Discussion Paper No. 346
November 30, 2022
When Transaction-Level Wage Transparency Can Increase Consumer Preference
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Firms are usually reluctant to disclose information about the production costs of their goods and services; however, some firms have recently started to disclose cost information to consumers. This research examines the consequences of disclosing transaction-level wage information on consumer preferences. Six experiments, both in field and lab settings across multiple service domains, document that disclosing a service worker’s compensation can increase consumer preference for that firm’s service if the compensation is sufficiently high (i.e., perceived as fair by consumers). This greater preference for services provided in a fair-wage setting is driven by consumers’ feelings of anticipated guilt and higher expectations concerning quality. Available social norms regarding fair compensation and the nature of the service worker (human vs. non- human) are both identified as important boundary conditions of the proposed process. This research offers a first step toward understanding the psychological and behavioral consequences of disclosing transaction-level wage information to consumers, thereby enabling managers to better identify when they should disclose wage information as part of their marketing strategy. This research also informs policy makers on how to encourage social preferences and consumer choices in order to promote fair outcomes for consumers, firms, and workers.
Keywords:
transaction-level wage transparency; social preferences; fairness; pricing; wage inequality;
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Discussion Paper No. 345
Redistribution and Unemployment Insurance
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This paper analyzes the interactions between redistribution and unemployment insurance policies and their implications for the optimal design of tax-benefit systems. In a setting where individuals with different earnings abilities are exposed to unemployment risk on the labor market, I characterize the optimal income tax schedule and the optimal unemployment benefit schedule in terms of empirically estimable sufficient statistics. I provide a Pareto-efficiency condition for tax-benefit systems that implies a tight link between optimal redistribution and optimal unemployment insurance: the steeper the profile of income taxes is, the flatter the profile of unemployment benefits should be, and vice versa. Optimal replacement rates are therefore monotonically decreasing with earnings, from 1 at the bottom of the earnings distribution to 0 at the top, and redistribution through unemployment benefits is efficient. Empirical applications show that these interactions between redistribution and unemployment insurance have important quantitative implications.
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Discussion Paper No. 344
Income Misperception and Populism
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We propose that false beliefs about the own current economic status are an important factor for explaining populist attitudes. Along with the subjects' receptiveness to right-wing populism, we elicit their perceived relative income positions in a representative survey of German households. We find that people with pessimistic beliefs about their income position are more attuned to populist statements. Key to understanding the misperception-populism relationship are strong gender differences in the mechanism: Misperception triggers income dissatisfaction for both men and women, but the former are much more likely to channel their discontent into affection for populist ideas.
Keywords:
perception; income; populism;
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Discussion Paper No. 343
The Impact of Uncertainty on Customer Satisfaction
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Customer satisfaction is an important metric to predict customer behavior and as a result firms' profitability. Expectations of a product's performance serve as a reference point against which customers evaluate their satisfaction with the products' actual performance. However, what is the effect of uncertainty in expectations? This paper develops a novel theoretical model of satisfaction, in which expectations reflect distributions of individual beliefs about performance outcomes. Based on this model, uncertainty shifts subjective reference points upward. That is, uncertainty increases the performance level at which customers switch from being dissatisfied to being satisfied. Furthermore, uncertainty has an attenuating effect on both positive and negative deviations of actual performance from subjective reference points. Put differently, a bad performance feels less bad and a good performance feels less good when it is expected, compared with unexpected. The authors find support for the model's predictions in an experimental study on product delivery as well as a field study based on online reviews. In addition, the authors develop a model-based tool that predicts the effect of uncertainty on customer satisfaction across different customizable scenarios. The paper's results carry implications for firms' communication, customer valuation and recovery strategies.
Keywords:
customer satisfaction; uncertainty; probabilistic beliefs; prospect theory;
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Discussion Paper No. 342
The Effect of Preferential Admissions on the College Participation of Disadvantaged Students: The Role of Pre-College Choices
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Exploiting the randomized expansion of preferential college admissions in Chile, we show they increased admission and enrollment of disadvantaged students by 32%. But the intended beneficiaries were nearly three times as many, and of higher average ability, than those induced to be admitted. The evidence points to students making pre-college choices that caused this divergence. Using linked survey-administrative data, we present evidence consistent with students being averse to preferential enrollment, misperceiving their abilities, and having social preferences towards their friends (although social preferences did not mediate the admission impacts). Simulations from an estimated structural model suggest that aversion to the preferential channel more than halved the enrollment impacts, by inducing some to forgo preferential admission eligibility, and that students' misperceptions worsened the ability-composition of college entrants, by distorting pre-college investments into admission qualifications. The results demonstrate the importance of understanding high school students' preferences and beliefs when designing preferential admissions.
Keywords:
preferential college admissions; experimental policy evaluation; subjective beliefs; dynamic choice model;
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Discussion Paper No. 341
The Breakup of the Bell System and its Impact on US Innovation
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We analyze the effects of the 1984 breakup of the Bell System on the rate, diversity, and direction of US innovation. In the antitrust case leading to the breakup, AT&T, the holding company of the Bell System, was accused of using exclusionary practices against competitors. The breakup was intended to end these practices. After the breakup, the scale and diversity of telecommunications innovation increased. Total patenting by US inventors related to telecommunications increased by 19%, driven by companies unrelated to the Bell System. Patenting by Bell's successor companies decreased, but not the number of top inventions.
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antitrust; innovation; diversity; exclusionary practices;
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Discussion Paper No. 340
Filling the Gap: The Consequences of Collaborator Loss in Corporate R&D
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We examine how collaborator loss affects knowledge workers in corporate R&D. We argue that such a loss affects the remaining collaborators not only by reducing their team-specific capital (as argued in the prior literature) but also by increasing their bargaining power over the employer, who is in need of filling the gap left by the lost collaborator to ensure the continuation of R&D projects. This shift in bargaining power may, in turn, lead to benefits, such as additional resources or more attractive working conditions. These benefits can partially compensate for the negative effect of reduced team-specific capital on productivity and influence the career trajectories of the remaining collaborators. We empirically investigate the consequences of collaborator loss by exploiting 845 unexpected deaths of active inventors. We find that inventor death has a moderate negative effect on the productivity of the remaining collaborators. This negative effect disappears when we focus on the remaining collaborators who work for the same employer as the deceased inventor. Moreover, this group is more likely to be promoted and less likely to leave their current employer.
Keywords:
collaboration; mobility; innovation; inventors; patents; teams;
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Discussion Paper No. 339
The Empirics of Economic Growth Over Time and Across Nations: A Unified Growth Perspective
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This research develops an expanded unified growth theory that incorporates the endogenous accumulation of physical capital, population, human capital, and technology. The model incorporates a complementarity between physical capital and human capital and can be extended to a multi-country setting with international technology diffusion. The analytical characterization of the mechanisms behind the observed patterns of long-run growth and comparative development delivers a consistent explanation for a large set of seemingly unrelated empirical facts. A quantitative multi-country version of the model matches various empirical regularities of long-run growth dynamics and comparative development patterns that have previously been studied in isolation. The findings also shed new light on the role of the demographic transition for convergence patterns, the specification of cross-country growth regressions, technology spillovers, and the secular stagnation debate.
Keywords:
unified growth; long-run development; demographic transition; secular stagnation;
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Discussion Paper No. 338
Does Demography Determine Democratic Attitudes?
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This paper presents new evidence on how demography affects democratic attitudes in Western democracies. Using individual survey responses, the empirical analysis disentangles age from cohort patterns and other contemporaneous economic and political influences that shape democratic attitudes. The results reveal that support for democracy increases with age and is lower for more recent birth cohorts. These patterns are more pronounced in Western democracies than in the former Eastern bloc and in other countries around the world. Additional findings document that demography's effect partly captures heterogeneity in experiences with democracy, and that socioeconomic factors impact democratic attitudes.
Keywords:
support for democracy; age-periods-cohort models; population aging; demographic composition; stability of democracy; modernization hypothesis;
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Discussion Paper No. 337
Non-Additivity of Subjective Expectations over Different Time Intervals
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We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents' degree of additivity is correlated with making larger financial investments.
Keywords:
expectation formation; time perception; sub-additivity; super-additivity;
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