• Building Productive Relationships

with Ameet Morjaria and Nemanja Antić

We develop and test a model of building relational contracts where the principal and agent need to solve task clarity and credibility problems. We model task clarity as the likelihood of the agent finding a productive action for the principal and show that it influences the agent’s propensity to fulfill promises, the usual notion of credibility. This is because improving task clarity increases the ease of replacing a relationship after a defection, making defection more tempting. We validate our model using administrative data from the Ethiopian floriculture industry. We show that: (i) task clarity problems are economically relevant and more severe for domestic firms, (ii) consistent with our theoretical results, exporters with higher task clarity are more likely to defect on relationships in response to positive shocks to the outside option, and (iii) the buyer and seller components of task clarity explain differences between foreign and domestic firms in credibility and overall success in relational contracts.
Previous Titles: Clarity and Credibility in Relationships: Evidence from Ethiopian Flower Exports; Relationship Building in Ethiopia’s Floriculture Industry

• Early Experimentation Outcomes and Adoption 

Early experimentation outcomes could play a determinant role in explaining the observed low take-up of productive technologies and knowledge. This paper overcomes the identification challenges of estimating a causal effect of early experimentation outcomes on long-run adoption by exploiting a novel application of treatment status assignment being as good as random in a local neighborhood of a cutoff based on sample constructions. The intuition is comparable to the one in the close elections and regression discontinuity literature. Leveraging data of hundreds of thousands of online chess players, I analyze the effect of the outcome of a player’s first “berserk” experience — a technology that increases the payoff but lowers the probability of receiving it — on her likelihood of using the technology in the future. Players with a negative first impression underutilize the technology in the future (20%), leading to accumulating fewer points, being less likely to achieve podium positions, and having lower overall tournament rankings compared to those with a positive first impression despite having similar win rates. These results showcase that adverse early experimentation outcomes can severely hinder the adoption of productive strategies and technologies in the long run.

• Defensive Specialization: Theory and Evidence from Mexico's Retail Sector

with Tommaso Bondi, Luis Cabral, and Shreya Kankanhalli

Large companies are increasingly dominating the retail industry, casting doubt on the future of traditional retail. Is this the end of local retail as we know it? What product strategy should local stores follow to attenuate this negative impact? We show that, in response to increasing penetration of large chain stores, independent retailers – especially smaller ones – optimally follow a strategy of defensive specialization. Intuitively, the arrival of large stores hurts all independent local stores, but it especially hurts general stores selling multiple categories. Our empirical evidence, built on two large retail datasets from Mexico, confirms the predictions of the theoretical model: specialty stores are better able to cope with the shock of large-chain entry. Moreover, the entry of a large chain induces a shift toward greater specialization in the traditional retail sector, both through an increase in the number and market share of specialty stores and through changes in the product offerings within stores towards more specialization.

• The Undercounting of Child Mothers

with Juan Pablo Chauvin and Rafael Macedo

Accurate demographic data is critical for effective policy design, yet private costs may prevent individuals from truthfully reporting sensitive information. We study this asymmetric information market failure and its consequences in the context of a significant social challenge: child motherhood. Using administrative records from Brazil, Mexico, and the United States, alongside census data from 59 countries, we document systematic patterns of under-reporting, suggesting that child motherhood is significantly more prevalent than previously thought. Births to mothers aged 10-14 are missing from contemporary administrative records but appear in censuses conducted a decade later, with under-counting in birth registries reaching 20-30% in Brazil, Mexico, and the United States. We introduce a model where reporting decisions weigh instrumental benefits against age-dependent private costs, generating predictions that match observed patterns: truthful reporting increases sharply with the mother’s age, under-reporting of child-mother births decreases with time between data collection and childbirth, and retrospective census estimates generally yield more accurate birth counts than contemporary administrative records for this age group, but not for older mothers. The evidence points to social costs, rather than fear of legal consequences, as a key driver of under-reporting.

• Agglomeration, Productivity, and Informality

with Juan Pablo Chauvin 

This paper examines the role of urban agglomeration in shaping firm-level productivity and informality in Mexican cities, focusing on the underlying mechanisms of business dynamism. Using establishment-level data from the Mexican Economic Censuses, we find that higher agglomeration is associated with lower informality and higher productivity, driven by changes in firm entry, growth, and exit dynamics. Entrants in more agglomerated cities are larger, more productive, and less likely to be informal; firms in these areas also grow faster, and exiting firms tend to be larger and more productive. We address endogeneity by instrumenting local density with historical population data. These findings suggest that urban policies affecting economic density can influence firm composition and business dynamism, thereby reducing informality and enhancing productivity in developing country cities.

• Trade Policy Uncertainty and the Diversification of Export Destinations

with Román Acosta

Firms exporting to the U.S. are experiencing the highest levels of trade policy uncertainty in recent history. This paper examines how firms in Mexico, a leading source of U.S. imports, responded to the uncertainty following the 2016 U.S. presidential election. Comparing manufacturing firms that primarily exported to the U.S. (U.S.-oriented) with those exporting to the E.U. prior to the election, we find no effect on production or exports. However, U.S.-oriented firms reduced the share of exports to the U.S. by five percentage points, reallocating exports to the E.U., highlighting adjustments in destination portfolios rather than aggregate export volumes. 

• Firms' Strategic Responses to Rules of Origin: Evidence from the USMCA

with Angel Espinoza E and María José Orraca