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Brot-Goldberg, Z., Layton, T., Vabson, B., & Wang, A. Y. (2023). The Behavioral Foundations of Default Effects: Theory and Evidence from Medicare Part D. American Economic Review, 113, 2718–2758.
We show in two natural experiments that default rules in Medicare Part D have large, persistent effects on enrollment and drug utilization of low-income beneficiaries. The implications of this phenomenon for welfare and optimal policy depend on the sensitivity of passivity to the value of the default option. Using random assignment to default options, we show that beneficiary passivity is extremely insensitive, even when enrolling in the default option would result in substantial drug consumption losses. A third natural experiment suggests that variation in active choice is driven by random transitory shocks rather than the inherent attentiveness of some beneficiaries.
Buchmann, N., Field, E., Glennerster, R., Nazneen, S., & Wang, X. Y. (2023). A Signal to End Child Marriage: Theory and Experimental Evidence from Bangladesh. American Economic Review, 113, 2645–2688.
Child marriage remains common even where female schooling and employment opportunities have grown. We experimentally evaluate a financial incentive to delay marriage alongside a girls' empowerment program in Bangladesh. While girls eligible for two years of incentive are 19 percent less likely to marry underage, the empowerment program failed to decrease adolescent marriage. We show that these results are consistent with a signaling model in which bride type is imperfectly observed but preferred types (socially conservative girls) have lower returns to delaying marriage. Consistent with our theoretical prediction, we observe substantial spillovers of the incentive on untreated nonpreferred types.
DelacrÃ©taz, D., Kominers, S. D., & Teytelboym, A. (2023). Matching Mechanisms for Refugee Resettlement. American Economic Review, 113, 2689–2717.
Current refugee resettlement processes account for neither the preferences of refugees nor the priorities of hosting communities. We introduce a new framework for matching with multidimensional knapsack constraints that captures the (possibly multidimensional) sizes of refugee families and the capacities of communities. We propose four refugee resettlement mechanisms and two solution concepts that can be used in refugee resettlement matching under various institutional and informational constraints. Our theoretical results and simulations using refugee resettlement data suggest that preference-based matching mechanisms can improve match efficiency, respect priorities of communities, and incentivize refugees to report where they would prefer to settle.
Gershkov, A., Moldovanu, B., Strack, P., & Zhang, M. (2023). Optimal Insurance: Dual Utility, Random Losses, and Adverse Selection. American Economic Review, 113, 2581–2614.
We study a generalization of the classical monopoly insurance problem under adverse selection (see Stiglitz 1977) where we allow for a random distribution of losses, possibly correlated with the agent's risk parameter that is private information. Our model explains patterns of observed customer behavior and predicts insurance contracts most often observed in practice: these consist of menus of several deductible-premium pairs or menus of insurance with coverage limitsâ€“premium pairs. A main departure from the classical insurance literature is obtained here by endowing the agents with risk-averse preferences that can be represented by a dual utility functional (Yaari 1987).
Lashkaripour, A., & Lugovskyy, V. (2023). Profits, Scale Economies, and the Gains from Trade and Industrial Policy. American Economic Review, 113, 2759–2808.
This paper examines the efficacy of second-best trade restrictions at correcting sectoral misallocation due to scale economies or profit-generating markups. To this end, we characterize optimal trade and industrial policies in an important class of quantitative trade models with scale effects and profits, estimating the structural parameters that govern policy outcomes. Our estimates reveal that standalone trade policy measures are remarkably ineffective at correcting misallocation, even when designed optimally. Unilateral adoption of corrective industrial policies is also ineffective due to immiserizing growth effects. But industrial policies coordinated internationally via a deep agreement are more transformative than any unilateral policy alternative.
Masatlioglu, Y., Orhun, Y., & Raymond, C. (2023). Intrinsic Information Preferences and Skewness. American Economic Review, 113, 2615–2644.
We examine whether people have an intrinsic preference for negatively skewed or positively skewed information structures and how these preferences relate to intrinsic preferences for informativeness. The results from lab experiments show a strong intrinsic preference for positively skewed information and suggest that providing such information can improve information uptake. Evidence from field studies in decision- and ego-relevant contexts replicates these findings. We discuss our findings through the lens of existing theories and the potential trade-offs in information provision policies.
Albagli, E., Hellwig, C., & Tsyvinski, A. (2023). Imperfect Financial Markets and Investment Inefficiencies. American Economic Review, 113, 2323–2354.
We analyze the consequences of noisy information aggregation for investment. Market imperfections create endogenous rents that cause overinvestment in upside risks and underinvestment in downside risks. In partial equilibrium, these inefficiencies are particularly severe if upside risks are coupled with easy scalability of investment. In general equilibrium, the shareholders' collective attempts to boost value of individual firms leads to a novel externality operating through price that amplifies investment distortions with downside risks but offsets distortions with upside risks.
Avoyan, A., & Ramos, J. (2023). A Road to Efficiency through Communication and Commitment. American Economic Review, 113, 2355–2381.
We experimentally examine the efficacy of a novel pre-play institution in a well-known coordination gameâ€”the minimum-effort gameâ€”in which coordination failures are robust and persistent phenomena. This new institution allows agents to communicate while incrementally committing to their words, leading to a distinct theoretical prediction: the efficient outcome is uniquely selected in the extended coordination game. We find that commitment-enhanced communication significantly increases subjects' payoffs and achieves higher efficiency levels than various nonbinding forms of communication. We further identify the key ingredients of the institution that are central to achieving such gains.
Cappelen, A. W., Cappelen, C., & Tungodden, B. (2023). Second-Best Fairness: The Trade-off between False Positives and False Negatives. American Economic Review, 113, 2458–2485.
A main focus in economics is how to design optimal policies in second-best situations, which often requires a trade-off between giving some individuals more than they deserve, false positives, and others less than they deserve, false negatives. This paper provides novel evidence on people's second-best fairness preferences from large-scale experimental studies in the United States and Norway. The majority of people are more concerned with false negatives than with false positives, but we document substantial heterogeneity in second-best fairness preferences between the countries and across the political spectrum. The findings shed light on the political economy of social insurance and redistribution.
Chodorow-Reich, G., Karabarbounis, L., & Kekre, R. (2023). The Macroeconomics of the Greek Depression. American Economic Review, 113, 2411–2457.
Greece experienced a boom until 2007, followed by a collapse of unprecedented magnitude and persistence. We assess the sources of the boom and the bust, using a rich estimated dynamic general equilibrium model. External demand and government consumption fueled the boom in production, whereas transfers fueled the boom in consumption. Different from the standard narrative, wages and prices declined substantially during the bust. Tax policy accounts for the largest fraction of the bust in production, whereas uninsurable risk accounts for the bust in consumption and wages. We assess how the composition of fiscal adjustment and bailouts affected the crisis.
- Journal Article (22,340)
Between 1900 and 1999
- Between 1940 and 1949 (67)
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Between 2000 and 2023
- Between 2000 and 2009 (4,062)
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- Between 2020 and 2023 (1,764)