Browse the categories to access the content of academic, scientific and opinion publications of the professors and students of the Department of Economics PUC-Rio.

Robust mechanism design: the curvature case

Economic Theory


This paper considers the problem of a Principal who faces a privately informed Agent and only knows one moment of the type’s distribution. Preferences are nonlinear in the allocation, and the Principal maximizes her worst-case expected profits. The robustness property of the optimal mechanism imposes restrictions on the Principal’s ex-post payoff function: subject to the allocation being nonzero, ex-post payoffs are linear in the Agent’s type. The robust mechanism entails exclusion of low types, distortions at the intensive margin and efficiency at the top. We show that, under some conditions, distortions in the optimal mechanism are decreasing in types. This monotonicity has relevant consequences for several applications discussed. Our characterization uses an auxiliary zero-sum game played by the Principal and an adversarial Nature who seeks to minimize her expected payoffs which also gives us a characterization of the worst-case distribution from the Principal’s perspective. Applications of our framework to insurance provision, optimal taxation, nonlinear pricing and regulation are discussed

Vitor Farinha Luz, Vinicius Nascimento Carrasco, Humberto Moreira, Paulo Klinger Monteiro.

Risk sharing contracts with private information and one-sided commitment

Economic Theory


In a repeated unobserved endowment economy in which agents negotiate longterm contracts with a financial intermediary, we study the risk-sharing implications of the interaction between incentive compatibility constraints (due to private information) and participation constraints (due to one-sided commitment). In particular, we assume that after a default episode, agents consume their endowment and remain in autarky forever. We find that once they are away from autarky today, if the probability of drawing the highest possible endowment shock is sufficiently small, the optimal contract prevents agents from reaching autarky tomorrow and, thus, from being “impoverished”. Moreover, an invariant cross-sectional distribution of life-time utilities (or values) exists. A numerical example shows that the mass of agents living in autarky can be zero in the limit.

Eduardo Zilberman, Vinicius Nascimento Carrasco, Pedro Hemsley.

Os efeitos da incerteza sobre a atividade econômica no Brasil

Revista Brasileira de Economia

V 72, N 2, P 144-460, 05/03/2018

Este trabalho investiga os efeitos da incerteza sobre a atividade econômica no Brasil. Para isso, são construídas diversas proxies que buscam capturar o nível de incerteza vigente na economia brasileira (incerteza doméstica) e em vários de seus principais parceiros comerciais (incerteza externa). Em seguida, são estimados diversos modelos de vetores autorregressivos (VAR) estruturais, tal como proposto por Baker, Bloom & Davis (2016). As funções de resposta ao impulso sugerem efeitos contracionistas significativos da incerteza sobre a atividade, em particular sobre o investimento. Além disso, as estimativas indicam que os efeitos da incerteza doméstica são mais acentuados do que os da incerteza externa. Pode-se afirmar, portanto, que os níveis de incerteza vigentes no Brasil desde as eleições presidenciais de 2014 representam importante fator por trás da recessão subsequente. Estima-se que caso não houvesse a expansão de incerteza doméstica observada a partir do segundo semestre de 2014, a produção industrial em 2015 teria sido, em média, entre 0,9% e 3,9% maior, dependendo da variável proxy de incerteza utilizada. No caso do IBC-Br, este teria sido entre 0,4% e 1,3% maior. Os resultados encontrados são robustos para diversas alterações no modelo.

Ricardo de Menezes Barboza, Eduardo Zilberman.

The role of social networks in cultural assimilation

Journal of Urban Economics

V 97, P 15-39, 31/12/2017

We develop a model where, in the first stage, minority individuals have to decide whether or not they want to assimilate to the majority culture while, in the second stage, all individuals (both from the majority and the minority group) embedded in a network have to decide how much effort they exert in some activity (say education). We show that the more central minority agents are located in the social network, the more they assimilate to the majority culture. We also show that denser networks tend to favor assimilation so that, for example, it is easier to assimilate in a complete network than in a star-shaped network. We show that the subgame-perfect equilibrium is not optimal because there is not enough activity and assimilation. We then endogeneize the network and show under which condition the ethnic minorities either assimilate to or separated themselves from the majority group.

Thierry Verdier, Yves Zenou.

Econometrics of Ascending Auctions by Quantile Regression

The Review of Economics and Statistics

V 99, N 5, P 944-953, 27/12/2017

This paper suggests an identification and estimation approach based on quantile regression to recover the underlying distribution of bidders' private values in ascending auctions under the IPV paradigm. The quantile regression approach provides a flexible and convenient parametrization of the private values distribution, with an estimation methodology easy to implement and with several specification tests. The quantile framework provides a new focus on the quantile level of the private values distribution, in particular the seller's optimal screening level, which can be very useful for bidders and seller. An empirical application using data from the USFS timber auctions illustrates the methodology.

Nathalie Gimenes.

Heterogeneous Sticky-Information Economies

Brazilian Review of Econometrics

V 37, N 2, P 123-152, 01/11/2017

The literature that emerged from Mankiw and Reis' (2002) proposal of sticky information as an alternative to sticky-price models has focused on economies populated with (ex-ante) identical firms. This paper analyzes the implications of heterogeneity in the degree of information stickiness among price-setting firms in different sectors for the dynamic response of the economy to various shocks. I compare multisector sticky-information models with otherwise identical one-sector economies that feature the same frequency of information updating. I find that the effects of such shocks on the output gap -- the difference between actual output and the output level that would prevail in the absence of information frictions -- are larger in heterogeneous economies.

Carlos Viana de Carvalho.

Centralized decision making against informed lobbying

American Economic Journal: Microeconomics

V 9, N 4, P 324-355, 10/10/2017

R Costa Lima, Thierry Verdier, Humberto Moreira.

Paternalism, homophily, and cultural transmission in random netwoks

Games and economic behavior

V 105, N 155-176, 10/10/2017

F. Panebianco, Thierry Verdier.

Inequality redistribution and cultural integration in the welfare state

European Journal of Political Economy

V 50, P 122-140, 10/10/2017

A. Bisin, Thierry Verdier.

Asymmetric growth and institutions in an independent world

Journal of Political Economy

V 125, P 1245-1306, 10/10/2017

Daron Acemoglu, J. Robinson, Thierry Verdier.

Human Capital Persistence and Development

American Economic Journal: Applied Economics

V 9, N 4, P 105-136, 25/09/2017

This paper documents the persistence of human capital over time and its association with long-term development. We exploit variation induced by a state-sponsored settlement policy that attracted immigrants with higher levels of schooling to particular regions of Brazil in the late nineteenth and early twentieth century. We show that one century after the policy, municipalities that received settlements had higher levels of schooling and higher income per capita. We provide evidence that long-run effects worked through higher supply of educational inputs and shifts in the structure of occupations toward skill-intensive sectors

Rudi Rocha, Claudio Ferraz, Rodrigo Reis Soares.

Modeling and forecasting of large realized covariance matrices and portfolio choice

Journal of Applied Econometrics

V 32, N 1, P 140-158, 01/08/2017

We consider modeling and forecasting large realized covariance matrices by penalized vector autoregressive models. We consider Lasso‐type estimators to reduce the dimensionality and provide strong theoretical guarantees on the forecast capability of our procedure. We show that we can forecast realized covariance matrices almost as precisely as if we had known the true driving dynamics of these in advance. We next investigate the sources of these driving dynamics as well as the performance of the proposed models for forecasting the realized covariance matrices of the 30 Dow Jones stocks. We find that the dynamics are not stable as the data are aggregated from the daily to lower frequencies. Furthermore, we are able beat our benchmark by a wide margin. Finally, we investigate the economic value of our forecasts in a portfolio selection exercise and find that in certain cases an investor is willing to pay a considerable amount in order get access to our forecasts. Copyright © 2016 John Wiley & Sons, Ltd.

Anders Kock, Laurent Callot, Marcelo Medeiros.

FX interventions in Brazil: a synthetic control approach

Journal of International Economics

V 108, P 157–168, 17/05/2017

In the aftermath of the Taper Tantrum, the Central Bank of Brazil announced a major program of sterilized foreign exchange intervention. We use a synthetic control approach to estimate its impact on the level and volatility of the exchange rate. Our counterfactual results, based on the experience of other emerging markets, indicate the program led to an appreciation of the Brazilian real in excess of 10 percent. Some of our estimates also point to a decline in the option-implied volatility. A second announcement extending the program had more muted effects, and subsequent extensions had little or no impact.

Márcio Gomes Pinto Garcia, Laura Candido de Souza, Marcos Chamon.

Adaptive LASSO estimation for ARDL models with GARCH innovations

Econometric Reviews

V 36, N 6-9, P 622-637, 12/05/2017

In this paper, we show the validity of the adaptive least absolute shrinkage and selection operator (LASSO) procedure in estimating stationary autoregressive distributed lag(p,q) models with innovations in a broad class of conditionally heteroskedastic models. We show that the adaptive LASSO selects the relevant variables with probability converging to one and that the estimator is oracle efficient, meaning that its distribution converges to the same distribution of the oracle-assisted least squares, i.e., the least square estimator calculated as if we knew the set of relevant variables beforehand. Finally, we show that the LASSO estimator can be used to construct the initial weights. The performance of the method in finite samples is illustrated using Monte Carlo simulation.

Marcelo Medeiros, Eduardo F. Mendes.

Property-Level Assessment of Change in Forest Clearing Patterns: The Need for Tailoring Policy in the Amazon

Land Use Policy

V 66, P 18-27, 24/04/2017

Once driven by large-scale clearings, Amazon deforestation now occurs mostly in small increments. Did this result from the emergence of a new group of agents or from a strategic adaptation in the behavior of those who led deforestation in the past? We address this question using georeferenced data on private rural properties and deforestation. We cross property-level and forest clearing data in an empirical setting designed to detect shifts towards clearing patches that were knowingly invisible to the monitoring system. We are therefore able to assess not only whether deforesters were responding strategically to stricter monitoring of deforestation, but also how this response differed across actor types. Results suggest that centralized policy efforts introduced starting in the mid-2000s inhibited medium- and large-scale deforestation, but had heterogeneous effects on small-scale deforestation. Although the relative participation of small deforestation polygons increased in both sample states, the relative participation of smallholders in total state deforestation increased in Pará, while remaining constant in Mato Grosso. We interpret these results as suggestive --- albeit not causal --- evidence that landholders strategically responded to the monitoring system by adapting their forest clearings practices to elude monitoring in both Mato Grosso and Pará. In the latter, however, the increase in smallholders' share of annual deforestation suggests that their clearing practices were relatively less affected by what effectively contained deforestation in large properties. The apparent similarity in scale of deforestation across states conceals relevant baseline differences between the agents engaging in forest clearing in each locality. Tailoring policy to account for such differences could strengthen Brazilian conservation policy

Juliano Assunção, Clarissa Costalonga e Gandour, Pedro Martins Pessoa, Romero Cavalcanti Barreto da Rocha.

Interest rates in trade credit markets

Journal of Money Credit and Banking

V 49, N 1, P 75-113, 24/04/2017

All things equal, interest rates should increase with the borrower's risk. And yet, Klapper, Laeven, and Rajan (2012) cannot find such a positive relation in a broad sample of trade credit contracts. We shed some light on this puzzle by arguing that competition between informed and uninformed suppliers weakens the link between the trade credit cost and the borrower's creditworthiness. Our model implies that trade credit rates are more likely to increase with the borrower's risk if suppliers are less profitable, have high cost of funds, or sell inputs to firms plagued by moral hazard and financial distress.

Klênio de Souza Barbosa, Walter Novaes, Humberto Moreira.

Britain as a debtor: Indian sterling balances, 1940-1953

The Economic History Review

V 70, N 2, P 586–604, 20/04/2017

The British war effort in the Second World War depended on US Lend-Lease and the accumulation of sterling balances by other countries, including the Empire. By the end of the war outstanding balances were equivalent to 60 per cent of British net receipts under Lend-Lease. Of the total sterling balances, about a third was accumulated by India. This article seeks to evaluate the costs incurred by India in the reduction of balances after the war. The accumulation of balances and their use to repatriate India's sterling debt is described. British efforts to convince India to accept a partial cancellation of the balances are analysed, singling out the crucial role of Keynes. The negotiations after independence are detailed, including releases, transfers to Pakistan, settlement of pensions, purchase of military stores, and gold sales. The possible contribution of British divestment to reduce outstanding balances is assessed. The Indian case is compared with those of other holders, such as Portugal, Brazil, Argentina, and Egypt. The links between the accumulation of sterling balances and inflation are considered. In the end there was a significant reduction in the purchasing power of sterling balances, but not for the reasons anticipated by London.

Marcelo de Paiva Abreu.

Real-Time Inflation Forecasting with High-Dimensional Models: The Case of Brazil

International Journal of Forecasting

V 33, N 3, P 679–693, 08/03/2017

We show that high-dimensional econometric models, such as shrinkage and complete subset regression, perform very well in the real-time forecasting of inflation in data-rich environments. We use Brazilian inflation as an application. It is ideal as an example because it exhibits a high short-term volatility, and several agents devote extensive resources to forecasting its short-term behavior. Thus, precise forecasts made by specialists are available both as a benchmark and as an important candidate regressor for the forecasting models. Furthermore, we combine forecasts based on model confidence sets and show that model combination can achieve superior predictive performances.

Gabriel Vasconcelos, Marcelo Medeiros, Márcio Gomes Pinto Garcia.

Product Market Competition and the Severity of Distressed Asset Sales

Review of Finance

V 21, N 5, P 2007–2043, 01/01/2017

This article explores the effect of an industry’s market structure on the liquidation value of assets. We show that when firms with financial constraints compete for the gains arising from market concentration, they expend insufficient efforts to deploy assets across industries, leading to significant liquidation discounts when compared with an efficient benchmark. Equilibrium distress costs and private costs of leverage should increase with the rents linked to concentration in the product market

Vinicius Nascimento Carrasco, João Manoel Pinho de Mello, Pablo Hector Seuanez Salgado.

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