Project acronym AfricanWomen
Project Women in Africa
Researcher (PI) catherine GUIRKINGER
Host Institution (HI) UNIVERSITE DE NAMUR ASBL
Call Details Starting Grant (StG), SH1, ERC-2017-STG
Summary Rates of domestic violence and the relative risk of premature death for women are higher in sub-Saharan Africa than in any other region. Yet we know remarkably little about the economic forces, incentives and constraints that drive discrimination against women in this region, making it hard to identify policy levers to address the problem. This project will help fill this gap.
I will investigate gender discrimination from two complementary perspectives. First, through the lens of economic history, I will investigate the forces driving trends in women’s relative well-being since slavery. To quantify the evolution of well-being of sub-Saharan women relative to men, I will use three types of historical data: anthropometric indicators (relative height), vital statistics (to compute numbers of missing women), and outcomes of formal and informal family law disputes. I will then investigate how major economic developments and changes in family laws differentially affected women’s welfare across ethnic groups with different norms on women’s roles and rights.
Second, using intra-household economic models, I will provide new insights into domestic violence and gender bias in access to crucial resources in present-day Africa. I will develop a new household model that incorporates gender identity and endogenous outside options to explore the relationship between women’s empowerment and the use of violence. Using the notion of strategic delegation, I will propose a new rationale for the separation of budgets often observed in African households and generate predictions of how improvements in women’s outside options affect welfare. Finally, with first hand data, I will investigate intra-household differences in nutrition and work effort in times of food shortage from the points of view of efficiency and equity. I will use activity trackers as an innovative means of collecting high quality data on work effort and thus overcome data limitations restricting the existing literature
Summary
Rates of domestic violence and the relative risk of premature death for women are higher in sub-Saharan Africa than in any other region. Yet we know remarkably little about the economic forces, incentives and constraints that drive discrimination against women in this region, making it hard to identify policy levers to address the problem. This project will help fill this gap.
I will investigate gender discrimination from two complementary perspectives. First, through the lens of economic history, I will investigate the forces driving trends in women’s relative well-being since slavery. To quantify the evolution of well-being of sub-Saharan women relative to men, I will use three types of historical data: anthropometric indicators (relative height), vital statistics (to compute numbers of missing women), and outcomes of formal and informal family law disputes. I will then investigate how major economic developments and changes in family laws differentially affected women’s welfare across ethnic groups with different norms on women’s roles and rights.
Second, using intra-household economic models, I will provide new insights into domestic violence and gender bias in access to crucial resources in present-day Africa. I will develop a new household model that incorporates gender identity and endogenous outside options to explore the relationship between women’s empowerment and the use of violence. Using the notion of strategic delegation, I will propose a new rationale for the separation of budgets often observed in African households and generate predictions of how improvements in women’s outside options affect welfare. Finally, with first hand data, I will investigate intra-household differences in nutrition and work effort in times of food shortage from the points of view of efficiency and equity. I will use activity trackers as an innovative means of collecting high quality data on work effort and thus overcome data limitations restricting the existing literature
Max ERC Funding
1 499 313 €
Duration
Start date: 2018-08-01, End date: 2023-07-31
Project acronym APMPAL-HET
Project Asset Prices and Macro Policy when Agents Learn and are Heterogeneous
Researcher (PI) Albert MARCET TORRENS
Host Institution (HI) FUNDACIÓ MARKETS, ORGANIZATIONS AND VOTES IN ECONOMICS
Call Details Advanced Grant (AdG), SH1, ERC-2017-ADG
Summary Based on the APMPAL (ERC) project we continue to develop the frameworks of internal rationality (IR) and optimal signal extraction (OSE). Under IR investors/consumers behave rationally given their subjective beliefs about prices, these beliefs are compatible with data. Under OSE the government has partial information, it knows how policy influences observed variables and signal extraction.
We develop further the foundations of IR and OSE with an emphasis on heterogeneous agents. We study sovereign bond crisis and heterogeneity of beliefs in asset pricing models under IR, using survey data on expectations. Under IR the assets’ stochastic discount factor depends on the agents’ decision function and beliefs; this modifies some key asset pricing results. We extend OSE to models with state variables, forward-looking constraints and heterogeneity.
Under IR agents’ prior beliefs determine the effects of a policy reform. If the government does not observe prior beliefs it has partial information, thus OSE should be used to analyse policy reforms under IR.
If IR heterogeneous workers forecast their productivity either from their own wage or their neighbours’ in a network, low current wages discourage search and human capital accumulation, leading to low productivity. This can explain low development of a country or social exclusion of a group. Worker subsidies redistribute wealth and can increase productivity if they “teach” agents to exit a low-wage state.
We build DSGE models under IR for prediction and policy analysis. We develop time-series tools for predicting macro and asset market variables, using information available to the analyst, and we introduce non-linearities and survey expectations using insights from models under IR.
We study how IR and OSE change the view on macro policy issues such as tax smoothing, debt management, Taylor rule, level of inflation, fiscal/monetary policy coordination, factor taxation or redistribution.
Summary
Based on the APMPAL (ERC) project we continue to develop the frameworks of internal rationality (IR) and optimal signal extraction (OSE). Under IR investors/consumers behave rationally given their subjective beliefs about prices, these beliefs are compatible with data. Under OSE the government has partial information, it knows how policy influences observed variables and signal extraction.
We develop further the foundations of IR and OSE with an emphasis on heterogeneous agents. We study sovereign bond crisis and heterogeneity of beliefs in asset pricing models under IR, using survey data on expectations. Under IR the assets’ stochastic discount factor depends on the agents’ decision function and beliefs; this modifies some key asset pricing results. We extend OSE to models with state variables, forward-looking constraints and heterogeneity.
Under IR agents’ prior beliefs determine the effects of a policy reform. If the government does not observe prior beliefs it has partial information, thus OSE should be used to analyse policy reforms under IR.
If IR heterogeneous workers forecast their productivity either from their own wage or their neighbours’ in a network, low current wages discourage search and human capital accumulation, leading to low productivity. This can explain low development of a country or social exclusion of a group. Worker subsidies redistribute wealth and can increase productivity if they “teach” agents to exit a low-wage state.
We build DSGE models under IR for prediction and policy analysis. We develop time-series tools for predicting macro and asset market variables, using information available to the analyst, and we introduce non-linearities and survey expectations using insights from models under IR.
We study how IR and OSE change the view on macro policy issues such as tax smoothing, debt management, Taylor rule, level of inflation, fiscal/monetary policy coordination, factor taxation or redistribution.
Max ERC Funding
1 524 144 €
Duration
Start date: 2018-09-01, End date: 2023-08-31
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 BAYNET
Project Bayesian Networks and Non-Rational Expectations
Researcher (PI) Ran SPIEGLER
Host Institution (HI) UNIVERSITY COLLEGE LONDON
Call Details Advanced Grant (AdG), SH1, ERC-2015-AdG
Summary "This project will develop a new framework for modeling economic agents having ""boundedly rational expectations"" (BRE). It is based on the concept of Bayesian networks (more generally, graphical models), borrowed from statistics and AI. In the framework's basic version, an agent is characterized by a directed acyclic graph (DAG) over the set of all relevant random variables. The DAG is the agent's ""type"" – it represents how he systematically distorts any objective probability distribution into a subjective belief. Technically, the distortion takes the form of the standard Bayesian-network factorization formula given by the agent's DAG. The agent's choice is modeled as a ""personal equilibrium"", because his subjective belief regarding the implications of his actions can vary with his own long-run behavior. The DAG representation unifies and simplifies existing models of BRE, subsuming them as special cases corresponding to distinct graphical representations. It captures hitherto-unmodeled fallacies such as reverse causation. The framework facilitates behavioral characterizations of general classes of models of BRE and expands their applicability. I will demonstrate this with applications to monetary policy, behavioral I.O., asset pricing, etc. I will extend the basic formalism to multi-agent environments, addressing issues beyond the reach of current models of BRE (e.g., formalizing the notion of ""high-order"" limited understanding of statistical regularities). Finally, I will seek a learning foundation for the graphical representation of BRE, in the sense that it will capture how the agent extrapolates his belief from a dataset (drawn from the objective distribution) containing ""missing values"", via some intuitive ""imputation method"". This part, too, borrows ideas from statistics and AI, further demonstrating the project's interdisciplinary nature."
Summary
"This project will develop a new framework for modeling economic agents having ""boundedly rational expectations"" (BRE). It is based on the concept of Bayesian networks (more generally, graphical models), borrowed from statistics and AI. In the framework's basic version, an agent is characterized by a directed acyclic graph (DAG) over the set of all relevant random variables. The DAG is the agent's ""type"" – it represents how he systematically distorts any objective probability distribution into a subjective belief. Technically, the distortion takes the form of the standard Bayesian-network factorization formula given by the agent's DAG. The agent's choice is modeled as a ""personal equilibrium"", because his subjective belief regarding the implications of his actions can vary with his own long-run behavior. The DAG representation unifies and simplifies existing models of BRE, subsuming them as special cases corresponding to distinct graphical representations. It captures hitherto-unmodeled fallacies such as reverse causation. The framework facilitates behavioral characterizations of general classes of models of BRE and expands their applicability. I will demonstrate this with applications to monetary policy, behavioral I.O., asset pricing, etc. I will extend the basic formalism to multi-agent environments, addressing issues beyond the reach of current models of BRE (e.g., formalizing the notion of ""high-order"" limited understanding of statistical regularities). Finally, I will seek a learning foundation for the graphical representation of BRE, in the sense that it will capture how the agent extrapolates his belief from a dataset (drawn from the objective distribution) containing ""missing values"", via some intuitive ""imputation method"". This part, too, borrows ideas from statistics and AI, further demonstrating the project's interdisciplinary nature."
Max ERC Funding
1 379 288 €
Duration
Start date: 2016-07-01, End date: 2021-06-30
Project acronym BEHAVFRICTIONS
Project Behavioral Implications of Information-Processing Frictions
Researcher (PI) Jakub STEINER
Host Institution (HI) NARODOHOSPODARSKY USTAV AKADEMIE VED CESKE REPUBLIKY VEREJNA VYZKUMNA INSTITUCE
Call Details Consolidator Grant (CoG), SH1, ERC-2017-COG
Summary BEHAVFRICTIONS will use novel models focussing on information-processing frictions to explain choice patterns described in behavioral economics and psychology. The proposed research will provide microfoundations that are essential for (i) identification of stable preferences, (ii) counterfactual predictions, and (iii) normative conclusions.
(i) Agents who face information-processing costs must trade the precision of choice against information costs. Their behavior thus reflects both their stable preferences and the context-dependent procedures that manage their errors stemming from imperfect information processing. In the absence of micro-founded models, the two drivers of the behavior are difficult to disentangle for outside observers. In some pillars of the proposal, the agents follow choice rules that closely resemble logit rules used in structural estimation. This will allow me to reinterpret the structural estimation fits to choice data and to make a distinction between the stable preferences and frictions.
(ii) Such a distinction is important in counterfactual policy analysis because the second-best decision procedures that manage the errors in choice are affected by the analysed policy. Incorporation of the information-processing frictions into existing empirical methods will improve our ability to predict effects of the policies.
(iii) My preliminary results suggest that when an agent is prone to committing errors, biases--such as overconfidence, confirmatory bias, or perception biases known from prospect theory--arise under second-best strategies. By providing the link between the agent's environment and the second-best distribution of the perception errors, my models will delineate environments in which these biases shield the agents from the most costly mistakes from environments in which the biases turn into maladaptations. The distinction will inform the normative debate on debiasing.
Summary
BEHAVFRICTIONS will use novel models focussing on information-processing frictions to explain choice patterns described in behavioral economics and psychology. The proposed research will provide microfoundations that are essential for (i) identification of stable preferences, (ii) counterfactual predictions, and (iii) normative conclusions.
(i) Agents who face information-processing costs must trade the precision of choice against information costs. Their behavior thus reflects both their stable preferences and the context-dependent procedures that manage their errors stemming from imperfect information processing. In the absence of micro-founded models, the two drivers of the behavior are difficult to disentangle for outside observers. In some pillars of the proposal, the agents follow choice rules that closely resemble logit rules used in structural estimation. This will allow me to reinterpret the structural estimation fits to choice data and to make a distinction between the stable preferences and frictions.
(ii) Such a distinction is important in counterfactual policy analysis because the second-best decision procedures that manage the errors in choice are affected by the analysed policy. Incorporation of the information-processing frictions into existing empirical methods will improve our ability to predict effects of the policies.
(iii) My preliminary results suggest that when an agent is prone to committing errors, biases--such as overconfidence, confirmatory bias, or perception biases known from prospect theory--arise under second-best strategies. By providing the link between the agent's environment and the second-best distribution of the perception errors, my models will delineate environments in which these biases shield the agents from the most costly mistakes from environments in which the biases turn into maladaptations. The distinction will inform the normative debate on debiasing.
Max ERC Funding
1 321 488 €
Duration
Start date: 2018-06-01, End date: 2023-05-31
Project acronym BIGlobal
Project Firm Growth and Market Power in the Global Economy
Researcher (PI) Swati DHINGRA
Host Institution (HI) LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
Call Details Starting Grant (StG), SH1, ERC-2017-STG
Summary According to the European Commission, to design effective policies for ensuring a “more dynamic, innovative and competitive” economy, it is essential to understand the decision-making process of firms as they differ a lot in terms of their capacities and policy responses (EC 2007). The objective of my future research is to provide such an analysis. BIGlobal will examine the sources of firm growth and market power to provide new insights into welfare and policy in a globalized world.
Much of analysis of the global economy is set in the paradigm of markets that allocate resources efficiently and there is little role for policy. But big firms dominate economic activity, especially across borders. How do firms grow and what is the effect of their market power on the welfare impact of globalization? This project will determine how firm decisions matter for the aggregate gains from globalization, the division of these gains across different individuals and their implications for policy design.
Over the next five years, I will incorporate richer firms behaviour in models of international trade to understand how trade and industrial policies impact the growth process, especially in less developed markets. The specific questions I will address include: how can trade and competition policy ensure consumers benefit from globalization when firms engaged in international trade have market power, how do domestic policies to encourage agribusiness firms affect the extent to which small farmers gain from trade, how do industrial policies affect firm growth through input linkages, and what is the impact of banking globalization on the growth of firms in the real sector.
Each project will combine theoretical work with rich data from developing economies to expand the frontier of knowledge on trade and industrial policy, and to provide a basis for informed policymaking.
Summary
According to the European Commission, to design effective policies for ensuring a “more dynamic, innovative and competitive” economy, it is essential to understand the decision-making process of firms as they differ a lot in terms of their capacities and policy responses (EC 2007). The objective of my future research is to provide such an analysis. BIGlobal will examine the sources of firm growth and market power to provide new insights into welfare and policy in a globalized world.
Much of analysis of the global economy is set in the paradigm of markets that allocate resources efficiently and there is little role for policy. But big firms dominate economic activity, especially across borders. How do firms grow and what is the effect of their market power on the welfare impact of globalization? This project will determine how firm decisions matter for the aggregate gains from globalization, the division of these gains across different individuals and their implications for policy design.
Over the next five years, I will incorporate richer firms behaviour in models of international trade to understand how trade and industrial policies impact the growth process, especially in less developed markets. The specific questions I will address include: how can trade and competition policy ensure consumers benefit from globalization when firms engaged in international trade have market power, how do domestic policies to encourage agribusiness firms affect the extent to which small farmers gain from trade, how do industrial policies affect firm growth through input linkages, and what is the impact of banking globalization on the growth of firms in the real sector.
Each project will combine theoretical work with rich data from developing economies to expand the frontier of knowledge on trade and industrial policy, and to provide a basis for informed policymaking.
Max ERC Funding
1 313 103 €
Duration
Start date: 2017-12-01, End date: 2022-11-30
Project acronym BPI
Project Bayesian Peer Influence: Group Beliefs, Polarisation and Segregation
Researcher (PI) Gilat Levy
Host Institution (HI) LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
Call Details Consolidator Grant (CoG), SH1, ERC-2015-CoG
Summary "The objective of this research agenda is to provide a new framework to model and analyze dynamics of group beliefs, in order to study phenomena such as group polarization, segregation and inter-group discrimination. We introduce a simple new heuristic, the Bayesian Peer Influence heuristic (BPI), which is based on rational foundations and captures how individuals are influenced by others' beliefs. We will explore the theoretical properties of this heuristic, and apply the model to analyze the implications of belief dynamics on social interactions.
Understanding the formation and evolution of beliefs in groups is an important aspect of many economic applications, such as labour market discrimination. The beliefs that different groups of people have about members of other groups should be central to any theory or empirical investigation of this topic. At the same time, economic models of segregation and discrimination typically do not focus on the evolution and dynamics of group beliefs that allow for such phenomena. There is therefore a need for new tools of analysis for incorporating the dynamics of group beliefs; this is particularly important in order to understand the full implications of policy interventions which often intend to ""educate the public''. The BPI fills this gap in the literature by offering a tractable and natural heuristic for group communication.
Our aim is to study the theoretical properties of the BPI, as well as its applications to the dynamics of group behavior. Our plan is to: (i) Analyze rational learning from others’ beliefs and characterise the BPI. (ii) Use the BPI to account for cognitive biases in information processing. (iii) Use the BPI to analyze the diffusion of beliefs in social networks. (iv) Apply the BPI to understand the relation between belief polarization, segregation in education and labour market discrimination. (v) Apply the BPI to understand the relation between belief polarization and political outcomes."
Summary
"The objective of this research agenda is to provide a new framework to model and analyze dynamics of group beliefs, in order to study phenomena such as group polarization, segregation and inter-group discrimination. We introduce a simple new heuristic, the Bayesian Peer Influence heuristic (BPI), which is based on rational foundations and captures how individuals are influenced by others' beliefs. We will explore the theoretical properties of this heuristic, and apply the model to analyze the implications of belief dynamics on social interactions.
Understanding the formation and evolution of beliefs in groups is an important aspect of many economic applications, such as labour market discrimination. The beliefs that different groups of people have about members of other groups should be central to any theory or empirical investigation of this topic. At the same time, economic models of segregation and discrimination typically do not focus on the evolution and dynamics of group beliefs that allow for such phenomena. There is therefore a need for new tools of analysis for incorporating the dynamics of group beliefs; this is particularly important in order to understand the full implications of policy interventions which often intend to ""educate the public''. The BPI fills this gap in the literature by offering a tractable and natural heuristic for group communication.
Our aim is to study the theoretical properties of the BPI, as well as its applications to the dynamics of group behavior. Our plan is to: (i) Analyze rational learning from others’ beliefs and characterise the BPI. (ii) Use the BPI to account for cognitive biases in information processing. (iii) Use the BPI to analyze the diffusion of beliefs in social networks. (iv) Apply the BPI to understand the relation between belief polarization, segregation in education and labour market discrimination. (v) Apply the BPI to understand the relation between belief polarization and political outcomes."
Max ERC Funding
1 662 942 €
Duration
Start date: 2016-08-01, End date: 2021-07-31
Project acronym CHANGING FAMILIES
Project Changing Families: Causes, Consequences and Challenges for Public Policy
Researcher (PI) Nezih Guner
Host Institution (HI) FUNDACIÓ MARKETS, ORGANIZATIONS AND VOTES IN ECONOMICS
Call Details Starting Grant (StG), SH1, ERC-2010-StG_20091209
Summary The household and family structure in every major industrialized country changed in a fundamental way during the last couple of decades. First, marriage is less important today, as divorce, cohabitation, and single-motherhood are much more common. Second, female labor force participation has increased dramatically. As a result of these changes, today s households are very far from traditional breadwinner husband and housekeeper wife paradigm. These dramatic changes generated significant public interest and a large body of literature that tries to understand causes and consequences of these changes.
This project has two main goals. First, it studies changes in household and family structure. The particular questions that it tries to answer are: 1) What are economic factors behind the rise in premarital sex and its destigmatization? What determines parents incentives to socialize their children and affect their attitudes? 2) What are the causes and consequences of the recent rise in assortative mating and diverging marriage patterns by different educational groups? 3) Why are marriage patterns among blacks so different than whites in the U.S.?
The second aim of this project is to improve our understanding of income risk, the role of social insurance policies and labor market dynamics by building models that explicitly considers two-earner households. In particular, we ask the following set of questions: 1) What is the role of social insurance policies (income maintenance programs or progressive taxation) in an economy populated by two-earner households facing uninsurable idiosyncratic risk? 2) How does marriage and labor market dynamics interact and how important this interaction for our understanding of labor supply and marriage decisions?
Summary
The household and family structure in every major industrialized country changed in a fundamental way during the last couple of decades. First, marriage is less important today, as divorce, cohabitation, and single-motherhood are much more common. Second, female labor force participation has increased dramatically. As a result of these changes, today s households are very far from traditional breadwinner husband and housekeeper wife paradigm. These dramatic changes generated significant public interest and a large body of literature that tries to understand causes and consequences of these changes.
This project has two main goals. First, it studies changes in household and family structure. The particular questions that it tries to answer are: 1) What are economic factors behind the rise in premarital sex and its destigmatization? What determines parents incentives to socialize their children and affect their attitudes? 2) What are the causes and consequences of the recent rise in assortative mating and diverging marriage patterns by different educational groups? 3) Why are marriage patterns among blacks so different than whites in the U.S.?
The second aim of this project is to improve our understanding of income risk, the role of social insurance policies and labor market dynamics by building models that explicitly considers two-earner households. In particular, we ask the following set of questions: 1) What is the role of social insurance policies (income maintenance programs or progressive taxation) in an economy populated by two-earner households facing uninsurable idiosyncratic risk? 2) How does marriage and labor market dynamics interact and how important this interaction for our understanding of labor supply and marriage decisions?
Max ERC Funding
1 037 000 €
Duration
Start date: 2010-11-01, End date: 2015-10-31
Project acronym CIVICS
Project Criminality, Victimization and Social Interactions
Researcher (PI) Katrine Vellesen LOKEN
Host Institution (HI) NORGES HANDELSHOYSKOLE
Call Details Starting Grant (StG), SH1, ERC-2017-STG
Summary A large social science literature tries to describe and understand the causes and consequences of crime, usually focusing on individuals’ criminal activity in isolation. The ambitious aim of this research project is to establish a broader perspective of crime that takes into account the social context in which it takes place. The findings will inform policymakers on how to better use funds both for crime prevention and the rehabilitation of incarcerated criminals.
Criminal activity is often a group phenomenon, yet little is known about how criminal networks form and what can be done to break them up or prevent them from forming in the first place. Overlooking victims of crime and their relationships to criminals has led to an incomplete and distorted view of crime and its individual and social costs. While a better understanding of these social interactions is crucial for designing more effective anti-crime policy, existing research in criminology, sociology and economics has struggled to identify causal effects due to data limitations and difficult statistical identification issues.
This project will push the research frontier by combining register datasets that have never been merged before, and by using several state-of-the-art statistical methods to estimate causal effects related to criminal peer groups and their victims. More specifically, we aim to do the following:
-Use recent advances in network modelling to describe the structure and density of various criminal networks and study network dynamics following the arrest/incarceration or death of a central player in a network.
-Obtain a more accurate measure of the societal costs of crime, including actual measures for lost earnings and physical and mental health problems, following victims and their offenders both before and after a crime takes place.
-Conduct a randomized controlled trial within a prison system to better understand how current rehabilitation programs affect criminal and victim networks.
Summary
A large social science literature tries to describe and understand the causes and consequences of crime, usually focusing on individuals’ criminal activity in isolation. The ambitious aim of this research project is to establish a broader perspective of crime that takes into account the social context in which it takes place. The findings will inform policymakers on how to better use funds both for crime prevention and the rehabilitation of incarcerated criminals.
Criminal activity is often a group phenomenon, yet little is known about how criminal networks form and what can be done to break them up or prevent them from forming in the first place. Overlooking victims of crime and their relationships to criminals has led to an incomplete and distorted view of crime and its individual and social costs. While a better understanding of these social interactions is crucial for designing more effective anti-crime policy, existing research in criminology, sociology and economics has struggled to identify causal effects due to data limitations and difficult statistical identification issues.
This project will push the research frontier by combining register datasets that have never been merged before, and by using several state-of-the-art statistical methods to estimate causal effects related to criminal peer groups and their victims. More specifically, we aim to do the following:
-Use recent advances in network modelling to describe the structure and density of various criminal networks and study network dynamics following the arrest/incarceration or death of a central player in a network.
-Obtain a more accurate measure of the societal costs of crime, including actual measures for lost earnings and physical and mental health problems, following victims and their offenders both before and after a crime takes place.
-Conduct a randomized controlled trial within a prison system to better understand how current rehabilitation programs affect criminal and victim networks.
Max ERC Funding
1 187 046 €
Duration
Start date: 2018-03-01, End date: 2023-02-28
Project acronym COMPLEXITY
Project Understanding the Complexity of Modern Financial Systems
Researcher (PI) Vikrant Vig
Host Institution (HI) LONDON BUSINESS SCHOOL
Call Details Starting Grant (StG), SH1, ERC-2015-STG
Summary The modern financial system has undergone immense transformation in recent years and is far more complex than ever before. In lockstep, financial regulation has also become more complex. This research proposal attempts to improve our understanding of potential drivers of this complexity and the implications of this change on the allocation of resources.
Taking a positive rather than a normative approach, I will analyse post-crisis changes at both the micro- and at the macro-levels to create a broader understanding of complexities in the current financial system. In order to do so, I will employ a set of advanced research designs, as well as a uniquely assembled micro-level dataset covering state and privately owned financial institutions in Asia, Africa, South America and Europe.
This project will focus on two interconnected areas of research: 1) Organisation of Credit, 2) Financial regulation in a complex environment. The aim of this project is to create a sustainable framework for the study of post-crisis financial systems, and to shape the current debate on the future of post-crisis financial structures and the development of policy in this area. Not only will this research have a considerable impact on our understanding of financial systems, it will also impact fields beyond finance, like Organisational Economics, Industrial Organisation and Development Economics.
Summary
The modern financial system has undergone immense transformation in recent years and is far more complex than ever before. In lockstep, financial regulation has also become more complex. This research proposal attempts to improve our understanding of potential drivers of this complexity and the implications of this change on the allocation of resources.
Taking a positive rather than a normative approach, I will analyse post-crisis changes at both the micro- and at the macro-levels to create a broader understanding of complexities in the current financial system. In order to do so, I will employ a set of advanced research designs, as well as a uniquely assembled micro-level dataset covering state and privately owned financial institutions in Asia, Africa, South America and Europe.
This project will focus on two interconnected areas of research: 1) Organisation of Credit, 2) Financial regulation in a complex environment. The aim of this project is to create a sustainable framework for the study of post-crisis financial systems, and to shape the current debate on the future of post-crisis financial structures and the development of policy in this area. Not only will this research have a considerable impact on our understanding of financial systems, it will also impact fields beyond finance, like Organisational Economics, Industrial Organisation and Development Economics.
Max ERC Funding
1 498 947 €
Duration
Start date: 2016-04-01, End date: 2021-03-31
Project acronym CONSERVATION
Project The Economics and Politics of Conservation
Researcher (PI) Bård Gjul Harstad
Host Institution (HI) UNIVERSITETET I OSLO
Call Details Consolidator Grant (CoG), SH1, ERC-2015-CoG
Summary The UN’s approach to climate policy is to focus on national emission caps for greenhouse gases. Most of the economic theory on environmental agreements is also studying such a demand-side approach, even though it is well known that such an approach has several flaws, including carbon leakage and the incentive to free ride. Recent theory has suggested that a better approach may be to focus on the supply-side of the equation, rather than the demand-side. While this recent theory is promising, it is only indicative and has several shortcomings that must be analysed. The goal of this project is to investigate in depth how to best use conservation as an environmental policy tool. The project aims at integrating the theory of emissions and pollution with a model of extraction and thus the supply of exhaustible resources in a coherent and dynamic game-theoretic framework. I will apply this framework to analyse negotiations, agreements, and contracts on extraction levels, and how such policies can interact, complement or substitute for agreements focusing on consumption/emissions. It will also be important to develop and apply the tools of political economics to investigate which (second-best) agreement one may expect to be feasible as equilibria of the game. For highly asymmetric settings, where the possessors of the resource are few (such as for tropical forests), side transfers are necessary and contract theory will be the natural analytical tool when
searching for the best agreement. However, also standard contract theory needs to be developed further once one recognizes that the “agent” in the principal-agent relationship is an organization or a government, rather than an individual.
Summary
The UN’s approach to climate policy is to focus on national emission caps for greenhouse gases. Most of the economic theory on environmental agreements is also studying such a demand-side approach, even though it is well known that such an approach has several flaws, including carbon leakage and the incentive to free ride. Recent theory has suggested that a better approach may be to focus on the supply-side of the equation, rather than the demand-side. While this recent theory is promising, it is only indicative and has several shortcomings that must be analysed. The goal of this project is to investigate in depth how to best use conservation as an environmental policy tool. The project aims at integrating the theory of emissions and pollution with a model of extraction and thus the supply of exhaustible resources in a coherent and dynamic game-theoretic framework. I will apply this framework to analyse negotiations, agreements, and contracts on extraction levels, and how such policies can interact, complement or substitute for agreements focusing on consumption/emissions. It will also be important to develop and apply the tools of political economics to investigate which (second-best) agreement one may expect to be feasible as equilibria of the game. For highly asymmetric settings, where the possessors of the resource are few (such as for tropical forests), side transfers are necessary and contract theory will be the natural analytical tool when
searching for the best agreement. However, also standard contract theory needs to be developed further once one recognizes that the “agent” in the principal-agent relationship is an organization or a government, rather than an individual.
Max ERC Funding
1 571 554 €
Duration
Start date: 2016-08-01, End date: 2021-07-31
Project acronym DEPP
Project Designing Effective Public Policies
Researcher (PI) Henrik Jacobsen Kleven
Host Institution (HI) LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
Call Details Consolidator Grant (CoG), SH1, ERC-2015-CoG
Summary This proposal outlines a number of projects in public economics, with links to other fields such as macro, real estate, labor, and gender economics. The projects evolve around several large administrative datasets from the UK and Denmark, and they advance approaches and methodologies that have recently been developed in public economics into new areas. There is a strong public policy focus running through the proposal, including tax policy, transfer policy, family policy, and indirectly monetary policy. The objective is to achieve a comprehensive understanding of how government interventions affect two key markets: the housing market and the labor market.
The project is divided into two themes. The first theme focuses on the housing market and is divided into three subprojects. The first project investigates the effects of mortgage interest rates on leverage and house prices, and it develops a new quasi-experimental method for estimating the elasticity of intertemporal substitution in consumption, a crucial parameter for many public policies. The second and third projects investigate housing market responses to different tax policies, focusing on how such responses are magnified by liquidity constraints and leverage.
The second theme focuses on the labor market and is divided into two subprojects. The first project studies secular changes in gender inequality and the underlying sources of those changes, focusing mainly on the effects of child rearing on gender inequality. The project explores the underlying mechanisms driving child-related inequality, including gender identity norms and family policies. The second project proposes a new way of estimating macro labor supply elasticities that integrates taxes and public expenditures, and it develops a theoretical framework to draw policy implications from those estimations.
Summary
This proposal outlines a number of projects in public economics, with links to other fields such as macro, real estate, labor, and gender economics. The projects evolve around several large administrative datasets from the UK and Denmark, and they advance approaches and methodologies that have recently been developed in public economics into new areas. There is a strong public policy focus running through the proposal, including tax policy, transfer policy, family policy, and indirectly monetary policy. The objective is to achieve a comprehensive understanding of how government interventions affect two key markets: the housing market and the labor market.
The project is divided into two themes. The first theme focuses on the housing market and is divided into three subprojects. The first project investigates the effects of mortgage interest rates on leverage and house prices, and it develops a new quasi-experimental method for estimating the elasticity of intertemporal substitution in consumption, a crucial parameter for many public policies. The second and third projects investigate housing market responses to different tax policies, focusing on how such responses are magnified by liquidity constraints and leverage.
The second theme focuses on the labor market and is divided into two subprojects. The first project studies secular changes in gender inequality and the underlying sources of those changes, focusing mainly on the effects of child rearing on gender inequality. The project explores the underlying mechanisms driving child-related inequality, including gender identity norms and family policies. The second project proposes a new way of estimating macro labor supply elasticities that integrates taxes and public expenditures, and it develops a theoretical framework to draw policy implications from those estimations.
Max ERC Funding
1 294 699 €
Duration
Start date: 2016-06-01, End date: 2021-05-31
Project acronym DEVHEALTH
Project UNDERSTANDING HEALTH ACROSS THE LIFECOURSE:
AN INTEGRATED DEVELOPMENTAL APPROACH
Researcher (PI) James Joseph Heckman
Host Institution (HI) UNIVERSITY COLLEGE DUBLIN, NATIONAL UNIVERSITY OF IRELAND, DUBLIN
Call Details Advanced Grant (AdG), SH1, ERC-2010-AdG_20100407
Summary This proposal seeks support for a research group led by James Heckman of the Geary Institute at University College Dublin to produce an integrated developmental approach to health that studies the origins and the evolution of health inequalities over the lifecourse and across generations, and the role played by cognition, personality, genes, and environments. Major experimental and nonexperimental international datasets will be analyzed. A practical guide to implementing related policy will be produced. We will build a science of human development that draws on, extends, and unites research on the biology and epidemiology of health disparities with medical economics and the economics of skill formation. The goal is to develop an integrated framework to jointly model the economic, social and biological mechanisms that produce the evolution and the intergenerational transmission of health and of the capabilities that foster health. The following tasks will be undertaken: (1) We will quantify the importance of early-life conditions in explaining the existence of health disparities across the lifecourse. (2) We will understand how health inequalities are transmitted across generations. (3) We will assess the health benefits from early childhood interventions. (4) We will examine the role of genes and environments in the aetiology and evolution of disease. (5) We will analyze how health inequalities emerge and evolve across the lifecourse. (6) We will give biological foundations to both our models and the health measures we will use. The proposed research will investigate causal channels for promoting health. It will compare the relative effectiveness of interventions at various stages of the life cycle and the benefits and costs of later remediation if early adversity is not adequately eliminated. It will guide the design of current and prospective experimental and longitudinal studies and policy formulation, and will train young scholars in frontier methods of research
Summary
This proposal seeks support for a research group led by James Heckman of the Geary Institute at University College Dublin to produce an integrated developmental approach to health that studies the origins and the evolution of health inequalities over the lifecourse and across generations, and the role played by cognition, personality, genes, and environments. Major experimental and nonexperimental international datasets will be analyzed. A practical guide to implementing related policy will be produced. We will build a science of human development that draws on, extends, and unites research on the biology and epidemiology of health disparities with medical economics and the economics of skill formation. The goal is to develop an integrated framework to jointly model the economic, social and biological mechanisms that produce the evolution and the intergenerational transmission of health and of the capabilities that foster health. The following tasks will be undertaken: (1) We will quantify the importance of early-life conditions in explaining the existence of health disparities across the lifecourse. (2) We will understand how health inequalities are transmitted across generations. (3) We will assess the health benefits from early childhood interventions. (4) We will examine the role of genes and environments in the aetiology and evolution of disease. (5) We will analyze how health inequalities emerge and evolve across the lifecourse. (6) We will give biological foundations to both our models and the health measures we will use. The proposed research will investigate causal channels for promoting health. It will compare the relative effectiveness of interventions at various stages of the life cycle and the benefits and costs of later remediation if early adversity is not adequately eliminated. It will guide the design of current and prospective experimental and longitudinal studies and policy formulation, and will train young scholars in frontier methods of research
Max ERC Funding
2 505 222 €
Duration
Start date: 2011-05-01, End date: 2016-04-30
Project acronym DEVTAXNET
Project Tax Evasion in Developing Countries. The Role of Firm Networks
Researcher (PI) Dina Deborah POMERANZ
Host Institution (HI) UNIVERSITAT ZURICH
Call Details Starting Grant (StG), SH1, ERC-2017-STG
Summary Tax evasion leads to billions of Euros of losses in government revenue around the world. This does not only affect public budgets, but can also create large distortions between activities that are fully taxed and others that escape taxation through evasion. These issues are particularly severe in developing countries, where evasion is especially high and governments struggle to raise funds for basic services and infrastructure, while at the same time trying to grow independent of international aid.
It is widely suspected that some of the most common and difficult to detect forms of evasion involve interactions across firm networks. However, due to severe data limitations, the existing literature has mostly considered taxpayers as isolated units. Empirical evidence on tax compliance in firm networks is extremely sparse.
This proposal describes 3 Sub-Projects to fill this gap. They are made possible thanks to access I have obtained -through five years of prior research and policy engagement– to unique datasets from Chile and Ecuador on both the networks of supply chains and of joint ownership structures.
The first Sub-Project focuses on international firm networks. It aims to analyze profit shifting of multinational firms to low tax jurisdictions, exploiting a natural experiment in Chile that strongly increased monitoring of international tax norms.
The second Sub-Project investigates the analogous issue at the intranational level: profit shifting and tax collusion in networks of firms within the same country. Despite much anecdotal evidence, this behavior has received little rigorous empirical scrutiny.
The final Sub-Project is situated at the nexus between international and national firms. It seeks to estimate a novel form of spillovers of FDI: the impact on tax compliance of local trading partners of foreign-owned firms.
DEVTAXNET will provide new insights about the role of firm networks for tax evasion that are valuable to academics and policy makers alike.
Summary
Tax evasion leads to billions of Euros of losses in government revenue around the world. This does not only affect public budgets, but can also create large distortions between activities that are fully taxed and others that escape taxation through evasion. These issues are particularly severe in developing countries, where evasion is especially high and governments struggle to raise funds for basic services and infrastructure, while at the same time trying to grow independent of international aid.
It is widely suspected that some of the most common and difficult to detect forms of evasion involve interactions across firm networks. However, due to severe data limitations, the existing literature has mostly considered taxpayers as isolated units. Empirical evidence on tax compliance in firm networks is extremely sparse.
This proposal describes 3 Sub-Projects to fill this gap. They are made possible thanks to access I have obtained -through five years of prior research and policy engagement– to unique datasets from Chile and Ecuador on both the networks of supply chains and of joint ownership structures.
The first Sub-Project focuses on international firm networks. It aims to analyze profit shifting of multinational firms to low tax jurisdictions, exploiting a natural experiment in Chile that strongly increased monitoring of international tax norms.
The second Sub-Project investigates the analogous issue at the intranational level: profit shifting and tax collusion in networks of firms within the same country. Despite much anecdotal evidence, this behavior has received little rigorous empirical scrutiny.
The final Sub-Project is situated at the nexus between international and national firms. It seeks to estimate a novel form of spillovers of FDI: the impact on tax compliance of local trading partners of foreign-owned firms.
DEVTAXNET will provide new insights about the role of firm networks for tax evasion that are valuable to academics and policy makers alike.
Max ERC Funding
1 288 125 €
Duration
Start date: 2018-01-01, End date: 2022-12-31
Project acronym DYNAMICSS
Project Labour market dynamics and optimal policies
Researcher (PI) Camille Gregoire Alexis Landais
Host Institution (HI) LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
Call Details Starting Grant (StG), SH1, ERC-2015-STG
Summary From pension reforms to UI extensions, the optimal tax and program design literature is often ill-equipped to provide clear guidance in policy debates on the reform of social insurance and tax-and-benefit systems. The reason is that this literature is mostly focused on static settings, while these programs are inherently dynamic: they specify a schedule of tax and benefits that is time or state dependent and they affect individuals’ decisions throughout their lifetime.
DYNAMICSS will offer a simple and general approach to the analysis of optimal dynamic policies that connects to the data. The key idea of DYNAMICSS is to extend the sufficient statistics (SS) approach to dynamic settings and characterize the full time profile, rather than the average generosity, of social insurance and transfer policies. By expressing optimal policy as a function of a limited set of statistics, the SS approach has the advantage of making clear the trade-offs implied in optimal tax or benefit formulae and of tightly integrating the theory and the empirics of optimal policy analysis, to offer robust policy guidance.
DYNAMICSS will use unique administrative data and cutting-edge econometric techniques to exploit compelling variations in policy profiles and offer significant contributions to the empirical analysis of dynamic behavioural responses to policies. A central contribution will be to create a unique measure of consumption expenditures based on leveraging complete administrative information on income, transfers and wealth to offer ground-breaking evidence of the effect of social insurance on consumption dynamics.
Part I will use and extend the SS framework to analyse the optimal time profile of UI benefits. Part II will develop this approach for analysing the optimal design of retirement pension systems. Part III will address optimal family policies with a focus on understanding the different dynamics of men and women in the labour market, and exploring the role of cultural norm
Summary
From pension reforms to UI extensions, the optimal tax and program design literature is often ill-equipped to provide clear guidance in policy debates on the reform of social insurance and tax-and-benefit systems. The reason is that this literature is mostly focused on static settings, while these programs are inherently dynamic: they specify a schedule of tax and benefits that is time or state dependent and they affect individuals’ decisions throughout their lifetime.
DYNAMICSS will offer a simple and general approach to the analysis of optimal dynamic policies that connects to the data. The key idea of DYNAMICSS is to extend the sufficient statistics (SS) approach to dynamic settings and characterize the full time profile, rather than the average generosity, of social insurance and transfer policies. By expressing optimal policy as a function of a limited set of statistics, the SS approach has the advantage of making clear the trade-offs implied in optimal tax or benefit formulae and of tightly integrating the theory and the empirics of optimal policy analysis, to offer robust policy guidance.
DYNAMICSS will use unique administrative data and cutting-edge econometric techniques to exploit compelling variations in policy profiles and offer significant contributions to the empirical analysis of dynamic behavioural responses to policies. A central contribution will be to create a unique measure of consumption expenditures based on leveraging complete administrative information on income, transfers and wealth to offer ground-breaking evidence of the effect of social insurance on consumption dynamics.
Part I will use and extend the SS framework to analyse the optimal time profile of UI benefits. Part II will develop this approach for analysing the optimal design of retirement pension systems. Part III will address optimal family policies with a focus on understanding the different dynamics of men and women in the labour market, and exploring the role of cultural norm
Max ERC Funding
1 049 855 €
Duration
Start date: 2016-03-01, End date: 2021-02-28
Project acronym DYNURBAN
Project Urban dynamics: learning from integrated models and big data
Researcher (PI) Diego PUGA
Host Institution (HI) FUNDACION CENTRO DE ESTUDIOS MONETARIOS Y FINANCIEROS
Call Details Advanced Grant (AdG), SH1, ERC-2015-AdG
Summary City growth is driven by a combination of systematic determinants and shocks. Random growth models predict realistic city size distributions but ignore, for instance, the strong empirical association between human capital and city growth. Models with systematic determinants predict degenerate size distributions. We will develop an integrated model that combines systematic and random determinants to explain the link between human capital, entrepreneurship and growth, while generating relevant city size distributions. We will calibrate the model to quantify the contribution of cities to aggregate growth.
Urban growth also has a poorly understood spatial component. Combining gridded data of land use, population, businesses and roads for 3 decennial periods we will track the evolution of land use in the US with an unprecedented level of spatial detail. We will pay particular attention to the magnitude and causes of “slash-and-burn” development: instances when built-up land stops meeting needs in terms of use and intensity and, instead of being redeveloped, it is abandoned while previously open space is built up.
Job-to-job flows across cities matter for efficiency and during the recent crisis they have plummeted. We will study them with individual social security data. Even if there have only been small changes in mismatch between unemployed workers and vacancies during the crisis, if workers shy away from moving to take a job in another city, misallocation can increase substantially.
We will also study commuting flows for Spain and the UK based on anonymized cell phone location records. We will identify urban areas by iteratively aggregating municipalities if more than a given share of transit flows end in the rest of the urban area. We will also measure the extent to which people cross paths with others opening the possibility of personal interactions, and assess the extent to which this generates productivity-enhancing agglomeration economies.
Summary
City growth is driven by a combination of systematic determinants and shocks. Random growth models predict realistic city size distributions but ignore, for instance, the strong empirical association between human capital and city growth. Models with systematic determinants predict degenerate size distributions. We will develop an integrated model that combines systematic and random determinants to explain the link between human capital, entrepreneurship and growth, while generating relevant city size distributions. We will calibrate the model to quantify the contribution of cities to aggregate growth.
Urban growth also has a poorly understood spatial component. Combining gridded data of land use, population, businesses and roads for 3 decennial periods we will track the evolution of land use in the US with an unprecedented level of spatial detail. We will pay particular attention to the magnitude and causes of “slash-and-burn” development: instances when built-up land stops meeting needs in terms of use and intensity and, instead of being redeveloped, it is abandoned while previously open space is built up.
Job-to-job flows across cities matter for efficiency and during the recent crisis they have plummeted. We will study them with individual social security data. Even if there have only been small changes in mismatch between unemployed workers and vacancies during the crisis, if workers shy away from moving to take a job in another city, misallocation can increase substantially.
We will also study commuting flows for Spain and the UK based on anonymized cell phone location records. We will identify urban areas by iteratively aggregating municipalities if more than a given share of transit flows end in the rest of the urban area. We will also measure the extent to which people cross paths with others opening the possibility of personal interactions, and assess the extent to which this generates productivity-enhancing agglomeration economies.
Max ERC Funding
1 292 586 €
Duration
Start date: 2016-08-01, End date: 2021-07-31
Project acronym ECOSOCPOL
Project Social and Political Economics: Theory and Evidence
Researcher (PI) Torsten Persson
Host Institution (HI) STOCKHOLMS UNIVERSITET
Call Details Advanced Grant (AdG), SH1, ERC-2015-AdG
Summary In this project, I will study how individual and social motives interact to drive individual decisions, a question that has fallen between the cracks of different social-science approaches. I will use a common theoretical framework to approach an important, but badly understood, general question: do social motives reinforce or weaken the effect of changes in individual motives? By modifying this common framework to different applications, I will consider its predictions empirically in different large data sets with individual-level information. The planned applications include four subprojects in the social, political, and economic spheres: (i) decisions in China on the ethnicity of children in interethnic marriages and matching into such marriages, (ii) decisions on tax evasion in the U.K. and Sweden, (iii) decisions to give political campaign contributions in the U.S., and (iv) decisions about fertility in Sweden. I may also spell out the common lessons from the results on the interaction between individual and social motives in monograph format intended for a broader audience.
Summary
In this project, I will study how individual and social motives interact to drive individual decisions, a question that has fallen between the cracks of different social-science approaches. I will use a common theoretical framework to approach an important, but badly understood, general question: do social motives reinforce or weaken the effect of changes in individual motives? By modifying this common framework to different applications, I will consider its predictions empirically in different large data sets with individual-level information. The planned applications include four subprojects in the social, political, and economic spheres: (i) decisions in China on the ethnicity of children in interethnic marriages and matching into such marriages, (ii) decisions on tax evasion in the U.K. and Sweden, (iii) decisions to give political campaign contributions in the U.S., and (iv) decisions about fertility in Sweden. I may also spell out the common lessons from the results on the interaction between individual and social motives in monograph format intended for a broader audience.
Max ERC Funding
1 104 812 €
Duration
Start date: 2016-11-01, End date: 2021-10-31
Project acronym EDWEL
Project Empirical Demand and Welfare Analysis
Researcher (PI) Debopam Bhattacharya
Host Institution (HI) THE CHANCELLOR MASTERS AND SCHOLARS OF THE UNIVERSITY OF CAMBRIDGE
Call Details Consolidator Grant (CoG), SH1, ERC-2015-CoG
Summary Measurement of consumer welfare is central to economic evaluations. It underlies calculation of price-indices, formulation of tax policies, and environmental and industrial regulation. But existing measurement methods rely on restrictive assumptions about consumer preferences, leading to potentially incorrect conclusions regarding policy-impacts. The proposed project aims to make fundamental contributions to empirical welfare analysis by developing nonparametric approaches, which would avoid such assumptions and thus produce reliable welfare estimates from micro-data. The emphasis will be on welfare-evaluation of price/quality changes in the under-researched but common real-life setting of discrete-choice, e.g., the impact of tuition subsidies for college entrants, fare-hikes for passengers and access to new channels for TV viewers. The project will cover (i) discrete choice with multinomial/ordered/non-exclusive alternatives, (ii) random coefficient choice-models, (iii) settings where one’s choice affects one’s peers’ utilities, and (iv) dynamic choice under uncertainty such as durable-purchase. Welfare analyses in situations (ii)-(iv) are previously unexplored problems and represent ambitious undertakings. Situation (i) has been analyzed only under strong, unsubstantiated assumptions, like quasilinear preferences and extreme valued errors. The key insight driving the project is that welfare calculations require less information than what is needed to identify underlying preference parameters. The project will also develop methods to overcome common data problems like interval-reporting and endogeneity of income. The theoretical results will be complemented by software codes in Stata/R which can be readily used by practitioners. Given the ubiquity of welfare analysis in economic applications and its use in non-academic settings such as merger-analysis, damage calculations, etc., the project is likely to have a substantial impact both in and beyond the academia.
Summary
Measurement of consumer welfare is central to economic evaluations. It underlies calculation of price-indices, formulation of tax policies, and environmental and industrial regulation. But existing measurement methods rely on restrictive assumptions about consumer preferences, leading to potentially incorrect conclusions regarding policy-impacts. The proposed project aims to make fundamental contributions to empirical welfare analysis by developing nonparametric approaches, which would avoid such assumptions and thus produce reliable welfare estimates from micro-data. The emphasis will be on welfare-evaluation of price/quality changes in the under-researched but common real-life setting of discrete-choice, e.g., the impact of tuition subsidies for college entrants, fare-hikes for passengers and access to new channels for TV viewers. The project will cover (i) discrete choice with multinomial/ordered/non-exclusive alternatives, (ii) random coefficient choice-models, (iii) settings where one’s choice affects one’s peers’ utilities, and (iv) dynamic choice under uncertainty such as durable-purchase. Welfare analyses in situations (ii)-(iv) are previously unexplored problems and represent ambitious undertakings. Situation (i) has been analyzed only under strong, unsubstantiated assumptions, like quasilinear preferences and extreme valued errors. The key insight driving the project is that welfare calculations require less information than what is needed to identify underlying preference parameters. The project will also develop methods to overcome common data problems like interval-reporting and endogeneity of income. The theoretical results will be complemented by software codes in Stata/R which can be readily used by practitioners. Given the ubiquity of welfare analysis in economic applications and its use in non-academic settings such as merger-analysis, damage calculations, etc., the project is likely to have a substantial impact both in and beyond the academia.
Max ERC Funding
1 426 418 €
Duration
Start date: 2016-10-01, End date: 2021-09-30
Project acronym ELECTRIC CHALLENGES
Project Current Tools and Policy Challenges in Electricity Markets
Researcher (PI) Natalia FABRA PORTELA
Host Institution (HI) UNIVERSIDAD CARLOS III DE MADRID
Call Details Consolidator Grant (CoG), SH1, ERC-2017-COG
Summary The fight against climate change is among Europe’s top policy priorities. In this research agenda, I propose to push out the frontier in the area of Energy and Environmental Economics by carrying out policy-relevant research on a pressing issue: how to design optimal regulatory and market-based solutions to achieve a least cost transition towards a low-carbon economy.
The European experience provides unique natural experiments with which to test some of the most contentious issues that arise in the context of electricity markets, including the potential to change households’ demand patterns through dynamic pricing, the scope of renewables to mitigate market power and depress wholesale market prices, and the design and performance of the auctions for renewable support. While there is a body of policy work on these issues, it generally does not meet the required research standards.
In this research, I will rely on cutting-edge theoretical, empirical, and simulation tools to disentangle these topics, while providing key economic insights that are relevant beyond electricity markets. On the theory front, I propose to develop new models that incorporate the intermittency of renewables to characterize optimal bidding as a key, broadly omitted ingredient in previous analysis. In turn, these models will provide a rigorous structure for the empirical and simulation analysis, which will rely both on traditional econometrics for casual inference as well as on state-of-the-art machine learning methods to construct counterfactual scenarios for policy analysis.
While my focus is on energy and environmental issues, my research will also provide methodological contributions for other areas - particularly those related to policy design and policy evaluation. The conclusions of this research should prove valuable for academics, as well as to policy makers to assess the impact of environmental and energy policies and redefine them where necessary.
Summary
The fight against climate change is among Europe’s top policy priorities. In this research agenda, I propose to push out the frontier in the area of Energy and Environmental Economics by carrying out policy-relevant research on a pressing issue: how to design optimal regulatory and market-based solutions to achieve a least cost transition towards a low-carbon economy.
The European experience provides unique natural experiments with which to test some of the most contentious issues that arise in the context of electricity markets, including the potential to change households’ demand patterns through dynamic pricing, the scope of renewables to mitigate market power and depress wholesale market prices, and the design and performance of the auctions for renewable support. While there is a body of policy work on these issues, it generally does not meet the required research standards.
In this research, I will rely on cutting-edge theoretical, empirical, and simulation tools to disentangle these topics, while providing key economic insights that are relevant beyond electricity markets. On the theory front, I propose to develop new models that incorporate the intermittency of renewables to characterize optimal bidding as a key, broadly omitted ingredient in previous analysis. In turn, these models will provide a rigorous structure for the empirical and simulation analysis, which will rely both on traditional econometrics for casual inference as well as on state-of-the-art machine learning methods to construct counterfactual scenarios for policy analysis.
While my focus is on energy and environmental issues, my research will also provide methodological contributions for other areas - particularly those related to policy design and policy evaluation. The conclusions of this research should prove valuable for academics, as well as to policy makers to assess the impact of environmental and energy policies and redefine them where necessary.
Max ERC Funding
1 422 375 €
Duration
Start date: 2018-09-01, End date: 2023-08-31
Project acronym EMBED
Project Embedded Markets and the Economy
Researcher (PI) Matthew ELLIOTT
Host Institution (HI) THE CHANCELLOR MASTERS AND SCHOLARS OF THE UNIVERSITY OF CAMBRIDGE
Call Details Starting Grant (StG), SH1, ERC-2017-STG
Summary EMBED takes a microeconomic approach to investigating the macroeconomic implications of market transactions being embedded in social relationships. Sociologists and economists have documented the importance of relationships for mediating trade in a wide range of market settings. EMBED seeks to investigate the implications of this for the economy as a whole.
Ethnographic work suggests that relationships foster common understandings which limit opportunistic behaviour. Subproject 1 will develop a first relational contacting theory of networked markets to capture this, and test these predictions using data from the Bundesbank. Formally modelling dynamic business-relationships, these relationships can be viewed as social capital. We will investigate whether this social capital is destroyed by economic shocks, and if so how long it takes to rebuild.
Subproject 2 will run a field experiment. We will intervene in a networked market to create new relationships in a variety of ways. The varying success of these approaches will help us better understand the role of relationships in markets. Moreover, as a result we’ll get exogenous variation in the market structure that will help identity the affects relationships have on market outcomes.
Subproject 3 will explore frictions in the clearing of networked markets. As the data requirements to empirically test between different theories are extremely demanding, laboratory experiments will be run. Breaking convention, these experiments will be protocol-free, although interactions will be closely monitored. This will create a more level playing field for testing different theories while also creating scope for the market to develop efficiency enhancing norms.
Subproject 4 will examine firm level multi-sourcing and production technology decisions, and how these feed into the creation of supply chains. The fragility of these supply chains will be investigated and equilibrium supply chains compared across countries.
Summary
EMBED takes a microeconomic approach to investigating the macroeconomic implications of market transactions being embedded in social relationships. Sociologists and economists have documented the importance of relationships for mediating trade in a wide range of market settings. EMBED seeks to investigate the implications of this for the economy as a whole.
Ethnographic work suggests that relationships foster common understandings which limit opportunistic behaviour. Subproject 1 will develop a first relational contacting theory of networked markets to capture this, and test these predictions using data from the Bundesbank. Formally modelling dynamic business-relationships, these relationships can be viewed as social capital. We will investigate whether this social capital is destroyed by economic shocks, and if so how long it takes to rebuild.
Subproject 2 will run a field experiment. We will intervene in a networked market to create new relationships in a variety of ways. The varying success of these approaches will help us better understand the role of relationships in markets. Moreover, as a result we’ll get exogenous variation in the market structure that will help identity the affects relationships have on market outcomes.
Subproject 3 will explore frictions in the clearing of networked markets. As the data requirements to empirically test between different theories are extremely demanding, laboratory experiments will be run. Breaking convention, these experiments will be protocol-free, although interactions will be closely monitored. This will create a more level playing field for testing different theories while also creating scope for the market to develop efficiency enhancing norms.
Subproject 4 will examine firm level multi-sourcing and production technology decisions, and how these feed into the creation of supply chains. The fragility of these supply chains will be investigated and equilibrium supply chains compared across countries.
Max ERC Funding
1 449 106 €
Duration
Start date: 2018-06-01, End date: 2023-05-31
