Working Papers 2017

Working Paper #1-2017

Dynamic Nonmonetary Incentives

Daniel Bird and  Alexander Frug

We study a principal-agent interaction where investments and rewards arrive stochastically over time, and are privately observed by the agent. Investments (costly for the agent, beneficial for the principal) can be concealed by the agent. Rewards (beneficial for the agent, costly for the principal) can be forbidden by the principal. We ask how rewards should be used and which investments incentivized. We identify the unique optimal mechanism and analyze the dynamic investment and compensation policies. When all rewards are identical, the unique optimal way to provide incentives is by a carte-blanche to pursue all rewards arriving in a predetermined timeframe.

Working Paper #3-2017

Horizon Effects and Adverse Selection in Health Insurance Markets

Olivier Darmouni and Dan Zeltzer

We study how increasing contract length affects adverse selection in health insurance markets. While health risks are persistent, private health insurance contracts in the U.S. have short, one-year terms. Short-term, community-rated contracts allow patients to increase their coverage only after risks materialize, which leads to market unraveling. Longer contracts ameliorate adverse selection because both demand and supply exhibit horizon effects. Intuitively, longer horizon risk is less predictable, thus elevating demand for coverage and lowering equilibrium premiums. We estimate risk dynamics using data from 3.5 million U.S. health insurance claims and find that risk predictability falls significantly with horizon. Nesting these estimates in a simple equilibrium model of insurance markets, we find that a reform implementing two-year contracts would increase coverage by 6% from its initial level and yield average annual welfare gains of $100–$200 per person.

Working Paper #5-2017

Online Exploration, Content Choice& Echo Chambers: An Experiment

 Sagit Bar-Gill  and Neil Gandal

 In this experiment, we create an online search environment where users explore the TED Talks collection, and choose a talk to watch. As users search in this environment, they can separately control two search dimensions - topic and popularity. Furthermore, in topic-based searches, we randomly block/show popularity information. We ask: what types of users are most likely to get caught in a content echo chamber and what is the role of popularity information provision in facilitating echo chambers? Susceptibility to echo chambers is proxied by: (I) conducting little to no exploration in the search process, and (II) relying on popularity in content choice. We find that high levels of sociability and previous experience with similar content are associated with susceptibility to echo chambers. Opinion leadership, on the other hand, is associated with more exploration and lower reliance on popularity. Interestingly, popularity information provision increases opinion leaders’ popularity sorting, and thus raises the potential for content echo chambers.

Working Paper #7-2017

Limited Attention, Salience and Changing Prices: Evidence from a Field Experiment in Online Supermarket Shopping

Kfir Eliaz , Orli Oren-Kolbinger and  Sarit Weisburd

How do consumers allocate their attention over price fluctuations in multiple products, and how do they respond to information on these price changes? We address these questions using data from a field experiment on a website that offers purchase and delivery from one large local supermarket chain in the U.S. Our main findings indicate that (i) a large proportion of consumers forego significant saving opportunities that they were aware of, (ii) consumers are more likely to compare prices between substitutes that appear close to each other, and (iii) personalized "nudges" have a differential effect on consumers. Furthermore, we propose a typology of shoppers and shopping trips, based on a level of attentiveness, and show that nudges and information provision helps only the "attentive" shoppers.

Working Paper #9-2017

Is the Market Pronatalist? Inequality, Differential Fertility, and Growth Revisited

Michael Bar,  Moshe Hazan and Oksana Leukhina

A negative relationship between income and fertility has persisted for so long that its existence is often taken for granted in the literature. One economic theory builds on this relationship and argues that rising inequality leads to greater differential fertility – the fertility gap between rich and poor. We show that the relationship between income and fertility has flattened between 1980 and 2010 in the US, a time of increasing inequality, as high income families increased their fertility. These facts challenge the standard theory. We propose that marketization of parental time costs can explain the changing relationship between income and fertility. We show this result both theoretically and quantitatively, after disciplining the model on US data. We explore implications of changing differential fertility for aggregate human capital. Additionally, policies, such as the minimum wage, that affect the cost of marketization, have a negative effect on the fertility and labor supply of high income women. We apply the insights of this theory to the literatures of the economics of childlessness and marital sorting.