The paper characterizes the mixed-strategy equilibria in all-pay auctions with endogenous prizes that depend positively on own e?ort and negatively on the e?ort of competitors. Such auctions arise naturally in the context of investment games, lobbying games, and promotion tournaments. We also provide an experimental analysis of a special case which captures the strategic situation of a two-stage game with investment preceding homogenous Bertrand competition. We obtain overinvestment both relative to the mixed-strategy equilibrium and the social optimum.
Advertisements provide consumers with knowledge about private products, whereas political information is required to provide voters with knowledge of public issues. Modern information technologies and globalisation are increasing the exposure of individuals to information. Goods advertising is competing with political information for people's attention. This paper presents a politico-economic equilibrium model in which the tension between private and public agendas can be analysed. It is shown that in an information-rich society, international goods market integration tends to reduce the quality of public policy. Complementing economic integration with political integration can increase the gains from globalisation, though not in all cases.
This paper applies the five modified standard criteria generally used in economics for assessing system performances to gauge the contribution of Managed Care to the performance of three health care systems, viz. Germany, the Netherlands and the United States. The maximum contribution of Managed Care to the performance of the health care system is found for the United States and the Netherlands. The Health Maintenance Organization (U.S.) and the gatekeeper model (the Netherlands) score 10 and 9 out of 15 points, respectively, importantly due to a market-oriented environment. By way of contrast, the so-called ‘structured treatment programs’ of the German health care system score only 4 out of 15 points. Not only the more tightly regulated environment but also the lack of consideration of consumer preferences and of incentives for service providers to participate in the programs contributed to poor performance.
By means of a very simple example, this note illustrates the appeal of using Bayesian rather than classical methods to producen inference on hidden states in models of Markovian regime switching.
In November 2005, 55.7 percent of 2 million Swiss voters approved a 5-year moratorium (ban) on the commercial cultivation of genetically modified (GM) plants within Switzerland. The present study examines how individual voting decisions were determined by (i) socioeconomic characteristics, (ii) political preference/ideology and (iii) agreement with a series of arguments in favour and against the use of GM plants in Swiss agriculture. The analysis is based on the data of the regular voter survey undertaken after national-level voting decisions in Switzerland. Among the socioeconomic characteristics, only the age group was clearly significant with individuals above 65 years less opposed to crop biotechnology. Several political preference/ideology variables were significant determinants of the vote, most notably the preferences about the role of the state in the economy. Perceived consequences of the use of GM plants for health, natural diversity of plants and animals were also strongly and significantly associated with approving and disapproving voter groups. The disapproving votes were not motivated by perceived benefits of GM-food production but mainly by perceived interests of Swiss science and industry. Our findings suggest that current concerns about the use of genetically engineered plants in agriculture may not automatically decrease with higher levels of education/knowledge and generational change. Furthermore, the analysis of the voter motives suggests that the public support for GM-free agricultural production would be even larger in other countries, where industrial interests in crop biotechnology are less pronounced.
After several decades of academic research on the contingent valuation (CV) method a consistent behavioral explanation of 'hypothetical bias' is still lacking. Based on evidence from economics, economic psychology and the political sciences, I propose an explanation that is based on two simple working hypotheses about respondent behaviour in contingent valuation surveys. The first hypothesis is that survey respondents are unable to form consistent preferences about unfamiliar goods unless the choice context offers reliable, informative cues that can be rationally exploited in simplified heuristics. The second hypothesis is that the probability and impact of strategic responses in dichotomous-choice questions about public goods depends on the extent to which the presented hypothetical costs differ from the actual costs. The literature on hypothetical bias is revisited in the light of these behavioral hypotheses. I find that the hypotheses are generally supported by the empirical data. Moreover, the hypotheses are able to explain several important empirical phenomena that previous research has not been able to explain. In particular, they solve the puzzle that pre-election polls, but not CV surveys, are able to predict actual referendum outcomes, and they explain why income effects on willingness to pay are lower in CV responses than in actual votes. If confirmed by further studies, the hypotheses will have important implications for future research and practice. First, the hypothetical costs presented in the dichotomous choice question should to be close enough to the actual costs to be credible to all respondents. This can be achieved by specifying the costs as a percentage (rather than absolute) change in taxes. Second, the respondents should be given the option to answer based on information about the positions of large parties and interest groups with known political orientation rather than based on the raw policy information. Theory and evidence suggest that this new survey paradigm largely eliminates the fundamental problems of the conventional stated preference methods.
This paper examines the role of simplified heuristics in the formation of preferences for public goods. Political scientists have suggested that voters use simplified heuristics based on the positions of familiar parties to infer how a proposed policy will affect them and to cast a vote in line with their interests and values. Here, we use a two-stage field-survey experiment to investigate how knowledge of party positions affects policy choices. We followed standard procedures in developing an attribute-based choice experiment on alternative land-use policies in Switzerland. In contrast to the usual formulation, however, the hypothetical costs of the proposed policies were formulated as a percentage change in taxes. The benefit of this formulation relative to the usual absolute money amounts is that the credibility of the (hypothetical) costs for respondents does not depend on respondent income. Furthermore, the formulation allowed us to solicit party positions on the proposed policies. Six out of eight contacted parties provided their positions. We then conducted a split-sample mail survey where we included a table of the party positions with a sub-sample of the questionnaires. We report six main experimental results. (1) The response rate of the survey was unaffected by the party positions. (2) The proportion of no-choice answers was decreased by forty percent relative to the control. (3) The party information significantly affected the choices directly and in interaction with respondents’ general attitudes towards public spending for nature and landscape conservation and thus affected the way how individuals mapped from general attitudes to preferences for specific policies. (4) The information interacted with educational level in only eight out of forty choice sets, suggesting that even the more educated relied on simplified heuristics. (5) Respondents who knew the party positions were more sensitive to the tax attribute. (6) For respondents with medium and higher tax bills, the resulting willingness-to-pay estimates were decreased by a factor of two to ten relative to the control. These findings suggest that the party information helped the respondents to articulate more consistent preferences than in the treatment without the party information.
Obesity is increasing worldwide for both adults and children. Genetic disposition is responsible for some variation in body weight but cannot explain the dramatic increase in the last two decades. The increase must be due to structural and behavioral changes. One such behavioral change is the increase in working females in the last decades. The absence from the mother reduces potential child care time in the family. Reduced child care time may have adverse effects on the prevalence of obesity in children and adults. This paper analyzes the effect of mother’s labor supply in childhood on young adults probability of being obese in Germany. Using a sample drawn from the German Socio-Economic Panel the results show that a higher labor supply of the mother increases the probability for her child to be obese as young adult. This result underlines the importance of childhood environment on children’s later life outcome and the importance of behavioral changes in explaining the increase in obesity.
To examine the impact of globalization on managerial compensation, we consider a matching model where a number of firms compete both in the product market and in the managerial market. We show that globalization, i.e. the simultaneous integration of product markets and managerial pools, leads to an increase in the heterogeneity of managerial salaries. Typically, while the most able managers obtain a wage increase, less able managers are faced with a reduction in wages. Hence our model can explain the increasing heterogeneity of CEO compensation that has been observed in the last few decades.
As previously argued, the correlation between included and omitted regressors generally causes inconsistency of standard estimators for count data models. Using a specific residual function and suitable instruments, a consistent generalized method of moments estimator can be obtained under conditional moment restrictions. This approach is extended here by fully exploiting the model assumptions and thereby improving efficiency of the resulting estimator. Empirical likelihood estimation in particular has favorable properties in this setting compared to the two-step GMM procedure, which is demonstrated in a Monte Carlo experiment. The proposed method is applied to the estimation of a cigarette demand function.
