This week from CEPR: April 18 2019

Thursday, April 18, 2019

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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New Discussion Papers


University students use live streaming of their lectures only when random events make class attendance too costly. Indeed, offering live streaming reduces attendance only mildly. This is one of the findings of a randomised experiment in a public Swiss university by Michele Pellizzari and colleagues.

The CEPR study also reveals that attending lectures via live streaming lowers achievement for low-ability students and increases achievement for high-ability students. 

Figure 7: Distribution of cumulative take-up

    Art Auctions
    Orley Ashenfelter and Kathryn Graddy
    CEPR DP No. 13665 | 11 April 2019

A new CEPR study by Orley Ashenfelter and Kathryn Graddy describes how art auctions really work, including the state of competition between auction houses.

For the most expensive works, the standard procedure for establishing valuations is still most commonly the English auction, where prices ascend in open bidding. Here, competition is dominated by the duopoly of Christie's and Sotheby's.

The researchers describe striking features of art auctions, including the declining price anomaly, whether or not auctioneers provide accurate information, and anchoring effects in art auctions. They conclude that while the public auction system provides a valuable method for setting and determining values, it is probable that the inability of auctioneers to capture a significant part of the benefits of the information they produce leads to less use of the auction system than is optimal for society.

In recent decades, the US economy has witnessed a number of striking trends that indicate rising market concentration and a slowdown in business dynamism. New CEPR research by Ufuk Akcigit and Sina Ates presents ten stylised facts about these trends and then seeks to provide an overarching explanation. The facts are that:

1. Market concentration has risen.
2. Average mark-ups have increased.
3. Average profits have increased.
4. The labour share of output has gone down.
5. The rise in market concentration and the fall in labour share are positively associated.
6. The labour productivity gap between frontier and laggard firms has widened.
7. Firm entry rate has declined.
8. The share of young firms in economic activity has declined.
9. Job reallocation has slowed down. 
10. The dispersion of firm growth has decreased. 

The analysis highlights the dominant role of a decline in the intensity of knowledge diffusion from the frontier firms to the laggard ones in explaining the shifts in the US economy. The researchers present new evidence that corroborates a decline in knowledge diffusion in the economy.

They document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge.


Figure 10: Growth rate dispersion has shrunk


Thiemo Fetzer 
08 April 2019

Austerity policies in place in the UK since 2010 were an important contributing factor to the vote to Leave the European Union, according to research by Thiemo Fetzer. His study, which analyses regional-level data on spending and voting behaviour, as well as individual-level survey data, concludces that the close-run referendum could have resulted in a victory for Remain had it not been for austerity.


Pablo Fajgelbaum, Pinelopi Goldberg, Patrick Kennedy, Amit Khandelwal
12 April 2019


Research by World Bank chief economist Penny Goldberg and colleagues finds that the trade war has led to a $68.8 billion annual loss for US consumers and firms from higher import prices, with an aggregate annual loss of $7.8 billion when producer gains and tariff revenues are factored in.

Their study also shows that US tariffs are protecting politically competitive counties while retaliations are targeting strongly Republican counties.


Hélène Rey, Beatrice Weder di Mauro
10 April 2019

CEPR is working in partnership with UBS to celebrate contributions of women in economics, with a series of portraits and video interviews on a dedicated website. This programme, led by Hélène Rey and Beatrice Weder di Mauro, shines a light on quality research and policy-making from female leaders in their field.

‘Women in Economics’ will feature videos of prominent researchers discussing their work and insights. The content is designed to appeal to non-expert audiences, as well as those with a deeper understanding of economics. Beyond the digital content, the programme will include events for students and economists.


Alberto Alesina, Elie Murard, Hillel Rapoport
08 April 2019

The traditionally socially generous and inclusive policies of European countries face the dilemma of natives favouring them for themselves but opposing them for immigrants, according to research by Alberto Alesina, Elie Murard and Hillel Rapoport.

A large body of evidence shows that generosity, both public and private, is more freely extended within the same group rather than across groups. This column examines how immigration affects natives’ attitudes towards redistribution and the implications for welfare states in Europe. The main finding is that in regions that have received a larger share of immigrants, natives are in general less favourable towards redistribution. 

GLOBALISATION IS NOT IN RETREAT: Next-generation technologies and the future of trade

Susan Lund, Jacques Bughin
10 April 2019

The history of trade reflects the march of technological innovation. Analysis by Susan Lund and Jacques Bughin of the McKinsey Global Institute argues that despite today’s increased trade tensions, rising nationalism and slowdown in global goods trade, globalisation is not in retreat. Instead, it is entering a new chapter that is being driven by flows of information and data, as well as technological changes that are reshaping industry value chains. 


Nobuaki Hamaguchi, Keisuke Kondo
11 April 2019


Among workers under threat from computerisation based on artificial intelligence, evidence from Japan suggests that women are more exposed to the risks than men, and more so in bigger cities.

Nobuaki Hamaguchi and Keisuke Kondo note that computerisation and robotics have had a profound effect on labour markets. Their results suggest that supporting additional human capital investment alone is not enough as a risk alleviation strategy against new technology. Policy-makers need to address structural labour market issues, such as gender biases in career progression and participation in decision-making positions.

GAME OF INCOME COMPARISONS: The downside of tax transparency or ‘taxporn’

Ricardo Perez-Truglia
10 April 2019

Tax record transparency in Norway encourages snooping on the incomes of friends, relatives and colleagues, according to research by Ricardo Perez-Truglia. This game of income comparisons reduces the wellbeing of poorer Norwegians while boosting the self-esteem of the rich.

Tax records became easily accessible online in Norway in 2001, allowing everyone in the country to observe the incomes of everyone else – what has become known colloquially as ‘taxporn’. 

INDIA’S CIVIL SERVICE: Home bias hurts performance

Guo Xu, Marianne Bertrand, Robin Burgess
14 April 2019

Officers of the Indian Administrative Service who are allocated to work in their home states are more corrupt and less able to withstand illegitimate political pressure, according to research by Guo Xu, Marianne Bertrand and Robin Burgess 

How the personnel of the state perform is likely to have important implications for its effectiveness and economic performance. This study combines analysis of administrative records and survey data on the performance of Indian civil servants to examine how social proximity affects bureaucrat performance. 


Jens Josephson, Joel Shapiro
09 April 2019

The incentives for credit rating agencies to provide accurate ratings of structured finance products are influenced by investors’ constraints on which securities they can buy. According to a study by Jens Josephson and Joel Shapiro, ratings are accurate when constraints are very tight or very lax; otherwise, they are inflated.

The poor performance of credit ratings of structured finance products in the financial crisis has prompted investigation into the role of credit rating agencies. This research discusses the incidence of rating inflation when such an agency both designs and rates securities, highlighting the role of demand from investors that face rating constraints, such as banks, pension funds or insurance companies.

THE INTERNATIONAL MONETARY FUND AT 75: Reforming the global reserve system

José Antonio Ocampo
09 April 2019

  The IMF will turn 75 next year. Writing at VoxEU, José Antonio Ocampo argues that updating and reforming of some aspects of its core functions should be considered to reflect the current global monetary context. He analyses the IMF’s global reserve system, identifying three issues and suggesting two alternatives. Ultimately, greater use of the Fund’s Special Drawing Rights would mitigate several problems in the current system. 

HOW BRITAIN UNIFIED GERMANY: Trade costs and the formation of a customs union

Thilo Huning, Nikolaus Wolf
12 April 2019

In preventing Russia from gaining territory westwards at end of Napoleonic war, Britain set in motion a series of events that gave Prussia strategic trade advantages and allowed it to create a customs union – the Zollverein – which would go on to form the German state. That is the conclusion of research by Thilo Huning and Nikolaus Wolf.

Nation state borders are not above contention, and have shifted often in even the medium term due to both political and economic disputes. This study shows how the formation of the German state can be seen as an unintended consequence of Britain’s intervention in 1814/15 to push back Russian influence over Europe.


Jongrim Ha, M. Ayhan Kose, Franziska Ohnsorge
11 April 2019

Emerging market and developing economies have achieved a remarkable decline in inflation since the early 1970s, supported by robust monetary policy frameworks, strengthening of global trade, financial integration and the disruptions caused by the global crisis.

Writing at Vox, Ayhan Kose and World Bank colleagues argue that a continuation of low and stable inflation in these countries is not guaranteed. If this wave of structural and policy-related factors loses momentum, elevated inflation could re-emerge. Policy-makers may find that maintaining low inflation is as difficult as achieving it.

ITALY’S LABOUR MARKET: Adopting Germany’s system of local wage bargaining would boost employment and earnings

Tito Boeri, Andrea Ichino, Enrico Moretti, Johanna Posch
13 April 2019

If Italy were to adopt Germany’s system of local wage bargaining, aggregate employment and earnings would increase by 11.04% and 7.45%, respectively. That is the conclusion of research by Tito Boeri, Andrea Ichino, Enrico Moretti and Johanna Posch, which compares the local and aggregate effects of collective bargaining in the two countries.

Italy and Germany have similar geographical differences in firm productivity – with the North more productive than the South in the former; and the West more productive than the East in the latter. But the two countries have adopted different models of wage bargaining: Italy sets wages based on nationwide contracts that allow for limited local wage adjustments; while Germany has moved toward a more flexible system that allows for local bargaining.

The new research finds that, as a consequence, Italy exhibits limited geographical wage differences in nominal terms and almost no relationship between local productivity and local nominal wages, while Germany has larger geographical wage differences and a tighter link between local wages and local productivity.

HONOURS: An alternative to today’s bonus culture

Bruno S. Frey, Jana Gallus
14 April 2019

  The last decades have seen a marked increase in the use of incentive pay as firms compete for talent. Analysis by Bruno Frey and Jana Gallus weighs up the pros and cons of an alternative way to give people incentives, namely, honouring them.

They argue that bestowing awards instead increasing bonuses or other forms of monetary compensation constitutes a valuable alternative to induce effort without contributing to inequality in the distribution of income.



Nagore Iriberri interviewed by Tim Phillips, 12 April 2019

How should multiple choice tests be scored? It seems like a harmless question, but Nagore Iriberri tells Tim Phillips how she discovered that well-intentioned marking schemes may be penalising girls – and what we can do about it.


Marianne Bertrand

Focusing on her work on gender and inequality, Marianne Bertrand addresses the role that identifying and understanding bias in the job market can play. She talks about two complementary processes that can reduce bias in hiring: one addresses the implicit biases of those doing the hiring, and trains people to be aware of and avoid their biases; the other re-engineers the hiring process and introduces measures that mitigate for bias. Innovations in machine learning have a large role to play here.


Douglas Diamond 

Douglas Diamond of the University of Chicago Booth School of Business warns that covenant-lite loans, which proliferate in high-liquidity periods with their cheap and easy lack of restrictions, make the whole financial system more liable to imbalances of fragility if a market shock occurs.