NBER Working Paper

A Theory of Firm Wage Dynamics

Marc de la Barrera, Masao Fukui — Sun, 02 Aug 2026 16:00:00 GMT

We develop a theory of firm wage dynamics that integrates the canonical wage-posting model à la Burdett and Mortensen (1998) with firm dynamics. Firms offer dynamic wage contracts under an equal-treatment constraint in the presence of search frictions. We provide an analytical characterization of equilibrium wage contracts and firm growth as functions only of the distribution of marginal surplus. Consistent with recent empirical evidence, the model implies that (i) firm wages are strongly linked to firm growth but not to firm size; (ii) firm wages decline over the firm life cycle; and (iii) the pass-through of permanent productivity shocks to wages is higher in the short run than in the long run. Firms at the top of the job ladder face excessive labor market competition, so the optimal policy subsidizes their hiring. At the macro level, the optimal policy elevates business dynamism in the steady state, and even more so along the transition.

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The United States and Its Creditors: Assessing Foreign Demand for U.S. Assets

Anusha Chari, Gian Maria Milesi Ferretti — Sun, 02 Aug 2026 16:00:00 GMT

This paper analyzes foreign demand for U.S. assets, with particular emphasis on U.S. Treasury securities. It documents compositional shifts in U.S. bilateral external positions across geographic regions and asset classes, providing estimates of creditor positions closer to a nationality-based concept. While rising U.S. equity prices explain a sizable share of the deterioration in the net external position, foreign purchases of U.S. Treasury securities have been the largest source of U.S. current account financing. The share of these securities held by foreign official investors has declined sharply during the past decade, while the share held by foreign private investors (especially through financial centers) has risen. The decline in foreign official holdings is well explained by lower reserve accumulation, increased Federal Reserve holdings, and dollar appreciation against other reserve currencies. The evidence is consistent with central banks rebalancing their portfolios to avoid large swings in currency shares. Geoeconomic fragmentation is negatively correlated with official demand for U.S. Treasuries, while foreign private demand remains sensitive to safe-haven dynamics. Overall, the paper assesses how these structural shifts affect portfolio preferences for U.S. assets and their potential implications for the U.S. external position amid heightened geopolitical and fiscal uncertainty.

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Meritocracy and the Networks It Forged: China’s Imperial Examination

Ying Bai, Ruixue Jia — Sun, 02 Aug 2026 16:00:00 GMT

Institutions that claim to reward merit often also serve as engines that drive the formation of important social networks. We examine this dual role in China’s Imperial Examination, one of history’s longest-lived meritocratic systems. We draw on exam performance data for 24,269 individuals across 112 national examinations in the Qing dynasty (1644–1905) and trace who among them rose to become top officials. Strong exam performance increased the likelihood of attaining high office, but advancement also depended on individuals’ ties to powerful examiners. Because performance and ties to powerful examiners were strongly complementary, individuals’ success appeared to rest on merit even as social networks played a role. Following the major political transformations of the 1840s, the importance of examiner ties persisted, although the influential examiners themselves changed. These findings help explain why such systems retain legitimacy even when networks matter greatly.

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Demand for Safety in the Crypto Ecosystem

Murillo Campello, Angela Gallo, Lira Mota, Tammaro Terracciano — Sun, 02 Aug 2026 16:00:00 GMT

We study the demand for safety and liquidity in the crypto ecosystem. We do so under a framework in which a representative investor allocates liquidity across stablecoin deposits in lending pools and traditional safe assets (e.g., MMF shares). Our model delivers three main predictions: (i) the stablecoin deposit premium co-moves with the Treasury premium when investors value the safety and liquidity services of stablecoins; (ii) increases in Treasury supply reduce the stablecoin deposit premium; and (iii) drops in the perceived safety and liquidity of stablecoin deposits (e.g., due to de-pegs or hacker attacks) reduce their premium. Using granular data from hundreds of DeFi pools spanning multiple protocols, tokens, and blockchains, we find evidence supporting these predictions. Investors treat stablecoin deposits as money-like instruments that are borderless and permissionless, yet as fragile as other forms of privately produced safe assets.

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Unpacking Treatment Effect Heterogeneity in a Large-Scale Dropout-Prevention Experiment

Sun, 02 Aug 2026 16:00:00 GMT

Timely high school completion is a critical step in successful transitions to post-secondary schooling and the labor market. This randomized controlled trial, deployed in two urban, disadvantaged school districts, tests the effectiveness of a mature and comprehensive student-support program on an unusually large scale (n=2,528). While overall effects on graduation rates are small and statistically insignificant, exploratory analyses reveal notable variation by site and over time, mirroring heterogeneity in treatment timing and program implementation. These findings highlight the challenges of scaling interventions and raise concerns about generalizing results from small-scale, single-site evaluations.

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Replaceable but Employed: Automation and the Meaning of Work

Joshua S. Gans — Sun, 02 Aug 2026 16:00:00 GMT

Can automation harm workers without replacing them? We study jobs in which workers value both producing useful output and knowing that the output depends on their own contribution. A credible machine alternative can weaken that second source of meaning even when the firm retains the worker. Our model shows that this loss raises compensation when wages adjust fully; when they adjust only partly, workers bear some of the loss themselves. It can also make automation more likely. An external developer may profit by publicly demonstrating a machine before licensing it, because the demonstration lowers the value of the human alternative. This "meaning externality" can create demand for the machine and make profitable development socially harmful. Better technical quality and greater public salience have different effects: quality improves output, while salience alone weakens human work. Automation can, therefore, reduce the value of work before it eliminates jobs.

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Detecting Critical Junctures as They Unfold: Foundations, Measurement, and Applications from 120 Years of Reporting

Sun, 02 Aug 2026 16:00:00 GMT

Explaining why some countries grow rich while others remain poor requires knowing how — and when — institutions change. A large body of research argues that institutional change often occurs at critical junctures: moments when multiple institutional futures are possible, including a return to the status quo. Yet most empirical work examines critical junctures only in retrospect, risking the omission of pivotal moments when institutions were in flux but ultimately remained unchanged. We develop a new empirical approach to detect critical junctures as they unfold. Our key insight is to understand critical junctures as moments of uncertainty about institutions, which provides a text classifier with a theoretically motivated object to detect in contemporaneous discourse. In this chapter, we apply this idea to the study of historical critical junctures using newspaper text as a rich source of information regarding contemporary beliefs about institutional uncertainty. We translate this insight into a measurement strategy by training a large language model-based classifier, which we apply to the Times of London archive — 11.95 million articles spanning 1800 to 2019 — while focusing our main empirical analysis on 120 years of reporting from 1900 to 2019. This produces the first long-run, text-based measure of institutional uncertainty grounded in the concept of critical junctures. Compared to established indices of geopolitical and economic risk, our measure innovates on several fronts: (i) it captures high uncertainty even in periods without formal institutional change, consistent with ex-ante definitions of critical junctures; (ii) it provides earlier signals of major global convulsions, such as World War I; (iii) it evaluates candidate critical junctures using a common ex ante measure; and (iv) it opens new avenues for studying how critical junctures shape institutions and long-run development. Today, our Times-based index suggests that institutional uncertainty in the US and UK is as elevated as it was in the early 1940s — a signal missed by other leading measures of risk.

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Long-Run Effects of H-1B Immigration on the U.S. Economy

Ran Abramitzky, Leah Platt Boustan, Ahmet Gulek, Jens Hainmueller — Sun, 02 Aug 2026 16:00:00 GMT

We study the effects of H-1B immigration on U.S. industries that employ H-1B workers and their trading partners. Using a novel cross-industry design and the 1999–2003 expansion of the H-1B visa cap for identification, we find that H-1B exposure raised incomes for natives and pre-existing immigrants, with gains concentrated in non-STEM occupations. Income gains propagate forward through supply chains to downstream industries but not backward to upstream industries, consistent with a productivity shock rather than a labor supply shock. We find no direct effect on patenting, suggesting that productivity gains arise from better task execution rather than patentable invention.

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The Anatomy of Tariff Pass-through into Consumer Prices

Mary Amiti, Sebastian Heise, David Weinstein — Sun, 02 Aug 2026 16:00:00 GMT

Tariffs raise the prices of goods made at home, not just the imports they tax—an effect that standard pass-through estimates largely miss. Studying the 2025 U.S. tariffs, we find that about 26 percent of the tariff increase passes through to consumer prices. These estimates are measured relative to less-exposed goods and hold aggregate conditions fixed. The direct effect accounts for 64 percent of this increase, as tariffs raise the consumer prices of foreign varieties of a good. The remaining 36 percent arises indirectly—tariffs raise the cost of imported inputs used by U.S. producers, and domestic producers raise their markups because they face less competition from higher-priced imports. The direct effect passes through quickly, since tariffs raise import prices almost immediately, but the indirect effect takes nine to twelve months to work its way through supply chains. As a result, tariffs have a larger and more drawn-out impact on consumers than the direct effect alone would suggest.

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Chinese Sputnik Moments?

Josh Lerner, Namrata Narain, Dimitris Papanikolaou, Amit Seru, Zunda Winston Xu — Sun, 02 Aug 2026 16:00:00 GMT

China’s technological progress in recent decades has been viewed with admiration, alarm, and (in some cases) doubt. To better understand the Chinese innovation ecosystem, we compile a dataset of almost 14 million domestic Chinese patent publications. We focus on the subset of critical technologies identified by the U.S. Department of Defense. Several surprising patterns emerge from the data: Chinese patenting is strongly associated with other measures of innovative progress; patents are not concentrated in corporate giants such as Huawei; universities have played a key role in innovation, much greater than state-owned enterprises or government-owned facilities; and fewer than one in ten Chinese critical technology patents involves an inventor with U.S. experience or training. Finally, using four text-based measures of patent quality, we show that the rise of Chinese patenting in critical technologies has not been associated with a decline in quality relative to the U.S. awards.

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Monetary Policy in Mandarin Capitalism

Jeffery (Jinfan) Chang, Wei Xiong — Sun, 02 Aug 2026 16:00:00 GMT

This paper investigates why China’s recurrent credit expansions have coincided with persistently weak inflation. We argue that this pattern reflects the country’s production-oriented monetary regime. At the aggregate level, faster monetary-financial expansion temporarily raises PPI inflation but depresses it over longer horizons. At the sectoral level, liability growth among listed industrial firms is followed by weaker producer prices, lower profitability, higher leverage, rising inventories, and reduced capacity utilization. We also find asymmetric supply-chain transmission: downstream liability growth raises upstream PPI inflation, while upstream liability growth does not generate a corresponding downstream price response. These findings indicate that credit expansion in China tends to sustain production and balance sheets rather than stimulate final demand. As a result, monetary policy operates less as a conventional tool for demand management and durable reflation, and more as a mechanism for preserving production capacity and supporting growth.

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Incomplete Information and Self-Fulfilling Inflation Dynamics—Lucas meets Keynes

Jess Benhabib, Pengfei Wang, Yi Wen — Sun, 02 Aug 2026 16:00:00 GMT

This paper incorporates the Lucas (1973) island model into a standard DSGE framework. It demonstrates that self-fulfilling stochastic inflation equilibria, which are driven by intrinsic uncertainty or pure sentiments, can exist under rational expectations. Furthermore, it shows that these sentiment-driven stochastic equilibria exhibit monetary non-neutrality, even when the fundamental equilibrium is unique and monetarily neutral. As the aggregate price or inflation rate can appear to fluctuate independently of the money supply, our model explains the complex relationship between inflation and the money supply in the real world, where the basic quantity theory of money often seems invalid.

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Selecting Innovation Funding Mechanisms: A Framework for Policymakers

Sun, 02 Aug 2026 16:00:00 GMT

The U.S. federal government spends roughly $150 billion a year on research and development through mechanisms ranging from grants and contracts to prizes, advance market commitments, and tax credits. These funding mechanisms differ markedly in risk allocation, decision authority, and incentive power, yet policymakers have little systematic guidance for choosing among them. We develop a framework that asks the policymaker three initial questions about the contracting environment: Can they articulate the work to be done? Can they specify what would constitute a successful solution? Can they identify the most capable performers to contract with? The answers considerably narrow the set of viable mechanisms, enabling a more tractable choice of the efficient mechanism based on further considerations from the innovation-economics literature.

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Common Ownership and Collusion

Vincent Abraham, Florian Ederer, Catarina Marvao — Sun, 02 Aug 2026 16:00:00 GMT

We provide the first empirical evidence that common ownership can facilitate explicit collusion. Our unique setting, the population of legal cartels in Sweden, lets us observe cartel formation, duration, and dissolution without the sample-selection bias that plagues studies of detected cartels. Combining hand-collected ownership data with the universe of registered cartels, we compute firm-pair profit weights (κ) that measure how much one firm internalizes a rival's profits. Higher profit weights are associated with a greater likelihood of cartel participation, predict future cartel involvement, and are linked to longer cartel duration. Firms also reduce their profit weights immediately after a cartel dissolves. However, this relationship is concentrated among pairs in which the firm that internalizes the rival firm's profits colludes while the rival does not. Common ownership therefore complements a firm’s own participation in explicit collusion but substitutes for cartel participation by the rival whose profits it internalizes.

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The Economics of Civil Service Protections

Guo Xu — Sun, 02 Aug 2026 16:00:00 GMT

The study of bureaucracy as a key dimension of state capacity has gained increasing attention in economics. What organizational features create an effective bureaucracy, however, remains subject to debate. This paper focuses on the central role of civil service protections in delineating the boundary between politics and administration. I introduce a simple principal-agent framework to discuss the key theoretical channels through which political insulation can shape bureaucrat performance. Guided by the framework, I establish stylized facts and organize evidence from historical and contemporary civil service reforms. Overall, the micro-level evidence documents a positive effect of civil service protections on the quality of public service delivery. I conclude with open questions about the political economy of reform adoption.

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Childhood Cognitive and Behavioral Impairments and Adult Health

Hope Corman, Kelly Noonan, Nancy Reichman — Sun, 02 Aug 2026 16:00:00 GMT

We use U.S. nationally representative longitudinal data to estimate the effects of cognitive and behavioral impairments in childhood on health in adulthood. We focus on work-limiting health conditions and fair or poor self-rated health but also consider adequacy of sleep, body weight, and health behaviors (use of various substances and preventive health care) as potential pathways. In household fixed effects models, we find that both impairments are strongly associated with having a work-limiting health condition in adulthood; specifically, cognitive impairments increase the probability of a work-limiting condition by 70% and behavioral impairments increase the probability by 60%. Individuals with cognitive impairments in childhood are 43% more likely to report being in fair or poor health in adulthood compared to individuals without cognitive impairments. The effects of cognitive impairments on health do not appear to operate through insufficient sleep, obesity, or health behaviors. Individuals with childhood behavioral impairments are no more likely to report being in fair or poor health but are more likely to get insufficient sleep and to be obese, compared to individuals without behavioral impairments, suggesting that insufficient sleep and obesity could potentially lie on the pathway from behavioral impairments in childhood to work-limiting health conditions in adulthood.

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The Value of Behavioral Policies

John A. List, Matthias Rodemeier, Sutanuka Roy, Gregory K. Sun — Sun, 02 Aug 2026 16:00:00 GMT

Behavioral interventions have become central to modern public policy, but their empirical promise remains contested because estimated treatment effects often appear small. We argue that a policy response is economically meaningful only relative to the response generated by alternative policies. We assemble more than 1,200 estimates from over 600 studies comparing “nudges” and traditional price interventions in the markets for cigarettes, alcohol, influenza vaccination, electricity, and residential water. Translating nudge effects into equivalent price changes, we find that behavioral interventions often correspond to enormous fiscal interventions, from an 11% tax on electricity to a 100% subsidy on influenza vaccinations. Nudges are also more cost-effective than price instruments in all markets, but cost-effectiveness does not predict the welfare ranking of policies. Using a behavioral extension of the Marginal Value of Public Funds, we show that nudges have high welfare returns at the margin, while price instruments often generate larger total surplus at scale.

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Time Travel on Professional Profiles

Nicholas Bloom, Gideon Moore, Lisa K. Simon, Caelan Wilkie-Rogers — Sun, 02 Aug 2026 16:00:00 GMT

Economists increasingly use professional profile data to reconstruct employment histories and measure skill supply. We show that these records are not fixed historical snapshots, but mutable accounts that workers revise over time. Using monthly vintages of Revelio Labs data from 2020–2026, we document that 19.7 percent of established U.S. LinkedIn users retroactively edit the title or description of a job they have already left. These “time-travel” edits are closely tied to labor market transitions: around such edits, workers are much more likely to change employers as compared to later-editing users. This mutability can bias historical measures of skills, but it also reveals workers’ beliefs about which skills are in demand. Retroactive edits show sharp post-2022 increases in AI-related language and recent reductions in work-from-home and DEI language. Finally, LLM-associated writing markers surge after ChatGPT, especially among less-educated groups and MBAs from lower-ranked programs, revealing heterogeneous AI-assisted profile editing.

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Designing Around Selection: Identification and Inference Under Multi-Dimensional Unobserved Heterogeneity

Brent R. Hickman, John A. List, Ian Muir, Gregory K. Sun — Sun, 02 Aug 2026 16:00:00 GMT

We study identification and optimal policy design in a broad class of principal-agent models. We show that the most common empirical framework within the literature is equivalent to an unstructured potential-outcomes model augmented with three specific assumptions: the Law of Demand (LoD), or treatment-effect monotonicity; extrapolative model structure (EMS), which rules out lumpy agent responses to price changes; and rank invariance (RI), which restricts unobserved heterogeneity (UH) to be one-dimensional. This decomposition isolates the identifying content of each assumption and clarifies its economic role. The LoD and MS are empirically testable using exogenous price variation; RI, on the other hand, is a strong assumption ruling out many economically plausible behaviors, and also not empirically testable. We derive sharp bounds on counterfactual outcomes when RI is relaxed. The conventional 1-dimensional model delivers an upper bound on planner objectives, while the lower bound, which allows for arbitrary multi-dimensional UH, has an adversarial interpretation for policy design. We estimate empirical bounds and apply them to nonlinear pricing of rideshare services. The resulting robust pricing policy fully insures against worst-case latent selection while preserving most of the profit and consumer-surplus gains predicted by the conventional model. Our framework provides a tractable approach to robust policy design in adverse-selection settings including Mirrleesian taxation, regulation, labor supply, and procurement.

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Reserves and the Buyer of Last Resort

Frederic Boissay, Harald Uhlig — Sun, 02 Aug 2026 16:00:00 GMT

We examine the role of central bank reserves and public liquidity when secondary markets may freeze. Central bank reserves help intermediaries purchase assets during stress but crowd out investment. Under laissez-faire, intermediaries hold insufficient reserves, overlooking how aggregate liquidity reduces freeze risk. We propose a "market-backstop principle", akin to Bagehot’s principle for intermediaries. It combines state-contingent buyer-of-last-resort interventions to restore trading with modest liquidity requirements to limit moral hazard. The welfare benefits of restoring market functioning exceed the fiscal costs of interventions. We explore implications for the size and composition of central bank balance sheets.

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Tying Incentives to Information: Diagnosis-Contingent Contracts and Biased Beliefs in Healthcare

Maria Dieci, Paul Gertler, Jonathan T. Kolstad, Carlos Paramo — Sun, 02 Aug 2026 16:00:00 GMT

Unnecessary treatment reflects a gap between what patients believe about their health and their true condition; people often seek and consume care for diseases they suspect, but do not know that actually have. The value a patient places on testing therefore depends on their priors about being sick, and when those beliefs are biased, the resulting testing rate might be sub-optimal and leave welfare on the table. We study diagnosis-contingent incentive contracts, which tie treatment incentives to diagnostic results. For malaria, the contract subsidizes rapid diagnostic tests (RDTs) and antimalarials (ACTs) only for patients who test positive. In a cluster-randomized experiment across 140 Kenyan pharmacies, both patient subsidies and provider incentives roughly tripled testing and sharply reduced unnecessary ACT purchases among test-negative patients, working through distinct channels: patient subsidies through lower prices, provider incentives through information and advice. A model of patient choice implies these contracts raise social welfare well above their cost. Estimating the model structurally, we find that because patients substantially overestimate their infection risk, loading incentives onto diagnosis-contingent treatment discounts delivers four times the welfare gains of free testing programs.

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Predictive Risk Scores in the Public Sector: Experimental Evidence from Child-Protection Investigations

E. Jason Baron, Arkadev Ghosh, Richard Lombardo — Sun, 02 Aug 2026 16:00:00 GMT

Many public-sector decisions require allocating scarce attention under uncertainty. We examine whether algorithmic risk assessments improve child-protection decisions, where supervisors decide which cases need closer scrutiny. In a randomized evaluation of 4,752 child referrals over 14 months in Northampton County, supervisors received an algorithmic risk score alongside standard case records. Access to the score increased foster-care placements and services for children at highest predicted risk, with little change for lower-risk cases, and it reduced subsequent maltreatment referrals. We find no evidence that the score widened racial disparities in decisions or outcomes, suggesting algorithms can improve targeting while preserving human discretion.

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Cognitive Limitations and Long-Term Care Use in the Netherlands: Evidence from the Lifelines Cohort Study

Gaia Bagnasco, Pieter Bakx, Stijn Coremans, Bram Wouterse — Sun, 02 Aug 2026 16:00:00 GMT

We analyze the association between cognitive impairments and long-term care use in the 65+ population in the Netherlands. For this, we use data from the Lifelines Cohort Study that are linked to administrative records available through Statistics Netherlands. We find that, among those with cognitive impairments, long-term care use is concentrated in a subgroup: 42% of those with cognitive impairments do not use any long-term care. At the same time, individuals with cognitive impairments who use long-term care have high expenditures, in particular when living in nursing homes. Further analyses reveal that many individuals with cognitive impairments report functional limitations and that cognitive impairment is associated with long-term care use above and beyond these impairments. These findings highlight the importance of taking cognitive impairments into account when seeking to explain the determinants of long-term care use in research and when tailoring long-term care programs to the needs of the elderly when considering policy reforms.

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The China Backlash: Quantifying the Narrative Discourse on China

Mert Geyiktepe, Dani Rodrik — Sun, 02 Aug 2026 16:00:00 GMT

Using text-as-data methods, we quantify the U.S. discourse on China, place it in historical perspective, and compare its evolution across different sources of public narrative. Our analysis is based on a large corpus of materials drawn from public records (presidential and congressional records, newspaper articles, social media, think tank reports). We develop two measures of narrative discourse: an indicator of the frequency with which China is covered and a proxy for how positively or negatively China is presented. We document a sustained decline in net sentiment towards China in presidential sources since the early 2000s, predating Donald Trump’s first term in office. In contrast to presidential documents, congressional, news media, social media, and think tank sources exhibit persistent negative sentiment towards China even in decades prior to the 2000s. Instead of a deterioration in sentiment across the board, what we find is a convergence in presidential sentiment to other sources of narrative discourse. We find no evidence that presidential leadership has played a significant role in setting the narrative tone for the nation as a whole. Historical and shorter-term evidence both point to a bottom-up process of diffusion of narratives, rather than top-down diffusion.

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Financial Interdependence and Currency Internationalization

Zhengyang Jiang — Sun, 02 Aug 2026 16:00:00 GMT

Does financial opening necessarily lead to currency internationalization? To study the competition between incumbent and rising powers under financial interdependence, we develop a model of asset demand with microfounded network effects. Search frictions with currency-specialized intermediaries generate distinct notions of liquidity at asset-market and currency-area levels, which jointly shape the trajectory of currency competition. In the U.S.-China context, China at early stages of financial development benefits from pooling its assets with the dollar area, which reinforces the status quo. As China's financial markets deepen, RMB issuance allows China to internalize network effects and erode the dollar's dominance, triggering a discrete shift toward fragmentation. This transition is further shaped by sanctions, financial repression, and third-country responses, highlighting how financial interdependence transforms cooperation into rivalry in the evolution of the international financial order.

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Winners and Losers: Competition, Creative Destruction, and Labor Income Risk

Brice C. Green, Leonid Kogan, Dimitris Papanikolaou, Lawrence D.W. Schmidt — Sun, 02 Aug 2026 16:00:00 GMT

Using U.S. administrative data, we find that technology-driven creative destruction in the product market passes through to worker earnings. The passthrough to incumbent worker earnings is both asymmetric and concentrated: profit drops from rival innovations lead to proportionally greater earnings declines and changes in the likelihood of job destruction than profit gains from their own firm’s innovations, while top workers are significantly more exposed than the average worker. We develop an endogenous-growth model with monopsonistic labor markets and worker heterogeneity that replicates this asymmetry and the distribution of earnings risk. In the model, creative destruction exposes high-income workers to concentrated downside risk while increasing upward mobility for lower-income workers, shaping the welfare consequences of innovation policy.

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Two Selection Problems, One Bias Term: Experimental Sign-Up Is Treatment Choice in Disguise

John A. List — Sun, 02 Aug 2026 16:00:00 GMT

Consider a referee report containing the sentence: “Assignment to treatment was voluntary, though the authors acknowledge this as a limitation in the conclusion.” The Editor would summarily reject. Now replace “assignment to treatment” with “entry into the experimental sample,” and the sentence describes the modal published experiment. This study shows that both biases are the same mathematical object. The bias from non-random sample entry is the sorting-on-gains term from the classic selection decomposition. Interestingly, they both admit an isomorphic Roy micro-foundation and inverse-Mills characterization. A simple calibration reveals that for the typical experiment, the observed bias can be large. One solution to this bias is to conduct a natural field experiment (NFE). When an NFE is not possible, three alternative reporting practices are offered.

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Improving Financial Literacy: From Corporate Finance to Personal Finance

Annamaria Lusardi — Sun, 02 Aug 2026 16:00:00 GMT

This article provides an overview of the literature on financial literacy. It covers the initial measurement that created the Big Three questions and measures of personal finance knowledge featuring 28 questions. It shows that levels of financial literacy are low and have not been improving over time. This is true not only in the United States but also in countries worldwide. These findings matter because financial literacy is conducive to savvy financial behaviors, from holding precautionary savings to planning for retirement to many other financial decisions. Financial education programs have grown exponentially over time, providing important insights into their cost-effectiveness. Personal finance courses have been added to high school and college curricula, and the evidence indicates that they are useful initiatives to improve financial knowledge and downstream behavior.

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Ambiguous Attribution: Theory and Evidence

Sun, 02 Aug 2026 16:00:00 GMT

Clarity of responsibility is an essential element of political accountability. We develop a rational model of Bayesian updating in the presence of ambiguous attribution and we test its predictions using an original survey. We show that respondents’ partisanship, assessment of public healthcare quality, and beliefs over which layer of government is responsible for healthcare are correlated as predicted: good-assessment voters attribute responsibility to the layer governed by their preferred party, while bad-assessment voters blame the layer governed by the party they dislike. These partisan patterns of credit and blame, often interpreted as evidence of motivated reasoning or partisan bias, can thus arise from rational Bayesian updating under attribution ambiguity. No such partisan patterns exist where the same party is in charge of regional and central government. A survey experiment in which we inform subjects of the official quality of healthcare has them update in the predicted, partisan, direction. Model and empirical results show that partisan priors are extremely hard to dislodge when attribution is ambiguous.

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The Equilibrium Impact of Credit Frictions: Evidence from Default Risk Using Firm-Level Data

Sun, 02 Aug 2026 16:00:00 GMT

This paper examines the impact of credit frictions arising from firm-level default risk on aggregate economic performance. We build a micro-to-macro model with heterogeneous firms and sector-specific production functions, showing that perceived default risk is a sufficient statistic for credit frictions. Using UK administrative data (2004–2019) matched to S&P risk measures, counterfactual estimates reveal that relaxing frictions raises output by 25% and wages by 23%. Ignoring equilibrium wage adjustments overstates output gains, while fixed-capital misallocation approaches understate them. Most gains reflect aggregate capital accumulation. Credit frictions remain above pre-crisis levels, reshape firm size dynamics, increase misallocation across firms, and dampen productivity growth over time.

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Sharing the Burden: The Impacts of Pharmacy Sector Reforms on the Labor Market for Pharmacists in Portugal

David Card, Ana Rute Cardoso, Pedro Luis Silva — Sun, 02 Aug 2026 16:00:00 GMT

In the depths of the 2010 financial crisis the Portuguese government enacted a series of reforms in its prescription drug reimbursement system. Over the next three years value added per pharmacist in retail pharmacies fell by a third, reflecting a rise in generic substitution and reductions in the markups allowed for prescription drugs. This massive shock led to pay cuts for incumbent pharmacists and the introduction of a two-tier pay system for new hires, with little or no reduction in the growth of employment. We use detailed longitudinal records from the Quadros de Pessoal data base, merged with information on collective bargaining settlements and firm financial records, to study the impacts of the reforms. We estimate that between 2009 and 2022 average wages of pharmacists fell by a third; most of this reduction was due to lower wages for newly entering cohorts. The implied responsiveness of wages to productivity is substantially above most estimates in the rent-sharing literature, arguably reflecting the strong attachment of workers to the sector and the steady inflow of newly graduating pharmacists. Stepping back, we then consider how wages of pharmacists have diverged relative to wages of other health care professionals in Portugal, and the decisions of recent college applicants to enter the profession.

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Beyond Price: Rights Trading in Strategic Factor Markets

Anparasan Mahalingam, Matthew J. Higgins — Sun, 26 Jul 2026 16:00:00 GMT

Research on strategic factor markets has largely treated the terms of exchange as price. We argue that many strategic transactions instead divide value through contractual bundles in which payment terms and control rights are interdependent. In university technology licensing, we theorize Rights Trading: contingent payment, future improvement claims, and commercialization scope operate as linked components of the contractual bundle through which surplus is allocated. Using 858 hand coded university–industry licenses, we find that contracts relying more heavily on royalty and milestone provisions grant licensees stronger future improvement claims and broader commercialization scope. The results persist across controls and fixed effects and are directionally consistent with complementary instrumental-variable, event-study, and selection-bound analyses. We further show that this relationship is stronger when university technology transfer offices have greater contracting experience, suggesting that contracting capability shapes value appropriation in strategic factor markets. More broadly, the study shows that value appropriation in strategic factor markets depends not only on what organizations pay for strategic resources, but also on how contracts allocate control over their future development and commercialization.

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Who is Afraid of Eurobonds?

Francesco Bianchi, Qingyuan Fang, Leonardo Melosi, Anna Rogantini Picco — Sun, 26 Jul 2026 16:00:00 GMT

The current euro area policy framework conflates short-run stabilization with long-run fiscal sustainability, exposing members to deflationary and inflationary tail risks. We employ an estimated euro area model to analyze an alternative framework that separates these objectives. A centralized Treasury issues Eurobonds to finance countercyclical stabilization, while national governments retain responsibility for long-term fiscal sustainability. The Treasury can coordinate with the monetary authority in case of a large recession, with no need to suspend fiscal rules at the national level. The arrangement functions as an automatic stabilizer, eliminating the tail risks of deflation and fiscal stagflation.

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Spillover Effects in Complementary Markets: A Study of the Indian Cell Phone and Wireless Service Markets

Chirantan Chatterjee, Ying Fan, Debi Prasad Mohapatra — Sun, 26 Jul 2026 16:00:00 GMT

This paper studies how spillovers across complementary markets shape product variety and firm entry. We examine the Indian cell phone and wireless service markets during the 4G rollout and estimate a structural model of demand, pricing, carrier network expansion, and phone product choice. The estimation results support the economic forces through which complementarity generates spillovers. Counterfactual simulations show that banning budget Chinese phones slows 4G deployment by roughly five quarters and lowers consumer welfare without raising domestic firms' profits. Similarly, an unrestricted subsidy outperforms a domestic-only subsidy in expanding network coverage, increasing consumer welfare, and raising domestic firms' profits.

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Retail Betting Markets

Sun, 26 Jul 2026 16:00:00 GMT

This paper examines the rapid expansion and convergence of retail betting markets. We analyze market design elements, discuss economic utility, and highlight shared behavioral drivers of sports betting markets, prediction markets, and retail options trading. Our review underscores how technological innovation, behavioral biases, and regulatory arbitrage have shaped recent market evolution. We highlight important considerations for policy-makers facing a changing landscape and outline possibilities for further research.

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Self-Fulfilling Credit Scores

Victor Duarte, Julia Fonseca — Sun, 26 Jul 2026 16:00:00 GMT

A decline in credit scores can worsen the borrower's financial position, making default a self-fulfilling prophecy. We estimate the causal effect of credit scores on default using a rule that counts multiple inquiries within 14 days as one, moving scores without changing credit reports. Regression discontinuity estimates around the 14-day cut-off show that an additional counted inquiry lowers scores by five points on average. Default does not respond among consumers with clean records, but rises by 3.2 percentage points over two years among those with prior derogatories. For these consumers, at least 13 percent of the relationship between scores and default is self-fulfilling. We show that scorers would want to limit self-fulfilling defaults if their objective is forecast accuracy, but not if it is separating defaulters from non-defaulters, because that objective rewards the score for the defaults it causes.

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Trading Off Openness: Economic Information and Immigration Policy Preferences

Cristina Cattaneo, Daniela Grieco, Nicola Lacetera, Mario Macis — Sun, 26 Jul 2026 16:00:00 GMT

We conducted a survey experiment with over 8,000 participants in Germany, Hungary, and Italy to examine how information about the economic impact of immigration affects the support for more open immigration policies. Respondents who received projections showing higher future incomes under more open immigration policies reported greater support for these policies. The treatment also partly changed how prior attitudes affected policy preferences. Structural estimates suggest that majority support for immigration above current levels would require annual per-capita income gains of about 1.2% in Italy and 1.7% in Germany, and still larger or unattainable gains in Hungary. These increases are large relative to recent historical growth rates, suggesting that economic benefits alone are unlikely to generate vast support for more open immigration policies.

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Information and Macroeconomic Expectations: Global Evidence

Francesco D’Acunto, Michael Weber — Sun, 26 Jul 2026 16:00:00 GMT

Unique global data on 47,000 consumers across 47 countries representing 90% of world GDP reveal universal patterns in macroeconomic belief formation. Most consumers form beliefs based on local information sources (utility bills, shopping, and acquaintances) that provide signals not representative for the overall consumption bundle, so that seeking information leads to forming biased macroeconomic expectations. Distrust in governments and central banks, the producers of aggregate economic information, helps explain reliance on local sources and the lack of learning from aggregate realizations. Observed macroeconomic volatility fuels distrust. In the cross-section, we confirm that certain demographics correlate with expectation biases but mostly due to different sorting into information sources, rather than different processing of the same economic information. These globally established facts inform advances of theories of belief formation and the design of communication strategies as a macroeconomic policy tool.

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Profits and Social Impacts: Complements vs. Tradeoffs for Lenders in Three Countries

Susan Athey, Bruno Fava, Dean Karlan, Adam Osman, Jonathan Zinman — Sun, 26 Jul 2026 16:00:00 GMT

The canonical approach to corporate governance posits a tradeoff between maximizing shareholder profits and maximizing other aspects of shareholder welfare such as social impact. Advances in machine learning that enhance the firm's ability to target specific customers may exacerbate or ameliorate this tradeoff. We estimate these tradeoffs using data from randomized microcredit approvals in South Africa, the Philippines, and Bosnia. We examine social impact on two dimensions: credit access (i.e., reaching disadvantaged groups that typically have less access to financial markets) and impact (i.e., treatment effects on household income). Two of the three lenders could have increased average loan profit margin by 7–9 percentage points through machine learning-based targeting. However, such targeting pushes against social impact goals vis-à-vis credit access; specifically, women and lower-income households would have been more excluded (the implied impact on borrowers' income, also central to the dual goal of social impact, is too imprecisely estimated to draw an inference). To gauge the magnitude of the first tradeoff, we examine how profits would change if the lenders altered whom they lent to within each quintile of baseline borrower income, thus holding the distribution broadly similar but fine-tuning the targeting within income bands. Such a constraint would lower the profit gains of targeting by about half. These findings highlight the importance of quantifying tradeoffs and complementarities when deciding what to maximize.

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The Environmental Costs of Sanctions: Flaring and Venting in Venezuela

Michele Fioretti, Kavanaugh FitzPatrick, Alessandro Iaria — Sun, 26 Jul 2026 16:00:00 GMT

Economic sanctions on oil-producing autocracies change not only the quantity of oil but also how it is produced. Combining field-level production data with satellite measurements of gas flaring and atmospheric methane across six Latin American countries from 2012 to 2024, we study the U.S. sanctions on Venezuela. Per-barrel gas flaring in Venezuela rose about two-and-a-half-fold even as production fell by two-thirds, a pattern no unsanctioned neighbor shows, so environmental damage under sanctions is about two and a half times what a proportional decline in output would predict. Three channels generate this gap: the exit of small, dirty fields (composition) is more than offset by surviving fields running their infrastructure past design capacity (strain) and cutting their operating budgets (maintenance). We identify strain from the response of satellite-measured methane to the world price of naphtha, the imported diluent Venezuela's extra-heavy crude requires, and maintenance from a November 2022 U.S. Treasury license that allowed only Chevron to resume operations at its Venezuelan fields. A similar pattern of rising per-barrel emissions despite falling output appears under the sanctions on Iran (after 2018).

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Counterproductive Sustainable Investing: The Impact Elasticity of Brown and Green Firms

Samuel M. Hartzmark, Kelly Shue — Sun, 26 Jul 2026 16:00:00 GMT

We develop a new measure of impact elasticity: the change in a firm's environmental impact due to a change in its cost of capital. We find that reducing green firms' financing costs leads to minimal impact changes, while increasing brown firms' financing costs causes significant negative impact changes. Thus, sustainable investing strategies that shift capital from brown to green firms contain a counterproductive channel that makes brown firms more brown without making green firms more green. A mistaken focus on percentage reductions in emissions rewards already-green firms for trivial reductions in emissions and gives brown firms weak incentives to improve.

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Industry Distress Anomaly

Hui Chen, Winston Wei Dou, Hongye Guo, Yan Ji — Sun, 26 Jul 2026 16:00:00 GMT

We document a robust industry-level distress anomaly in which more distressed industries earn significantly lower expected equity returns. The anomaly is distinct from the firm-level distress anomaly (Campbell, Hilscher and Szilagyi, 2008). It remains significant after controlling for firm-level distress but disappears in placebo industries formed by randomly reshuffling firms across actual industries. Both theoretically and empirically, we show that competition-distress feedback amplifies the exposure of industry profit margins and equity returns to discount-rate shocks. Industries with greater idiosyncratic left-tail risk are more distressed but exhibit weaker competition-distress feedback. This effect reduces their exposure to discount-rate shocks and thus lowers their expected equity returns.

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Investing in Mothers? The Long-Run Impact of a Universal Child Care Program on Maternal Work and Income

Michael Baker, Jonathan Gruber, Kevin S. Milligan — Sun, 26 Jul 2026 16:00:00 GMT

We provide new estimates of the effects of universal child care on the long-term labor outcomes of mothers, documenting the life-cycle impact of Quebec’s universal, subsidized child care program on maternal labor supply, earnings, social program benefit receipt and tax remittances. We find an enduring positive impact on mothers’ employment long after children have aged out of the preschool years. There is also a long-run impact on earnings which grows to be twice as large as the participation effect. This arises because of growth in the intensity of labor force participation and a rise in hourly wages over time, suggesting that initial investments in work have multiplier effects later in women’s careers. There is clear evidence of occupational upgrading but most of the growth is within occupation, including the impact of more labor market experience in the years after children are out of child care. We show that, as a result, tax remittances grow over the lifecycle, and social assistance and employment insurance receipts fall. Our estimate of the fiscal balance of these effects reveals that the net present value of the flow of fiscal benefits may recapture between 75 and 117 percent of the upfront costs of the program.

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Global Pension Asset Allocations and Debt Markets

Ding Ding, Xiang Fang, Bryan Hardy, Karen K. Lewis — Sun, 26 Jul 2026 16:00:00 GMT

The pension sector is an important investor group in global financial markets and a key holder of government and corporate debt. This article examines the evolution of pension fund asset allocations around the globe and documents two important structural changes. First, pension investors have shifted portfolio share allocations away from fixed income securities. This trend is robust across Defined Contribution (DC) and Defined Benefit (DB) programs as well as country groups. Second, pensions have instead shifted allocations into riskier investments within mutual funds as well as alternative investments. We hypothesize that a global decline in interest rates is one potential driver of this change. Using a global sample, we show that declining local currency government bond yields are associated with lower bond pension portfolio shares and higher holdings shares of mutual funds and foreign assets. We discuss the potential implications of these trends for borrowing costs. The declining holding share of pensions as a long-term investor group implies financing costs are less sensitive to new debt issues, but more sensitive to global uncertainty.

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Relating Cognitive Skills and Personality Traits to Economic Preferences: Decision-Making under Cognitive Shocks and Guessing

Cesar Chavez Padilla, Shuaizhang Feng, James J. Heckman, Zhe Yang — Sun, 26 Jul 2026 16:00:00 GMT

Using rich data on Chinese schoolchildren, we study the relationships of IQ and personality traits with children’s risk preferences and how they affect the precision with which those preferences are measured. Our structural model separates preferences from deliberation noise and guessing, and relates guessing to deliberation noise. Psychological measures have weak direct influences on preferences but strongly affect deliberation noise and guessing behavior. Shocks to choice have persistent individual-specific components and are not independent. Socioeconomic background has little direct influence on preferences or deliberation noise once traits are accounted for. Background variables affect psychological traits, however. Risk preferences differ across and within genders. For small gambles, girls are less risk averse than boys, but the opposite holds for larger gambles.

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The Welfare Effects of Conditioning the Potential Duration of UI Benefits on Prior Work History

Leonard Goff, Simon Quach — Sun, 26 Jul 2026 16:00:00 GMT

Most unemployment insurance (UI) systems condition the potential duration of benefits on claimants' work history, yet little evidence exists on whether doing so is socially optimal. We study this question using 25 regression discontinuities in Canada's UI system, where benefit duration increases discretely when prior hours worked crosses various thresholds. Using administrative records covering the universe of UI claims from 1997 to 2018, we estimate the fiscal effects of extending potential duration across the work-history distribution. On average, an additional week lengthens unemployment by 0.30 weeks and costs the government $96. However, this average effect masks significant heterogeneity: the mechanical cost falls steeply with prior hours, while the behavioral cost increases modestly. Consequently, the fiscal externality of extending UI rises with labor market attachment. Embedding these estimates in a sufficient statistics framework, we find that the fiscal externality of a uniform extension is 76% larger than that of an extension targeted at claimants with short histories. Moreover, aggregate welfare can be raised at zero fiscal cost by redistributing benefits from high to low hour claimants.

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Evidence of How Electronic Reporting and Automated Auditing Affects Regulatory Compliance and Environmental Performance

Wayne B. Gray, Ronald Shadbegian, Ann Wolverton — Sun, 26 Jul 2026 16:00:00 GMT

We investigate whether, by providing better and more timely information, the first mandatory online reporting and auditing program for wastewater discharge releases in the U.S. improved facility compliance and environmental performance, while also allowing state regulators to more effectively monitor and enforce regulations. Examining reporting programs with automated feedback features can also offer insights into the potential for artificial intelligence-based tools to improve compliance and environmental performance. Difference-in-difference results suggest that the program resulted in significant increases in the completeness of reporting and reductions in discharges but also greater reported violations. We find that effects are larger for minor dischargers and publicly owned facilities. We also find evidence consistent with the more efficient targeting of inspections by state authorities towards plants with a history of recent noncompliance, which could be a potential mechanism driving these results.

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Personal Holding Companies, Tax Progressivity, and Inequality

Marius A. K. Ring, David G. Seim, Gabriel Zucman — Sun, 26 Jul 2026 16:00:00 GMT

Tax avoidance through personal holding companies has long been viewed as a key challenge for progressive income taxation. We exploit twenty years of administrative micro-data linking firms to owners in Sweden and Norway to analyze how the use of personal holding companies varies across the income distribution and to quantify its implications in a quasi-experimental setting. About half of the income of the top 0.1% is retained in personal holding companies defined, as in US tax law, as firms for which five or fewer owners own more than 50% of the stock and that derive more than 60% of income from investment income. Event studies of shocks to operational firms’ value-added show that holding companies shield around half of dividend distributions from individual income taxation. Profits tend to remain in holding companies for long periods of time, with cumulative payout rates of 15%–20% over two decades for the highest income groups. Wealth taxes do not provide an effective backstop due to the low valuation (or exemption) of shares in private businesses. As a result, effective tax rates, all taxes included, fall from about 50% for the upper middle class to about 15%–20% among the highest-net-worth individuals. Accounting for income in holding companies erases half of the difference in the 1980–2020 rise of the top 1% fiscal income share between Nordic countries and the United States, where rules penalizing the use of holding companies have been in place since the 1930s.

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Immigration and Macroeconomic Outcomes in OECD Countries

Gaetano Basso, Mitali R. Mathur, Giovanni Peri — Sun, 26 Jul 2026 16:00:00 GMT

OECD countries experienced declining native population growth and rising net immigration over 1990-2024. We compile a new dataset of net immigration rates to OECD countries from all origins and show that most of the increase came from non-OECD countries and was predominantly high-skilled. Push factors, network effects, and policy indices explain little of the large cross-country heterogeneity in immigration dynamics; unexpected shocks and surges were common. Using local projections and several sources of identifying variation, we then estimate the relationship between immigration and growth in GDP per capita, labor productivity, capital investment, and total factor productivity (TFP). Immigration from non-OECD countries was a significant predictor of GDP per worker growth, primarily through higher investment. High-skilled immigration, in particular, was associated with stronger human capital accumulation, faster TFP growth, and greater capital deepening. Native population growth, by contrast, had no or weakly negative effects on GDP per capita and productivity. These results are consistent with a large literature documenting the positive productivity and growth effects of immigration, especially high-skilled immigration.

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From Field to Firm: College Sports and Early-Stage Career Choice

Paul Gompers, George Hu, Will Levinson, Sachin Srivastava — Sun, 26 Jul 2026 16:00:00 GMT

This paper examines how networks formed through college athletics influence the early-career trajectories of Ivy League graduates. Tracking professional histories of 120,306 Ivy League graduates, we compare each graduate's actual first job against other potential jobs that the graduate could reasonably have taken. Athletics-based networks, especially team-based connections, materially influence initial job choice. Employing one additional alum from a specific Ivy League collegiate sports team increases the probability that a same-team athlete joins the firm by 193.70% relative to the baseline match probability. Likewise, employing one more Ivy League alum who played a specific Varsity sport increases the probability that any Ivy League athlete who plays the same sport joins the firm by 16.40%, while employing one more alum who played any sport at a specific Ivy League university raises the probability that any Ivy League athlete from the same university joins the firm by 4.60%. For team-based connections, these effects persist whether the alum and the college athlete were direct peers whose college years overlapped or older “network” affiliates whose college years were completely disjoint. Our results demonstrate that college athletics-based social networks materially influence initial job placement and early-career trajectories for top college graduates. More generally, they clarify how non-academic social capital shapes the job searching and matching process within labor markets.

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