David Autor, David Dorn, Gordon H Hanson, When work disappears: manufacturing decline and the falling marriage-market value of men, In: NBER Working Paper Series, No. 23173, 2017. (Working Paper)
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The structure of marriage and child-rearing in U.S. households has undergone two marked shifts in the last three decades: a steep decline in the prevalence of marriage among young adults, and a sharp rise in the fraction of children born to unmarried mothers or living in single-headed households. A potential contributor to both phenomena is the declining labor-market opportunities faced by males, which make them less valuable as marital partners. We exploit large scale, plausibly exogenous labor-demand shocks stemming from rising international manufacturing competition to test how shifts in the supply of young ‘marriageable’ males affect marriage, fertility and children's living circumstances. Trade shocks to manufacturing industries have differentially negative impacts on the labor market prospects of men and degrade their marriage-market value along multiple dimensions: diminishing their relative earnings—particularly at the lower segment of the distribution—reducing their physical availability in trade-impacted labor markets, and increasing their participation in risky and damaging behaviors. As predicted by a simple model of marital decision-making under uncertainty, we document that adverse shocks to the supply of `marriageable' men reduce the prevalence of marriage and lower fertility but raise the fraction of children born to young and unwed mothers and living in in poor single-parent households. The falling marriage-market value of young men appears to be a quantitatively important contributor to the rising rate of out-of-wedlock childbearing and single-headed childrearing in the United States. |
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David Autor, David Dorn, Gordon Hanson, Kaveh Majlesi, Importing political polarization? The electoral consequences of rising trade exposure, In: NBER Working Paper Series, No. 22637, 2017. (Working Paper)
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Has rising trade integration between the U.S. and China contributed to the polarization of U.S. politics? Analyzing outcomes from the 2002 and 2010 congressional elections, we detect an ideological realignment that is centered in trade-exposed local labor markets and that commences prior to the divisive 2016 U.S. presidential election. Exploiting the exogenous component of rising trade with China and classifying legislator ideologies by their congressional voting record, we find strong evidence that congressional districts exposed to larger increases in import competition disproportionately removed moderate representatives from office in the 2000s. Trade-exposed districts initially in Republican hands become substantially more likely to elect a conservative Republican, while trade-exposed districts initially in Democratic hands become more likely to elect either a liberal Democrat or a conservative Republican. Polarization is also evident when breaking down districts by race: trade-exposed locations with a majority white population are disproportionately likely to replace moderate legislators with conservative Republicans, whereas locations with a majority non-white population tend to replace moderates with liberal Democrats. We further contrast the electoral impacts of trade exposure with shocks associated with generalized changes in labor demand and with the post-2006 U.S. housing market collapse. |
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Cyrus J DiCiccio, Joseph P Romano, Michael Wolf, Improving weighted least squares inference, In: Working paper series / Department of Economics, No. 232, 2017. (Working Paper)
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These days, it is common practice to base inference about the coefficients in a hetoskedastic linear model on the ordinary least squares estimator in conjunction with using heteroskedasticity consistent standard errors. Even when the true form of heteroskedasticity is unknown, heteroskedasticity consistent standard errors can also used to base valid inference on a weighted least squares estimator and using such an estimator can provide large gains in efficiency over the ordinary least squares estimator. However, intervals based on asymptotic approximations with plug-in standard errors often have coverage that is below the nominal level, especially for small sample sizes. Similarly, tests can have null rejection probabilities that are above the nominal level. In this paper, it is shown that under unknown hereroskedasticy, a bootstrap approximation to the sampling distribution of the weighted least squares estimator is valid, which allows for inference with improved finite-sample properties. For testing linear constraints, permutations tests are proposed which are exact when the error distribution is symmetric and is asymptotically valid otherwise. Another concern that has discouraged the use of weighting is that the weighted least squares estimator may be less efficient than the ordinary least squares estimator when the model used to estimate the unknown form of the heteroskedasticity is misspecified. To address this problem, a new estimator is proposed that is asymptotically at least as efficient as both the ordinary and the weighted least squares estimator. Simulation studies demonstrate the attractive finite-sample properties of this new estimator as well as the improvements in performance realized by bootstrap confidence intervals. |
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Andreas Hefti, Steve Heinke, Frédéric-Guillaume Schneider, Mental capabilities, trading styles, and asset market bubbles: theory and experiment, In: Working paper series / Department of Economics, No. 234, 2016. (Working Paper)
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We propose that heterogeneous asset trading behavior is the result of two distinct, non-convertible mental dimensions: analytical (“quantitative”) capability and mentalizing (“perspective-taking”) capability. We develop a framework of mental capabilities that yields testable predictions about individual trading behavior, revenue distribution and aggregate outcomes. The two-dimensional structure of mental capabilities predicts the existence of four mental types with distinguishable trading patterns and revenues. Individuals will trade most successfully if and only if they have both capabilities. On the other hand, subjects who can mentalize well but have poor analytical capability will suffer the largest losses. As a consequence, being able in just one dimension does not assure trading success. We test these implications in a laboratory environment, where we first independently elicit subjects’ capabilities in both dimensions and then conduct a standard asset market experiment. We find that individual trading gains and patterns are consistent with our theoretical predictions. Our results suggest that two mental dimensions are necessary to encompass the complex heterogeneous behaviors in asset markets; a one-dimensional measure of mental capability will lead to biased conclusions. The findings have potential implications for financial institutions, which can use the measures to select successful traders, or for policy-makers, helping them to prevent the formation of asset bubbles. Finally, our conceptual framework and the empirical screening method could be applied to explain heterogeneous behavior in other games. |
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Andreas Hefti, Shuo Liu, Targeted information and limited attention, In: Working paper series / Department of Economics, No. 230, 2019. (Working Paper)
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We examine the implications of limited consumer attention for the targeting decisions of competing firms. Limited attention alters the strategic role of information provision as firms may become incentivized to behave as mass advertisers, despite perfect targeting abilities. We analyze the consequences of limited attention for targeting, strategic pricing, market shares, attention competition between firms, and the value of marketing data to firms. Accounting for limited attention in an otherwise standard targeting framework can explain several recent key issues from the advertising industry, such as consumer-side information overload or the increased usage of ad blocking tools. |
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Holger Herz, Armin Schmutzler, André Volk, Cooperation and mistrust in relational contracts, In: Working paper series / Department of Economics, No. 233, 2016. (Working Paper)
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Work and trade relationships are often governed by relational contracts, in which incentives for cooperative action today stem from the prospective future benefits of the relationship. In this paper, we study how reductions in clarity about the financial consequences of actions, induced by incomplete information about the costs of providing quality, affect relational contracts in buyer-seller relationships. Under incomplete information, payoffs to actions become private information. This can impede the joint understanding of what constitutes cooperative behavior, and may thus inject mistrust into relationships, even if credibility is held constant. Comparing seller-buyer relationships with and without complete information about seller costs in the laboratory, we find that such a lack of clarity has effects on the terms of relational contracts. However, these effects only concern the distribution of rents, and not efficiency. |
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Matthias Greiff, Kurt A Ackermann, Ryan O Murphy, The influences of social context on the measurement of distributional preferences, In: Working paper series / Department of Economics, No. 224, 2016. (Working Paper)
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Different social contexts have been used when measuring distributional preferences. This could be problematic as contextual variance may inadvertently muddle the measurement process. We use a within-subjects design and measure distributional preferences in resource allocation tasks with role certainty, role uncertainty, decomposed games, and matrix games. Results show that, at the aggregate level, role uncertainty and decomposed games lead to higher degrees of prosociality when compared to role certainty. At the individual level, we observe considerable differences in behavior across the social contexts, indicating that the majority of people are sensitive to these different social settings but respond in different ways. |
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Johannes Kunz, Kevin E Staub, Subjective completion beliefs and the demand for post-secondary education, In: Working paper series / Department of Economics, No. 218, 2016. (Working Paper)
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The outcome of pursuing a post-secondary educational degree is uncertain. A student might not complete a chosen degree for a number of reasons, such as academic insufficiency or financial constraints. Thus, when considering whether to invest in post-secondary education, students must factor in their completion probability into their decision. We study the role of this uncertainty in educational choices using students’ subjective beliefs about completing a post-secondary education, which were elicited prior to students’ completing secondary education. We relate these subjective completion probabilities to their subsequent educational choices and outcomes using representative survey data from Germany. Following the students over time, we find that the initial beliefs are predictive of intentions to invest in education, actual subsequent educational investments, and degree completion. We assess the heterogeneity of the impact across different educational paths. After controlling for academic ability, we find that subjective beliefs are most relevant in choosing a vocational education. In addition to reduced form models, we estimate a structural choice model of sequential investment in education that allows for unobserved tastes and preferences for education and forward-looking behavior. The results confirm the influence of subjective completion beliefs on choosing a post-secondary education. |
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Joseph P Romano, Michael Wolf, Efficient computation of adjusted p-values for resampling-based stepdown multiple testing, In: Working paper series / Department of Economics, No. 219, 2016. (Working Paper)
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There has been a recent interest in reporting p-values adjusted for resampling-based stepdown multiple testing procedures proposed in Romano and Wolf (2005a,b). The original papers only describe how to carry out multiple testing at a fixed significance level. Computing adjusted p-values instead in an efficient manner is not entirely trivial. Therefore, this paper fills an apparent gap by detailing such an algorithm. |
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Hannes Schwandt, Wealth shocks and health outcomes: evidence from stock market fluctuations, In: CEP Discussion Papers, No. CEPDP1281, 2014. (Working Paper)
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Do wealth shocks affect the health of the elderly in developed countries? The economic literature is skeptical about such effects which have so far only been found for poor retirees in poor countries. In this paper I show that wealth shocks also matter for the health of wealthy retirees in the US. I exploit the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stock-holding retirees. Using data from the Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These constructed wealth shocks are highly predictive of changes in reported wealth. And they strongly affect health outcomes. A 10% wealth shock leads to an improvement of 2-3% of a standard deviation in physical health, mental health and survival rates. Effects are heterogeneous across physical health conditions, with most pronounced effects for the incidence of high blood pressure, smaller effects for heart problems and no effects for arthritis, diabetes, lung diseases and cancer. The comparison with the cross-sectional relationship of wealth and health suggests that the estimated effects of wealth shocks are larger than the long-run wealth elasticity of health. |
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Jörn-Steffen Pischke, Hannes Schwandt, A cautionary note on using industry affiliation to predict income, In: NBER Working Paper Series, No. 18384, 2012. (Working Paper)
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Many literatures investigate the causal impact of income on economic outcomes, for example in the context of intergenerational transmission or well-being and health. Some studies have proposed to use employer wage differentials and in particular industry affiliation as an instrument for income. We demonstrate that industry affiliation is correlated with fixed individual characteristics, specifically parents' education and own height, conditional on the covariates typically controlled for in these studies. These results suggest that there is selection into industries based on unobservables. As a result the exclusion restriction in many IV studies of this type is likely violated. |
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Jean-Michel Benkert, Igor Letina, Georg Nöldeke, Optimal search from multiple distributions with infinite horizon, In: Working paper series / Department of Economics, No. 262, 2017. (Working Paper)
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With infinite horizon, optimal rules for sequential search from a known distribution feature a constant reservation value that is independent of whether recall of past options is possible. We extend this result to the the case when there are multiple distributions to choose from: it is optimal to sample from the same distribution in every period and to continue searching until a constant reservation value is reached. |
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Björn Bartling, Yagiz Özdemir, The limits to moral erosion in markets: social norms and the replacement excuse, In: Working paper series / Department of Economics, No. 263, 2017. (Working Paper)
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This paper studies the impact of a key feature of competitive markets on moral behavior: the possibility that a competitor will step in and conclude the deal if a conscientious market actor forgoes a profitable business opportunity for ethical reasons. We study experimentally whether people employ the argument "if I don’t do it, someone else will" to justify taking a narrowly self-interested action. Our data reveal a clear pattern. Subjects do not employ the "replacement excuse" if a social norm exists that classifies the selfish action as immoral. But if no social norm exists, subjects are more inclined to take a selfish action in situations where another subject can otherwise take it. By demonstrating the importance of social norms of moral behavior for limiting the power of the replacement excuse, our paper informs the long-standing debate on the effect of markets on morals. |
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Olivier Ledoit, Michael Wolf, Analytical nonlinear shrinkage of large-dimensional covariance matrices, In: Working paper series / Department of Economics, No. 264, 2018. (Working Paper)
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This paper establishes the first analytical formula for optimal nonlinear shrinkage of large-dimensional covariance matrices. We achieve this by identifying and mathematically exploiting a deep connection between nonlinear shrinkage and nonparametric estimation of the Hilbert transform of the sample spectral density. Previous nonlinear shrinkage methods were numerical: QuEST requires numerical inversion of a complex equation from random matrix theory whereas NERCOME is based on a sample-splitting scheme. The new analytical approach is more elegant and also has more potential to accommodate future variations or extensions. Immediate benefits are that it is typically 1,000 times faster with the same accuracy, and accommodates covariance matrices of dimension up to 10, 000. The difficult case where the matrix dimension exceeds the sample size is also covered. |
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Hannes Schwandt, Wealth Shocks and health outcomes: evidence from stock market fluctuations, In: CEP Discussion Papers, No. CEPDP1281, 2014. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
Do wealth shocks affect the health of the elderly in developed countries? The economic literature is skeptical about such effects which have so far only been found for poor retirees in poor countries. In this paper I show that wealth shocks also matter for the health of wealthy retirees in the US. I exploit the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stock-holding retirees.Using data from the Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These constructed wealth shocks are highly predictive of changes in reported wealth. And they strongly affect health outcomes. A 10% wealth shock leads to an improvement of 2-3% of a standard deviation in physical health, mental health and survival rates. Effects are heterogeneous across physical health conditions, with most pronounced effects for the incidence of high blood pressure, smaller effects for heart problems and no effects for arthritis, diabetes, lung diseases and cancer. The comparison with the cross-sectional relationship of wealth and health suggests that the estimated effects of wealth shocks are larger than the long-run wealth elasticity of health. |
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Christian Ewerhart, Ordinal potentials in smooth games, In: Working paper series / Department of Economics, No. 265, 2019. (Working Paper)
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In the class of smooth non-cooperative games, exact potential games and weighted potential games are known to admit a convenient characterization in terms of cross-derivatives (Monderer and Shapley, 1996a). However, no analogous characterization is known for ordinal potential games. The present paper derives simple necessary conditions for a smooth game to admit an ordinal potential. First, any ordinal potential game must exhibit pairwise strategic complements or substitutes at any interior equilibrium. Second, in games with more than two players, a condition is obtained on the (modified) Jacobian at any interior equilibrium. Taken together, these conditions are shown to correspond to a local analogue of the Monderer-Shapley condition for weighted potential games. We identify two classes of economic games for which our necessary conditions are also sufficient. |
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Reto Föllmi, Isabel Martínez, Die Verteilung von Einkommen und Vermögen in der Schweiz, In: UBS Center Public Paper Series, No. 6, 2017. (Working Paper)
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Das Interesse an der Verteilung von Einkommen und Vermögen ist in jüngster Zeit wieder neu entbrannt. Nicht zuletzt, weil nach vielen Jahren der Stabilität die Ungleichheit in vielen Ländern wieder zunimmt. Auch in der Schweiz geniesst die Frage nach der Einkommens- und Vermögensverteilung in der öffentlichen und politischen Diskussion grosse Aufmerksamkeit. Die Analyse über die letzten 100 Jahre zeigt, dass im Ländervergleich das Niveau der Einkommen und Löhne in der Schweiz hoch ist, die Ungleichheit zwischen Arm und Reich wenig stark ausgeprägt ist und sich die Öffnung der Einkommensschere über die Zeit in engen Grenzen hält. Die Ausnahme bilden die Superreichen, deren Anteile in jüngster Zeit deutlich zugenommen haben. Die relativ egalitäre Primärverteilung der Einkommen und Löhne und die föderale Struktur mit ihrem Steuerwettbewerb führen dazu, dass Bedarf und Ausmass der Umverteilung relativ gering ausfallen. Als Kehrseite der Medaille ist die hohe Stabilität wohl ein Grund dafür, dass die Einkommensmobilität im internationalen Vergleich gering ausfällt. Dafür fällt das Durchschnittsniveau der Einkommen rekordhoch aus. Die gefundenen Aussagen gelten verstärkt für die Vermögen. Diese reagieren viel träger auf Einzelereignisse, weil sie über Jahrzehnte aufgebaut werden. Die anhaltende politische Stabilität und die berechenbare Wirtschaftspolitik haben der Schweiz neben sehr hohen Durchschnittsvermögen eine sehr persistente Vermögensverteilung beschert, womit sie unter Industrieländern eine grosse Ausnahme darstellt. Entsprechend ist die Vermögenskonzentration im internationalen Vergleich sehr hoch. Das Ausmass relativiert sich aber, wenn wir die für die Schweiz wichtigen Pensionskassenvermögen miteinbeziehen. |
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Gregory S. Crawford, Lachlan Deer, Jeremy Smith, Paul Sturgeon, The regulation of public service broadcasters: should there be more advertising on television?, In: Working paper series / Department of Economics, No. 268, 2017. (Working Paper)
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Increased competition for viewers’ time is threatening the viability of public-service broadcasters (PSBs) around the world. Changing regulations regarding advertising minutes might increase revenues, but little is known about the structure of advertising demand. To address this problem, we collect a unique dataset on monthly impacts (quantities) and prices of UK television channels between 2002 and 2009 to estimate the (inverse) demand for advertising on both public and commercial broadcasters. We find that increasing PSB advertising minutes to the level permitted for non-PSBs would increase PSB and industry revenue by 10.5% and 6.7%. |
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Ernst Fehr, Tony Williams, Social norms, endogenous sorting and the culture of cooperation, In: Working paper series / Department of Economics, No. 267, 2018. (Working Paper)
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Throughout human history, informal sanctions by peers were ubiquitous and played a key role in the enforcement of social norms and the provision of public goods. However, a considerable body of experimental evidence suggests that informal peer sanctions cause large collateral damage and efficiency costs. This raises the question whether peer sanctioning systems exist that avoid these costs and whether other, more centralized, punishment systems are superior and will be preferred by the people. Here, we show that welfare-enhancing peer sanctioning without much need for costly punishment emerges quickly if we introduce two relevant features of social life into the experiment: (i) subjects can migrate across groups with different sanctioning institutions and (ii) they have the chance to achieve consensus about normatively appropriate behavior. The exogenous removal of the norm consensus opportunity reduces the efficiency of peer punishment and renders centralized sanctioning by an elected judge the dominant institution. However, if given the choice, subjects universally reject peer sanctioning without a norm consensus opportunity – an institution that has hitherto dominated research in this field – in favor of peer sanctioning with a norm consensus opportunity or an equally efficient institution with centralized punishment by an elected judge. Migration opportunities and normative consensus building are key to the quick emergence of an efficient culture of universal cooperation because the more prosocial subjects populate the two efficient institutions first, elect prosocial judges (if institutionally possible), and immediately establish a social norm of high cooperation. This norm appears to guide subjects’ cooperation and punishment choices, including the virtually complete removal of antisocial punishment when judges make the sanctioning decision. |
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Igor Letina, Shuo Liu, Nick Netzer, Delegating performance evaluation, In: Working paper series / Department of Economics, No. 266, 2018. (Working Paper)
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We study optimal incentive contracts with multiple agents when performance evaluation is delegated to a reviewer. The reviewer may be biased in favor of the agents, but the degree of bias is unknown to the principal. We show that a contest, which is a contract in which the principal determines a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer's potential leniency bias. The optimal effort profile can be uniquely implemented by an all-pay auction with a cap. Our analysis has implications for applications as diverse as the design of worker compensation, the awarding of research grants, and the allocation of foreign aid. |
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