We use stock market data to test cross-sectional implications of theories of sovereign default and provide a market-based estimate of sovereign default costs. We find that the stock prices of firms vulnerable to financial intermediation disruption, or firms more exposed to the government, are particularly sensitive to changes in sovereign credit spreads. This is consistent with theories in which default is costly because it disrupts financial intermediation and damages government reputation. Estimation of a structural valuation model indicates that the market prices stocks as if sovereign default has large effects on vulnerable stocks, translating to a 12% destruction of the value of their productive assets.

ABSTRACT We develop a model of monetary policy with two key features: the central bank has private information about its long‐run target rate and is averse to bond market volatility. In this setting, the central bank gradually impounds changes in its target into the policy rate. Such gradualism represents an attempt to not spook the bond market. However, this effort is partially undone in equilibrium, as markets rationally react more to a given move when the central bank moves more gradually. This time‐consistency problem means that society would be better off if the central bank cared less about the bond market.

Difference-in-differences (DID) is a method to evaluate the effect of a treatment. In its basic version, a “control group” is untreated at two dates, whereas a “treatment group” becomes fully treated at the second date. However, in many applications of the DID method, the treatment rate only increases more in the treatment group. In such fuzzy designs, a popular estimator of the treatment effect is the DID of the outcome divided by the DID of the treatment. We show that this ratio identifies a local average treatment effect only if the effect of the treatment is stable over time, and if the effect of the treatment is the same in the treatment and in the control group. We then propose two alternative estimands that do not rely on any assumption on treatment effects, and that can be used when the treatment rate does not change over time in the control group. We prove that the corresponding estimators are asymptotically normal. Finally, we use our results to reassess the returns to schooling in Indonesia.

This paper investigates banks’ incentive to bias the risk estimates they report to regulators. Within loan syndicates, we find that banks with less capital report lower risk estimates. Consistent with an effort to mitigate capital requirements, the sensitivity to capital is robust to bank fixed effects and greater for large, risky, and opaque credits. Also, low-capital banks’ risk estimates have less explanatory power than those of high-capital banks with regard to loan prices, indicating that their estimates incorporate less information. Our results suggest banks underreport risk in response to capital constraints and highlight the perils of regulation premised on self-reporting. Received September 21, 2016; editorial decision September 18, 2017 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web Site next to the link to the final published paper online.

Teachers affect a variety of student outcomes through their influence on both cognitive and noncognitive skill. I proxy for students’ noncognitive skill using non–test score behaviors. These behaviors include absences, suspensions, course grades, and grade repetition in ninth grade. Teacher effects on test scores and those on behaviors are weakly correlated. Teacher effects on behaviors predict larger impacts on high school completion and other longer-run outcomes than their effects on test scores. Relative to using only test score measures, using effects on both test score and noncognitive measures more than doubles the variance of predictable teacher impacts on longer-run outcomes.

Abstract This paper develops a novel method for classifying oil price changes as supply or demand driven using information in asset prices. Motivated by a simple model, demand shocks are identified as returns to an index of oil producing firms which are orthogonal to unexpected changes in the VIX index, with supply shocks capturing the remaining variation in oil prices. Demand shocks are strongly positively correlated with market returns and economic output, whereas supply shocks have a strong negative correlation. The negative correlation of supply shocks and returns is strongest in industries that produce consumer goods, while the positive correlation of demand shocks is stronger for industries which use relatively large amounts of oil as an input.

Abstract The present research examines how hedonic and utilitarian purchase motivations influence consumers’ perceptions of their product preferences and the resulting number of options they wish to consider when making a purchase. Across six studies, consumers choose to review larger assortments when their purchase motivation is hedonic rather than when their purchase motivation is utilitarian. This effect occurs because consumers with hedonic purchase motivations perceive their product preferences as highly unique compared to consumers with utilitarian purchase motivations. Higher perceived preference uniqueness increases the difficulty consumers anticipate in finding a preference-matching product, resulting in an expansion of the number of product alternatives to review. Further supporting the perceived preference uniqueness account, the documented effect is attenuated when product assortments are customized based on consumers’ personal preferences and when a social similarity priming task is employed. These findings provide additional evidence on the distinction between hedonic and utilitarian purchase motivations, their impact on perceived preference uniqueness, and their implications for consumer decision making via assortment size choice.

Work schedules play an important role in utilizing labor in organizations. In this study of emergency department physicians in shift work, schedules induce two distortions: First, physicians “slack off†by accepting fewer patients near end of shift (EOS). Second, physicians distort patient care, incurring higher costs as they spend less time on patients assigned near EOS. Examining how these effects change with shift overlap reveals a tradeoff between the two. Within an hour after the normal time of work completion, physicians are willing to spend hospital resources more than six times their market wage to preserve their leisure. Accounting for overall costs, I find that physicians slack off at approximately second†best optimal levels.

Studies of failures in organizational information gathering, learning, and decision making highlight psychological and institutional causes. However, organizations are also political coalitions that face internal contestation over strategies, policies, and goals. The decision of whether to collect information impacts both the goals that organization members try to meet and the organization’s capacity to meet them. This paper develops a formal model that introduces political conflict into a theory of organizational learning. The model has a key insight: organizations characterized by political conflict will forego learning when leaders do not need to learn to build consensus in support of change, and will learn when leaders are unable to build such a consensus without learning. As a result, political conflict leads organizations to implement changes without first learning and to frequently learn when no changes are forthcoming. These tendencies toward ignorant decision making and educated inertia will be more pronounced when environmental variability is high, when learning about existing policies does not also teach about potential policy alternatives, and when organization members are risk averse. The model offers predictions about pathological learning behaviors that are consistent with considerable prior qualitative research. These patterns cannot be produced by experiential learning models in which political conflict is not present. The e-companion is available at https://doi.org/10.1287/orsc.2017.1164 .