Volkswirtschaft - Open Access LMU - Teil 02/03

Antitrust scholars have argued that exclusive contracts have anticompetitive, or at best neutral effects, if no efficiencies are generated. In contrast, this paper shows that exclusive contracts can have procompetitive effects, provided buyers are imperfect downstream competitors and contract breach is feasible. In that case an efficient entrant is not necessarily foreclosed through exclusive contracting but induces buyers to breach. Because breaching buyers have to pay expectation damages to the incumbent, the downstream profits they obtain when breaching must be large enough. Therefore, the entrant needs to set a lower wholesale price than absent exclusive contracting, leading to lower final consumer prices and higher welfare.

In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigation. Within a theoretical framework we compare consumer welfare under the rule of per se legality with that under alternative standards. We find that the rule of per se legality induces maximal collusion among settling companies. In comparison, the rule of per se illegality entirely prevents collusion and the rule of reason induces limited collusion when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases companies' expected settlement profits and thus fosters generic entry. Generic companies obtain additional incentives to challenge probabilistic patents, which potentially leads to overall increased competition. We further show that generic entry is fostered more effectively by inducing limited collusion than by rewarding first generic entrants with an exclusivity right.

We analyze the profitability of third degree price discrimination under consideration of consumers' fairness concerns within an experiment and explain the results within a theoretical framework. We find that with an increase in the price differential negative reciprocal reactions by disadvantaged consumers become stronger compared to positive reciprocal reactions by advantaged consumers. Consequently, the profit maximizing price differential lies below the one predicted to be optimal by standard theory. Further, profitability increases when consumers who are regarded as poorer are charged lower prices compared to when the wealth of the different consumer groups is unknown.

The new Medicare Part D program provides prescription drug coverage for older Americans through highly subsidized and tightly regulated plans offered by private insurance firms. For most eligible individuals without coverage from other sources, obtaining Part D coverage would be rational, but it requires active enrollment and plan choice decisions. We investigate if non-enrollment in Medicare Part D can partly be explained by risk aversion. Data are taken from a national online survey conducted just after the introduction Part D. The survey included a context-free and a context-related hypothetical lottery to measure an individual’s attitude towards risk. Respondents who are risk tolerant according to these measures were significantly less likely to enroll in Part D. We also illustrate that hypothetical choice questions designed to elicit risk attitudes are subject to reference-point effects. Even minor differences in the priming of respondents can result in potentially misleading conclusions about the role of risk aversion in the insurance decisions.

We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent’s effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The principal’s optimal contract gives the agent no rent and – in contrast to the first-best allocation – uses toomuch observable effort and too little unobservable effort. This distortion in the relative use of the two kinds of effort increases if the agent’s liability becomes more limited.

What insights can be gained from bringing the theory of the firm to the global economy? I discuss several new features of the world economy that can be explained by incorporating the theory of the firm into the theory of international trade. Among the new features I discuss are the move to flatter corporate hierarchies and the decentralization of authority in firms, the “war for talent”, the rise of CEO pay in rich countries, organizational convergence across countries, and firm heterogeneity.

Individuals’ choices of educational content are often shaped by the political economy of government policies that determine the incentives to acquire various skills. We first present a model to show how differences in educational content emerge as an equilibrium outcome of private decisions and government policy choices. We then illustrate these dynamics in two historical circumstances. In medieval Europe, states and the Church found individuals trained in Roman law valuable, and eventually supported investments in this new form of human capital. This had positive effects on Europe’s commercial and institutional development. In late 19th-century China, elites were afraid of the introduction of Western science and engineering and continued to select civil servants - who enjoyed substantial rents—based on their knowledge of Confucian classics. As a result, China lacked skills useful in modern industry. Finally, we present a variety of other contemporary and historical applications of this theory.

We develop a model relating self-control, risk preferences and conflict identification to cooperation patterns in social dilemmas. We subject our model to data from an experimental public goods game and a risk experiment, and we measure conflict identification and self-control. As predicted, we find a robust association between self-control and higher levels of cooperation, and the association is weaker for more risk-averse individuals. Free riders differ from other contributor types only in their tendency not to have identified a self-control conflict in the first place. Our model accounts for the data at least as well as do other models.

This note generalizes Feldstein’s (1976) criticism of Barro’s(1974) analysis for the case that the interest rate exceeds the growth rate. This is done by considering an economy in steady state where all agents hold “Barro expectations”: they believe that government debt must necessarily be repaid and therefore leave the present value of their income streams unchanged. In this scenario, a change in the mode of taxation affects the present value of disposable income in the private sector. This violates their Barro expectations.

In 1979, when anthropometric history was still in its infancy, Robert Fogel and collaborators reported that the height of the US male white population began to decline quite unexpectedly around the birth cohorts of 1830. This was quite a conundrum on account of the fact that according to conventional economic theory nutritional status was not expected to diminish at the outset of modern economic growth, i.e., at a time when incomes were growing robustly. Although many hypotheses were offered, not until 1987 was the comprehensive solution to the puzzle offered that the height decline was due primarily to a decline in food consumption: agricultural productivity did not keep pace with rapid population growth and urbanization. However, it took a third of a century for a Kuhnian paradigm shift to occur until most of the participants in the debate accepted the model elucidated by Komlos in 1987.

What insights can be gained from bringing the theory of the firm to the global economy? I discuss several new features of the world economy that can be explained by incorporating the theory of the firm into the theory of international trade. Among the new features I discuss are the move to flatter corporate hierarchies and the decentralization of authority in firms, the “war for talent”, the rise of CEO pay in rich countries, organizational convergence across countries, and firm heterogeneity.

We study the effects of patriotism on tax compliance. In particular, we assume that individuals feel a (random draw of) warm glow from honestly paying their taxes. A higher expected warm glow reduces the government's optimal audit probability and yields higher tax compliance. Second, individuals with higher warm glow are less likely to evade taxes. This prediction is confirmed empirically by a multivariate analysis on the individual level while controlling for several other potentially confounding factors. The findings survive a variety of robustness checks, including an instrumental variables estimation to tackle the possible endogeneity of patriotism. On the aggregate level, we provide evidence for a negative correlation between average patriotic warm glow and the size of the shadow economy across several countries.

We examine a stark setting in which security or protection can be provided by self-governing groups or by for-profit entrepreneurs (kings, kleptocrats, or mafia dons). Though selfgovernance is best for the population, it faces problems of long-term viability. Typically, in providing security the equilibrium market structure involves competing lords, a condition that leads to a tragedy of coercion: all the savings from the provision of collective protection are dissipated and welfare can be as low as, or even lower than, in the absence of the state.

We study an all-pay contest with multiple identical prizes ("lifeboat seats"). Prizes are partitioned into subsets of prizes ("lifeboats"). Players play a twostage game. First, each player chooses an element of the partition ("a lifeboat"). Then each player competes for a prize in the subset chosen ("a seat"). We characterize and compare the subgame perfect equilibria in which all players employ pure strategies or all players play identical mixed strategies in the first stage. We find that the partitioning of prizes allows for coordination failure among players when they play nondegenerate mixed strategies and this can shelter rents and reduce rent dissipation compared to some of the less efficient pure strategy equilibria.

We study conflict between two groups of individuals. Using Schaffer`s (1988) concept of evolutionary stability we provide an evolutionary underpinning for in-group altruism combined with spiteful behavior towards members of the rival out-group. We characterize the set of evolutionarily stable combinations of in-group favoritism and out-group spite and find that an increase in in-group altruism can be balanced by a decrease in spiteful behavior towards the out-group.

This paper develops a competition theory framework that evaluates an important aspect of the OECD’s Harmful Tax Practices Initiative against tax havens. We show that the sequential nature of the process is harmful and more costly than a “big bang” multilateral agreement. The sequentiality may even prevent the process from being completed successfully. Closing down a subset of tax havens reduces competition among the havens that remain active. This makes their “tax haven business” more profitable and shifts a larger share of rents to these remaining tax havens, making them more reluctant to give up their “tax haven business”. Moreover, the outcome of this process, reducing the number of tax havens, but not eliminating them altogether, may reduce welfare in the OECD.

Many decisions are interactive; the outcome of one party depends not only on its decisions or on acts of nature but also on the decisions of others. In the present article, we review the literature on decision making made by groups of the past 25 years. Researchers have compared the strategic behavior of groups and individuals in many games: prisoner's dilemma, dictator, ultimatum, trust, centipede and principal-agent games, among others. Our review suggests that results are quite consistent in revealing that groups behave closer to the game-theoretical assumption of rationality and selfishness than individuals. We conclude by discussing future research avenues in this area.

Older people who experience declining health are often faced with difficult decisions about possible residential relocation. The research aim was to determine how five distinct dimensions-functional status, features of current housing, social networks, features of retirement communities, and financial considerations-affect decisions to relocate to a retirement community. A vignette experiment with a factorial design was conducted involving both older people and adult children who were concerned with an aging parent. Use of the Internet for administration of the experiment made it possible to deliver information to research participants through video clips. Research participants were influenced by each of the dimensions; however, functional status of the vignette persons had the greatest impact, and financial considerations the least. Adult children were more likely to recommend moves than were older people. The research is suggestive of the potential for use of vignette experiments for a fuller understanding of relocation decisions.

This article illustrates an innovative method of administering stated choice studies (or vignette experiments) using computers and the Internet. The use of video clips to deliver information to research participants makes vignettes more realistic, helps to engage interest of research participants, and can reduce framing effects. The method also provides research participants with interactive options before making judgments. A study to determine the views of older people regarding residential options is used to illustrate the method. Even older people with limited experience in using computers participated successfully. The study findings showed that research participants responded both to the audiovisual characteristics of vignette persons and to the variables in the vignette structure.

Recent literature on international trade has established that the most productive firms become multinationals. But our data reveal a startling variation in productivity levels of foreign affiliates across the countries in Eastern Europe of the same European multinational parent firms suggesting that not all multinationals transplant their home productivity advantage to the new EU Member States and Emerging Europe. One candidate for this startling difference in productivity levels among foreign affiliates is the ability of European multinationals to transport their business model abroad. This paper examines the conditions under which European multinationals give autonomy to their subsidiaries and delegate authority to them. We also analyse the conditions under which European multinationals transplant their business model to Eastern Europe. We collect original and unique matched parent and affiliate data on the internal organization of 660 German and Austrian parent firms and 2200 of their subsidiaries in Eastern Europe including the former Soviet Union. We test the hypothesis that the ability of European multinationals to transplant their business model to foreign affiliates is determined by the organization of European multinationals on the one hand and the market environment their affiliate firms face in Eastern Europe on the other hand. We show that the business culture of parent firms accounts for about 50 percent of the variation of the organization of subsidiaries, while the market environment of subsidiaries contributes the rest.

It is often argued that certifiers have an incentive to offer inflated certificates, although they deny it. In this paper, we study a model in which a certifier is paid by sellers, and may offer them inflated certificates, but incurs costs if doing so. We find that the certifier may face a commitment problem: The certifier offers inflated certificates if the costs of offering the first inflated certificate are lower than the sellers' willingness-to-pay for it. However, in equilibrium, the buyers cannot be fooled. The certifier would hence make a higher profit if the certifier did not offer inflated certificates and the buyers believed it. The number of inflated certificates, which the certifier offers in equilibrium, depends on the costs of offering inflated certificates. Yet, the certifier may oppose an increase in the costs of offering inflated certificates. We show that whether a certifier welcomes tighter regulation or lobbies against it, may depend on whether the new regulation only imposes higher costs, or also reduces the certifier's commitment problem significantly.

This paper provides the first evidence on gender differences in investment financing, credit application and credit denial rates in Germany. The empirical analysis is carried out on a sample of firms drawn from the KfW Mittelstandspanel, a representative survey of German SMEs for the period from 2003 to 2009. Our results suggest that in female-owned firms the share of internal capital in investment financing is higher and the share of external funds is lower than for male-owned firms. An analysis of the supply- and demand-side on the credit market shows that women are not more likely to be denied credit but the probability that they apply for credit is on average lower. Yet, this gender difference in the probability of credit application is only evident when considering firms with negative or neutral sales expectations. There is no significant gender difference in credit application rates of firms with positive sales expectations.

This paper analyzes gender differences in the investment activity of German small and medium sized enterprises (SMEs). The empirical analysis is carried out on a sample of firms drawn from the KfW Mittelstandspanel, a representative survey of German SMEs for the period from 2003 to 2009. We find evidence that female-owned firms are less likely to invest and if they invest, then their average investment rate is lower. These differences cannot entirely be explained by firm or owner characteristics. Furthermore, women’s investment is less sensitive to cash flow, which indicates that it is unlikely that their lower investment is driven by difficulties in acquiring external finance. An analysis of stated investment goals reveals that women have different preferences and attitudes towards investment. They indicate to a lesser extent aspiring and growth-orientated investment goals like sales increase, innovation/R&D or implementation of new products.

We extend Akerlof ’s (1970) “Market for Lemons” by assuming that some buyers are overconfident. Buyers in our model receive a noisy signal about the quality of the good that is at display for sale. Overconfident buyers do not update according to Bayes’ rule but take the noisy signal at face value. The main finding is that the presence of overconfident buyers can stabilize the market outcome by preventing total adverse selection. This stabilization, however, comes at a cost: rational buyers are crowded out of the market.

We consider a monopolistic supplier’s optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs. Under discriminatory pricing, downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs. Under uniform pricing, the same wholesale tariff is offered to all downstream firms. In contrast to the extant literature on thirddegree price discrimination with nonlinear wholesale tariffs, we find that banning discriminatory wholesale contracts—the usual legal practice in the EU and US— often is beneficial for social welfare. This result is shown to be robust even when the upstream supplier faces competition in the form of fringe supply.

This paper analyzes measures that limit firms’ profit shifting activities in a model that incorporates heterogeneous firm productivity and monopolistic competition. Such measures, e.g. thin capitalization rules, have become increasingly widespread as governments have reacted to growing profit shifting activities of multinational companies. However, besides limiting profit shifting, such rules entail costs. As the regulations can only focus on the means to shift profits, not on profit shifting itself, they impose costs on all firms, no matter whether these firms shift profits abroad or not. In the model, these costs force some firms to exit the market. Thus, as this makes the remaining firms more profitable, regulations to limit profit shifting may even increase the aggregate amount of profits shifted abroad. From a welfare point of view, it may even be optimal no to limit profit shifting at all.

Recent literature on international trade has established that the most productive firms become multinationals. But our data reveal a startling variation in productivity levels of foreign affliates across the countries in Eastern Europe of the same European multinational parent firms suggesting that not all multinationals transplant their home productivity advantage to the new EU Member States and Emerging Europe. One candidate for this startling difference in productivity levels among foreign affiliates is the ability of European multinationals to transport their business model abroad. This paper examines the conditions under which European multinationals give autonomy to their subsidiaries and delegate authority to them. We also analyse the conditions under which European multinationals transplant their business model to Eastern Europe. We collect original and unique matched parent and affiliate data on the internal organization of 660 German and Austrian parent firms and 2200 of their subsidiaries in Eastern Europe including the former Soviet Union. We test the hypothesis that the ability of European multinationals to transplant their business model to foreign affiliates is determined by the organization of European multinationals on the one hand and the market environment their affiliate firms face in Eastern Europe on the other hand. We show that the business culture of parent firms accounts for about 50 percent of the variation of the organization of subsidiaries, while the market environment of subsidiaries contributes the rest.

We study optimal experimentation by a monopolistic platform in a two-sided market framework. The platform provider faces uncertainty about the strength of the externality each side is exerting on the other. It maximizes the expected present value of its profit stream in a continuous-time infinite-horizon framework by setting participation fees or quantities on both sides. We show that a price-setting platform provider sets a fee lower than the myopically optimal level on at least one side of the market, and on both sides if the two externalities are of approximately equal strenght. If the externality that one side exerts is sufficiently weaker than the externality it experiences, the optimal fee on this side exceeds the myopically optimal level. We obtain analogous results for expected prives when the platform provider chooses quantities. While the optimal policy does not admin closed-form representations in general, we identify special cases in which the undiscounted limit of the model can be solved in closed form.

We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimization problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives re ected by the canonical life-cycle model { long-run consumption smoothing and short-run insurance against income shocks { can be addressed quite well by saving rules that do not require computationally demanding tasks such as backward induction.

This article analyzes profit taxation according to the arm's length principle in a new model where heterogeneous firms sort into foreign outsourcing. We show that multinational firms are able to shift profits abroad even if they fully comply with the tax code. This is because, in equilibrium, intra-firm transactions occur in firms that are better than the market at input production. Transfer prices set at market values following the arm's length principle thus systematically exceed multinationals' marginal costs. This allows for a reduction of tax payments with each unit sold. The optimal organization of firms hence provides a new rationale for the empirically observed lower tax burden of multinational corporations.

This article analyzes profit taxation according to the arm's length principle in a new model where heterogeneous firms sort into foreign outsourcing. We show that multinational firms are able to shift profits abroad even if they fully comply with the tax code. This is because, in equilibrium, intra-firm transactions occur in firms that are better than the market at input production. Transfer prices set at market values following the arm's length principle thus systematically exceed multinationals' marginal costs. This allows for a reduction of tax payments with each unit sold. The optimal organization of firms hence provides a new rationale for the empirically observed lower tax burden of multinational corporations.

We study the optimal combination of corporate tax rate and tax base in a model of a small open economy with heterogeneous firms. We show that it is optimal for the small country's government to e®ectively subsidize capital inputs by granting a tax allowance in excess of the true costs of capital. Economic integration reduces the optimal capital subsidy and drives low-productivity firms from the small country's home market, replacing them with high-productivity exporters from abroad. This endogenous policy response creates a selection effect that increases the average productivity of home firms when trade barriers fall, in addition to the well-known direct effects.

Online job search is becoming increasingly prominent and is viewed to improve the efficiency of the search process. OLS results suggest a negative association of DSL availability with unemployment rates across German municipalities. However, the roll-out of DSL networks is not random. This paper exploits the fact that the availability of DSL connections depends on a municipality’s distance to the closest interconnection point to the pre-existing voice-telephony network. Instrumental-variable results using this distance as an instrument for DSL availability do not confirm the effect of DSL availability on unemployment.

In many countries entrepreneurship is promoted through tax reductions for small businesses and by various government support schemes. We analyze the effects of such policies to subsidize small businesses in a setting where both the risk-return characteristics of the selected innovation project and the mode of commercialization chosen by entrepreneurs (market entry versus sale to an incumbent firm) are endogenous. We show that government programs to support small businesses foster market entry by entrepreneurs but, at the same time, give an incentive to choose low risk projects, due to the existence of limited loss o®set provisions. This points to a basic trade-off be- tween the goals of raising competition in technology-intensive markets and the desire of governments to foster risky `breakthrough' innovations.

We study a model of imperfectly discriminating contests with two ex ante symmetric agents. We consider four institutional settings: Contestants move either sequentially or simultaneously and in addition their types are either public or private information. We find that an effort-maximizing designer of the contest prefers the sequential to the simultaneous setting from an ex ante perspective. Moreover, the sequential contest Pareto dominates the simultaneous one when the contestants’ types are sufficiently negatively correlated. Regarding the information structure, the designer ex ante prefers private information while the contestants prefer public information.

Classic financial agency theory recommends compensation through stock options rather than shares to induce risk neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that are excessive from the perspective of shareholders if compensated through options. Compensation through restricted company stock reduces the uptake of excessive risks. Even under stock-ownership, however, experimental executives continue to take excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk-taking behavior is explained based on a richer array of risk attitudes derived from Prospect Theory. We use the model to derive hypotheses on what may be driving excessive risk taking in the experiment. Testing those hypotheses, we find that most of them are indeed borne out by the data. We thus conclude that a prospect-theory-based model is more apt at explaining risk attitudes under different compensation regimes than traditional principal-agent models grounded in expected utility theory.

We study the effects of time pressure on risky decisions for pure gain prospects, pure loss prospects, and mixed prospects involving both gains and losses. In an experiment we find that risk aversion for gains is robust under time pressure whereas risk seeking for losses turns into risk aversion under time pressure. For mixed prospects, subjects become more loss averse and more gain seeking under time pressure, depending on the framing of the prospects. The results suggest the importance of aspiration levels under time pressure. We discuss the implications of our findings for decision making situations that involve time pressure.

In this paper, we study the individual payoff effects of overconfident self-perception in teams. In particular, we demonstrate that the welfare of an overconfident agent in a team of one rational and one overconfident agent or a team of two overconfident agents can be higher than that of the members of a team of two rational agents. This result holds irrespective of the assumption about the agents' awareness of their colleague's bias. Moreover, we show that an overcondent agent is always better of when he is unaware of a potential bias of his colleague.

This paper evaluates the predictions of different price setting theories using a new dataset constructed from a large panel of business surveys of German retail firms over the period 1970-2010. The dataset contains firm-specific information on both price realizations and expectations. Aggregating the price data we find clear evidence in favor of state-dependence; for periods of relatively high and volatile inflation not only the size of price changes (intensive margin) but also the fraction of price adjustment (extensive margin) is important for aggregate inflation dynamics. Moreover, at the business cycle frequency, variations in the extensive margin explain a large fraction of inflation variability even for moderate inflation periods. This holds both for price realizations and expectations suggesting a role for state-dependent sticky plan models. Moreover, results from a structural sign-restriction VAR model show that the extensive margin reacts significantly to a monetary policy shock and is more important for the response of overall inflation than the intensive margin conditional on the shock. These findings confirm the validity of state-dependent pricing models that stress the importance of the extensive margin - even for low inflation periods.

The ‘Four-Eyes-Principle’ is considered as one of the most potent measures against corruption although it lacks both theoretical and empirical justification. We show in a laboratory experiment using a standard corruption game that introducing the 4EP increases corrupt behaviour, casting doubt on its usefulness as a general recommendation. Combining data on final choices with observations on the decision making processes in teams, including a content analysis of exchanged messages, provides insights into the dynamics of team decision making and shows that the individual profit maximizing motive dominates group decision making and crowds out altruistic arguments.

Whistle-blowing is seen as a powerful tool in containing corruption, although theoretical findings and experimental evidence cast doubt on its effectiveness. We expand a standard corruption model by allowing both, briber and official to initiate corruption actively, in order to assess the full effect of whistle-blowing. In our laboratory experiment we find that the effect of symmetrically punished whistle-blowing is ambiguous since it reduces the impact of corruption on productive activity, but also increases its stability. We show that asymmetric leniency for the official offsets the negative effect. The results can be explained by simple arguments about belief structures within the self-interested model of payoff maximizing.

This paper offers new insights on the price setting behaviour of German retail firms using a novel dataset that consists of a large panel of monthly business surveys from 1991-2006. The firm-level data allows matching changes in firms' prices to several other firm-characteristics. Moreover, information on price expectations allow analyzing the determinants of price updating. Using univariate and bivariate ordered probit specifications, empirical menu cost models are estimated relating the probability of price adjustment and price updating, respectively, to both time- and state- dependent variables. First, results suggest an important role for state-dependence; changes in the macroeconomic and institutional environment as well as firm-specific factors are significantly related to the timing of price adjustment. These findings imply that price setting models should endogenize the timing of price adjustment in order to generate realistic predictions concerning the transmission of monetary policy. Second, an analysis of price expectations yields similar results providing evidence in favour of state-dependent sticky plan models. Third, intermediate input cost changes are among the most important determinants of price adjustment suggesting that pricing models should explicitly incorporate price setting at different production stages. However, the results show that adjustment to input cost changes takes time indicating "additional stickiness" at the last stage of processing.

Cap and trade mechanisms enjoy increasing importance in environmental legislation worldwide. The most prominent example is probably given by the European Union Emission Trading System (EU ETS) designed to limit emissions of greenhouse gases, several other countries already have or are planning the introduction of such systems. One of the important aspects of designing cap and trade mechanisms is the possibility of competition authorities to grant emission permits for free. Free allocation of permits which is based on past output or past emissions can lead to inefficient production decisions of firms’ (compare for example B¨ohringer and Lange (2005), Rosendahl (2007), Mackenzie et al. (2008), Harstad and Eskeland (2010)). Current cap and trade systems grant free allocations based on installed production facilities, which lead to a distortion of firms’ investment incentives, however. It is the purpose of the present article to study the impact of a cap and trade mechanism on firms’ investment and production decisions and to analyze the optimal design of emission trading systems in such an environment.

We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under standard assumptions. Yet, we also find evidence for reciprocal behavior. Our data analysis shows, however, that it does not pay for the employer to solely rely on the reciprocity of employees.

Sat, 1 Jan 2011 12:00:00 +0100 https://epub.ub.uni-muenchen.de/13959/1/ifo_schnelldiesnst_klimaschutz_artikel_Koautor.pdf Thum, Marcel; Konrad, Kai A.; Feld, Lars P. ddc:320, MPI für Steuerrecht und Öffentliche Finanzen, Volkswirtschaft

Sat, 1 Jan 2011 12:00:00 +0100 https://epub.ub.uni-muenchen.de/13966/1/oa_13966.pdf Zschäpitz, Holger; Konrad, Kai A. ddc:320, MPI für Steuerrecht und Öffentliche Finanzen, Volkswirtschaft 0

Sat, 1 Jan 2011 12:00:00 +0100 https://epub.ub.uni-muenchen.de/13969/1/unsichere_Klimafolgen.pdf Thum, Marcel; Konrad, Kai A.; Auerswald, Heike ddc:320, MPI für Steuerrecht und Öffentliche Finanzen, Volkswirtschaft

This paper experimentally investigates the role of beliefs, trust, and risk in shaping cooperative behavior. By applying incentivized elicitation methods to measure these concepts, we find that beliefs about others’ behavior and trust are positively associated with cooperation in a public goods game. However, even though contributing unconditionally to a public good resembles a situation of making decisions under risk, elicited risk preferences do not seem to explain cooperation in a systematic way.

We study risk attitudes, ambiguity attitudes, and time preferences of 661 children and adolescents, aged ten to eighteen years, in an incentivized experiment. We relate experimental choices to field behavior. Experimental measures of impatience are found to be significant predictors of health related field behavior and saving decisions. In particular, more impatient children and adolescents are more likely to spend money on alcohol and cigarettes, have a higher body mass index (BMI) and are less likely to save money. Experimental measures for risk and ambiguity attitudes are only weak predictors of field behavior.

We systematically explore decision situations in which a decision maker bears responsibility for somebody else's outcomes as well as for her own in situations of payoff equality. In the gain domain we confirm the intuition that being responsible for somebody else's payoffs increases risk aversion. This is however not attributable to a 'cautious shift' as often thought. Indeed, looking at risk attitudes in the loss domain, we find an increase in risk seeking under responsibility. This raises issues about the nature of various decision biases under risk, and to what extent changed behavior under responsibility may depend on a social norm of caution in situations of responsibility versus naive corrections from perceived biases. To further explore this issue, we designed a second experiment to explore risk-taking behavior for gain prospects offering very small or very large probabilities of winning. For large probabilities, we find increased risk aversion, thus confirming our earlier finding. For small probabilities however, we find an increase of risk seeking under conditions of responsibility. The latter finding thus discredits hypotheses of a social rule dictating caution under responsibility, and can be explained through flexible self-correction models predicting an accentuation of the fourfold pattern of risk attitudes predicted by prospect theory. An additional accountability mechanism does not change risk behavior, except for mixed prospects, in which it reduces loss aversion. This indicates that loss aversion is of a fundamentally different nature than probability weighting or utility curvature. Implications for debiasing are discussed.

Technological standards give rise to a complements problem that affects pricing and innovation incentives of technology producers. In this paper I discuss how patent pools can be used to solve these problems and what incentives patent holders have to form a patent pool. I offer some suggestions how competition authorities can foster the formation of welfare increasing patent pools.