Contributions published at Department of Economics (Florian Scheuer)

Can weakened religiosity lead to the rise of totalitarianism? The Nazi Party set itself up as a political religion, emphasizing redemption, sacrifice, rituals, and communal spirit. This had a major impact on its success: Where the Christian Church only had shallow roots, the Nazis received higher electoral support and saw more party entry. "Shallow Christianity" reflects the geography of medieval Christianization and the strength of pagan practices, which we use as sources of exogenous variation. We also find predictive power at the individual level: Within each municipality, the likelihood of joining the Nazi Party was higher for those with less Christian first names.

Several developments in Western democracies over the past decade have sparked worries about political stability. Standing out are the rise of radical political parties, heated polarization around questions of immigration, nationalism, or social liberalism, and – in some cases – attacks on democratic institutions. However, conflict and choice between clearly distinctive alternative ideas of how societies and economies should be governed are at the heart of democracy. Democracy needs competition and conflict. But where is the line between healthy and harmful conflict and polarization? In this paper, Silja Häusermann and Simon Bornschier explain that an interpretation of today’s state of democratic conflict as chaotic, fragmented, or volatile is misleading. Rather, Western democracies are in a process of a fundamental restructuring of the main political dividing lines. Over the past decades a new social cleavage has been emerging between universalistic and particularistic ideas of social, economic, and political organization, between openness and closure. This conflict is rooted in social groups defined by education, occupation, and territory. It relates to underlying collective identities on both sides, and it will dominate democratic party competition for the foreseeable future. It is not per se harmful to democracy but reflects genuinely different visions of desirable social order. However, under certain conditions, it can turn on democracy itself. The authors thus examine the functional and dysfunctional implications of polarized political conflict for democracy. To what extent is conflict and polarization healthy and under what conditions is it likely to endanger the very legitimacy and institutional stability of democracies? Building on existing knowledge about the dynamics of polarization, they discuss political and institutional means to contain polarization and to protect democratic stability.

Do veterans earn less? During WW I, the US organized “the greatest human lottery in history”: a random draft of 24 million men. Ultimately, 2.8 million Americans were selected to join the armed forces. We sample 10% of registrants of the 1917 lottery and match these men with the 1930 and 1940 US Federal Censuses. Low lottery numbers significantly increased the likelihood of serving in World War I. Importantly, military service also had a positive causal effect on earnings and occupational outcomes. Veterans joined professions with higher cognitive skill requirements, including higher intelligence, language, reasoning, and math requirements. Randomly-assigned military service had fundamentally different effects during World War I than in Vietnam. We rationalize this finding by analyzing complier characteristics.

Motivated by a popular perception that Roth accounts are welfare-improving for most people, this paper compares the effects of mandated Traditional (tax-deferred) or Roth (taxprepaid) retirement policies in a controlled laboratory setting. Selection effects, which complicate analyses of observational data, are avoided by random assignment to policies. Subjects receive exogenous incomes during “working” periods, followed by no-income “retirement” periods. In each period, subjects decide how many lab dollars to convert into “takehome pay,” akin to consumption with diminishing returns. Subjects’ decisions determine retirement savings and tax payments. Flat income and tax-rate profiles facilitate the analysis of behavioral factors like present-period tax avoidance, while optimal consumption and after-tax savings are identical for both treatments. Our results show that observed savings are suboptimal in both treatments and are influenced by gender, patience, and risk aversion measures. In contrast to conventional wisdom, there are no significant differences between policies; if anything, the Traditional treatment leads to marginally higher post-retirement consumption.

This paper provides a first comprehensive quantitative analysis of optimal patent policy in the global economy. We introduce a new framework, which combines trade and growth theory into a tractable tool for quantitative research. Our application delivers three main results. First, the potential gains from international cooperation over patent policies are large. Second, only a small share of these gains has been realized so far. And third, the WTO’s TRIPS agreement has been counterproductive, slightly reducing welfare in the Global South and for the world. Overall, there is substantial scope for policy reform.

Die Bank Wegelin war bis zu ihrer Auflösung im Jahr 2012 die älteste noch bestehende Bank in der Schweiz. Wie auch andere Banken geriet sie im Zusammenhang mit unversteuerten Vermögen von US-Kunden ins Visier der US-Behörden. Doch im Gegensatz zu anderen Geldinstituten besiegelte der Konflikt mit der US-Justiz das Ende der Bank Wegelin.Dr. Otto Bruderer und Dr. Konrad Hummler, beides ehemalige Teilhaber der Bank, haben die Finanzhistorikerin Dagmar Schönig und den Wirtschaftshistoriker Tobias Straumann beauftragt, den Sachverhalt mit einer Aussensicht aufzuarbeiten unddie Geschichte der Bank für die Nachwelt festzuhalten. Ihr Augenmerk galt nicht zuletzt der Frage, warum damals ausgerechnet eine St. Galler Privatbankverschwinden musste, während fast alle anderen geahndeten Schweizer Banken weiter existieren konnten.Entstanden ist eine umfassende und objektive Darstellung der Geschichte der Bank Wegelin, deren Untergang zu den markantesten Ereignissen der Schweizer Finanzgeschichte zu Beginn des 21. Jahrhunderts gehört.

International investment agreements employ dispute settlement procedures that differ markedly from their counterparts in trade agreements. A prominent and controversial difference arises with respect to the issue of “standing”: Who has the right to complain to adjudicators about a violation of the agreement? While trade agreements limit standing to the member governments (state-to-state dispute settlement), investment agreements routinely extend standing to private investors as well (investor-state dispute settlement). We develop parallel models of trade and investment agreements and employ them to study this difference. We find that the difference in standing between trade and investment agreements can be understood as deriving from the fundamentally different problems that these agreements are designed to solve. Our analysis also identifies some important qualifications to the case for including investor-state dispute settlement provisions in investment agreements, thereby offering a potential explanation for the strong political controversy associated with these provisions.

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 (AR) and cumulative abnormal return (CAR), 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.

International tax rules are commonly viewed as obsolete as multinational corporations exploit loopholes to move their profits to tax havens. This paper uncovers how international tax reforms can curb profit shifting and impact real income and welfare across nations. We build a model of international corporate tax avoidance under imperfect competition that disentangles profits that stem from real economic activity from paper profits that are booked in tax havens. Our framework delivers a set of ``triangle identities'' through which we recover bilateral profit-shifting flows. Using different data sources ranging from publicly available to firm-level datasets, we find an elasticity of paper profits that is three times larger than the elasticity of the tax base. In our quantitative model, a global minimum tax increases welfare by inducing higher tax revenues and public good provision. It also encourages countries to raise their statutory corporate tax rates as it effectively reduces tax competition. Instead, a border adjustment tax (BAT) that eliminates profit shifting distorts multinational production and may result in welfare losses. A tax reform in the spirit of the destination-based cash-flow tax, combining a BAT with a reduction in the corporate income tax rate may induce efficiency gains at the expense of public good provision.

The EU’s common commercial policy is used as an instrument to realize its values in EU trading partners, reflected in the inclusion of sustainable trade and development chapters in EU preferential trade agreements (PTAs). This chapter asks if including non-trade provisions (NTPs) in EU PTAs has a systematic positive effect on non-trade outcomes in partner countries. It analyzes the relationship between bilateral trade flows, the coverage of NTPs in EU PTAs and the performance of EU partner countries on several non-trade outcome variables using synthetic control methods. It finds no robust evidence of a causal effect of including NTPs in EU PTAs on indicators of non-trade outcomes.

Parsimony is a desirable feature of economic models but almost all human behaviors are characterized by vast individual variation that appears to defy parsimony. How much parsimony do we need to give up to capture the fundamental aspects of a population’s distributional preferences and to maintain high predictive ability? Using a Bayesian nonparametric clustering method that makes the trade-off between parsimony and descriptive accuracy explicit, we show that three preference types—an inequality averse, an altruistic and a predominantly selfish type—capture the essence of behavioral heterogeneity. These types independently emerge in four different data sets and are strikingly stable over time. They predict out-of-sample behavior equally well as a model that permits all individuals to differ and substantially better than a representative agent model and a state-of-the-art machine learning algorithm. Thus, a parsimonious model with three stable types captures key characteristics of distributional preferences and has excellent predictive power.

We consider the design of contests when the principal can choose both the prize profile and how the prizes are allocated as a function of a possibly noisy signal about the agents' efforts. We provide sufficient conditions that guarantee optimality of a contest. Optimal contests have a minimally competitive prize profile and an intermediate degree of competitiveness in the contest success function. Whenever observation is not too noisy, the optimum can be achieved by an all-pay contest with a cap. When observation is perfect, the optimum can also be achieved by a nested Tullock contest. We relate our results to a recent literature which has asked similar questions but has typically focused on the design of either the prize profile or the contest success function.

A random variable is difference-form decomposable (DFD) if it may be written as the difference of two i.i.d. random terms. We show that densities of such variables exhibit a remarkable degree of structure. Specifcally, a DFD density can be neither approximately uniform, nor quasiconvex, nor strictly concave. On the other hand, a DFD density need, in general, be neither unimodal nor logconcave. Regarding smoothness, we show that a compactly supported DFD density cannot be analytic and will often exhibit a kink even if its components are smooth. The analysis highlights the risks for model consistency resulting from the strategy widely adopted in the economics literature of imposing assumptions directly on a dfference of noise terms rather than on its components.

While the game-theoretic analysis of conflict is often based on the assumption of multiplicative noise, additive noise such as considered by Hirshleifer (1989) may be equally plausible depending on the application. In this paper, we examine the equilibrium set of the n-player difference-form contest with heterogeneous valuations. For high and intermediate levels of noise, the equilibrium is in pure strategies, with at most one player being active. For small levels of noise, however, we find a variety of equilibria in which some but not necessarily all players randomize. In the case of homogeneous valuations, we obtain a partial uniqueness result for symmetric equilibria. As the contest becomes increasingly decisive, at least two contestants bid up to the valuation of the second-ranked contestant, while any others ultimately drop out. Thus, in the limit, equilibria of the Hirshleifer contest share important properties of equilibria of the corresponding all-pay auction.

Foraging theory prescribes when optimal foragers should leave the current option for more rewarding alternatives. Actual foragers often exploit options longer than prescribed by the theory, but it is unclear how this foraging suboptimality arises. We investigated whether the upregulation of cholinergic, noradrenergic, and dopaminergic systems increases foraging optimality. In a double-blind, between-subject design, participants (N = 160) received placebo, the nicotinic acetylcholine receptor agonist nicotine, a noradrenaline reuptake inhibitor reboxetine, or a preferential dopamine reuptake inhibitor methylphenidate, and played the role of a farmer who collected milk from patches with different yield. Across all groups, participants on average overharvested. While methylphenidate had no effects on this bias, nicotine, and to some extent also reboxetine, significantly reduced deviation from foraging optimality, which resulted in better performance compared to placebo. Concurring with amplified goal-directedness and excluding heuristic explanations, nicotine independently also improved trial initiation and time perception. Our findings elucidate the neurochemical basis of behavioral flexibility and decision optimality and open unique perspectives on psychiatric disorders affecting these functions.

Der WTO-Chefökonom Ralph Ossa warnt davor, das Rad der Globalisierung zurückzudrehen. Gerade für die Bekämpfung des Klimawandels brauche es freien Handel.

We study same-sex role model effects of teachers with a meta-analysis and our own study of three million students in 90 countries. Both approaches show that role model effects on performance are, on average, small: 0.030 SD in the meta-analysis and 0.015 SD in our multi-country study. Going beyond test scores, our multi-country study documents larger average role model effects on job preferences (0.063 SD). To understand the universality of these effects, we estimate the distributions of country-level same-sex role model effects. Although role model effects on test scores appear universally small, we find substantial cross-country variation for job preferences, with larger effects in countries with larger gender gaps. These results are consistent with role models inspiring students to overcome gender stereotypes and pursue a STEM career. However, in countries with negligible gender gaps, role models do not seem to have this equalizing function.