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Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation

Edgar Vogel, Alexander Ludwig and Axel Börsch-Supan
University of Cologne, Working Paper Series in Economics No. 59, 2013

JEL codes: C68, E17, E25, J11, J24

Keywords: population aging, human capital, welfare, pension reform, retirement age, open economy

Projected demographic changes in industrialized and developing countries vary in extent and timing but will reduce the share of the population in working age everywhere. Conventional wisdom suggests that this will increase capital intensity with falling rates of return to capital and increasing wages. This decreases welfare for middle aged agents with assets accumulated for retirement. This paper addresses three important adjustments channels to dampen these detrimental effects of ageing: investing abroad, endogenous human capital formation and increasing the retirement age. Although non of these suggestions is new in itself, we examine their effects jointly in one coherent model. Our quantitative finding is that openness has a relatively mild effect. In contrast, endogenous human capital formation in combination with an increase in the retirement age has strong effects. Under these adjustments maximum welfare losses of demographic change for households alive in 2010 are reduced by about 3 percentage points.

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On the role of endowment heterogeneity and ambiguity for conditional cooperation

Felix Ebeling
University of Cologne, Working Paper Series in Economics No. 58, 2013

JEL codes: C91, D63, H41

Keywords: public good, donation, conditional cooperation, social norms, ambiguity

Conditional cooperation (CC) is one of the most persistent behaviors in charitable giving.  The laboratory experiment presented in this paper is  designed to explore two questions:  First, whether heterogeneous endowments of donors affect conditional cooperative giving.  Second, whether potential donors exploit ambiguity about other donors’ endowments in a  self-serving manner to justify lower giving. We find that heterogeneous endowments affect  giving in a way that suggests individuals concern for equality of donors’ earnings after  giving. Furthermore, the results do not confirm the exploitation of ambiguity about other  donors’ endowments. Individuals do not bias beliefs about other donors’ endowments in a  self-serving manner to justify lower giving.

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Peer Pressure in Multi-Dimensional Work Tasks

Felix Ebeling, Gerlinde Fellner and Johannes Wahlig
University of Cologne, Working Paper Series in Economics No. 57, 2012

JEL codes: D03, D2, J21

Keywords: Peer Effects, Multi Tasking, Incentives, Laboratory Experiment

We study the influence of peer pressure in multi-dimensional work tasks theoretically and in a controlled laboratory experiment. Thereby, workers face peer pressure in only one work dimension. We find that effort provision increases in the dimension where peer pressure is introduced. However, not all of this increase translates into a productivity gain, since the effect is partly offset by a decrease of effort in the work dimension without peer pressure. Furthermore, this tradeoff is stronger for workers who run behind in the dimension of peer pressure. Finally, we analyze the optimal group composition to harness peer pressure. Effort in the dimension of peer pressure and overall productivity seem to be unaffected by group composition, but the effort reduction in the dimension that is not subject to peer pressure is stronger when workers’ skills are highly diverse. Hence, it seems like optimal group composition depends on work environment. While existing literature recommends maximizing worker-groups’ skill diversity in one-dimensional work tasks, our results suggest to mix similar workers in multi-dimensional tasks.

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Are Efficiency Wages Equality Wages? Exogenously Induced Fairness Norms in Working Environments

Gary Bolton, Peter Werner
University of Cologne, Working Paper Series in Economics No. 56, 2012

JEL codes: J31, M52, D63, C92

Keywords: communication, entitlements, fairness norms, gift exchange, relative wages

We investigate how the introduction of a salient norm for pay differentiation influences wage offers and effort exertion in a gift exchange experiment. Exogenously induced claims indeed lead to substantial differentiation in wages. At the same time, unequal wage schemes do not crowd out effort exertion. In particular, we do not observe strong detrimental effects resulting from disadvantageous relative wage positions. Finally, we find that specific communication patterns have a significant impact on effort exertion.

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On the Incidence of a Financial Transactions Tax in a Model of Fire Sales

Felix Bierbrauer
University of Cologne, Working Paper Series in Economics No. 55, 2012

JEL codes: H22, G18, G21, G28

Keywords: financial transactions tax; financial stability; financial markets; cash-in-the-market-pricing; marking-to-market

This paper studies the impact of a fi nancial transactions tax on a financial market where financial institutions trade with each other. Assets are marked to the market and financial institutions with negative equity are forced out of business. There are two main results: First, if all banks have enough liquidity so that they can honor their short-term obligations, a financial transactions tax is entirely neutral. Second, in a model with correlated investment risk and short-term financing of banks, a financial transactions tax contributes to fi nancial distress and undoes other policy measures that are used to stabilize fi nancial markets.

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Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly

Juan-José Ganuza, Jos Jansen
University of Cologne, Working Paper Series in Economics No. 54, 2012

JEL codes: D82, D83, L13, L40

Keywords: Information acquisition, Information sharing, Information structures, Oligopoly, Consumer surplus

By using general information structures and precision criteria based on the dispersion of conditional expectations, we study how oligopolists’ information acquisition decisions may change the effects of information sharing on the consumer surplus. Sharing information about individual cost parameters gives the following trade-off in Cournot oligopoly. On the one hand, it decreases the expected consumer surplus for a given information precision, as the literature shows. On the other hand, information sharing increases the firms’ incentives to acquire information, and the consumer surplus increases in the precision of the firms’ information. Interestingly, the latter effect may dominate the former effect.

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Mechanism Design and Intentions

Felix Bierbrauer, Nick Netzer
University of Cologne, Working Paper Series in Economics No. 53, 2012

JEL codes: C70, C72, D02, D03, D82, D86 

Keywords: Mechanism Design; Psychological Games; Social Preferences; Intentions; Reciprocity; Revelation Principle

We introduce intention-based social preferences into a Bayesian mechanism design framework. We first show that, under common knowledge of social preferences, any tension between material efficiency, incentive compatibility, and voluntary participation can be resolved. Hence, famous impossibility results such as the one by Myerson and Satterthwaite (1983) are turned into possibility results. Second, we provide a systematic account of the welfare implications of kindness sensations. Finally, we turn to an environment without common knowledge of social preferences and introduce the notion of a psychologically robust mechanism. Such a mechanism can be implemented without information about the type or the intensity of social preferences. We show that the mechanisms which have been the focus of the conventional mechanism design literature can be modified to achieve psychological robustness.

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Beyond the Need to Boast: Cost Concealment Incentives and Exit in Cournot Oligopoly

Jos Jansen
University of Cologne, Working Paper Series in Economics No. 52, 2012

JEL codes: D82, L13

Keywords: Cournot oligopoly; information disclosure; exit; cost asymmetry; precommitment

This paper studies the incentives for production cost disclosure in an asymmetric Cournot oligopoly. Whereas the efficient firm (consumers) prefers information sharing (concealment) when the firms choose accommodating strategies in the product market, the firm (consumers) may prefer information concealment (sharing) when it can exclude its competitors from the market. Hence, the rankings of expected profit and consumer surplus can be reversed if exit of the inefficient firms is possible. Although the efficient firm has stronger incentives to share information when it shares strategically, there remain cases in which the firm conceals information in equilibrium to induce exit.

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'Hiding behind a small cake' in a newspaper dictator game

Axel Ockenfels, Peter Werner
University of Cologne, Working Paper Series in Economics No. 51, 2011

Keywords: dictator game; psychological games; incomplete information; newspaper experiment

We conduct an Internet dictator game experiment in collaboration with the popular German Sunday paper "Welt am Sonntag", employing a wider and more representative subject pool than standard laboratory experiments. Recipients either knew or did not know the size of the cake distributed by the dictator. We find that, in case of incomplete information, some dictators 'hide behind the small cake', supporting the notion that some agents' beliefs directly enter the social utility function.

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Tacit Lobbying Agreements: An Experimental Study

Jens Großer, Ernesto Reuben, Agnieszka Tymula
University of Cologne, Working Paper Series in Economics No. 50, 2010

JEL codes: D72, H10, K42

Keywords: lobbying; redistribution; elections; bargaining; collusion

We experimentally study the common wisdom that money buys political influence. In the game, one lobbyist has the opportunity to influence redistributive tax policies in her favor by transferring money to two competing candidates. The success of the lobbying investment depends on whether or not the candidates are willing to respond and able to collude on low-tax policies that do not harm their relative chances in the elections. In the experiment, we find that lobbying is never successful when the lobbyist and candidates interact just once. By contrast, it yields substantially lower redistribution in about 40% of societies with finitely-repeated encounters. However, lobbying investments are not always profitable, and profit-sharing between the lobbyist and candidates depends on prominent equity norms. Our experimental results shed new light on the complex process of buying political influence in everyday politics and help explain why only relatively few corporate firms do actually lobby.

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