Discussion Papers

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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Discussion Paper No. 219
December 16, 2019

The E-Word – On the Public Acceptance of Experiments

Author:

Fischer, Mira (WZB Berlin)
Grewenig, Elisabeth (ifo Institute)
Lergetporer, Philipp (ifo Institute)
Werner, Katharina (ifo Institute)

Abstract:

Randomized experiments are often viewed as the “gold standard” of scientific evidence but people’s scepticism towards experiments has compromised their viability in the past. We study preferences for experimental policy evaluations in a representative survey in Germany (N>1,900). We find that a majority of 75% supports the idea of small-scale evaluations of policies before enacting them at a large scale. Experimentally varying whether the evaluations are explicitly described as “experiments” has a precisely estimated overall zero effect on public support. Our results indicate political leeway for experimental policy evaluation, a practice that is still uncommon in Germany.

Keywords:

experiment aversion; policy experimentation; education

JEL-Classification:

I28; H40; C93

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Discussion Paper No. 218
December 16, 2019

Long-run Expectations of Households

Author:

Breunig, Christoph (Emory University)
Grabova, Iuliia (HU and DIW Berlin)
Haan, Peter (FU and DIW Berlin)
Weinhardt, Felix (HU and DIW Berlin)
Weizsäcker, Georg (HU and DIW Berlin)

Abstract:

The rational expectations assumption, e.g. in life-cycle models and portfolio-choice models, prescribes agents to have model-consistent beliefs and to avoid systematic prediction errors. In reality, justi cation and identi cation of expectations are nontrivial. One way to solve this problem is to elicit expectations collecting survey data. We utilize the German SOEP Innovation Sample to analyze short-run and long-run expectations of households in three di erent domains: stock market, labor market and housing market. Our main contribution to the existing literature is that we study expectations about price developments over longer periods, which is of central relevance since many important economic decisions of households concern the long run. Previous studies have mainly focused on short-run or medium-run expectations. We document that while expectations about wages are similar to historical values, the long-run expectations about the developments of the stock market index and about house prices are strongly pessimistic. In the case of the stock market, respondents expect only a small percentage of historical growth. We also observe substantial heterogeneity of expectations by socio-economic background.

Keywords:

long-run expectations; biased beliefs; returns to education

JEL-Classification:

D63; H23; I24; I38; J22; J31

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Discussion Paper No. 217
December 13, 2019

On the Origins of National Identity

Author:

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

Abstract:

What are the origins of national identity? We extend the model by Alesina et al. (2019) to analyze the incentives of elites to use specific types of identity policies in response to shocks, and the extent to which such policies should be effective. To elicit changes in identity we use data on first names given in German cities between 1800 and 1875. We show that parents in cities treated by nation building policies responded by choosing first names of German origin for their children. To control for familyspecific confounding factors, we exploit within family variation. We also show that the response can be conditional on cultural distance to the elite. Finally, Germanic first names had remarkable predictive power for behaviour. We find that individuals with Germanic first names made different marriage choices and were more likely to get actively involved and decorated during the German-French War in 1870/71 and the First World War.

Keywords:

JEL-Classification:

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Discussion Paper No. 216
December 13, 2019

Intertemporal Preferences and the Adoption Decision for Bluetooth Speakers

Author:

Guhl, Daniel (HU Berlin)
Klapper, Daniel (HU Berlin)

Abstract:

The adoption decision for durable goods is intertemporal by definition. However, estimating utility and discount functions from revealed preference data using dynamic discrete choice models is difficult because of an inherent identification problem. To overcome this issue, we use stated preference data. Specifically, we employ the experimental design of Dubé, Hitsch, and Jindal (2014), where future prices are known and that elicits intertemporal adoption decisions for Bluetooth speakers in a discrete choice framework. We estimate several models of discounting (e.g., static, myopic, geometric, and quasi-hyperbolic) and find considerably lower discount factors than typical market interest rates would suggest. The values are also smaller compared to respondents’ matching-based discount factors, even though the correlation is positive and significant. Furthermore, there are substantial differences in discounting across respondents (i.e., heterogeneity in time-preferences) and lastly, there is no strong empirical evidence for quasi-hyperbolic discounting. Thus, the standard economic model seems to be appropriate for the data at hand.

Keywords:

intertemporal preferences; dynamic discrete choice models; durable goods adoption

JEL-Classification:

C35; D9; D12; M31

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Discussion Paper No. 215
December 13, 2019

Standing on the Shoulders of Science

Author:

Watzinger, Martin (LMU Munich)
Schnitzer, Monika (LMU Munich)

Abstract:

The goal of science is to advance knowledge, yet little is known about its value for marketplace inventions. While important breakthrough technologies could not have been developed without scientific background, skeptics argue that this is the exception rather than the rule, questioning the usefulness of basic research for private sector innovations and the effectiveness of the knowledge transfer from university to industry. We analyze the universe of U.S. patents to establish three new facts about the relationship between science and the value of inventions. First, we show that a patent that directly builds on science is on average 2.9 million U.S. dollars more valuable than a patent in the same technology that is unrelated to science. Based on the analysis of the patent text, we show second that the novelty of patents predicts their value, and third that science-intensive patents are more novel. This documents that science introduces new concepts that are valuable for marketplace inventions. Our study informs the debate on the merits of science for corporate innovation and the origins of breakthrough inventions.

JEL-Classification:

O30; O34; O33; O31

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Discussion Paper No. 214
December 12, 2019

Personality Traits Across the Life Cycle: Disentangling Age, Period, and Cohort Effects

Author:

Fitzenberger, Bernd (HU Berlin)
Mena, Gary (HU Berlin)
Nimczik, Jan (ESMT Berlin)
Sunde, Uwe (LMU Munich)

Abstract:

Despite the importance for socio-economic outcomes, there is an ongoing debate about the stability of personality traits over the life cycle. By disentangling age, period and cohort influences on personality traits, this paper adds to the existing empirical contributions, which often focus on age patterns and disregard cohort and period influences. We present the results from systematic specification tests that provide novel evidence for the separability of age, period, and cohort effects in almost all personality traits. Our estimates also document that for different cohorts, the evolution of personality traits across the life-cycle follows a stable, though non-constant, age-profile, while there are sizeable differences across time periods.

Keywords:

big five personality traits; locus of control; risk attitudes; age-period-cohort decomposition; life cycle

JEL-Classification:

D8; J1

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