Contributions in Merlin

"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."

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.

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.

"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."

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.

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.

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.

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.

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.

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.