"This paper studies the role of money in environments where in each meeting there isna double coincidence of real wants. Traders who meet at random finance their purchases through current production, the sale of divisible money or both. It is shown that in the absence of valued money if traders have asymmetric tastes for each other’s good, they produce and exchange socially ine .cient quantities. With valued money, however, traders exchange efficient quantities if the asymmetry of tastes is not too large. It is shown that the gains from trade in the monetary economy are strictly greater than those in the corresponding barter economy, that the Friedman rule holds, and that the allocation of resources in the monetary economy converges to the allocation in the barter economy as the growth rate of the money supply is increased."
This paper investigates the role of fiat money in decentralized markets, where producers have private information about the quality of the goods they supply. Money is divisible, terms of trade are determined endogenously, and agents can finance their consumption with money or with real production. When the fraction of high quality producers in the economy is given, money promotes the production of high-quality goods, which improves the quality mix and welfare unambiguously. When this fraction is endogenous, however, we find that money can be valued even though it decreases welfare relative to the barter equilibrium. The origin of this inefficiencynis that money provides consumption insurance to low-quality producers, which can result in a higher fraction of low-quality producers in the monetary equilibrium. Finally, we find that most often agents acquire more information in the monetary equilibrium. Consequently, money is welfare-enhancing because it promotes usefulnproduction and exchange, but not because it saves information costs.
"Tax compliance has been studied in economics by analysing the individual decision of a representative person between paying and evading taxes. A neglected aspect of tax compliance is the interaction of taxpayers and tax authorities. The relationship between the two actors can be understood as an implicit or ""psychological"" contract. Studies on tax evasion in Switzerland show that the more strongly the political participation rights arendeveloped, the more important this contract is, and the higher tax morale is. In this paper,nempirical evidence based on a survey of tax authorities of the 26 Swiss states (cantons) isnpresented, indicating that the differences in the treatment of taxpayers by tax authorities cannbe explained by differences in political participation rights as well."
Experimental games turned out to be remarkably productive tools for examining the nature of social preferences and social norms. This paper describes the methods and tools of experimental game theory and provides a selection of games that have been useful. We also discuss the role of evolutionary explanations of and social preference theory in organizing the data in a coherent way.
"The purpose of this paper is to give a global characterization of excess demand functions in a two period exchange economy with in-completenreal asset markets. We show that continuity, homogeneity and Walras’ law characterize the aggregate excess demand functions on any compact price set which maintains the dimension of the budget set."
The paper investigates the effect of interest policy on price bubbles, trading behavior and portfolio choice in experimental stock markets. Anseries of experiments has 8 participants trade an asset over 15 periods. Alternatively, the participants can invest money in interest-bearing bonds. Treatment groups are subjected to an endogenous interest policy, while control groups experience a constant interest rate. Our stock markets are characterized by bubbles. While we observe a small positive impact of our interest policy on bubbles, the policy also strongly increases market volatility. On the other hand, concerning portfolio choice, we find evidencenfor value-driven (rational) investment behavior.
A substantial number of people exhibit social preferences, which means they are not solely motivated by material self-interest but also care positively or negatively for the material payoffs of relevant reference agents. We show empirically that economists fail to understand fundamental economic questions when they disregard social preferences, in particular, that without taking social preferences into account, it is not possible to understand adequately (i) the effects of competition on market outcomes, (ii) laws governing cooperation and collective action, (iii) effects and the determinants of material incentives, (iv) which contracts and property rights arrangements are optimal, and (v) important forces shaping social norms and market failures.
Social norms are usually neglected in economics, because they are to anlarge extent enforced through non-market interactions and difficult to isolatenempirically. In this paper, we offer a direct measure of the social norm to work andnwe show that this norm has important economic effects. The stronger the norm, thenmore quickly unemployed people find a new job. This behavior can be explained bynutility differences, probably due to social pressure. Unemployed people arensignificantly less happy than employed people and their reduction in life satisfactionnis the larger, the stronger the norm is.
"Recent studies found evidence for nominal wage rigidity during periods of relatively high nominal GDP growth. It has been argued, however, that in an environment with low nominal GDP growth, when nominal wage cuts become customary, workers’ cuts would erode and, hence, firms would no longer hesitate to reduce nominal pay. If this argument is valid nominal wage rigidity is largely irrelevant because in a high-growth environment there is little need to cut nominal pay while in a low-growth environment the necessary cuts would occur. To examine this argument we use data from Switzerland where nominal GDP growth has been very low for many years in the 1990s. We find that the rigidity of nominal wages is a robust phenomenon that does not vanish in a low growth environment. In addition, it constitutes a considerable obstacle to real wage adjustments. In the absence of downward nominal rigidity, real wages would indeed be quite responsive to unemployment."
In 1997, the Swiss government introduced active labor market programs on a large scale to improve the job chances of unemployed workers. This paper evaluates the effect of these programs on the duration of unemployment. Our evaluation methodology allows for selectivity affecting the inflow into programs. We find that in most cases the programs do not reduce the duration of unemployment. The exception is the program of temporary wage subsidies which reduces unemployment, but only for foreign workers. From a cost-benefit point of view, temporary wage subsidies seem to be the only program worthwhile pursuing.
