Discussion Paper No. 463
November 24, 2023
Robust Decision-Making under Risk and Ambiguity
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Abstract:
Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model’s implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision problem to misspecification, and ultimately leads to post-decision disappointment. Using statistical decision theory, we develop a framework to explore, evaluate, and optimize robust decision rules that explicitly account for estimation uncertainty. We show how to operationalize our analysis by studying robust decisions in a stochastic dynamic investment model in which a decision-maker directly accounts for uncertainty in the model’s transition dynamics.
Keywords:
decision-making under uncertainty; robust Markov decision process;
JEL-Classification:
D81; C44; D25;
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Discussion Paper No. 457
November 21, 2023
Promotion Prospects and Within-level Wage Growth: A Decomposition of the Part-time Penalty for Women
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I study the life-cycle pattern of part-time employment and its impact on wage growth in female careers. I show that the part-time wage penalty consists of two essential components: i) a penalty for promotions and ii) a within-career-level wage penalty. Using dynamic structural modeling, I quantify the relative importance of the channels. The penalty for working half a day for two consecutive years in one's early thirties is one Euro per hour. 70% of it is due to slowdowns in experience accumulation within career levels. A part-time spell of four years marks the point at which forgone chances of promotion and within-level wage losses contribute to the wage penalty to an equal degree. Counterfactual simulations demonstrate that financial incentives to increase the time spent working can be well complemented by policies which ensure that experienced young women are promoted early in their careers.
Keywords:
wage growth; female labor supply; part-time employment; promotions;
JEL-Classification:
J21; J21; J24; J31;
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Discussion Paper No. 452
November 13, 2023
In-utero Exposure to Violence and Child Health in Iraq
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This paper examines the impact of exposure to violence during pregnancy on anthropometric and cognitive outcomes of children in the medium-run. I combine detailed household-level data on more than 36,000 children with geo-coded information on civilian casualties in the aftermath of the US invasion of Iraq between 2003 and 2009 and exploit within mother differences in prenatal exposure to violence. I find that one violent incident during pregnancy decreases height and weight for age scores by 0.13 standard deviations and lowers cognitive and behavioral skills of children. Leveraging information on the severity, type and perpetrator of violence, I isolate the effect of stress from access to prenatal care. I show that the results hold when restricting attention to incidents with little impact on the local infrastructure and are largest for more stressful events; primarily those that target the civilian population and involve execution and torture.
Keywords:
stress; child health; Iraq;
JEL-Classification:
I12; J13; O15;
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Discussion Paper No. 451
Chinese Aid in Africa: Attitudes and Conflict
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This study examines Chinese aid projects’ impact on conflict and perceptions of China in 820 African districts from 2000 to 2012. We show that a 10% increase in Chinese aid projects results in a 6% increase in conflict incidents. This rise is mainly due to confrontations involving non-state actors, such as militias and rebel groups, and clashes between these groups and government forces. Civilian attitudes toward China’s presence do not drive this increase, as evidenced by both revealed and stated preferences. We find that Chinese aid does not provoke protests, riots, or strikes, nor does it amplify critical views among Africans regarding Chinese culture, resource extraction, or land acquisitions. Our evidence suggests that Africans attribute the rise in conflict to the interaction of resource influx and local politics, rather than to China itself, reflecting a discerning perspective on China’s influence on the continent.
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JEL-Classification:
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Discussion Paper No. 411
July 28, 2023
Biased Wage Expectations and Female Labor Supply
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Wage growth occurs almost exclusively in full-time work, whereas it is close to zero in part-time work. German women, when asked to predict their own potential wage outcomes, show severely biased expectations with strong over-optimism about the returns to part-time experience. We estimate a structural life-cycle model to quantify how beliefs influence labor supply, earnings and welfare over the life cycle. The bias increases part-time employment strongly, induces flatter long-run wage profiles, and substantially influences the employment effects of a widely discussed policy reform, the introduction of joint taxation. The most significant impact of the bias appears for college-educated women.
Keywords:
returns to experience; biased beliefs; part-time work; dynamic life-cycle models; ;
JEL-Classification:
D63; H23; I24; I38; J22; J31;
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Discussion Paper No. 384
February 14, 2023
Scared Straight? Threat and Assimilation of Refugees in Germany
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This paper studies the effects of local threat on cultural and economic assimilation of refugees, exploiting plausibly exogenous variation in their allocation across German regions between 2013 and 2016. We combine novel survey data on cultural preferences and economic outcomes of refugees with corresponding information on German respondents, and construct a threat index that integrates contemporaneous and historical variables. On average, refugees assimilate both culturally and economically. However, while refugees assigned to more hostile regions converge to German culture more quickly, they do not exhibit faster economic assimilation. Our evidence suggests that refugees exert more assimilation effort in response to local threat, but that higher discrimination prevents them from integrating more quickly in more hostile regions.
Keywords:
refugees; cultural change; assimilation; identity;
JEL-Classification:
F22; J15; Z10;
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Discussion Paper No. 372
January 23, 2023
Causal Misperceptions of the Part-Time Pay Gap
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This paper studies if workers infer from correlation about causal effects in the context of the part-time wage penalty. Differences in hourly pay between full-time and part-time workers are strongly driven by worker selection and systematic sorting. Ignoring these selection effects can lead to biased expectations about the consequences of working part-time on wages (`selection neglect bias'). Based on representative survey data from Germany, I document substantial misperceptions of the part-time wage gap. Workers strongly overestimate how much part-time workers in their occupation earn per hour, whereas they are approximately informed of mean full-time wage rates. Consistent with selection neglect, those who perceive large hourly pay differences between full-time and part-time workers also predict large changes in hourly wages when a given worker switches between full-time and part-time employment. Causal analyses using a survey experiment reveal that providing information about the raw part-time pay gap increases expectations about the full-time wage premium by factor 1.7, suggesting that individuals draw causal conclusions from observed correlations. De-biasing respondents by informing them about the influence of worker characteristics on observed pay gaps mitigates selection neglect. Subjective beliefs about the part-time/full-time wage gap are predictive of planned and actual transitions between full-time and part-time employment, necessitating the prevention of causal misperceptions.
Keywords:
part-time pay gap; wage expectations; selection neglect; causal misperceptions;
JEL-Classification:
J31; D83; D84;
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Discussion Paper No. 363
January 4, 2023
The Effect of Pension Wealth on Employment
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This study provides novel evidence about the pension wealth elasticity of employment. For the identification we exploit reform-induced variation of pension wealth that is related to the number of children but which does not affect the implicit tax rate of employment. We use a difference-in-differences estimator based on administrative data from the German pension insurance and find that, on average, the negative employment effect of pension wealth is significant and economically important. Heterogeneity analyses document a strong age pattern showing that the employment effects are driven by behavioral responses of women close to retirement. The age pattern is partly explained by the positive effect of pension wealth on disability pensions after the age of 60.
Keywords:
pension reform; pension wealth elasticity; female labour supply; retirement; difference in differences;
JEL-Classification:
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Discussion Paper No. 337
November 30, 2022
Non-Additivity of Subjective Expectations over Different Time Intervals
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We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents' degree of additivity is correlated with making larger financial investments.
Keywords:
expectation formation; time perception; sub-additivity; super-additivity;
JEL-Classification:
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Discussion Paper No. 325
April 25, 2022
Explicit and Implicit Belief-Based Gender Discrimination: A Hiring Experiment
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Understanding discrimination is key for designing policy interventions that promote equality in society. Economists have studied the topic intensively, typically taxonomizing discrimination as either taste-based or (accurate) statistical discrimination. To reveal the limitations of this taxonomy and enrich it psychologically, we design a hiring experiment that rules out (by design) both of these sources of discrimination with respect to gender. Yet, we still detect substantial discrimination against women. We provide evidence of two forms of discrimination, explicit and implicit belief-based discrimination. Both rely on statistically inaccurate beliefs but differ in how clearly they reveal that the choice was based on gender. Our analysis highlights the central role played by contextual features of the choice setting in determining whether and how discrimination will manifest. We conclude by discussing how policy makers may design effective regulation to address the specific forms of discrimination identified in our experiment.
Keywords:
discrimination; hiring decisions; gender; beliefs; experiment;
JEL-Classification: