https://cepr.org/ en https://cepr.org/publications/dp20322 Raising the retirement age is a common policy response when social security schemes face fiscal pressures. We develop and estimate a dynamic life cycle model to study optimal retirement and tax policy when individuals face health shocks and income risk and make endogenous retirement decisions. The model incorporates key features of Social Security, Medicare, income taxation, and savings incentives and distinguishes three channels through which health affects retirement: nonconvexities in labor supply due to health-dependent fixed costs of working, earnings reductions, and mortality risk. We estimate our model to match US microdata and show that labor supply nonconvexities play a dominant role in driving early retirement, making rigid increases in the retirement age welfare reducing. In contrast, more flexible policies, such as increasing the dependence of Social Security benefits on the claiming age, can improve welfare and pay for themselves with a fiscal surplus. We map a range of policy reforms to their marginal values of public funds (MVPFs), showing that certain incentives to delay claiming offer MVPFs of infinity while broad-based retirement age increases have negative willingness-to-pay. These findings offer novel retirement policy prescriptions and challenge the prevailing emphasis on raising the retirement age. 2025-06-03T00:00:00+0100 Abdoulaye Ndiaye, Zhixiu Yu 34beda08-9deb-43bc-b5e8-b9dfee425e88 Discussion paper DP20322 Public Economics https://cepr.org/publications/dp20325 Social desirability bias (SDB) is a pervasive threat to the validity of survey and experimental data. Respondents might often misreport sensitive attitudes and behaviors to appear more socially acceptable. We begin by synthesizing empirical evidence on the prevalence and magnitude of SDB across various domains, focusing on studies with individual-level benchmarks. We then critically assess commonly used strategies to mitigate SDB, highlighting how they can sometimes fail by creating confusion or inadvertently increasing perceived sensitivity. To help researchers navigate these challenges, we offer practical guidance on selecting the most suitable tools for different research contexts. Finally, we examine how SDB can distort treatment effects in experiments and discuss mitigation strategies. 2025-06-03T00:00:00+0100 Leonardo Bursztyn, Ingar Haaland, Nicolas Röver, Christopher Roth 8e0f39ec-ab93-4b1f-971e-d47ca1db8a79 Discussion paper DP20325 Public Economics https://cepr.org/publications/dp20324 We examine the effects of a criminal record on labor market outcomes and the mediating role of job sorting using Swedish register data. Prime-age adults with criminal records earn about 30% less than observably similar adults without records and are concentrated in specific employers and occupations. To estimate the causal effect of a criminal record, we use an event study design that compares outcomes for adults charged with an offense for the first time to matched adults who were suspected of a similar offense but not charged. Acquiring a criminal record reduces months employed by 2% and annual earnings by 5%. These negative effects are: twice as large for more serious or subsequent charges, not driven by job displacement or incapacitation, and not mitigated by automatic record expungement, which typically occurs 5 or 10 years after case disposition. We classify firms by their propensity to hire workers with criminal records, holding suspected offense history fixed. A criminal record reduces employment at firms classified as less likely to hire workers with criminal records, increases employment at other firms, and decreases monthly wages across all firm types. Firm propensity to hire workers with criminal records varies substantially — even within industries — and is linked to firm size and managers’ prior exposure to people with records. Leveraging manager moves across small firms, we find that when a firm hires a new manager with greater prior exposure to people with criminal records, it hires more people with records, with no detectable effect on productivity. 2025-06-03T00:00:00+0100 Randi Hjalmarsson, Louis-Pierre Lepage, Matthew Lindquist, Conrad Miller 13820949-692f-4bc2-9d3c-cb4c656fa168 Discussion paper DP20324 Labour Economics, Public Economics https://cepr.org/publications/dp20323 This paper develops and estimates a dynamic life-cycle model to quantify why households save and work. The model incorporates multiple sources of risk—health, marital status, wages, medical expenses, and mortality—as well as endogenous labor supply and human capital accumulation, retirement, and bequest motives at the death of the first and last household member. We estimate it using PSID and HRS data for the 1941–1945 cohort via the Method of Simulated Moments. Eliminating bequest motives reduces aggregate wealth by 23.8% and labor earnings by 1.2%; removing medical expenses lowers them by 13.1% and 0.7%. Wage risk is crucial for early-life saving: its removal reduces wealth by 10.4% but raises earnings by 2.3%. Eliminating marriage and divorce dynamics leads couples—numerous and wealthier—to save and work slightly less, and singles—fewer and poorer—to save and work considerably more. These effects largely offset in the aggregate. Removing all saving motives beyond retirement needs and lifespan uncertainty lowers wealth by 56.9% and earnings by 2.7%. These findings show that capturing multiple risks and behavioral margins jointly is essential to understanding household saving and labor supply. 2025-06-03T00:00:00+0100 Margherita Borella, Mariacristina De Nardi, Fang Yang, Johanna Torres Chain 24715afa-2aa5-409d-bff8-c51ed1056c0e Discussion paper DP20323 Labour Economics, Macroeconomics and Growth, Public Economics https://cepr.org/publications/dp20321 In this paper, we build a general equilibrium model that takes the institutional details of the foreign exchange market into account and allows for deviations from full information rational expectations (FIRE) in a way consistent with forecast survey data and traders’ asset positions. We show that the testable implications of this model—related to foreign exchange derivatives positions, and both realized and expected exchange rates—are strongly supported in the data. Moreover, we argue that the particular form of deviation from FIRE implied by the data can help resolve important exchange rate puzzles, such as the Fama puzzle and the delayed overshooting puzzle, and can generate hump-shaped dynamics of exchange rates. 2025-06-03T00:00:00+0100 Vania Stavrakeva, Jenny Tang c8744999-25ef-4ff1-8869-d33457e6ceb8 Discussion paper DP20321 International Macroeconomics and Finance, Asset Pricing https://cepr.org/publications/dp20318 The paper examines the gender differences in labor market integration among refugees and their determinants. It focuses on a longitudinal dataset that includes the universe of the refugee population in Switzerland over a 20-years period. Over the period examined the large majority of refugees come from developing economies. The quasi-random allocation of asylum seekers across cantons, which are different in their socio-economic characteristics, provides a natural experiment to identify the causal effects of the source country culture as well as the role of the local initial conditions in affecting the trajectory of refugees’ labor market integration. Empirical findings highlight the importance of source country culture, though there is some variation in the persistence of the effects over time. The research also highlights the negative role of initial unemployment and the positive role of co-ethnic networks, which vary by gender and according to the characteristics of the network. Moreover, empirical findings show the positive effects of local attitudes towards gender equality in affecting women refugees’ labor market outcomes. 2025-06-01T00:00:00+0100 Tobias Müller, Pia Pannatier, Martina Viarengo 4c29c31d-b44d-413b-bf24-333d5d6b700a Discussion paper DP20318 Economic History https://cepr.org/publications/dp20319 Social movements are associated with large societal changes, but evidence of their causal effects is limited. We study the effect of the MeToo movement on an important personal decision—reporting a sex crime to the police. Victims often do not report sex crimes due to the personal costs involved, but the reporting of sex crimes can have positive externalities and therefore, improve social welfare. Using a difference-in-differences strategy comparing sex crimes and non-sex crimes before and after the MeToo movement started, we find that the movement increased the number of sex crimes reported by approximately 10% and that the effect persisted until the end of our data, 15-27 months after the movement started. The result is confirmed using a triple-difference strategy comparing countries with strong and weak MeToo movements. Using detailed US data, we show that the MeToo movement not only increased reporting but also increased arrests for sexual assaults; and that in contrast to a common criticism of the movement, the effects are similar across racial and socioeconomic groups. Based on additional survey and crime data, we find that the increased reporting reflects a higher propensity to report sex crimes rather than an increase in the incidence of sex crimes. Our results demonstrate that social movements can rapidly and persistently change high-stakes decisions. 2025-05-31T00:00:00+0100 Ro'ee Levy, Martin Mattsson 5b370c79-a3f4-4a15-9f75-65ef35a3f7f7 Discussion paper DP20319 Political Economy https://cepr.org/publications/dp20315 Trade and industrial policies, while primarily intended to support domestic industries, may unintentionally stimulate technological progress abroad. We document this mechanism in the case of rare earth elements (REEs) – critical inputs for manufacturing at the knowledge frontier, with low elasticity of substitution, inelastic supply, and high production and processing concentration. To assess the importance of REEs across industries, we construct an input-output table that includes disaggregated REE inputs. Using REE-related patents categorized by a large language model, sectoral TFP data, trade data, and physical and chemical substitution properties of REEs, we show that the introduction of REE export restrictions by China led to a global surge in innovation and exports in REE-intensive downstream sectors outside of China. To rationalize these findings and quantify the global impact of the adverse REE supply shock, we develop a quantitative general equilibrium model of trade and directed technological change. We also propose a structural method to estimate sectoral input substitution elasticities for REEs from patent data and find REEs to be complementary inputs. Under endogenous technologies and with complementary inputs, input supply restrictions on REEs induce a surge in REE-enhancing innovation and lead to an expansion of REE-intensive downstream sectors. 2025-05-31T00:00:00+0100 Laura Alfaro, Harald Fadinger, Jan Schymik, Gede Virananda a6ecb220-953e-4603-a58c-7f768e4be221 Discussion paper DP20315 International Macroeconomics and Finance, International Trade and Regional Economics, Macroeconomics and Growth https://cepr.org/publications/dp20320 Information manipulation is a powerful tool in the hands of any authoritarian leader. Dictators block independent media, censor news, pay influencers, and control citizens' social connections. In our model, citizens acquire information from censored sources or through social networks. Naturally, information manipulation has less impact when consuming news is costly and percolation in the network is low. Less intuitively, it might be optimal for the regime to target peripheral, rather than centrally connected citizens, and the propaganda's maximum impact is when percolation of information is close to zero (the society is atomized) or close to one, but not in-between. 2025-05-31T00:00:00+0100 Konstantin Sonin a070d535-b554-4c38-968e-3c310e399789 Discussion paper DP20320 Political Economy https://cepr.org/publications/dp20314 In a standard continuous-time economy with heterogeneous beliefs and constant relative risk aversion, equilibrium prices reveal the cross-sectional distribution of wealth and consumption shares across beliefs. Specifically, we establish a novel recovery theorem showing that the equilibrium paths of the risky asset price and the interest rate determine the evolution of these distributions. Motivated by this finding, we develop an optimization-based method to approximate the implied distribution of consumption shares across beliefs, given discrete time series of prices and interest rates. We confirm the accuracy of this method on simulated data and illustrate the versatility of our approach by providing extensions of our basic recovery theorem that allow for learning and multidimensional beliefs. 2025-05-31T00:00:00+0100 Julien Hugonnier, Darius Nik Nejad 48fcc0d1-d36c-402f-9895-3d37543e9179 Discussion paper DP20314 Asset Pricing https://cepr.org/publications/dp20316 Why did the Soviet Union organize regular elections, national and local, with one candidate and reported 99.9% support with 99.9% turnout? Were the Soviet citizens so stupid that they did not understand that they have no say in choosing their government? The Reverse Cargo Cult metaphor explains why dictators tell their citizens lies that citizens know to be lies: a verifiable lie told by a politician changes citizens' perceptions of politicians and reduces their willingness to replace them. The model explains the mechanics of authoritarian propaganda that puts much emphasis on persuading citizens how bad foreign politicians are. 2025-05-31T00:00:00+0100 Konstantin Sonin a1a8b7dc-32b2-4281-853d-27b66ccf47fd Discussion paper DP20316 Political Economy https://cepr.org/publications/dp20317 Using oil and gas shocks as an exogenous source of business cycles at the U.S. commuting zone level, we provide novel evidence that local booms increase local patenting, especially in non-metropolitan areas. This reflects agglomeration economies that make incumbent inventors more productive. In contrast to total patenting, innovation in oil and gas — the sector closest to the boom — is countercyclical, consistent with higher opportunity costs of innovation in a booming industry. Our findings shed new light on the spatial dimension of innovation, inform recent debates on place-based industrial policy, and help to reconcile mixed evidence on the cyclicality of innovation. 2025-05-31T00:00:00+0100 Federica Coelli, Paul Pelzl 9732bfb8-4a24-4663-895e-aba2a4ed5eea Discussion paper DP20317 International Trade and Regional Economics, Macroeconomics and Growth https://cepr.org/publications/dp20311 How can a currency achieve more widespread international use? We study the internationalization of the Chinese renminbi (RMB) through the lens of a unique policy experiment in Argentina. In 2023, amid a severe dollar shortage, Argentina expanded a currency swap line with the People's Bank of China. Within the next few months, the share of imports from China invoiced in RMB surged rapidly to nearly 50% - displacing the US dollar, which had previously accounted for virtually all invoicing. Following the presidential election of late 2023, as macroeconomic policies changed and the dollar shortage eased, invoicing in RMB declined. We explore the mechanisms behind this aggregate pattern, using rich firm-level data on imports, bank-firm loan relationships, and bank balance sheets. Our results indicate that banks played a key role, in line with the dollar shortage narrative. First, firms with pre-existing relationships to banks with limited US dollar loans were more likely to switch to RMB. Second, firms borrowing from a Chinese state-owned bank were significantly more likely to use RMB. We also document firm-level spillovers, with RMB use for imports from China increasing the likelihood of RMB use for imports from other countries. Finally, we observe an effect on trade volumes. Firms switching to RMB saw increased total imports. 2025-05-30T00:00:00+0100 Felipe Benguria, Dennis Novy a7b4a7ea-b89b-4a8f-a1b8-41ed6dd9c1a7 Discussion paper DP20311 International Macroeconomics and Finance, International Trade and Regional Economics, Macroeconomics and Growth, Political Economy, Banking and Corporate Finance https://cepr.org/publications/dp20310 Private credit, often associated with unsecured lending, has experienced remarkable growth in recent years. We use U.S. loan-level data to show that total outstanding amounts of secured direct loans now surpass unsecured direct loans. Loans are more likely to be secured when informational frictions between lenders and borrowers are more severe. Comparing loans to firms within the same metropolitan statistical area (MSA) and industry, we observe that secured loans have lower amounts, higher spreads, and longer maturity than unsecured loans. Club deals and revolvers are increasingly common in both market segments, likely driven by rising bank participation. Finally, employing an instrumental variable strategy and cross-sectional variation in house prices across MSAs, we provide suggestive evidence of a `real estate collateral channel' in private credit. When house prices rise, secured direct lending increases by substantially more than its unsecured counterpart, especially in collateral-dependent industries. We conclude by discussing the implications for monetary policy transmission and the evolving bank-private credit nexus. 2025-05-30T00:00:00+0100 Inaki Aldasoro, Sebastian Doerr 132edaef-4447-4b3f-9e56-245152141d7c Discussion paper DP20310 Banking and Corporate Finance https://cepr.org/publications/dp20308 Building on the methodology of Gorodnichenko et al. (2023), we reconstruct and propose a novel measure that quantifies the voice sentiment of the Chair of the Federal Reserve press conference responses and examine its impact on the stock price crash risk of U.S. banks. We find that a more positive vocal sentiment, indicative of happiness, significantly reduces banks’ ex-ante crash risk, whereas negative emotions, such as sadness and anger, amplify it. These effects are economically meaningful and robust across various specifications, alternative crash risk proxies, and endogeneity checks, including an instrumental variables (IV) strategy and an entropy balancing approach. Additionally, the emotional sentiment has asymmetric effects on stock price crash risk, depending on bank size. Our findings suggest that, beyond the textual content of monetary policy statements, the emotional delivery of central bank communication plays a critical role in shaping financial stability outcomes, providing empirical evidence for the theoretical channels of uncertainty, systemic risk and investor sentiment. 2025-05-30T00:00:00+0100 Dimitris Anastasiou, Apostolos Katsafados, Steven Ongena, Christos Tzomakas 17c8ca5d-2dd8-4ce2-b195-d6be0856d4d0 Discussion paper DP20308 Monetary Economics and Fluctuations, Banking and Corporate Finance https://cepr.org/publications/dp20312 When Federal Reserve districts experience high inflation or low unemployment but lack voting rights to influence FOMC decisions, credit extended to commercial banks through the Discount Window (DW) declines. Our identification strategy is based on the exogenous rotation of voting rights among Reserve Banks and on within borrower-time and district-time variation in DW loans and Federal Home Loan Bank (FHLB) loans, implying that factors related to changes in macroeconomic conditions, local credit demand, or borrower characteristics do not drive the results. The effect on bank funding sources translates into changes in the composition of loans extended by commercial banks. 2025-05-30T00:00:00+0100 Vyacheslav Fos, Tommaso Tamburelli, Nancy Xu 8cfeb7a7-3c32-43ac-a928-8865e0814a0f Discussion paper DP20312 Monetary Economics and Fluctuations, Banking and Corporate Finance https://cepr.org/publications/dp20309 The proposed revision of the Swiss Banking Act introduces a public liquidity backstop (PLB) for distressed systemically important banks (SIBs), in part to facilitate resolution. We examine the impact of the PLB on fiscal balances, welfare, and the incentives of bank shareholders and management. A PLB, like too-big-to-fail (TBTF) status, acts as a subsidy for non-convertible bonds, which can create negative externalities. Corrective measures should be implemented before the PLB is activated to align incentives with societal interests. We conservatively estimate that UBS Group's TBTF status results in funding cost reductions of at least USD 2.9 billion in 2022. The risk for Switzerland of hosting SIBs warrants additional precautionary savings. 2025-05-30T00:00:00+0100 Cyril Monnet, Dirk Niepelt, Remo Taudien 6ead6c54-b6ae-4da3-87eb-71600df817da Discussion paper DP20309 Monetary Economics and Fluctuations, Asset Pricing, Banking and Corporate Finance https://cepr.org/publications/dp20313 We argue that firms’ assets, especially their tangible assets, serve as collateral restricting both secured and unsecured debt. Secured debt is explicitly collateralized, placing a lien on specific assets, which facilitates enforcement. Unsecured debt is backed by unencumbered assets and thus implicitly collateralized. The explicit collateralization of secured debt entails costs but enables higher leverage. Therefore, financially constrained firms use more secured debt both across and within firms. Our dynamic model is consistent with stylized facts on the relation between secured debt and measures of financial constraints and between leverage and tangible assets, and with evidence from a causal forest. 2025-05-30T00:00:00+0100 Adriano A. Rampini, S. Viswanathan 4bbea4f0-18d1-4bbb-8265-fd588b7de54b Discussion paper DP20313 Macroeconomics and Growth, Banking and Corporate Finance https://cepr.org/publications/dp20307 We show that bonds issued by financial firms have higher spreads than bonds issued by industrial firms with the same rating and maturity, and we call this difference the financial premium. During the period 1987–2020 the premium is on average 43bps in the U.S., higher for lower ratings, higher in financial crises, and is increasing in bond beta. We derive a model that explains the financial premium: banks hold diversified portfolios of non-financial debt and bank debt therefore reflect more systematic risk than non-financial debt. 2025-05-30T00:00:00+0100 Jens Dick-Nielsen, Peter Feldhütter, David Lando 4611d993-20aa-4449-acec-9e7b92d71868 Discussion paper DP20307 Asset Pricing, Banking and Corporate Finance https://cepr.org/publications/dp20303 The fear that a foreign government will impose an export restriction that imperils another country’s economic and national security has driven part of the recent turn to industrial policy and the increased use of tariffs. Countries now worry about disruption not only to their access to energy but also to critical minerals, semiconductors, medical supplies, and other essential goods. Modern use of industrial and trade policy is thus often an attempt to move supply chains in the short term and to sustain them in those new places over the long term, in order to reduce national vulnerability to disruptions caused by export restrictions. However, achieving even modest forms of international cooperation on trade and industrial policy between countries seeking to improve their collective economic security will also require that these same countries take on new commitments to discipline their own use of export restrictions toward each other. 2025-05-29T00:00:00+0100 Chad Bown a443b116-70b0-4a31-96fc-f69ed4be2a9a Discussion paper DP20303 International Trade and Regional Economics https://cepr.org/publications/dp20306 We experimentally test two seminal hypotheses on the impact of competition on firms' management upgrading. In a first experiment, we protect firms from labor market competition by reducing the risk that a freshly trained manager would be poached by a rival firm. We find that this protection does not increase firms' investment in management training. In a second suite of experiments, we boost perceived product market competition by informing firms either that rival firms have received management training or that foreign firms are gaining easier access to the domestic market. Again, we find no evidence that this increases firms' average willingness to invest in management training. To explain why firms do not feel threatened by competition, we present evidence suggesting that, in contrast to commonly held assumptions, firm managers in our setting hold a mental model of competition that posits positive---instead of negative---spillovers, arising primarily from differentiation. 2025-05-29T00:00:00+0100 Girum Abebe, Stefano Caria, Pascaline Dupas, Marcel Fafchamps, Tigabu Getahun a8f63f83-b37f-4402-a0e9-d693e2b896ec Discussion paper DP20306 Development Economics https://cepr.org/publications/dp20304 This paper introduces a monthly shortage index spanning 1900 to the present, constructed from 25 million newspaper articles. The index captures shortages across industry, labor, food, and energy, and spikes during economic crises and wars. We validate the index and show that it provides information beyond traditional macroeconomic indicators. Using predictive regressions, we find that shortages are associated with persistently high inflation and lower economic activity. A structural VAR model reveals that, compared to a traditional supply shock, surprise movements in shortages produce less inflation relative to their GDP impact, suggesting that shortages are associated with constraints on price adjustment that limit inflation but magnify the decline in real activity. We also show that post-pandemic shortages and inflation were primarily driven by supply forces, with demand factors playing a less important role. 2025-05-29T00:00:00+0100 Dario Caldara, Matteo Iacoviello, David Yu 2974dd69-1f90-4903-99b4-cfb691f3b57c Discussion paper DP20304 https://cepr.org/publications/dp20305 Imports feature at all stages of production as well as in final consumption, and this is key to how tariff shocks play out. If imposed on imports in upstream sectors, import tariffs lower domestic output in downstream sectors; if imposed downstream, they raise upstream production. The aggregate effect of tariffs can be recessionary or expansionary—depending on the strength of upstream and downstream effects. Tariffs raise inflation no matter what, but how persistently they do so also depends on the network structure. We establish these results in a New Keynesian small open-economy model with an input-output network and provide supporting evidence based on US import tariffs. Simulating the "Liberation Day" tariff package, we find it highly stagflationary. 2025-05-29T00:00:00+0100 Anastasiia Antonova, Luis Huxel, Mykhailo Matvieiev, Gernot Müller b600eb67-e363-43b9-9b23-b5f26acf9213 Discussion paper DP20305 International Macroeconomics and Finance https://cepr.org/publications/dp20300 While causal reasoning underpins econometric theory, its practical impact on decision performance remains largely untested. We develop a dynamic model of decision‐making under uncertainty, showing that causal theories raise economic performance. We provide the first large‐scale empirical evidence of this phenomenon by conducting eight field randomized controlled trials with 1,556 early‐stage startups across eight countries, comparing theory‐and‐evidence‐based training to evidence‐only and control conditions. We estimate that theory‐trained entrepreneurs achieve 1.7 times higher cumulative sales growth and employee productivity relative to both counterfactual groups. Instrumental‐variable estimates confirm that theory-based causality drives these gains, whereas pure experimentation offers no significant short‐term benefits. Our findings establish causal reasoning as a critical determinant of economic performance and advocate embedding causal theorizing alongside experimentation in decision‐making. 2025-05-28T00:00:00+0100 Arnaldo Camuffo, Alfonso Gambardella, Diego Jannace 17159dcd-13e1-4cd5-94e9-2af9ff04601b Discussion paper DP20300 Organizational Economics https://cepr.org/publications/dp20301 We study the nature and determinants of dialogue between political candidates in television advertising. We characterize dialogue as both candidates advertising on the same campaign theme (e.g., “Economic Policy”). We model candidates’ propensity to engage in dialogue and link race competitiveness with messaging overlap. We show that it is theoretically ambiguous whether more competitiveness increases dialogue. Using data on television advertising for U.S. House and Senate races from 2012 to 2020, we document rich heterogeneity in dialogue across races and within races over time. Candidates strategically avoid dialogue; we find that dialogue is lower than predicted by a “non-strategic” advertising benchmark. Finally, we investigate the determinants of dialogue, including race competitiveness, time until the election, and election type, separating the effects of these characteristics on selection into advertising and messaging similarity. We find that dialogue increases with competitiveness, though this effect is dominated by its impact on selection into advertising. 2025-05-28T00:00:00+0100 Simon Anderson, Federico Ciliberto, Benjamin Leyden 8a8dd2b8-d2fd-4dac-9edc-2f82bf88b526 Discussion paper DP20301 Industrial Organization, Political Economy https://cepr.org/publications/dp20302 We propose a methodology to estimate the market value of pharmaceutical drugs. Our approach combines an event study with a model of discounted cash flows and uses stock market responses to drug development announcements to infer the values. We estimate that, on average, a successful drug is valued at $1.62 billion, and its value at the discovery stage is $64.3 million, with substantial heterogeneity across major diseases. Leveraging these estimates, we also determine the average drug development costs at various stages. Furthermore, we explore applying our estimates to design policies that support drug development through drug buyouts and cost-sharing agreements. 2025-05-28T00:00:00+0100 Gaurab Aryal, Federico Ciliberto, Leland Farmer, Ekaterina Khmelnitskaya 5153e506-4717-4db9-adc2-6c0de0d87e87 Discussion paper DP20302 Industrial Organization https://cepr.org/publications/dp20296 In 2018 and 2019, the US administration increased tariffs on imports from China. Did these tariffs lead to more US imports from other countries such as Mexico? Using highly disaggregated data on the universe of Mexican firm-level exports, we find evidence of trade diversion from China to Mexico. We then combine the export data with detailed longitudinal employer-employee data to investigate the impact of trade diversion on labor market outcomes for workers employed by Mexican exporters. We find that trade diversion increased the labor demand of exporters exposed to US tariffs against China, resulting in more employment and higher wages, especially for low-wage workers such as female, unskilled, younger, and non-permanently insured employees. The effects were concentrated in technology and skill-intensive manufacturing industries. 2025-05-27T00:00:00+0100 Natalie Chen, Dennis Novy, Diego Solórzano c5a898cd-c6d8-4562-8f21-8b3a6e98eb04 Discussion paper DP20296 International Trade and Regional Economics https://cepr.org/publications/dp20298 We consider a setting in which a platform matches buyers and sellers, who then wish to transact with each other multiple times. The platform charges fees for hosting transactions, but also offers convenience benefits. We consider two scenarios. In one scenario, all transactions must occur on the platform; in the other scenario, buyers and sellers can disintermediate the platform after the first transaction, and do subsequent transactions offline. We find that the platform reacts to disintermediation by using a "front-loaded" pricing scheme, whereby it charges more for earlier transactions. We also show that sometimes the platform is better off when disintermediation is possible — because it can use disintermediation to screen users' private information about their convenience benefits. Buyers are not necessarily better off when they can disintermediate, due to the way in which the platform adjusts its fees. 2025-05-25T00:00:00+0100 Andreea Enache, Andrew Rhodes 47f5b94a-0830-4496-9526-c55e6bb1d7df Discussion paper DP20298 Industrial Organization https://cepr.org/publications/dp20295 We incorporate negative reciprocity into strategic information transmission, examining how a receiver's response to perceived manipulation influences optimal information design. In one setting, greater signal inaccuracy increases the likelihood that the receiver disregards it; in another, inaccuracy shifts the receiver's preferences unfavorably for the sender. In both cases, the revelation principle fails, yet we characterize the set of posterior beliefs on which an optimal signal is supported. While full revelation may be optimal in one setting, it is never so in the other. Our findings connect information design with behavioral economics, highlighting the implications of design-dependent preferences. 2025-05-25T00:00:00+0100 Kfir Eliaz, Ran Eilat 197e8351-d735-4227-9ee2-657ecc2f842a Discussion paper DP20295 Organizational Economics https://cepr.org/publications/dp20299 A monopolist curates a database for users seeking to learn a parameter's value: "nowcasters" focus on its current value, while "forecasters" target its long-run value. The monopolist designs a menu of contracts described by fees and data-access levels, balancing revenue and data-storage costs. The optimal menu offers full access to historical data, while current data is fully provided to nowcasters but may be withheld from forecasters. Compared to the social optimum, the monopolist oversupplies historical data, undersupplies current data, and may provide excessive data overall. 2025-05-25T00:00:00+0100 Kfir Eliaz, Ran Spiegler 95c1e925-9de8-435b-8ad3-c8ad248d4c49 Discussion paper DP20299 Industrial Organization https://cepr.org/publications/dp20297 We assess the business cycle properties for a large set of incomplete market models with (or without) nominal and real rigidities: they are similar to those from representative and two-agent economies, both fall short of matching empirical labour market dynamic. This is true even when we consider counter-cyclical income risk, which gives implausibly high wage volatility. Augmenting the incomplete market model with heterogenous indivisible labour supply, due to discrete choices, reconciles low micro elasticities and large employment fluctuations and dampens wage volatility, more so with wage rigidity. 2025-05-25T00:00:00+0100 Ester Faia, Ekaterina Shabalina fc67ff13-181c-4d62-9ca1-ffe29a590b4d Discussion paper DP20297 Monetary Economics and Fluctuations, Macroeconomics and Growth https://cepr.org/publications/dp20294 We propose a conditional model of asset returns that allows for good and bad states of the world depending on bear market risk. Specifically, we generalize existing latent factor models in three ways: we show how to estimate the threshold that identifies the “disappointment” event triggering the bad state of the world; we permit different factor structures for asset returns in good and bad states; and we show how to estimate consistently the conditional risk premia of observable factors from the estimated latent factors. The usefulness of the conditional model is illustrated with an empirical application to a broad cross-section of stock portfolio excess returns. 2025-05-25T00:00:00+0100 Daniele Massacci, Lucio Sarno, Lorenzo Trapani 014ed43a-6c0f-45a8-a24e-6ea772a514a3 Discussion paper DP20294 International Macroeconomics and Finance, Asset Pricing https://cepr.org/publications/dp20293 This paper surveys long-term projections of global GDP per capita and presents our own projections through 2050 using a multi-country-multi-sector general equilibrium model (G-Cubed). Existing studies generally agree that global GDP per capita growth will continue to slow in the coming decades, driven by several global challenges such as rapid population ageing, slower technological progress, weaker capital investment, and stagnating educational attainment. Projections tend to be consistent for advanced economies, but vary considerably for developing regions, highlighting the importance of alternative methodologies and assumptions, as well as inherent long-term uncertainty. While existing studies rely on neoclassical models with an aggregate production sector, the G-Cubed model takes a disaggregated approach to projecting productivity and output that accounts for dynamic interactions between sectors and across economies. Our projections incorporate the impacts of three fundamental factors: productivity growth, population ageing, and climate change. Productivity growth in advanced economies is expected to slow, but artificial intelligence could counteract the decline and serve as an engine for sustained growth. Population ageing in most advanced economies will continue to constrain labour supply, potentially reducing GDP per capita through changes in age structure. Climate change poses challenges to economic growth through multiple channels, with moderate quantitative impacts by mid-century. The extent to which developing regions can boost productivity, leverage demographic advantages, and navigate climate change will depend on policy choices, as well as governance and institutional improvements. Finally, the paper discusses the implications of geopolitical fragmentation, government debt, and public infrastructure on economic growth. 2025-05-25T00:00:00+0100 Weifeng Larry Liu, Warwick Mckibbin 4141a4cc-e4c2-42ee-8840-e5455eb871d5 Discussion paper DP20293 International Macroeconomics and Finance, Macroeconomics and Growth https://cepr.org/publications/dp20291 We present a methodology for decoupling taste-based versus statistical discrimination in political behavior. We combine a flexible empirical model of voting, featuring vertical and horizontal candidate differentiation in gender, ability, and policy positions, with a large-scale micro-targeted electoral experiment aimed at increasing female candidate vote shares. Our structural econometric approach allows to separately identify preference parameters driving taste-based discrimination and beliefs parameters driving statistical discrimination through expectations about ability and policy positions of female politicians. Our application to Brazilian municipal elections uncovers substantial levels of taste-based and statistical discrimination. Counterfactual political campaigns show promise in reducing both. 2025-05-24T00:00:00+0100 Amanda de Albuquerque, Frederico Finan, Anubhav Jha, Laura Karpuska, Francesco Trebbi 3280b628-5f5e-4fa2-92b0-de1870543fc5 Discussion paper DP20291 Political Economy https://cepr.org/publications/dp20292 Public consultations are widely used in regulatory processes, allowing stakeholders to present their viewpoints despite their inherent biases. Some stakeholders, such as firms, are known to be pro-business, while others, such as environmental NGOs, are pro-environment. We develop a framework to analyze how a regulator should process information provided by biased stakeholders. We distinguish between stakeholders whose biases are high and known and those whose biases are small but unknown, such as national authorities. We show that the regulator should follow the advice that runs counter to a stakeholder's typical bias, i.e., to regulate if firms so advise, and not to regulate if environmental organizations so advise. Without such advice, she should prioritize the comments provided by stakeholders with smaller but unknown bias. Next, we contrast our theoretical results with the regulation of chemicals in the European Union. In line with our theory, we find that support for regulation has a strong and significant impact on the decision to regulate when the support comes from firms but not when it comes from NGOs and environmental agencies. We also find that national authorities have a stronger influence than other stakeholders in the regulation decision, both by the number of comments and the relative support. 2025-05-24T00:00:00+0100 Stefan Ambec, Jessica Coria eaede75a-e0a8-4016-882e-6935680918ec Discussion paper DP20292 Climate Change and the Environment https://cepr.org/publications/dp20290 We introduce a task-based framework to describe production in which certain tasks are too complex for many workers to perform. In such an environment, the relationship between the wages of workers may significantly differ from their relative productivities: Marginally more skilled workers may be scarce and hence obtain a large additional wage premium on top of the skill premium, which we call complexity premium. We apply our framework to explain employment and wage polarization and estimate model parameters for the U.S. labor market between 2001 and 2019. Besides a rising skill level and skill premium, we find that complexity of tasks increases and employees mastering higher complexity levels earn a significant complexity premium which explains up to 43 percent of their wages. Finally, we find that artificial intelligence may either aggravate or reduce wage inequality in the model, depending on its skill level and its cost. 2025-05-23T00:00:00+0100 Johann Fuchs, Hans Gersbach, Samuel Schmassmann 44ceebaf-12ff-46e9-b5a7-5bcc2c0dce84 Discussion paper DP20290 Labour Economics, Macroeconomics and Growth https://cepr.org/publications/dp20289 This paper is the first to examine how China’s Five-Year Plans ("Plans'") affect the production allocation of U.S. firms. The Plans represent the highest level of China’s industrial policy, identifying key sectors for state support. Using the U.S. Census Longitudinal Business Database and Plans issued in 2001, 2006, 2011, and 2016, we find significant production displacement among U.S. industries operating in the same sectors targeted by the Plans in China. Over the five years following a sector’s inclusion in a Plan, the corresponding U.S. industries experience a 3.6% reduction in output, a 5.1% drop in employment, a 6.1% decrease in investment, and a 1.0% uptick in factory closure rates. These effects were neither anticipated by the stock market nor reflected in forward-looking firm decisions such as investment and job postings at the time. Some U.S. firms, however, successfully adapt by reallocating production toward "beneficiary" industries — those upstream or downstream of the targeted sectors — or by offshoring to the favored sectors within China. Such adjustments are enabled by preexisting productivity, sectoral and geographic footprints, financial access, and labor market flexibility. This study contributes to the ongoing policy debate on how best to support domestic firms and the broader economy in the face of global shocks, particularly those driven by foreign government intervention. 2025-05-23T00:00:00+0100 Xiao Cen, Vyacheslav Fos, Wei Jiang 574ceab0-8613-4b0e-9418-f3fe1b226a66 Discussion paper DP20289 International Trade and Regional Economics, Banking and Corporate Finance https://cepr.org/publications/dp20287 We study the impact of a program designed to enhance data literacy on graduate students’ skills and academic outcomes in a large Italian university. The program (i.e. a minor) targets students who are expected to have weak quantitative competences and offers 120-hours training focused on improving the ability to interpret and process data, in addition to the regular courses of the master program in which students are enrolled (i.e. their major). The admission process to the minor is characterized by rationing, resolved by random assignment of available slots to applicants. Exploiting the resulting exogenous variation for identification, we find that the program largely improved digital literacy of participants with low pre-treatment levels of numeracy. Despite the additional effort required by the program, we can rule out any slowdown in the progress of the academic career in the major master program of participating students. 2025-05-22T00:00:00+0100 Margherita Fort, Annalisa Loviglio, Susanna Tinti 8e2273cc-c0a4-4153-a539-8ce19730bd6b Discussion paper DP20287 Labour Economics https://cepr.org/publications/dp20286 This paper studies how individual risk attitudes shape occupational choice and wealth accumulation. Using self-reported individual risk preferences from the German Socioeconomic Panel (GSOEP), we estimate that an increase in risk tolerance raises the probability of a worker transitioning to self-employment. We also develop a life-cycle model of occupational choice with Epstein-Zin preferences and heterogeneous risk attitudes to study how risk aversion interacts with entrepreneurial ability and wealth in determining entry into self-employment and its aggregate implications. Counterfactual simulations show that increasing business risk reduces entry but improves selection by entrepreneurial skills. In contrast, Germany’s “1-Euro GmbH” reform of 2008 weakened the role of risk tolerance for entry and increased participation by more risk-averse individuals. 2025-05-22T00:00:00+0100 Brigitte Hochmuth, Monika Merz, Fabian Prettenthaler 3983a0fb-ef7d-415e-bdee-ca33b70a99e2 Discussion paper DP20286 Labour Economics, Macroeconomics and Growth https://cepr.org/publications/dp20288 Using newly-linked administrative and commercial data from Virginia spanning 25 years, we study the consequences of incarceration. While previous research has examined labor market outcomes and recidivism, we focus on two of the primary channels through which low-income households build wealth: asset ownership (homes and cars) and human capital formation. To identify causal effects, we use a matched difference-in-differences design. In line with much of the literature on the impact of incarceration in the U.S., we find no evidence of scarring effects on labor market outcomes or changes in recidivism beyond the incapacitation period. However, we find that incarceration leads to a persistent reduction in asset accumulation: seven years after sentencing, homeownership has declined by 1.1 percentage points (12.1%) and car ownership by 2.7 percentage points (18.1%). Incarceration also lowers human capital formation, reducing college enrollment by 1.4 percentage points (15.1%). 2025-05-22T00:00:00+0100 John Humphries, Cecile Macaire, Aurelie Ouss, Megan Stevenson, Winnie Van Dijk e517955c-703a-44f6-866c-818ef9f2d523 Discussion paper DP20288 Labour Economics, Public Economics https://cepr.org/publications/dp20284 Building on Hausmann, Hwang and Rodrik (2007), we provide a methodology to estimate the degree of inclusiveness of an export product along three economic dimensions: income equality, gender equality and formality in the labour market. Using this measure of product inclusiveness, we construct a measure of a country’s export bundle inclusiveness by taking an export-weighted sum of the product inclusiveness measure. Finally, we find that a 1 percent increase in export inclusiveness, conditional on total export value and a measure of the country’s overall inclusiveness, leads to a 0.17 percent increase in GDP per capita growth. 2025-05-21T00:00:00+0100 Emmanuel Milet, Marcelo Olarreaga b47d0fb2-016f-41af-9921-336cef28b99e Discussion paper DP20284 International Trade and Regional Economics https://cepr.org/publications/dp20282 This study investigates the firm’s response to parental leave induced worker absence. Combining a 20-week maternal leave expansion in Norway and detailed matched employer-employee data between 1983 and 2013, we identify the causal impact of absence on outcomes using a shift-share design. Employers with greater exposure to absence hire more women aged 40 or less and face more employment turnover. These adjustments do not affect profits, but lead to greater investments and sales and to a lower value added and a lower wage bill. One important channel behind such changes is a significant growth of young female part-time employment. 2025-05-21T00:00:00+0100 Gozde Corekcioglu, Marco Francesconi, Astrid Kunze 00130bd4-0eac-4364-a3ef-353dc902e540 Discussion paper DP20282 Labour Economics, Organizational Economics https://cepr.org/publications/dp20285 The announcements by President Trump in April 2025, of unilateral hikes of 10-50 percentage points on US import tariffs on all countries’ goods, are under threat of coming into force on 8 July 2025. This article estimates their likely effects on trade in alcoholic beverages, using a global model of national beverage markets. Various scenarios are compared. They suggest that if the tariff hike was restricted to just 20% on goods from the European Union, the value of global trade in each of the three beverages would shrink by one-tenth. But the US tariff hikes are to apply to all countries’ goods, which is estimated to shrink global exports by 13% for wine, 22% for spirits and 33% for beer. In that broader scenario, most countries’ wine exports would shrink, but exports of beer and spirits would expand for some countries thanks to the trade divergence generated by the varying tariff hikes. If the increasing uncertainty associated with these developments led to a cumulated 2% drop in consumer spending, virtually all wine-exporting countries would sell less wine to both the US and the rest of the world. That is, wine trade destruction would outweigh trade diversion. 2025-05-21T00:00:00+0100 Kym Anderson, Glyn Wittwer e0462e11-143d-4877-8669-10f3351b8c0c Discussion paper DP20285 International Trade and Regional Economics https://cepr.org/publications/dp20283 Price regulation and managed competition are widely used to promote quality in healthcare markets, yet quality is often multi-dimensional and weakly correlated across dimensions. This paper studies how such multidimensionality affects price regulation, patient allocation and provider behavior in the English market for public General Practitioner (GP) services. Using counterfactual simulations, we evaluate reforms that reduce quality-related payments. Our results suggest that a reduction can improve total welfare, partly due to practices re-optimizing following patient preferences. Absent externalities, consumer surplus is maximized at a 40% level of quality-related payments. We also show that using patient preferences to design optimal payments increases welfare. 2025-05-21T00:00:00+0100 Enrico Camarda, Sebastian Fleitas 5ce0d60b-beb0-4615-8245-ec00280e0794 Discussion paper DP20283 Industrial Organization https://cepr.org/publications/dp20278 Leveraging a major Italian reform enacted in June 2012 that eroded employment protection to workers on permanent contracts, we use detailed administrative data to estimate how this reduction affected the cost of job loss. We employ a stacked event-study research design, comparing treated and untreated workers as they move from employment into nonemployment. Weakening employment protection led to additional penalties in terms of lower re-hiring earnings and lower re-employment probabilities. Heterogeneous effects of the reform deepened pre-existing divides, penalizing labor market outsiders, such as young workers, and curbing employment opportunities for individuals in poorer regions, such as the South. 2025-05-20T00:00:00+0100 Marco Francesconi, Daniela Sonedda bd93a4c6-88b9-4a02-9615-ff40b604cb45 Discussion paper DP20278 Labour Economics https://cepr.org/publications/dp20280 Using a customized survey and an information-provision experiment, we establish that loan officers' individual subjective expectations about inflation, GDP growth, and policy rates vary substantially within and across bank types and have a sizable causal effect on credit supply decisions. Decisions about loan issuance and pricing exhibit large heterogeneity based on loan officers' subjective expectations even for the same borrower assessed at the same time. Moreover, officers with rosier macroeconomic expectations penalize less borrowers with worsening fundamentals than do officers with more pessimistic expectations. Our findings have implications for theories of financial intermediation and reveal an overlooked human-based friction to the transmission of monetary policy. 2025-05-20T00:00:00+0100 Francesco D'Acunto, Janet Geo, Lu Liu, Kai Lu, Zhengwei Wang, Jun Yang d2a1902c-c53f-4605-85aa-8a63645ff092 Discussion paper DP20280 Banking and Corporate Finance https://cepr.org/publications/dp20274 We review recent research and experiences linking inflation and expectations, emphasizing what has been learned since 2020. One clear lesson is that the inflation expectations of most economic agents have been and remain unanchored. The unanchored nature of inflation expectations, in combination with supply shocks, can explain much of the inflation surge and subsequent disinflation when viewed through the lens of an expectations-augmented Phillips curve, both in the U.S. and abroad. New policy frameworks are unlikely to address this feature of expectations. Only a communication strategy that breaks what we refer to as the “cycle of selective inattention” is likely to be successful, but it is probably already too late to stop the next inflation surge. 2025-05-20T00:00:00+0100 Olivier Coibion, Yuriy Gorodnichenko 38f0f1b5-a210-4253-9afe-833f5b10e3e1 Discussion paper DP20274 Monetary Economics and Fluctuations, Macroeconomics and Growth https://cepr.org/publications/dp20273 We document the structural transformation of innovation using historical patent data since the 1850s, along with R&D expenditure and TFP growth for the post-war period. Over time, innovation has shifted from agricultural sectors to manufacturing, and, more recently, to services. We develop and quantify a multi-sector semi-endogenous growth model of structural change in innovation and production, incorporating the classical demand-pull and technology-push drivers of innovation. Sectors differ in their innovation technologies, and the extent to which they benefit from knowledge spillovers (technology-push). Nonhomothetic demand shifts the market shares toward income-elastic sectors along the growth process (demand-pull). A calibrated version of our model replicates the structural transformations of innovation and production observed in the US data. Using the model, we evaluate the future impact of Baumol’s disease on aggregate productivity and find it to be minimal. Our results suggest that aggregate productivity growth may recover in the coming decades as the service sector becomes increasingly innovation-driven. 2025-05-20T00:00:00+0100 Diego Comin, Danial Lashkari, Marti Mestieri 8228a062-47c3-47d2-8846-c7539baf475f Discussion paper DP20273 Macroeconomics and Growth https://cepr.org/publications/dp20276 This article explores the interplay between economic hegemony and political alignment. Using theoretical and empirical insights from Broner et al. (2024), we posit that hegemonic states, such as the U.S., foster political alignment, which enhances globalization. We use UN voting data to proxy for international alignment and show that hegemons induce alignment. This data has shortcomings, however. UN voting only covers the post-WWII period, refers to a narrow set of issues, and displays little time variation. As for military alliances, they were not widely used before the mid-20th century. We propose an alternative measure of alignment based on international treaties. 2025-05-20T00:00:00+0100 Fernando Broner, Alberto Martín, Josefin Meyer, Christoph Trebesch, Jiaxian Zhou Wu 0fd8bdb2-f313-46d3-a5f7-1a40840a06e9 Discussion paper DP20276 Economic History, International Macroeconomics and Finance https://cepr.org/publications/dp20275 Fertility in sub-Saharan Africa is the highest in the world. We showcase a driver of this exceptionally high fertility which has been largely overlooked by demographers and economists: inheritance customs. We develop a theory of inheritance under subsistence agriculture, where households face economic incentives to limit fertility to avoid dividing land into inefficiently small parcels. Consequently, fertility is higher where inheritance is transmitted to a single heir (impartible) than where it is divided equally among all children (partible). We test this prediction by linking deep-rooted inheritance customs for more than 800 ethnic groups with modern demographic surveys covering 24 countries. Exploiting ancestral borders in a spatial Regression Discontinuity Design, we show that belonging to an ethnic group with impartible inheritance increases fertility by around one child per woman and that fertility differences are larger in lands subject to indivisibilities than in lands suited for cultivating labor-intensive crops. 2025-05-20T00:00:00+0100 Sébastien Fontenay, Paula Eugenia Gobbi, Marc Goñi f785c2ae-abf3-431e-913f-e2e377de0421 Discussion paper DP20275 Macroeconomics and Growth