Sevi's Page; Bio, CV & Research

José V. Rodríguez Mora

Mini Bio

Sevi a few years ago

My name is José Vicente Rodríguez Mora (the first two words are my given name, the third and forth are the surname), but most people call me either Sevi (my friends) or by any random combination of the four aforementioned words (almost everybody outside Spain). This randomnes in my name is carried to the profesional world where I may appear cited in the most imaginative manners... If you are interested in surnames, see below.

Anyway, I was born in Barcelona in 1965. I grew up, and eventually I ended up with a BA in Economics from the Universidad Autónoma de Barcelona. Then I somehow got a Ph.D. from MIT in 1995. Currently I am a Professor of Economics at the University of Edinburgh. I have worked in Universitat Pompeu Fabra and the University of Southampton. I have been a visiting researcher at the IIES (Stockholm University) in 1998-99 and 2000-01 , and this year I am visiting the University of Minnesota and the Minneapolis Fed.

As a macroeconomist my research is centered in:

  • The allocation of human resources, particularly its relationship with:
    • the level of inter-generational economic and social mobility,
    • accumulation of factors, and
    • general economic efficiency
  • political economy, specifically:
    • time inconsistency issues with and without heterogeneous agents
    • rationality of voters and irrationality of institutions, and
    • aspects related to the labor market and the welfare state
    Sevi with Good Old Dugal

I have published on these subjects in the American Economic Review, the International Economic Review and the European Economic Review. I have also published in specialized journals like the Journal of Public Economics, the Journal of International Economics, the Journal of Economic Growth or Experimental Economics... Perhaps too many specialized journals in too many (and wide) specializations.

Sevi in a place that he loves

Outside the profession, I like to read and write on Nation, State, and its relationship. I actually have tried to do things on these respects, and I have a certain political activism. Not that it matters, and not that I do much, but it makes me feel better with myself, as I observe my society becoming blind and obsessed with an overdose of nationalism and "patriotism". I also enjoy writting packages for LaTeX, and to read tons of (1) serious history and (2) pop-biology. I read a lot, but I seldom read fiction; except some of the history books and the economics papers, of course. When I have the time, I relax by being 35 meters under sea level.

Abstracts and Downloads of Recent Research Papers

Measuring Costs and Bene…ts of Independence

Joint with David Comerford and Nicholas Myers (University of Edinburgh)

We assess, using a calibrated, 3 country, Melitz trade model, the costs to Catalonia of independence, against the benefits it would see from not paying the large fiscal transfer that this relatively wealthy autonomous community pays to the rest of Spain. The model is calibrated to Catalonia, the rest of Spain, and the rest of the world; and also to Portugal, Spain and the rest of the world. In so doing, the effective distance between Catalonia and the rest of Spain, and between Portugal and Spain, are estimated. The intellectual experiment that is undertaken here is to compare the benefits to Catalonia of not paying the fiscal transfer, against the costs that arise from its effective distance from the rest of Spain becoming that of Portugal's with Spain. We find that the costs outweigh the benefits. We further extend this methodology to other countries in the EU and observe that even those country pairs that are relatively close in a gravity-style estimation, look to be distant compared to that observed between sub-national regions. This suggests that the economic benefits, through closer trade links, of further integration at the EU level are large; and that the costs, given the current institutional framework, of break-up of member states into smaller states within the EU, are relatively high.

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The Joint Determination of TFP and Financial Sector Size

Joint with Christian Bauer (LMU Munich)

We study the distributional effects of globalization within a model of heterogeneous agents where both managerial talent and knowledge of the local economic environment are required in order to set up a firm in a given country. Therefore, agents willing to set up a firm in a foreign country need to incur a learning cost that depends on how different is the foreign entrepreneurial environments from the domestic one. In this context, we show that globalization fosters FDI and raises wages, output and productivity. Moreover, it benefits workers and highly talented multinational entrepreneurs, while harming low-ability domestic producers. The effects of openness follow from highly efficient foreign entrepreneurs driving inefficient local firms out of the market. We provide empirical evidence consistent with the implications of the model, showing a significant negative effect of the distance between nationwide regulations indexes on bilateral FDI flows.

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The Inheritance of Advantage

Joint with Michael J Watts (University of Edinburgh)

Some agents are better treated by the market than others. In our model this discrimina- tion arises from statistical discrimination based on the observables on the background of the individual (her parents). Advantages thus created increase the intergenerational correlation of income. This has some strong implications. First, it implies that intergenerational mobil- ity and income inequality should correlate negatively. Second, the amplification mechanism generated by advantages may produce a multiplicity of steady states. Third, the introduc- tion of meritocracy (informative signals on talent) may actually decrease mobility due to general equilibrium effects: by increasing income dispersion, they also increase the value of background.

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Who is Afraid of a Globalized World? Foreign Direct Investments,Local Knowledge and Allocation of Talents

Joint with Giovanni Pica (Universita di Salerno and CSEF)

Forthcoming at the Journal of International Economics

We study the distributional effects of globalization within a model of heterogeneous agents where both managerial talent and knowledge of the local economic environment are required in order to set up a firm in a given country. Therefore, agents willing to set up a firm in a foreign country need to incur a learning cost that depends on how different is the foreign entrepreneurial environments from the domestic one. In this context, we show that globalization fosters FDI and raises wages, output and productivity. Moreover, it benefits workers and highly talented multinational entrepreneurs, while harming low-ability domestic producers. The effects of openness follow from highly efficient foreign entrepreneurs driving inefficient local firms out of the market. We provide empirical evidence consistent with the implications of the model, showing a significant negative effect of the distance between nationwide regulations indexes on bilateral FDI flows.

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It is Hobbes, not Rousseau: An Experiment on Social Insurance

Joint with Antonio Cabrales (Universidad Carlos III) and Rosemarie Nagel(UPF)

Forthcoming at Experimental Economics

We perform an experiment on social insurance to provide a laboratory replica of some important features of the welfare state. In the experiment, all individuals in a group decide whether to make a costly effort, which produces a random (independent) outcome for each one of them. The group members then vote on whether to redistribute the resulting and commonly known total sum of earnings equally amongst themselves. This game has two equilibria, if played once. In one of them, all players make effort and there is little redistribution. In the other one, there is no effort and nothing to redistribute. A solution to the repeated game allows for redistribution and high effort, by the threat to revert to the worst of these equilibria. Our results show that redistribution with high effort is not sustainable. The main reason for the absence of redistribution is that rich agents do not act differently depending on whether the poor have worked hard or not. There is no social contract by which redistribution may be sustained by the threat of punishing the poor if they do not exert effort. Thus, the explanation of the behavior of the subjects lies in Hobbes, not in Rousseau.

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Temporary Contracts, Incentives and Unemployment

Joint with Maia Guell (University of Edinburgh)

Firing-cost-free temporary contracts were introduced in Europe during the 1980’s in order to fight unemployment in a context of high firing costs that were politically hard to decrease. Since then, they have become a prevalent labor market institution in many countries. Yet evidence indicates that these contracts have not been successful at bringing down unemployment levels. In this paper we argue that the rational for the introduction of temporary contracts is flawed at its root. We provide a novel explanation of why temporary contracts increase unemployment even in a context where a reduction of firing costs would actually reduce unemployment. We argue that, if minimum wages are kept at high levels, temporary contracts have an effect not unlike an increase of unemployment benefits. By increasing the flows in and out of unemployment into relatively highly paid temporary jobs (minimum wage), they increase the value of being unemployed. This has a negative effect on the incentives to work for permanent workers, increases their efficiency wages and reduces the willingness of firms to create employment. We present empirical evidence compatible with the main implications of the model.

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The Misallocation of Talent

This is a non technichal paper !!!!

This is a non technichal paper written for the CREI, an Opuscle.

I explain why the market does not provide with an efficient allocation of talent to tasks. I also explain why we should expect that more social mobility goes in parallel with the degree of efficiency in the allocation of people to tasks, so that if we observe that a society has more intergenerational mobility than another, it is a sign that it is also a healthier, more efficient economy. Finally, I explain why it is difficult to measure intergenerational mobility, and give some suggestions on how try to tackle the problem.

This paper helps to make sense of more than half of my research.

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Intergenerational Mobility and the Informative Content of Surnames

Joint with Maia Guell (University of Edinburgh) and Chris Telmer (CMU)

Submitted

We propose an alternative method for measuring intergenerational mobility. Measurements obtained from traditional methods (based on panel data) are scarce, dicult to compare across countries and almost impossible to get across time. In particular, this means that we do not know how intergenerational mobility is correlated with growth, income or the degree of inequality.

Our proposal is to measure the informative content of surnames in one census. The more information the surname has on the income of an individual, the more important is her background in determining her outcomes; and thus, the less mobility there is.

The reason is that surnames provide information about family relationships because the distribution of surnames is necessarily very skewed. A large percentage of the population is bound to have a very unfrequent surname. For them the partition generated by surnames is very informative on family linkages.

First, we develop a model whose endogenous variable is the joint distribution of surnames and income. There, we explore the relationship between mobility and the informative content of surnames. We allow for assortative mating to be a determinant of both.

Second, we use our methodology to show that in large Spanish region the informative content of surnames is large and consistent with the model. We also show that it has increased over time, indicating a substantial drop in the degree of mobility. Finally, using the peculiarities of the Spanish surname convention we show that the degree of assortative mating has also increased over time, in such a manner that might explain the decrease in mobility observed.

Our method allows us to provide measures of mobility comparable across time. It should also allow us to study other issues related to inheritance.

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Online Appendix

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Inequality and Mobility

Joint with John Hassler (IIES, Stockholm University) and Joseph Zeira (Hebrew University)

Journal of Economic Growth

Acknowledging that wage inequality and intergenerational mobility are strongly interrelated, this paper presents a model in which both are jointly determined. The model enables us to study how inequality and mobility are affected by exogenous changes and what determines their correlation. A main implication of the model is that differences in the amount of public subsidies to education and educational quality produce cross-country patterns with a negative correlation between inequality and mobility. Differences in the labor market, like differences in skill-biased technology or wage compression instead produce a positive correlation. The predictions of the model are found to be consistent with various empirical observations on mobility and inequality.

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Unemployment Insurance Design: inducing moving and retraining

Joint with John Hassler (IIES, Stockholm University)

European Economic Review

Evidence suggests that unemployed individuals can sometimes affect their job prospects by undertaking a costly action like deciding to move or retrain. Realistically, such an opportunity only arises for some individuals and the identity of those may be unobservable ex- ante. The problem of characterizing constrained optimal unemployment insurance in this case has been neglected in previous literature. We construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled. The model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobservable job-search. Absent wealth effects on behavior, we derive closed-form solutions showing that when the moving/retraining incentive constraint binds, unemployment bene?ts should increase over the unemployment spell, with an initial period with low benefi?ts and an increase after this period has expired.

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Political commitment and loss aversion

Joint with John Hassler (IIES, Stockholm University)

At least since the work of Kydland and Prescott (1977), it is acknowledged that the ability for policy makers to commit to future policies often is of key importance for outomces and welfare. An example is capital income taxation, where the commitment solution typically involve zero capital income taxes after some initial periods, while no commitment may imply empirically much too high taxes. A more realistic intermediate outcome can be supported by trigger strategies where a deviation from a "good" equilibrium is punished by a possibly in?nite revertion to a "bad" Nash-equilibrium. In a political economy setting, the degree of coordination between voters of di¤erent generations required to sustain such an equilibrium is large, arguably unreasonably large. We propose loss-aversion as an alternative explanation for how a commitment-like equilibrium can arise. We set up a politico-economic OLG-model where individuals make investments and dynamically form reference points for future consumption, around which they are loss-averse. Without loss-aversion, the only Markov equilibrium involves 100% taxation of any investments and trigger strategies are required to sustain lower taxes and positive investments. With loss-aversion, we ?nd a Markov equilibrium with positive investments. In contrast to the case of trigger strategies, this equilibrium is renegotiation proof and independent of discounting, surviving also for arbitrarily high rates of discounting.

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The Effect of GNP Announcements on Fluctuations of GNP Growth

Joint with Paul Schulstald (God knows where)

Forthcoming in the European Economic Review

The meat of the paper is in the data on anouncements of GNP growth. This file contains the anouncements of quaterly US GNP growth. (Range: 1967.1 - 1991.4). Observation at time t (say first quarter of 1990) indicates the anouncement made at the begining of t (first quarter of 1990) of which was the GNP growth during t-1 (last quarter of 1989). Source: Survey of Current Business. Read paper for more information.

This paper is an empirical study of the degree in which perceptions affect the evolution of the economy. We study the effects of the announcements that the government makes on GNP growth. These announcements are subject to a substantial degree of noise and its accuracy improves with time. A revised number is published several years after the first announcement was made public. We consider that the final revision is the “true” value of GNP growth. We show that once announcements are taken into account, the true value of GNP growth at time t has no predictive power in determining growth at any future time. All the predictive power lies in the announcements, and not in the true level of growth. Actually, we show that the variable that determines future growth is the unexpected part of the announcements. We also show that announcements affect growth via aggregate investment.

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