Pavlo R Blavatskyy, Betting on Own Knowledge: Experimental Test of Overconfidence, In: Working paper series / Institute for Empirical Research in Economics, No. No. 358, 2008. (Working Paper)
 
"This paper presents a new incentive compatible method for measuring confidence in own knowledge. This method consists of two parts. First, an individual answers several general knowledge questions. Second, the individual chooses among three alternatives: 1) one question is selected at random and the individual receives a payoff if he or she has answered this question correctly; 2) the individual receives the same payoff with a probability equal to the percentage of correctly answerednquestions; 3) either the first or the second alternative is selected. The choice of thenfirst (second) alternative reveals overconfidence (underconfidence). The individual is well calibrated if he or she chooses the third alternative. Experimental results show that subjects, on average, exhibit underconfidence about their ownnknowledge when the incentive compatible mechanism is used. Their confidence in own knowledge does not depend on their attitude towards risk/ambiguity." |
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Matthias Doepke, Humankapital, politischer Wandel und langfristige Wirtschaftsentwickung, In: Working paper series / Institute for Empirical Research in Economics, No. No. 356, 2008. (Working Paper)
 
Seit Mitte der achtziger Jahre hat die neue Wachstumstheorie verstärkt Aufmerksamkeit auf Humankapital als eine Quelle des Wirtschaftswachstumsngelenkt. Neuere empirische Ergebnisse weisen allerdings darauf hin, dass Bildungsinvestitionen nur geringe soziale Externalitäten erzeugen und dass der direkte Beitrag des Humankapitals zum Wirtschaftswachstum relativngering ist. In dieser Arbeit wird der Beitrag des Humankapitals zur Wirtschaftsentwicklungnim Rahmen der langfristigen Wachstumstheorie dargestellt,nderen Gegenstand ist, den Übergang von Ländern von vor-industrieller Stagnation zu stetigem Wirtschaftswachstum zu erklären. Hier erweist sich,ndass Humankapital nicht nur direkte Produktivitätseffekte erzeugt, sondern auch als Auslöser verschiedener entwicklungsfördernder politischer Reformen dienen kann. |
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Johannes Schoder, Peter Zweifel, Managed Care Konzepte und Lösungsansätze - Ein internationaler Vergleich aus schweizerischer Sicht, In: Working paper series / Socioeconomic Institute, No. No. 801, 2008. (Working Paper)
 
This paper applies the five modified standard criteria generally used in economics for assessing system performances to gauge the contribution of Managed Care to the performance of three health care systems, viz. Germany, the Netherlands and the United States. The maximum contribution of Managed Care to the performance of the health care system is found for the United States and the Netherlands. The Health Maintenance Organization (U.S.) and the gatekeeper model (the Netherlands) score 10 and 9 out of 15 points, respectively, importantly due to a market-oriented environment. By way of contrast, the so-called ‘structured treatment programs’ of the German health care system score only 4 out of 15 points. Not only the more tightly regulated environment but also the lack of consideration of consumer preferences and of incentives for service providers to participate in the programs contributed to poor performance. |
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Oliver Ledoit, Michael Wolf, Robust Performance Hypothesis Testing with the Sharpe Ratio, In: Working paper series / Institute for Empirical Research in Economics, No. No. 320, 2008. (Working Paper)
 
Applied researchers often test for the difference of the Sharpe ratios of two investmentnstrategies. A very popular tool to this end is the test of Jobson and Korkie (1981), whichnhas been corrected by Memmel (2003). Unfortunately, this test is not valid when returnsnhave tails heavier than the normal distribution or are of time series nature. Instead, wenpropose the use of robust inference methods. In particular, we suggest to construct a studentized time series bootstrap confidence interval for the difference of the Sharpe ratios and to declare the two ratios different if zero is not contained in the obtained interval. This approach has the advantage that one can simply resample from the observed data as opposed to some null-restricted data. A simulation study demonstrates the improved finite sample performance compared to existing methods. In addition, two applications to real data are provided. |
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Matthias Doepke, Moshe Hazan, Yishay D Maoz, The Baby Boom and World War II: A Macroeconomic Analysis, In: Working paper series / Institute for Empirical Research in Economics, No. No. 355, 2008. (Working Paper)
 
We argue that one major cause of the U.S. postwar baby boom was the increased demand for female labor during World War II. We develop a quantitativendynamic general equilibrium model with endogenous fertility and female labor-force participation decisions. We use the model to assess the long-term implications of a one-time demand shock for female labor, such as the one experienced by American women during wartime mobilization. For the war generation, the shock leads to a persistent increase in female labor supply due to the accumulation of work experience. In contrast, youngernwomen who turn adult after the war face increased labor-market competition, which impels them to exit the labor market and start having children earlier. In our calibrated model, this general-equilibrium effect generates a substantial baby boom followed by a baby bust, as well as patterns for agespecific labor-force participation and fertility rates that are consistent withnU.S data. |
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Maria Saez Marti, Yves Zenou, Cultural transmission and discrimination, In: Working paper series / Institute for Empirical Research in Economics, No. 348, 2012. (Working Paper)
 
Workers can have good or bad work habits. These traits are transmitted from one generation to the next through a learning and imitation process, which depends on parents' investment in the trait and the social environment where children live. We show that if a sufficiently high proportion of employers have taste-based prejudices against minority workers, their prejudices are always self-fulfilled in steady state and minority workers end up having, on average, worse work habits than majority workers. This leads to a ghetto culture. Affirmative Action can improve the welfare of minorities whereas integration can be beneficial to minority workers but detrimental to workers from the majority group. |
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Maria Saez Marti, Anna Sjögren, Deadlines and Distractions, In: Working paper series / Institute for Empirical Research in Economics, No. No. 347, 2007. (Working Paper)
 
"We consider a principal-agent model in which a task, demanding a sequence of effortsnby the agent, must be completed by a certain date. Effort is not contractible. Agents arensubject to shocks affecting their opportunity cost of time such that they are distractednfrom work when the opportunity cost of time is high. We show that the probability that a task is completed by the deadline is a non-monotonic function of the agent’snprobability of being distracted. The anticipation of future distractions induces rational agents to get started earlier for precautionary reasons. As a result, agents who are more often distracted may outperform agents who are distracted less often. Principals can increase the probability that the task is completed, and thus achieve higher profits, by strategically setting ""tight"" deadlines, provided that these can later be extended with anpositive probability." |
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Fabrizio Zilibotti, Economic Possibilities for Our Grandchildren 75 Years after: A Global Perspective, In: Working paper series / Institute for Empirical Research in Economics, No. No. 344, 2007. (Working Paper)
 
In the heart of the Great Crisis, amidst great uncertainty and concerns surrounding the future of capitalism, John Maynard Keynes launched his optimistic prophecy that growth and technological change would allow mankind to solve its economic problem within ancentury. He envisioned a world where people would work much less and be less oppressednby the satisfaction of material needs. To what extent have his predictions turned out to benaccurate? This essays attempts to provide some answers. |
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Michael J Artis, Mathias Hoffmann, Financial Globalization, International Business Cycles, and Consumption Risk Sharing, In: Working paper series / Institute for Empirical Research in Economics, No. No. 346, 2007. (Working Paper)
 
In spite of two decades of financial globalization, consumption-based indicators do not seem to signal more international risk sharing. We argue that consumption risk sharing among industrialised countries has actually increased - in particular since the 1990s - but that standard consumption-based measures of risk sharing - such as the volatility of consumption conditional on output or international consumption correlations - have beennunable to detect this increase. The reason is that consumption has also been affected by the concurrent decline in the volatility of output growthnin most industrialised countries since the 1980s. As a first important driver of this decline we identify a more gradual response of output to permanent idiosyncratic shocks. Since consumption reacts mainly to permanent shocks, it appears more volatile in relation to current changes in output. This effect seems to have offset the tendency of financial globalization to lower thenvolatility of consumption conditional on output. Secondly, because the variability of permanent global shocks has also fallen, international consumptionncorrelations have also generally not increased as financial markets have become more integrated. |
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Alessandra Bonfiglioli, Financial Integration, Productivity and Capital Accumulation, In: Working paper series / Institute for Empirical Research in Economics, No. No. 350, 2007. (Working Paper)
 
Understanding the mechanism through which financial globalization affects economic performance is crucial for evaluating the costs and benefits of opening financial markets. This paper is a first attempt at disentangling the effects of financial integration on the two main determinants of economic performance: productivity (TFP)nand investments. I provide empirical evidence from a sample of 70 countries observednbetween 1975 and 1999. The results for both de jure and de facto indicators suggest that financial integration has a positive direct effect on productivity, while it does not directly affect capital accumulation. I control for indirect effects of financialnglobalization through financial development and banking and currency crises. While the evidence on financial depth as an indirect channel is weak, the results are more robust for financial crises: they depress both investments and TFP, and are favored by financial integration, though only to a minor extent. The overall effect of financialnliberalization is positive for productivity and negligible for investments. |
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Anke Gerber, Philipp C Wichardt, Finite-Order Beliefs and Welfare-Enhancing Instruments in the Centipede Game, In: Working paper series / Institute for Empirical Research in Economics, No. No. 322, 2007. (Working Paper)
 
This paper investigates the effectiveness of two instruments designed to defer termination in the centipede game: an insurance against termination by the opponent, and an option to offer the opponent a bonus for not terminating the game. The rational prediction in both cases is passing until close to the end. Empirically, however, only the bonus option is used by the subjects. The results indicate that subjects readily understand the strategic effect of the bonus, which, once offered, renders passing until close to the end the strictly dominant strategy for both players. Yet, they fail to realise the slightly more involved strategic signal entailed in the insurance, namely that passing until close to the end is a strictly dominant strategy for an insured player. In order to further investigate this effect, we propose a simple behavioural model based on level-k thinking and show that it is largely consistent with the data. |
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Dennis Gaertner, Armin Schmutzler, Merger Negotiations and Ex-Post Regret, In: Working paper series / Socioeconomic Institute, No. No. 607, 2007. (Working Paper)
 
We consider a setting in which two potential merger partners each possess private information pertaining both to the profitability of the merged entity and to stand-alone profits, and investigate the extent to which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations. To this end, we consider ex-post mechanisms, which use both players’ reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports. |
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Dennis Gaertner, Monopolistic Screening under Learning By Doing, In: Working paper series / Socioeconomic Institute, No. No. 718, 2007. (Working Paper)
 
This paper investigates the design of incentives in a dynamic adverse selection framework when agents’ production technologies display learning effects and agents’ rate of learning is private knowledge. In a simple two-period model with full commitment available to the principal, we show that whether learning effects are over- or under-exploited crucially depends on whether learning effects increase or decrease the principal’s uncertainty about agents’ costs of production. Hence, what drives the over- or underexploitation of learning effects is whether more efficient agents also learn faster (so costs diverge through learning effects) or whether it is the less efficient agents who learn faster (so costs converge). Furthermore, we show that if divergence in costs through learning effects is strong enough, learning effects will not be exploited at all, in a sense to be made precise. |
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Marcus Hagedorn, Nominal and Real Interest Rates during an Optimal Disinflation in New Keynesian Models, In: Working paper series / Institute for Empirical Research in Economics, No. No. 352, 2007. (Working Paper)
 
Central bankers' conventional wisdom suggests that nominal interest rates should be raised to implement a lower inflation target. In contrast, I show that the standard New Keynesian monetary model predicts that nominal interest rates should bendecreased to attain this goal. Real interest rates, however, are virtually unchanged. These results also hold in recent vintages of New Keynesian models with sticky wages, price and wage indexation and habit formation in consumption. |
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John Hassler, Per Krusell, Kjetil Storesletten, Fabrizio Zilibotti, On the Optimal Timing of Capital Taxes, In: Working paper series / Institute for Empirical Research in Economics, No. No. 343, 2007. (Working Paper)
 
For many kinds of capital, depreciation rates change systematically with the age of the capital. Consider an example that captures essential aspects of human capital, both regarding its accumulation and its depreciation: a worker obtains knowledge in period 0, then uses this knowledge innproduction in periods 1 and 2, and thereafter retires. Here, depreciation accelerates: it occurs at a 100% rate after period 2, and at a lowe (perhaps zero) rate before that. The present paper analyzesnthe implications of non-constant depreciation rates for the optimal timing of taxes on capital income. The main finding is that under natural assumptions, the path of tax rates over time must be oscillatory. Oscillatory tax rates are optimal when depreciation rates accelerate with the age of the capital (as in the above example), and provided that the government can commit to the path ofnfuture tax rates but cannot apply different tax rates in a given year to different vintages of capital. |
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Marcus Hagedorn, Optimal Ramsey Tax Cycles, In: Working paper series / Institute for Empirical Research in Economics, No. No. 354, 2007. (Working Paper)
 
This paper asks whether tax cycles can represent the optimal policy in a modelnwithout any extrinsic uncertainty. I show, in an economy without capital and where labor is the only choicenvariable (a Lucas-Stokey economy), that a large class of preferences exists, where cycles are optimal, as well as a large class where they are not. The larger government expenditures are, the larger the class of preferences fornwhich cycles are optimal becomes. nTax cycles are also more likely to be optimal if frictions (deviations of the model from Walrasian markets) are added. While this cannot be shown inngeneral and will not be true for arbitrary frictions, I demonstrate this in two specific worlds. I consider an economy with search frictions in the labor market, and one with frictions in the goods and credit market. A reasonablenparametrization of both economies shows that results change considerably. Even with constant relative risk aversion, cycles can be optimal, whereas this class of preferences rules out cycles in the Lucas-Stokey economy.nFinally, I characterize the optimal policy. No more than two tax rates are needed to implement the Ramsey policy both in the Lucas-Stokey economynand in the model with frictions. |
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Maria Saez Marti, Anna Sjögren, Peers and Culture, In: Working paper series / Institute for Empirical Research in Economics, No. No. 349, 2007. (Working Paper)
 
We analyze the evolution of culture when parents socialize children to the culturalnvariants that maximize child lifetime utility. Parents invest in cultural transmissionntaking into account that children are also influenced by peers. We model the influence of peers by assuming that children observe different cultural variants in their peer group, assign merit to them and adopt one variant, following a probabilistic adoption rule. We show that cultural diversity is sustainable even if all parents strive to transmit the same variant. We also show that a parental demand for cultural pluralism does not guarantee cultural diversity. |
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Marcus Hagedorn, Iourii Manovskii, The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited, In: Working paper series / Institute for Empirical Research in Economics, No. No. 351, 2007. (Working Paper)
 
Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We use data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters of the model - the value of non-market activity and the bargaining weights. Our calibration implies that the model is, in fact, consistent with the data. |
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Philippe Aghion, Robin Burgess, Stephen Redding, Fabrizio Zilibotti, The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India, In: Working paper series / Institute for Empirical Research in Economics, No. No. 345, 2007. (Working Paper)
 
We study whether the effects on registered manufacturing output of dismantling the License Raj – a system of central controls regulating entry and productionnactivity in this sector – vary across Indian states with different labor market regulations. The effects are found to be unequal across Indian states with differentnlabor market regulations. In particular, following delicensing, industries locatednin states with proemployer labor market institutions grew more quickly than thosenin proworker environments. |
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Daron Acemoglu, Philippe Aghion, Rachel Griffith, Fabrizio Zilibotti, Vertical Integration and Technology: Theory and Evidence, In: Working paper series / Institute for Empirical Research in Economics, No. No. 342, 2007. (Working Paper)
 
This paper investigates the determinants of vertical integration. We first derive annumber of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both these effects are stronger when the supplying industry accounts for a large fraction of the producer’s costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number ofnfirm and industry-level characteristics. |
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