infonet-economy

This paper uses microdata to evaluate the impact on the steady-state unemployment rate of an increase in maximum benefit duration. We evaluate a policy change in Austria that extended maximum benefit duration and use this policy change to estimate the causal impact of benefit duration on labor market flows. We find that the policy change leads to a significant increase in the steady-state unemployment rate and, surprisingly, most of this increase is due to an increase in the inflow into rather than the outflow from unemployment.

We explore the relationship between outcomes in a coordination game and a pre-play asset market where asset values are determined by outcomes in the subsequent coordination game. Across two experiments, we vary the payoffs from the market relative to the game, the degree of interdependence in the game, and whether traders' asset payoffs are dependent on outcomes in their own or another game. Markets lead to significantly lower efficiency across treatments, even when they produce no distortion of incentives in the game. Market prices forecast game outcomes. Our experiments shed light on how financial markets may influence affiliated economic outcomes.

We study the effects of deliberation on collective decisions. In a series of experiments, we vary groups' preference distributions (between common and conflicting interests) and the institutions by which decisions are reached (simple majority, two-thirds majority, and unanimity). Without deliberation, different institutions generate significantly different outcomes, tracking the theoretical comparative statics. Deliberation, however, significantly diminishes institutional differences and uniformly improves efficiency. Furthermore, communication protocols exhibit an array of stable attributes: messages are public, consistently reveal private information, provide a good predictor for ultimate group choices, and follow particular (endogenous) sequencing.

Gordon Tullock is one of the most important of the founders and contributors to Public Choice. Two innovations are typical “Tullock Challenges.” The first relates to method: the measurement of subjective well-being, or happiness. The second relates to digital social networks, such as Facebook, Twitter, and to some extent Google. Both innovations lead to strong incentives by governments to manipulate the policy outcomes. In general, “What is important will be manipulated by the government.” To restrain government manipulation, one has to turn to Constitutional Economics and increase the possibilities for direct popular participation and federalism or introduce random mechanisms.

Hart and John Moore (2008) introduce new behavioral assumptions that can explain long-term contracts and the employment relation. We examine experimentally their idea that contracts serve as reference points. The evidence confirms the prediction that there is a trade-off between rigidity and flexibility. Flexible contracts—which would dominate rigid contracts under standard assumptions—cause significant shading in ex post performance, while under rigid contracts much less shading occurs. The experiment appears to reveal a new behavioral force: ex ante competition legitimizes the terms of a contract, and aggrievement and shading occur mainly about outcomes within the contract. (JEL D44, D86, J41)

To fully understand the motives for delegating a decision right, it is important to study responsibility attributions for outcomes of delegated decisions. We conducted laboratory experiments in which subjects could either choose a fair allocation or an unfair allocation or delegate the choice, and we used a punishment option to elicit responsibility attributions. Our results show that, first, responsibility attribution can be effectively shifted and, second, this can constitute a strong motive for the delegation of a decision right. Moreover, we propose a simple measure of responsibility and show that this measure outperforms measures based on inequity aversion or reciprocity in predicting punishment behaviour.

This study applies financial portfolio theory to determine efficient electricity-generating technology portfolios for the United States and Switzerland, adopting an investor point of view. Expected returns are defined by the rate of decrease of power generation cost (with external costs included), their volatility, by its standard deviation. The 2003 portfolio contains Coal, Nuclear, Gas, Oil, and Wind in the case of the United States, and Nuclear, Storage hydro, Run of river, and Solar in the case of Switzerland, a country without domestic supplies of fossil fuels. Since shocks in generation costs are found to be correlated, Seemingly Unrelated Regression Estimation (SURE) is used to filter out the systematic component of the covariance matrix of the cost changes. Results suggest that as of 2003, the feasible maximum expected return (MER) electricity portfolio for the United States contains more Coal, Nuclear, and Wind than actual but markedly less Gas and Oil. By way of contrast, the minimum variance (MV) portfolio combines markedly more Oil, Coal, Nuclear, and Wind but almost no Gas. Therefore, regardless of the choice between MER and MV, U.S. utilities as investors are substantially inside the efficient frontier. This is even more true of their Swiss counterparts, likely due to continuing regulation of electricity markets.

This study compares the performance of Prospect Theory versus Stochastic Expected Utility Theory at fitting data on decision making under risk. Both theories incorporate well-known deviations from Expected Utility Maximization such as the Allais paradox or the fourfold pattern of risk attitudes. Stochastic Expected Utility Theory parsimoniously extends the standard microeconomic model, whereas Prospect Theory, the benchmark for aggregate choice so far, is based on psychological findings. First, the two theories' fit to representative choice is assessed for two experimental data sets, one Swiss and one Chinese. In a second step, finite mixture regressions reveal a consistent mix of two different behavioral types suggesting that researchers may take individual heterogeneity into account in order to avoid aggregation bias.

This paper analyzes the effect of trade liberalization on government spending in a general equilibrium model with a continuum of industries supplying tradable and nontradable goods under monopolistic competition. Trade liberalization is modeled as the opening up of product markets between two countries, which may differ in total factor productivity, factor endowment and fix cost technology. In this setup, I show that the optimal provision of a public consumption good depends positively on the degree of openness. Moreover, the richer and more productive country chooses a lower optimal government share.

High parental income, while undeniably causing beneÞts for a child in terms of better access to education and more favorable labor market outcomes, may at the same time increase a childÕs income aspirations and thereby reduce Þnancial satisfaction, ceteris paribus. In this paper, we investigate the relationship between Þnancial satisfaction and parental income with data from the German Socio-Economic Panel. The results indicate that there is indeed a negative well-being externality of parental income, and that children appear to compare their actual income situation with the aspiration level acquired while growing up.