Abstract Using U.S. data from 1929 to 2015, we show that elevated credit-market sentiment in year t − 2 is associated with a decline in economic activity in years t and t + 1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. When credit risk is aggressively priced, spreads subsequently widen. The timing of this widening is, in turn, closely tied to the onset of a contraction in economic activity. Exploring the mechanism, we find that buoyant credit-market sentiment in year t − 2 also forecasts a change in the composition of external finance: net debt issuance falls in year t, while net equity issuance increases, consistent with the reversal in credit-market conditions leading to an inward shift in credit supply. Unlike much of the current literature on the role of financial frictions in macroeconomics, this article suggests that investor sentiment in credit markets can be an important driver of economic fluctuations.

Abstract To reduce poverty and food insecurity in Africa requires raising productivity in agriculture. Systematic use of fertilizer and hybrid seed is a pathway to increased productivity, but adoption of these technologies remains low. We investigate whether the quality of agricultural inputs can help explain low take-up. Testing modern products purchased in local markets, we find that 30% of nutrient is missing in fertilizer, and hybrid maize seed is estimated to contain less than 50% authentic seeds. We document that such low quality results in low average returns. If authentic technologies replaced these low-quality products, however, average returns are high. To rationalize the findings, we calibrate a learning model using data from our agricultural trials. Because agricultural yields are noisy, farmers’ ability to learn about quality is limited and this can help explain the low quality equilibrium we observe, but also why the market has not fully collapsed.

Abstract Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We leverage a natural experiment at a large self-insured firm that required all of its employees to switch from an insurance plan that provided free health care to a nonlinear, high-deductible plan. The switch caused a spending reduction between 11.8% and 13.8% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping, (ii) quantity reductions, and (iii) quantity substitutions and find that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g., preventive services) and potentially wasteful care (e.g., imaging services). To better understand these changes, we study how consumers respond to the complex structure of the high-deductible contract. Consumers respond heavily to spot prices at the time of care, reducing their spending by 42% when under the deductible, conditional on their true expected end-of-year price and their prior year end-of-year marginal price. There is no evidence of learning to respond to the true shadow price in the second year post-switch.