Contributions in Merlin

This paper analyzes and compares different ways of assessing how people perceived impending threats of war in the past. Conventional Nordic historiography of World War IInclaims there were few, if any, people in the Nordic countries who perceived a significantlynincreased threat of war between 1938 and early 1940. At the same time, historical methodsnface problems when it comes to capturing the often tacitly held beliefs of a large numbernof people in the past. In this paper, we analyze these assessments by looking at suddennshifts in sovereign debt yields and spreads in the Nordic bond markets at that time. Ournresults suggest that Nordic contemporaries indeed perceived significant war risk increasesnaround the time of major war-related geopolitical events. While these findings questionnsome – but not all – of standard Nordic World War II historiography, they also demonstrate the value of analyzing historical market prices to reassess the often tacitly held views and opinions of large groups of people in the past.

This paper aims at showing the relevance of procedural utility for economics: people do not only care about outcomes, as usually assumed in economics, they also value the processes and conditions leading to outcomes. The psychological foundations of procedural utility are outlined and it is discussed how the concept differs from other related approaches in economics, like outcome utility, outcome fairness or intentions. Institutions at the level of society and fair procedures are shown to be sources of procedural utility, and novel empirical evidence on the role of procedural utility in important areas of the economy, polity and society is presented.

Most previous studies on intertemporal labor supply found very small or insignificantnsubstitution effects. It is not clear, however, whether these results are due to institutionalnconstraints on workers’ labor supply choices or whether the behavioral assumptions of thenstandard life cycle model with time separable preferences are empirically invalid. We conducted a randomized field experiment in a setting in which workers were free to choose their working times and their efforts during working time. We document a large positive wage elasticity of overall labor supply and an even larger wage elasticity of labor hours, which implies that the wage elasticity of effort per hour is negative.nWhile the standard life cycle model cannot explain the negative effort elasticity, we show that a modified neoclassical model with preference spillovers across periods and a model withnreference dependent, loss averse preferences are consistent with the evidence. With the help of anfurther experiment we can show that only loss averse individuals exhibit a significantly negativeneffort response to the wage increase and that the degree of loss aversion predicts the size of the negative effort response.

This contribution seeks to answer two related questions. First, what is the purpose of social health insurance? Or put in slightly different terms, what are the reasons for social (or public) health insurance to exist, even to dominate private health insurance in most developed countries? And second, what are the limits of social health insurance? Can one say that there is "too much" social health insurance in the following two senses: Should the balance be shifted towards the private alternative? And is the degree of coverage excessive?

Much progress has been made in recent years on developing and applying a direct measure of utility using survey questions on subjective well-being. In this paper we explore whether this new type of measurement can be fruitfully applied to the study of interdependent utility in general, and altruism between parents and adult children who moved away from home in particular. We introduce an appropriate econometric methodology and, using data from the German SocioEconomic Panel for the years 2000-2004, find that the parents’ self-reported happiness depends positively on the happiness of their adult children. A one standard deviation move in the child’s happiness has the same effect as a 45 percent move in household income.

There is abundant evidence that many individuals violate the rationality assumptionsnroutinely made in economics. However, powerful evidence also indicates that violations ofnindividual rationality do not necessarily refute the aggregate predictions of standard economicnmodels that assume full rationality of all agents. Thus, a key question is how the interactions between rational and irrational people shape the aggregate outcome in markets and other institutions. We discuss evidence indicating that strategic complementarity and strategic substitutability are decisive determinants of aggregate outcomes. Under strategic complementarity, a small amount of individual irrationality may lead to large deviations from the aggregate predictions of rational models, whereas a minority of rational agents may suffice to generate aggregate outcomes consistent with the predictions of rational models under strategic substitutability.

We examine the interplay of endogenous vertical integration and costreducing downstream investment in successive oligopoly. We start from a linear Cournot model to motivate our more general reducedform framework. For this general framework, we establish the following main results: First, vertical integration increases own investment and decreases competitor investment (intimidation effect). Second, asymmetric equilibria typically involve integrated firms that invest more into effciency than their separated counterparts. Our findings suggest that asymmetric vertical integration is a potential explanation for the initial difference between leader and laggard in investment games.

This paper discusses recent neuroeconomic evidence related to other-regarding behaviors and the decision to trust in other people’s other-regarding behavior. This evidencensupports the view that people derive nonpecuniary utility (i) from mutual cooperation in socialndilemma (SD) games and (ii) from punishing unfair behavior. Thus, mutual cooperation and the punishment of free riders in SD games is not irrational, but better understood as rationalnbehavior of people with corresponding social preferences. We also report the results of anrecent study that examines the impact of the neuropeptide Oxytocin (OT) on trusting andntrustworthy behavior in a sequential SD. Animal studies have identified Oxytocin as anhormone that induces prosocial approach behavior, suggesting that it may also affect prosocialnbehavior in humans. Indeed, the study shows that subjects given Oxytocin exhibit much morentrusting behavior, suggesting that OT has a direct impact on certain aspects of subjects’ social preferences. Interestingly, however, although Oxytocin affects trusting behavior, it has no effect on subjects’ trustworthiness.

In this paper we analyze the behavioral consequences of control on motivation. Wenstudy a simple experimental principal-agent game, where the principal decides whethernhe controls the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our main finding is that a principal's decisionnto control has a negative impact on the agent's motivation. While there is substantial individual heterogeneity among agents, most agents reduce their performance as a response to the principals' controlling decision. The majority of the principals seem to anticipate the hidden costs of control and decide not to control. In several treatmentsnwe vary the enforceable level of control and show that control has a non-monotonic effect on the principal's payoff. In a variant of our main treatment principals can also set wages. In this gift-exchange game control partly crowds out agents' reciprocity. The economic importance and possible applications of our experimental results are further illustrated by a questionnaire study which reveals hidden costs of control in various real-life labor scenarios. We also explore possible reasons for the existence of hidden costs of control. Agents correctly believe that principals who control expect to get less than those who don't. When asked for their emotional perception of control, most agents who react negatively say that they perceive the controlling decision as a signal of distrust and a limitation of their choice autonomy.

We propose an a±ne term structure model which accommodates non-linearities in the drift andnvolatility function of the short-term interest rate. Such non-linearities are a consequence of discrete beta-distributed regime shifts constructed on multiple thresholds. We derive iterative closed-form formulanfor the whole yield curve dynamics that can be estimated using a linearized Kalman filter. Fitting the model on US data, we collect empirical evidence of its potential in estimating conditional volatilitynand correlation across yields.