Michele Fioretti

Assistant Professor
​Department of Economics
Sciences Po

email michele.fioretti@sciencespo.fr
cv pdf

Working Papers | List papers by topic

Innovation Begets Innovation and Concentration: The Case of Upstream Oil & Gas in the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
arXiv | ssrn | abstract

Abstract: We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation.

Saving for a Dry Day: Coal, Dams and the Energy Transition
with Jorge Tamayo
pdf | abstract

Abstract: Renewable generation creates a tradeoff between current and future energy production as generators produce energy by releasing previously stored resources. Studying the Colombian market, we find that diversified firms strategically substitute fossil fuels for hydropower before droughts. This substitution mitigates the surge in market prices due to the lower hydropower capacity available during dry periods. Diversification can increase prices, instead, if it results from mergers steepening a firm's residual demand. Thus, integrating production technologies within firms can smooth the clean-energy transition by offsetting higher prices during scarcity periods if the unaffected technologies help store renewables more than exercise market power.

The Voice: The Shareholders' Motives Behind Corporate Donations
with Victor Saint-Jean and Simon Smith
arXiv | abstract

Abstract: What motivates shareholders to become prosocial activists? At the onset of the COVID-19 pandemic, political and media attention demanded covid-related donations from large corporations. We study shareholders’ support for such donations exploiting the heightened media scrutiny from annual general meetings. We find that reputational gains to shareholders of donating firms led prominent individual shareholders to seek donations. In contrast, large institutional shareholders, who are hardly associated with specific corporations in their portfolios, preferred to donate themselves and opposed donations in their footprints. This mechanism also operates outside pandemic times and points to media attention to grow support for prosocial decisions.

Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
pdf | abstract

Abstract: Global value chains (GVCs) typically involve large firms exerting bargaining power over the terms of trade. We develop a novel theory of international prices accounting for these features of GVCs and illustrate their effect on the pass-through of trade shocks into import prices. We build a new dataset merging transaction-level U.S. import data with balance sheet data for both importers and exporters to evaluate the model’s performance. Our estimated model generates more accurate predictions of pair-level price changes following trade shocks than standard models, improving the estimated impact of the 2018 trade war on aggregate U.S. import prices by 40-60%.

Published & Forthcoming Papers
Performance Pay in Insurance Markets: Evidence from Medicare
with Hongming Wang
Review of Economics and Statistics, forthcoming
Policy Research Award at INFER 2020
pdf | gated | VoxEU | abstract

Abstract: Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties.

Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare
Journal of Political Economy, 2022, 130.11: 2771-3024
Best Paper Award at EEA-ESEM 2018
pdf | gated | abstract

Abstract: Many firms claim that "social impact" influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures because consumers’ willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfare-enhancing tax with limited pass-through.

Dynamic Regret Avoidance
with Giorgio Coricelli and Sasha Vostroknutov
AEJ: Microeconomics, 2022, 14.2: 70-93
ssrn | gated | abstract

Abstract: In a stock market experiment we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices participants are affected only by regret about previously observed high prices (past regret), but, when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales.

Suboptimal Dishonesty: Rationality in the Absence of Strategic Behavior in Honesty Experiments
with Sean Marden
The Journal of Neuroscience, 2015, 35.5: 1817-1818
pdf | gated

Social Impact and Firms' Objectives | List papers by status

The Voice: The Shareholders' Motives Behind Corporate Donations
with Victor Saint-Jean and Simon Smith
arXiv | abstract

Abstract: What motivates shareholders to become prosocial activists? At the onset of the COVID-19 pandemic, political and media attention demanded covid-related donations from large corporations. We study shareholders’ support for such donations exploiting the heightened media scrutiny from annual general meetings. We find that reputational gains to shareholders of donating firms led prominent individual shareholders to seek donations. In contrast, large institutional shareholders, who are hardly associated with specific corporations in their portfolios, preferred to donate themselves and opposed donations in their footprints. This mechanism also operates outside pandemic times and points to media attention to grow support for prosocial decisions.

Performance Pay in Insurance Markets: Evidence from Medicare
with Hongming Wang
Review of Economics and Statistics, forthcoming
Policy Research Award at INFER 2020
pdf | gated | VoxEU | abstract

Abstract: Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties.

Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare
Journal of Political Economy, 2022, 130.11: 2771-3024
Best Paper Award at EEA-ESEM 2018
pdf | gated | abstract

Abstract: Many firms claim that "social impact" influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures because consumers’ willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfare-enhancing tax with limited pass-through.

Energy and Renewables
Innovation Begets Innovation and Concentration: The Case of Upstream Oil & Gas in the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
arXiv | ssrn | abstract

Abstract: We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation.

Saving for a Dry Day: Coal, Dams and the Energy Transition
with Jorge Tamayo
pdf | abstract

Abstract: Renewable generation creates a tradeoff between current and future energy production as generators produce energy by releasing previously stored resources. Studying the Colombian market, we find that diversified firms strategically substitute fossil fuels for hydropower before droughts. This substitution mitigates the surge in market prices due to the lower hydropower capacity available during dry periods. Diversification can increase prices, instead, if it results from mergers steepening a firm's residual demand. Thus, integrating production technologies within firms can smooth the clean-energy transition by offsetting higher prices during scarcity periods if the unaffected technologies help store renewables more than exercise market power.

Trade and IO
Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
pdf | abstract

Abstract: Global value chains (GVCs) typically involve large firms exerting bargaining power over the terms of trade. We develop a novel theory of international prices accounting for these features of GVCs and illustrate their effect on the pass-through of trade shocks into import prices. We build a new dataset merging transaction-level U.S. import data with balance sheet data for both importers and exporters to evaluate the model’s performance. Our estimated model generates more accurate predictions of pair-level price changes following trade shocks than standard models, improving the estimated impact of the 2018 trade war on aggregate U.S. import prices by 40-60%.

Individual Preferences
Dynamic Regret Avoidance
with Giorgio Coricelli and Sasha Vostroknutov
AEJ: Microeconomics, 2022, 14.2: 70-93
ssrn | gated | abstract

Abstract: In a stock market experiment we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices participants are affected only by regret about previously observed high prices (past regret), but, when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales.

Suboptimal Dishonesty: Rationality in the Absence of Strategic Behavior in Honesty Experiments
with Sean Marden
The Journal of Neuroscience, 2015, 35.5: 1817-1818
pdf | gated

Teaching
Applied Data Analysis for Public Policy | material
Managerial Economics | syllabus
Public Economics
Sustainable Businesses and Moral Markets | syllabus