Discussion Paper No. 278
November 10, 2021
Leadership Styles and Labor-Market Conditions
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Why do some leaders use praise as a means to motivate workers, while other leaders use social punishment? This paper develops a simple economic model to examine how leadership styles depend on the prevailing labor-market conditions for workers. We show that the existence of a binding wage floor for workers (e.g., due to trade union wage bargaining, minimum-wage legislation, or limited-liability protection) can make it attractive for firms to hire a leader who makes use of social punishment. While the use of social punishments generally is socially inefficient, it lessens the need for high bonus pay, which allows the firm to extract rents from the worker. In contrast, firms hire leaders who provide praise to workers only if it is socially efficient to do so. Credible use of leadership styles requires either repeated interaction or a leader with the right social preferences. In a single-period setting, only moderately altruistic leaders use praise as a motivation tool, whereas only moderately spiteful leaders use social punishment. Lastly, we show that when the leaders' and workers' reservation utilities give rise to a bigger income gap between leaders and workers, attracting spiteful leaders becomes relatively less costly and unfriendly leadership becomes more prevalent.
Keywords:
leadership styles; incentives; motivation; social preferences; labor-market conditions; wage-setting;
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Discussion Paper No. 277
Can Mentoring Alleviate Family Disadvantage in Adolescence? A Field Experiment to Improve Labor-Market Prospects
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We study a mentoring program that aims to improve the labor-market prospects of school-attending adolescents from disadvantaged families by offering them a university-student mentor. Our RCT investigates program effectiveness on three outcome dimensions that are highly predictive of adolescents´ later labor-market success: math grades, patience/social skills, and labor-market orientation. For low-SES adolescents, the one-to-one mentoring increases a combined index of the outcomes by half a standard deviation after one year, with significant increases in each dimension. Part of the treatment effect is mediated by establishing mentors as attachment figures who provide guidance for the future. The mentoring is not effective for higher-SES adolescents. The results show that substituting lacking family support by other adults can help disadvantaged children at adolescent age.
Keywords:
mentoring; disadvantaged youths; adolescence; school performance; patience; social skills; labor-market orientation; field experiment;
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Discussion Paper No. 276
Do Robo-Advisors Make Us Better Investors?
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Investors increasingly can obtain assistance from “robo-advisors,” artificial intelligence–enabled digitalized service agents imbued with anthropomorphic design elements that can communicate using natural language. The present article considers the impact of anthropomorphized robo-advisors on investment decisions, with a focus on their ability to mitigate investors’ behavioral biases. We study the well-documented disposition effect, which reflects investors’ greater propensity to realize past gains than past losses. In two induced-value laboratory experiments, the availability of a robo-advisor reduces (i.e., mitigates) investors’ disposition effect. This relationship is mediated by two simultaneous (indirect) effects: the extent of requests for the robo-advisor’s investment advice and perceptions of its socialness. These findings resonate with cognitive dissonance theory, which predicts that assigning responsibility to the advisor helps investors resolve a sense of discomfort that may arise after a financial loss. Anthropomorphic design elements alone are not sufficient to reduce the disposition effect, but they decrease investors’ propensity to seek advice, which offsets the positive (indirect) effect of perceived socialness. These results have implications for the ongoing automation of advisory services, as well as for improving decision making, and suggest some further research directions.
Keywords:
robo-advisors; artificial intelligence; advice; anthropomorphism; disposition effect;
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Discussion Paper No. 275
Meta-Analysis of Empirical Estimates of Loss-Aversion
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Loss aversion is one of the most widely used concepts in behavioral economics. We conduct a large-scale interdisciplinary meta-analysis, to systematically accumulate knowledge from numerous empirical estimates of the loss aversion coefficient reported during the past couple of decades. We examine 607 empirical estimates of loss aversion from 150 articles in economics, psychology, neuroscience, and several other disciplines. Our analysis indicates that the mean loss aversion coefficient is between 1.8 and 2.1. We also document how reported estimates vary depending on the observable characteristics of the study design.
Keywords:
loss aversion; prospect theory; meta-analysis;
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Discussion Paper No. 274
Portfolio Liquidation under Factor Uncertainty
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We study an optimal liquidation problem under the ambiguity with respect to price impact parameters. Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE with superlinear gradient, monotone generator and singular terminal value. We also establish an asymptotic analysis of the robust model for small amounts of uncertainty and analyze the effect of robustness on optimal trading strategies and liquidation costs. In particular, in our model ambiguity aversion is observationally equivalent to increased risk aversion. This suggests that ambiguity aversion increases liquidation rates.
Keywords:
stochastic control; uncertainty; portfolio liquidation; singular terminal value; superlinear growth gradient;
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Discussion Paper No. 273
Alcohol and Short-Run Mortality: Evidence from a Modern-Day Prohibition
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On July 13, 2020 a complete nation-wide ban was placed on the sale and transport of alcohol in South Africa. This paper evaluates the impact of this sudden and unexpected five-week alcohol prohibition on mortality due to unnatural causes. We find that the policy reduced the number of unnatural deaths by 21 per day, or approximately 740 over the five-week period. This constitutes a 14% decrease in the total number of deaths due to unnatural causes. We argue that this represents a lower bound on the impact of alcohol on short-run mortality, and underscores the severe influence that alcohol has on society—even in the short-run.
Keywords:
alcohol; mortality; economics; health; South Africa; COVID-19; violence;
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Discussion Paper No. 272
Prices versus Quantities with Morally Concerned Consumers
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It is widely believed that an environmental tax (price regulation) and cap-and-trade (quantity regulation) are equally efficient in controlling pollution when there is no uncertainty. We show that this is not the case if some consumers (firms, local governments) are morally concerned about pollution and the pollution price is inefficiently low for political reasons. Emissions are lower and material welfare is higher with price regulation. Furthermore, quantity regulation gives rise to dysfunctional incentive and distribution effects. It shifts the burden of adjustment to the poor and discourages voluntary efforts to reduce pollution, while price regulation makes these efforts effective.
Keywords:
emissions trading; carbon tax; climate change; prices versus quantities; behavioral industrial organization;
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Discussion Paper No. 271
Paying for Open Access
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Open access (OA) publishing upends the traditional business model in scientific publishing by requiring authors instead of readers to pay for the publishing-related costs. In this paper, we aim to elicit the willingness to pay (WTP) of authors for open access publishing. We conduct two separate field studies with different methodological approaches in different scientific disciplines (economics and medicine). First, a choice-based conjoint (CBC) analysis measures stated preferences of 243 economists in Germany, Austria, and Switzerland regarding their valuations of open access publishing in the “Top 5” economics journals. Second, a field experiment at four different open access medical journals elicits authors’ self-determined (“Pay-What-You-Want”) payments for open access publications. The results provide a plausible range of authors’ valuations, given that the first study rather provides an upper bound and the second study a lower bound of authors’ willingness to pay for open access publishing.
Keywords:
open access; willingness to pay; choice-based conjoint analysis; pay-what-you-want; field experiment;
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Discussion Paper No. 270
Das Design von Klimaschutzverhandlungen
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In seiner Thünen-Vorlesung vor dem Verein für Socialpolitik im Herbst 2020 hat Klaus Schmidt das Design von Klimaschutzverhandlungen untersucht. Er geht dabei von einem Vorschlag Martin Weitzmans aus, künftige Verhandlungen auf einen einheitlichen CO2-Mindestpreis zu fokussieren. Wäre ein solches Vorgehen demjenigen, wie es in den Abkommen von Paris und Kyoto praktiziert wurde, tatsächlich überlegen? Schmidt berichtet von zwei experimentellen Studien, in denen er gemeinsam mit Koautoren Licht auf diese Frage geworfen hat. Die Ergebnisse beider Studien unterstützen den Vorschlag von Weitzman.
Keywords:
Klimaschutzverhandlungen; Verhandlungsdesign; Reziprozität; CO2-Preis;
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Discussion Paper No. 269
Signaling Motives in Lying Games
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This paper studies the implications of agents signaling their moral type in a lying game. In the theoretical analysis, a signaling motive emerges where agents dislike being suspected of lying and where some types of liars are more stigmatized than others. The equilibrium prediction of the model can explain experimental data from previous studies, in particular on partial lying, where some agents dishonestly report a non payoff-maximizing report. I discuss the relationship with previous theoretical models of lying that conceptualize the image concern as an aversion to being suspected of lying. The second half of the paper tests the theoretical predictions in an experiment. In contrast to previous literature, the experimental results show no evidence that image concerns influence lying behavior in the laboratory.
Keywords:
lying; image concerns; honesty; experiment;
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