Bruno Frey, Reiner Eichenberger, A Proposal for a Flexible Europe, In: Working paper series / Institute for Empirical Research in Economics, No. No. 56, 2000. (Working Paper)
"At present, new EU-members have to fully accept the ""acquis communautaire"" even if their economic and institutional development differs drastically from the EU-average. In contrast, we propose that there should be the possibility of partial entry into the EU. East European Countries should have the option of specifically entering with respect to functions where they expect positive net benefits. In order to enable such partial entry, a new type of jurisdictions called FOCJ (Functional, Overlapping and Competing Jurisdictions) is proposed between the EU, the CEECs, and beyond. Such FOCJ allow for partial integration based on economic efficiency and democratic rules." |
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Iris Bohnet, Bruno Frey, Steffen Huck, More Order with Less Law: On Contract Enforcement, Trust, and Crowding, In: Working paper series / Institute for Empirical Research in Economics, No. No. 52, 2000. (Working Paper)
"Most contracts, whether between voters and politicians or between house owners and contractors, are incomplete. ""More law,"" it typically is assumed, increases the likelihood of contract performance by increasing the probability of enforcement and/or the cost of breach. This paper studies a contractual relationship where the first mover has to decide whether she wants to enter a contract without knowing whether the second mover will perform. We analyze how contract enforceability affects individual performance for exogenous preferences. Then we apply a dynamic model of preference adaptation and find that economic incentives have a non-monotonic impact on behavior. Individuals perform a contract when enforcement is strong or weak but not with medium enforcement probabilities: Trustworthiness is ""crowded in"" with weak and ""crowded out"" with medium enforcement. In a laboratory experiment we test our model's implications and find support for the crowding prediction." |
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Urs Fischbacher, Simon Gächter, Ernst Fehr, Are People Conditionally Cooperative? Evidence from a Public Goods Experiment, In: Working paper series / Institute for Empirical Research in Economics, No. No. 16, 2000. (Working Paper)
We investigate to what extent contribution decisions to a public good depend on the contributions of others. We employ a novel experimental technique that allows us to elicit people's willingness to be conditionally cooperative, i.e., to contribute more to the public good the more the other beneficiaries contribute. We find that about a third of subjects' contribution schedules is characterized by complete free-riding. However, a majority of 50 percent of the subjects displays conditional cooperation. Our results can explain why in most repeated public goods experiments subjects initially cooperate while towards the final periods cooperation declines to very low levels |
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Albrecht Ritschl, Ulrich Woitek, Did Monetary Forces Cause the Great Depression? A Bayesian VAR Analysis for the U.S. Economy, In: Working paper series / Institute for Empirical Research in Economics, No. No. 50, 2000. (Working Paper)
This paper recasts Temin's (1976) question of whether monetary forces caused the Great Depression in a modern time series framework. We evaluate the effects of monetary policy against nonmonetary alternatives in a Bayesian updating framework with time-varying parameters. The predictive power of monetary policy for output is very small for the early phase of the depression and breaks down almost entirely after 1931. During the propagation phase of 1930-31, monetary policy is able to forecast correctly at short time horizons put invariably predicts recovery at longer horizons. In contrast, nonmonetary leading indicators on residential construction and equipment investment have impressive predictive power. Recursive calculation of the impulse response functions exhibits remarkable structural instability and strong reactions to monetary regime changes during the depression, just as predicted by the Lucas (1976) critique. |
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Armin Falk, Markus Knell, Choosing the Joneses: On the Endogeneity of Reference Groups, In: Working paper series / Institute for Empirical Research in Economics, No. No. 53, 2000. (Working Paper)
"A growing economic literature recognizes and deals with the fact that economic agents' utility and well-being is not solely determined by absolute achievements, but also by achievements relative to a reference standard or reference group. In this literature it is assumed that the reference standard is completely exogenous. Social psychologists have questioned the exogenous nature of the comparison process (""forced comparison conception"") and have emphasized that people play a more active role in the determination of their reference standards (""coping approach""). The present paper takes up this idea. In our model the reference standard is determined endogenously. Following the social comparison literature we assume that in choosing the optimal reference standard people pursue goals of self-improvement and self-enhancement. Our model predicts that the optimally chosen reference standard (or group) increases in people's abilities. We present new questionnaire data together with a review of various important findings from social perception studies (minimum income, happiness, subjective social class). It turns out that the empirical regularities conform well to the predictions of our model, but are difficult (if not impossible) to explain by both the standard economic approach (with its neglect of social comparison) and the forced comparison approach. " |
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Armin Falk, Urs Fischbacher, A Theory of Reciprocity, In: Working paper series / Institute for Empirical Research in Economics, No. No. 6, 2000. (Working Paper)
"This paper presents a formal theory of reciprocity. Reciprocity means that people reward kind actions and punish unkind ones. The theory takes into account that people evaluate the kindness of an action not only by its consequences but also by the intention underlying this action. The theory explains the relevant stylized facts of a wide range of experimental games. Among them are the ultimatum game, the gift-exchange game, a reduced best-shot game, the dictator game, the prisoner's dilemma, public goods games, and the investment game. Further, the theory explains why subjects behave differently in treatments where they experience the actions of real persons compared to treatments where they face 'actions' caused by a random device. Finally, the theory explains why in bilateral interactions outcomes tend to be ''fair'' whereas in competitive markets even extremely unfair distributions may arise." |
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Bruno Frey, The Rise and Fall of Festivals - Reflections on the Salzburg Festival, In: Working paper series / Institute for Empirical Research in Economics, No. No. 48, 2000. (Working Paper)
The paper takes a closer look at cultural festivals such as musical or operatic festivals. From an economic viewpoint the paper shows that such festivals offer great artistic and economic opportunities, but that at the same time these opportunities are also easy to destroy. Empirical evidence from the Salzburg Festival show that government support can have negative effects on the innovative and economically success of festivals by introducing distorting incentives and imposing all sorts of restrictions. The paper draws policy suggestions on how the state can support art festivals. |
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Bruno Frey, Reto Jegen, Motivation Crowding Theory: A Survey of Empirical Evidence, REVISED VERSION, In: Working paper series / Institute for Empirical Research in Economics, No. No. 49, 2000. (Working Paper)
The Motivation Crowding Effect suggests that external intervention via monetary incentives or punishments may undermine, and under different identifiable conditions strengthen, intrinsic motivation. As of today, the theoretical possibility of motivation crowding has been the main subject of discussion among economists. This study demonstrates that the effect is also of empirical relevance. There exist a large number of studies, offering empirical evidence in support of the existence of crowding-out and crowding-in exists. The study is based on circumstantial evidence, laboratory studies by both psychologists and economists, as well as field research by econometric studies. The pieces of evidence presented refer to a wide variety of areas of the economy and society and have been collected for many different countries and periods of time. Crowding effects thus are an empirically relevant phenomenon, which can, in specific cases, even dominate the traditional relative price effect. |
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Ramon Marimon, Fabrizio Zilibotti, Employment and distributional effects of restricting working time, European Economic Review, Vol. 44 (7), 2000. (Journal Article)
We study the employment and distributional effects of regulating (reducing) working time in a general equilibrium model with search-matching frictions. Job creation entails fixed costs, but existing jobs are subject to diminishing returns. We characterize the equilibrium in the de-regulated economy where firms and individual workers freely negotiate wages and hours. Then, we consider the effects of a legislation restricting the maximum working time, while we let wages respond endogenously. Employment effects are sensitive to the representation of preferences. In our benchmark, small reductions in working time, starting from the laissez-faire equilibrium solution, always result in a small increase in the equilibrium employment, while larger reductions reduce employment. The regulation benefits workers, both unemployed and employed (even if wages decrease and even in cases where employment falls), but reduces profits and output. |
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Harry Telser, Peter Zweifel, Measuring Willingness-To-Pay for Risk Reduction: An Application of Conjoint Analysis, In: Working paper series / Socioeconomic Institute, No. No. 3, 2000. (Working Paper)
This study applies conjoint analysis (CA) to estimate the marginal willingness-to-pay (MWTP) of elderly individuals for a reduction of the risk of fracture of the femur. The good in question are hypothetical hip protectors which lower the risk of a fracture by different amounts. Other attributes are ease of handling, wearing comfort, and out-of-pocket cost. Thus, the novelty of the present work lies in its letting risk reduction be traded off against several attributes. In 500 face-to-face interviews, pensioners stated whether or not they would buy the product. Results suggest that MWTP for wearing comfort exceeds that for risk reduction. Indeed, willingness to pay for the product as a whole is negative, indicating that it should not be included as a mandatory benefit in health insurance. |
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Men-Andri Benz, Stefan Buehler, Armin Schmutzler, Quality Provision in Deregulated Industries: The Railtrack Problem, In: Working paper series / Socioeconomic Institute, No. No. 2, 2000. (Working Paper)
This paper studies a network provider's incentives to invest in infrastructure quality. In a simple but general framework, we investigate how various institutional settings affect investment incentives. We show that under reasonable assumptions on demand, investment incentives are smaller under vertical separation than under vertical integration. We consider two strategies for improving investment incentives under vertical separation. First, the introduction of competition for the market can sometimes improve incentives. Second, with non-linear access prices investment incentives under separation become identical to those under integration. |
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Ernst Fehr, Peter K Zych, Intertemporal Choice under Habit Formation, In: Working paper series / Institute for Empirical Research in Economics, No. No. 43, 2000. (Working Paper)
Many of the most important choices in people's lives have an inter-temporal dimension, i.e., these choices are associated with a flow of benefits or costs that accrue in the future. In addition, such choices are frequently habit- forming. Yet, little is known about habit-forming inter-temporal choice behavior. This paper reports the results of an inter-temporal choice experiment with habit-formation. Subjects' choices deviate systematically from individually optimal decisions in the direction of over consumption. This over- consumption is partly driven by loss avoidance, comparable to a real life situation in which addicted people consume addictive substances only in order to overpower withdrawal symptoms. Our results thus reject the theory of rational addiction. |
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Ernst Fehr, Jean-Robert Tyran, Does Money Illusion Matter? REVISED VERSION, In: Working paper series / Institute for Empirical Research in Economics, No. No. 45, 2000. (Working Paper)
Money illusion means that people behave differently when the same objective situation is represented in nominal terms rather than in real terms. This paper shows that seemingly innocuous differences in payoff representation cause pronounced differences in nominal price inertia indicating the behavioral importance of money illusion. In particular, if the payoff information is presented to subjects in nominal terms, price expectations and actual price choices after a fully anticipated negative nominal shock are much stickier than when payoff information is presented in real terms. In addition we show that money illusion causes asymmetric effects of negative and positive nominal shocks. While nominal inertia is quite substantial and long-lasting after a negative shock, it is rather small after a positive shock. |
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Ernst Fehr, Simon Gächter, Fairness and Retaliation: The Economics of Reciprocity, In: Working paper series / Institute for Empirical Research in Economics, No. No. 40, 2000. (Working Paper)
This paper shows that reciprocity has powerful implications for many economicndomains. It is an important determinant in the enforcement of contracts and social norms and enhances the possibilities of collective action greatly. Reciprocity may render the provision of explicit incentive inefficient because the incentives may crowd out voluntary co-operation. It strongly limits the effects of competition in markets with incomplete contracts and gives rise to noncompetitive wage differences. Finally, reciprocity it is also a strong force contributing to the existence of incomplete contracts.n |
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Reto Schleiniger, Consumption Taxes and International Competitiveness in a Keynesian World, In: Working paper series / Institute for Empirical Research in Economics, No. No. 42, 2000. (Working Paper)
The present paper analyzes the consequences of a consumption tax reform for the export sector. In particular, it offers an explanation why exporters support such a reform although economic theory basically predicts trade neutrality. To this purpose, the basic neoclassical model is replaced with two Keynesian assumptions, i.e. sticky wages and absence of perfect foresight. It is derived that in both cases the export sector expands in the short run. However, with sticky wages, this is only possible if, at the same time, the central bank fixes the exchange rate. In the absence of perfect foresight, on the other hand, the additional condition for the tax reform to increase exports is that the government balances its budget in each period. |
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Stefan Buehler, Is Swiss Telecommunications a Natural Monopoly? An Evaluation of Empirical Evidence, In: Working paper series / Socioeconomic Institute, No. No. 1, 2000. (Working Paper)
Based upon time series data published by PTT prior to regulatory reform, this paper investigates whether Swiss telecommunications qualify as a natural monopoly. Employing the subadditivity concept for multiproduct industries, alternative specifications of quadratic cost functions are estimated. The results of these estimations are ambiguous and demonstrate the difficulty of empirically substantiating a natural monoply claim. It is argued that the natural monopoly concept is of limited usefulness for informing policy decisions. |
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Stefan Buehler, A Further Look at Two-way Network Competition in Telecommunications, In: Working paper series / Socioeconomic Institute, No. No. 9904, 2000. (Working Paper)
This paper develops a simple reduced form model of two-way network competition with linear retail pricing. Using the techniques of supermodular games, it is demonstrated that the most important results from the existing literature do not depend on routinely invoked assumptions, such as specific functional forms or the symmetry of the network operators. In particular, it is demonstrated that (i) firms do not need to be symmetric or regulated to have incentives to collude in access pricing, and (ii) due to the effects on social welfare, enforcing colluding firms to behave noncooperatively is not necessarily desirable. |
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Josef Zweimüller, Rudolf Winter-Ebmer, Firm-Specific Training: Consequences for Job Mobility, In: Working paper series / Institute for Empirical Research in Economics, No. No. 37, 2000. (Working Paper)
This paper analyzes the impact of formal training on worker mobility. Using data from the Swiss Labor Force Survey, we find that on-the-job search activities and, to a smaller extent, actual job separations are significantly affected by both employer-provided and general training. Moreover, while the separation probability of searching workers is strongly affected by previous firm-provided training, no such effect shows up for non-searchers. This is consistent with the hypothesis that workers bear most of the cost of specific training. |
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Bruno Frey, Does Economics have an Effect? Towards an Economics of Economics, In: Working paper series / Institute for Empirical Research in Economics, No. No. 36, 2000. (Working Paper)
"Due to its formality and highly analytic thinking, economics is often attributed a leading role among the social sciences and a prominent position as contributor to economic or social issues in the real world. Fact is, however, that the empirical proof for such a claim is either missing or anecdotal. This paper aims to outline the economics of economics. It surveys and compares approaches of impact measurement such as a production function of economics or the demand and supply of trained economists and discusses the determinants of the strength of the influence of economics. It furthermore discriminates between the impact of economic ideas versus that of economists as scientists or politicians." |
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Gregory S. Crawford, The impact of the 1992 Cable Act on household demand and welfare, RAND Journal of Economics, Vol. 31 (3), 2000. (Journal Article)
I measure the benefit to households of the 1992 Cable Act in light of strategic responses by cable systems to the regulations mandated by the act. A discrete-choice differentiated-product model of household demand for all offered cable television services forms the basis of the analysis. Aggregation over households and service combinations to the level of the data permits estimation on a cross-section of cable markets from before and after the act. The results indicate that while the regulations mandated price reductions of 10–17% for cable services, observed system responses yielded no change in household welfare. Post-act changes in cable prices are responsible for most of the difference. |
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