Wiley: International Economic Review: Table of Contents

Rational Expectations Fools' Bubbles

Luis Araujo, Antonio Doblas‐Madrid — Wed, 10 Jun 2026 20:37:08 -0700

ABSTRACT

We develop a rational, Walrasian model of speculative bubbles inspired by the Kindleberger–Minsky view, which describes bubbles as wave-like market processes. Touched off by an initial shock, price booms are initially self-reinforcing but become self-destructive later when prices surpass fundamental value. Previous models in this vein have been criticized due to ad hoc features, such as prices driven by behavioral forces or particular trading protocols. Our model allays these concerns by relying only on multidimensional uncertainty to prevent unraveling via backward induction. Standard market clearing, moreover, makes the model more compatible with established macroeconomic and asset pricing frameworks.

College Loans and Human Capital Investment

Chao Fu, Hsuan‐Chih (Luke) Lin, Atsuko Tanaka — Sun, 07 Jun 2026 23:03:41 -0700

ABSTRACT

College loans facilitate access to education, but the repayment burden may distort posteducation human capital investment. We examine the role of college loans and loan repayment policies through a structural model of individuals' dynamic decisions on borrowing/saving, labor supply, and costly human capital investment. We estimate two versions of the model using data from NLSY79: one with natural borrowing limits and another with parameterized limits. Counterfactual simulations suggest that, relative to the standard fixed repayment plan, income-driven repayment (IDR) plans modestly increase educational attainment, lifetime earnings, and individual welfare; accounting for lifetime income taxes, they also increase government revenue.

What Determines State Heterogeneity in Response to U.S. Tariff Changes?

Ana Maria Santacreu, Michael Sposi, Jing Zhang — Tue, 02 Jun 2026 00:00:40 -0700

ABSTRACT

We develop a structural framework to identify the sources of cross-state heterogeneity in response to U.S. tariff changes. A unilateral 25-percentage-point U.S. tariff increase across sectors induces consumption changes ranging from −0.8% in Oregon to 2.3% in Montana. This variation stems from the interaction between states' internal comparative advantage and the nation's external comparative advantage. Factor mobility lowers aggregate consumption and reshapes the cross-state impacts by shifting resources toward more distorted states and sectors. Consequently, preferred tariff changes vary systematically across states, necessitating transfers to align regional policy incentives. Foreign retaliation reduces aggregate gains while perpetuating cross-state variation.

A Demand Theory of the Price Level

Marcus Hagedorn — Sat, 23 May 2026 23:34:26 -0700

ABSTRACT

Heterogeneous agent incomplete markets models offer a new perspective on price and inflation determination. In contrast to complete markets, the price level is determined from the asset-market clearing condition. Fiscal and monetary policy then jointly and uniquely determine the finite steady-state price level and the inflation rate, including in a steady state in which the nominal interest rate is constant. Fiscal policy can determine the long-run inflation rate for a fiscal rule which sets the growth rate of nominal government debt, whereas both fiscal and monetary policy determine the long-run inflation rate under different tax rules.

Gender Criteria Gap in Evaluation: Role of Perceived Intentions and Outcomes

Nisvan Erkal, Lata Gangadharan, Boon Han Koh — Mon, 18 May 2026 07:03:04 -0700

ABSTRACT

We investigate whether different criteria are used in evaluating male and female leaders when outcomes are determined by unobservable choices and luck. Evaluators form beliefs about leaders’ choices (perceived intentions) and make discretionary payments. We find that while payments to male leaders are determined by both outcomes and perceived intentions, those to female leaders are determined by outcomes only. We label this new source of gender bias as the gender criteria gap. Our findings imply that high outcomes are necessary for women to get bonuses, but men can receive bonuses for low outcomes if evaluators hold them in high regard.

The Interaction Between Credit and Labor Market Frictions

Yulia Moiseeva — Sat, 09 May 2026 02:47:52 -0700

ABSTRACT

I study a novel two-way feedback between credit and labor market frictions. Running from credit to labor markets, amplitude in capital demand caused by collateral constraints spills over onto labor demand due to the complementarity of capital and labor; and, furthermore, credit frictions raise effective financial hiring costs, prompting firms to delay hiring in recessions. Running back from labor to credit markets, search frictions imply that wages move less than one-to-one with productivity; this induces greater volatility of net worth, via the wage bill, which then spills over onto capital demand. Together, these considerably amplify labor and capital market dynamics.

The Decentralization of Liquor Policies in Texas During the Post‐Prohibition Era

Andrew Arnold, Holger Sieg — Thu, 30 Apr 2026 01:35:12 -0700

ABSTRACT

We examine the decentralization of liquor policies in Texas during the Post-Prohibition era using newly collected historical legislative roll call data. By combining these data with local referendum vote shares, we analyze both legislators' and constituents' preferences on liquor policy. We develop a probabilistic voting model incorporating spillovers and peer effects. Results reveal substantial heterogeneity in preferences among voters, reflecting differing attitudes toward alcohol regulation. Spillover effects are significant, yet the model predicts notable gains from decentralization. Finally, we link legislators' policy preferences to alcohol consumption data and compare model-based welfare estimates with traditional consumption-based measures.

Labor Market Monopsony Power and the Dynamic Gains to Openness Reforms

Priyaranjan Jha, Antonio Rodriguez‐Lopez, Adam Hal Spencer — Thu, 30 Apr 2026 01:31:52 -0700

ABSTRACT

We embed labor market monopsony into a dynamic heterogeneous-firm general equilibrium model with exporting, horizontal FDI, and rich firm lifecycle dynamics. Rising marginal costs with monopsony slow and limit incumbent firm growth in response to liberalization, shifting adjustment to the extensive margin. Calibrated to US micro data, welfare gains from tariff reduction are over four times larger under monopsony than with perfect labor markets. The difference is mostly driven by new exporter creation and firm entry along the transition path. By contrast, lowering outward FDI taxes gives powerful quantitative welfare losses under monopsony, as firms undertake FDI to escape domestic wage pressure.

Cryptocurrency Bubbles and Costly Mining

Kohei Iwasaki — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

This paper develops a model of a cryptocurrency by incorporating mining into the otherwise standard search-theoretic monetary framework. As usual, multiple equilibria exist. To obtain a sharp prediction on whether a cryptocurrency' s value will last in the future, I propose a notion of equilibrium refinement based on the feature that mining uses real resources. This refinement eliminates all equilibria where the value of the cryptocurrency is zero at some point in time or converges to zero over time. This result suggests that agents can collectively sustain the value of the cryptocurrency using costly mining as a coordinating device.

Simple Market Structures are Incomplete

Johannes Gierlinger, Pau Milán — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

We propose a model of categorization in financial markets where states are defined by payoff-relevant variables, but all securities are measurable with respect to strict subsets of these variables. This limits insurance against variable interactions: no combination of securities can compensate the absence of an instrument targeting a given set of variables. We provide a decomposition result that identifies the uninsurable component of income risk for any market. We derive a lower bound on the number of securities required for efficiency. Using the same techniques, we characterize the payoff space when individuals condition only on a personal set of variables.

Identification and Estimation of Large Network Games with Private Link Information

Hülya Eraslan, Xun Tang — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

We study the identification and estimation of large network games in which individuals choose continuous actions while holding private information about their links and payoffs. Extending the framework of Galeotti et al., we build a tractable empirical model of such network games and show that the parameters in individual payoffs are identified under large-market asymptotics in which the number of individuals increases to infinity on a single large network. We then propose a semiparametric two-step M-estimator for these individual payoffs and demonstrate its good finite-sample performance in simulations.

Buy to Let: The Role of Rental Investors in Housing Booms

Erlend Eide Bø — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

How do rental investors affect housing price dynamics? I develop a search model that allows housing owners to invest in rental housing. The model matches the high investor share and housing price increase observed in a housing boom in Oslo, Norway, while featuring increasing price-to-rent, and correlation of the buy-to-let share with housing price growth. In the model, an exogenous shock to population inflow increases demand for both owned and rented housing. Increased rental demand induces more buy-to-let investors to enter the market, adding extra demand to the housing market. Search frictions are important to explain an increasing price-to-rent ratio.

On Quantum Ambiguity and Potential Exponential Computational Speedups to Solving Dynamic Asset Pricing Models

Eric Ghysels, Jack Morgan — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

We formulate quantum computing solutions to a large class of dynamic nonlinear asset pricing models using algorithms, in theory exponentially more efficient than classical ones, which leverage the quantum properties of superposition, entanglement, and interference. The equilibrium asset pricing solution is a quantum state. We use quantum decision-theoretic foundations of ambiguity and model/parameter uncertainty to deal with model selection.

Perceived Differences in Parent–Child Education Expectations Increase Academic Cheating

Qian Zhang, Jianxin Wang, Daniel Houser — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

Academic cheating can detrimentally impact students' learning outcomes and increase the likelihood they will later behave unethically. To improve student learning outcomes, it is important to understand why students choose to cheat. Here we develop a model, based on guilt aversion and disappointment aversion, that predicts parent–child differences in educational expectations promote children's dishonesty. We test this prediction using a nationally representative survey of secondary school students in China (N = 6853). Our data reveal that children are substantially more likely to cheat when they perceive their parents as having either higher or lower educational expectations than the children have for themselves.

Uncovering Correlation Sensitivity in Decision Making Under Risk

Moritz Loewenfeld, Jiakun Zheng — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

Allowing risk preferences to depend on the correlation between lottery outcomes can explain behavioral anomalies, while empirical evidence is limited and mixed. Using the framework of correlation sensitivity, we classify preferences into three types and adapt a choice task to categorize subjects. Experiments show that aggregate choices exhibit correlation sensitivity opposite to regret and salience theory predictions. Clustering analysis reveals that a correlation-sensitive minority drives these patterns, while most subjects display no sensitivity. We further disentangle deliberate within-state comparisons from incidental payoff comparisons, finding that both contribute to correlation sensitivity, with deliberate comparisons exerting slightly stronger effects.

Consumer Mobility, Offline and Online Regional Trade: Evidence From High‐Frequency Transaction Data

David Bounie, Youssouf Camara, John W. Galbraith — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

The shift from offline to online purchasing is reshaping trade patterns: a weaker effect of distance has been observed in digital transactions. This study analyzes these dynamics at an unprecedented scale and granularity, using interregional gravity models estimated from billions of geolocated French card transactions. Using a matched sample of merchants active in both online and offline channels, with unambiguous regional identification, we compare purchasing behavior across channels. We estimate that distance matters 35% less online than offline on average, but for durables, 69% lower online; 43% lower online for nondurables; a negligible online–offline difference is found for services.

Uneven Product Diversification: Explaining the Lag of Agricultural Economies

Guzmán Ourens — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

This paper documents that agricultural sectors diversify less than other manufacturing activities. A simple model shows that this difference can contribute to welfare divergence in a way that is qualitatively different to what results when uneven growth happens in the intensive margin. When consumers have love of variety, they endogenously reduce their expenditure share on the sector that diversifies production the least, pushing terms of trade against the lagging economy. Empirical evidence supports these patterns in agricultural economies. Uneven product diversification plays a relevant quantitative role in explaining expenditure share shifts and terms of trade movements, which complements existing explanations.

Ambiguity Aversion, Portfolio Choice, and Life Expectancy

Alistair Macaulay, Chenchuan Shi — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

This paper studies how wealth and aging affect portfolio choices in a life-cycle model with ambiguity aversion. Ambiguity aversion implies wealthier and older agents are endogenously more optimistic about risky asset returns, relative to poorer/younger agents. As life expectancy grows, old agents become even more optimistic, while young agents become more pessimistic, amplifying age gaps in portfolio composition. We find evidence for the mechanism in survey data on portfolios and subjective life expectancy. In a quantitative extension of the model, plausible life expectancy projections imply a 26% increase in the age gradient of conditional risky asset shares between 2019 and 2100.

Search and Inventory in Over‐the‐Counter Markets

Evan Dudley, Hongfei Sun, Chengjie Diao — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

We investigate the sources of the dealer centrality premium in the over-the-counter market for corporate bonds. We model dealer heterogeneity by allowing the dealer's status in the network to determine search effort and inventory costs when choosing to conduct riskless principal or principal trades. Structural estimates match the observed centrality premium across transaction types and trade count deciles. Counterfactual analyses reveal that measures that limit core dealer bargaining power vis-a-vis clients reduce roundtrip spreads. Removing core dealers' advantage in search relative to peripheral dealers has little effect on transaction costs.

A Parsimonious Model of Idiosyncratic Income

Edmund Crawley, Martin B. Holm, Håkon Tretvoll — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

The standard permanent and transitory income model is known to be misspecified. Estimates of income volatility within this model differ depending on the specific data moments used—whether they are in levels or differences—and how these moments are weighted during estimation. We suggest a simple modification to the standard model: allowing for two transitory shocks that persist for different lengths of time. Our proposed model, which introduces only one additional parameter, consistently and accurately identifies the parameters of the income process, regardless of the estimation method used .

Exporting Like China: Productivity, Market Demand, and Labor Frictions

Russell Cooper, Guan Gong, Guanliang Hu, Ping Yan — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

This paper studies Chinese firms' export status, distinguishing state and privately controlled enterprises. A dynamic model of export decisions is estimated by ownership types. The estimated models capture distinctive differences between ownership types including the productivity gap between exporters and nonexporters, the interaction between domestic and foreign sales, the skewed distribution of export shares, and the dynamic response of employment to changes in export status. Our analysis highlights the crucial role of demand shocks and labor adjustment costs in shaping the dynamics of export status, especially for privately controlled enterprises. The estimated model is used to study tariffs and uncertainty.

Optimal Unemployment Insurance Requirements

Gustavo de Souza, André Victor D. Luduvice — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

In the United States, workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of past minimum earnings. Using discontinuity of UI rules at state borders, we find that both requirements reduce unemployment and that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. We develop a heterogeneous agents model with history-dependent UI benefits to explain these results and quantify an optimal utilitarian UI design. The optimal policy has a high monetary and a short tenure requirement.

Democratic Political Economy of Financial Regulation

Igor Livshits, Youngmin Park — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

We establish that inefficiently lax financial regulation can arise democratically. Lax regulation leads to banks issuing risky mortgages at less than actuarially fair interest rates. This creates additional demand for houses and increases house prices, generating nontrivial distribution of winners and losers. Renters and individuals with large nonhousing wealth suffer from the induced banking fragility, while young middle-wealth households benefit from mispriced mortgages and old homeowners benefit from higher house prices. When these latter two groups constitute a majority, regulatory failure can be a democratic outcome. Voting patterns in US Congress provide empirical support for this mechanism.

Network Games With Triadic Interactions

Wei Shi, Chunchao Wang, Pei Yu — Mon, 27 Apr 2026 09:32:22 -0700

ABSTRACT

We propose a model for network-mediated interactions incorporating higher-order relationships such as triadic interactions. The marginal utility of an individual's action depends explicitly on endogenous actions of multiple units. Conditions ensuring a unique Nash equilibrium are derived using a variational inequality approach. We estimate the model parameters via maximum likelihood and derive their large sample properties. Applying our model to data from a primary school teamwork experiment in China, we find that the peer effects associated with externally assigned teammates vary depending on preexisting friendship networks. The teamwork intervention enhances peer influence on attitudes while diminishing academic competition among students.

ISSUE INFORMATION ‐ JIP

Mon, 27 Apr 2026 09:32:22 -0700

International Economic Review, Volume 67, Issue 2, Page 409-410, May 2026.

The Short and the Long of It: Stock‐Flow Matching in the US Housing Market

Eric Smith, Zoe Xie, Lei Fang — Fri, 24 Apr 2026 22:17:01 -0700

ABSTRACT

From 2006 until 2020, the probability of selling a house in the U.S. declined sharply after listing for 2 weeks. Moreover, sales within the first 2 weeks of listing (“quick sales”) and sales happening afterward (“slow sales”) behaved differently over the housing cycle. The probability and associated price of a quick sale recovered from the slump sooner, faster, and more prominently than a slow sale. This paper demonstrates that a calibrated stock-flow matching model not only generates quantitatively consistent sales, prices, listings, and time on the market but also captures distinctions between fast and slow sales over the housing cycle.

How Does Progressivity Affect the Tax Cut Multiplier?

Christian Gillitzer — Wed, 22 Apr 2026 08:55:16 -0700

ABSTRACT

How does the targeting of personal income tax cuts affect the output multiplier? This paper provides quantitative evidence using a heterogeneous-agent New-Keynesian model calibrated to match US distributions of income, wealth, marginal tax rates, and marginal propensities to consume. Labor supply is determined by household preferences on the intensive margin and search frictions on the extensive margin. The model evaluates tax cuts for the bottom-90 (B90%) and top-10% of the income distribution in national and cross-region settings, replicating influential empirical research designs. B90 tax cuts generate larger output effects while incentive effects play a central role in transmission.

Place‐Based Land Policy and Spatial Misallocation: Theory and Evidence From China

Min Fang, Libin Han, Zibin Huang, Ming Lu, Li Zhang — Wed, 15 Apr 2026 00:00:00 -0700

ABSTRACT

We investigate a land policy in China that allocated more urban land quotas to underdeveloped regions to reduce regional gaps. Empirically, the policy decreased productivity in eastern areas relative to the inland. A spatial equilibrium model with migration, land quota constraints, and agglomeration shows the policy distorts labor and production across regions, causing substantial output losses. Though regional gaps narrowed, workers from underdeveloped areas migrated less and earned less. Without the policy, national output would have been 1.8% higher, and workers in underdeveloped areas would have earned 1.6% more in 2010. Regional transfers offer a less distortionary alternative for reducing inequality.

Accounting for the Evolution of China's Production and Trade Patterns

Hanwei Huang, Jiandong Ju, Vivian Z. Yue — Sun, 29 Mar 2026 23:44:44 -0700

ABSTRACT

We study the evolution of China's production and trade patterns during its integration into the global economy. Using firm-level microdata, we document how production and exports shifted across industries and within industries across firms. We quantify a Ricardian–Heckscher–Ohlin model with heterogeneous firms to account for these changes. Counterfactuals show capital deepening pushed China's production and exports toward greater capital intensity, while labor-biased productivity growth provided an offsetting force. The model generates an inverted-U pattern in China's trade openness—peaking in the mid-2000s and declining through the 2020s—alongside a continuous rise in the world's exposure to Chinese exports.

Do Parents Propagate Inequality Among Children? Evidence From Chinese and Swedish Twins

Aiday Sikhova, Sven Oskarsson, Rafael Ahlskog — Thu, 26 Mar 2026 04:16:23 -0700

ABSTRACT

Economists have long studied how parental behavior shapes within-family inequality, yet empirical findings remain mixed. Using twins data from China and Sweden, we examine the predominant mechanisms reported in the literature. Parents in both countries invest similarly during childhood. Inter vivos transfers, however, differ: Chinese parents reinforce income inequality, whereas Swedish parents distribute wealth equally; the reinforcing pattern reflects exchange motives. Bequests are divided equally in both countries. Parental education plays a key role: less educated parents reinforce income inequality, whereas more educated parents transfer wealth equally. Cross-country differences in parental education may thus help explain the mixed findings.

Dynamic Mode Decompositions and Vector Autoregressions

Thomas J. Sargent, Yatheesan J. Selvakumar, Ziyue Yang — Fri, 20 Mar 2026 06:29:11 -0700

ABSTRACT

We establish connections between dynamic mode decompositions (DMDs), vector autoregressions, and linear state-space models, showing that DMD provides a computationally efficient, SVD-based estimator of low-rank first-order VAR projection coefficients in high-dimensional settings. When the measurement matrix has full column rank, the recovered nonzero eigenvalues coincide with those of the underlying state transition matrix. We apply DMD to a 100-household heterogeneous-agent economy with complete markets and Gorman aggregation. From high-dimensional household income and consumption panels, DMD recovers latent aggregate dynamics, and cross-sectional loadings reveal the sharing rule governing redistribution, demonstrating DMD's capacity to extract economically meaningful structure from microeconomic panels.

To Grandmother's House We Go: Informal Childcare and Female Labor Mobility

Garrett Anstreicher, Joanna Venator — Thu, 19 Mar 2026 00:47:42 -0700

ABSTRACT

We document how childcare costs and the location of extended family influence the labor supply and mobility of US women. Women return to their home locations immediately before fertility events, suggesting that informal childcare needs may motivate home migration. Women who live near their parents have lower child earnings penalties. We then build a model of labor supply and migration to assess the impacts of childcare subsidies. Childcare subsidies increase earnings and mobility among US women and ignoring migration can understate the welfare benefits of these policies, especially for college-educated women and those whose parents' locations have poor amenities.

College Financial Aid Application Frictions

Emily G. Moschini, Gajendran Raveendranathan — Thu, 19 Mar 2026 00:45:42 -0700

ABSTRACT

We document that 11 percent of recent U.S. high school graduates did not apply for federal student aid due to difficulty in applying, mistaken beliefs, or lack of awareness. Not applying due to such application frictions negatively predicts college enrollment after controlling for other attributes. We represent application frictions as heterogeneous filing costs in a general equilibrium life cycle model of college enrollment. We find that eliminating these frictions generates modest gains on average because less than half of those affected would ultimately utilize aid. However, welfare gains are large for the affected few with high skill and poor parents.

Signaling Vision: Knowing When to Quit

Junichiro Ishida, Wing Suen — Tue, 10 Mar 2026 22:07:32 -0700

ABSTRACT

We study a signaling game where agents signal their type by choosing when to quit pursuing an uncertain project. High types observe news about project quality and quit when bad news arrives. Low types who do not observe any news may mimic high types by quitting continuously over a phase of time. The reputation dynamics may exhibit nonmonotonicity with respect to quitting time. Our analysis offers a unifying explanation for how and when both early and late quitting can enhance reputation and suggests novel welfare and policy implications.

Nonlinearities With Deanchored Inflation Expectations

Stefano Fasani, Mirela Miescu, Lorenza Rossi — Mon, 09 Mar 2026 03:32:39 -0700

ABSTRACT

Using a nonlinear VAR, we examine the asymmetric effects of shocks to long-run inflation expectations. Negative shocks, which temporarily lower long-run inflation expectations, have a stronger and more persistent impact on output, investment, and firm entry compared to positive shocks. We provide a novel theoretical explanation, demonstrating how these shocks influence the second-order components of the model, shaping firms' “wait-and-see” behavior—particularly along both the intensive and extensive margins of the investment channel.

Correction to “Quantifying the Macroeconomic Impact of Credit Expansions”

Wed, 04 Mar 2026 08:03:59 -0800

International Economic Review, EarlyView.

Miners' Reward Elasticity and Stability of Competing Proof‐of‐Work Cryptocurrencies

Kohei Kawaguchi, Junpei Komiyama, Shunya Noda — Thu, 05 Feb 2026 00:00:00 -0800

ABSTRACT

Proof-of-Work cryptocurrencies employ miners to sustain the system through algorithmic reward adjustments. We develop a stochastic model of the multicurrency mining and identify conditions for stable transaction speeds. Bitcoin's algorithm requires hash supply elasticity <$<$1 for stability, while ASERT remains stable for any elasticity and can be interpreted as a form of stochastic gradient descent. Interactions with other currencies can relax Bitcoin's stability requirements. Using a halving event, we estimate miners' hash supply elasticity and conduct counterfactual simulations. Our findings reveal Bitcoin's heavy reliance on low hash supply elasticity and interactions with smaller cryptocurrencies, urging an algorithm upgrade for stability.

The Legacy of Policy Inaction in Climate‐Growth Models

Thomas Steger, Timo Trimborn — Wed, 04 Feb 2026 04:31:27 -0800

ABSTRACT

To better understand the structure and core mechanisms of a broad class of climate-growth models, we study a simplified version of the dynamic integrated model of climate and the economy (DICE) through the lens of growth theory. We analytically show that this model features a continuum of saddle-point stable steady states. Initial conditions of stock variables, which are notoriously difficult to calibrate, matter for long-run economic and climate outcomes. However, we also demonstrate that a misspecified initial stock of capital has a significantly smaller impact than a misspecified initial CO₂ stock. These insights have important implications for the consequences of delayed climate policy implementation and the optimal carbon tax. Using a calibrated version of the model, solved numerically for the big transition, we show that postponing optimal climate policy raises both peak temperature and the steady-state temperature. The findings extend to a large set of analytical and numerical integrated assessment models. The simple DICE, augmented by the finite amplitude impulse-response (FAIR) carbon cycle model, exhibits a continuum of steady states over time horizons spanning several centuries. Peak and long-run temperatures depend on initial conditions, a result that is also confirmed for DICE-2023. We further show that the social cost of carbon to GDP ratio is largely constant despite transitional dynamics; however, its level depends on the timing of optimal policy implementation.

Pairwise Imitation and Tournament Graphs

Sung‐Ha Hwang, Philip R. Neary, Jonathan Newton, Ryoji Sawa — Wed, 04 Feb 2026 04:13:15 -0800

ABSTRACT

This paper investigates strategic dynamics under the behavioral rule of pairwise interact and imitate (PII), which requires minimal information and emphasizes outperforming opponents in pairwise interactions. We characterize PII using weak tournament graphs and, for a broad class of dynamics, establish a one-shot stability result for stochastic stability. Applications include Cournot competition, strategic complements and substitutes, externalities, Nash demand games, and status-seeking contests. The analysis highlights the competing roles of spite effects and perturbations in favoring relative success versus efficiency.

Flexible Contract, Flexible Morale? Microcredit Design and Repayment Discipline

Kristina Czura, Anett John, Lisa Spantig — Wed, 28 Jan 2026 01:13:09 -0800

ABSTRACT

Flexible repayment benefits borrowers, but practitioners fear increased moral hazard. Investigating their concerns requires disentangling repayment choices from repayment capacity, which is typically infeasible in field studies. We use a lab-in-the-field experiment with 645 microcredit borrowers to cleanly identify the effect of repayment flexibility on moral hazard. We also quantify social pressure. Payoff maximization predicts low repayment in our rigid benchmark contract, and increased repayment with flexibility. Results suggest the opposite: Repayment in the rigid contract is high, and drops substantially under flexible repayment. Social pressure decreases. Our results are consistent with a strong social norm for repayment, which is weakened by introducing flexibility. Norms, which may be inculcated by the lender, may help explain several recent puzzles in microfinance research, including high and equal repayment rates across individual- and joint-liability contracts, and excessive peer pressure. Importantly, norm-driven behavior may erode with the introduction of flexibility.

Optimal Selling Mechanisms With Endogenous Seller Outside Offers

Xiaogang Che, Tong Li, Jingfeng Lu, Xiaoyong Zheng — Mon, 19 Jan 2026 01:09:00 -0800

ABSTRACT

We examine a two-stage selling mechanism design problem, where the buyer makes her report and the seller endogenously decides his effort (hidden investment) to generate a possibly better outside offer. The optimal mechanism shows that the seller's effort depends on the reported value of the buyer; a higher value lowers the seller's incentive to invest in the outside offer. After the price of the outside offer is realized, if the buyer's virtual value is less than the price, the seller takes the outside offer, and a termination fee equal to the virtual value is paid to the buyer.

Cyclical Inequality in the Cost of Living and Implications for Monetary Policy

Ting Lan, Lerong Li, Minghao Li — Sun, 11 Jan 2026 23:47:42 -0800

ABSTRACT

This paper documents that households with higher marginal propensities to consume (MPCs) consume goods with more flexible prices. Consequently, they face more cyclical and volatile inflation, and experience higher inflation following expansionary monetary policy shocks. We embed this MPC-price stickiness relationship into a tractable multi-sector two-agent New Keynesian (TANK) model and show that it dampens monetary policy effectiveness by about 15% relative to a homogeneous-basket benchmark. Introducing heterogeneous consumption baskets also generates an inefficient flexible-price equilibrium, leading to a novel trade-off between stabilization and redistribution, which alters the optimal monetary policy prescription.

Recovering Preferences in College Assignment Problems Under Strategic and Constrained Reports

Allan Hernandez‐Chanto — Sat, 10 Jan 2026 02:31:13 -0800

ABSTRACT

Many countries around the world use centralized admission systems to assign thousands of students to university programs every year. However, the impact of admission policy changes on students' welfare remains largely unknown. To address this, we propose a novel methodology that recovers students' true preferences in a mechanism where students hold private information and face constraints on the number of options they can submit as preferences. This methodology involves two steps: first, the nonparametric recovery of ordinal preferences using a revealed preference approach based on a concatenation algorithm; and, second, the recovery of cardinal preferences using either a Gibbs sampler estimator or a calibration method. Applying our methodology to administrative data from the University of Costa Rica, we evaluate counterfactual policies and suggest two alternate mechanisms based on an ascending auction and competitive equilibrium prices.

Should Platforms be Held Liable for Defective Third‐Party Goods?

Yusuke Zennyo — Wed, 07 Jan 2026 04:45:25 -0800

ABSTRACT

This paper develops a model of platform liability for ex post compensation of consumer harm caused by third-party sellers. A platform chooses how liability is shared with sellers, but assumes no liability because it reduces sellers' safety investments. Mandated platform liability can increase or decrease consumer surplus: it is more likely to be beneficial when the platform has weak market power or faces competition, but less so when it sells first-party goods or third-party sellers are judgment-proof. When the platform invests in screening judgment-proof sellers, liability regulation encourages investment, increasing welfare gains. Regulations targeting only incumbents may deter platform entry.

Dynamics of High‐Growth Young Firms and the Role of Venture Capitalists

Yoshiki Ando — Mon, 15 Dec 2025 00:00:00 -0800

ABSTRACT

Motivated by the substantial growth and upfront investments of venture capital (VC)-backed firms observed in administrative US Census data, this study develops a life-cycle firm dynamics model. In the model, startups choose the source of financing from VC, angel investors, or banks, depending on their growth potential, and invest in innovation. The calibrated model explains the life-cycle dynamics of firms with different sources of financing and suggests that venture capitalists' managerial advice accounts for around 22% of the growth in VC-backed firms. A counterfactual economy without VC financing would experience an aggregate consumption loss of around 0.46%.

Platform Liability and Innovation

Doh‐Shin Jeon, Yassine Lefouili, Leonardo Madio — Fri, 05 Dec 2025 02:41:32 -0800

ABSTRACT

We study a platform's incentives to remove IP-infringing products and the effects of holding the platform liable for such infringements on innovation and welfare. We first show that platform liability can lead to either higher or lower commission rates, depending on how screening affects transaction volume. We then show that liability may spur or hinder innovation, depending on the intensity of cross-group network externalities, which determines participation elasticities on each side. If platform liability lowers innovation, all market participants—the platform, innovators, imitators, and buyers—are worse off. We also provide a sufficient condition for platform liability to raise welfare.

When in Doubt, Tax More Progressively? Uncertainty and Progressive Income Taxation

Minsu Chang, Chunzan Wu — Wed, 09 Jul 2025 21:35:35 -0700

ABSTRACT

We study the optimal income tax problem under parameter uncertainty about household preferences and wage dynamics. We derive conditions characterizing how such uncertainty affects optimal tax policy. To quantify the effect, we estimate a life-cycle model using US data and a Bayesian approach. Parameter uncertainty makes the optimal tax more progressive, increasing the marginal tax rate gap between high- and low-income households by 5.5 percentage points. This effect is primarily driven by uncertainty about the wage process. We also find that parameter uncertainty imposes sizable welfare costs through the income tax channel alone.