Information Aggregation Under Ambiguity: Theory and Experimental Evidence 16 January 2024 Spyros Galanis, Christos A. Ioannou, and Stelios KotronisWe study information aggregation in a dynamic trading model. We show theoretically that separable securities, introduced by Ostrovsky (2012) in the context of Expected Utility, no longer aggregate information if some traders have imprecise beliefs and are ambiguity averse. Moreover, these securities are prone to manipulation as the degree of information aggregation can be influenced by the initial price set by the uninformed market maker.
Stability in Large Markets 16 January 2024 Ravi Jagadeesan and Karolina VockeIn matching models, pairwise stable outcomes do not generally exist without substantial restrictions on both preferences and the topology of the network of contracts. We address the foundations of matching markets by developing a matching model with a continuum of agents that allows for arbitrary preferences and network structures. We show that pairwise stable outcomes are guaranteed to exist.
Motives and Consequences of Libor Strategic Reporting: How Much Can We Learn from Banks’ Self-Reported Borrowing Rates? 14 January 2024 Pietro BonaldiLibor is an estimate of interbank borrowing costs computed daily from rates reported by a fixed panel of banks. Evidence suggests that banks have manipulated Libor in recent years by misreporting their borrowing costs. I estimate a strategic reporting model that identifies banks’ borrowing costs as well as their motives for misreporting. The estimation places a lower bound on the value that Libor would have had if banks had truthfully reported their borrowing costs.
Outside Options in the Labor Market 11 January 2024 Sydnee Caldwell and Oren DanieliThis paper develops a method to estimate workers’ outside employment opportunities. We outline a matching model with two-sided heterogeneity, from which we derive a sufficient statistic, the “outside options index” (OOI), for the effect of outside options on earnings, holding worker productivity constant. The OOI uses the cross-sectional concentration of similar workers across job types to quantify workers’ outside options as a function of workers’ commuting costs, preferences, and skills.
Revisiting Event Study Designs: Robust and Efficient Estimation 11 January 2024 Kirill Borusyak, Xavier Jaravel, and Jann SpiessWe develop a framework for difference-in-differences designs with staggered treatment adoption and heterogeneous causal effects. We show that conventional regression-based estimators fail to provide unbiased estimates of relevant estimands absent strong restrictions on treatment-effect homogeneity. We then derive the efficient estimator addressing this challenge, which takes an intuitive “imputation” form when treatment-effect heterogeneity is unrestricted. We characterize the asymptotic behavior of the estimator, propose tools for inference, and develop tests for identifying assumptions.
Editorial Board changes 11 January 2024 We thank Board Members and Foreign Editors who stepped down during 2023 and welcome new Board Members and Foreign Editors. Vincent Sterk has been appointed new Joint Managing Editor.
Information and Bargaining through Agents: Experimental Evidence from Mexico’s Labor Courts 11 January 2024 Joyce Sadka, Enrique Seira, and Christopher WoodruffWell-functioning courts are essential for the health of both financial and real economies. Courts function poorly in most lower-income countries, but the root causes of poor performance are not well understood. We use field experiments with ongoing cases to analyze sources of dysfunction in Mexico’s largest labor court. We provide parties with personalized predictions for case outcomes and show that this information nearly doubles settlement rates and reduces average case duration.
Granular Search, Market Structure, and Wages 11 January 2024 Gregor Jarosch, Jan Sebastian Nimczik, and Isaac SorkinWe develop a model of size-based market power in a frictional labor market. In the canonical search environment, competition for workers is encoded in outside options. In our granular setting, large employers remove their own job postings from their workers’ outside option. Thus, size gives market power and a more concentrated market structure depresses wages because it reduces competition for workers.
