Highlights 2026
WP 26/05
Cognitive decline severely impairs financial decision-making, but often develops unnoticed. In “Cognitive decline and financial decision-making”, Fabrizio Mazzonna, Andrea Orsenigo and Franco Peracchi present a model of portfolio choice with endogenous information acquisition which predicts that investors unaware of their decline will take on excessive risk and delay the transfer of financial control to a trusted agent. They test these implications in an experimental survey of affluent older US investors by eliciting their intended actions under hypothetical scenarios of memory decline. About one in nine respondents overestimates their memory skills. Their randomized interventions reveal that making the financial risks of memory decline salient shifts stated choices toward more prudent behaviors, namely risk reduction and a reallocation from informal arrangements toward professional financial advice. Most importantly, they uncover significant heterogeneity: among unaware investors, only personalized, objective feedback on memory performance triggers a shift in intended behavior, while general educational information alone has limited effects. Finally, they document substantial gender asymmetries in delegation advice, with male respondents less likely to suggest delegation when the hypothetical subject is of the opposite sex. These findings can shape information campaigns and advisory practices aimed at protecting older investors from the financial consequences of cognitive decline.
WP 26/04
The paper “Misallocation with Lumpy Investment” by Francesco Lippi and Aleksei Oskolkov studies "misallocation", i.e. how efficiently capital is shared among businesses, by accounting for "lumpy" investment—the reality that firms tend to make large equipment purchases only occasionally rather than in constant, small amounts. Using 40 years of data on Italian firms, the authors provide a new analytical method to quantify this efficiency and find that while measures that ignore investment lumpiness are biased, their final estimates are surprisingly close to our more refined result. The model shows that much of what looks like an "inefficient" distribution of resources in a snapshot of the economy is actually consistent with firms acting optimally in a dynamic sense, making rational, forward-looking decisions in the face of idiosyncratic shocks.
WP 26/03
Does women recidivism change when their sentence is served in a separate section within a prison that mainly house male inmates, rather than in a prison exclusively dedicated to women? In “Women Behind Bars: Do Single-Gender Prisons Reduce Recidivism?” Daniele Terlizzese, F. Calamunci, G. Daniele and G. Mastrobuoni, show that women-only prisons causally reduce women recidivism by about 14 p.p. Likely drivers are the presence of a large enough number of women in a given facility and a female prison director. Also, a synthetic (latent) measure of prison quality causally reduces women recidivism.
WP 26/02
This essay, “The Financial Drivers of Populism in Europe” by Luigi Guiso, Massimo Morelli, Tommaso Sonno, and Helios Herrera, contributes to our understanding of the evolution of populist attitudes and voter preferences, as well as the emergence of populist parties and the evolution of party supply and their platforms in Europe. The essay links novel insights on populism to the comparative politics literature on party transformation. It argues that the financial crisis represented a watershed for populism in Europe, and explains why by focusing on its effects on trust in institutions and markets, particularly among occupational groups typically unaffected by traditional economic crises.
WP 26/01
In "War and Democratic Backsliding" Joao Monteiro, together with Efraim Benmelech, provide the first global, long-run evidence on how war reshapes democratic institutions. Using data on all conflicts since 1948, they show that the onset of conflict causes a large and persistent decline in democracy: institutions weaken immediately, continue to erode for nearly a decade, and do not recover. Yet this deterioration is highly selective. It appears only in first-time conflicts, intrastate wars, highly fractionalized societies, and conflicts that governments win. The decline operates through political channels -- media censorship, judicial purges, curtailed civil liberties, irregular leadership turnover, and constitutional suspensions - rather than through any functional requirement of war-making. Autocratization does not increase the probability of victory, and institutional instability reduces it. Taken together, the findings show that war does not require autocracy; it enables executives to expand their authority and implement institutional changes that would be difficult to enact in peacetime.
