School of Economics

Featured Publications

The Review of Economics and StatisticsInternational trade liberalisation and domestic institutional reform: Effects of WTO accession on Chinese internal migration policy

Review of Economics and Statistics (2024)

School’s author: Yuan Tian

Economic institutions that impede factor mobility become more costly when an economy experiences substantial transitions such as trade liberalization. I study how trade triggers changes in labor institutions that regulate internal migration in the context of China’s Hukou system. Using a newly collected dataset on prefecture-level migration policies, I document an increase in promigrant regulations following WTO entry and estimate the impact of prefecture-level tariffs on exports on migration regulations from 2001 to 2007. I find that regions facing more export market liberalization enacted more migrant-friendly regulations.


European Economic ReviewThe role of payoff parameters for cooperation in the one-shot Prisoner’s Dilemma

School’s authors: Simon Gaecher and Martin Sefton

European Economic Review (2024)

The Prisoner's Dilemma is arguably the most important model of social dilemmas, but our knowledge about how its material payoff structure affects cooperation is incomplete. We investigate the effect of variation in material payoffs on cooperation in one-shot Prisoner's Dilemma games. We report results from three experiments (N = 1,993): in a preliminary experiment, we vary the payoffs over a large range. In our first main experiment (Study 1), we present a novel design that varies payoffs orthogonally in a within-subjects design. Our second main experiment, Study 2, investigates the orthogonal variation of payoffs in a between-subjects design. In a complementary analysis we also study the closely related payoff indices of normalized loss and gain, and the K-index. A robust finding of our experiments is that cooperation increases with the gains of mutual cooperation over mutual defection.


Review of Financial StudiesThe coholding puzzle: New evidence from transaction-level data

School’s author: John Gathergood

Review of Financial Studies (2024)

Why do individuals pay debt interest when they could use their savings to pay down the debt? We explore why individuals “cohold” debt and savings using detailed and highly disaggregated daily-level data on household finances. We find that coholding mostly occurs in short spells within the month and the level of coholding is typically modest. Periods of coholding are not associated with shocks at the individual level. We show that mental accounting has a role to play in explaining coholding, in particular how individuals allocate different categories of expenditure to accounts in credit and debit.


Journal of Applied EconometricsTesting for equal forecast accuracy under heteroskedasticity

School’s authors: David Harvey, Steve Leybourne and Yang Zu

Journal of Applied Econometrics (2024)

Heteroskedasticity is a common feature in empirical time series analysis, and in this paper, we consider the effects of heteroskedasticity on statistical tests for equal forecast accuracy. In such a context, we propose two new Diebold–Mariano-type tests for equal accuracy that employ nonparametric estimation of the loss differential variance function. We demonstrate that these tests have the potential to achieve power improvements relative to the original Diebold–Mariano test in the presence of heteroskedasticity, for a quite general class of loss differential series. The size validity and potential power superiority of our new tests are studied theoretically and in Monte Carlo simulations. We apply our new tests to competing forecasts of changes in the dollar/sterling exchange rate and find the new tests provide greater evidence of differences in forecast accuracy than the original Diebold–Mariano test, illustrating the value of these new procedures for practitioners.


Management ScienceInvestor logins and the disposition effect

School’s author: John Gathergood

Management Science (2024)

Using data from an online brokerage, we examine the role of investor logins in trading behavior. We find that a new reference point is created when an investor logs in and views the investor’s portfolio. We observe this as a disposition effect on returns since last login in addition to the traditional disposition effect on returns since purchase. Further, these reference points produce a strong interaction such that even a small loss since last login nullifies the positive effect of a gain since purchase. This interaction follows if investors select the higher, more aspirational price as a reference point.


Macroprudential policies and Brexit: A welfare analysis

School’s author: Margarita Rubio

Economic Inquiry (2024)

Brexit will have implications on financial stability and the implementation of macroprudential policies. The United Kingdom (UK) will no longer be subject to the jurisdiction of the European Systemic Risk Board. This paper studies the welfare implications of this change of regime. By means of a dynamic stochastic general equilibrium model, I compare the pre-Brexit scenario with the new one, in which the UK sets macroprudential policy independently. I find that, after Brexit, the UK is better off by setting its own macroprudential policy without taking into account Europe's welfare as a whole.


The American Economic Review InsightsDishonesty and public employment

American Economic Review: Insights (2023)

School’s author: Guillermo Cruces

We exploit a natural experiment to study the causal link between dishonest behaviour and public employment. When military conscription was mandatory in Argentina, eligibility was determined by both a lottery and a medical examination. To avoid conscription, individuals at risk of being drafted had strong incentives to cheat in their medical examination. These incentives varied with the lottery number. Exploiting this exogenous variation, we first present evidence of cheating in medical examinations. We then show that individuals with a higher probability of having cheated in health checks exhibit a higher propensity to occupy nonmeritocratic public sector jobs later in life.


Journal of Economic Behaviour and Organization(In)efficiency in private value bargaining with naïve players: Theory and experiment

Journal of Economic Behaviour and Organisation (2023)

School’s author: Alex Possajennikov

The paper investigates two-player double-auction bargaining with private values in a setting with discrete two-point overlapping distributions of traders' valuations. We characterize parameter settings in which there exists a fully efficient equilibrium, and show that if there are traders that behave naively, ie set bid or ask equal to their valuation, then there is no equilibrium achieving full efficiency. We conduct an experiment to test the theoretical possibility that the presence of naive traders can reduce efficiency.

We find, however, that efficiency is not lower in the presence of naive traders. Subjects mostly set bid/ask prices strategically but they do not coordinate on a fully efficient equilibrium and the extent of strategic behaviour is not different in the presence of naive players. We show that a learning model of noisy strategy adjustment explains the observed behaviour better than other (equilibrium or non-equilibrium) models.


Journal of International Money and FinanceCorporate acquisitions and firm-level uncertainty: Domestic versus cross-border deals

Journal of International Money and Finance (2023)

School’s author: Sourafel Girma

This paper investigates how the announcement of acquisitions affect the uncertainty that financial markets perceive about acquiring firms. We use data for publicly-listed firms in the UK between 2004 and 2017 and employ a matching estimator combined with difference-in-differences to address the endogenous selection of firms into acquisitions. While acquisition announcements do not result in a significant change in the volatility of stock returns of acquiring firms across our whole sample, this result hides substantial heterogeneity.

Our main finding is that the impact of acquisitions on uncertainty is crucially shaped by a deal's geographic scope—ie whether the takeover involves a target in the same country or abroad. Domestic deals reduce the volatility of acquirers' returns by 5% on average one quarter after the announcement, while acquiring a foreign firm increases volatility by a similar magnitude. The heightened volatility resulting from cross-border transactions is primarily driven by acquisitions in industries characterized by high investment irreversibility and foreign markets where barriers to investment are higher.

Conversely, the volatility reduction following domestic acquisitions is more pronounced in industries with low irreversibility. Additionally, characteristics of the deal itself, such as the relative size of the acquisition, the payment method, and whether the deal achieves majority control of the target, also play an important role in mediating the effect of acquisitions on volatility.


Journal of Economic Behaviour and OrganizationEconomic conditions and health: Local effects, national effect and local area heterogeneity

Journal of Economic Behaviour and Organisation (2023)

School’s author: Kevin Lee

We study the relationship between health and changing economic conditions in local areas using a GVAR model that allows for dynamic and interdependent responses to local and national economic conditions. We examine quarterly British data for 2002–2016 for 131 local areas, which displays considerable heterogeneity in economic conditions.

We find robust evidence that health improves as the local economy (employment) expands, but that it takes over two years to realise the full effect. This relationship holds for musculoskeletal, cardiovascular, respiratory, and mental health conditions. We find considerable response heterogeneity at the local area level with the strongest relationship between changes in economic conditions and health found for areas with more traditional industrial structures.


The American Economic ReviewThe economic origins of government

American Economic Review (2023)

School’s author: Mattia Bertazzini

We test between cooperative and extractive theories of the origins of government. We use river shifts in southern Iraq as a natural experiment, in a new archeological panel dataset. A shift away creates a local demand for a government to coordinate because private river irrigation needs to be replaced with public canals. It disincentivizes local extraction as land is no longer productive without irrigation. Consistent with a cooperative theory of government, a river shift away led to state formation, canal construction, and the payment of tribute. We argue that the first governments coordinated between extended households which implemented public good provision.


EconomicaAre political and economic integration interwined?

Economica (2023)

School’s author: Giovanni Facchini

Economic incentives play a key role in the decision to run for office, but little is known on how they shape immigrants' self-selection into candidacy. We study this question using a two-period Roy model, and show that if returns to labour market experience differ between migrants and natives, then this will affect the relative likelihood to run for office for the two groups. We assess this prediction empirically using administrative data from Norway, a country with a very liberal regime for participation in local elections. Our results strongly support our theoretical model and indicate that immigrants' political and economic integration are closely intertwined.


Games and Economic BehaviorCommunication with partially verifiable information: An experiment

Games and Economic Behaviour (2023)

School’s authors: Maria Montero and Martin Sefton

We use laboratory experiments to study communication games with partially verifiable information. In these games, based on Glazer and Rubinstein, 2004Glazer and Rubinstein, 2006, an informed sender sends a two-dimensional message to a receiver, but only one dimension of the message can be verified. We investigate the effect of evidence and verification control using three treatments: one where messages are unverifiable, one where the receiver chooses which dimension to verify and one where the sender has this verification control.

First, we find that evidence helps the receiver. Second, despite significant differences in behavior across the two verification treatments, receivers' payoffs do not differ significantly across these treatments, suggesting they are not hurt by delegating verification control. We also show that a theoretically optimal receiver commitment strategy identified by Glazer and Rubinstein is close to being an optimal response to senders' observed behavior in both treatments.


Journal of Economic Behaviour and OrganizationThe behavioural mechanisms of voluntary cooperation across culturally diverse societies: Evidence from the US, the UK, Morocco and Turkey

Journal of Economic Behaviour and Organisation (2023)

School’s author: Simon Gaechter

We examine the role of cooperative preferences, beliefs, and punishments to uncover potential cross-societal differences in voluntary cooperation. Using one-shot public goods experiments in four comparable subject pools from the US and the UK (two similar Western societies) and Morocco and Turkey (two comparable non-Western societies), we find that cooperation is lower in Morocco and Turkey than in the UK and the US. Using the ABC approach – in which cooperative attitudes and beliefs explain cooperation – we show that cooperation is mostly driven by differences in beliefs rather than cooperative preferences or peer punishment, both of which are similar across the four subject pools.

Our methodology is generalizable across subject pools and highlights the central role of beliefs in explaining differences in voluntary cooperation within and across culturally, economically, and institutionally diverse societies. Because our behavioral mechanisms correctly predict actual contributions, we argue that our approach provides a suitable methodology for analyzing the determinants of voluntary cooperation of any group of interest.


Economic JournalGender difference in reference letters: Evidence from the Economics Job Market

Economic Journal (2023)

School’s author: Markus Eberhardt, Giovanni Facchini and Valeria Rueda

Academia, and economics in particular, faces increased scrutiny because of gender imbalance. This paper studies the job market for entry-level faculty positions. We employ machine learning methods to analyze gendered patterns in the text of 12,000 reference letters written in support of over 3,700 candidates. Using both supervised and unsupervised techniques, we document widespread differences in the attributes emphasized. Women are systematically more likely to be described using 'grindstone' terms and at times less likely to be praised for their ability. Using information on initial placement we highlight the implications of these gendered descriptors for the quality of academic placement.


Management ScienceInvestor logins and the disposition effect

Management Science (forthcoming)

School’s author: John Gathergood

Using data from an online brokerage, we examine the role of investor logins in trading behavior. We nd that a new reference point is created when an investor logs in and views their portfolio. We observe this as a disposition eeect on returns since last login, in addition to the traditional disposition eeect on returns since purchase. Further, these reference points produce a strong interaction such that even a small loss since last login nulliies the positive eeect of a gain since purchase. This interaction follows if investors select the higher, more aspirational price as a reference point.


The American Economic ReviewLaw and norms: Empirical evidence

American Economic Review (2023)

School’s author: Silvia Sonderegger

A large theoretical literature argues laws exert a causal effect on norms, but empirical evidence remains scant. Using a novel identification strategy, we provide a compelling empirical test of this proposition. We use incentivized vignette experiments to directly measure social norms relating to actions subject to legal thresholds. Our large-scale experiments (n = 7,000) run in the United Kingdom, United States, and China show that laws can causally influence social norms. Results are robust across different samples and methods of measuring norms, and are consistent with a model of social image concerns where individuals care about the inferences others make about their underlying prosociality.


Economic JournalUnraveling firms: Demand, productivity and markups heterogeneity

Economic Journal (2023)

School’s author: Giordano Mion

We develop a novel framework that simultaneously allows recovering heterogeneity in demand, quantity total factor productivity and markups across firms while leaving the correlation between the three dimensions unrestricted. We accomplish this by explicitly introducing demand heterogeneity and systematically exploiting assumptions used in previous productivity estimation approaches. In doing so, we provide an exact decomposition of revenue productivity in terms of the underlying heterogeneities, thus bridging the gap between quantity and revenue productivity estimations. We use Belgian firms’ production data to quantify total factor productivity, demand and markups, and show how they are correlated with each other across time and with measures obtained from other approaches.

In doing so, we find quantity total factor productivity and demand to be strongly negatively correlated with each other, so suggesting a trade-off between the quality of a firm’s products and their production cost. We also show how our framework provides deeper and sharper insights on the response of firms to increasing import competition from China. In particular, we find that changes in revenue productivity materialise as the outcome of complex and sometimes offsetting changes in quantity total factor productivity, demand, markups and production scale.


Journal of Economic HistoryOpening heaven’s door: Public opinion and congressional votes on the 1965 Immigration Act

Journal of Economic History (forthcoming)

School’s author: Giovanni Facchini

The 1965 Immigration Act represented a radical shift in US policy, which has been credited with dramatically expanding the volume and changing the composition of immigration. Its passing has often been described as the result of political machinations negotiated within Congress, without regard to public opinion. We show that congressional voting was consistent with public opinion on abolishing the country-of-origin quotas but not with the desire to limit the volume of immigration. While the former initially reflected attitudes over civil rights, the latter is consistent with contemporary expectations that the expansion in numbers would be modest.


Journal of Business and Economic StatisticsBonferroni type tests for return predictability and the initial condition

Journal of Business and Economic Statistics (2023)

School’s authors: David Harvey and Steve Leybourne

We develop tests for predictability that are robust to both the magnitude of the initial condition and the degree of persistence of the predictor. While the popular Bonferroni Q test of Campbell and Yogo displays excellent power properties for strongly persistent predictors with an asymptotically negligible initial condition, it can suffer from severe size distortions and power losses when either the initial condition is asymptotically non-negligible or the predictor is weakly persistent.

The Bonferroni t test of Elliott, and Stock, although displaying power well below that of the Bonferroni Q test for strongly persistent predictors with an asymptotically negligible initial condition, displays superior size control and power when the initial condition is asymptotically nonnegligible. In the case where the predictor is weakly persistent, a conventional regression t test comparing to standard normal quantiles is known to be asymptotically optimal under Gaussianity.

Based on these properties, we propose two asymptotically size controlled hybrid tests that are functions of the Bonferroni Q, Bonferroni t, and conventional t tests. Our proposed hybrid tests exhibit very good power regardless of the magnitude of the initial condition or the persistence degree of the predictor. An empirical application to the data originally analyzed by Campbell and Yogo shows our new hybrid tests are much more likely to find evidence of predictability than the Bonferroni Q test when the initial condition of the predictor is estimated to be large in magnitude.



1  |  2  |  3  |  4


School of Economics

Sir Clive Granger Building
University of Nottingham
University Park
Nottingham, NG7 2RD

Contact us