About ERC Grants

Competitive grants from the European Research Council (ERC) support frontier research projects for up to five years. Project proposals are evaluated by international peer reviewers, and scientific excellence is the sole criterion for selection.

Grants from the European Research Council (ERC) have become indicators of world-class research across all academic disciplines.

ERC Grants in the Barcelona GSE research community

Barcelona GSE Affiliated Professors at every career stage and from all Barcelona GSE academic units have received ERC grants for projects on topics such as international capital flows, labor markets, school choice, asset bubbles, globalization, family economics and political economy.

Select a project below to learn more about ERC Grant research projects directed by Barcelona GSE Affiliated Professors. The most recent projects are listed first.

facultyJulian di Giovanni

ICREA-UPF and Barcelona GSE

Global Production Networks and Macroeconomic Interdependence (2016)

ERC Consolidator Grant

Researchers and policymakers alike have highlighted the potential efficiency gains of a global production structure. However, such linkages also raise the possibility of risks. This project tackles both empirical and theoretical challenges in incorporating the microeconomic structure of trade and international production networks in the study of the propagation of shocks internationally, and their impact on macroeconomic interdependence. Using newly constructed micro-level datasets, the projeoct will provide quantitative analysis of the importance of the linkages in multicountry general equilibrium models of trade.

First, using firm export and imported-input linkages, the project provides a novel model-based estimation strategy to identify the role of country and firm-level shocks, and the implications of these estimates for the transmission of shocks across borders. By using structural trade models to estimate shocks at the firm level and studying the implications for the transmission of shocks across borders, this research helps bridge the micro-macro nexus in international economics.

Second, the project takes an even more granular focus by studying the role of firm-to-firm production linkages in transmitting shocks across countries. To do so, it exploits a novel matching procedure between a country’s administrative dataset and cross-country firm-level data. The project further builds on these data by adding in domestic bank-firm relationships. This strategy allows for the study of how financial shocks are exported abroad via firms’ trade and multinational linkages.

Third, the project incorporates the insights from the empirical work into a full-scale multicountry general equilibrium model of trade, which allows for firm-level heterogeneity and microeconomic and macroeconomics shocks. It uses the model for a quantitative study of the cross-country transmission of the different shocks via trade. This permits the performance of counterfactuals and examination of the impact of policies, such as how opening to trade impacts macroeconomic interdependence.

facultyGiacomo Ponzetto

CREI, UPF and Barcelona GSE

Citizens, Institutions and Globalization (2016)

ERC Starting Grant

This project focuses on the interplay between citizens’ political participation, policy-making institutions and globalization. It aims to study which conditions create democratic support for trade- and productivity-enhancing policies; when and why voters support instead measures that hinder trade and reduce aggregate surplus; and how the architecture of government should and does react to globalization.

In particular, the first part of the project studies the puzzling popularity of protectionism and how lobbies can raise it by manipulating information. It will investigate how greater transparency can cause lower trade barriers. It will also study how voter psychology makes concentrated losses more salient than diffuse benefits.

The second part of the project studies inefficient infrastructure policy and the ensuing spatial misallocation of economic activity. It will show that voters’ unequal knowledge lets local residents capture national policy. They disregard nationwide positive externalities, so investment in major cities is insufficient, but also nationwide taxes, so spending in low-density areas is excessive. Moreover, it will consider how behavioral biases cause voter opposition to growth-enhancing policies and efficient incentive schemes like congestion pricing.

The third part of the project studies how the size of countries and international unions adapts to expanding trade opportunities. It will focus on three forces: cultural diversity, economies of scale and scope in government, and trade-reducing border effects. These can explain increasing country size in the nineteenth century; the rise and fall of colonial empires; and the recent emergence of regional and global economic unions, accompanied by a peaceful increase in the number of countries.

Watch a video summary of this project:

facultyJaume Ventura

CREI, UPF and Barcelona GSE

Globalization, Economic Policy and Political Structure (2015)

ERC Advanced Grant

Globalization is expanding economic borders rapidly. Barriers to trade are now lower than ever and this has led to the creation of many truly global goods and asset markets. And yet globalization is changing political borders only slowly. The second wave of globalization that started after WWII found the world organized into a set of states or centralized jurisdictions that often go beyond cultural borders but that clearly fall short of economic borders. These centralized jurisdictions still hold most of the political and decision-making power.

This growing mismatch between markets and states lowers the quality of economic policymaking. Since constituencies are located inside the state, governments tend to disregard effects of economic policies that are felt beyond the political border. The result is a worsening in policymaking that could seriously mitigate the gains from globalization and even turn them into losses. The goal of this project is to improve our understanding of how this growing mismatch between economic and political borders affects economic policy and political structure. In particular, it focuses on the inefficiencies this mismatch creates and on how should we (“the citizens of the world”) handle them.

The project is organized around two themes. The first one is the handling of enforcement externalities. One of the key roles of governments is to enforce contracts. When these contracts involve domestic and foreign residents, governments have the temptation to enforce selectively so as to shift income to domestic residents at the expense of foreigners. The second theme is the evolution of political structure. The world is currently organized into states or centralized jurisdictions. This project studies the hypothesis that globalization leads to an alternative political structure based on a set of overlapping jurisdictions.

Watch a video summary of this project:

Asset Bubbles and Economic Policy (2009)

ERC Advanced Grant

Advanced capitalist economies experience large and persistent movements in asset prices that are difficult to justify with economic fundamentals. The internet bubble of the 1990s and the real state market bubble of the 2000s are two recent examples. The predominant view is that these bubbles are a market failure, and are caused by some form of individual irrationality on the part of market participants. This project is based instead on the view that market participants are individually rational, although this does not preclude sometimes collectively sub-optimal outcomes. Bubbles are thus not a source of market failure by themselves but instead arise as a result of a pre-existing market failure, namely, the existence of pockets of dynamically inefficient investments. Under some conditions, bubbles partly solve this problem, increasing market efficiency and welfare. It is also possible however that bubbles do not solve the underlying problem and, in addition, create negative side-effects. The main objective of this project is to develop this view of asset bubbles, and produce an empirically-relevant macroeconomic framework that allows us to address the following questions: (i) What is the relationship between bubbles and financial market frictions? Special emphasis is given to how the globalization of financial markets and the development of new financial products affect the size and effects of bubbles. (ii) What is the relationship between bubbles, economic growth and unemployment? The theory suggests the presence of virtuous and vicious cycles, as economic growth creates the conditions for bubbles to pop up, while bubbles create incentives for economic growth to happen. (iii) What is the optimal policy to manage bubbles? We need to develop the tools that allow policy makers to sustain those bubbles that have positive effects and burst those that have negative effects.

facultyRuben Enikolopov

UPF, ICREA-IPEG and Barcelona GSE

Social Media, Political Participation, and Accountability (2014)

ERC Starting Grant

The goal of the project is to examine how advances in information technologies affect public policies. In particular, it will empirically investigate the causal effect of social media on political participation. The first part of the project will examine the effect of social media penetration on participation in political protest activities, as well as the mechanisms that drive these effects, using a specific example of protests activities in Russia in 2011-2012. We will exploit idiosyncratic variation in the early penetration of social media across cities to identify causal effect of social media penetration on participation in protest activities. We will also exploit the effects of early penetration on the distribution of users across competing online social networks to examine the role of coordination as a specific mechanism behind the effect. The second part of the project will use content analysis of the messages in social media and detailed information on the network structure and its evolution over time to study (1) the effect of network structure on the diffusion of information and subsequent actions; (2) the effect of offline events on network formation. Exogenous shock in the form of unexpected wave of protest activities will be used to identify the effects of interest. Smaller parts of the project will use survey experiments and cross-country comparison of the content of traditional and social media to provide additional evidence on the mechanisms behind the effects of social media. The project will be mainly empirical, but it will rely heavily on the theoretical advances in the fields of political economy and network analysis.

facultyJosé-Luis Peydró

ICREA-UPF and Barcelona GSE

Debt and Persistence of Financial Shocks (2014)

ERC Consolidator Grant

In 2007 the US and Europe were overwhelmed by a banking crisis, which was followed by a severe economic recession. Historical studies show that financial crises are followed by periods of substantially stronger contraction of aggregate output and employment than non-financial recessions. Those studies also point out that the best predictor of financial crises is an ex-ante strong credit boom which, after the beginning of the crisis, followed by negative overall credit growth. Lastly, financial crises take a long time until recovering the pre-crisis levels.

Why are the effects of credit shocks so strong and persistent over time? Is this effect explained by costly household deleveraging? What is the effect of household debt on consumption, savings and employment? Are there any benefits of debt in crises? Do some effects of the financial crisis work through a reduction in credit supply to firms and projects with high innovative content and productivity (high overall return, but with high credit and liquidity risk for the lenders)? Or are the cleansing effects in financial crises concentrated on the less productive firms? Can macroprudential policies based on strict control of loan-to-value ratios stop the building up of excessive household debt?

We plan to construct several new datasets to study these issues by merging information from different sources. For some issues, like the analysis of the effect of household debt on consumption and employment, we can take advantage of a natural experiment of randomized allocation of debt among individuals derived from the use of lotteries to allocate the rights to buy housing in Spain. In comparison to the existing literature, we can exploit the exogenous variation generated by these lotteries and some other combination of data (including exhaustive credit data) to obtain causal evidence and quantification on the interaction between debt, systemic risk, crises, and the new macroprudential policy.

facultyMarta Reynal-Querol

UPF and Barcelona GSE

Historical Roots of Conflict: From Prehistory to the Colonization Experience (2014)

ERC Consolidator Grant

I plan to study the effect of history on conflict and economic development with two historical microscopes.

Following the lead of the new institutional economics, part of the literature argues that institutions cause differences in productivity and factor endowments which, in turn, explain economic development. An alternative view assumes that human capital shapes institutional changes and, therefore, institutions are endogenous. In the first part of the project, which is the core of the research proposal, I will try to move one step further in this debate by taking an approach that uses administrative data on the first colonizers of Latin America. The data contain some personal characteristics on each of the settlers from 1492 to 1599 (town of origin in Spain, occupation, education, city of arrival in the Americas, etc). Using within-country analysis, since we have information on the precise destinations of the first “pobladores” (settlers), and the different institutional set-ups during the first years of colonization for different geographical areas in Latin America, I will reexamine the issue of institutions versus human capital in the explanation of economic development and conflict. The institutions in the initial times of colonization were not the same in all the regions of Latin America and, in many cases, represented an evolution of pre-Colombian institutions. The new data allows also the analysis of the interaction between human capital and institutions in the initial times. In addition the migrations and the evolution of institutions during the first century of colonization provide also some guidance for the research on the sources of institutional persistence.

In the second part I plan to go further back in time to understand how very old conflicts influence current conflict. I will construct a dataset with the location of old conflicts using archaeological evidence to analyze the dynamics of conflict by regions in the very long run.

Understanding and Preventing Conflicts (2007)

ERC Starting Grant

The research project will use theoretical models and empirical techniques to explore the causes, consequences, and prevention mechanisms of conflicts. The aim is to determine the basic elements that make countries more prone to social conflicts and then identify a set of feasible policies to prevent future episodes of violence. The project considers the causes and the propagation mechanisms of social conflicts of different intensity. The main objective of the project is to the study the institutional designs that may prevent, or mitigate, such social conflicts. Therefore, the analysis of economic institutions (such as property rights, etc.), political institutions and structure (democracy, decentralization, political systems, etc.), and the type of political leaders, that can help to prevent, conflict in potentially conflictive societies. From a methodological perspective, the project proposes to overcome some statistical pitfalls present in most of the previous literature on the determinants of civil wars and conflicts. The use of simple linear regressions, or a probit/logit specification, imposes very strong identification conditions that are likely to be violated. The current consensus, which emerges from those analyses, is that poverty is the single, most important determinant of civil wars. This result could be an artifact of simultaneity problems: the incidence of civil wars and poverty may be driven by the same determinants, some of which are probably missing. We propose to check the robustness of this consensus idea, and the importance of the institutional design, using other econometric procedures (instrumental variables and matching methods) which are subject to weaker identification conditions than the traditional regressions. Finally, we plan to investigate methods to deal with the missing data problem that plague the study of the determinants of civil wars.

facultyJan Eeckhout

ICREA-UPF and Barcelona GSE

Labor Market Risk and Skill Diversity (2013)

ERC Advanced Grant

Labor market risk and skill diversity are central features of the labor market. Arguably, employment risk is one of the biggest sources of uncertainty most individuals face in their life time. Likewise, exploiting the synergies and complementarities between differentially skilled workers is amongst the greatest challenges to firms' hiring decisions. The objective is to analyze the efficiency properties and as a consequence evaluate the role for policy. In order to establish the implications of the mechanisms that govern risk and diversity, I elaborate on concrete applications and discuss estimation in different labor market settings.

In the presence of Labor Market Risk I address the question how asset holdings exacerbate wage inequality. Workers are exposed to the risk of unemployment, and workers with few assets will trade off the lower riskiness of a job against lower wages. Different asset holdings translate into different wages, thus amplifying inequality due to assets with wage inequality. The proposed analysis of unemployment risk can solve for an equilibrium model that incorporates the distribution of assets, while at the same time allowing for heterogeneity in skills. There is no doubt that fully understanding the asset-skill tradeoff is of primary importance for labor market policy. I then study a different angle of labor market risk, namely risk that is due to matching stochastic types, which introduces ex post mismatch. Ex ante, agents match based on the distribution of possible realizations of ex post types. This model is conducive to identification of complementarities between workers and the value of risk sharing.

Skill Diversity, or the allocation of differentially skilled workers across firms of different productivity, is a central feature of the labor market. The aim of this research is to embed the optimal worker composition within firms into standard macro environments to study technological change, information aggregation and spatial diversity.

Watch a video summary of this project:

The Role of Sorting for Estimation, Market Design and Development (2007)

ERC Starting Grant

Sorting is prevalent in many economic environments. High skilled workers match with the most productive managers, men marry women with similar education levels, experienced venture capitalists finance more successful start-ups. As a returning European investigator, my objective is to continue and expand my research program developed in the US. Using equilibrium theory, the objective is to provide testable hypotheses for the role of sorting in development and market design. In the process of development, there is occupational sorting in the allocation of workers to managers. Due to increased openness and improved communication, managers now have access to a broader labor market. For example, Apple managers in California design the iPod, and workers in Taiwan produce it. Some preliminary analysis shows that in this environment most of the gains from trade are due to sorting. This has substantial implications for inequality and poverty. The main beneficiaries turn out to be both the lowest and the highest skilled workers. I present new evidence on occupational sorting: richer countries have added 20% managerial jobs while poorer countries have added only 5%. A second strand of this proposal facilitates the testability of two-sided matching markets. I purport to derive general conditions for unique assortative matching. This theoretical finding enables identification of model estimates. Because in the presence of various characteristics of a matched agent the well-known condition of supermodularity is typically violated, this result is important for its general applicability. This result also turns out to be important for market design questions in two-sided markets where uniqueness is a key requirement for incentive compatible mechanisms. In another related market design problem, the focus is on the role of the price mechanism itself as a force towards sorting. Finally, an application of two-sided matching to biomedical research labs is explored.

facultyJordi Galí

CREI, UPF and Barcelona GSE

Monetary Policy and Asset Price Bubbles (2013)

ERC Advanced Grant

The proposed research project seeks to further our understanding on two important questions for the design of monetary policy:

(a) What are the effects of monetary policy interventions on asset price bubbles?
(b) How should monetary policy be conducted in the presence of asset price bubbles?

The first part of the project will focus on the development of a theoretical framework that can be used to analyze rigorously the implications of alternative monetary policy rules in the presence of asset price bubbles, and to characterize the optimal monetary policy. In particular, I plan to use such a framework to assess the merits of a “leaning against the wind” strategy, which calls for a systematic rise in interest rates in response to the development of a bubble.

The second part of the project will seek to produce evidence, both empirical and experimental, regarding the effects of monetary policy on asset price bubbles. The empirical evidence will seek to identify and estimate the sign and response of asset price bubbles to interest rate changes, exploiting the potential differences in the joint behavior of interest rates and asset prices during “bubbly” episodes, in comparison to “normal” times. In addition, I plan to conduct some lab experiments in order to shed some light on the link between monetary policy and bubbles. Participants will trade two assets, a one-period riskless asset and a long-lived stock, in an environment consistent with the existence of asset price bubbles in equilibrium. Monetary policy interventions will take the form of changes in the short-term interest rate, engineered by the experimenter. The experiments will allow us to evaluate some of the predictions of the theoretical models regarding the impact of monetary policy on the dynamics of bubbles, as well as the effectiveness of “leaning against the wind” policies.

Labor Markets, Economic Fluctuations, and Monetary Policy (2008)

ERC Advanced Grant

The New Keynesian (NK) model has emerged in recent years as the workhorse for monetary policy analysis. The first part of the proposed project is motivated by two shortcomings of that framework: (i) the lack of an explicit analysis of unemployment and its potential role in the design of policy, (ii) the limited empirical support for the model s wage-setting block. One of the objectives of the proposed project is the assessment of the empirical relevance of the specification of the wage-setting bock found in standard versions of the NK model, with a special focus on their implied wage-unemployment dynamics. As part of my project, I will show how the standard NK model with staggered wage setting implies a relationship between wage inflation and unemployment that fails to capture important features of the data. I also plan to develop and study an extension of the NK model that incorporates in a tractable way real wage rigidities (coexisting with nominal rigidities), with the objective of (i) assessing their relative role in explaining the observed patterns of wages and unemployment, (ii) analyzing their implications for the design of monetary policy. The second part of the project is motivated by the significant changes in the co-movements among some key macro variables that have accompanied the recent period of low macroeconomic volatility (the so-called Great Moderation). One objective of the proposed research is to understand the role that structural change in the labor market may have played as a source of those changes. In particular, I plan to analyze the causes of the vanishing pro-cyclicality of labor productivity and their potential causes, including a more subdued use of labor hoarding by firms, possibly as a result of lower hiring/firing costs. In addition, I plan to study the consequences that such structural changes may have had on wage setting, and their ability to account for the apparent increase in wage flexibility during the recent period.

facultyAlberto Martin

CREI, UPF and Barcelona GSE

The Macroeconomics of Collateral (2013)

ERC Consolidator Grant

Financial markets constitute the backbone of modern economies, intermediating resources from those who have them (i.e., lenders) to those who can put them to productive use (i.e., borrowers). The defining feature of these markets is that they entail the exchange of goods today for a borrower’s promise to deliver goods in the future. These promises are sustained by guarantees, which are akin to the amount of future income that borrowers can credibly pledge to lenders. I refer to this pledgeable income as an economy’s stock of collateral. This stock determines the amount and type of promises that can be traded in an economy and, in turn, this set of promises determines the transactions that can be carried out. Intuitively, when this set of promises is large, resources find their most productive uses and efficiency is high.

This raises a general question: what are the key determinants of the set of promises that an economy is able to sustain, and why does it vary?

In macroeconomic models, it is commonly assumed that all promises are backed by only one kind of collateral, i.e. usually that of private borrowers, and that this collateral is ‘fundamental’, i.e. it consists of output. Real-world financial markets, however, rely on many types of collateral to guarantee promises. In this proposal, I focus on three such types. First, collateral may be ‘bubbly’, i.e. promises can be backed by nothing else but the income that the sale of new promises is expected to bring in the future. Second, collateral need not be private, as government promises are sustained by pledging public income. Third, collateral need not be homogenous, as it may differ in quality or type across entrepreneurs, and this quality may not be perfectly observed by all. I address the following broad questions. How do economies produce these different types of collateral? How do they interact with one another? Is there a role for policy in maintaining the efficient level and composition of collateral?

facultyBarbara Rossi

ICREA-UPF and Barcelona GSE

New Methods and Applications for Forecast Evaluation (2013)

ERC Consolidator Grant

Forecasting is a fundamental tool in Economics, Statistics, Business and other sciences. Judging whether forecasts are good and robust is of great importance since forecasts are used everyday to guide policymakers' and practitioners' decisions. The proposal aims at addressing four important issues that researchers encounter in practice.

A first issue is how to assess whether forecasts are optimal in the presence of instabilities. Optimality is an important property of models’ forecasts: if forecasts are not optimal, then the model can be improved. Existing methods to assess forecast optimality are not robust to the presence of instabilities, which are widespread in the data. How to obtain such robust methods and what they tell us about widely used economic models’ forecasts is the first task of this project.

A second problem faced by forecasters in practice is to evaluate density forecasts. Density forecasts are important tools for policymakers since they quantify uncertainty around forecasts. However, existing methodologies focus on a null hypothesis that is not necessarily the one of interest to the forecaster. The second task is to develop tests for forecast density evaluation that address forecasters’ needs.

A third, important question is “Why Do We Use Forecast Tests To Evaluate Models’ Performance?”. The third task of this project is to understand the relationship between traditional in-sample and forecast evaluation tests, and develop a framework that helps to understand under which circumstances forecast tests are more useful than typical in-sample tests.

A final question is how researchers can improve models that do not forecast well. Model misspecification is widespread, still economists are often left wondering exactly which parts of their models are misspecified. The fourth task is to propose an empirical framework for addressing this issue. By estimating time-varying wedges, we assess where misspecification is located, and how important it is.

facultyAlbert Marcet

ICREA-IAE and Barcelona GSE

Asset Prices and Macro Policy when Agents Learn (2012)

ERC Advanced Grant

A conventional assumption in dynamic models is that agents form their expectations in a very sophisticated manner. In particular, that they have Rational Expectations (RE). We develop some tools to relax this assumption while retaining fully optimal behaviour by agents. We study implications for asset pricing and macro policy.

We assume that agents have a consistent set of beliefs that is close, but not equal, to RE. Agents are Internally Rational, that is, they behave rationally given their system of beliefs. Thus, it is conceptually a small deviation from RE. It provides microfoundations for models of adaptive learning, since the learning algorithm is determined by agents’ optimal behaviour. In previous work we have shown that this framework can match stock price and housing price fluctuations, and that policy implications are quite different.

In this project we intend to: i) develop further the foundations of internally rational (IR) learning, ii) apply this to explain observed asset price price behavior, such as stock prices, bond prices, inflation, commodity derivatives, and exchange rates, iii) extend the IR framework to the case when agents entertain various models, iv) optimal policy under IR learning and under private information when some hidden shocks are not revealed ex-post. Along the way we will address policy issues such as: effects of creating derivative markets, sovereign spread as a signal of sovereign default risk, tests of fiscal sustainability, fiscal policy when agents learn, monetary policy (more specifically, QE measures and interest rate policy), and the role of credibility in macro policy.

Watch a video summary of this project:

facultyFernando Broner

CREI, UPF and Barcelona GSE

International Capital Flows and Emerging Markets (2010)

ERC Starting Grant

Financial liberalization in emerging markets has not produced the benefits predicted by conventional, neoclassical models. There is consensus that in reality financial frictions must play a larger role than these models anticipated. The objective of this research project is to enhance our understanding of how this happens, emphasizing the interactions between financial integration and the workings of domestic financial markets.

The project is structured around a set of related questions. (i) Can these interactions account for the macroeconomic effects of financial liberalization? (ii) How should emerging markets manage financial integration? Should they rely on financial systems that facilitate segmentation between domestic and international markets, as in the 70s and 80s? (iii) What are the implications for the global imbalances that contributed to the recent crisis? Can emerging markets export their vulnerabilities to advanced countries? (iv) Can these interactions explain the appearance of bubbles? What are their effects on the workings of international and domestic financial markets?
Gross capital flows reflect risk in domestic financial markets and also raise this risk by increasing the incentives to default. This complementarity is highly destabilizing. (v) Does the recent global financial crisis and associated collapse in gross capital flows reflect such forces? Have they been present in previous crises, particularly in emerging markets?

Emerging markets are more financially integrated than during the cold war. But the current situation has an antecedent in the late 19th century. Traditionally, integration is taken as exogenous. I will explore the forces that shape the process of integration. (vi) Is there any relationship between the existence of a hegemonic power, Britain in the late 19th century and the US since the 1980s, and financial integration? (vii) What will be the effect of the ongoing weakening of the hegemonic power of the US?

facultyNezih Guner

ICREA-MOVE, UAB and Barcelona GSE - on leave

Changing Families: Causes, Consequences and Challenges for Public Policy (2010)

ERC Starting Grant

The household and family structure in every major industrialized country changed in a fundamental way during the last couple of decades. First, marriage is less important today, as divorce, cohabitation, and single-motherhood are much more common. Second, female labor force participation has increased dramatically. As a result of these changes, today s households are very far from traditional breadwinner husband and housekeeper wife paradigm. These dramatic changes generated significant public interest and a large body of literature that tries to understand causes and consequences of these changes.

This project has two main goals. First, it studies changes in household and family structure. The particular questions that it tries to answer are: 1) What are economic factors behind the rise in premarital sex and its destigmatization? What determines parents incentives to socialize their children and affect their attitudes? 2) What are the causes and consequences of the recent rise in assortative mating and diverging marriage patterns by different educational groups? 3) Why are marriage patterns among blacks so different than whites in the U.S.?

The second aim of this project is to improve our understanding of income risk, the role of social insurance policies and labor market dynamics by building models that explicitly considers two-earner households. In particular, we ask the following set of questions: 1) What is the role of social insurance policies (income maintenance programs or progressive taxation) in an economy populated by two-earner households facing uninsurable idiosyncratic risk? 2) How does marriage and labor market dynamics interact and how important this interaction for our understanding of labor supply and marriage decisions?

facultyGino Gancia

CREI, UPF and Barcelona GSE

Globalization, Optimal Policies and Growth (2009)

ERC Starting Grant

This project studies the challenges that policy makers face in a world where globalization is proceeding at high speed and knowledge creation is the key to prosperity. It consists of two main parts: one focuses on optimal growth policies, the other on policy externalities induced by market integration. The first part builds on the premise that fostering innovation requires appropriate regulations on product market competition and on Intellectual Property Rights. The following questions will be addressed. What are the optimal competition and IPR policies when economic growth requires both innovation and technology diffusion? Are competition and IPR policies complements or substitutes? How does the optimal policy mix change with economic development? How do optimal contractual relationships evolve with development? What are the misallocations created by market power when sectors and firms are heterogeneous in technology and in the exposure to foreign competition? Are trade liberalization and competition policy complements or substitutes? The second part studies the consequences of and remedies to the growing mismatch between economic and political borders created by globalization. The following questions will be addressed: Why does the size of governments increase with globalization? Does higher international factor mobility lead to a race to the bottom in taxation? What is the effect of trade openness on pollution and environmental regulations? Can globalization induce governments to adopt more stringent environmental regulations? Does market integration call for a reorganization of the world political structure? Can the tendency to reinforce supra-national entities and the process of political fragmentation within states be complementary reactions to globalization?