Michele Fioretti

Sciences Po
​Department of Economics

email michele.fioretti@sciencespo.fr
cv pdf

Working Papers

Social Responsibility and Firms' Objectives
Best Paper Award at EEA-ESEM 2018
[pdf - New version coming soon] [show abstract]

Abstract: This paper shows that firms' objectives can extend beyond profit maximization. I focus on a for-profit socially responsible firm that offers charity auctions of celebrities' belongings. The firm's donations affect both revenues and costs. Counterfactuals from a structural model comparing the actual donations with the profit-maximizing benchmark suggest that the firm donates beyond profit-maximization. Exploiting a change in the capital structure, this result points to donations as an additional objective of the firm. I also find a modest increase in consumers' willingness to pay due to donations, indicating that demand cannot explain firms' investments in social responsibility.

Subsidizing Inequality: Performance Pay and Risk Selection in Medicare
with Hongming Wang
[pdf] [VoxEU column] [show abstract]

Abstract: Pay-for-performance is commonly employed to improve the quality of social services contracted out to firms. We show that insurer responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the U.S. Medicare Advantage market, we find that high-quality insurance contracts responded to quality-linked payments by selecting healthier enrollees with premium differences across counties. The selection is profitable because the quality rating fails to adjust for pre-existing health differences of enrollees. As a result, quality improved mostly due to selection, and the supply of high-quality insurance shifted to the healthiest counties. Revising the quality rating could prevent these unintended consequences.

Dynamic Regret Avoidance
with Sasha Vostroknutov and Giorgio Coricelli
Revision resubmitted at AEJ: Microeconomics
[ssrn] [show 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.

Work in Progress

Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
[soon] [show abstract]

Abstract: This paper studies how concentration among buyers and suppliers affects bilateral prices and markups in markets with two-sided heterogeneity. We provide a framework for analyzing buyer-supplier bargaining over the price of an imported good. To tractably and feasibly analyze the division of surplus between related parties, we leverage the Nash equilibrium in the Nash Bargaining solution concept (Horn and Wolinski, 1988). We show that the main elasticities and model parameters are identified, given data on market shares of suppliers in their input markets, shares of suppliers’ goods in buyers’ inputs, and shares of buyers’ purchases in suppliers’ sales. To measure these market shares, we build a novel dataset that merges international trade data from the Longitudinal Firm Trade Transactions Database (LFTTD) of the U.S. Census Bureau with balance sheet information on both U.S. importers and foreign exporters. We use the estimated model to investigate the determinants of prices, markups, and pass-through of aggregate shocks, with a special focus on the role of buyer and supplier concentration. We demonstrate that a shock can have very different pass-through on markups and prices depending on which market concentration are generating the markups. Our insights shed light on both the debate about the relationship between market concentration and markups, as well as on the recent discussions of import tariff pass-through on prices.

Complementarities Between Teacher, School, and Student Inputs
with Elena Manresa, Olga Namen and Petra Thiemann

Altruism and Firm Profits
with Kenneth Chuk
[soon] [show abstract]

Abstract: Firms' donations are pervasive, but do they increase profits? Theoretical studies attribute higher profits if consumers display warm-glow preferences and exhibition value. The two models differ in the way consumers perceive direct donations to charities. Under warm-glow, indirect donations by purchasing charity-linked products act as discounts, resulting in no extra profits. Under exhibition value, indirect donations can increase profits because consumers' own purchases and direct donations are not perfect substitutes. Indirect contributions can also generate a larger public good, but this necessarily implies lower profits. Thus, markets cannot adequately incentivize firms to promote greater individual contributions.

How Do You Build a Bank? Evidence from Colombia
with Jorge Tamayo

Published Work

Suboptimal Dishonesty: Rationality in the Absence of Strategic Behavior in Honesty Experiments
with Sean Marden
The Journal of Neuroscience, 2015 [pdf]