Jean-Michel Benkert, Nick Netzer, Informational requirements of nudging, In: Working paper series / Department of Economics, No. 190, 2016. (Working Paper)
 
A nudge is a paternalistic government intervention that attempts to improve choices by changing the framing of a decision problem. We propose a welfare- theoretic foundation for nudging similar in spirit to the classical revealed preference approach, by investigating a model where preferences and mistakes of an agent can be elicited from her choices under different frames. We provide characterizations of the classes of behavioral models for which nudging is possible or impossible, and we derive results on the required quantity of information. We also study an extended application to a savings problem. |
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Christian Ewerhart, A "fractal" solution to the chopstick auction, In: Working paper series / Department of Economics, No. 229, 2017. (Working Paper)
 
This paper constructs a novel equilibrium in the chopstick auction of Szentes and Rosenthal (Games and Economic Behavior, 2003a, 2003b). In contrast to the existing solution, the identified equilibrium strategy allows a simple and intuitive characterization. Moreover, its best-response set has the same Hausdorff dimension as its support, which may be seen as a robustness property. The analysis also reveals some new links to the literature on Blotto games. |
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Andrei A Levchenko, Jingjing Zhang, The evolution of comparative advantage: measurement and implications, In: UBS Center Working Paper Series, No. 11, 2015. (Working Paper)
 
We estimate productivities at the sector level for 72 countries and 5 decades, and examine how they evolve over time in both developed and developing countries. In both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at greater comparative disadvantage. These changes have had a signicant impact on trade volumes and patterns, and a non-negligible welfare impact. In the counterfactual scenario in which each country's comparative advantage remained the same as in the 1960s, and technology in all sectors grew at the same country-specic average rate, trade volumes would be higher, cross-country export patterns more dissimilar, and intra-industry trade lower than in the data. In this counterfactual scenario, welfare is also 1.6% higher for the median country compared to the baseline. The welfare impact varies greatly across countries, ranging from −1.1% to +4.3% among OECD countries, and from −4.6% to +41.9% among non-OECD countries. |
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Gregory S. Crawford, Nicola Pavanini, Fabiano Schivardi, Asymmetric information and imperfect competition in lending markets, In: Working paper series / Department of Economics, No. 192, 2015. (Working Paper)
 
We measure the consequences of asymmetric information and imperfect competition in the Italian lending market. We show that banks' optimal price response to an increase in adverse selection varies with competition. Exploiting matched data on loans and defaults, we estimate models of demand for credit, loan use, pricing, and firm default. We find evidence of adverse selection and evaluate its importance. While indeed prices rise in competitive markets and decline in concentrated ones, the former effect dominates, suggesting that while market power can mitigate the adverse effects of asymmetric information, mainstream concerns about its effects survive with imperfect competition. |
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Shuo Liu, Voting with public information, In: Working paper series / Department of Economics, No. 191, 2017. (Working Paper)
 
We study the effect of public information on collective decision-making in committees, where members can have both common and conflicting interests. In the presence of public information, the simple and efficient vote-your-signal strategy profile no longer constitutes an equilibrium under the commonly-used simultaneous voting rules, while the intuitive but inefficient follow-the-expert strategy profile almost always does. Although more information may be aggregated if agents are able to coordinate on more sophisticated equilibria, inefficiency can persist even in large elections if the provision of public information introduces general correlation between the signals observed by the agents. We propose simple voting procedures that can indirectly implement the outcomes of optimal anonymous and ex post incentive compatible mechanisms with public information. The proposed voting procedures also have additional advantages when there is a concern for strategic disclosure of public information. |
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Christian Rupietta, Johannes Meuer, Uschi Backes-Gellner, How do apprentices moderate the influence of organizational innovation on the technological innovation process?, In: Swiss Leading House Economics of Education Working Paper, No. 145, 2018. (Working Paper)

This paper contributes to the literature on non-monetary benefits of Vocational Education and Training (VET) by investigating its influence on a firm’s innovation process. While an increasing number of studies finds positive effects of VET on innovation in firms, the role that apprentices play in this mechanism has largely been unexplored. To analyze this role, we use the distinction between technological and organizational innovation, two complementary forms of innovation. When investigating the initiators of organizational innovation, to date, research has primarily focused on internal and external change agents at upper echelons. We conceptualize apprentices as hybrid (a combination of internal and external) change agents at lower echelons. We examine how apprentices in the Swiss VET system are key to integrating external knowledge (through school-based education) with internal knowledge (through on-the-job training) and moderating the influence of organizational innovation on technological innovation. Drawing on a sample of 1,240 firms from a representative Swiss Innovation Survey, we show that apprentices leverage the positive association between innovations in a firm’s business processes and organization of work with incremental innovations. With the description of a new mechanism that shows the significant role of apprentices on firms’ technological innovation activities and evidence for supportive associations between key variables, we contribute to the understanding of the influence of VET on innovation in firms. |
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Jaume Ventura, Hans-Joachim Voth, Debt into growth: how sovereign debt accelerated the first industrial revolution, In: Working paper series / Department of Economics, No. 194, 2015. (Working Paper)
 
Why did the country that borrowed the most industrialize first? Earlier research has viewed the explosion of debt in 18th century Britain as either detrimental, or as neutral for economic growth. In this paper, we argue instead that Britain’s borrowing boom was beneficial. The massive issuance of liquidly traded bonds allowed the nobility to switch out of low-return investments such as agricultural improvements. This switch lowered factor demand by old sectors and increased profits in new, rising ones such as textiles and iron. Because external financing contributed little to the Industrial Revolution, this boost in profits in new industries accelerated structural change, making Britain more industrial more quickly. The absence of an effective transfer of financial resources from old to new sectors also helps to explain why the Industrial Revolution led to massive social change – because the rich nobility did not lend to or invest in the revolutionizing industries, it failed to capture the high returns to capital in these sectors, leading to relative economic decline. |
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Josef Falkinger, Sabrina Studer, Yingnan Zhao, Explaining structural change towards and within the financial sector, In: Working paper series / Department of Economics, No. 206, 2015. (Working Paper)
 
This paper presents a 3x3 general equilibrium model of an OLG-economy with technological uncertainty, heterogeneous agents and quasi-homothetic preferences to analyze structural change between the real and the financial sector as well as within the financial sector. Besides the consumption and investment good two types of financial services are produced. The three factors of production are: Capital, skilled and unskilled labor. Financial services are needed for transforming savings into future consumption possibilities. The financial market provides deposits and an incomplete set of securities. Payoffs of assets are determined by the future profitability of the technolo- gies in which they are invested. We show the channels through which structural change and inequality reinforce each other and show how they simultaneously emerge from rising per-capita income, an increase in skill supply and technical change. |
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Joel Floris, Kaspar Staub, Ulrich Woitek, The benefits of intervention: birth weights in Basle 1912-1920, In: Working paper series / Department of Economics, No. 236, 2016. (Working Paper)
 
To assess the impact of interventions on well-being during war time, we analyze data from the birth records at the university maternity hospital of Basle in the period 1912-1920. Birth weight of children from medium SEP families decreased during the crisis years 1918 and 1919, but not for low and high SEP families. A potential explanation is access to food: while high SEP families could compensate for high prices, low SEP families received support, for which medium SEP families were not eligible. |
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Christian Ewerhart, Contest success functions: the common-pool perspective, In: Working paper series / Department of Economics, No. 195, 2015. (Working Paper)
 
The axiomatic route to the foundation of contest success functions (CSF) has proved to be both useful and prolific. The standard approach in the literature is based on the decision-theoretic notion that choice probabilities should be independent of irrelevant alternatives (Skaperdas, Economic Theory 1996). The present paper develops an alternative approach that suggests itself once the contest is re-interpreted as a common-pool resource problem. Proceeding along these lines, new axiomatizations are obtained for a variety of popular classes of CSFs, including the logit, Tullock, and difference-form CSFs. The axiomatizations provided are particularly parsimonious in the important special case of two contestants. |
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Daniel R Burghart, Thomas Epper, Ernst Fehr, The ambiguity triangle: uncovering fundamental patterns of behavior under uncertainty, In: Working paper series / Department of Economics, No. 196, 2015. (Working Paper)
 
The probability triangle (also called the Marschak-Machina triangle) allows for compact and intuitive depictions of risk preferences. Here, we develop an analogous tool for choice under uncertainty - the ambiguity triangle - and show that indifference curves in this triangle capture preferences for unknown probabilities. In particular, the ambiguity triangle allows us to examine whether subjects adhere to the generalized axiom of revealed preference (GARP) and satisfy a non-parametric test for constant ambiguity attitudes. We find that more than 95% of subjects adhere to GARP and that about 60% satisfy our test for a constant ambiguity attitude. Yet, among these 60% of subjects there is substantial preference heterogeneity. We characterize this heterogeneity with finite-mixture estimates of a one-parameter extension of Expected Utility Theory wherein 48% of subjects are ambiguity averse, 22% are ambiguity seeking, and 30% are close to ambiguity neutral. The ambiguity triangle also highlights how variable ambiguity attitudes arise mainly because indifference curves are 'fanning-in' across the triangle. This fanning-in property implies that aversion to ambiguity increases as the likelihood of receiving a good outcome increases. We capture this behavior with a simple parametric model that also allows for finite mixture characterizations of preference heterogeneity for these subjects. We show that for a substantial share of these subjects (43%) their fanning-in is so strong that, although they are initially ambiguity seeking, they become strongly ambiguity averse as the likelihood of receiving a good outcome increases. |
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Gregory S. Crawford, The economics of television and online video markets, In: Working paper series / Department of Economics, No. 197, 2015. (Working Paper)
 
Television is the dominant entertainment medium for hundreds of millions. This chapter surveys the economic forces that determine the production and consumption of this content. It presents recent trends in television and online video markets, both in the US and internationally, and describes the state of theoretical and empirical research on these industries. A number of distinct themes emerge, including the growing importance of the pay-television sector, the role played by content providers (channels), distributors, and negotiations between them in determining market outcomes, and concerns about the effects of market power throughout this vertical structure. It also covers important but unsettled topics including the purpose for and effects of both the old (Public Service Broadcasters) and the new (online video markets). Open theoretical and empirical research questions are highlighted throughout. |
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Lachlan Deer, Ralph-C Bayer, Pledges of commitment and cooperation in partnerships, In: Working paper series / Department of Economics, No. 201, 2015. (Working Paper)
 
We use experimental methods to investigate whether pledges of commitment can improve cooperation in endogenously formed partnerships facing a social dilemma. Treatments vary in terms of the individual’s (a) opportunity to commit to their partner, (b) the cost of dissolving committed partnerships, and (c) the distribution of these dissolution costs between partners. Our findings show that pledges of commitment alone can increase cooperation and welfare in committed partnerships . The introduction of relatively large and equally split costs yields similar gains. In contrast, when costs to dissolve committed partnerships fall solely on the individual choosing to break up, pledges of commitment fail to improve cooperation and welfare. |
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Igor Letina, Armin Schmutzler, Inducing variety: a theory of innovation contests, In: Working paper series / Department of Economics, No. 200, 2019. (Working Paper)
 
This paper analyzes the design of innovation contests when the quality of an innovation depends on the research approach, but the best approach is unknown. Inducing a variety of research approaches generates an option value. We show that suitable contests can induce such variety. The buyer-optimal contest is a bonus tournament, where suppliers can choose only between a low bid and a high bid. This contest implements the socially optimal variety for a suitable parameter range. Finally, we compare the optimal contest to scoring auctions and fixed-prize tournaments. |
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Gregory S. Crawford, Oleksandr Shcherbakov, Matthew Shum, The welfare effects of endogenous quality choice in cable television markets, In: Working paper series / Department of Economics, No. 202, 2015. (Working Paper)
 
We measure the welfare consequences of endogenous quality choice in imperfectly competitive markets. We introduce the concept of a "quality markup" and measure the relative importance for welfare of market power over price versus market power over quality. For U.S. cable-television markets between 1997-2006, we find that prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. This "quality inflation" contradicts classic results in the literature and reflects our flexible specification of consumer preferences. Furthermore, we find market power over quality is responsible for 54% of the total welfare change from endogenous prices and qualities. |
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Michael D König, Xiaodong Liu, Christian Zimmermann, Coauthorship networks and research output, In: Working paper series / Department of Economics, No. 203, 2015. (Working Paper)
 
We study the impact of research collaborations in coauthorship networks on total research output. Through the links in the collaboration network researchers create spillovers not only to their direct coauthors but also to researchers indirectly linked to them. We characterize the interior equilibrium when multiple agents spend effort in multiple, possibly overlapping projects, and there are interaction effects in the cost of effort. |
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Johannes Kunz, Rainer Winkelmann, An econometric model of health care demand with non-linear pricing, In: Working paper series / Department of Economics, No. 204, 2015. (Working Paper)
 
From 2004 to 2012, the German social health insurance levied a co-payment for the first doctor visit in a calendar quarter. We develop a new model for estimating the effect of such a co-payment on the individual number of visits per quarter. The model allows for a one time increase in the otherwise constant hazard rate determining the timing of doctor visits, and uses a difference-in-differences strategy to identify the reform effect. The model can be adapted to a situation where the reporting period and the calendar quarter differ. Using data from the German Socio-Economic Panel, we do not find an effect of the co-payment on demand for doctor visits. |
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Alain Cohn, Michel Maréchal, Laboratory measure of cheating predicts school misconduct, In: Working paper series / Department of Economics, No. 205, 2017. (Working Paper)
 
Laboratory experiments provide insights into the drivers of cheating behaviour, but it is unclear to what extent cheating in the lab generalizes to the field. We conducted an experiment with middle and high school students to test whether a common laboratory measure of cheating predicts three types of school misconduct: (i) disruptiveness in class, (ii) homework non-completion, and (iii) absenteeism. We find that students who cheat in the experimental task are more likely to misbehave at school, suggesting that experimental measures of cheating generalize to rule violating behaviour in naturally occurring environments. |
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Florian Schneider, Martin Schonger, An experimental test of the Anscombe-Aumann Monotonicity axiom, In: Working paper series / Department of Economics, No. 207, 2017. (Working Paper)
 
Most models of ambiguity aversion satisfy Anscombe-Aumann’s Monotonicity axiom. Monotonicity imposes separability of preferences across events that occur with unknown probability. We construct a test of Monotonicity by modifying the Allais paradox to a setting with both subjective and objective uncertainty. Two experimental studies are conducted: while study 1 uses U.S. online workers and a natural source of ambiguity, study 2 employs European students and an Ellsberg urn. In both studies, modal behavior violates Monotonicity in a specific, intuitive way. Overall, our data suggest that violations of Monotonicity are as prevalent as violations of von Neumann-Morgenstern’s Independence axiom. |
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Dragan Ilić, Sonja Pisarov, Peter S Schmidt, Preaching water but drinking wine? Relative performance evaluation in international banking, In: Working paper series / Department of Economics, No. 208, 2016. (Working Paper)
 
Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge arises from intricacies of identifying the correct peers. And on a simpler note, corporate commitments to RPE could be mere exercises in empty rhetoric. We address both issues and test the use of RPE in a new sample of large international non-U.S. banks. Taken as a whole, the banks in our sample show moderate evidence consistent with RPE. We report stronger evidence once we investigate the subsample of banks that disclose the use of peers in their compensation schemes. This finding lends support to the credibility and thus informational value of RPE commitments. Digging deeper, we conclude that RPE usage is driven by firm size and growth options. |
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