Tibor Besedes

This paper investigates decision quality in large choice sets across several choice architectures in three studies. In the first controlled experiment, we manipulate two features of a choice architecture—the response mode (for ranking alternatives) and presentation mode (for presenting alternatives). Our design objectively ranks all 16 choice options in each choice set and makes it possible to observe decision quality directly, independent of attitudes toward risk. We find joint presentation outperforms separate presentation and that choice response modes outperform “happiness ratings,” which outperform hypothetical monetary valuations. We also apply classic welfare criteria to assess the performance of the architectures. Our key finding is that low cognitive reflection subjects (as measured by the cognitive reflection test) perform better given a large choice set than given smaller sets collectively containing the same alternatives. This illustrates a basic tradeoff confronting choice architectures: for a fixed choice set, fewer options improve decision quality within that set but require architectures to elicit multiple responses, increasing opportunities for errors. One follow-up study demonstrates the robustness of the response mode result in a comparison using the tournament presentation mode. A second follow-up study reveals that the impact of incentivizing monetary valuations depends on cognitive reflection.

We examine the economic factors that lead to the formation of multilateral environmental agreements, focusing on the likelihood a pair of countries enters into an agreement as well as the number of agreements they share using a near universe of agreements. Two countries are more likely to have an agreement and have more of them if they are economically larger and of similar economic size, closer in distance, have a preferential trade agreement, and trade more. Results are strongest for agreements involving a small number of countries, consistent with a hypothesis that agreements are formed to manage common pool resources.

An important stylized fact in the empirical Free Trade Agreement (FTA) literature is that member trade flows gradually increase over time following an FTA. Baier & Bergstrand (2007) suggest two explanations: tariff phase-out and delayed pass-through of tariffs into import prices. We examine these hypotheses using 1989–2016 U.S. import growth and product-level data on the tariff phase-out negotiated under NAFTA and the earlier Canada-U.S. FTA. We do not find evidence supporting either hypothesis. While products receiving tariff cuts do show delayed import growth relative to products with unchanged tariffs, the delay in import growth does not correspond to delays in the timing of tariff cuts. We also show that tariff cuts are fully and immediately passed through to U.S. importers as there are virtually no changes in the prices received by exporters either in the short run or the long run. Rather, we find evidence for an important role played by NAFTA tariff cuts reducing the impact of frictions that, in turn, allow for a spatial expansion of imports across the U.S.

We provide empirical results that trade liberalization with China reduced gender gaps in local U.S. labor markets. In MSAs with higher exposure to trade liberalization, the simple wage gender gap decreased, while the residual wage gap increased, indicating important selection effects in labor force participation decisions. The reduction in the gender labor force participation gap was driven by higher entry of women, in particular more educated women, and exit of the less educated men. This results in intrahousehold adjustments in work dynamics, with women entering the labor force to offset the lost income of male partners who left the labor force. We show that trade liberalization increased female workers’ unemployment rate and reliance on part-time jobs.

Sanctions restrict cross-border interactions and, therefore, not only put political and economic pressure on the target country, but they also adversely affect the sender country. This paper examines the effect of financial sanctions on the country imposing them. In particular, we analyze the business responses of German non-financial entities to the imposition of sanctions on 23 countries over the period from 1999 through 2014. Examining highly disaggregated, monthly data from the German balance of payments statistics, we find four main results. First, German financial activities with sanctioned countries are sizably reduced after the imposition of sanctions. Second, firms doing business with sanctioned countries tend to be disproportionately large, often having alternative business opportunities. Third, firms affected by sanctions expand their activities with non-sanctioned countries, some of which display close trade ties to the sanctioned country. Fourth, we find no effect of sanctions on broader measures of firm performance such as employment or total sales. Overall, we conclude that the economic costs of financial sanctions to the sender country are limited.

Sanctions restrict cross-border interactions and, therefore, not only put political and economic pressure on the target country, but they also adversely affect the sender country. This paper examines the effect of financial sanctions on the country imposing them. In particular, we analyze the business responses of German non-financial entities to the imposition of sanctions on 23 countries over the period from 1999 through 2014. Examining highly disaggregated, monthly data from the German balance of payments statistics, we find four main results. First, German financial activities with sanctioned countries are sizably reduced after the imposition of sanctions. Second, firms doing business with sanctioned countries tend to be disproportionately large, often having alternative business opportunities. Third, firms affected by sanctions expand their activities with non-sanctioned countries, some of which display close trade ties to the sanctioned country. Fourth, we find no effect of sanctions on broader measures of firm performance such as employment or total sales. Overall, we conclude that the economic costs of financial sanctions to the sender country are limited.

We provide empirical results that trade liberalization with China reduced gender gaps in local U.S. labor markets. In MSAs with higher exposure to trade liberalization, the simple wage gender gap decreased, while the residual wage gap increased, indicating important selection effects in labor force participation decisions. The reduction in the gender labor force participation gap was driven by higher entry of women, in particular more educated women, and exit of the less educated men. This results in intrahousehold adjustments in work dynamics, with women entering the labor force to offset the lost income of male partners who left the labor force. We show that trade liberalization increased female workers’ unemployment rate and reliance on part-time jobs.

An important stylized fact in the empirical Free Trade Agreement (FTA) literature is that member trade flows gradually increase over time following an FTA. Baier & Bergstrand (2007) suggest two explanations: tariff phase-out and delayed pass-through of tariffs into import prices. We examine these hypotheses using 1989–2016 U.S. import growth and product-level data on the tariff phase-out negotiated under NAFTA and the earlier Canada-U.S. FTA. We do not find evidence supporting either hypothesis. While products receiving tariff cuts do show delayed import growth relative to products with unchanged tariffs, the delay in import growth does not correspond to delays in the timing of tariff cuts. We also show that tariff cuts are fully and immediately passed through to U.S. importers as there are virtually no changes in the prices received by exporters either in the short run or the long run. Rather, we find evidence for an important role played by NAFTA tariff cuts reducing the impact of frictions that, in turn, allow for a spatial expansion of imports across the U.S.

We examine the economic factors that lead to the formation of multilateral environmental agreements, focusing on the likelihood a pair of countries enters into an agreement as well as the number of agreements they share using a near universe of agreements. Two countries are more likely to have an agreement and have more of them if they are economically larger and of similar economic size, closer in distance, have a preferential trade agreement, and trade more. Results are strongest for agreements involving a small number of countries, consistent with a hypothesis that agreements are formed to manage common pool resources.

This paper investigates decision quality in large choice sets across several choice architectures in three studies. In the first controlled experiment, we manipulate two features of a choice architecture—the response mode (for ranking alternatives) and presentation mode (for presenting alternatives). Our design objectively ranks all 16 choice options in each choice set and makes it possible to observe decision quality directly, independent of attitudes toward risk. We find joint presentation outperforms separate presentation and that choice response modes outperform “happiness ratings,” which outperform hypothetical monetary valuations. We also apply classic welfare criteria to assess the performance of the architectures. Our key finding is that low cognitive reflection subjects (as measured by the cognitive reflection test) perform better given a large choice set than given smaller sets collectively containing the same alternatives. This illustrates a basic tradeoff confronting choice architectures: for a fixed choice set, fewer options improve decision quality within that set but require architectures to elicit multiple responses, increasing opportunities for errors. One follow-up study demonstrates the robustness of the response mode result in a comparison using the tournament presentation mode. A second follow-up study reveals that the impact of incentivizing monetary valuations depends on cognitive reflection.

This paper examines the effect of financial sanctions on cross-border capital flows. While sanctions can be expected to hinder international transactions, thereby putting political and economic pressure on a target country, we study the patterns of adjustment in bilateral financial relationships after the imposition of sanctions along various dimensions. Our analysis is based on highly disaggregated, monthly data from the German balance of payments statistics for the period from 2005 through 2014. During this time, Germany imposed financial sanctions on 20 countries; two of these sanctions have been lifted. Applying a differences-in-differences approach, we find two key results. First, financial sanctions have a strong and immediate negative effect on direct financial flows with the sanctioned country, with cross-border flows reduced in either direction. Second, sanctions imposed by the European Union alone, and therefore only enforced by their member countries instead of the United Nations, are evaded as flows with major trading partners of sanctioned countries increase. We conclude that financial sanctions do matter for capital flows.

It is common in the trade literature to use iceberg transport costs to represent both tariffs and shipping costs alike. However, in models with monopolistic competition these are not identical trade restrictions. This difference is driven by how the two costs affect the extensive margin. We illustrate these differences in a gravity model. We show theoretically that trade flows are more elastic with respect to tariffs than transport costs and find a linear relationship between the elasticities with respect to tariffs, iceberg transport costs, and fixed market costs. We empirically validate these results using data on US product‐level imports.

We investigate the extent to which antidumping actions eliminate trade altogether. Using quarterly 10-digit HS-level export data for products involved in U.S. antidumping cases we find that antidumping actions increase the hazard rate by more than 50%. We find strong evidence of investigation effects with the impact during the initiation and preliminary duty phases considerably larger than once final duties are imposed. There are also important differences with respect to the size of duties with cases with large duties experiencing very large investigation effects. We show the antidumping (AD)-affected countries are less likely to return to the market even after the AD order is removed.

Previous studies have demonstrated that a multitude of options can lead to choice overload, reducing  decision  quality.  Through  controlled  experiments,  we  examine  sequential  choice architectures that enable the choice set to remain large while potentially reducing the effect of choice  overload.  A  specific  tournament-style  architecture  achieves  this  goal.  An  alternate architecture in which subjects compare each subset of options to the most preferred option encountered thus far fails to improve performance due to the status quo bias. Subject preferences over different choice architectures are negatively correlated with performance, suggesting that providing choice over architectures might reduce the quality of decisions.

We investigate the effect of credit constraints on the growth of exports at the micro level. We develop a stylized dynamic model showing credit constraints play a key role in early stages of exporting, but not in later stages. Our empirical results using product level data on exports to twelve European Union members and the U.S. support the model’s predictions: exports from more credit constrained and riskier exporters grow faster. Export growth rates decrease with duration and converge across countries.  While an important force in early stages, credit constraints affect export growth much less as the duration of exports increases.

We study how group membership affects behavior both when group members can and cannot interact with each other. Our goal is to isolate the contrasting forces that spring from group membership: a free-riding incentive leading to reduced effort and a sense of social responsibility that increases effort. In an environment with varying task difficulty and individual decision making as the benchmark, we show that the free-riding effect is stronger. Group members significantly reduce their effort in situations where they share the outcome but are unable to communicate. When group members share outcomes and can interact, they outperform groups without communication and individuals. We show that these groups do as well as the best constituent member would have done on her own.

While exports within NAFTA face a lower hazard of ceasing, its onset has increased the hazard for Mexican and U.S. intra NAFTA exports. Intra NAFTA exports still enjoy a lower hazard relative to exports to non–members. While NAFTA did affect the hazard for Canada’s exports in the short run, its effect on Mexican and U.S. exports is persistent. Exports of IRS manufacturing products face the highest hazard in the case of Canada and Mexico, while IRS natural resource products have the highest hazard for Mexico. The effect of NAFTA on the returns to scale product types is exporter specific.

Using controlled experiments,weexamine howindividuals make choices when faced with multiple options. Choice tasks are designed to
mimic the selection of health insurance, prescription drug, or retirement savings plans. In our experiment, available options can be objectively ranked, allowing us to examine optimal decision making. First, the probability of a person selecting the optimal option declines as the number of options increases, with the decline being more pronounced for older subjects. Second, heuristics differ by age, with older subjects relying more on suboptimal decision rules. In a heuristics validation experiment, older subjects make worse decisions than younger subjects.
 

Using paper and pencil experiments administered in senior centers, we examine decision-making performance in multi-attribute decision problems. We differentiate the effects of declining cognitive performance and changing cognitive process on decision-making performance of seniors as they age. We find a significant decline in performance with age due to reduced reliance on common heuristics and increased decision-making randomness among our oldest subjects. However, we find that increasing the number of options in a decision problem increases the number of heuristics brought to the task. This challenges the choice overload view that people give up when confronted with too much choice.

We investigate and compare countries' export growth based on their performance at the extensive and intensive export margins. Our empirical approach ismotivated by an extension to the Melitz (2003) model of heterogeneous firms in which exporters are subject to a one-time sunk cost and also a per-period fixed cost.  With imperfect information a firm may enter export markets but shortly exit when it learns its per-period fixed costs. We apply this insight to disaggregated export data and confirm that indeed most export relationships are very short lived. We then show that the survival issue is a significant factor in explaining differences in long run export performance. We find that developing countries would experience significantly higher export growth if they were able to improve their performance with respect to the two key components of the intensive margin: survival and deepening.

We examine the extent to which product differentiation affects duration of US import trade relationships.  The results are consistent with a matching model of trade formation. Using highly disaggregated product level data we estimate the hazard rate is at least 23% higher for homogeneous goods than for differentiated products. The results are not only highly robust but are often strengthened under alternative specifications.  As the smallest relationships are dropped, differences across product types increase. Controlling for
potential measurement errors also results in larger differences across product types.