Knowledge that Transforms

We derive bounds on the rational variation in option‐implied beliefs about market returns. While risk preferences distort option‐implied (or risk‐neutral ) beliefs away from subjective beliefs, one can nonetheless bound risk‐neutral belief movement under a general assumption on the stochastic discount factor. The resulting test requires no knowledge of the objective distribution and allows significantly more flexibility in discount rates than standard volatility tests. Implementing our test empirically using index options, we find that there is so much movement in risk‐neutral beliefs that the bounds are routinely violated. Our results imply significant excess index‐price volatility.

Intensifying climate change makes protection against natural disaster risk – either through ex ante insurance or ex post aid – a first-order public policy issue. Flood risk protection in the U.S. traditionally featured ex post aid through FEMA and heavily subsidized insurance through the National Flood Insurance Program (NFIP). In an effort to correct subsidy-induced overbuilding and under-mitigation in flood-prone areas, the NFIP recently moved to actuarially fair insurance premiums. But this change has two unintended consequences: a fiscal spillover onto FEMA disaster aid as insurance coverage declines in flood-prone areas, and household exposure to uninsurable reclassification risk from uncertain climate projections. We develop a model of optimal flood insurance that incorporates the static and dynamic tradeoffs of subsidizing premiums. We then use a variety of identification strategies and data to estimate the five key parameters needed to implement this model. We find that the fiscal spillover and reclassification risk protection benefits significantly outweigh the moral hazard costs, and that the optimal subsidy to flood insurance is 51%, comparable to the level of subsidization before the recent reform.

This paper studies how new varieties enter markets and become locally available. We provide causal evidence of demand externalities that operate in two steps. First, information about new varieties diffuses directly through real-world social ties among consumers. Second, early purchases generate an indirect spillover to firms: local retailers learn from “pioneer” consumers which new varieties are most likely to succeed and adjust their product offerings accordingly. We study this process in the context of direct-to-consumer imports. Using customs records on individuals’ purchases matched to population-wide social networks, international migrant links, and retailer catchment areas, we document economically meaningful demand externalities. Product-specific expenditure shocks abroad transmit through migrant networks and shift which varieties consumers purchase. Leveraging these shocks as a plausibly exogenous source of local demand variation, we show strong peer effects: prior purchases by close neighbors, coworkers, or friends increase an individual’s likelihood of purchasing the same variety, especially for premium and visible goods. We leverage this result to identify an indirect spillover from consumers to firms: retailers are more likely to add a variety to their assortment when it becomes popular among consumers in their catchment area. Combining the instrument with linked consumer–retailer data and a self-conducted retailer survey, we show that this response reflects learning about latent demand for varieties not yet stocked locally. Together, social diffusion and retailer learning generate demand multipliers that reshape local product availability and expand access to global variety.

The US trade war against China can either enhance or diminish American soft power in China, depending on whether Chinese citizens view it as legitimate. We study how US movie viewership, a measure of American soft power, responds to the trade war. We find a significantly greater reduction in US movie viewership in regions more exposed to the Trump tariffs, but no corresponding decline in non-US movies. The decline is stronger for action and drama movies, which tend to embody greater perceived “Americanness.” Survey data also show a sharper decline in trust in Americans in more tariff-exposed regions.

We study how contracting and monitoring structures in public procurement affect large-scale infrastructure construction. Starting in 2016, Kenya’s public electric utility ran competitive auctions and then awarded and administered dozens of procurement contracts to connect millions to electricity. The causal analyses leverage natural and experimental variation and granular, independentlycollected construction quality data. Kenya Power contracts funded by the World Bank featured unbundled contract components known as ‘design-bid-build’ and enhanced monitoring compared to African Development Bank-funded contracts. Unbundling contracts delayed construction progress but improved quality. Randomized inspections improved quality without large delays. Bundled contracting with additional independent monitoring could improve outcomes.

We study how tax incentives affect the return migration of high-skilled expatriates to their home country, exploiting a generous income tax break for returnees in Italy. Using administrative data and a Triple-Difference design, we estimate a migration elasticity to the average net-of-tax rate just below one. Responses are sizable across the upper half of the earnings distribution, indicating that tax-induced migration is not limited to top earners. A cost-benefit analysis reveals that, while costly in the short term, the scheme pays for itself in present value if a sufficiently large fraction of returnees remains after the scheme elapses.

Online experiments have surged in popularity, but how credible are their published results? We examine the universe of hypotheses tested on Amazon Mechanical Turk and reported in leading journals between 2010 and 2021. We find evidence of widespread p-hacking, publication bias, and under-powered studies. The extent of the problems varies substantially across fields, with marketing particularly badly afflicted and little evidence of distortion in economics. We explore correlates of increased credibility and compare the online results to laboratory results from the same outlets, finding similar distortions in both, with bunching just above the significance threshold more pronounced on MTurk.

We study the real and allocative consequences of relaxing gender-specific credit constraints by analyzing a blended finance program designed to expand bank lending to female entrepreneurs in Turkey. Merging credit registry, tax, and matched employer-employee data, we find participating banks raised their credit share to women by over 18%, spanning repeat, poached, and first-time borrowers. Beneficiary firms invest more, grow employment, sales, and profits, diversify their networks, and exit less. Treated banks also expand lending to male entrepreneurs, though the increase is smaller and disproportionately directed toward higher-productivity firms, suggesting reallocation rather than crowding out. District-level effects are absent, reecting the program’s modest scale.

We examine the preferences of low-income households in Kenya over the structure of unconditional cash transfers. Most preferred lumpy transfers, and some preferred deferred receipt—in contrast to the typical structures of safety-net programs, but consistent with evidence on the financial challenges of poverty. Turning to consequences, receiving transfers later in the year raised income 1.5 years later—but willingness to defer receipt was sensitive to small changes in cash flow around the time of decision-making. Taken together, these results illustrate how adapting cash transfer design to the decision-making environment of those in poverty could improve financial choices and outcomes.