Andreas Beerli, The Evolution of Durable Goods Demand During China's Transition. An Empirical Analysis of Household Survey Data from 1989 to 2006, In: Working paper series / Institute for Empirical Research in Economics, No. No. 494, 2010. (Working Paper)
Durable goods ownership is commonly seen as a ‘defining gauge’ for the stage of development of a country. Its unprecedented economic growth and the rise of a strong and steadily growing class of consumers make China a formidable case study for the investigation of durable goods diffusion. Drawing on a household-panel with a survey period from 1989 to 2006, the empirical analysis of the driving forces behind the diffusion of durable goods shows that growth of disposable income was not equally important for all goods in their diffusion process. Rather it was the fall of individual preference thresholds (explained in part by falling durable prices) that proved to have a significant influence on the diffusion process of some goods. As it turned out, this tendency was significantly stronger in rural areas and could have counterbalanced, therefore, welfare patterns in terms of ownership contrary to the stable urban-rural gap in economic performance. Apart from changes in income and durable prices, it was found, that improvement of public services had particularly strong effects for urban poor and in rural areas. A forecast exercise up to 2030 revealed that growth in ownership rates is expected to be particularly strong for durable goods like refrigerators and cars for which households already show (or are about to do so in the case of cars) high sensitivity towards further increases in their disposable income. For other durables, like colour TVs, that are already well spread in the population there are signs of saturation with lower expected growth rates of ownership. Additionally, ownership rates are expected to pick up stronger in rural areas were households are less saturated and show higher income elasticities. As a comparison with figures from the literature demonstrates, actual and projected ownership rates depend, to some degree, also on the choice of the data set. The projections based on CHNS data could, therefore, build a reference to other commonly used data sets from the Chinese National Bureau of Statistics. |
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Christian Ewerhart, Rent-seeking contests with independent private values, In: Working paper series / Institute for Empirical Research in Economics, No. No. 490, 2010. (Working Paper)
We consider symmetric rent-seeking contests with independent private valuations of the contest prize. For a two-parameter specification with continuous types, we fully characterize the Bayesian equilibrium, and study its basic properties. The willingness to waste is a hump-shaped function of the private valuation, with the median type expending the highest share of her valuation. A first-order (second-order) stochastic increase in the common type distribution raises (lowers) ex-ante expected efforts. However, neither first-order nor second-order stochastic dominance in valuations necessarily leads to a first-order stochastic dominance ranking in efforts. We also show that, as uncertainty vanishes, the Bayesian equilibrium converges to the Nash equilibrium of the model with complete information. |
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Lea Cassar, Bruno Frey, Should I stay or should I go? An institutional approach to brain drain, In: Working paper series / Institute for Empirical Research in Economics, No. No. 489, 2010. (Working Paper)
This paper suggests that institutional factors which reward social networks at the expenses of productivity can play an important role in explaining brain drain. The effects of social networks on brain drain are analyzed in a decision theory framework with asymmetric information. We distinguish between the role of insidership and personal connections. The larger the cost of being an outsider, the smaller is the number and the average ability of researchers working in the domestic job market. Personal connections partly compensate for this effect by attracting highly connected researchers back. However, starting from a world with no distortions, personal connections also increase brain drain. |
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Susanne Neckermann, Reto Cueni, Bruno Frey, Awards at work, In: Working paper series / Institute for Empirical Research in Economics, No. No. 411, 2010. (Working Paper)
Awards—widespread in the corporate sector and elsewhere—are motivators that derive their value from non-pecuniary concerns such as status and self-image. Quasi-experimental panel data from the call center of a large international bank allow us to estimate the causal impact on effort when receiving an award. The performance of winners proves to be significantly higher than that of comparable nonrecipients after the award has been presented. This increase in work effort is sizeable and robust. We investigate the various theories that could explain the change in behavior. We find that image concerns most likely drive the effect. |
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Robertas Zubrickas, Optimal Grading, In: Working paper series / Institute for Empirical Research in Economics, No. No. 487, 2010. (Working Paper)
Assuming that teachers are concerned with human capital formation and students - with ability signaling, in this paper we model a teacher-student relationship as an agency problem with conflicting interests. In our model, the teacher elicits effort from the student rewarding for it with a grade, the utility of which to the student is an ability signal inferred by the job market. In the event that the job market does not observe individual teachers' grading practice, teachers find grades as costless rewards and optimally choose to be lenient in grading. As a result, 'the problem of the commons' of good grades emerges leading to the depreciation of grading standards and grade inflation. The prediction of the model that the lower the expectations the teacher holds about her students' abilities, the flatter the grading rules she sets up is empirically supported. |
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Joan Esteban, Massimo Morelli, Dominic Rohner, Strategic Mass Killings, In: Working paper series / Institute for Empirical Research in Economics, No. No. 486, 2010. (Working Paper)
"Since World War II there have been about fifty episodes of large-scale mass killings of civilians and massive forced displacements. They were usually meticulously planned and independent of military goals. We provide a model where conflict onset, conflict intensity and the decision to commit mass killings are all endogenous, with two main goals: (1) to identify the key variables and situations that make mass killings more likely to occur; and (2) to distinguish conditions under which mass killings and military conflict intensity reinforce each other from situations where they are substitute modes of strategic violence.nWe predict that mass killings are most likely in societies with large natural resources, significant proportionality constraints for rent sharing, low productivity and low state capacity. Further, massacres are more likely in a civil than in an interstate war, as in the latter group sizes matter less for future rents.nIn non polarized societies there are asymmetric equilibria with only the larger group wanting to engage in massacres. In such settings the smaller group compensates for this by fighting harder in the first place. In this case we can talk of mass killings and fighting efforts to be substitutes. In contrast, in polarized societies either both or none of the groups can be ready to do mass killings in case of victory. Under the 'shadow of mass killings' groups fight harder. Hence, in this case massacres and fighting are complements.nWe also present novel empirical results on the role of natural resources in mass killings and on what kinds of ethnic groups are most likely to be victimized in massacres and forced resettlements, using group level panel data." |
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Daniel Houser, Daniel Schnunk, Joachim Winter, Erte Xiao, Temptation and Commitment in the Laboratory, In: Working paper series / Institute for Empirical Research in Economics, No. No. 488, 2010. (Working Paper)
Temptation and self-control in intertemporal choice environments are receiving increasing attention in the theoretical economics literature. Nevertheless, there remains a scarcity of empirical evidence from controlled environments informing behavior under repeated temptations. This is unfortunate in light of the fact that in many natural environments, the same temptation must be repeatedly resisted. This paper fills that gap by reporting data from a novel laboratory study of economic decisions under repeat temptations. Subjects are repeatedly offered an option with instantaneous benefit that also entails a substantial reduction to overall earnings.nWe show that this option is 'tempting' in the sense that a substantial fraction of our subjects incur pecuniary costs to eliminate the choice, and thus commit to not choosing the tempting alternative. We compare the timing and price-elasticity of these commitment decisions to predictions from existing theoretical models of decision under temptation. Our data are broadly consistent with theory, with the notable exception that commitment often occurs with delay rather than at the first opportunity. Moreover, the timing of commitment is significantly impacted by the cost of the commitment device. The patterns we report have direct implications for economic theory, and are a first step toward designing mechanisms that promote prudent economic decisions under temptation. |
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Daron Acemoglu, Gino Gancia, Fabrizio Zilibotti, Competing Engines of Growth: Innovation and Standardization, In: Working paper series / Institute for Empirical Research in Economics, No. No. 483, 2010. (Working Paper)
We study a dynamic general equilibrium model where innovation takes the form of the introduction new goods, whose production requires skilled workers. Innovation is followed by a costly process of standardization, whereby these new goods are adapted to be produced using unskilled labor. Our framework highlights a number of novel results. First, standardization is both an engine of growth and a potential barrier to it. As a result, growth in an inverse U-shaped function of the standardization rate (and of competition). Second, we characterize the growth and welfare maximizing speed of standardization. We show how optimal IPR policies affecting the cost of standardization vary with the skill-endowment, the elasticity of substitution between goods and other parameters. Third, we show that the interplay between innovation and standardization may lead to multiple equilibria. Finally, we study the implications of our model for the skill-premium and we illustrate novel reasons for linking North-South trade to intellectual property rights protection. |
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Bruno Frey, Lasse Steiner, Pay as you go: a new proposal for museum pricing, In: Working paper series / Institute for Empirical Research in Economics, No. No. 485, 2010. (Working Paper)
Museums have many different goals beyond efficiency such as social equity, financial revenue, attracting donors and gaining international, regional or local prestige. Various pricing schemes are being discussed with the aim of reaching these goals. Thenclassical ones are entry prices and free entry. The museum club solution or exit donationsnallow for various additional goals. Each scheme has clear advantages and disadvantages.nWe propose an innovative pricing instrument: Exit prices, which are charged according to the time spent in a museum. This scheme has a number of notable advantages, in particular the better choice available to the visitors, which increases their satisfaction. |
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Sandra Hanslin, Trade Openness, Gains from Variety and Government Spending, In: Working paper series / Socioeconomic Institute, No. No. 1004, 2010. (Working Paper)
This paper investigates empirically the effect of import diversity on government size and provides evidence for the love of variety effect on government spending described in Hanslin (2008). I argue that crowding out of firms is an important cost of public good provision. However, due to the access to foreign varieties, national costs of public good provision are lower and therefore, public good provision is higher. Especially for OECD countries this channel seems to exist. The diversity of imported products has a positive effect on government consumption, particularly when these goods are classified as differentiated. In addition, this positive effect is decreasing in home market size. Further, the direct effect of the share of differentiated in total imported products on the government share is negative. |
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Bruno Frey, Lasse Steiner, World Heritage List: Does it make sense?, In: Working paper series / Institute for Empirical Research in Economics, No. No. 484, 2010. (Working Paper)
The UNESCO World Heritage List contains the 900 most treasured Sites of humanity’s culture and landscapes.nThe World Heritage List is beneficial where heritage sites are undetected, disregarded by national decision-makers, not commercially exploitable, and where national financial resources, political control and technical knowledge for conservation are inadequate.nAlternatives such as the market and reliance on national conservation list are more beneficial where the cultural and natural sites are already popular, markets work well, and where inclusion in the List does not raise the destruction potential by excessive tourism, and in times of war or by terrorists. |
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Margit Osterloh, Bruno Frey, Academic Rankings and Research Governance, In: Working paper series / Institute for Empirical Research in Economics, No. No. 482, 2010. (Working Paper)
Academic rankings today are the backbone of research governance, which seem to fit the aims of “new public management” on the one side and the idea of the “republic of science” on the other side. Nevertheless rankings recently came under scrutiny. We discuss advantages and disadvantages of academic rankings, in particular their unintended negative consequences on the research process. To counterbalance these negative consequences we suggest (a) rigorous selection and socialization, and (b) downplaying the impact of rankings in order to reconcile academic self-governance with accountability to the public. |
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Ilja Neustadt, Peter Zweifel, Is the Welfare State Sustainable? Experimental Evidence on Citizens' Preferences for Redistribution, In: Working paper series / Socioeconomic Institute, No. No. 1003, 2010. (Working Paper)
The sustainability of the welfare state ultimately depends on citizens’ preferences for income redistribution. They are elicited through a Discrete Choice Experiment performed in 2008 in Switzerland. Attributes are redistribution as GDP share, its uses (the unemployed, old-age pensioners, people with ill health etc.), and nationality of bene?ciary. Estimated marginal willingness to pay (WTP) is positive among those who deem bene?ts too low, and negative otherwise. However, even those who state that government should reduce income inequality exhibit a negative WTP on average. The major ?nding is that estimated average WTP is maximum at 21% of GDP, clearly below the current value of 25%. Thus, the present Swiss welfare state does not appear sustainable. |
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Frederick van der Ploeg, Dominic Rohner, War and Natural Resource Exploitation, In: Working paper series / Institute for Empirical Research in Economics, No. No. 481, 2010. (Working Paper)
Although the relationship between natural resources and civil war has received much attention, little is known about the underlying mechanisms. Controversies and contradictions in the stylized facts persist because resource extraction is treated as exogenous while in reality fighting affects extraction. We study endogenous fighting, armament, and extraction method, speed and investment. Rapacious resource exploitation has economic costs, but can nevertheless be preferred to balanced depletion due to lowered incentives for future rebel attacks. With private exploitation, rebels fight more than the government if they can renege on the contract with the mining company, and hence government turnover is larger in this case. Incentive-compatible license fees paid by private companies and mining investment are lower in unstable countries, and increase with the quality of the government army and office rents. This implies that privatised resource exploitation is more attractive for governments who have incentives to fight hard, i.e., in the presence of large office rents and a strong army. With endogenous weapon investments, the government invests more under balanced than under rapacious or private extraction. If the government can commit before mining licenses are auctioned, it will invest more in weapons under private extraction than under balanced and rapacious nationalized extraction. |
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Karla Hoff, Mayuresh Kshetramade, Ernst Fehr, Caste and Punishment: The Legacy of Caste Culture in Norm Enforcement, In: Working paper series / Institute for Empirical Research in Economics, No. No. 476, 2010. (Working Paper)
Well-functioning groups enforce social norms that restrain opportunism, but the social structure of a society may encourage or inhibit norm enforcement. Here we study how the exogenous assignment to different positions in an extreme social hierarchy – the caste system – affectsnindividuals’ willingness to punish violations of a cooperation norm. Although we control for individual wealth, education, and political participation, low caste individuals exhibit a muchnlower willingness to punish norm violations that hurt members of their own caste, suggesting a cultural difference across caste status in the concern for members of one’s own community. Thenlower willingness to punish may inhibit the low caste’s ability to sustain collective action and so may contribute to its economic vulnerability . |
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Timothy Falcon Crack, Olivier Ledoit, Central Limit Theorems When Data Are Dependent: Addressing the Pedagogical Gaps, In: Working paper series / Institute for Empirical Research in Economics, No. No. 480, 2010. (Working Paper)
Although dependence in financial data is pervasive, standard doctoral-level econometrics texts do not make clear that the common central limit theorems (CLTs) contained therein fail when applied to dependent data. More advanced books that are clear in their CLT assumptions do not contain any worked examples of CLTs that apply to dependent data. We address these pedagogical gaps by discussing dependence in financial data and dependence assumptions innCLTs and by giving a worked example of the application of a CLT for dependent data to the case of the derivation of the asymptotic distribution of the sample variance of a Gaussian AR(1). We also provide code and the results for a Monte-Carlo simulation used to check the results of the derivation. |
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Jan-Emmanuel De Neve, Nicholas A Christakis, James H Fowler, Bruno Frey, Genes, Economics, and Happiness, In: Working paper series / Institute for Empirical Research in Economics, No. No. 475, 2010. (Working Paper)
Research on happiness has produced valuable insights into the sources of subjective well-being. A major finding from this literature is that people exhibit a 'baseline' happiness that shows persistent strength over time, and twin studies have shown that genes play a significant role in explaining the variance of baseline happiness between individuals. However, these studies have not identified which genes might be involved. This article presents evidence of a specific gene that predicts subjective well-being. Using data from the National Longitudinal Study of Adolescent Health, we show thatnindividuals with a transcriptionally more efficient version of the serotonin transporter gene (5HTT) are significantly more likely to report higher levels of life satisfaction. Having one or two alleles of the more efficient type raises the average likelihood of being very satisfied with one's life by 8.5% and 17.3%, respectively. This result maynhelp to explain the stable component of happiness and suggests that genetic association studies can help us to better understand individual heterogeneity in subjective well-being. |
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Robertas Zubrickas, How Exposure to Markets Can Favor Inequity-Averse Preferences, In: Working paper series / Institute for Empirical Research in Economics, No. No. 473, 2010. (Working Paper)
This paper shows how non-individualistic preferences can be individual fitness maximizing in the presence of general equilibrium externalities. In the model, individuals share an endowment, which can be consumed on its own and/or used as a means of exchange to purchase goods from merchants on the external market if such exists. Assuming that increased consumption means increased individual fitness, we show that inequity-averse behavior with respect to endowment distribution can benan optimal response to merchants' price discrimination and lead to the evolution ofninequity-averse preferences. The findings presented here are supported by empirical evidence on the endogeniety of people's preferences with respect to exposure to market exchange. |
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Alexander Rathke, Samad Sarferaz, Malthus Was Right: New Evidence from a Time-Varying VAR, In: Working paper series / Institute for Empirical Research in Economics, No. No. 477, 2010. (Working Paper)
Although Unified Growth Theory presumes the existence of the Maltusian mechanism in pre-industrial England recent empirical studies challenged this assumption. This paper studies the interaction of vital rates and real wages in the period from 1540 to 1870 in England. We employ time-varying VARs, an approach which addresses potential shortcomings such as parameter instability and declining volatilities in the previous literature. In contrast to recent studies, the main Malthusian mechanisms - the preventive and the positive check - were both at work until the mid-19th century. The preventive check was decreasing and the positive check increasing in importance. Most remarkably, the positive check dominated after the 1750s. The results indicate that instead of disappearing before the advent of the industrial revolution, the Malthusian mechanism rather changed its face over time. |
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Jan Boone, Jacob Goeree, Optimal Market Design, In: Working paper series / Institute for Empirical Research in Economics, No. No. 479, 2010. (Working Paper)
This paper introduces three methodological advances to study the optimal design of static and dynamic markets. First, we apply a mechanism design approach to characterize all incentive-compatible market equilibria. Second, we conduct a normative analysis, i.e. we evaluate alternative competition and innovation policies from a welfare perspective. Third, we introduce a reliable way to measure competition in dynamic markets with non-linear pricing. We illustrate the usefulness of our approach in several ways. We reproduce the empirical finding that innovation levels are higher in markets with lower price-cost margins, yet such markets are not necessarily more competitive. Indeed, we prove the Schumpeterian conjecture that more dynamic markets characterized by higher levels of innovation should be less competitive. Furthermore, we demonstrate how our approach can be used to determine the optimal combination of market regulation and innovation policies such as R&D subsidies or a weakening of the patent system. Finally, we show that optimal markets are characterized by strictly positive price-cost margins. |
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