Working Papers 2019


Working Paper 1-2019

Match Quality, Contractual Sorting and Wage Cyclicality

João Alfredo Galindo da Fonseca,  Giovanni Gallipoli and Yaniv Yedid-Levi


This paper studies the role of match quality for contractual arrangements, wage dynamics and workers’ retention. We develop a model in which profit maximizing firms offer a performance-based pay arrangement to retain workers with relatively high match-specific productivity. Key implications of our model hold in data from the NLSY79, where information about job histories and performance pay is available, suggesting that match quality affects both pay arrangements and employment durations. Contractual sorting appears to play an important role in determining the cyclicality of wages.

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Published in: Labour Economics, Volume 66, October 2020, 10189

Working Paper 2-2019

Biased Preferences Equilibrium

Ariel Rubinstein and Asher Wolinsky


We model economic environments in which individual choice sets are fixed and the level of a certain parameter that systematically biases the preferences of all agents is determined endogenously to achieve equilibrium. Our equilibrium concept, Biased Preferences Equilibrium, is reminiscent of competitive equilibrium: agents’ choice sets and their preferences are independent of the behavior of other agents, the combined choices have to satisfy overall feasibility constraints and the endogenous adjustment of the equilibrating preference parameter is analogous to the equilibrating price adjustment. The concept is applied to a number of economic examples.

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Published in: Economics & Philosophy, Published online 24 February 2021

Working Paper 3-2019

The Economics of Cryptocurrency Pump and Dump Schemes
JT Hamrick, Farhang Rouhi, Arghya Mukherjee, Amir Feder, Neil Gandal, Tyler Moore, and Marie Vasek


The surge of interest in cryptocurrencies has been accompanied by a proliferation of fraud. This paper examines pump and dump schemes. The recent explosion of nearly 2,000 cryptocurrencies in an unregulated environment has expanded the scope for abuse. We quantify the scope of cryptocurrency pump and dump on Discord and Telegram, two popular group-messaging platforms. We joined all relevant Telegram and Discord groups/channels and identified nearly 5,000 different pumps. Our findings provide the first measure of the scope of pumps and suggest that this phenomenon is widespread and prices often rise significantly. We also examine which factors affect the pump's "success".

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Published in: An examination of the cryptocurrency pump-and-dump ecosystem, Information Processing & Management, Volume 58, Issue 4, July 2021, 102506

Working Paper 4-2019

How Bayesian Persuasion can Help Reduce Illegal Parking and Other Socially Undesirable Behavior

Penélope Hernández and Zvika Neeman


We consider the question of how best to allocate enforcement resources across different locations with the goal of deterring unwanted behaviour. We rely on “Bayesian persuasion” to improve deterrence. Our approach is distinguished by the following five features: (1) we consider a problem in which the principal has to allocate resources and then send messages (persuade) rather than just persuade. (2) Messages are received by drivers in n different neighborhoods, so persuasion is with respect to multiple audiences. (3) The problem is a “constrained convexification” rather than just a convexification problem, where the constraints are due to resource and probability restrictions. This implies that convexification may be partial rather than complete as is usually the case in Bayesian persuasion models. (4) Even though the basic problem is not linear, we show that it can be cast as a linear programming problem. Finally, (5) we characterize the number of messages needed in order to obtain the optimal solution, and describe conditions under which it is possible to explicitly solve the problem with only two messages.

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Working Paper 5-2019

The Benefit of Collective Reputation

Zvika Neeman, Aniko Ory and Jungju Yuy



We study a model of reputation with two long-lived firms who operate under a collective brand or as two individual brands. Firms' investments in quality are unobserved and can only be sustained through reputational concerns. In a collective brand, consumers cannot distinguish between the two firms. In the long run, this generates incentives to free-ride on the other firm's investment, but in the short-run, it mitigates the temptation to milk a good reputation. The signal structure and consumers' prior beliefs determine which effect dominates. We interpret our _ndings in light of the type of industry in which the firms operate.

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 Published in: The RAND Journal of Economics, Volume 50, Issue 4, Winter 2019, Pages 787-821.

Working Paper 6-2019

Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages? 
Efraim Benmelech, Nittai K. Bergman, Hyunseob Kim 


We analyze the effect of local-level labor market concentration on wages. Using plant-level U.S. Census data over the period 1978–2016, we find that: (1) local-level employer concentration exhibits substantial cross-sectional variation; (2) consistent with labor market monopsony power, there is a negative relation between local-level employer concentration and wages that increases in magnitude over the sample period; (3) using merger activity as an instrument for local-level employer concentration, we find that increased concentration decreases wages; (4) the negative relation between labor market concentration and wages is stronger when unionization rates are low; (5) the link between productivity growth and wage growth is stronger when labor markets are less concentrated; and (6) exposure to greater import competition from China (the “China Shock”) is associated with more concentrated labor markets. These six results emphasize the role of local-level labor market monopsonies in influencing firm wage-settin. 

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Published in: Journal of Human Resources, December 14, 2020 0119-10007R1

Working Paper 7-2019

The Importance of Hiring Frictions in Business Cycles

Renato Faccini and Eran Yashiv



Hiring is a costly activity reflecting firms’ investment in their workers. Micro-data shows that hiring costs involve production disruption. Thus, cyclical fluctuations in the value of output, induced by price rigidities, have consequences for the optimal allocation of hiring activities. This mechanism generates strong propagation and amplification of all key macroeconomic variables in response to technology shocks and mutes traditional transmission of monetary policy shocks. A LP analysis of U.S. data, shows that the empirical results are consistent with the model’s IRFs. We outline a new mechanism, with hiring frictions as important as price frictions for the propagation of shocks.

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Quantitative Economics Volume13, Issue3 July 2022 Pages 1101-1143

Working Paper 8-2019

An Investigation of FX Intervention in Response to Financial and Real Shocks

Zvi Hercowitz and Avihai Lifschitz


This paper reports an attempt to characterize an empirical FX intervention rule using a panel quarterly data set of 25 countries. The focus is on the types of shocks central banks tend to react to: financial and/or real. The empirical analysis is based on a theoretical framework combining a link between the real exchange rate and the current account, imperfect substitution between domestic and foreign assets, and a policy of moderating the effects of shocks on the real exchange rate. This framework allows the separation of the observations into different samples, each one dominated by one type of shock. The effects of each shock type on FXI policy are examined in the corresponding sample. The results indicate an important and statistically significant intervention in response to financial shocks, and a weaker and statistically insignificant response to real shocks.


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Working Paper 9-2019

Behavioral Implications of Causal Misperceptions

Ran Spiegler


This review presents an approach to modeling decision making under misspeciÖed subjective models. The approach is based on the idea that decision makers impose subjective causal interpretations on observed correlations, and borrows basic concepts and tools from the Statistics/AI literature on Bayesian Networks. While that literature used Bayesian networks as a platform for normative analysis of probabilistic and causal inference, here graphical models represent causal misperceptions and help analyzing their behavioral implications. I show how this approach sheds light on earlier equilibrium models with non-rational expectations, and demonstrate its scope of economic applications.

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Published in: Annual Review of Economics, Vol. 12:81-106 (Volume publication date August 2020), First published as a Review in Advance on May 1, 2020


Working Paper 10-2019

A Model of Competing Narratives

Kfir Eliaz and Ran Spiegler



We formalize the argument that political disagreements can be traced to a “clash of narratives”. Drawing on the “Bayesian Networks” literature, we represent a narrative by a causal model that maps actions into consequences, weaving a selection of other random variables into the story. Narratives generate beliefs by interpreting long-run correlations between these variables. An equilibrium is defined as a probability distribution over narrative-policy pairs that max- imize a representative agent.s anticipatory utility - capturing the idea that people are drawn to hopeful narratives. Our equilibrium analy- sis sheds light on the structure of prevailing narratives, the variables they involve, the policies they sustain and their contribution to political polarization.

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Published in: AMERICAN ECONOMIC REVIEW, VOL. 110, NO. 12, DECEMBER 2020 (pp. 3786-3816)

Working Paper 11-2019

Monotone Contracts

Daniel Bird Alexander Frug


A common feature of dynamic interactions is that the environment in which they occur changes, possibly stochastically, over time. We study a fluctuating contracting environment with symmetric information and develop a notion of a separable activity that corresponds to a large class of prevalent contractual components. We provide a tight condition under which these components manifest a form of seniority: any change that occurs in these components over time favors the agent. We illustrate how our results can be applied in various economic settings.

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Published in: Theoretical Economics, Volume 17, Issue3 July 2022, Pages 1041-1073


Working Paper 12-2019

On the Provision of Unemployment Insurance when Workers are Ex-ante Heterogeneous

Ofer Setty and Yaniv Yedid-Levi


Labor market outcomes demonstrate considerable variation between and within skill groups. Weconstruct a general equilibrium model with incomplete markets and exogenous differences that matches these facts. We study the role of exogenous heterogeneity in choosing the optimal replacement rate and the maximum benefit for an unemployment insurance (UI) system. The optimal average replacement rate is 27%, compared to 0% in a model without exogenous heterogeneity. The relatively generous choice is due to the redistributive role of UI, which is a manifestation of two elements. First, workers who are unemployed more often receive positive net transfers from the UI system because they draw resources more frequently. Second, the existence of a cap on benefits makes UI progressive. Our main result holds in the presence of a generous progressive taxation system.

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Published in: Journal of the European Economic Association, jvaa015, May 2020


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