We introduce a model in which people exchange some goods and services informally in their community and others formally on a market. We show that enforcement by informal communities and a formal market are complements: if communities ostracize individuals who are caught cheating on the market, this bolsters incentives to comply with exchanges in both settings. Although transactions within a community generate lower gains from trade than those on the wider market, the enhanced incentives from simultaneously transacting in communities and on the overall market can be welfare-enhancing compared to either extreme. We discuss the implications of informal community exchanges in a country’s development as well as how moral or religious beliefs enhance the complementarity between community and formal enforcement.
{"title":"The Incentive Complementarity Between Formal and Informal Enforcement","authors":"Matthew O Jackson, Yiqing Xing","doi":"10.1093/jeea/jvae009","DOIUrl":"https://doi.org/10.1093/jeea/jvae009","url":null,"abstract":"We introduce a model in which people exchange some goods and services informally in their community and others formally on a market. We show that enforcement by informal communities and a formal market are complements: if communities ostracize individuals who are caught cheating on the market, this bolsters incentives to comply with exchanges in both settings. Although transactions within a community generate lower gains from trade than those on the wider market, the enhanced incentives from simultaneously transacting in communities and on the overall market can be welfare-enhancing compared to either extreme. We discuss the implications of informal community exchanges in a country’s development as well as how moral or religious beliefs enhance the complementarity between community and formal enforcement.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139764489","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pauline Gandré, Mike Mariathasan, Ouarda Merrouche, Steven Ongena
Following the early implementation of the global over-the-counter (OTC) derivatives market reform in the US and the associated increase in trading costs, US banks shifted up to 60% of their OTC derivatives activity abroad, particularly towards less regulated jurisdictions. Consistent with a cost saving incentive of regulatory arbitrage, we find that this flight abroad is driven by costlier blocks of the reform and subsequently causes a narrowing of swap spreads. We further show that this regulatory arbitrage causes an increase in financial risk as more activity is shifted to more lenient jurisdictions.
{"title":"Unintended Consequences of the Global Derivatives Market Reform","authors":"Pauline Gandré, Mike Mariathasan, Ouarda Merrouche, Steven Ongena","doi":"10.1093/jeea/jvae010","DOIUrl":"https://doi.org/10.1093/jeea/jvae010","url":null,"abstract":"Following the early implementation of the global over-the-counter (OTC) derivatives market reform in the US and the associated increase in trading costs, US banks shifted up to 60% of their OTC derivatives activity abroad, particularly towards less regulated jurisdictions. Consistent with a cost saving incentive of regulatory arbitrage, we find that this flight abroad is driven by costlier blocks of the reform and subsequently causes a narrowing of swap spreads. We further show that this regulatory arbitrage causes an increase in financial risk as more activity is shifted to more lenient jurisdictions.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-02-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139764292","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Educational institutions not only build human capital; they also shape culture. We present a model of cultural dynamics produced by cultural transmission through the education system. Groups that are culturally marginalized become economically disadvantaged and exhibit various forms of resistance to education. First, individuals may drop out of education to avoid its cultural content. Second, individuals may invest in other forms of socialization to tune out the cultural content of education. Finally, cultural communities may collectively resist mainstream education by turning out to change curricula or establish their own schools. We show that resistance to education can make it impossible for a policymaker to eliminate alternative cultural traits from the population. In fact, a policymaker may have to moderate the cultural content of education or else face a backlash which increases the spread of alternative cultural traits. Our analysis unifies a growing body of empirical work on the effects of cultural policies and makes new predictions regarding the effect of socializing institutions on cultural dynamics.
{"title":"Resisting Education","authors":"Jean-Paul Carvalho, Mark Koyama, Cole Williams","doi":"10.1093/jeea/jvae008","DOIUrl":"https://doi.org/10.1093/jeea/jvae008","url":null,"abstract":"Educational institutions not only build human capital; they also shape culture. We present a model of cultural dynamics produced by cultural transmission through the education system. Groups that are culturally marginalized become economically disadvantaged and exhibit various forms of resistance to education. First, individuals may drop out of education to avoid its cultural content. Second, individuals may invest in other forms of socialization to tune out the cultural content of education. Finally, cultural communities may collectively resist mainstream education by turning out to change curricula or establish their own schools. We show that resistance to education can make it impossible for a policymaker to eliminate alternative cultural traits from the population. In fact, a policymaker may have to moderate the cultural content of education or else face a backlash which increases the spread of alternative cultural traits. Our analysis unifies a growing body of empirical work on the effects of cultural policies and makes new predictions regarding the effect of socializing institutions on cultural dynamics.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139764295","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that the supply of U.S. life annuities is constrained by interest rate risk. We identify this effect using annuity prices offered by life insurers from 1989 to 2019 and exogenous variations in contract-level regulatory capital requirements. The cost of interest rate risk management—conditional on the effect of adverse selection—accounts for about half of annuity markups, or 8 percentage points. The contribution of interest rate risk to annuity markups sharply increased after the Global Financial Crisis, suggesting new retirees’ opportunities to transfer their longevity risk are unlikely to improve in a persistently low interest rate environment.
{"title":"What’s Wrong with Annuity Markets?","authors":"Stéphane Verani, Pei Cheng Yu","doi":"10.1093/jeea/jvae007","DOIUrl":"https://doi.org/10.1093/jeea/jvae007","url":null,"abstract":"We show that the supply of U.S. life annuities is constrained by interest rate risk. We identify this effect using annuity prices offered by life insurers from 1989 to 2019 and exogenous variations in contract-level regulatory capital requirements. The cost of interest rate risk management—conditional on the effect of adverse selection—accounts for about half of annuity markups, or 8 percentage points. The contribution of interest rate risk to annuity markups sharply increased after the Global Financial Crisis, suggesting new retirees’ opportunities to transfer their longevity risk are unlikely to improve in a persistently low interest rate environment.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139764131","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a model of electoral campaigns as dynamic contests in which two office-motivated candidates allocate their budgets over time to affect their odds of winning. We measure the candidates’ evolving odds of winning using a state variable that tends to decay over time, and we refer to it as the candidates’ “relative popularity.” In our baseline model, the equilibrium ratio of spending by each candidate equals the ratio of their initial budgets; spending is independent of past realizations of relative popularity; and there is a positive relationship between the strength of decay in the popularity process and the rate at which candidates increase their spending over time as election day approaches. We use this relationship to recover estimates of the perceived decay rate in popularity leads in actual U.S. subnational elections.
{"title":"Electoral Campaigns as Dynamic Contests","authors":"Avidit Acharya, Edoardo Grillo, Takuo Sugaya, Eray Turkel","doi":"10.1093/jeea/jvae006","DOIUrl":"https://doi.org/10.1093/jeea/jvae006","url":null,"abstract":"We develop a model of electoral campaigns as dynamic contests in which two office-motivated candidates allocate their budgets over time to affect their odds of winning. We measure the candidates’ evolving odds of winning using a state variable that tends to decay over time, and we refer to it as the candidates’ “relative popularity.” In our baseline model, the equilibrium ratio of spending by each candidate equals the ratio of their initial budgets; spending is independent of past realizations of relative popularity; and there is a positive relationship between the strength of decay in the popularity process and the rate at which candidates increase their spending over time as election day approaches. We use this relationship to recover estimates of the perceived decay rate in popularity leads in actual U.S. subnational elections.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139679605","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Conditional cash transfer programs are the anti-poverty program of choice in many developing countries, aiming to improve human capital and break the intergenerational transmission of poverty. A decade after a randomized 3-year CCT program began, earlier exposure during primary school ages when children were at risk of dropout led to higher labor market participation for young men and women and higher earnings for men. The _ndings highlight the roles of the different CCT program components with variation in timing of access to nutrition, health and education investments translating into substantial differential effects on learning outcomes for men and reproductive health outcomes for women.
{"title":"Experimental Evidence from a Conditional Cash Transfer Program: Schooling, Learning, Fertility, and Labor Market Outcomes After 10 Years","authors":"T. Barham, K. Macours, J. Maluccio","doi":"10.1093/jeea/jvae005","DOIUrl":"https://doi.org/10.1093/jeea/jvae005","url":null,"abstract":"\u0000 Conditional cash transfer programs are the anti-poverty program of choice in many developing countries, aiming to improve human capital and break the intergenerational transmission of poverty. A decade after a randomized 3-year CCT program began, earlier exposure during primary school ages when children were at risk of dropout led to higher labor market participation for young men and women and higher earnings for men. The _ndings highlight the roles of the different CCT program components with variation in timing of access to nutrition, health and education investments translating into substantial differential effects on learning outcomes for men and reproductive health outcomes for women.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-01-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139606402","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a theory of social norms (or conventions) that implement substantial levels of inequality between men and women, ethnic groups, and classes and that persist over long periods of time despite being inefficient and not supported by formal institutions. Consistent with historical cases, we extend the standard asymmetric stochastic evolutionary game model to allow sub population sizes to differ and idiosyncratic rejection of a status quo convention to be intentional to some degree (rather than purely random as in the standard evolutionary models). In this setting, if idiosyncratic play is sufficiently intentional and the subordinate class sufficiently large relative to the elite, then risk-dominated conventions that are both more unequal and inefficient relative to alternative conventions will be stochastically stable and may persist for long periods. We show that the same is true in a general bipartite network of the population if most of the subordinate groups interactions are local, while the elite is more “cosmopolitan”. We apply the model to the evolution of wage conventions on the bipartite network of workers and employers, and find that an unequal monopsonistic wage convention is robust to the idiosyncratic play of workers that otherwise might displace it.
{"title":"Social Conflict and the Evolution of Unequal Conventions","authors":"Sung-Ha Hwang, Suresh Naidu, Samuel Bowles","doi":"10.1093/jeea/jvae004","DOIUrl":"https://doi.org/10.1093/jeea/jvae004","url":null,"abstract":"We propose a theory of social norms (or conventions) that implement substantial levels of inequality between men and women, ethnic groups, and classes and that persist over long periods of time despite being inefficient and not supported by formal institutions. Consistent with historical cases, we extend the standard asymmetric stochastic evolutionary game model to allow sub population sizes to differ and idiosyncratic rejection of a status quo convention to be intentional to some degree (rather than purely random as in the standard evolutionary models). In this setting, if idiosyncratic play is sufficiently intentional and the subordinate class sufficiently large relative to the elite, then risk-dominated conventions that are both more unequal and inefficient relative to alternative conventions will be stochastically stable and may persist for long periods. We show that the same is true in a general bipartite network of the population if most of the subordinate groups interactions are local, while the elite is more “cosmopolitan”. We apply the model to the evolution of wage conventions on the bipartite network of workers and employers, and find that an unequal monopsonistic wage convention is robust to the idiosyncratic play of workers that otherwise might displace it.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139516298","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the optimal joint design of incentives and performance rating scales in a principal-manager-worker hierarchy. The principal wants to motivate the worker to exert unobservable effort at the minimum feasible cost. Given the worker’s effort, two signals are realized: public and verifiable output and a private non-verifiable signal known only to the manager. The principal may try to elicit the manager’s private information by requiring her to evaluate the worker’s performance. Payments may depend on output and the manager’s evaluation. I show that the principal can achieve no more than what is feasible with a binary rating scale. I also identify scenarios where subjective evaluations are valuable (non-valuable), reduced transparency is advantageous, and forced ranking outperforms individual evaluations.
{"title":"Agency in Hierarchies: Middle Managers and Performance Evaluations","authors":"Henrique Castro-Pires","doi":"10.1093/jeea/jvae003","DOIUrl":"https://doi.org/10.1093/jeea/jvae003","url":null,"abstract":"This paper studies the optimal joint design of incentives and performance rating scales in a principal-manager-worker hierarchy. The principal wants to motivate the worker to exert unobservable effort at the minimum feasible cost. Given the worker’s effort, two signals are realized: public and verifiable output and a private non-verifiable signal known only to the manager. The principal may try to elicit the manager’s private information by requiring her to evaluate the worker’s performance. Payments may depend on output and the manager’s evaluation. I show that the principal can achieve no more than what is feasible with a binary rating scale. I also identify scenarios where subjective evaluations are valuable (non-valuable), reduced transparency is advantageous, and forced ranking outperforms individual evaluations.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139516107","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Andreas G B Ziegler, Giorgia Romagnoli, Theo Offerman
We examine how the erosion of morals, norms, and norm compliance in markets depends on the market power of individual traders. Previously studied markets allow traders to exchange at most one unit and provide market power to individual traders by de-activating two forces: (i) the replacement logic, whereby immoral trading is justified by the belief that others would trade otherwise; (ii) market selection, by which the least moral trader determines aggregate quantities. In an experiment, we compare single-unit to (more common) multi-unit markets, which may activate these forces. Multi-unit markets, in contrast to single-unit markets, lead to a complete erosion of morals. This is associated primarily with a deterioration in norm compliance: the observed level of immoral trade is in contrast with the prevailing social norm. The replacement logic is the main mechanism driving this finding.
{"title":"Morals in Multi-Unit Markets","authors":"Andreas G B Ziegler, Giorgia Romagnoli, Theo Offerman","doi":"10.1093/jeea/jvae001","DOIUrl":"https://doi.org/10.1093/jeea/jvae001","url":null,"abstract":"We examine how the erosion of morals, norms, and norm compliance in markets depends on the market power of individual traders. Previously studied markets allow traders to exchange at most one unit and provide market power to individual traders by de-activating two forces: (i) the replacement logic, whereby immoral trading is justified by the belief that others would trade otherwise; (ii) market selection, by which the least moral trader determines aggregate quantities. In an experiment, we compare single-unit to (more common) multi-unit markets, which may activate these forces. Multi-unit markets, in contrast to single-unit markets, lead to a complete erosion of morals. This is associated primarily with a deterioration in norm compliance: the observed level of immoral trade is in contrast with the prevailing social norm. The replacement logic is the main mechanism driving this finding.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139463419","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Paolo Acciari, Facundo Alvaredo, Salvatore Morelli
We estimate the distribution of wealth in Italy between 1995 and 2016 using a novel source of inheritance tax files, combined with surveys and national accounts. We find that the level of wealth concentration is in line with other European countries; however, its time trend appears more in line with the US, showing a significant increase over the period studied. The country exhibits one of the greatest declines in the wealth share of the bottom 50%. The paper also shows that age plays a marginal role in explaining wealth concentration. Changes in savings, instead, are the predominant force behind the increase in wealth inequality, even at the top. Equity prices also account for a large share of wealth growth above the 99th percentile, whereas changes in house prices play only a minor role. Finally, we document the growing concentration of life-time wealth transfers, and their increasingly favorable tax treatment.
{"title":"The concentration of personal wealth in Italy 1995–2016","authors":"Paolo Acciari, Facundo Alvaredo, Salvatore Morelli","doi":"10.1093/jeea/jvae002","DOIUrl":"https://doi.org/10.1093/jeea/jvae002","url":null,"abstract":"We estimate the distribution of wealth in Italy between 1995 and 2016 using a novel source of inheritance tax files, combined with surveys and national accounts. We find that the level of wealth concentration is in line with other European countries; however, its time trend appears more in line with the US, showing a significant increase over the period studied. The country exhibits one of the greatest declines in the wealth share of the bottom 50%. The paper also shows that age plays a marginal role in explaining wealth concentration. Changes in savings, instead, are the predominant force behind the increase in wealth inequality, even at the top. Equity prices also account for a large share of wealth growth above the 99th percentile, whereas changes in house prices play only a minor role. Finally, we document the growing concentration of life-time wealth transfers, and their increasingly favorable tax treatment.","PeriodicalId":48297,"journal":{"name":"Journal of the European Economic Association","volume":null,"pages":null},"PeriodicalIF":3.6,"publicationDate":"2024-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139463421","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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