Selected Publications
On the Joint Dynamics of Culture and Political Institutions: Elites and Civil Society,
with Thierry Verdier, Journal of Political Economy, forthcoming 2023 (first draft 2015)
We provide an abstract model of the interaction between culture and political institutions.The model is designed to study the political economy of elites and civil society on the determination of long-run socio-economic activity. We characterize conditions such that the cultural traits of elites and civil society and the institutions determining their relative political power complement (resp. substitute) each other, giving rise to a multiplier effect which amplifies (resp. dampens) their combined ability to spur socio-economic activity. We show how the joint dynamics may display hysteresis, oscillations, depending on the form of the interactionbetween elites and civil society.
Culture, Institutions & the Long Divergence,
with Jared Rubin, Avner Seror, and Thierry Verdier, Journal of Economic Growth, forthcoming 2023.
During the medieval and early modern periods the Middle East lost its economic advantage relative to the West. Recent explanations of this historical phenomenon—called the Long Divergence—focus on these regions’ distinct political economy choices regarding religious legitimacy and limited governance. We study these features in a political economy model of the interactions between rulers, secular and clerical elites, and civil society. The model induces a joint evolution of culture and political institutions converging to one of two distinct stationary states: a religious and a secular regime. We then map qualitatively parameters and initial conditions characterizing the West and the Middle East into the implied model dynamics to show that they are consistent with the Long Divergence as well as with several key stylized political and economic facts. Most notably, this mapping suggests non-monotonic political economy dynamics in both regions, in terms of legitimacy and limited governance, which indeed characterize their history.
Advances in the Economic Theory of Cultural Transmission,
with Thierry Verdier, Annual Review of Economics, forthcoming 2023.
In this paper we survey recent advances in the economic theory of cultural transmission. We highlight three main themes on which the literature has made great progress in the last ten years: the domain of traits subject to cultural transmission, the micro-foundations for the technology of transmission, and feedback effects between culture, institutions, and various socio-economic environments. We conclude suggesting interesting areas for future research.
Heterogeneous Dynasties and Long-Run Mobility,
with Jess Benhabib and Ricardo Fernholz, Economic Journal, forthcoming.
Recent empirical work has demonstrated a positive correlation between grandparent- child wealth-rank, even after controlling for parent-child wealth-rank, as well as a positive correlation between dynastic wealth-ranks across almost 600 years. We show that a simple heterogeneous agents model with idiosyncratic returns to wealth generates a realistic wealth distribution but fails to capture these long-run patterns of wealth mobility. However, an extension of the basic model which includes persistent heterogeneity in returns to wealth is able to simultaneously match the wealth distribution, short-run wealth mobility, and long-run wealth mobility.
Learning Epidemiology by Doing: The Empirical Implications of a Spatial-SIR Model with Behavioral Responses,
with Andrea Moro, Journal of Urban Economics, forthcoming 2022.
We simulate a spatial behavioral model of the diffusion of an infection to understand the role of geographic characteristics: the number and distribution of outbreaks, population size, density, and agents’ movements. We show that several invariance properties of the SIR model concerning these variables do not hold when agents interact with neighbors in a (two dimensional) geographical space. Indeed, the spatial model’s local
interactions generate matching frictions and local herd immunity effects, which play a fundamental role in the infection dynamics. We also show that geographical factors change how behavioral responses affect the epidemic. We derive relevant implications for estimating the effects of the epidemic and policy interventions that use panel data from several geographical units.
Procrastination, Self-Imposed Deadlines, and Other Commitment Devices,
with Kyle Hyndman, Economic Theory, forthcoming 2022.
In this paper we model a decision maker who must exert costly effort to complete a single task by a fixed deadline. Effort costs evolve stochastically in continuous time.
The decision maker optimally waits to exert effort until costs are less than a given threshold, the solution to an optimal stopping time problem. We derive the solution to this model for three cases: (1) exponential decision makers, (2) naıve hyperbolic discounters and (3) sophisticated hyperbolic discounters. Absent deadlines, we show that sophisticated hyperbolic decision makers behave as if they were time consistent but instead have a smaller reward for completing the task, while naıfs never complete the task. In the presence of deadlines, sophisticated decision makers may, counterintuitively, have a threshold which is decreasing as they approach the deadline. An extensive numerical study shows that, unlike exponential or naıfs who always prefer longer deadlines, sophisticated decision makers will often self-impose a binding deadline as a form of commitment, while naıve decision makers will not, and we show how this varies with changes in underlying cost, preference and self-control parameters.
Efficient Policy Interventions in an Epidemic,
with Piero Gottardi, Journal of Public Economics, forthcoming 2022
In the context of an epidemic, In the context of an epidemic, a society is forced to face a system of externalities in consumption and in production. Command economy interventions can support efficient allocations at the cost of severe information requirements. Competitive markets for infection rights (alternatively, Pigouvian taxes) can guarantee efficiency without requiring direct policy interventions on socio-economic activities. We demonstrate that this is the case also with moral hazard, when the infections cannot be associated to the specific activities which originated them. Finally, we extend the analysis to situations where governments have only incomplete information regarding the values of the parameters of the infection or of firms’ production.
Merger or Acquisition? Introduction to the Handbook of Historical Economics,
with Giovanni Federico, Handbook of Historical Economics, Alberto Bisin and Giovanni Federico, Eds., Academic Press, 2021.
Historical Economics was born arguably in the 1960s, with the so-called Cliometric revolution. Now, arguably, a second revolution is unfolding, as the field is attracting the renewed interest of economists. Good Historical Economics needs a combination of
the knowledge of sources and detailed historical events and phenomena, the capability of distilling complex historical processes into a model to put forward alternative testable hypotheses, the statistical/econometric skills for identification, causal inference, structural estimation, and testing, the detailed knowledge of specific political
and socio-economic institutions, an understanding of the role of cultural traits, e.g., ethnic/religious, and of their evolution. This Handbook is a step in this direction, and this Introduction written jointly by an economist and an historian, discussing the pitfalls of their own disciplines, should serve as a suggestion that it can be done.
Late for History,
with Andrea Moro, Handbook of Historical Economics, Alberto Bisin and Giovanni Federico, Eds., Academic Press, 2021.
In Historical Economics, Persistence studies document the persistence of
some historical phenomenon or leverage this persistence to identify causal relationships of interest in the present. In this chapter, we analyze the implications of allowing for heterogeneous treatment effects in these studies. We delineate
their common empirical structure, argue that heterogeneous treatment effects are likely in their context, and propose minimal abstract models that help interpret results and guide the development of empirical strategies to uncover the mechanisms generating the effects.
Phase Diagrams in Historical Economics: Culture and Institutions,
with Thierry Verdier, Handbook of Historical Economics, Alberto Bisin and Giovanni Federico, Eds., Academic Press, 2021.
In this paper we discuss the role of explicit formal dynamic models in our understanding of socio-economic history. Specifically, to illustrate the methodological issue, we center our analysis on studies of institutional and cultural change. Finally, we study in detail a dynamic model of institutions for property rights protection and culture of conflict as an example.
A Comment on: State Capacity, Reciprocity, and the Social Contract, by Timothy Besley,
Econometrica, Vol. 88, No. 4 (July, 2020), 1345–1349.
Besley’s paper studies the role of civic culture in expanding fiscal capacity. I read this paper through the eyes of models of institutions and culture in economic development. First of all, I will argue that the results of the paper hold qualitatively in different models displaying complementarity between civic culture and public good provision. I will then illustrate how an analysis of the institutional design of the polity of the state in the context of the model produces a rich set of novel implications with regards to institutional change and to the institutional correlates of civic capital, state capacity and public goods provision. I will then show that relaxing the assumption that elites have commitment also produces interesting implications for the study o culture and institutions. Finally, I will briefly speculate on the dynamics of civic culture if inter-generational cultural transmission is characterized by some form of imperfect altruism on the parts of the parents.
Present-bias, Procrastination and Deadlines in a Field Experiment,
with Kyle Hyndman, Games and Economic Behavior, 119, 339-357, 2020.
We study procrastination in the context of a field experiment involving students who must exert costly effort to complete certain tasks by a fixed deadline. We document a robust demand for commitment, in the form of self-imposed deadlines. On the other hand, deadlines do not increase completion rates in our experiment. Furthermore, while we find that present-bias is widespread in the sample, and present-biased students procrastinate in single task treatments, we find that they successfully manage to self-control in repeated task treatments. Finally, we find evidence that students do not set deadlines optimally and that deadlines may hurt them, due to various behavioral components of students’ anticipation formation mechanisms; specifically, partial naïveté at the deadline setting stage and over-confidence about the ability to complete the task and to persevere on a task after a failed attempt.
Wealth Distribution and Social Mobility: A Quantitative Analysis of U.S Data,
with Jess Benhabib and Mi Luo, American Economic Review , 109(5), 1623–1647, 2019.
We quantitatively identify the factors that drive wealth dynamics in the United States and are consistent with its skewed cross-sectional distribution and with social mobility. We concentrate on three critical factors: (i) skewed earnings, (ii) differential saving rates across wealth levels, and (iii) stochastic idiosyncratic returns to wealth. All of these are fundamental for matching both distribution and mobility.
The stochastic process for returns which best fits the cross-sectional distribution of wealth and social mobility in the United States shares several statistical properties with those of the returns to wealth uncovered by Fagereng et al. (2017) from tax records in Norway.
Skewed Wealth Distributions: Theory and Empirics,
with Jess Benhabib, Journal of Economic Literature, 56(4), 1261-91, 2018.
Invariably, across a cross-section of countries and time periods, wealth distributions are skewed to the right displaying thick upper tails, that is, large and slowly declining top wealth shares. In this survey, we categorize the theoretical studies on the distribution of wealth in terms of the underlying economic mechanisms generating skewness and thick tails. Further, we show how these mechanisms can be micro-founded by the consumption–savings decisions of rational agents in specific economic and demographic environments. Finally we map the large empirical work on the wealth distribution to its theoretical underpinnings.
The Evolution of Value Systems: A Review Essay on Ian Morris’ Foragers, Farmers, and Fossil Fuels,
Journal of Economic Literature, 55(3), 1122–1135, 2017.
Foragers, Farmers, and Fossil Fuels: How Human Values Evolve is a large-scale history of the world through the different modes of production humanity has adopted over time and their implications in terms of moral values. Morris argues that the predominant value systems of human societies are cultural adaptations to the organizational structures of the societies themselves, their institutions, and ultimately to their modes of production. In particular, the book contains a careful analysis of how the hunting–gathering mode of production induces egalitarian values and relatively favorable attitudes toward violent resolution of conflicts, while farming induces hierarchical values and less favorable attitudes toward violence, and in turn the fossil fuel (that is, industrial) mode of production induces egalitarian values and nonviolent attitudes. The narrative in the book is rich, diverse, and ultimately entertaining. Morris’s analysis is very knowledgeable and informative: arguments and evidence are rooted in history, anthropology, archeology, and social sciences in general. Nonetheless, the analysis falls short of being convincing about the causal nature of the existing relationship between modes of production and moral value systems.
Earnings Inequality and Other Determinants of Wealth Inequality,
with Jess Benhabib and Mi Luo, American Economic Review Papers & Proceedings, 107(5), 593-97, 2017.
We introduce a simple but deep theoretical result is useful to understand why it is difficult to reproduce important statistical properties of the wealth distribution which are observed in the data with earnings inequality and precautionary savings alone.
Time-consistent immigration policy under economic and cultural externalities
with Giulio Zanella, Economic Policy, 415-446, 2017.
Discussions of immigration policy are typically framed in the context of their economic effects in receiving countries, notably labour market and fiscal effects. In this paper, we characterize immigration policy in a richer model where migrants are also a source of cultural externalities stemming from either preferences or the functioning of formal and informal institutions in receiving countries. While in terms of pure economic effects, immigrants do not generally have any more incentives than low-skilled natives to allow for more immigration in the future, this is not the case when accounting for cultural externalities. Therefore, insofar as past immigrants have a voice in affecting future policies, a time-consistent immigration policy entails back-loading; as natives attempt at limiting voice of immigrants in the future, the economic effects of immigration flows as well as the cultural externality they introduce. Furthermore, natives exploit any pre-commitment device to limit immigration flows, e.g. building ‘‘walls’’, limiting immigrants’ political rights, or accumulating fiscal surpluses.
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The Wealth Distribution in Bewley Models with Investment Risk,
with Jess Benhabib and Shenghao Zhu, Journal of Economic Theory, 159, 489–515, 2015.
We study the wealth distribution in Bewley economies with idiosyncratic capital income risk. We show analytically that under rather general conditions on the stochastic structure of the economy, a unique ergodic distribution of wealth displays a fat tail.
Government Policy with Time Inconsistent Voters,
with Alessandro Lizzeri and Leeat Yariv, American Economic Review, 105(6): 1711–37, 2015.
Behavioral economics presents a “paternalistic” rationale for benevolent government intervention. This paper presents a model of public debt where voters have self-control problems and attempt to commit using illiquid assets. In equilibrium, government accumulates debt to respond to individuals’ desire to undo their commitments, which leads individuals to rebalance their portfolio, in turn feeding into a demand for further debt accumulation. As a consequence, (i) large (and distortionary) government debt accumulation occurs, and (ii) banning illiquid assets could improve individuals’ welfare. These results offer a new rationale for balanced budget rules in constitutions to restrain governments’ responses to voters’ self-control problems.
Counterparty risk externality: Centralized versus Over-The-Counter Markets,
with Viral Acharya, Journal of Economic Theory, 49, 153-82, 2014.
We study financial markets where agents share risks, but have incentives to default and their financial positions might not be transparent, that is, might not be mutually observable. We show that a lack of position transparency results in a counterparty risk externality, that manifests itself in the form of excess “leverage,” in that parties take on short positions that lead to levels of default risk that are higher than Pareto efficient ones. This externality is absent when trading is organized via a centralized clearing mechanism that provides transparency of trade positions. Collateral requirements and especially subordination of nontransparent positions in bankruptcy can ameliorate the counterparty risk externality in market settings such as over-the-counter (OTC) markets which feature a lack of position transparency.
Other People’s Money: An Experimental Study of the Impact of the Competition for Funds
with Marina Agranov and Andy Schotter, Experimental Economics, 17:564–585, 2014.
In this paper we experimentally investigate the impact that competing for funds has on the risk-taking behavior of laboratory portfolio managers compensated through an option-like scheme according to which the manager receives (most of) the compensation only for returns in excess of pre-specified strike price. We find that such a competitive environment and contractual arrangement lead, both in theory and in the lab, to inefficient risk taking behavior on the part of portfolio managers. We then study various policy interventions, obtained by manipulating various aspects of the competitive environment and the contractual arrangement, e.g., the Transparency of the contracts offered, the Risk Sharing component in the contract linking portfolio managers to investors, etc. While all these interventions would induce portfolio managers, at equilibrium, to efficiently invest funds in safe assets, we find that, in the lab, Transparency is most effective in incentivising managers to do so. Finally, we document a behavioral “Other People’s Money” effect in the lab, where portfolio managers tend to invest the funds of their investors in a more risky manner than their Own Money, even when it is not in either the investors’ or the managers’ interest to do so.
Trade and cultural diversity,
with Thierry Verdier, Handbook of Art and Culture, Victor A. Ginsburgh and David Throsby, Eds., Elsevier 2013.
This chapter surveys the recent economic literature on the relationships between globalization and cultural diversity. We first review the different channels through which international integration interacts with cultural diversity across individuals, communities, and nations. We then present some recent formal economic models of cultural transmission and cultural evolution and show how these models can be embedded into standard economic frameworks to analyze the links between globalization and cultural diversity. The chapter then presents various applications from trade in cultural goods, foreign direct investment in tourism to cultural integration of foreign migrants. Finally, normative implications and the relationships between cultural policy and international policies are also discussed.
The Distribution of Wealth and Fiscal Policy in Economies with Finitely Lived Agents,
with Jess Benhabib and Shenghao Zhu, Econometrica, 79(1), 122-57, 2011 (re-printed in The Economics of Wealth Distribution, J.B. Davies, Ed., Edward Elgar Publishing, 2013.
We study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and intergenerational transmission of wealth. Financial markets are incomplete, exposing agents to both labor and capital income risk. We show that the stationary wealth distribution is a Pareto distribution in the right tail and that it is capital income risk, rather than labor income, that drives the properties of the right tail of the wealth distribution. We also study analytically the dependence of the distribution of wealth—of wealth inequality in particular—on various fiscal policy instruments like capital income taxes and estate taxes, and on different degrees of social mobility. We show that capital income and estate taxes can significantly reduce wealth inequality, as do institutions favoring social mobility. Finally, we calibrate the economy to match the Lorenz curve of the wealth distribution of the U.S. economy.
Immigrants and the Labor Market,
with Eleonora Patacchini, Thierry Verdier, and Yves Zenou, Economic Policy, 26(65), 57-92, 2011.
We study the relationship between ethnic identity and labour market outcomes of non-EU immigrants in Europe. Using the European Social Survey, we find that there is a penalty to be paid for immigrants with a strong identity. Being a first generation immigrant leads to a penalty of about 17% while second generation immigrants have a probability of being employed that is not statistically different from that of natives. However, when they have a strong identity, second-generation immigrants have a lower chance of finding a job than natives. Our analysis also reveals that the relationship between ethnic identity and employment prospects may depend on the type of integration and labour market policies implemented in the country where the immigrant lives. More flexible labour markets help immigrants to access the labour market but do not protect those who have a strong ethnic identity
Markets and Contracts,
with John Geanakoplos, Piero Gottardi, Enrico Minelli, Herakles Polemarchakis, Journal of Mathematical Economics, 47(3), 279–288, 2011.
Economies with asymmetric information are encompassed by an extension of the model of general competitive equilibrium that does not require an explicit modeling of private information. Sellers have discretion over deliveries on contracts; this is in common with economies with default, incomplete contracts or price rigidities. Competitive equilibria exist and anonymous markets are viable. But, for a generic economy, competitive equilibrium allocations are constrained suboptimal: there exist Pareto improving interventions via linear, anonymous taxes.
The Economics of Cultural Transmission and Socialization,
with Thierry Verdier, Handbook of Social Economics, Jess Benhabib, Alberto Bisin, Matt Jackson, Eds., Elsevier, 2010.
This paper presents a survey of the theoretical and empirical literature on cultural transmission and socialization.
Social Construction of Preferences: Advertising,
with Jess Benhabib, Handbook of Social Economics, Jess Benhabib, Alberto Bisin, Matt Jackson, Eds., Elsevier, 2010.
We examine, with the tools of economics, a fundamental tenet of some of the most recent theoretical work in sociology, which we refer to as the Postmodernist Critique: preferences are socially constructed, firms exploit their monopoly power through advertising in order to create new (false) needs in consumers, and, as a consequence, consumer spending rises, and so does their supply of labor.
Present-Bias, Quasi-Hyperbolic Discounting, and Fixed Costs,
with Jess Benhabib and Andy Schotter, Games and Economic Behavior, 69(2), 205-223, 2010.
A vast literature in experimental psychology has studied time preferences by eliciting preferences over various alternative rewards obtained at different times, that is, over reward–time pairs.1 Representations of such time preferences include a specification of discounting. This literature has documented various behavioral regularities with regards to discounting. The most important of such regularities is called “reversal of preferences.” It occurs, for example, when a subject prefers $10 now rather than $12 in a day, but he/she prefers $12 in a year plus a day rather than $10 in a year. Reversals of preferences are not consistent with exponential discounting. Psychologists (e.g., Herrnstein, 1961; de Villiers and Herrnstein, 1976; Ainslie and Herrnstein, 1981; see also Ainslie, 1992, 2001) and also behavioral economists (e.g., Elster, 1979; Laibson, 1997; Loewenstein and Prelec, 1992; O’Donoghue and Rabin, 1999) have noted that reversals of preferences are instead consistent with a rate of time preference which declines with time. Various specifications of discounting with this property, notably hyperbolic discounting and quasi-hyperbolic discounting have been suggested..
Managerial Hedging, Equity Ownership, and Firm Value,
with Viral Acharya, Rand Journal of Economics, 40(1), 47-77, Spring 2009.
Suppose risk-averse managers can hedge the aggregate component of their exposure to firm’s cash-flow risk by trading in financial markets but cannot hedge their firm-specific exposure. This gives them incentives to pass up firm-specific projects in favor of standard projects that contain greater aggregate risk. Such forms of moral hazard give rise to excessive aggregate risk in stock markets. In this context, optimal managerial contracts induce a relationship between managerial ownership and (i) aggregate risk in the firm’s cash flows, as well as (ii) firm value. We show that this can help explain the shape of the empirically documented relationship between ownership and firm performance.
Are Muslim Immigrants Different in Terms of Cultural Integration?,
with Eleonora Patacchini, Thierry Verdier, Yves Zenou, Journal of the European Economic Association, 6(2-3), 445-56, 2008.
Using the UK Fourth National Survey of Ethnic Minorities, we document differences in integration patterns between Muslims and non-Muslims. We find that Muslims integrate less and more slowly than non-Muslims. In terms of estimated probability of having a strong religious identity, a Muslim born in the UK and having spent there more than 30 years is comparable with a non-Muslim just arrived in the country. Moreover, higher levels of income as well as higher on-the-job qualifications seem to be associated with a stronger religious identity for Muslim immigrants only. Finally, we find no evidence that segregated neighborhoods breed intense religious and cultural identities for ethnic minorities, in general, and, in particular, for Muslims.
Efficient Competitive Equilibria with Adverse Selection,
with Piero Gottardi, Journal of Political Economy, 114(3), 2006.
Do Walrasian markets function orderly in the presence of adverse selection? In particular, is their outcome efficient when exclusive contracts are enforceable? This paper addresses these questions in the context of a Rothschild-Stiglitz insurance economy. We identify an externality associated with the presence of adverse selection as a special form of consumption externality. Consequently, we show that competitive equilibria always exist but are not typically incentive efficient. However, as markets for pollution rights can internalize environmental externalities, markets for consumption rights can be designed to internalize the consumption externality due to adverse selection. With such markets competitive equilibria exist and incentive-constrained versions of the first and second welfare theorems hold.
Exclusive Contracts and the Institution of Bankruptcy,
with Adriano Rampini, Economic Theory, 27(2), 277-304, 2006.
The paper studies the institution of bankruptcy when exclusive contracts cannot be enforced ex ante, e.g., a bank cannot monitor whether the borrower enters into contracts with other creditors. The institution of bankruptcy enables the bank to enforce its claim to any funds that the borrower has above a fixed “bankruptcy protection” level. Bankruptcy improves on non-exclusive contractual relationships but is not a perfect substitute for exclusivity ex ante. We characterize the effect of bankruptcy provisions on the equilibrium contracts which borrowers use to raise financing.
Markets as Beneficial Constraints on the Government,
with Adriano Rampini, Journal of Public Economics, 90, 601-629, 2006.
We study the role of anonymous markets in which trades cannot be monitored by the government. We adopt a Mirrlees approach to analyze economies in which agents have private information and a benevolent government controls optimal redistributive tax policy. While unrestricted access to anonymous markets reduces the set of policy instruments available to the government, it also limits the scope of inefficient redistributive policies when the government lacks commitment. Indeed, the restrictions that anonymous markets impose on the optimal fiscal policy, especially on capital taxation and the history-dependence of income taxation, can have positive welfare effects in this case
Rational Expectations Equilibria of Economies with Local Interactions,
with Ulrich Horst and Onur Ozgur, Journal of Economic Theory, 127(1), 2006.
We consider general economies in which rational agents interact locally. The local aspect of the interactions is designed to represent in a simple abstract way social interactions, that is, socioeconomic environments in which markets do not mediate all of agents’ choices, which might be in part determined, for instance, by family, peer group, or ethnic group effects. We study static as well as dynamic infinite horizon economies; we allow for economies with incomplete information, and we consider jointly global and local interactions, to integrate e.g., global externalities and markets with peer and group effects. We provide conditions under which such economies have rational expectations equilibria. We illustrate the effects of local interactions when agents are rational by studying in detail the equilibrium properties of a simple economy with quadratic preferences which captures, in turn, local preferences for conformity, habit persistence, and preferences for status or adherence to aggregate norms of behavior.
An Empirical Analysis of Religious Homogamy and Socialization in the U.S,
with Giorgio Topa and Thierry Verdier, Journal of Political Economy, 112(3), 615-64, 2004.
This paper presents an empirical analysis of a choice-theoretic model of cultural transmission. In particular, we use data from the General Social Survey to estimate the structural parameters of a model of marriage and child socialization along religious lines in the United States. The observed intermarriage and socialization rates are consistent with Protestants, Catholics, and Jews having a strong preference for children who identify with their own religious beliefs and making costly decisions to influence their children’s religious beliefs. Our estimates imply dynamics of the shares of religious traits in the population that are in sharp contrast with the predictions obtained by linear extrapolations from current intermarriage rates.
Modeling Internal Commitment Mechanisms and Self-Control: A Neuroeconomics Approach to Consumption-Saving Decisions,
with Jess Benhabib, Games and Economic Behavior, 52(2), 460-92 (special Issue on Neuroeconomics,), 2004
We provide a new model of consumption–saving decisions which explicitly allows for internal commitment mechanisms and self-control. Agents have the ability to invoke either automatic processes that are susceptible to the temptation of ‘over-consuming,’ or alternative control processes which require internal commitment but are immune to such temptations. Standard models in behavioral economics ignore such internal commitment mechanisms. We justify our model by showing that much of its construction is consistent with dynamic choice and cognitive control as they are understood in cognitive neuroscience. The dynamic consumption–saving behavior of an agent in the model is characterized by a simple consumption–saving goal and a cut-off rule for invoking control processes to inhibit automatic processes and implement the goal. We discuss empirical tests of our model with available individual consumption data and we suggest critical tests with brain-imaging and experimental data.
Cooperation and Cultural Transmission,
with Giorgio Topa and Thierry Verdier, Rationality and Society, 16, 477-507, 2004.
In this paper, we study an endogenous cultural selection mechanism for cooperative behavior in a setting where agents are randomly matched in a one-shot interaction Prisoner’s Dilemma, and may or may not have complete information about their opponent’s preferences. We focus on an endogenous socialization mechanism in which parents spend costly effort to transmit directly their trait to their offspring, taking into account the impact of (oblique) societal pressures on cultural transmission. For various ranges of parameter values, this mechanism generates a polymorphic population with a long-run presence of cooperative agents, even where replicator and indirect evolutionary mechanisms would bring about a monomorphic population with non-cooperation. Further, under some circumstances, the long-run fraction of cooperative agents is shown to be larger under incomplete than complete information.
Moral Hazard and Non-exclusive Contracts,
with Danilo Guaitoli, Rand Journal of Economics, 35(2), 306-28, Summer 2004.
We study equilibria for economies with hidden action in environments in which the agents’ contractual relationships with competing financial intermediaries cannot be monitored (or are not contractible upon). We fully characterize equilibrium allocations and contracts for such economies, as well as discuss their welfare properties. Depending on the parameters of the economy, either the optimal action choice is not sustained in equilibrium or, if it is, agents necessarily enter into multiple contractual relationships and intermediaries make positive profits, even under free-entry conditions. The main features and implications of these environments are consistent with several stylized facts of markets for unsecured.
The Economics of Cultural Transmission and the Evolution of Preferences,
with Thierry Verdier, Journal of Economic Theory, 97(2), 298-319, 2001.
This paper studies the population dynamics of preference traits in a model of intergenerational cultural transmission. Parents socialize and transmit their preferences to their offspring, motivated by a form of paternalistic altruism (“imperfect empathy”). In such a setting we study the long run stationary state pattern of preferences in the population, according to various socialization mechanisms and institutions, and identify sufficient conditions for the global stability of an heterogenous stationary distribution of the preference traits. We show that cultural transmission mechanisms have very different implications than evolutionary selection mechanisms with respect to the dynamics of the distribution of the traits in the population, and we study mechanisms which interact evolutionary selection and cultural transmission.
Agents with Imperfect Empathy May Survive Natural Selection,
with Thierry Verdier, Economics Letters, 71, 277-85, 2001.
Cultural transmission mechanisms which favor the direct transmission of the parents’ traits to their children may be adaptive to natural selection when opposed to mechanisms in which the parents choose for the offspring the highest fitness at any time.
Beyond the Melting Pot: Cultural Transmission, Marriage, and the Evolution of Ethnic and Religious Traits,
with Thierry Verdier, Quarterly Journal of Economics, CXV(3), 955-988, 2000.
This paper presents an economic analysis of the intergenerational transmission of ethnic and religious traits through family socialization and marital segregation decisions. Frequency of intra-group marriage (homogamy), as well as socialization rates of religious and ethnic groups, depend on the group’s share of the population: minority groups search more intensely for homogamous mates, and spend more resources to socialize their offspring. This pattern generally induces a dynamics of the distribution of ethnic and religious traits which converges to a culturally heterogeneous stationary population. Existing empirical evidence bearing directly and indirectly on the implications of the model is discussed.
Competitive Equilibria with Asymmetric Information,
with Piero Gottardi, Journal of Economic Theory, 87(1), 1-48, 1999
This paper studies competitive equilibria in economies where agents trade in markets for standardized, non-exclusive financial contracts, under conditions of asymmetric information (both of the moral hazard and the adverse selection type). The problems for the existence of competitive equilibria in this framework are identified, and shown to be essentially the same under different forms of asymmetric information. We then show that a “minimal” form of non-linearity of prices (a bid-ask spread, requiring only the possibility to separate buyers and sellers), and the condition that the aggregate return on the individual positions in each contract can be perfectly hedged in the existing markets, ensure the existence of competitive equilibria in the case of both adverse selection and moral hazard.
On the Cultural Transmission of Preferences for Social Status,
with Thierry Verdier, Journal of Public Economics, 70, 75-97, 1998.
We study the formation of preferences for ‘social status’ as the result of intergenerational transmission of cultural traits. We characterize the behavior of parents with preferences for status in terms of socialization of their children to this particular cultural trait. We show that degenerate distributions of the population (whereby agents have either all status preferences or all non-status preferences) are dynamically unstable. Moreover, under some conditions, there exists a unique stationary distribution which is non-degenerate (in which both status and non-status preferences co-exist in the population), and this distribution is locally stable. Finally, we study the dependence of the stable stationary distribution of status preferences on institutional, technological and policy parameters which affect agents’ economic conditions.
General Equilibrium with Endogenously Incomplete Financial Markets,
Journal of Economic Theory, 82(1), 19-45, 1996.
The present paper studies a class of general equilibrium economies with
imperfectly competitive financial intermediaries and price-taking consumers. Intermediaries optimally choose the securities they issue and the bid-ask spread they charge. Financial intermediation is costly, and hence markets are endogenously
incomplete. An appropriate equilibrium concept is developed, and existence is proved. Competitive equilibria for this class of economies display full indexation of securities payoffs and monetary neutrality even if intermediaries are restricted to
issue “nominal” securities and financial markets turn out to be incomplete. This is in sharp contrast with the indeterminacy and non-neutrality results established in
the literature for incomplete markets economies with exogenously given “nominal” securities.