Contributions published at Department of Economics (Florian Scheuer)

Wann die nächste Finanzkrise kommt, lässt sich kaum vorhersagen. Wie man in einer solchen richtig reagiert, hingegen schon. Der diesjährige Nobelpreis ehrt drei Ökonomen für ihre Forschung zu Banken und ihrer Rolle bei der Entstehung von Finanzkrisen.

In this paper I study whether citizens’ tax morale (and, more broadly, citizens’ attitudes towards the state) can be affected by past institutions, focusing on the role of historical fiscal capacity. Exploiting the features of the tax collection system of a pre-unification state in XIX Century Italy I identify differences in local historical fiscal capacity (as proxied by geographical proximity to a tax collector) and map them into contemporary tax morale, as measured by evasion of the TV Tax in 2014. Exploiting only variation in historical fiscal capacity that arises within matched pairs of neighbouring towns on the border of tax districts, I find imprecisely estimated and arguably small differences in tax morale today between towns where fiscal capacity was different. Investigating the mechanisms of transmission, I provide evidence that phenomena associated with structural transformation are likely to have halted the persistence of the historical fiscal capacity effect.

Surveys and opinion polls are essential instruments to elicit societal preferences and uncover differences between socioeconomic or demographic groups. However, survey data is noisy, and survey bias is ubiquitous, limiting the reliability and usefulness of standard analyses. We provide a new method that uncovers group preferences and unambiguously ranks the relative strength of preference between groups of agents, leveraging the information contained in response times. The method delivers a nonparametric criterion to determine whether a group (defined, e.g., by gender, age cohort, socioeconomic status, political orientation, etc.) prefers an option over its alternative, and whether it does so more strongly than another group, without any assumptions on the underlying noise. We demonstrate the practical value of this method by studying preferences over important socioeconomic topics in a representative sample of the U.K. population. We find that the new method often provides results when tests based on choice frequencies are inconclusive, and also identifies cases where tests are significant but inferences on preferences are unwarranted.

In the history of humanity, most conflicts within and between societies have originated from perceived inequality in resource distribution. How humans achieve and maintain distributive justice has therefore been an intensely studied issue. However, most research on the corresponding psychological processes has focused on inequality aversion and has been largely agnostic of other motives that may either align or oppose this behavioral tendency. Here we provide behavioral, computational, and neuroimaging evidence that distribution decisions are guided by three distinct motives—inequality aversion, harm aversion, and rank reversal aversion—that interact with each other and can also deter individuals from pursuing equality. At the neural level, we show that these three motives are encoded by separate neural systems, compete for representation in various brain areas processing equality and harm signals, and are integrated in the striatum, which functions as a crucial hub for translating the motives to behavior. Our findings provide a comprehensive framework for understanding the cognitive and biological processes by which multiple prosocial motives are coordinated in the brain to guide redistribution behaviors. This framework enhances our understanding of the brain mechanisms underlying equality-related behavior, suggests possible neural origins of individual differences in social preferences, and provides a new pathway to understand the cognitive and neural basis of clinical disorders with impaired social functions.

To better understand the physiological basis of obesity in women, we investigated whether obesity or menstrual cycle phase affects laboratory test-meal size or meal-stimulated plasma cholecystokinin (CCK) concentration. Women with healthy weight (body mass index [BMI] of 18.5-24.9 kg/m2, N = 16) or obesity (BMI 30-39.9 kg/m2, N = 20) were tested once in the late-follicular or peri-ovulatory phase (LF/PO) and once in the mid-luteal phase (ML). Meals of ham sandwiches were offered and blood was sampled. Menstrual cycle phases were verified with participants’ reports of menses and measurements of progesterone and luteinizing hormone (LH) concentrations. Women with obesity ate significantly larger meals than women with healthy weight, (mean, 711 [95% CI, 402-1013] kJ, P = 0.001, during the LF/PO and 426 [105-734] kJ, P = 0.027, larger during the ML). Women with healthy weight ate smaller meals during LF/PO than ML (decrease, 510 [192-821 kJ], P = 0.008), but women with obesity did not (decrease, 226 [−87-542] kJ, P = 0.15). CCK concentrations 18 to 30 minutes after meal onset were lower in women with obesity than in women with healthy weight during LF/PO (3.6 [3.1-4.1] vs 6.1 [4.5-7.7] pmol/L; P = 0.004), but not during ML, with a significant interaction effect (1.8 [1.2-2.4] pmol/L, P = 0.048). Women with obesity consumed larger meals than women with healthy weight but displayed reduced meal-stimulated plasma CCK concentrations. These data are consistent with the hypothesis that a defect in CCK secretion compromises satiation in obese women and contributes to the development or maintenance of obesity.

Participation payments are used in many transactions about which people know little, but can learn more: incentives for medical trial participation, signing bonuses for job applicants, or price rebates on consumer durables. Who opts into the transaction when given such incentives? We theoretically and experimentally identify a composition effect whereby incentives disproportionately increase participation among those for whom learning is harder. Moreover, these individuals use less information to decide whether to participate, which makes disappointment more likely. The learning-based composition effect is stronger in settings in which information acquisition is more difficult.

We investigate the impact of peer interaction on the quality of financial decision making in a laboratory experiment. Face-to-face communication with a randomly assigned peer significantly improves the quality of subsequent private decisions even though simple mimicry would have the opposite effect. We present evidence that the mechanism involves general conceptual learning (because the benefits of communication extend to previously unseen tasks), and that the most effective learning relationships are horizontal rather than vertical (because people with weak skills benefit most when their partners also have weak skills). The benefits of demonstrably effective financial education do not propagate to peers.

Processing more likely inputs with higher sensitivity (adaptive coding) enables the brain to represent the large range of inputs coming in from the world. Healthy individuals high in schizotypy show reduced adaptive coding in the reward domain but it is an open question whether these deficits extend to non-motivational domains, such as object categorization. Here, we develop a novel variant of a classic task to test range adaptation for face/house categorization in healthy participants on the psychosis spectrum. In each trial of this task, participants decide whether a presented image is a face or a house. Images vary on a face-house continuum and appear in both wide and narrow range blocks. The wide range block includes most of the face-house continuum (2.50–97.5% face), while the narrow range blocks limit inputs to a smaller section of the continuum (27.5–72.5% face). Adaptive coding corresponds to better performance for the overlapping smaller section of the continuum in the narrow range than in the wide range block. We find that participants show efficient use of the range in this task, with more accurate responses in the overlapping section for the narrow range blocks relative to the wide range blocks. However, we find little evidence that range adaptation in our object categorization task is reduced in healthy individuals scoring high on schizotypy. Thus, reduced range adaptation may not be a domain-general feature of schizotypy.

Wages are higher in urban regions. These urban wage premia may be driven by sorting of more productive workers into urban regions, by a static productivity advantage, and by higher wage growth. This paper documents a size-earnings elasticity of five per cent in Germany. Sorting of more productive workers into larger regions explains 40 per cent of this elasticity. The remainder is driven in equal parts by a static productivity effect and a dynamic learning effect. The urban wage premium is strongly increasing in educational attainment. This is largely driven by different degrees of sorting between education groups. Similarly, there are large urban wage premium differences between occupation groups, which are entirely driven by differences in sorting.

Wage inequality between education groups in Germany has increased sharply in recent decades. This paper studies how compositional changes to the occupational structure and the geographic distribution of different types of jobs have affected this type of inequality. Employment has shifted away from traditionally mid-paying production occupations towards higher-paying cognitive/interactive occupations, and – to a lesser extent – towards low-paying manual services. However, only workers with university degrees have benefited from the expansion of higher-paid work. This increase in polarization played out relatively evenly across space. While such occupational shifts can contribute to between-group wage inequality, in the German case, the increase in occupational polarization was not large enough to materially contribute to wage inequality between education groups.

Individual wage growth is higher in more densely populated regions. Using data on detailed labour market biographies from Germany, this paper shows that job mobility contributes to this urban premium in wage growth. In urban regions, wage growth is higher both within jobs and between jobs. The higher between-job wage growth is driven by a combination of higher frequency of job changes and a higher payoff of moving between jobs. This finding is consistent with better coordination in denser labour markets. Further evidence shows that the gain from higher urban wage growth is not lost upon moving across regions, suggesting that a better job match results in higher human capital accumulation.

We examine methods for evaluating interventions designed to improve decision-making quality when people misunderstand the consequences of their choices. In an experiment involving financial education, conventional outcome metrics (financial literacy and directional behavioral responses) imply that two interventions are equally beneficial even though only one reduces the average severity of errors. We trace these failures to violations of the assumptions embedded in the conventional metrics. We propose a simple, intuitive, and broadly applicable outcome metric that properly differentiates between the interventions, and is robustly interpretable as a measure of welfare loss from misunderstanding consequences even when additional biases distort choices.

Since 1980, the world economy has experienced an increase of dominant firms. Dominant firms face limited competition in their market and exert monopoly power. Why has this happened, and why did it start in 1980? The rise of dominant firms has a direct impact on customers who pay higher prices, but it also has far-reaching implications for the macroeconomy. Widespread market power leads to wage stagnation and a decline in the labor share, it increases wage inequality, it slows down business dynamism, it reduces the number of startup firms and lowers innovation. In this public paper Eeckhout reviews the determinants of the rise of dominant firms, discusses the causes and consequences, and proposes directions for policy solutions.

Testosterone has been hypothesized to promote sexual motivation and behavior. However, experimental evidence in healthy humans is sparse and rarely establishes causality. The present study investigated how testosterone affects delay of gratification for sexual rewards. We administered a single dose of testosterone to healthy young males in a double-blind, placebo-controlled, between-participant design (N = 140). Participants underwent a sexual delay discounting task, in which they made a choice between a variable larger-later option (i.e., waiting longer to view a sexual picture for a longer duration) and a smaller-sooner option (i.e., waiting for a fixed shorter period of time to view the same picture for a shorter duration). We found that testosterone administration increased preference for the smaller-sooner option and induced steeper discounting for the delayed option. These findings provide direct experimental evidence that rapid testosterone elevations increase impulsivity for sexual rewards and represent an important step towards a better understanding of the neuroendocrine basis of sexual motivation in humans.

We analyze entry of a firm with a new and differentiated product into a market with two properties: An existing incumbent has a captive consumer base, and all consumers have heterogeneous tastes. The interaction between the share of captive consumers and the degree of taste heterogeneity leads to nonmonotone effects of both parameters on entry: The captive share can have an inverse-U relation with entry profits, and higher taste heterogeneity (i.e., less product substitutability) can impede entry in the presence of captive consumers.

This paper analyzes the long-term effects of potentially avoidable cesarean sections on children’s health. Using Finnish administrative data, we document that physicians perform more unplanned C-sections during their regular working hours on days that precede a weekend or public holiday and use this exogenous variation as an instrument for C-sections. We supplement our instrumental variables results with a differences-in-differences estimation strategy that exploits variation in birth mode within sibling pairs and across families. Our results suggest that avoidable unplanned C-sections increase the risk of asthma, but do not affect other immune-mediated disorders previously associated with C-sections.

Childhood obesity has adverse health and productivity consequences and it poses negative externalities to health services. To shed light on the role of parents, we elicit parental beliefs about the returns and the persistence of a healthy diet and exercise routine in childhood. Parents believe both types of investments to improve child and adult health outcomes. Consistent with a model of taste formation, parents believe that childhood health behaviors persist into adulthood. We show that perceived returns are predictive of health investments and outcomes, and that less educated parents view the returns to health investments to be lower. Our descriptive evidence suggests that beliefs contribute to the socioeconomic inequality in health outcomes and the intergenerational transmission of obesity.

One of the leading reasons behind social inequities is that elite groups have had access to more widespread and higher-quality educational opportunities much earlier, often when their economic returns were much higher. Nevertheless, measures of educational inequalities tend to focus exclusively on current differences within the school-age population. This paper proposes a new measure – the education inequity index (EII) – that captures cumulative differences in access to the economic returns of education across different groups. Concretely, the EII is the share of the cumulative wage premium appropriated by the elite over time in excess to that accrued by other groups. The paper advances a methodology to compute different versions of the EII using national household survey data. We then illustrate its applications by computing the economic, racial and gender EII for Brazil since 1980, separately for primary, secondary and college education. We showcase the new insights that the EII brings relative to other measures when it comes to monitoring inequities and informing policies to address them.