Contributions in Merlin

This paper analyzes two-stage rank-order tournaments. A principal decides (i) how to spread prize money across the two periods, (ii) how to weigh performance in the two periods when awarding the second-period prize, and (iii) whether to reveal performance after the first period. The information revelation policy depends exclusively on properties of the effort cost function. The principal always puts a positive weight on first-period performance in the second period. The size of the weight and the optimal prizes depend on properties of the observation error distribution; they should be chosen so as to strike a balance between the competitiveness of first- and second-period tournaments. In particular, the principal sets no first-period prize unless the observations in period one are considerably more precise than in period two.

Are monetary and non-monetary incentives used as substitutes in motivating effort? I address this question in a laboratory experiment in which the choice of the job characteristics (i.e., the mission) is part of the compensation package that principals can use to influence agents' effort. Principals offer contracts that specify a piece rate and a charity - which can be either the preferred charity of the agent, or the one of the principal. The agents then exert a level of effort that generates a profit to the principal and a donation to the specified charity. My results show that the agents exert more effort than the level that maximizes their own pecuniary payoff in order to benefit the charity, especially their preferred one. The principals take advantage of this intrinsic motivation by offering lower piece rates and by using the choice of the charity as a substitute to motivate effort. However, I also find that because of fairness considerations, the majority of principals are reluctant to lower the piece rate below a fair threshold, making the substitution between monetary and non-monetary incentives imperfect. These findings have implications for the design of incentives in mission-oriented organizations and contribute to our understanding of job satisfaction and wage differentials across organizations and sectors.

In this paper we study the coevolutionary dynamics of knowledge creation, diffusion and the formation of R&D collaboration networks. Differently to previous works, knowledge is not treated as an abstract scalar variable but represented by a portfolio of ideas that changes over time through innovations and knowledge spillovers between collaborating firms. The collaborations between firms, in turn, are dynamically adjusted based on the firms' expectations of learning a new technology from their collaboration partners. We analyze the behavior of this dynamic process and its convergence to a stationary state, in relation to the rates at which innovations and costly R&D collaboration opportunities arrive, and the rate of creative destruction leading to the obsolescence of existing tech- nologies. We quantify the innovation gains from collaborations, and show that there exists a critical level for the technology learning success probability in collaborations below which an economy with weak in-house R&D capabilities does not innovate even in the presence of R&D collaborations. More- over, we show that the interplay between knowledge diffusion and network formation can give rise to a cyclical pattern in the collaboration intensity, which can be described as a damped oscillation. We confirm this novel observation using an empirical sample of a large R&D collaboration network over the years 1985 to 2011. We then study the efficient network structure, compare it to the decentralized equilibrium structures generated, and design an optimal network policy to maximize welfare in the economy. Our efficiency analysis further allows us to study the effect of competition on innovation in R&D intensive industries where R&D collaborations between firms are commonly observed.

This paper studies the effects of the apprenticeship system on innovation and labor market polarization. A stylized model with two key features is developed: (1) apprentices are more productive due to industry-specific training, but (2) from the firm’s perspective, when training apprentices, technological innovation is costly since training becomes obsolete. Thus, apprentices correlate with slower adoption of skill-replacing technologies, but also less employment polarization. We test this hypothesis on German regions given local variation in apprenticeship systems until 1976. The results shows no employment polarization related to apprentices, but similar displacement of non-apprentices as in the US.

Cason and Plott (2014) show that subjects' misconception about the incentive properties of the Becker-DeGroot-Marschak (BDM) value elicitation procedure can generate data patterns that look like - and might thus be misinterpreted as evidence for - preferences constructed from endowments or reference points. We test whether game form misconceptions are necessary to produce willingness-to-pay (WTP) vs. willingness-to-accept (WTA) gaps in a valuation experiment in which subjects are randomly assigned to the role of either buyer or seller. We employ a design that allows us to identify whether a subject understood the incentive properties of a price-list version of the BDM mechanism. We find a robust WTP-WTA gap, even among subjects whose elicited valuations for a good of induced and known monetary value and whose ability to identify the payoffs resulting from their choices indicate an understanding of the incentive properties of the BDM mechanism. We conclude that game form misconceptions are not a necessary condition for the emergence of WTP-WTA gaps.

A pervasive, yet little acknowledged feature of international migration to developed countries is that newly arriving immigrants are increasingly highly skilled since the 1980s. This paper analyses the determinants of changes in the skill composition of immigrants using a framework suggested by Grogger & Hanson (2011). We focus on Switzerland, which continuously showed very high immigration rates and dramatic changes in the skill composition of immigrants. In addition, the recent integration of Switzerland into the European labour market in 2002 serves as a policy experiment which allows analysing the influence of a reduction on immigration restrictions on immigrants from European countries in comparison to those from other countries. Our findings suggest that changes of education supply in origin countries and shifts to the relative demand for education groups stand out as the two most important drivers. Yet, while supply alone predicts only a modest increase in the case of highly educated workers and a large increase of middle educated workers, one particular demand channel, the polarisation of labour demand induced by the adoption of computer capital, is crucial to explain the sharp increase in highly educated workers and the mere stabilisation of the share of middle educated immigrant workers. The abolition of quotas for EU residents played a smaller role, yet may have slightly reduced the high skill share among immigrants relative to immigrants from other countries.

Optimal rank-order tournaments have traditionally been studied using a first-order approach. The present analysis relies instead on the construction of an "upper envelope" over all incentive compatibility conditions. lt turns out that the first-order approach is not innocuous. For example, in contrast to the traditional understanding, tournaments may be dominated by piece rates even if workers are risk-neutral. The paper also offers a strikingly simple characterization of the optimal tournament for quadratic costs and CARA utility, as well as an extension to large tournaments.

Even before the Great Recession, U.S. employment growth was unimpressive. Between 2000 and 2007, the economy gave back the considerable gains in employment rates it had achieved during the 1990s, with major contractions in manufacturing employment being a prime contributor to the slump. The U.S. employment "sag" of the 2000s is widely recognized but poorly understood. In this paper, we explore the contribution of the swift rise of import competition from China to sluggish U.S. employment growth. We find that the increase in U.S. imports from China, which accelerated after 2000, was a major force behind recent reductions in U.S. manufacturing employment and that, through input-output linkages and other general equilibrium effects, it appears to have significantly suppressed overall U.S. job growth. We apply industry-level and local labor market-level approaches to estimate the size of (a) employment losses in directly exposed manufacturing industries, (b) employment effects in indirectly exposed upstream and downstream industries inside and outside manufacturing, and (c) the net effects of conventional labor reallocation, which should raise employment in non-exposed sectors, and Keynesian multipliers, which should reduce employment in non-exposed sectors. Our central estimates suggest net job losses of 2.0 to 2.4 million stemming from the rise in import competition from China over the period 1999 to 2011. The estimated employment effects are larger in magnitude at the local labor market level, consistent with local general equilibrium effects that amplify the impact of import competition.

This paper considers all-pay contests in which the relationship between bids and allocations reflects a small amount of noise. Prior work had focused on one particular equilibrium. However, there may be other equilibria. To address this issue, we introduce a new and intuitive measure for the proximity to the all-pay auction. This allows, in particular, to provide simple conditions under which actually any equilibrium of the contest is both payoff equivalent and revenue equivalent to the unique equilibrium of the corresponding all-pay auction. The results are shown to have powerful implications for monopoly licensing, political lobbying, electoral competition, optimally biased contests, the empirical analysis of rent-seeking, and dynamic contests.

Since the world financial crisis of 2007 / 2008, it has become clear that financial crises and the major economic downturns they cause happen neither just in distant countries nor in the distant past. They are part of the economic realities of developed countries in the present. In the second Public Paper, the author presents the latest academic insights into the history of financial crises. What can we learn from the past when it comes to defining strategies and policies for dealing with financial crises? Why is the optimal number of financial crises not zero? You will receive the answers to these and related questions from Prof. Joachim Voth, a leading specialist in financial and economic history.