Michele Fioretti

Sciences Po
​Department of Economics

email michele.fioretti@sciencespo.fr
cv pdf

Working Papers

Social Responsibility and Firms' Objectives [under review]
Best Paper Award at EEA-ESEM 2018
[pdf - New!!] [show abstract]

Abstract: This paper shows that firms' objectives can extend beyond profit maximization. I focus on a for-profit 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 indicate that the firm donates beyond profit-maximization. Linking this result to a change in the capital structure, I demonstrate that the firm's objectives include both profits and donations. I also estimate a modest increase in consumers' willingness to pay due to donations, suggesting that demand cannot explain firms' investments in social responsibility.

Subsidizing Inequality: Performance Pay and Risk Selection in Medicare [under review]
with Hongming Wang
[pdf - New!!] [VoxEU column] [show 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 U.S. Medicare Advantage market, we find that high-quality insurers responded to quality-linked payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for pre-existing differences in the health of enrollees. Insurers obtained large, unearned bonus payments with selection, and shifted the supply of high-quality insurance to the healthiest counties. The payment reform particularly hurt sicker patients in the riskiest counties.

Dynamic Regret Avoidance
with Sasha Vostroknutov and Giorgio Coricelli
Revision resubmitted to 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

Hydropower Generation, Synergies and Market Power
with Jorge Tamayo
[show abstract]

Abstract: Hydroelectric generation is the main source of energy in many Latin American and Scandinavian countries. Hydroelectric power plants consume water in order to produce energy, exposing firms to the water cycle: water abounds in the rainy season, making production cheap, while it is scarce in the dry season, leading to greater production costs. Thus, energy production requires the careful assessment of current gains versus future profits. This paper focuses on the Colombian wholesale energy market, where 75% of the energy is produced through hydro power plants. We first provide evidence of dynamic optimization by showing that hydro power plants account for future negative shocks in their current production decision: power plants decrease their own production to cope with future expected droughts. In addition, multi-production technology firms react to these shocks by increasing their current production of their thermal units. Such production spillovers decrease market prices, as thermal power plants owned by large firms are willing to produce at smaller prices in dry periods than other thermal power plants. This shows that dynamic incentives to multi-technology firms may provide the regulator with the opportunity to contain prices in dry periods without the introduction of price ceilings. To test this conjecture, we build a dynamic multi-unit auction model which capture the main features of the Colombian energy market. After proving the nonparametric identification of marginal and intertemporal costs for each production technology, we estimate the model on Colombian data. The estimated costs are in line with those from market assessments by industry specialists. Simulations are ongoing.

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

Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
[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
[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.

Published Work

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