Ralf Becker, Urs Fischbacher, Thorsten Hens, Soft Landing of a Stock Market Bubble - An Experimental Study, In: Working paper series / Institute for Empirical Research in Economics, No. No. 90, 2002. (Working Paper)
 
The paper investigates the effect of interest policy on price bubbles, trading behavior and portfolio choice in experimental stock markets. Anseries of experiments has 8 participants trade an asset over 15 periods. Alternatively, the participants can invest money in interest-bearing bonds. Treatment groups are subjected to an endogenous interest policy, while control groups experience a constant interest rate. Our stock markets are characterized by bubbles. While we observe a small positive impact of our interest policy on bubbles, the policy also strongly increases market volatility. On the other hand, concerning portfolio choice, we find evidencenfor value-driven (rational) investment behavior. |
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Lars P Feld, Bruno Frey, Trust Breeds Trust: How Taxpayers Are Treated, In: Working paper series / Institute for Empirical Research in Economics, No. No. 98, 2002. (Working Paper)
 
"Tax compliance has been studied in economics by analysing the individual decision of a representative person between paying and evading taxes. A neglected aspect of tax compliance is the interaction of taxpayers and tax authorities. The relationship between the two actors can be understood as an implicit or ""psychological"" contract. Studies on tax evasion in Switzerland show that the more strongly the political participation rights arendeveloped, the more important this contract is, and the higher tax morale is. In this paper,nempirical evidence based on a survey of tax authorities of the 26 Swiss states (cantons) isnpresented, indicating that the differences in the treatment of taxpayers by tax authorities cannbe explained by differences in political participation rights as well." |
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Bruno Frey, Stephan Meier, Two Concerns about Rational Choice: Indoctrination and Imperialism, In: Working paper series / Institute for Empirical Research in Economics, No. No. 104, 2002. (Working Paper)
 
Rational Choice Theory is often criticized to indoctrinate students in a negative, which is supported by some laboratory experiments. But do students of Rational Choice Theory really behave more selfishly? This paper presents evidence from a natural decision on voluntary donation at the University of Zurich. The analysis of the very large panel data set reaches significant different results than previous studies: Rational Choice Theory does not indoctrinate students. However, there are good other reasons to criticize Rational Choice Theory. The paper argues that ideas from other social sciences should be imported to improve the theory. Three elements are presented which lead to new and different policy conclusions. |
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Bruno Frey, Flexible Citizenship for a Global Society, In: Working paper series / Institute for Empirical Research in Economics, No. No. 94, 2001. (Working Paper)
 
States are ill equipped to meet the challenges of a globalized world. The concept of citizenship with its rights and obligations, including the allegiance owed, is too narrowly defined to exist only between individuals and a state. Today, people identify with, and pay allegiance to, many organizations beyond the state. This paper suggests that citizenship could be extended further and be possible between individuals and quasi-governmental organizations, as well as non-governmental organizations, such as churches, clubs, interest groups, functional organizations and profit firms. Due to the larger set of types of citizenship individuals could choose from, their preferences would be better fulfilled and, due to the competition for citizens induced among organizations, the efficiency of public activity would be raised. |
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Ernst Fehr, Armin Falk, Psychological Foundations of Incentives, In: Working paper series / Institute for Empirical Research in Economics, No. No. 95, 2001. (Working Paper)
 
During the last two decades economists have made much progress in understandingnincentives, contracts and organisations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves. |
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Thorsten Hens, Klaus Reiner Schenk-Hoppé, Evolution of Portfolio Rules in Incomplete Markets, In: Working paper series / Institute for Empirical Research in Economics, No. No. 74, 2001. (Working Paper)
 
The paper considers the evolution of portfolio rules in markets with stationary returns and endogenous prices. The ultimate success of a portfolio rule is measured by the wealth share the rule is eventually able to conquer in competition with other portfolio rules. We give necessary and sufficient conditions for portfolio rules to be evolutionary stable. In the case of i.i.d. returns we identify a simple portfolio rule to be the unique evolutionary stable strategy. Moreover we demonstrate that mean-variance optimization is not evolutionary stable while the CAPM-rule always imitates the best portfolio rule and survives. |
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Rabah Amir, Igor V Evstigneev, Thorsten Hens, Klaus Reiner Schenk-Hoppé, Market Selection and Survival of Investment Strategies, In: Working paper series / Institute for Empirical Research in Economics, No. No. 91, 2001. (Working Paper)
 
The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The payoffs of the as-sets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment de-cisions based on their observations and time. We show that a trader distributing wealth across available assets according to the relative expected returns eventually accumulates the entire market wealth. The result obtains under the assumption that the trader's strategy is asymptotically distinct from the CAPM strategy (prescribing in-vestment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion. |
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Reto Schleiniger, Money Illusion and the Double Dividend in the Short Run, In: Working paper series / Institute for Empirical Research in Economics, No. No. 93, 2001. (Working Paper)
 
In their seminal paper, Bovenberg and De Mooij (1994) elucidate why an ecological tax reform will not yield a double dividend, i.e. fails to increase the efficiency of the tax system. The present paper slightly modifies the Bovenberg and De Mooij model by introducing money illusion. With this modification, an environmental tax reform that raises the price level may generate a double dividend, since the additional tax on the dirty good does not reduce labor supply. A prerequisite for the double dividend to occur is a sufficiently small elasticity of substitution between clean and dirty consumption. Moreover, accounting for money illusion always reduces the intertemporal gross cost of the tax reform. |
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Bruno Frey, Alois Stutzer, What can Economists learn from Happiness Research? Revised Version, In: Working paper series / Institute for Empirical Research in Economics, No. No. 80, 2001. (Working Paper)
 
Over the past few years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory. |
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Bruno Frey, Matthias Benz, Ökonomie und Psychologie: eine Übersicht, In: Working paper series / Institute for Empirical Research in Economics, No. No. 92, 2001. (Working Paper)
 
"Moderne Ökonomie und Sozialpsychologie beschäftigen sich beide mit der Erklärung menschlichen Verhaltens. Dieser Artikel gibt eine Übersicht über die Interaktion zwischen den beiden Wissenschaften. Zum einen werden einige grundlegende Aspekte dieser Beziehung diskutiert; zum anderen werden die Ergebnisse neuerer empirischer Arbeiten dargestellt. Im Zentrum stehen Erweiterungen des ökonomischen Verhaltensmodells aufgrund (i) der begrenzten Rationalität der Menschen, (ii) des begrenzten Eigennutzes der Individuen und (iii) einem begrenzten Nutzenkonzept, welches der Ökonomik zugrunde liegt." |
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Michael Breuer, Finanzintermediäre - Grössennachteile und Spezialisierungsvorteile, In: Working paper series / Socioeconomic Institute, No. No. 103, 2001. (Working Paper)
 
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. |
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Igor V Evstigneev, Klaus Reiner Schenk-Hoppé, From Rags to Riches: On Constant Proportions Investment, In: Working paper series / Institute for Empirical Research in Economics, No. No. 89, 2001. (Working Paper)
 
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. |
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Bruno Frey, Liliput oder Leviathan? Der Staat in der Globalisierten Wirtschaft, In: Working paper series / Institute for Empirical Research in Economics, No. No. 85, 2001. (Working Paper)
 
Globalization is often seen to result in a smaller (Liliput) or larger (Leviathan) state. But future public activity will be more flexible. Persons have multiple identities. They can be citizens of sub- and supra-national jurisdictions, semi- and non-governmental organizations and private units, even profit-oriented firms. Such attachment may be temporary, multiple or partial. To actively choose strengthens loyalty and identification, which raises the willingness to pay for publicly supplied services (in the sense of quasi-voluntary taxation). On the supply side, Functional, Overlapping and Competing Jurisdictions (FOCJ) will develop. Such flexibility of the future European integration will make it successful. |
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Klaus Reiner Schenk-Hoppé, Stochastic Tastes and Money in a Neo-Keynesian Economy, In: Working paper series / Institute for Empirical Research in Economics, No. No. 88, 2001. (Working Paper)
 
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. |
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Armin Falk, Homo Oeconomicus Versus Homo Reciprocans: Ansätze für ein Neues Wirtschaftspolitisches Leitbild?, In: Working paper series / Institute for Empirical Research in Economics, No. No. 79, 2001. (Working Paper)
 
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. |
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Stefan Buehler, How to Regulate Vertical Market Structure in Network Industries, In: Working paper series / Socioeconomic Institute, No. No. 102, 2001. (Working Paper)
 
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. |
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Igor V Evstigneev, Thorsten Hens, Klaus Reiner Schenk-Hoppé, Market Selection of Financial Trading Strategies: Global Stability, In: Working paper series / Institute for Empirical Research in Economics, No. No. 83, 2001. (Working Paper)
 
In this paper we analyze the long-run dynamics of the market selection process among simple trading strategies in an incomplete asset market with endogenous prices. We identify a unique surviving financial trading strategy. Investors following this strategy asymptotically gather total market wealth. This result generalizes findings by Blume and Easley (1992) to any complete or incomplete asset market. |
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Peter A G VanBergeijk, Jan Marc Berk, The Lucas Critique in Practice: An Empirical Investigation of the Impact of European Monetary ..., In: Working paper series / Institute for Empirical Research in Economics, No. No. 82, 2001. (Working Paper)
 
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. |
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Reto Schleiniger, Stefan Felder, Fossile Energiepolitik jenseits von Kyoto, In: Working paper series / Institute for Empirical Research in Economics, No. No. 78, 2001. (Working Paper)
 
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. |
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Matthias Benz, Alois Stutzer, Was erklärt die steigenden Managerlöhne? Ein Diskussionsbeitrag, In: Working paper series / Institute for Empirical Research in Economics, No. No. 81, 2001. (Working Paper)
 
"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." |
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