Discussion Papers

Discussion Paper No. 199
November 13, 2019

Weber Revisited: The Protestant Ethic and the Spirit of Nationalism

Author:

Kersting, Felix (HU Berlin)
Wohnsiedler, Iris (HU Berlin)
Wolf, Nikolaus (HU Berlin)

Abstract:

We revisit Max Weber's hypothesis on the role of Protestantism for economic development. We show that nationalism is crucial to both, the interpretation of Weber's Protestant Ethic and empirical tests thereof. For late 19th century Prussia we reject Weber’s suggestion that Protestantism mattered due to an “ascetic compulsion to save”. Moreover, we find that income levels, savings, and literacy rates differed between Germans and Poles, not between Protestants and Catholics using pooled OLS and IV regressions as well as IV mediation analysis. We suggest that this result is due to anti-Polish discrimination.

Keywords:

Max Weber; protestantism; nationalism

JEL-Classification:

N13; N33; O16; Z12

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Discussion Paper No. 198
November 8, 2019

Reciprocity in Dynamic Employment Relationships

Author:

Fahn, Matthias (JKU Linz and CESifo)

Abstract:

This paper explores the optimal provision of dynamic incentives for employees with reciprocal preferences. Building on the presumption that a relational contract can establish a norm of reciprocity, I show that generous upfront wages that activate an employee’s reciprocal preferences are more important when he is close to retirement. In earlier stages, “direct” performance-pay promising a bonus in exchange for effort is used more extensively. Then, a longer remaining time horizon increases the employer’s commitment which is generally determined by her future profits. Moreover, since future profits are affected by the employee’s reciprocal preferences, the norm of reciprocity already shapes the incentive system at the beginning of his career. I also show that more competition might magnify the use of reciprocity-based incentives, and that a formal commitment to paying nondiscretionary wages in the future can boost the employer’s credibibility.

Keywords:

reciprocity; relational contracts; dynamic incentives

JEL-Classification:

C73; D21; D86; D90; D91

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Discussion Paper No. 197
November 7, 2019

Decision Making under Uncertainty: An Experimental Study in Market Settings

Author:

Echenique, Federico (California Institute of Technology)
Imai, Taisuke (LMU Munich)
Saito, Kota (California Institute of Technology)

Abstract:

We design and implement a novel experimental test of subjective expected utility theory and its generalizations. Our experiments are implemented in the laboratory with a student population, and pushed out through a large-scale panel to a general sample of the US population. We find that a majority of subjects’ choices are consistent with maximization of some utility function, but not with subjective utility theory. The theory is tested by gauging how subjects respond to price changes. A majority of subjects respond to price changes in the direction predicted by the theory, but not to a degree that makes them fully consistent with subjective expected utility. Surprisingly, maxmin expected utility adds no explanatory power to subjective expected utility. Our findings remain the same regardless of whether we look at laboratory data or the panel survey, even though the two subject populations are very different. The degree of violations of subjective expected utility theory is not affected by age nor cognitive ability, but it is correlated with financial literacy.

Keywords:

uncertainty; subjective expected utility; maxmin expected utility; revealed preference

JEL-Classification:

D01; D81; D90

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Discussion Paper No. 196
November 4, 2019

Do Performance Ranks Increase Productivity? Evidence from a Field Experiment

Author:

Ashraf, Anik (LMU Munich)

Abstract:

Can a firm increase its workers' eff ort by introducing competition through performance-based ranking? On one hand such ranking can increase eff ort because of individuals' desire for status from high ranks, but on the other, it can demotivate them or make them wary of outperforming peers. This paper disentangles the e ffects of demotivation, social conformity, and status associated with ranking through a randomized experiment at a Bangladeshi sweater factory. Treated workers receive monthly information on their relative performance either in private or in public. Both a simple theoretical framework and empirical evidence from the field show that workers' intrinsic desire to be good at work induces privately ranked workers to increase eff ort upon receiving positive feedback, but they get demotivated and decrease e ffort upon receiving negative feedback. Public ranking lead to lower net eff ort relative to private ranking because of a strong preference not to outperform friends. The negative e ffects from demotivation and social conformity may explain why the existing literature finds mixed evidence of impact of ranking workers.

Keywords:

peer effects; productivity; rank incentives

JEL-Classification:

D23; J53; O15

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Discussion Paper No. 195
October 23, 2019

Decision-Making Traits and States as Determinants of Risky Choices

Author:

Gärtner, Manja (DIW Berlin)
Tinghög, Gustav (Linköping University)
Västfjäll, Daniel (Linköping University)

Abstract:

We test the effects of dual processing differences in both individual traits and decision states on risk taking. In an experiment with a large representative sample (N = 1,832), we vary whether risky choices are induced to be based on either emotion or reason, while simultaneously measuring individual decision-making traits. Our results show that decision-making traits are strong and robust determinants of risk taking: a more intuitive trait is associated with more risk taking, while a more deliberative trait is associated with less risk taking. Experimentally induced states, on the other hand, have no effect on risk taking. A test of state-trait interactions shows that the association between an intuitive trait and risk taking becomes weaker in the emotion-inducing state and in the loss domain. In contrast, the association between a deliberative trait and risk taking is stable across states. These findings highlight the importance of considering state-trait interactions when using dual processing theories to predict individual differences in risk taking.

Keywords:

risk preferences; intuition; emotion; reason; experiment

JEL-Classification:

C91; D81; D91

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Discussion Paper No. 194
October 23, 2019

Top of the Class: The Importance of Ordinal Rank

Author:

Murphy, Richard, (UT Austin)
Weinhardt, Felix (DIW Berlin)

Abstract:

This paper establishes a new fact about educational production: ordinal academic rank during primary school has lasting impacts on secondary school achievement that are independent of underlying ability. Using data on the universe of English school students, we exploit naturally occurring differences in achievement distributions across primary school classes to estimate the impact of class rank. We find large effects on test scores, confidence, and subject choice during secondary school, even though these students have a new set of peers and teachers who are unaware of the students’ prior ranking in primary school. The effects are especially pronounced for boys, contributing to an observed gender gap in the number of STEM courses chosen at the end of secondary school. Using a basic model of student effort allocation across subjects, we distinguish between learning and non-cognitive skills mechanisms, finding support for the latter.

Keywords:

rank; non-cognitive skills; peer effects; productivity

JEL-Classification:

I21; J24

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Discussion Paper No. 193
October 23, 2019

The Existence and Persistence of the Pay-per-use Bias in Car Sharing Services

Author:

Dowling, Katharina (LMU Munich)
Manchanda, Puneet (University of Michigan)
Spann, Martin (LMU Munich)

Abstract:

A key benefit of using car sharing services (relative to car ownership) is that they are more cost effective. Car sharing firms offer a menu of pricing plans to make this happen. The two most common plans are flat-rate and pay-per-use pricing. However, little is known about how consumers choose among these pricing plans. In this study, we analyze consumers’ choices between pay-per-use and flat-rate pricing using data from a car sharing provider in a large European city. We show that over 40% of customers make nonoptimal pricing plan choices (i.e., they do not choose the cost minimizing plan). In contrast to previous research, we find a prevalent and time-persistent pay-per-use bias; i.e., we find little evidence that consumers “learn”. We propose three potential explanations for the existence and persistence of this bias. First, we suggest that customers underestimate their usage. Second, we propose that customers have a preference for flexibility, leading them to pay more. Finally, we show that the physical context, such as weather, increases the likelihood of a pay-per-use bias. We suggest that the pay-per-use bias may be the prevalent tariff choice bias in the Sharing Economy.

Keywords:

sharing economy; car sharing; pricing; pay-per-use bias; flat-rate bias

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Discussion Paper No. 192
October 21, 2019

Procrastination and Learning about Self-Control

Author:

Christensen, Else (RBB Economics)
Murooka, Takeshi (Osaka University)

Abstract:

We study a model of task completion with the opportunity to learn about own self-control problems over time. While the agent is initially uncertain about her future self-control, in each period she can choose to learn about it by paying a non-negative learning cost and spending one period. If the agent has time-consistent preferences, she always chooses to learn whenever the learning is beneficial. If the agent has time-inconsistent preferences, however, she may procrastinate such a learning opportunity. Further, if her time preferences exhibit inter-temporal conflicts between future selves (e.g., hyperbolic discounting), the procrastination of learning can occur even when the learning cost is zero. The procrastination also leads to a non-completion of the task. When the agent has multiple initially-uncertain attributes (e.g., own future self-control and own ability for the task), the agent’s endogenous learning decisions may be misdirected — she chooses to learn what she should not learn from her initial perspective, and she chooses not to learn what she should.

Keywords:

procrastination; self-control; naivete; hyperbolic discounting; misdirected learning

JEL-Classification:

C70; D83; D90; D91

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Discussion Paper No. 191
October 16, 2019

Deutschland: ein Land der Mieter? Die Rolle von Erwartungen über zukünftige Immobilienpreisentwicklungen

Author:

Gohl, Niklas (DIW Berlin and University of Potsdam)
Haan, Peter (DIW Berlin and FU Berlin)
Michelsen, Claus (DIW Berlin)
Weinhardt, Felix (DIW Berlin, HU Berlin, CEP, IZA and CESifo)

Abstract:

Mehr als die Hälfte aller Haushalte in Deutschland wohnen zur Miete – ein im internationalen Vergleich sehr hoher Wert. Bisherige Studien haben vor allen Dingen den regulatorischen Rahmen des Immobilienmarkts hervorgehoben, der Mietwohnungen in Deutschland systematisch begünstigt. Allerdings gibt es keine Studien, die diese Erklärungen empirisch eindeutig untermauern können: einige Arbeiten betonen die Bedeutung von fundamentalen Marktdaten wie die Einkommensentwicklung, demographische Faktoren oder den Zuzug in eine Region. Diese Studie greift einen Aspekt auf, der bislang nicht in der Literatur diskutiert wurde. Untersucht wird, ob und zu welchem Anteil die geringe Eigentümerquote in Deutschland durch pessimistische Erwartungen bezüglich zukünftiger Immobilienpreisentwicklungen erklärt werden kann – erwarten Mieter keine oder nur geringe Preissteigerungen, so sinkt die Attraktivität einer Investition in die eigenen vier Wände. Für die empirische Analyse werden Daten aus einer neuen, repräsentativen Befragung, erhoben im Rahmen des SOEP-IS, ausgewertet. Befragte ausländischer Herkunft sind optimistischer hinsichtlich der Immobilienpreisentwicklung. Sie erwarten langfristig einen signifikant höheren Preisanstieg. Dies legt nahe, dass die erheblich pessimistischeren Preiserwartungen der einheimischen Bevölkerung auch dazu führen, dass sie sich seltener als die Bevölkerung in anderen Ländern für selbstgenutztes Wohneigentum entscheiden.

Keywords:

Wohneigentumsquote; Preiserwartungen; Immobilieninvestition

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Discussion Paper No. 190
October 16, 2019

Complexity and Distributive Fairness Interact in Affecting Compliance Behavior

Author:

Bellemare, Charles (Université Laval)
Deversi, Marvin (LMU Munich)
Englmaier, Florian (LMU Munich)

Abstract:

Filing income tax returns or insurance claims often requires that individuals comply with complex rules to meet their obligations. We present evidence from a laboratory tax experiment suggesting that the effects of complexity on compliance are intrinsically linked to distributive fairness. We find that compliance remains largely una ffected by complexity when income taxes are distributed to a morally justi fied charity. Conversely, complexity signi ficantly amplifi es non-compliance when income taxes appear wasted as they are distributed to a morally dubious charity. Our data further suggest that this non-compliance pattern is facilitated through the ambiguity that evolves from mostly unstrategic fi ling mistakes.

Keywords:

complexity; compliance; distributive fairness; experiment

JEL-Classification:

C91; D01; D91; H26

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