Contributions in Merlin

This paper studies the evolution of life satisfaction over the life course in Germany. It clarifies the causal interpretation of the econometric model by discussing the choice of control variables and the underidentification between age, cohort and time effects. The empirical part analyzes the distribution of life satisfaction over the life course at the aggregated, subgroup and individual level. To the findings: On average, life satisfaction is mildly decreasing up to age fifty-five followed by a hump shape with a maximum at seventy. The analysis at the lower levels suggests that people differ in their life satisfaction trends, whereas the hump shape after age fifty-five is robust. No important differences between men and women are found. In contrast, education groups differ in their trends: highly educated people become happier over the life cycle, where life satisfaction decreases for less educated people.

While both public and private financial agencies supply asset markets with large quantities of information, they do not necessarily disclose all asset-related information to the general public. This observation leads us to ask what principles might govern the optimal disclosure policy for an asset manager or financial regulator. To investigate this question, we study the properties of a dynamic economy endowed with a risky asset, and with individuals that lack commitment. Information relating to future asset returns is available to society at zero cost. Legislation dictates whether this information is to be made public or not. Given the nature of our environment, nondisclosure is generally desirable. This result is overturned, however, when individuals are able to access hidden information—what we call undue diligence—at sufficiently low cost. Information disclosure is desirable, in other words, only in the event that individuals can easily discover it for themselves.

Democracy is defined by two core tenets: voice and pluralism. Within these constraints, a wide variety of regime types can be designed. We show that the only new, untested form of democracy is when every citizen is governed by the political party of his/her choice. Multiple full-fledged governments would coexist in the same national territory at the same time, each one sovereign only over the people who chose to vote for it - hence the name: "Choice Democracy". Choice Democracy can be regarded as pure polyarchy, the broadest form of political competition, and a robust mechanism for disciplining government agencies. We argue that this system makes democracy more stable by reducing the risk of revolutionary and financial crises. We develop a theory for the optimal number of governments per countries, where the answer is determined by a trade-off between cooperation and competition. We also provide evidence indicating that Choice Democracy would be viable in the real world.

We study communication in a two-player coordination game with Pareto-ranked equilibria. Prior research demonstrates that efficient coordination is difficult without communication but obtains regularly with (mandatory) costless pre-play messages. In a laboratory experiment, we modify communication by making the sending of messages optional and costly. Even small costs dramatically reduce message use, but efficient coordination of actions occurs with similar frequency to that observed under costless communication. Our results can be accounted for by Govindan and Wilson's formalization of forward induction (GW-FI), which selects, among the pure-strategy equilibrium outcomes, the one in which efficiency is achieved without communication. Consistent with the introspective character of GW-FI, the fraction of players who achieve efficient coordination by forgoing the use of reasonably costly optional messages is substantial from the first period, is remarkably stable at that level, and is not significantly affected by learning.

We study Pareto optimal tax and education policies when human capital upon labor market entry is endogenous and individuals face wage uncertainty. Though optimal labor distortions are history-dependent, i.e. depend on income and education, simple policy instruments can yield the desired distortions: a single nonlinear labor income tax schedule combined with income-contingent loans. To take themodel to the (US) data, we simplify the model to a binary education decision (graduating from college or not). We find that for lowand intermediate incomes the labor supply decision of college graduates should be distorted more heavily than for individuals without a college degree. As a consequence, the optimal student loan repayment schedule increases in income for this range. This result holds along the Pareto frontier. We compare the second best to a situation where loan repayment is restricted to be independent from income and find significant welfare gains.

No voters cast their votes based on perfect information, but better educated and richer voters are on average better informed than others. We develop a model where the voting mistakes resulting from low political knowledge reduce the weight of poor voters, and cause parties to choose political platforms that are better aligned with the preferences of rich voters. In US election survey data, we find that income is more important in affecting voting behavior for more informed voters than for less informed voters, as predicted by the model. Further, in a panel of US states we fi*nd that when there is a strong correlation between income and political information, Congress representatives vote more conservatively, which is also in line with our theory.

Parental leave regulations in most OECD countries have two key policy instruments: job protection and cash benefits. This paper studies how mothers’ return to work behavior and labor market outcomes are affected by alternative mixes of these key policy parameters. Exploiting a series of major parental leave policy changes in Austria, we find that longer cash benefits lead to a significant delay in return to work and that the magnitude of this effect depends on the relative length of job protection and cash benefits. However, despite their impact on time on leave, we do not find a significant effect on mothers’ labor market outcomes in the medium run, neither of benefit duration nor of job-protection duration. To understand the relative importance (and interaction) of the two policy instruments in shaping mothers’ return to work behavior, we set up a non-stationary job search model in which cash benefits and job protection determine decisions of when to return to work and whether or not to return to the pre-birth employer. Despite its lean structure, the model does surprisingly well in matching empirically observed return to work profiles. The simulation of alternative counterfactual regimes shows that a policy that combines both job protection and benefits payments succeeds to induce mothers to spend some time with the child after birth without jeopardizing their medium run labor market attachment.

We introduce a model of the economy as a social network. Two agents are linked to the extent that they transact with each other. This generates well-defined topological notions of location, neighborhood and closeness. We investigate the implications of our model for monetary economics. When a central bank increases the money supply, it must inject the money somewhere in the economy. We demonstrate that the agent closest to the location where money is injected is better off, and the one furthest is worse off. This redistribution channel is independent from the ones previously noted in the literature. Symmetrically, any decrease in the money supply redistributes purchasing power in the other direction. We also outline the testable implications of our model.

I present a game-theoretic model where economic competition and attention competition are interdependent. On the one hand the effort to attract consumer attention depends on the value of attention to the firm which depends on the grade of price competition among all perceived firms. On the other hand attracting attention involves costs which must be covered by the earnings from competition. It is the task of this paper to clarify the consequences of such an interdependence between attention competition and economic competition for prices, attention effort and market structure as determined by the strategic equilibrium. Under limited attention the market as perceived by consumers and not the effective market is relevant to the firms which implies that prices also reflect the scarcity of attention. Less attentive consumers lead to higher prices but at the same time getting attention is more valuable which intensifies the competition for attention and leads to higher attention costs. I show that if attention competition is relatively inelastic or the commodities are strong substitutes then the gains from consumer inattention outweigh the costs of attracting attention which leads to higher profits and larger effective markets.

The bivariate probit model is frequently used for estimating the effect of an endogenous binary regressor (the "treatment") on a binary health outcome variable. This paper discusses simple modifications that maintain the probit assumption for the marginal distributions while introducing non-normal dependence using copulas. In an application of the copula bivariate probit model to the effect of insurance status on the absence of ambulatory health care expenditure, a model based on the Frank copula outperforms the standard bivariate probit model.