Learning from Shared News: when Abundant Information Leads to Belief Polarization

Renee Bowen (UC San Diego)
Danil Dmitriev (UC San Diego)
Simone Galperti (UC San Diego)

Abstract : We study social learning in networks where agents share information selectively. Contrary to standard convergence results, we show that if agents hold even minor misperceptions about the selective sharing, then allowing the quantity of external information to grow indefinitely can lead to divergence of beliefs. Specifically, if quality of external information is sufficiently low, agents’ friends in the network are able to bias their beliefs towards any preferred state. Consequently, to avoid polarization, it is optimal to aggregate external signals into less frequent and more precise communications.

Endogenous Politics and the Design of Trade Institutions

Kristy Buzard (Syracuse University)

Abstract : While most of the literature on the design of trade agreements and trading institutions takes the political pressure governments face to be exogenous, this paper endogenizes politics in a standard model for studying trade policy design questions. One can use this simple modeling framework to distinguish between the dynamics induced by exogenous political shocks and endogenous incentives of political actors, unifying these two strands of literature. The modeling framework can also provide fuller answers to trade policy design questions by elucidating the interactions between exogenous and endogenous political forces. Applications to tariff caps and the escape clause show that important insights are missed if attention is restricted to exogenous political shocks. Most notably, endogenous politics destroys a traditionally-defined escape clause's ability to provide flexibility in the face of political shocks when lobbies use the flexibility to seek rents. This can explain why WTO Safeguard use is conditioned on measurable economic indicators.

A Dynamic Theory of Regulatory Capture

Alessandro De Chiara (Universitat de Barcelona and CEU)
Marco A. Schwarz (University of Innsbruck)

Abstract : Firms have incentives to influence regulators' decisions. In a dynamic setting, we show that a firm may prefer to capture regulators through the promise of a lucrative future job opportunity (i.e., the revolving-door channel) than through a hidden payment (i.e., a bribe). This is because the revolving door publicly signals the firm's eagerness and commitment to reward friendly regulators, which facilitates collusive equilibria. Moreover, the revolving-door channel need not require an explicit agreement between the firm and the regulator, but may work implicitly giving rise to an industry norm. This renders ineffective standard anti-corruption practices, such as whistle-blowing protection policies. We highlight that closing the revolving door may give rise to other inefficiencies. Moreover, we show that cooling-off periods may make all players worse off if timed wrongly. Opening the revolving door conditional on the regulator's report may increase social welfare.