This paper examines how the presence of a non-negligible fraction of reciprocally fair actors changes the provision of incentives through contracts. We provide experimental evidence that principals have a strong preference for less complete contracts although the standard self-interest model predicts that they should prefer the more complete contract. Our theoretical analysis shows that fairness concerns can explain this preference for less completeness. Fair principals keep their promises which provides strong pecuniary incentives through an incomplete contract. Selfish principals free-ride and exploit the agents. Counter-intuitively, selfish agents are induced to work by an incomplete contract while fair agents shirk.
"This paper shows that identical offers in an ultimatum game generate systematically different rejection rates depending on the other offers that are available to the proposer. This result casts doubt on the consequentialist practice in economics to define the utility of an action solely in terms of the consequences of the action irrespective of the set of alternatives. It means, in particular, that negatively reciprocal behavior cannot be fully captured by equity models that are exclusively based on preferences over the distribution of material payoffs. Models that take into account players’ fairness intentions and distributional preferences are consistent with our data while models that focus exclusively on intentions or on the distribution of material payoffs are not."
"A cross-regional econometric analysis is conducted suggesting that institutional factors in the form of direct democracy (via initiatives and referenda) and of federal structure (local autonomy) systematically and sizeably raise self-reported individual well-being. This positive effect can be attributed to political outcomes closer to voters preferences as well as to the procedural utility of political participation. Moreover, the results of ""standard"" microeconometric well-being functions previously published are supported. Unemployment among economic variables and bad health among demographic variables have a strongly depressing effect on happiness. Income only significantly raises happiness for higher income groups."
"An economic analysis of fakes differs substantially from the legal and the art historic views which both tend to propose repressive policies against imitations. But there are large economic benefits from copying. In particular, the ""propagation effect"" yields utility to both consumers and creators of the original. In contrast, the harmful effects of fakes are small and are mitigated by emerging institutions (guarantees, sellers with reputation). The paper suggests ""art quotations"" (similar to academic quotations) as a beneficial solution to creators of originals and consumers. ""Art quotations"" are applicable to many art forms."
Command-and-control measures, despite their inefficiencies, are still the standard in environmental policy. This might be due to the fact that command-and-control instruments prevent monetary redistribution between sectors and households and leave property rights on remaining pollution with the emittents. The present paper interprets the no-redistribution policy as a political constraint and investigates on more efficient alternatives to command-and-control, using a computable general equilibrium model for Switzerland. Simulation results render schemes that refund environmental tax revenues by a sector-by-sector-subsidy on labor or output as welfare enhancing.
This paper studies the effect of increased immigration in Austria on the unemployment risk of young natives. Austria experienced a dramatic rise in the share of alien workers as a result of the breakdown of the former commu-nist regimes (especially from former Yugoslavia). We concentrate on unemployment entry of young male workers, who are supposed to compete most heavily with new immigrants. Our results indicate that the detrimental impact - if it exists at all - is only minor. This is irrespective of the analyzed proxy for competition: The share of foreign workers in an industry or in a region.
This paper analyzes the impact of inequality on growth when technical progress is driven by innovations and consumers have hierarchic preferences. Inequality has an impact on growth because it affects the structure and the dynamics of demand. Redistribution from very rich to very poor consumers is beneficial for growth. In general, the growth effect depends on the nature of redistribution. Due to a demand externality of R&D activities multiple equilibria are possible.
Personnel economics has put forward conflicting arguments concerning the impact of increased wage dispersion within a firm on the productivity of its workers. Besides giving more incentives, bigger wage differentials might also give rise to less co-operation and more politicking amongst workers resulting in worse outcomes. We try to shed light on these issues using panel data for Austrian firms. As indicators for firm performance we use standardised wages. For white-collar wages the following picture emerges: more dispersion leads to higher earnings up to some point where the relation changes its direction. For blue-collar wages we find a positive association between dispersion and standardised wages between firms, but no relation within firms over time.
Over the recent years one could repeatedly hear the claim that a rising concern for relative standing (in terms of consumption) was partly responsible for the decline in household savings and in growth that could be observed in some developed countries (particularly in the US) and that the rise in income inequality had further aggravated this process. In this paper we want to analyze under which conditions (concerning the importance of social comparisons for peoples' behavior and their choice of reference groups) this claim is valid. We show that an increase in a societies' concern for relative standing aggravates a negative impact of inequality on growth if two conditions are fulfilled: individuals have a higher concern for their present than for their future relative standing and individuals have a tendency to find their reference groups among people that are wealthier then they are themselves. Empirical data suggest that the negative impact of inequality on growth is stronger in highly developed economies. This is compatible with the explanation that is presented in this paper if individuals living in highly developed countries are more likely to have a high concern for relative standing. We will argue (using research on the cultural consequences of economic development) that this is a reasonable assumption to make.
There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free-riders, stable cooperation is maintained although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior.
