Working Papers 2021


Working Paper 1-2021

Optimal Contracts with Randomly Arriving Tasks

Daniel Bird, Alexander Frug



Workers are rarely assigned to perform the same task throughout their career. Instead, their assignments may change randomly over time to comply with the fluctuating needs of the organisation where they are employed. In this paper, we show that this typical randomness in workplaces has a striking effect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker's tasks is sufficient to generate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced.

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Published in: The Economic Journal, Volume 131, Issue 637, July 2021, Pages 1905–1918

Working Paper 2-2021

The Rise and Fall of Cryptocurrency Coins and Tokens

Neil Gandal,  JT Hamrick, Tyler Moore, Marie Vasek


Since Bitcoin’s introduction in 2009, interest in cryptocurrencies has soared. One manifestation of this interest has been the explosion of newly created coins and tokens. In this paper, we analyze the dynamics of this burgeoning industry. We consider both cryptocurrency coins and tokens. The paper examines the dynamics of coin and token creation, competition and destruction in the cryptocurrency industry. In order to conduct the analysis, we develop a methodology to identify peaks in prices and trade volume, as well as when coins and tokens are abandoned and subsequently “resurrected”. We also study trading activity. Our data spans nearly five years: there are 1 082 coins and 725 tokens in the data. While there are some similarities between coins and tokens regarding dynamics, there are some striking differences as well. Overall, we find that 44% of publicly-traded coins are abandoned, at least temporarily. 71% of abandoned coins are later resurrected, leaving 18% of coins to fail permanently. Tokens experience abandonment less frequently, with only 7% abandonment and 5% permanent token abandonment at the end of the data. Further, in the case of tokens, the correlation between creation (new entrants) and trade volume is very high (0.71) while the same correlation is virtually zero for coins. Additionally, in the case of tokens, the correlation between abandonment and trade volume is relatively high (0.35) while the same correlation is much smaller (0.07) for coins. We provide some possible explanations for these trends. We then examine the effect that the bursting of the Bitcoin bubble in December 2017 had on the dynamics in the industry. Unlike the end of the 2013 bubble, some alternative cryptocurrencies continue to flourish after the bursting of this bubble.

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Published in: Decisions in Economics and Finance volume 44, pages981–1014 (2021)

Working Paper 3-2021

Anabolic Persuasion

Kfir Eliaz and Ran Spiegler



We present a model of optimal training of a rational, sluggish agent. A trainer commits to a discrete-time, finite-state Markov process that governs the evolution of training intensity. Subsequently, the agent monitors the state and adjusts his capacity at every period. Adjustments are incremental: the agent’ capacity can only change by one unit at a time. The trainer’s objective is to maximize the agent’s capacity - evaluated according to its lowest value under the invariant distribution - subject to an upper bound on average training intensity. We characterize the trainer’s optimal policy, and show how stochastic, time-varying training intensity can dramatically increase the long-run capacity of a rational, sluggish agent. We relate our theoretical findings to periodization training techniques in exercise physiology.

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Working Paper 4-2021

A Simple Model of Monetary Policy under Phillips-Curve Causal Disagreements

Ran Spiegler


I study a static textbook model of monetary policy and relax the conventional assumption that the private sector has rational expectations. Instead, the private sector forms inflation forecasts according to a misspecified subjective model that disagrees with the central bank‘s

(true) model over the causal underpinnings of the Phillips Curve. Following the AI/Statistics literature on Bayesian Networks, I represent the private sector’s model by a direct acyclic graph (DAG). I show that when the private sector‘s model reverses the direction of causality between inflation and output, the central bank’s optimal policy can exhibit an attenuation effect that is sensitive to the noisiness of the true inflation-output equations.

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Working Paper 5-2021

Optimal Defined Contribution Pension Plans: One-Size Does Not Fit All

Kathrin Schlafmann, Ofer Setty, Roine Vestman



We study the role of defined contribution pension plans for individuals’ welfare and ability to accommodate shocks. Using a rich life-cycle model, we find that common designs, with a fixed contribution rate out ofincome for all individuals at all times, are unnecessarily rigid. We propose a design where the contribution rate is a function of the individuals’ age and account balance-to-income ratio. Compared to the typical rigid contribution rate, our design leads to the same average replacement rate, 25.6 percent, but reduces the cross-sectional standard deviation from 10.8 to 4.0 percent. Furthermore, our proposed rule provides both liquidity and consumption benefits for the first 17 years. Consumption increases by as much as 4.9 percent. The design implies a welfare gain of 3.3 percent in consumption equivalent relative to the current fixed contribution rate.

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Working Paper 6-2021

Judging under Public Pressure

Florian Auferoth, Alma Cohen, Zvika Neeman


Individuals who engage in “judging” – that is, rendering a determination in a dispute or contest between two parties – might be influenced by public pressure to favor one of the parties. Many rules and arrangements seek to insulate such individuals from public pressure or to address the effects of such pressure. We study this subject empirically, investigating the circumstances in which public pressure is more and less likely to affect judging. Using detailed data from the Bundesliga, Germany’s top soccer league, our analysis of how crowd pressure affects the decisions of referees yields two key insights. First, we show that crowd pressure biases referee’s decisions in favor of the home team for those decisions that cannot be unambiguously identified as erroneous but not for those decisions that can. In particular, a referee exhibits a bias in favor of the home team with respect to more subjective decisions such as the showing of yellow cards (cautions), which is based on the referee’s judgment, but not with respect to more objective decisions such as validating goals and awarding penalty kicks, where live TV coverage often allows for objective identification of errors. Second, we show that the effect of crowd pressure on referee decisions depends on the extent to which such pressure is viewed by the referee as understandable or reasonable (or even justified). Specifically, a referee’s bias in favor of the home team in yellow card issuance is strengthened after the referee makes an objectively identifiable error against the home team and thus might view crowd heckling as understandable. This effect is stronger when the referee’s error is costlier to the home team because the game is more important or the error is more consequential due to the closeness of the game at the time of the error. The introduction of VAR (Video Assistant Referee) technology in 2017 and the restrictions imposed due to Covid-19 pandemic, which caused games to be played without crowds for the second half of the 2019–20 season, allow us to test our results under three different regimes (pre-VAR, VAR, and VAR/no-crowd). Inspection of the results under these three different regimes serves to reinforce them. As expected, VAR reduces the number of referee errors, but the pattern of no bias with respect to errors is preserved. VAR has no effect on the number of yellow cards, or on the number of goals. Once the crowd disappears, so does the home advantage in goals. Referee errors are unaffected, but the home bias with respect to yellow cards disappears as well. This confirms the effect that the crowd has on referees’ more subjective decisions.

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Working Paper 7-2021

The complexity of the consumer problem
Itzhak Gilboa, Andrew Postlewaite,  David Schmeidler



A literal interpretation of neo-classical consumer theory suggests that the consumer solves a very complex problem. In the presence of indivisible goods, the consumer problem is NPHard, and it appears unlikely that it can be optimally solved by a human. Two implications of this observation are that (i) households may imitate each other’s choices; (ii) households may adopt heuristics that give rise to the phenomenon of mental accounting.

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Published in: Research in Economics, Volume 75, Issue 1, March 2021, Pages 96-103

Working Paper 8-2021

Financing Labor

Efraim Benmelech, Nittai K. Bergman, Amit Seru



Financial market imperfections can have significant impact on employment decisions of firms. We illustrate the economic importance of this channel by showing that employment decisions are constrained by _firms' financial health and liquidity. Our main analysis uses a collage of three `quasi-experiments' to trace the effects of finance on employment. The results suggest that _financial constraints and the availability of credit play an important role in firm-level employment decisions, as well as aggregate unemployment outcomes.

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 Published in: Review of Finance, Volume 25, Issue 5, September 2021, Pages 1365–1393

Working Paper 9-2021

The Macroeconomics of Automation: Data, Theory, and Policy Analysis

Nir Jaimovich, Itay Saporta-Eksten, Henry Siu, Yaniv Yedid-Levi



During the last four decades, the U.S. has experienced advances in automation and a fall in the employment in middle-wage, "routine-task-intensive," occupations. These processes have been at the center of policy discussions aimed at those who were adversely affected by automation. We contribute to these discussions by developing an empirically relevant general equilibrium model, featuring heterogeneous agents, labor force participation, occupational choice, and investment in physical and automation capital. We use this framework to evaluate the allocation and welfare distributional consequences of different polices. First, we consider the retraining of workers who were adversely affected by automation. Second, we consider redistribution policies that transfer resources to these workers. Our framework emphasizes general equilibrium effects such as displacement effects of retraining programs, complementarities between the various factors of production, and the effects of distortionary taxation that is required to fund these programs.

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Published in: Journal of Monetary Economics Available online 8 July 2021

Working Paper 10-2021

Getting Beneath the Veil of Intergenerational Mobility: Evidence from Three Cities

Oren Danieli, Tanaya Devi and Roland G. Fryer, Jr.



We develop a data driven way to design the optimal policy experiment for increasing chances of escaping poverty. We collected data from in-person surveys of almost 1,000 individuals who were reared in poverty in Memphis, Tulsa, and New Orleans, and asked about their childhood health, parental income, home environment as a child, childhood experiences, lifetime traumas, neighborhood safety, a host of psychological skills, beliefs, and current income. Using typical descriptive approaches to motivate an intervention implicitly assumes one can alter individual characteristics in any way the data deem predictive – e.g. sending youth to college to increase future income, regardless of any adverse childhood experiences – even if one rarely observes adults with adverse childhoods going to college in the data. We replace this assumption with four axioms about the cost of altering any combination of individual characteristics. Under these axioms, the optimal experiment replicates the way people escape poverty in real life. We test our method using a case where a data-driven experiment was already run, as well as simulations. We also analyze the robustness of the results if one of the axioms is violated. We find that educational attainment is the most important determinant of mobility. Yet, many other variables – traditionally ignored by economists – are almost equally important predictors: resilience, Big  personality skills, grit, self-esteem, the number of adults trusted, trouble with the police when young, and other adverse childhood experiences. Fathers present in own neighborhood did not matter. This suggest that income-increasing interventions for the poor need to be broader than simply human capital or place-based policies.

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Working Paper 11-2021


Alma Cohen, Moshe Hazan, Roberto Tallarita and David Weiss


This article studies the political preferences of chief executive officers (CEOs) of public companies. We use Federal Election Commission records to compile a comprehensive database of the political contributions made by more than 3800 individuals who served as CEOs of Standard & Poor’s 1500 companies between 2000 and 2017. We find a substantial preference for Republican candidates. We identify how this pattern is related to the company’s industry, region, and CEO gender. In addition, we show that companies led by Republican CEOs tend to be less transparent to investors with respect to their political spending. Finally, we discuss the policy implications of our analysis.

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Published in: Journal of Legal Analysis 1-45 (2019)

Working Paper 12-2021

Judicial Politics and Sentencing Decisions

Alma Cohen and Crystal S. Yang


This paper investigates whether judge political affiliation contributes to racial and gender disparities in sentencing using data on over 500,000 federal defendants linked to sentencing judge. Exploiting random case assignment, we find that Republican-appointed judges sentence black defendants to 3.0 more months than similar nonblacks and female defendants to 2.0 fewer months than similar males compared to Democratic-appointed judges, 65 percent of the baseline racial sentence gap and 17 percent of the baseline gender sentence gap, respectively. These differences cannot be explained by other judge characteristics and grow substantially larger when judges are granted more discretion.

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Published in: American Economic Journal: Economic Policy, 160-191 (2019)

Working Paper No. 13-2021

Searching for Arms: Experimentation with
Endogenous Consideration Sets

Daniel Fershtman and Alessandro Pavan


We study the problem of a decision maker alternating between exploring existing alternatives in the consideration set and searching for new ones. We characterize the optimal policy and its key properties and identify implications for search and exploration dynamics. When the search technology is stationary or improves over time, search is equivalent to replacement. With deteriorating technologies, instead, alternatives are revisited after search is launched and each expansion is treated as if it were the last one. A key consequence of the endogeneity of the consideration set is that an improvement in the desirability of a category of alternatives may lead to a reduction in the exploration of the category as well as in the eventual selection of an alternative from that category. We apply the analysis to clinical trials, experimentation toward regulatory approval, and consumer search.

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Working Paper No. 14-2021

Women’s Liberation, Household Revolution

Moshe Hazan, David Weiss and Hosny Zoabi


Households, traditionally run by a husband and wife, are responsible for many of the most crucial decisions made in society. Anything that changes the power structure within the household will thus have dramatic implications for the economy at large. In one of the greatest shifts of household bargaining power in human history, common law countries began giving economic rights to married women in the second half of the 19th century. Before this “women’s liberation,” married women were subject to the laws of coverture, which granted the husband virtually unlimited power within the household. This paper explores the ramifications of coverture’s demise on the decision making of households. In particular, we use the full US census from 1850 to 1920 and exploit contiguous county-pairs bordering states that granted rights at different times. Using an event-study design, we show that granting women property rights led to a dynamic decrease in fertility and an increase in the education of children of both sons and daughters. However, we do not find evidence that women’s rights affected female labor force participation. Additionally, we exploit the fact that these rights were not granted retroactively, and compare couples married before and after rights were granted. This alternative strategy both confirms our findings and provides evidence for potential mechanisms. We argue that shifting bargaining power from husband to wife is the economic mechanism most likely to account for the documented effects of women’s rights.

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Working Paper No. 15-2021

Police Response Time and Injury Outcomes

Gregory DeAngelo, Marina Toger, Sarit Weisburd


The delayed response of law enforcement to calls for service has become a hot button issue when evaluating police department performance. While it is often assumed that faster response times could play an important role in quelling potentially violent incidents, there is no empirical evidence to support this claim. In this paper, we measure the effect of police response time on the likelihood that an incident will result in an injury. To overcome the endogeneity of more severe calls being assigned higher priority, which requires a faster response, we take several steps. First, we focus on the subset of calls for service categorized as Major Disturbance-Violence" that all receive the same priority level. Second, we instrument for police response time with the number of vehicles within a 2.5-mile radius of the incident at the time it is received by the call center. When controlling for beat, month, and time-of-day fixed effects, this instrumenting strategy allows us to take advantage of the geographical constraints faced by a dispatcher when assigning o_cers to an incident. In contrast to the OLS estimates, our two-stage least squares analysis establishes a strong causal relationship whereby increasing response time increases the likelihood that an incident results in an injury. The e_ect is concentrated among female victims, suggesting that faster response time could potentially play an important role in reducing injuries related to domestic violence

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Working Paper No. 16-2021

Economic Theory: Economics, Methods and Methodology"

Itzhak Gilboa, Andrew Postlewaite, Larry Samuelson and David Schmeidler


Economic theory comprises three types of inquiry. One examines economic phenomena, one develops analytical tools, and one studies the scientific endeavor in economics in general and in economic theory in particular. We refer to the first as economics, the second as the development of economic methods, and the third as the methodology of economics. The same mathematical result can often be interpreted as contributing to more than one of these categories. We discuss and clarify the distinctions between these categories, and argue that drawing the distinctions more sharply can be useful for economic research.

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Published in: Revue économique 2022/6 (Vol. 73), pages 897 - 919

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