest for multiple prizes. We show that the trade-off between competence and incentives depends on candidatesíobjective and the electoral environment. In particular, parties rank candidates in decreasing order of competence if candidates value enough post-electoral high offices or media coverage focuses on candidates at the top of the list.

1031. Arthur Lewbel (Boston College), Xi Qu,Shanghai Jiao (Tong University), Xun Tang (Rice University), "Social Networks with Mismeasured Links." (04/2021; PDF)

Abstract: We consider estimation of peer effects in social network models where some network links are incorrectly measured. We show that if the number of mismeasured links does not grow too quickly with the sample size, then standard instrumental variables estimators that ignore the measurement error remain consistent, and standard asymptotic inference methods remain valid. These results hold even when measurement errors in the links are correlated with regressors, or with the model errors. Monte Carlo simulations and real data experiments confirm our results in finite samples. These findings imply that researchers can ignore small amounts of measurement errors in networks.

1030. Giulia Brancaccio (Cornell University), Myrto Kalouptsidi (Harvard University), Theodore Papageorgiou (Boston College), "The Impact of Oil Prices on World Trade." (02/2021; PDF)

Abstract: In this paper we investigate the importance of fuel costs in shaping world trade. We use AIS data on ship locations and transaction-level shipping prices, along with a dynamic model describing the world shipping industry, to measure the elasticity of trade with respect to ship fuel costs. We find that the average estimated elasticity is 0.35, but ranges from 0.1 to about 1.2 depending on the level of the fuel cost. The pass-through of fuel costs to transport costs is low, at 0.17. Strikingly, the trade elasticity features a pronounced asymmetry in low vs. high oil prices. As fuel costs decline, the elasticity plateaus and further declines have little impact on trade. This “flattening out” of the elasticity is attributed to the equilibrium of the transportation sector and in particular the changes in the relative bargaining positions of ships and exporters. Finally, we use the estimated elasticity to assess the importance of ship design on trade flows: if the large fuel efficiency gains achieved in the 1980s had not been realized, trade would be 12% lower today.

1029. Susanto Basu (Boston College), Giacomo Candian (HEC Montréal), Ryan Chahrour (Boston College), Rosen Valchev (Boston College), "Risky Business Cycles." (04/2021; PDF)

Abstract: We identify a shock that explains the bulk of fluctuations in equity risk premia, and show that the shock also explains a large fraction of the business-cycle comovements of output, consumption, employment, and investment. Recessions induced by the shock are associated with reallocation away from full-time permanent positions, towards part-time and flexible contract workers. A real model with labor market frictions and fluctuations in risk appetite can explain all of these facts, both qualitatively and quantitatively. The size of risk-driven fluctuations depends on the relationship between the riskiness and productivity of different stores of value: if safe savings vehicles have relatively low marginal products, then a flight to safety will drive a larger aggregate contraction.

1028. Arthur Lewbel (Boston College), Jin Yan (Chinese University of Hong Kong), Yu Zhou (School of Economics Fudan University), "Semiparametric Identification and Estimation of Multinomial Discrete Choice Models using Error Symmetry." (rev. 12/2021; PDF)

Abstract: We provide a new method to point identify and estimate cross-sectional multinomial choice models, using conditional error symmetry. Our model nests common random coefficient specifications (without having to specify which regressors have random coefficients), and more generally allows for arbitrary heteroskedasticity on most regressors, unknown error distribution, and does not require a "large support" "(such as identification at infinity) assumption. We propose an estimator that minimizes the squared di§erences of the estimated error density at pairs of symmetric points about the origin. Our estimator is root N consistent and asymptotically normal, making statistical inference straightforward.

1027. David Dillenberger (University of Pennsylvania) and Uzi Segal (Boston College), "Allocation Mechanisms Without Reduction." (02/2021; PDF)

Abstract: We study a simple variant of the house allocation problem (one-sided matching). We demonstrate that agents with recursive preferences may systematically prefer one allocation mechanism to the other, even among mechanisms that are considered to be the same in standard models, in the sense that they induce the same probability distribution over successful matchings. Using this, we propose a new Priority Groups mechanism and provide conditions under which it is preferred to two popular mechanisms, Random Top Cycle and Random Serial Dictatorship.

1025. Hideo Konishi (Boston College), Chen-Yu Pan (Wuhan University), Dimitar Simeonov (Boston College), "Equilibrium Player Choices in Team Contests with Multiple Pairwise Battles." (01/2021; PDF)

Abstract: We consider games in which team leaders strategically choose the order of players sent to the battlefield in majoritarian team contests with multiple pairwise battles as in Fu, Lu, and Pan (2015 American Economic Review). We consider one-shot order choice games and battle-by-battle sequential player choice games. We show that as long as the number of players on each team is the same as the number of battles, the equilibrium winning probability of a team and the ex ante expected effort of each player in a multi-battle contest are independent of whether players' assignments are one-shot or battle-by-battle sequential. This equilibrium winning probability and ex ante expected total effort coincide with those where the player matching is chosen totally randomly with an equal probability lottery by the contest organizer. Finally, we show how player choices add subtleties to the equivalence result by examples.

1024. Hideo Konishi (Boston College), Katsuya Kobayashi (Hosei University), "Effort Complementarity and Sharing Rules in Group Contests." (04/2020; PDF)

Abstract: In this paper, we consider a prize-sharing rule design problem in a group contest with effort complementarities within groups by employing a CES effort aggregator function. We derive the conditions for a monopolization rule that dominates an egalitarian rule if the objective of the rule design is to maximize the group's winning probability. We find conditions under which the monopolization rule maximizes the group's winning probability, while the egalitarian rule is strictly preferred by all members of the group. Without effort complementarity, there cannot be such a conflict of interest.

1023. Laura D. Quinby (Center for Retirement Research at Boston College), Geoffrey Sanzenbacher (Boston College), "Do Public Sector Workers Increase Their Outside Savings in Response to Pension Cuts?" (01/2021; PDF)

Abstract: As state and local policymakers enact benefit cuts to reduce the cost of their pension systems, the life-cycle model suggests that workers will adjust by saving more on their own. But, whether workers actually respond to pension characteristics remains an open question. After all, income received far in the future may not be salient to young workers deciding how much of their earnings to consume in the present. To answer the question, this paper links the Survey of Income and Program Participation to the Public Plans Database and explores whether state and local workers consider the amount of their pension savings, the funded status of their plan, or their Social Security coverage when deciding whether to participate in a supplemental defined contribution (DC) plan.

1022. Arthur Lewbel (Boston College), Susanne M. Schennach (Brown University), Linqi Zhang (Boston College), "Identification of a Triangular Two Equation System Without Instruments." (rev 11/2021; PDF)

Abstract: We show that a standard linear triangular two equation system can be point identified, without the use of instruments or any other side information. We find that the only case where the model is not point identified is when a latent variable that causes endogeneity is normally distributed. In this non-identified case, we derive the sharp identified set. We apply our results to Acemoglu and Johnson’s (2007) model of life expectancy and GDP, obtaining point identification and comparable estimates to theirs, without using their (or any other) instrument.

1019. Parag A. Pathak (MIT), Harald Schmidt (University of Pennsylvania), Adam Solomon (MIT), Edwin Song (MIT), Tayfun Sönmez (Boston College), and M. Utku Ünver (Boston College), "Do Black and Indigenous Communities Receive their Fair Share of Vaccines Under the 2018 CDC Guidelines?" (10/2020; PDF)

Abstract: A major focus of debate about rationing guidelines for COVID-19 vaccines is whether and how to prioritize access for minority populations that have been particularly affected by the pandemic, and been the subject of historical and structural disadvantage, particularly Black and Indigenous individuals. We simulate the 2018 CDC Vaccine Allocation guidelines using data from the American Community Survey under different assumptions on total vaccine supply. Black and Indigenous individuals combined receive a higher share of vaccines compared to their population share for all assumptions on total vaccine supply. However, their vaccine share under the 2018 CDC guidelines is considerably lower than their share of COVID-19 deaths and age-adjusted deaths. We then simulate one method to incorporate disadvantage in vaccine allocation via a reserve system. In a reserve system, units are placed into categories and units reserved for a category give preferential treatment to individuals from that category. Using the Area Deprivation Index (ADI) as a proxy for disadvantage, we show that a 40% high-ADI reserve increases the number of vaccines allocated to Black or Indigenous individuals, with a share that approaches their COVID-19 death share when there are about 75 million units. Our findings illustrate that whether an allocation is equitable depends crucially on the benchmark and highlight the importance of considering the expected distribution of outcomes from implementing vaccine allocation guidelines.

1018. Ilaria D’Angelis (Boston College), "Are We There? Differences in Search, Preferences and Jobs between Young Highly Educated Male and Female Workers." (10/2020; PDF)

Abstract: Do young highly educated women face higher job search frictions, have stronger preferences for non wage job-specific amenities, and receive job offers entailing lower hourly wages or stronger wage penalties for amenities provision relative to men? I study a recent cohort of young, highly educated American workers, document the existence of a gender pay gap at the beginning of workers’ careers, and provide evidence that its increasing path over years in the labor market can be rationalized by underlying unobservable differences in search frictions, preferences for amenities, and in the characteristics of the job offers that workers receive. Building on the descriptive evidence I collect, I answer the questions above by estimating a model of hedonic job search. I use the estimated parameters to show that young workers’ predicted utility from jobs can be decomposed into components due to wage and wage penalties/gains for amenities provision in the job offers received, preferences for amenities, and workers’ selection into different jobs. The main amenities of interest are flexible schedule, overtime, paid and unpaid parental leave, and child care. I find that young, highly educated male and female employed workers are remarkably similar in terms of both search frictions and preferences for job attributes, while female unemployed workers are less likely to obtain job offers than men, in spite of similar levels of labor market attachment. The job offers that women face, instead, differ from the job offers that men receive. Women tend to be offered low wages, and obtain lower wage gains attached to the provision of amenities relative to men. Wages and amenities-related wage penalties strongly affect the predicted male-to-female gap in utility that young workers obtain from jobs, especially in executive and professional careers. In addition, lower wage gains (or wage losses) that women experience when amenities are provided, tend to expand the gender wage gap in jobs providing benefits like flexibility and parental leave.

1017. Ryan Chahrour (Boston College) and Kyle Jurado (Duke University), "Optimal Foresight." (09/2020; PDF)

Abstract: Agents have foresight when they receive information about a random process above and beyond the information contained in its current and past history. In this paper, we propose an information-theoretic measure of the quantity of foresight in an information structure, and show how to separate informational assumptions about foresight from physical assumptions about the dynamics of the processes itself. We then develop a theory of endogenous foresight in which the type of foresight is chosen optimally by economic agents. In a prototypical dynamic model of consumption and saving, we derive a closed-form solution to the optimal foresight problem.

1016. Chandini Sankaran (Boston College), Olivia Sorrentino (Boston College), Eva Hernandez (Boston College), "'I’ll See You in School': A Multiple Proxy Analysis of the Role of Parental Involvement in K-12 Education and Improved Student Outcomes." (08/2020; PDF)

Abstract: We analyze the role of parental involvement on a child’s academic performance by employing multiple proxies for direct and indirect parental involvement in his/her child’s schooling using a large dataset of 11,913 observations from the 2016 National Household Education Survey (NHES (2016)). Our estimations of ordered logit grade models show that children of parents who volunteer in the school or classroom, serve on a school committee, or attend PTO meetings are significantly more likely to receive higher grades; these children are 2.4% to 11% more likely to be making grades of mostly As compared to children of parents who do not engage in these activities. Elementary aged children who are told by their parents to read are also significantly more likely to receive higher grades in school. However, we find that homework help is a noisy proxy for parental involvement. Finally, our analysis uncovers some stark racial and gender disparities in K-12 student performance as well as racial differences in the parental involvement measures.

1015. Parag A. Pathak (MIT), Tayfun Sönmez (Boston College), M. Utku Ünver (Boston College), and M. Bumin Yenmez (Boston College), "Fair Allocation of Vaccines, Ventilators and Antiviral Treatments: Leaving No Ethical Value Behind in Health Care Rationing." (07/2020; PDF)

Abstract: COVID-19 has revealed several limitations of existing mechanisms for rationing scarce medical resources under emergency scenarios. Many argue that they abandon various ethical values such as equity by discriminating against disadvantaged communities. Illustrating that these limitations are aggravated by a restrictive choice of mechanism, we formulate pandemic rationing of medical resources as a new application of market design and propose a reserve system as a resolution. We develop a general theory of reserve design, introduce new concepts such as cutoff equilibria and smart reserves, extend previously-known ones such as sequential reserve matching, and relate these concepts to current debates.

1012. Edward J. Kane (Boston College), "Good News and Bad News about Newly Imagined Federal Reserve Credit-Allocation Policies." (06/2020; PDF)

Abstract: This paper analyzes the characteristics of the ad hoc credit facilities provided by the Federal Reserve System, newly authorized by the CARES Act of 2020, and expresses concerns about those programs' effectiveness. The paper stresses the importance of resolving unaddressed re-contracting problems in the real-estate sector.

1011. Theodore Papageorgiou (Boston College), "Occupational Matching and Cities." (06/2020; PDF)

Abstract: In this paper, I document that workers in larger cities have significantly more occupational options than workers in smaller ones. They are able to form better occupational matches and earn higher wages. I also note differences in the occupational reallocation patterns across cities. I develop a dynamic model of occupational choice that microfounds agglomeration economies and captures the empirical patterns. The calibration of the model suggests that better occupational match quality accounts for approximately 35% of the observed wage premium and a third of the greater inequality in larger cities.

1010. Giulia Brancacci (Cornell University), Myrto Kalouptsid (Harvard University), Theodore Papageorgiou (Boston College), and Nicola Rosai (Harvard University), "Search Frictions and Efficiency in Decentralized Transport Markets." (05/2020; PDF)

Abstract: In this paper we explore efficiency and optimal policy in decentralized transportation markets that suffer from search frictions, such as taxicabs, trucks and bulk shipping. We illustrate the impact of two externalities: the well-known thin/thick market externalities and what we call pooling externalities. We characterize analytically the conditions for efficiency, show how they translate into efficient pricing rules, as well as derive the optimal taxes for the case where the planner is not able to set prices. We use our theoretical results to explore welfare loss and optimal policy in dry bulk shipping. We find that the constrained efficient allocation achieves 6% welfare gains, while the first-best allocation corresponding to the frictionless world, achieves 14% welfare gains. This suggests that policy can achieve substantial gains, even if it does not alleviate search frictions, e.g. through a centralizing platform. Finally, we demonstrate that simple policies designed to mimic the optimal taxes perform well.

1009. Christopher F Baum (Boston College, DIW Berlin) and Miguel Henry (Greylock McKinnon Associates), "Socioeconomic Factors influencing the Spatial Spread of COVID-19 in the United States." (10/2020; PDF)

Abstract: As the COVID-19 pandemic has progressed in the U.S., "hotspots" have been shifting geographically over time to suburban and rural counties showing a high prevalence of the disease. We analyze daily U.S. county-level variations in COVID-19 confirmed case counts to evaluate the spatial dependence between neighboring counties. We find strong evidence of county-level socioeconomic factors influencing the spatial spread. We show the potential of combining spatial econometric techniques and socioeconomic factors in assessing the spatial effects of COVID-19 among neighboring counties.

1008. Christopher F. Baum (Boston College, DIW Berlin), Dorothea Schäfer (DIW Berlin, Jönköping International Business School), and Caterina Forti Grazzini (European Central Bank, FU Berlin), "Institutional diversity in domestic banking sectors and bank stability:A cross-country study." (05/2020; PDF)

Abstract: This paper analyzes the causal relationship between institutional diversity in domestic banking sectors and bank stability. We use a large bank- and country-level unbalanced panel data set covering the EU member states’ banking sectors between 1998 and 2014. Constructing two distinct indicators for measuring institutional diversity, we find that a high degree of institutional diversity in the domestic banking sector positively affects bank stability. The positive relationship between domestic institutional diversity and bank stability is stronger in times of crisis, providing evidence that diversity can help to absorb both financial and real shocks. In particular, greater institutional diversity smooths bank earnings risk in times of crisis. Our results are economically meaningful and offer important insights to the ongoing economic policy debate on how to reshape the architecture of the banking sector

1007. Scott Duke Kominers (Harvard University), Parag A. Pathak (MIT), Tayfun Sönmez (Boston College), and M. Utku Ünver (Boston College), "Paying It Backward and Forward: Expanding Access to Convalescent Plasma Therapy Through Market Design." (05/2020; PDF)

Abstract: COVID-19 convalescent plasma (CCP) therapy is currently a leading treatment for COVID-19. At present, there is a shortage of CCP relative to demand. We develop and analyze a model of centralized CCP allocation that incorporates both donation and distribution. In order to increase CCP supply, we introduce a mechanism that utilizes two incentive schemes, respectively based on principles of “paying it backward” and “paying it forward.” Under the first scheme, CCP donors obtain treatment vouchers that can be transferred to patients of their choosing. Under the latter scheme, patients obtain priority for CCP therapy in exchange for a future pledge to donate CCP if possible. We show that in steady-state, both principles generally increase overall treatment rates for all patients—not just those who are voucher-prioritized or pledged to donate. Our results also hold under certain conditions if a fraction of CCP is reserved for patients who participate in clinical trials. Finally, we examine the implications of pooling blood types on the efficiency and equity of CCP distribution.

1006. Fabian Lange (McGill University) and Theodore Papageorgiou (Boston College), "Flexibly Estimating Matching Functions with Unobserved Matching Efficiency." (04/2020; PDF)

Abstract: Exploiting results from the literature on non-parametric identification, we make three methodological contributions to the empirical literature estimating the matching function, commonly used to map unemployment and vacancies into hires. First, we show how to non-parametrically identify the matching function. Second, we estimate the matching function allowing for unobserved matching efficacy, without imposing the usual independence assumption between matching efficiency and search on either side of the labor market. Third, we allow for multiple types of jobseekers and consider an “augmented” Beveridge curve that includes them. Our estimated elasticity of hires with respect to vacancies is procyclical and varies between 0.15 and 0.3. This is substantially lower than common estimates suggesting that a significant bias stems from the commonly-used independence assumption. Moreover, variation in match efficiency accounts for much of the decline in hires during the Great Recession.

1005. Arthur Lewbel (Boston College), and Lars Nesheim, (CeMMAP), "Sparse demand systems: corners and complements." (11/2019; PDF)

Abstract: We propose a demand model where consumers simultaneously choose a few different goods from a large menu of available goods, and choose how much to consume of each good. The model nests multinomial discrete choice and continuous demand systems as special cases. Goods can be substitutes or complements. Random coefficients are employed to capture the wide variation in the composition of consumption baskets. Non-negativity constraints produce corners that account for different consumers purchasing different numbers of types of goods. We show semiparametric identification of the model. We apply the model to the demand for fruit in the United Kingdom. We estimate the model’s parameters using UK scanner data for 2008 from the Kantar World Panel. Using our parameter estimates, we estimate a matrix of demand elasticities for 27 categories of fruit and analyze a range of tax and policy change scenarios.

1004. Arthur Lewbel (Boston College), Xi Qu (Shanghai Jiao Tong University), and Xun Tang (Rice University), "Social Networks with Unobserved Links." (rev. 02/2022; PDF)

Abstract: We point identify and estimate linear social network models without observing any network links. The required data consist of many small networks of individuals, such as classrooms or villages, with individuals that are each only observed once. We apply our estimator to data from Tennessee's Student/Teacher Achievement Ratio (STAR) Project. Without observing the latent network in each classroom, we identify and estimate peer and contextual effects on students' performance in mathematics. We find that peer effects tend to be larger in bigger classes, and that increasing peer effects would significantly improve students' average test scores.

1003. Arthur Lewbel (Boston College), Jin-Young Choi (Xiamen University), and Zhuzhu Zhou (Boston College), "Over-Identified Doubly Robust Identification and Estimation." (rev. 01/2022; PDF)

Abstract: Consider two parametric models. At least one is correctly specified, but we don't know which. Both models include a common vector of parameters. An estimator for this common parameter vector is called Doubly Robust (DR) if it's consistent no matter which model is correct. We provide a general technique for constructing DR estimators (assuming the models are over identified). Our Over-identified Doubly Robust (ODR) technique is a simple extension of the Generalized Method of Moments. We illustrate our ODR with a variety of models. Our empirical application is instrumental variables estimation, where either one of two instrument vectors might be invalid.

1002. Arthur Lewbel (Boston College) and Xirong Lin (Boston College), "Identification of Semiparametric Model Coefficients, With an Application to Collective Households." (rev. 01/2021; PDF)

Abstract: We prove identification of coefficients for a set of semiparametric specifications that are related to multiple index models. Potential applications of these results include models of observed heterogeneity in production functions and in consumer demand systems. We then generalize these results to identify a class of collective household consumption models. We extend the existing literature by proving point identification, rather than the weaker generic identification, of all the features of the collective household model, including price effects. We estimate the model using Japanese consumption data, and find substantial variation in resource shares and indifference scales across households of different sizes.

1001. Arthur Lewbel (Boston College), "Kotlarski with a Factor Loading." (rev. 12/2020; PDF)

Abstract: This note extends the Kotlarski (1967) Lemma to show exactly what is identified when we allow for an unknown factor loading on the common unobserved factor. Potential applications include measurement error models and panel data factor models

1000. Arthur Lewbel (Boston College) and Krishna Pendakur (Simon Fraser University), "Inefficient Collective Households: Cooperation and Consumption." (rev. 08/2021; PDF)

Abstract: We propose a model of consumption inefficiency in collective households. Inefficiency depends on a “cooperation factor”, which can also affect both the allocation of resources within a household and the utility of household members. Households are conditionally efficient, conditioning on the value of the cooperation factor. This lets us exploit convenient modeling features of efficient households (like not needing to specify the bargaining process), while still accounting for, and measuring the dollar cost of, inefficient levels of cooperation.

999. Chaim Fershtman (Tel Aviv University) and Uzi Segal (Boston College). "Social Influence in Legal Deliberations." (rev. 09/2021; PDF)

Abstract: Committee protocols typically involve deliberations in which committee members try to influence and convince each other regarding the “right” choice. Such deliberations do not involve only information exchange, but their aim is also to affect the preferences and the votes of other members. This aspect of social influence and committee deliberation is the focus of this paper. Using a model of social influence we demonstrate how deliberation procedures affect the voting outcome and how different protocols of consul- tation by committees’ chairs may affect the chairs’ final decisions. We then analyze the ability of a “designer” to control the deliberation protocol and to manipulate the deliberation procedure to increase the probability that the outcome he favors will be selected.

998. Christina Letsou (Boston College), Shlomo Naeh (Hebrew University of Jerusalem), and Uzi Segal (Boston College). "All probabilities are equal, but some probabilities are more equal than others." (04/2020; PDF)

Abstract: A common procedure for selecting people is to have them draw balls from an urn in turn. Modern and ancient stories suggest that such lotteries may be viewed by the individuals as “unfair.” We compare this procedure with several alternatives. They all give individuals an equal chance of being selected, but have different structures. We analyze these procedures as multistage lotteries. In line with previous literature, our analysis is based on the observation that multistage lotteries are not considered indifferent to their probabilistic one-stage representations. We use a non-expected utility model and show that individuals have preferences over the different procedures.

997. Parag A. Pathak (MIT), Tayfun Sönmez (Boston College), M. Utku Ünver (Boston College), and M. Bumin Yenmez (Boston College). "Leaving No Ethical Value Behind: Triage Protocol Design for Pandemic Rationing." (04/2020; PDF)

Abstract: Rationing of medical resources is a critical issue in the COVID-19 pandemic. Most existing triage protocols are based on a priority point system, in which a formula specifies the order in which the supply of a resource, such as a ventilator, is to be rationed for patients. A priority point system generates an identical priority ranking specifying claims on all units. Triage protocols in some states (e.g. Michigan) prioritize frontline health workers giving heavier weight to the ethical principle of instrumental value. Others (e.g. New York) do not, reasoning that if frontline workers obtain high enough priority, there is a risk that they obtain all units and none remain for the general community. This debate is pressing given substantial COVID-19 health risks for frontline workers. In this paper, we analyze the consequences of rationing medical resources through a reserve system. In a reserve system, resources are placed into multiple categories. Priorities guiding allocation of units can reflect different ethical values between these categories. A reserve system provides additional flexibility over a priority point system because it does not dictate a single priority order for the allocation of all units. It offers a middle-ground approach that balances competing objectives, such as in the medical worker debate. This flexibility requires attention to implementation, especially the processing order of reserve categories. We describe our model of a reserve system, characterize its potential outcomes, and examine distributional implications of particular reserve systems. We also discuss several practical considerations with triage protocol design.

996. Songnian Chen (HKUST), Shakeeb Khan (Boston College), and Xun Tang (Rice University). "Dummy Endogenous Variables in Weakly Separable Multiple Index Models without Monotonicity." (04/2020; PDF)

Abstract: We study the identification and estimation of treatment effect parameters in weakly separable models. In their seminal work, Vytlacil and Yildiz (2007) showed how to identify and estimate the average treatment effect of a dummy endogenous variable when the outcome is weakly separable in a single index. Their identification result builds on a monotonicity condition with respect to this single index. In comparison, we consider similar weakly separable models with multiple indices, and relax the monotonicity condition for identification. Unlike Vytlacil and Yildiz (2007), we exploit the full information in the distribution of the outcome variable, instead of just its mean. Indeed, when the outcome distribution function is more informative than the mean, our method is applicable to more general settings than theirs; in particular we do not rely on their monotonicity assumption and at the same time we also allow for multiple indices. To illustrate the advantage of our approach, we provide examples of models where our approach can identify parameters of interest whereas existing methods would fail. These examples include models with multiple unobserved disturbance terms such as the Roy model and multinomial choice models with dummy endogenous variables, as well as potential outcome models with endogenous random coefficients. Our method is easy to implement and can be applied to a wide class of models. We establish standard asymptotic properties such as consistency and asymptotic normality.

995. Parag A. Pathak (MIT), Alex Rees-Jones (Cornell University), Tayfun Sönmez (Boston College). "Reversing Reserves." (04/2020; PDF)

Abstract: Affirmative action policies are often implemented through reserve systems. We contend that the functioning of these systems is counterintuitive, and that the consequent misunderstanding leads individuals to support policies that ineffectively pursue their goals. We present 1,013 participants in the Understanding America Study with incentivized choices between reserve policies that vary in all decision-relevant parameters. Many subjects’ choices are rationalized by a nearly correct decision rule, with errors driven solely by the incorrect belief that reversing the processing order has no effect. The prevalence of this belief helps to explain otherwise surprising decisions made in field applications of reserve systems.

994. Yulong Wang (Syracuse University) and Zhijie Xiao (Boston College). "Estimation and Inference about Tail Features with Tail Censored Data." (03/2020; PDF)

Abstract: This paper considers estimation and inference about tail features when the observations beyond some threshold are censored. We first show that ignoring such tail censoring could lead to substantial bias and size distortion, even if the censored probability is tiny. Second, we propose a new maximum likelihood estimator (MLE) based on the Pareto tail approximation and derive its asymptotic properties. Third, we provide a small sample modification to the MLE by resorting to Extreme Value theory. The MLE with this modification delivers excellent small sample performance, as shown by Monte Carlo simulations. We illustrate its empirical relevance by estimating (i) the tail index and the extreme quantiles of the US individual earnings with the Current Population Survey dataset and (ii) the tail index of the distribution of macroeconomic disasters and the coefficient of risk aversion using the dataset collected by Barro and Ursúa (2008). Our new empirical findings are substantially different from the existing literature.

993. Parag A. Pathak (MIT), Alex Rees-Jones (Cornell University), and Tayfun Sonmez (Boston College). "Immigration Lottery Design: Engineered and Coincidental Consequences of H-1B Reforms." (01/2020; PDF)

Abstract: In response to increasing demand for high-skilled labor, the U.S. Congress legis- lated in 2005 that the H-1B visa program create 20,000 additional slots for advanced degree applicants on top of 65,000 slots open to all. Since then, the U.S. Customs and Immigration Service (USCIS) has implemented this policy through visa alloca- tion rules that comply with this legislation. Following a directive in the April 2017 Buy American and Hire American Executive Order by President Trump, USCIS tweaked its H-1B visa allocation rule in 2019, in an explicit effort to increase the share of higher-skill beneficiaries, bypassing the need for Congressional approval to increase the number of advanced degree slots. The USCIS estimated that the rule change, engineered solely for this objective, would increase the number of higher- skill beneficiaries by more than 5,000 at the expense of lower-skill beneficiaries. In this paper, we characterize all visa allocation rules that comply with the legislation. Despite specifying rigid caps, we show that the legislation still allows for rules that can change the number of high-skill awards by as many as 14,000 in an average year. Of all rules that comply with the legislation, the 2019 rule adopted by the Trump ad- ministration produces the best possible outcome for higher-skill applicants and the worst possible outcome for lower-skill applicants. We also discover that each of the two previous and much less known changes to the H-1B visa allocation rule resulted in more substantial changes to the share of higher-skill beneficiaries than the 2019 reform. The distributional effects of these earlier reforms in 2006 and 2008, how- ever, were motivated by logistical considerations, potentially without understanding of their importance for the rate of higher-skill awards.

992. Ryan Chahrour (Boston College), Sanjay Chugh (The Ohio State University), and Tristan Potter (Drexel University). "Anticipated Productivity and the Labor Market." (01/2020; PDF)

Abstract: We identify the main shock driving the covariance of the labor market and output. The shock drives strong business cycle comovement among output, consumption, investment, hours, and stock prices but is essentially orthogonal to business cycle fluctuations in TFP. Yet, the shock is associated with future persistent TFP fluctuations, consistent with theories of technology news. A standard labor search model in which wages are determined by a cash flow sharing rule, rather than the net present value of match surplus, matches the observed responses to TFP news. The response of the wage implied by this rule is consistent with the empirical responses of a broad panel of wage series.

991. Charles Murry (Boston College) and Peter Newberry (Penn State University). "Franchise Contract Regulations and Local Market Structure." (rev. 03/2021; PDF)

Abstract: Many U.S. states restrict the ability of franchisors to terminate or restructure franchise contracts through regulation. We empirically examine the effect of these regulations on the franchising decisions of firms at the local level. Using data from the quick-service restaurant industry, we find that franchise regulations are associated with 12% fewer franchises in the average zip-code. We find evidence that the impact of the regulation varies based on the local characteristics of a zip-code and can be as high as 16%.

990. Tayfun Sönmez (Boston College) and M. Bumin Yenmez (Boston College). "Affirmative Action with Overlapping Reserves." (12/2019; PDF)

Abstract: In a wide variety of real-life resource allocation problems such as school choice or assignment of public positions, implementation of affirmative action policies rely on choice rules that balance meritocracy with equity. We study choice rules where meritocracy is attained through reliance on a priority list, and equity is attained through reserved positions for target groups of disadvantaged individuals. Focusing on overlapping reserves, the case where an individual can belong to multiple types of reserved positions, we characterize choice rules that satisfy maximal compliance with reservations, elimination of justified envy, and non-wastefulness. When an individual accommodates only one of the reserved positions, the horizontal envelope choice rule is the only rule to satisfy these three axioms. When an individual accommodates each of the reserved positions she qualifies for, there are complementarities between individuals. Under this alternative convention, and assuming there are only two target groups, such as women and minorities, we show that paired-admission choice rules are the only ones to satisfy the three axioms. Building on these results, we provide improved allocation mechanisms for school choice in Chile, public position allocation in India, and college admissions in Brazil.

989. Pierluigi Balduzzi (Boston College), Emanuele Brancati (Sapienza University of Rome), Marco Brianti (Boston College), and Fabio Schiantarelli (Boston College). "Populism, Political Risk and the Economy: Lessons from Italy." (rev. 04/2020;PDF) - Appendix (PDF).

Abstract: This paper studies the effects of political risk shocks in Italy during the 2013-2019 period that saw the rise to power of populist parties. We identify political and policy events that have implications for debt sustainability and Euro membership, and use changes in sovereign CDS spreads around those dates as an instrument for political risk shocks. Shocks associated with populism have adverse effects on domestic and international financial markets. These effects were moderated by European institutions and domestic constitutional constraints. Moreover, political risk shocks have a negative impact on the real domestic economy, although cushioned by an accommodating monetary policy.

987. Ryan Chahrour (Boston College), Kristoffer Nimark (Cornell University), and Stefan Pitschner (Uppsala University). "Sectoral Media Focus and Aggregate Fluctuations". (10/2019; PDF)

Abstract: We formalize the editorial role of news media in a multi-sector economy and show that media can be an independent source of business cycle fluctuations, even when the information they report is accurate. Our approach tightly links agents’ beliefs to real eco-nomic developments and allows for incomplete information without exogenous noise shocks. In the model, media monitor the economy, making state-dependent decisions on which sub- set of sectors to report. Accurate public reporting about sectoral developments that are newsworthy but unrepresentative, causes firms in all sectors to over- or underinvest in productive capacity. We construct historical time series of sectoral news coverage in the US and use them to calibrate a multi-sector model driven only by sectoral TFP shocks. Time-varying media focus generates demand-like aggregate fluctuations that are orthogonal to productivity. Presented with historical productivity shocks constructed by the BEA, the model reproduces the 2009 Great Recession.

986. Shakeeb Khan (Boston College) and Denis Nekipelov (University of Virginia). "On Uniform Inference in Nonlinear Models with Endogeneity". (9/2019; PDF)

Abstract: This paper explores the uniformity of inference for parameters of interest in nonlinear econometric models with endogeneity. Here the notion of uniformity arises because the behavior of estimators of parameters is shown to vary with where they lie in the parameter space. As a result, inference becomes nonstandard in a fashion that is loosely analogous to inference complications found in the unit root and weak instruments lit-erature, as well as the models recently studied in Andrews and Cheng (2012), Chen, Ponomareva, and Tamer (2014), Han and McCloskey (2019). Our main illustrative example is the standard sample selection model, where the parameter is the intercept term as in Heckman (1990), Andrews and Schafgans (1998) and Lewbel (2007). We show here there is a discontinuity in the limiting distribution for an estimator despite it being uniformly (across degrees of selection) consistent. This discontinuity prevents standard inference procedures from being uniformly valid, and motivates the development of new methods, for which we establish asymptotic properties. Finite sample properties of the procedure is explored through a simulation study and an empirical illustration using the Mroz (1987) data set as in Newey, Powell, and Walker (1990).

985. Shakeeb Khan (Boston College) Arnaud Maurel (Duke University), and Yichong Zhang (Singapore Management University). "Informational Content of Factor Structures in Simultaneous Binary Response Models". (9/2019; PDF)

Abstract: We study the informational content of factor structures in discrete triangular systems. Factor structures have been employed in a variety of settings in cross sectional and panel data models, and in this paper we formally quantify their identifying power in a bivariate system often employed in the treatment effects literature. Our main findings are that imposing a factor structure yields point identification of parameters of interest, such as the coefficient associated with the endogenous regressor in the outcome equation, under weaker assumptions than usually required in these systems. In particular, we show that an exclusion restriction, requiring an explanatory variable in the outcome equation to be excluded from the treatment equation, is no longer necessary for identification. Under such settings, we propose a rank estimator for both the factor loading and the causal effect parameter that are root-n consistent and asymptotically normal. The estimator’s finite sample properties are evaluated through a simulation study. We also establish identification results in models with more general factor structures, that are characterized by nonparametric functional forms and multiple idiosyncratic shocks.

984. Danial Lashkari (Boston College), Arthur Bauer (ENSAE-CREST), and Jocelyn Boussard (Banque de France)."Information Technology and Returns to Scale". (9/2019; PDF)

Abstract: This paper investigates the role of IT in shaping recent trends in market concentration, factor income shares, and market competition. Relying on a novel dataset on hardware and software investments in the universe of French firms, we document a robust within-industry correlation between firm size and the intensity of IT demand. To explain this fact, we argue that the relative marginal product of IT inputs may rise with firm scale, since IT specifi- cally helps firms deal with organizational limits to scale. We propose a general equilibrium model of industry dynamics that features firm-level production functions compatible with this mechanism. We estimate the production function and find evidence for the nonhomotheticity of IT demand and for an elasticity of substitution between IT and other inputs that falls below unity. Under the estimated model parameters, the cross-sectional predictions of the model match the observed relationship of firm size with IT intensity (positive) and labor share (negative). In addition, as a response to the fall in the relative price of IT inputs in post-1990 France, the model can explain about half of both the observed rise in market concentration and the observed market reallocations toward low-labor-share firms.

983. Pierre-André Chiappori (Columbia University), and José Alberto Molina (Departamento de Análisis Económico, Universidad de Zaragoza). "The intra-spousal balance of power within the family: cross-cultural evidence". (9/2019; PDF)

Abstract: This paper examines cross-cultural evidence of the intra-spousal balance of power within the family. The traditional, ‘unitary’ model of the family, which assumes that members maximize a single utility function, has increasingly been challenged in recent decades, as a consequence of a questioning of the underlying income-pooling hypothesis, through attempts to assume differential preferences of family members, with the relative power of spouses being of particular significance. These non-unitary models treat family decisions as outcomes of interactions between the spouses. We focus here on collective models, which have been most widely used for that purpose. We show international evidence on the basis of the UN Human Development Index 2018. Data results indicate that, in both developed (very high and top medium HDI) and non-developed (bottom medium and low HDI) cultural areas, non-unitary models, in which intra-spousal bargaining power plays a role, are empirically accepted. The Pareto-optimality hypothesis of collective models has been accepted for most statistical data bases. In developed cultural areas, wives, on average, control between one half and two thirds of household resources, with the highest bargaining power affecting expenditure patterns. As the bargaining power of women grows, allocations to education and school attendance also tend to grow in most countries.

982. Hanno Foerster (Boston College). "The Impact of Post-Marital Maintenance on Dynamic Decisions and Welfare of Couples", (9/2019; PDF)

Abstract: In many countries divorce law mandates post-marital maintenance payments (child support and alimony) to insure the lower earner in married couples against financial losses upon divorce. This paper studies how maintenance payments affect couples’ intertemporal decisions and welfare. I develop a dynamic model of family labor supply, housework, savings and divorce and estimate it using Danish register data. The model captures the policy trade off between providing insurance to the lower earner and enabling couples to specialize efficiently, on the one hand, and maintaining labor supply incentives for divorcees, on the other hand. I use the estimated model to analyze counterfactual policy scenarios in which child support and alimony payments are changed. The welfare maximizing maintenance policy is to triple child support payments and reduce alimony by 12.5% relative to the Danish status quo. Switching to the welfare maximizing policy makes men worse off, but comparisons to a first best scenario reveal that Pareto improvements are feasible, highlighting the limitations of maintenance policies.

981. Isaac Baley (Universitat Pompeu Fabra), Ana Figueiredo (Erasmus School of Economics), and Robert Ulbricht (Boston College). "Mismatch Cycles", (rev. 8/2021; PDF)

Abstract: This paper studies the cyclical dynamics of skill mismatch and quantifies its impact on labor productivity. We build a tractable directed search model, in which workers differ in skills along multiple dimensions and sort into jobs with heterogeneous skill requirements. Skill mismatch arises due to information frictions and is prolonged by search frictions. Estimated to the U.S., the model replicates salient business cycle properties of mismatch. Job transitions in and out of bottom job rungs, combined with career mobility, are key to account for the empirical fit. The model provides a novel narrative for the scarring effect of unemployment.

980. Shakeeb Khan (Boston College), Fu Ouyang (University of Queensland), and Elie Tamer (Harvard University), "Inference on Semiparametric Multinomial Response Models", (5/2019; PDF)

Abstract: In this paper we explore inference on regression coefficients in semi parametric multinomial response models. We consider cross sectional, and both static and dynamic panel settings where we focus throughout on point inference under sufficient conditions for point identification. The approach to identification uses a matching insight throughout all three models and relies on variation in regressors: with cross section data, we match across individuals while with panel data we match within individuals over time. Across models, IIA is not assumed as the unobserved errors across choices are allowed to be arbitrarily correlated. For the cross sectional model estimation is based on a localized rank objective function, analogous to that used in Abrevaya, Hausman, and Khan (2010), and presents a generalization of existing approaches. In panel data settings rates of convergence are shown to exhibit a curse of dimensionality in the number of alternatives. The results for the dynamic panel data model generalizes the work of Honoré and Kyriazidou (2000) to cover the multinomial case. A simulation study establishes adequate finite sample properties of our new procedures and we apply our estimators to a scanner panel data set.

979. Shakeeb Khan (Boston College), Maria Ponomareva (Northern Illinois University), and Elie Tamer (Harvard University), "Identification of Dynamic Panel Binary Response Models", (3/2019; PDF)

Abstract: We analyze identification in dynamic econometric models of binary choice with fixed effects under general conditions. This class of models is often used in the literature to distinguish between state dependence (invariably referred to in the recent literature as switching costs, inertia or stickiness) and heterogeneity. We first characterize the sharp set for parameters in a dynamic panel of binary choice under conditional stationarity. The identified set can be characterized by a union of convex polyhedrons. We conduct the same exercise under the stronger assumption of conditional exchangeability, and establish its incremental identifying power. We extend our identification approach to study models with more time periods as well. We also provide sufficient conditions for point identification. For inference in cases with discrete regressors, we provide an approach to constructing confidence sets for the identified sets using a linear program that is simple to implement. The paper then provides simulation based evidence on the size and shape of the identified sets in varying designs to illustrate the informational content of different assumptions. We also illustrate the inference approach using a data set on women’s labor supply decisions.

978. Tayfun Sönmez and M. Bumin Yenmez (Boston College), "Constitutional Implementation of Vertical and Horizontal Reservations in India: A Unified Mechanism for Civil Service Allocation and College Admissions", (4/2019; PDF)

Abstract: In order to address the historic discrimination faced by various communities under the caste system, a comprehensive affirmative action system exists in India, reserving access to government jobs and to enrollment in higher educational institutions. While there is a Supreme Court-mandated mechanism to implement these reservations when the positions are homogeneous, no mechanism is provided when the positions are heterogeneous. This gap results in widespread adoption of unconstitutional mechanisms, countless lawsuits, regular judicial review, and inconsistent judgements including at the Supreme Court level. We identify the root cause of all these challenges, and propose a design to overcome them.

977. Tayfun Sönmez and M. Bumin Yenmez (Boston College), "Affirmative Action in India via Vertical and Horizontal Reservations", (3/2019; PDF)

Abstract: Built into the country’s constitution, one of the world’s most comprehensive affirmative action programs exists in India. Government jobs and seats at publicly funded educational institutions are allocated through a Supreme Court-mandated procedure that integrates a meritocracy-based system with a reservation system that provides a level playing field for disadvantaged groups through two types of special provisions. The higher-level provisions, known as vertical reservations, are exclusively intended for backward classes that faced historical discrimination, and implemented on a “set aside” basis. The lower-level provisions, known as horizontal reservations, are intended for other disadvantaged groups (such as women, disabled, or the economically disadvantaged), and they are implemented on a “minimum guarantee” basis. We show that, the Supreme Court-mandated procedure suffers from at least four major deficiencies. First and foremost, it is not well-defined when candidates can qualify for multiple horizontal reservations, a phenomenon that has been increasingly more common in recent years. Moreover, while a candidate can never lose a position to a less meritorious candidate from her own group under this procedure, she can lose a position to a less meritorious candidate from a higher-privilege group. This loophole under the Supreme Court-mandated procedure causes widespread confusion in India, resulting in countless lawsuits, conflicting judgements on these lawsuits, and even defiance in some of its states. We propose an alternative procedure that resolves these two major deficiencies and two additional ones.

976. Michael T. Belongia (University of Mississippi) and Peter N. Ireland (Boston College), "A Reconsideration of Money Growth Rules", (3/1/2019; PDF)

Abstract: A New Keynesian model, estimated using Bayesian methods over a sample period that includes the recent episode of zero nominal interest rates, illustrates the effects of replacing the Federal Reserve's historical policy of interest rate management with one targeting money growth instead. Counterfactual simulations show that a rule for adjusting the money growth rate, modestly and gradually, in response to changes in the output gap delivers performance comparable to the estimated interest rate rule in stabilizing output and inflation. The simulations also reveal that, under the same money growth rule, the US economy would have recovered more quickly from the 2007-09 recession, with a much shorter period of exceptionally low interest rates. These results suggest that money growth rules can serve as a simple and effective alternative guide for monetary policy in the current low interest rate environment.

975. Christopher F. Baum (Boston College) and Arthur Lewbel (Boston College), "Advice on using heteroscedasticity based identification", (06/2019; PDF)

Abstract: Lewbel (2012) provides a heteroscedasticity based estimator for linear regression models containing an endogenous regressor when no external instruments or other such information is available. The estimator is implemented in the Stata module ivreg2h by Baum and Schaffer (2012). This note gives some advice and instructions to researchers who want to use this estimator.

974. Hideo Konishi (Boston College) and Chen-Yu Pan (Wuhan University), "Endogenous Alliances in Survival Contests", (rev. 03/2021; PDF)

Abstract: Esteban and Sakovics (2003) showed in their three-person game that an alliance never appears in a possibly multi-stage contest game for an indivisible prize when allies’ efforts are perfectly substitutable. In this paper, we introduce allies’ effort complementarity by using a CES effort aggregator function. We consider an open-membership alliance formation game followed by two contests: the one played by alliances, and the one within the winning alliance. We show that if allies’ efforts are too substitutable or too complementary, no meaningful alliance appears in equilibrium. However, if allies’ efforts are moderately complementary to each other, then competition between two alliances is a subgame perfect equilibrium, which Pareto-dominates the equilibrium in a noalliance single-stage contest. We also show that if forming more than two alliances is supported in equilibrium, then it Pareto-dominates two alliance equilibrium. Nevertheless, the parameter space for such an allocation to be supported as an equilibrium shrinks when the number of alliances increases.

973. Hideo Konishi (Boston College) and Chen-Yu Pan (Wuhan University), "Sequential Formation of Alliances in Survival Contests", (01/2019; PDF)

Abstract: We consider a sequential formation of alliances à la Bloch (1996) and Okada (1996) followed by a two-stage contest in which alliances first compete with each other, and then the members in the winning alliance compete again for an indivisible prize. In contrast to Konishi and Pan (2019) which adopted an open-membership game as the alliance formation process, alliances are allowed to limit their memberships (excludable alliances). We show that if members' efforts are strongly complementary to each other, there will be exactly two asymmetric alliances the larger alliance is formed first and then the rest of the players form the smaller one. This result contrasts with the one under open membership, where moderate complementarity is necessary to support a two-alliance structure. It is also in stark contrast with Bloch et al. (2006), where they show that a grand coalition is formed in the same game if the prize is divisible and a binding contract is possible to avoid further conflicts after an alliance wins the prize.

972. Hideo Konishi (Boston College), Minoru Nakada (Nogaya University), and Akihisa Shibata (Kyoto University), "Free Trade Agreements with Environmental Standards", (09/2018; PDF)

Abstract: In this paper, we investigate the effects of a free trade agreement (FTA) with environmental standards between Northern and Southern countries, with explicit considerations for transferring clean technology and enforcing reduced emissions. Southern producers benefit greatly by having access to a Northern market without barriers, while they are reluctant to use new high-cost, clean technology provided by the North. Thus, environmentally conscious Northern countries should design an FTA where Southern countries provide sufficient benefits for the membership while imposing tighter enforcement requirements. Since including too many Southern countries dilutes the benefits of being a member of the FTA, it is in the best interest of the North to limit the number of Southern memberships while requiring strict enforcement of emissions reduction. This may result in unequal treatment among the Southern countries. We provide a quantitative evaluation of FTA policies by using a numerical example.

971. Hong Luo (Harvard Business School) and Julie Holland Mortimer (Boston College), "Infringing Use as a Path to Legal Consumption: Evidence from a Field Experiment", (12/2018; PDF)

Abstract: Copyright infringement may result from frictions preventing legal consumption, but may also reveal demand. Motivated by this fact, we run a field experiment in which we contact firms that are caught infringing on expensive digital images. Emails to all firms include a link to the licensing page of the infringed image; for treated firms, we add links to a significantly cheaper licensing site. Making infringers aware of the cheaper option leads to a fourteen-fold increase in the ex-post licensing rate. Two additional experimental interventions are designed to reduce search costs for (i) price and (ii) product information. Both interventions—immediate price comparison and recommendation of images similar to those infringed—have large positive effects. Our results highlight the importance of mitigating user costs in small-value transactions.

970. Isa Hafalir (University of Technology Sydney), Fohita Kojima (Stanford University), and M. Bumin Yenmez (Boston College), "Interdistrict School Choice: A Theory of Student Assignment", (12/2018; PDF)

Abstract: Interdistrict school choice programs—where a student can be assigned to a school outside of her district—are widespread in the US, yet the market-design literature has not considered such programs. We introduce a model of interdistrict school choice and present two mechanisms that produce stable or efficient assignments. We consider three cate- gories of policy goals on assignments and identify when the mechanisms can achieve them. By introducing a novel framework of interdistrict school choice, we provide a new avenue of research in market design.

969. Gary Biglaiser (University of North Carolina at Chapel Hill), Fei Li (University of North Carolina at Chapel Hill), Charles Murry (Boston College), and Yiyi Zhou (Stony Brook University), "Intermediaries and Product Quality in Used Car Markets", (12/2018; PDF)

Abstract: We examine used car dealers’ roles as intermediaries. We present empirical evidence supporting that cars sold by dealers have higher quality: (1) dealer transaction prices are higher than private market prices and this dealer premium increases in the age of the car as a ratio and is hump-shaped in dollar value, and (2) used cars purchased from dealers are less likely to be resold immediately. We formalize a model to show that these empirical facts can be rationalized either when dealers serve to alleviate information asymmetry between sellers and buyers or when dealers facilitate assortative matching between heterogenous-quality cars and heterogeneous consumers. Lastly, based on predictions of the model, we use the data to distinguish these two theories and find evidence for both, but the preponderance of the evidence supports the asymmetric information theory.

968. Gaurab Aryal (University of Virginia), Charles Murry (Boston College), and Jonathan W. Williams (University of North Carolina, Chapel Hill), "Price Discrimination in International Airline Markets". (11/2018; PDF)

Abstract: We develop a model of inter-temporal and intra-temporal price discrimination by airlines to study the ability of different discriminatory mechanisms to remove sources of inefficiency and the associated distributional implications. To estimate the model’s multi-dimensional distribution of preference heterogeneity, we use unique data from international airline markets with flight-level variation in prices across time and cabins, and information on passengers’ reason for travel. We find that current pricing practices grant late-arriving business passengers substantial informational rents and yield 81% of first-best welfare, with stochastic demand and asymmetric information accounting for 65% and 35% of the gap, respectively.

967. J. Ignacio Gimenez-Nadal (Universidad de Zaragoza) and José Alberto Molina (Departamento de Análisis Económico, Universidad de Zaragoz), "Daily feelings of US workers and commuting time", (11/2018; PDF)

Abstract: Millions of individuals commute every day in the US. Despite commuting has been shown to have negative consequences for workers, no evidence has been about how commuting is related to feelings in other episodes. We analyzed the relationship between the feelings reported by American workers throughout the day and the time devoted to commuting. Methods: We used the Well-Being Module of the American Time Use Survey for the years 2010, 2012, and 2013, and analyzed the relationship between commuting duration and the feelings reported (e.g,. happiness, sadness, stress, fatigue and pain) in both commuting and non-commuting episodes. Results: We found that more time spent on the daily commute was related to higher levels of fatigue and stress during commuting, while also being associated with higher levels of sadness and fatigue during activities of child care. In particular, we found that a 1% increase in the time devoted to commuting during the episode was related to increases of 12 percent and 13 percent of a standard deviation for stress and fatigue, while a 1% increase in the time devoted to commuting during the day was related to increases of 5 percent and 7 percent of one standard deviation in the levels of sadness and stress during child care activities. Conclusions: Our results indicated that longer commutes may be related to higher levels of stress and fatigue of workers, which may in turn affect the quality of the time parents devote to caring for their children.

966. José Alberto Molina (Departamento de Análisis Económico, Universidad de Zaragoza), David Iñiguez (Fundación ARAID, Diputación General de Aragón), Gonzalo Ruiz (Instituto de Biocomputación y Física de Sistemas Complejos (BIFI), Zaragoza), and Alfonso Tarancón (Departamento de Física Teórica, Universidad de Zaragoza), "The Nobel Prize in Economics: individual or collective merits?", (10/2018; PDF)

Abstract: We analyse the research production of Nobel laureates in Economics, employing the JCR Impact Factor (IF) of their publications. We associate this production indicator with the level of collaboration established with other authors, using Complex Networks techniques applied to the co-authorship networks. We study both individual and collaborative behaviours, and how the professional output, in terms of publications, is related to the Nobel Prize. The study encompasses a total of 2,150 papers published between 1935 and the end of 2015 by the laureates in Economics awarded between 1969 and 2016. Our results indicate that direct collaborations among laureates are, in general, rare, but when we add all the co-authors of the laureates, the network becomes more dense, and appears as a giant component containing 70% of the nodes, which means that more than two thirds of the laureates can be connected through only two steps. We have been able to measure that, in general, a higher level of collaboration leads to a larger production. Finally, when looking at the evolution of the research output of the laureates, we find that, for most of those awarded up to the mid-1990s, the production is more stable, with a gradual decrease after the awarding of the Prize, and those awarded later experience a sharp growth in the IF before the Prize, a decrease during the years immediately following, and a new increase afterwards, returning to high levels of impact.

965. Christopher F. Baum (Boston College), Linda Dastory (CESIS, KTH Royal Institute of Technology), Hans Lööf (CESIS, KTH Royal Institute of Technology), and Andreas Stephan (Jönköping International Business School), "Migrant STEM Entrepreneurs", (10/2018; PDF)

Abstract: STEM workers are considered to be key drivers for economic growth in the developed world. Migrant workers play an increasing role in the supply of this occupational category. We study the universe of STEM workers in the Swedish economy over the period 2003-2015 and find that migrants are less likely to form their own business, but those who are entrepreneurs earn income at least as large as that of their native-born counterparts. While the income differential for labor migrants may be partially explained by self-selection, the estimated effect is not significantly different between natives and refugee migrants.

964. Sushil Bikhchandani (UCLA Anderson School of Management), and Uzi Segal (Boston College), "Intransitivity in the Small and in the Large", (rev. 04/2021; PDF)

Abstract: We propose a regret-based model that allows the separation of attitudes towards transitivity on triples of random variables that are close to each other and attitudes towards transitivity on triples that are far apart. This enables a theoretical reinterpretation of evidence related to intransitive behavior in the laboratory. When viewed through this paper’s analysis, the experimental evidence need not imply intransitive behavior for large risky decisions such as investment choices and insurance.

961. Claudia Olivetti (Boston College) and Barbara Petrongolo (Queen Mary University), "The Economic Consequences of Family Policies: Lessons from a Century of Legislation in High-Income Countries".

Abstract: We draw lessons from existing work and our own analysis on the effects of parental leave and other interventions aimed at aiding families. The outcomes of interest are female employment, gender gaps in earnings and fertility. We begin with a discussion of the historical introduction of family policies ever since the end of the nineteenth century and then turn to the details regarding family policies currently in effect across high-income nations. We sketch a framework concerning the effects of family policy to motivate our country- and micro-level evidence on the impact of family policies on gender outcomes. Most estimates of the impact of parental leave entitlement on female labor market outcomes range from negligible to weakly positive. The verdict is far more positive for the beneficial impact of spending on early education and childcare.

960. Tamara L. Sheldon (University of South Carolina) and Chandini Sankaran (Boston College), "Transboundary Pollution in Southeast Asia: Welfare and Avoidance Costs in Singapore from the Forest Burning in Indonesia", (12/2016; PDF)

Abstract: Forest burning in Indonesia results in severe episodes of “seasonal haze” in neighboring Singapore. We offer the first causal analysis of the transboundary health effects of the Indonesian forest burning. Using a two-stage approach and instrumenting for air pollution with satellite fire data, we estimate the impacts of the Indonesian fires on Singaporean polyclinic attendances for acute upper respiratory tract infections and acute conjunctivitis. We also estimate the change in electricity demand in Singapore attributable to the fires, finding that demand increases as people respond to haze episodes by staying indoors. We estimate partial health and avoidance costs of US$333 million from January 2010 to June 2016. Our estimates suggest avoidance behavior is significant, accounting for over three quarters of our estimate.

959. Rossella Calvi (Rice University), Arthur Lewbel (Boston College), and Denni Tommasi (ECARES, Université Libre de Bruxelles), "LATE with Missing or Mismeasured Treatment", (rev. 08/2021; PDF)

Abstract: We provide a new estimator, MR-LATE, that consistently estimates local average treatment effects when treatment is missing for some observations, not at random. If instead treatment is mismeasured for some observations, MR-LATE usually has less bias than the standard LATE estimator. We discuss potential applications where an endogenous binary treatment may be unobserved or mismeasured. We apply MR-LATE to study the impact of women’s control over household resources on health outcomes in Indian families. This application illustrates the use of MR-LATE when treatment is estimated rather than observed. In these situations, treatment mismeasurement may arise from model misspecification and estimation errors.

958. Arthur Lewbel (Boston College), Samuel Norris (University of Chicago), Krishna Pendakur (Simon Fraser University), and Xi Qu (Shagnai Jiao Tong University), "Consumption Peer Effects and Utility Needs in India" (rev. 09/2021; PDF)

Abstract: We construct a peer effects model where mean expenditures of consumers in one’s peer group affect utility through perceived consumption needs. We provide a novel method for obtaining identification in social interactions models like ours, using ordinary survey data, where very few members of each peer group are observed. We implement the model using standard household-level consumer expenditure survey microdata from India. We find that each additional rupee spent by one’s peers increases perceived needs, and thereby reduces one’s utility, by the equivalent of a 0.25 rupee decrease in one’s own expenditures. These peer costs may be larger for richer households, meaning transfers from rich to poor could improve even inequality-neutral social welfare, by reducing peer consumption externalities. We show welfare gains of billions of dollars per year might be possible by replacing government transfers of private goods to households with providing public goods or services, to reduce peer effects.

957. Arthur Lewbel (Boston College), "The Identification Zoo - Meanings of Identification in Econometrics", (12/2019; PDF)

Abstract: Over two dozen different terms for identification appear in the econometrics literature,including set identification, causal identification, local identification, generic identification,weak identification, identification at infinity, and many more. This survey: 1. gives a new framework unifying existing definitions of point identification, 2. summarizes and compares the zooful of different terms associated with identification that appear in the literature, and 3. discusses concepts closely related to identification, such as normalizations and the differences in identification between structural models and causal, reduced form models.

956. John Gordanier (University of South Carolina), William Hauk (University of South Carolina), and Chandini Sankaran (Boston College), "Early Intervention in College Classes and Improved Student Outcomes", (09/2018; PDF)

Abstract: This research investigates the effectiveness of an early academic intervention in Principles of Economics courses at a large public university. After the end of the fourth week of classes, students who fell below a 70% threshold on a performance measure, or had an attendance rate below 75%, were referred to the university’s Student Success Center for additional academic support. A referral consisted of students being given optional assistance in course specific skills through tutoring, as well as training in general skills like time management and study skills. Using a regression discontinuity framework at the referral threshold, we find that the performance intervention improved student scores on common questions on the final exam by 6.5 to 7.5 percentage points for students at or near the performance threshold. The gains are particularly large for students who entered college with below average math placement scores. These results indicate that low-cost light-touch interventions may significantly affect student academic performance.

955. Michael T. Belongia (University of Mississippi) and Peter Ireland (Boston College), "Monetary Policy Lessons from the Greenbook", (07/2018; PDF)

Abstract: From 1987 through 2012, the Federal Open Market Committee appears to have set its federal funds rate target with reference to Greenbook forecasts of the output gap and inflation and to have made further adjustments to the funds rate as those forecasts were revised. If viewed in the context of the Taylor (1993) Rule, discretionary departures from the settings prescribed by a Greenbook forecast-based version of the rule consistently presage business cycle turning points. Similarly, estimates from an interest rate rule with time-varying parameters imply that, around such turning points, the FOMC responds less vigorously to information contained in Greenbook forecasts about the changing state of the economy. These results suggest possible gains from closer adherence to a rule with constant parameters. Other statistical properties of Greenbook forecasts also point to an overlooked role for monetary aggregates, particularly Divisia monetary aggregates, in the Federal Reserve's forecasting process and subsequent monetary policy decisions made by the FOMC.

954. Zvi Safra (Warwick Business School) and Uzi Segal (Boston College), "A Lot of Ambiguity", (03/2020; PDF)

Abstract: We consider a risk averse decision maker who dislikes ambiguity as in the Ellsberg urns. We analyze attitudes to ambiguity when the decision maker is exposed to unrelated sequences of ambiguous situations. We discuss the Choquet expected utility, the smooth, and the maxmin models. Our main results offer conditions under which ambiguity aversion disappears and conditions under which it does not.

953. Liyuan Chen (University of York), Paola Zerilli (University of York), and Christopher F Baum (Boston College), "Leverage effects and stochastic volatility in spot oil returns: A Bayesian approach with VaR and CVaR applications", (01/2018; PDF)

Abstract: The crude oil markets have been quite volatile and risky in the past few decades due to the large fluctuations of oil prices. We contribute to the current debate by testing for the existence of the leverage effect when considering daily spot returns in the WTI and Brent crude oil markets and by studying the direct impact of the leverage effect on measures of risk such as VaR and CVaR. More specifically, we model spot crude oil returns using Stochastic Volatility (SV) models with various distributions of the errors. We find that the introduction of the leverage effect in the traditional SV model with Normally distributed errors is capable of adequately estimating risk for conservative oil suppliers in both the WTI and Brent markets while it tends to overestimate risk for more speculative oil suppliers. Our results also show that the choice of financial regulators, both on the supply and on the demand side, would not be affected by the introduction of leverage. Focusing instead on firm’s internal risk management, our results show that the introduction of leverage would be useful for firms who are on the demand side for oil, who use VaR for risk management and who are particularly worried about the magnitude of the losses exceeding VaR while wanting to minimize the opportunity cost of capital. Using the same logic, firms who are on the supply side would be better off not considering the leverage effect.

952. Christopher F Baum (Boston College), Paola Zerilli (University of York), and Liyuan Chen (University of York), "Stochastic volatility, jumps and leverage in energy and stock markets: evidence from high frequency data", (09/2018; PDF)

Abstract: In this paper, we propose a model for futures returns that has the potential to provide both individual investors and firms who have positions in financial and energy commodity futures a valid tail risk management tool. In doing so, we also aim to explore the commonalities between these markets and the degree of financialization of energy commodities. Unlike most of the existing studies in energy derivative markets based on daily data, our empirical analysis makes use of high-frequency (tick-by-tick) data from the futures markets, aggregated to 10-minute intervals during the trading day. The intraday variation is then utilized to generate daily time series of prices, returns and realized variance. We estimate stochastic volatility models using a GMM approach based on the moment conditions of the Integrated Volatility derived from high frequency data. While existing empirical studies in energy markets embed either leverage or jumps in the futures return dynamics, we show that the introduction of both features improves the ability to forecast volatility as an indicator for risk for both the S&P500 and natural gas futures markets using both the RMSE and MAE criteria. Our analysis also shows that overall, the introduction of both leverage and jumps in the SVJL model provides the best forecast for risk in both a VaR and a CVaR sense for investors who have any position in natural gas futures regardless of their degree of risk aversion. In the S&P500 market, the SVJL model provides the most precise forecast of risk in a CVaR sense for risk-averse investors with any position in futures, regardless of their degree of risk aversion. Focusing on a firm's internal risk management, the introduction of both jumps and leverage in the SVJL model would benefit speculative firms who are short natural gas futures aiming at minimizing tail risk in a VaR sense, as well as speculative firms who are long S&P500 futures and use either VaR or CVaR as financial risk management criteria while wanting to minimize the opportunity cost of capital.

951. Haluk Ergin (University of California at Berkeley), Tayfun Sönmez (Boston College), and M. Utku Ünver (Boston College), "Efficient and Incentive-Compatible Liver Exchange", (05/2018; PDF)

Abstract: Liver exchange has been practiced in small numbers, mainly to overcome blood-type incompatibility between patients and their living donors. A donor can donate either his smaller left lobe or the larger right lobe, although the former option is safer. Despite its elevated risk, right-lobe transplantation is often utilized due to size-compatibility requirement with the patient. We model liver exchange as a market-design problem, focusing on logistically simpler two-way exchanges. First, with two patient-donor sizes, we introduce an algorithm when only the safer left-lobe transplantation is feasible. We then introduce an individually rational, Pareto-efficient, and incentive-compatible mechanism that truthfully elicits the right- lobe-donation willingness of donors, and finally extend these results to a general model with any number of patient/donor sizes. The generalization requires new technical tools regarding bilateral exchanges under partial-order-induced preferences. Through simulations we show that not only liver exchange can increase the number of transplants by more than 30%, it can also increase the share of the safer left-lobe transplants.

950. S Anukriti (Boston College), Sonia Bhalotra (University of Essex), and Hiu Tam (University of Oxford), "On the Quantity and Quality of Girls: Fertility, Parental Investments, and Mortality", (01/2018; PDF)

Abstract: The introduction of prenatal sex-detection technologies in India has led to a phenomenal increase in abortion of female fetuses. We examine fertility and investment responses to these technologies. We find a moderation of son-biased fertility stopping, erosion of gender gaps in parental investments in breastfeeding and immunization, and convergence in the under-5 mor- tality rates of boys and girls. For every three aborted girls, roughly one additional girl survives to age five. We also find a shift in the distribution of girls in favor of low-socioeconomic status families. Our findings have implications not only for counts of missing girls but also for the later life outcomes of girls conditioned by greater early life investments in them.

949. S Anukriti (Boston College), Sungoh Kwon (University of Connecticut), and Nishith Prakash (University of Connecticut), "Household Savings and Marriage Payments: Evidence from Dowry in India", (04/2018; PDF)

Abstract: This paper examines how traditional marriage market institutions affect households’ financial decisions. We study how bride-to-groom marriage payments, i.e., dowries, influence saving behavior in rural India. Exploiting variation in firstborn gender and heterogeneity in dowry amounts across marriage markets, we find that the prospect of paying higher dowry increases household savings, which are primarily financed through increased paternal labor supply. This is the first paper that highlights this alternative motive for savings in dowry-paying societies. However, we find no impacts of dowry expectations on son-preferring fertility behaviors and investments in girls.

948. Giovanni Cerulli (CNR-IRCrES), Maria Ventura (STICERD, London School of Economics), and Christopher F. Baum (Boston College), "The Economic Determinants of Crime: an Approach through Responsiveness Scores", (03/2018; PDF)

Abstract: Criminality has always been part of human social interactions, shaping the way peoples have constructed states and legislation. As social order became a greater concern for the public authorities, interest in investigating incentives pushing individuals towards engaging in illegal activities has become a central issue of the political agenda. Building on the existing literature, this paper proposes to focus on a few primary determinants of crime, whose effect is in-vestigated using a Responsiveness Scores (RS) approach performed over 50 US states during the period 2000–2012. The RS approach allows us to account for unit heterogeneous response to each single determinant, thus paving the way to a more in-depth analysis of the relation between crime and its drivers. We attempt to overcome the limitations posed by standard regression methods, which assume a single coefficient for all determinants, thus contributing to the literature in the field with stronger evidence on determinants’ effects and the geographical patterns of responsiveness scores.

947. Songnian Chen (HKUST), Shakeeb Khan (Boston College), and Xun Tang (Rice University), "Exclusion Restrictions in Dynamic Binary Choice Panel Data Models", (02/2018; PDF)

Abstract: In this note we revisit the use of exclusion restrictions in the semiparametric binary choice panel data model introduced in Honore and Lewbel (2002). We show that in a dynamic panel data setting (where one of the pre-determined explanatory variables is the lagged dependent variable), the exclusion restriction in Honore and Lewbel (2002) implicitly re- quires serial independence condition on an observed regressor, that if violated in the data will result in their procedure being inconsistent. We propose a new identification strategy and estimation procedure for the semiparametric binary panel data model under exclusion restrictions that accommodate the serial correlation of observed regressors in a dynamic setting. The new estimator converges at the parametric rate to a limiting normal distri- bution. This rate is faster than the nonparametric rates of existing alternative estimators for the binary choice panel data model, including the static case in Manski (1987) and the dynamic case in Honore and Kyriazidou (2000).

946. Shakeeb Khan (Boston College), Denis Nekipelov (University of Virginia), and Justin Rao (Microsoft Research), "Measuring the Return to Online Advertising: Estimation and Inference of Endogenous Treatment Effects", (02/2018; PDF)

Abstract: In this paper we aim to conduct inference on the “lift” effect generated by an online advertisement display: specifically we want to analyze if the presence of the brand ad among the advertisements on the page increases the overall number of consumer clicks on that page. A distinctive feature of online advertising is that the ad displays are highly targeted- the advertising platform evaluates the (unconditional) probability of each consumer clicking on a given ad which leads to a higher probability of displaying the ads that have a higher a priori estimated probability of click. As a result, inferring the causal effect of the ad display on the page clicks by a given consumer from typical observational data is difficult. To address this we use the large scale of our dataset and propose a multi-step estimator that focuses on the tails of the consumer distribution to estimate the true causal effect of an ad display. This “identification at infinity” (Chamberlain (1986)) approach alleviates the need for independent experimental randomization but results in nonstandard asymptotics. To validate our estimates, we use a set of large scale randomized controlled experiments that Microsoft has run on its advertising platform. Our dataset has a large number of observations and a large number of variables and we employ LASSO to perform variable selection. Our non-experimental estimates turn out to be quite close to the results of the randomized controlled trials.

945. Ryo Kawasaki, Hideo Konishi (Boston College), and Junki Yukawa, "Equilibria in Bottleneck Games", (01/2018; PDF)

Abstract: This paper introduces a bottleneck game with finite sets of commuters and departing time slots as an extension of congestion games by Milchtaich (1996). After characterizing Nash equilibrium of the game, we provide sufficient conditions for which the equivalence between Nash and strong equilibria holds. Somewhat surprisingly, unlike in congestion games, a Nash equilibrium in pure strategies may often fail to exist, even when players are homogeneous. In contrast, when there is a continuum of atomless players, the existence of a Nash equilibrium and the equivalence between the set of Nash and strong equilibria hold as in congestion games (Konishi, Le Breton, and Weber, 1997a).

944. Hideo Konishi (Boston College) and Chen-Yu Pan (Wuhan University), "Silent Promotion of Agendas: Campaign Contributions and Ideological Polarization", (07/2018; PDF)

Abstract: Until recently, both Republican and Democratic administrations have been promoting free trade and market deregulation for decades without intensive policy debates. We set up a two-party electoral competition model in a two-dimensional policy space with campaign contributions by an interest group that promotes a certain agenda. Assuming that voters are impressionable to campaign spending for/against candidates, we analyze incentive compatible contracts between the interest group and the candidates on agenda policy positions and campaign contributions. The interest group asks the candidates to commit to its agenda in exchange for campaign contributions, letting them compete over the other (ideological) dimension only. It is shown that, as the agenda is pushed further by the interest group, ideological policy polarization and campaign contributions surge.

943. Rosen Valchev (Boston College), "Bond Convenience Yields and Exchange Rate Dynamics", (10/2017; PDF)

Abstract: This paper proposes a new explanation for the failure of Uncovered Interest Parity (UIP) that rationalize both the classic UIP puzzle and the evidence that the puzzle reverses direction at longer horizons. In the model, excess currency returns arise as compensation for endogenous fluctuations in bond convenience yield differentials. Due to the interaction of monetary and fiscal policy, the impulse response of the equilib- rium convenience yield is non-monotonic, which generates the reversal of the puzzle. The model fits exchange rate dynamics very well, and I also find direct evidence that convenience yields indeed drive excess currency returns.

942. Filippo De Marco (Bocconi University), Marco Macchiavelli (Federal Reserve Board), and Rosen Valchev (Boston College), "Beyond Home Bias: Portfolio Holdings and Information Heterogeneity", (01/2018; PDF)

Abstract: We investigate whether information frictions are important determinants of banks’ sovereign debt portfolios. Going beyond the classic home versus foreign distinction in holdings, we study the heterogeneity within the foreign sovereign portfolio. First, we propose a modified version of the Van Nieuwerburgh and Veldkamp (2009) model with a two-tiered information structure that links portfolio holdings and information acquisition. Second, we find strong support for the key predictions of the model in the data: if a bank makes a forecast for a given country, it is more likely to hold debt of that country. Moreover, more optimistic and more precise forecasts predict larger portfolio holdings.

941. Rosen Valchev (Boston College), "Dynamic Information Acquisition and Portfolio Bias", (06/2017; PDF)

Abstract: While international portfolios are still heavily biased towards home assets, the home bias has exhibited a clear downward trend in the last few decades. Interestingly, the underlying rise in foreign investment has been primarily directed to just a handful of OECD countries, and has not given rise to an across the board increase in all foreign investments. To understand the evolution of the home bias, this paper develops a dynamic model of information acquisition and portfolio choice. The dynamic framework introduces two new endogenous forces due to the fact that asset payoffs depend on the future asset prices and hence on the future information sets. First, there is a measure of endogenous unlearnable uncertainty in asset payoffs which generates decreasing returns to information when agents are sufficiently well informed about an asset, and hence gives a reason to diversify information and portfolios. In addition, the dynamic framework introduces a strategic complementarity in learning, due to the “beauty contest” of dynamic asset markets, which is absent in the benchmark static model where learning is purely a strategic substitute. As a result of both of these new endogenous forces, the model can explain the high overall level of the home bias, its decline over time and the fact that the rise in foreign investment has been coordinated on just a handful of destination countries. Moreover, the model predicts that the home bias decline is linked to the fall in information costs, and I find direct evidence of this in the data.

940. Cosmin Ilut (Duke University) and Rosen Valchev (Boston College), "Paralyzed by Fear: Rigid and Discrete Pricing under Demand Uncertainty", (03/2016; PDF)

Abstract: Price rigidity is central to many predictions of modern macroeconomic models, yet, standard models are at odds with certain robust empirical facts from micro price datasets. We propose a new, parsimonious theory of price rigidity, built around the idea of demand uncertainty, that is consistent with a number of salient micro facts. In the model, the monopolistic firm faces Knightian uncertainty about its competitive environment, which has two key implications. First, the firm is uncertain about the shape of its demand function, and learns about it from past observations of quantities sold. This leads to kinks in the expected profit function at previously observed prices, which act as endogenous costs of changing prices and generate price stickiness and a discrete price distribution. Second, the firm is uncertain about how aggregate prices relate to the prices of its direct competitors, and the resulting robust pricing decision makes our rigidity nominal in nature.

939. Christopher F. Baum (Boston College), Mustafa Caglayan (Heriot-Watt University), and Bing Xu (Heriot-Watt University), "The Impact of Uncertainty on Financial Institutions", (rev. 09/2018; PDF)

Abstract: We examine the effects of uncertainty on several facets of the financial sector. Using a large country-level unbalanced panel dataset, we show that inflation uncertainty reduces availability of private sector credit; harms banks’ efficiency and operational performance, evidenced by lower returns and increased reliance on non-interest income activities; and distorts sectoral stability, as liquidity, banks’ appetite for risk and credit risk increases. Our findings, based on the full dataset and country splits, are economically meaningful and provide evidence that uncertainty harms the overall health of the financial sector.

938. Peter N. Ireland (Boston College), "Allan Meltzer’s Model of the Transmission Mechanism and Its Implications for Today", (11/2017; PDF)

Abstract: Allan Meltzer developed his model of the monetary transmission mechanism in research conducted with Karl Brunner. The Brunner-Meltzer model implies that the Federal Reserve would benefit from drawing brighter lines between monetary and fiscal policy actions, eschewing credit market intervention and focusing, instead, on using its control over the monetary base to stabilize the aggregate price level. The model downplays the importance of the zero lower interest rate bound and suggests a greater role for monetary aggregates in the Fed’s policymaking strategy. Finally, it highlights the benefits that accrue when policy is conducted according to a rule rather than discretion.

937. Michael T. Belongia (University of Mississippi) and Peter N. Ireland (Boston College), "The Demand for Divisia Money: Theory and Evidence", (11/2017; PDF)

Abstract: A money-in-the-utility function model is extended to capture the distinct roles of noninterest-earning currency and interest-earning deposits in providing liquidity services to households. It implies the existence of a stable money demand relationship that links a Divisia monetary aggregate to spending or income as a scale variable and the associated Divisia user-cost dual as an opportunity cost measure. Cointegrating money demand equations of this form appear in quarterly United States data spanning the period from 1967:1 through 2017:2, especially for the Divisia M2 aggregate. The identification of a stable money demand function over a period that includes the financial innovations of the 1980s and continues through the recent financial crisis and Great Recession suggests that a properly measured aggregate quantity of money can play a role in the conduct of monetary policy. That role can be of greater prominence when traditional interest rate policies are constrained by the zero lower bound.

936. Christopher F. Baum (Boston College), Madhavi Pundit (Asian Development Bank), and Arief Ramayandi (Asian Development Bank), "Capital Flows and Financial Stability in Emerging Economies", (10/2017; PDF)

Abstract: There is mixed evidence for the impact of international capital flows on financial sector's stability. This paper investigates the relationship between components of gross capital flows and various financial stability indicators for 16 emerging and newly industrialized economies. Departing from panel data methods, for each financial stability proxy, we employ systems of seemingly unrelated regression estimators to allow variation in the estimated relationship across countries, while permitting cross equation restrictions to be imposed within a country. The findings suggest that, after controlling for macroeconomic factors, there are significant effects of different gross capital flow measures on the financial stability proxies. However, the effects are not homogeneous across our sample economies and across flows. Country-specific financial and macroeconomic characteristics help to explain some of these differences.

Note: This paper was first circulated by the Asian Development Bank as ADB Economics Working Paper 522

935. Ryan Chahrour (Boston College) and Kyle Jurado (Duke University), "Recoverability", (11/2017; PDF)

Abstract: When can structural shocks be recovered from observable data? We present a necessary and sufficient condition that gives the answer for any linear model. Invertibility, which requires that shocks be recoverable from current and past data only, is sufficient but not necessary. This means that semi-structural empirical methods like structural vector autoregression analysis can be applied even to models with non-invertible shocks. We illustrate these results in the context of a simple model of consumption determination with productivity shocks and non-productivity noise shocks. In an application to postwar U.S. data, we find that non-productivity shocks account for a large majority of fluctuations in aggregate consumption over business cycle frequencies.

934. Ryan Chahrour (Boston College) and Rosen Valchev (Boston College), "International Medium of Exchange: Privilege and Duty", (10/6/17; PDF)

Abstract: The United States enjoys an “exorbitant privilege” that allows it to borrow at especially low interest rates. Meanwhile, the dollarization of world trade appears to shield the U.S. from international disturbances. We provide a new theory that links dollarization and exorbitant privilege through the need for an international medium of exchange. We consider a two-country world where international trade happens in decentralized matching markets, and must be collateralized by assets — a.k.a. currencies — issued by one of the two countries. Traders have an incentive to coordinate their currency choices and a single dominant currency arises in equilibrium. With small heterogeneity in traders’ information, the model delivers a unique mapping from economic conditions to the dominant currency. Nevertheless, the model delivers a dynamic multiplicity: in steady-state either currency can serve as the international medium of exchange. The economy with the dominant currency enjoys lower interest rates and the ability to run current account deficits indefinitely. Currency regimes are stable, but sufficiently large shocks or policy changes can lead to transitions, with large welfare implications.

933. Luca Benati (University of Bern) and Peter N. Ireland (Boston College), “Money-Multiplier Shocks”, (8/1/17; PDF)

Abstract: Shocks to the M1 multiplier–in particular, shocks to the reserves/deposits ratio–played a key role in driving U.S. macroeconomic fluctuations during the interwar period, but their role in the post-WWII era has been almost uniformly negligible. The only exception are shocks to the currency/deposits ratio, which played a sizeable role for inflation and M1 velocity. By contrast, shocks to the multiplier of the non-M1 component of M2, which had been irrelevant in the interwar period, have played a significant role in driving the nominal side of the economy during the post-WWII period up to the collapse of Lehman Brothers, in particular during the Great Inflation episode. During either period, the multiplier of M2-M1 has been cointegrated with the short rate. The monetary base had exhibited a non-negligible amount of permanent variation during the interwar period, whereas it has been trend-stationary during the post-WWII era. In spite of the important role played by shocks to the multiplier of M2-M1 during the post-WWII period, we still detect a non-negligible role for a nonmonetary permanent inflation shock, which has the natural interpretation of a disturbance originating from the progressive de-anchoring of inflation expectations which started in the mid-1960s, and their gradual re-anchoring following the beginning of the Volcker disinflation.

932. Tayfun Sönmez (Boston College) and M. Utku Ünver (Boston College), “Market Design for Living-Donor Organ Exchanges: An Economic Policy Perspective”, (6/30/17; PDF)

Abstract: Within the last decade kidney exchanges emerged as a modality of transplantation to better utilize living donation possibilities as a cross disciplinary success of medical doctors and ethicists, market design economists, and computer scientists. This paper summarizes at which fronts these efforts have been successful and what needs to be done further to increase their impact. Also this paradigm is partially being applied to liver exchanges. There are other organs for which living donation is possible and gains from exchange can be much bigger than kidneys. Recent academic work on single-graft liver and dual-donor organ exchanges for lobar lung, dual-graft liver, and simultaneous liver-kidney transplantation are also discussed.

931. Tayfun Sönmez (Boston College), M. Utku Ünver (Boston College), and M. Bumin Yenmez (Boston College), “Incentivized Kidney Exchange”, (04/2018; PDF)

Abstract: Within the last decade, kidney exchange has become a mainstream paradigm to increase the number of transplants. However, compatible pairs do not participate, and the full benefits from exchange can be realized only if they do. In this paper, we propose a new scheme, incentivizing participation of compatible pairs in exchange via insurance for a future renal failure in the patient. Efficiency and equity analyses of this scheme are conducted and compared with that of living-donor exchange in a new dynamic continuum model of kidney transplantation. We also calibrate the model with data from the US and quantify our predictions.

930. James Anderson (Boston College), "N-S Trade with Weak Institutions", (06/2017; PDF)

Abstract: States with weak institutions can lose from trade with strong states when trade is subject to predation. The happy liberal idea of trade fostering better institutions and peace can be turned on its head. The Ricardian model of trade subject to predation offered here implies imperialism without capital, contra Marxists. Weak and poor South trades with strong and rich North. Poor South labor is attracted to predation. Labor market effects of predation and enforcement amplify opposing interests in the terms of trade, potentially obviating the standard gains from trade that allows bargaining solutions to surplus division.

929. Raffaele Santioni (Bank of Italy), Fabio Schiantarelli (Boston College), and Philip E. Strahan (Boston College and NBER), "Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy", (05/2017; PDF)

Abstract: Firms affiliated with business groups survive the stress of the global financial and euro crises better than unaffiliated firms. Using granular data from Italy, we show that better performance stems partly from access to an internal capital market, as the survival value of group-affiliated firms increases with group-wide cash flow. Internal cash transfers increase when banks’ health deteriorates, with funds moving from cash-rich to cash-poor firms and, some evidence suggests, to firms with favorable investment opportunities. Internal capital markets’ role thus increases when external markets (banks) are distressed.

928. James Anderson (Boston College) and Yoto V. Yotov (Drexel University), "Short Run Gravity", (05/2017; PDF)

Abstract: Short run gravity is a geometric weighted average of long run gravity and bilateral capacity. The model features (i) joint trade costs endogenous to bilateral volumes, (ii) long run gravity as a limiting case of efficient investment in bilateral capacities, (iii) a structural ratio of short run to long run trade elasticities equal to a microfounded buyers' incidence elasticity, and (iv) tractable short and long run models of the extensive margin. Application to manufacturing trade of 52 countries during the globalization period 1988-2006 strongly supports the model. Results solve several time invariance and trade elasticity puzzles in the literature.

927. Arthur Lewbel (Boston College), "Identification and Estimation Using Heteroscedasticity Without Instruments: The Binary Endogenous Regressor Case", (12/2016; PDF)

Abstract: Lewbel (2012) provides an estimator for linear regression models containing an endogenous regressor, when no outside instruments or other such information is available. The method works by exploiting model heteroscedasticity to construct instruments using the available regressors. Some authors have considered the method in empirical applications where an endogenous regressor is binary (e.g., endogenous Diff-in-Diff or endogenous binary treatment models), without proving validity of the estimator in that case. The present paper shows that the assumptions required for Lewbel’s estimator can indeed be satisfied when an endogenous regressor is binary.

926. Hideo Konishi (Boston College) and Chen-Yu Pan (Wuhan University), "Campaign Contributions for Free Trade: Salient and Non-salient Agendas", (05/2017; PDF)

Abstract: Although protectionism became a salient issue in the 2016 presidential election campaign, both Republican and Democratic adminis- trations have been silently promoting free trade for decades. We set up a two-party electoral competition model in a two-dimensional policy space with campaign contributions by a group (exporting/multinational firms) that is interested in promoting free trade, for which voters do not have positive sentiment. Assuming that voters are impressionable to campaign spending for/against candidates, we analyze the optimal contract between the interest group and the candidates on policy is- sues and campaign contributions. If voters' negative sentiment to free trade is not too strong, the interest group tends to contribute to both candidates to make free trade a nonsalient issue, and the candidates compete over the other (ideological) dimension only. If votersíneg- ative sentiment to free trade is strong, the interest group tends to contribute to a more malleable candidate only.