Contributions published at Department of Economics (Florian Scheuer)

We examine the competitive effects of the vertical integration of gasoline refineries and retailers in the U.S. Adapting the first-order condition approach of static oligopoly games to the analysis of vertically related oligopolies, we develop a novel framework for directly evaluating the strategic foreclosure effect and the effciency benefits associated with vertical integration. Applying this framework, we find significant evidence for both vertical foreclosure and effciency benefits. The foreclosure effect dominates the effciency benefits for more than half of the refining firms in the sample. Vertical foreclosure is found to increase the wholesale price of refined gasoline by 0.2 to 0.6 cents per gallon.

We found that models of evolving random networks exhibit dynamic scaling similar to scaling of growing surfaces. It is demonstrated by numerical simulations of two variants of the model in which nodes are added as well as removed (Phys. Rev. Lett., 83 (1999) 5587). The averaged size and connectivity of the network increase as power laws in early times but later saturate. Saturated values and times of saturation change with paramaters controlling the local evolution of the network topology. Both saturated values and times of saturation obey also power law dependences on controlling parameters. Scaling exponents are calculated and universal features are discussed.

People not only care about outcomes, they also value the procedures which lead to the outcomes. Procedural utility is a potentially important source of human well-being. This paper aims at introducing the concept of procedural utility into economics, and argues that it should be incorporated more widely into economic theory and empirical research. Three building blocks of a concept of procedural utility are outlined and it is suggested how procedural utility can be fruitfully integrated. Evidence from a broad range of social sciences is reviewed in order to show that procedural utility is a relevant concept for economics.

An important source of conflict surrounding nuclear energy is that with a very small probability, a large-scale nuclear accident may occur. One way to internalize the financial risks associated with such an accident is through mandatory liability insurance. This paper presents estimates of the willingness to pay for increased financial security provided by an extension of coverage, based on the `stated choice' approach. A Swiss citizen with median characteristics may be willing to pay 0.08 cents per kwh to increase coverage beyond the current CHF 0.7 bn. (USD 0.47 bn.). Marginal willingness to pay declines with higher coverage but exceeds marginal cost at least up to a coverage of CHF 4 bn. (USD 2.7 bn.). An extension of nuclear liability insurance coverage therefore may be effciency-enhancing.

The 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 to estimate the effect of the reform in different parts of the distribution. The overall effect of the reform was a 10 percent 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 paper explores a model of equilibrium selection in coordination games, where agents from an infinite population stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, it is assumed that agents follow a rule of `switching to better strategies with higher probability'. This behavioral rule is related to bounded-rationality models of Rosenthal (1989) and Schlag (1998). Moreover, agents stay with their strategy in case they successfully coordinate with their local neighbors. Our main results show that both strict Nash equilibria of the coordination game correspond to invariant distributions of the process, hence evolution of play is not ergodic but instead depends on initial conditions. However, coordination on the risk-dominant equilibrium occurs with probability one whenever the initial fraction contains infinitely many agents, independent of the spatial distribution of these agents.

People are likely to obtain utility not only from actual outcomes, but also from the conditions which lead to these outcomes. This paper empirically tests the notion of procedural utility for the context of work relationships. Using a large survey among British workers, we find substantial procedural effects on the utility workers derive from their pay. Utility from pay is not only strongly influenced by economic outcomes (the pay levels workers get for given inputs), but also by the way pay is determined. The findings are robust to a series of alternative explanations.

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 counter-examples. 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.

We consider market dynamics in a reduced form model. In the simplest version, there are two investors and several small noninvesting firms. In each period, one investor can acquire a small firm, the other investor decides about market entry. After that all firms play an oligopoly game. We derive conditions under which increasing market concentration arises with myopic firms, we show that a model with forward-looking firms and with arbitrary numbers of investors yield similar results. We apply the framework to a Cournot model with cost synergies and a Bertrand model where acquisitions extend the product spectrum of a firm.

We analyze a myopic strategy adjustment process in strategic-form games. It is shown that the steady states of the continuous time limit, which is constructed assuming frequent play and slow adjustment of strategies, are exactly the best-reply matching equilibria, as discussed by Droste, Kosfeld, and Voorneveld (2000. Mimeo, Tilburg University). In a best-reply matching equilibrium every player ‘matches’ the probability of playing a pure strategy to the probability that this pure strategy is a best reply to the pure-strategy profile played by his opponents. We derive stability results for the steady states of the continuous time limit in 2×2 bimatrix games and coordination games. Analyzing the asymptotic behavior of the stochastic adjustment process in discrete time shows convergence to minimal curb sets of the game. Moreover, absorbing states of the process correspond to best-reply matching equilibria of the game.

This work gives a brief overview of the portfolio selection problem following the mean-risk approach first proposed by Markowitz (1952). We consider various risk measures, i.e. variance, value-at-risk and expected-shortfall and we study the efficient frontiers obtained by solving the portfolio selection problem under these measures. We show that under the assumption that returns are normally distributed, the efficient frontiers obtained by taking value-at-risk or expected-shortfall are subsets of the mean-variance efficient frontier. We generalize this result for all risk measures that can be written as a particular combination of mean and variance and we show that for these measures Tobin separation holds under some restrictions.

This paper reports the results of a series of competitive labour market experiments in which subjects have the possibility to reciprocate favours. In the high stake condition subjects earned between two and three times their monthly income during the experiment. In the normal stake condition the stake level was reduced by a factor of ten. We observe that both in the high and the normal stake condition fairness concerns are strong enough to outweigh competitive forces and give rise to non-competitive wages. There is also no evidence that effort behaviour becomes generally more selfish at higher stake levels. Therefore, our results suggest that, contrary to common beliefs, fairness concerns may play an important role even at relatively high stake levels.

Preise, Einkommen, und Nachfrage – die zentralen zu erklaerenden Variablen in den Wirtschaftswissenschaften sind objektiv messbar. Daneben gibt es jedoch zwei nicht minder zentrale Groessen, Erwartungen und Praeferenzen, die sich einer direkten objektiven Messung entziehen. Es sind subjektive Variablen, also solche, die von persoenlichen Meinungen und Erfahrungen bestimmt sind. Allerdings bedeutet dies nicht, dass sie ueberhaupt nicht messbar waeren. Ganz im Gegenteil enthalten typische Haushaltsbefragungen eine ganze Reihe von subjektiven Fragen, die ueber verschiedene Aspekte von Erwartungs- und Praeferenzbildung informieren. Im folgenden werde ich darstellen, welche Arten von subjektiven Variablen bisher in der empirischen Wirtschaftsforschung betrachtet wurden. Dann werde ich auf Probleme bei der Interpretation von subjektiven Variablen eingehen. Und schliesslich werde ich die wesentlichen Aspekte der oekonometrischen Modellbildung besprechen und zwei neue Modelle vorstellen.

"This note shows that permanent fluctuations in the Cobweb model — though inconsistent with a rational expectations equilibrium — can be justified as being rational when reinterpreting the model in the theory of rational beliefs."

This paper surveys recent approaches towards lobbying if interest groups influence the decision of an incumbent government. It describes the two main channels of influence which mainly exist in parallel, namely contribution payments and the transmission of information through lobbying. Recent extensions to the two basic lobbying models are discussed in great detail. Thereafter follows a short overview over current research, which tries to consolidate the two distinct branches of literature into a general lobbying model. The survey concludes with a summary of the main insights and indicates promising directions of further research.

"Recent evidence highlights the importance of social norms in many economic relations. However, many of these relationships are long-term and provide repeated game incentives for performance. We experimentally investigate interaction effects of reciprocity and repeated game incentives in two treatments (one-shot and repeated) of a gift-exchange game. In both treatments we observe reciprocity, which is strengthened in the repeated game. A detailed analysis shows that in the repeated game some subjects imitate reciprocity. Thus, reciprocity and repeated game incentives reinforce each other. Observed behaviour is robust against experience. We conclude that a long-term interaction is a “reciprocity-compatible” contract enforcement device."

"In Europe, ever more private museums are now entering the field. This paper investigates the behavior of one of these private museums, using an institutional approach of cultural economics. The Beyeler museum in Basle, Switzerland, is a privately founded art museum with an extraordinary collection of art works. Though less than five years old, it is acknowledged to be the most successful museum in Switzerland in terms of number of visitors. However, the Beyeler museum is not completely private but receives public support. We analyze how this influences the museum’s behavior: (1) The directorate of the Beyeler museum stays away from the art market with its collection as public institutions do. (2) The museum embarks on a self-propelling process concerning special exhibitions, therewith losing some of its uniqueness. (3) Concerning visitors’ amenities, differences between private and publicnmuseums emerge but to a lesser extent than expected according to theory."

Survival in academia depends on publications in refereed journals. Authors only get their papers accepted if they intellectually prostitute themselves by slavishly following the demands made by anonymous referees without property rights on the journals they advise. Intellectual prostitution is neither beneficial to suppliers nor consumers. But it is avoidable. The editor (with property rights on the journal) should make the basic decision of whether a paper is worth publishing or not. The referees only give suggestions on how to improve the paper. The author may disregard this advice. This reduces intellectual prostitution and produces more original publications.

This paper investigates if multinationals in.uence the political process through lobbying more effectively than national firms. First, I introduce a model which contrasts a multinational’s incentives for lobbying with those of a national firm. Then the effect of lobbying on the political decision is analyzed. I conclude that multinationals have smaller incentives to lobby because they have smaller stakes in national markets. But the effectiveness of lobbying by multinationals might be higher if the government cares much about production in the home country. The resulting regulation depends on the relative strength of these effects.

Economics and psychology are both sciences of human behaviour. This paper gives a survey of their interaction. First, the changing relationship between the two sciences isndiscussed: while economics was once imperialistic, it has become a science inspired by psychological insights. In order to illustrate this, recent developments and evidence for three major areas are presented: bounded rationality, non-selfish behaviour, and the economics of happiness.