Cason and Plott (J Polit Econ, 122(6):1235–1270, 2014) show that subjects’ misconception about the incentive properties of the Becker-DeGroot-Marschak (BDM) value elicitation procedure can generate data patterns that look like—and might thus be misinterpreted as evidence for—preferences constructed from endowments or reference points. We test whether game form misconceptions are necessary to produce willingness-to-pay (WTP) vs. willingness-to-accept (WTA) gaps in a valuation experiment in which subjects are randomly assigned to the role of either buyer or seller. We employ a design that allows us to identify whether a subject understood the incentive properties of a price-list version of the BDM mechanism. We find a robust WTP-WTA gap, even among subjects whose elicited valuations for a good of induced and known monetary value and whose ability to identify the payoffs resulting from their choices indicate an understanding of the incentive properties of the BDM mechanism. We conclude that game form misconceptions are not a necessary condition for the emergence of WTP-WTA gaps.
A pervasive, yet little acknowledged feature of international migration to developed countries is that newly arriving immigrants are increasingly highly skilled. This paper analyses the factors affecting the change in the skill composition of immigrants in Switzerland between 1980 and 2010 using a framework suggested by Grogger & Hanson (2011). Our findings suggest that improved schooling in origin countries of immigrants and a shift in the relative demand for highly educated workers in destinations stand out as the two most important drivers. Yet, while improved schooling would predict only a modest increase in the share of highly educated immigrants and a large increase of middle educated immigrants, we show that demand shifts associated with computerisation are crucial to understand why the share of highly educated immigrants increased sharply while the share of middle educated workers merely stabilised. Additionally, our framework allows evaluating the effect of changes in immigration policy. We find that the recent abolition of quotas for workers from European countries through a bilateral agreement with the EU in 2002 had a small but negative effect on the educational quality of immigrants.
Path forecasts, defined as sequences of individual forecasts, generated by vector autoregressions are widely used in applied work. It has been recognized that a profound econometric analysis often requires, besides the path forecast, a joint prediction region that contains the whole future path with a prespecified coverage probability. The forecasting literature offers several different methods for computing joint prediction regions, where the existing methods are either bootstrap based or rely on asymptotic results. The aim of this paper is to investigate the finite-sample performance of three methods for constructing joint prediction regions in various scenarios via Monte Carlo simulations.
When we are learning to associate novel cues with outcomes, learning is more efficient if we take advantage of previously learned associations and thereby avoid redundant learning. The blocking effect represents this sort of efficiency mechanism and refers to the phenomenon in which a novel stimulus is blocked from learning when it is associated with a fully predicted outcome. Although there is sufficient evidence that this effect manifests itself when individuals learn about their own rewards, it remains unclear whether it also does when they learn about others' rewards. We employed behavioral and neuroimaging methods to address this question. We demonstrate that blocking does indeed occur in the social domain and it does so to a similar degree as observed in the individual domain. On the neural level, activations in the medial prefrontal cortex (mPFC) show a specific contribution to blocking and learning-related prediction errors in the social domain. These findings suggest that the efficiency principle that applies to reward learning in the individual domain also applies to that in the social domain, with the mPFC playing a central role in implementing it.
Negative symptoms in schizophrenia have been grouped into the 2 factors of apathy and diminished expression, which might be caused by separable pathophysiological mechanisms. Recently, it has been proposed that apathy could be due to dysfunctional integration of reward and effort during decision making. We asked whether apathy in particular is associated with stronger devaluation ("discounting") of monetary rewards that require physical effort. Thirty-one patients with schizophrenia and 20 healthy control participants performed a computerized effort discounting task in which they could choose to exert physical effort on a handgrip to obtain monetary rewards. This procedure yields an individual measure for the strength of effort discounting. The degree of effort discounting was strongly correlated with apathy, but not with diminished expression. Importantly, the association between apathy and effort discounting was not driven by cognitive ability, antipsychotic medication, or other clinical and demographic variables. This study provides the first evidence for a highly specific association of apathy with effort-based decision making in patients with schizophrenia. Within a translational framework, the present effort discounting task could provide a bridge between apathy as a psychopathological phenomenon and established behavioral tasks to address similar states in animals.
We study the implications of offshoring on innovation, technology, and wage inequality in a Ricardian model with directed technical change. Profit maximization determines both the extent of off-shoring and the direction of technological progress. A fall in the offshoring cost induces technical change with an ambiguous factor bias. When the initial cost of offshoring is high, an increase in offshoring opportunities causes a fall in the real wages of unskilled workers in industrial countries, skill-biased technical change and rising skill premia. When the offshoring cost is sufficiently low, instead, offshoring induces technical change biased in favor of the unskilled workers.
The willingness to punish norm violation is an important component of many legal and social institutions, and much prior research demonstrates an apparent willingness to incur costs to punish individuals who act unfairly. But, will people rely on “excuses” to get out of having to act on costly punishment intentions, as they do with other costly pro-social acts? And how may the answer to this question depend on whether the punisher is the victim of a norm violation or an independent third party? We conduct an experiment and find that third parties punish reluctantly: although they indicate a preference to punish, they choose to avoid the opportunity to punish when they can do so without explicitly revealing that this is their preference. In contrast, second parties, who have been directly wronged, are resolute punishers—they actively seek out the opportunity to punish, even misrepresenting random outcomes in order to ensure that punishment is implemented. Our findings highlight important differences in the motives underlying second- and third-party punishment.
Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while entrants’ chances are similar across the two formats.
Even before the Great Recession, U.S. employment growth was unimpressive. Between 2000 and 2007, the economy gave back the considerable employment gains achieved during the 1990s, with a historic contraction in manufacturing employment being a prime contributor to the slump. We estimate that import competition from China, which surged after 2000, was a major force behind both recent reductions in U.S. manufacturing employment and—through input-output linkages and other general equilibrium channels—weak overall U.S. job growth. Our central estimates suggest job losses from rising Chinese import competition over 1999 through 2011 in the range of 2.0 to 2.4 million.
Optimal rank-order tournaments have traditionally been studied using a first-order approach. The present analysis relies instead on the construction of an "upper envelope" over all incentive compatibility conditions. lt turns out that the first-order approach is not innocuous. For example, in contrast to the traditional understanding, tournaments may be dominated by piece rates even if workers are risk-neutral. The paper also offers a strikingly simple characterization of the optimal tournament for quadratic costs and CARA utility, as well as an extension to large tournaments.
