Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201

We provide a novel test of information-based theories of price clustering by examining trade, order, and the National Best Bid and Offer (NBBO) quote price clustering during periods when information is removed from the market. We use a natural experiment of short-sale restrictions resulting from Securities and Exchange Commission (SEC) Rule 201 to more effectively determine the impact of information on price clustering. We find evidence of increased price clustering for trades, orders, and NBBO prices during short-sale restrictions. Overall, our findings indicate that short-sale restrictions harm the price discovery process and lead to a reduction in market efficiency.     

Multivariate choices and identification of social interactions

This paper considers the identification of social interaction effects in the context of multivariate choices. First, we generalize the theoretical social interaction model to allow individuals to make interdependent choices in different activities. Based on the theoretical model, we propose a simultaneous equation network model and discuss the identification of social interaction effects in the econometric model. We also provide an empirical example to show the empirical salience of this model. Using the Add Health data, we find that a student's academic performance is not only affected by academic performance of his peers but also affected by screen‐related activities of his peers.     

Rent-seeking distortions and fiscal procyclicality

Recent research has demonstrated that while government expenditures are countercyclical in most industrialized countries, they tend to be procyclical in developing countries. We develop a dynamic political-economy model to explain this phenomenon. In the model, public expenditures provide insurance to uninsured households, and optimal fiscal policy is countercyclical. The introduction of a political friction, in which successive governments disagree on the desired distribution of public spending, can lead to procyclical fiscal policies. Numerical simulations of the model allow us to compare quantitatively the relative role of common explanations for fiscal procyclicality. We conclude that political distortions in the fiscal process can explain fiscal procyclicality better than other common explanations, such as borrowing constraints and macroeconomic volatility.     

Elections with platform and valence competition

We study a game in which candidates first choose platforms and then invest in costly valences (e.g., engage in campaign spending). The marginal return to valence depends on platform polarization—the closer platforms are, the more valence affects the election outcome. Consequently, candidates without policy preferences choose divergent platforms to soften valence competition. Moreover, exogenous increases in incentives for valence accumulation lead to both increased valence and increased polarization—the latter because candidates seek to avoid the costs of extra valence. As a result, the increase in valence is smaller than it would have been with exogenous platforms. Finally, the model highlights the overlooked substantive importance of common modeling assumptions. Changing the source of uncertainty in our model from noise around the median voter's ideal point to a shock to one candidate's valence (as is common in the literature) leads to complete platform convergence for all parameter values.     

Product Unbundling in the Travel Industry: The Economics of Airline Bag Fees

This paper provides theory and evidence on airline bag fees, offering insights into a real‐world case of product unbundling. The theory predicts that an airline's fares should fall when it introduces a bag fee, but that the full‐trip price (the bag fee plus the new fare) could either rise or fall. The empirical evidence presented in the paper provides strong confirmation of the first prediction. The data also suggest that the average fare falls by less than the bag fee itself so that the full price of a trip rises for passengers who choose to check bags.     

Schadenfreude and product failures: the role of product deservingness and product status

ABSTRACT

This article examines the influence of product considerations on the experience of schadenfreude – taking pleasure in the suffering of another consumer. We examine how schadenfreude is affected by the extent to which the person suffering a product failure deserves to own the product and the status of the failed product. This work also explicitly considers how these factors interact with those of the person observing the misfortune. These ideas are tested across three experiments. The results show that high product status increases schadenfreude via its exacerbating effects on envy and that a lack of perceived product deservingness increases schadenfreude via both envy and deservingness. These effects differ based on the corresponding factors of the observer where the observer’s own deservingness and lack of product status are found to exacerbate schadenfreude via envy.     

Motives for sharing in social networks

What motivates people in rural villages to share? We first elicit a baseline level of sharing using a standard, anonymous dictator game. Then using variants of the dictator game that allow for either revealing the dictator's identity or allowing the dictator to choose the recipient, we attribute variation in sharing to three different motives. The first of these, directed altruism, is related to preferences, while the remaining two are incentive-related (sanctions and reciprocity). We observe high average levels of sharing in our baseline treatment, while variation across individuals depends importantly on the incentive-related motives. Finally, variation in measured reciprocity within the experiment predicts observed ‘real-world’ gift-giving, while other motives measured in the experiment do not predict behavior outside the experiment.     

CORRELATED BEHAVIOR IN LIMIT ORDER CANCELLATIONS,COMOVEMENT IN ASSET RETURNS,AND COMMONALITY IN LIQUIDITY

We examine whether there is common behavior in limit order cancellation activity, that is, commonality in cancellation activity, on U.S. exchanges. We then examine whether this commonality in cancellation activity is associated with increased levels of return comovement and commonality in liquidity. We document strong evidence of limit order traders exhibiting exchange, industry, marketwide, and stock-level commonality with regard to cancellation activity, which is consistent with limit order traders exhibiting correlated trading behavior. We also find that this correlated behavior in cancellation activity is associated with increased levels of return comovement and commonality in liquidity.