Contributions published at Department of Economics (Florian Scheuer)

This paper studies a monetary economy with heterogenous agents in which trade takes place in a centralized market. Each agent is a potential producer and consumer of a service (or perishable good) but has stochastic preferences that determines his taste for the good in each period in time. Money serves as a medium of exchange as well as a store of value. We prove existence of stationary fix-price equilibria with exogenously given quantity of money in which transactions can take place at non-Walrasian prices. Precautionary savings, under- and oversupply, dynamics on moneynholdings, and the effects of changes in the quantity of money are discussed.

This paper studies the performance of self-financing constant proportions trading strategies, i.e. dynamic asset allocation strategies that keep a fixed constant proportion of wealth invested in each asset in all periods in time. We prove that any self-financing constant proportions strategy yields a strictly positive exponential rate of growth of investor's wealth in a financial market in which prices are described by stationary stochastic processes and the price ratios are non-degenerate. This result might be regarded as being counterintuitive because any such strategy yields no increase of wealth under constant prices. We further show that the result also holds under small transaction costs, which is important for the viability of this approach, since constant proportions strategies require frequent rebalancing of the portfolio.

Fuer das Entstehen von Finanzintermediaeren existieren in der theoretischen Literatur zahlreiche ueberzeugende Begruendungen, die konsequent zu Ende gedacht allerdings auf einen Finanzintermediaer als natuerliches Monopol hinauslaufen. Beitraege, die Grenzen fuer das Wachstum von Finanzintermediaeren aufzeigen, sind indessen selten. Das vorliegende Papier baut auf einem Modell von Millon und Thakor auf. Die betrachteten Akteure sind die einzelnen Informationsagenten (z.B. Sachbearbeiter) des Finanzintermediaers, die einen gewissen Aufwand fuer das Sammeln von Informationen ueber ihre Kunden betreiben muessen. Zu einer freiwilligen und oekonomisch sinnvollen Zusammenarbeit zwischen ihnen kommt es nur dann, wenn sie im Rahmen ihrer Zusammenarbeit Informationsteilung betreiben koennen. Die wesentlichen neuen Ergebnisse des vorliegenden Beitrags sind, dass es unter heterogenen Informationsagenten nur zu Gruppenbildungen von recht homogenen (spezialisierten) Agenten kommen wird. Zugleich bestehen aber dynamische Anreizwirkungen, durch welche eben diese Homogenitaet innerhalb eines Finanzintermediaers bedroht wird. Die dynamischen Anreizwirkungen innerhalb eines Finanzintermediaers sind nicht nur fuer die begrenzte Groesse von Finanzintermediaeren verantwortlich, sondern koennen sogar den Keim fuer eine spaetere Aufspaltung oder Aufloesung von Finanzintermediaeren bilden.

An empirical investigation of the term structure (the relation of the long interest rate to the short interest rate) showed structural change as the deadline for the euro became closer. Our empirical analysis of the term structures (yield curves) in 12 OECD countries uncovers that econometrically estimated behavioural equations for most EMU countries were stable even in the light of the creation of the euro. This finding would seem to defy the Lucas Critique. However, the significant structural instability found for the euro area's core country Germany suggests that the Lucas Critique is relevant in the analysis of the impact of the creation (and future extensions) of EMU.

Politik und öffentliches Bewusstsein werden zunehmend durch ökonomische Theorien und Handlungsvorschläge mitbestimmt. Kaum ein anderes erkenntnis- und handlungsleitendes Modell hat daher einen vergleichbaren Einfluss wie das Konzept des Homo Oeconomicus. Durch die Entwicklung experimenteller Methoden ist es möglich, die Annahmen dieses Konzepts unter kontrollierten Laborbedingungen mit dem tatsächlichen Handeln von Individuen zu vergleichen. In der vorliegenden Arbeit werden zunächst verschiedene Experimentalstudien diskutiert, die eindeutig belegen, daß der Homo Oeconomicus weitaus weniger universell ist, als gemeinhin angenommen. Die Mehrheit der Experimentalteilnehmer verhält sich reziprok, d.h. sie belohnt faires Verhalten und bestraft unfaires Verhalten, selbst wenn dies mit Kosten verbunden ist. Der Nachweis reziproken Verhaltens hat weitreichende Konsequenzen für die ökonomische Politikberatung.

This paper analyzes the equilibrium outcomes in a network industry under daccess pricing, investment, vertical foreclosureifferent vertical market structures. In this industry, an upstream monopolist operates a network used as an input to produce horizontally differentiated final products that are imperfect substitutes. Three potential drawbacks of market structure regulation are analyzed: (i) double marginalization, (ii) underinvestment, and (iii) vertical foreclosure. We explore the conditions under which these effects emerge and discuss when the breakup of an integrated network monopolist is adequate.

We study the importance of conditional cooperation in a one-shot public goods game by using a variant of the strategy-method. We find that a third of the subjects can be classified as free riders, whereas 50% are conditional cooperators.

Given the USA`s refusal to ratify there is little hope for the Kyoto agreement on curbing CO2 emissions. This paper thus pledges for a national energy policy beyond Kyoto based on local external effects stemming from the combustion of fossil fuels. Due to varying external effects a national policy will differentiate energy taxes between fuels. Using Swiss estimates of external effects it is shown that a national policy would fulfill the Kyoto goal as a secondary benefit. Moreover, a nationally based fossil fuel policy would affect the scope for an international trade of CO2 emission rights, as a net-buyer of emission rights will loose from participating in such a trade.

"Die Entlohnung von Topmanagern ist in den westlichen Industrieländern über die letzten Jahre markant angestiegen. Wir stellen verschiedene Ansätze dar, welche diese Entwicklung zu erklären versuchen, und prüfen sie auf ihren Erklärungsgehalt: (1) Die Entwicklung ist das Ergebnis eines gut funktionierenden Marktprozesses; sie beruht auf strukturellen Veränderungen auf der Nachfrage- bzw. auf der Angebotsseite des Managermarktes; (2) Die Entwicklung reflektiert ‚rent seeking': infolge von Marktunvollkommenheiten können Manager als Anbieter von Managementdienstleistungen die Nachfrage nach diesen Leistungen beeinflussen. Managerentlohnung wird dabei mit der Qualität der corporate governance in Verbindung gebracht; (3) Ein eigener Erklärungsvorschlag bringt die Entwicklung in den USA mit der Einführung von Offenlegungsvorschriften für Spitzenentschädigungen im Jahre 1992 in Zusammenhang: diese haben einen sich selbst verstärkenden Prozess der Referenzgruppenentlohnung in Gang gesetzt."

This study applies conjoint analysis (CA) to estimate the marginal willingness-to-pay (MWTP) of elderly individuals for a reduction of the risk of fracture of the femur. The good in question is a hypothetical hip protector which lowers the risk of a fracture by different amounts. Other attributes are ease of handling, wearing comfort, and out-of-pocket cost, which are traded off against risk reduction. In 500 face-to-face interviews, pensioners stated whether or not they would buy the product. Results suggest that MWTP for wearing comfort exceeds that for risk reduction. Indeed, willingness-to-pay for the product as a whole is negative, indicating that it should not be included as a mandatory benefit in health insurance.

Many technologies used by the LDCs are developed in the OECD economies and are designed to make optimal use of the skills of these richer countries' workforces. Differences in the supply of skills create a mismatch between the requirements of these technologies and the skills of LDC workers, and lead to low productivity in the LDCs. Even when all countries have equal access to new technologies, this technology-skill mismatch can lead to sizable differences in total factor productivity and output per worker. We provide evidence in favor of the cross-industry productivity patterns predicted by our model, and also show that technology-skill mismatch could account for a large fraction of the observed output per worker differences in the data.

"Informal sanctions are a major determinant of a society’s social capital because they are key to the enforcement of implicit agreements and social norms. Yet, little is known about the driving forces behind informal sanctions. We systematically examine the determinants of informal sanctions by a large number of experiments. Our experiments allow us to identify the relative importance of three major potential factors: (i) strategic sanctioning for selfish reasons, (ii) non-strategic sanctions driven by spitefulness, and (iii) non-strategic sanctions that are driven by the violation of fairness principles. In addition, the observed sanctioning patterns provide insights into the relevance of different fairness principles.nOur findings show that the violation of fairness principles is the most important driving force of sanctions but, in addition, a non-negligible part of the sanctions is driven by spitefulness. We find surprisingly little evidence for strategic sanctions that are imposed to create future material benefits. While non-strategic sanctions are of major importance in our experiments, strategic sanctions seem to play a negligible role. Within the class of fairnessdrivennsanctions the motive to harm those who committed unfair actions seems mostnimportant."

In this paper we pursue an approach based on economic theory to illustrate possible shortcomings of widely-used detrending methods. Wenanalyze a simple model of economic growth and business cycles in which investment and technical progress are stochastic. The Hodrick-Prescottnand the Baxter-King filter are shown to detect spurious business cycles which are not related to actual cycles in the model. Our results cast doubts on the validity of commonly-accepted stylized business cycle facts. We also discuss the relation of business-cycle dating based on indicators of economic activity, as e.g. applied by the NBER, and the detrending results.

Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.

The burning of fossil fuels not only causes CO2 emissions but at the same time impairs local environmental quality such as ambient air quality. The present paper analyzes the possible distortion arising from international trade in CO2 emissions when local externalities persist. It is theoretically derived that the maximal possible distortion is determined by the difference in factor endowment and population density of the trading regions. Moreover, an empirical illustration for Switzerland shows that a rich country buying emission rights sustains a welfare loss.

Stock option grants to top managers have largely contributed to the dramatic increase in US executive pay in recent years. In this paper it is argued that stock options, compared to other forms of compensation, have created strong incentives for managers to engage in lobbying activities for higher compensation. The empirical results presented for the S&P 500 firms and the years from 1992 to 1997 show that the relative success of such skimming activities is shaped by institutional controls. Stock option grants are substantially lower when control by the board of directors and the shareholders is higher, and competition on the product market of a firm is stronger.

"We normally take it for granted: a government or state has its corresponding territory. This paper shows that government need not have a territorial monopoly. The paper advances a practical, constitutional proposal, based on the notion that there are meaningful government units, whose major characteristic is not the territorial extension but its function. The constitution proposal allows for the emergence of governmental organizations, which will be called FOCJ according to the acronym for “Functional, Overlapping, Competing Jurisdictions”. Their territory is variable, and they do not have a territorial monopoly over it. Rather, they are in competition with other such FOCJ, and they are, moreover, exposed to political competition."

The goal of this paper is to introduce and illustrate a new approach to the stability analysis of sample-paths of nonlinear stochastic economic models with non-stationary components. We place our study within the mathematical theory of random dynamical systems and apply the concept of a random fixed point which is tailor-made for the study of the long-term behavior of sample-paths in stochastic systems. The main tool for the application of this approach is a Banach-type fixed point theorem for non-stationary random dynamical systems which is proved here. The concept and the theorem are thoroughly explained and illustrated by two examples from stochastic growth theory.

Die Studie untersucht die Eigenschaften der Unternehmen, die als Erste in einen sich neu oeffnenden Markt investieren. Fuer den ersten Investor bestehen gewisse Vorteile (first-mover-advantages), die einen moeglichst fruehen Eintritt in den Markt nahe legen. Andererseits fuehrt die politische und wirtschaftliche Unsicherheit in Osteuropa zu einem Anreiz, die Investitionsentscheidung hinauszuzoegern, um von den Erfahrungen der anderen zu profitieren. Die Einflussfaktoren fuer die Wahl des Zeitpunktes der ersten Direktinvestition in Osteuropa werden anhand der Daten von rund 1000 Industrieunternehmen aus der Schweiz geschaetzt. Die Ergebnisse zeigen, dass grosse und international erfahrene Unternehmen aus dem Konsumgueterbereich einen fruehen Markteintritt bevorzugen. Zudem werden Direktinvestitionen, die auf den lokalen Markt ausgerichtet sind, frueher getaetigt als Investitionen zur Ausnutzung der niedrigen Arbeitskosten.

We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that are doomed to fail when there are only selfish actors provide powerful incentives and become superior when there are also fair-minded players. These predictions are strongly supported by the results of a series of experiments. Furthermore, our results suggest that the existence of fair actors may be an important reason why many contracts are left deliberately incomplete.