Discussion Papers https://cepr.org/ en DP19106 School Autonomy and Pupils' Performance: Academy Conversion in English Primary Schools https://cepr.org/publications/dp19106 This paper examines the effect of the change in the governance regime of English primary schools on their pupils&#039; education attainment. From 2010, primary schools could apply to convert to &quot;academy&quot; status, thereby increasing their managerial autonomy. More than one third of them have done so up to now. We examine whether conversion had an effect on their pupils&#039; performance. We use a Mundlak approach and instrument the conversion decision with the attitude towards conversion of the stakeholders in the school&#039;s administrative authority to account for the potential endogeneity of the conversion to academy status. We find that conversion had at most limited effects on the pupils&#039; attainment in the short term, and in addition that this improved achievement is weaker or absent in schools with disadvantaged pupils, and it fades away as time passes. 2024-05-23T23:00:00+0000 Sabrina Auci, Manuela Coromaldi, Gianni De Fraja 12f231d8-cfc3-4fbf-aa2e-a6fa0ffbef66 Discussion paper DP19106 Public Economics DP19107 Optimal Redistribution: Rising Inequality vs. Rising Living Standards https://cepr.org/publications/dp19107 Over the last decades, the United States has experienced a large increase in, both, income inequality and living standards. The workhorse models of optimal income taxation call for more redistribution as inequality rises. By contrast, living standards play no role for taxes and transfers in these homothetic environments. This paper incorporates living standards into the optimal income tax problem by means of non-homothetic preferences. In a Mirrlees setup, we show that rising living standards alter both sides of the equity-efficiency trade-off. As an economy becomes richer, non-homotheticities imply a fall in the dispersion of marginal utilities, which weakens distributional concerns but has ambiguous effects on efficiency concerns. In a dynamic incomplete-market setup calibrated to the United States in 1950 and 2010, we quantify this new channel. Rising living standards dampen by at least 25% the desired increase in redistribution due to rising inequality. 2024-05-23T23:00:00+0000 Axelle Ferriere, Philipp Grübener, Dominik Sachs 1dfc0642-32a9-45f0-b154-8edb4ed3fc4c Discussion paper DP19107 Macroeconomics and Growth, Public Economics DP19102 Dynamic Collective Action and the Power of Large Numbers https://cepr.org/publications/dp19102 Collective action is a dynamic process where individuals in a group assess over time the benefits and costs of participating toward the success of a collective goal. Early participation improves the expectation of success and thus stimulates the subsequent participation of other individuals who might otherwise be unwilling to engage. On the other hand, a slow start can depress expectations and lead to failure for the group. Individuals have an incentive to procrastinate, not only in the hope of free riding, but also in order to observe the flow of participation by others, which allows them to better gauge whether their own participation will be useful or simply wasted. How do these phenomena affect the probability of success for a group? As the size of the group increases, will a “power of large numbers” prevail producing successful outcomes, or will a “curse of large numbers” lead to failure? In this paper, we address these questions by studying a dynamic collective action problem in which n individuals can achieve a collective goal if a share αn of them takes a costly action (e.g., participate in a protest, join a picket line, or sign an environmental agreement). Individuals have privately known participation costs and decide over time if and when to participate. We characterize the equilibria of this game and show that under general conditions the eventual success of collective action is necessarily probabilistic. The process starts for sure, and hence there is always a positive probability of success; however, the process “gets stuck” with positive probability, in the sense that participation stops short of the goal. Equilibrium outcomes have a simple characterization in large populations: welfare converges to either full efficiency or zero as n→∞ depending on a precise condition on the rate at which αn converges to zero. Whether success is achievable or not, delays are always irrelevant: in the limit, success is achieved either instantly or never. 2024-05-22T23:00:00+0000 Marco Battaglini, Thomas R Palfrey 3b0b61a2-41c8-4d3f-bf80-702a872aa6d9 Discussion paper DP19102 Political Economy, Public Economics DP19095 Indirect taxation in consumer search markets: The case of retail fuel https://cepr.org/publications/dp19095 When consumers have heterogeneous access to information about prices, they face different observed price distributions and thus possibly different effective pass-through rates. We estimate a model of consumer search using data from the German retail fuel market. We find that informed consumers face higher effective pass-through rates, with important distributional implications for regulatory and tax policies. Lowering the VAT rate from 19% to 16% decreases transaction prices by 1.9% on average, but disproportionally benefits consumers in high-income markets. We further show that a tax-revenue-equivalent excise tax reduction would have benefited consumers more than a VAT cut, thus generalizing known results in public economics to markets with imperfect information. 2024-05-22T23:00:00+0000 Kai Fischer, Simon Martin, Philipp Schmidt-Dengler cc25524f-8a17-4f33-bef1-5243627d55e2 Discussion paper DP19095 Industrial Organization, Public Economics DP19096 Behavioral Spillovers from Promoting Healthier Consumer Choices https://cepr.org/publications/dp19096 We examine a four-month-long randomized intervention that provided information about healthier alternatives when online grocery shoppers added certain less-healthy products to their baskets, leading to significant and persistent average increases in healthier purchases.<br /> Using machine learning techniques, we characterize consumers&#039; direct responsiveness to the intervention and broader changes in behavior.<br /> More-responsive consumers make healthier purchases beyond the immediate scope of the intervention; less-responsive consumers engage in more active shopping behaviors, spending more time shopping and making cost-saving substitutions.<br /> These results highlight the capacity of information-based approaches to not only affect isolated consumer decisions but also shape behavior across multiple domains.<br /> 2024-05-22T23:00:00+0000 Mathias Barlose, Kfir Eliaz, Neil Thakral, Sarit Weisburd 9f4428a9-befa-4582-b535-0b3b686d8766 Discussion paper DP19096 Industrial Organization, Public Economics DP19099 Investment-Goods Market Power and Capital Accumulation https://cepr.org/publications/dp19099 We develop a model of capital accumulation in an open economy that imports investment goods from large foreign firms with market power. We model investment-goods producers as a dynamic oligopoly and characterize a Markov Perfect Equilibrium with a Generalized Euler Equation. We use this optimality condition to analyze the joint evolution of investment, prices, and markups. The markup on investment goods decreases as the economy accumulates capital toward its steady state, generating a state-dependent capital adjustment cost. We analyze the role of commitment to future production of investment goods for the dynamics of markups and investment. We use a calibrated version of the model to simulate the effects of shocks to the demand for durable goods and semiconductors during the post-2020 world recovery. Finally, we perform counterfactual analyses on the effects of expanding the production capacity. The model highlights the separate roles of increasing marginal costs---akin to capacity constraints---and market power. 2024-05-22T23:00:00+0000 Fabio Bertolotti, Andrea Lanteri, Alessandro Villa 35cf5134-ce83-48b2-9ddc-a7d921f40778 Discussion paper DP19099 Monetary Economics and Fluctuations, Macroeconomics and Growth DP19104 A Comprehensive Analysis of Production Efficiency: A Tax Reform Perspective https://cepr.org/publications/dp19104 Policies that impact the production sector, such as intermediate goods taxation (e.g. taxing robots) and trade liberalization create winners and losers. When do we need to integrate pre-distribution concerns in the design of these production policies? Should we consider the endogenous changes of factor prices in tax formulas? We show that the answers to these two questions depend only on the features of the income tax system. More precisely, can the tax system distinguish incomes from each factor of production? Can it be reformed along the so-called “GE-replicating directions&quot;, reproducing the impact of factor price adjustments on taxpayers’ utility? If the answer to either question, or both, is “no&quot;, the design of production policies should also take into account its pre-distributive role and all formulas reveal novel, empirically implementable “GE multipliers”. These multipliers shape tax systems to correct for market failures as well as for the effects of price adjustments. In contrast, if the answer to both questions is “yes&quot;, it is Pareto-improving to design production policies solely to enlarge production possibilities and the “GE multipliers” shape the income tax system only to account for market failures. We illustrate these insights with realistic tax systems and practical examples of production policies. 2024-05-22T23:00:00+0000 Laurence Jacquet, Etienne Lehmann 509a1eb0-e489-46d5-9383-e6fb0e7aeffe Discussion paper DP19104 Public Economics DP19101 Work from Home and Interstate Migration https://cepr.org/publications/dp19101 Interstate migration by working-age adults in the US declined substantially during the Great Recession and remained subdued through 2019. We document that interstate migration rose sharply following the 2020 Covid-19 outbreak, nearly recovering to pre-Great recession levels, and provide evidence that this reversal was primarily driven by the rise in work from home (WFH). Before the pandemic, interstate migration by WFH workers was consistently 50% higher than for commuters. Since the Covid-19 outbreak, this migration gap persisted while the WFH share tripled. Using quasi-panel data and plausibly exogenous changes in employer WFH policies, we address concerns about omitted variables or reverse causality and conclude that access to WFH induces greater interstate migration. An aggregate accounting exercise suggests that over half of the rise in interstate migration since 2019 can be accounted for by the rise in the WFH share. Moreover, both actual WFH and pre-pandemic WFH potential, based on occupation shares, can account for a sizable share of cross-state variation in migration. 2024-05-22T23:00:00+0000 Alexander Bick, Adam Blandin, Karel Mertens, Hannah Rubinton 3bb64b5b-b6bf-4c52-94bb-fe7d06966935 Discussion paper DP19101 International Trade and Regional Economics, Labour Economics, Macroeconomics and Growth DP19103 Believe it or not, it’s all about Beliefs! https://cepr.org/publications/dp19103 This paper studies the impact of Higher Order Belief (HOB) shocks, representing shifts in agents’ beliefs about others’ beliefs, on macroeconomic outcomes. The dynamic causal effects of these shocks are identified by leveraging a combination of a proxy-VAR approach and DSGE-based instruments. Our findings suggest that HOB shocks are indeed a key driver of the business cycle and account for a sizeable share of the observed business cycle volatility. Finally, our identification approach ensures that these shocks are not confounded with other structural/fundamental shocks. 2024-05-22T23:00:00+0000 Fabrice Collard, Patrick Feve, Alain Guay f0cddcb3-1690-4d2f-8e2e-10e359dd54fd Discussion paper DP19103 Monetary Economics and Fluctuations DP19098 Investment in Infrastructure and Trade: The Case of Ports https://cepr.org/publications/dp19098 Transportation infrastructure is vital for the smooth functioning of international trade. Ports are a crucial gateway to this system: with more than 80% of trade carried by ships, they shape trade costs, and it is critical that they operate efficiently. Yet ports are susceptible to disruptions, causing costly delays. With enormous budgets spent on infrastructure to alleviate these costs, a key policy question emerges: in a world with high volatility, what are the returns to investing in infrastructure? To address this question, we introduce an empirical framework that combines insights from queueing theory to capture port technology, with tools from demand estimation. We use our framework, together with a collection of novel datasets, to quantify the costs of disruptions and evaluate transportation infrastructure investment. Our analysis unveils three policy-relevant messages: (i) investing in port infrastructure can lead to substantial trade and welfare gains, but only if targeted properly– in fact, net of costs, investment has positive returns at a minority of US ports; (ii) there are sizable spillovers across ports, as investing in one port can decongest a wider set of ports, suggesting that decision-making should not be decentralized to local authorities; (iii) macroeconomic volatility can drastically change returns to investment and their geography. 2024-05-22T23:00:00+0000 Giulia Brancaccio, Myrto Kalouptsidi, Theodore Papageorgiou c1c8bf46-9572-4c93-ad83-ea8a1a338ed7 Discussion paper DP19098 Industrial Organization, International Trade and Regional Economics, Macroeconomics and Growth DP19100 The geometry of consumer preference aggregation https://cepr.org/publications/dp19100 We revisit a classical question of how individual consumer preferences and incomes shape aggregate behavior. We develop a method that applies to populations with homothetic preferences and reduces the hard problem of aggregation to simply computing a weighted average in the space of logarithmic expenditure functions. We apply the method to identify aggregation-invariant preference domains, characterize aggregate preferences from common domains like linear or Leontief, and describe indecomposable preferences that do not correspond to the aggregate behavior of any non-trivial population. Applications include robust welfare analysis, information design, discrete choice models, pseudo-market mechanisms, and preference identification. 2024-05-22T23:00:00+0000 Fedor Sandomirskiy, Philip Ushchev 51c50b45-4bff-44ed-878b-9c8ebd826fb7 Discussion paper DP19100 International Trade and Regional Economics DP19097 Explanations https://cepr.org/publications/dp19097 When people exchange ideas, both truths and falsehoods can proliferate. We study the role of explanations for the spread of truths and falsehoods in 15 financial decision tasks. Participants record the reasoning behind each of their answers with incentives for accuracy of their listeners&#039; responses, providing over 6,900 unique verbal explanations in total. A separate group of participants either only observe one orator’s choice or additionally listen to the corresponding explanation before making their own choice. Listening to explanations strongly improves aggregate accuracy. This effect is asymmetric: explanations enable the spread of truths, but do not curb the contagion of falsehoods. To study mechanisms, we extract every single argument provided in the explanations alongside a large collection of speech features, revealing the nature of financial reasoning on each topic. Explanations for truths exhibit a significantly richer message space and higher argument quality than explanations for falsehoods. These content differences in the supply of explanations for truths versus falsehoods account for 60% of their asymmetric benefit, whereas orator and receiver characteristics play a minor role. 2024-05-22T23:00:00+0000 Thomas Graeber, Christopher Roth, Constantin Schesch b7580a42-1414-4e98-8e2e-9f2e24ee1d28 Discussion paper DP19097 Public Economics DP19105 Testing for Asymmetric Information in Insurance with Deep Learning https://cepr.org/publications/dp19105 The positive correlation test for asymmetric information developed by Chiappori and Salanié (2000) has been applied in many insurance markets. Most of the literature focuses on the special case of constant correlation; it also relies on restrictive parametric specifications for the choice of coverage and the occurrence of claims. We relax these restrictions by estimating conditional covariances and correlations using deep learning methods. We test the positive correlation property by using the intersection test of Chernozhukov, Lee, and Rosen (2013) and the &#039;sorted groups&#039; test of Chernozhukov, Demirer, Duflo, and<br /> Fernandez-Val (2023). Our results confirm earlier findings that the correlation between risk and coverage is small. Random forests and gradient boosting trees produce similar results to neural networks. 2024-05-22T23:00:00+0000 Serguei Maliar, Bernard Salanié 06e5f7e7-435b-42c4-bcf6-a9de9518954b Discussion paper DP19105 Industrial Organization DP19094 Trouble Every Day: Monetary Policy in an Open Emerging Economy https://cepr.org/publications/dp19094 Four factors drive the high-frequency impact of monetary policy announcements in South Africa: affecting short-, mid-, and long-term yield curve, as well as country risk. Controlling for information effects, we build IVs to study the transmission of conventional monetary policy, forward guidance, term premia, country risk and information shocks. Our findings reveal textbook contractionary effects of conventional monetary policy. Policy communication, particularly forward guidance, has persistent effects on output and prices. Country risk is a novel and powerful channel of monetary policy communication in emerging markets. By defending its independence, re-stating its inflation target objective, and addressing external shocks, the central bank can mitigate country risk and generate strong expansionary effects. 2024-05-21T23:00:00+0000 Ekaterina Pirozhkova, Giovanni Ricco, Nicola Viegi c31c8902-e40a-43f0-80de-0a3b21943bac Discussion paper DP19094 Monetary Economics and Fluctuations, International Macroeconomics and Finance DP19090 The Great Reversal https://cepr.org/publications/dp19090 The shock of the pandemic and subsequent overlapping crises has led to a reversal in development by exacerbating the challenges facing the most vulnerable 75 economies eligible for concessional loans and grants from the World Bank’s International Development Association (IDA). Over 2020-24, per capita incomes in half of IDA countries—the largest share since the start of this century—have been growing more slowly than those of wealthy economies. One out of three IDA countries is poorer than it was on the eve of the pandemic. Poverty remains stubbornly high, hunger has surged, and, amid fiscal constraints and rising investment needs, the development outlook could take an even bleaker turn—especially if weak growth prospects persist. IDA countries have several important demographic and resource advantages that could—if leveraged effectively—help close development gaps. Reaping the benefits of their advantages and meeting investment needs will require them to undertake comprehensive policy measures to bolster fiscal and monetary frameworks, enhance human capital development, and improve the quality of institutions. These policies should be complemented with significant and consistent international financial support as well as strong cooperation on global policy issues. 2024-05-20T23:00:00+0000 Tommy Chrimes, Bram Gootjes, M. Ayhan Kose, Collette Wheeler fd2048b0-afd3-44d6-a5f0-0e1a969ade04 Discussion paper DP19090 International Macroeconomics and Finance DP19088 Fiscal Consequences of Central Bank Losses https://cepr.org/publications/dp19088 In response to the Global Financial Crisis, central banks engaged in large-scale asset purchases funded by the issuance of reserves. These “unconventional” policies continued during the pandemic, so that by 2022 central banks’ balance sheets had grown up to ten-fold. As a result of rapidly increasing interest rates, these massive portfolios began producing substantial losses. We interpret these losses as fiscal policy consequences of quantitative easing and stress that they must be balanced against the prior benefits of implementing purchase policies. Importantly, losses differ qualitatively depending on whether the central bank chooses to buy domestic or foreign assets, thus resulting in transfers either within or between countries. Effects of losses may differ due to accounting rules (when losses are realized) and when the fiscal authority compensates for losses (the structure of indemnification agreements). Data from the Federal Reserve, the Eurosystem, and the Bank of England show that maximum annual losses are between 0.3 and 1.5 percent of GDP. By contrast, the Swiss National Bank is sustaining losses up to 17 percent of GDP. 2024-05-20T23:00:00+0000 Stephen Cecchetti, Jens Hilscher 617e349f-5fd8-4dc7-bbd8-3ab2c6a1cb82 Discussion paper DP19088 Monetary Economics and Fluctuations DP19093 Returns Heterogeneity and Consumption Inequality Over the Life Cycle https://cepr.org/publications/dp19093 A recent literature argues that persistent heterogeneity in wealth returns (&quot;type dependence&quot;) as well as a positive association with wealth levels (&quot;scale dependence&quot;) play an important role for explaining features of the wealth distribution, especially its extreme concentration at the top. In contrast, traditional models of wealth accumulation emphasize the role of persistent differences in labor earnings. Using panel data from the PSID, we fi rst document that a common unobserved component (which we interpret as the endowment of cognitive and non-cognitive skills of an individual) drives persistent heterogeneity in both wealth returns and labor earnings. We embed these features of the joint wealth return-earnings process in a life-cycle model of consumer behavior and show that ignoring them would dramatically understate average returns for people at the top of the wealth distribution as well as the level and rise of consumption inequality over the life cycle. 2024-05-20T23:00:00+0000 Claudio Daminato, Luigi Pistaferri a66125d6-6ec2-406d-ba5a-dd7d8066089c Discussion paper DP19093 Labour Economics, Macroeconomics and Growth DP19089 Network formation and heterogeneous risks https://cepr.org/publications/dp19089 We study a new model to study the effect of contract externalities that arise through shock transmission. We model a financial network where good firms enjoy direct and indirect benefits from linking with one another. Bad risks benefit from having a connection with a good firm, but they are a cost to both direct and indirect connections. In efficient networks the good risks should form large connected components with very few bad risks attached. The equilibrium networks, on the other hand, have many more bad risks attached, they are core-periphery structures, and components are also smaller<br /> than the efficient ones. We also study extensions with heterogenous “bad risks,” with diversity in the costs to good risk firms of linking with bad risks, and with incomplete information. 2024-05-20T23:00:00+0000 Antonio Cabrales, Piero Gottardi 891a1a55-e427-456e-8043-895d43af2835 Discussion paper DP19089 Industrial Organization, Public Economics, Banking and Corporate Finance DP19092 Keeping Up Appearances: An Experimental Investigation of Relative Rank Signaling https://cepr.org/publications/dp19092 We investigate the potential welfare cost of relative rank considerations using a series of vignettes and lab-in-the-field experiments with over 2,000 individuals in Abidjan, Cote d&#039;Ivoire. We show that: (1) individuals judged to be of a lower rank are perceived as more likely to be sidelined from beneficial opportunities in many aspects of life; and (2) in response, individuals distort their appearance and consumption choices in order to appear of higher rank. These effects are strong and economically significant. As predicted by a simple signaling model, the distortion is larger for individuals with low (but not too low) socio-economic status. 2024-05-20T23:00:00+0000 Pascaline Dupas, Marcel Fafchamps, Laura Hernandez-Nunez a59c02fc-9861-422f-86c1-5fb392646961 Discussion paper DP19092 Development Economics, Labour Economics DP19091 The Economic Burden of Burnout https://cepr.org/publications/dp19091 We study the economic consequences of stress-related occupational illnesses (burnout) using Swedish administrative data. Using a mover design, we find that high-burnout firms and stressful occupations universally raise burnout risk yet disproportionately impact low-stress-tolerance workers. Workers who burn out endure permanent earnings losses regardless of gender – while women are three times more susceptible. Repercussions of burnout extend to the worker&#039;s family, reducing spousal income and children&#039;s educational achievements. Through sick leaves, earnings scars, and spillovers, burnout reduced the national labor income by 2.3% in 2019. We demonstrate how estimated costs, combined with a prediction model incorporating workers&#039; self-reported stress, can improve the design of prevention programs. 2024-05-20T23:00:00+0000 Arash Nekoei, Jósef Sigurdsson, Dominik Wehr 3d74213b-fb3d-4ef8-a7af-00a03f998b11 Discussion paper DP19091 Labour Economics DP19087 Central Bank Exit Strategies: Domestic Transmission and International Spillovers https://cepr.org/publications/dp19087 We study alternative approaches to the withdrawal of prolonged unconventional monetary stimulus (&quot;exit strategies&quot;) by central banks in large, advanced economies. We first show empirically that large-scale asset purchases affect the exchange rate and domestic and foreign term premiums more strongly than conventional short-term policy rate changes when normalizing by the effects on domestic GDP. We then build a two-country New Keynesian model that features segmented bond markets, cognitive discounting and strategic complementarities in price setting that is consistent with these findings. The model implies that quantitative easing (QE) is the only effective way to provide monetary stimulus when policy rates are persistently constrained by the effective lower bound, and that QE is likely to have larger domestic output effects than quantitative tightening (QT). We demonstrate that exit strategies by large advanced economies that rely heavily on QT can trigger sizeable inflation-output tradeoffs in foreign recipient economies through the exchange rate and term premium channels. We also show that these tradeoffs are likely to be stronger in emerging market economies, especially those with fixed exchange rates. 2024-05-19T23:00:00+0000 Christopher J. Erceg, Marcin Kolasa, Jesper Lindé, Haroon Mumtaz, Pawel Zabczyk 3071b0cd-ec57-4631-ae57-586e1d2728c8 Discussion paper DP19087 International Macroeconomics and Finance DP19084 How Successful Public Health Interventions Fail: Regulating Prostitution in Nineteenth-Century Britain https://cepr.org/publications/dp19084 Public health interventions often involve a trade-off between improving health and protecting individual rights. We study this trade-off in a high-stakes setting: prostitution regulations aimed at reducing the spread of sexually transmitted infections (STIs) in Victorian Britain. These regulations, known as the Contagious Disease Acts (CDAs), introduced a system of registration of sex workers, compulsory medical inspections, and the involuntary confinement of infected workers, in a legal market for sex. The first part of our analysis shows that the CDAs led to substantial public health improvements. However, despite their effectiveness, the CDAs were ultimately repealed. The second part of our study examines the causes of this repeal. We show that repeal was driven by concerns about the violation of the basic rights of sex workers and unequal treatment relative to men who purchased sex. These findings emphasize that the success of a public health intervention depends not only on its effectiveness as a sanitary measure but also on how the costs of the regulation are distributed. 2024-05-19T23:00:00+0000 Grant Goehring, W. Walker Hanlon a2665922-5f55-4540-bf49-fcc4bcc5c56e Discussion paper DP19084 Economic History DP19083 How to Pay for Scientific Research https://cepr.org/publications/dp19083 Using data on 31 countries over the period from 1996 to 2016, we study the effect of the introduction of Performance Based Research Funding (PBRF) on three indices of a country&#039;s scientific publications: quantity, prestige, and influence.<br /> We find that the introduction of PBRF has modest positive effects on quantity and prestige, and no effect on influence, a measure of long-term scientific impact. Interestingly, influence is positively affected in the sub-sample of countries in which universities have a higher degree of autonomy in hiring and promotions. Consistent with recent theoretical work, this suggests an important role for the transmission channel from institutions to individual researchers. 2024-05-19T23:00:00+0000 Daniele Checchi, Gianni De Fraja, Carmen Marchiori, Enrico Minelli, Stefano Verzillo 3f949e1d-29e3-4745-ba8f-90c11b2410d1 Discussion paper DP19083 Public Economics DP19086 FX Market Frictions in Emerging Market Economies: A Macroeconomic Assessment https://cepr.org/publications/dp19086 We estimate a New Keynesian small open economy model which allows for foreign exchange (FX) market frictions and a potential role for FX interventions for a large set of emerging market economies (EMEs) and some inflation targeting (IT) advanced economy (AE) countries serving as a control group. Next, we use the estimated model to examine the empirical support for the view that interest rate policy may not be sufficient to stabilize output and inflation following capital outflow shocks, and the extent to which FX interventions (FXI) can improve policy tradeoffs. Our results reveal significant structural differences between AEs and EMEs---in particular FX market depth---leading to different transmission of capital outflow shocks which justifies occasional use of FXI in some EMEs in certain situations. Our analysis also highlights the critical importance of accounting for the endogeneity of FXI behavior when assessing FX market depth and policy tradeoffs associated with volatile capital flows in past episodes. 2024-05-19T23:00:00+0000 Kaili Chen, Marcin Kolasa, Jesper Lindé, Hou Wang, Pawel Zabczyk, Jianping Zhou 837974c0-3f09-493e-bdf0-d1ea94f77a95 Discussion paper DP19086 International Macroeconomics and Finance DP19082 The Death of King Coal and the Scars of Deindustrialization https://cepr.org/publications/dp19082 This paper investigates the human cost of industrial decline. We focus on the largest contraction of the coal industry in the UK. Using longitudinal data following two cohorts born in 1958 and 1970, we estimate the lifelong effects of being exposed to pit closures dur- ing childhood on health and economic outcomes. Those exposed to the shock as children have worse health throughout life, and this effect transmits over generations. They are also raised in less privileged economic conditions and accumulate less wealth as adults. We also uncover that migration is an imperfect mitigation strategy. The longitudinal data structure allows us to account for different trajectories in the effects across locations and cohorts. We also verify that outcomes are identical in levels before the shock. Results are robust to a battery of robustness checks. These findings highlight that in the absence of any support, industrial decline has long-lasting consequences imperfectly mitigated by access to better opportunities. Few people move, and those who do keep a scar. 2024-05-19T23:00:00+0000 Bjorn Brey, Valeria Rueda 4a9ab9da-2c68-4f8d-89c7-6e0cd0d5fd52 Discussion paper DP19082 Economic History, Political Economy DP19085 Can Energy Subsidies Help Slay Inflation? https://cepr.org/publications/dp19085 Many countries have used energy subsidies to cushion the effects of high energy prices on households and firms. We use a New Keynesian DSGE modeling framework to identify the conditions under which these policies can curb inflation, drawing on empirical evidence about energy shock transmission from proxy VARs. We show formally that, when implemented globally or in segmented energy markets, a consumer energy subsidy is equivalent to taxing energy use by firms and is counterproductive in fighting inflation under empirically plausible characterizations of wage-setting. We find more scope for energy subsidies to reduce core inflation if introduced by a small group of countries which collectively do not have much influence on global energy prices. However, even here the subsidies can be counterproductive for inflation as they weaken the exchange rate. We also show that targeted transfers are more efficient than subsidies if the aim is to shield vulnerable households. 2024-05-19T23:00:00+0000 Christopher J. Erceg, Marcin Kolasa, Jesper Lindé, Andrea Pescatori ecd9d6bd-1536-4544-9039-6d9b5912c4aa Discussion paper DP19085 Monetary Economics and Fluctuations DP19081 News Media as Suppliers of Narratives (and Information) https://cepr.org/publications/dp19081 We present a model of news media that shape consumer beliefs by providing information (signals about an exogenous state) and narratives (models of what determines outcomes). To amplify consumers&#039; engagement, media maximize consumers&#039; anticipatory utility. Focusing on a class of separable consumer preferences, we show that a monopolistic media platform facing homogenous consumers provides a false &quot;empowering&quot; narrative coupled with an optimistically biased signal. Consumer heterogeneity gives rise to a novel menu-design problem due to a &quot;data externality&quot; among consumers. The optimal menu features multiple narratives and creates polarized beliefs. These effects also arise in a competitive media market model. 2024-05-17T23:00:00+0000 Kfir Eliaz, Ran Spiegler 473c45a6-e20b-4ca6-a10b-1f93cdd9da86 Discussion paper DP19081 Industrial Organization, Political Economy DP19080 The design of insurance contracts for home versus nursing home Long-Term Care https://cepr.org/publications/dp19080 We study the design of optimal (private and/or social) insurance schemes for formal home care and institutional care. We consider a three period model. Individuals are either in good health, lightly dependent or heavily dependent. Lightly dependent individuals can buy formal home care which reduces the severity of dependency and reduces the probability to become severely dependent in the next period. Severely dependent individuals pay for nursing home care. In both states of dependency individuals can receive a (private or public) insurance benefit (transfers). These benefits can be flat or depend on the formal care consumed (or a combination of the two). These benefits are financed by a premium (or a tax). Individuals may be alive until the end of period 2 or die at the beginning of periods 1 or 2 with a certain probability which may depend on their state of health.<br /> The laissez faire is inefficient because individuals consume a too low level of formal home care and are not insured. The first-best insurances scheme requires a transfer to lightly dependent individuals that, (under some conditions) increases with the amount of formal home care consumed. Severely dependent individuals, on the other hand, must receive a flat transfer (from private or social insurance). The theoretical analysis is illustrated by a calibrated numerical example which show that the expressions have the expected signs under plausible conditions. 2024-05-16T23:00:00+0000 Claire Borsenberger, Helmuth Cremer, Denis Joram, Jean-Marie Lozachmeur, Estelle Malavoltl 45eaccb2-f298-4077-a8e1-8e980cbe55d5 Discussion paper DP19080 Public Economics DP19079 Influencer Cartels https://cepr.org/publications/dp19079 Social media influencers account for a growing share of marketing worldwide. We demonstrate the existence of a novel form of market failure in this advertising market: influencer cartels, where groups of influencers collude to increase their advertising revenue by inflating their engagement. Our theoretical model shows that influencer cartels can improve consumer welfare if they expand social media engagement to the target audience, or reduce welfare if they divert engagement to less relevant audiences. We validate the model empirically using novel data on influencer cartels combined with machine learning tools, and derive policy implications for how to maximize consumer welfare. 2024-05-15T23:00:00+0000 Marit Hinnosaar, Toomas Hinnosaar 675c8fc1-8f2b-42f9-808f-b9a5cac3ac35 Discussion paper DP19079 Industrial Organization DP19078 Privilege Lost? The Rise and Fall of a Dominant Global Currency https://cepr.org/publications/dp19078 How does a country obtain the status of a safe haven with a dominant global currency? This paper argues that size matters: as a country becomes larger and more diversified, the underlying shock process of the economy becomes less variable. Shocks that can drive a government to default become less likely, implying lower default probability, lower interest rates and a larger debt capacity. Furthermore, the larger a country’s share in the supply of global safe assets, the more liquid and attractive its bonds are for investors. If the dominant currency country grows less than the rest of the world, its status as a safe haven erodes and interest rate differentials decline. We also discuss how the structure of shocks, a country`s institutional features and financial development matter for its role as a global currency. 2024-05-15T23:00:00+0000 Kai Arvai, Nuno Coimbra 6fff9afb-29b9-4716-8c56-f7d94d34633e Discussion paper DP19078 International Macroeconomics and Finance DP19076 Tying with Network Effects https://cepr.org/publications/dp19076 We develop a leverage theory of tying in markets with network effects. When a monopolist in one market cannot perfectly extract surplus from consumers, tying can be a mechanism through which unexploited consumer surplus is used as a demand-side leverage to create a &quot;quasi-installed base&quot; advantage in another market<br /> characterized by network effects. Our mechanism does not require any<br /> precommitment to tying; rather, tying emerges as a best response that lowers the quality of tied-market rivals. While tying can lead to exclusion of tied-market rivals, it can also expand use of the tying product, leading to ambiguous welfare effects. 2024-05-14T23:00:00+0000 Jay Pil Choi, Doh-Shin Jeon, Michael D. Whinston 3f4fdad3-72e7-4400-848b-264baca8af78 Discussion paper DP19076 Industrial Organization DP19077 Rethinking the Lender of Last Resort: New Evidence on the Stabilization of Money Markets Before the Federal Reserve https://cepr.org/publications/dp19077 Short-term funding markets play a vital role in financial stability. Frequent liquidity shocks caused severe interest rate instability during financial crises historically; a problem commonly thought solved by the creation of the Federal Reserve (Fed) in 1913-4. On the contrary, this paper provides novel evidence that interest rates stabilized six years earlier, with the introduction of federal legislation for a national lender of last resort mechanism in January 1908. The results show that creation of the Fed generated little additional impact on funding market rates or on short-term credit spreads. Moreover, the newly-founded Fed did not succeed in its efforts to shift banks away from overnight lending in the stock market as the market boomed after World War I. 2024-05-14T23:00:00+0000 Caroline Fohlin 5f06e969-b441-41d7-8a06-a7cc686e629e Discussion paper DP19077 Economic History, Monetary Economics and Fluctuations, Asset Pricing, Banking and Corporate Finance DP19073 To cut or not to cut: Deforestation policy under the shadow of foreign influence https://cepr.org/publications/dp19073 This article explores the complex interplay between deforestation policies and foreign influence, using a game theoretical model to analyze geopolitical factors influencing forest conservation decisions in countries with significant rainforests. The model highlights the conflicting interests of foreign powers – one aiming for economic benefits from agriculture and the other advocating for forest preservation due to environmental services. The paper demonstrates how domestic political dynamics and economic shocks influence the regulatory decisions on deforestation. This understanding is crucial for formulating strategies that balance developmental needs and global environmental concerns. 2024-05-13T23:00:00+0000 Facundo Albornoz-Crespo 1951f600-ad46-4974-9ed0-d35c90f9a569 Discussion paper DP19073 Political Economy, Public Economics DP19074 Political Institutions and Output Collapses https://cepr.org/publications/dp19074 This paper examines whether major output collapses are more likely under autocracy. Using data on 123 developing countries over 1971-2016, we model the joint evolution of output growth and political institutions as a finite state Markov chain with a two-dimensional state space. We study how countries move between states. We find that growth is more likely to be sustained under democracy than under autocracy; output collapses are more likely to deepen under autocracy; and stagnation under autocracy can give way to outright collapse. Democratic countries appear to be more resilient. 2024-05-13T23:00:00+0000 Patrick Imam, Jonathan Temple be539cb0-0635-4895-a9f9-57fbb55d43c9 Discussion paper DP19074 Macroeconomics and Growth DP19072 Enough Liquidity with Enough Capital—and Vice Versa? https://cepr.org/publications/dp19072 We study the interplay of capital and liquidity regulation in a general equilibrium setting by focusing on future funding risks. The model consists of a banking sector with long-term illiquid investment opportunities that need to be financed by short-term debt and by issuing equity. Reliance on refinancing long-term investment in the middle of the life-time is risky, since the next generation of potential short-term debt holders may not be willing to provide funding when the return prospects on the long-term investment turn out to be bad. For moderate return risk, equilibria with and without bank default coexist, and bank default is a self-fulfilling prophecy. Capital and liquidity regulation can prevent bank default and may implement the first-best. Yet the former is more powerful in ruling out undesirable equilibria and thus dominates liquidity regulation. Adding liquidity regulation to optimal capital regulation is redundant. 2024-05-13T23:00:00+0000 Hans Gersbach, Hans Haller, Sebastian Zelzner f8af84ff-bb24-4be7-b6fd-371266efa799 Discussion paper DP19072 Banking and Corporate Finance DP19075 Inequality and Optimal Monetary Policy in the Open Economy https://cepr.org/publications/dp19075 We study optimal monetary policy in a tractable Small Open Economy Heterogeneous-Agent New Keynesian (SOE-HANK) model in which households face uninsured idiosyncratic risk and unequal bond market access. We derive conditions under which optimal policy in our SOEHANK economy entails domestic producer price stability, extending the “open-economy divine coincidence” result of Gali and Monacelli (2005) beyond the Representative-Agent benchmark<br /> (SOE-RANK). Away from those conditions, inefficient fluctuations in consumption inequality generate new monetary policy tradeoffs. Under plausible calibrations for the trade elasticities, the elasticity of intertemporal substitution, and the cyclicality of income risk, the central bank stabilizes output and the exchange rate more than in SOE-RANK.<br /> 2024-05-13T23:00:00+0000 Sushant Acharya, Edouard Challe fbe96f71-c17e-49c3-a389-3c7c645596dd Discussion paper DP19075 International Macroeconomics and Finance, Monetary Economics and Fluctuations DP19066 Transitory Earnings Opportunities and Educational Scarring of Men https://cepr.org/publications/dp19066 Men have fallen behind women in education in developed countries. Why? I study the impact of a transitory increase in the opportunity cost of schooling on men’s and women’s educational attainment. I exploit a reform in Iceland that lowered income taxes to zero for one year and compare teenagers above and below the compulsory schooling age. This earnings opportunity increased the dropout rate and led to a permanent loss in years of education for young men, but had no effect on the education of women. Male dropouts suffer substantial losses in lifetime earnings, slow career progression, and reduced marriage and fertility outcomes. The results cannot be explained by negative selection of dropouts or low returns to education but can be reconciled by gender differences in nonpecuniary costs of school attendance, myopia, or perceived returns to education. The findings suggest that due to these gender differences, economic booms misallocate young men away from school, entrenching the gender gap in education. 2024-05-12T23:00:00+0000 Jósef Sigurdsson a45eb578-d740-4443-b2f7-63a390e2f5da Discussion paper DP19066 Labour Economics DP19063 The Systematic Origins of Monetary Policy Shocks https://cepr.org/publications/dp19063 Conventional strategies to identify monetary policy shocks rest on the implicit assumption that systematic monetary policy is constant over time. We formally show that these strategies do not isolate monetary policy shocks in an environment with time-varying systematic monetary policy. Instead, they are contaminated by systematic monetary policy and macroeconomic variables, leading to contamination bias in estimated impulse responses. Empirically, we show that Romer and Romer (2004) monetary policy shocks are indeed predictable by fluctuations in systematic monetary policy. Instead, we propose a new monetary policy shock that is orthogonal to systematic monetary policy. Our shock suggests U.S. monetary policy has shorter lags and stronger effects on inflation and output. 2024-05-12T23:00:00+0000 Lukas Hack, Klodiana Istrefi, Matthias Meier f04b4ce6-6aeb-4d92-82dc-b9ef97aec9e4 Discussion paper DP19063 Monetary Economics and Fluctuations DP19069 The Long-Run Phillips Curve is ... a Curve https://cepr.org/publications/dp19069 In U.S. data, inflation and output are negatively related in the long run. A piecewise linear Bayesian VAR provides evidence in favor of a threshold level of trend inflation of around 4%, below which potential output is independent of trend inflation, and above which, potential output is negatively impacted. Every percentage point increase in trend inflation above the threshold is related to about 1% decrease in potential output. An estimated New Keynesian model generalized allowing time-varying trend inflation yields a structural long-run Phillips Curve that is statistically similar to the one implied by the reduced-form piecewise linear BVAR model. 2024-05-12T23:00:00+0000 Guido Ascari b1e7609e-0091-443f-a371-7f5c16dd776d Discussion paper DP19069 Monetary Economics and Fluctuations DP19071 What do financial markets say about the exchange rate? https://cepr.org/publications/dp19071 Financial markets play two roles with implications for the exchange rate: they accommodate risk sharing and act as a source of shocks. In prevailing theories, these roles are seen as mutually exclusive and individually face challenges in explaining exchange rate dynamics. However, we demonstrate that this is not necessarily the case. We develop an analytical framework that characterizes the link between exchange rates and finance across all conceivable market structures. Our findings indicate that full market segmentation is not necessary for financial shocks to explain exchange rates. Moreover, financial markets can accommodate a significant extent of international risk sharing without leading to the classic exchange rate puzzles. We identify plausible market structures where both roles coexist, addressing challenges faced when examined separately. 2024-05-12T23:00:00+0000 Mikhail Chernov, Valentin Haddad, Oleg Itskhoki 44e2b9be-cbee-4051-9491-be0aa8a7a06f Discussion paper DP19071 International Macroeconomics and Finance, Macroeconomics and Growth, Asset Pricing DP19070 The Global Network of Liquidity Lines https://cepr.org/publications/dp19070 At the end of 2023, there were 175 cross-border connections between central banks in a global network of liquidity lines that gave access to foreign currency for countries accounting for 79% of world GDP. This paper presents a comprehensive dataset of this network and its characteristics between 2000 and 2023. While the Federal Reserve drove growth in 2007-09, the network expanded as much between 2010 and 2015 through bilateral arrangements involving the ECB and the People&#039;s Bank of China. The network structure means that banks without direct access to a source central bank can still have indirect access to its currency. The central intermediaries in the network for all major currencies are the PBoC and the ECB. We find support using cross-country data that the lines reduce CIP deviations at the tails. Liquidity lines are often signed to substitute for a bleeding of FX reserves, but once in place they complement reserves. 2024-05-12T23:00:00+0000 Saleem Bahaj, Ricardo Reis 33cd1bca-d8c6-4b19-a984-3ff2e7f79533 Discussion paper DP19070 International Macroeconomics and Finance, Monetary Economics and Fluctuations, Asset Pricing DP19067 An Endogenous Gridpoint Method for Distributional Dynamics https://cepr.org/publications/dp19067 The &quot;histogram method&#039;&#039; (Young, 2010), while the standard approach for analyzing distributional dynamics in heterogeneous agent models, is linear in optimal policies. We introduce a novel method that captures nonlinearities of distributional dynamics. This method solves the distributional dynamics by interpolation instead of integration, which is made possible by making the grid endogenous. It retains the tractability and speed of the histogram method, while increasing numerical efficiency even in the steady state and producing significant economic differences in scenarios with aggregate risk. We document this by studying aggregate investment risk with a third-order solution using perturbation techniques. 2024-05-12T23:00:00+0000 Christian Bayer, Ralph Luetticke, Maximilian Weiss, Yannik Winkelmann d47318e5-a96a-4c32-b950-8934f773baa6 Discussion paper DP19067 Monetary Economics and Fluctuations DP19064 Technology, institutions, and wealth inequality: What do we learn from comparable estimates over 12 millennia? https://cepr.org/publications/dp19064 Abstract<br /> Comprehensive data on individual income or wealth became available only with modern tax- based polities. This has limited the quantitative comparative study of economic inequality across institutions – e.g. slavery, multi-ethnic empires, communal non-state societies, modern democ- racies – and technologies – e.g. collecting food rather than producing it, substituting non-human animal work for human labor. We expand the range of institutions and technologies under study by providing distributions of likely levels of wealth inequality for 431 sites and dates over the past 12 millennia that we have made (insofar as possible) representative of the underlying population and comparable across differing asset types, population sizes, and ownership units. In this data set we find that both technology and institutions matter for wealth inequality, but not entirely in the ways that many would have thought: a) despite vast increases in scale (population) and wealth (and therefore the surplus over subsistence), there is effectively no trend in inequality over the past 6 millennia; b) inequality among hoe-based farmers is not greater than among sedentary hunter-gatherers; c) inequalities are greater among capital-intensive (plow-based, e.g.) farmers than hoe-based farmers; d) societies without states of any kind are less unequal than state-governed societies, a finding that not an artifact of differences in scale; e) economies based on enslaved labor are more unequal; f) early modern Europe’s ”little divergence” in the growth of per capita output was preceded by an equalization of wealth in the north and west, apparently driven by a enduring regional divergence in institutions in response to temporary labor shortages in the aftermath of the 14th century plagues; and g) wealth inequality is not less in democracies than in non-democratic (and non-slave) states. 2024-05-12T23:00:00+0000 Mattia Fochesato, Samuel Bowles d5d0a1ce-9fa4-42eb-ac30-8a38bfda9568 Discussion paper DP19064 Economic History DP19068 Great Layoff, Great Retirement and Post-pandemic Inflation https://cepr.org/publications/dp19068 The Covid-19 shock caused a dramatic spike in the number of retirees -- a phenomenon dubbed the ``Great Retirement&quot; -- <br /> and a prolonged contraction in the labor force. <br /> This paper investigates the impact of the Great Retirement on the post-pandemic surge of inflation, via the labor market. <br /> First, retirement is generally countercyclical, and the peculiarity of the pandemic shock was just in its size: the ``Great Layoff&#039;&#039; in March and April 2020 triggered the Great Retirement. Hence, a transitory labor demand shock generated a persistent labor supply shock. Second, counties more exposed to the Great Layoff exhibit a relatively higher increase in wages. Finally, an estimated model with endogenous labor market participation quantitatively assesses the overall contribution of the Great Retirement to inflation from 2020:Q1 up to 2023:Q2 to be roughly equal to 3.7 percentage (cumulative) points. 2024-05-12T23:00:00+0000 Guido Ascari 4f29780e-bd7d-4867-96b7-5b77099d575b Discussion paper DP19068 Monetary Economics and Fluctuations DP19065 Dictatorship, Higher Education, and Social Mobility https://cepr.org/publications/dp19065 We study the effect of political regime change on higher education and its distributional and political consequences. We focus on the 1973 coup that brought Augusto Pinochet to power in Chile. The Pinochet dictatorship’s aims of political control and fiscal conservatism led to a large reduction in the number of openings for new students across all universities. Individuals that reached college age shortly after the coup experienced a sharp decline in college enrollment, had worse labor market outcomes throughout the life cycle and struggled to climb up the socioeconomic ladder. This contraction of higher education disproportionately affected applicants from less affluent backgrounds and plausibly contributed to the increase in inequality observed under Pinochet. We further show that individuals exposed to reduced access to college registered to vote at higher rates for the 1988 plebiscite that triggered Chile’s democratic transition and we provide suggestive evidence that they increasingly voted against Pinochet. 2024-05-12T23:00:00+0000 María Angélica Bautista, Felipe Gonzalez, Luis R. Martinez, Pablo Muñoz, Mounu Prem 216af2b3-1d2a-46c4-91b2-5dee1adc3823 Discussion paper DP19065 Development Economics, Political Economy DP19062 The Role of Hospital Networks in Individual Mortality https://cepr.org/publications/dp19062 Narrow hospital networks have proliferated in health systems with managed care. We investigate the causal effect of network breadth on mortality leveraging the termination of the largest health insurer in Colombia. The termination caused a substantial increase in mortality accompanied by reductions in network breadth among incumbent insurers. We estimate that broad-network insurers reduce mortality because they steer patients to higher-quality providers and reduce hospital congestion. Results imply that patients should be reassigned to incumbent insurers based on the overlap of their network with the terminated insurer, and that policies requiring minimum network coverage are needed to maintain patient health. 2024-05-11T23:00:00+0000 Giancarlo Buitrago, Paul Rodríguez-Lesmes, Natalia Serna, Marcos Vera-Hernández 031de1d3-0881-4fa7-934c-01e8b90b906b Discussion paper DP19062 Industrial Organization DP19061 The Moral Values of "Rugged Individualism" https://cepr.org/publications/dp19061 The United States is among the most individualistic societies in the world. However, unlike Western European individualism, which is imbued with moral universalism, America&#039;s &quot;rugged individualism&quot; is instead particularistic. We link this distinctive cultural configuration to the country&#039;s frontier history. The frontier favored self-reliance, but also rewarded cooperation, which could only be sustained through strong, local group identities. We show that counties with longer frontier history are more particularistic, displaying stronger opposition to federal taxes relative to state taxes, stronger communal values, less charitable giving to distant counties, and fewer online friendships with people in distant counties. At the same time, connections across counties display assortative matching on frontier history, highlighting the important role of culture in bridging disparate areas of the country. Overall, our results shed new light on moral values and the divergence of American and European individualism. 2024-05-11T23:00:00+0000 Samuel Bazzi, Martin Fiszbein, Maximiliano Andres Garcia Gonzalez fd7382f8-fa44-47be-b581-c934f8d3ca52 Discussion paper DP19061 Economic History, Political Economy DP19060 Global Indeterminacy in HANK economies https://cepr.org/publications/dp19060 We show that in Heterogeneous-Agent New-Keynesian (HANK) economies with countercyclical risk the natural interest rate is endogenous and co-moves with output, leaving the economy susceptible to self-fulfilling fluctuations. Unlike in Representative-Agent New-Keynesian models, the Taylor principle is not sufficient to guarantee uniqueness of equilibrium in HANK if risk is even mildly countercyclical. In fact, we prove that multiple bounded-equilibria exist, no matter how strongly monetary policy responds to changes in inflation. Neither inertial rules nor rules which respond to output-gap fluctuations can resolve this indeterminacy. Instead, to implement a unique equilibrium, policy must stabilize endogenous natural rate fluctuations. 2024-05-11T23:00:00+0000 Sushant Acharya, Jess Benhabib 5d1b274e-e7b2-4769-b85e-9aa8fa3315f3 Discussion paper DP19060 Monetary Economics and Fluctuations DP19059 Coordination with Differential Time Preferences: Experimental Evidence https://cepr.org/publications/dp19059 The experimental literature on repeated games has largely focused on settings where players discount the future identically. In applications, however, interactions often occur between players whose time preferences differ. We study experimentally the effects of discounting differentials in infinitely repeated coordination games. In our data, differential discount factors play two roles. First, they provide a coordination anchor: more impatient players get higher payoffs first. Introducing even small discounting differentials reduces coordination failures significantly. Second, with pronounced discounting differentials, intertemporal trades are prevalent: impatient players get higher payoffs for an initial phase and patient players get higher payoffs in perpetuity afterward. 2024-05-10T23:00:00+0000 Marina Agranov, Leeat Yariv 3fac8c0c-7ba7-4cef-9642-cdbc475b48e9 Discussion paper DP19059 Development Economics, Industrial Organization, Labour Economics, Political Economy, Public Economics DP19058 Disentangling Exploration from Exploitation https://cepr.org/publications/dp19058 Starting from Robbins (1952), the literature on experimentation via multi-armed bandits has wed exploration and exploitation. Nonetheless, in many applications, agents’ exploration and exploitation need not be intertwined: a policymaker may assess new policies different than the status quo; an investor may evaluate projects outside her portfolio. We characterize the optimal experimentation policy when exploration and exploitation are disentangled in the case of Poisson bandits, allowing for general news structures. The optimal policy features complete learning asymptotically, exhibits lots of persistence, but cannot be identified by an index à la Gittins. Disentanglement is particularly valuable for intermediate parameter values. 2024-05-10T23:00:00+0000 Alessandro Lizzeri, Leeat Yariv 99dc24ff-5374-4466-aa12-0d03ae284c31 Discussion paper DP19058 Industrial Organization, Labour Economics, Organizational Economics, Political Economy