Discussion Paper No. 258
November 9, 2021
Firm Responses to High-Speed Internet
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Does access to the broadband internet stimulate firm growth? In this paper, I analyze within-firm growth of established firms caused by the access to faster internet using geocoded social-security data. I identify firm responses to the access to the first generation of broadband internet and later speed upgrades by exploiting technological peculiarities of the broadband internet network. I find that firms with access to the first generation of broadband internet grow more slowly in employment while keeping their output growth constant. They reduce the share of low-skilled employment in their workforce. Further, I find that firms that receive access to later speed upgrades grow more in revenues and employment than firms that got access to the first generation of broadband internet but not to the upgrades. When getting access to higher internet speed, firms over-proportionally increase medium-skilled employment.
Keywords:
ICT; internet; firm growth; skill-bias; technology;
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Discussion Paper No. 257
Do Women Expect Wage Cuts for Part-Time Work?
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Wage expectations for full- and part-time employment are key for understanding the labor supply decisions of women. However, whether women expect different wages between part-time and full-time work is not fully understood. Using German survey data, I quantify the expected full-time/part-time wage differential for a representative sample of female workers. I document that women, on average, expect only minor part-time wage penalties (1-3 percent). Comparing beliefs to selectivity-adjusted estimates of the part-time wage gap indicates that women’s mean expectations are realistic. I also show that women with children and those in managerial positions expect sizeable part-time wage cuts, with mothers overestimating the part-time wage penalty.
Keywords:
expectations; female labor supply; part-time wage gap;
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Discussion Paper No. 256
Coordination under Loss Contracts
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In this paper we study the effects that loss contracts—prepayments that can be clawbacked later—have on group coordination when there is strategic uncertainty. We compare the choices made by experimental subjects in a minimum effort game. In control sessions, incentives are formulated as a classic gain contract, while in treatment sessions, incentives are framed as an isomorphic loss contract. Our results show that loss contracts reduce the minimum efforts of groups and worsen coordination between group members, both leading to lower payoffs. However, these results depend strongly on the group’s gender composition; groups with a larger proportion of women are better at coordinating and exert more effort.
Keywords:
strategic uncertainty; loss aversion; coordination; contract design; framing; experiment;
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Discussion Paper No. 255
Common Information-processing Irrationality as Trade Creator
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We show that a common (identical across investors) irrationality in information processing can be enough to create nontrivial trade, using one of standard partial-equilibrium environments. We can attribute this trade to their common irrationality because we strip the investors and their circumstances of all heterogeneities but purely age (in a sense experience), make investment horizon age-independent, and keep all information complete. The common irrationality in our model takes the form of a somewhat non-Bayesian information processing. The resulting trade between such essentially identical individuals with the very same irrationality in their information processing can also feature different kinds of mispricing.
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Discussion Paper No. 254
Bargaining and Time Preferences: An Experimental Study
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We generalize the Rubinstein (1982) bargaining model by disentangling payoff delay from bargaining delay. We show that our extension is isomorphic to generalized discounting with dynamic consistency and characterize the unique equilibrium. Using a novel experimental design to control for various confounds, we then test comparative statics predictions with respect to time discounting. All bargaining takes place within a single experimental session, so bargaining delay is negligible and dynamic consistency holds by design, while payoff delay per disagreement round is significant and randomized transparently at the individual level (week/month, with/without front-end delay). In contrast to prior experiments, we obtain strong behavioral support for the basic predictions that hold regardless of the details of discounting. Testing differential predictions of different forms of discounting, we strongly reject exponential discounting in favor of present-biased discounting.
Keywords:
alternating-offers bargaining; time preferences; present bias; laboratory experiments;
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Discussion Paper No. 253
Face Masks Increase Compliance with Physical Distancing Recommendations during the COVID-19 Pandemic
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Governments across the world have implemented restrictive policies to slow the spread of COVID-19. Recommended face mask use has been a controversially discussed policy, among others, due to potential adverse effects on physical distancing. Using a randomized field experiment (N=300), we show that individuals keep a significantly larger distance from someone wearing a face mask than from an unmasked person. According to an additional survey experiment (N=456), masked individuals are not perceived as being more infectious than unmasked ones, but they are believed to prefer more distancing. This result suggests that, in times where mask use is voluntary, wearing a mask serves as a social signal for a preferred greater distance that is respected by others. Our findings provide strong evidence against the claim that mask use creates a false sense of security that would negatively affect physical distancing.
Keywords:
COVID-19; health policy; compliance; face masks; risk compensation; field experiment;
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Discussion Paper No. 252
Objective Rationality Foundations for (Dynamic) α-MEU
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We show how incorporating Gilboa, Maccheroni, Marinacci, and Schmeidler’s (2010) notion of objective rationality into the α-MEU model of choice under ambiguity (Hurwicz, 1951) can overcome several challenges faced by the baseline model without objective rationality. The decision-maker (DM) has a subjectively rational preference ≥^, which captures the complete ranking over acts the DM expresses when forced to make a choice; in addition, we endow the DM with a (possibly incomplete) objectively rational preference ≥*, which captures the rankings the DM deems uncontroversial. Under the objectively founded α-MEU model, ≥^ has an α-MEU representation and ≥* has a unanimity representation à la Bewley (2002), where both representations feature the same utility index and set of beliefs. While the axiomatic foundations of the baseline α-MEU model are still not fully understood, we provide a simple characterization of its objectively founded counterpart. Moreover, in contrast with the baseline model, the model parameters are uniquely identified. Finally, we provide axiomatic foundations for prior-by-prior Bayesian updating of the objectively founded α-MEU model, while we show that, for the baseline model, standard updating rules can be ill-defined.
Keywords:
ambiguity; α-MEU; objective rationality; updating;
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Discussion Paper No. 251
Public Good Overprovision by a Manipulative Provider
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We study contracting between a public good provider and users with private valuations of the good. We show that, once the provider extracts the users' private information, she benefits from manipulating the collective information received from all users when communicating with them. We derive conditions under which such manipulation determines the direction of distortions in public good provision. If the provider is non-manipulative, the public good is always underprovided, whereas overprovision occurs with a manipulative provider. With overprovision, not only high-valuation users, but also low-valuation users may obtain positive rents - users may prefer facing a manipulative provider.
Keywords:
information manipulation; public goods;
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Discussion Paper No. 250
Sin taxes and Self-Control
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"Sin taxes" are high on the political agenda in the global fight against obesity. According to theory, they are welfare improving if consumers with low self-control are at least as price responsive as consumers with high self-control, even in the absence of externalities. In this paper, we investigate if consumers with low and high self-control react differently to sin tax variation. For identification, we exploit two sets of sin tax reforms in Denmark: first, the increase of the soft drink tax in 2012 and its repeal in 2014 and, second, the fat tax introduction in 2011 and its repeal in 2013. We assess the purchase response empirically using a detailed homescan household panel. Our unique dataset comprises a survey measure of self-control linked to the panelists, which we use to divide the sample into consumers with low and high levels of self-control. We find that consumers with low self-control reduce purchases less strongly than consumers with high self-control when taxes go up, but increase purchases to a similar extent when taxes go down. Hence, we document an asymmetry in the responsiveness to increasing and decreasing prices. We find empirical and theoretical support that habit formation shapes the differential response by self-control. The results suggest that price instruments are not an effective tool for targeting self-control problems.
Keywords:
self-control; soft drink tax; fat tax; sin tax; internality;
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Discussion Paper No. 249
Culture and Student Achievement: The Intertwined Roles of Patience and Risk-Taking
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Patience and risk-taking – two cultural traits that steer intertemporal decision-making – are fundamental to human capital investment decisions. To understand how they contribute to international differences in student achievement, we combine PISA tests with the Global Preference Survey. We find that opposing effects of patience (positive) and risk-taking (negative) together account for two-thirds of the cross-country variation in student achievement. In an identification strategy addressing unobserved residence-country features, we find similar results when assigning migrant students their country-of-origin cultural traits in models with residence-country fixed effects. Associations of culture with family and school inputs suggest that both may act as channels.
Keywords:
culture; patience; risk-taking; preferences; intertemporal decision-making; international student achievement; PISA;
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