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Item The Centralizing Effects of Private Order Flow on Proposer-Builder Separation(Schloss Dagstuhl – Leibniz-Zentrum für Informatik, 2023) Gupta, Tivas; Pai, Mallesh M.; Resnick, MaxThe current Proposer-Builder Separation (PBS) equilibrium has several builders with different backgrounds winning blocks consistently. This paper considers how that equilibrium will shift when transactions are sold privately via order flow auctions (OFAs) rather than forwarded directly to the public mempool. We discuss a novel model that highlights the augmented value of private order flow for integrated builder searchers. We show that private order flow is complementary to top-of-block opportunities, and therefore integrated builder-searchers are more likely to participate in OFAs and outbid non integrated builders. They will then parlay access to these private transactions into an advantage in the PBS auction, winning blocks more often and extracting higher profits than non-integrated builders. To validate our main assumptions, we construct a novel dataset pairing post-merge PBS outcomes with realized 12-second volatility on a leading CEX (Binance). Our results show that integrated builder-searchers are more likely to win in the PBS auction when realized volatility is high, suggesting that indeed such builders have an advantage in extracting top-of-block opportunities. Our findings suggest that modifying PBS to disentangle the intertwined dynamics between top-of-block extraction and private order flow would pave the way for a fairer and more decentralized Ethereum.Item Balancing economic and epidemiological interventions in the early stages of pathogen emergence(AAAS, 2023) Dobson, Andy; Ricci, Cristiano; Boucekkine, Raouf; Gozzi, Fausto; Fabbri, Giorgio; Loch-Temzelides, Ted; Pascual, Mercedes; Baker Institute for Public PolicyThe global pandemic of COVID-19 has underlined the need for more coordinated responses to emergent pathogens. These responses need to balance epidemic control in ways that concomitantly minimize hospitalizations and economic damages. We develop a hybrid economic-epidemiological modeling framework that allows us to examine the interaction between economic and health impacts over the first period of pathogen emergence when lockdown, testing, and isolation are the only means of containing the epidemic. This operational mathematical setting allows us to determine the optimal policy interventions under a variety of scenarios that might prevail in the first period of a large-scale epidemic outbreak. Combining testing with isolation emerges as a more effective policy than lockdowns, substantially reducing deaths and the number of infected hosts, at lower economic cost. If a lockdown is put in place early in the course of the epidemic, it always dominates the “laissez-faire” policy of doing nothing.Item Nonprofit Hospitals: Profits And Cash Reserves Grow, Charity Care Does Not(Project HOPE-The People-to-People Health Foundation, Inc., 2023) Jenkins, Derek; Ho, VivianUsing the National Academy of State Health Policy Hospital Cost Tool, we compared changes in hospital profits with changes in hospitals’ charity care and cash reserves between 2012 and 2019. We estimated substantial growth in nonprofit hospital operating profits and cash reserves in this period but no corresponding increase in charity care.Item Public subsidies and innovation: a doubly robust machine learning approach leveraging deep neural networks(Springer Nature, 2023) Varaku, Kerda; Sickles, RobinEconomic growth is crucial to improve standards of living, prosperity, and welfare. R &D and knowledge spillovers can offset the diminishing returns to physical capital (machines and labor) and drive long-run growth. Market imperfections can bring R &D below the socially desired level; thus, many governments intervene to increase the stock of knowledge, and knowledge spillovers, via subsidies for R &D. We use European firm-level data to explore the effects of public subsidies on firms’ R &D input and output. Average treatment effects are estimated by controlling for both observable and unobserved heterogeneity. Possible endogeneity in subsidy assignment is addressed, and the local instrumental variable (LIV) curve is identified via double machine learning methods. Results indicate that public subsidies increase both R &D intensity and output with more pronounced effects on the R &D intensity of high-technology and knowledge-intensive firms. The effects of public support remain positive and significant even after accounting for treatment endogeneity.Item Cheap Money, Geopolitics and Supernormal Backwardation of the WTI Forward Curve(IAEE, 2023) El-Gamal, Mahmoud A.; Jaffe, Amy M.; Medlock, Kenneth B. IIIFinancial speculators frequently trade in the most liquid short-tenor contracts. We study repeating patterns of sharply steepening slopes in the WTI forward curve to investigate whether, after controlling for macroeconomic variables, physical market fundamentals, and basic arbitrage, calendar spread behavior is partly explained by speculation related to assessed geopolitical risk. We estimate WTI forward curve backwardation using the slope component from the parsimonious Dynamic Nelson-Siegel factor model, and then regress the resulting time series on a variety of economic, financial, and geopolitical variables. Results show that geopolitical risk in juxtaposition with low interest rates explains a significant percentage of the slope variation from 2011 to 2021. We then investigate whether there is evidence to support the common narrative that speculators buy the geopolitical threat and sell the event. We find confirmation of the hypothesis. We further study the dynamic effects of interest rate and geopolitical risk on speculative activity using a Factor-Augmented Vector Autoregression analysis. Impulse response functions from the latter indicate that independent shocks related to geopolitical threat result in heightened supernormal backwardation for a month or more. We recommend changing margin requirements in WTI futures markets in light of these findings to disincentivize this speculative behavior.Item Information acquisition and provision in school choice: a theoretical investigation(Springer Nature, 2022) Chen, Yan; He, YingHuaWhen participating in school choice, students may incur information acquisition costs to learn about school quality. This paper investigates how two popular school choice mechanisms, the (Boston) Immediate Acceptance and the Deferred Acceptance, incentivize students’ information acquisition. Specifically, we show that only the Immediate Acceptance mechanism incentivizes students to learn their own cardinal and others’ preferences. We demonstrate that information acquisition costs affect the efficiency of each mechanism and the welfare ranking between the two. In the case where everyone has the same ordinal preferences, we evaluate the welfare effects of various information provision policies by education authorities.Item Information acquisition and provision in school choice: a theoretical investigation(Springer Nature, 2022) Chen, Yan; He, YingHuaWhen participating in school choice, students may incur information acquisition costs to learn about school quality. This paper investigates how two popular school choice mechanisms, the (Boston) Immediate Acceptance and the Deferred Acceptance, incentivize students’ information acquisition. Specifically, we show that only the Immediate Acceptance mechanism incentivizes students to learn their own cardinal and others’ preferences. We demonstrate that information acquisition costs affect the efficiency of each mechanism and the welfare ranking between the two. In the case where everyone has the same ordinal preferences, we evaluate the welfare effects of various information provision policies by education authorities.Item Preference Discovery in University Admissions: The Case for Dynamic Multioffer Mechanisms(The University of Chicago Press, 2022) Grenet, Julien; He, YingHua; Kübler, DorotheaWe document quasi-experimental evidence against the common assumption in the matching literature that agents have full information on their own preferences. In Germany’s university admissions, the first stages of the Gale-Shapley algorithm are implemented in real time, allowing for multiple offers per student. We demonstrate that nonexploding early offers are accepted more often than later offers, despite not being more desirable. These results, together with survey evidence and a theoretical model, are consistent with students’ costly discovery of preferences. A novel dynamic multioffer mechanism that batches early offers improves matching efficiency by informing students of offer availability before preference discovery.Item (Bad) reputation in relational contracting(Wiley, 2022) Deb, Rahul; Mitchell, Matthew; Pai, Mallesh M.Motivated by markets for “expertise,” we study a bandit model where a principal chooses between a safe and risky arm. A strategic agent controls the risky arm and privately knows whether its type is high or low. Irrespective of type, the agent wants to maximize duration of experimentation with the risky arm. However, only the high type arm can generate value for the principal. Our main insight is that reputational incentives can be exceedingly strong unless both players coordinate on maximally inefficient strategies on path. We discuss implications for online content markets, term limits for politicians, and experts in organizations.Item Continuous implementation with direct revelation mechanisms(Elsevier, 2022) Chen, Yi-Chun; Mueller-Frank, Manuel; Pai, Mallesh M.We investigate how a principal's knowledge of agents' higher-order beliefs impacts their ability to robustly implement a given social choice function. We adapt a formulation of Oury and Tercieux (2012): a social choice function is continuously implementable if it is partially implementable for types in an initial model and “nearby” types. We characterize when a social choice function is truthfully continuously implementable, i.e., using game forms corresponding to direct revelation mechanisms for the initial model. Our characterization hinges on how our formalization of the notion of nearby preserves agents' higher order beliefs. If nearby types have similar higher order beliefs, truthful continuous implementation is roughly equivalent to requiring that the social choice function is implementable in strict equilibrium in the initial model, a very permissive solution concept. If they do not, then our notion is equivalent to requiring that the social choice function is implementable in unique rationalizable strategies in the initial model. Truthful continuous implementation is thus very demanding without non-trivial knowledge of agents' higher order beliefs.Item Collusive Outcomes via Pricing Algorithms(Oxford University Press, 2021) Hansen, Karsten T.; Misra, Kanishka; Pai, Mallesh M.Item Association of Level I and II Trauma Center Expansion With Insurer Payments in Texas From 2011 to 2019(American Medical Association, 2022) Ho, Vivian; Short, Marah N.; Coughlin, Maura; McClure, Shara; Suliburk, James W.; Baker Institute for Public PolicyItem Online Multivalid Learning: Means, Moments, and Prediction Intervals(Dagstuhl Publishing, 2022) Gupta, Varun; Jung, Christopher; Noarov, Georgy; Pai, Mallesh M.; Roth, AaronWe present a general, efficient technique for providing contextual predictions that are “multivalid” in various senses, against an online sequence of adversarially chosen examples (x, y). This means that the resulting estimates correctly predict various statistics of the labels y not just marginally –as averaged over the sequence of examples – but also conditionally on x ∈ G for any G belonging to an arbitrary intersecting collection of groups G. We provide three instantiations of this framework. The first is mean prediction, which corresponds to an online algorithm satisfying the notion of multicalibration from [5]. The second is variance and higher moment prediction, which corresponds to an online algorithm satisfying the notion of mean-conditioned moment multicalibration from [6]. Finally, we define a new notion of prediction interval multivalidity, and give an algorithm for finding prediction intervals which satisfy it. Because our algorithms handle adversarially chosen examples, they can equally well be used to predict statistics of the residuals of arbitrary point prediction methods, giving rise to very general techniques for quantifying the uncertainty of predictions of black box algorithms, even in an online adversarial setting. When instantiated for prediction intervals, this solves a similar problem as conformal prediction, but in an adversarial environment and with multivalidity guarantees stronger than simple marginal coverage guarantees.Item A wavelet method for panel models with jump discontinuities in the parameters(Elsevier, 2022) Bada, O.; Kneip, A.; Liebl, D.; Mensinger, T.; Gualtieri, J.; Sickles R.C.While a substantial literature on structural break change point analysis exists for univariate time series, research on large panel data models has not been as extensive. In this paper, a novel method for estimating panel models with multiple structural changes is proposed. The breaks are allowed to occur at unknown points in time and may affect the multivariate slope parameters individually. Our method adapts Haar wavelets to the structure of the observed variables in order to detect the change points of the parameters consistently. We also develop methods to address endogenous regressors within our modeling framework. The asymptotic property of our estimator is established. In our application, we examine the impact of algorithmic trading on standard measures of market quality such as liquidity and volatility over a time period that covers the financial meltdown that began in 2007. We are able to detect jumps in regression slope parameters automatically without using ad-hoc subsample selection criteria.Item Race and ethnic minority, local pollution, and COVID-19 deaths in Texas(Springer Nature, 2022) Xu, Annie; Loch-Temzelides, Ted; Adiole, Chima; Botton, Nathan; Dee, Sylvia G.; Masiello, Caroline A.; Osborn, Mitchell; Torres, Mark A.; Cohan, Daniel S.The costs of COVID-19 are extensive, and, like the fallout of most health and environmental crises in the US, there is growing evidence that these costs weigh disproportionately on communities of color. We investigated whether county-level racial composition and fine particulate pollution (PM2.5) are indicators for COVID-19 incidence and death rates in the state of Texas. Using county-level data, we ran linear regressions of percent minority as well as historic 2000–2016 PM2.5 levels against COVID-19 cases and deaths per capita. We found that a county's percent minority racial composition, defined as the percentage of population that identifies as Black or Hispanic, highly correlates with COVID-19 case and death rates. Using Value-of-Statistical-Life calculations, we found that economic costs from COVID-19 deaths fall more heavily on Black and Hispanic residents in Harris County, the most populous county in Texas. We found no consistent evidence or significant correlations between historic county-average PM2.5 concentration and COVID-19 incidence or death. Our findings suggest that public health and economic aid policy should consider the racially-segregated burden of disease to better mitigate costs and support equity for the duration and aftermath of health crises.Item Information acquisition and provision in school choice: An experimental study(Elsevier, 2021) Chen, Yan; He, YingHuaWhen participating in school choice, students often spend substantial effort acquiring information about schools. We investigate how two popular mechanisms incentivize students' information acquisition in the laboratory. While students' willingness to pay for information is significantly greater under the Immediate than the Deferred Acceptance mechanism, most students over-invest in information acquisition, especially when they are more curious or believe that others invest more. Additionally, some students never invest in information acquisition but benefit equally from information provision. Both free provision and costly acquisition of information on students' own preferences increase their payoffs and allocative efficiency, whereas provision of information that helps students better assessing admission chances reduces wasteful investments. Our results also suggest that agents' information preferences, such as curiosity, can play an important role in market design theory and policy.Item Conservation, risk aversion, and livestock insurance: The case of the snow leopard(Wiley, 2021) Loch-Temzelides, Ted; James A. Baker III Institute for Public PolicyLivestock insurance consists of livestock owners pooling resources together in order to hedge against the risk of attacks by predators on their individual herds. We use an economic model to study optimal livestock insurance and to discuss its viability in improving outcomes for livestock owners. The benefit from insurance depends on the livestock owners' level of risk aversion. We calibrate the model using data from Project Snow Leopard and investigate the potential of livestock insurance for achieving conservation goals. The model predicts that leopard killings would decline under the proposed livestock insurance contract. The level of the decline depends on the degree of risk aversion. Our analysis calls for surveys that measure risk aversion of local livestock owners to be conducted in any situation where insurance is considered as a policy towards achieving conservation goals. Finally, we discuss how the proposed livestock insurance scheme could be implemented in practice.Item The optimal use of management(Wiley, 2021) Sickles, Robin C.; Sun, Kai; Triebs, Thomas P.We analyze the management input from the perspective of shadow cost minimization. Using Bloom and Van Reenen's management measure, we estimate management's shadow price, dual Morishima elasticities of substitution, and relative price efficiencies. We find that the shadow price of management is about 1.3 million US dollars. Management is a weak dual complement for labor but a strong dual complement for capital. Increases in management reduce the relative income share of labor but not capital. Most firms use too little management, but relative use of management improves over time, with the combination of ownership and control, and competition.Item Impact of air pollution on human activities: Evidence from nine million mobile phone users(Public Library of Science, 2021) Chen, Wei; He, YingHua; Pan, ShiyuanTo measure the effects of air pollution on human activities, this study applies statistical/econometric modeling to hourly data of 9 million mobile phone users from six cities in China’s Zhejiang Province from December 18 to 21, 2013. Under a change in air quality from “Good” (Air Quality Index, or AQI, between 51 and 100) to “Heavily Polluted” (AQI between 201 to 300), the following effects are demonstrated. (i) Consistent with the literature, for every one million people, 1, 482 fewer individuals are observed at parks, 95% confidence interval or CI (−2, 229, −735), which represents a 15% decrease. (ii) The number of individuals at shopping malls has no statistically significant change. (iii) Home is the most important location under worsening air quality, and for every one million people, 63, 088 more individuals are observed at home, 95% CI (47, 815, 78, 361), which represents a 19% increase. (iv) Individuals are on average 633 meters closer to their home, 95% CI (529, 737); as a benchmark, the median distance from home ranges from 300 to 1900 meters across the cities in our sample. These effects are not due to weather or government regulations. We also provided provisional evidence that individuals engage in inter-temporal activity substitutions within a day, which leads to mitigated (but not nullified) effects of air pollution on daily activities.Item Private Equity Investments In Health Care: An Overview Of Hospital And Health System Leveraged Buyouts, 2003-17(Project HOPE, 2021) Offodile, Anaeze C. II; Cerullo, Marcelo; Bindal, Mohini; Rauh-Hain, Jose Alejandro; Ho, VivianPrivate equity firms have increased their participation in the US health care system, raising questions about incentive alignment and downstream effects on patients. However, there is a lack of systematic characterization of private equity acquisition of short-term acute care hospitals. We present an overview of the scope of private equity–backed hospital acquisitions over the course of 2003–17, comparing the financial and operational differences between those hospitals and hospitals that remained unacquired through 2017. A total of 42 private equity deals occurred, involving 282 unique hospitals across 36 states. In unadjusted analyses, hospitals that were acquired had larger bed sizes, more discharges, and more full-time-equivalent staff positions in 2003 relative to nonacquired hospitals; private equity–acquired hospitals also had higher charge-to-cost ratios and higher operating margins, and this gap widened during our study period. These findings motivate evaluations by policy makers and researchers on the impact, if any, of private equity acquisition on health care access, spending, and risk-adjusted outcomes.
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