This paper studies the long-term effects of politically motivated violence on individuals’ political attitudes focusing on the Second Intifada (2000 – 2005). We conduct a large-scale survey that measures Israelis’ attitudes today and elicits their places of residence since 1985. The survey allows us to measure individuals’ direct exposure to terrorism and to account for potential selective migration. This, in combination with the fact that individuals’ characteristics are balanced with respect to their exposure to terrorism, enables us to overcome identification concerns and provide credible estimates of the causal effects of the Intifada on attitudes. The results indicate that exposure to terrorism during the Second Intifada caused a persistent and substantial shift toward right-wing attitudes that is still observable two decades later. Thus, our analysis provides systematic empirical evidence supporting the view that the Second Intifada soured a generation of Israelis on the idea of peace.

How does the anticipation of bias change the behavior of affected agents? This paper provides evidence on this question by studying the decisions of referees and coaches in football (soccer) leagues in Israel over 15 years. We first provide robust evidence that referees exhibit ethnic (Arab/Jewish) in-group bias in penalty card decisions, which affects aggregate game outcomes. We then show that coaches respond to anticipated bias by increasing the number of players matching the ethnicity of the referee in the starting lineups of their teams and that the response is stronger when the anticipated bias is larger.

Can the extent of ethnic discrimination change quickly, and what circumstances and mechanisms make such changes possible? I address these questions by using scraped data to study the daily evolution of customer discrimination against Arab doctors in Israel from January 2020 to June 2021. Results show that: (1) the outbreak of the coronavirus crisis in March 2020 led to a dramatic decline in discrimination; (2) the eruption of a wave of ethnic riots in May 2021 had the opposite effect; (3) media coverage of the contribution of Arab doctors to the fight against the pandemic helped bring about the first change.

This chapter studies the economics of defense in Israel, focusing on the effect of defense-related shocks on the economy from 1990 to 2016. This period includes several important defense-related shocks, such as the Oslo Accords, the Second Palestinian Uprising (Intifada), the disengagement from Gaza, the Second Lebanon War, and the massive rocket attacks from Gaza on Israel. The chapter examines the effects of these shocks – and compares them to the effects of other types of shocks – on the economy from the perspective of participants in the stock market and the foreign exchange market. The analysis shows that relative to the first part of the period (1990–2005), in the second (2005–2016) security-related shocks, and especially those associated with the Israeli–Palestinian conflict, had a much weaker effect on the stock market and the foreign exchange market, while external economic shocks had a much stronger effect. A similar pattern is observed in the behavior of additional variables examined. Analysis of survey data suggest a possible explanation for the diminished effect of security-related shocks, specifically those associated with the Israeli–Palestinian conflict: following the Second Intifada (2000–2005), the public ceased to believe that the Israeli–Palestinian conflict may be resolved peacefully in the near future.

This book describes and analyzes developments in the Israeli economy from 1995 to 2017. During this period, inflation was vanquished, the deficit in the balance of payments turned into a surplus, the public debt to GDP ratio sharply decreased, and unemployment declined to an historical low. Nevertheless, the economy still suffers from many maladies: the productivity level is among the lowest in the developed world, and inequality has generally been on the rise. In the face of these threats to future growth and social cohesiveness, the question arises: has the reliance on market forces gone too far, and has the government retreated from its traditional tasks, tasks the private sector cannot (or does not) perform.

Scapegoating -- attributing inordinate blame for a negative outcome to a target individual or group -- is considered an important driver of discrimination by psychologists, but has received little attention by economists. This paper helps fill the gap by providing evidence for scapegoating in a natural setting. Using data on three million driving tests held in Israel, I find that an increase in the number of unrelated traffic accident fatalities leads driving testers to discriminate against out-group students. Scapegoating characterizes all groups of testers -- Jewish and Arab, male and female -- and works to increase ethnic in-group bias and decrease gender out-group bias.

How does one's identity affect the evaluation of others? To shed light on this question, we analyze the universe of driving tests conducted in Israel between 2006 and 2015, leveraging the effectively random assignment of students and testers to tests. We find strong and robust evidence of both ethnic (Arab/Jewish) in-group bias and gender out-group bias. While the first result is in line with the typical finding in the literature, the second is novel. Analyses of administrative and survey data suggest a utility-based interpretation for the observed patterns: testers seem to reward members of groups whose company they enjoy.

How effective is counter‐terrorism and what are the underlying mechanisms? Relying on a unique experiment and detailed micro data from Israel, we show that the deployment of the Iron Dome anti‐rocket system mitigated the negative effect of rocket attacks on house prices and lowered the price premium associated with in‐house shelters. Analysis of surveys and data on purchases of anti‐anxiety drugs yields evidence consistent with a psychological mechanism: by reducing the negative effects on daily routine, subjective well‐being, and psychological distress, Iron Dome lowered the disamenity associated with living under the shadow of the rocket threat.

How persistent are the effects of conflict on bias toward co-ethnics? What are the channels of persistence? We employ a measure of ethnic bias derived from decisions made by Israeli Arab and Jewish judges to study the levels and determinants of bias during the 2000-2004 conflict and its aftermath (2007-2010). Despite the fall in violence, we find no evidence of a general attenuation in bias. Furthermore, bias remains positively associated with past intensity of violence in different localities. This persistence does not appear to be due to judges' personal exposure to violence but rather to different dynamics in afflicted areas.

This paper studies customer discrimination against Arab workers in the Israeli market for labor-intensive services. Relying on surveys, field data, and a natural experiment, we provide evidence consistent with Becker’s customer discrimination model. First, a significant share of Jewish customers prefer to receive labor-intensive services from firms employing Jewish rather than Arab workers; these preferences are most strongly linked to concerns for personal safety. Second, customer preferences affect firms’ hiring decisions. Third, firms employing Arab workers charge significantly lower service prices than those employing only Jewish workers.

This paper explores the economic costs of conflict using a unique experiment. We analyze the effects of Hezbollah's massive surprise rocket attack against northern Israel during the 2006 Second Lebanon War and the continued threat posed by the organization's expanding rocket arsenal on the housing market, the labor market and patterns of migration flows and sorting. Relying on hedonic and repeat sales approaches and using a difference-in-differences identification strategy for 2000–2012, we show that the attack led to a 6–7% decline in house prices and rents in the most severely hit localities relative to other localities in northern Israel. These effects persisted until 2012, suggesting that the public continued to view the rocket threat as credible. In contrast, we find practically no effect on labor market conditions, migration flows and sorting.

How and why does ethnic conflict affect the ethnic structure of the marketplace? To answer these questions, this paper merges a unique administrative dataset covering the universe of transactions in the Israeli market for used cars during 1998–2010 with data on the intensity of the Israeli-Palestinian conflict. The analysis shows that violence reduces the number of transactions between Arab sellers and Jewish buyers while increasing the number of transactions between Arab sellers and Arab buyers; violence has no effect on the number of transactions involving Jewish sellers. I relate these findings to the economic literature studying the sources of discrimination.

This paper studies how politically motivated violence associated with the Israeli-Palestinian conflict and the wider Arab-Israeli conflict affects religiosity among Jews and Muslims in Israel. In order to explore this relationship I link data from the Israeli Social Surveys to information on Israeli conflict-related fatalities by date and location of survey interviews. The analysis, which covers the period 2002–2010, yields robust evidence that violence makes both Jewish and Muslim Israelis self-identify as more religious.

Following the outbreak of the Second Intifada in 2000, Israel imposed severe restrictions on the employment of Palestinians within its borders. We study the effect of this policy change on the involvement of West Bank Palestinians in fatal confrontations with Israelis during the first phase of the Intifada. Identification relies on the fact that variation in the pre-Intifada employment rate in Israel across Palestinian localities was not only considerable but also unrelated to prior levels of involvement in the conflict. We find robust evidence that localities that suffered from a sharper drop in employment opportunities were more heavily involved in the conflict.

Using a combination of randomised field experiments, follow-up telephone surveys and other data collection efforts, this article studies the extent and the sources of ethnic discrimination in the Israeli online market for used cars. We find robust evidence of discrimination against Arab buyers and sellers which, the analysis suggests, is motivated by 'statistical' rather than 'taste' considerations. We additionally find that Arab sellers manipulate their ethnic identity in the market by leaving the name field in their advertisements blank.

Terrorism is a form of warfare that is specifically designed to have far‐reaching psychological effects beyond the immediate victims. We study the effect of terrorism on the happiness of Israelis during a recent period of severe violence with the Palestinians (the second Intifada). The identification strategy is based on variation in the intensity of terrorism over time and location. Using individual level happiness equations augmented with daily fatality figures, we show that terrorism had practically no immediate or delayed effect on the happiness of Jewish Israelis, but adversely affected the happiness of Arab citizens of Israel.

We study the effect of the second Intifada – a violent conflict between Israel and its Palestinian neighbors which erupted in September 2000 – and the ensuing demonstrations of Arab citizens of Israel on labor market outcomes of Arabs relative to those of Jewish Israelis. The analysis relies on a large matched employer–employee dataset, focusing on firms that in the pre-Intifada period hired both Arabs and Jews. We find that until September 2000 Arab workers had a lower rate of job separation than their Jewish peers and that this differential was significantly reduced after the outbreak of the Intifada.

We study grading outcomes associated with professors in an elite university in the United States who were identified – using voter registration records from the county where the university is located – as either Republicans or Democrats. The evidence suggests that student grades are linked to the political orientation of professors. Relative to their Democratic colleagues, Republican professors are associated with a less egalitarian distribution of grades and with lower grades awarded to black students relative to whites.

Concerns over grade inflation and disparities in grading practices have led institutions of higher education in the United States to adopt various grading reforms. An element common to several reforms is providing information on the distribution of grades in different courses. The main aims of such "grades in context" policies are to make grades more informative to transcript readers and to curb grade inflation. We provide a simple model to demonstrate that such policies can have complex effects on patterns of student course enrollment. These effects may lower the informativeness of some transcripts, increase the average grade, and lower welfare.

We study ingroup bias – the preferential treatment of members of one's group – in naturally occurring data, where economically significant allocation decisions are made under a strong non-discriminatory norm. Data come from Israeli small claims courts during 2000-2004, where the assignment of a case to an Arab or Jewish judge is effectively random. We find robust evidence for judicial ingroup bias. Furthermore, this bias is strongly associated with terrorism intensity in the vicinity of the court in the year preceding the ruling. The results are consistent with theory and lab evidence according to which salience of group membership enhances social identification.