Discussion Papers

Discussion Paper No. 229
January 22, 2020

The Transmission of Sectoral Shocks Across the Innovation Network


Author:

Fons-Rosen, Christian (University of California, Merced)
Pu, Zhaoxin (MPI-IC Munich)

Abstract:

Recent innovation literature has documented the benefits of cross-pollination of ideas across a wide set of industries and technology fields in an economy. Industrial and trade policies, by contrast, tend to favor economic specialization through the promotion of selected sectors. In this paper we use a firm-level panel of 13 European countries to assess whether an industry-specific policy propagates across the network of innovating firms through technological linkages. Following the competition shock to the European textile sector, triggered by the 2001 removal of import quotas on Chinese textiles, we find that patenting and knowledge sourcing behavior of non-textile firms are negatively affected. At the aggregate regional level, this indirect effect on non-textile firms can be around three to five times larger than the direct effect.

Keywords:

technological linkages; spillovers; patents; knowledge sourcing; industrial policy

JEL-Classification:

D57; L25; L60; O33; O38

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Discussion Paper No. 228
January 20, 2020

Behavior-Based Price Discrimination under Endogenous Privacy

Author:

Heiny, Friederike (HU Berlin)
Li, Tianchi (HU Berlin)
Tolksdorf, Michel (TU Berlin)

Abstract:

This paper analyzes consumers’ privacy choice concerning their private data and firms’ ensuing pricing strategy. The General Data Protection Regulation passed by the European Union in May 2018 allows consumers to decide whether to reveal private information in the form of cookies to an online seller. By incorporating this endogenous decision into a duopoly model with behavior-based pricing, we find two contrasting equilibria. Under revelation to both firms, consumers disclose their information. Under revelation to only one firm, consumers hide their information. Based on the model, we design a laboratory experiment. We find that there is a large share of consumers who reveal their private data. Particularly, less privacy-concerned subjects and subjects in the setting where only one firm receives information are more likely to reveal information.

Keywords:

behavior-based pricing; privacy; laboratory experiment

JEL-Classification:

C91; D11; D43; L13

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Discussion Paper No. 227
December 19, 2019

The Effect of Social Comparison on Debt Taking: Experimental Evidence

Author:

Grohmann, Antonia (DIW Berlin)
Koch, Melanie (HU Berlin)

Abstract:

A number of studies show that there is a link between social comparison and high levels of household debt. However, the exact mechanisms behind this link are not yet well understood. In this paper, we perform a lab experiment designed to study the eff ects of social image concerns and peer information on consumption choices that can be financed through debt taking. We find that having to announce one's consumption decision publicly leads to leaving money on the table, which is the opposite of what we expected. Being informed about other participants' choices leads to conformity in choices between participants.

Keywords:

household finance; lab experiment; social comparison; peer effects

JEL-Classification:

D14; D12; D91

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Discussion Paper No. 226
December 18, 2019

From Friends to Foes: National Identity and Collaboration in Diverse Teams

Author:

Laurentsyeva, Nadzeya (LMU Munich)

Abstract:

This project studies collaboration in highly skilled, nationally diverse teams. An unexpected international political conflict makes national diversity more salient among existing and potential team members. I exploit this natural experiment to quantify the role of social, identity-driven, costs for performance and formation of diverse teams. Using microdata from GitHub, the world’s largest hosting platform for software projects, I estimate the causal impacts of a political conflict that burst out between Russia and Ukraine in 2014. I find that the conflict strongly reduced online cooperation between Russian and Ukrainian programmers. The conflict lowered the likelihood that Ukrainian and Russian programmers work in the same team and led to the performance decline of existing joint projects. I provide evidence that the observed effects were not driven by economic considerations. Rather, the conflict activated national identities and shifted programmers’ taste for teammates and projects. My results highlight the role of identity-driven concerns that can distort existing and prevent future collaborations, otherwise profitable from an economic perspective.

Keywords:

teams; diversity; conflict; national identity; open source

JEL-Classification:

D22; D74; F23; F51; J71

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Discussion Paper No. 225
December 18, 2019

Optimal Need-Based Financial Aid

Author:

Colas, Mark (University of Oregon)
Findeisen, Sebastian (University of Konstanz)
Sachs, Dominik (LMU Munich)

Abstract:

We study the optimal design of student financial aid as a function of parental income. We derive optimal financial aid formulas in a general model. For a simple model version, we derive mild conditions on primitives under which poorer students receive more aid even without distributional concerns. We quantitatively extend this result to an empirical model of selection into college for the United States that comprises multidimensional heterogeneity, endogenous parental transfers, dropout, labor supply in college, and uncertain returns. Optimal financial aid is strongly declining in parental income even without distributional concerns. Equity and efficiency go hand in hand.

Keywords:

financial aid; college subsidies; optimal taxation; inequality

JEL-Classification:

H21; H23; I22; I24; I28

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Discussion Paper No. 224
December 18, 2019

Refugee-Specific Government Aid, Institutional Embeddedness and Child Refugees’ Economic Success Later in Life: Evidence from Post-WWII GDR Refugees

Author:

Black, Sandra E. (Columbia University)
Liepmann, Hannah (International Labor Organization)
Remigereau, Camille (HU Berlin)
Spitz-Oener, Alexandra (HU Berlin)

Abstract:

We exploit a unique historical setting to investigate how refugee-specific government aid affects the medium-term outcomes of refugees who migrate as children and young adults. German Democratic Republic (GDR) refugees who escaped to West Germany between 1946 and 1961 who were acknowledged to be “political refugees” were eligible for refugee-targeted aid, but only after 1953. We combine several approaches to address identification issues resulting from the fact that refugees eligible for aid are both self-selected and screened by local authorities. We find positive effects of aid-eligibility on educational attainment, job quality and income among the refugees who migrated as young adults (aged 15-24). We do not find similar effects of aid-eligibility for refugees who migrated as children (aged 1-14). The overall results suggest that factors coming from the refugee experience per se do not impact negatively on the later-in-life socio-economic success of refugees. The often-found negative effects in various measures of integration in other refugee episodes are therefore likely driven by confounding factors that our unique historical setting allows mitigates.

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Discussion Paper No. 223
December 18, 2019

The Role of Unemployment and Job Change when Estimating the Returns to Migration

Author:

Emmler, Julian (HU Berlin)
Fitzenberger, Bernd (HU Berlin)

Abstract:

Estimating the returns to migration from East to West Germany, this paper focuses on pre-migration employment dynamics, earnings uncertainty, and job change in the source region. Migrants are found to be negatively selected with respect to labor market outcomes, with a large drop in earnings and employment during the last few months before migration. We find sizeable positive earnings and employment gains of migration both in comparison to staying or job change. The size of the gains varies considerably with pre-migration earnings and with the counterfactual considered. Future migrants have worse expectations for their labor market prospects in the East and migrants show a greater openness to mobility.

Keywords:

migration; returns; selection; unemployment; moving costs

JEL-Classification:

J61; R23; O15; P25

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Discussion Paper No. 222
December 18, 2019

Fair Procedures with Naive Agents: Who Wants the Boston Mechanism?

Author:

König, Tobias (Linnaeus University)
Kübler, Dorothea (TU Berlin and WZB Berlin)
Mechtenberg, Lydia (University Hamburg)
Schmacker, Renke (DIW Berlin)

Abstract:

We study preferences over procedures in the presence of naive agents. We employ a school choice setting following Pathak and Sönmez (2008) who show that sophisticated agents are better off under the Boston mechanism than under a strategy-proof mechanism if some agents are sincere. We use lab experiments to study the preferences of subjects for the Boston mechanism or the assortative matching. We compare the preferences of stakeholders who know their own role with agents behind the veil of ignorance and spectators. As predicted, stakeholders vote for the Boston mechanism if it maximizes their payoffs and vote for the assortative matching otherwise. This is in line with the model of Pathak and Sönmez (2008). Subjects behind the veil of ignorance mainly choose the Boston mechanism when the priority at schools is determined randomly. In a second experiment with priorities based on performance in a real-effort task, spectators whose payoff does not depend on the choice of the mechanism are split in their vote for the Boston mechanism and the assortative matching. According to the spectators’ statements in the post-experimental questionnaire, the main reason for preferring the Boston mechanism is that playing the game well deserves a higher payoff. These findings provide a novel explanation for the widespread use of the Boston mechanism.

Keywords:

matching markets; school choice; voting; Boston mechanism; naive agents; stable assortative matching

JEL-Classification:

D47; C92; I24; D72

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Discussion Paper No. 221
December 18, 2019

Inattention and Switching Costs as Sources of Inertia in Medicare Part D

Author:

Heiss, Florian (University of Düsseldorf)
McFadden, Daniel (University of California, Berkeley)
Winter, Joachim (LMU Munich)
Wuppermann, Amelie (University of Halle-Wittenberg)
Zhou, Bo (University of Southern California, Los Angeles)

Abstract:

Consumers’ health plan choices are highly persistent even though optimal plans change over time. This paper separates two sources of inertia, inattention to plan choice and switching costs. We develop a panel data model with separate attention and choice stages, linked by heterogeneity in acuity, i.e., the ability and willingness to make diligent choices. Using data from Medicare Part D, we find that inattention is an important source of inertia but switching costs also play a role, particularly for low-acuity individuals. Separating the two stages and allowing for heterogeneity is crucial for counterfactual simulations of interventions that reduce inertia.

Keywords:

medicare; prescription drugs; health insurance demand; dynamic discrete choice

JEL-Classification:

I13; D12; J14; C25

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Discussion Paper No. 220
December 16, 2019

Bargaining Failure and Freedom to Operate: Re-evaluating the Effect of Patents on Cumulative Innovation


Author:

Gaessler, Fabian (MPI-IC Munich)
Harhoff, Dietmar (MPI-IC Munich)
Sorg, Stefan (MPI-IC Munich)

Abstract:

We investigate the causal effect of patent rights on cumulative innovation, using large-scale data that approximate the patent universe in its technological and economic variety. We introduce a novel instrumental variable for patent invalidation that exploits personnel scarcity in post-grant opposition at the European Patent Office. We find that patent invalidation leads to a highly significant and sizeable increase of follow-on inventions. The effect is driven by cases where the removal of the individual exclusion right creates substantial freedom to operate for third parties. Importantly, our results suggest that bargaining failure between original and follow-on innovators is not limited to environments commonly associated with high transaction costs.

Keywords:

cumulative innovation; patents; bargaining failure; freedom to operate; opposition

JEL-Classification:

K41; L24; O31; O32; O33; O34

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