Contributions published at Department of Economics (Florian Scheuer)

"We examine the characteristics and the 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 punish the violation of the distribution norm and their punishment increases the more the norm is violated. Likewise, up to roughly 60 percent of the third parties punish the violation of the cooperation norm. Thus, our results show that the notion of strong reciprocity also 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. We also collect questionnaire evidence that is consistent with the view that fairness motives and negative emotions are a determinant of third party sanctions."

In a recent paper Engelmann and Strobl claim that a combination of a preference for efficiency and a Rawlsian motive for helping the least well-off is far more important than inequity aversion. Here we show that the relevance of the efficiency motive is largely restricted to students of economics and business administration. Students from other disciplines, adult academics from various disciplines and senior citizens value equality much higher than efficiency. Moreover, there is rather strong evidence that the relevance of the efficiency motive and the Rawlsian motive is largely restricted to non-strategic interactions.

"Economists long considered money illusion to be largelynirrelevant. Here we show, however, that money illusion has powerfulneffects on equilibrium selection. If we represent payoffs in nominal terms,nchoices converge to the Pareto inefficient equilibrium; however, if we liftnthe veil of money by representing payoffs in real terms, the Pareto efficientnequilibrium is selected. We also show that strategic uncertainty about thenother players’ behavior is key for the equilibrium selection effects ofnmoney illusion: even though money illusi on vanishes over time if subjectsnare given learning opportunities in the context of an individual optimizationnproblem, powerful and persistent effects of money illusion are found whennstrategic uncertainty prevails."

In many occupations workers’ labor supply choices are constrained by institutionalnrules regulating labor time and effort provision. This renders explicit tests of the neoclassicalntheory of labor supply difficult. Here we present evidence from studies examining labornsupply responses in “neoclassical environments” in which workers are free to choose whennand how much to work. Despite the favorable environment the results cast doubt on thenneoclassical model. They are, however, consistent with a model of reference dependentnpreferences exhibiting loss aversion and diminishing sensitivity.

We analyze a macroeconomic model of monopolistic competition in which consumers earn unequal incomes. When preferences are nonhomothetic, the distribution of income affects equilibrium markups and equilibrium product diversity.

This is a very colorful paper that makes for interesting reading. The author shows that the U. S. Food and Drug Administration (FDA) increasingly does not decide about market access to drugs only, but influences the innovation process as a whole. And although "information" does not appear in the title of the paper, the distribution of knowledge as affected by the FDA plays an important role at several stages of this process. For this reason, the body of this commentary is arranged according to the stages of the innovation process.

The observation that average health care expenditure rises with age generally leads experts and laymen alike to conclude that population ageing is the main driver of health care costs. In recently published studies we challenged this view (Zweifel et al., 1999; Felder et al., 2000). Analysing health care expenditure of deceased persons, we showed that age is insignificant if proximity to death is controlled for. Thus, we argued that population ageing per se will not have a significant impact on future health care expenditure. Several authors (Salas and Raftery, 2001; Dow and Norton, 2002; Seshamani and Gray, 2004a) disputed the robustness of these findings, pointing to potential weaknesses in the econometric methodology. This paper revisits the debate and provides new empirical evidence, taking into account the methodological concerns that have been raised. We also include surviving individuals to test for the possibility that the relative importance of proximity to death and age differs between the deceased and survivors. The results vindicate our earlier findings of no significant age effect on health care expenditure of the deceased. However, with respect to the survivors, we find that age may matter. Still, a naive estimation that does not control for proximity to death will grossly overestimate the effect of population ageing on aggregate health care expenditure. Following Stearns and Norton (2004), we conclude that "it is time for time to death" in projections of future health care costs.

The objective of this contribution is to evaluate the strengths and weaknesses of the Swiss health care system after the new Law on Health Insurance (LHI) that took effect at the beginning of 1996. The LHI just barely survived a popular referendum. An important argument of the campaign in its favor had been that health insurance premiums would fall thanks to increased competition between the sickness funds (mutual health insurers). At the same time, the federal government hoped that its budget would be less burdened by subsidies earmarked for health insurance. Neither expectation has been fulfilled, not least because Parliament made the list of benefits covered more comprehensive than ever. Thus, the health share in the GDP has continued to grow, from 9.5% in 1996 to some 11% in 2003 (OECD, 2004).

The previous literature on the determinants of individual well-being has failed to fully account for the interdependencies in well-being at the family level. This paper develops an ordered probit model with multiple random effects that allows to identify the intrafamily correlation in well-being. The parameters of the model can be estimated with panel data using Maximum Marginal Likelihood. The approach is illustrated in an application using panel data for the period 1984-1997 from the German Socio-Economic Panel in which both inter-generational and intra-marriage correlations in well-being are estimated.

The apprenticeship system is the most important source of formal post-secondary training in Germany. Using German register data – the IAB Employment Sample – it is found that apprentices staying with their training firm after graduation have a longer first-job durations but not higher wages than apprentices leaving the training firm. Retention rates, first job durations, and post-apprenticeship wages are all increasing functions of training intensity. Some implications for the ongoing debate as to why firms are willing to invest in general training are discussed.

This paper evaluates the German health care reform of 1997, using the individual number of doctor visits as outcome measure and data from the German Socio-Economic Panel for the years 1995–1999. A number of modified count data models allow us to estimate the effect of the reform in different parts of the distribution. The overall effect of the reform was a 10% reduction in the number of doctor visits. The effect was much larger in the lower part of the distribution than in the upper part.

The Amsterdam auction has been used to sell real estate in the Dutch capital for centuries. By awarding a premium to the highest losing bidder, the Amsterdam auction favors weak bidders without having the implementation difficulties of Myerson's (1981) optimal auction. In a series of experiments, we compare the standard first-price and English auctions, the optimal auction, and two variants of the Amsterdam auction. With strongly asymmetric bidders, the second-price Amsterdam auction raises substantially more revenues than standard formats and only slightly less than the optimal auction.

We use a laboratory experiment to study the extent to which investors’ choices are affected by limited loss deduction in income taxation. We first compare investment behavior in the no tax baseline to a tax control setting, in which the income from investments is taxed. We find that investors significantly reduce their risk-taking as predicted by theory. Next we compare the baseline investment choices to choices under three different types of income taxation. We observe that risk-taking is significantly increased with partial and with capped loss deduction, but is unaffected by a tax system that allows no loss deduction. Since in all these treatments the after tax outcomes of the prospects were identical, we conjecture that investors have a positively biased perception of partial and capped loss deduction that promotes their willingness to take risks.

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We specify a dynamic model in which agents adjust their decisions toward higher payoffs, subject to normal error. This process generates a probability distribution of players' decisions that evolves over time according to the Fokker-Planck equation. The dynamic process is stable for all potential games, a class of payoff structures that includes several widely studied games. In equilibrium, the distributions that determine expected payoffs correspond to the distributions that arise from the logit function applied to those expected payoffs. This ""logit equilibrium"" forms a stochastic generalization of the Nash equilibrium and provides a possible explanation of anomalous laboratory data.

We investigate how various institutional settings affect a network provider's incentives to invest in infrastructure quality. Under reasonable assumptions on demand, investment incentives turn out to be smaller under vertical separation than under vertical integration, though we also provide counterexamples. The introduction of downstream competition for the market can sometimes improve incentives. With suitable non-linear access prices investment incentives under separation become identical to those under integration.

«Risiko Krankenversicherung» beschreibt die soziale und private Krankenversicherung der Schweiz mit statistischen Methoden. Die Verankerung der Autorinnen und Autoren in Wissenschaft und Praxis führt zu einer einzigartigen Mischung aus Analyse und praktischer Erfahrung. Das Buch folgt den aktuellen Fragen zu KVG und VVG: Kostenanstieg, faire Prämienkalkulation, Solvenz, optimaler Risikoausgleich, Entwicklung von Managed Care.