Discussion Papers

Discussion Paper No. 105
June 27, 2018

Aggregate Information and Organizational Structures

Authors:

Celik, Gorkem (ESSEC Business School)
Shin, Dongsoo (Santa Clara University)
Strausz, Roland (Humboldt Universität zu Berlin)

Abstract:

We study an organization with a top management (principal) and multiple subunits (agents) with private information that determine the organization's aggregate efficiency. Under centralization, eliciting the agents' private information may induce the principal to manipulate aggregate information, which obstructs an effective use of information for the organization. Under delegation, the principal concedes more information rent, but is able to use the agents' information more effectively. The trade-off between the organizational structures depends on the likelihood that the agents are efficient. Centralization is optimal when such likelihood is low. Delegation, by contrast, is optimal when it is high.

Keywords:

agency; aggregate information; organization design

JEL-Classification:

D82;D86

Download:

Open PDF file

Discussion Paper No. 104
June 26, 2018

Growing Up in Ethnic Enclaves: Language Proficiency and Educational Attainment of Immigrant Children

Authors:

Danzer, Alexander M. (KU Eichstätt-Ingolstadt)
Feuerbaum, Carsten (KU Eichstätt-Ingolstadt)
Piopiunik, Marc (ifo Institute at the University of Munich)
Woessmann, Ludger (ifo and LMU Munich)

Abstract:

Does a high regional concentration of immigrants of the same ethnicity affect immigrant children's acquisition of host-country language skills and educational attainment? We exploit the exogenous placement of guest workers from five ethnicities across German regions during the 1960s and 1970s in a model with region and ethnicity fixed effects. Our results indicate that exposure to a higher own-ethnic concentration impairs immigrant children's host-country language proficiency and increases school dropout. A key mediating factor for this effect is parents' lower speaking proficiency in the host-country language, whereas inter-ethnic contacts with natives and economic conditions do not play a role.

Keywords:

immigrant children; ethnic concentration; language; education; guest workers

JEL-Classification:

J15; I20; R23; J61

Download:

Open PDF file

Discussion Paper No. 103
June 26, 2018

Approximate Expected Utility Rationalization

Authors:

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

Abstract:

We propose a new measure of deviations from expected utility, given data on economic choices under risk and uncertainty. In a revealed preference setup, and given a positive number e, we provide a characterization of the datasets whose deviation (in beliefs, utility, or perceived prices) is within e of expected utility theory. The number e can then be used as a distance to the theory. We apply our methodology to three recent large-scale experiments. Many subjects in those experiments are consistent with utility maximization, but not expected utility maximization. The correlation of our measure with demographics is also interesting, and provides new and intuitive findings on expected utility.

Keywords:

expected utility; revealed preference

JEL-Classification:

D01; D81

Download:

Open PDF file

Discussion Paper No. 102
June 25, 2018

Net Neutrality, Prioritization and the Impact of Content Delivery Networks

Authors:

Baake, Pio (DIW Berlin)
Sudaric, Slobodan (HU Berlin)

Abstract:

We analyze competition between Internet Service Providers (ISPs) where consumers demand heterogeneous content within two Quality-of-Service (QoS) regimes, Net Neutrality and Paid Prioritization, and show that paid prioritization increases the static efficiency compared to a neutral network. We also consider paid prioritization intermediated by Content Delivery Networks (CDNs). While the use of CDNs is welfare neutral, it results in higher consumer prices for internet access. Regarding incentives to invest in network capacity we show that discriminatory regimes lead to higher incentives than the neutral regime as long as capacity is scarce, while investment is highest in the presence of CDNs.

Keywords:

content delivery network; investment; net neutrality; prioritization

JEL-Classification:

L13;L51; L96

Download:

Open PDF file

Discussion Paper No. 101
June 18, 2018

Labor Market and Distributional Effects of an Increase in the Retirement Age

Authors:

Geyer, Johannes (DIW)
Haan, Peter (DIW)
Hammerschmid, Anna (DIW)
Peters, Michael (DIW)

Abstract:

We evaluate the labor market and distributional effects of an increase in the early retirement age (ERA) from 60 to 63 for women. We use a regression discontinuity design which exploits the immediate increase in the ERA between women born in 1951 and 1952. The analysis is based on the German micro census which includes about 370,000 households per year. We focus on heterogeneous labor market effects on the individual and on the household level and we study the distributional implications using net household income. In this respect we extend the previous literature which mainly studied employment effects on the individual level. Our results show sizable labor market effects which strongly differ by subgroups. We document larger employment effects for women who cannot rely on other income on the household level, e.g. women with a low income partner. The distributional analysis shows on average no significant effects on female or household income. This result holds as well for heterogeneous groups: Even for the most vulnerable groups, such as single women, women without higher education, or low partner income, we do not find significant reductions in income. One reason for this result is program substitution.

Keywords:

retirement age; pension reform; labor supply; early retirement; distributional effects; spillover effects; household

JEL-Classification:

J14; J18; J22; J26; H31

Download:

Open PDF file

Discussion Paper No. 100
June 7, 2018

Sweet Lemons: Mitigating Collusion in Organizations

Authors:

Pollrich, Martin (University of Bonn)
von Negenborn, Colin (HU Berlin)

Abstract:

This paper shows that the possibility of collusion between an agent and a supervisor imposes no restrictions on the set of implementable social choice functions (SCF) and associated payoff vectors. Any SCF and any payoff profile that are implementable if the supervisor′s information was public is also implementable when this information is private and collusion is possible. To implement a given SCF we propose a one-sided mechanism that endogenously creates private information for the supervisor vis-à-vis the agent, and conditions both players′ payoffs on this endogenous information. We show that in such a mechanism all collusive side-bargaining fails, similar to the trade failure in Akerlof′s (1970) car market and in models of bilateral trade.

Keywords:

mechanism design; collusion; asymmetric information; correlation

JEL-Classification:

D82; D83; L51

Download:

Open PDF file

Discussion Paper No. 99
May 30, 2018

Multinational Banks in Regulated Markets: Is Financial Integration Desirable?

Authors:

Haufler, Andreas (LMU Munich)
Wooton, Ian (University of Strathclyde)

Abstract:

We set up a two-country, regional model of trade in financial services. Competitive firms in each country manufacture non-traded consumer goods in an uncertain productive environment, borrowing funds from a bank in either the home or the foreign market. Duopolistic banks can choose their levels of monitoring of firms and thus the levels of risk-taking, where the risk of bank failure is partly borne by taxpayers in the banks' home countries. Moreover, each bank chooses the allocation of its lending between domestic and foreign firms, while the bank's overall loan volume is fixed by a capital requirement set optimally in its home country. In this setting we consider two types of financial integration. A reduction in the compliance costs of cross-border banking reduces aggregate output and increases risk-taking, thus harming consumers and taxpayers in both countries. In contrast, a reduction in the costs of screening foreign firms is likely to be eneficial for banks, consumers, and taxpayers alike.

Keywords:

multinational banks; foreign direct investment; capital regulation; financial integration

JEL-Classification:

F36; G18; H81

Download:

Open PDF file

Discussion Paper No. 98
May 29, 2018

Persuasion Against Self-Control Problems

Author:

von Wangenheim, Jonas (Humboldt University Berlin)

Abstract:

I derive a social planner's optimal information design in an environment with quasi-hyperbolic discounting consumers without commitment. Consumption induces instantaneous utility, but unknown delayed cost. Consumers may or may not acquire additional costless information on the cost parameter. The planner's optimal signal can be interpreted as an incentive compatible consumption recommendation whenever the cost parameter is below some cut-off. Welfare strictly exceeds the one under full information. I characterize distributional conditions under which welfare attains first best.

Keywords:

bayesian persuasion; present bias; hyperbolic discounting; rational inattention

JEL-Classification:

D01; D18; D62; D82

Download:

Open PDF file

Discussion Paper No. 97
May 16, 2018

How Do Sellers Benefit From Buy-It-Now Prices in Ebay Auctions? — an Experimental Investigation

Authors:

Grebe, Tim ()
Ivanova-Stenzel, Radosveta (TU Berlin)
Kröger, Sabine (Laval University)

Abstract:

In Buy-It-Now (BIN, hereafter) auctions, sellers can make a "take-it-or-leave-it" price offer (BIN price) prior to an auction. We analyse experimentally how eBay sellers set BIN prices and whether they benefit from offering them. Using the real eBay environment in the laboratory, we find that the eBay auction format supports deviations from truthful bidding leading to auction prices substantially below those expected in second-price auctions. Our results reveal that the observed price deviations are not an artefact due to the existence of the BIN price, rather a consequence of the specific features of the eBay-auction format - a mixture between sealed-bid and open second-price auction with a fixed end-time. Moreover, we find that information available on eBay can be used as indicator for the price deviation and that sellers respond strategically to this information. Seller risk aversion does not affect BIN prices and more experienced sellers ask for higher BIN prices. The introduction of BIN prices to eBay auctions has an enhancing effect: the eBay BIN auction is more efficient and generates significantly higher revenue compared to a standard eBay auction without a BIN price.

Keywords:

experience; online markets; ebay; bin price; private value; experiment

JEL-Classification:

C72; C91; D44; D82; L01

Download:

Open PDF file

Discussion Paper No. 96
May 16, 2018

God Does Not Play Dice, but Do We?
On the Determinism of Choice in Long-Run Interactions

Authors:
Backhaus, Teresa (WZB)
Breitmoser, Yves (HU Berlin)
Abstract:

When do we cooperate and why? This question concerns one of the most persistent divides between "theory and practice", between predictions from game theory and results from experimental studies. For about 15 years, theoretical analyses predict completely-mixed "behavior" strategies, i.e. strategic randomization rendering "when" and "why" questions largely moot, while experimental analyses seem to consistently identify pure strategies, suggesting long-run interactions are deterministic. Reanalyzing 145,000 decisions from infinitely repeated prisoner's dilemma experiments, and using data-mining techniques giving pure strategies the best possible chance, we conclude that subjects play semi-grim behavior strategies similar to those predicted by theory.

Keywords:
repeated game; behavior; tit-for-tat mixed strategy; memory; belief-free equilibrium; laboratory experiment
JEL-Classification:
C72; C73; C92; D12
Download:
Open PDF file