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Warwick Economics PhD Conference 2015

Monday 23rd February

Location: S2.77, 2nd floor, Social Sciences Building
  • 08:3008:55

    Registration - S2.77

  • 08:5509:00

    Welcome Address - S2.79

  • 09:0010.20

    Session 1: Behavioural Economics – S2.79

    • "Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets"

      Konstantin Lucks (Ludwig Maximilian University Munich)

      Discussant: Kai Barron (UCL)

      One explanation for overpricing on asset markets is a lack of self-control abilities among traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses, and to refrain from acting on them. We implement the first experiment that is able to address a potential causal relationship between self-control abilities and systematic overpricing on financial markets by introducing an exogenous variation of self-control abilities. Moreover, our experimental treatments seek to detect some of the channels through which individual self-control problems could transmit into irrational exuberance on the aggregate level. We observe a strong and causal effect of self-control abilities on market overpricing. Low self-control traders are associated with significantly larger levels of overpricing, and they earn significantly less on exuberant markets as a consequence of holding assets for too long.

    • "Team Reasoning and a Rank-Based Function of Teams Interests"

      Mantas Radzvilas (LSE)

      Discussant: Edward Webb (University of Copenhagen)

      Orthodox game theory is sometimes criticized for its failure to single out intuitively compelling solutions in certain types of games. The theory of team reasoning provides a resolution in some such cases by suggesting a shift in decision‐makers' mode of reasoning from individualistic to reasoning as members of a team. The existing literature in this field discusses a number of properties for a formalized representation of team's interests to satisfy: Pareto efficiency, successful coordination of individuals' actions and the notion of mutual advantage. For an explicit function of team's goals a reference is sometimes made to the maximization of the average of individuals' personal payoffs, which meets the Pareto efficiency and (in many cases) coordination criteria, but at times fails with respect to the notion of mutual advantage. It also relies on making interpersonal comparisons of payoffs which goes beyond the standard assumptions of the expected utility theory. We propose an alternative, rank‐based function of team's interests that does not rely on interpersonal comparisons of payoffs, incorporates the notion of mutual advantage and satisfies the weak Pareto efficiency and (in many cases) coordination criteria. We discuss its predictions using a number of examples and suggest a few possibilities for further research in this field.

  • 10:2010:40

    Coffee Break - S2.77

  • 10:4012.40

    Session 2: Theory – S2.79

    • "Who can you trust? Reputation and cooperation in networks"

      Maia King (Queen Mary University of London)

      Discussant: Charoula Tzanetaki (University of Warwick)

      Community enforcement is an important device for sustaining efficiency in some repeated games of cooperation. We investigate community enforcement when information about players' reputations spreads through a fixed information network to their future partners. The players are randomly matched in the first and last periods of the game and can choose to play a game of prisoners' dilemma against each other. In the intervening period, information travels through the links of the network by `word-of-mouth’. We use a new measure for the probability of information transmission by word-of-mouth between any pair of nodes in a network to find the likelihood that a player's potential deviation is punished. In turn, the probability of punishment determines the extent of possible cooperation between matched players. For a given information network and matching regime, the model allows us to generate an endogenous network of possible cooperating relationships, and to find the payoffs for each player depending on the structure of the network. We examine some characteristics of network structures and network positions that are most - and least - amenable to community enforcement. Payoffs are linked to whether players' network positions mean they are trusting and/or trustworthy.

    • "Two-Sided Matching with Endogenous Preferences"

      Yair Antler (Tel-Aviv University)

      Discussant: Stelios Kotronis (University of Southampton)

      We modify the stable matching problem by allowing agents' preferences to depend on the endogenous actions of agents on the other side of the market. Specifically, when an agent's action expresses that he wishes to be matched with an agent on the other side of the market, this will affect the latter agent's preferences. Conventional matching theory results break down in the modified setup. In particular, every game that is induced by a stable matching mechanism (e.g. the Gale-Shapley mechanism) may have equilibria that result in matchings which are not stable w.r.t the agents' endogenous preferences. However, when the Gale-Shapley mechanism is modified such that women are only allowed to state their first choice, every equilibrium of its induced game results in a pairwise stable matching w.r.t the endogenous preferences as long as they satisfy a natural reciprocity property. Moreover, in the conventional setup, in which agents' preferences are exogenous, the modified mechanism preserves the classic properties of the Gale-Shapley mechanism.

    • "Performance Analysis of Axiomatic Models: A predictive approach to testing for rationality"

      Maria Jose Boccardi (Brown University)

      Discussant: Maria Kozlovskaya (University of Leicester)

      The utility maximization assumption, a linchpin of many economic models, is often found to be violated in empirical studies. Revealed preference theory provides a nonparametric test for rationality, but requires only one violation to reject the null hypothesis, leading to spurious rejection in the presence of agent's error. Allowing for individual specific behavior, I construct the predictive distribution of choices if these were to be generated by the model with error. From this distribution, I propose a set of novel measures for the suitability of the model based on its ability to deliver accurate predictions, providing a meaningful tradeoff between fit and falsifiability conditional on observed behavior, a long standing problem in the literature. These measures reflect the amount of information that can be extracted from data to produce informative forecasts by imposing the model. The empirical performance of these measures is studied in its application to the experimental data from Choi et al (2007) and in Monte Carlo exercises. The results confirmed the theoretical predictions, and the measures are shown to outperform other measures proposed in the literature. Finally, I show that the proposed framework can be extended to a general class of behavioral models, allowing for model comparison.

  • 12:4014:00

    Lunch - Bar Fusion

  • 14:0016.00

    Session 3: Macroeconomics – S2.79

    • "The Effect of Firm Entry on Capacity Utilization and Macroeconomic Productivity"

      Anthony Savagar (Cardiff University)

      Discussant: Frederico Lima (Cambridge University)

      The paper develops a theory that firm entry causes endogenous fluctuations in macroeconomic productivity through its effect on incumbent firms' capacity utilization. The analysis shows that imperfect competition causes long‐run excess entry: too many firms each with excess capacity. Because entry occurs slowly, macroeconomic conditions are initially born by the excess capacity incumbents who respond by altering their capacity utilization. Incumbents' efficiency changes because of non‐constant returns to scale which aggregates to affect the economy's productivity. In the long run, entry occurs and new firms absorb the change in economic conditions, which alleviates incumbents' alteration in capacity. Therefore the productivity change is ephemeral. Hence, the slow response of firms to economic conditions causes endogenous productivity dynamics.

    • "Does network structure matter under shock diffusion?"

      Shekhar Tomar (Toulouse School of Economics)

      Discussant: Niels-Jakob Harbo Hansen (Stockholm University)

      This paper introduces the concept of diffusion of shocks in a macroeconomic network consisting of inter-sectoral production linkages. I show that if sectors have different reaction horizons it would lead to diffusion of shocks through the network over time which prevents the inter-sectoral linkages to form the feedback loop structure essential to generate aggregate volatility. This result is different from other recent papers which have single period model with contemporaneous production linkages between different sectors thus generating sectoral shock amplification as one sector reacts to another contemporaneously resulting in bigger agggregate fluctuations. In contrast if sectors have different production horizons due to varying complexity of their production process or supply chain, it would break down the feedback architecture present in single period models. I further show that if the diffusion rate is varied and sufficiently slow for different sectors, the contribution of network structure to aggregate volatility can be insignificant. Also, it is no longer sufficient to characterize this contribution of inter-sectoral production network to aggregate volatility by just looking at input-output matrix or its summary statistics like degree distribution.

    • "The Allocation of Talent: Finance versus Entrepreneurship"

      Kirill Shakhnov (EUI)

      Discussant: Irfan Ahmad Qureshi (University of Warwick)

      The rapid growth of the US financial sector has driven policy debate on whether it is socially desirable. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented individuals efficiently match investors with entrepreneurs, but do not internalize the negative effect on the pool of talented entrepreneurs. Thus, the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The model explains the simultaneous growth of wealth inequality and finance in the US, and why more unequal countries have larger financial sectors.

  • 16:0017:30

    Poster Session with coffee

  • 17:3018.50

    Session 4: Trade & IO – S2.79

    • "Manager's knowledge and trade performance"

      Alessandro Sforza (LSE)

      Discussant: Henrike Steimer (University of Munich)

      Knowledge is key to the competitiveness and success of an organization and in particular of a firm. Firms and their managers acquire knowledge via a variety of different channels which are often difficult to track down and quantify. By matching employer-employee data with trade data at the firm level we shed light on the nexus between the export experience acquired by managers in previous firms and their current firm’s trade performance. We consider different margins of firm’s trade performance as well as detailed information on the nature of the activities performed by managers in both the previous and the current occupation. Our analysis will draw upon Mion and Opromolla (2014) and will expand the analysis in many interesting ways.

    • "Multiproduct retailing and consumer shopping patterns: the role of shopping costs?"

      Daniel Herrera (Toulouse School of Economics)

      Discussant: Matteo Foschi (University of Leicester)

      We structurally identify consumer shopping costs —real or perceived costs of dealing with a store using scanner data on grocery purchases of French households. We present a model of demand for multiple stores and products consisting of an optimal stopping problem in terms of individual shopping costs. This rule determines whether to visit one or multiple stores at a shopping period. We then estimate the parameters of the model and recover the distribution of shopping costs. We quantify the total shopping cost in 18.7 Euro per store sourced on average. This cost has two components, namely, the mean fixed shopping cost, 1.53 Euro and mean total transport cost of 17.1 Euro per trip. We show that consumers able to source three or more grocery store have zero shopping costs, which rationalizes the low proportion of three-stop shoppers observed in our data. Theory predicts that when shopping costs are included in economic analysis, some seemingly procompetitive practices can be welfare reducing and motivate policy intervention. Such striking findings remain empirically untested. This paper is a first step towards filling this gap.

  • 19:30

    Dinner - Radcliffe Private Dining

Tuesday 24th February

Location: S2.79, 2nd floor, Social Sciences Building
  • 09:4011.40

    Session 5: Political Economy: Theoretical & Empirical – S2.79

    • "War Veterans and the Breakdown of young Democracies: Evidence from Weimar Germany"

      Christoph Koenig (University of Warwick)

      Discussant: Giorgio Gulino (University of Bologna)

      Losing a war is a common trigger of democratisation. Experiences from interwar Europe and post-9/11 Middle East highlight, however, that the durability of such new democracies may depend crucially on the role of the defeated army. I argue that, while searching for a way to cope with their experiences, war veterans are particularly susceptible to extremist theories and can thus easily be turned against the new state by their environment. This paper provides a quantitative assessment of the aforementioned mechanism using Weimar Germany and WWI veterans’ role in the rise of right-wing extremism and democracy’s collapse as a case study. The hypothesised mechanism is tested using novel disaggregated data on the number of German WWI soldiers as well as a unique panel of voting results covering all parliamentary elections held in Germany from 1871 to 1933 and more than 2/3 of the population. The panel dataset is the basis for a differences-in-differences estimation which rules out any bias from time-invariant variables. Controlling for demographic factors associated with war participation addresses potential bias from further confounders. My baseline results show that moving from the lowest to the highest decile in the veteran distribution is associated with an up to 5.5% larger vote share for the extreme right after WWI. A further exploration of the underlying mechanisms reveals that veterans’ post-war socialisation in different veteran associations was key to their effect on political outcomes which is in line with my main argument. I also find that anti-democratic voting patterns were passed on to non-veterans as well and that the effect is strongest in areas severely hit by economic crises such as the Hyperinflation and the Great Depression. This contagion mechanism ultimately links veterans with popular support for political extremism and the breakdown of democracy.

    • "Preferences Over the Size of the Welfare State, Religiosity and Church Participation"

      Federico Masera (Universidad Carlos III de Madrid)

      Discussant: Felix Arnold (University of Berlin)

      This paper studies how the size of the welfare states affects church participation and how religiosity affects voting preferences over the size of the welfare state. As motivating empirical evidence I show how participation to church activities is negatively correlated with the size of the welfare state. This negative correlation is weaker for religious individuals. Furthermore preferences for additional welfare state are shown to be negatively correlated to religiosity. For explaining this empirical regularities I develop a model based on two observations. First of all, religious organizations and the welfare state are often providers of goods and services that answer similar needs. Secondly, these social services provided by the church tend to cater church-goers. In the model there are two types of agents, religious and secular, that differ in the intrinsic value they attach to participating to church. In equilibrium participation to church is negatively affected by the size of the welfare state. Secular individuals react more to changes in the size of the welfare state. Furthermore, as religious individuals participate more often to church, they will prefer lower levels of the welfare state. Finally, a dynamic model is introduced where individual religiosity is made endogenous by linking it to participation decisions and religiosity of the parent. This model predicts that an increase in the efficiency of the welfare state is the main driver behind the secularization of a society.

    • "Historical Traumas and the Root of Political Distrust: Political Inference from the Great Chinese Famine"

      David Yang (Stanford University)

      Discussant: Matteo Gamalerio (University of Warwick)

      What shapes a citizen’s trust and attitudes towards the government, and what makes them persist over time? We study the causal effect of the Great Chinese Famine (1959-1962) on the level of political trust and attitudes among its survivors. Using a novel nationally representative survey, we employ a differencein- differences framework to compare citizens who experienced the Famine versus those who did not, across regions with differential levels of drought during the Famine. Famine survivors inferred the government’s liability from personal hunger experiences, and they were more likely to blame the government for their starvation in regions with usual rainfall during the Famine. As a result, these citizens trusted the local government significantly less, and held less favorable attitudes toward the government’s performances on key issues in contemporary China. These effects on political trust and attitudes persist even half a century after the Famine, and we provide suggestive evidence on the mechanisms that foster such persistence.

  • 11:4013:00

    Lunch – Bar Fusion

  • 13:0014.20

    Session 6: Applied Economics I – S2.79

    • "German Jobcenters and the Decentralization of Welfare Institutions: Evidence from a Policy experiment"

      Lukas Mergele (Humboldt University)

      Discussant: Amelie Schiprowski (IZA Bonn, DIW Berlin and U Potsdam)

      Long-term unemployment is a serious economic problem whose importance has not been properly addressed in the fiscal federalism literature so far. Using the devolution of German Jobcenters in 2012, this paper applies a difference-in-differences framework as well as a synthetic control approach to identify the causal effect of decentralization on long-term unemployment. The results do not provide any support for the famous Decentralization Theorem by Oates (1972) but suggest that long-term unemployment rises during the regime change without offering significant medium-term reductions.

    • "Dense Enough To Be Brilliant: Patents, Urbanization, and Transportation in Nineteenth Century America"

      Elizabeth Perlman (Boston University)

      Discussant: Christina Ammon (University of Warwick)

      This paper explores the geographical distribution of patenting in the nineteenth century United States, as it evolves in response to improvements in access to transportation. I revisit the Sokoloff (1988) hypothesis that increasing market access, caused by the spread of transportation infrastructure, led to an acceleration of innovation. I find that twenty years after the arrival of the railroad in a county, the number of patents per capita has doubled. Using cardinal detection lines from the most important ports in 1826 as an instrumental variable suggests that 30-70% of the increase in patenting between 1850 and 1860 was caused by the spread of the railroad in this period, and 15-30% of the increase between 1850 and 1870. These results are driven by the area of a county that is close enough make a round trip to transportation within a day, and not by area further away. A 1% increase in the area of the county that is within 1.5 miles of some form of transport corresponds to a to a 1.5% increase in patenting. These results are robust to controls for urbanization. Much of the effect comes from patenting in counties that had not previously patented, suggesting that new access to existing markets spurs development and leads to integration into broader markets for innovation.

  • 14:2014:40

    Coffee Break – S2.77

  • 14:4016.00

    Session 7: Applied Economics II – S2.79

    • "Tough on young offenders: harmful or helpful?"

      Giulia Lotti (University of Warwick)

      Discussant: Basile Boulay (University of Nottingham)

      Should we be tough on young offenders or should we not? We have the unique opportunity to exploit a quasi-natural experiment that occurred in the 1980’s in England and Wales and can shed light on this matter. We analyse a sample of young offenders who appeared in court when 20/21 years old and was given a custodial sentence. Through a fuzzy regression discontinuity design, we exploit the fact that young offenders who were below 21 years old were sent to youth custody centres and detention centres, while young offenders who were above 21 years old were sent to prison. At the time, young offenders who went to youth custody and detention centres experienced a tougher regime than usual. Our sample is made of all the offenders in England and Wales who were born in 3 randomly sampled weeks in 1963 and were sentenced either to the harsher youth custody and detention centres or to adult prisons, depending on the age at which they went to court. According to the local linear regression estimates, the young offenders exposed to the harsher punishment commit on average 3 offences more than their counterpart in the 9 years subsequent to their custody.

    • "Knowledge of Insurance Products, Adverse Selection and Moral Hazard: Evidence From a Randomised Experiment in Mongolia"

      Delger Enkhbayar (LSE)

      Discussant: Lionel Roger (University of Nottingham)

      Lack of knowledge about insurance products is common in developing countries. Individuals facing such demand frictions may choose products not well suited to their risk type. Particularly in settings where firms lack capacity to use risk adjusted pricing, firms can misinform consumers, such that the extent to which government should intervene and inform consumers is a relevant question. Given that, in this paper I study the extent to which lack of understanding in insurance products affects adverse selection and moral hazard in a car insurance market in Mongolia. Combining a randomised experiment with survey data, I find that in our setting all adverse selection is driven by individuals who know their coverage at the point purchasing insurance. In other words, those who understand well their coverage at the choice stage choose insurance best suited to their risk type. These results are robust to looking at unclaimed accidents as well as history of accidents prior to the contract, suggesting learning through claiming does not fully explain these findings. Not knowing own risk type does not appear to be important in explaining variation in informational value. On the other hand, I find that informational gain is particularly high for buyers who have: 1) have higher income, more expensive cars and higher education, 2) are more risk-averse, and 3) bought insurance through sellers whom they know personally or through friends. There is no evidence of moral hazard in our setting.

  • 16:00

    Conference Close

Please contact the Economics PhD Conference team by emailing economics dot phdconf at warwick dot ac dot uk with any queries.

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