Working Paper
Sonia Jaffe and Scott Kominers. Working Paper. “Matching Markets with Taxation of Transfers.” Job Market Paper. Download Abstract

We analyze the effects of taxation on outcomes in matching markets. Taxes can make inefficient outcomes stable by causing workers to prefer firms from which they receive high idiosyncratic match utility, but at which they are less productive. In general, efficiency can be non-monotonic in the tax. However, when agents on one side of the market refuse to match without a positive wage, increasing taxes always decreases efficiency. In addition to providing a continuous link between canonical models of matching with and without transfers, our model highlights a cost of taxation that does not appear to have been examined previously.

Mikkel Plagborg-Møller. Working Paper. “Bayesian Inference on Structural Impulse Response Functions”. Abstract
I propose to estimate structural impulse responses from macroeconomic time series by doing Bayesian inference on the Structural Vector Moving Average representation of the data. This approach has two advantages over Structural Vector Autoregressions. First, it imposes prior information directly on the impulse responses in a flexible and transparent manner. Second, it can handle noninvertible impulse response functions, which are often encountered in applications. Rapid simulation of the posterior of the impulse responses is possible using an algorithm that exploits the Whittle likelihood. The impulse responses are partially identified, and I derive the frequentist asymptotics of the Bayesian procedure to show which features of the prior information are updated by the data. The procedure is used to estimate the effects of technological news shocks on the U.S. business cycle.
Working paper (August 26, 2016) Online appendix (August 26, 2016) Replication files and data (August 26, 2016)
Guilherme Lichand, Marcos Lopes, and Marcelo Medeiros. Working Paper. “Is Corruption Good for Your Health? (Job Market Paper)”. Abstract

While corruption crackdowns have been shown to effectively reduce missing government expenditures, their effects on public service delivery have not been credibly documented. This matters because, if corruption generates incentives for bureaucrats to deliver those services, then deterring it might actually hurt downstream outcomes. This paper exploits variation from an anti-corruption program in Brazil, designed by the federal government to enforce guidelines on earmarked transfers to municipalities, to study this question. Combining random audits with a differences-in-differences strategy, we find that the anti-corruption program greatly reduced occurrences of overinvoicing and off-the-record payments, and of procurement manipulation within health transfers. However, health indicators, such as hospital beds and immunization coverage, became worse as a result. Evidence from audited amounts suggests that lower corruption came at a high cost: after the program, public spending fell by so much that corruption per dollar spent actually increased. These findings are consistent with those responsible for procurement dramatically reducing purchases after the program, either because they no longer can capture rents, or because they are afraid of being punished for procurement mistakes.

Is Corruption Good For Your Health? (Jan, 24)
Gordon Y. Liao. Working Paper. “Credit Migration and Covered Interest Rate Parity.” Project on Behavioral Finance and Financial Stability Working Paper Series (2016-07). Abstract

I document economically large and persistent discrepancies in the pricing of credit risk between corporate bonds denominated in different currencies. This violation of the Law-of-One-Price (LOOP) in credit risk is closely aligned with violations of covered interest rate parity in the time series and the cross-section of currencies. I explain this phenomenon with a model of market segmentation. Post-crisis regulations and intermediary frictions have severely impaired arbitrage in the exchange rate and credit markets each on their own, but capital flows, either currency-hedged investment or debt issuance, bundle together the two LOOP violations. Limits of arbitrage spill over from one market to another.

Paper Internet Appendix
Ishac Diwan and Jamal Ibrahim Haidar. Working Paper. “Do Political Connections Reduce Job Creation? Evidence from Lebanon”. Abstract

Using firm-level census data and the 2009 parliamentary elections episode, we show that sectors that include politically connected firms (PCFs) in Lebanon create less jobs compared to otherwise similar sectors with no connected firms. At the same time, we find that politically connected firms create more jobs than otherwise similar non-politically connected firms. We argue that these findings suggest that PCFs are used for clientelistic purposes in Lebanon, exchanging privileges for new jobs that benefit their patrons’ supporters. We also show that the existence of PCFs in a sector reduces net job creation by reducing sharply the growth of non-PCFs. All these effects were larger during the 2009 election year. Based on several pieces of evidence, we argue that the most likely explanation of this phenomenon is that unfair competition by PCFs hurts their direct competitors and reduces their incentives to invest and innovate.

Francisco Queiro. Working Paper. “The Effect of Manager Education on Firm Growth”. Abstract

This paper shows that firm life cycle growth increases strongly with manager education using administrative data on the universe of firms and workers in Portugal. Among firms with college educated managers, the average 40-year old firm employs 12 times as many workers as the average entrant, while among firms with primary-school educated managers that ratio is below two. The same pattern holds when tracking a cohort of firms over time and sorting them by manager education at entry. In line with the cross-sectional evidence, firms that switch to more educated managers experience a sharp increase in growth relative to comparable firms, and I present evidence that these findings are driven by education itself rather than other manager characteristics correlated with education. The results are stronger for managers with degrees in engineering, science, health and business. More educated managers also increase the use of incentive pay and are more likely to report that their products and services are new and incorporate new technologies. I conclude by calibrating a model of heterogeneous firms to explore the aggregate implications of differences in manager education. Moving from the distribution of manager education in Portugal to that of the U.S. would raise aggregate productivity by 33 percent, accounting for half of the gap in output per capita between the two countries.


The spread of democracy in the developing world has been accompanied by concerns regarding the integrity of election management. This paper estimates the effects of ethnic diversity, or lack thereof, among polling station officials on voting outcomes. I exploit a natural experiment in the 2014 parliamentary elections in India, where the government mandated the random assignment of state employees to the teams that managed polling stations on election day. I find that the presence of officers of minority religious or caste identity within teams led to an average shift in vote share margin of 2.3 percentage points toward the political parties traditionally associated with these groups. Significant spillover effects also occurred across polling stations, and the magnitude of the combined direct and indirect effects is large enough to be relevant to election outcomes. Using survey experiments conducted with more than 5,000 registered voters and election officials, I provide evidence of own-group favoritism in polling personnel and identify the process of voter identity verification as an important channel through which voting outcomes are impacted.


The common prior assumption is a convenient restriction on beliefs in games of incomplete information, but conflicts with evidence that agents publicly disagree in many economic environments. This paper proposes a foundation for heterogeneous beliefs in games, in which disagreement arises not from different information, but from different interpretations of common information. I model players as statisticians who infer an unknown parameter from data. Players know that they may use different inference rules (and, therefore, may disagree about the distribution of payoffs), but have common certainty in the predictions of a class of inference rules. Using this framework, I study the robustness of solutions to a relaxation of the common prior assumption. The main results characterize which rationalizable actions and which Nash equilibria persist given finite quantities of data, and provide a lower bound on the quantity of data needed to learn these solutions. I suggest a new criterion for equilibrium selection based on statistical complexity--solutions that are ``hard to learn" are selected away.

Ryota Iijima and Akitada Kasahara. Working Paper. “Gradual Adjustment and Equilibrium Uniqueness under Noisy Monitoring.” Job Market Paper. Abstract

We study the implications of flexible adjustment in strategic interactions using a class of finite-horizon models in continuous time.  Players take costly actions to affect the evolution of state variables that are commonly observable and perturbed by Brownian noise. The values of these state variables influence players' terminal payoffs at the deadline, as well as their flow payoffs. In contrast to the static case, the equilibrium is unique under a general class of terminal payoff functions. Our characterization of the equilibrium builds on recent developments in the theory of backward stochastic differential equations (BSDEs). We use this tool to analyze applications, including team production, hold-up problems, and dynamic contests. In a team production model, the unique equilibrium selects an efficient outcome when frictions vanish.


How do narrow network plans - those that restrict provider choice - impact health and health care? I use administrative health records and plan choice data for over 100,000 Medicaid recipients in New York to estimate the causal impact of provider networks on health and health care. To measure the size of physician and hospital networks, I model recipients' demand for providers conditional on needing care and combine the estimates with data on the frequency of health care use to predict their preferences over the different provider networks offered. Exploiting the random assignment of recipients to health plans, I find that recipients with better access to physicians had significantly higher health care utilization and spending, a reduction in avoidable hospitalizations, and increased satisfaction. Broader hospital networks led to improved satisfaction but had no impact on utilization or spending. Regulations that encourage broader networks must account for the tradeoff between increased spending and improved access and quality.

The substitutability between workers within a firm, and between incumbent workers and outsiders, matters for understanding the operation of internal labor markets and the consequences of worker turnover. To assess the substitutability of workers, I estimate how exogenous worker exits affect a firm’s demand for incumbent workers and new hires. Using matched employer-employee data based on the universe of German social security records, I analyze the effects of 34,000 unexpected worker deaths and show that these worker exits on average raise the remaining workers’ wages and retention probabilities for a period of several years. These findings are difficult to reconcile with frictionless labor markets and perfect substitutability between incumbent workers and outsiders. The average effect masks substantial heterogeneity: Coworkers in the same occupation as the deceased see positive wage effects; coworkers in other occupations instead experience wage decreases when a high-skilled worker or manager dies. Thus, coworkers in the same occupation appear to be substitutes, while high-skilled workers and managers appear to be complements to coworkers in other occupations. Finally, when the external labor market in the deceased’s occupation is thin, incumbents’ wages respond more and external hiring responds less to a worker death. The results suggest that thin external markets for skills lead to higher firm-specificity of human capital and lower replaceability of incumbents.


Literature has focused attention on identifying whether crime and violence impact growth via changes in economic factor accumulation, i.e. reducing labor supply or increasing capital costs. Yet, much little is known as to how crime and violence may affect how economic factors are allocated. Using a unique dataset created with a text-analysis algorithm of web content, this paper traces a decade of economic activity at the subnational level to show that increases in criminal presence and violent crime reduce economic diversification, increase sector concentration, and diminish economic complexity. An increase of 9.8% in the number of criminal organizations is enough to eliminate one economic sector. Similar effects can be felt if homicides rates increase by more than 22.5%, or if gang-related violence increases by 5.4%. By addressing the impact that crime has on the diversification of production factors, this paper takes current literature one step forward: It goes from exploring the effects of crime in the demand/supply of production factors, to analyzing its effects on economic composition.


This paper studies the question of when we can eliminate investment inefficiency in a general mechanism design model with transferable utility. We show that when agents make investments only before participating in the mechanism, inefficient investment equilibria cannot be ruled out whenever an allocatively efficient social choice function is implemented. We then allow agents to make investments before and after participating in the mechanism. When ex post investments are possible and an allocatively constrained-efficient social choice function is implemented, efficient investments can be fully implemented in perfect Bayesian Nash equilibria if and only if the social choice function is commitment-proof (a weaker requirement than strategy-proofness). Commitment-proofness ensures the efficiency of investments by suppressing the agents’ incentives to make costly ex ante investments which may work as a commitment device. Our result implies that in the provision of public goods, implementation of efficient investments and efficient allocations is possible even given a budget-balance requirement. 

James J. Feigenbaum. Working Paper. “Intergenerational Mobility during the Great Depression”. Abstract

Do severe economic downturns increase intergenerational economic mobility by breaking links between generations, or do they instead reduce mobility by limiting opportunity for the young? To answer this question, I estimate rates of intergenerational mobility during the Great Depression for individuals in American cities that experienced downturns of varying severity. I create two new historical samples, digitizing and transcribing archival data on individual earnings and linking fathers to sons before and after the Depression. To build these longitudinal samples, I develop a new machine learning approach to census matching, which enables me to link individuals accurately and efficiently between censuses in the absence of unique identification numbers. I find that the Great Depression lowered intergenerational mobility for sons growing up in cities hit by large downturns. These results are not driven by place-specific mobility differences: for the generation before the Depression, mobility between 1900 and 1920 is unrelated to future downturn intensity. Differential directed migration is a key mechanism to explain my results. Although sons fled distressed cities at similar rates, the sons of richer fathers migrated to locations that had suffered less severe Depression effects. The differences in rates of intergenerational mobility for sons in the most and least Depression-affected cities are comparable to the differences between the United States and Sweden today.

Sangram V. Kadam. Working Paper. “Interviewing in Matching Markets (Job Market Paper)”. Abstract

Interviewing decisions often shape labor market outcomes. This paper proposes a framework for interviewing in a many-to-one matching market where firms and graduating students have capacity constraints on the number of interviews. While intuition suggests that relaxing interviewing constraints should improve the market’s operation, this is not always the case. As participants are strategic in their interviewing decisions, interviewing constraints carry subtle implications for aggregate surplus, employment, and the distribution of welfare. We relate the insights obtained to some features in matching markets. First, firms frequently pass over even stellar candidates at the market’s interviewing stage and as a result, some highly-skilled students may “fall through the cracks.” Second, relaxing students’ interviewing constraints benefits all firms and only the best students, but it adversely impacts the lower-ranked students. Third, this increase in students' capacities improves the social surplus but may decrease the number of matched agents. This may be undesirable if a social planner cares about the number of matched agents along with or as compared to, the social surplus. Fourth, in some cases a higher-ranked student may be worse off than a lower-ranked student due to firms’ interviewing constraints. We show how credible signaling can ameliorate such inefficiencies. Lastly, interviewing in the presence  of a low capacity acts as a sorting mechanism and an increase in the  interviewing capacity may even lead to a decrease in social welfare due to reduced sorting. 


In aiming to understand why firms differ in their ability to adapt to new contexts, I explore the extent to which prior experience with a previous practice impacts the ability to properly execute a new organizational practice.  I generate predictions by integrating the traditional organizational learning and path dependency literatures.  To test my hypotheses, I use internal data from 294 stores of a large retail chain that implemented a new restocking process in its stores. Initial findings show that, on average, stores dramatically improve execution performance over time, and worker experience with the prior practice matters a great deal.  Stores where employees have greater exposure, either directly or indirectly, to the old organizational practice perform significantly worse than other stores at the outset – consistent with the notion of ‘competency traps’.  However, these stores also learn more quickly, which I show may be the result of increased efficiency in their communications when learning the new process.  These findings suggest that scholars in organizational learning should take attributes of an organization’s experience history into account when assessing variations in new practice performance and learning.

Chen Lian, Yueran Ma, and Carmen Wang. Working Paper. “Low Interest Rates and Risk Taking: Evidence from Individual Investment Decisions”. Abstract

In recent years, interest rates reached historic lows in many countries. We document that individual investors "reach for yield," that is, have a greater appetite for risk taking when interest rates are low. Using an investment experiment holding fixed risk premia and risks, we show that low interest rates lead to significantly higher allocations to risky assets, among MTurk subjects and HBS MBAs. This behavior cannot be easily explained by conventional portfolio choice theory or by institutional frictions. We then propose and test explanations related to investor psychology. We also present complementary evidence using historical data on household investment decisions.

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I demonstrate that non-financial corporations act as cross-market arbitrageurs in their own securities. Firms use one type of security to replace another in response to shifts in relative valuations, inducing negatively-correlated financing flows in different markets. Net equity repurchases and net debt issuance both increase when the expected returns on debt are particularly low, or when the expected returns on equity are relatively high. Credit valuations affect equity financing as much as equity valuations do, and vice versa. Cross-market corporate arbitrage is most prevalent among large, unconstrained firms. It counteracts market segmentation and helps to account for aggregate financing patterns.

Benjamin B. Lockwood. Working Paper. “Optimal Income Taxation with Present Bias”. Abstract

Work often entails up-front costs in exchange for delayed benefits--one must search for a job before becoming employed, paychecks are typically delayed by a few weeks, and a promotion may come only after months or years of extra effort--and mounting  evidence documents present bias over labor supply in the face of such delays. This paper studies the implications of such present bias for the optimal income tax schedule. I derive expressions for optimal tax rates as a function of observable elasticities and present bias, conditional on income. Present bias lowers optimal marginal tax rates, with a larger effect when the elasticity of taxable income is high. If labor commitment contracts are feasible, tax rates depend on the residual uncorrected degree of present bias. Residual bias can arise either because workers are naive or because commitment contracts may be infeasible due to limited liability constraints which prevent firms from imposing fines on workers who quit. I calibrate the model using both existing estimates of present bias and a new estimate of residual present bias using subjective well-being trends following US welfare reforms in the 1990s. All evidence suggests bias is concentrated at low incomes. Numerical simulations show that for modest redistributive preferences, optimal marginal tax rates are substantially negative across low incomes, comparable to those under the Earned Income Tax Credit in the US. Yet the model also generates novel results about optimal tax timing, with implications for improving the schedule of EITC payments.

Mitra Akhtari, Diana Moreira, and Laura Trucco. Working Paper. “Political Turnover, Bureaucratic Turnover, and the Quality of Public Services”. Abstract

We study how political party turnover in mayoral elections in Brazil affects the provision of public education. Exploiting a regression discontinuity design for close elections, we find that municipalities with a new party in office have test scores that are 0.05–0.08 standard deviations lower than comparable municipalities with no change in the political party. Party turnover leads to a sharp increase in the replacement rate of headmasters and teachers in schools controlled by the municipality. In contrast, we show that turnover in the political party of the mayor does not impact the replacement rate of school personnel or student test scores for local (non-municipal) schools that are not controlled by the municipal government. These findings suggest that political turnover in Brazilian municipalities negatively impacts student outcomes through political discretion over the municipal education bureaucracy. Political turnover can adversely affect the quality of public service provision in environments where the bureaucracy is not shielded from the political process.