Discussion Papers

Discussion Paper No. 363
January 4, 2023

The Effect of Pension Wealth on Employment

Author:

Sebastian Becker (DIW Berlin, FU Berlin)
Hermann Buslei (DIW Berlin)
Johannes Geyer (DIW Berlin)
Peter Haan (DIW Berlin, FU Berlin)

Abstract:

This study provides novel evidence about the pension wealth elasticity of employment. For the identification we exploit reform-induced variation of pension wealth that is related to the number of children but which does not affect the implicit tax rate of employment. We use a difference-in-differences estimator based on administrative data from the German pension insurance and find that, on average, the negative employment effect of pension wealth is significant and economically important. Heterogeneity analyses document a strong age pattern showing that the employment effects are driven by behavioral responses of women close to retirement. The age pattern is partly explained by the positive effect of pension wealth on disability pensions after the age of 60.

Keywords:

pension reform; pension wealth elasticity; female labour supply; retirement; difference in differences;

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Discussion Paper No. 362

Approximate Bayesian Implementation and Exact Maxmin Implementation: An Equivalence

Author:

Yangwei Song (HU Berlin)

Abstract:

This paper provides a micro-foundation for approximate incentive compatibility using ambiguity aversion. In particular, we propose a novel notion of approximate interim incentive compatibility, approximate local incentive compatibility, and establish an equivalence between approximate local incentive compatibility in a Bayesian environment and exact interim incentive compatibility in the presence of a small degree of ambiguity. We then apply our result to the implementation of efficient allocations. In particular, we identify three economic settings—including ones in which approximately efficient allocations are implementable, ones in which agents are informationally small, and large double auctions—in which efficient allocations are approximately locally implementable when agents are Bayesian. Applying our result to those settings, we conclude that efficient allocations are exactly implementable when agents perceive a small degree of ambiguity.

Keywords:

approximate local incentive compatibility; ambiguity aversion; efficiency; informational size; modified VCG mechanism; double auction;

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Discussion Paper No. 361

Intertemporal Hedging and Trade in Repeated Games with Recursive Utility

Author:

Asen Kochov (University of Rochester)
Yangwei Song (HU Berlin)

Abstract:

Recursive preferences have found widespread application in representative-agent asset-pricing models and general equilibrium. A majority of these applications exploit two decision-theoretic properties not shared by the standard model of intertemporal choice: (i) agents care about the intertemporal distribution of risk and (ii) rates of time preference, rather than being exogenously fixed, may vary with the level of consumption. We investigate what these features imply in the context of a repeated strategic interaction. Specifically, we identify novel opportunities for the players to manage risk and trade intertemporally, and characterize when such opportunities lead to an expansion of the fea- sible set of payoffs. Sharp implications for equilibrium behavior and the folk theorem are also deduced.

Keywords:

recursive utility; repeated games; correlation aversion; endogenous discounting; intertemporal trade; intertemporal hedging;

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Discussion Paper No. 360

Sufficient Statistics for Nonlinear Tax Systems with General Across-income Heterogeneity

Author:

Antoine Ferey (LMU Munich)
Benjamin Lockwood (Wharton)
Dmitry Taubinsky (UC Berkeley)

Abstract:

This paper provides general and empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of across-income heterogeneity in preferences, inheritances, income-shifting capabilities, and other sources. We study unrestricted tax systems on income and savings (or other commodities) that implement the optimal direct-revelation mechanism, as well as simpler tax systems that impose common restrictions like separability between earnings and savings taxes. We characterize the optimum using familiar elasticity concepts and a sufficient statistic for general across-income heterogeneity: the difference between the cross-sectional variation of savings with income, and the causal effect of income on savings. The Atkinson-Stiglitz Theorem is a knife-edge case corresponding to zero difference, and a number of other key results in optimal tax theory are subsumed as special cases. We provide tractable extensions of these results that include multidimensional heterogeneity, additional efficiency rationales for taxing heterogeneous returns, and corrective motives to encourage more saving. Applying these formulas in a calibrated model of the U.S. economy, we find that the optimal savings tax is positive and progressive.

Keywords:

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Discussion Paper No. 359

Time Pressure and Regret in Sequential Search

Author:

Felix Klimm (LMU Munich, CESifo)
Martin G. Kocher (University of Vienna, CESifo, University of Gothenburg)
Timm Opitz (MPI, LMU Munich)
Simeon Schudy (LMU Munich, CESifo)

Abstract:

Perceived urgency and regret are common in many sequential search processes; for example, sellers often pressure buyers in search of the best offer, both time-wise and in terms of potential regret of forgoing unique purchasing opportunities. theoretically, these strategies result in anticipated and experienced regret, which systematically affect search behavior and thereby distort optimal search. In addition, urgency may alter decision-making processes and thereby the salience of regret. To understand the empirical relevance of these aspects, we study the causal effects of regret, urgency, and their interaction on search behavior in a pre-registered, theory-based, and well-powered experiment. Empirically, we and that anticipated regret does not affect search behavior either with or without time pressure, while experienced regret leads to systematic adjustments in search length. Urgency reduces decision times and perceived decision quality, but does not generally alter search length. Only very inexperienced decision-makers buy earlier when pressured. Thus, consumer protection measures against pressure selling tactics can help inexperienced consumers in particular.

Keywords:

sequential search; time pressure; regret; anticipated regret; experienced regret;

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Discussion Paper No. 358

Cross-game Learning and Cognitive Ability in Auctions

Author:

Thomas Giebe (Linnaeus University)
Radosveta Ivanova-Stenzel (TU Berlin)
Martin G. Kocher (University of Vienna, CESifo, University of Gothenburg)
Simeon Schudy (LMU Munich, CESifo)

Abstract:

Overbidding in sealed-bid second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not substantially affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, 'cross-game learning' may rather be understood as 'cross-game transfer', as it has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher-ability bidders.

Keywords:

cognitive ability; cross-game learning; cross-game transfer; experiment; auction; heuristics; first-price auctions; second-price auctions;

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Discussion Paper No. 357

Voluntary Equity, Project Risk, and Capital Requirements

Author:

Andreas Haufler (LMU Munich)
Christoph Lülfesmann (Simon Fraser University)

Abstract:

We introduce a model of the banking sector that formally incorporates a buffer function of capital. Heterogeneous banks choose their portfolio risk, bank size, and capital holdings. Banks voluntarily hold equity when the buffer effect against the risk of default outweighs the cost advantages of debt financing. In this setting, banks with lower monitoring costs are larger, choose riskier portfolios, and have less equity. Moreover, binding capital requirements or levies on bank borrowing are shown to make higher-risk portfolios more attractive. Accounting for banks' interior capital choices can thus explain why higher capital ratios incentivize banks to undertake riskier projects.

Keywords:

voluntary equity; capital requirements; bank heterogeneity;

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Discussion Paper No. 356

Aggregate Information and Organizational Structures

Author:

Gorkem Celik (ESSEC Business School, THEMA Research Center)
Dongsoo Shin (Santa Clara University)
Roland Strausz (HU Berlin)

Abstract:

We study information flows in an organization with a top management (principal) and multiple subunits (agents) with private information that determines 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. Centralizing information flows is optimal when such likelihood is low. Delegation, by contrast, is optimal when it is high.

Keywords:

agency; aggregate information; organization design;

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Discussion Paper No. 355

Betting on Diversity – Occupational Segregation and Gender Stereotypes

Author:

Urs Fischbacher (Universität Konstanz)
Dorothea Kübler (WZB Berlin, TU Berlin)
Robert Stüber (NYU Abu Dhabi)

Abstract:

Many occupations and industries are highly segregated with respect to gender. This segregation could be due to perceived job-specific productivity differences between men and women. It could also result from the belief that single-gender teams perform better. We investigate the two explanations in a lab experiment with students and in an online experiment with personnel managers. The subjects bet on the productivity of teams of different gender compositions in tasks that differ with respect to gender stereotypes. We obtain similar results in both samples. Women are picked more often for the stereotypically female task and men more often for the stereotypically male task. Subjects do not believe that homogeneous teams perform better but bet more on diverse teams, especially in the task with complementarities. Elicited expectations about the bets of others reveal that subjects expect the effect of the gender stereotypes of tasks but underestimate others’ bets on diversity.

Keywords:

gender segregation; hiring decisions; teams; discrimination; stereotypes;

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Discussion Paper No. 354

Behavioral Forces Driving Information Unraveling

Author:

Volker Benndorf (Goethe-Universität Frankfurt)
Dorothea Kübler (WZB Berlin, TU Berlin, CESifo)
Hans-Theo Normann (Universität Düsseldorf)

Abstract:

Information unraveling is an elegant theoretical argument suggesting that private information may be fully and voluntarily surrendered. The experimental literature has, however, failed to provide evidence of complete unraveling and has suggested senders' limited depth of reasoning as one behavioral explanation. In our novel design, decision-making is essentially sequential, which removes the requirements on subjects' reasoning and should enable subjects to play the standard Nash equilibrium with full revelation. However, our design also facilitates coordination on equilibria with partial unraveling which exist with other-regarding preferences. Our data confirm that the new design is successful in that it avoids miscoordination entirely. Roughly half of the groups fully unravel whereas other groups exhibit monotonic outcomes with partial unraveling. Altogether, we nd more information unraveling with the new design, but there is clear evidence that other-regarding preferences do play a role in impeding unraveling.

Keywords:

data protection; inequality aversion; information revelation; level-k reasoning;

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