{"title":"How good am I? Effects and mechanisms behind salient rank","authors":"","doi":"10.1016/j.euroecorev.2024.104870","DOIUrl":"10.1016/j.euroecorev.2024.104870","url":null,"abstract":"<div><div>How do individuals respond when their ordinal ranking becomes salient? We present evidence on the effects and mechanisms of achievement rank effects in middle schools when ranks are to a large extent salient to students and their parents. For identification, we rely on the random assignment of students (and teachers) to classrooms in China. That is, students with the same baseline test scores end up having different achievement ranks in their assigned classroom. We find positive and large effects of being assigned a higher rank on subsequent performance. The estimated effects of ranks are larger when ranks are more salient and for male students. We show that students with higher ranks spend more hours on autonomic studying. What drives these effects is still an open question, especially when ranks are salient to both students and their parents. Using rich survey data, we show that these academic gains are not only mediated through (1) students’ higher self-perception and higher subject learning confidence, but also through (2) better parental understanding of their child’s ranks, stricter parental requirements for their child’s study, and higher parental expectations regarding their child’s educational attainment and career prospects. We show that these two channels make similar contributions to explaining salient rank effects, and when combined they explain 47.70% of the increase in test scores. We find no impact on teachers’ investment or attention to students as a result of rank effects.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142322514","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The inelastic demand for affirmative action","authors":"","doi":"10.1016/j.euroecorev.2024.104862","DOIUrl":"10.1016/j.euroecorev.2024.104862","url":null,"abstract":"<div><div>We study the role of financial incentives in driving support for affirmative action (AA) in a series of online experiments. Participants act as employers deciding whether to use AA in hiring. We implement three treatments to disentangle AA preferences stemming from perceived gender differences in productivity, perceived effects of AA on productivity, or other costs of AA for employers. Around 1/3 of employers consistently implement AA, and we do not find any significant difference across treatments, despite successfully altering beliefs about productivity differences. Our results suggest that AA choice reflects a more intrinsic and inelastic preference for advancing female candidates.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142314879","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Labour at risk","authors":"","doi":"10.1016/j.euroecorev.2024.104849","DOIUrl":"10.1016/j.euroecorev.2024.104849","url":null,"abstract":"<div><div>We propose a Bayesian VAR model with stochastic volatility and time varying skewness to estimate the degree of labour at risk in the euro area and in the United States. We model the asymmetry of the shocks to changes in the unemployment rate as a function of real activity and financial risk factors. We find that the conditional distribution of the changes in the unemployment rate displays time-varying volatility and skewness, with peaks coinciding with the Global Financial Crisis and the COVID-19 pandemic, in both areas. We also take advantage of the multivariate nature of our parametric model to measure the joint risk of large increases in the unemployment rate together with large annual rates of inflation, a proxy for “stagflation” risks. The model captures an increase of the risk of stagflation with the surge in inflation that followed the recent energy crisis in 2022. Nevertheless, stagflation risks were contained by the resilient performance of the labour market in both areas. Labour at risk is therefore important for the assessment of the inflation-unemployment trade-off.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142322390","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"A simple model of buyer–seller networks in international trade","authors":"","doi":"10.1016/j.euroecorev.2024.104868","DOIUrl":"10.1016/j.euroecorev.2024.104868","url":null,"abstract":"<div><div>The recent literature on firm-to-firm trade has documented salient empirical regularities of the buyer–seller network. We show that surprisingly many of these regularities emerge by superimposing the stochastic balls-and-bins structure of Armenter and Koren (2014) to firms in a classical Krugman (1980) model. Our approach amounts to a re-interpretation of Krugman (1980) and relies on randomized bundling of Krugman-varieties into heterogeneous firms, economically neutral ‘sales units’ that import foreign varieties but belong to local firms, and a statistical reporting threshold that applies to firm-to-firm transactions. We argue that our model provides an important benchmark for the assessment of theoretical models that aim to identify the determinants of firm-to-firm networks.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142322515","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Voting on the flag of the Weimar Republic","authors":"","doi":"10.1016/j.euroecorev.2024.104871","DOIUrl":"10.1016/j.euroecorev.2024.104871","url":null,"abstract":"<div><p>We describe and analyze the voting process leading to the compromise achieved in the Weimar Flag Controversy. We also offer a simple theoretical model that attempts to capture the main forces at work. These forces are: (1) the addition of a compromise alternative that is located between the main ideological positions on the left and on the right; (2) the interdependence of preferences that makes the compromise salient; and (3) a voting process that gradually reveals and aggregates information. Finally, we compare the theoretical insights with the observed outcome.</p></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0014292124002009/pdfft?md5=3de59a0105ce153bddef628b5ef4608b&pid=1-s2.0-S0014292124002009-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142272148","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Lognormal (re)distribution: A macrofounded theory of inequality","authors":"","doi":"10.1016/j.euroecorev.2024.104863","DOIUrl":"10.1016/j.euroecorev.2024.104863","url":null,"abstract":"<div><div>We study how political competition over redistribution determines income inequality under one macrofounded premise: the income distribution is approximately log-normal before and after any policy intervention. The unique equilibrium features substantial income inequality and less than maximal redistribution, even if the voters’ median income is very low. Fitting our model to the US economy, we argue that either the efficiency cost of redistribution is higher than estimates in the literature, or else US’s redistributive policies are optimal for an agent richer than the median voter.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142311134","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Climate defaults and financial adaptation","authors":"","doi":"10.1016/j.euroecorev.2024.104866","DOIUrl":"10.1016/j.euroecorev.2024.104866","url":null,"abstract":"<div><p>We analyze the relationship between climate-related disasters and sovereign debt crises using a model with capital accumulation, sovereign default, and disaster risk. We find that disaster risk and default risk together lead to slow post-disaster recovery and heightened borrowing costs. Calibrating the model to Mexico, we find that the increase in cyclone risk due to climate change leads to a welfare loss equivalent to a permanent 0.95% consumption drop. However, financial adaptation via catastrophe bonds and disaster insurance can reduce these losses by about 21%. Our study highlights the importance of financial frictions in analyzing climate change impacts.</p></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142242171","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Firm-level impact of public credit guarantees","authors":"","doi":"10.1016/j.euroecorev.2024.104861","DOIUrl":"10.1016/j.euroecorev.2024.104861","url":null,"abstract":"<div><div>This paper studies the firm-level short-term impact of one of the world’s largest credit guarantee programs recently implemented in Türkiye. Using a combination of firm-level administrative databases of the tax registry, credit registry, and the credit guarantee fund (CGF) registry, we analyze the characteristics of the CGF-supported firms and the program’s impact on their employment, sales, and credit default probability. Our findings indicate that, on average, the CGF program had a positive effect on the short-term performance of the treated firms. Specifically, CGF-supported firms preserved 17 percent more employment and achieved 70 percent higher sales, while reducing their credit default probability by 0.6 percentage points compared to their matched control group. Evaluating our estimation results at variable averages shows that every 1 million TL credit generated via the CGF program preserved 2.7 extra employment and stimulated about 3 million TL in sales. However, the program did not lead to increased productivity-enhancing investments, such as R&D. Additionally, we observe an overall increase in firm indebtedness, which may adversely affect firms’ long-term financial health. Furthermore, our analysis reveals that the program’s impact varies across firm sizes and sectors, with medium-sized firms and labor-intensive sectors experiencing the most significant benefits. Using this heterogeneity, we perform counter-factual policy exercises indicating that redesigning the program with such priorities can bring substantial efficiency gains.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142314878","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Unwinding quantitative easing: State dependency and household heterogeneity","authors":"","doi":"10.1016/j.euroecorev.2024.104865","DOIUrl":"10.1016/j.euroecorev.2024.104865","url":null,"abstract":"<div><p>This paper studies the asymmetry in the macroeconomic effects of central bank asset market operations induced by state dependency and the associated role of household heterogeneity. We build a New Keynesian model with borrowers and savers in which quantitative easing and tightening operate through portfolio rebalancing between short-term and long-term government bonds. We highlight the significance of an occasionally binding zero lower bound in explaining a weaker aggregate impact of asset sales relative to asset purchases. In this context, when close to the lower bound, raising the nominal interest rate prior to unwinding quantitative easing mitigates the economic costs of monetary policy normalization. Furthermore, our results imply that household heterogeneity in combination with state dependency amplifies the revealed asymmetry, while household heterogeneity alone does not enhance the aggregate effects of asset market operations.</p></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142232936","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Labour costs and the decision to hire the first employee","authors":"","doi":"10.1016/j.euroecorev.2024.104859","DOIUrl":"10.1016/j.euroecorev.2024.104859","url":null,"abstract":"<div><p>Firms without paid employees account for up to 80 % of all firms, but only a small minority ever hires. This paper investigates the relationship between labour costs and the decision to hire a first employee and become an employer. Leveraging a unique policy in Belgium that permanently reduced the labour cost of the first employee by 13 %, we find that the number of new, first-time employers jumped by 31 % immediately following the reform. The elasticity of the probability to hire the first employee with respect to the labour cost is −2.39 [95 % CI: −3.45, −1.25].</p></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142272147","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}