Contributions published at Department of Economics (Florian Scheuer)

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.

Over the recent years one could repeatedly hear the claim that a rising concern for relative standing (in terms of consumption) was partly responsible for the decline in household savings and in growth that could be observed in some developed countries (particularly in the US) and that the rise in income inequality had further aggravated this process. In this paper we want to analyze under which conditions (concerning the importance of social comparisons for peoples' behavior and their choice of reference groups) this claim is valid. We show that an increase in a societies' concern for relative standing aggravates a negative impact of inequality on growth if two conditions are fulfilled: individuals have a higher concern for their present than for their future relative standing and individuals have a tendency to find their reference groups among people that are wealthier then they are themselves. Empirical data suggest that the negative impact of inequality on growth is stronger in highly developed economies. This is compatible with the explanation that is presented in this paper if individuals living in highly developed countries are more likely to have a high concern for relative standing. We will argue (using research on the cultural consequences of economic development) that this is a reasonable assumption to make.

Rational agents can express discontent with a given distribution of income by threatening to disrupt an economy, if such a threat is profitable. This paper describes such circumstances in a two-class model. Social stability constraints define the acceptable set of income distributions, the range of which is determined by the extent to which income-generating abilities are vulnerable to disruption. Opportunities for disruption vary across stages of economic development. There is possibly no stable distribution in a low developed economy, whereas in an advanced economy, characterized by complex and interdependent production, stable distributions exist. This distinction provides a basis for the observed increasing significance of social stabilization by redistributive policy in the course of economic development.

"Historical events are reflected in asset prices. Looking at government bond prices of five European countries traded on the Swiss stock exchange during WWII provides a useful way of interpreting the importance attributed to various war events. We direct our attention to value changes in government bonds of five different nations: On the side of the Axis, Germany and Austria; on the side of the Allies, France; and the two neutral countries Belgium and Switzerland. The econometric analysis reveals that some events that are generally considered crucial are clearly reflected in government bond prices of the countries considered. This holds, in particular, for the official outbreak of the war in July to September 1939 (which sent down the government bond values not only of Austria, Belgium and France but also of Germany) and for losses and gains of national sovereignty."

Using information on job changes and search behavior of workers and controlling for endogenousnmobility we study firm-size wage differentials in Switzerland. We find that the observed crosssectionalnfirm size premium cannot be explained exclusively by worker heterogeneity. Almost 50n% of the cross-section differential is a firm-size effect.

This paper presents an experimental examination of the Falkinger (1996) mechanism for overcoming the free-rider problem. The basic idea of the mechanism is that deviations from the mean contribution to the public good are taxed and subsidized. The mechanism has attractive properties because (i) it induces higher contributions to the public good and can implement an efficient level of contributions as a Nash equilibrium, (ii) the government budget is always balanced irrespective of the level of individual contributions, (iii) it is simple and policy makers need only little information to implement the mechanism. To examine the empirical properties of the mechanism we conducted a large series of experiments. It turns out that the introduction of the mechanism generates immediate and large efficiency gains. This result is robust throughout many different experimental settings. Moreover, in the presence of the mechanism the Nash equilibrium is a rather good predictor of behavior.

Garnishment of wage as a way for creditors to enforce payment by unwilling or insolvent debtors, while very common in Germany and Switzerland, is not very successful. Based on a dynamic model of debtor behaviour, this paper explores two alternatives of reform. One is to reduce the rate of garnishment, which at present amounts to 100 percent of the wage income exceeding a defined subsistence level, thus probably destroying incentives to work. According to model simulations, reducing the rate of garnishment is likely to result in an increase of labour supply but a decrease of garnishment revenue per period. Second, the introduction of a debt release as it exists in the United States would have an ambiguous effect on labour supply. While providing debtors with a fresh start, it would result a partial loss for creditors. A Pareto improvement thus does not seem to be possible. When taxpayers as an involved third party are taken into account, however, a potential Pareto improvement appears attainable through debt release.

This paper examines two competing explanations for workers' absenteeism, the shirking hypothesis and the adjustment-to-equilibrium hypothesis. Data on German workers for 1985-88 from the German SocioEconomic Panel are used in order to estimate the determinants of workers' absenteeism. The results indicate that firm size matters after wage effects are controlled for. This evidence supports the shirking hypothesis.

Summary Recent debate on the reasons for the informal sector has led to renewed focus on how to operationalize the measurement of informal employment. This paper investigates congruence between three empirical measures of the rate of informality using Brazilian household survey data for the period 1992-2004. Sixty-three percent of the economically active are informal according to at least one definition, but only 40\% are informal according to all three. Regression analysis is used to shed further light on differences in these measures. Appropriate measurement is therefore of high significance to policy analysis and design of appropriate strategies to reduce informality.

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Recently, the 'new economic geography' literature has developed as a theory of the emergence of large agglomerations which relies on increasing returns to scale and transportation costs. This literature builds on diverse intellectual traditions. It combines the insights of traditional regional science with those of modern trade theory and thus attempts to provide an integrative approach to interregional and international trade. The paper surveys this literature and discusses its relation to earlier approaches to similar topics.

This paper analyses the effects of taxation and subsidies in an economy with private provision of a public good. It is shown that in a situation where all individuals contribute, taxation affects the equilibrium allocation if and only if at least one individual's voluntary contribution to the public good has an impact on the aggregate tax payments of the others. We then consider linear nonneutral tax-subsidy schemes and analyse efficiency and uniqueness of the resulting Nash equilibria. We show that an efficient Nash equilibrium, where all individuals contribute, will in general not be unique, and establish a non-uniformity property which a tax-subsidy scheme must fulfil in order to induce a unique interior equilibrium that is efficient. Throughout the paper it is assumed that individuals fully understand and take into account the government's budget constraint.

This paper examines costs in the Swiss nursing home industry, an issue of concern to Swiss policy makers because of the explosion of elderly care costs and the aging of the population. The paper considers estimation of a translog cost function employing panel data for a sample of 36 nonprofit nursing homes operating in Ticino, a canton of Switzerland, over the period 1993-1995. Using a set of dummy variables quality differences are considered. The results of this analysis indicate the existence of economies of scale for most output levels.

National policies towards the regulation of the telecommunications industry have undergone significant change in response to technological progress and increasing competition. This article discusses the consecutive revisions of the Swiss regulatory framework during the 1990's and presents lessons to be drawn from this process. After reviewing the Telecommunications Act (Fernmeldegesetz; FMG) 1992 and the reasons for its revision, this article presents the most important prescriptions of the FMG 98 concerning the licence regime, universal service, and interconnection. The implementation of the FMG 98 has led to a fundamental change in regulatory policy. However, transitional rules appear to promote excessively slow adjustments in the current industry configuration.

We consider a simple class of dynamic games. A continuum of players chooses between two actions (“locations”) in each period; per-period payoffs depend positively on the number of players choosing the same action. The resulting dynamics are investigated. If one location receives a favorable shock, the effects of the strength of externalities and the heterogeneity of the population on the extent of adjustment may be non-monotone and discontinuous, due to two competing effects. With stronger externalities (lower heterogeneity), less players move initially, but more players follow once the process has gained momentum.

This paper reports quantitative information on the effects of tariffs and quotas on prices of individual goods. The analyses uses the natural experiment provided by a comprehensive unilateral trade policy reform in New Zealand to examine the response of foreign exporters to an incident of liberalisation that is unique in the developed world. The price effects of tariffs and quotas are estimated using a multidestination 7-digit longitudinal product-level dataset on export values and quantities. The effects are found to be by no means equivalent: whereas tariffs display no significant effect, the impact that quantitative restrictions have on the terms-of-trade of the country that imposes them are unequivocally detrimental and quantitatively important.