Contributions published at Department of Economics (Florian Scheuer)

"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. It furthermore discriminates between the impact of economicnideas versus that of economists as scientists or politicians."

"The measurement of individual happiness challenges the notion that revealed preferences only reliably reflect individual utility. Reported subjective well-being is a broader concept than traditional decision utility; it also includes concepts like experience and procedural utility. Micro- and macroeconometric happiness functions offer new insights on determinants of life satisfaction. However, one should not leap to the conclusion that happiness should be maximized in the sense of social welfare function maximization. In contrast, happiness research strengthens the validity of an institutional approach such as reflected in the theory of democratic economic policy."

This paper analyzes a model of oligopolistic competition with ongoing investment. It incorporates the following models as special cases: incremental investment, patent races, learning-by-doing, and network externalities. We investigate circumstances under which a firm with low costs or high quality will extend its initial lead through further cost-reducing or quality-improving investments. In many commonly-studied oligopoly games, such investments are strategic substitutes. We derive a new comparative statics result that applies to games with strategic substitutes, and we use the result to derive conditions under which leading firms invest more than lagging firms. We show that the conditions are satisfied in a variety of commonly-studied oligopoly models. We also highlight plausible countervailing effects from two distinct sources. First, leading firms may find it more costly than others to achieve the same increment to their state. This force is particularly salient inmany models of patentn races, where firms make research investments in an attempt to find a new technology that delivers a given level of cost or quality. Second, countervailing effects may arise in dynamic games with more than two firms are sufficiently patient.

Die direkte Demokratie ist in den Kantonen der Schweiz unterschiedlich stark ausgeprägt. Die Beteiligung der Bürger im politischen Prozess via Verfassungs- und Gesetzesinitiative, Gesetzesreferendum und Finanzreferendum ist durch verschieden hohe Hürden eingeschränkt. Unterschiede bestehen beispielsweise bei der Anzahl Unterschriften, die verlangt werden, um ein Instrument zu ergreifen, der Zeit, welche für die Sammlung der Unterschriften zur Verfügung steht, oder der Ausgabenhöhe, ab welcher ein Finanzreferendum möglich ist. Diese Unterschiede werden verwendet, um Indizes für die direktdemokratischen Beteiligungsmöglichkeiten der Bürger zu berechnen. Die Indizes öffnen ein weites Feld für die institutionell vergleichende Forschung in der Schweiz.

Die Verhandlungen innerhalb der OECD zu einem multilateralen Abkommen ueber Investitionen (MAI) sind gescheitert. Damit werden Direktinvestitionen gegenwaertig weiterhin durch bilaterale Vertraege und durch einige wenige multilaterale Abkommen geregelt. In Zukunft ist jedoch weiterhin damit zu rechnen, daß diese durch ein allgemeines Rahmenwerk nach Vorlage des MAI ersetzt werden. Der vorliegende Aufsatz erlaeutert zunaechst die bestehenden multilateralen Rahmenbedingungen der WTO und der OECD. Anschließend werden die wesentlichen Inhalte des Vertragsentwurfs zum MAI vorgestellt und aus oekonomischer Sicht diskutiert. Ich komme zu der Einschaetzung, daß in einem zukuenftigen Investitionsabkommen (i) wettbewerbspolitische Inhalte, (ii) Ausnahmeregeln in bezug auf wenig industrialisierte Laender und (iii) ein differenzierter Investitionsbegriff enthalten sein sollten. Als Forum fuer ein multilaterales Investitionsabkommen bietet sich die WTO an.

This paper studies the relationship between health care expenditure (HCE) and age, using longitudinal rather than cross-sectional data. The econometric analysis of HCE in the last eight quarters of life of individuals who died during the period 1983-1992 indicates that HCE depends on remaining lifetime but not on calendar age, at least beyond 65+. The positive relationship between age and HCE observed in cross-sectional data may be caused by the simple fact that at age 80, for example, there are many more individuals living in their last 2 years than at age 65. The limited impact of age on HCE suggests that population ageing may contribute much less to future growth of the health care sector than claimed by most observers.

This paper examines how the presence of a non-negligible fraction of reciprocally fair actors changes the provision of incentives through contracts. We provide experimental evidence that principals have a strong preference for less complete contracts although the standard self-interest model predicts that they should prefer the more complete contract. Our theoretical analysis shows that fairness concerns can explain this preference for less completeness. Fair principals keep their promises which provides strong pecuniary incentives through an incomplete contract. Selfish principals free-ride and exploit the agents. Counter-intuitively, selfish agents are induced to work by an incomplete contract while fair agents shirk.

"This manual explains the use of z-Tree, the ""Zurich Toolbox for Readymade Economic Experiments"". No programming knowledge is necessary to use z-Tree. This software allows to program and to conduct a wide range of experiments. This includes simultaneous and sequential games as well as market experiments and posted offer markets or double auctions. Because many features needed in an experimental software are built into z-Tree (as data saving, time and period display, profit calculation, group matching, provisions in case of losses and bankruptcy), new experiments can be developed quickly and easily."

"This paper shows that identical offers in an ultimatum game generate systematically different rejection rates depending on the other offers that are available to the proposer. This result casts doubt on the consequentialist practice in economics to define the utility of an action solely in terms of the consequences of the action irrespective of the set of alternatives. It means, in particular, that negatively reciprocal behavior cannot be fully captured by equity models that are exclusively based on preferences over the distribution of material payoffs. Models that take into account players’ fairness intentions and distributional preferences are consistent with our data while models that focus exclusively on intentions or on the distribution of material payoffs are not."

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior

"A cross-regional econometric analysis is conducted suggesting that institutional factors in the form of direct democracy (via initiatives and referenda) and of federal structure (local autonomy) systematically and sizeably raise self-reported individual well-being. This positive effect can be attributed to political outcomes closer to voters preferences as well as to the procedural utility of political participation. Moreover, the results of ""standard"" microeconometric well-being functions previously published are supported. Unemployment among economic variables and bad health among demographic variables have a strongly depressing effect on happiness. Income only significantly raises happiness for higher income groups."

"An economic analysis of fakes differs substantially from the legal and the art historic views which both tend to propose repressive policies against imitations. But there are large economic benefits from copying. In particular, the ""propagation effect"" yields utility to both consumers and creators of the original. In contrast, the harmful effects of fakes are small and are mitigated by emerging institutions (guarantees, sellers with reputation). The paper suggests ""art quotations"" (similar to academic quotations) as a beneficial solution to creators of originals and consumers. ""Art quotations"" are applicable to many art forms."

Command-and-control measures, despite their inefficiencies, are still the standard in environmental policy. This might be due to the fact that command-and-control instruments prevent monetary redistribution between sectors and households and leave property rights on remaining pollution with the emittents. The present paper interprets the no-redistribution policy as a political constraint and investigates on more efficient alternatives to command-and-control, using a computable general equilibrium model for Switzerland. Simulation results render schemes that refund environmental tax revenues by a sector-by-sector-subsidy on labor or output as welfare enhancing.

"Money illusion means that people behave differently when the same objective situation is represented in nominal or in real terms. To examine the behavioral impact of money illusion we studied the adjustment process of nominal prices after a fully anticipated negative nominal shock in an experimental setting with strategic complementarity. We show that seemingly innocuous differences in payoff presentation cause large behavioral differences. In particular, if the payoff information is presented to subjects in nominal terms, price stickiness and real effects are much more pronounced than when payoff information is presented in real terms. The driving force of differences in real outcomes is subjects’ expectation of higher nominal inertia in the nominal payoff condition. Due to strategic complementarity, these expectations induce subjects to adjust rather slowly to the shock."

This paper provides evidence that free riders are heavily punished even if punishment is costly and does not provide any material benefits for the punisher. The more free riders negatively deviate from the group standard the more they are punished. As a consequence, the existence of an opportunity for costly punishment causes a large increase in cooperation levels because potential free riders face a credible threat. We show, in particular, that in the presence of a costly punishment opportunity almost complete cooperation can be achieved and maintained although, under the standard assumptions of rationality and selfishness, there should be no cooperation at all. We also show that free riding causes strong negative emotions among cooperators. The intensity of these emotions is the stronger the more the free riders deviate from the group standard. Our results provide, therefore, support for the hypothesis that emotions are guarantors of credible threats.

This paper studies the effect of increased immigration in Austria on the unemployment risk of young natives. Austria experienced a dramatic rise in the share of alien workers as a result of the breakdown of the former commu-nist regimes (especially from former Yugoslavia). We concentrate on unemployment entry of young male workers, who are supposed to compete most heavily with new immigrants. Our results indicate that the detrimental impact - if it exists at all - is only minor. This is irrespective of the analyzed proxy for competition: The share of foreign workers in an industry or in a region.

In the models of Young (1993, Econometrica61, 57–84; 1993, J. Econ. Theory 59, 145–168), boundedly rational individuals are recurrently matched to play a game, and they play myopic best replies to the recent history of play. It could therefore be an advantage to instead play a myopic best reply to the myopic best reply, something boundedly rational players might conceivably also do. We investigate this possibility in the context of Young's (J. Econ. Theory 59, 145–168) bargaining model. It turns out that “cleverness” in this respect indeed does have an advantage in some cases. However, if all individuals are equally informed about past play, in a statistical sense, then the Nash bargaining solution remains the unique long-run outcome when the mutation rate goes to zero. Journal of Economic Literature Classification Numbers C70, C78.

Volunteer work is an increasingly large, yet ill-understood sector of the economy. We show that monetary rewards undermine the intrinsic motivation of volunteers. A unique data set from Switzerland allows us to assess the effects of financial rewards on the effort put into volunteer work. There is a fairly standard pattern regarding the volunteers reaction e.g. to more labor market work hours. But we obtain the puzzling result that, when rewarded, volunteers work less. These findings are in line with a large literature in social psychology emphasizing that external rewards can undermine the intrinsic motivation for an activity. We show the implications for public policy towards volunteering.

This paper analyzes the impact of inequality on growth when technical progress is driven by innovations and consumers have hierarchic preferences. Inequality has an impact on growth because it affects the structure and the dynamics of demand. Redistribution from very rich to very poor consumers is beneficial for growth. In general, the growth effect depends on the nature of redistribution. Due to a demand externality of R&D activities multiple equilibria are possible.

Personnel economics has put forward conflicting arguments concerning the impact of increased wage dispersion within a firm on the productivity of its workers. Besides giving more incentives, bigger wage differentials might also give rise to less co-operation and more politicking amongst workers resulting in worse outcomes. We try to shed light on these issues using panel data for Austrian firms. As indicators for firm performance we use standardised wages. For white-collar wages the following picture emerges: more dispersion leads to higher earnings up to some point where the relation changes its direction. For blue-collar wages we find a positive association between dispersion and standardised wages between firms, but no relation within firms over time.