Discussion Paper No. 352
January 4, 2023
The Indirect Fiscal Benefits of Low-Skilled Immigration
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Low-skilled immigrants indirectly affect public finances through their effect on resident wages & labor supply. We operationalize this indirect fiscal effect in a model of immigration and the labor market. We derive closed-form expressions for this effect in terms of estimable statistics. An empirical quantification for the U.S. reveals an indirect fiscal benefit for one average low-skilled immigrant of roughly $750 annually. The indirect fiscal benefit may outweigh the negative direct fiscal effect that has previously been documented. This challenges the perception of low-skilled immigration as a fiscal burden.
Keywords:
immigration; fiscal impact; general equilibrium;
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Discussion Paper No. 351
The Spillover Effect of Services Offshoring on Local Labour Markets
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I provide new empirical evidence on the direct and indirect impact of services offshoring on local employment and wages, using a unique dataset on firms in the UK for the period 2000-2015. Exploiting variation in firms' services offshoring across labour markets, I show positive aggregate local labour employment and wage elasticity to services offshoring. Spillovers from offshoring to non-offshoring firms explain the positive results, and services offshoring complementary to firms' production has a larger effect than the offshoring competing with firms' outputs. Finally, I show that services offshoring widens firms' employment and wage dispersion within local labour markets.
Keywords:
services offshoring; local labour market; spillover effect; quantile analysis;
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Discussion Paper No. 350
Lying to Individuals versus Lying to Groups
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We investigate experimentally whether individuals or groups are more lied to, and how lying depends on the group size and the monetary loss inflicted by the lie. We employ an observed cheating game, where an individual's misreport of a privately observed number can monetarily benefit her while causing a loss to either a single individual, a group of two or a group of five. As the privately observed number is known to the experimenter, the game allows to study both, whether the report deviates from the observed number and also by how much. Treatments either vary the individual loss caused by a given lie (keeping the total loss constant), or the total loss (keeping the individual loss constant). We find more lies toward individuals than toward groups. Liars impose a larger loss with their lie when that loss is split among group members rather than borne individually. The size of the group does not affect lying behavior.
Keywords:
cheating; lying; groups; observed cheating game; laboratory experiment;
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Discussion Paper No. 95
December 3, 2022
Does Financial Literacy Improve Financial Inclusion? Cross Country Evidence
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While financial inclusion is typically addressed by improving the financial infrastructure, we show that a higher degree of financial literacy also has a clear beneficial effect. We study this effect at the cross-country level, which allows us to consider institutional variation. Regarding "access to finance", financial infrastructure and financial literacy are mainly substitutes. However, regarding the "use of financial services", the effect of higher financial literacy strengthens the effect of more financial depth. The causal interpretation of these results is supported by IV-regressions. Moreover, the positive impact of financial literacy holds across income levels and several subgroups within countries.
Keywords:
financial inclusion; financial literacy; financial institutions; financial development;
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Discussion Paper No. 330
December 1, 2022
Ignorance, Intention and Stochastic Outcomes
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In sequential interactions, both the agent’s intention and the outcome of his choice may influence the principal’s action. While outcomes are typically observable, intentions are more likely to be hidden, leaving potential wiggle room for the principal when deciding on a reciprocating action. We employ a controlled experiment to investigate how intentions and outcome affect the principal’s actions and whether principals use hidden information as an excuse to behave more selfishly. We find that principals react mainly to the intention of the agent. When intentions are not revealed by default, principals tend to select into information based on their inclination to behave more prosocially. While information avoidance is frequent and selfishness is higher with hidden information, we do not find evidence of a strategic exploitation of moral wiggle room.
Keywords:
information avoidance; dictator game; moral wiggle room; intentions; reciprocity;
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Discussion Paper No. 349
November 30, 2022
Keep Calm and Carry On: The Short- vs. Long-Run Effects of Mindfulness Meditation on (Academic) Performance
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Mindfulness-based meditation practices are becoming increasingly popular in Western societies, including in the business world and in education. While the scientific literature has largely documented the benefits of mindfulness meditation for mental health, little is still known about potential spillovers of these practices on other important life outcomes, such as performance. We address this question through a field experiment in an educational setting. We study the causal impact of mindfulness meditation on academic performance through a randomized evaluation of a well-known 8-week mindfulness meditation training delivered to university students on campus. As expected, the intervention improves students' mental health and non-cognitive skills. However, it takes time before students' performance can benefit from mindfulness meditation: we find that, if anything, the intervention marginally decreases average grades in the short run, i.e., during the exam period right after the end of the intervention, whereas it significantly increases academic performance, by about 0.4 standard deviations, in the long run (ca. 6 months after the end of intervention). We investigate the underlying mechanisms and discuss the implications of our results.
Keywords:
performance; mental health; education; meditation; field experiment;
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Discussion Paper No. 348
Dynamic Screening with Verifiable Bankruptcy
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We consider a dynamic screening model where the agent may go bankrupt due to, for example, cash constraints. We model bankruptcy as a verifiable event that occurs whenever the agent makes a per period loss. This leads to less stringent truth-telling constraints than those considered in the existing literature. We show that the weaker constraints do not af- fect optimal contracting in private values settings but may do so with interdependent values. Moreover, we develop a novel method to study private values settings with continuous types and identify a new regularity condition that ensures that the optimal contract is deterministic.
Keywords:
dynamic screening; bankruptcy; verifiability; mean preserving spread;
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Discussion Paper No. 347
Correlation-Savvy Sellers
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A multi-product monopolist sells sequentially to a buyer who privately learns his valuations. Using big data, the monopolist learns the intertemporal correlation of the buyer's valuations. Perfect price discrimination is generally unattainable—even when the seller learns the correlation perfectly, has full commitment, and in the limit where the consumption good about which the buyer has ex ante private information becomes insignificant. This impossibility is due to informational externalities which requires information rents for the buyer's later consumption. These rents induce upward and downward distortions, violating the generalized no distortion at the top principle of dynamic mechanism design.
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Discussion Paper No. 346
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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