Discussion Paper No. 101
November 5, 2021
Labor Market and Distributional Effects of an Increase in the Retirement Age
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We evaluate the labor market and distributional effects of an increase in the early retirement age (ERA) from 60 to 63 for women. We use a regression discontinuity design which exploits the immediate increase in the ERA between women born in 1951 and 1952. The analysis is based on the German micro census which includes about 370,000 households per year. We focus on heterogeneous labor market effects on the individual and on the household level and we study the distributional implications using net household income. In this respect we extend the previous literature which mainly studied employment effects on the individual level. Our results show sizable labor market effects which strongly differ by subgroups. We document larger employment effects for women who cannot rely on other income on the household level, e.g. women with a low income partner. The distributional analysis shows on average no significant effects on female or household income. This result holds as well for heterogeneous groups: Even for the most vulnerable groups, such as single women, women without higher education, or low partner income, we do not find significant reductions in income. One reason for this result is program substitution.
Keywords:
retirement age; pension reform; labor supply; early retirement; distributional effects; spillover effects; household;
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Discussion Paper No. 89
November 4, 2021
Welfare-Base Altruism
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Why do people give when asked, but prefer not to be asked, and even take when possible? We show that standard behavioral axioms including separability, narrow bracketing, and scaling invariance predict these seemingly inconsistent observations. Specifically, these axioms imply that interdependence of preferences ("altruism") results from concerns for the welfare of others, as opposed to their mere payoffs, where individual welfares are captured by the reference-dependent value functions known from prospect theory. The resulting preferences are non-convex, which captures giving, sorting, and taking directly. Re-analyzing choices of 981 subjects in 83 treatments covering many variants of dictator games, we find that individual reference points are distributed consistently across studies, allowing us to classify subjects as either non-givers, altruistic givers, or social pressure givers and use welfare-based altruism to reliably predict giving, sorting, and taking across experiments.
Keywords:
social preferences; axiomatic foundation; robustness; giving; charitable donations;
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Discussion Paper No. 78
The Axiomatic Foundation of Logit
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Multinomial logit is the canonical model of discrete choice but widely criticized for requiring functional form assumptions as foundation. The present paper shows that logit is behaviorally founded without such assumptions. Logit's functional form obtains if relative choice probabilities are independent of irrelevant alternatives and invariant to utility translation, to relabeling options (presentation independence), and to changing utilities of third options (context independence). Reviewing behavioral evidence, presentation and context independence seem to be violated in typical experiments, though not IIA and translation invariance. Relaxing context independence yields contextual logit (Wilcox, 2011), relaxing presentation independence allows to capture "focality" of options.
Keywords:
stochastic choice; logit; axiomatic foundation; behavioral evidence; utility estimation;
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Discussion Paper No. 77
Specification Testing in Random Coefficient Models
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In this paper, we suggest and analyze a new class of specification tests for random coefficient models. These tests allow to assess the validity of central structural features of the model, in particular linearity in coefficients, generalizations of this notion like a known nonlinear functional relationship, or degeneracy of the distribution of a random coefficient, i.e., whether a coefficient is fixed or random, including whether an associated variable can be omitted altogether. Our tests are nonparametric in nature, and use sieve estimators of the characteristic function. We provide formal power analysis against global as well as against local alternatives. Moreover, we perform a Monte Carlo simulation study, and apply the tests to analyze the degree of nonlinearity in a heterogeneous random coefficients demand model. While we find some evidence against the popular QUAIDS specification with random coefficients, it is not strong enough to reject the specification at the conventional significance level.
Keywords:
nonparametric; specification; testing; random coefficients; unobserved heterogeneity; sieve estimation; characteristic function; consumer demand;
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Discussion Paper No. 73
An Experiment on Social Mislearning
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We investigate experimentally whether social learners appreciate the redundancy of information conveyed by their observed predecessors' actions. Each participant observes a private signal and enters an estimate of the sum of all earlier-moving participants' signals plus her own. In a first treatment, participants move single-file and observe all predecessors' entries; Bayesian Nash Equilibrium (BNE) predicts that each participant simply add her signal to her immediate predecessor's entry. Although 75% of participants do so, redundancy neglect by the other 25% generates excess imitation and mild inefficiencies. In a second treatment, participants move four per period; BNE predicts that most players anti-imitate some observed entries. Such anti-imitation occurs in 35% of the most transparent cases, and 16% overall. The remaining redundancy neglect creates dramatic excess imitation and inefficiencies: late-period entries are far too extreme, and on average participants would earn substantially more by ignoring their predecessors altogether.
Keywords:
social learning; redundancy neglect; experiments; higher-order beliefs;
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Discussion Paper No. 66
Learning From Unrealized versus Realized Prices
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Our experiments investigate the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. In simultaneous markets with bids that are conditional on the price, traders neglect the information conveyed by the hypothetical value of the price. In sequential markets where the price is known prior to the bid submission, traders react to price to an extent that is roughly consistent with the benchmark theory. The difference's robustness to a number of variations provides insights about the drivers of this effect.
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Discussion Paper No. 59
Testing Missing At Random Using Instrumental Variables
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This paper proposes a test for missing at random (MAR). The MAR assumption is shown to be testable given instrumental variables which are independent of response given potential outcomes. A nonparametric testing procedure based on integrated squared distance is proposed. The statistic's asymptotic distribution under the MAR hypothesis is derived. In particular, our results can be applied to testing missing completely at random (MCAR). A Monte Carlo study examines finite sample performance of our test statistic. An empirical illustration analyzes the nonresponse mechanism in labor income questions.
Keywords:
C12; C14;
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Discussion Paper No. 58
Nonparametric Estimation in Case of Endogenous Selection
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This paper addresses the problem of estimation of a nonparametric regression function from selectively observed data when selection is endogenous. Our approach relies on independence between covariates and selection conditionally on potential outcomes. Endogeneity of regressors is also allowed for. In the exogenous and endogenous case, consistent two-step estimation procedures are proposed and their rates of convergence are derived. Pointwise asymptotic distribution of the estimators is established. In addition, bootstrap uniform confidence bands are obtained. Finite sample properties are illustrated in a Monte Carlo simulation study and an empirical illustration.
Keywords:
endogenous selection; instrumental variable; sieve minimum distance; regression estimation; inverse problem; inverse probability weighting; convergence rate; asymptotic normality; bootstrap uniform confidence bands;
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Discussion Paper No. 50
November 3, 2021
Why Should Majority Voting Be Unfair?
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The common use of majority rule in group decision making is puzzling. In theory, it inequitably favors the proposer, and paradoxically, it disadvantages voters further if they are inequity averse. In practice, however, outcomes are equitable. The present paper analyzes data from a novel experimental design to identify the underlying social preferences. Our experiment compares one-shot and indefinite horizon versions of random-proposer majority bargaining (the Baron-Ferejohn game) which allow us to disentangle behaviors compatible with altruism, inequity aversion, and reference dependent altruism. Most subjects are classified as reference-dependent altruists, around 10% are inequity averse. Subjects are egoistic when their payoff is below their reference point, they become efficiency concerned when satisfied, and the reference point is either the ex ante expectation or the opponent's payoff. Finally, we successfully test RDA out-of-sample on a number of distribution and bargaining games from three seminal social preference experiments.
Keywords:
bargaining; voting; experiment; social preferences; quantal response equilibrium;
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Discussion Paper No. 38
Time Preferences and Bargaining
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This paper presents an analysis of general time preferences in the canonical Rubinstein (1982) model of bargaining, allowing for arbitrarily history-dependent strategies. I derive a simple sufficient structure for optimal punishments and thereby fully characterize (i) the set of equilibrium outcomes for any given preference profile, and (ii) the set of preference profiles for which equilibrium is unique. Based on this characterization, I establish that a weak notion of present bias—implied, e.g., by any hyperbolic or quasi-hyperbolic discounting—is sufficient for equilibrium to be unique, stationary and efficient. Conversely, I demonstrate how certain violations of present bias give rise to multiple (non-stationary) equilibria that feature delayed agreement under gradually increasing offers.
Keywords:
time preferences; dynamic inconsistency; alternating offers; bargaining; optimal punishments; delay;
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