Abstract: In markets where public information about fundamentals is limited, and trade takes place under conditions of asymmetric information, agents may rely on their trading activity to acquire information about the state of market fundamentals. Information acquisition, therefore, becomes an additional motive for trade. In this paper we use a combination of reduced-form techniques and structural analysis to characterize and measure experimentation motives for trade in the U.S. secondary market for municipal bonds. First, we provide reduced-form evidence that experimentation is a first-order motive for trade. To rationalize these facts, we design a dynamic model of trade in this market that allows for linkages between trading activity and information acquisition (i.e., experimentation). The model is estimated using detailed micro-data on trading activity on the secondary market for municipal bonds. We use the model to characterize the incentives to experiment. We find that dealers are willing to pay up to 15% of the intermediation spread to double the precision of their information about the state of fundamentals. Furthermore, we show that experimentation allows dealers to increase the precision of their estimate of the asset’s value by 25%, and we characterize the process of information diffusion across agents. Finally, we find that experimentation explains up to 10% of the volume of trade in the market.
Abstract: We build a framework that models the behavior of both exporters and transportation agents (ships); its spatial equilibrium determines world trade costs and flows. Our framework has two novel features: (i) trade costs are endogenous and determined jointly with trade flows and as a result they depend on the entire network of trade linkages across countries; (ii) search frictions between exporters and ships limit trade. The model features geography, search frictions, and forward-looking optimizing ships and exporters. We collect a unique dataset of shipping contracts, global vessel movements from satellites and sea weather conditions. The data reveal large trade imbalances and asymmetric trade costs. We provide an empirical strategy to flexibly obtain the matching process between ships and exporters in a setup where searching exporters are unobserved and the researcher takes no stance on the presence of search frictions. Our estimated framework is then used to address a number of questions: What are the world trade elasticities with respect to transport costs? How do shocks propagate through the network of countries? We consider the impact of a slow-down in China as well as the opening of the Northwest Passage. Finally, we quantify the trade lost due to search frictions.
Media Coverage: Quartz
Abstract: In this paper we investigate the importance of fuel oil costs in determining world trade. We use detailed data on ship movements across the globe and transaction-level shipping prices, along with a dynamic model describing the world shipping industry, to measure the elasticity of trade with respect to ship fuel costs. We find that the average estimated elasticity is 0.35, but ranges from 0.1 to about 1.2 depending on the level of the fuel cost. The pass-through of fuel costs to exporters is low, at 0.17. Strikingly, the trade elasticity features a pronounced asymmetry in low vs. high oil prices. As fuel costs decline, the elasticity plateaus. This flattening out of the elasticity is attributed to the equilibrium of the transportation sector and the changes in the relative bargaining positions of ships and exporters in particular. Finally, we use the estimated elasticity to assess the importance of ship design on trade flows: if the large fuel efficiency gains achieved in the 1980s had not been realized, trade would be 12% lower today.
Abstract: Censoring plays an important role in the estimation of duration models. Most estimation procedures used to estimate such models assume that the censoring times are independent of the duration of interest (perhaps independent conditionally on covariates). Unfortunately, this assumption is fundamentally not testable in the typical setup. In this, paper we point out that many data sets contain additional information on the censoring times that is not assumed in the typical setup. We then use this additional information to propose tests for independence between the censoring times and the duration of interest. We illustrate the ideas using retirement data from the Health and Retirement Study (HRS).
Marimar and Cristina Torres Award for best 3rd year paper
Abstract:In this paper, I propose a new approach to separate the effect of asymmetric information from that of competition on trade outcomes in decentralized markets. I study the process of price formation in the market for hogs, in the United States. First, I build a model to describe the bargaining process between producers (farmers) and buyers (packers) that accounts for informational asymmetry concerning the packer’s valuation for the hogs. The model is identified thanks to an exogenous change to the information structure that allows to disentangle the role of private values and that of competition, and estimated using daily data on the negotiations in this market. Finally, I evaluate different counterfactual scenarios to study the effect of different policies that correct asymmetric information, and to quantify the misspecification in equilibrium prediction deriving from mistaken assumptions concerning the information structure.