Discussion Paper No. 214
November 9, 2021
Personality Traits Across the Life Cycle: Disentangling Age, Period, and Cohort Effects
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Despite the importance for socio-economic outcomes, there is an ongoing debate about the stability of personality traits over the life cycle. By disentangling age, period and cohort influences on personality traits, this paper adds to the existing empirical contributions, which often focus on age patterns and disregard cohort and period influences. We present the results from systematic specification tests that provide novel evidence for the separability of age, period, and cohort effects in almost all personality traits. Our estimates also document that for different cohorts, the evolution of personality traits across the life-cycle follows a stable, though non-constant, age-profile, while there are sizeable differences across time periods.
Keywords:
big five personality traits; locus of control; risk attitudes; age-period-cohort decomposition; life cycle;
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Discussion Paper No. 213
Does Relative Performance Information Lower Group Morale?
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In many organizations, productivity relies not just on individual effort but also on group morale, that is, the willingness of co-workers to help each other perform better at work. Relative performance evaluations (RPE) are known to increase individual work morale but may negatively affect group morale because they create a sense of competition among members of a reference group. In a novel experiment, I vary whether or not members of a reference group obtain relative performance information on a task that is relevant for their social image or selfimage, a general knowledge test. I measure how this affects the subsequent willingness to help the productivity of others by sharing knowledge with them at a personal cost. I find that RPE cause members of a reference group to compete as intensely as under relative pay, compared to a baseline with no relative performance information and fixed piece-rates. It also increases the perceived social distance between them. Yet, I show that even after a performance competition, individuals are willing to help the productivity of others in the group. These findings advance our understanding of how relative concerns among co-workers affect the way they work together.
Keywords:
relative performance information; rank feedback; social incentives; on-the-job help; group productivity; social and self-image; experiment;
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Discussion Paper No. 212
Working Life and Human Capital Investment: Causal Evidence from Pension Reform
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In this paper we present a life-cycle model with human capital investment during working life through training and provide a novel empirical test of human capital theory. Using a sizable pension reform which shifts the retirement age between two adjacent cohorts by three years, we document causal evidence that an increase in the working life increases investment into human capital through training. We estimate this effect using a regression discontinuity design based on a large sample from the German microcensus. We discuss and test further predictions regarding the relation between initial schooling, training, and the reform effect and show that only individuals with a college degree increase human capital investment. Our results speak to a large class of human capital models as well as policies extending or shortening working life.
Keywords:
human capital; retirement policies; RDD;
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Discussion Paper No. 211
Are Strategies Anchored?
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Anchoring is one of the most studied and robust behavioral biases, but there is little knowledge about its persistence in strategic settings. This article studies the role of anchoring bias in private-value auctions. We test experimentally two different anchor types. The announcement of a random group identification number but also of an upper bid limit in the first-price sealed-bid auction result in higher bids. We show that such behavior can be explained as a rational response to biased beliefs. In Dutch auctions, the effect of a starting price, is negative. We demonstrate that the long-established ranking that the Dutch auction generates lower revenue than the first-price sealed-bid auction crucially depends on the size of the anchor.
Keywords:
anchoring bias; games; incomplete information; auctions;
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Discussion Paper No. 210
Risk-Taking under Limited Liability: Quantifying the Role of Motivated Beliefs
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This paper investigates whether limited liability affects risk-taking through motivated beliefs. To do so, we run a within-subject experiment in which subjects invest in a risky asset under full or limited liability. In both cases, before the investment is made, subjects observe a noisy signal that indicates whether the investment will succeed or fail. They then state the likelihood of the investment's success and decide how much to invest. Our results show a strong effect of limited liability on both the investment decision and the formation of motivated beliefs. Compared to subjects under full liability, subjects under limited liability not only invest larger amounts but are also significantly more optimistic about the success of their investments. Finally, we show that more than one-third of the increase in investment under limited liability can be explained through motivated beliefs.
Keywords:
limited liability; motivated beliefs; experiment;
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Discussion Paper No. 209
Delegation, Promotion, and Manager Selection
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Promotions serve two purposes. They ought to provide incentives for employees and to select the best employee for a management position. However, if non-contractible managerial decision rights give rise to private benefits and preference misalignment between managers and the firm, these two purposes are in conflict. This is because the worker with the largest private benefit as a manager has the strongest incentives to work hard to get promoted. This article shows how the interplay of managerial decision rights and performance-based promotions leads to a situation often referred to as the Peter principle: employees that create lower expected profits as managers have yet better promotion prospects. That finding still holds when the firm owner optimally chooses the promotion rule, the degree of delegation, and wage payments to both employees and managers. To optimize organizational design, the firm balances better worker incentivization but worse manager selection by using performance-based promotions and restricting managerial decision rights.
Keywords:
peter principle; promotion; delegation of decision rights; incentives; manager selection; organizational design;
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Discussion Paper No. 208
School Choice and Loss Aversion
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Extensive evidence suggests that participants in the direct student-proposing deferred-acceptance mechanism (DSPDA) play dominated strategies. In particular, students with low priority tend to misrepresent their preferences for popular schools. To explain the observed data, we introduce expectationbased loss aversion into a school-choice setting and characterize choiceacclimating personal equilibria in DSPDA. Truthful equilibria can fail to exist, and DSPDA might implement unstable and more ineffi cient allocations in both small and large markets. Speci fically, it discriminates against students who are more loss averse or less overconfident than their peers, and amplifi es already existing (or perceived) discrimination. To level the playing field, we propose serial dictatorship mechanisms as a strategyproof and stable alternative that is robust to these biases.
Keywords:
market design; matching; school choice; reference-dependent preferences; loss aversion; deferred acceptance;
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Discussion Paper No. 207
Rural Transformation, Inequality, and the Origins of Microfinance
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What determines the development of rural financial markets? Starting from a simple theoretical framework, we derive the factors shaping the market entry of rural microfinance institutions across time and space. We provide empirical evidence for these determinants using the expansion of credit cooperatives in the 236 eastern counties of Prussia between 1852 and 1913. This setting is attractive as it provides a free market benchmark scenario without public ownership, subsidization, or direct regulatory intervention. Furthermore, we exploit features of our historical set-up to identify causal effects. The results show that declining agricultural staple prices, as a feature of structural transformation, leads to the emergence of credit cooperatives. Similarly, declining bank lending rates contribute to their rise. Low asset sizes and land inequality inhibit the regional spread of cooperatives, while ethnic heterogeneity has ambiguous effects. We also offer empirical evidence suggesting that credit cooperatives accelerated rural transformation by diversifying farm outputs.
Keywords:
microfinance; credit cooperatives; rural transformation; land inequality; prussia;
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Discussion Paper No. 206
Nonparametric Regression with Selectively Missing Covariates
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We consider the problem of regressions with selectively observed covariates in a nonparametric framework. Our approach relies on instrumental variables that explain variation in the latent covariates but have no direct e ffect on selection. The regression function of interest is shown to be a weighted version of observed conditional expectation where the weighting function is a fraction of selection probabilities. Nonparametric identifi cation of the fractional probability weight (FPW) function is achieved via a partial completeness assumption. We provide primitive functional form assumptions for partial completeness to hold. The identi fication result is constructive for the FPW series estimator. We derive the rate of convergence and also the pointwise asymptotic distribution. In both cases, the asymptotic performance of the FPW series estimator does not suff er from the inverse problem which derives from the nonparametric instrumental variable approach. In a Monte Carlo study, we analyze the finite sample properties of our estimator and we demonstrate the usefulness of our method in analyses based on survey data. We also compare our approach to inverse probability weighting, which can be used alternatively for unconditional moment estimation. In the empirical application, we focus on two diff erent applications. We estimate the association between income and health using linked data from the SHARE survey data and administrative pension information and use pension entitlements as an instrument. In the second application we revisit the question how income aff ects the demand for housing based on data from the Socio-Economic Panel Study. In this application we use regional income information on the residential block level as an instrument. In both applications we show that income is selectively missing and we demonstrate that standard methods that do not account for the nonrandom selection process lead to signi ficantly biased estimates for individuals with low income.
Keywords:
selection model; instrumental variables; fractional probability weighting; nonparametric identification; partial completeness; incomplete data; series estimation; income distribution; health;
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Discussion Paper No. 205
The Dynamic Impact of FX Interventions on Financial Markets
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Evidence on the effectiveness of FX interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Applying this approach to the most important, freely floating currencies, we find that FX intervention shocks significantly affect exchange rates and that this impact persists for months. We show for Japan and the US that interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.
Keywords:
foreign exchange intervention; structural VAR; exchange rates; interest rates; stock prices;
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