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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Peter Zweifel, Karolin Leukert, Stephanie Berner, Preferences for Health Insurance in Germany and the Netherlands - A Tale of Two Countries, In: Working paper series / Socioeconomic Institute, No. No. 1002, 2010. (Working Paper)
This contribution contains an international comparison of preferences. Using two Discrete Choice Experiments (DCE), it measures willingness to pay for health insurance attributes in Germany and the Netherlands. Since the Dutch DCE was carried out right after the 2006 health reform, which made citizens explicitly choose a health insurance contract, two research questions naturally arise. First, are the preferences with regard to contract attributes (such as Managed-Care-type restrictions of physician choice) similar between the two countries? Second, was the information campaign launched by the Dutch government in the context of the reform effective in the sense of reducing status quo bias? Based on random-effects Probit estimates, these two questions can be answered as follows. First, while much the same attributes have positive and negative willingness to pay values in the two countries, their magnitudes differ, pointing to differences in preference structure. Second, status quo bias in the Netherlands is one-half of the German value, suggesting that Dutch consumers were indeed made to bear the cost of decision making associated with choice of a health insurance contract. |
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Pavlo R Blavatskyy, Reverse Common Ratio Effect, In: Working paper series / Institute for Empirical Research in Economics, No. No. 478, 2010. (Working Paper)
The results of a new experimental study reveal highly systematic violations ofnexpected utility theory. The pattern of these violations is exactly the opposite of thenclassical common ratio effect discovered by Allais (1953). Two recent decision theories—nstochastic expected utility theory (Blavatskyy, 2007) and perceived relative argumentnmodel (Loomes, 2008)—predicted the existence of a reverse common ratio effect. However, these theories can rationalize only one part of the new experimental data reported in this paper. The other part appears to be neither predicted by existing theories nor documented in the existing empirical studies. |
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Stefan Boes, Convex Treatment Response and Treatment Selection, In: Working paper series / Socioeconomic Institute, No. No. 1001, 2010. (Working Paper)
This paper analyzes the identifying power of weak convexity assumptions in treatment effect models with endogenous selection. The counterfactual distributions are constrained either in terms of the response function, or conditional on the realized treatment, and sharp bounds on the potential outcome distributions are derived. The methods are applied to bound the effect of education on smoking. |
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Matthias Doepke, Fabrizio Zilibotti, Do International Labor Standards Contribute to the Persistence of the Child Labor Problem?, In: Working paper series / Institute for Empirical Research in Economics, No. No. 467, 2010. (Working Paper)
In recent years, a number of governments and consumer groups in rich countries have tried to discourage the use of child labor in poor countries through measures such as product boycotts and the imposition of international labor standards. The purported objective of such measures is to reduce the incidence of child labor in developing countries and thereby improve children’s welfare. In this paper, we examine the effects of such policies from a political-economy perspective. We show that these types of international action on child labor tend to lower domestic political support within developing countries for banning child labor. Hence, international labor standards and product boycotts may delay the ultimate eradication ofnchild labor. |
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Ilja Neustadt, Peter Zweifel, Economic Well-Being, Social Mobility, and Preferences for Income Redistribution: Evidence from a Discrete Choice Experiment, In: Working paper series / Socioeconomic Institute, No. No. 909, 2010. (Working Paper)
In this paper, preferences for income redistribution in Switzerland are elicited through a Discrete Choice Experiment (DCE) performed in 2008. In addition to the amount of redistribution as a share of GDP, attributes also included its uses (working poor, the unemployed, old-age pensioners, families with children, people in ill health) and nationality of bene?ciary (Swiss, Western European, others). Willingness to pay for redistribution increases with income and education, contradicting the conventional Meltzer-Richard (1981) model. The Prospect of Upward Mobility hypothesis [Hirschman and Rothschild (1973); Benabou and Ok (2001)] receives partial empirical support. |
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Dominic Rohner, From Rags to Rifles: Deprivation, Conflict and the Welfare State, In: Working paper series / Institute for Empirical Research in Economics, No. No. 463, 2010. (Working Paper)
Historical evidence suggests that poor population groups are more likely to engage in conflict. We construct a theoretical model of the choice between appropriation and production. Fully specified production functions allow for both symmetrical outcomes and for introducing inequalities in abilities and endowments. It is examined under what conditions income and capital redistribution, as well as education, health and poverty-alleviation spending reduce the incentives for appropriation. Empirical evidence is presented that is consistent with the theory. |
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Egil Matsen, Øystein Thøgersen, Habit formation, strategic extremism, and debt policy, In: Working paper series / Institute for Empirical Research in Economics, No. No. 468, 2010. (Working Paper)
We suggest a probabilistic voting model where voters’ preferences for alternative public goods display habit formation. Current policies determine habit levels and in turn the future preferences of the voters. This allows the incumbent to act strategically in order to influence the probability of reelection.nComparing to a benchmark case of a certain reelection, we demonstrate that the incumbent’s optimal policy features both a more polarized allocation between the alternative public goods and a debt bias. |
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Filippo Brutti, Legal Enforcement, Public Supply of Liquidity and Sovereign Risk, In: Working paper series / Institute for Empirical Research in Economics, No. No. 464, 2010. (Working Paper)
"Sovereign debt crises in emerging markets are usually associated with liquidity and banking crises within the economy. This connection is suggested by both anecdotical and empirical evidence. The conventional view is that the domestic financial turmoil is caused by foreign creditors' retaliation. Yet, there is no clear-cut evidence supporting the existence of 'classic' default penalties (e.g., trade sanctions or exclusion from international capital markets). This paper then proposes a novel mechanism linking sovereign defaults with liquidity and banking crises without any intervention of foreign creditors. The model considers a standard unwillingness-to-pay problem assuming that: (i) the enforcement of private contracts is limited and, as a result, public debt represents a source of liquidity; (ii) the government cannot discriminate between domestic and foreign agents. In this setting, the prospect of drying up the private sector's liquidity restores the ex-post incentive to pay of the government without any need to assume foreign penalties. Nonetheless, liquidity crises might arise when economic conditions deteriorate and the government chooses opportunistically to default in order to avoid the repayment of foreign agents. The interaction between the enforcement friction and sovereign risk is then exploited to study the implications on international capital flows and legal and institutional domestic reforms." |
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Christian Ewerhart, Monotone comparative statics with separable objective functions, In: Working paper series / Institute for Empirical Research in Economics, No. No. 472, 2010. (Working Paper)
The sum of a supermodular function, assumed nondecreasing in the choice variable, and of a 'concavely supermodularizable' function, assumed nonincreasing in the parameter variable, satisfies the Milgrom-Shannon (1994, Monotone comparative statics, Econometrica 62, 157-180) single crossing condition. As an application, I prove existence of a pure strategy Nash equilibrium in a Cournot duopoly with logconcave demand, affiliated types, and nondecreasing costs. |
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Kaiji Chen, Zheng Song, Yikai Wang, Precautionary Corporate Liquidity, In: Working paper series / Institute for Empirical Research in Economics, No. No. 465, 2010. (Working Paper)
We develop a theory of corporate liquidity demand, capturing the fact that a firm'snborrowing capacity depends on news on future investment profitability. In our model, bad news on future investment profitability reduces a firm's borrowing capacity and therefore increases the need for internal finance. Consequently, the firm's cash savings respond negatively to news on future profitability. This negative correlation is strongly supported by our empirical evidence using a combined data set of Compustat and IBES. Moreover, both our simulation and empirical results show that the sensitivity of cash savings to news on future profitability is a reliable indicator of the presence of financial constraints at firm level. |
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