Trends in arts and culture tend to be longer-lasting and less fragile than in other fields such as clothing design. Most herding models are not able to explain such stability, instead predicting informational cascades to be fragile and fads to be frequent. Thenpresent contribution is able to explain the hysterisis of trends in arts by incorporating thenaccumulation of consumption capital into a herding model. Further, the model is testednempirically by analyzing measures of relative and absolute concentration in the television business. It is concluded that by being exposed to art and culture people accumulate consumption capital for a particular style or artist and that this mechanism tends to make herding in arts stable over time.
The monopoly position of the public bureaucracy in providing public services allows government employees to acquire rents. Those rents can involve higher wages, monetary and non-monetary fringe benefits (e.g. pensions and staffing), and/or bribes. We propose a direct measure to capture the total of these rents: the difference in reported subjective well-being between bureaucrats and people working in the private sector. In a sample of 38 countries, we find large variations in the extent of rents in the public bureaucracy. The extent of rents is determined by differences in institutional constraints and correlates with perceptions of corruption. We find judicial independence to be of major relevance for a tamed bureaucracy.
Neoclassical economic theory rules out systematic errors in consumption choice. According to the basic view, individuals know what they choose. They are able to predict how much utility an activity or a good produces for them now and in the future and they can maximize their utility. This implies that behavior reveals consistent preferences. This approach makes it impossible to detect and understand sub-optimal consumption decisions, due to problems of self-control and thenmisprediction of utility. We propose the economics of happiness as a methodologicalnapproach to study these phenomena. Based on proxy measures for experiencednutility, it is, in principle, possible to directly address whether some observed behaviornis sub-optimal and is therefore reducing a person’s well-being. We discuss recent evidence on smoking and eating habits, TV viewing and commuting choice.
Recent macroeconomic research discusses credit market imperfections as a key channel through which inequality retards growth. Limited borrowing prevents the less affluent individuals from investing the efficient amount, and the inefficiencies are considered to become stronger as inequality rises. This paper, though, argues that higher inequality may actually boost aggregate output even with convex technologies and limited borrowing. Less equality in the middle or at the top end of the distribution is associated with a lower borrowing rate and hence better access to credit for the poor. We find, however, that rising relative poverty is unambiguously bad for economic performance. Hence, we suggest that future empirical work on the inequality-growth nexus should use more specific measures of inequality rather than measures of “overall” inequality such as the Gini index.
"This paper introduces credit market imperfections and barriers to entrepreneurship into the Ramsey growth model. It is assumed that only a small elite, the oligarchs, may run firms and that these oligarchs – when borrowing from workers – may renege on the debt contracts at low cost. In such an economy, poor contract enforcement slows down the transition towards the steady state and alters the dynamics of the distribution strongly in favour of the oligarchs. The reason is that the workers are forced to charge “low” borrowing rates in order to decrease the incumbents’ incentives to default. With dynastic preferences, low returns reduce the workers’ propensity to save; they discount future wages less and consume more out of current income. Calibrations of the model suggest that the elite’s welfare gains are large – even if the oligarchic structure were associated with substantially lower productivity growth rates. These findings point to political forces behind low financial development."
A well-known pitfall of Markowitz (1952) portfolio optimization is that the sample covariance matrix, which is a critical input, is very erroneous when there are many assets to choose from. Ifnunchecked, this phenomenon skews the optimizer towards extreme weights that tend to performnpoorly in the real world. One solution that has been proposed is to shrink the sample covariance matrix by pulling its most extreme elements towards more moderate values. An alternative solution is the resampled efficiency suggested by Michaud (1998). This paper compares shrinkagenestimation to resampled e*ciency. In addition, it studies whether the two techniques can bencombined to achieve a further improvement. All this is done in the context of an active port-nfolio manager who aims to outperform a benchmark index and who is evaluated by his realizedninformation ratio.
"We provide a direct test of the role of social preferences in voluntary cooperation. We elicit individuals’ cooperation preference in one experiment and make a point prediction about the contribution to a repeated public good. This allows for a novel test as to whether there are ""types"" of players who behave consistently with their elicited preferences. We find clear-cut evidence for the existence of ""types"". People who express free rider preferences show the most systematic deviation from the predicted contributions, because they contribute in the first half of the experiment. We also show that the interaction of heterogeneous types explains a large part of the dynamics of free riding. "
Laboratory experiments are an important methodology in economics, especially in the field of behavioral economics. However, it is still debated to what extent results from laboratory experiments can be applied to field settings. One highly important question with respect to the external validity of experiments is whether the same individuals act in experiments as they wouldnin the field.nThis paper presents evidence on how individuals behave in donation experiments and how thensame individuals behave in a naturally occurring decision situation on charitable giving. The results show that behavior in experiments is correlated with behavior in the field. The results are robust to variations in the experimental setting, and the correlation between experimental and field behavior is between 0.25 and 0.4. We discuss whether this correlation should be interpreted as strong or weak and what consequences the findings have for experimental economics.
It is typically assumed that people engage in entrepreneurship because there are profits to be made. In contrast to this view, this paper argues that entrepreneurship is more adequately characterized as a non-profit-seeking activity. Evidence from a broad range of authors and academic fields is discussed showing that entrepreneurship does quite generally not pay in monetary terms. Being an entrepreneur seems to be rather rewarding because it entails substantialnnon-monetary benefits, like greater autonomy, broader skill utilization, and the possibility to pursue one’s own ideas. It is shown how incorporating these non-monetary benefits intoneconomic models of entrepreneurship can lead to a better understanding of the phenomenon.
We study finitely repeated 2 / 2 normal form games, where playersnhave incomplete information about their opponents’ payoffs. In a laboratory experiment we investigate whether players (a) learn the game they are playing, (b) learn to predict the behavior of their opponent, and (c)nlearn to play according to a Nash equilibrium of the repeated game. Ournresults show that the success in learning the opponent’s type depends on the characteristics of the true game. The learning success is much higher for games with pure strategy Nash equilibria than for games with a unique mixed strategy Nash equilibrium, and it is higher for games with symmetricnpure strategy Nash equilibria than for games with asymmetric equilibria. Moreover, subjects learn to predict the opponents’ behavior very well. However, they rarely play according to a Nash equilibrium and we observenno correlation between equilibrium play and learning about the game.
