Project acronym ASNODEV
Project Aspirations Social Norms and Development
Researcher (PI) Eliana LA FERRARA
Host Institution (HI) UNIVERSITA COMMERCIALE LUIGI BOCCONI
Call Details Advanced Grant (AdG), SH1, ERC-2015-AdG
Summary Development economists and policymakers often face scenarios in which poor people do not make choices that would help them get out of poverty due to an “aspiration failure”: the poor perceive certain goals as unattainable and do not invest towards those goals, thus perpetuating their own state of poverty. The aim of this proposal is to improve our understanding of the relationship between aspirations and socio-economic outcomes of disadvantaged individuals, in order to answer the question: Can we design policy interventions that shift aspirations in a way that is conducive to development?
In addressing the above question a fundamental role is played by social norms and by the ability of individuals to coordinate on “new” aspirations, hence the analysis of social effects is a salient feature of this proposal.
The proposed research is organized in two workpackages. The first focuses on the media as a vehicle for changing aspirations, examining both commercial TV programs and “educational entertainment”. The second workpackage examines “tailored” interventions designed to address specific determinants of aspiration failures (e.g., psychological support to reduce perceived barriers; inter-racial interaction to change stereotypes; institutional reform to strengthen women’s rights and reduce the gender aspiration gap).
The methodology will involve rigorous evaluation of several interventions directly designed to or indirectly affecting aspirations and social norms. Original data collected through survey work, large administrative datasets and media content analysis will be used.
The results of this project will advance our knowledge on the sources of aspiration failures by poor people and on the interplay between aspirations and social norms, eventually opening the avenue for a new array of anti-poverty policies.
Summary
Development economists and policymakers often face scenarios in which poor people do not make choices that would help them get out of poverty due to an “aspiration failure”: the poor perceive certain goals as unattainable and do not invest towards those goals, thus perpetuating their own state of poverty. The aim of this proposal is to improve our understanding of the relationship between aspirations and socio-economic outcomes of disadvantaged individuals, in order to answer the question: Can we design policy interventions that shift aspirations in a way that is conducive to development?
In addressing the above question a fundamental role is played by social norms and by the ability of individuals to coordinate on “new” aspirations, hence the analysis of social effects is a salient feature of this proposal.
The proposed research is organized in two workpackages. The first focuses on the media as a vehicle for changing aspirations, examining both commercial TV programs and “educational entertainment”. The second workpackage examines “tailored” interventions designed to address specific determinants of aspiration failures (e.g., psychological support to reduce perceived barriers; inter-racial interaction to change stereotypes; institutional reform to strengthen women’s rights and reduce the gender aspiration gap).
The methodology will involve rigorous evaluation of several interventions directly designed to or indirectly affecting aspirations and social norms. Original data collected through survey work, large administrative datasets and media content analysis will be used.
The results of this project will advance our knowledge on the sources of aspiration failures by poor people and on the interplay between aspirations and social norms, eventually opening the avenue for a new array of anti-poverty policies.
Max ERC Funding
1 618 125 €
Duration
Start date: 2016-11-01, End date: 2021-10-31
Project acronym DDRNA
Project A novel direct role of non coding RNA in DNA damage response activation
Researcher (PI) Fabrizio D'adda Di Fagagna
Host Institution (HI) IFOM FONDAZIONE ISTITUTO FIRC DI ONCOLOGIA MOLECOLARE
Call Details Advanced Grant (AdG), LS1, ERC-2012-ADG_20120314
Summary DNA, if damaged, cannot be replaced. If not replaceable, it must be repaired. The so-called “DNA damage response” (DDR) is a coordinate set of evolutionary conserved events that arrest the cell-cycle (DNA damage checkpoint function) in proliferating cells and attempts DNA repair. Until DNA damage has not been repaired in full, cell proliferation is not resumed in normal cells.
DNA damage is a physiological event. Ageing and cancer are both associated with DNA damage accumulation. In the past, we contribute to better understand the mechanisms and the consequences of DNA damage generation and DDR activation in both settings.
We have recently identified a completely hitherto undiscovered level of control of DDR activation, so far considered a proteinaceous only signaling cascade. We have discovered that short RNA species are detectable at DNA damage sites and are necessary for DDR activation at DNA lesions. These RNA species are generated by an evolutionary-conserved RNA processing machinery. However, they serve purposes never reported before.
We believe that our findings change radically our understanding of DDR modulation in mammals and disclose a fertile unspoilt ground for exciting investigations.
Summary
DNA, if damaged, cannot be replaced. If not replaceable, it must be repaired. The so-called “DNA damage response” (DDR) is a coordinate set of evolutionary conserved events that arrest the cell-cycle (DNA damage checkpoint function) in proliferating cells and attempts DNA repair. Until DNA damage has not been repaired in full, cell proliferation is not resumed in normal cells.
DNA damage is a physiological event. Ageing and cancer are both associated with DNA damage accumulation. In the past, we contribute to better understand the mechanisms and the consequences of DNA damage generation and DDR activation in both settings.
We have recently identified a completely hitherto undiscovered level of control of DDR activation, so far considered a proteinaceous only signaling cascade. We have discovered that short RNA species are detectable at DNA damage sites and are necessary for DDR activation at DNA lesions. These RNA species are generated by an evolutionary-conserved RNA processing machinery. However, they serve purposes never reported before.
We believe that our findings change radically our understanding of DDR modulation in mammals and disclose a fertile unspoilt ground for exciting investigations.
Max ERC Funding
2 329 200 €
Duration
Start date: 2013-06-01, End date: 2018-05-31
Project acronym ECONOMICHISTORY
Project Contracts, Institutions, and Markets in Historical Perspective
Researcher (PI) Maristella Botticini
Host Institution (HI) UNIVERSITA COMMERCIALE LUIGI BOCCONI
Call Details Advanced Grant (AdG), SH1, ERC-2011-ADG_20110406
Summary A growing number of scholars are studying the interactions between cultural values, social and religious norms, institutions, and economic outcomes. The rise of markets, as well as the development of contracts that enable mutually beneficial transactions among agents, are one of the central themes in the literature on long-term economic growth.
This project contributes to both strands of literature by studying the invention and development of marine insurance contracts in medieval Italy and their subsequent spread all over Europe. It brings the economic approach to previously unexplored historical data housed in archives in Florence, Genoa, Pisa, Palermo, Prato, and Venice.
The interest in the historical origin and development of marine insurance contracts is twofold. First, marine contracts are the “parents” of all the other insurance contracts (e.g., fire, life, health, etc) that were developed in subsequent centuries to cope with risk. Second, their invention, as well as other innovations in business practices in the Middle Ages, contributed to the growth of international trade in subsequent centuries.
The key novelty of the project stems from combining contract theory with information from thousands of insurance contracts between 1300 and 1550 to explain why marine insurance developed in medieval Italy and then Europe, to study the empirical determinants of insurance contracts in medieval Italy, and to analyze how medieval merchants coped with adverse selection and moral hazard problems.
Most scholars agree that marine insurance was unknown to the ancient world. Italian merchants developed the first insurance contracts and other innovations in business practices during and in the aftermath of the Commercial Revolution that swept Europe from roughly 1275 to about 1325. Marine insurance contracts may have developed as a spin-off of earlier contracts which shifted the risk from one party to another (e.g., sea loan, insurance loan). Alternatively, in the early or mid-fourteenth century, sedentary merchants that provided the capital to travelling merchants invented a new type of contract, when they discovered that the existing contract forms had shortcomings in transferring and dividing sea risk.
A sample of the questions that this project will address includes:
- Why did insurance contracts and a marine insurance market first develop in medieval times and not earlier despite merchants had to deal with the risks associated with maritime trade since antiquity?
- What were the empirical determinants of contract form (e.g., insurance premium) in the medieval insurance market?
- How did medieval merchants compute insurance premia without having the formal notion of probability that was developed only in the mid-seventeenth century?
- How did medieval merchants cope with the typical problems that plague insurance markets, i.e., adverse selection and moral hazard?
Summary
A growing number of scholars are studying the interactions between cultural values, social and religious norms, institutions, and economic outcomes. The rise of markets, as well as the development of contracts that enable mutually beneficial transactions among agents, are one of the central themes in the literature on long-term economic growth.
This project contributes to both strands of literature by studying the invention and development of marine insurance contracts in medieval Italy and their subsequent spread all over Europe. It brings the economic approach to previously unexplored historical data housed in archives in Florence, Genoa, Pisa, Palermo, Prato, and Venice.
The interest in the historical origin and development of marine insurance contracts is twofold. First, marine contracts are the “parents” of all the other insurance contracts (e.g., fire, life, health, etc) that were developed in subsequent centuries to cope with risk. Second, their invention, as well as other innovations in business practices in the Middle Ages, contributed to the growth of international trade in subsequent centuries.
The key novelty of the project stems from combining contract theory with information from thousands of insurance contracts between 1300 and 1550 to explain why marine insurance developed in medieval Italy and then Europe, to study the empirical determinants of insurance contracts in medieval Italy, and to analyze how medieval merchants coped with adverse selection and moral hazard problems.
Most scholars agree that marine insurance was unknown to the ancient world. Italian merchants developed the first insurance contracts and other innovations in business practices during and in the aftermath of the Commercial Revolution that swept Europe from roughly 1275 to about 1325. Marine insurance contracts may have developed as a spin-off of earlier contracts which shifted the risk from one party to another (e.g., sea loan, insurance loan). Alternatively, in the early or mid-fourteenth century, sedentary merchants that provided the capital to travelling merchants invented a new type of contract, when they discovered that the existing contract forms had shortcomings in transferring and dividing sea risk.
A sample of the questions that this project will address includes:
- Why did insurance contracts and a marine insurance market first develop in medieval times and not earlier despite merchants had to deal with the risks associated with maritime trade since antiquity?
- What were the empirical determinants of contract form (e.g., insurance premium) in the medieval insurance market?
- How did medieval merchants compute insurance premia without having the formal notion of probability that was developed only in the mid-seventeenth century?
- How did medieval merchants cope with the typical problems that plague insurance markets, i.e., adverse selection and moral hazard?
Max ERC Funding
1 113 900 €
Duration
Start date: 2012-07-01, End date: 2018-06-30
Project acronym EDUCATION-LONG-RUN
Project Long-Run Effects of Education Interventions: Evidence from Randomized Trials
Researcher (PI) Haim Victor Lavy
Host Institution (HI) THE HEBREW UNIVERSITY OF JERUSALEM
Call Details Advanced Grant (AdG), SH1, ERC-2012-ADG_20120411
Summary The vast majority of published research on the impact of school interventions has examined their effects on short-run outcomes, primarily test scores. While important, a possibly deeper question of interest to society is the impact of such interventions on long-run life outcomes. This is a critical question because the ultimate goal of education is to improve lifetime well-being. Recent research has begun to look at this issue but much work remains to be done, particularly with regard to the long-term effects of interventions explicitly targeting improvement in general quality and students’ educational attainment. This proposal examines the impact of seven different schooling interventions – teachers’ quality, school quality, remedial education, school choice, teacher incentive payments, students' conditional cash transfers and an experiment with an increase in the return to schooling – on long-run life outcomes, including educational attainment, employment, income, marriage and fertility, crime and welfare dependency. To address this important question I will exploit unique data from seven experimental programs and natural experiments implemented simultaneously at different schools in Israel. All programs were successful in achieving their short-term objectives, though the cost of the programs varied. This undertaking presents a unique context with unusual data and very compelling empirical settings. I will examine whether these programs also achieved a longer-term measure of success by improving students’ life outcomes. Another unique feature of the proposed study is that the interventions vary widely and touch on some emergent educational trends. The body of empirical evidence from this study will provide a more complete picture of the individual and social returns from these educational interventions, and will allow policymakers to make more informed decisions when deciding which educational programs lead to the most beneficial use of limited school resources.
Summary
The vast majority of published research on the impact of school interventions has examined their effects on short-run outcomes, primarily test scores. While important, a possibly deeper question of interest to society is the impact of such interventions on long-run life outcomes. This is a critical question because the ultimate goal of education is to improve lifetime well-being. Recent research has begun to look at this issue but much work remains to be done, particularly with regard to the long-term effects of interventions explicitly targeting improvement in general quality and students’ educational attainment. This proposal examines the impact of seven different schooling interventions – teachers’ quality, school quality, remedial education, school choice, teacher incentive payments, students' conditional cash transfers and an experiment with an increase in the return to schooling – on long-run life outcomes, including educational attainment, employment, income, marriage and fertility, crime and welfare dependency. To address this important question I will exploit unique data from seven experimental programs and natural experiments implemented simultaneously at different schools in Israel. All programs were successful in achieving their short-term objectives, though the cost of the programs varied. This undertaking presents a unique context with unusual data and very compelling empirical settings. I will examine whether these programs also achieved a longer-term measure of success by improving students’ life outcomes. Another unique feature of the proposed study is that the interventions vary widely and touch on some emergent educational trends. The body of empirical evidence from this study will provide a more complete picture of the individual and social returns from these educational interventions, and will allow policymakers to make more informed decisions when deciding which educational programs lead to the most beneficial use of limited school resources.
Max ERC Funding
1 519 000 €
Duration
Start date: 2013-05-01, End date: 2019-04-30
Project acronym ESEMO
Project Estimation of General Equilibrium Labor Market Search Models
Researcher (PI) Claudio Michelacci
Host Institution (HI) Istituto Einaudi per l'Economia e la Finanza
Call Details Advanced Grant (AdG), SH1, ERC-2011-ADG_20110406
Summary "My proposal deals with the estimation of Dynamic Stochastic General Equilibrium models with important heterogeneity at the level of firms and households and frictions in the labor market. In the estimation I will exploit mixed frequency data (monthly, quarterly and annual) available in different countries. I will also efficiently take care of possible missing values in the data. This might require developing new estimation techniques. The contribution of the project will be in dealing with important empirically relevant questions. I will address issues that lie at the boundaries between labour economics, business cycle analysis, monetary economics, finance, and growth. In particular I will answer the following questions:
1. How are business cycle costs distributed across different individuals? How costly is involuntary unemployment?
2. Which view best characterizes the process of technology adoption at business cycle frequencies? In particular does Schumpeterian creative destruction play a role in characterizing the adoption of new technologies over the business cycle?
3. What are the welfare costs of the search inefficiencies present in the process of worker reallocation over the business cycle?
4. What are the sources of business cycle fluctuations? And in particular are technology shocks an important driving force?
5. What are the contribution of the job separation rate and the importance of the intensive margin relative to the extensive margin in characterizing aggregate labor market fluctuations?
6. What are the main differences in the cyclical properties of the labor market across the OECD? And which institutions explain these differences?
7. What are the effects of financial sector shocks? And why has the Beveridge curve shifted during the last world wide recession?
8. How policy should respond to the large variation in unemployment risk that individual workers face over their life cycle?"
Summary
"My proposal deals with the estimation of Dynamic Stochastic General Equilibrium models with important heterogeneity at the level of firms and households and frictions in the labor market. In the estimation I will exploit mixed frequency data (monthly, quarterly and annual) available in different countries. I will also efficiently take care of possible missing values in the data. This might require developing new estimation techniques. The contribution of the project will be in dealing with important empirically relevant questions. I will address issues that lie at the boundaries between labour economics, business cycle analysis, monetary economics, finance, and growth. In particular I will answer the following questions:
1. How are business cycle costs distributed across different individuals? How costly is involuntary unemployment?
2. Which view best characterizes the process of technology adoption at business cycle frequencies? In particular does Schumpeterian creative destruction play a role in characterizing the adoption of new technologies over the business cycle?
3. What are the welfare costs of the search inefficiencies present in the process of worker reallocation over the business cycle?
4. What are the sources of business cycle fluctuations? And in particular are technology shocks an important driving force?
5. What are the contribution of the job separation rate and the importance of the intensive margin relative to the extensive margin in characterizing aggregate labor market fluctuations?
6. What are the main differences in the cyclical properties of the labor market across the OECD? And which institutions explain these differences?
7. What are the effects of financial sector shocks? And why has the Beveridge curve shifted during the last world wide recession?
8. How policy should respond to the large variation in unemployment risk that individual workers face over their life cycle?"
Max ERC Funding
1 659 169 €
Duration
Start date: 2012-03-01, End date: 2017-02-28
Project acronym EVALIDEA
Project Designing Institutions to Evaluate Ideas
Researcher (PI) Marco Maria Ottaviani
Host Institution (HI) UNIVERSITA COMMERCIALE LUIGI BOCCONI
Call Details Advanced Grant (AdG), SH1, ERC-2011-ADG_20110406
Summary "Not all new ideas are equally valuable from a social perspective. As the readers of this document know all too well, “picking the winners” is challenging because innovations have highly uncertain outcomes.
The aim of this research project is to develop a general theoretical framework to investigate the design of institutions and mechanisms for evaluating new ideas and innovations. The proposed framework examine how these institutions function, draw parallels between them and suggest changes to ensure more accurate evaluation of ideas. Accurate evaluation is of paramount importance because in order for an idea to be successful, it is not enough that the idea be good. It is also necessary that the idea is recognized as good by those who evaluate it. As the evaluation process becomes more accurate, good ideas are more likely to be funded and incentives for the creation of good ideas are enhanced.
A key contribution of our framework is a characterization of the role played by evaluating institutions in overcoming the inefficiencies resulting from decentralized interaction. These institutions act as intermediaries between innovators and users, and thus are able to redress the market failure resulting when ideas are evaluated in a more decentralized way.
By viewing evaluating institutions through a common lens, we perform a comparative analysis of the workings of such diverse institutions as research funding bodies, government regulators, and screening panels of venture capitalists. With techniques from the economic theory of mechanism design, we intend to characterize the best institutional design for idea evaluation. We then compare this ideal benchmark with actual institutions and characterize how it depends on the primitive ingredients of the environment. Lastly, through empirical and experimental testing, we propose changes to institution design parameters and suggest modifications to the mechanisms created for the purpose of evaluating ideas."
Summary
"Not all new ideas are equally valuable from a social perspective. As the readers of this document know all too well, “picking the winners” is challenging because innovations have highly uncertain outcomes.
The aim of this research project is to develop a general theoretical framework to investigate the design of institutions and mechanisms for evaluating new ideas and innovations. The proposed framework examine how these institutions function, draw parallels between them and suggest changes to ensure more accurate evaluation of ideas. Accurate evaluation is of paramount importance because in order for an idea to be successful, it is not enough that the idea be good. It is also necessary that the idea is recognized as good by those who evaluate it. As the evaluation process becomes more accurate, good ideas are more likely to be funded and incentives for the creation of good ideas are enhanced.
A key contribution of our framework is a characterization of the role played by evaluating institutions in overcoming the inefficiencies resulting from decentralized interaction. These institutions act as intermediaries between innovators and users, and thus are able to redress the market failure resulting when ideas are evaluated in a more decentralized way.
By viewing evaluating institutions through a common lens, we perform a comparative analysis of the workings of such diverse institutions as research funding bodies, government regulators, and screening panels of venture capitalists. With techniques from the economic theory of mechanism design, we intend to characterize the best institutional design for idea evaluation. We then compare this ideal benchmark with actual institutions and characterize how it depends on the primitive ingredients of the environment. Lastly, through empirical and experimental testing, we propose changes to institution design parameters and suggest modifications to the mechanisms created for the purpose of evaluating ideas."
Max ERC Funding
1 142 200 €
Duration
Start date: 2012-06-01, End date: 2017-05-31
Project acronym FINLAB
Project Finance and Labor
Researcher (PI) Marco Pagano
Host Institution (HI) UNIVERSITA DEGLI STUDI DI NAPOLI FEDERICO II
Call Details Advanced Grant (AdG), SH1, ERC-2011-ADG_20110406
Summary How does financial market development affect employment, wages and unemployment risk? And how do labor market institutions and workers’ behavior in turn affect corporate policies?
These issues are much under-researched, in spite of their prominence in public debate, often ideologically polarized between those who consider finance as socially harmful and those who view it as an efficient allocation machine. Most economic research indicates that financial development raises output growth, but is silent about its effects on the labor market: does it also raise employment and wages? If so, is it at the expense of greater employment risk and inequality? And how does the potential for systemic financial instability affect the answers to these questions?
The study of these issues naturally opens also another – equally under-researched – line of inquiry: that concerning the effects of labor relations on financial arrangements. Do corporate investment policies and leverage decisions take into account their own effects on firms’ bargaining position in wage negotiations? And if so, how are these corporate decisions affected by job protection regulation, union density or workers’ protection in bankruptcy? To what extent do companies insure workers against employment risk, and do family and non-family firms differ in this respect? Finally, can labor market competition damage the performance of employees with decision-making responsibilities? For instance, can it induce managers or traders to take excessively risky decisions, by providing them with an escape route once they make mistakes, especially when outcomes are observed long after decisions?
This research project purports to break new ground on both sets of issues, using a combination of analytical modelling and empirical analysis, which in some cases will require the collection of entirely new data.
Summary
How does financial market development affect employment, wages and unemployment risk? And how do labor market institutions and workers’ behavior in turn affect corporate policies?
These issues are much under-researched, in spite of their prominence in public debate, often ideologically polarized between those who consider finance as socially harmful and those who view it as an efficient allocation machine. Most economic research indicates that financial development raises output growth, but is silent about its effects on the labor market: does it also raise employment and wages? If so, is it at the expense of greater employment risk and inequality? And how does the potential for systemic financial instability affect the answers to these questions?
The study of these issues naturally opens also another – equally under-researched – line of inquiry: that concerning the effects of labor relations on financial arrangements. Do corporate investment policies and leverage decisions take into account their own effects on firms’ bargaining position in wage negotiations? And if so, how are these corporate decisions affected by job protection regulation, union density or workers’ protection in bankruptcy? To what extent do companies insure workers against employment risk, and do family and non-family firms differ in this respect? Finally, can labor market competition damage the performance of employees with decision-making responsibilities? For instance, can it induce managers or traders to take excessively risky decisions, by providing them with an escape route once they make mistakes, especially when outcomes are observed long after decisions?
This research project purports to break new ground on both sets of issues, using a combination of analytical modelling and empirical analysis, which in some cases will require the collection of entirely new data.
Max ERC Funding
1 873 800 €
Duration
Start date: 2012-07-01, End date: 2018-06-30
Project acronym GAME-DYNAMICS
Project Game Theory: Dynamic Approaches
Researcher (PI) Sergiu Hart
Host Institution (HI) THE HEBREW UNIVERSITY OF JERUSALEM
Call Details Advanced Grant (AdG), SH1, ERC-2009-AdG
Summary The general framework is that of game theory, with multiple participants ( players ) that interact repeatedly over time. The players may be people, corporations, nations, computers even genes. While many of the standard concepts of game theory are static by their very nature (for example, strategic equilibria and cooperative solutions), it is of utmost importance theoretically as well as in applications to study dynamic processes, and relate them to appropriate static solutions. This is a fundamental issue. On the one hand, the significance of a solution depends in particular on how easy it is to reach it. On the other hand, natural dynamics, that is, processes that to a certain degree reflect observed behaviors and actual institutions, are important to study and understand in their own right. We propose to work on three main areas. First, adaptive dynamics: the goal is to characterize those classes of dynamics for which convergence to Nash or correlated equilibria can be obtained, and those for which it cannot, and to find and study natural dynamics that are related to actual behavior and yield useful insights. Second, evolutionary dynamics: the goal is to investigate evolutionary and similar dynamics, with a particular emphasis on understanding the role that large populations may play, and on characterizing which equilibria are evolutionarily stable and which are not. Third, bargaining and cooperation: the goal is to develop a general research program that studies natural bargaining procedures that lead to cooperation and are based directly on the strategic form; some particular aims are to establish connections between the bargaining institutions and the resulting cooperative solutions, and to analyze relevant economic models.
Summary
The general framework is that of game theory, with multiple participants ( players ) that interact repeatedly over time. The players may be people, corporations, nations, computers even genes. While many of the standard concepts of game theory are static by their very nature (for example, strategic equilibria and cooperative solutions), it is of utmost importance theoretically as well as in applications to study dynamic processes, and relate them to appropriate static solutions. This is a fundamental issue. On the one hand, the significance of a solution depends in particular on how easy it is to reach it. On the other hand, natural dynamics, that is, processes that to a certain degree reflect observed behaviors and actual institutions, are important to study and understand in their own right. We propose to work on three main areas. First, adaptive dynamics: the goal is to characterize those classes of dynamics for which convergence to Nash or correlated equilibria can be obtained, and those for which it cannot, and to find and study natural dynamics that are related to actual behavior and yield useful insights. Second, evolutionary dynamics: the goal is to investigate evolutionary and similar dynamics, with a particular emphasis on understanding the role that large populations may play, and on characterizing which equilibria are evolutionarily stable and which are not. Third, bargaining and cooperation: the goal is to develop a general research program that studies natural bargaining procedures that lead to cooperation and are based directly on the strategic form; some particular aims are to establish connections between the bargaining institutions and the resulting cooperative solutions, and to analyze relevant economic models.
Max ERC Funding
1 361 000 €
Duration
Start date: 2010-01-01, End date: 2015-12-31
Project acronym MEF
Project The macroeconomic effects of microeconomic inaction
Researcher (PI) Francesco Lippi
Host Institution (HI) Istituto Einaudi per l'Economia e la Finanza
Call Details Advanced Grant (AdG), SH1, ERC-2012-ADG_20120411
Summary "A large part of macroeconomics embeds some form of inertial behavior by firms and/or house- holds. Whether it is in price or wage setting, real or financial investment choices, saving or consumption decisions, some element of stickiness leading to inaction ranges in individuals’ choices (in prices, consumption, investment) is often included to reconcile the model with observed individual data. Yet the specific assumptions to model this inertia mostly reflect tractability concerns, while less attention is paid to consistency with observations at the micro level. This issue is important for macroeconomics because different frictions, generating the same individual stickiness, imply different size and persistence in the response of the aggregate economy to macro shocks. Depending on modeling assumptions, the aggregate effects of stickiness range from being negligible to being substantial. We will propose methods so that the frictions will be structurally identified, and their consequences analytically explored.
This project has two broad goals. The first one is to construct tractable macroeconomic models, based on individual behavior, that will yield substantial improvements in matching the patterns on the infrequent and heterogeneous adjustment recently documented in the micro data. In our structural models the micro evidence will serve as an identification device for the proper modeling of the frictions faced by the agents. The second goal is to produce analytical tools to study the transmission of aggregate shocks (in money, interest rates, productivity, asset prices) in economies characterized by adjustment costs and cross-section heterogeneity. In particular, we will develop useful analytical methods to approximate the steady state behavior of an economy with stickiness, and to characterize the economy’s response to aggregate shocks."
Summary
"A large part of macroeconomics embeds some form of inertial behavior by firms and/or house- holds. Whether it is in price or wage setting, real or financial investment choices, saving or consumption decisions, some element of stickiness leading to inaction ranges in individuals’ choices (in prices, consumption, investment) is often included to reconcile the model with observed individual data. Yet the specific assumptions to model this inertia mostly reflect tractability concerns, while less attention is paid to consistency with observations at the micro level. This issue is important for macroeconomics because different frictions, generating the same individual stickiness, imply different size and persistence in the response of the aggregate economy to macro shocks. Depending on modeling assumptions, the aggregate effects of stickiness range from being negligible to being substantial. We will propose methods so that the frictions will be structurally identified, and their consequences analytically explored.
This project has two broad goals. The first one is to construct tractable macroeconomic models, based on individual behavior, that will yield substantial improvements in matching the patterns on the infrequent and heterogeneous adjustment recently documented in the micro data. In our structural models the micro evidence will serve as an identification device for the proper modeling of the frictions faced by the agents. The second goal is to produce analytical tools to study the transmission of aggregate shocks (in money, interest rates, productivity, asset prices) in economies characterized by adjustment costs and cross-section heterogeneity. In particular, we will develop useful analytical methods to approximate the steady state behavior of an economy with stickiness, and to characterize the economy’s response to aggregate shocks."
Max ERC Funding
1 946 788 €
Duration
Start date: 2013-06-01, End date: 2018-05-31
Project acronym MIMAT
Project From Micro to Macro: Aggregate Implications of Firm-Level Heterogeneity in International Trade
Researcher (PI) Gianmarco OTTAVIANO
Host Institution (HI) UNIVERSITA COMMERCIALE LUIGI BOCCONI
Call Details Advanced Grant (AdG), SH1, ERC-2017-ADG
Summary What determines the patterns of international trade and the associated welfare effects? Can individual
incentives to trade diverge from societal objectives? Should governments intervene to promote or restrict
international transactions? Questions like these have recently gained new salience, in Europe and elsewhere,
due to renewed protectionist pressures and resurgent nationalistic tendencies arising from diffuse
disenchantment with globalization.
The aim of the research project is to highlighting key dimensions along which the answers to these questions
obtained from conventional trade models with homogenous firms should be revisited in the light of
permanent pervasive firm heterogeneity. In particular, the project will pursue four specific objectives through
four integrated work packages providing new insights on how firm heterogeneity affects: (1) the ability of
markets to deliver allocative efficiency; (2) The design of optimal multilateral trade policies; (3) The
comparative advantages of countries; (4) The capabilities of a country as an exporter.
The first work package will investigate whether the allocative inefficiency (“misallocation”) determined by
firm heterogeneity in the presence of pricing distortions is quantitatively relevant for a country’s aggregate
economic performance, and whether economic integration reduces or exacerbates such misallocation. The
second work package will develop the theoretical implications of firm heterogeneity for trade policy, with
special emphasis on the cooperative design of optimal multilateral trade agreements aimed at maximizing the
joint welfare of all trade partners. The third work package will study how country, sector and firm
characteristics interact to determine countries’ responses to trade liberalization. The fourth work package
will investigate the distinct role of firm heterogeneity in determining a country’s ability to export through the
shape of the productivity distribution of its producers.
Summary
What determines the patterns of international trade and the associated welfare effects? Can individual
incentives to trade diverge from societal objectives? Should governments intervene to promote or restrict
international transactions? Questions like these have recently gained new salience, in Europe and elsewhere,
due to renewed protectionist pressures and resurgent nationalistic tendencies arising from diffuse
disenchantment with globalization.
The aim of the research project is to highlighting key dimensions along which the answers to these questions
obtained from conventional trade models with homogenous firms should be revisited in the light of
permanent pervasive firm heterogeneity. In particular, the project will pursue four specific objectives through
four integrated work packages providing new insights on how firm heterogeneity affects: (1) the ability of
markets to deliver allocative efficiency; (2) The design of optimal multilateral trade policies; (3) The
comparative advantages of countries; (4) The capabilities of a country as an exporter.
The first work package will investigate whether the allocative inefficiency (“misallocation”) determined by
firm heterogeneity in the presence of pricing distortions is quantitatively relevant for a country’s aggregate
economic performance, and whether economic integration reduces or exacerbates such misallocation. The
second work package will develop the theoretical implications of firm heterogeneity for trade policy, with
special emphasis on the cooperative design of optimal multilateral trade agreements aimed at maximizing the
joint welfare of all trade partners. The third work package will study how country, sector and firm
characteristics interact to determine countries’ responses to trade liberalization. The fourth work package
will investigate the distinct role of firm heterogeneity in determining a country’s ability to export through the
shape of the productivity distribution of its producers.
Max ERC Funding
1 335 694 €
Duration
Start date: 2018-10-01, End date: 2023-09-30
