Contributions published at Department of Economics (Florian Scheuer)

Increasing inequality and associated egalitarian sentiments have put redistribution on the political agenda. In this paper, we take advantage of Swiss direct democracy, where people voted several times on strongly redistributive policies in national plebiscites, to study the link between social preferences and a behaviorally validated measure of support for redistribution in a broad sample of the Swiss population. Using a novel nonparametric Bayesian clustering algorithm, we uncover the existence of three fundamentally distinct preference types in the population: predominantly selfish, inequality averse and altruistic individuals. We show that inequality averse and altruistic individuals display a much stronger support for redistribution, particularly if they are more affluent. In addition, we show that previously identified key motives underlying opposition to redistribution – such as the belief that effort is an important driver of individual success – play no role for selfish individuals but are highly relevant for other-regarding individuals. Finally, while inequality averse individuals display strong support for policies that primarily aim to reduce the incomes of the rich, altruistic individuals are considerably less supportive of these policies. Thus, knowledge about the qualitative properties of social preferences and their distribution in the population also provides insights into which preference type supports specific redistributive policies, which has implications for how policy makers may design redistributive packages to maximize political support for them.

The empirical evidence on the existence of social preferences—or lack thereof—is predominantly based on student samples. Yet, knowledge about whether these findings can be extended to the general population is still scarce. In this paper, we compare the distribution of social preferences in a student and in a representative general population sample. Using descriptive analysis and a rigorous clustering approach, we show that the distribution of the general population’s social preferences fundamentally differs from the students’ distribution. In the general population, three types emerge: an inequality averse, an altruistic, and a selfish type. In contrast, only the altruistic and the selfish types emerge in the student population. We show that differences in age and education are likely to explain these results. Younger and more educated individuals—which typically characterize students—not only tend to have lower degrees of other-regardingness but this reduction in other-regardingness radically reduces the share of inequality aversion among students. Differences in income, however, do not seem to affect social preferences. We corroborate our findings by examining nine further data sets that lead to a similar conclusion: students are far less inequality averse than the general population. These findings are important in view of the fact that almost all applications of social preference ideas involve the general population.

We review the vast literature on social preferences by assessing what is known about their fundamental properties, their distribution in the broader population, and their consequences for important economic and political behaviors. We provide, in particular, an overview of the empirically identified characteristics of distributional preferences and how they are affected by merit, luck, and risk considerations as well as by concerns for equality of opportunity. In addition, we identify what is known about belief-dependent social preferences such as reciprocity and guilt aversion. The evidence indicates that the big majority of individuals have some sort of social preference while purely self-interested subjects are a minority. Our review also shows how the findings from laboratory experiments involving social preferences provide a deeper understanding of important field phenomena such as the consequences of wage inequality on work morale, employees’ resistance to wage cuts, individuals’ self-selection into occupations and sectors that are more or less prone to morally problematic behaviors, as well as issues of distributive politics. However, although a lot has been learned in recent decades about social preferences, there are still many important, unresolved, yet exciting, questions waiting to be tackled.

Actual and perceived gender norms are key to understanding gender inequality in society. In this paper, using newly collected nationally representative datasets from 60 countries that cover over 80% of the world population, we study gender norms on two distinct policy issues: 1) basic rights, allowing women to work outside of the home, and 2) affirmative action, prioritizing women when hiring for leadership positions. We establish that misperceptions of gender norms are pervasive across the world. The nature of the misperception, however, is context-dependent. In less gender-equal countries, people underestimate support for both policies, particularly among men; in more gender-equal countries, people overestimate support for affirmative action, particularly among women, and underestimate support for basic rights. We provide evidence of gender stereotyping and overweighting of the minority view as potential drivers of the global patterns of misperceptions. Together, our findings indicate how misperceptions of gender norms may obstruct progress toward gender equality, but also may contribute to sustaining gender policies that are not necessarily favored by women themselves.

An important but poorly understood form of firm tax evasion arises from “ghost firms” - fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Five percent of firms use ghost invoices annually. Among these firms, ghost transactions comprise 14 percent of purchases. Ghost transactions are prevalent among large firms and firms with high-income owners and exhibit suspicious patterns, such as bunching below financial system thresholds. An innovative enforcement intervention targeting ghost clients rather than ghosts themselves led to substantial tax recovery.

Using cross-sectional data from 93 countries, we investigate the relationship between the desired level of redistribution among citizens from different socioeconomic backgrounds and the actual extent of government redistribution. Our focus on redistribution arises from the inherent class conflicts it engenders in policy choices, allowing us to examine whose preferences are reflected in policy formulation. Contrary to prevailing assumptions regarding political influence, we find that the preferences of the lower socioeconomic group, rather than those of the median or upper strata, are most predictive of realized redistribution. This finding contradicts the expectations of both leading experts and regular citizens.

Global access to resources like vaccines is key for containing the spread of infectious diseases. However, wealthy countries often pursue nationalistic policies, stockpiling doses rather than redistributing them globally. One possible motivation behind vaccine nationalism is a belief among policymakers that citizens will mistrust leaders who prioritize global needs over domestic protection. In seven experiments (total N = 4,215 adults), we demonstrate that such concerns are misplaced: Nationally representative samples across multiple countries with large vaccine surpluses (Australia, Canada, United Kingdom, and United States) trusted redistributive leaders more than nationalistic leaders—even the more nationalistic participants. This preference generalized across different diseases and manifested in both self-reported and behavioral measures of trust. Professional civil servants, however, had the opposite intuition and predicted higher trust in nationalistic leaders, and a nonexpert sample also failed to predict higher trust in redistributive leaders. We discuss how policymakers’ inaccurate intuitions might originate from overestimating others’ self-interest.

To combat climate change without sacrificing long-term economic growth, innovation must be redirected toward green technologies. In this paper, we review a recent literature that has developed a directed technical change framework where innovation can be endogenously targeted either toward fossil-fuel enhancing technologies or clean energy sources (such as renewables). We provide empirical evidence of path dependence in firms’ choice between green and dirty innovation. We then draw implications of this path dependence for the design of environmental policy and for economic growth. In particular, we show that our framework has distinctive implications regarding unilateral environmental policies, international cooperation, the use of intermediate energy sources such as natural gas, and the role of civil society.

Surveys measuring happiness or preferences generate discrete ordinal data. Ordered response models, which are used to analyze such data, suffer from an identification problem. Their conclusions depend on distributional assumptions about a latent variable. We propose using response times to solve that problem. Response times contain information about the distribution of the latent variable through a chronometric effect. Using an online survey experiment, we verify the chronometric effect. We then provide theoretical conditions for testing conventional distributional assumptions. These assumptions are rejected in some cases, but overall our evidence is consistent with the qualitative validity of the conventional models.

Do land market frictions cause misallocation in agriculture? In a field experiment in Western Kenya, we randomly subsidize owners to rent out land. Transferring cultivation rights to renters increases output and value added on the plots, consistent with imperfect land markets and misallocation, and induced rentals persist after the subsidy ends. Additional analysis provides insights on the magnitude and nature of land frictions - which include search, risks, and learning - and on the sources of gains from trade - which include differences between owners and renters in crop choices, productivity, and financial market constraints, but not in labor constraints.

Over 2010-2016, municipal debt in Germany crowded out private investment worth 1 percent of GDP. Forced to lend to municipalities by their statutes, local public banks compensated for declining municipal-debt yields by charging higher rates to firms in Germany’s locally segmented credit markets. The ensuing crowding out was made worse by increased municipal borrowing when expensive fiscal commitments were shifted from federal and state to the municipal levels following the introduction of the debt brake. Our results identify new channels through which low interest rates adversely affect real outcomes and locally segmented credit markets can amplify contractionary effects from fiscal austerity.

The job finding rate declines with the duration of unemployment. While this is a well established fact, the reasons are still disputed. We use monthly search diaries from Swiss public employment offices to shed new light on this issue. Search diaries record all applications sent by job seekers, including the outcome of each application – whether the employer followed up with a job interview and a job offer. Based on more than 600,000 applications sent by 15,000 job seekers, we find that job applications and job interviews decrease, but job offers (after an interview) increase with duration. A model with statistical discrimination by firms and learning from search outcomes by workers replicates these empirical duration patterns closely. The structurally estimated model predicts that 55 percent of the decline in the job finding rate is due to “true” duration dependence, while the remaining 45 percent is due to dynamic selection of the unemployment pool. We also discuss further drivers of the observed duration patterns, such as human capital depreciation, stock-flow matching, depletion of one’s personal network, and changes in application targeting or quality.

Return event studies generally involve several firms but there are also cases when only one firm is involved. This makes the relevant testing problems, abnormal return and cumulative abnormal return, more difficult since one cannot exploit the multitude of firms (by using a relevant central limit theorem, say) to design hypothesis tests. We propose a permutation test which is of nonparametric nature and more generally valid than the tests that have previously been proposed in the literature in this context. We address the question of the power of the test via a brief simulation study and also illustrate the method with two applications to real data.

Hippocampal activity linking past experiences and simulations of the future with current goals can play an important role in decision-making. The representation of information within the hippocampus may be especially critical in situations where one needs to overcome past rewarding experiences and exert self-control. Self-control success or failure may depend on how information is represented in the hippocampus and how effectively the representation process can be modified to achieve a specific goal. We test this hypothesis using representational similarity analyses of human (female/male) neuroimaging data during a dietary self-control task in which individuals must overcome taste temptations to choose healthy foods. We find that self-control is indeed associated with the way individuals represent taste information (valance) in the hippocampus and how taste representations there adapt to align with different goals/contexts. Importantly, individuals who were able to shift their hippocampal representations to a larger degree to align with the current motivation were better able to exert self-control when facing a dietary challenge. These results suggest an alternative or complementary neurobiological pathway leading to self-control success and indicate the need to update the classical view of self-control to continue to advance our understanding of its behavioral and neural underpinnings.

Founders exert large influence over their business ventures. Their cognitive skills and personality could explain management decisions and firm performance. Existing research suggests that while founders are selected on highly remunerated human capital, they often perform poorly in managing companies. There is little evidence for the mechanism behind this pattern. We investigate the role of cognitive and personality traits in determining who becomes an entrepreneur and how they manage their companies. We test for the presence of conflicting traits that both drive selection into founding and hinder managerial performance. Using comprehensive longitudinal data from Finnish administrative records combined with unique military data on cognitive skills and personality scores covering 80% of the male population, we first document how entrepreneurs stand out as intelligent and extroverted risk-takers. We confirm these findings in an event study on easing of financial constraints. Furthermore, we explore the descriptive and causal relationships between owner disposition and HR policy. This project has the potential to broaden our understanding of entrepreneurship dynamics and can inform the design of policies to encourage entrepreneurship.

Tracking, the policy of separating pupils into groups based on aptitude, is common, controversial and imperfectly understood. Little consensus exists on the circumstances under which tracking is practiced and what effects it may have on pupils. In this paper, I develop a novel method of measuring within-school tracking using observational data and estimate its long-run effects across a broad set of pupil outcomes. I show that tracking is prevalent, and that it varies both across schools and within schools over time. I find only limited evidence for tracking having significant short or long-run effects on pupils, although girls and boys seem to be affected differently. Finally, I provide evidence against the notion that tracking is a driver of inequality.

We study the long-term effects of a randomized intervention targeting children’s socio-emotional skills. The classroom-based intervention for primary school children has positive impacts that persist for over a decade. Treated children become more likely to complete academic high school and enroll in university. Two mechanisms drive these results. Treated children show fewer ADHD symptoms: they are less impulsive and less disruptive. They also attain higher grades, but they do not score higher on standardized tests. The long-term effects on educational attainment thus appear to be driven by changes in socioemotional skills rather than cognitive skills.

The growth of the knowledge economy alters the risks and opportunities citizens experience in the labor market. Governments attempt to steer and support the adaptation of the workforce, enhance and spread opportunities, and mitigate the negative implications of these changes, in particular via skill-developing labor market policies. However, many recent studies document a puzzling discrepancy between the needs of knowledge economy losers in terms of skill development and their policy preferences. In particular, those most threatened by the knowledge economy prioritize compensation and protection over investments in human capital. Our study theorizes and studies four mechanisms – two ego-tropic, one socio-tropic and one group-tropic – to explain this preference pattern: they a) may have distorted perceptions of the distributive effects of policy reforms, b) may assign less importance to human capital investment as opposed to transfers and protection, c) may think that investment reforms do not contribute to societal equality, or d) may feel that the reforms do not deliver social recognition for themselves and their social ingroups. To test the relative importance of these mechanisms, we analyze novel data from an original survey in nine European countries, using both observational and experimental evidence. Our findings provide evidence for the group-specific recognition mechanism. Knowledge economy losers do think that they would benefit from social investment, and they also think that investment would deliver on equality, but they do not perceive a distinctive benefit for themselves or their ingroups. In their eyes, compensation reforms are the only type of reforms that benefit their ingroups exclusively. Our findings suggest that the effectiveness of policy responses to the knowledge economy depends not only on material effects of reforms but is conditional on cultural and recognition-based mechanisms.

We study consumers’ concerns for the ideological values of their market counterparts and the implications of such concerns for the public promotion of values. Using a survey and online and laboratory experiments, we find that consumers are willing to pay premiums to exchange with counterparts who demonstrate support for their values. When sellers anticipate the possibility of market exchange, they exhibit public support for consumers’ values. Our findings challenge notions that market exchange is impersonal, suggest that public value positions can provide a dimension of firm differentiation, and provide evidence that market exchange can influence public support for ideological values.