February, 17th - Massimo Morelli (Bocconi University)

The Commitment Theory of Populism

When voters' trust in politicians collapses, they demand simple policies that they can easily monitor. Disenchanted citizens therefore prefer committed delegates to politicians who propose themselves as competent policy makers but without a specific policy commitment (trustees). In a two-party competition, the unique asymmetric equilibrium is such that voters with lower interest for the common good select a committed delegate, while those with higher interest for the common good appoint a trustee. In this equilibrium, we show that the committed delegate also chooses all the strategies typically associated with populism in the literature. Hence, this paper puts forward a commitment theory of populism.

 

March, 10th - Hannes Schwandt (Northwestern University)

The Lasting Legacy of Seasonal Influenza: In-utero Exposure and Labor Market Outcomes

Pregnancy conditions have been shown to matter for later economic success, but many threats to fetal development that have been identified are difficult to prevent. In this paper I study seasonal influenza, a preventable illness that comes around every year and causes strong inflammatory responses in pregnant women. Using administrative data from Denmark, I identify the effects of maternal influenza on the exposed offspring via sibling comparison, exploiting both society-wide influenza spread and information on individual mothers who suffer strong infections during pregnancy. In the short term, maternal influenza leads to a doubling of prematurity and low birth weight, by triggering premature labor among women infected in the third trimester. Following exposed offspring into young adulthood, I observe a 9% earnings reduction and a 35% increase in welfare dependence. These long-term effects are strongest for influenza infections during the second trimester and they are partly explained by a decline in educational attainment, pointing to cognitive impairment. This effect pattern suggests that maternal influenza damages the fetus through multiple mechanisms, and much of the damage may not be visible at birth. Taken together, these results provide evidence that strong infections during pregnancy are an often overlooked prenatal threat with long-term consequences.

 

March, 31th - Elias Carroni (University of Bologna)

Information Asymmetry and Hold-up in Foreign Networks: on the Optimal Sharing Rule with Local Partners

Quite often, doing business abroad compels the investor (the outsider) to resort to a local partner (an insider) to smooth the access and secure goal achievement through the use  of its personal connections in the foreign network. A sharing rule must therefore be established to split the joint surplus from the relationship. The paper shows how different features of the local social network drive an investor's choice in regard to the equity stake to leave to its foreign partner. Two problems affect this choice. First, a standard hold-up problem may arise when interpersonal linkages are qualitatively different and their cost of activation is upon the insider only. Second, the foreign investor typically suffers of an information asymmetry, insofar as the partner's position in the local network is private information. We characterize sufficient conditions for the emergence of such problems and we provide both analytical and numerical computations of the equity premium to pay to the insider as a function of foreign network characteristics.

 

April, 7th - Tommaso Valletti (Imperial College Business School)

News Content and Advertising Effectiveness: Evidence from an Eye-Tracking Experiment

Does online news content facilitate display advertising effectiveness? We conduct an experiment in which subjects read various online news articles and are shown ads for brands next to these articles. Using novel non-intrusive eye-tracking technology, we measure the attention that each individual pays to each article and ad. Then, respondents choose between cash or vouchers for the brands advertised. We show how news articles that capture more of readers’ attention increase the amount of attention readers pay to ads on the page, which in turn increases ad recall and purchase probability. The type of news content – “hard” versus “soft” news, or news that matches the reader’s political preferences – influences advertising effectiveness through changing readers’ attention to news content, but does not detectably impact ad effectiveness beyond that. We discuss implications of such attention spillovers from content to ads and the resulting increase in ad effectiveness for firms’ investments in captivating “hard” news content.

 

April, 28th - John Hey (University of York)

Learning under Ambiguity when Information Acquisition is Costly: an Experiment

Consider a decision-maker (DM) confronted with two bags each containing red and blue balls: a Risky Bag in which the proportion of Red balls is exactly ½; and an Ambiguous Bag in which the proportion of red balls is unknown, but which could be either ½+ α or ½-α. The DM must choose a bag and a colour, one ball is randomly drawn from the bag and, if it is the colour he or she chose, the DM gets paid £10, otherwise £0. Before choosing, the DM can buy information about the composition of the Ambiguous Bag, in the form of a Brownian motion that depends upon the true composition of the Ambiguous Bag.  Epstein and Ji (2020) provide a solution to the optimal strategy of a DM with maxmin preferences. This depends upon his or her aversion to ambiguity. If this is sufficiently large, the DM should not buy information and should just choose a bag and a colour at random; if, however, ambiguity aversion is sufficiently low, the DM should keep on buying information until a threshold of the Brownian motion is crossed. We report on an experiment designed to test to see if subjects follow the optimal strategy. We find that most deviate from this optimal strategy. There could be other explanations of their behaviour.

 

May, 19th - Stefano Caria (Warwick University)

The Allocation of Incentives in Multi-Layered Organizations

A classic problem faced by organizations is to decide how to distribute incentives among their different layers. By means of a field experiment with a large public-health organization in Sierra Leone, we show that financial incentives maximize output when they are equally shared between frontline health workers and their supervisor. The impact of this intervention on completed health visits is 61% larger than the impact of incentive schemes that target exclusively the worker or the supervisor. Also, the shared incentives uniquely improve overall health-service provision and health outcomes. We use these experimental results to structurally estimate a model of service provision and find that shared incentives are effective because worker and supervisor effort are strong strategic complements, and because side payments across layers are limited. Through the use of counterfactual model experiments, we highlight the importance of effort complementarities across the different layers of an organization for optimal policy design.

 

May, 26th - Alessandra Canepa (University of Turin)

Inflation Dynamics and Time-Varying Persistence: The Importance of the Uncertainty Channel

In this article we propose a time-varying measure of persistence that accounts for the impact of inflation uncertainty on persistence. Specifically, considering an AR(1)-APARCH(1,1)-in-mean-level process with breaks, we derive a persistence measure that explicitly accounts for the persistence of uncertainty in addition to the intrinsic persistence. Analyzing the inflation series for a number of countries we find evidence that inflation uncertainty plays an important role in shaping expectations and a higher level of uncertainty increases inflation persistence. Also, considering a number of unit root tests that are commonly used to test for inflation persistence using Monte Carlo experiments we show that if the breaks in the in-mean parameter are ignored conventional unit root tests might falsely indicate inflation as being a nonstationary rather than a stationary process.