Workplace Heterogeneity and the Returns to Versatility

In the canonical random on-the-job search model with continuous firm heterogeneity, I show that a mean-preserving spread of the firm-productivity distribution raises the returns to mobility, i.e., the inter-firm mobility of workers as measured by the number of outside contacts per employment spell. Both sorting and rent-share mechanisms play a role. In a further contribution, I distinguish frictional and structural impediments to mobility in order to establish a link between mobility and skills via the concept of versatility. Versatility enhances a person’s mobility since a mismatch between job requirements and the person’s skill set is less likely to occur. I provide some statistics in support of the discussed mechanisms. The findings are particularly intriguing in light of the concurrent rise in the productivity dispersion across firms and in the skill premium in many countries.

Rationalizing rational expectations: Characterizations and tests

In this paper, we build a new test of rational expectations based on the marginal distributions of realizations and subjective beliefs. This test is widely applicable, including in the common situation where realizations and beliefs are observed in two different data sets that cannot be matched. We show that whether one can rationalize rational expectations is equivalent to the distribution of realizations being a mean‐preserving spread of the distribution of beliefs. The null hypothesis can then be rewritten as a system of many moment inequality and equality constraints, for which tests have been recently developed in the literature. The test is robust to measurement errors under some restrictions and can be extended to account for aggregate shocks. Finally, we apply our methodology to test for rational expectations about future earnings. While individuals tend to be right on average about their future earnings, our test strongly rejects rational expectations.

Word-of-Mouth Communication and Percolation in Social Networks

This paper develops a model of demand, pricing and advertising in the presence of social learning via word-of-mouth communication between friends. In the model consumers must receive information about a monopolist's product in order to consider purchasing it. The presence of word-of-mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population. I derive the comparative static results of connectivity, mean-preserving spread of friendships, and clustering of friends on prices. The optimal targets for advertising are not, generically, the individuals with the most friends. (JEL L12, L14)

Riscophobie et étalement à moyenne constante : analyse et applications

L’objet de cet article est de montrer que, pour la perspective aléatoire caractérisée par la probabilité p de perdre une valeur h, il existe une mesure adéquate des variations dans le risque engendrées par des variations comparables de p et h, ce qui permet d’isoler le facteur risque et de prédire le comportement des agents riscophobes. Cette mesure résulte d’une application du concept d’étalement à moyenne constante (mean-preserving spread) développé par Rothschild et Stiglitz. Le résultat principal est à l’effet qu’un agent riscophobe préférera toujours une diminution de la perte à une baisse comparable de la probabilité de perte. Nous appliquons ce résultat simple à diverses situations : assurance-chômage, réglementation par enquêtes et amendes, contrôle des prix et des salaires, sécurité routière, stationnement illégal, loteries, autoassurance vs autoprotection. Enfin nous dérivons une mesure de variation compensatoire de richesse reliée au degré de riscophobie.

Inequality and Growth: Why Differential Fertility Matters

We develop a new theoretical link between inequality and growth. In our model, fertility and education decisions are interdependent. Poor parents decide to have many children and invest little in education. A mean-preserving spread in the income distribution increases the fertility differential between the rich and the poor, which implies that more weight gets placed on families who provide little education. Consequently, an increase in inequality lowers average education and, therefore, growth. We find that this fertility-differential effect accounts for most of the empirical relationship between inequality and growth.