Berlin School of Economics Discussion Papers
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45
We consider a monopolistic certifier selling certification services to a partially privately informed seller. The certifier can enable the seller to disclose her private information publicly, as well as gather additional market information about the good's quality publicly. We show that the certifier's optimal contract exhibits maximal disclosure but non-maximal information-gathering. Thus, optimal contracts eliminate private information but not market uncertainty; even though the latter would be costless, it is suboptimal as it requires excessive information rents to the seller. Thus, market inefficiencies remain due to market uncertainty but not due to private information.
44
We quantify the housing-consumption channel in mortgage demand according to which households borrow more following house-price increases since housing and non-housing consumption are imperfect substitutes. To identify this channel, we take a structural approach to mortgage demand and supply, exploiting exogenous variation in house-price growth and a unique dataset with matched transaction- price and mortgage information. We estimate an elasticity of mortgage borrowing to house-prices of 0.82. Counterfactual analysis of the general-equilibrium of housing and mortgage markets shows that, sans housing-consumption channel, mortgage and house-price growth in the UK would have been 50% and 31% lower, respectively, since the 1990s.
43
Separate Housework Spheres
(2024)
Using novel time-use data from Germany before and after reunification, we document two facts: First, spouses who both work full-time exhibit similar housework patterns whether they do so voluntarily or due to a full-time mandate, as in the GDR. Second, men’s amount of housework is independent of their spouse’s labour supply. We theoretically explain this pattern by the presence of two household goods and socially learned gender-specific comparative advantage in their home production. We label this gender specialisation as separate housework spheres. Empirical evidence strongly confirms separate housework spheres in the GDR, West Germany, subsequent years post-reunification, and in international time-use data across 17 countries since the 1970s. We consider several implications, such as those for child penalties, where separate housework spheres provide a novel explanation for why it is the mothers whose labour market outcomes strongly deteriorate upon the arrival of children.
42
Strategic Use of Unfriendly Leadership and Labor Market Competition: An Experimental Analysis
(2024)
A significant portion of the workforce experiences what we term `unfriendly leadership,' encompassing various forms of hostile behavior exhibited by managers. The motivations driving managers to adopt such behaviors are insufficiently understood. To explore this phenomenon, we conducted a laboratory experiment examining the relationship between managers' use of unfriendly leadership and labor market competition. We discern two labor market states: excess labor demand, where managers compete to hire workers, and excess labor supply, where workers compete to be hired. By perceiving unfriendly leadership as a performance-contingent punishment device inflicting discomfort on workers, we hypothesize that managers are less inclined to resort to unfriendly leadership when they compete to hire workers. We find that managers tend to engage in unfriendly leadership more frequently and intensely under excess labor supply, in comparison to excess labor demand. This trend is particularly pronounced among male participants. Additionally, workers display a decreased likelihood of accepting employment offers from more unfriendly managers and exert lower levels of effort when working under such managers, indicating that unfriendly leadership is costly.
41
We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target. Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.
40
Across industrialized countries, regional disparities in labor market outcomes and income have increased in recent decades. This paper investigates how one of the largest localized labor demand shocks tied to the beginning of de-industrialization- the decline of the mining industry between 1960 and 2010 - affects labor market outcomes in the long run. The analysis relies on a new panel data set based on digitized census records from Belgium, France, the UK, and Germany that allows to trace labor market adjustments over 60 years for the male and female working-age population separately. For the causal estimation, I use an IV-shift share approach that exploits exogenous variation in the shifts induced by increased seaborne trade of energy substitutes and the share given by geological rock strata to predict mining activity. The male population disproportionately suffered under this (early) de-industrialization shock and the subsequent job loss. For the male population, the employment-population ratio has not yet recovered resulting in persistent local joblessness. In contrast, the female working-age population experienced a strong catch-up in employment and participation. I find that at the aggregate level, a substantial, albeit time-lagged population response paired with a strong increase in female participation rates fully compensate for the loss of male jobs over the decades. As a consequence, the male-female employment gap shrinks over time.
39
Narrative Persuasion
(2024)
We study how one person may shape the way another person interprets objective information. They do this by proposing a sense-making explanation (or narrative). Using a theory-driven experiment, we investigate the mechanics of such narrative persuasion. Our results reveal several insights. First, narratives are persuasive: We find that they systematically shift beliefs. Second, narrative fit (coherence with the facts) is a key determinant of persuasiveness. Third, this fit-heuristic is anticipated by narrative-senders, who systematically tailor their narratives to the facts. Fourth, the features of a competing narrative predictably influence both narrative construction and adoption.
38
To accept carbon pricing, citizens desire viable alternatives to fossil-fuel based options. As inflation and higher interest rates have exacerbated access barriers for capital-intensive green substitutes, the political success of carbon pricing will be measured by how well policy design enables consumers to switch.
37
This chapter presents a microeconomic, behavioral perspective on bounded rationality and beliefs. It begins with an account of how research on belief biases, in particular via probabilistic belief elicitation, has become mainstream in economics only relatively recently and late, even in behavioral economics (aka “psychology and economics”). The chapter then offers a review of the decision-theoretic foundations of modeling and eliciting (subjective) beliefs as probabilities, as well as selected—both classic and recent—evidence on humans’ bounded rationality from related research in psychology and economics. In doing so, it connects the historical debates within decision theory, on the one hand, and within psychology, on the other, concerning the normative status of expected utility and Bayesianism, as well as its methodological implications. A conclusion draws lessons for the practice of belief elicitation and future research.
36
While psychotherapy has been shown to be effective in treating depression, take-up remains low. In a sample of 1,843 depressed individuals, we document that effectiveness concerns are top-of-mind when respondents consider the value of therapy. We then show that the average respondent underestimates the effectiveness of therapy and that an information treatment correcting this misperception increases participants’ incentivized willingness to pay for therapy. Information affects therapy demand by changing beliefs rather than by shifting attention. Our results suggest that information interventions that target the perceived effectiveness of therapy are a potent tool in combating the ongoing mental health crisis.
35
This paper studies a key element of discrimination, namely when stereotypes translate into discriminatory actions. Using a hiring experiment, we rule out taste-based discrimination by design and test for the presence of two types of belief-based gender discrimination. We document evidence of explicit discriminators—individuals who are willing to discriminate even when their hiring choices are highly revealing of their gender-biased beliefs. Crucially, we also identify implicit discriminators—individuals who do not discriminate against women when taking a discriminatory action is highly revealing of their biased beliefs, but do discriminate against women when their biased motive is obscured. Our analysis highlights the central role played by features of the choice environment in determining whether and how discrimination will manifest. We conclude by discussing the implications for policy design.
35
This paper studies a key element of discrimination, namely when stereotypes translate into discriminatory actions. Using a hiring experiment, we rule out taste-based discrimination by design and test for the presence of two types of belief-based gender discrimination. We document evidence of explicit discriminators—individuals who are willing to discriminate even when their hiring choices are highly revealing of their gender-biased beliefs. Crucially, we also identify implicit discriminators—individuals who do not discriminate against women when taking a discriminatory action is highly revealing of their biased beliefs, but do discriminate against women when their biased motive is obscured. Our analysis highlights the central role played by features of the choice environment in determining whether and how discrimination will manifest. We conclude by discussing the implications for policy design.
34
How do households perceive the forecasting performance of the central bank? Using two novel experiments embedded in the Bundesbank's Survey on Consumer Expectations (total $N=9500$), this article shows that the majority of German households underestimate the ECB's inflation forecasting accuracy. In particular, they believe that the ECB is overly optimistic. Communication that challenges these perceptions improves the anchoring of inflation expectations, reduces inflation uncertainty and discourages consumption of durable goods. Treated households also report higher trust in the ECB, perceive the ECB's inflation target as more credible, the ECB's communication as more honest, and the ECB's policy as more beneficial to them. Finally, the causal effect of central bank trust on inflation expectations is quantified using instruments to deal with endogeneity.
33
The Political Economy of Stranded Assets: Climate Policies, Investments and the Role of Elections
(2024)
We study the interaction of climate policies and investments into fossil and renewable energy generation capacity if policies are set by democratically elected governments and can lead to stranded assets. We develop an overlapping generations model, where elections determine carbon taxation and green investment subsidies, and individuals make investments into fossil and renewable capacity. We find that some fossil investments become stranded assets, if the party offering the higher carbon tax is unexpectedly elected. In contrast, if the individuals have perfect foresight, there are no stranded assets, climate damages are fixed and carbon taxation only serves redistributive purposes. Then, there is either no or prohibitive carbon taxation and energy generation completely relies on renewables in the latter case. Green investment subsidies can be used by governments to bind the hands of their successor. If the party representing the young generation is in power, it can use a high subsidy to reduce or even avoid potentially stranded assets in the next period. With endogenous reelection probability, we show that this party can also use investment subsidies strategically to influence the elections. The party that represents the old generation abstains from both types of climate policies to avoid a redistribution of income towards the young generation.
32
This paper studies how the swiftness and delay of punishment affect behavior. Using rich administrative data from automated speed cameras, we exploit two (quasi-)experimental sources of variation in the time between a speeding offense and the sending of a ticket. At the launch of the speed camera system, administrative challenges caused delays of up to three months. Later, we implemented a protocol that randomly assigned tickets to swift or delayed processing. We identify two different results. First, delays have a negative effect on payment compliance: the rate of timely paid fines diminishes by 7 to 9% when a ticket is sent with a delay of four or more weeks. We also find some evidence that very swift tickets – sent on the first or second day following the offense – increase timely payments. These results align with the predictions of expert scholars that we elicited in a survey. Second, speeding tickets cause a strong, immediate, and persistent decline in speeding. However, we do not detect any robust, differential effects of swiftness or delay on speeding. This challenges widely held beliefs, as reflected in our survey. Yet, we document large mechanical benefits of swift punishment and provide a theoretical framework of learning and updating that explains our findings.
31
We introduce political salience into a canonical model of attacks against political regimes, as scaling agents’ expressive payoffs from taking sides. Equilibrium balances heterogeneous expressive concerns with material bandwagoning incentives, and we show that comparative statics in salience characterize stability. As main insight, when regime sanctions are weak, increases from low to middling salience can pose the greatest threat to regimes – ever smaller shocks suffice to drastically escalate attacks. Our results speak to the charged debates about democracy, by identifying conditions under which heightened interest in political decision-making can pose a threat to democracy in and of itself.
30
We cast mechanism design with evidence in the framework of Myerson (1982), whereby his generalized revelation principle directly applies and yields standard notions of incentive compatible direct mechanisms. Their specific nature depends on whether the agent's (verifiable) presentation of evidence is contractually controllable, however. For deterministic implementation, we show that, in general, such control has value, and we offer two independent conditions under which this value vanishes, one on evidence (WET) and another on preferences (TIWO). Allowing for fully stochastic mechanisms, we also show how randomization generally has value and clarify to what extent this value vanishes under the common assumption of evidentiary normality (NOR). While, in general, the value of control extends to stochastic implementation, neither control nor randomization have any value if NOR holds together with WET or TIWO.
29
Cities increasingly address climate change, e.g. by pledging city-level emission reduction targets. This is puzzling for the provision of a global public good: what are city governments’ reasons for doing so, and do pledges actually translate into emission reductions? Empirical studies have found a set of common factors which relate to these questions, but also mixed evidence. What is still pending is a theoretical framework to explain those findings and gaps. This paper thus develops an abstract public choice model. The model features economies of scale and distinguishes urban reduction targets from actual emission reductions. It is able to support some stylized facts from the empirical literature and to resolve some mixed evidence as special cases. Two city types result. One type does not achieve its target, but reduces more emissions than a free-riding city. These relations reverse for the other type. The type determines whether cities with lower abatement costs more likely set targets. A third type does not exist. For both types, cities which set targets and have higher private costs of carbon are more ambitious. If marginal net benefits of mitigation rise with city size, then larger cities gain more from setting climate targets. Findings are contrasted with an alternative model where targets reduce abatement costs. Some effects remain qualitatively the same, while others clearly differ. The model can thus guide further empirical and theoretical work.
28
Individuals vary considerably in how much they earn during their lifetimes. This study examines the role of the tax-and-transfer system in mitigating such inequalities, which could otherwise lead to disparities in living standards. Utilizing a life-cycle model, we determine that taxes and transfers offset 45% of lifetime earnings inequality attributed to differences in productive abilities and education. Additionally, the system insures against 48% of lifetime earnings risk. Implementing a lifetime tax reform linking annual taxes to previous employment could improve the system’s insurance capabilities, albeit at the cost of a lower employment rate.
27
We analyze how machine learning predictions may improve antibiotic prescribing in the context of the global health policy challenge of increasing antibiotic resistance. Estimating a binary antibiotic treatment choice model, we find variation in the skill to diagnose bacterial urinary tract infections and in how general practitioners trade off the expected cost of resistance against antibiotic curative benefits. In counterfactual analyses we find that providing machine learning predictions of bacterial infections to physicians increases prescribing efficiency. However, to achieve the policy objective of reducing antibiotic prescribing, physicians must also be incentivized. Our results highlight the potential misalignment of social and heterogeneous individual objectives in utilizing machine learning for prediction policy problems.