Contributions published at Department of Economics (Florian Scheuer)

In present day Germany, one in seven children is raised in a single parent household. We investigate the effect of single parenthood on children’s educational attainment, measured by the school track at the age 14, using ordered probit models. We study whether the effect of living in single parenthood during early or late childhood differs. Finally, we ask whether the family effect operates through resources – fewer income and parental time available for the child –, or through adverse effects on psychological well-being. The data used in this study are a nationally representative sample of 14 year old children drawn from the German Socio-Economic Panel.

I give necessary and sufficient conditions for the uniqueness of the equilibrium in a wide class of Rubinstein bargaining models. The requirements encompass a class of non-convex or disconnected payoff sets with discontinuous Pareto frontiers. The equilibrium of the non-cooperative game is unique if the objective function of the corresponding Nash-bargaining game has a unique maximum. I extend the analysis to games where the time between offers is not constant.

This paper aims at showing the relevance of procedural utility for economics: people do not only care about outcomes, as usually assumed in economics, they also value the processes and conditions leading to outcomes. The psychological foundations of procedural utility are outlined and it is discussed how the concept differs from other related approaches in economics, like outcome utility, outcome fairness or intentions. Institutions at the level of society and fair procedures are shown to be sources of procedural utility, and novel empirical evidence on the role of procedural utility in important areas of the economy, polity and society is presented.

This paper examines the determinants of mergers and bankruptcies using firm level data from Switzerland. We find considerable differences in the determinants of mergers and bankruptcies. Our results support the notion that mergers are often undertaken to seize growth opportunities.

This paper analyzes a sequential game where firms decide about outsourcing the production of a non-specific input good to an imperfectly competitive input market. We apply the taxonomy of business strategies introduced by Fudenberg and Tirole (1984) to characterize the different equilibria and find that outsourcing generally softens competition in the final product market. If firms anticipate the impact of their outsourcing decisions on input prices, there may be equilibria where firms outsource so as to collude or to raise rivals’ costs. We illustrate our analysis using a linear Cournot model.

The basic distinction made in this volume compares “economic value”, expressed in monetary terms, to “cultural value”, reflecting cultural, aesthetic and artistic significance.nThis paper makes a different distinction which is rarely made explicit but which is ofncentral importance to the decision process in cultural policy. On the one hand, “value” is attached to the economic effects of cultural activities: When cultural values are created, economic activity is bolstered. The increase of commercial actitivities induced is measured by the so-called “impact effect”. On the other hand, the value of culture isnreflected in the increased utility going to consumers and non-consumers of a particularncultural activity. This type of value is measured by “willingness to pay studies”. I argue that these two values dominate cultural policy but they capture totally different aspects and are proferred by different kinds of communities.

This paper investigates the outcome of ageing on taxes and hospitalisation of the elderly using panel data on 23 Swedish county councils 1980–1999. We test two hypotheses; whether a larger share of elderly has no negative effect on bed days per elderly person and no positive effect on tax rates. We reject the first hypothesis but fail to reject the second hypothesis. Further we cannot reject the hypothesis of a unitary elasticity of the share of elderly on bed days per elderly person. These results imply that the old bear the entire cost of adjustment when the population grows older.

Most previous studies on intertemporal labor supply found very small or insignificantnsubstitution effects. It is not clear, however, whether these results are due to institutionalnconstraints on workers’ labor supply choices or whether the behavioral assumptions of thenstandard life cycle model with time separable preferences are empirically invalid. We conducted a randomized field experiment in a setting in which workers were free to choose their working times and their efforts during working time. We document a large positive wage elasticity of overall labor supply and an even larger wage elasticity of labor hours, which implies that the wage elasticity of effort per hour is negative.nWhile the standard life cycle model cannot explain the negative effort elasticity, we show that a modified neoclassical model with preference spillovers across periods and a model withnreference dependent, loss averse preferences are consistent with the evidence. With the help of anfurther experiment we can show that only loss averse individuals exhibit a significantly negativeneffort response to the wage increase and that the degree of loss aversion predicts the size of the negative effort response.

This contribution seeks to answer two related questions. First, what is the purpose of social health insurance? Or put in slightly different terms, what are the reasons for social (or public) health insurance to exist, even to dominate private health insurance in most developed countries? And second, what are the limits of social health insurance? Can one say that there is "too much" social health insurance in the following two senses: Should the balance be shifted towards the private alternative? And is the degree of coverage excessive?

Much progress has been made in recent years on developing and applying a direct measure of utility using survey questions on subjective well-being. In this paper we explore whether this new type of measurement can be fruitfully applied to the study of interdependent utility in general, and altruism between parents and adult children who moved away from home in particular. We introduce an appropriate econometric methodology and, using data from the German SocioEconomic Panel for the years 2000-2004, find that the parents’ self-reported happiness depends positively on the happiness of their adult children. A one standard deviation move in the child’s happiness has the same effect as a 45 percent move in household income.

We examine the effect of single motherhood on children’s secondary school track choice using 12-year-old children drawn from the German Socio-Economic Panel. In line with previous studies for the U.S., the U.K. and Sweden, we find a negative correlation between single motherhood and children’s educational attainment. Looking for alternative explanations for this correlation, we use probit regression models to control for factors related to single motherhood such as higher educational background, lower household income and higher labor supply of the mother. Our evidence suggests that single motherhood reduces school attainment mainly because it is associated with lower resources (household income) available for the child.

The paper presents a simple model to study the effects of rumours on markets. Agents in our economy communicate with their local neighbours which gives rise to the possible spread of a rumour. As the rumour affects beliefs of the agents the evolution of the rumour has a direct impact on market outcomes. Our results show that if the rumour dies out long-run equilibrium prices correspond to pre-rumour values. However, if the rumour stays present it produces a price run-up for the good that is positively targeted by the rumour. Price run-ups related to rumours have been observed in empirical studies by Rose [Rose, A.M., 1951. Rumor in the stock market. Public Opinion Quarterly 15, 461–486], Pound and Zeckhauser [Pound, J., Zeckhauser, R., 1990. Clearly heard on the street: the effect of takeover rumors on stock prices. Journal of Business 63, 291–308] and Zivney et al. [Zivney, T., Bertin, W.J., Torabzadeh, K.M., 1996. Overreaction to take-over speculation. Quarterly Review of Economics and Finance 36, 89–115]. The present model provides an analytical foundation for this finding.

Die Wirksamkeit und Sicherheit der beiden in der Schweiz zur Behandlung der Hepatitis C zugelassenen Kombinationstherapien (Pegasys®/Copegus®, PAC; PegIntron®/Rebetol®, PIR) ist sehr ähnlich. Das Ziel dieser Arbeit ist, die Kosten der beiden Therapien zu vergleichen und ihren kostengünstigsten Einsatz zu definieren. Die Durchschnittskosten für Genotyp-1-Patienten liegen zwischen CHF 21700.- (PAC) und CHF 19700.- (PIR), bzw. CHF 15600.- (PAC) und CHF 15000.- (PIR) für Genotyp-2/3-Patienten. Ein konsequenter Einsatz von PIR ist 9 bis 12% kostengünstiger als PAC. Weitere Kosteneinsparungen von 3% könnten bei einem Einsatz von PIR bei allen Patienten unter 85 kg (Genotyp 1) bzw. unter 75 kg (Genotyp 2/3) und von PAC bei solchen über 85 kg (Genotyp 1) bzw. über 75 kg (Genotyp 2/3) erreicht werden.

There is abundant evidence that many individuals violate the rationality assumptionsnroutinely made in economics. However, powerful evidence also indicates that violations ofnindividual rationality do not necessarily refute the aggregate predictions of standard economicnmodels that assume full rationality of all agents. Thus, a key question is how the interactions between rational and irrational people shape the aggregate outcome in markets and other institutions. We discuss evidence indicating that strategic complementarity and strategic substitutability are decisive determinants of aggregate outcomes. Under strategic complementarity, a small amount of individual irrationality may lead to large deviations from the aggregate predictions of rational models, whereas a minority of rational agents may suffice to generate aggregate outcomes consistent with the predictions of rational models under strategic substitutability.

In many markets, homogenous goods and services are sold both by large global frms and small local frms. Surprisingly, the large frms charge, often substantially, higher prices. Examples include hotels, airlines, and coffee shops. This paper provides a parsimonious model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and consumers change locations with a given positive probability. Consequently, large frms or "chain stores" insure consumers against this switching cost. The model predicts that chain stores and local stores coexist in equilibrium and that chain stores charge higher prices and yet attract more consumers than local stores. As consumer mobility increases, the profits of both local stores and chain stores increase, but the chain stores' profts increase at a faster rate.

We consider a regulator providing deposit insurance to a bank with private information about its investment portfolio. As typical in practice, we assume that the regulator does not commit to auditing afternany risk report from the bank. We first show that the optimal contract can be implemented through a direct revelation mechanism. We also show that, at the optimal contract, a high risk bank has incentivesnto misreport. We thus establish that extraction of truthful riskninformation, as done in current regulatory practice, is not compatible with the maximization of social welfare.

We examine the interplay of endogenous vertical integration and costreducing downstream investment in successive oligopoly. We start from a linear Cournot model to motivate our more general reducedform framework. For this general framework, we establish the following main results: First, vertical integration increases own investment and decreases competitor investment (intimidation effect). Second, asymmetric equilibria typically involve integrated firms that invest more into effciency than their separated counterparts. Our findings suggest that asymmetric vertical integration is a potential explanation for the initial difference between leader and laggard in investment games.

Exploiting a rich panel data set on anti‐ulcer drug prescriptions, we measure the effects of uncertainty and learning in the demand for pharmaceutical drugs. We estimate a dynamic matching model of demand under uncertainty in which patients learn from prescription experience about the effectiveness of alternative drugs. Unlike previous models, we allow drugs to have distinct symptomatic and curative effects, and endogenize treatment length by allowing drug choices to affect patients' underlying probability of recovery. We find that drugs' rankings along these dimensions differ, with high symptomatic effects for drugs with the highest market shares and high curative effects for drugs with the greatest medical efficacy. Our results also indicate that while there is substantial heterogeneity in drug efficacy across patients, learning enables patients and their doctors to dramatically reduce the costs of uncertainty in pharmaceutical markets.

I consider the problem of estimating the effect of a health care reform on the frequency of individual doctor visits when the reform effect is potentially different in different parts of the outcome distribution. Quantile regression is a powerful method for studying such heterogeneous treatment effects. Only recently has this method been extended to situations where the dependent variable is a (non-negative integer) count. An analysis of a 1997 health care reform in Germany shows that lower quantiles, such as the first quartile, fell by substantially larger amounts than what would have been predicted based on Poisson or negative binomial models.

We analyze the determinants of environmental policy when two industry lobbies can seek a laxer policy that would apply to both industries and loophole lobbying that provides benefits specific to one industry. We determine the properties of the lobbying equilibrium, including the resulting emissions level. In many cases, higher effectiveness of loophole lobbying is detrimental for industries and beneficial for environmental quality, as it exacerbates the free-rider problem in the provision of general lobbying by inducing industries to turn towards loophole lobbying.