Contributions published at Department of Economics (Florian Scheuer)

Opposition between the far right and the new left has transformed West European politics, mainly through increasing sociocultural conflicts. We ask what the new cleavage articulated by these parties implies for the politicization of inequalities in advanced knowledge societies. We contrast two diverging expectations in existing literature: A first, more rational-choice-based perspective expects a trade-off, with new left voters "privileged" by economic transformations emphasizing sociocultural inequalities over socioeconomic ones–and vice versa for "disadvantaged" far right voters. A second, more sociological perspective, predicts attitudes on inequalities to be aligned along a single dimension from new left "universalists" being inequality-averse to right-wing "particularists" being more inequality-tolerant. Our evidence based on original survey data from Germany supports the second perspective. Studying the structural (educational, class, etc.) foundations of inequality aversion suggests that even the transformed (new) left electorate is more sensitive to all dimensions of inequality than voters on the (far) right.

Top income inequality in the United States has increased considerably within occupations. This phenomenon has led to a search for a common explanation. We instead develop a theory where increases in income inequality originating within a few occupations can “spill over” through consumption into others. We show theoretically that such spillovers occur when an occupation provides non-divisible services to consumers, with physicians our prime example. Examining local income inequality across U.S. regions, the data suggest that such spillovers exist for physicians, dentists, and real estate agents. Estimated spillovers for other occupations are consistent with the predictions of our theory.

In this chapter, we conceptualise an ideal framework that captures three reinforcing levers for measuring local government performance in sub-Saharan Africa, specifically Ghana, namely policy pronouncement, political processes and internal operations, and policy implementation. Given data limitations we employ a ‘next best’ approach to apply this framework and measure local government performance by combining a weighted ‘quality of reporting’ measure with selected available measures on political processes and internal operations, and policy implementation, so as to construct a composite index for local government performance (LGI). We also look at the relationship between our performance indices and other indices of local government performance in Ghana, as well as poverty headcounts. We find that, on average, urban districts perform better than their rural counterparts and also districts located in the southern half of Ghana perform better. Our constructed composite index is positively correlated with indices from Ghana’s district league tables. It has a negative relationship with poverty headcount in districts, indicating that districts with lower poverty incidence are more effective and responsive to their citizens. The findings provide a snapshot of institutional performance across Ghana’s districts, and offer a more comprehensive basis for considering variations in subnational institutional performance, including the effects of decentralisation than previous studies of Ghana – or indeed African countries more broadly.

When is state coercion for the provision of public goods justified? And how should the social surplus of public goods be distributed? Philosophers approach these questions by distinguishing between essential and discretionary public goods. This article explains the intractability of this distinction, and presents two upshots. First, if governments provide configurations of public goods that simultaneously serve essential and discretionary purposes, the scope for justifiable complaints by honest holdouts is narrower than commonly assumed. Second, however, claims to distributive fairness in the provision of public goods also turn out to be more complex to assess.

Many recent studies have underlined the importance of inequality perceptions as determinants of political demands and behavior. Yet, this literature often focuses on the public perception of one single, often economic, dimension of inequality. This study aims to broaden our perspective and provides a comprehensive assessment of public perceptions of socioeconomic (income, education, and class inequality) and sociocultural inequalities (gender, sexual orientation, and migration background inequality). Furthermore, we disentangle different components of inequality perceptions: the assessed importance of differences, as how problematic they are judged, and who thinks that these inequalities are central to political debates nowadays. We find that highly educated respondents attribute more importance and mostly judge inequalities across the board as more important than the less educated. While information on the extent of inequality can move the assessment of how important inequality is in society, the judgment of these divides remains unchanged, hinting to more deep-seated beliefs that are not as easily changed.

We experimentally investigate the degree to which redistribution, the act of taking money from some individuals and giving it to others, affects social capital in groups. We measure social capital as the degree to which group members exhibit cooperativeness, trust and trustworthiness toward one another. Our experiment involves several rounds of real-effort production, in which we vary the degree to which individual income is redistributed at the end of each round according to either progressive or regressive redistributive policies. We find no statistically significant impacts of such experience with redistribution on any of our primary measures of social capital. Exploratory work considering heterogeneous impacts by relative income positions and using alternative measures of social capital also yields no reliable impacts.

We investigate the short- and long-term effects of a natural gas boom in an economy where energy can be produced with coal, natural gas, or clean sources and the direction of technology is endogenous. In the short run, a natural gas boom reduces carbon emissions by inducing substitution away from coal. Yet, the natural gas boom discourages innovation directed at clean energy, which delays and can even permanently prevent the energy transition to zero carbon. We formalize and quantitatively evaluate these forces using a benchmark model of directed technical change for the energy sector. Quantitatively, the technology response to the shale gas boom results in a significant increase in emissions as the US economy is pushed into a “fossil-fuel trap” where long-run innovations shift away from renewables. Overall, the shale gas boom reduces our measure of social welfare under laissez-faire, whereas, combined with carbon taxes and more generous green subsidies, it could have increased welfare substantially.

Humans are generally risk averse, preferring smaller certain over larger uncertain outcomes. Economic theories usually explain this by assuming concave utility functions. Here, we provide evidence that risk aversion can also arise from relative underestimation of larger monetary payoffs, a perceptual bias rooted in the noisy logarithmic coding of numerical magnitudes. We confirmed this with psychophysics and functional magnetic resonance imaging, by measuring behavioural and neural acuity of magnitude representations during a magnitude perception task and relating these measures to risk attitudes during separate risky financial decisions. Computational modelling indicated that participants use similar mental magnitude representations in both tasks, with correlated precision across perceptual and risky choices. Participants with more precise magnitude representations in parietal cortex showed less variable behaviour and less risk aversion. Our results highlight that at least some individual characteristics of economic behaviour can reflect capacity limitations in perceptual processing rather than processes that assign subjective values to monetary outcomes.

Fairness concerns play a prominent role in promoting cooperation in human societies. Social preferences involving fairness concern have been associated with individual testosterone levels. However, the causal effects of testosterone administration on fairness-related decision making remain to be elucidated. Here, we used a randomized, double-blind, between-participant design and administered testosterone or placebo gel to 120 healthy young men. Three hours after administration, participants performed a modified Dictator Game from behavioral economics, in which they were asked to choose one of two monetary allocations between themselves and anonymous partners. Participants were either in a position of advantageous inequality (i.e., endowed with more than others) or disadvantageous inequality (i.e., endowed with less than others). Computational modeling showed that inequality-related preferences explained behavior better than competing models. Importantly, compared with the placebo group, the testosterone group showed significantly reduced aversion to advantageous inequality but enhanced aversion to disadvantageous inequality. These findings suggest that testosterone facilitates decisions that prioritize selfish economic motives over fairness concerns, which in turn may boost status-enhancing behaviors.

This paper examines connections between stochastic growth and decision problems. We use tools from the theory of large deviations to show that wishful thinking decision problems are equivalent to utility maximization problems, both of which are equivalent to growth maximization under idiosyncratic risk. Rational inattention problems are equivalent to growth-optimal portfolio problems, both of which are equivalent to growth maximization under aggregate risk. Stochastic growth generates extreme inequality, with nearly all wealth eventually held by those who happen to have faced empirical distributions that match the solution to the wishful thinking or rational inattention problem.

Over the course of the past two decades, it has become a common experience for consumers authorizing an international transaction via credit card to be invited to choose the currency in which they wish the transaction to be executed. While this choice, made feasible by a technology known as dynamic currency conversion (DCC) , seems to foster competition, we argue that the opposite is the case. In fact, the unique pure-strategy equilibrium in a natural fee-setting game, with uninformed and possibly inattentive consumers, turns out to be highly asymmetric, entailing fees for the service provider that persistently exceed the monopoly level. Although losses in welfare may be substantial, a regulatory solution is unlikely to come about due to a global free-rider problem.

Decisions in management and finance rely on information that often includes win-lose feedback (e.g., gains and losses, success and failure). Simple reinforcement then suggests to blindly repeat choices if they led to success in the past and change them otherwise, which might conflict with Bayesian updating of beliefs. We use finite mixture models and hidden Markov models, adapted from machine learning, to uncover behavioral heterogeneity in the reliance on difference behavioral rules across and within individuals in a belief-updating experiment. Most decision makers rely both on Bayesian updating and reinforcement. Paradoxically, an increase in incentives increases the reliance on reinforcement because the win-lose cues become more salient.

This paper estimates the curvature of the Earth, defined as one over its radius, without relying on physical measurements. The orthodox model states that the Earth is (nearly) spherical with a curvature of π/20'000 km. By contrast, the heterodox flat-Earth model stipulates a curvature of zero. Abstracting from the well-worn arguments for and against both models, rebuttals and counter-rebuttals ad infinitum, we propose a novel statistical methodology based on verifiable flight times along regularly scheduled commercial airline routes; this methodology allows for both estimating and making inference for Earth's curvature. In particular, a formal hypothesis test resolutely rejects the flat-Earth model, whereas it does not reject the orthodox spherical-Earth model.

We document that, since 1980, higher paying occupations in the US have experienced increases in the importance of tasks requiring social skills compared to lower paying ones. Economic theory indicates that the occupational sorting of workers depends on their comparative advantage in performing occupational tasks. Hence, changes in the relative importance of tasks across occupations change sorting. We document that the increasing relative importance of social tasks in high-paying occupations can account for an important fraction of the increased sorting of women relative to men towards these occupations over recent decades.

Cerebral blood flow differs between migraine patients and healthy controls during attack and the interictal period. This study compares the brain perfusion of episodic migraine patients and healthy controls and investigates the influence of anodal transcranial direct current stimulation (tDCS) over the occipital cortex. We included healthy adult controls and episodic migraineurs. After a 28-day baseline period and the baseline visit, migraine patients received daily active or sham anodal tDCS over the occipital lobe for 28 days. All participants underwent a MRI scan at baseline; migraineurs were also scanned shortly after the stimulation period and about five months later. At baseline, brain perfusion of migraine patients and controls differed in several areas; among the stimulated areas, perfusion was increased in the cuneus of healthy controls. At the first visit, the active tDCS group had an increased blood flow in regions processing visual stimuli and a decreased perfusion in other areas. Perfusion did not differ at the second follow-up visit. The lower perfusion level in migraineurs in the cuneus indicates a lower preactivation level. Anodal tDCS over the occipital cortex increases perfusion of several areas shortly after the stimulation period, but not 5 months later. An increase in the cortical preactivation level could mediate the transient reduction of the migraine frequency.Trial registration: NCT03237754 (registered at clincicaltrials.gov; full date of first trial registration: 03/08/2017).

Like in many other countries, wealth inequality has increased in Switzerland over the last 50 years. By providing new evidence on cantonal top wealth shares for each of the 26 cantons since 1969, we show that the overall trend masks striking differences across cantons, both in levels and trends. Combining this with variation in cantonal wealth taxes, we then estimate an event study model to identify the dynamic effects of reforms to top wealth tax rates on the subsequent evolution of wealth concentration. Our results imply that a reduction in the top marginal wealth tax rate by 0.1 percentage points increases the top 1 per cent (0.1 per cent) wealth share by 0.9 (1.2) percentage points 5 years after the reform. This suggests that wealth tax cuts over the last 50 years explain roughly 18 per cent (25 per cent) of the increase in wealth concentration among the top 1 per cent (0.1 per cent).

Did overseas slave-holding by Britons accelerate the Industrial Revolution? We provide theory and evidence on the contribution of slave wealth to Britain’s growth prior to 1835. We compare areas of Britain with high and low exposure to the colonial plantation economy, using granular data on wealth from compensation records. Before the major expansion of slave holding from the 1640s onwards, both types of area exhibited similar levels of economic activity. However, by the 1830s, slavery wealth is strongly correlated with economic development – slave-holding areas are less agricultural, closer to cotton mills, and have higher property wealth. We rationalize these findings using a dynamic spatial model, where slavery investment raises the return to capital accumulation, expanding production in capital-intensive sectors. To establish causality, we use arguably exogenous variation in slave mortality on the passage from Africa to the Indies, driven by weather shocks. We show that weather shocks influenced the continued involvement of ancestors in the slave trade; weather-induced slave mortality of slave-trading ancestors in each area is strongly predictive of slaveholding in 1833. Quantifying our model using the observed data, we find that Britain would have been substantially poorer and more agricultural in the absence of overseas slave wealth. Overall, our findings are consistent with the view that slavery wealth accelerated Britain’s industrial revolution.

Human neuroscience has always been pushing the boundary of what is measurable. During the last decade, concerns about statistical power and replicability - in science in general, but also specifically in human neuroscience - have fueled an extensive debate. One important insight from this discourse is the need for larger samples, which naturally increases statistical power. An alternative is to increase the precision of measurements, which is the focus of this review. This option is often overlooked, even though statistical power benefits from increasing precision as much as from increasing sample size. Nonetheless, precision has always been at the heart of good scientific practice in human neuroscience, with researchers relying on lab traditions or rules of thumb to ensure sufficient precision for their studies. In this review, we encourage a more systematic approach to precision. We start by introducing measurement precision and its importance for well-powered studies in human neuroscience. Then, determinants for precision in a range of neuroscientific methods (MRI, M/EEG, EDA, Eye-Tracking, and Endocrinology) are elaborated. We end by discussing how a more systematic evaluation of precision and the application of respective insights can lead to an increase in reproducibility in human neuroscience.

When a sample combines data from two or more groups, multivariate regression yields a matrix-weighted average of the group-specific coefficient vectors. However, it is possible that the weighted average of a specific coefficient falls outside the range of the group-specific coefficients, and it may even have a different sign compared to both group-level coefficients, a manifestation of Simpson’s paradox. The result of the combined regression is then prone to misinterpretation. The purpose of this paper is to raise awareness of this problem and to state conditions under which such non-convex weighting or sign reversal can arise, for a model with two regressors and two groups. Two illustrative examples, an investment equation estimated with panel data, and a cross-sectional earnings equation for men and women, highlight the relevance of these findings for applied work.

This papers proposes a generic, high-level methodology for generating forecast combinations that would deliver the optimal linearly combined forecast in terms of the mean-squared forecast error if one had access to two population quantities: the mean vector and the covariance matrix of the vector of individual forecast errors. We point out that this problem is identical to a mean-variance portfolio construction problem, in which portfolio weights correspond to forecast combination weights. We allow negative forecast weights and interpret such weights as hedging over and under estimation risks across estimators. This interpretation follows directly as an implication of the portfolio analogy. We demonstrate our method's improved out-of-sample performance relative to standard methods in combining tree forecasts to form weighted random forests in 14 data sets.