ניירות דיון 2019

1-2019 "Children, time allocation and consumption insurance"

Richard Blundell, Luigi Pistaferri and Itay Saporta-Eksten


We consider the life cycle choices of a household that in each period decides how much to consume and how to allocate spouses’ time to work, leisure, and childcare. In an environment with uncertainty, the allocation of goods and time over the life cycle also serves the purpose of smoothing marginal utility in response to shocks. We combine data on consumption, spouses’ wages, hours of work, and time spent with children to estimate the sensitivity of consumption and time allocation to transitory and permanent wage shocks. These structural parameters describe the ability of household to self-insure in response to shocks. We find that behavioral responses to wage shocks depend on the presence of young children. We also find that labor supply cross-responses depend on three counteracting forces: complementarity of leisure time, substitutability of time in the production of child services, and added worker effects.

Click here for Paper 1-2019  in PDF

Paper was published  in Journal of Political Economy, 126(S1), pages S73-S115, 2018


2-2019 "The labor market impacts of mandated savings: Evidence from a Pension Reform in Israel"

Ofer Setty


A mandated benefit is a legally required employee benefit in any form of non-wage compensation. This policy is attractive for governments because it allows them to provide a good or a service without the need to finance it directly. This paper aims at understanding the labor market impact of mandated pension benefits by studying the effects of a major pension reform that took place in Israel in 2008, which mandated pension benefits to a large fraction of employees who have not received such payments prior to the reform. We use a matched employer-employee panel for the years 2004-2012 that was recently prepared for us by the Central Bureau of Statistics (CBS). The dataset merges information from the population registry and the tax authority. Preliminary results show that the reform mainly affected the situation of employees with low income, located at the two lowest wage quintiles. In addition, women, new immigrants, Jewish, married and younger individuals are more likely to receive pension contributions following the pension reform.

Click here for paper 2-2019 in PDF


3-2019 "The Nature versus Nurture Debate and the Direct Effect of Parental Influence: Evidence from the Israeli Kibbutz" 

Avraham Ebenstein, Eric Gould, Moshe Hazan, and Avi Simhon



Abstract: To what extent is the inter-generational correlation in human capital driven by shared genes versus parental influence over a child’s upbringing? In this paper, we exploit a unique social experiment in which children born on the Israeli kibbutz were often raised in group living arrangements known as ‘children’s houses’. By exploiting variation in the timing of the closure of the houses, we identify three key results. First, children raised in the houses are less similar to their parents than kibbutz children raised in conventional living arrangements. Second, the houses had a positive effect on outcomes for children with below-average parental education, but lowered education for children with more educated parents. Third, the parent-child correlation is monotonically decreasing in the years the child spent in the children’s house. In particular, we find that the elasticity of child outcomes to parental education is a third higher among children raised at home than those who spend their entire childhood in a children’s house. The results highlight the role of direct parental influence in generating inter-generational correlation of human capital.

Click here for paper 3-2019 in PDF


4-2019 "The Model Selection Curse"

Kfir Eliaz and Ran Spiegler


A "statistician" takes an action on behalf of an agent, based on the agent's self-reported personal data and a sample involving other people. The action that he takes is an estimated function of the agent's report. The estimation procedure involves model selection. We ask the following question: Is truth-telling optimal for the agent given the statistician’s procedure? We analyze this question in the context of a simple example that highlights the role of model selection. We suggest that our simple exercise may have implications for the broader issue of human interaction with "machine learning"algorithms.

Click here for paper 4-2019 in PDF

Paper was published in American Economic Review: Insights,  VOL. 1, NO. 2, SEPTEMBER 2019, (pp. 127-40)


5-2019 "Online Exploration when Search Topic and Popularity Ranking Are Decoupled: Insights on Echo Chambers"

Sagit Bar-Gill and Neil Gandal


Personalized search algorithms produce results that are both topically relevant and ranked by their general popularity and individual fit to users’ previous searches and choices. New choices from such tailored lists feed back into the algorithms, over time creating content echo chambers, where content exposure is increasingly biased toward users’ and their friends’ interests and views. We create an online search environment for TED Talks, where topic and popularity are separately controlled, and study the relationship between users’ characteristics and their reliance on own interests vs. crowd-based popularity sorting in content exploration. In topic-based searches, we randomly block/show popularity information to examine its impact on the tendency to explore. We find that high levels of sociability, previous experience with similar content, and a younger age are associated with an increased susceptibility to echo chambers, represented by little to no exploration and popularity sorting prior to content choice. Opinion leaders may alleviate echo chambers in their social circles as they conduct more topic-based exploration and exhibit lower popularity reliance. Showing popularity information increases opinion leaders’ popularity sorting, but does not impact non-leaders’ exploration. Our findings identify users’ echo chamber risk factors, and suggest that reducing the salience of popularity information may contribute to more balanced content exposure facilitated by opinion leaders. 

Click here for paper 5-2019 in PFD


6-2019 "Financial Convergence: The Role of Institutions"
David Weiss

In aworld without financialmarket frictions or variance in risk premia, interest ratesmust be equalized between all geographic areas. However, as has been documented by a wide literature, there was widespread geographic variation in interest rates in the United States at the end of the 19th century and beginning of the 20th century. Simultaneously, a large literature has looked at the importance of institutions for financial markets. Is it possible that differences in institutions between US states explains differences in interest rates? To answer this question, I estimate the impact of a wide variety of state-level institutions on interest rates. I then use these estimates to infer that approximately a quarter of regional variation in US interest rates can be explained by variation in institutions.

Click here for paper 6-2019 in PDF


7-2019 "Fostering Non‐Cognitive Skills in Active Labor Market Programs: Evidence from an RCT in Israel"

Analia Schlosser and Yannay Shanan (The paper is in Hebrew)



On March 2014, the Israeli Employment Service (IES) began operating the Employment Circles program aimed at integrating welfare recipients into the labor market. The program was initially implemented as a pilot accompanied by a research design based on randomized allocation of participants into treatment and control groups. This randomized controlled trial (RCT) enables to identify the program’s effect without bias. It is one of the first social experiments conducted by a governmental body in Israel and serves as a model for evidencebased policy design. The program targets unemployed welfare claimants aged 18‐50 (in August 2016, the program was extended to include also welfare claimants aged 50‐55). Program participants are required to report 3 times a week to their local employment office: twice for participating in workshops or individual training sessions and once for a meeting with the employment office’s caseworker for receiving work referrals and for reviewing the progress made in the program and in the job seeking process. At the same time, welfare claimants in the control group, continue to receive the customary service given to all welfare recipients: reporting once a week to the employment office and a meeting with a caseworker once every few weeks. These days, the program operates in 36 employment offices nationwide. From the program’s launch to November 2018, 48,000 welfare claimants have been referred to the program. This paper evaluates the program’s effect on its participants during 12‐18 months after their allocation to the program. During the evaluation period, the program operated as a pilot in 16 of the 71 employment offices of the IES. To evaluate the effect of the program, we combine data from the IES and the National Insurance Institute of Israel databases, which include detailed information on a wide range of individual‐level characteristics, employment, income from work, and social security payments, before and after the allocation into treatment and control groups. 12 months after allocation to the program, the employment rate among participants was 8 percentage points higher compared to the control group. At the same time point, the employment rate in the control group was 33%. This suggests that the program led to a 25% improvement in the employment rate among participants. The difference in employment rate in favor of program participants compared to the control group was maintained also after additional 6 months, that is, after 18 months from allocation date. At the same time, after 12 months, the program led to a reduction of 15 percentage points in the rate of reporting to employment offices (a 39% decrease compared to the corresponding rate among the control group, which was 38%); and to a reduction of 11 percentage points in the rate of individuals eligible for Social Security income support payments (guaranteed minimal income) ‐ a 27% decrease compared to a rate of 40% in the control group. The reduction of 15 percentage points in the rate of reporting to employment offices attributed to the program effect, may be split into three paths: about a third of participants switched to employment and stopped receiving welfare payments; a third switched to employment and started to receive low wage income supplementation; and a third stopped reporting to employment offices, stopped receiving welfare payments, and do not have reported employment or income in Social Security records. The cumulative income from work among program participants – during the first 12 months from date of allocation to the program was, on average, 2,000 ILS higher than the equivalent cumulative income among the control group. The program’s effect was higher among populations with lower pre‐program labor force attachment, and specifically among the Arab population, participants with lower levels of education, women, participants aged 35 and up, participants with a self‐reported health limitations, and among participants with prior history of welfare dependency and unemployment in the two years period before allocation to the program. The estimated average savings in welfare payments per participant during 12 months after allocation to the program are 1,850 ILS, while the estimated program cost per participant is 1,450 ILS per year.


Click here for paper 7-2019 in PDF (in Hebrew)


8-2019 "The Role of Colleges Within the Higher Education Sector"

Bernhard Eckwert and Itzhak Zilcha


Over the past decades the (private) college sectors in the higher education systems of several European countries have expanded their capacities massively. This happened even though colleges have been at a competitive disadvantage with universities which are publicly subsidized, while colleges must self-finance through tuition fees. The question arises how, in equilibrium, a diverse student population is allocated between these institutions and which factors may account for the college expansion over time. Moreover, the efficiency properties of the resulting human capital accumulation process are of special interest. Our paper explores these questions within an information-based theoretical framework. Individuals are screened for their (unobservable) innate abilities, and the precision of the screening mechanism, which is endogenous, balances demand and supply of educational services. We find that in the short term, when the college capacity is fixed, the introduction of college subsidies is not desirable in most cases. In the long term, the college sector may expand excessively thereby establishing inefficiently low screening standards in the admission process to higher education.

Click here for paper 8-2019

Paper was published in Economic Theory volume 69, pages315–336(2020)



9-2019 "The Effects of International Trade on Labor Marke Reallocation and Inequality"

Eran Yashiv


This paper studies the effects of international trade on labor market reallocation and on inequality in Israel since 1990. The empirical work – mostly at the individual worker and firm sectorial levels – links trade developments, particularly changes in export shares and import penetration, to labor market outcomes. The latter include employment (levels and changes), unemployment, labor market transitions, and various moments of the wage distributions (means and various measures of dispersion). A key conclusion is that trade expansion was not associated with simple outcomes, such as increases in export sector employment and wages or declines in import sector employment and wages. The outcomes turn out to be much more complex, and, in some cases, even run counter to these simple scenarios. Rather, the findings are of reallocational effects on the labor market, leading to worker transitions across sectors and employment states and to increases in wage inequality. Policy implications of these results are delineated and discussed.

Click here for paper 9-2019


10-2019 "Deliberations and Choices by "Committees"

Chaim Fershtman and Uzi Segal


Committee protocols typically involve deliberations in which committee members try to influence and convince each other regarding the “right” choice. Such deliberations do not involve only information exchange, but their aim is also to affect the preferences and the votes of other members. This aspect of committee deliberation is the focus of this paper. Using a model of social influence, we demonstrate how the debating and voting procedures affect the voting outcome and how different protocols of consultation by a chair may affect his final decision.

Click here for paper 10-2019


11-2019 "The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis"

Nittai K. Bergman, Rajkamal Iyer and Richard T. Thakor



What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local cash flow shocks on the real and financial sector. We show that such cash flow shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.

Click here for paper 11-2019

Paper was published in The Review of Financial Studies, hhaa012, 07 February 2020.

12-2019 "Second-Order Induction in Prediction Problem"

Rossella Argenziano and Itzhak Gilboa


Agents make predictions based on similar past cases, while also learning the relative importance of various attributes in judging similarity. We ask whether the resulting "empirically optimal similarity function (EOSF) is unique, and how easy it is to find it. We show that with many observations and few relevant variables, uniqueness holds. By contrast, when there are many variables relative to observations, non-uniqueness is the rule, and finding the EOSF is computationally hard. The results are interpreted as providing conditions under which rational agents who have access to the same observations are likely to converge on the same predictions, and conditions under which they may entertain different probabilistic beliefs.

Click here for paper 12-2019

Paper was published in The Proceedings of the National Academy of Science (PNAS), 116 (21) 10323-10328, 2019


13-2019 "Social Security, Labor Supply and Health of Older Workers: Quasi-Experimental Evidence from a Large Reform"

 Itay Saporta-Eksten, Ity Shurtz, Sarit Weisburd


We study the effects of public pension systems on the retirement timing of older workers and, in turn, the health consequences of delaying retirement by those workers. Causal inference relies on a social security reform in Israel that shifted payments from husbands to their (non-working) wives, thereby substantially reducing the implied tax on the husband’s employment while keeping overall household wealth constant. Using administrative social security data, we estimate extensive-margin labor supply elasticities w.r.t. the average net-of-tax rate of about 0.6 for men over 65. Using the reform to instrument for employment, we find that working an additional full year at old age decreases survival probability past age 80 by 12%. This effect is driven by workers holding blue-collar jobs. Finally, we evaluate the effect of the reform on earnings. The results imply a small value for an additional year of life, suggesting that workers underestimate the health cost of employment at older ages.

Click here for paper 13-2019

Published in Journal of the European Economic Association, jvaa053, https://doi.org/10.1093/jeea/jvaa053 Published: 25 November 2020


14-2019 "Can Targeting High-Risk Patients Reduce Readmission Rates? Evidence from Israel"

Efrat Shadmi, Dan Zeltzer, Tzvi Shir, Natalie Flaks-Manov, Liran Einav, Ran D Balicer


We study a large intervention to reduce hospital readmission rates in Israel. Since 2012, readmission risk was calculated for patients aged 65 and older, and high risk patients agged to providers upon admission and after discharge. Analyzing 171,541 admissions during 2009-2016, we _nd that the intervention reduced 30-day readmission rates by 5.9% among patients aged 65{70 relative to patients aged 60{64, who were not targeted by the intervention, and for whom no scores were calculated. The largest reduction, 12.3%, was among high-risk patients. Primary care post-discharge follow-up encounters were signi_cantly expedited. The magnitude of the estimated e_ect peaked during the _rst two years, and it declined subsequently, after government incentives to reduce readmission rates were discontinued. Taken together, the evidence demonstrates that informing providers about patient risk in real time can improve care continuity and reduce hospital readmissions, and that maintaining such e_orts on an ongoing basis is important.

​Click here for paper 14-2019

Published in Journal of Applied Economics  Volume 23, 2020 - Issue 1 Pages 729-745 Published online: 26 Nov 2020



"Uniqueness, stability and comparative statics for two-person Bayesian games with strategic substitutes"

Eddie Dekel and Ady Pauzner


This paper considers a class of two-player symmetric games of incomplete information with strategic substitutes. First we provide su¢ cient conditions under which there is either a unique equilibrium which is stable (in the sense of best-reply dynamics) and symmetric or a unique (up to permutations) asymmetric equilibrium that is stable (together with an unstable symmetric equilibrium). Thus, (i) there is always a unique stable equilibrium, (ii) it is either symmetric or asymmetric, and hence, (iii) a very simple local condition . stability of the symmetric equilibrium (i.e., the slope of the best-response function at the symmetric equilibrium) . identi.es which case applies. Using this we provide a very simple su¢ cient condition on primitives for when the unique stable equilibrium is asymmetric (and similarly for when it is symmetric). Finally we show that the conditions guaranteeing the uniqueness described above also yields novel comparative-statics results for this class of games.

Click here for paper 15-2019

Published in Economic Theory volume 66, pages 747–761 (2018)



"Welfare State vs. Market Forces in a Globalization Era"

Assaf Razin, Efraim Sadka and Alexander Schwemmer


Globalization radically changes income distribution and triggers intense international tax competition, and, consequently, entails the extensive restructuring of the welfare state.  We analyze a parsimonious model of an open economy, in its trade and finance transactions with the rest of the world, governed by voter-majority-controlled welfare state. 
We find that when the country is capital-abundant relative to the rest of the world, or when it exhibits strong saving propensity, a welfare state  governed by the  skilled-rich magnifies  the intensity of  globalization.  In contrast, when the country is labor abundant relative to the rest of the world, or it exhibits slow saving propensity, a welfare state governed by  the unskilled-poor would tends to magnify  the intensity of  globalization.  The welfare state boost the utility of losers from globalization, regardless whether the skilled-rich or the unskilled poor govern its policies , or the factor supply and the saving propensity are  the economy’s fundamentals.

Click here for paper 16-2019

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