Research

Working papers

Sustainable Social Security

with Sergio Cappellini, Francesco Lancia and Tim Worrall

NBER SI 2025SITE 2024New version soon

Abstract

We study optimal sustainable social security under demographic uncertainty and limited enforcement constraints. The planner balances intergenerational risk sharing against participation incentives and past promises. The optimal rule combines a guaranteed minimum benefit with a contributory component that activates when contribution rates exceed an endogenous threshold, alongside automatic longevity indexation. Limited enforcement generates fiscal inertia: demographic shocks trigger gradual policy adjustments whose direction depends on the shocks’ persistence. Introducing a public reserve fund buffers demographic shocks, relaxes participation constraints, and weakens the link between past contributions and future benefits, moving the allocation closer to full risk sharing, yet never attaining it, even when the fund’s return equals the planner’s discount factor, thereby departing from standard limited-commitment risk-sharing models.

CEPR DP 21641

Households’ Macroeconomic Beliefs: The Role of Education

with Jessica Piccolo, Eleonora Granziera and Efrem Castelnuovo

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Abstract

We design a novel survey to study how education shapes households’ joint beliefs about inflation, unemployment, and monetary policy transmission. College-educated respondents perceive the inflation-unemployment trade-off and hold views similar to professional forecasters, while less educated respondents favor supply-side narratives. When exposed to hypothetical monetary policy interventions, the more educated update expectations and adjust consumption and saving in line with standard models, whereas the less educated display greater rigidity. This education gradient persists after controlling for information sources, financial literacy, and institutional trust, pointing to differences in abstract reasoning. Open-ended responses are consistent with college-educated households holding mental models aligned with standard macroeconomic theory.

Strategic Complementarities in International Environmental Agreements

with Fabio Miessi Sanches and Jonas Werth

New version soon

Abstract

This paper develops a dynamic model of environmental treaty formation with heterogeneous countries that allows for entry, exit and country specific uncertainty on the benefits from other countries ratifying the treaty. Using a dataset comprising the cross-section of ratification dates of global environmental treaties for 1980-2020, we structurally estimate the model’s parameters. The estimates inform about the existence of strategic complementarity or substitutability in the formation of environmental treaties, which occur when the relative benefits from cooperation increase or decrease after the inclusion of an additional country. Through counterfactual experiments, we illustrate how mechanisms fostering strategic complementarity can expedite the establishment of a grand coalition in support of environmental treaties and quantify associated welfare gains.

Publications

Journal of Political Economy, 2024, 132(10): 3500–3544

Intergenerational Insurance

with Francesco Lancia and Tim Worrall

JournalPDFCEPR DP15540WE_ARE seminarSlides

Abstract

How should successive generations insure each other when the enforcement of transfers between generations is limited? This paper studies intergenerational insurance when transfers maximize the expected discounted utility of all generations subject to a participation constraint for each generation. If complete insurance is not achievable, the optimal intergenerational insurance is history-dependent even when the environment is stationary. The risk from a generational shock is spread into the future, with periodic resetting. Interpreting intergenerational insurance in terms of public debt, the fiscal reaction function is non-linear and the risk premium on debt is lower than the risk premium with complete insurance.

Journal of Environmental Economics and Management, 2022, 111: 102595

Prices vs. Quantities for Self-Enforcing Agreements

with Bård Harstad and Francesco Lancia

PDFCEPR DP15044

Abstract

We study the optimal self-enforcing agreement based on quantity mandates and price instruments in a repeated game between countries, whose domestic firms invest in green technology before consumers emit. We find that technology must be regulated in addition to emissions, even in the absence of technological spillovers. Under a quantity agreement, emission is capped and countries must either overinvest in technology—to weaken the temptation to emit—or they must be punished unless they invest less—to maintain their willingness to retaliate on others. Under a price agreement, emission is taxed and investments subsidized. The price agreement dominates the quantity agreement because when firms are free to modify investment levels if another government defects, the punishment for defection is stronger.

American Economic Journal: Economic Policy, 2020, 12(3): 76–106

Youth Enfranchisement, Political Responsiveness, and Education Investments: Evidence from the US

with Graziella Bertocchi, Arcangelo Dimico and Francesco Lancia

JournalPDFCEPR DP12332

Coverage: AEA Research Highlights · VoxEU · New York Times · BI Business Review

Abstract

We examine the link between the political participation of the young and fiscal policies in the U.S. We generate exogenous variation in participation using the passage of preregistration laws, which allow the young to register before being eligible to vote. After documenting that preregistration promotes youth enfranchisement, we show that preregistration shifts state government spending toward higher education, the type of spending for which the young have the strongest preference. A 1% increase in youth voter turnout generates a 0.77% increase in higher education spending. The results collectively suggest political responsiveness to the needs of the newly enfranchised constituency.

Journal of the European Economic Association, 2019, 17(1): 1–29 · Lead article

Compliance Technology and Self-Enforcing Agreements

with Bård Harstad and Francesco Lancia

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Coverage: Dagens Næringsliv

Abstract

This paper analyzes a game in which countries repeatedly make emission and technology investment decisions. We derive the best equilibrium, that is, the Pareto-optimal subgame-perfect equilibrium, when countries are insufficiently patient for folk theorems to be relevant. Relative to the first best, the best equilibrium requires countries to overinvest in technologies that are green, that is, strategic substitutes for polluting, but to underinvest in adaptation and brown technologies, that is, strategic complements to polluting. Technological transfers and spillovers might discourage investments but can be necessary to motivate compliance with emissions when countries are heterogeneous.

B.E. Journal of Theoretical Economics, 2019, 19(2): 1–11 · Lead article

Sustaining Cooperation through Strategic Self-Interested Actions

with Francesco Lancia

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Abstract

This paper studies how organizations seek to promote cooperation between their members when individual contributions to an organization’s output are imperfectly observable. It considers an overlapping-generations game in which members with conflicting interests expend effort in pursuing activities outside the organization, in addition to the effort they devote to increasing the organization’s output. We show that cooperation is easier to enforce when organizations link rewards and punishments to effort in outside activities. In the best public perfect equilibrium, effort in outside activities is distorted in order to signal a member’s willingness to cooperate inside the organization.

Journal of the European Economic Association, 2016, 14(5): 1038–1073

Public Education and Pensions in Democracy: A Political Economy Theory

with Francesco Lancia

PDFWorking paperTechnical appendix

Coverage: NEP-DGE blog

Abstract

A dynamic political economy theory of fiscal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium reproduces salient features of intergenerational fiscal policies in modern economies.

Selected work in progress