Discussion Paper No. 186
November 9, 2021
Financial Literacy and Intra-Household Decision Making: Evidence from Rwanda
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Research has consistently shown that women’s involvement in household decision making positively affects household outcomes such as nutrition and education of children. Is financial literacy a determinant for women to participate in intra-household decision making? Using data on savings groups in Rwanda, we examine this relationship and show that women with higher financial literacy are more involved in financial and expenditure decisions. Instrumental Variable estimations confirm a causal link. For this reason, we perform a decomposition analysis breaking down the gender gap in financial literacy into differences based on observed sociodemographic and psychological characteristics and differences in returns on these characteristics. Our results show high explanatory power by education, happiness, symptoms of depression, and openness, but also suggest that a substantial fraction can be explained by differences in returns. We argue that this results from a strong role of society and culture.
Keywords:
financial literacy; women empowerment; intra-household decision making;
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Discussion Paper No. 185
Coupled Lotteries - A New Method to Analyze Inequality Aversion
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We develop and implement a new measure for inequality aversion: two peers are endowed with identical binary lotteries and the only choice they make is whether they want to play out the lotteries independently or with perfect positive correlation (coupling). Coupling has no other e ect than preventing outcome inequality. We implement the method in a survey in rural Thailand as well as a supplemental sample in a lab in Germany. As theoretically expected, coupling is related to being more risk averse, to having social status concerns, and to relying more often on formal and informal insurance. However, coupling is not related to giving in the dictator game.
Keywords:
inequality aversion; correlated risk; social status concerns;
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Discussion Paper No. 184
The Wage Penalty of Regional Accents
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Previous work has documented that speaking one’s native language with an accent distinct from the mainstream is associated with lower wages. In this study, we seek to estimate the causal effect of speaking with a distinctive regional accent, disentangling the effect of the accent from that of omitted variables. We collected data on workers’ speech in Germany, a country with wide variation in regional dialects. We use a variety of strategies in estimation, including an instrumental variables strategy in which the instruments are based on research findings from the linguistics of accent acquisition. All of our estimators show that speaking with a distinctive regional accent reduces wages by an amount that is comparable to the gender wage gap. We also find that workers with distinctive regional accents tend to sort away from occupations that demand high levels of face-to-face contact, consistent with various occupational sorting models.
Keywords:
accent; dialect; wage penalty; discrimination; SOEP;
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Discussion Paper No. 183
The More the Merrier? On the Optimality of Market Size Restrictions
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This paper provides a novel rationale for the regulation of market size when heterogeneous firms compete. A regulator seeks to maximize total welfare by choosing the number of firms allowed to enter the market, e.g. by issuing a certain number of licenses. Opening up the market for more firms has a two-fold effect: it increases competition and thus welfare, but at the same time, it also attracts more cost-intensive firms, driving down average production efficiency. The regulator hence faces a trade-off between raising beneficial competition and detrimental costs. If goods are sufficiently substitutable, the latter effect can outweigh the former. It is then optimal to restrict the market size, rationalizing a limit to competition. This result holds even in the absence of entry costs, search costs or increasing returns to scale, which previous literature required.
Keywords:
regulation; imperfect competition; oligopolies;
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Discussion Paper No. 182
Student Performance and Loss Aversion
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In this paper, we match data on student performance in a multiple-choice exam with data on student risk preferences that are extracted from a classroom experiment. We find that more-loss-averse students leave more questions unanswered and perform worse in the multiple-choice exam when giving an incorrect answer is penalized compared to not answering. We provide evidence that loss aversion parameters extracted from lottery choices in a controlled experiment have predictive power in a field environment of decision making under uncertainty. Furthermore, the degree of loss aversion appears to be persistent over time, as the experiment was conducted three months prior to the exam. We also find important differences across genders; they are partly explained by differences in loss aversion.
Keywords:
loss aversion; decision making under uncertainty; multiple choice;
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Discussion Paper No. 181
Does Experience Shape Subjective Expectations?
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This paper documents that individuals' expectations about macroeconomic outcomes are systematically linked with the experiences of these macroeconomic outcomes they have made during life. Focusing on expectations about national inflation, national unemployment and national business conditions, I measure individual-specific experiences as weighted averages of these variables over the respondents' lifetime, respectively. I find that experience significantly predicts respondents' expectations in each of these domains and show that individuals generally put more weight on recent rather than distant years when aggregating past information. The empirical model also allows for heterogeneity with respect to observed socio-economic characteristics. The estimates suggest the existence of a gender effect. Compared to females, males put relatively more weight on distant years when aggregating past information, and the association between expectations and past experiences is generally weaker for men.
Keywords:
expectations; experience; inflation; unemployment; business conditions;
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Discussion Paper No. 180
November 8, 2021
Cash in Hand and Savings Decisions
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Cash is an important means of transaction, generally assumed to be fungible. However, behavioral economics and consumer research show that 'cash in hand', physically holding on to cash and then handing it away, affects purchasing decisions. I study how cash in hand influences decisions in a different but very important domain: savings. Savings accounts are a promising tool for reducing poverty, but the use of savings accounts is often puzzlingly low. Holding on to cash that needs to be physically deposited into a savings account may increase the psychological costs of saving. This study experimentally identifies the causal effect of cash in hand on savings deposits of microfinance clients in the Philippines. In contrast to many laboratory and several field studies with similar interventions, I do not find reduced savings deposits due to cash in hand. I discuss reasons for and consequence of this surprising finding, in particular for developing economics where lots of transactions are still cash-based.
Keywords:
cash; savings; experiment;
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Discussion Paper No. 179
How to Avoid Black Markets for Appointments with Online Booking Systems
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Allocating appointment slots is presented as a new application for market design. We consider online booking systems that are commonly used by public authorities to allocate appointments for driver's licenses, visa interviews, passport renewals, etc. We document that black markets for appointments have developed in many parts of the world. Scalpers book the appointments that are offered for free and sell the slots to appointment seekers. We model the existing first-come-first-served booking system and propose an alternative system. The alternative system collects applications for slots for a certain time period and then randomly allocates slots to applicants. We investigate the two systems under conditions of low and high demand for slots. The theory predicts and lab experiments confirm that scalpers profitably book and sell slots under the current system with high demand, but that they are not active in the proposed new system under both demand conditions.
Keywords:
market design; online booking system; first come first served; scalping;
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Discussion Paper No. 178
Managerial Payoff and Gift-Exchange in the Field
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We conduct a field experiment where we vary both the presence of a gift-exchange wage and the effect of the worker's effort on the manager's payoff. Results indicate a strong complementarity between the initial wage-gift and the agent's ability to "repay the gift". We control for differences in ability and reciprocal inclination and show that gift-exchange is more effective with more reciprocal agents. We present a principal-agent model with reciprocal subjects that motivates our findings. Our results help to reconcile the conflicting evidence on the efficacy of gift-exchange outside the lab.
Keywords:
incentives; field experiments; gift-exchange; reciprocity;
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Discussion Paper No. 177
Should There Be Lower Taxes On Patent Income?
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A "patent box" is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patents filed at the European Patent Office, including information on ownership transfers pre- and post-grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.
Keywords:
patent box; ip box; innovation tax; beps; epo; invention incentive; patent ownership;
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