Contract Terms, Employment Shocks, and Default in Credit Cards 26 August 2025 Sara G. Castellanos, Diego Jiménez-Hernández, Aprajit Mahajan, Eduardo Alcaraz Prous, and Enrique SeiraRegulatory concerns over a tension between expanding financial access and limiting default have led to significant restrictions on contract terms in a number of countries, despite limited evidence on their effectiveness. We use a large nation-wide RCT to examine new borrower responses to changes in interest rates and minimum payments for a credit card that accounted for 15% of all first-time formal loans in Mexico. Default rates were 19% over the 26 month experiment and a 30 pp decrease in interest rates decreased default by 2.5 pp with no effects on the newest borrowers.
On the optimal design of a Financial Stability Fund 22 August 2025 Árpád Ábraham, Eva Carceles-Poveda, Yan Liu, and Ramon MarimonWe develop a model of a Financial Stability Fund (the ‘Fund’ henceforth) for a union of sovereign countries. By design, the contract prevents country defaults, as well as undesired expected losses, which in a union translate into excessive risk mutualizations. A participant country has greater ability to borrow and share risks than using sovereign debt financing. The Fund contract also provides better incentives for the country to reduce endogenous risks. These efficiency gains arise from the ability of the Fund to offer long-term contingent financial contracts, subject to limited enforcement (LE) and moral hazard (MH) constraints.
Globalization and the Ladder of Development: Pushed to the Top or Held at the Bottom? 22 August 2025 David Atkin, Arnaud Costinot, and Masao FukuiWe study the relationship between international trade and development in a model where countries differ in their capability, goods differ in their complexity, and capability growth is a function of a country’s pattern of specialization. Theoretically, we show that it is possible for international trade to increase capability growth in all countries and, in turn, to push all countries up the development ladder. This occurs if (i) shifting employment towards more complex sectors raises capability growth and if (ii) foreign competition is tougher in less complex sectors for all countries.
A Dynamic Theory of Random Price Discounts 19 August 2025 Francesc Dilmé and Daniel F. GarrettA seller with commitment power sets prices over time. Risk-averse buyers arrive to the market and decide when to purchase. We show that it is optimal for the seller to choose a constant high price punctuated by occasional episodes of sequential discounts that occur at random times. This optimal price path has the property that the price a buyer ends up paying is independent of his arrival and purchase times, and only depends on his valuation.
Brokering Votes with Information Spread Via Social Networks 19 August 2025 Raul Duarte, Frederico Finan, Horacio Larreguy, and Laura SchechterPoliticians rely on political brokers to buy votes throughout much of the developing world. We investigate how social networks facilitate these vote-buying exchanges. Our conceptual framework suggests brokers should be particularly well-placed within the network to learn about non-copartisans’ reciprocity in order to target transfers effectively. As a result, parties should recruit brokers who are central among non-copartisans.
REStud North America Tours - tourists announcedREStud North America Tour – tourists announced 5 August 2025 The 2025 REStud North America tourists have been announced
The impact of EITC on education, labor market trajectories, and inequalities 5 August 2025 Albertini Julien, Arthur Poirier, and Anthony TerriauAs a complement to the federal earned income tax credit (EITC), some states offer their own EITC, typically calculated as a percentage of the federal EITC. In this paper, we analyze the effect of state EITC on education using policy discontinuities at US state borders. Our estimates reveal that an increase in the state EITC leads to a statistically significant increase in the high school dropout rate.
A Walrasian Mechanism with Markups for Nonconvex Markets 3 August 2025 Paul Milgrom and Mitchell WattWe introduce markup equilibrium—an extension of Walrasian equilibrium in which consumers pay a fixed percentage markup over producer prices. In quasilinear markets, markup equilibria exist despite non-convexities. They are resource-feasible and envy-free, incur no budget deficit, and require little more communication and computation than ordinary Walrasian equilibrium. The associated markup mechanism is asymptotically incentive-compatible.
