Contributions published at Department of Economics (Florian Scheuer)

"Women earn less than men but are not less satisfied with life. This paper argues that norms on the appropriate pay for women compared to men explain thesenfindings. We take citizens’ approval of an equal rights amendment to the Swissnconstitution as a proxy for the norm that “women and men shall have the right to equal pay for work of equal value”. We find that the gender wage gap narrows by onenfifth due to an increase by one standard deviation in the approval. Rejecting annexplanation in terms of discrimination, we find that employed women are less (notnmore) satisfied with life in liberal communities where the gender wage gap is smaller."

We show experimentally that a principal's distrust in the voluntary performance of an agent has a negative impact on the agent's motivation to perform well. Before the agent chooses his performance, the principal in our experiment decides whether he wants to restrict the agents' choice set by implementing a minimum performance level for the agent. Since both parties have conflicting interests, restriction is optimal for the principal whenever the latter expects the agent to behave opportunistically. We find that most principals in our experiment do not restrict the agent's choice set but trust that the agent will perform well voluntarily. Principals who trust induce, on average, a higher performance and hence earn higher payoffs than principals who control. The reason is that most agents lower their performance as a response to the signal of distrust created by the principal's decision to limit their choice set. Our results shed new light on dysfunctional effects of explicit incentives as well as the puzzling incompleteness of many economic contracts.

A nonparametric data envelopment analysis (DEA) is performed on hospitals in the federal state of Saxony (Germany) and in Switzerland. This study is of interest from three points of view. First, contrary to most existing work, patient days are not treated as an output but as an input. Second, the usual DEA assumption of a homogeneous sample is tested and rejected for a large part of the observations. The proposed solution is to restrict DEA to comparable observations in the two countries. The finding continues to be that hospitals of Saxony have higher efficiency scores than their Swiss counterparts. The finding proves robust with regard to modifications of DEA that are motivated by differences in hospital planning in Germany and Switzerland.

A global signaling game is a sender-receiver game in which the sender is only imperfectly informed about the receiver's preferences. The paper considers an economically relevant class of signaling games that possess more than one Perfect Bayesian equilibrium. For this class of games, it is shown that a Perfect Bayesian equilibrium is unaffected by a small perturbation of the information structure if and only if it is consistent with a criterion suggested by Cho and Kreps (1987). Moreover, the equilibrium in the global signaling game is essentially unique.

We model the interbank market for overnight credit with heterogeneous banks and asymmetric information. An unsophisticated bank justntrades to compensate its liquidity imbalance, while a sophisticated bank willnexploit its private information about the liquidity situation in the market. It is shown that with positive probability, the liquidity effect (Hamilton, 1997) is reversed, i.e., a liquidity drainage from the banking system may generatenan overall decrease in the market rate. The phenomenon does not disappear when the number of banks increases. We also show that private information mitigates the effect of an unexpected liquidity shock on the market rate, suggesting a conservative information policy from a central bank perspective.

Insurance companies invest their wealth in financial markets. The wealth evolution strongly depends on the success of their investment strategies, but also on liquidity shocks which occur during unfavourable years, when indemnities to be paid to thenclients exceed collected premia. An investment strategy that does not take liquidity shocks into account, exposes insurance companies to the risk of bankruptcy, when liquidity shocks and low investment payoffs jointly appear. Therefore, regulatory authorities impose solvency restrictions to ensure that insurance companies are able tonface their obligations with high probability. This paper analyses the behaviour of insurance companies in an evolutionary framework. We show that an insurance company that merely satisfies regulatory constraints will eventually vanish from the market. We give a more restrictive no bankruptcy condition for the investment strategies and we characterize trading strategies that are evolutionary stable, i.e. able to drive out any mutation.

One important motive for deregulating social health insurance is to encourage product innovation. For the first time, the cost savings achieved by non-US managed care plans that are attributable to product innovation are estimated, using a novel approach. Panel data from a major Swiss health insurer permits to infer health status, which can be used to predict health care expenditure. The econometric evidence suggests that the managed care plans benefit from risk selection effects. In the case of the health maintenance organization (HMO) plan, however, the pure innovation effect may account for as much as two-thirds of the cost advantage.

In the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Gollier (1987) shows that this constraint might well bind: insured could get higher expected utility if insurance contracts would allow payments from the insured to the insurer at some losses. However, due to the insurers’ cost function Gollier supposes, the optimal insurance contract he derives underestimates the relevance of the non-negativity constraint on indemnities. This paper extends Gollier’s findings by allowing for negative indemnity payments for a broader class of insurers’ cost functions.

We examine how globalization affects firms incentives to train workers. In our model, firms invest in productivity-enhancing worker training before Cournot competition takes place. When two separated product markets become integrated and are thus replaced with a market with greater demand and greater firm number, training by each firm increases provided the two countries are suffciently small. When barriers between large markets are eliminated, training is reduced. Similar results hold when firms in countries with different training systems face globalization of product markets. In particular, apprenticeship systems are threatened by a large-scale integration of product markets. Contrary to product market integration, labor market integration has no effect on training incentives.

We examine the characteristics and relative strength of third-party sanctions in a series of experiments. We hypothesize that egalitarian distribution norms and cooperation norms apply in our experiments, and that third parties, whose economic payoff is unaffected by the norm violation, may be willing to enforce these norms although the enforcement is costly for them. Almost two-thirds of the third parties indeed punished the violation of the distribution norm and their punishment increased the more the norm was violated. Likewise, up to roughly 60% of the third parties punished violations of the cooperation norm. Thus, our results show that the notion of strong reciprocity extends to the sanctioning behavior of “unaffected” third parties. In addition, these experiments suggest that third-party punishment games are powerful tools for studying the characteristics and the content of social norms. Further experiments indicate that second parties, whose economic payoff is reduced by the norm violation, punish the violation much more strongly than do third parties.

"This paper discusses a novel approach to elicit people's preferences fornpublic goods, namely the life satisfaction approach. Reported subjective well-beingndata are used to directly evaluate utility consequences of public goods. The strengthsnof this approach are compared to traditional approaches and identification issues arenaddressed. Moreover, it is applied to estimate utility losses caused by terroristnactivities in France, the UK and the Republic of Ireland. Terrorism in these countriesndepresses life satisfaction in a sizeable and robust way. However, the calculation ofnthe trade-off between terrorism and income requires improved measurement of thenmarginal utility of income."

"The 1-shot alpha-beauty contest is a non-equilibrium strategic game under bounded rationality conditions, while equilibrium is approached if the game is played iteratively sufficientlynmany times. Experimental data of the 1-shot setting of the 0-equilibrium game show a common pattern: The spectrum of announced numbers is a superposition of a skew backgroundndistribution and a regime of extra ordinarily often chosen numbers. Our model is capable ofnquantitatively reproducing this observation in non-equilibrium as well as the convergence to-nwards equilibrium in the iterative setting. The approach is based on two basic assumptions:n1.) Players iteratively update their recent guesses in the sense of eductive reasoning and 2.)nPlayers estimate intervals rather than exact numbers to cope with incomplete knowledge innnon-equilibrium. The width of the interval is regarded as a measure for the confidence ofnthe players' respective guess. It is shown analytically that the sequence of guessed numbers approaches a (finite) limit within only very few iterations. Moreover, if all playersnhave infinite confidence in their respective guesses, the asymptotic Winning Number equalsnthe rational Nash equilibrium 0, while if players have only finite confidence in their recentnguess, the Winning Number in the 1-shot setting is strictly larger than 0. Our model is alsoncapable of quantitatively describing the ""path into equilibrium"". Convergence is shown tonbe polynomial in the number of rounds played. The predictions of our model are in goodnquantitative agreement with real data for various alpha-beauty contest games.n "

Recent advances in the econometric modelling of count data have often been based on the generalized method of moments (GMM). However, the two-step GMM procedure may perform poorly in small samples, and several empirical likelihood-based estimators have been suggested alternatively. In this paper I discuss empirical likelihood (EL) estimation for count data models with endogenous regressors. I carefully distinguish between parametric and semi-parametric methods and analyze the properties of the EL estimator by means of a Monte Carlo experiment. I apply the proposed method to estimate the effect of women’s schooling on fertility.

The German health care reform of 1997 provides a natural experiment for evaluating the price sensitivity of demand for physicians’ services. As a part of the reform, co-payments for prescription drugs were increased step up to 200%. However, certain groups of people were exempted from the increase, providing a natural control group against which the changed demand for physicians’ services of the treated, those subject to increased co-payments, can be assessed. The differences-in-differences estimates indicate that increased co-payments reduced the number of doctor visits by about 10% on an average.

This paper tests the effect of a matching mechanism on donations in a controlled fieldnexperiment. We match the donations of students at the University of Zurich who, each semester,nhave to decide whether they wish to contribute to two Social Funds. Our results support thenhypothesis that a matching mechanism increases contributions to a public good. However, theneffect depends on the extent to which the contributions are matched. Whereas a 25 percentnincrease of a donation does not increase the willingness to contribute, a 50 percent increase doesnhave an effect. In addition, people need to be socially inclined to react to the matchingnmechanism. The field experiment provides some evidence suggesting that the matchingnmechanism crowds-out the intrinsic motivation of giving.

We provide a framework for analyzing bilateral mergers when there is two-sided asymmetric information about firms’ types. We show that there is always a "no-merger" equilibrium where firms do not consent to a merger, irrespective of their type. There may also be a "cut-off" equilibrium if the expected merger returns satisfy a suitable single crossing condition, which will hold if a firm’s merger returns are "essentially monotone decreasing" in its type. Applying our analysis to the linear Cournot model, we show how the merger pattern depends on the cost effects of mergers, the extent of uncertainty, and the way profits are split. Specifically, we show how increasing uncertainty about competitor types may foster mergers as firms hope for strong rationalization effects.

Volunteering constitutes one of the most important pro-social activities.nFollowing Adam Smith, helping others is the way to higher individual well-being. This viewncontrasts with the selfish utility maximizer who avoids costs from helping others. The twonrival views are studied empirically. We find robust evidence that volunteers are morensatisfied with their life than non-volunteers. Causality is addressed taking advantage of annatural experiment: the collapse of East Germany and its infrastructure of volunteering.nPeople who accidentally lost their opportunities for volunteering are compared to peoplenwho experienced no change in their volunteer status.

"Consider a society where all agents initially play fair"" and one agentninvents a cheating"" strategy such as doping in sports. Which factorsndetermine the success of the new cheating strategy? In order to studynthis question we consider an evolutionary game with heterogenous agentsnwho can either play fair or cheat. We model heterogeneity by assumingnthat the players are either high or low types. Three factors determinenthe imitation dynamics of the model: the location and the type of theninnovator, the distribution of types, and the information available to thenagents. In particular we *nd that the economy is more likely to end up inna state where all agents cheat if the innovator is of low type or when thenagents are maximally segregated."

Innovation has become a key element of the economic growth of highly developed countries. Moreover, it is an undisputed fact that Switzerland needs to strengthen its efforts at innovation. This has become clear, among other things in the message of the Federal Council, the Swiss government, which emphasises the promotion of education, research and technology for the years 2004 to 2007. Speedy implementation of technological and scientific potentials into innovative products and services is one of the primordial requirements to be competitive in the marketplace and, hence, to secure jobs. Primarily, this is a challenge to entrepreneurs. It is more demanding to launch into activities with innovative products and services, and greater risks are involved, than in the rationalisation of existing productions. Nevertheless, although entrepreneurial skills and qualities are at the fore with regard to successful innovative processes, the influence of the state with its framework should not be overlooked. It is well worth examining and reconsidering these factors from time to time.Comparing the Swiss innovation system with those of other countries can be a highly profitable exercise.