Discussion Paper No. 291
November 10, 2021
The Legacy of Covid-19 in Education
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If school closures and social-distancing experiences during the Covid-19 pandemic impeded children’s skill development, they may leave a lasting legacy in human capital. To understand the pandemic’s effects on school children, this paper combines a review of the emerging international literature with new evidence from German longitudinal time-use surveys. Based on the conceptual framework of an education production function, we cover evidence on child, parent, and school inputs and students’ cognitive and socio-emotional development. The German panel evidence shows that children’s learning time decreased severely during the first school closures, particularly for low-achieving students, and increased only slightly one year later. In a value-added model, learning time increases with daily online class instruction, but not with other school activities. The review shows substantial losses in cognitive skills on achievement tests, particularly for students from disadvantaged backgrounds. Socio-emotional wellbeing also declined in the short run. Structural models and reduced-form projections suggest that unless remediated, the school closures will persistently reduce skill development, lifetime income, and economic growth and increase inequality.
Keywords:
Covid-19; school closures; education; students; schools; educational inequality;
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Discussion Paper No. 290
Regulatory and Bailout Decisions in a Banking Union
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We model a banking union of two countries whose banking sectors differ in their average probability of failure and externalities between the two countries arise from cross-border bank ownership. The two countries face (i) a regulatory (super- visory) decision of which banks are to be shut down before they can go bankrupt, and (ii) a bailout decision of who pays for banks that have failed despite regu- latory oversight. Each of these choices can either be taken in a centralized or in a decentralized way. In our benchmark model the two countries always agree on a centralized regulation policy. In contrast, bailout policies are centralized only when international spillovers from cross-border bank ownership are strong, and banking sectors are highly profitable.
Keywords:
banking union; bank regulation; bailout policies;
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Discussion Paper No. 289
Report-Dependent Utility and Strategy-Proofness
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Despite the truthful dominant strategy, participants in strategy-proof me- chanisms submit manipulated preferences. In our model, participants dislike rejections and enjoy the confirmation from getting what they declared most desirable. Formally, the payo↵ from a match decreases in its position in the submitted ranking such that a strategic trade-o↵ between preference inten- sity and match probability arises. This trade-o↵ can trigger the commonly observed self-selection strategies. We show that misrepresentations can per- sist for arbitrarily small report-dependent components. However, honesty is guaranteed to be optimal if and only if there is no conflict between the quality and feasibility of a match.
Keywords:
market design; matching; school choice; self-regarding preferences; strategy-proof mechanism;
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Discussion Paper No. 288
Decomposing the Disposition Effect
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We theoretically show that there is a fundamental disconnect be- tween the disposition effect, i.e., investors’ tendency to sell winning assets too early and losing assets too late, and its common empirical measure, namely a positive difference between the proportion of gains and losses re- alized. While its common measure cannot identify the disposition effect, it identifies the presence of some systematic bias. We further investigate the measure’s comparative statics regarding markets, investors’ informa- tion level, and their attention. Besides generating novel testable predictions, this analysis reveals that, in contrast to the measure’s sign, variations in its magnitude are informative for its cause.
Keywords:
disposition effect; rational benchmark; investor behavior; behavioral biases; market segments; financial attention; information level;
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Discussion Paper No. 287
Fairness and Competition in a Bilateral Matching Market
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This paper analyzes fairness and bargaining in a dynamic bilateral matching market. Traders from both sides of the market are pairwise matched to share the gains from trade. The bargaining outcome depends on the traders’ fairness attitudes. In equilibrium fairness matters because of market frictions. But, when these frictions become negligible, the equilibrium approaches the Walrasian com- petitive equilibrium, independently of the traders’ inequity aversion. Fairness may yield a Pareto improvement; but also the contrary is possible. Overall, the market implications of fairness are very different from its effects in isolated bilat- eral bargaining.
Keywords:
fairness; inequity aversion; bargaining; ultimatum game; matching market; search costs; competitive equilibrium;
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Discussion Paper No. 286
Signaling versus Auditing
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We analyze a competitive labor market in which workers signal their productivities through education à la Spence (1973), and firms have the option of auditing to learn workers’ productivities. Audits are costly and non–contractible. We characterize the trade–offs between signaling by workers and costly auditing by firms. Auditing is always associated with (partial) pooling of worker types, and education is used as a signal only if relatively few workers have low productivity. Our results feature new auditing patterns and explain empirical observations in labor economics like wage differentials and comparative statics of education choices. Our analysis applies also to other signal- ing problems, e.g., the financial structure of firms, warranties, and initial public offerings.
Keywords:
signaling; information acquisition; auditing; wage differentials; wage dispersion;
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Discussion Paper No. 285
Trade Shocks, Labor Markets and Elections in the First Globalization
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This paper studies the economic and political effects of a large trade shock in agriculture – the grain invasion from the Americas – in Prussia during the first globalization (1871-1913). We show that this shock accelerated the structural change in the Prussian economy through migration of workers to booming cities. In contrast to studies using today’s data, we do not observe declining per capita income, health outcomes or political polarization in counties aected by foreign competition. Our results suggest that the negative and persistent eects of trade shocks we see today are not a universal feature of globalization, but depend on labor mobility. For our analysis, we digitize data from Prussian industrial and agricultural censuses on the county level and combine it with national trade data at the product level. We exploit the cross-regional variation in cultivated crops within Prussia and instrument with Italian trade data to isolate exogenous variation.
Keywords:
globalization; import competition; labor market; elections; agriculture; migration; trade shock;
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Discussion Paper No. 284
Preferences over Taxation of High-Income Individuals: Evidence from a Survey Experiment
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Mobility of high-income individuals across borders puts pressure on governments to lower taxes. A central tenet of the corresponding textbook argument is that mobile individuals react to tax differentials through migra- tion, and in turn immobile individuals vote for lower taxes. We investigate to which extent this argument is complete. In particular, political ideology may influence voting on taxes. We vary mobility and foreign taxes in a survey experiment within the German Internet Panel (GIP), with more than 3,000 individuals participating. We find that while the treatment effects qualitatively confirm model predictions how voters take mobility of high-income earners into account when choosing domestic taxes, ideology matters: left-leaning high-income individuals choose higher taxes and emigrate less frequently than right-leaning ones. These findings are in line with the comparative- static predictions of a simple model of inequality aversion when the aversion parameters vary with ideology.
Keywords:
taxation; mobility; ideology; survey experiments;
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Discussion Paper No. 283
Overconfidence and the Political and Financial Behavior of a Representative Sample
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We study the relationship between overconfidence and the political and financial behavior of a nationally representative sample. To do so, we introduce a new method of eliciting overconfidence that is simple to understand, quick to implement, and captures respondents' excess confidence in their own judgment. Our results show that, in line with theoretical predictions, an excessive degree of confidence in one's judgment is correlated with lower portfolio diversification, larger stock price forecasting errors, and more extreme political views. Additionally, we find that overconfidence is correlated with voting absenteeism. These results appear to validate our method and show how overconfidence is a bias that permeates several aspects of peoples' life.
Keywords:
overconfidence; soep; survey;
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Discussion Paper No. 280
Costly Information Acquisition in Centralized Matching Markets
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Every year during school and college admissions, students and their parents devote considerable time and effort to acquiring costly information about their own preferences. In a market where students are ranked by universities based on exam scores, we explore ways to reduce wasteful information acquisition - that is, to help students avoid acquiring information about their out-of-reach schools or universities - using a market design approach. We find that, both theoretically and experimentally, a sequential serial dictatorship mechanism leads to less wasteful information acquisition and higher student welfare than a direct serial dictatorship mechanism. This is because the sequential mechanism informs students about which universities are willing to admit them, thereby directing their search. Additionally, our experiments show that the sequential mechanism has behavioral advantages because subjects deviate from the optimal search strategy less frequently under the sequential than under the direct mechanism. We also investigate the effects of providing historical cutoff scores under the direct mechanism. We find that the cutoff provision can increase student welfare, especially when the information costs are high, although the effect is weaker than that of a sequential mechanism.
Keywords:
matching market; deferred acceptance; information acquisition; game theory; lab experiment;
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