Intertemporal models of the current account generally assume that global shocks do not affect the current account. We use this assumption to identify global and country-specific shocks in a bivariate VAR of output and the current account. Cross-country evidence from the G7 economies suggests that this identification works surprisingly well. We then employ our method to collect stylized facts on international macroeconomic fluctuations. We find that long-term output growth is driven mainly by global factors in most G7 countries and that country-specific shocks are less persistent and generally less volatile than global shocks.
This paper contributes to the empirics of the intertemporal approach to the current account. We use a cointegrated VAR framework to identify permanent and transitory components of country-specific and global shocks. Our approach allows us to investigate empirically the sensitivity to persistence implied by many forward-looking models and our results shed new light on the excess volatility of investment encountered by Glick and Rogoff (1995). In G7 data, we find the relative current-account and investment response to be in line with the intertemporal approach.
This paper introduces a new perspective on the deregulation of shopping hours based on ideas from evolutionary game theory. We study a retail economy where shopping hours have been deregulated recently. It is argued that first, the deregulation leads to a coordination problem between store owners and customers, and second, the ‘solution’ to this problem depends on the specific cost structure of stores and the preferences of customers. In particular, it may happen that, even if extended shopping hours are Pareto efficient, stores and customers do not succeed in coordinating on this equilibrium. The analysis explains the observation in Germany, where shopping hours have been deregulated recently, that store owners tend to go back to the former shopping hours again. Moreover, it emphasizes the important role of advertisement campaigns as a signalling device.
We provide a cultural explanation to the phenomenon of corruption in the framework of an overlapping generations model with intergenerational transmission of values. We show that the economy has two steady states with different levels of corruption. The driving force in the equilibrium selection process is the education effort exerted by parents which depends on the distribution of ethics in the population and on expectations about future policies. We propose some policy interventions which via parents' efforts have long-lasting effects on corruption and show the success of intensive education campaigns. Educating the young is a key element in reducing corruption successfully. Journal of Economic Literature Classification Numbers: D10, J13.
The paper explores a model of equilibrium selection in coordination games, where agents from an infinite population stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, it is assumed that agents follow a rule of `switching to better strategies with higher probability'. This behavioral rule is related to bounded-rationality models of Rosenthal (1989) and Schlag (1998). Moreover, agents stay with their strategy in case they successfully coordinate with their local neighbors. Our main results show that both strict Nash equilibria of the coordination game correspond to invariant distributions of the process, hence evolution of play is not ergodic but instead depends on initial conditions. However, coordination on the risk-dominant equilibrium occurs with probability one whenever the initial fraction contains infinitely many agents, independent of the spatial distribution of these agents.
Insurers traditionally use risk-specific characteristics of insureds to classify them according to risk. In this article, the practical relevance of information about multiple risks is demonstrated for the case of content insurance of a Swiss company. Two types of such information prove important: information about "spillover moral hazard" caused by mandated prevention affecting preventive effort in an unregulated line, and information about "common impulses" reflected in the loss experience of related lines. Both contribute to an improved prediction of loss probability.
Much progress has been made in recent years in developing and applying a direct measure of utility using survey questions on satisfaction with income and with life in general. In this paper we apply this new type of measurement to the study of money illusion. Using data from the German Socio-Economic Panel for the years 1993 to 2003, we cannot reject the hypothesis of no money illusion.
Famous cultural monuments are often regarded as unique icons, making them an attractive target for terrorists. Despite huge military and police outlays, terrorist attacks on important monuments can hardly be avoided. We argue that an effective strategy for discouraging terrorist attacks on iconic monuments is for the government to show a firm commitment to swift reconstruction. Using a simple game-theoretic model, we demonstrate how a credible claim to rebuild any cultural monuments destroyed discourages terrorist attacks by altering the terrorists’ expectations and by increasing the government’s reputation costs if they fail to rebuild.
Laut ökonomischer Standardtheorie sollen Arbeitsanreize mittels Geldzahlungen vermittelt werden. Materielle Anreize in nicht-monetärer Form sind demgegenüber weniger effizient, sind aber dennoch weit verbreitet. Auszeichnungen in Form von Titeln, Orden, Medaillen und Ehrungen (Preisen) wurden bisher nicht beachtet. Es handelt sich dabei um extrinsische, nicht-materielle Anreize die ihre Wirkung über den Urtrieb der Individuen nach sozialer Anerkennung und Status entfalten. Wir analysieren wie sich monetäre Anreize und Auszeichnungen unterscheiden: Auszeichnungen sind in der Regel billig, begründen soziale Beziehungen, sind nicht direkt mit der Leistung verknüpft und verfügen über eine Signalwirkung. Darüber hinaus unterstützen Auszeichnungen die intrinsische Motivation, können die Wohlfahrt erhöhen und sind steuerfrei. Auszeichnungen sind ein wichtiges zusätzliches Instrument im Arsenal der Prinzipal-Agenten-Theorie. In vielen Kontexten wirken sie besser als Geld.
In this paper we analyze the behavioral consequences of control on motivation. Wenstudy a simple experimental principal-agent game, where the principal decides whethernhe controls the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our main finding is that a principal's decisionnto control has a negative impact on the agent's motivation. While there is substantial individual heterogeneity among agents, most agents reduce their performance as a response to the principals' controlling decision. The majority of the principals seem to anticipate the hidden costs of control and decide not to control. In several treatmentsnwe vary the enforceable level of control and show that control has a non-monotonic effect on the principal's payoff. In a variant of our main treatment principals can also set wages. In this gift-exchange game control partly crowds out agents' reciprocity. The economic importance and possible applications of our experimental results are further illustrated by a questionnaire study which reveals hidden costs of control in various real-life labor scenarios. We also explore possible reasons for the existence of hidden costs of control. Agents correctly believe that principals who control expect to get less than those who don't. When asked for their emotional perception of control, most agents who react negatively say that they perceive the controlling decision as a signal of distrust and a limitation of their choice autonomy.
