Accepted Papers

The Review of Economic Studies is one of the most highly respected academic journals in the field of economics. It is known for publishing leading research in all areas of economics, from microeconomics to macroeconomics. The journal is published by the Oxford University Press.

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Expectations and Learning from Prices

Francesca Bastianello and Paul Fontanier

We study mislearning from equilibrium prices, and contrast this with mislearning from exogenous fundamentals. We micro-found mislearning from prices with a psychologically founded theory of “Partial Equilibrium Thinking” (PET), where traders learn fundamental information from prices, but fail to realize others do so too. PET leads to over-reaction, and upward sloping demand curves, thus contributing to more inelastic markets. The degree of individual-level over-reaction, and the extent of inelasticity varies with the composition of traders, and with the informativeness of new information.

Motivated Skepticism

Jeanne Hagenbach and Charlotte Saucet

We experimentally study how individuals read strategically-transmitted information when they have preferences over what they will learn. Subjects play disclosure games in which Receivers should interpret messages skeptically. We vary whether the state that Senders communicate about is ego-relevant or neutral for Receivers, and whether skeptical beliefs are aligned or not with what Receivers prefer believing. Compared to neutral settings, skepticism is significantly lower when it is self-threatening, and not enhanced when it is self-serving. These results shed light on a new channel that individuals can use to protect their beliefs in communication situations: they exercise skepticism in a motivated way, that is, in a way that depends on the desirability of the conclusions that skeptical inferences lead to.

Who Are the Hand-to-Mouth?

Mark Aguiar, Mark Bils, and Corina Boar

Many households hold little wealth. In standard precautionary savings models these households should not only display higher marginal propensities to consume (MPCs), but also higher future consumption growth. In contrast, we see from the PSID that such “hand-to-mouth” households do not display higher growth in spending. They also exhibit greater volatility of spending and adjust their spending to a greater extent through the number of categories consumed. Consistent with a role for preference heterogeneity, the panel data show that it is persistent differences across households, not current assets, that predict low consumption growth and other spending differences for the hand-to-mouth households.

Market Structure and Extortion: Evidence from 50,000 Extortion Payments

Zach Brown, Eduardo Montero, Carlos Schmidt-Padilla, and Maria Micaela Sviatschi

How does gang competition affect extortion? Using detailed data on individual extortion payments to gangs and sales from a leading wholesale distributor of consumer goods and pharmaceuticals in El Salvador, we document evidence on the determinants of extortion payments and the effects of extortion on firms and consumers. We exploit a 2016 nonaggression pact between gangs to examine how collusion affects extortion in areas where gangs previously competed. While the pact led to a large reduction in competition and violence, we find that it increased the amount paid in extortion by approximately 20%.

Does Pricing Carbon Mitigate Climate Change? Firm-Level Evidence from the European Union Emissions Trading System

Jonathan Colmer, Ralf Martin, Mirabelle Muûls, and Ulrich Wagner

In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. Using administrative data, we estimate that, on average, the EU ETS – the world’s first and largest market-based climate policy – induced regulated manufacturing firms to reduce carbon dioxide emissions by 14-16% with no detectable contractions in economic activity. We find no evidence of outsourcing to unregulated firms or markets; instead, firms made targeted investments, reducing the emissions intensity of production.

Search Complementarities, Aggregate Fluctuations, and Fiscal Policy

Jesus Fernandez-Villaverde, Federico Mandelman, Yang Yu, and Francesco Zanetti

We document five novel facts about the role of search effort in forming trading relationships among firms by combining a variety of micro and macro datasets. These facts strongly suggest the presence of search complementarities. To study the implications of these facts for aggregate fluctuations, we build a dynamic general equilibrium model, disciplined by our new firm-level evidence on search effort. The model matches key aspects of the macro and micro data that have remained unaccounted for by standard models, including the time-varying bimodal distribution of output and the strong, nonlinear propagation of shocks.

Consumption Quality and Employment Across the Wealth Distribution

Domenico Ferraro and Vytautas Valaitis

In the United States, market hours worked are approximately flat across the wealth distribution. Accounting for this phenomenon is a standing challenge for standard heterogeneous-agent macro models. In these models, wealthier households consume more and work fewer hours. We propose a theory that generates the cross-sectional wealth-hours relation as in the data. We quantify this theory in a heterogeneous-agent incomplete-markets model with three key features: a quality choice in consumption, non-homothetic preferences, and a multi-sector production structure.

The Impact of Online Competition on Local Newspapers: Evidence from the Introduction of Craigslist

Milena Djourelova, Ruben Durante, and Gregory J. Martin

How does competition from online platforms affect the organization, performance, and editorial choices of newspapers? What are the implications of these changes for the information voters are exposed to and for their political choices? We study these questions using the staggered introduction of Craigslist—the world’s largest online platform for classified advertising — across US counties between 1995 and 2009. This setting allows us to separate the effect of competition for classified advertising from other changes brought about by the Internet, and to compare newspapers that relied more or less heavily on classified ads ex ante.

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