Armin Falk, Ernst Fehr, Urs Fischbacher, Driving Forces of Informal Sanctions, In: Working paper series / Institute for Empirical Research in Economics, No. No. 59, 2001. (Working Paper)
 
"Informal sanctions are a major determinant of a societys 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." |
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Klaus Reiner Schenk-Hoppé, Economic Growth and Business Cycles: A Critical Comment on Detrending Time Series - REVISED VERSIO, In: Working paper series / Institute for Empirical Research in Economics, No. No. 54, 2001. (Working Paper)
 
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. |
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Ernst Fehr, Klaus Schmidt, Theories of Fairness and Reciprocity - Evidence and Economic Applications, In: Working paper series / Institute for Empirical Research in Economics, No. No. 75, 2001. (Working Paper)
 
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. |
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Matthias Benz, Marcel Kucher, Alois Stutzer, Are Stock Options the Managers' Blessing? Stock Option Compensation and Institutional Controls, In: Working paper series / Institute for Empirical Research in Economics, No. No. 61, 2001. (Working Paper)
 
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. |
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Reto Schleiniger, Global CO2-Trade and Local Externalities, In: Working paper series / Institute for Empirical Research in Economics, No. No. 77, 2001. (Working Paper)
 
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. |
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Markus Koenig, Empirische Analyse des Zeitpunktes schweizerischer Direktinvestitionen in Osteuropa, In: Working paper series / Socioeconomic Institute, No. No. 101, 2001. (Working Paper)
 
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. |
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Bruno Frey, A Utopia? Government without Territorial Monopoly, In: Working paper series / Institute for Empirical Research in Economics, No. No. 47, 2001. (Working Paper)
 
"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." |
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Klaus Reiner Schenk-Hoppé, Sample-Path Stability of Non-Stationary Dynamic Economic Systems (Revised Version), In: Working paper series / Institute for Empirical Research in Economics, No. No. 46, 2001. (Working Paper)
 
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. |
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Reto Schleiniger, Energy Tax Reform with Exemptions for the Energy-Intensive Export Sector (Revised Version wp 29), In: Working paper series / Institute for Empirical Research in Economics, No. No. 73, 2001. (Working Paper)
 
The present paper applies a theoretical two-sector three-factor model to analyze a variety of energy tax reforms with the common feature of at least partly exempting the energy-intensive export sector from the tax. As a result, all scenarios with exemptions reduce energy less than the non-discriminating textbook version of the energy tax. Moreover, in the two scenarios that exemplify typical attributes of the tax reforms in Germany and Denmark, an increase in total energy use is possible. This is due to a positive output effect resulting from a substitution of the energy-intensive for the labor-intensive commodity. |
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Ernst Fehr, Alexander Klein, Klaus M Schmidt, Fairness, Incentives and Contractual Incompleteness, In: Working paper series / Institute for Empirical Research in Economics, No. No. 72, 2001. (Working Paper)
 
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. |
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Thorsten Hens, An Extension of Mantel (1976) to Incomplete Markets, In: Working paper series / Institute for Empirical Research in Economics, No. No. 71, 2001. (Working Paper)
 
In the incomplete markets model with numeraire asset and a single consumption good we show that, even with homothetic preferences, on compact sets of prices Continuity, Walras' identity and Homogeneity characterize the properties of market excess demand. This result is proved by an extension of Mantel (1976) to the case of incomplete markets. |
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Albrecht Ritschl, Deficit Spending in the Nazi Recovery, 1933-1938: A Critical Reassessment, In: Working paper series / Institute for Empirical Research in Economics, No. No. 68, 2000. (Working Paper)
 
This paper examines the effects of deficits spending on the Nazi recovery. Although deficits were substantial and full employment was reached within four years, their fiscal impulse was too small to account for the speed of recovery. VAR forecasts of output using fiscal and monetary policy instruments also suggest only a minor role for active policy. Nazi policies deliberately crowded out private demand to ensure high rates of rearmament. Military spending dominated civilian work-creation already in 1934. Investment in autobahn construction was minimal during the recovery and gained momentum only in 1936 when full employment was approaching. We find some effects of the Four Years Plan of late 1936, which boosted government spending further and tightened public control over the economy. |
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Bruno Frey, Stephan Meier, Political Economists are Neither Selfish nor Indoctrinated, In: Working paper series / Institute for Empirical Research in Economics, No. No. 69, 2000. (Working Paper)
 
Most professional economists believe that economist in general are more selfish than other persons and that this greater selfishness is due to economic education. In this paper we offer empirical evidence against this widely held belief. Using a unique data set about giving behaviour to two social funds at the University of Zurich, it is shown that economic training does not make people act more selfish. However, the 'natural experiment' supports the hypothesis that the different behaviour of economist can be explained by a selection effect. |
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Klaus Reiner Schenk-Hoppé, Random Dynamical Systems in Economics, In: Working paper series / Institute for Empirical Research in Economics, No. No. 67, 2000. (Working Paper)
 
This paper surveys recent advances in the application of random dynamical systems theory in economics. It illustrates the usefulness of this framework for modeling and analysis of economic phenomena with stochastic components, mainly focusing on stochastic dynamic models in economic growth. The paper also highlights some directions for further applications and interdisciplinary research on random dynamical systems. |
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Leonard J Mirman, Klaus Reiner Schenk-Hoppé, Financial Markets and Stochastic Growth, In: Working paper series / Institute for Empirical Research in Economics, No. No. 66, 2000. (Working Paper)
 
In this paper, we study the effect of financial markets on the investment of a two-good two-country economy with stochastic production in a dynamic framework. Each country produces and invests only one good and, therefore, makes decisions as a central planner in an optimal growth model. Trade between consumers of both countries, however, takes place on competitive (spot or financial) markets. Wencompare the investment-consumption decisions of both `market' models with the benchmark-case of an integrated world-equilibrium. In the log-linear case, we can uniquely characterize the state-dependent preferences of consumers that lead to dynamically efficient investment decisions. We show that the investment decisions in both `market' models are, in general, inefficient as compared with the efficient, ornintegrated world economy, case.n |
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Klaus Reiner Schenk-Hoppé, Björn Schmalfuss, Random Fixed Points in a Stochastic Solow Growth Model, In: Working paper series / Institute for Empirical Research in Economics, No. No. 65, 2000. (Working Paper)
 
This paper presents a complete analysis of a stochastic version of the Solow growth model in which all parameters are ergodic random variables. Applying random dynamical systems theory, we prove that the dynamics and, in particular, the long-runnbehavior is uniquely determined by a globally attracting stable random fixed point. We also discuss the relation of our approach to that of ergodic Markov equilibria. |
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Rafael Lalive, Did we Overestimate the Value of Health?, In: Working paper series / Institute for Empirical Research in Economics, No. No. 60, 2000. (Working Paper)
 
Adam Smith's idea that wage differences reveal preferences for risk rests on firm theoretical foundations. This paper argues, however, that the standard approach to identify these differentials in practice may be flawed. Empirical practice usually identifies compensating wage differentials for risk by regressing individual wages on aggregate measures of risk, usually industry or occupation average risk. If jobs differ within industries or occupations, the ''aggregate approach'' may identify arbitrary compensating differentials for risk. In a dataset with precise information on job risk as well as aggregate risk, I demonstrate that using aggregate risk identifies wage differentials that are two to five times larger than wage differentials based on job riskninformation. This result is robust to controlling for time constant unobserved individual or job heterogeneity. |
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Simon Gächter, Armin Falk, Work motivation, institutions, and performance, In: Working paper series / Institute for Empirical Research in Economics, No. No. 62, 2000. (Working Paper)
 
"In this paper we study experimentally four remedies to overcome inefficiencies that arise from the incompleteness of contracts. These remedies are reciprocity, repeated game effects, social embeddedness, and incentive contracts. In our baseline treatment we find that reciprocity is a powerful contract enforcement device. A second experiment establishes that repeated game effects interact with reciprocity in a complementary way, i.e., efficiency is increased compared to our baseline. Adding social approval incentives does not contribute significantly to efficiency. Finally, we show that explicit incentive contracts may have perverse effects in the sense that they ""crowd out"" reciprocity and therefore reduce efficiency compared to the baseline. In our concluding section we discuss the relation of our findings to the recent literature on ""intrinsic motivation""." |
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Armin Falk, Ernst Fehr, Urs Fischbacher, Appropriating the Commons - A Theoretical Explanation, In: Working paper series / Institute for Empirical Research in Economics, No. No. 55, 2000. (Working Paper)
 
In this paper we show that a simple model of reciprocal preferences explains major experimental regularities of common pool resource (CPR) experiments. The evidence indicates that in standard CPR games without communication and without sanctioning possibilities inefficient excess appropriation is the rule. However, when communication or informal sanctions are available appropriation behavior is more efficient. Our analysis shows that these regularities arise naturally when a fraction of the subjects exhibits reciprocal preferences. |
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Vital Anderhub, Simon Gächter, Manfred Königstein, Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment, In: Working paper series / Institute for Empirical Research in Economics, No. No. 18, 2000. (Working Paper)
 
We study behavior within a simple principal--agent experiment. Our design allows for a large class of linear contracts. Principals can offer any feasible combination of (negative) fixed wages and incentives in the form of return sharing. This great contractual flexibility allows us to study incentive compatibility simultaneously with issues of `fair sharing' and reciprocity, which were previously found to be important. We find a high degree of incentive-compatible behavior, but also `fair sharing' and reciprocity. In contrast to other incentive devices studied in the literature, the incentives are `reciprocity-compatible'. Principals recognize the agency problem and react accordingly. |
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