Bruno Frey, Susanne Neckermann, Awards as Signals, In: Working paper series / Institute for Empirical Research in Economics, No. No. 513, 2010. (Working Paper)
Awards are widespread in all countries and are prevalent both in the public sphere and in the private sector. This paper argues, and empirically supports, that awards serve public functions and economists should take them seriously. Using a unique cross-country data set, we suggest that awards serve as signals. Awards are more prevalent the more difficult the position and status of an individual is to observe due to an anonymous and globalized setting. |
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Bruno Frey, Democracy and Innovation, In: Working paper series / Institute for Empirical Research in Economics, No. No. 514, 2010. (Working Paper)
Self-determination in politics has become the ideal everybody accepts. This paper argues that such contentment undermines the very idea of democracy. Democracy should be open to criticism and change. Two possible developments are considered:
(a) More political power should be given to the citizens. Direct democracy is the appropriate form of democracy for the 21st century.
(b) Many innovations are possible in democracy. The focus is on the potential role of random mechanisms to secure that the population is more fully represented in the political process both with respect to the persons in politics and the decisions taken. |
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Frank R Lichtenberg, Johannes Schoder, Impact of Specialization on Health Outcomes - Evidence from U.S. Cancer Data, In: Working paper series / Socioeconomic Institute, No. No. 1011, 2010. (Working Paper)
There have been many studies of the volume-outcome relationship. In all of these, the unit of analysis is the hospital or physician. However, this level of analysis is mostly limited to the use of in-hospital mortality rates and is particularly sensitive to selective referral. Moreover, the literature on agglomeration economies highlights the importance of information spillovers within regions (Glaeser, 2010). To overcome these problems, our study is the first that examines the volume-outcome relationship on a regional (county or cancer registry) level. Using data from the National Cancer Institute’s Surveillance, Epidemiology and End Results program we find that regions with relatively more of the same cancer type exhibit relatively better health outcomes. |
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Olivier Ledoit, Michael Wolf, Robust Performance Hypothesis Testing with the Variance, In: Working paper series / Institute for Empirical Research in Economics, No. No. 516, 2010. (Working Paper)
"Applied researchers often test for the difference of the variance of two investment strategies; in particular, when the investment strategies under consideration aim to implement the global minimum variance portfolio. A popular tool to this end is the F-test for the equality of variances. Unfortunately, this test is not valid when the returns are correlated, have tails heavier than the normal distribution, or are of time series nature. Instead, we propose the use of robust inference methods. In particular, we suggest to construct a studentized time series bootstrap confidence interval for the ratio of the two variances and to declare the two variances different if the value one 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." |
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Bruno Frey, Withering Academia?, In: Working paper series / Institute for Empirical Research in Economics, No. No. 512, 2010. (Working Paper)
Strong forces lead to a withering of academia as it exists today. The major causal forces are the rankings mania, increased division of labor in research, intense publication pressure, academic fraud, dilution of the concept of “university”, and inadequate organizational forms for modern research. Academia, in a broader sense understood as “the locus of seeking truth and learning through methodological inquiry,” will subsist in different forms. The conclusion is therefore pessimistic with respect to the academic system as it presently exists but not to scholarly endeavour as such. However, the transformation predicted is expected to be fundamental. |
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Hwa Ryung Lee, Bankruptcy and Low Cost Carrier Expansion in the Airline Industry, In: Working paper series / Institute for Empirical Research in Economics, No. No. 502, 2010. (Working Paper)
This paper studies how financial distress affects competition and how incumbent bankruptcy affects the growth of rivals, specifically in the context of airline bankruptcies. I begin by studying whether bankrupt airlines put competitive pressures on rivals by cutting fares and maintaining or expanding capacity on the 1000 most popular domestic routes from 1998-2008. The results suggest that, although bankrupt legacy airlines reduce fares, they also reduce capacities significantly. Low-cost carrier (LCC) rivals do not match the fare cuts and expand capacities by 13-18% above trend growth. The significant capacity reductions associated with legacy airline bankruptcies create growth opportunities for LCC rivals. This indicates the existence of barriers that have limited LCCs from expanding faster and more extensively. The LCC expansion during rivals' bankruptcies is even greater when I consider the 200 most popular airports instead of the 1000 most popular routes. During legacy airlines' bankruptcy, non-LCC rivals reduce capacities on the routes affected by the bankruptcy but expand at the affected airports. A likely explanation for this result is that non-LCCs avoid 'bankruptcy' routes as more competitive pressure is expected with increasing presence of LCCs, but they pick up the gates or time slots given up by the bankrupt airlines to expand on other routes. On balance the total route capacity on the 1000 popular routes shows only a modest decrease during bankruptcy and eventually recovers, but the capacity mix changes in favor of LCCs. Overall, I find little evidence that distressed airlines toughen competition and lower industry profitability. LCC's capacity growth during legacy rivals' bankruptcy suggests the existence of market frictions in competition. |
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Michelle Petersen Rendall, Brain versus brawn: the realization of women's comparative advantage, In: Working paper series / Institute for Empirical Research in Economics, No. No. 491, 2017. (Working Paper)
In the last decades the US economy experienced a rise in female labor force participation, a reversal of the gender education gap and a closing of the gender wage gap. Importantly, these changes occurred at a substantially different pace over time. During the same period, workers in the US faced a considerable shift in labor demand from more physical to more intellectual skill requirements. I rationalize these observations in the context of a general equilibrium model displaying two key assumptions: (1) the demand for brain increases both within and across education groups; and (2) women have less brawn than men. Given the observed US technical change process, the model replicates (1) over half of the narrowing gender wage gap, (2) most of the narrowing employment gap, and (3) all of the reversing education gap. Crucially, the model can also account for the time-varying-path of the narrowing gender divide with an initial stagnation and a later acceleration in female wages and education rates. |
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Timothy N Cason, Roman M Sheremeta, Jingjing Zhang, Communication and efficiency in competitive coordination games, In: Working paper series / Institute for Empirical Research in Economics, No. 505, 2012. (Working Paper)
Costless pre-play communication has been found to effectively facilitate coordination and enhance efficiency in games with Pareto-ranked equilibria. We report an experiment in which two groups compete in a weakest-link contest by expending costly efforts. Allowing intra-group communication leads to more aggressive competition and greater coordination than control treatments without any communication. On the other hand, allowing inter-group communication leads to less destructive competition. As a result, intra-group communication decreases while inter-group communication increases payoffs. Our experiment thus provides an example of an environment where communication can either enhance or damage efficiency. This contrasts sharply with experimental findings from public goods and other coordination games, where communication always enhances efficiency and often leads to socially optimal outcomes. |
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Ilja Neustadt, Do Religious Beliefs Explain Preferences for Income Redistribution? Experimental Evidence, In: Working paper series / Socioeconomic Institute, No. No. 1009, 2010. (Working Paper)
Due to the mixed empirical evidence bearing on the economic determinants, beliefs have been at the center of attention of research into preferences for income redistribution. We elicit preferences for income redistribution through a Discrete Choice Experiment performed in 2008 in Switzerland and relate them to several behavioral determinants, in particular to religious beliefs. Estimated marginal willingness to pay (WTP) is positive among those who do not belong to a religious denomination, and negative otherwise. However, the marginal WTP is shown to increase with a higher degree of religiosity. Moreover, those who state that luck or connections play a crucial role in determining economic success exhibit significantly higher WTP values than those who deem e?ort to be decisive |
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Marco Casari, Jingjing Zhang, Christine Jackson, Do groups fall prey to the winner's curse?, In: Working paper series / Institute for Empirical Research in Economics, No. No. 504, 2010. (Working Paper)
In a company takeover experiment, groups placed better bids than individuals and substantially reduced the winner’s curse. This improvement was mostly due to peer pressure over the minority opinion and to group learning. Learning took place from interacting and negotiating consensus with others, not simply from observing their bids. When there was disagreement within a group,nwhat prevailed was not the best proposal but the one of the majority. Groups underperformednwith respect to a “truth wins” benchmark although they outperformed individuals deciding in isolation. We draw general lessons about when to employ groups instead of individuals in intellectual tasks. |
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Neil J Buckley, Stuard Mestelman, R Andrew Muller, Stephan Schott, Jingjing Zhang, Effort Provision and Communication in Teams Competing over the Commons, In: Working paper series / Institute for Empirical Research in Economics, No. No. 503, 2010. (Working Paper)
Schott et al. (2007) have shown that the 'tragedy of the commons' can be overcome when individuals share their output equally in groups of optimal size and there is no communication. In this paper we investigate the impact of introducing communication groups that may or may not be linked to output sharing groups. Communication reduces shirking, increases aggregate effort and reduces aggregate rents, but only when communication groups and output-sharing groups are linked. The effect is stronger for fixed groups (partners treatment) than for randomly reassigned groups (strangers treatment). Performance is not distinguishable from the no-communication treatments when communication is permitted but subjects share output within groups different from the groups within which they communicate. Communication also tends to enhance the negative effect of the partnered group assignment on the equality of individual payoffs. We use detailed content analysis to evaluate the impact of communication messages on behavior across treatments. |
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Alexey Kushnir, Harmful Signaling in Matching Markets, In: Working paper series / Institute for Empirical Research in Economics, No. No. 509, 2010. (Working Paper)
Some labor markets have recently developed formal signaling mechanisms, e.g. the signaling for interviews in the job market for new Ph.D. economists. We evaluate the effect of such mechanisms on two-sided matching markets by considering a game of incomplete information between firms and workers. Workers have almost aligned preferences over firms: each worker has 'typical' commonly known preferences with probability close to one and 'atypical' idiosyncratic preferences with the complementary probability close to zero. Firms have commonly known preferences over workers. We show that the introduction of a signaling mechanism is harmful for this environment. Though signals transmit previously unavailable information, they also facilitate information asymmetry that leads to coordination failures. As a result, the introduction of a signaling mechanism lessens the expected number of matches when signals are informative. |
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Jingjing Zhang, Marco Casari, How groups reach agreement in risky choices: an experiment, In: Working paper series / Institute for Empirical Research in Economics, No. No. 506, 2010. (Working Paper)
This paper studies how groups resolve disagreement in lottery choices. In an experiment, subjects submit individual proposals, exchange chat messages, and must reach unanimity. Overall, group choices are more coherent and closer to risk neutrality than individuals’. The proposal of the minority prevails in about one instance out of five. About one third of the groups do not reach immediate agreement after communication. In these groups, extrovert subjects are more likely to lead the group outcome than confused or conscientious subjects. The amount, equality and timing of chat messages help us to predict which choice prevails in the group. |
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Daniel Halter, Manuel Oechslin, Josef Zweimüller, Inequality and Growth: The Neglected Time Dimension, In: Working paper series / Institute for Empirical Research in Economics, No. No. 507, 2010. (Working Paper)
The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series (differences-based) variation indicate a strong positive link while estimators (also) exploiting the cross-sectional (levelbased) variation suggest a negative relationship. Using an expanded dataset, the presentnpaper confirms this conflicting pattern — and reconciles it on the basis of a simple model.nWe argue that the differences-based methods are prone to reflect the mostly positive shortor medium-run implications of inequality while the level-based estimators also incorporate more negative long-term consequences. Thus, the latter estimates come close to reflecting the adverse overall impact of inequality in the long run. |
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Hwa Ryung Lee, Multimarket Contact Effect on Collusion through Diversification, In: Working paper series / Institute for Empirical Research in Economics, No. No. 501, 2010. (Working Paper)
This study establishes the potential positive relationship between multimarket contact (MMC) and sustainable collusive profits under demand fluctuations. In particular, I focus on the correlation structure between demand shocks over multiple markets and show how it can lead to a positive link between collusive profit and MMC. Simple theoretical models show that, regardless of whether demand shocks are observable or not, MMC may improve collusive profits through diversification of demand shocks over overlapping markets. If firms meet in multiple markets and link those markets in the sense that deviation in any market will trigger simultaneous retaliations in every market, then a cheating firm will optimally deviate in every market. Demand fluctuation that a firm is facing in its markets in total will be reduced as the number of markets increases, unless demand shocks are perfectly and positively correlated between the markets. The reduction of demand fluctuations can boost collusion (1) by reducing the temptation to deviate in the period of high demand when demand shocks are observable and (2) by reducing the frequency of costly punishment on the equilibrium path when demand shock is unobservable. The conclusion in the case of observable demand shock provides us with a new testable implication that price competition will be muted by MMC in periods of high demand. |
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Peter Coles, Alexey Kushnir, Muriel Niederle, Preference Signaling in Matching Markets, In: Working paper series / Institute for Empirical Research in Economics, No. No. 508, 2010. (Working Paper)
Many labor markets share three stylized facts: employers cannot give full attention to all candidates, candidates are ready to provide information about their preferences for particular employers, and employers value and are prepared to act on this information. In this paper we study how a signaling mechanism, where each worker can send a signal of interest to one employer, facilitates matches in such markets. We find that introducing a signaling mechanism increases the welfare of workers and the number of matches, while the change in firm welfare is ambiguous. A signaling mechanism adds the most value for balanced markets. |
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Erik Gartzke, Dominic Rohner, Prosperous Pacifists: The Effects of Development on Initiators and Targets of Territorial Conflict, In: Working paper series / Institute for Empirical Research in Economics, No. No. 500, 2010. (Working Paper)
Scholars have suggested several ways in which economic development could affect interstate conflict. Supply side arguments view modern economies as more difficult to subdue or exploit through force (i.e., development creates states that are 'bitter pills'). The demand side perspective argues in contrast that development lessens the appeal of conquest among potential aggressors (i.e., development creates 'prosperous pacifists'). We offer a formal model that isolates contrasting consequences of development for initiators and targets. We use a directed dyad research design to test hypotheses drawn from the model on measures of territorial conflict. The development of potential initiators, not of possible targets, discourages conflict among nations. |
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Reinhard Madlener, Ilja Neustadt, Renewable energy policy in the presence of innovation: does government pre-commitment matter?, In: Working paper series / Socioeconomic Institute, No. No. 1010, 2010. (Working Paper)
In a perfectly competitive market with a possibility of technological innovation we contrast guaranteed feed-in tariffs for electricity from renewables and tradable green certificates from a dynamic efficiency and social welfare point of view. Specifically, we model decisions about the technological innovation with convex costs within the framework of a game-theoretic model, and discuss implications for optimal policy design under different assumptions regarding regulatory pre-commitment. We find that for the case of technological innovation with convex costs subsidy policies are preferable over quota-based policies. Further, in terms of dynamic efficiency, no pre-commitment policies are shown to be at least as good as the pre-commitment ones. Thus, a government with a preference for innovation being performed if the achievable cost reduction is high should be in favor of the no pre-commitment regime. |
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Erik Gartzke, Dominic Rohner, To Conquer or Compel: War, Peace, and Economic Development, In: Working paper series / Institute for Empirical Research in Economics, No. No. 511, 2010. (Working Paper)
Theories of economic development suggest variously that national income increases or decreases the propensity for states to fight, while systematic evidence of the impact of development on warfare is ambiguous or non-existent. The lack of empirical support for nominally opposing claims can be reconciled if elements of both perspectives are partially correct. We use a formal model to construct an explanation linking economic development with interstate conflict that resolves contradictory theories and a relative paucity of evidence. Development increases the ability of states to project power while decreasing the willingness of states to engage in conflict over certain issues. High income states fight less often to conquer tangible assets or territory, but fight more often to compel adherence to preferred policies and to police the global commons. |
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Thomas Epper, Helga Fehr-Duda, Adrian Bruhin, Viewing the Future through a Warped Lens: Why Uncertainty Generates Hyperbolic Discounting, In: Working paper series / Institute for Empirical Research in Economics, No. No. 510, 2010. (Working Paper)
A large body of experimental research has demonstrated that, on average, people violate the axioms of expected utility theory as well as of discounted utility theory. In particular, aggregate behavior is best characterized by probability distortions and hyperbolic discounting. But is it the same people who are prone to these behaviors? Based on an experiment with salient monetary incentives we demonstrate that there is a strong and significant relationship between greater departures from linear probability weighting and the degree of decreasing discount rates at the level of individual behavior. We argue that this relationship can be rationalized by the uncertainty inherent in any future event, linking discounting behavior directly to risk preferences. Consequently, decreasing discount rates may be generated by people's proneness to probability distortions. |
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