Michele Fioretti

University of Southern California
​Department of Economics

email fioretti@usc.edu
cv pdf

Working Papers

Giving for profit or giving to give: the profitability of corporate social responsibility [JMP]
Best Paper Award at EEA-ESEM 2018
[pdf] [show abstract]

Abstract: Is corporate social responsibility (CSR) profitable or do firms engage in CSR to contribute to the greater good? This paper investigates the profit-optimal level of CSR for a firm whose CSR expenditure can be easily quantified: a monopolist offering charity auctions of celebrities' belongings. Donations influence both revenues and costs. A structural auction model is used to estimate the elasticity of demand to donations. Procurement costs for each item are estimated exploiting the way the firm sets the reserve price. Counterfactuals show that despite prices increase as the firm donates more, such increase does not compensate for the donations. The comparison of the estimated costs and revenues indicate that the firm can significantly increase its profits by donating the profit-optimal amount. This suggests that firms' objectives may extend beyond profitability as, in this case, the firm also cares about its social impact.

Quality, quality payments, and risk selection in private Medicare [New version coming soon]
with Hongming Wang
[pdf] [show abstract]

Abstract: As Medicare payment increasingly rewards value of care, empirical evidence on the effect of value-based payment is still scarce. This paper examines the incidence of quality bonus payments in the Medicare Advantage market. We find that high quality contracts increased bids by the full amount of the bonus payment, leaving enrollee premium and rebate unchanged. Within contract, premium increased (decreased) in high (low) risk counties, and the risk pool improved significantly over low quality contracts. Evidence suggests that the selection arises from a negative correlation between risk scores and patient outcome measures in the quality rating. The selection response calls into question the distributional implication of quality payments, and the risk confounds in measures of quality linked to payment.

Dynamic regret avoidance
with Sasha Vostroknutov and Giorgio Coricelli
Revision requested 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.
Presentations: Barcelona Summer Forum (2019)

The price of water and dynamic spillovers: hydropower generation in Colombia
with Jorge Tamayo
[email me for a draft] [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.

Work in Progress

Altruism and firm profits
with Kenneth Chuk
[pdf] [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.

Complementarities between teacher, school, and student inputs
with Elena Manresa, Olga Namen and Petra Thiemann

Sorting and selection in private Medicare
with Alejandro Robinson-Cortés and Hongming Wang

Published Work

Suboptimal dishonesty: rationality in the absence of strategic behavior in honesty experiments
with Sean Marden
The Journal of Neuroscience, 2015 [pdf]