Michele Fioretti

Assistant Professor, Bocconi University, ​Department of Economics
Affiliate Fellow, the University of Chicago Stigler Center
Affiliate, IGIER

email [email protected]
cv pdf

Work in Progress / List papers by topic

NGO Activism: Exposure vs. Influence
with Victor Saint-Jean and Simon Smith
arXiv (v: 11/7/2024) / abstract

Abstract: We analyze the timing of NGO campaigns to shed light on NGOs' objectives and how their strategies evolve over time. Using data from 2,500 campaigns, we find that NGOs are six times more likely to launch campaigns on their target's Annual General Meeting (AGM) date. Although this strategy increases media exposure and stakeholder scrutiny, resulting in consumer boycotts and related shareholder proposals at the following AGM of the targeted firm, it has no impact on current AGM votes. As NGOs build reputational capital, they adjust their timing to influence AGM votes, revealing the trade-offs they face to drive corporate change.

Prices and Concentration: A U-shape? Theory and Evidence from Renewables
with Junnan He and Jorge Tamayo
arXiv (v: 01/07/2024) / abstract

Abstract: We study firms' strategic interactions when each firm may own multiple production technologies, each with its own marginal cost and capacity. Increasing industry concentration by reallocating non-efficient capacity to the largest and most efficient firm can decrease market prices as it incentivizes the firm to outcompete its rivals. However, with large reallocations, the standard monotonic relationship between concentration and prices re-emerges as competition weakens due to the rival's lower capacity. Thus, we demonstrate a U-shaped relationship between market prices and industry concentration when firms are diversified. This result does not rely on economies of scale or scope. We find consistent evidence from the Colombian wholesale energy market, where strategic firms are diversified with fossil-fuel and renewable technologies, exploiting exogenous variation in renewable capacities. Our findings not only apply to the green transition but also to other industries and suggest new insights for antitrust policies.

The Shared Cost of Pursuing Shareholder Value
with Victor Saint-Jean and Simon Smith
arXiv (v: 10/12/2023) / abstract

Abstract: We propose a portable framework to infer shareholders' preferences and influences on firms' prosocial decisions and the costs these decisions impose on firms and shareholders. Using quasi-experimental variations from the media coverage of firms' annual general meetings, we find that shareholders support costly prosocial decisions, such as covid-related donations and private sanctions on Russia, if they can earn image gains from them. In contrast, shareholders that the public cannot readily associate with specific firms, like financial corporations with large portfolios, oppose them. These prosocial expenditures crowd out investments at exposed firms, reducing productivity and earnings by between 1 and 3%: pursuing the values of some shareholders comes at the cost of others, which the shareholders' monitoring motivated by heterogeneous preferences could prevent.

Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
R&R at American Economic Review
pdf (v: 12/30/2022) / NBER wp (v: 05/2023) / abstract

Abstract: We develop a quantitative theory of prices in firm-to-firm trade with bilateral negotiations and two-sided market power. Markups reflect oligopoly and oligopsony forces, with relative bargaining power as weight. Cost pass-through elasticities into import prices can be incomplete or complete, depending on the exporter's and importer's bargaining power and market shares. In U.S. import data, we find that U.S. importers have substantial market power and disproportionate leverage in price negotiations. The estimated model produces accurate predictions of the impact of Trump tariffs on pair-level prices. At the aggregate level, ignoring two-sided market power could exaggerate tariff pass-through by about 60%.

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 (v: 5/24/2022) / 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.

Capturing Subsidies or Storing Carbon: Evidence from the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
abstract

Abstract: Addressing climate change, carbon capture and storage technologies have emerged to reduce atmospheric CO2. While capture technologies have advanced, storage investment lags. Governments, like the US with its Inflation Reduction Act ($370bn), are introducing CO2 storage subsidies, with the upstream oil and gas sector (O&G) aiming to benefit by adopting Enhanced Oil Recovery technologies (EOR), a carbon storage technology increases recovery rates by injecting CO2 into reservoirs. Our research examines whether subsidies boost EOR adoption, its effects on competition and production, and its actual impact on CO2 emissions in the high-polluting O&G sector. Challenges include that unobservable firm characteristics can influence EOR adoption and the recent timing of these subsidies, precluding long term industry analyses. We will leverage a 1985 policy change promoting EOR in Norway but not the UK, stressing firms' responses to these subsidies by developing dirtier fields over 50 years of data.
Presentations: CEPR Firms in a Period of Turmoil (Bank of Italy); LSE Economics of Environment and Energy

Concentration and Markups in International Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
pdf soon / abstract

Abstract: We study the relationship between industry concentration and aggregate markups in a model of firm-to-firm trade with two-sided market power. Theoretically, we show that the aggregate markup in an import market is a linear function of two concentration measures: it increases in the average Herfindhal index (HHI) of the exporters and it decreases in the average (modified) HHI of the importers in that market. We measure these concentration measures for Colombian imports during 2010-2020, show that they are correlated to aggregate import prices in ways predicted by the model, and discuss the implied evolution of aggregate markups. Compared to standard models where supplier concentration is the only relevant statistic, accounting for two-sided concentration and market power yields a richer picture around the evolution of aggregate markups in international trade.
Presentations: ASSA 2023, AFSE 2023 (Sciences Po), CITP 2023 (Sussex), SED 2023, Namur 2024

Greening Banks: Shareholders vs. Stakeholders
with Andrea Andolfatto, Clément Mazet-Sonilhac and Jean-Stéphane Mésonnier
abstract

Abstract: What makes large banks shift towards financing the transition at the global scale? What roles do stakeholders (e.g., depositors, shareholders, and regulators) have? Is peer pressure, notably via the membership in voluntary coalitions for climate, an effective way to motivate banks to support the transition? This project investigates these questions using a unique combination of public and proprietary individual datasets, either at the level of a large European country (France) to study pressure on banks from local depositors or globally to study the role of other stakeholders and institutional investors. By exploiting local environmental NGO campaigns and participation in international environmental alliances, our project will provide new insights into the role of activists and peer pressure in boosting the green transition of financial institutions.
Status: Awarded a CIVICA grant. Data analysis ongoing

Return to Scale in Decentralized Markets: Evidence from Mastodon
with Mathias Dachert and Alessandro Iaria
abstract

Abstract: We study entry and business stealing in decentralized markets both theoretically and empirically by focusing on the social network Mastodon. A decentralized social network allows users to create different servers that communicates among each others like emails. Preliminary results find high levels of business stealing across Mastodon servers, which suggests a problem of excessive entry in decentralized network.
Status: Ongoing data analysis.

Published & Forthcoming Papers
Performance Pay in Insurance Markets: Evidence from Medicare
with Hongming Wang
Review of Economics and Statistics, 2023, 105.5: 1128–1144
Policy Research Award at INFER 2020 / Media: VoxEU
pdf (v: 07/15/2021) / gated / 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: 2898-2942
Awards: Prix Malinvaud 2023 / Best Paper Award at EEA-ESEM 2018 / Media: carenews.com
pdf (v: 02/28/2022) / 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, 14.1: 70-93
ssrn (v: 12/18/2020) / 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 (v: 02/04/2015) / gated / abstract

Abstract: This paper explores the interplay between honesty and dishonesty in individual decision-making, with a focus on reconciling two competing theories: the "moral grace" hypothesis, which posits innate honesty, and the "will" hypothesis, which suggests dishonesty is natural and requires suppression. Reviewing Abe and Greene's 2014 study, the authors discuss how neural responses, specifically in the nucleus accumbens and dorsolateral prefrontal cortex, correlate with dishonest behavior and the effort required for honesty under varying reward conditions.
The discussion integrates game theory and empirical findings, proposing that costs associated with dishonesty, such as guilt or shame aversion, vary among individuals and influence their utility-maximizing behaviors. The concept of "suboptimal dishonesty" emerges, highlighting cases where individuals fail to act purely in self-interest. Future research directions include further investigating these subjective costs and their neural underpinnings, as well as refining experimental paradigms to better isolate the drivers of (dis)honesty. This commentary sheds light on the complex mechanisms underlying honesty and dishonesty, emphasizing their dependence on both neural and strategic factors.

Social Impact: Profit Maximization, Firms' Objectives, and Welfare / List papers by status

NGO Activism: Exposure vs. Influence
with Victor Saint-Jean and Simon Smith
arXiv (v: 11/7/2024) / abstract

Abstract: We analyze the timing of NGO campaigns to shed light on NGOs' objectives and how their strategies evolve over time. Using data from 2,500 campaigns, we find that NGOs are six times more likely to launch campaigns on their target's Annual General Meeting (AGM) date. Although this strategy increases media exposure and stakeholder scrutiny, resulting in consumer boycotts and related shareholder proposals at the following AGM of the targeted firm, it has no impact on current AGM votes. As NGOs build reputational capital, they adjust their timing to influence AGM votes, revealing the trade-offs they face to drive corporate change.

The Shared Cost of Pursuing Shareholder Value
with Victor Saint-Jean and Simon Smith
arXiv (v: 10/12/2023) / abstract

Abstract: We propose a portable framework to infer shareholders' preferences and influences on firms' prosocial decisions and the costs these decisions impose on firms and shareholders. Using quasi-experimental variations from the media coverage of firms' annual general meetings, we find that shareholders support costly prosocial decisions, such as covid-related donations and private sanctions on Russia, if they can earn image gains from them. In contrast, shareholders that the public cannot readily associate with specific firms, like financial corporations with large portfolios, oppose them. These prosocial expenditures crowd out investments at exposed firms, reducing productivity and earnings by between 1 and 3%: pursuing the values of some shareholders comes at the cost of others, which the shareholders' monitoring motivated by heterogeneous preferences could prevent.

Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare
Journal of Political Economy, 2022, 130.11: 2898-2942
Awards: Prix Malinvaud 2023 / Best Paper Award at EEA-ESEM 2018 / Media: carenews.com
pdf (v: 02/28/2022) / 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.

Performance Pay in Insurance Markets: Evidence from Medicare
with Hongming Wang
Review of Economics and Statistics, 2023, 105.5: 1128–1144
Policy Research Award at INFER 2020 / Media: VoxEU
pdf (v: 07/15/2021) / gated / 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.

Greening Banks: Shareholders vs. Stakeholders
with Andrea Andolfatto, Clément Mazet-Sonilhac and Jean-Stéphane Mésonnier
abstract

Abstract: What makes large banks shift towards financing the transition at the global scale? What roles do stakeholders (e.g., depositors, shareholders, and regulators) have? Is peer pressure, notably via the membership in voluntary coalitions for climate, an effective way to motivate banks to support the transition? This project investigates these questions using a unique combination of public and proprietary individual datasets, either at the level of a large European country (France) to study pressure on banks from local depositors or globally to study the role of other stakeholders and institutional investors. By exploiting local environmental NGO campaigns and participation in international environmental alliances, our project will provide new insights into the role of activists and peer pressure in boosting the green transition of financial institutions.
Status: Awarded a CIVICA grant. Data analysis ongoing

Technologies & the Green Transition: Innovation Adoption, Production Technologies, and Environmental Implications
Prices and Concentration: A U-shape? Theory and Evidence from Renewables
with Junnan He and Jorge Tamayo
arXiv (v: 01/07/2024) / abstract

Abstract: We study firms' strategic interactions when each firm may own multiple production technologies, each with its own marginal cost and capacity. Increasing industry concentration by reallocating non-efficient capacity to the largest and most efficient firm can decrease market prices as it incentivizes the firm to outcompete its rivals. However, with large reallocations, the standard monotonic relationship between concentration and prices re-emerges as competition weakens due to the rival's lower capacity. Thus, we demonstrate a U-shaped relationship between market prices and industry concentration when firms are diversified. This result does not rely on economies of scale or scope. We find consistent evidence from the Colombian wholesale energy market, where strategic firms are diversified with fossil-fuel and renewable technologies, exploiting exogenous variation in renewable capacities. Our findings not only apply to the green transition but also to other industries and suggest new insights for antitrust policies.

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 (v: 5/24/2022) / 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.

Capturing Subsidies or Storing Carbon: Evidence from the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
abstract

Abstract: Addressing climate change, carbon capture and storage technologies have emerged to reduce atmospheric CO2. While capture technologies have advanced, storage investment lags. Governments, like the US with its Inflation Reduction Act ($370bn), are introducing CO2 storage subsidies, with the upstream oil and gas sector (O&G) aiming to benefit by adopting Enhanced Oil Recovery technologies (EOR), a carbon storage technology increases recovery rates by injecting CO2 into reservoirs. Our research examines whether subsidies boost EOR adoption, its effects on competition and production, and its actual impact on CO2 emissions in the high-polluting O&G sector. Challenges include that unobservable firm characteristics can influence EOR adoption and the recent timing of these subsidies, precluding long term industry analyses. We will leverage a 1985 policy change promoting EOR in Norway but not the UK, stressing firms' responses to these subsidies by developing dirtier fields over 50 years of data.
Presentations: CEPR Firms in a Period of Turmoil (Bank of Italy); LSE Economics of Environment and Energy

Trade & IO: Pricing Along the Global Value Chain and Decentralized Markets
Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
R&R at American Economic Review
pdf (v: 12/30/2022) / NBER wp (v: 05/2023) / abstract

Abstract: We develop a quantitative theory of prices in firm-to-firm trade with bilateral negotiations and two-sided market power. Markups reflect oligopoly and oligopsony forces, with relative bargaining power as weight. Cost pass-through elasticities into import prices can be incomplete or complete, depending on the exporter's and importer's bargaining power and market shares. In U.S. import data, we find that U.S. importers have substantial market power and disproportionate leverage in price negotiations. The estimated model produces accurate predictions of the impact of Trump tariffs on pair-level prices. At the aggregate level, ignoring two-sided market power could exaggerate tariff pass-through by about 60%.

Concentration and Markups in International Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
pdf soon / abstract

Abstract: We study the relationship between industry concentration and aggregate markups in a model of firm-to-firm trade with two-sided market power. Theoretically, we show that the aggregate markup in an import market is a linear function of two concentration measures: it increases in the average Herfindhal index (HHI) of the exporters and it decreases in the average (modified) HHI of the importers in that market. We measure these concentration measures for Colombian imports during 2010-2020, show that they are correlated to aggregate import prices in ways predicted by the model, and discuss the implied evolution of aggregate markups. Compared to standard models where supplier concentration is the only relevant statistic, accounting for two-sided concentration and market power yields a richer picture around the evolution of aggregate markups in international trade.
Presentations: ASSA 2023, AFSE 2023 (Sciences Po), CITP 2023 (Sussex), SED 2023, Namur 2024

Return to Scale in Decentralized Markets: Evidence from Mastodon
with Mathias Dachert and Alessandro Iaria
abstract

Abstract: We study entry and business stealing in decentralized markets both theoretically and empirically by focusing on the social network Mastodon. A decentralized social network allows users to create different servers that communicates among each others like emails. Preliminary results find high levels of business stealing across Mastodon servers, which suggests a problem of excessive entry in decentralized network.
Status: Ongoing data analysis.

Behavioral Economics: Behavioral Agents and Decisions under Uncertainty
Dynamic Regret Avoidance
with Giorgio Coricelli and Sasha Vostroknutov
AEJ: Microeconomics, 2022, 14.1: 70-93
ssrn (v: 12/18/2020) / 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 (v: 02/04/2015) / gated /

Abstract: This paper explores the interplay between honesty and dishonesty in individual decision-making, with a focus on reconciling two competing theories: the "moral grace" hypothesis, which posits innate honesty, and the "will" hypothesis, which suggests dishonesty is natural and requires suppression. Reviewing Abe and Greene's 2014 study, the authors discuss how neural responses, specifically in the nucleus accumbens and dorsolateral prefrontal cortex, correlate with dishonest behavior and the effort required for honesty under varying reward conditions.
The discussion integrates game theory and empirical findings, proposing that costs associated with dishonesty, such as guilt or shame aversion, vary among individuals and influence their utility-maximizing behaviors. The concept of "suboptimal dishonesty" emerges, highlighting cases where individuals fail to act purely in self-interest. Future research directions include further investigating these subjective costs and their neural underpinnings, as well as refining experimental paradigms to better isolate the drivers of (dis)honesty. This commentary sheds light on the complex mechanisms underlying honesty and dishonesty, emphasizing their dependence on both neural and strategic factors.

Courses Taught

• Applied Data Analysis for Public Policy / Sciences Po, MPA / material
• Economics (Module 1 - Consumer Behavior & Firms) - 30667 / Bocconi, BSc / Fall 2024 / course guide / BlackBoard
• The Economics of Industry - EC427 / London School of Economics, MSc Economics / course guide
• Empirical Methods for Economics (Introduction to Econometrics) - 30284 / Bocconi, BSc / Fall 2024 / course guide / BlackBoard
• Managerial Economics / Sciences Po, MSc in International Business and Sustainability / syllabus
• Public Economics / Sciences Po, MSc Public Policy
• Sustainable Businesses and Moral Markets / Sciences Po, graduate, Common Academic Curriculum / syllabus
• Topics in Economics / Sciences Po, MSc Economics

"Manuscripts don't burn" - M. Bulgakov