School of Economics

Featured Publications

Nature Human BehaviourPeople prefer coordinated punishment in cooperative interactions

Nature Human Behaviour (2019)

School's authors: Simon Gaechter and Chris Starmer

Human groups can often maintain high levels of cooperation despite the threat of exploitation by individuals who reap the benefits of cooperation without contributing to its costs. Prominent theoretical models suggest that cooperation is particularly likely to thrive if people join forces to curb free riding and punish their non-contributing peers in a coordinated fashion. However, it is unclear whether and, if so, how people actually condition their punishment of peers on punishment behaviour by others.

Here we provide direct evidence that many people prefer coordinated punishment. With two large-scale decision-making experiments (total n = 4,320), we create minimal and controlled conditions to examine preferences for conditional punishment and cleanly identify how the punishment decisions of individuals are impacted by the punishment behaviour by others. We find that the most frequent preference is to punish a peer only if another (third) individual does so as well. Coordinated punishment is particularly common among participants who shy away from initiating punishment.

With an additional experiment, we further show that preferences for conditional punishment are unrelated to well-studied preferences for conditional cooperation. Our results highlight the importance of conditional preferences in both positive and negative reciprocity, and they provide strong empirical support for theories that explain cooperation based on coordinated punishment.


Management ScienceReexamining how utility and weighting functions get their shapes: A quasi-adversarial collaboration providing a new interpretation

Management Science (2019)

School's authors: Chris Starmer and Fabio Tufano

In a paper published in Management Science in 2015, Stewart, Reimers, and Harris (SRH) demonstrated that shapes of utility and probability weighting functions could be manipulated by adjusting the distributions of outcomes and probabilities on offer as predicted by the theory of decision by sampling. So marked were these effects that, at face value, they profoundly challenge standard interpretations of preference theoretic models in which such functions are supposed to reflect stable properties of individual risk preferences.

Motivated by this challenge, we report an extensive replication exercise based on a series of experiments conducted as a quasi-adversarial collaboration across different labs and involving researchers from both economics and psychology. We replicate the SRH effect across multiple experiments involving changes in many design features; importantly, however, we find that the effect is also present in designs modified so that decision by sampling predicts no effect. Although those results depend on model-based inferences, an alternative analysis using a model-free comparison approach finds no evidence of patterns akin to the SRH effect.

On the basis of simulation exercises, we demonstrate that the SRH effect may be a consequence of misspecification biases arising in parameter recovery exercises that fit imperfectly specified choice models to experimental data. Overall, our analysis casts the SRH effect in an entirely new light.


EconometricaPreferences for truth telling

Econometrica (2019)

School's author: Daniele Nosenzo

The decision whether to lie or to tell the truth is at the heart of many everyday activities, from a self-employed shopkeeper reporting her income to the tax authorities to an applicant describing his skills in a job interview. It is very difficult to find out how much people lie in such situations, since the truth is not known. Recently, laboratory experiments have been used by researchers in economics, psychology and sociology to find out.

In this paper, we conduct a meta-analysis of the experimental literature, covering 90 experimental studies containing 429 treatment conditions and more than 44,000 subjects. We find that a large fraction of individuals are surprisingly honest, even in conditions in which lying is materially advantageous. We show that most existing behavioural theories cannot explain the findings of the meta study. Using newly-designed experiments, we show that this “preference for truth-telling” has two main sources: an intrinsic desire to be honest and a desire to appear as honest.


American Economic JournalCoercive trade policy

American Economic Journal: Microeconomics (2019)

School's authors: Vincent Anesi and Giovanni Facchini

Coercion is used by one government (the "sender") to influence the trade practices of another (the "target"). We build a two-country trade model in which coercion can be exercised unilaterally or channeled through a "weak" international organisation without enforcement powers. We show that unilateral coercion may be ineffective because signaling incentives lead the sender to demand a concession so substantial to make it unacceptable to the target. If the sender can instead commit to the international organisation's dispute settlement mechanism, then compliance is more likely because the latter places a cap on the sender's incentives to signal its resolve.


European Economic ReviewLabor Market Reforms: An Evaluation of the Hartz Policies in Germany

European Economic Review (2019)

School's author: Jake Bradley

How do workers and firms respond to comprehensive labour market reforms? We use detailed micro data to analyse the German Hartz Reforms through the lens of a structural model of the labour market. These reforms aimed at reducing unemployment, by increasing working hour flexibility, job matching and work incentives.

In our setting, reforms directly affect the model parameters, which are estimated using matched data on 430,000 workers in 340,000 firms. Contrary to previous findings, our analysis shows that, although the reforms shortened the typical duration of unemployment, they did not reduce unemployment as a whole and led to a decline in wages. Low-skilled workers suffered the most in terms of employment and wage losses. Furthermore, we decompose the contribution of each reform wave to employment and wage changes, finding that the reduction in generosity of unemployment benefits was the principle driver in reducing wages.


Journal of International Economics China's "Great Migration": The impact of the reduction in trade policy uncertainty

Journal of International Economics (2019)

School's author: Giovanni Facchini

We analyse the effect of China's integration into the world economy on workers in the country and show that one important channel of impact has been internal migration. Specifically, we study the changes in internal migration rates triggered by the reduction in trade policy uncertainty faced by Chinese exporters in the U.S. This reduction is characterised by plausibly exogenous variation across products, which we use to construct a local measure of treatment, at the level of a Chinese prefecture, following Bartik (1991). This allows us to estimate a difference-in-difference empirical specification based on variation across Chinese prefectures before and after 2001.

We find that prefectures facing the average decline in trade policy uncertainty experienced a 24% increase in their internal in-migration rate – this result is driven by migrants who are "non-hukou", skilled, and in their prime working age. Finally, in those prefectures, working hours of "native" unskilled workers significantly increased, and internal migrants found employment in the places they migrated to.


Journal of Money, Credit and BankingMacroprudential policies in a low interest-rate environment

Journal of Money, Credit and Banking (2019)

School's author: Margarita Rubio

In this paper, we analyse the use of macroprudential policies in a low interest-rate environment, where an occasionally-binding zero lower bound (ZLB) reenforces financial frictions to give rise to greater economic instability. We calibrate a DSGE model with collateral constraints and a monetary policy rule that is subject to the ZLB for a low interest-rate world.

We find that the occasionally binding ZLB creates additional scope for macroprudential intervention. Under perfect coordination between monetary and macroprudential policies, the optimal policy mix calls for independence between the two policies when interest rates are high. However, in the low interest-rate environment, macroprudential policy is more intertwined with monetary policy.


Cooperation in polygynous households Cooperation in polygynous households

In this publication in the American Economic Journal: Applied Economics, Abigail Barr and co-authors show that, compared to monogamous husbands and wives, polygynous husbands and wives are less cooperative, one with another, and that this difference cannot be attributed to less cooperative people selecting into polygyny.

Occupational choice with endogenous spilloversOccupational choice with endogenous spillovers

In this publication in the Economic Journal, Facundo Albornoz, Antonio Cabrales and Esther Hauk study a model that integrates productive and socializing efforts with occupational choice, and endogenous spillovers. The researchers show that more talented individuals work harder and contribute more to externalities, but also have incentives to segregate.

R&D outsourcing The role of international and domestic R&D outsourcing for firm innovation

In this publication in the Journal of Economic Behaviour and Organization, María García-Vega and Elena Huergo empirically investigate whether R&D outsourcing increases innovation, distinguishing between national and international R&D outsourcing and firms’ exporting status.

Multi-product firms and product qualityMulti-product firms and product quality

In this publication in the Journal of International Economics, Kalina Manova and Zhihong Yu present a theory on the behaviour of multi-product firms when cost and quality competitiveness jointly determine export performance. Using Chinese data, they find that firms’ production and sales activity across products and markets is governed by a product hierarchy based on quality. This phenomenon also determines how firms respond to economic shocks.

Testing for randomness Testing for randomness in a Random Coefficient AutoRegression model

In this publication in the Journal of Econometrics, Lajos Horvath and Lorenzo Trapani develop a testing procedure to check whether an AutoRegressive process has a random or non-random coefficient.

Coercive trade policy Coercive trade policy

In this publication in the American Economic Journal: Microeconomics, Vincent Anesi and Giovanni Facchini provide a theoretical rationale for empirical evidence suggesting that trade coercion exercised unilaterally is significantly less likely to induce concessions than coercion exercised through an international organization, and for how “weak” international institutions might be effective, even if their rulings cannot be directly enforced.

Teaching by example Teaching by example and induced beliefs in a model of cultural transmission

In this publication in the Journal of Economic Behaviour and Organization, Fabrizio Adriani, Jesse A. Matheson and Silvia Sonderegger build a model of cultural transmission where children learn about the world from parental behaviour.

Coalition-proof full efficient implementation Coalition-proof full efficient implementation

In this publication in the Journal of Economic Theory, Mikhail Safronov designs a method of achieving the socially efficient outcome, that is robust to misbehavior by groups of agents.

How do individuals repay their debt? How do individuals repay their debt? The balance-matching heuristic

In this publication in the American Economic Review, John Gathergood, Jörg Weber and co-authors study how individuals repay their debt using linked data on multiple credit cards. Rather than allocating repayments to the higher interest rate card, repayments are consistent with a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card.

On the social appropriateness of discrimination On the social appropriateness of discrimination

In this publication in the Journal of Public Economics, Abigail Barr, Tom Lane and Daniele Nosenzo show discrimination is predicted by social norms - people are more willing to discriminate against outsiders when doing so is perceived to be more socially appropriate.

Multinationals and the Globalization of R&D Multinationals and the globalization of R&D

In this publication in the International Journal of Industrial Organization, María García-Vega, Patricia Hofmann and Richard Kneller consider theoretically and empirically how the location and organization of knowledge production evolve within domestic firms during the period of their acquisition by foreign multinationals.

Information Communication Technologies and Firm Performance Broadband infrastructure, ICT use and firm performance: evidence for UK firms

In this publication in the Journal of Economic Behavior and Organization, Tim De Stefano, Richard Kneller and Jonathan Timmis explore the effects of communication-ICT on the performance of firms in the UK.

Reputational Concerns in Repeated Rent-Seeking Contests Semi-targeted all-pay auctions: a partial exclusion principle

In this publication in the International Journal of Industrial Organization, Matthias Dahm studies the effects of a specific affirmative action policy in complete information all-pay auctions when players differ in ability and shows that even a designer who is not interested in affirmative action per se might decide to establish it to strengthen competition.


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