Contributions in Merlin

We examine the effect of single motherhood on children’s secondary school track choice using 12-year-old children drawn from the German Socio-Economic Panel. In line with previous studies for the U.S., the U.K. and Sweden, we find a negative correlation between single motherhood and children’s educational attainment. Looking for alternative explanations for this correlation, we use probit regression models to control for factors related to single motherhood such as higher educational background, lower household income and higher labor supply of the mother. Our evidence suggests that single motherhood reduces school attainment mainly because it is associated with lower resources (household income) available for the child.

The basic distinction made in this volume compares “economic value”, expressed in monetary terms, to “cultural value”, reflecting cultural, aesthetic and artistic significance.nThis paper makes a different distinction which is rarely made explicit but which is ofncentral importance to the decision process in cultural policy. On the one hand, “value” is attached to the economic effects of cultural activities: When cultural values are created, economic activity is bolstered. The increase of commercial actitivities induced is measured by the so-called “impact effect”. On the other hand, the value of culture isnreflected in the increased utility going to consumers and non-consumers of a particularncultural activity. This type of value is measured by “willingness to pay studies”. I argue that these two values dominate cultural policy but they capture totally different aspects and are proferred by different kinds of communities.

We consider a regulator providing deposit insurance to a bank with private information about its investment portfolio. As typical in practice, we assume that the regulator does not commit to auditing afternany risk report from the bank. We first show that the optimal contract can be implemented through a direct revelation mechanism. We also show that, at the optimal contract, a high risk bank has incentivesnto misreport. We thus establish that extraction of truthful riskninformation, as done in current regulatory practice, is not compatible with the maximization of social welfare.

In many markets, homogenous goods and services are sold both by large global frms and small local frms. Surprisingly, the large frms charge, often substantially, higher prices. Examples include hotels, airlines, and coffee shops. This paper provides a parsimonious model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and consumers change locations with a given positive probability. Consequently, large frms or "chain stores" insure consumers against this switching cost. The model predicts that chain stores and local stores coexist in equilibrium and that chain stores charge higher prices and yet attract more consumers than local stores. As consumer mobility increases, the profits of both local stores and chain stores increase, but the chain stores' profts increase at a faster rate.

When the performance of a risky asset is frequently assessed, the probability of detecting a loss is high, which averts the loss averse investors. This effect is known as myopic loss aversion (MLA). This paper reexamines several recent experimental studies documenting the existence of MLA. A closer look at the experimental data reveals that the effect of MLA is largely neutralized by the overweighting of small probabilities and the underweighting of moderate and high probabilities. Remarkably, the two effects exactly balance each other out for conventional parameterizations of cumulative prospect theory. MLA alone cannot explain the observed investment decisions.

The prevailing labor market models assume that minimum wages do not affect the labor supply schedule. We challenge this view in this paper by showing experimentally that minimum wages have significant and lasting effects on subjects’ reservation wages. The temporary introduction of a minimum wage leads to a rise in subjects’ reservation wages which persists even after the minimum wage has been removed. Firms are therefore forced to pay higher wages after the removal of the minimum wage than before its introduction. As a consequence, the employment effects of removing the minimum wage are significantly smaller than are the effects of its introduction. The impact of minimum wages on reservation wages may also explain the anomalously low utilization of subminimum wages if employers are given the opportunity of paying less than a minimum wage previously introduced. It may furthernexplain why employers often increase workers' wages after an increase in the minimum wagenby an amount exceeding that necessary for compliance with the higher minimum. At a morengeneral level, our results suggest that economic policy may affect people’s behavior by shaping the perception of what is a fair transaction and by creating entitlement effects.

"The most fundamental solution concepts in Game Theory – Nash equilibrium, backward induction, and iterated elimination of dominated strategies – are based on the assumption that people are capable of predicting others' actions. These concepts require people to be able to view the game from the other players’ perspectives, i.e. to understand others’ motives and beliefs. Economists still know little about what enables people to put themselves into others’nshoes and how this ability interacts with their own preferences and beliefs. Social neuroscience provides insights into the neural mechanism underlying our capacity to represent others' intentions, beliefs, and desires, referred to as ""Theory of Mind"" or ""mentalizing"", and the capacitynto share the feelings of others, referred to as ""empathy"". We summarize the major findings about the neural basis of mentalizing and empathizing and discuss some implications for economics."

Consider the problem of testing s hypotheses simultaneously. The usual approach tondealing with the multiplicity problem is to restrict attention to procedures that controlnthe probability of even one false rejection, the familiar familywise error rate (FWER). Innmany applications, particularly if s is large, one might be willing to tolerate more than onenfalse rejection if the number of such cases is controlled, thereby increasing the ability of thenprocedure to reject false null hypotheses One possibility is to replace control of the FWERnby control of the probability of k or more false rejections, which is called the k-FWER.nWe derive both single-step and stepdown procedures that control the k-FWER in finitensamples or asymptotically, depending on the situation. Lehmann and Romano (2005a)nderive some exact methods for this purpose, which apply whenever p-values are availablenfor individual tests; no assumptions are made on the joint dependence of the p-values. Inncontrast, we construct methods that implicitly take into account the dependence structurenof the individual test statistics in order to further increase the ability to detect false nullnhypotheses. We also consider the false discovery proportion (FDP) defined as the numbernof false rejections divided by the total number of rejections (and defined to be 0 if therenare no rejections). The false discovery rate proposed by Benjamini and Hochberg (1995)ncontrols E(FDP).

"This paper examines the impact of a public credit registry on the repayment behavior of borrowers. We implement an experimental credit market in which loannrepayment is not third-party enforceable. We compare market outcome with a credit registry to that without a credit registry. This experiment is conducted forntwo market environments: first a market in which interactions between borrowers and lenders are one-off and, second, a market in which borrowers and lenders cannchoose to trade repeatedly with each other. In the market with one-off interactions the credit market collapses without a credit registry as lenders rightly fear that borrowers will default. The introduction of a registry in this environment significantlynraises repayment rates and the credit volume extended by lenders. In the market where repeat transactions are possible a credit registry is not necessary to sustain high market performance. In such an environment relationship banking enforces repayment even when lenders cannot share information, so that there is little valuenadded of a public credit registry."

The paper studies a major human activity – that of watching TV - where many individuals have incomplete control over, and foresight into, their own behavior. As a consequence, they watch more TV than they consider optimal for themselves and their well-being is lower than what could be achieved. Mainly people with significant opportunity costs of time regret the amount of time spent watching TV. They report lower subjective well-being when watching TV fornmany hours. For others, there is no negative effect on life satisfaction from watching TV. Long hours spent in front of a TV are linked to higher material aspirations and anxiety and therewith lower life satisfaction.