Highlights 2024

WP 24/12

In “Firm Debt and Firm Exit Dynamics in North and South of Italy” Vincenzo Cuciniello, Claudio Michelacci, and Luigi Paciello analyze differences in firms' cost of credit, bankruptcy rates, and leverage between Italy's low-productivity Southern regions ('Mezzogiorno') and the high-productivity Northern and Central regions over the first two decades of the 2000s. They find that while the risk-adjusted cost of credit is similar across both regions, there are notable differences in the age profile of business exit rates and leverage. In particular: (i) the exit rate of young firms (less than three years old) is similar across regions, whereas the exit rate of mature firms (more than five years old) is approximately 1 percentage point higher in the South, and (ii) differences in firm debt and exit rates are closely linked—as Southern firms age, they tend to accumulate more debt than their Northern counterparts, making them more prone to exit due to excessive debt. The authors also analyze the responses of mature firms to idiosyncratic shocks and document that Southern mature firms are more likely to exit due to excessive debt. The similarity in the risk-adjusted cost of credit across regions suggests that North-South differences in age profiles reflect variations in firms' demand for credit.

WP 24/11

In “Family Planning and Ethnic Heritage: Evidence from Sub-Saharan Africa” Graziella Bertocchi, together with Arcangelo Dimico and Chiara Falco, focuses on sub-Saharan Africa, a region of the world where high fertility rates coexist with low contraceptive use alongside adverse perinatal outcomes. Since the spheres of fertility and contraception are deeply rooted in culture and influenced by ancestral customs, she looks at the role played, in this context, by the practice of postpartum sexual abstinence. This practice, which represents a basic form of contraception, is still amply documented in the present day and is likely related to the ancestral prevalence of postpartum sex taboos, which in turn found their biological justification as a means to safeguard child survival. First, she shows that the duration of contemporary postpartum abstinence increases with the duration of ancestral postpartum sex taboos within a woman's ethnic group. Second, postpartum abstinence is de facto pronatalist, as it increases the number of children ever born to a woman. At the same time, it increases the number of children of a woman who have died; lengthens birth intervals though not sufficiently to meet recommended guidelines; and increases neonatal death and child stunting. Lastly, postpartum abstinence is associated with patriarchal cultural norms and its adoption is motivated by the fact that it serves as a purification ritual.

WP 24/10

In "Changing the Board Game: Horizontal Spillovers of Gender Quotas" Luigi Guiso, Fabiano Schivardi and Luana Zaccaria examine the 2011 Italian law mandating gender quotas on boards of listed and state-controlled enterprises (target companies). They define “connected” firms as non-target companies that shared at least one board member with target companies prior to the reform. Employing a difference in differences design, the authors find that connected firms significantly increase the share of female board members post-reform compared to similar non-connected firms. Accounting for these horizontal spillovers, the effect of the reform on the number of female directors is at least twice as large as that computed for target firms alone, which amounts to approximately 2,500 additional women on boards. The results suggest that the spillover is largely due to information sharing between target and connected firms, which indirectly expands the pool of candidates for directorship positions available to connected firms.

WP 24/09

In “Approximately Optimal Auctions with a Strong Bidder” Luca Anderlini, together with GaOn Kim, consider auctions with N+1 bidders. Bidder N+1 is stronger than the first N and has a distribution of values that is nearly fully concentrated on a high value k. They consider a tournament auction in which the winner of the first N bidders proceeds to a second-price contest with N+1. They show that this auction format gives the auctioneer an expected revenue near k. This is so even though the auction format does not utilize any information about k. This is in sharp contrast with any attempts to implement an actual optimal (Myerson, 1981) auction. A small miscalibration of in the case can have a large cost in expected revenue for the auctioneer.

WP 24/08

In "Dictatorship, Higher Education, and Social Mobility" Mounu Prem, together with María Angélica Bautista, Felipe González, Luis R. Martínez, and Pablo Muñoz study the effect of political regime change on higher education and its distributional and political consequences. They focus on the 1973 coup that brought Augusto Pinochet to power in Chile. The Pinochet dictatorship’s aims of political control and fiscal conservatism led to a large reduction in the number of openings for new students across all universities. Individuals that reached college age shortly after the coup experienced a sharp decline in college enrollment, had worse labor market outcomes throughout the life cycle and struggled to climb up the socioeconomic ladder. This contraction of higher education disproportionately affected applicants from less affluent backgrounds and plausibly contributed to the increase in inequality observed under Pinochet. They further show that individuals exposed to reduced access to college registered to vote at higher rates for the 1988 plebiscite that triggered Chile’s democratic transition and provide suggestive evidence that they increasingly voted against Pinochet.

WP 24/07

In "A Peace Baby Boom? Evidence from Colombia's Peace Agreement" Mounu Prem joint with María Elvira Guerra-Cújar, Paul Rodríguez-Lesmes, and Juan F. Vargas study what happens to households’ preferences, perceptions, and constraints regarding fertility choices when violence ends? Using administrative data from Colombia, we find that the end of a long internal conflict differentially increased fertility by 3.2 percent in areas exposed to violence. The effect is present across all reproductive ages and larger in municipalities with higher levels of violence exposure at baseline. This differential fertility increase is not driven by health supply indicators, by the mortality of newborns and infants, or by differential migration. We provide evidence consistent with an increased perception of security, higher returns for childbearing, and more parental investment.

WP 24/06

In "Landmines: The Local Effects of Demining" Mounu Prem joint with Miguel E. Purroy and Juan F. Vargas study the socio-economic impact of anti-personnel landmines removal. These artifacts thwart long-term development. However, mine removal may have no impact on socioeconomic outcomes if it fails to achieve full mine clearance. Using geolocated data on demining operations in Colombia and exploiting its staggered adoption, we show that humanitarian demining increases economic activity and academic achievement, especially where market access is superior. Instead, economic activity does not react to partial demining events that occur as a byproduct of ground military operations. Rather, this alternative demining treatment is more likely to exacerbate extractive activities.

WP 24/05

In "A European Climate Bond" Marco Pagano, together with Irene Monasterolo, Antonia Pacelli and Carmine Russo present a new policy idea. They start from the observation that Europe faces a large climate investment gap: the resources currently budgeted for climate investment programs by the EU and its Member States cover less than half of the investment needs in this area. Based on estimates by the EU commission, the investment gap can be expected to amount to €370 billion per year. To fill this gap, the paper proposes the joint issuance of climate bonds by the European Stability Mechanism. These bonds would be funded by selling greenhouse gas emission allowances via the Emissions Trading System, extended to cover all sectors. This scheme could provide a substantial amount of additional funding to EU climate policies: even in the scenario associated with the lowest possible PDV of future revenues, the fiscal capacity generated by this scheme would be of the same order of magnitude as the funding already budgeted for EU climate policies. Access to the resulting funds would be conditional on countries' performance on the implementation of climate projects. European climate bonds would not only accelerate climate investment, but also meet the demand for a safe, liquid and green asset, increase the resilience of European countries to sovereign crises, as well as promote the greening of both investors' portfolios and monetary policy.

WP 24/04

In “When is Trust Robust?” Daniele Terlizzese, together with Luca Anderlini and Larry Samuelson, argue that an equilibrium with a high level of trust is fragile, as it can be disrupted by the infusion in the society of a small mass of agents that behave as if the prevailing equilibrium were one with low trust. Conversely, an equilibrium with low trust can withstand a much larger infusion of agents believing to be in the high trust equilibrium. The result is a consequence of the convexity of the cost that society imposes on cheaters. The convexity, in turn, follows naturally from the assumption that society punishes more heavily cheaters who are believed not to have a good reason for cheating (called “scoundrels” in the paper). Surprisingly, the fewer are the scoundrels, the more fragile is the high trust equilibrium.

WP 24/03

In "Bayesian estimation of the normal location model: A non-standard approach", Franco Peracchi, together with Giuseppe De Luca and Jan R. Magnus, consider estimating the location parameter in the normal location model and study the sampling properties of estimators derived from a Bayesian approach that places a prior on a scaled version of the location parameter, interpreted as the `population t-ratio'. This non-standard approach is motivated by the fact that, in model selection and model averaging, it is the t-ratio rather than the parameter estimate that plays an important role. They show that the finite-sample distribution of the proposed estimators is not centered at the value of the target parameter, and is generally non-normal. They also show that the speed at which the estimation bias vanishes as the sample size increases critically depends on the choice of prior. In the asymptotic theory, they prove uniform √n-consistency of the proposed estimators and obtain their asymptotic distribution under a general moving-parameter setup that includes both the fixed-parameter and the local-parameter settings as special cases. Their results have direct implications for the WALS estimator of Magnus, Powell and Prüfer (2010) and may also be helpful for other model selection or model averaging procedures.

WP 24/02

In “Tournament Auctions” Luca Anderlini and GaOn Kim examine auctions in which all but one of the participants bid first to gain the opportunity to compete with the last bidder. Only the winner of the first round competes with the last bidder in a second-price round. This second round finally assigns the object to be sold to the highest of the two bidders. At first sight this may look like a twist on a standard auction format, but instead it has unexpected features. Bidders in the first round consistently bid above their values. If the last bidder is sufficiently stronger than the others and there are sufficiently many bidders, the tournament auction increases the expected revenue for the auctioneer relative to the standard auction format.

WP 24/01

In "Fear to Vote: Explosions, Salience, and Elections" Mounu Prem, together with Juan F. Vargas, Miguel E. Purroy, Felipe Coy, and Sergio Perilla study how antipersonnel landmines thwart democratic accountability and the consolidation of post-conflict democratic institutions. They do so by exploiting the randomness in the timing of landmine explosions relative to election days, comparing the electoral outcomes of voting polls located close to a pre-election explosion with those of polls near a post-election blast. They show that landmine explosions are salient stimuli that pro- duce fear, reducing political participation. While the turnout reduction takes place across the ideological spectrum, they document that the explosions induce shifts in the political preferences of individuals who do vote, which are inconsistent with retrospective voting.