Discussion Papers

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Discussion Paper No. 330
June 21, 2022

Ignorance, Intention and Stochastic Outcomes

Authors:
Friedrichsen, Jana (FU Berlin, HU Berlin, WZB and DIW)
Momsen, Katharina (University of Innsbruck)
Piasenti, Stefano (HU Berlin and DIW)
Abstract:
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
JEL-Classification:
D91; C91
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Discussion Paper No. 329
May 18, 2022

Stochastic Contracts and Subjective Evaluations

Authors:
Lang, Matthias (LMU Munich)
Abstract:
Subjective evaluations are widely used, but call for different contracts from classical moral-hazard settings. Previous literature shows that contracts require payments to third parties. I show that the (implicit) assumption of deterministic contracts makes payments to third parties necessary. This paper studies incentive contracts with stochastic compensation, like payments in stock options or uncertain arbitration procedures. These contracts incentivize employees without the need for payments to third parties. In addition, stochastic contracts can be more efficient and can make the principal better off compared to deterministic contracts. My results also address the puzzle about the prevalence of labor contracts with stochastic compensation.
Keywords:
subjective evaluations; stochastic contracts; stochastic compensation; budget-balanced contracts; moral hazard; subjective performance measures; incentives
JEL-Classification:
D80; J41; J70; J33
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Discussion Paper No. 328
May 12, 2022

A Field Experiment on Threshold Matching of Donations

Authors:
Adena, Maja (WZB Berlin)
Huck, Steffen (WZB Berlin and UCL)
Abstract:
We study a form of threshold matching in fundraising where donations above a certain threshold are topped up with a fixed amount. We show theoretically that threshold matching can induce crowding in if appropriately personalized. In a field experiment, we explore how thresholds should be chosen depending on past donations. The optimal choice of thresholds is rather bold, approximately 75% above past donations. Additionally, we explore how thresholds should be set for new donors as a function of their personal characteristics and demonstrate the benefits of personalization as opposed to setting a general threshold that applies to all recipients of a fundraising call.
Keywords:
charitable giving; field experiments; matching donations; personalization
JEL-Classification:
C93; D64; D12
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Discussion Paper No. 327
May 5, 2022

Portfolio Liquidation Games with Self-Exciting Order Flow

Authors:
Fu, Guanxing (The Hong Kong Polytechnic University)
Horst, Ulrich (HU Berlin)
Xia, Xiaonyu (Wenzhou University)
Abstract:
We analyze novel portfolio liquidation games with self-exciting order flow. Both the N-player game and the mean-field game are considered. We assume that players' trading activities have an impact on the dynamics of future market order arrivals thereby generating an additional transient price impact. Given the strategies of her competitors each player solves a mean-field control problem. We characterize open-loop Nash equilibria in both games in terms of a novel mean-field FBSDE system with unknown terminal condition. Under a weak interaction condition we prove that the FBSDE systems have unique solutions. Using a novel sufficient maximum principle that does not require convexity of the cost function we finally prove that the solution of the FBSDE systems do indeed provide open-loop Nash equilibria.
Keywords:
stochastic games; mean-field games; portfolio liquidation; Hawkes process; singular terminal value
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Discussion Paper No. 326
May 5, 2022

Voluntary ‘Donations’ versus Reward-Oriented ‘Contributions’: Two Experiments on Framing in Funding Mechanisms

Authors:
Adena, Maja (WZB Berlin)
Huck, Steffen (WZB Berlin and UCL)
Abstract:
In an artefactual field experiment, we implemented a crowdfunding campaign for an institute's summer party and compared donation and contribution framings. We found that the use of the word 'donation' generated higher revenue than the use of 'contribution'. While the individuals receiving the donation framing gave substantially larger amounts, those receiving the contribution framing responded more strongly to reward thresholds and suggestions. An additional survey experiment on MTurk indicated that the term 'donation' triggers more positive emotional responses and that emotions are highly correlated with giving. It appears that making a donation is perceived as a more voluntary act and is thus more successful at generating warm glow than making a contribution. We surmise that this extends to other funding mechanisms.
Keywords:
crowdfunding; field experiment; framing
JEL-Classification:
C93; D64; D12
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Discussion Paper No. 325
April 25, 2022

Explicit and Implicit Belief-Based Gender Discrimination: A Hiring Experiment

Authors:
Barron, Kai (WZB Berlin)
Ditlmann, Ruth (Hertie School Berlin)
Gehrig, Stefan (WZB Berlin)
Schweighofer-Kodritsch, Sebastian (HU Berlin)
Abstract:
Understanding discrimination is key for designing policy interventions that promote equality in society. Economists have studied the topic intensively, typically taxonomizing discrimination as either taste-based or (accurate) statistical discrimination. To reveal the limitations of this taxonomy and enrich it psychologically, we design a hiring experiment that rules out (by design) both of these sources of discrimination with respect to gender. Yet, we still detect substantial discrimination against women. We provide evidence of two forms of discrimination, explicit and implicit belief-based discrimination. Both rely on statistically inaccurate beliefs but differ in how clearly they reveal that the choice was based on gender. Our analysis highlights the central role played by contextual features of the choice setting in determining whether and how discrimination will manifest. We conclude by discussing how policy makers may design effective regulation to address the specific forms of discrimination identified in our experiment.
Keywords:
discrimination; hiring decisions; gender; beliefs; experiment
JEL-Classification:
D90; J71; D83
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Discussion Paper No. 324
April 19, 2022

Collective Brand Reputation

Authors:
Nocke, Volker (Mannheim University)
Strausz, Roland (HU Berlin)
Abstract:
We develop a theory of collective brand reputation for markets in which product quality is jointly determined by local and global players. In a repeated game of imperfect public monitoring, we model collective branding as an aggregation of quality signals generated in different markets. Such aggregation yields a beneficial informativeness effect for incentivizing the global player. It however also induces harmful free-riding by local, market-specific players. The resulting tradeoff yields a theory of optimal brand size and revenue sharing that applies to platform markets, franchising, licensing, umbrella branding, and firms with team production.
Keywords:
collective branding; reputation; free-riding; repeated games; imperfect monitoring
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Discussion Paper No. 323
April 13, 2022

Inattention and the Taxation Bias

Authors:
Boccanfuso, Jérémy (University of Bologna)
Ferey, Antoine (LMU Munich)
Abstract:
This paper shows that agent inattention to taxes generates a time-inconsistency problem in the choice of tax policy. In equilibrium, inattention leads to inefficiently high tax rates and a taxation bias emerges. Combining structural and sufficient statistics approaches, we quantify the magnitude and the welfare effects of this policy distortion for US income tax rates, and find that the taxation bias is large, alters the progressivity of income taxes, and significantly reduces social welfare. Overall, our findings shed new light on the policy and welfare implications of inattention and misperceptions.
Keywords:
inattention; misperceptions; optimal taxation; policy distortions
JEL-Classification:
D03; H21
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Discussion Paper No. 322
March 23, 2022

Microfinance Loan Officers Before and During Covid-19: Evidence from India

Authors:
Czura, Kristina (University of Groningen)
Englmaier, Florian (LMU Munich)
Ho, Hoa (LMU Munich)
Spantig, Lisa (RWTH Aachen University and University of Essex)
Abstract:
The Microfinance industry has been severely affected by Covid-19. We provide detailed insights into how loan officers, the key personnel linking the lender to its borrowers, are affected in their performance and adapt their work to the pandemic. We use administrative records of an Indian Microfinance Institution and detailed panel survey data on performance, performed tasks, and work organization to document how the work environment became more challenging during the pandemic. Loan officers operate in a setting where work from home is hard to implement due to the nature of the tasks and technological constraints. The usual performance indicators appear to be mainly driven by external factors such as the nation-wide debt moratorium. Loan officers worked similar hours, but engaged less in planning activities and completed fewer of the usual tasks. Work perceptions and mental health of loan officers reflect these changes, and perceived stress was particularly high during the period of the debt moratorium.
Keywords:
microfinance; loan officers; covid-19; work organization; India
JEL-Classification:
J22; M54; G21
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Discussion Paper No. 321
March 2, 2022

Inequality and Income Dynamics in Germany

Authors:
Drechsel-Grau, Moritz (University of Zurich)
Peichl, Andreas (ifo Institute and LMU Munich)
Schmieder, Johannes (Boston University)
Schmid, Kai D. (Heilbronn University of Applied Sciences)
Walz, Hannes (FAU and IAB)
Wolter, Stefanie (IAB)
Abstract:
We provide a comprehensive analysis of income inequality and income dynamics for Germany over the last two decades. Combining personal income tax and social security data allows us – for the first time – to offer a complete picture of the distribution of annual earnings in Germany. We find that cross-sectional inequality rose until 2009 for men and women. After the Great Recession inequality continued to rise at a slower rate for men and fell slightly for women due to compression at the lower tail. We further document substantial gender differences in average earnings and inequality over the life-cycle. While for men earnings rise and inequality falls as they grow older, many women reduce working hours when starting a family such that average earnings fall and inequality increases. Men’s earnings changes are on average smaller than women’s but are substantially more affected by the business cycle. During the Great Recession, men’s earnings losses become magnified and gains are attenuated. Apart from recession years, earnings changes are significantly right-skewed reflecting the good overall state of the German labor market and increasing labor supply. In the second part of the paper, we study the distribution of total income including incomes of self-employed, business owners, and landlords. We find that total inequality increased significantly more than earnings inequality. Regarding income dynamics, entrepreneurs’ income changes are more dispersed, less skewed, less leptokurtic and less dependent on average past income than workers’ income changes. Finally, we find that top income earners have become less likely to fall out of the top 1 and 0.1 percent.
Keywords:
inequality; income dynamics; mobility; non-labor income
JEL-Classification:
D31; E24; E31; J31
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