Discussion Paper No. 19
November 3, 2021
The 2016 Nobel Memorial Prize in Contract Theory
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Oliver Hart and Bengt Holmström were awarded the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for their fundamental contributions to contract theory. This article offers a short summary and discussion of their path breaking work.
Keywords:
contract theory; nobel prize; optimal incentive schemes; incomplete contracts;
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Discussion Paper No. 18
Relative Consumption Preferences and Public Provision of Private Goods
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This paper shows that the public provision of private goods may be justified on pure efficiency grounds in an environment where individuals have relative con- sumption concerns. By providing private goods, governments directly intervene in the consumption structure, and thereby have an instrument to correct for the ex- cessive consumption of positional goods. We identify sufficient conditions when the public provision of private goods is always Pareto-improving, even when (linear) consumption taxes are available. In fact, with the public provision of private goods, there are cases where first-best allocations can be achieved, and a luxury tax on the positional good is redundant.
Keywords:
public provision; social preferences; status-seeking;
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Discussion Paper No. 17
Sender-Receiver Games with Cooperation
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We consider generalized sender-receiver games in which the sender also has a decision to make, but this decision does not directly a§ect the receiver. We introduce speciÖc perfect Bayesian equilibria, in which the players agree on a joint decision after that a message has been sent (ìtalk and cooperate equilibrium,î TCE). We establish that a TCE exists provided that the receiver has a ìuniform punishment decisionî (UPD) against the sender.
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Discussion Paper No. 16
Matching Donations Without Crowding Out?
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Is there a way of matching donations that avoids crowding out? We introduce a novel matching method where the matched amount is allocated to a different project, present some simple theoretical considerations that predict reduced crowding out or crowding in (depending on the degree of substitutability between the two projects) and present evidence from a large- scale natural field experiment and a laboratory experiment. Similar to findings in the literature, conventional matching for the same project results in partial crowding out in the field experiment and, as predicted, crowding out is reduced under the novel matching scheme. The lab experiment provides more fine-tuned evidence for the change in crowding and yields further support for the theory: the novel matching method works best when the two projects are complements rather than substitutes.
Keywords:
charitable giving; matched fundraising; natural field experiment;
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Discussion Paper No. 15
Meta-Search and Market Concentration
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Competing intermediaries search on behalf of consumers among a large number of hor- izontally differentiated sellers. Consumers either pick the best deal offered by a random in- termediary, or compare the intermediaries. A higher number of deal finders has the direct effect of decreasing their search effort, but also increases the incentives for consumers to be- come informed. A higher share of informed consumers in turns increases the search effort of deal finders, so that the sign of the total effect is ambiguous. If the total effect of lower concentration is to increase search effort, it always decreases the price offered by sellers.
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Discussion Paper No. 14
Gender Differences in Tournament Choices: Risk Preferences, Overconfidence or Competitiveness?
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A large number of recent experimental studies show that women are less likely to sort into competitive environments. While part of this effect may be explained by gender differences in risk attitudes and overconfidence, previous studies have attributed the majority of the gender gap to gender differences in a separate ‘competitiveness’ trait. We re-examine this result using a novel experimental technique that allows us to separate competitiveness from alternative explanations by experimental design. In contrast to the literature, our results imply that the whole gender gap is driven by risk attitudes and overconfidence, which has important implications for future research.
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Discussion Paper No. 13
Measuring Applicant Quality to Detect Discrimination In Peer-to-Peer Lending
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We measure the quality of applications for online peer-to-peer lend- ing in Germany and relate it to gender discrimination. The data context allows summarizing application quality as a single numeric measure, the expected internal rate of return. The measure serves as a control variable and is interacted with the applicants’ gender. We find that women enjoy higher funding rates than men, mainly be- cause they are less punished when they offer a low application qual- ity. The evidence is consistent with the hypothesis that the predom- inantly male lenders have a less precise understanding of women’s applications than of men’s applications.
Keywords:
gender discrimination; household finance; irrational beliefs;
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Discussion Paper No. 12
Auction versus Negotiations
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For the procurement of complex goods the early exchange of informa- tion is important to avoid costly renegotiation. If the buyer can specify the main characteristics of possible design improvements in a complete contingent contract, a scoring auction implements the efficient allocation. If this is not feasible, the buyer must choose between a price-only auction (discouraging early information exchange) and bilateral negotiations with a preselected seller (reducing compe- tition). Bilateral negotiations are superior if potential design improvements are important, if renegotiation is particularly costly, and if the buyer’s bargaining position is strong. Moreover, negotiations provide stronger incentives for sellers to investigate design improvements.
Keywords:
adaption costs; auctions; behavioral contract theory; loss aversion; negotiations; procurement; renegotiation;
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Discussion Paper No. 11
The Power of Sunspots: an Experimental Analysis
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This paper presents an experiment on a coordination game with extrinsic random signals, in which we systematically vary the stochastic process generating these signals and measure how signals affect be- havior. We find that sunspot equilibria emerge naturally if there are salient public signals. However, highly correlated private signals can also lead to sunspot-driven behavior, even when this is not an equi- librium. Private signals reduce the power of public signals as sunspot variables. The higher the correla- tion of extrinsic signals and the more easily they can be aggregated, the more powerful these signals are in distracting actions from the action that minimizes strategic uncertainty.
Keywords:
coordination games; strategic uncertainty; sunspot equilibria; forward guidance; expectations;
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Discussion Paper No. 21
A Framework for Separating Individual Treatment Effects From Spillover, Interaction and General Equilibrium Effects
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This paper suggests a causal framework for disentangling individual level treatment effects and interference effects, i.e., general equilibrium, spillover, or interaction effects related to treatment distribution. Thus, the framework allows for a relaxation of the Stable Unit Treatment Value Assumption (SUTVA), which assumes away any form of treatment-dependent interference between study participants. Instead, we permit interference effects within aggregate units, for example, regions or local labor markets, but need to rule out interference effects between these aggregate units. Borrowing notation from the causal mediation literature, we define a range of policy-relevant effects and formally discuss identification based on randomization, selection on observables, and difference-in-differences. We also present an application to a policy intervention extending unemployment benefit durations in selected regions of Austria that arguably affected ineligibles in treated regions through general equilibrium effects in local labor markets.
Keywords:
treatment effect; general equilibrium effects; spillover effects; interaction effects; interference effects; inverse probability weighting; propensity score; mediation analysis; difference-in-differences;
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