Sevi's Page; Bio, CV & Research

# José V. Rodríguez Mora

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## Mini Bio

My name is José Vicente Rodríguez Mora (the first two words are my given name, the third and forth are the surname), but most people call me either Sevi (my friends) or by any random combination of the four aforementioned words (almost everybody outside Spain). This randomness in my name is carried to the professional world where I may appear cited in the most imaginative manners... If you are interested in surnames, see below.

### Coordinates

sevimora@gmail.com

Anyway, I was born in Barcelona in 1965. I grew up, and eventually I ended up with a BA in Economics from the Universidad Autónoma de Barcelona. Then I somehow got a Ph.D. from MIT in 1995. Currently I am a Professor of Economics at the University of Edinburgh. I have worked in Universitat Pompeu Fabra and the University of Southampton. I visited the IIES (Stockholm University) in 1998-99 and 2000-01 , and the University of Minnesota and the Minneapolis Fed in 20013-14.

As a macroeconomist my research is centered in:

• The allocation of human resources, particularly its relationship with:
• the level of inter-generational economic and social mobility,
• accumulation of factors, and
• general economic efficiency
• political economy, specifically:
• time inconsistency issues with and without heterogeneous agents
• rationality of voters and irrationality of institutions, and
• aspects related to the labor market and the welfare state

I have published on these subjects in the American Economic Review, the Review of Economic Studies, the International Economic Review and the European Economic Review. I have also published in specialized journals like the Journal of Public Economics, the Journal of International Economics, the Journal of Economic Growth or Experimental Economics... Perhaps too many specialized journals in too many fields.

Outside the profession, I like to read and write on Nation, State, and its relationship. I actually have tried to do things on these respects, and I have a certain political activism. Not that it matters, and not that I do much, but it makes me feel better with myself, as I observe my society becoming blind and obsessed with an overdose of nationalism and "patriotism".

I also enjoy writing packages for LaTeX, and to read tons of (1) serious history and (2) pop-biology. I read a lot, but I seldom read fiction; except some of the history books and the economics papers, of course.

I have two children. I know I am biased, but I think they are the best shark hunters in the world, let alone the cutest little things that have ever existed. When I have the time, I relax by being 35 meters under sea level.

# Research Papers

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### Intergenerational Mobility and the Informative Content of Surnames

#### Review of Economic Studies

We propose a new methodology for measuring intergenerational mobility in economic wellbeing. Our method is based on the joint distribution of surnames and economic outcomes. It circumvents the need for intergenerational panel data, a long-standing stumbling block for understanding mobility. A single cross-sectional dataset is sufficient. Our main idea is simple. If "inheritance" is important for economic outcomes, then rare surnames should predict economic outcomes in the cross-section. This is because rare surnames are indicative of familial linkages. Of course, if the number of rare surnames is small, this will not work. But rare surnames are abundant in the highly-skewed nature of surname distributions from most Western societies.

We develop a model that articulates this idea and shows that the more important is inheritance, the more informative will be surnames. This result is robust to a variety of different assumptions about fertility and mating. We apply our method using the 2001 census from Catalonia, a large region of Spain. We use educational attainment as a proxy for overall economic well-being.
A calibration exercise results in an estimate of the intergenerational correlation coefficient of 0:60. We also find evidence suggesting that mobility has decreased among the different generations of the 20th century. A complementary analysis based on sibling correlations confirms our results and provides a robustness check on our method. Our model and our data allow us to examine one possible explanation for the observed decrease in mobility. We find that the degree of assortative mating has increased over time. Overall, we argue that our method has promise because it can tap the vast mines of census data that are available in a heretofore unexploited manner.

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### Correlating Social Mobility and Economic Outcomes

#### Joint with Maia Güell (University of Edinburgh), Michele Pellizzari (University of Geneve) and Giovanni Pica (Universita di Salerno)

We apply a novel measure of intergenerational mobility (IM) developed by Güell Rodríguez Mora, and Telmer (2014) to a rich combination of Italian data allowing us to produce comparable measures of IM of income for 103 Italian provinces. We then exploit the large heterogeneity across Italian provinces in terms of economic and social outcomes to explore how IM correlates with a variety of outcomes. We find that (i) higher IM is positively associated with a variety of good economic outcomes, such as higher value added per capita, higher employment, lower unemployment, higher schooling and higher openness and (ii) that also within Italy the the Great Gatsby Curve exists: in provinces in which mobility is lower cross-sectional income inequality is larger. We finally explore the correlation between IM and several socio-political outcomes, such as crime and life expectancy, but we do not find any clear systematic relationship on this respect.

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### The Gains from Economic Integration

#### Joint with David Comerford (University of Stirling)

This paper measures the effect of sharing a national state on the degree of trade integration. We call the causal effect of this political integration the economic integration - this is the additional trade integration gained by entities which come together to form a country rather being independent countries. The existence of very large border effects, even within the European Union, is well known, and is a consequence of this aforementioned economic integration achieved within national states. Nevertheless, there are two potential reasons why these border effects could overestimate the gains from sharing a state. First, there could be a substitution of frictions: by integrating within a state, there could be a deterioration of links to the rest of the world. We see that this is not the case. Secondly, there could be an issue of endogenity and selection bias: places which share larger affinities are more likely to both trade with each other and to select into sharing a state. We conclude that this is an important issue and so this endogeneity means that estimates of the average border effect overstate the reductions in trade frictions achieved by sharing a state. To deal with this endogeneity problem we propose an alternative approach. We identify marginal regions (regions which could conceivably be independent countries by themselves) and marginal coun- tries (countries that are the closest trading partner in the data to the country to which that marginal regions belong). We propose that the gap in trade frictions between these marginal regions and marginal countries is a much better estimate to the causal impact of state sharing. Even controlling for selection bias, we find that the gains from economic integration are still substantial: it is about one third of the total gains from trade.

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### The Joint Determination of TFP and Financial Sector Size

#### Joint with Christian Bauer (LMU Munich)

We present a model of heterogeneous firms and misallocation where financial frictions are partially overcome if more human resources are devoted to intermediation, at the cost of having less resources employed in directly productive activities. Exogenous inefficiencies in the productive sector generate decreased demand for financial services, translating in a smaller financial sector, which in turn generates even worse resource allocation in the productive sector. This novel direction of causality seems in line with cross--country evidence. Thus, differences between rich and poor countries seem to lie more prominently on structural differences in their productive sectors, not in their financial ones.

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### The Rise of Meritocracy and the Inheritance of Advantage

#### Joint with Michael J Watts (University of Edinburgh)

We present a theoretical model that analyses jointly the roles of meritocracy, advantages and investment in the determination of the distribution of human capital and income, and in the intergenerational persistence of these processes. In the model parents invest in their children's education, increasing their human capital. Firms observe this human capital with noise. In order to improve in their predictions of the quality of workers, they use any available information on their background, as they know that richer parents educate their children more. Thus, in equilibrium the income of an agent depends on both the objective information that society has on its human capital (that we deem merit'') and the perceptions that society has on its background (that we deem as advantages''). We show that the more meritocratic a society is (the better the quality of the information that firm have on individual's human capital), the more parents invest in their children education. Nevertheless the increase in average income thus generated comes at the expense of a larger degree of income inequality and of a lower degree of intergenerational mobility. Moreover, it is even possible that the weight of inherited advantages increases, as the role of parental investment is known to be more important. Thus, from the point of view of inequality and intergenerational mobility, the effects of an increase in the quality of information on human capital (merit) and of an increase in the quality of the information on background (advantages) are essentially identical. Their effects differ in what respects to educational investment: it is larger and more direct the effect of meritocracy. Under this light, and given that the US shows very large shares in educational investment, it is reasonable to assume that the fact that the position of the US in the Great Gatsby curve (high inequality, low mobility) is due to be very meritocratic when compared to other countries in their Great Gatsby Vicinity.

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### Who is Afraid of a Globalized World? Foreign Direct Investments,Local Knowledge and Allocation of Talents

#### Journal of International Economics

We study the distributional effects of globalization within a model of heterogeneous agents where both managerial talent and knowledge of the local economic environment are required in order to set up a firm in a given country. Therefore, agents willing to set up a firm in a foreign country need to incur a learning cost that depends on how different is the foreign entrepreneurial environments from the domestic one. In this context, we show that globalization fosters FDI and raises wages, output and productivity. Moreover, it benefits workers and highly talented multinational entrepreneurs, while harming low-ability domestic producers. The effects of openness follow from highly efficient foreign entrepreneurs driving inefficient local firms out of the market. We provide empirical evidence consistent with the implications of the model, showing a significant negative effect of the distance between nationwide regulations indexes on bilateral FDI flows.

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### It is Hobbes, not Rousseau: An Experiment on Social Insurance

#### Experimental Economics

We perform an experiment on social insurance to provide a laboratory replica of some important features of the welfare state. In the experiment, all individuals in a group decide whether to make a costly effort, which produces a random (independent) outcome for each one of them. The group members then vote on whether to redistribute the resulting and commonly known total sum of earnings equally amongst themselves. This game has two equilibria, if played once. In one of them, all players make effort and there is little redistribution. In the other one, there is no effort and nothing to redistribute. A solution to the repeated game allows for redistribution and high effort, by the threat to revert to the worst of these equilibria. Our results show that redistribution with high effort is not sustainable. The main reason for the absence of redistribution is that rich agents do not act differently depending on whether the poor have worked hard or not. There is no social contract by which redistribution may be sustained by the threat of punishing the poor if they do not exert effort. Thus, the explanation of the behavior of the subjects lies in Hobbes, not in Rousseau.

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### Temporary Contracts, Incentives and Unemployment

#### Joint with Maia Guell (University of Edinburgh)

Firing-cost-free temporary contracts were introduced in Europe during the 1980s in order to fight unemployment in a context of high firing costs that were politically hard to decrease. Since then, they have become a prevalent labor market institution in many countries. Yet evidence indicates that these contracts have not been successful at bringing down unemployment levels. In this paper we argue that the rational for the introduction of temporary contracts is flawed at its root. We provide a novel explanation of why temporary contracts increase unemployment even in a context where a reduction of firing costs would actually reduce unemployment. We argue that, if minimum wages are kept at high levels, temporary contracts have an effect not unlike an increase of unemployment benefits. By increasing the flows in and out of unemployment into relatively highly paid temporary jobs (minimum wage), they increase the value of being unemployed. This has a negative effect on the incentives to work for permanent workers, increases their efficiency wages and reduces the willingness of firms to create employment. We present empirical evidence compatible with the main implications of the model.

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### The Misallocation of Talent

This is a non technical paper !!!!

This is a non technical paper.

I explain why the market does not provide with an efficient allocation of talent to tasks. I also explain why we should expect that more social mobility goes in parallel with the degree of efficiency in the allocation of people to tasks, so that if we observe that a society has more intergenerational mobility than another, it is a sign that it is also a healthier, more efficient economy. Finally, I explain why it is difficult to measure intergenerational mobility, and give some suggestions on how try to tackle the problem.

This paper helps to make sense of more than half of my research.

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### Inequality and Mobility

#### Journal of Economic Growth

Acknowledging that wage inequality and intergenerational mobility are strongly interrelated, this paper presents a model in which both are jointly determined. The model enables us to study how inequality and mobility are affected by exogenous changes and what determines their correlation. A main implication of the model is that differences in the amount of public subsidies to education and educational quality produce cross-country patterns with a negative correlation between inequality and mobility. Differences in the labor market, like differences in skill-biased technology or wage compression instead produce a positive correlation. The predictions of the model are found to be consistent with various empirical observations on mobility and inequality.

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### Unemployment Insurance Design: inducing moving and retraining

#### European Economic Review

Evidence suggests that unemployed individuals can sometimes affect their job prospects by undertaking a costly action like deciding to move or retrain. Realistically, such an opportunity only arises for some individuals and the identity of those may be unobservable ex- ante. The problem of characterizing constrained optimal unemployment insurance in this case has been neglected in previous literature. We construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled. The model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobservable job-search. Absent wealth effects on behavior, we derive closed-form solutions showing that when the moving/retraining incentive constraint binds, unemployment bene?ts should increase over the unemployment spell, with an initial period with low benefi?ts and an increase after this period has expired.

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### Political commitment and loss aversion

#### Joint with John Hassler (IIES, Stockholm University)

At least since the work of Kydland and Prescott (1977), it is acknowledged that the ability for policy makers to commit to future policies often is of key importance for outomces and welfare. An example is capital income taxation, where the commitment solution typically involve zero capital income taxes after some initial periods, while no commitment may imply empirically much too high taxes. A more realistic intermediate outcome can be supported by trigger strategies where a deviation from a "good" equilibrium is punished by a possibly in?nite revertion to a "bad" Nash-equilibrium. In a political economy setting, the degree of coordination between voters of di¤erent generations required to sustain such an equilibrium is large, arguably unreasonably large. We propose loss-aversion as an alternative explanation for how a commitment-like equilibrium can arise. We set up a politico-economic OLG-model where individuals make investments and dynamically form reference points for future consumption, around which they are loss-averse. Without loss-aversion, the only Markov equilibrium involves 100% taxation of any investments and trigger strategies are required to sustain lower taxes and positive investments. With loss-aversion, we ?nd a Markov equilibrium with positive investments. In contrast to the case of trigger strategies, this equilibrium is renegotiation proof and independent of discounting, surviving also for arbitrarily high rates of discounting.

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### The Effect of GNP Announcements on Fluctuations of GNP Growth

#### European Economic Review

The meat of the paper is in the data on anouncements of GNP growth. This file contains the anouncements of quaterly US GNP growth. (Range: 1967.1 - 1991.4). Observation at time t (say first quarter of 1990) indicates the anouncement made at the begining of t (first quarter of 1990) of which was the GNP growth during t-1 (last quarter of 1989). Source: Survey of Current Business. Read paper for more information.

This paper is an empirical study of the degree in which perceptions affect the evolution of the economy. We study the effects of the announcements that the government makes on GNP growth. These announcements are subject to a substantial degree of noise and its accuracy improves with time. A revised number is published several years after the first announcement was made public. We consider that the final revision is the ?true? value of GNP growth. We show that once announcements are taken into account, the true value of GNP growth at time t has no predictive power in determining growth at any future time. All the predictive power lies in the announcements, and not in the true level of growth. Actually, we show that the variable that determines future growth is the unexpected part of the announcements. We also show that announcements affect growth via aggregate investment.

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### A Positive Theory of Geographic Mobility and Social Insurance

#### International Economic Review

This article presents a tractable dynamic general equilibrium model explaining cross-country data on geographical mobility, unemployment, and labor market institutions. Rational forward-looking agents vote on unemployment insurance (UI). Agents with higher moving costs (larger attachment to their location) prefer more generous UI. Attachment is assumed to increase with the duration of residence. UI mitigates incentives for moving and increases, therefore, the fraction of attached agents and the political support for UI. This self-reinforcing mechanism can yield two steady-states: one European and one American. The former (latter) features high (low) unemployment, low (high) geographical mobility, and high (low) UI.

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### The Survival of the Welfare State

#### American Economic Review

This paper provides an analytical characterization of Markov perfect equilibria in a model with repeated voting, where agents vote over distortionary income redistribution. A key result is that the future constituency for redistributive policies depends positively on current redistribution, since this affects both private investments and the future distribution of voters. The model features multiple equilibria. In some equilibria, positive redistribution persists forever. In other equilibria, even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period. Skill-biased technical change makes the survival of the welfare state less likely.

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### Intelligence, Social Mobility, and Growth

#### AER

We develop a model where the allocation of human resources, intergenerational social mobility, and technological growth are jointly determined. High growth endogenously increases the equilibrium return to innate cognitive ability and makes the allocation of individuals depend more on innate ability and less on social background. Individuals with a higher level of innate cognitive ability can deal better with less known, but more productive, technologies and thus choose a higher rate of technological growth. A social allocation based on innate ability and high growth will thus reinforce each other, implying the possibility of multiple endogenous growth equilibria.

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### Employment Turnover and the Public Allocation of Unemployment Insurance

#### Journal of Public Economics

Unemployment benefits are higher and turnover between unemployment and employment is lower in Europe than in the U.S. We model the political determination of the unemployment insurance to explain these differences. We show that saving and borrowing is a good substitute for unemployment insurance when turnover is high. With high turnover, the median voter thus prefers low unemployment insurance. With low turnover, generous unemployment insurance becomes more valuable. If the median voter cannot bind future voters, the voting cycle must, however, be long in order to support a high level of insurance. Endogenizing turnover produces the possibility of multiple political equilibria.

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### Shared Knowledge

Agents use their knowledge on the history of the economy in order to choose what is the optimal action to take at any given moment of time, but each individual observes history with some idiosyncratic noise. Thus, different agents will have different observations and beliefs. As long as the level of idiosyncratic noise is an endogenous variable, the degree of heterogeneity in the beliefs (and actions) of the agents will also be endogenously generated. We present a dynamic model of social learning in which the returns of the different activities follow independently distributed stationary Markov processes. Each period the agents receive unbiased noisy signals on the payoff of each sector. The signals differ across agents, but all of them have the same variance, which depends on their aggregate behavior. The degree of heterogeneity across agents is then an endogenous variable, evolving across time, which determines, and is determined by, the amount of information disclosed. As long as both the level of social interaction and the underlying precision of the observations are relatively large there will be an excessive concentration of the investment in a few sectors, the agents' beliefs being very homogeneous most of the time, but with periods of heterogeneity, learning and reallocation of resources following recessions.

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### Spirits, but not so Animal

This paper stresses the importance of information diffusion problems in the business cycles. It shows that it is possible to modelize animal spirits'' in a context of perfectly rational and forward-looking agents whose only source of information is their perception on the past behaviour of the economy. In the animal spirits equilibrium the economy will move from booms to recessions according to changes in the optimism of the agents. These changes are due to what they \emph{percieve} that was the past evolution of the economy \textit{not to the presence of exogenous coordination devices or shocks}. Agents use their perception of the past in order to forecast what will happen in the future. Each of them collects her information by observing the actions taken by a different sample of individuals. Consequently, the perceptions are noisy (no agent is ever sure that what she sees is what really happened) and may differ across agents. The amount of noise that agents face is in itself an endogenous variable, a product of the state of the economy. The stochastic dynamic structure of the aggregates is then endogenous and mimics business cycle behaviour.

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