Michele Fioretti

Assistant Professor
​Department of Economics
Sciences Po

email michele.fioretti@sciencespo.fr
cv pdf

Working Papers

Caring or Pretending to Care? Social Impact, Firms' Objectives and Welfare
Best Paper Award at EEA-ESEM 2018
[pdf] [show abstract]

Abstract: Many firms claim that "social impact" influences their strategies. I develop a structural model that quantifies social impact as the sum of the surpluses to a firm and its stakeholders. Using data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, I find that the firm spends prosocially beyond profit-maximization, which substantially increases welfare. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies for 55% of the 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 Sasha Vostroknutov and Giorgio Coricelli
R&R 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.

Performance Pay in Insurance Markets: Evidence from Medicare
with Hongming Wang
Best Paper Award Finalist at INFER 2020
[pdf] [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 insurers with higher quality ratings 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 the health of enrollees. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, hurting the healthcare access of sicker patients in the riskiest counties.

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

Abstract: We provide a framework for analyzing buyer-supplier bargaining over the price of an imported good with two-sided market power and heterogeneity. Our main theoretical result is a price formula that tractably nests a wide range of configurations of market power and heterogeneity among importers and exporters in a unified way. We demonstrate that a shock to the exporter's costs can have a very different pass-through on import prices depending on the allocation of bargaining power and bilateral market shares. To estimate the model, we build a novel dataset merging transaction-level international trade data for the U.S. with balance sheet information on both the U.S. importers and foreign exporters. Our results shed light on two open questions on firms' participation in global value chains: the relationship between import and export concentration and markups; the role of firms in determining the tariff pass-through on import prices.

Work in Progress

Production Synergies and Cost Shocks: Hydropower Generation in Colombia
with Jorge Tamayo
[slide show] [show abstract] [soon]

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

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]