Mike‘s main areas of specialization are Industrial Organization, Regulation and Environmental Economics. He is interested in studying how government policies and regulations interact with markets and affect behavior of firms, and how this interaction impacts social welfare.
Mike received his PhD in Economics from Northwestern University. Prior to his doctoral studies, he attended the Toulouse School of Economics and the National University of Singapore.
Jose Miguel Abito, Christopher R. Knittel, Konstantinos Metaxoglou, Andre Trindade (Working), The Role of Output Reallocation and Investment in Coordinating Externality Markets.
Abstract: We empirically measure the inefficiency of uncoordinated externality markets in the context of CO2 regulation of electricity generation. Using data from a large regional U.S. wholesale electricity market that spans multiple states, we estimate a dynamic structural model of production and investment, and simulate the model under two scenarios to measure the inefficiency. In the first scenario, plants face CO2 prices that differ across states. In the second scenario, plants face a single CO2 price. Holding investment in new plant capacity fixed, generation costs in the first scenario can be as high as $7.8 billion, or about 50\% of the cost of complying with the regulation, relative to the second scenario. However, we find that the inefficiency with uncoordinated CO2 markets is eliminated once we allow for optimal investment.
Description: Submitted (Oct 3, 2019)
Jose Miguel Abito (2019), Measuring the Welfare Gains from Optimal Incentive Regulation, Review of Economics Studies.
Abstract: I empirically measure the welfare gains from optimal incentive regulation in the context of electric utilities facing both emissions and rate of return regulation (RORR). I provide evidence that RORR induces lower fuel efficiency, leading to greater coal consumption and higher emissions abatement costs. Replacing RORR with the optimal mechanism of Laffont and Tirole (1986) yields annual welfare gains of $686 million, or a 11% reduction in electricity prices, on average. I construct a much simpler two-contract menu that can achieve more than 65% of these welfare gains.
Jose Miguel Abito, Jin Soo Han, Jean-François Houde, Arthur van Benthem (Under Review), Difference-in-Differences Estimation in the Presence of Outliers: New Evidence on the Cost Savings of Divestiture.
Abstract: We illustrate how robust regression techniques can detect the presence of high-leverage observations in difference-in-differences estimation, even if the standard pre-trend test cannot be rejected. We apply this method in the context of electricity markets and show that the effect of divestiture on the fuel procurement cost of coal-fired electricity is much smaller than previously thought. After accounting for outlier contracts, the effect of divestiture ranges from -2.4% to -5.6% and is not statistically different from zero. We then present new evidence that the effect of divestiture varies greatly among firms with different contracts, sizes, and prior regulatory status.
Jose Miguel Abito, Cuicui Chen, Joao Granja, Arkadiusz Szydlowski (Work In Progress), On Identification in Repeated Games.
Abstract: We derive a sharp identified set for structural parameters of infinitely repeated games without assumptions on equilibrium selection nor additional equilibrium restrictions beyond subgame perfect Nash equilibrium. Data can come from a cross-section of repeated games, time series from a single game, or a combination of both. Our approach constructs sharp bounds on the frequency of stage game actions using players' incentive compatibility constraints and only the two most extreme equilibrium continuation payoffs. We provide a practical method to compute extreme equilibrium payoffs based on self-generation and show how to accommodate observed and unobserved state variables. Finally, we investigate consequences of imposing equilibrium selection assumptions using a lab experiment.
Description: Incomplete draft attached
Jose Miguel Abito and Yuval Salant (2018), The Effect of Product Misperception on Economic Outcomes: Evidence from the Extended Warranty Market, Review of Economic Studies, forthcoming.
Abstract: Panel and experimental data are used to analyze the economic outcomes in the extended warranty market. We establish that the strong demand and high profits in this market are driven by consumers distorting the failure probability of the insured product, rather than standard risk aversion or sellers' market power. Providing information to consumers about failure probabilities significantly reduces their willingness to pay for warranties, indicating the important role of information, or lack of, in driving consumers' purchase behavior. Such information provision is shown to be more effective in enhancing consumer welfare than additional market competition.
Jose Miguel Abito, David Besanko, Daniel Diermeier, “Corporate Reputational Dynamics and Activist Pressure”. In Strategy Beyond Markets (Advances in Strategic Management, Volume 34), edited by John M. De Figueiredo, Michael Lenox, Felix Oberholzer-Gee, and Richard G. Vanden Bergh, (Emerald Group Publishing Limited, 2016), pp. 235-299
Abstract: We model the interaction between a profit-maximizing firm and an activist using an infinite-horizon dynamic stochastic game. The firm enhances its reputation through "self-regulation": voluntary provision of an abatement activity that reduces a negative externality. We show that in equilibrium the externality-reducing activity is subject to decreasing marginal returns, which can cause the firm to "coast on its reputation," i.e., decrease the level of externality-reducing activity as its reputation grows. The activist, which benefits from increases in the externality-reducing activity, can take two types of action that can harm the firm's reputation: <i>criticism</i>, which can impair the firm's reputation on the margin, and <i>confrontation</i>, which can trigger a crisis that may severely damage the firm's reputation. The activist changes the reputational dynamics of the game by tending to keep the firm in reputational states in which it is highly motivated to invest in externality-reducing activity. Criticism and confrontational activity are shown to be imperfect substitutes. The more patient the activist or the more passionate it is about externality reduction, the more likely it is to rely on confrontation. The more patient the firm and the more important corporate citizenship is to firm's brand equity, the more likely that it will be targeted by an activist that relies on confrontation.
Jose Miguel Abito, Katarina Borovickova, Hays Golden, Jacob Goldin, Matthew A. Masten, Miguel Morin, Alexandre Poirier, Vincent Pons, Israel Romem, Tyler Williams, Chamna Yoon (2011), How Should the Graduate Economics Core be Changed?, Journal of Economic Education, 42, pp. 416-419.
Abstract: The authors present suggestions by graduate students from a range of economics departments for improving the first-year core sequence in economics. The students identified a number of elements that should be added to the core: more training in building microeconomic models, a discussion of the methodological foundations of model-building, more emphasis on institutions to motivate and contextualize macroeconomic models, and greater focus on econometric practice rather than theory. The authors hope that these suggestions will encourage departments to take a fresh look at the content of the first-year core.
Jose Miguel Abito and Julian Wright (2008), Exclusive dealing with imperfect downstream competition, International Journal of Industrial Organization, 26 (1), pp. 227-246.
Abstract: The existing literature on exclusive dealing is extended to take into account that buyers signing exclusive deals are typically competing firms that are differentiated from the perspective of their customers. We show, provided such downstream firms are not too differentiated or provided upstream firms can compete in two-part tariffs, exclusive dealing forecloses entry to a more efficient rival. An established upstream firm and competing downstream firms raise their joint profit by signing exclusive deals to protect the industry from upstream competition. Naked exclusion arises despite the Chicago School logic that buyers only sign contracts that make themselves ( jointly) better off.
BEPP 250: Managerial Economics (Spring semester)