Contributions in Merlin

"Informal sanctions are a major determinant of a society’s social capital because they are key to the enforcement of implicit agreements and social norms. Yet, little is known about the driving forces behind informal sanctions. We systematically examine the determinants of informal sanctions by a large number of experiments. Our experiments allow us to identify the relative importance of three major potential factors: (i) strategic sanctioning for selfish reasons, (ii) non-strategic sanctions driven by spitefulness, and (iii) non-strategic sanctions that are driven by the violation of fairness principles. In addition, the observed sanctioning patterns provide insights into the relevance of different fairness principles.nOur findings show that the violation of fairness principles is the most important driving force of sanctions but, in addition, a non-negligible part of the sanctions is driven by spitefulness. We find surprisingly little evidence for strategic sanctions that are imposed to create future material benefits. While non-strategic sanctions are of major importance in our experiments, strategic sanctions seem to play a negligible role. Within the class of fairnessdrivennsanctions the motive to harm those who committed unfair actions seems mostnimportant."

Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.

The burning of fossil fuels not only causes CO2 emissions but at the same time impairs local environmental quality such as ambient air quality. The present paper analyzes the possible distortion arising from international trade in CO2 emissions when local externalities persist. It is theoretically derived that the maximal possible distortion is determined by the difference in factor endowment and population density of the trading regions. Moreover, an empirical illustration for Switzerland shows that a rich country buying emission rights sustains a welfare loss.

"We normally take it for granted: a government or state has its corresponding territory. This paper shows that government need not have a territorial monopoly. The paper advances a practical, constitutional proposal, based on the notion that there are meaningful government units, whose major characteristic is not the territorial extension but its function. The constitution proposal allows for the emergence of governmental organizations, which will be called FOCJ according to the acronym for “Functional, Overlapping, Competing Jurisdictions”. Their territory is variable, and they do not have a territorial monopoly over it. Rather, they are in competition with other such FOCJ, and they are, moreover, exposed to political competition."

The present paper applies a theoretical two-sector three-factor model to analyze a variety of energy tax reforms with the common feature of at least partly exempting the energy-intensive export sector from the tax. As a result, all scenarios with exemptions reduce energy less than the non-discriminating textbook version of the energy tax. Moreover, in the two scenarios that exemplify typical attributes of the tax reforms in Germany and Denmark, an increase in total energy use is possible. This is due to a positive output effect resulting from a substitution of the energy-intensive for the labor-intensive commodity.

In the incomplete markets model with numeraire asset and a single consumption good we show that, even with homothetic preferences, on compact sets of prices Continuity, Walras' identity and Homogeneity characterize the properties of market excess demand. This result is proved by an extension of Mantel (1976) to the case of incomplete markets.

Most professional economists believe that economist in general are more selfish than other persons and that this greater selfishness is due to economic education. In this paper we offer empirical evidence against this widely held belief. Using a unique data set about giving behaviour to two social funds at the University of Zurich, it is shown that economic training does not make people act more selfish. However, the 'natural experiment' supports the hypothesis that the different behaviour of economist can be explained by a selection effect.

In this paper, we study the effect of financial markets on the investment of a two-good two-country economy with stochastic production in a dynamic framework. Each country produces and invests only one good and, therefore, makes decisions as a central planner in an optimal growth model. Trade between consumers of both countries, however, takes place on competitive (spot or financial) markets. Wencompare the investment-consumption decisions of both `market' models with the benchmark-case of an integrated world-equilibrium. In the log-linear case, we can uniquely characterize the state-dependent preferences of consumers that lead to dynamically efficient investment decisions. We show that the investment decisions in both `market' models are, in general, inefficient as compared with the efficient, ornintegrated world economy, case.n

Adam Smith's idea that wage differences reveal preferences for risk rests on firm theoretical foundations. This paper argues, however, that the standard approach to identify these differentials in practice may be flawed. Empirical practice usually identifies compensating wage differentials for risk by regressing individual wages on aggregate measures of risk, usually industry or occupation average risk. If jobs differ within industries or occupations, the ''aggregate approach'' may identify arbitrary compensating differentials for risk. In a dataset with precise information on job risk as well as aggregate risk, I demonstrate that using aggregate risk identifies wage differentials that are two to five times larger than wage differentials based on job riskninformation. This result is robust to controlling for time constant unobserved individual or job heterogeneity.

In this paper we show that a simple model of reciprocal preferences explains major experimental regularities of common pool resource (CPR) experiments. The evidence indicates that in standard CPR games without communication and without sanctioning possibilities inefficient excess appropriation is the rule. However, when communication or informal sanctions are available appropriation behavior is more efficient. Our analysis shows that these regularities arise naturally when a fraction of the subjects exhibits reciprocal preferences.