Prof. Christian Fons-Rosen, Ph.D.

Articles in Refereed Journals

Boffa, Federico; Cavalcanti, Francisco; Fons-Rosen, Christian; Piolatto, Amedeo (2023). Drought-Reliefs and Partisanship, Oxford Bulletin of Economics and Statistics, 11 (1). DOI

• We combine a model of symmetric information with selfish and office-motivated politicians and a Regression Discontinuity Design analysis based on close municipal elections to study partisan bias in the allocation of drought aid relief in Brazil. We identify a novel pattern of distributive politics whereby partisan bias materialises only before municipal elections, while it disappears before presidential elections. Furthermore, before mayoral elections, it fades for extreme (high or low) aridity levels while persisting for moderate levels. Our empirical results show that in this case alignment increases the probability of receiving aid relief by a factor of two (equivalent to 18.1 percentage points).

Akin, Ozlem; Coleman, Nicholas; Fons-Rosen, Christian; Peydro, Jose-Luis (2021). Political Connections and Informed Trading: Evidence from TARP, Financial Management, 50 (3), 619-644. DOI

• We study insider trading behavior surrounding the largest bank bailout in history: Troubled Asset Relief Program (TARP). In politically connected banks, insider buying during the pre-TARP period is associated with increases in abnormal returns around bank-specific TARP announcement; for unconnected banks, trading and returns are uncorrelated. Results hold across insiders within the same bank and are stronger for finance-related government connections. Through a Freedom of Information Act request, we obtained the previously undisclosed TARP funds requested; the ratio of received to requested funds correlates both with abnormal returns and insider buying behavior in connected banks.

Alaoui, Larbi; Fons-Rosen, Christian (2021). Know When to Fold’em: The Flip Side of Grit, European Economic Review 136. DOI

• This paper investigates the way different sides of grit influence behavior. In addition to grit’s upside in achieving economic success associated with not giving up, it might also have a downside associated with not letting go. We split grit into two new categories, tenacity and diligence, and hypothesize that tenacity can lead individuals to go beyond their own intended plan of action when making a loss. We test the predictions with an experiment that elicits each individual’s plan of action which we compare to actual choice in a game of luck. Consistent with our priors, grittier individuals have a higher tendency to overplay, and tenacity alone captures the difficulty in respecting ex-ante preferences when this means accepting defeat. We then discuss the external validity of our findings.

Fons-Rosen, Christian; Kalemli-Ozcan, Sebnem; Sørensen, Bent E.; Villegas-Sanchez, Carolina; Volosovych, Vadym (2021). Quantifying Productivity Gains from Foreign Investment, Journal of International Economics 131. DOI

• We revisit the relationship between foreign investment and productivity of acquired firms. First, we construct a panel firm-level dataset for eight advanced European countries covering domestic and foreign acquisitions together with detailed balance sheet information for the years 1999–2012. Second, we address the challenge of identifying a causal relation. To that end, we compare foreign to domestic acquisitions in addition to accounting for the impact of majority versus minority acquisitions after controlling for country and sector trends. The productivity of foreign acquired affiliates increases modestly after four years, but only when majority stakes are acquired by foreigners. Our results are driven by foreign acquisitions and not by foreign divestment.

Catalini, Christian; Fons-Rosen, Christian; Gaulé, Patrick (2020). How Do Travel Costs Shape Collaboration?, Management Science, 66 (8), 3340-3360. DOI

• We develop a simple theoretical framework for thinking about how geographic frictions, and in particular travel costs, shape scientists’ collaboration decisions and the types of projects that are developed locally versus over distance. We then take advantage of a quasi-experiment—the introduction of new routes by a low-cost airline—to test the predictions of the theory. Results show that travel costs constitute an important friction to collaboration: after a low-cost airline enters, the number of collaborations increases between 0.3 and 1.1 times, a result that is robust to multiple falsification tests and causal in nature. The reduction in geographic frictions is particularly beneficial for high-quality scientists that are otherwise embedded in worse local environments. Consistent with the theory, lower travel costs also endogenously change the types of projects scientists engage in at different levels of distance. After the shock, we observe an increase in higher-quality and novel projects, as well as projects that take advantage of complementary knowledge and skills between subfields, and that rely on specialized equipment. We test the generalizability of our findings from chemistry to a broader data set of scientific publications and to a different field where specialized equipment is less likely to be relevant, mathematics. Last, we discuss implications for the formation of collaborative research and development teams over distance.

Azoulay, Pierre; Fons-Rosen, Christian; Graff Zivin, Joshua (2019). Does Science Advance One Funeral at a Time?, The American Economic Review, 109 (8), 2889-2920. DOI

• We examine how the premature death of eminent life scientists alters the vitality of their fields. While the flow of articles by collaborators into affected fields decreases after the death of a star scientist, the flow of articles by non-collaborators increases markedly. This surge in contributions from outsiders draws upon a different scientific corpus and is disproportionately likely to be highly cited. While outsiders appear reluctant to challenge leadership within a field when the star is alive, the loss of a luminary provides an opportunity for fields to evolve in new directions that advance the frontier of knowledge.

Carluccio, Juan; Cunat, Alejandro; Fadinger, Harald; Fons-Rosen, Christian (2019). Offshoring Skill-upgrading in French Manufacturing: A Heckscher-Ohlin Melitz View, Journal of International Economics, 118, 138-159. DOI

• Using French manufacturing firm-level data for the years 1996–2007, we uncover a novel set of stylized facts about offshoring behavior: (i) Low-productivity firms (“non-importers”) obtain most of their inputs domestically. (ii) Medium-productivity firms offshore skill-intensive inputs to skill-abundant countries and are more labor intensive in their domestic production than non-importers. (iii) Higher-productivity firms additionally offshore labor-intensive inputs to labor-abundant countries and are more skill intensive than non-importers. We develop a model in which heterogeneous firms, subject to fixed costs, can offshore intermediate inputs of different skill intensities to countries with different skill abundance. This leads to endogenous within-industry variation in domestic skill intensities. We provide econometric evidence supporting the factor-proportions channel through which reductions in offshoring costs to labor-abundant countries have significantly increased firm-level skill intensities of French manufacturers.

Cuñat, Alejandro; Fons-Rosen, Christian (2013). Relative Factor Endowments and International Portfolio Choice, Journal of the European Economic Association, 11 (1), 166-200. DOI

• We present a model of international portfolio choice based on cross-country differences in relative factor abundance. Countries have varying degrees of similarity in their factor endowment ratios, and are subject to aggregate productivity shocks. Risk-averse consumers can insure against these shocks by investing their wealth at home and abroad. In a many-good setup, the change in factor prices after a positive shock in a particular country provides insurance to countries that have dissimilar factor endowment ratios, but is bad news for countries with similar factor endowment ratios, since their incomes will worsen. Therefore countries with similar relative factor endowments have a stronger incentive to invest in one another for insurance purposes than countries with dissimilar endowments. The importance of this effect depends on the size of countries. Empirical evidence linking bilateral international equity investment positions to a proxy for relative factor endowments supports our theory: the similarity of host and source countries in their relative capital–labor ratios has a positive effect on the source country’s investment position in the host country. The effect of similarity is enhanced by the size of host countries.

Blanes i Vidal, Jordi; Draca, Mirko; Fons-Rosen, Christian (2012). Revolving Door Lobbyists, American Economic Review, 102 (7), 3731-3748. DOI

• Washington's "revolving door"—the movement from government service into the lobbying industry—is regarded as a major concern for policy-making. We study how ex-government staffers benefit from the personal connections acquired during their public service. Lobbyists with experience in the office of a US Senator suffer a 24 percent drop in generated revenue when that Senator leaves office. The effect is immediate, discontinuous around the exit period, and long-lasting. Consistent with the notion that lobbyists sell access to powerful politicians, the drop in revenue is increasing in the seniority of and committee assignments power held by the exiting politician.

Discussion Papers

D'Este, Rocco; Draca, Mirko; Fons-Rosen, Christian (2023). Shadow Lobbyists, CEPR Discussion Paper, DP17961. Paris; London: CEPR Press.

• Special interest influence via lobbying is increasingly controversial and legislative efforts to deal with this issue have centred on the principle of transparency. In this paper we evaluate the effectiveness of the current regulatory framework provided by the US Lobbying Disclosure Act (LDA). Specifically, we study the role of ex-Congressional officials who join US lobbying firms in positions that could be related to lobbying activity but without officially registering as lobbyists themselves. We find that firm lobbying revenues increase significantly when these potential ‘shadow lobbyists’ join, with effects in the range of 10-20%. This shadow lobbyist revenue effect is comparable to the effect of a registered lobbyist at the median of the industry skill distribution. As such, it is challenging to reconcile the measured shadow lobbyist effect with the 20% working time threshold for registering as a lobbyist. Based on our estimates, the unaccounted for contributions of unregistered lobbyists can be valued at $149 million USD in revenue terms and this effect is concentrated within the industry’s largest and most active firms.
• https://cepr.org/publications/dp17961

Fons-Rosen, Christian; Pu, Zhaoxin (2023). The Transmission of Sectoral Shocks Across the Innovation Network, CEPR Discussion Paper, DP17960.

• We use a firm-level panel of 13 European countries to assess how a sector-specific shock propagates through technological linkages across innovating firms in the rest of the economy. We find that the competition shock to the European textile sector, induced by the 2001 removal of import quotas on Chinese textiles, had a strong negative effect on non-textile firms' patenting and knowledge sourcing. These firms end up diversifying their patenting across more technological categories and start citing more (geographically and technologically) distant sources of knowledge. When aggregating data at the country level, the negative indirect effect on patenting of non-textile firms can be 3 to 5 times as large as the positive direct effect on textile firms.
• https://cepr.org/publications/dp17960
• Also published as: Max Planck Institute for Innovation & Competition Research Paper No. 23-08
• CRC TRR 190 Discussion Paper No. 229

Fons-Rosen, Christian; Pu, Zhaoxin (2023). The Transmission of Sectoral Shocks Across the Innovation Network, Max Planck Institute for Innovation & Competition Research Paper, No. 23-08.

• We use a firm-level panel of 13 European countries to assess how a sector-specific shock propagates through technological linkages across innovating firms in the rest of the economy. We find that the competition shock to the European textile sector, induced by the 2001 removal of import quotas on Chinese textiles, had a strong negative effect on non-textile firms’ patenting and knowledge rcing. These firms end up diversifying their patenting across more technological categories and start citing more (geographically and technologically) distant sources of knowledge. When aggregating data at the country level, the negative indirect effect on patenting of non-textile firms can be 3 to 5 times as large as the positive direct effect on textile firms.
• Available at SSRN
• Also published as: CRC TRR 190 Discussion Paper No. 229
• Also published as: CEPR Press Discussion Paper No. 17960

Fons-Rosen, Christian; Roldan-Blanco, Pau; Schmitz, Tom (2023). The Effects of Startup Acquisitions on Innovation and Economic Growth, Max Planck Institute for Innovation & Competition Research Paper, No. 23-02. DOI

• Innovative startups are frequently acquired by large incumbent firms. On the one hand, these acquisitions provide an incentive for startup creation and may transfer ideas to more efficient users. On the other hand, incumbents might acquire startups just to kill their ideas, and acquisitions can erode incumbents' own innovation incentives. Our paper aims to assess the net effect of these forces. To do so, we build an endogenous growth model with heterogeneous firms and acquisitions, and calibrate its parameters by matching micro-level evidence on startup acquisitions and patenting in the United States. Our calibrated model implies that acquisitions raise the startup rate, but lower incumbents' own innovation as well as the percentage of implemented startup ideas. The negative forces are slightly stronger. Therefore, a ban on startup acquisitions would increase growth by 0.03 percentage points per year, and raise welfare by 1.8%.
• Also published as: CEPR Discussion Paper No. 17752

Fons-Rosen, Christian; Roldan-Blanco, Pau; Schmitz, Tom (2022). The Effects of Startup Acquisitions on Innovation and Economic Growth, CEPR Discussion Paper, DP17752.

• Innovative startups are frequently acquired by large incumbent firms. On the one hand, these acquisitions provide an incentive for startup creation and may transfer ideas to more efficient users. On the other hand, incumbents might acquire startups just to kill their ideas, and acquisitions can erode incumbents' own innovation incentives. Our paper aims to assess the net effect of these forces. To do so, we build an endogenous growth model with heterogeneous firms and acquisitions, and calibrate its parameters by matching micro-level evidence on startup acquisitions and patenting in the United States. Our calibrated model implies that acquisitions raise the startup rate, but lower incumbents' own innovation as well as the percentage of implemented startup ideas. The negative forces are slightly stronger. Therefore, a ban on startup acquisitions would increase growth by 0.03 percentage points per year, and raise welfare by 1.8%.
• https://cepr.org/system/files/publication-files/DP17752.pdf
• Also published as: Max Planck Institute for Innovation & Competition Research Paper No. 23-02

Fons-Rosen, Christian; Pu, Zhaoxin (2020). The Transmission of Sectoral Shocks Across the Innovation Network, CRC Discussion Paper, No. 229.

• Recent innovation literature has documented the benefits of cross-pollination of ideas across a wide set of industries and technology fields in an economy. Industrial and trade policies, by contrast, tend to favor economic specialization through the promotion of selected sectors. In this paper we use a firm-level panel of 13 European countries to assess whether an industry-specific policy propagates across the network of innovating firms through technological linkages. Following the competition shock to the European textile sector, triggered by the 2001 removal of import quotas on Chinese textiles, we find that patenting and knowledge sourcing behavior of non-textile firms are negatively affected. At the aggregate regional level, this indirect effect on non-textile firms can be around three to five times larger than the direct effect.
• https://rationality-and-competition.de/wp-content/uploads/2020/01/229.pdf
• Also published as: Max Planck Institute for Innovation & Competition Research Paper No. 23-08
• Also published as: CEPR Press Discussion Paper No. 17960