Template-type: ReDIF-Paper 1.0 Author-Name: Martin Geiger Author-Name: Marios Zachariadis Title: Assessing Expectations as a Monetary/Fiscal State-Dependent Phenomenon Classification-JEL: E31; E52; E62 Keywords: policy shocks; public debt; rational inattention; fiscal theory of the price level Abstract: We assess the impact of monetary and fiscal policy shocks on US survey-based macroeconomic expectations elicited from consumers and financial experts, within and outside low-debt states of the world. While we fail to detect a clear response to shocks in a linear model, our analysis reveals a number of state-dependent patterns. The response of consumers' expectations to the monetary and fiscal shocks we jointly consider is typically strong and distinctly different outside states of low debt as compared to within states of low debt where we observe little action. Outside low-debt states, an increase in government spending has adverse effects on expectations consistent with the anticipation of negative effects from a future fiscal consolidation. Moreover, contractionary monetary policy shocks induce pessimistic macroeconomic expectations outside the low-debt state but not within it, suggesting that the fiscal burden matters in how monetary policy affects expectations. Our findings are in line with rationally inattentive consumers not paying attention to shocks occurring when the fiscal burden is low. Finally, consumer expectations' responses more closely resemble those of experts outside the low-debt state, in line with consumers becoming more attentive to fiscal and monetary developments when the stakes are high. Length: 42 pages Creation-Date: 2019-01 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/01-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:01-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Snezana Eminidou Author-Name: Marios Zachariadis Title: Firms’ Expectations and Monetary Policy Shocks in the Eurozone Classification-JEL: E31; E52 Keywords: Rational inattention; imperfect information; survey data; SVAR; narrative shocks; interest rate shock; divisia index Abstract: The purpose of this paper is to investigate the impact of monetary policy shocks on firms’ selling price and production expectations. We estimate a panel structural vector autoregressive (SVAR) model for 10 euro-area economies using monthly survey data for the period from 1999:1 to 2018:6. To identify the monetary policy shocks, we use narrative and high frequency instruments taking into account the central bank’s announcements regarding its policy decisions. The impulse responses from a panel SVAR analysis indicate that firms typically revise their expectations in a manner consistent with imperfect information theoretical settings, e.g., increasing their production and selling price expectations after an unanticipated interest rate hike. Interestingly, we observe an overshooting pattern where following the initial surprise that leads imperfectly informed firms to raise (reduce) their production and selling expectations after an unanticipated interest rate hike (M1 expansion), firms gradually come to expect contractionary (expansionary) monetary policy shocks to eventually decrease (increase) production and then inflation, thus revise their expectations accordingly by decreasing (increasing) first their production expectations and then their selling price expectations in accordance with this learning experience over time. Length: 40 pages Creation-Date: 2019-02 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/02-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:02-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Fabio Antoniou Author-Name: Panos Hatzipanayotou Author-Name: Michael S. Michael Author-Name: Nikos Tsakiris Title: On the Principles of Commodity Taxation under Interregional Externalities Classification-JEL: H21; H23; H41 Keywords: Commodity taxation, Origin principle, Destination principle, Interregional externalities, Efficiency, Public goods Abstract: We examine the efficiency of decentralized commodity taxation where consumption tax revenue finances public sector activities related to interregional externalities. We consider two cases; tax revenue finances (i) public pollution abatement in the presence of consumption generated transboundary pollution, and (ii) the provision of an interregional public consumption good, in the absence of pollution. The key result of our study is that in either case, non-cooperative equilibrium origin-based consumption taxes are efficient, while destination-based taxes are not. When consumption tax revenue is lump-sum distributed, neither type of consumption taxes is efficient. Length: 29 pages Creation-Date: 2019-02 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/03-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:03-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Philippos Louis Author-Name: Matias Núñez Author-Name: Dimitrios Xefteris Title: The Virtuous Cycle of Agreement Classification-JEL: D71; D72 Keywords: implementation, mechanism design, consensus, agreement, congruence, experiment, endorsements Abstract: Collective choice mechanisms are used by groups to reach decisions in the presence of diverging preferences. But can the employed mechanism affect the degree of post-decision actual agreement (i.e. preference homogeneity) within a group? And if yes, which are the features of the choice mechanisms that matter? Since it is difficult to address these questions in natural settings, we employ a theory-driven experiment where, after the group collectively decides on an issue, individual preferences can be properly elicited. We find that the use of procedures that promote apparent consensus with an outcome (i.e. agreement in manifest behaviors) generate substantially higher levels of actual agreement compared to outcome-wise identical mechanisms that push subjects to exaggerate their differences. Length: 52 pages Creation-Date: 2019-03 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/04-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:04-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Almarina Gramozi Author-Name: Theodore Palivos Author-Name: Marios Zachariadis Title: Talent Misallocation in Europe Classification-JEL: E0; J31; O4; O52 Keywords: economic growth, wage gap, inefficiency Abstract: We use microeconomic data on wages and individual characteristics across twenty European economies for the period 2004 to 2015, to detect patterns of misallocation arising in these economies based on individuals’ gender, immigrant status, or private versus public sector affiliation. We develop a theoretical model where being relatively isolated, e.g., due to gender, immigrant status, or private sector affiliation, leads to lower wages and talent misallocation. Our empirical results suggest that being a female or immigrant, and working in the private sector, exert a negative impact on one’s wages beyond that explained by their economic characteristics, suggestive of persistent talent misallocation in Europe during the period under study. Notably, countries such as Cyprus, Greece, Italy and Spain are systematically found at the top of the overall talent misallocation index we construct year-after-year for the period under study. Our work provides new cross-country micro-econometric evidence about the importance of various forms of talent misallocation for aggregate economic outcomes. Length: 37 pages Creation-Date: 2019-03 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/05-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:05-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Andri Chassamboulli Author-Name: Giovanni Peri Title: The Economic Effect of Immigration Policies: Analyzing and Simulating the U.S. Case Classification-JEL: F22; J61; J64 Keywords: Immigration, Networks, Job creation, Unemployment, Wages Abstract: In this paper we analyze the economic effects of different immigration policies in a model capturing economic and institutional features crucial to understand the migrant flows into the US. We explicitly differentiate among the most relevant channels of immigration to the US: family-based, employment-based and undocumented. Moreover we explicitly account for earning incentives to migrate and for the role of immigrant networks in generating job-related and family-related immigration opportunities. Hence, we can analyze the effect of policy changes through those channels. We find that all types of immigrants generate larger surplus to US firms than natives do. Restricting their entry has a depressing effect on job creation and, in turn, on native labor markets. We also show that substituting family-based entry with employment-based entry, and maintaining the total inflow of immigrants unchanged, produces a stimulus to job creation and native earnings. Length: 70 pages Creation-Date: 2019-04 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/06-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:06-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Andri Chassamboulli Author-Name: Pedro Gomes Title: Public-Sector Employment, Wages and Human Capital Accumulation Classification-JEL: E24; J31; J45; J64 Keywords: Public-sector employment; public-sector wages; unemployment; skilled workers; human capital accumulation, education decision, public-sector job security premium Abstract: We set up a search and matching model with a private and a public sector to understand the effects of employment and wage policies in the public sector on unemployment and education decisions. The effects of wages and employment of skilled and unskilled public-sector workers on the educational composition of the labor force depend crucially on the structure of the labor market. An increase of skilled public-sector wages has a small positive impact on educational composition and larger negative impact on the private employment of skilled workers, if the two sectors are segmented. If search across the two sectors is random, it has a large positive impact on education and a large positive impact on skilled private employment. We highlight the usefulness of the model for policymakers by calculating the value of public-sector job security for skilled and unskilled workers. Length: 54 pages Creation-Date: 2019-04 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/07-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:07-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Andri Chassamboulli Author-Name: Pedro Gomes Title: Jumping the Queue: Nepotism and Public-Sector Pay Classification-JEL: E24; J31; J45; J64 Keywords: Public-sector employment; nepotism; public-sector wages; unemployment. Abstract: We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as nepotism in hiring in the public sector, on unemployment and rent seeking. Conditional on inefficiently high public-sector wages, more nepotism in public sector hiring lowers the unemployment rate because it limits the size of queues for public-sector jobs. Public-sector wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections. Length: 57 pages Creation-Date: 2019-04 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/08-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:08-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Nikolas Tsakas Author-Name: Dimitrios Xefteris Title: Information Aggregation with Runoff Voting Classification-JEL: D71; D72 Keywords: runoff voting; information aggregation; partisan voters; Condorcet jury theorem Abstract: A majority of independent voters wants to choose the alternative that better matches the state of the world, but may disagree on its identity due to private information. When we have an arbitrary number of alternatives and also sophisticated partisan voters exist in the electorate, the election of the correct alternative is a real challenge. Building upon McLennan (1998) and Barelli et al. (2017) we show that runoff voting -one of the most intuitive electoral systems- achieves asymptotically full information equivalence. That is, when the society is large, it can lead to the election of the correct alternative under fairly general assumptions regarding the information structure and partisans' preferences. Length: 36 pages Creation-Date: 2019-05 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/09-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:09-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Nikolas Tsakas Author-Name: Dimitrios Xefteris Title: Stress-Testing the Runoff Rule in the Laboratory Classification-JEL: D72 Keywords: runoff voting; plurality rule; information aggregation; Condorcet jury theorem; experiment Abstract: When a majority of voters has common values, but private information, then the runoff rule always admits an equilibrium that aggregates information strictly better than the best equilibrium of the plurality rule. But there are cases in which the plurality rule supports equilibria that are strictly better compared to certain undominated equilibria of the runoff rule. Is there any risk with applying the runoff rule in these situations? We conduct a laboratory experiment and we show that the runoff rule consistently delivers better outcomes than the plurality rule even in such unfavorable scenarios. This establishes that the superiority of the runoff rule over the plurality rule in empirical settings outperforms its theoretical advantages. Length: 39 pages Creation-Date: 2019-08 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/10-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:10-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Emre Ekinci Author-Name: Nikolaos Theodoropoulos Title: Disagreement and Informal Delegation in Organizations Classification-JEL: L2; M0 Keywords: Delegation of authority; Differing priors Abstract: To investigate delegation decisions within organizations, we develop a principal-agent model in which the principal can only informally delegate authority to the agent and the parties openly disagree with each other in the sense of differing prior beliefs about the optimal course of action. Our main analysis shows that the degree of disagreement determines what kind of delegation policy the principal can commit to and this, in turn, alters the agent's effort for information acquisition. In an extension, we consider the principal's incentives to provide the agent with training, which reduces the cost of acquiring information. The analysis reveals that training provision is higher under delegation and that training facilitates delegation. We use a cross section of matched employer-employee data to examine the extent to which the empirical implications of this extension are consistent with data. Length: 41 pages Creation-Date: 2019-09 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/11-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:11-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Philippos Louis Author-Name: Matías Núñez Author-Name: Dimitrios Xefteris Title: Trimming Extreme Opinions in Preference Aggregation Classification-JEL: D71; D72 Keywords: trimmed mean; equilibrium; experiment; collective decisions; facility location problem Abstract: The use of trimmed mean mechanisms in collective decision-making is motivated by the perception that they constitute a remedy for strategic misreporting. This work focuses on the strategic calculus of voting under such mechanisms and –contrary to the above presumption– it demonstrates both formally and experimentally that: a) voters persistently resort to strategic polarization for all but the most extreme levels of trimming and b) the outcome is more extreme and closer to the ideal policy of the median voter compared to when trimming does not take place. These so far uncharted properties of trimming provide novel insights –and call for caution– regarding its implementation. Length: 32 pages Creation-Date: 2019-09 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/12-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:12-2019 Template-type: ReDIF-Paper 1.0 Author-Name: Marios Michaelides Author-Name: Peter Mueser Author-Name: Jeffrey Smith Title: Youth Unemployment and U.S. Job Search Assistance Policy during the Great Recession Classification-JEL: J6; H4 Keywords: Youth; Great Recession; job counseling; active labor market policies; unemployment; Unemployment Insurance; program evaluation Abstract: We present experimental evidence on the effects of four U.S. job search assistance programs for unemployed youth during the Great Recession. Results show that all four programs reduced Unemployment Insurance (UI) duration and the benefit amounts collected by youth participants, with savings exceeding program costs. The three programs that included monitoring activities and services referrals but did not mandate services participation had little or no effects on employment and earnings. This suggests that the primary effect of these programs was to cause the early UI exits of unemployed youth with no loss of earnings. The program that combined monitoring with mandatory job counseling increased employment rates and earnings, suggesting that job counseling can help unemployed youth to improve their job search efficacy. We conclude that, during recessions, job search assistance programs should focus primarily on providing job counseling and provide less emphasis on monitoring activities for unemployed youth. Length: 53 pages Creation-Date: 2019-12 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/13-19.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:13-2019