Contributions in Merlin

This paper studies the theoretical properties of a channel system of interestratencontrol in a dynamic general equilibrium model. Agents are subject to liquidity shocks which can be partially insured in a secured money market, ornat a standing facility operated by the central bank. We show that it is optimal to have a strictly positive interest rate corridor and that a shift of the corridor affects the money market rate one for one. Moreover, the central bank canntighten its policy without changing its policy rate by simply increasing the corridor symmetrically around the policy rate.

Many countries are forging ahead with convenient balloting methods, in particular electronic and postal voting, in order to re-engage voters. In this paper, we test whether thencost reductions with postal voting increase turnout. The empirical analysis is based on annewly collected data set on the introduction of postal voting in Swiss cantons. We take advantage of the unique fact that voting by mail was introduced at different times across cantons. This allows identifying the impact of postal voting on turnout, independent of time,nissue and canton specific effects. The estimated average effect on turnout is roughly 4.1npercentage points for an average turnout of 43 percent between 1970 and 2005.

We analyze a two-country model of Foreign Direct Investment (FDI). Two firms, each of which is originally situated in only one of the two countries, first decide whether to build a plant in the foreign country. Then, they decide whether to relocate R&D activities. Finally, they engage in product-market competition. Our main points are: first, FDI liberalization causes a relocation of R&D activities if intrafirm communication is sufficiently well developed, external spillovers are substantial, competition is not too strong and foreign markets are not too small. Second, such a relocation of R&D activities will usually nevertheless increase domestic welfare since it only occurs if intrafirm communication is well developed and therefore knowledge generated and obtained abroad flows back to the domestic country. Third, the potential of R&D offshoring makes FDI itself more likely. Fourth, when countries are asymmetric, the small-country firm is more likely to offshore its R&D activities into the large country than conversely.

In the television show Affari Tuoi an individual faces a sequence of binary choicesnbetween a risky lottery with equiprobable prizes of up to half a million euros and anmonetary amount for certain. The decisions of 114 show participants are used to test the predictions of ten decision theories: risk neutrality, expected utility theory, fanning-out hypothesis (weighted utility theory, transitive skew-symmetric bilinear utility theory), (cumulative) prospect theory, regret theory, rank-dependent expected utility theory, Yaari’s dual model, prospective reference theory and disappointment aversion theory.nAssumptions of risk neutrality and loss aversion are clearly violated, respectively, byn55% and 46% of all contestants. There appears to be no evidence of nonlinear probabilitynweighting or disappointment aversion. Observed decisions are generally consistent withnthe assumption of regret aversion and there is strong evidence for the fanning-outnhypothesis. Nevertheless, we find no behavioral patterns that cannot be reconciled withinnthe expected utility framework (or prospective reference theory that gives identicalnpredictions).

We conducted an experiment to describe how social learners use information about the relation between payoffs and behavior. Players chose between twontechnologies repeatedly. Payoffs were random, but one technology was better because its expected payoff was higher. Players were divided into two groups:n1) individual learners who knew their realized payoffs after each choice andn2) social learners, who had no private feedback about their own payoffs, but in each period could choose to learn which behavior had produced the lowestnpayoff among the individual learners or which behavior had produced the highest payoff. When social learners chose to know the behavior producing the highest payoff, a model of imitating this successful behavior matches the data verynclosely. When social learners chose to know the behavior producing the lowest payoff, they tended to choose the opposite behavior in early periods, while increasingly choosing the same behavior in late periods. This kind of rapidntemporal heterogeneity in the use of social information has received little or no attention in the theoretical study of social learning.

"In this paper, we propose a decision framework where people are individually asked to either actively consent or dissent to some pro-social behavior. We hypothesize that confronting individuals with the choice of engaging in a specific pro-social behavior contributes to the formation of issue-specific altruistic preferences while simultaneouslyninvolving a commitment. The hypothesis is tested in a large-scale field experiment on blood donation. We find that this ""active-decision"" intervention substantially increases the stated willingness to donate blood, as well as the actual donation behavior of people who have not fully formed preferences beforehand."

This contribution starts out by noting a conflict of interest between consumers and insurers. Consumers face positive correlation in their assets (health, wealth, wisdom, i.e. skills), causing them to demand a great deal of insurance coverage. Insurers on the other hand eschew positively correlated risks. It can be shown that insurance contributes to a reduction of their asset volatility only if unexpected deviations of payments from expected value correlate negatively across lines of insurance. Analyzing deviations from trend in aggregate insurance payments, one finds the following for the United States and Switzerland. Private U.S. but not Swiss insurance has a hedging effect for consumers, while both social insurance schemes expose consumers to excess asset volatility. In the insurance systems of both countries, the private component fails to offset deviations in the social component (and vice versa). As to the supply of insurance, cointegration analysis indicates the absence of common trends. Therefore, insurance companies could offer combined policies to the benefit of consumers, hedging their underwriting risks both domestically and internationally.

This chapter discusses the role of environmental morale and environmental motivation in individual behavior from the point of view of economics and psychology. It deals with the fundamental public good problem, and presents empirical (laboratory and field) evidence on how the cooperation problem can be overcome. Four different theoretical approaches are distinguished according to how individuals’ underlying environmental motivation is modeled. Specifically, we look at the interaction between environmental policy and environmental morale through the lens of cognitive evaluation theory (also known as crowding theory).

Many studies have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. However, behavioral evidence is rare. This paper provides an empirical analysis on how individuals’ relative income position affectsntheir performance. Using a unique data set for 1114 soccer players over a period ofneight seasons (2833 observations), our analysis suggests that the larger the income differences within a team, the worse the performance of the soccer players is. Thenmore the players are integrated in a particular social environment (their team), thenmore evident this negative effect is.

"The most influential approach of corporate governance, the view of shareholders supremacyndoes not take into consideration that the key task of modern corporations is to generate andntransfer firm-specific knowledge. It proposes that, in order to overcome the widespreadncorporate scandals, the interests of top management and directors should be increasinglynaligned to shareholder interests by making the board more responsible to shareholders, andnmonitoring of top management by independent outside directors should be strengthened.nCorporate governance reform needs to go in another direction altogether. Firm-specificnknowledge investments are, like financial investments, not ex ante contractible, leavingninvestors open to exploitation by shareholders. Employees therefore refuse to make firmspecificninvestments. To gain a sustainable competitive advantage, there must be an incentivento undertake such firm-specific investments. Three proposals are advanced to deal with thisndilemma: (1) The board should rely more on insiders. (2) The insiders should be elected bynthose employees of the firm who are making firm-specific knowledge investments. (3) Thenboard should be chaired by a neutral person. These proposals have major advantages: theynprovide incentives for knowledge investors; they countervail the dominance of executives;nthey encourage intrinsic work motivation and loyalty to the firm by strengthening distributivenand procedural justice, and they ensure diversity on the board while lowering transactionncosts. These proposals for reforming the board may help to overcome the crisis corporatengovernance is in. At the same time, they provide a step in the direction of a more adequatentheory of the firm as a basis for corporate governance."