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The Risk Protection Value Of “Moral Hazard”, Angie Acquatella, Victoria Marone Jul 2026

The Risk Protection Value Of “Moral Hazard”, Angie Acquatella, Victoria Marone

Cowles Foundation Discussion Papers

Health insurance lowers the out-of-pocket price of healthcare, and it is well-established that this leads to higher utilization of care. This manifestation of “moral hazard” is typ ically viewed as a social cost of insurance. Within a standard model, this paper shows that a consumer’s ability to change her behavior in response to insurance can also play a central role in the ability of insurance to protect her from risk. We provide a theoretical characterization of this channel and quantify its importance empirically. Under stan dard parameterizations and estimates in the literature, we find that insurance-induced healthcare utilization can account …

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Explanations For Robust Decisions, Kai Hao Yang, Nathan Yoder, Alexander K. Zentefis Jul 2026

Explanations For Robust Decisions, Kai Hao Yang, Nathan Yoder, Alexander K. Zentefis

Cowles Foundation Discussion Papers

We consider the problem of explaining a data generating process (DGP) to a decision maker (DM) who cannot understand it. Explanations are information, not approximations: they are useful because they rule out possible DGPs. If the DM maximizes her average payoff, explanations using OLS are robustly useful, and augmenting them with summary statistics makes them more so. Sampling error can destroy these guarantees, but theoretical assumptions linking that error to the DGP can restore them. If the DM is sufficiently ambiguity averse, explanations that are affine in outcomes are not robustly useful, but certificates reporting lower bounds on outcomes are.

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Long-Run Effects Of H-1b Immigration On The U.S. Economy, Ran Abramitzky, Leah Boustan, Ahmet Gulak, Jens Hainmueller Jul 2026

Long-Run Effects Of H-1b Immigration On The U.S. Economy, Ran Abramitzky, Leah Boustan, Ahmet Gulak, Jens Hainmueller

Cowles Foundation Discussion Papers

We study the effects of H-1B immigration on U.S. industries that employ H-1B workers and their trading partners. Using a novel cross-industry design and the 1999–2003 expansion of the H-1B visa cap for identification, we find that H-1B exposure raised incomes for natives and pre-existing immigrants, with gains concentrated in non-STEM occupations. Income gains propagate forward through supply chains to downstream industries but not backward to upstream industries, consistent with a productivity shock rather than a labor supply shock. We find no direct effect on patenting, suggesting that productivity gains arise from better task execution rather than patentable invention.

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Doctor Decision Making And Patient Outcomes, Janet Currie, W. Bentley Macleod, Kate Musen Jul 2026

Doctor Decision Making And Patient Outcomes, Janet Currie, W. Bentley Macleod, Kate Musen

Cowles Foundation Discussion Papers

Doctors often treat similar patients differently, which affects health outcomes and medical spending. We assess the recent literature on doctor decision making through the lens of a model that incorporates diagnostic and procedural skills, beliefs, incentives, and differences in patient pools. Decision making is affected by beliefs, training, experience, peer effects, financial incentives, and time constraints. Interventions to improve decision making include providing information, guidelines, and technologies like electronic medical records and algorithmic decision tools. Economists have made progress in understanding doctor decision making, but applications of that knowledge to improving health care are still limited.

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How Much Should A Conversational Recommender System Converse?, Akshit Kumar, Vahideh Manshadi, Akhilesh Tumu Jul 2026

How Much Should A Conversational Recommender System Converse?, Akshit Kumar, Vahideh Manshadi, Akhilesh Tumu

Cowles Foundation Discussion Papers

Conversational recommender systems powered by generative AI can enhance personalization by facilitating information elicitation through follow-up questions. However, engaging in these conversations imposes a communication cost on users. As platforms with different objectives and monetization models deploy these systems, a central question is: how does the platform’s objective and sellers’ strategic response shape the design of these systems in terms of their elicitation strategy? We develop a parsimonious model of conversational elicitation in which interaction generates noisy preference information and imposes a communication cost borne by the user. A user-welfare-maximizing platform elicits more information when accurate niche matching yields large …

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Life After Divorce: Effects Of Joint Custody On Parents And Children, Stella Canessa, Gordon B. Dahl, Anna Hasselqvist, Costas Meghir, Susan Niknami, Mårten Palme, Helmut Rainer, Olof Rosenqvist, Pengpeng Xiao Jul 2026

Life After Divorce: Effects Of Joint Custody On Parents And Children, Stella Canessa, Gordon B. Dahl, Anna Hasselqvist, Costas Meghir, Susan Niknami, Mårten Palme, Helmut Rainer, Olof Rosenqvist, Pengpeng Xiao

Cowles Foundation Discussion Papers

Divorce reshapes family life, yet little is known about one of its most consequential features: the allocation of child custody. We study the impact of joint versus sole custody on both parents and children using rich administrative data from Sweden linked to over 25 years of newly-collected court custody rulings. To address selection concerns, we exploit random assignment of custody disputes to judges who differ sharply in their propensity to grant joint custody. For fathers, joint custody substantially raises earnings and improves mental health, consistent with sustained paternal involvement enhancing labor market attachment and psychological well-being. In contrast, there are …

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Ai Premium, Nicola Borri, Yukun Liu, Aleh Tsyvinski Jul 2026

Ai Premium, Nicola Borri, Yukun Liu, Aleh Tsyvinski

Cowles Foundation Discussion Papers

Using 380 trillion tokens of realized AI consumption across more than four hundred large language models from the licensed proprietary OpenRouter dataset covering approximately 2 percent of current global monthly AI token consumption, we analyze how AI affects firms, markets, and workers. Leveraging the unprecedented size, scope and granularity data, we construct the AI Factor from growth in tokens, dollars, and users, estimate firm-level AI Betas from stock return comovement, and characterize the AI Premium. First, we build a high-frequency AI factor and decompose it into salient components. Second, we show that firms whose returns covary more positively with the …

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Credit Surfaces And Economic Uncertainty, John Geanokopolis, David E. Rappaport Jul 2026

Credit Surfaces And Economic Uncertainty, John Geanokopolis, David E. Rappaport

Cowles Foundation Discussion Papers

The Credit Surface along the leverage dimension gives the bond spread as a function of the loan-to-value ratio. Empirically, we show that uncertainty shocks typically increase spreads and steepen the credit surface, profoundly affecting the supply of credit. Theoretically, we derive necessary and sufficient conditions for the convexity of the credit surface, and for changes in the anticipated distribution of collateral prices that lead to steepening of the credit surface. Finally, we show that the credit surface itself fully reveals the entire distribution of collateral prices, thus providing a new and vivid language with which to describe uncertainty and stochastic …

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Domestic Outsourcing And Young-Worker Entry Into The Formal Sector, Mayara Felix, Michael B. Wong Jul 2026

Domestic Outsourcing And Young-Worker Entry Into The Formal Sector, Mayara Felix, Michael B. Wong

Cowles Foundation Discussion Papers

We provide evidence that domestic outsourcing increases young-worker entry into the formal sector. Leveraging a pair of 1993–1994 Brazilian reforms that reduced the relative cost of outsourcing security guards, a triple-differences design shows that the reforms increased formal guard employment by 4% and hiring from unemployment or informality by 7%, while reallocating formal employment from older to younger workers and leaving demographic-adjusted wages unchanged. Census data corroborate the rise in formality, driven by the youngest cohorts. The compositional shift mirrors a general pattern in Brazil’s matched employer–employee records: conditional on total firm size, employers with greater occupation-specific scale hire younger …

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The Displacement Effects Of Domestic Outsourcing, Mayara Felix, Michael B. Wong Jul 2026

The Displacement Effects Of Domestic Outsourcing, Mayara Felix, Michael B. Wong

Cowles Foundation Discussion Papers

Evidence that domestic outsourcing lowers pay comes largely from on-site transfers, in which workers move to a contractor but keep the same jobs. Displacement is rarely observed: whether workers lose their jobs, where they go, how earnings evolve. In Brazil’s 1993–1994 pro-outsourcing reforms, which differentially affected security guards, such transfers were rare; firms instead used occupational layoffs, shedding their guards while keeping other workers. Displaced guards’ employment recovered within five years, but many changed occupations and wages stayed about 12% lower. Lifetime losses average 1.2 to 1.5 years of pre-layoff earnings, concentrated among workers from high-wage firms, reflecting lost premia.

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Multidimensional Screening For Quality With An Application To Health Insurance, Hector Chade, Victoria Marone, Amanda Starc, Jeroen Swinkels Jun 2026

Multidimensional Screening For Quality With An Application To Health Insurance, Hector Chade, Victoria Marone, Amanda Starc, Jeroen Swinkels

Cowles Foundation Discussion Papers

We analyze a multidimensional screening model in which a principal offers a menu of quality-price pairs to a consumer with multiple dimensions of private information and a quasilinear utility function. We derive necessary conditions for optimality, and use them to provide insight into optimal exclusion, positive trade, and screening. We then recast the problem in terms of incremental quality levels and prices, the so-called demand-profile approach (DPA). Under DPA, the problem decouples across increments and can be solved one at a time. We provide novel conditions under which DPA recovers the solution to the full problem exactly or approximately, and …

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Neural Networks In Economics: A Selective Review, Xiaohong Chen, Luis Hoderlein, Jonas Lieber Jun 2026

Neural Networks In Economics: A Selective Review, Xiaohong Chen, Luis Hoderlein, Jonas Lieber

Cowles Foundation Discussion Papers

The "deep learning revolution" has led to remarkable success of neural networks in applications across a wide range of fields, such as computer vision, speech recognition, natural language processing, code generation, protein structure prediction, image and video generation, and dynamic control. This review introduces neural networks to economists. Recent advances and challenges in approximation theory, neural network architecture, computation, econometric theory and practice are presented. Finally, we survey the rapidly evolving applications of modern neural networks and Large Language Models in economic research.

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Immigration, Innovation, And The Geography Of Growth, Costas Arkolakis, Sun Kyoung Lee, Michael Peters Jun 2026

Immigration, Innovation, And The Geography Of Growth, Costas Arkolakis, Sun Kyoung Lee, Michael Peters

Cowles Foundation Discussion Papers

Between 1880 and 1920, more than 20 million immigrants settled in the United States. We study how this migration wave affected innovation and growth. Using a newly constructed dataset linking individual census records to historical immigration records and the universe of US patents, we highlight a new channel through which immigrants contributed to growth: they disproportionately settled in urban innovation hubs. To quantify the aggregate and regional effects of this mass migration episode, we develop a new spatial growth model in which skilled workers have a comparative advantage in innovation and sort endogenously across space. We find that international arrivals …

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Lessons Learned: Jeremy Rudin, Mary Anne Chute Lynch Jun 2026

Lessons Learned: Jeremy Rudin, Mary Anne Chute Lynch

Journal of Financial Crises

Jeremy Rudin served as assistant deputy minister in the financial sector policy branch of Canada’s Department of Finance during the Global Financial Crisis of 2007–09 (GFC) and was at the helm of the Office of the Superintendent of Financial Institutions (OSFI) from 2014 to 2021, which included the COVID-19 crisis. As superintendent, Rudin also represented Canada on the Financial Stability Board (FSB) Steering Committee.

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Lessons Learned: Francesco Papadia, Mercedes Cardona Jun 2026

Lessons Learned: Francesco Papadia, Mercedes Cardona

Journal of Financial Crises

Francesco Papadia served as director general for market operations at the European Central Bank (ECB) during the Global Financial Crisis of 2007–09 (GFC) and in the early stages of the Sovereign Debt Crisis of the early 2010s. He was responsible for the implementation of the monetary policy of the euro area as well as the investment of the ECB’s foreign reserves and own funds. In 2016, he was named chair of the selection panel at the Hellenic Financial Stability Fund, overseeing the board of an independent special purpose vehicle created to stabilize the Greek banking sector in the wake of …

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Lessons Learned: Deepak Mohanty, Salil Gupta Jun 2026

Lessons Learned: Deepak Mohanty, Salil Gupta

Journal of Financial Crises

Deepak Mohanty, an economist, was chair of India’s pension regulator, the Pension Fund Regulatory and Development Authority (PFRDA), from 2023 to 2025. From 2008 to 2015, as executive director of the Reserve Bank of India (RBI), he oversaw multiple critical departments, including monetary policy, economic research, and statistics. Mohanty has also served as senior adviser to the International Monetary Fund (IMF) and chief economic adviser to the Federation of Indian Chambers of Commerce and Industry (FICCI).

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The Role Of National Recapitalization Funds In Sovereign Lending, Elena Gabriela Olariu, Konstantina Panagopoulou Perez Jun 2026

The Role Of National Recapitalization Funds In Sovereign Lending, Elena Gabriela Olariu, Konstantina Panagopoulou Perez

Journal of Financial Crises

The Global Financial Crisis of 2007–2009 showed that a substantial portion of funds borrowed by a state from a lender of last resort may be allocated to bank recapitalization. While national recapitalization funds are not themselves borrowers, they play a key role in recovery operations. This article analyses how lenders, such as the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF), incorporate recapitalization funds into their lending framework and how they deal with extraordinary events, such as corporate transformations or liquidation of these funds. To do this, we formulate three key principles that a lender may consider …

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Lessons Learned: William Isaac, Shavonda Brandon Jun 2026

Lessons Learned: William Isaac, Shavonda Brandon

Journal of Financial Crises

William (Bill) Isaac honed his crisis management expertise during his tenure as chairman of the US Federal Deposit Insurance Corporation (FDIC) from 1981 to 1985 during the Savings and Loans (S&L) Crisis. He steered the agency through a volatile period marked by a sea of bank and thrift failures, most notably that of Continental Illinois National Bank and Trust Company. In 1986, Isaac founded the Secura Group LLC (later FTI Consulting, Inc.), a regulatory consulting firm where he worked until 2019. He also served as chairman of the board of Fifth Third Bancorp from 2009 to 2014 and has served …

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From Innovation To Speculation: Ai And The Magnificent Seven, Rerotlhe B. Basele, Peter C. B. Phillips, Shuping Shi Jun 2026

From Innovation To Speculation: Ai And The Magnificent Seven, Rerotlhe B. Basele, Peter C. B. Phillips, Shuping Shi

Cowles Foundation Discussion Papers

The AI boom has driven the Nasdaq and the Magnificent Seven tech stocks to record highs. But how much do these new records reflect underlying value, how much is speculation, and how vulnerable are these stocks and the wider market to a major downturn? Our evidence and analyses show clear signs of bubble exuberance in most of these stocks, concentrated in a few names like Nvidia, leading to latent risks for investors who assume their index funds are safely diversified and supported by wider economic fundamentals.

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Offsetting Carbon With Lemons: Adverse Selection And Certification In The Voluntary Carbon Market, Vahideh Manshadi, Faidra Monachou, Ilan Morgenstern Jun 2026

Offsetting Carbon With Lemons: Adverse Selection And Certification In The Voluntary Carbon Market, Vahideh Manshadi, Faidra Monachou, Ilan Morgenstern

Cowles Foundation Discussion Papers

To meet voluntary climate targets, firms often complement internal decarbonization efforts by purchasing carbon credits in the voluntary carbon market (VCM), which finance projects that reduce emissions elsewhere. However, these emissions reductions are difficult to verify, and growing evidence of overcrediting has cast doubt on the VCM's potential to genuinely offset emissions. We investigate how the VCM's defining features shape its climate effectiveness. Our model captures three central elements: adverse selection, as high-quality projects that truly reduce emissions are costlier yet difficult to distinguish from low-quality ones; imperfect third-party certification, as projects are screened based on a noisy signal of …

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Incentives, Evidence, And Reminders For Bureaucrats: Overcoming Barriers To Policy Scale Up, Patrick Agte, Daniel R. Morales, Christopher Neilson, Sebastian Otero, Guatam Rao Jun 2026

Incentives, Evidence, And Reminders For Bureaucrats: Overcoming Barriers To Policy Scale Up, Patrick Agte, Daniel R. Morales, Christopher Neilson, Sebastian Otero, Guatam Rao

Discussion Papers

Scaling up effective policies often requires the attention of frontline bureaucrats with many competing responsibilities. Even when policymakers adopt effective programs, implementation may not follow. In a nationwide experiment in the Dominican Republic, we test interventions to increase school principals' implementation of an educational program proven effective in a previous RCT. Only 37% of control schools verifiably implemented the intervention when ordered to by the Ministry of Education, compared with 83% in the original trial. Implementation was no higher among schools that previously implemented the program in the RCT, suggesting that fixed costs of adoption do not explain non-adoption. We …

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Forecasting With Uncertain Persistence, Joel Flynn, Maksim Meinert, Karthik Sastry Jun 2026

Forecasting With Uncertain Persistence, Joel Flynn, Maksim Meinert, Karthik Sastry

Cowles Foundation Discussion Papers

With uncertainty about persistence, we show that forecasts necessarily become more persistent and over-react at long horizons. For these reasons, correctly specified and Bayesian forecasts may under-react at short horizons and over-react at long horizons. These results provide a unified explanation for several asset pricing and forecasting puzzles, including: (i) the excess responsiveness of long-horizon rates to short rates, (ii) the dominance of apparent term premia for long-term rates, (iii) the ex post predictability of bond yields, (iv) the excess volatility of long-horizon forward prices, (v) the excess persistence of long-horizon forecasts, and (vi) the over-reaction of long-horizon forecasts.

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From Unstructured Data To Demand Counterfactuals: Theory And Practice, Timothy Christensen, Giovanni Compiani Jun 2026

From Unstructured Data To Demand Counterfactuals: Theory And Practice, Timothy Christensen, Giovanni Compiani

Cowles Foundation Discussion Papers

Empirical models of multi-product demand rely on low-dimensional product representations to capture substitution patterns, increasingly using proxies built from unstructured data. When proxies are imperfect, standard workflows yield biased counterfactuals and invalid inference. We develop a practical toolkit to address these issues. Our methods apply to market-level and/or individual data, require minimal additional computation, provide simple standard-error formulas, and accommodate proxies from fine-tuned models. Further, we propose diagnostics to assess proxy quality. Our methods yield meaningful improvements in predicting substitution in empirically calibrated simulations and in an application where we assess counterfactual prediction performance against a ground truth.

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From Trade War To Green Transition: Optimal Electric Vehicle Tariffs With Revenue-Funded Subsidies, Panle Jia Barwick, Jack Collison, Pinelopi K. Goldberg, Shanjun Li, Yucheng Wang Jun 2026

From Trade War To Green Transition: Optimal Electric Vehicle Tariffs With Revenue-Funded Subsidies, Panle Jia Barwick, Jack Collison, Pinelopi K. Goldberg, Shanjun Li, Yucheng Wang

Discussion Papers

We study the optimal design of trade and industrial policy when governments pursue environmental objectives alongside traditional national welfare. Motivated by the global transition to electric vehicles (EVs) and growing concerns about competitiveness, resilience, and the environment, we develop a framework in which policymakers choose tariffs and domestic production subsidies to maximize national welfare, defined as the sum of consumer surplus, domestic profits, environmental benefits, and tariff revenue net of subsidies. We combine a theoretical model of differentiated-product oligopoly with a structural demand model estimated using vehicle-level data from 13 countries during 2004-2023 that together account for the vast majority …

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How Much And How Fast Do Investors Respond To Equity Premium Changes? Evidence From Wealth Taxation, Andreas Fagereng, Luigi Guiso, Marius Ring Jun 2026

How Much And How Fast Do Investors Respond To Equity Premium Changes? Evidence From Wealth Taxation, Andreas Fagereng, Luigi Guiso, Marius Ring

Cowles Foundation Discussion Papers

Using administrative panel data on Norwegian investors’ portfolios, we document strong but slow portfolio allocation responses to a persistent wealth-tax-induced shock to the equity premium. Short-run responses resemble the modest sensitivity documented using surveys. The longer-run responses are much larger and can be rationalized by moderate risk aversion. We document that equity premium shocks affect stock market entry but not exits, suggesting that entry costs dominate participation costs. Our finding of slow responses supports the asset-pricing literature that uses adjustment frictions to explain important asset-pricing puzzles, and has implications for optimal capital taxation when tax rates differ across assets.

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Cross Section Curve Data Autoregression, Peter C.B. Phillips, Liang Jiang Jun 2026

Cross Section Curve Data Autoregression, Peter C.B. Phillips, Liang Jiang

Cowles Foundation Discussion Papers

This paper develops and applies new asymptotic theory for estimation and inference in parametric autoregression and vector autoregression with function valued cross section curve time series. The study provides a new approach to dynamic panel regression with high dimensional dependent cross section data. We deal with the stationary case and provide a full set of results extending those of standard Euclidean space autoregression, showing how function space curve cross section data raises efficiency and reduces bias in estimation and shortens confidence intervals. Wild-bootstrap methods are also developed to improve testing and inference. The findings reveal that function space models with …

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How Much Should A Conversational Recommender System Converse?, Akshit Kumar, Vahideh Manshadi, Akhilesh Tumu May 2026

How Much Should A Conversational Recommender System Converse?, Akshit Kumar, Vahideh Manshadi, Akhilesh Tumu

Cowles Foundation Discussion Papers

Conversational recommender systems powered by generative AI can enhance personalization by facilitating information elicitation through follow-up questions. However, engaging in these conversations imposes a communication cost on users. As platforms with different objectives and monetization models deploy these systems, a central question is: how does the platform’s objective and sellers’ strategic response shape the design of these systems in terms of their elicitation strategy? We develop a parsimonious model of conversational elicitation in which interaction generates noisy preference information and imposes a communication cost borne by the user. A user-welfare-maximizing platform elicits more information when accurate niche matching yields large …

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Music And Spirituality: Theological Approaches, Empirical Methods, And Christian Worship, Chelle Stearns May 2026

Music And Spirituality: Theological Approaches, Empirical Methods, And Christian Worship, Chelle Stearns

Yale Journal of Music & Religion

A book review is presented for Music and Spirituality: Theological Approaches, Empirical Methods, and Christian Worship, edited by George Corbett and Sarah Moerman, by Chelle Stearns.

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The Sound Of Vultures' Wings: The Tibetan Buddhist Chöd Ritual Practice Of The Female Buddha Machik Labdrön, Michael R. Sheehy May 2026

The Sound Of Vultures' Wings: The Tibetan Buddhist Chöd Ritual Practice Of The Female Buddha Machik Labdrön, Michael R. Sheehy

Yale Journal of Music & Religion

A book review is presented for The Sound of Vultures' Wings: The Tibetan Buddhist Chöd Ritual Practice of the Female Buddha Machik Labdrön, authored by Jeffrey W. Cupchik, by Michael R. Sheehy.

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The Noise Silence Makes: Secularity And Ghana's Drum Wars, Vicki L. Brennan May 2026

The Noise Silence Makes: Secularity And Ghana's Drum Wars, Vicki L. Brennan

Yale Journal of Music & Religion

A book review is presented for The Noise Silence Makes: Secularity and Ghana's Drum Wars, authored by Mariam Goshadze, by Vicki L. Brennan.

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