NICOLA PAVONI

Working papers

Economic Shocks and Populism: The Political Implications of Reference-Dependent Preferences


PAVONI NICOLA

This paper studies electoral competition over redistributive taxes between a safe incumbent and a risky opponent. As in prospect theory, economically disappointed voters become risk lovers, and hence are attracted by the more risky candidate. We show that, after a large adverse economic shock, the equilibrium can display policy divergence: the intrinsically more risky candidate proposes lower taxes and is supported by a coalition of very rich and very disappointed voters, while the safe candidate proposes higher taxes. This can explain why new populist parties are often supported by economically dissatisfied voters and yet they run on economic policy platforms of low redistribution. We show that survey data on the German SOEP are consistent with our theoretical predictions on voters' behavior.



Modificato il 21/01/2021

Optimal Delegation and Information Transmission under Limited Awareness


PAVONI NICOLA

We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also has superior awareness of the set of actions that are actually feasible. The agent decides which of the available actions to reveal and which ones to hide. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal’s cost of distorting the agent’s choices and thereby increases the principal’s willingness to grant him higher information rents. We also consider communication between the principal and the agent after the contract is signed and the agent receives information. We show that limited awareness of actions improves communication in such signalling games: the principal makes a coarser inference from the recommendations of the privately informed agent and accepts a larger number of his proposals.'



Modificato il 21/01/2021

Limited Awareness and Financial Intermediation


SARAH AUSTER and PAVONI NICOLA

We study the market interaction between financial intermediaries and retail investors, who not only face uncertainty about the performance of the different investments but also have limited awareness of the available investment opportunities. Intermediaries compete for investors via the menu of investment options they offer. We show that when competition is limited, intermediaries restrict their offers to extreme options, e.g. very risky and very safe products. We also consider investor heterogeneity and show that the presence of sophisticated, fully aware investors can impose a negative externality on investors with limited awareness. Self-reported data from customers in the Italian retail investment sector support the key predictions of the model: the menus offered to less knowledgable investors contain few products, most of them are nevertheless perceived to be at the extremes.



Modificato il 18/01/2021

The Dual Approach to Recursive Optimization: Theory and Examples


PAVONI NICOLA (with C. Sleet and M. Messner)


Modificato il 12/09/2016

The Evolution of Awareness and Belief Ambiguity During the Process of High School Track Choice


PAVONI NICOLA and Pamela Giustinelli


Modificato il 15/11/2018

Efficient Child Care Subsidies


PAVONI NICOLA and Christine Ho


Modificato il 10/03/2016

Optimal Income Taxation with Asset Accumulation


PAVONI NICOLA A. Abraham and S. Koehne


Modificato il 10/12/2014

Present-Biased Preferences and Optimal Taxation of Parental Transfers


PAVONI NICOLA with H. Yazici


Modificato il 23/10/2013

Optimal Life-cycle Capital Taxation under Self-Control Problems


PAVONI NICOLA with H. Yazici


Modificato il 10/12/2014

The Precautionary Saving Effect of Government Consumption


PAVONI NICOLA with V. Ercolani


Modificato il 24/07/2014

Search and Work in Optimal Welfare Programs


PAVONI NICOLA with O. Setty and G. Violante


Modificato il 23/10/2013

Modificato il 23/10/2013