This paper develops a dynamic stochastic general equilibrium model to examine the quantitative macroeconomic implications of counter-ncyclical fiscal policy for France, Germany and the UK. The model incorporates real wage rigidity which is the particular market failurenjustifying policy intervention. We subject the model to productivity shocks and use either government consumption or investment to react to the output gap or the public debt-to-output ratio. If the objectnof fiscal policy is purely to stabilize output or debt volatility, then our results suggest substantial reductions can be obtained, especiallynwith respect to output. In stark contrast, however, a formal general equilibrium welfare assessment of the volatility implications of thesenalternative instrument/target combinations reveals the welfare gains from active policy, measured as a share of consumption, to be verynmodest.
Relying on a simple endogenous growth model, this paper highlights a political instability effect as a potential explanation for why foreign aid is frequently ineffective with respect to economic performance. In the present framework, the role of the state is to fund institutions allowing for ongoing technology adoption and hence long-run growth.nHowever, providing a self-interested government with additional resources to fill a possible ”financing gap” may not result in better institutions. More money in the hands of the regime fuels conflict over the distribution of the funds - and decreases the incumbent regime’s time horizon in office. With a shorter time horizon, it is less attractive to financengood institutions whose returns mainly accrue in the future. Panel data evidence pointsnindeed to a sizable causal effect of foreign aid on political instability in the 1980s and 1990s.
Nordic historians have asserted for a long time that in the Nordic countries only few people, if any, perceived increased threats of war prior to the World War II outbreak. This would explain, and possibly excuse, why their governments did not mobilize their armies until it was too late. This paper questions this established notion by deriving new estimates of widely held war threat assessments from the fluctuations of sovereign market yields collected from all Nordic bond markets at this period. Our results show that the Nordic contemporaries indeed perceived significant war risk increases around the time of major war-related geopolitical events. While these findings hence question some, but not all, of the standard Nordic World War II historiography, they also demonstrate the value of analyzing historical market prices to reassess the often tacit views and opinions of large groups of people in the past.
Cross-disciplinary ‘happiness research’ has made big progress in the measurementnof individual welfare. This development makes it tempting to pursue the old dream ofnmaximizing aggregate happiness as a social welfare function. However, we postulate that thenappropriate approach is not to maximize aggregate happiness in seeking to improve outcomesnby direct policy interventions. The goal of happiness research should rather be to improve thennature of the processes through which individuals can express their preferences. Individualsnshould become better able to advance their idea of the good life, both individually andncollectively.
This paper proposes a simple two-stage mechanism to establishnpositive contributions to public goods in the absence of powerful institutions tonprovide the public good and to sanction free-riders. In this mechanism players commit to the public good by paying a deposit prior to the contribution stage.nIf there is universal commitment, deposits are immediately refunded whenever anplayer contributes her speci¯ed share to the public good. If there is no universalncommitment, all deposits are refunded and the standard game is played. For suitable deposits, prior commitment and full ex post contributions are supported as a strict subgame perfect Nash equilibrium for the resulting game. As the mechanism obviates the need for any ex post prosecution of free-riders, it is particularlynsuited for situations where players do not submit to a common authority as in the case of international agreements.
Research evaluation is praised as the symbol of modern quality management. We claim firstly, performance evaluations in research have higher costs than normally assumed, because the evaluated persons and institutions systematically change their behavior andndevelop counter strategies. Moreover, intrinsic work motivation is crowded out and undesired lock-in effects take place. Secondly, the benefits of performance evaluations are questionable.nEvaluations provide too little information relevant for decision-making. In addition, they losenimportance due to new forms of scientific cooperation on the internet. Thirdly, there existnsuperior alternatives. They consist in careful selection and supportive process coaching – and then leave individuals and research institutions to direct themselves.
In many countries, TV viewers have access to more and more TVnchannels. We study whether people can cope with this and watch the amount of TVnthey find optimal for themselves or whether they are prone to over-consumption. Wenfind that heavy TV viewers do not benefit, but instead report lower life satisfactionnwhen exposed to more TV channels. This finding runs counter to the standardneconomic prediction that a larger choice set does not make people worse off. Itnsuggests that an identifiable group of persons experience a self-control problemnwhen it comes to TV viewing.
Engelmann and Strobel (AER 2004) question the relevance of inequity aversionnin simple dictator game experiments claiming that a combination of a preference fornefficiency and a Rawlsian motive for helping the least well-off is more important thanninequity aversion. We show that these results are partly based on a strong subject poolneffect. The participants of the E&S experiments were undergraduate students of economicsnand business administration who self-selected into their field of study (economics) andnlearned in the first semester that efficiency is desirable. We show that for non-economistsnthe preference for efficiency is much less pronounced. We also find a non-negligiblengender effect indicating that women are more egalitarian than men. However, perhapsnsurprisingly, the dominance of equality over efficiency is unrelated to political attitudes.
Centralized sanctioning institutions are of utmost importance for overcomingnfree-riding tendencies and enforcing outcomes that maximize group welfare in socialndilemma situations. However, little is known about how such institutions come intonexistence. In this paper we investigate, both theoretically and experimentally, thenendogenous formation of institutions in a public goods game. Our theoretical analysisnshows that players may form sanctioning institutions in equilibrium, includingnthose where institutions govern only a subset of players. The experiment confirmsnthat institutions are formed frequently as well as that institution formation has anpositive impact on cooperation rates and group welfare. However, the data clearlynreveal that players are unwilling to implement institutions in which some playersnhave the opportunity to free ride. In sum, our results show that individuals arenwilling and able to create sanctioning institutions, but that the institution formationnprocess is guided by behavioral principles not taken into account by standard theory.
The aim of this paper is to study whether schooling choices are affected by social interactions. Such social interactions may be important because children enjoy spending time with other children or parents learn from other parents about the ability of their children. Identificationnis based on a randomized intervention that grants a cash subsidy encouraging schoolnattendance among a sub-group of eligible children within small rural villages in Mexico. Results indicate that (i) the eligible children tend to attend school more frequently, (ii) but also the ineligible children acquire more schooling when the subsidy is introduced in their local village, (iii) social interactions are economically important, and (iv) they may arise due to changes innparents’ perception of their children’s ability.
