Social and Behavioral Sciences Commons^™

Calibrated Click-Through Auctions: An Information Design Approach, Dirk Bergemann, Paul Duetting, Renato Paes Leme, Song Zuo

Cowles Foundation Discussion Papers

We analyze the optimal information design in a click-through auction with fixed valuations per click, but stochastic click-through rates. While the auctioneer takes as given the auction rule of the click-through auction, namely the generalized second-price auction, the auctioneer can design the information flow regarding the click-through rates among the bidders. A natural requirement in this context is to ask for the information structure to be calibrated in the learning sense. With this constraint, the auction needs to rank the ads by a product of the bid and an unbiased estimator of the click-through rates, and the task of designing …

Normalizing Community Mask-Wearing: A Cluster Randomized Trial In Bangladesh, Jason Abaluck, Laura H. Kwong, Ashley Styczynski, Ashraful Haque, Md. Alamgir Kabir, Ellen Bates-Jeffries, Emily Crawford, Jade Benjamin-Chung, Salim Benhachmi, Shabib Raihan, Shadman Rahman, Neeti Zaman, Peter J. Winch, Md. Maqsud Hossain, Hasan Mahmud Reza, Stephen P. Luby, Ahmed Musfiq Mobarak

Cowles Foundation Discussion Papers

Background: A growing body of scientific evidence suggests that face masks can slow the spread of COVID-19 and save lives, but mask usage remains low across many parts of the world, and strategies to increase mask usage remain untested and unclear. Methods: We conducted a cluster-randomized trial of community-level mask promotion in rural Bangladesh involving 341,830 adults in 600 villages. We employed a series of strategies to promote mask usage, including free household distribution of surgical or cloth masks, distribution and promotion at markets and mosques, mask advocacy by Imams during Friday prayers, role modeling by local leaders, promoters …

The Impact Of Community Masking On Covid-19: A Cluster Randomized Trial In Bangladesh, Jason Abaluck, Laura H. Kwong, Ashley Styczynski, Ashraful Haque, Md. Alamgir Kabir, Ellen Bates-Jeffries, Emily Crawford, Jade Benjamin-Chung, Shabib Raihan, Shadman Rahman, Salim Benhachmi, Neeti Zaman, Peter J. Winch, Md. Maqsud Hossain, Hasan Mahmud Reza, Abdullah All Jaber, Shawkee Gulshan Momen, Faika Laz Bani, Aura Rahman, Tahrima Saiha Huq, Stephen P. Luby, Ahmed Mushfiq Mobarak

Cowles Foundation Discussion Papers

Background: Mask usage remains low across many parts of the world during the COVID- 19 pandemic, and strategies to increase mask-wearing remain untested. Our objectives were to identify strategies that can persistently increase mask-wearing and assess the impact of increasing mask-wearing on symptomatic SARS-CoV-2 infections. Methods: We conducted a cluster-randomized trial of community-level mask promotion in rural Bangladesh from November 2020 to April 2021 (N=600 villages, N=342,126 adults). We cross-randomized mask promotion strategies at the village and household level, including cloth vs. surgical masks. All intervention arms received free masks, information on the importance of masking, role modeling by community …

Algorithm Is Experiment: Machine Learning, Market Design, And Policy Eligibility Rules, Yusuke Narita, Kohei Yata

Cowles Foundation Discussion Papers

Algorithms produce a growing portion of decisions and recommendations both in policy and business. Such algorithmic decisions are natural experiments (conditionally quasirandomly assigned instruments) since the algorithms make decisions based only on observable input variables. We use this observation to develop a treatment-effect estimator for a class of stochastic and deterministic algorithms. Our estimator is shown to be consistent and asymptotically normal for well-defined causal effects. A key special case of our estimator is a high-dimensional regression discontinuity design. The proofs use tools from differential geometry and geometric measure theory, which may be of independent interest.

The practical performance of …

Measuring The U.S. Employment Situation Using Online Panels: The Yale Labor Survey, Christopher Foote, Tyler Hounshell, William D. Nordhaus, Douglas Rivers, Pamela Torola

Cowles Foundation Discussion Papers

This study presents the design and results of a rapid-fire survey that collects labor market data for individuals in the United States. The purpose is to test online panels for their application to social, economic, and demographic information as well as to apply this approach to the U.S. labor market. The Yale Labor Survey (YLS) used an online panel from YouGov to replicate statistics from the Current Population Survey (CPS), the government’s official source of household labor market statistics. The YLS’s advantages included its timeliness, low cost, and ability to develop new questions quickly to study unusual labor market patterns …

Curse Of Democracy: Evidence From 2020, Yusuke Narita, Ayumi Sudo

Cowles Foundation Discussion Papers

Countries with more democratic political regimes experienced greater GDP loss and more deaths from Covid-19 in 2020. Using five different instrumental variable strategies, we find that democracy is a major cause of the wealth and health losses. This impact is global and is not driven by China and the US alone. A key channel for democracy’s negative impact is weaker and narrower containment policies at the beginning of the outbreak, not the speed of introducing policies.

Distributional Impacts Of Retail Vaccine Availability, Judith A. Chevalier, Jason L. Schwartz, Yihua Su, Kevin R. Williams

Cowles Foundation Discussion Papers

We examine the potential for exploiting retailer location choice in targeting health interventions. Using geospatial data, we quantify proximity to vaccines created by a U.S. federal program distributing COVID-19 vaccines to commercial retail pharmacies. We assess the distributional impacts of a proposal to provide vaccines at Dollar General, a low-priced general merchandise retailer. Adding Dollar General to the federal program would substantially decrease the distance to vaccine sites for low-income, rural, and minority U.S. households, groups for which COVID-19 vaccine take-up has been disproportionately slow.

Retrospective Voting Versus Risk-Aversion Voting, Ray C. Fair

Cowles Foundation Discussion Papers

According to retrospective voting a bad economy hurts the incumbent party and vice versa. According to risk-aversion voting a bad economy favors the Democrats over the Republicans and vice versa. This paper provides a test of both theories and rejects risk-aversion voting.

Retrospective Voting Versus Risk-Aversion Voting: A Comment On Pástor And Veronesi (2020), Ray C. Fair

Cowles Foundation Discussion Papers

According to retrospective voting, a bad economy hurts the incumbent party and vice versa. According to risk-aversion voting as discussed in Pástor and Veronesi (2020), high risk aversion favors the Democrats over the Republicans and vice versa. If high risk aversion is associated with a bad economy, then risk-aversion voting implies that a bad economy favors the Democrats and vice versa. The two theories thus have different implications for the Democrats. This paper tests both theories under the assumption that high risk aversion is associated with a bad economy. The results provide no support for risk-aversion voting under this assumption.

Kant And Lindahl, John E. Roemer, Joaquim Silvestre

Cowles Foundation Discussion Papers

Wicksell (1896) and Lindahl (1919) analyzed the public provision of public goods through parliamentary negotiation. Roemer (2010, 2019) applied Kant’s (1785) categorical imperative to the private provision of public goods by voluntary contributions. They coincide in yielding efficient outcomes. Our focal equilibrium notions are the Multiplicative Kantian Equilibrium in the Kant-Roemer modelling and the Balanced Linear Cost Share Equilibrium for the Wicksell-Lindahl approach. It turns out that both are defined by the same individual optimization problem, and that costs are distributed according to marginal valuation, what we call the Lindahl Ratio. More general versions of the Wicksell-Lindahl and Kant-Roemer models …

Are Stock Returns And Output Growth Higher Under Democrats?, Ray C. Fair

Cowles Foundation Discussion Papers

Recent literature suggests that both stock returns and economic growth are significantly higher under Democratic presidential administrations. This is a puzzle in that persistent differences in stock returns seem unlikely in efficient markets, and it is not obvious why Democrats should do better. Often these kinds of results go away upon further analysis or more data, and this appears to be true in the present case. In this paper the sample is extended to 27 administrations, from Wilson-1 through Trump. While the mean stock return under the Democrats is generally higher, none of the differences in means are significant at …

Survival Pessimism And The Demand For Annuities, Cormac O'Dea, David Sturrock

Cowles Foundation Discussion Papers

The “annuity puzzle” refers to the fact that annuities are rarely purchased despite the longevity insurance they provide. Most explanations for this puzzle assume that individuals have accurate expectations about their future survival. We provide evidence that individuals misperceive their mortality risk, and study the demand for annuities in a setting where annuities are priced by insurers on the basis of objectively-measured survival probabilities but in which individuals make purchasing decisions based on their own subjective survival probabilities. Subjective expectations have the capacity to explain significant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle.

Is Habit A Powerful Policy Instrument To Induce Prosocial Behavioral Change?, Johann Caro-Burnett, Judith A. Chevalier, Ahmed Mushfiq Mobarak

Cowles Foundation Discussion Papers

Recent literature suggests the power of interventions to change habits. In a dense slum in Nairobi, we adopt best practices from the habit literature to encourage toilet use instead of alternatives that damage community health. Offering subsidies increased toilet usage, effects continue for one month after discounts end, but erode thereafter. Treatments designed to induce habit formation (marketing, time-limited discounts encouraging repetition, discounts for longer periods, targeting `habitual types’) generated no greater persistence. We see some persistent behavior change due to learning about the new toilet option. It appears difficult to induce pro-social behavior without private benefits through habit change.

Welfare Comparisons For Biased Learning, Mira Frick, Ryota Iijima, Yuhta Ishii

Cowles Foundation Discussion Papers

We study robust welfare comparisons of learning biases, i.e., deviations from correct Bayesian updating. Given a true signal distribution, we deem one bias more harmful than another if it yields lower objective expected payoffs in all decision problems. We characterize this ranking in static (one signal) and dynamic (many signals) settings. While the static characterization compares posteriors signal-by-signal, the dynamic characterization employs an “efficiency index” quantifying the speed of belief convergence. Our results yield welfare-founded quantifications of the severity of well-documented biases. Moreover, the static and dynamic rankings can conflict, and “smaller” biases can be worse in dynamic settings.

Welfare Comparisons For Biased Learning, Mira Frick, Ryota Iijima, Yuhta Ishii

Cowles Foundation Discussion Papers

We study robust welfare comparisons of learning biases, i.e., deviations from correct Bayesian updating. Given a true signal distribution, we deem one bias more harmful than another if it yields lower objective expected payoffs in all decision problems. We characterize this ranking in static (one signal) and dynamic (many signals) settings. While the static characterization compares posteriors signal-by-signal, the dynamic characterization employs an “efficiency index” quantifying the speed of belief convergence. Our results yield welfare-founded quantifications of the severity of well-documented biases. Moreover, the static and dynamic rankings can disagree, and “smaller” biases can be worse in dynamic settings.

Panel Threshold Regression With Unobserved Individual-Specific Threshold Effects, Ping Yu, Peter C. B. Phillips, Shengjie Hong

Cowles Foundation Discussion Papers

This paper studies the estimation and inferences in panel threshold regression with unobserved individual-specific threshold effects which is important from the practical perspective and is a distinguishing feature from traditional linear panel data models. It is shown that the within-regime differencing in the static model or the within-regime first-differencing in the dynamic model cannot generate consistent estimators of the threshold, so the correlated random effects models are suggested to handle the endogeneity in such general panel threshold models. We provide a unified estimation and inference framework that is valid for both the static and dynamic models and regardless of whether …

Optimal Information Disclosure In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris, Constantine Sorokin, Eyal Winter

Cowles Foundation Discussion Papers

We characterize the revenue-maximizing information structure in the second price auction. The seller faces a classic economic trade-o¤: providing more information improves the efficiency of the allocation but also creates higher information rents for bidders. The information disclosure policy that maximizes the revenue of the seller is to fully reveal low values (where competition will be high) but to pool high values (where competition will be low). The size of the pool is determined by a critical quantile that is independent of the distribution of values and only dependent on the number of bidders. We discuss how this policy provides …

A Characterization For Optimal Bundling Of Products With Inter-Dependent Values, Soheil Ghili

Cowles Foundation Discussion Papers

This paper studies optimal bundling of products with inter-dependent values. I show that, under some conditions, a firm optimally chooses to sell only the full bundle of a given set of products if and only if the optimal sales volume of the full bundle is larger than the optimal sales volume for any smaller bundle. I then provide an interpretation of this characterization based on (i) the magnitude of the variation across consumers in how complementary they find different products, and (ii) how this variation correlates with price sensitivity.

Bayesian Persuasion With Lie Detection, Florian Ederer, Weicheng Min

Cowles Foundation Discussion Papers

We consider a model of Bayesian persuasion in which the Receiver can detect lies with positive probability. We show that the Sender lies more when the lie detection probability increases. As long as the lie detection probability is sufficiently small the Sender's and the Receiver's equilibrium payoffs are unaffected by the lie detection technology because the Sender simply compensates by lying more. When the lie detection probability is sufficiently high, the Sender's (Receiver's) equilibrium payoff decreases (increases) with the lie detection probability.

Trade And Informality In The Presence Of Labor Market Frictions And Regulations, Rafael Dix-Carneiro, Pinelopi K. Goldberg, Costas Meghir, Gabriel Ulyssea

Cowles Foundation Discussion Papers

We build an equilibrium model of a small open economy with labor market frictions and imperfectly enforced regulations. Heterogeneous firms sort into the formal or informal sector. We estimate the model using data from Brazil, and use counterfactual simulations to understand how trade affects economic outcomes in the presence of informality. We show that: (1) Trade openness unambiguously decreases informality in the tradable sector, but has ambiguous effects on aggregate informality. (2) The productivity gains from trade are understated when the informal sector is omitted. (3) Trade openness results in large welfare gains even when informality is repressed. (4) Repressing …

Consumer Information And The Limits To Competition, Mark Armstrong, Jidong Zhou

Cowles Foundation Discussion Papers

This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which induce pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal policy amplifies underlying product differentiation, thereby relaxing competition, while ensuring consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal policy dampens differentiation, which intensifies competition, but induces some consumers to buy their less-preferred product. Our analysis sheds light on the limits to competition when the information possessed by consumers can be designed …

Mixed Bundling In Oligopoly Markets, Jidong Zhou

Cowles Foundation Discussion Papers

This paper proposes a framework for studying competitive mixed bundling with an arbitrary number of firms. We examine both a firm’s incentive to introduce mixed bundling and equilibrium tariffs when all firms adopt the mixed-bundling strategy. In the duopoly case, relative to separate sales, mixed bundling has ambiguous impacts on prices, profit and consumer surplus; with many firms, however, mixed bundling typically lowers all prices, harms firms and benefits consumers.

Take A Break!...Or More., Maria Saez Marti

Cowles Foundation Discussion Papers

I investigate the optimal timing and length of breaks in a model with fatigue. A break’s length determines the worker’s productivity once work is resumed. I show that all breaks should be identical, equally spaced and long enough to fully recover productivity. When taking breaks is costless, the higher the number of breaks the better. Otherwise, the optimal number is finite and those workers whose productivity falls more at the beginning of the day should take more breaks. Workaholics take their breaks too early and make them too short, from the employers’ viewpoint. The opposite is true for leisure-oriented workers.

When The Great Equalizer Shuts Down: Schools, Peers, And Parents In Pandemic Time, Francesco Agostinelli, Matthias Doepke, Giuseppe Sorrenti, Fabrizio Zilibotti

Cowles Foundation Discussion Papers

What are the effects of school closures during the Covid-19 pandemic on children’s education? Online education is an imperfect substitute for in-person learning, particularly for children from low-income families. Peer effects also change: schools allow children from different socio-economic backgrounds to mix together, and this effect is lost when schools are closed. Another factor is the response of parents, some of whom compensate for the changed environment through their own efforts, while others are unable to do so. We examine the interaction of these factors with the aid of a structural model of skill formation. We find that school closures …

A Model Of Crisis Management, Fei Li, Jidong Zhou

Cowles Foundation Discussion Papers

We propose a model of how multiple societies respond to a common crisis. A government faces a “damned-either-way” policy-making dilemma: aggressive intervention contains the crisis, but the resulting good outcome makes people skeptical of the costly response; light intervention worsens the crisis and causes the government to be faulted for not doing enough. This dilemma can be mitigated for the society that encounters the crisis first if another society faces the same crisis afterward. Our model predicts that the later society does not necessarily perform better despite having more information, while the earlier society might benefit from a dynamic counterfactual …

A Model Of Sequential Crisis Management, Fei Li, Jidong Zhou

Cowles Foundation Discussion Papers

We propose a model of how multiple societies respond to a common crisis. A government faces a "damned-either-way" policymaking dilemma: aggressive intervention contains the crisis, but the resulting good outcome makes people skeptical about the costly response; light intervention worsens the crisis and causes the government to be faulted for not doing enough. When multiple societies encounter the crisis sequentially, due to this policymaking dilemma, late societies may underperform despite having more information, while early societies can benefit from a dynamic counterfactual effect.

Open Banking: Credit Market Competition When Borrowers Own The Data, Zhiguo He, Jing Huang, Jidong Zhou

Cowles Foundation Discussion Papers

Open banking facilitates data sharing consented by customers who generate the data, with a regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks’ customer data enables better borrower screening or targeting by fintech lenders. Open banking could make the entire financial industry better off yet leave all borrowers worse off, even if borrowers could choose whether to share their data. We highlight the importance of equilibrium credit quality inference from borrowers’ endogenous sign-up decisions. When data sharing triggers privacy concerns by facilitating exploitative targeted loans, the equilibrium sign-up population …

Aggregate Implications Of Firm Heterogeneity: A Nonparametric Analysis Of Monopolistic Competition Trade Models, Rodrigo Adão, Costas Arkolakis, Sharat Ganapati

Cowles Foundation Discussion Papers

We measure the role of firm heterogeneity in counterfactual predictions of monopolistic competition trade models without parametric restrictions on the distribution of firm fundamentals. We show that two bilateral elasticity functions are sufficient to nonparametrically compute the counterfactual aggregate impact of trade shocks, and recover changes in economic fundamentals from observed data. These functions are identified from two semiparametric gravity equations governing the impact of bilateral trade costs on the extensive and intensive margins of firm-level exports. Applying our methodology, we estimate elasticity functions that imply an impact of trade costs on trade flows that falls when more firms serve …

Mothers’ Social Networks And Socioeconomic Gradients Of Isolation, Alison Andrew, Orazio P. Attanasio, Britta Augsburg, Jere Behrman, Monimalika Day, Pamela Jervis, Costas Meghir, Angus Phimister

Cowles Foundation Discussion Papers

Social connections are fundamental to human wellbeing. This paper examines the social networks of young married women in rural Odisha, India.. This is a group, for whom highly-gendered norms around marriage, mobility, and work are likely to shape opportunities to form and maintain meaningful ties with other women. We track the social networks of 2,170 mothers over four years, and find a high degree of isolation. Wealthier women and women more-advantaged castes have smaller social networks than their less-advantaged peers. These gradients are primarily driven by the fact that more-advantaged women are less likely to know other women within their …

Improved Information In Search Markets, Jidong Zhou

Cowles Foundation Discussion Papers

How will an improved information environment affects competition and market performance when consumers face search frictions? This paper provides a unified way to model information improvement that makes the search pool more ``selective" (e.g., due to personalized recommendations), or more ``informative" (e.g., due to the availability of more detailed product information). Information improvement tends to induce consumers to search less, intensify price competition and benefit consumers, if the search friction is small, or if information improvement truncates the match utility distribution from below. More generally, however, it is also possible for information improvement to raise the market price and harm …