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Risk aversion does not justify the introduction of mandatory unemployment insurance in the shirking model

Julia Fath, Clemens Fuest
University of Cologne, Working Paper Series in Economics No. 19, 2005

JEL codes: J0, J3, H1

Keywords: Efficiency Wages; Shirking; Unemployment Insurance

The introduction of unemployment insurance is usually thought to increase welfare if workers are sufficiently risk averse. We analyse the effects of introducing mandatory unemployment insurance in the shirking model. Surprisingly, we find that introducing unemployment insurance reduces welfare irrespective of the degree of risk aversion.

PDF Risk aversion does not justify the introduction of mandatory unemployment insurance in the shirking model

 

Let the Dummy Talk! - Unilateral Communication and Discrimination in Three-Person Dictator Experiments

Ben Greiner, Werner Güth, Ro'i Zultan
University of Cologne, Working Paper Series in Economics No. 18, 2005

JEL codes: C72, C91, D64

Keywords: bargaining; communication; social utility; n-persons dictator game

To explain why pre-play communication increases cooperation in games, one refers to a) strategic causes such as efficient communication or reputation effects, and b) changes in the utilities due to social processes. Hitherto experimental support for both explanations is mixed and confounded. Our experimental design eliminates all strategic factors and allows to focus on the effects of communication processes. We clearly find social effects, but none of revealed anonymity or salient communication. The social processes invoked are very heterogeneous but not irregular for different communicators.

PDF Let the Dummy Talk! - Unilateral Communication and Discrimination in Three-Person Dictator Experiments

 

The Influence of Information Externalities on the Value of Reputation Building - An Experiment

Gary E. Bolton, Axel Ockenfels
University of Cologne, Working Paper Series in Economics No. 17, 2005

We observe that information externalities arise in sequential equilibrium of the chain store game such that the amount of reputation building among partners differs from that among strangers. No matching effects are predicted for the trust game. Our experiment confirms the qualitative chain store prediction, but information externalities also show up in the trust game.

PDF The Influence of Information Externalities on the Value of Reputation Building - An Experiment

 

Inflation and Innovation-driven Growth

Peter Funk, Bettina Kromen
University of Cologne, Working Paper Series in Economics No. 16, 2005

JEL codes: E31, O30, O42

Keywords: Inflation; endogenous growth; price rigidity

This paper models the relationship between inflation and steady state growth in a model combining standard Schumpeterian growth with a standard New Keynesian specification of nominal price rigidity. Positive money growth has two clear-cut countervailing effects on the incentive to innovate. Past price rigidity causes the use of an inefficiently large quantity of cheap old intermediate goods, reducing demand for new ones and hence, the incentive to innovate. Future price rigidity erodes the new good’s relative price, increasing demand and therefore the current incentive to innovate. In numerical calibrations the negative effect of inflation on growth dominates.

PDF Inflation and Innovation-driven Growth

 

Competition and Growth in a Vintage Knowledge Model

Peter Funk
University of Cologne, Working Paper Series in Economics No. 15, 2005

JEL codes: D40, D90, O30, O40

Keywords: Endogenous Growth; Vintage-Model; Perfect Competition

This paper models the relationship between growth, technology-lifetime, entry, and competition in a vintage-knowledge model of endogenous growth and perfect competition. The model has a unique steady state REE equilibrium. Variations of R&D-efficiency lead to a negative relation between growth and vintage-lifetime and indicate a non-monotonic relation between growth and competition. A shift of population size and its growth rates have qualitatively different consequences here than in standard models. The extent of entry constitutes a buffer, neutralizing the effect of population size or population growth rates on per-capita income levels and growth rates.

PDF Competition and Growth in a Vintage Knowledge Model

 

Purchasing Power Parity and the Real Exchange Rate in Bangladesh: A Nonlinear Analysis

Ibrahim Chowdhury
University of Cologne, Working Paper Series in Economics No. 14, 2004

JEL codes: F31

Keywords: real exchange rate; purchasing power parity; nonlinearity

The long-run purchasing power parity (PPP) hypothesis is examined using data for Bangladesh and its major trading partners - the US, Euro area, Japan and India - during the period 1994 to 2002. We apply recently developed nonlinear econometric techniques and provide strong evidence for highly nonlinear meanreversion of real bilateral Bangladesh taka exchange rates toward a stable long-run equilibrium. Our findings imply strong support for the validity of long-run PPP as well as for the theoretical models which predict nonlinear adjustment in real exchange rates.

PDF Purchasing Power Parity and the Real Exchange Rate in Bangladesh: A Nonlinear Analysis

 

Asymmetric Dynamics in the Current Account: Evidence from Long-Horizon Data

Ibrahim Chowdhury, Gregory Gadzinski, Mathias Hoffmann
University of Cologne, Working Paper Series in Economics No. 13, 2004

JEL codes: F32, C22

Keywords: Current account dynamics and sustainability; Markovswitching

This letter investigates the presence of asymmetric dynamics in the behaviour of the current account as emphasized in recent theoretical contributions. We estimate a Markov switching model for long-horizon current account to GDP data for six countries and find substantial asymmetries in the behaviour of current account dynamics.

PDF Asymmetric Dynamics in the Current Account: Evidence from Long-Horizon Data

 

Debt Non-Neutrality, Policy Interactions, and Macroeconomic Stability

Ludger Linnemann, Andreas Schabert
University of Cologne, Working Paper Series in Economics No. 12, 2004

JEL codes: E32, E63, E52

Keywords: Government debt; fiscal and monetary policy rules; stabilization policy; equilibrium uniqueness

We study the consequences of non-neutrality of government debt with respect to aggregate demand for short-run macroeconomic stability and for fiscal-monetary policy interactions in an environment where prices are sticky. Assuming either transaction services of government bonds or partial debt repayments, Ricardian equivalence fails because public debt has a negative impact on its total rate of return and thus on private savings. Equilibrium stability then requires real public debt to be stationary, which steers future expectations about prices and output, and rules out self-fulfilling expectations. Under aggressive anti-inflationary monetary policy regimes, macroeconomic fluctuations can then decrease with the share of tax financing. In particular, a balanced budget policy stabilizes the economy under cost-push shocks such that output and inflation variances can be lower than in a corresponding framework where debt is neutral.

PDF Debt Non-Neutrality, Policy Interactions, and Macroeconomic Stability

 

Bounded Rationality in Bargaining Games: Do Proposers Believe That Responders Reject an Equal Split?

Ben Greiner
University of Cologne, Working Paper Series in Economics No. 11, 2004

JEL codes: C72, C92, D3

Keywords: ultimatum game; dictator game; impunity game; social utility; bounded rationality

Puzzled by the experimental results of the 'impunity game' by Bolton and Zwick (1995) we replicate the game and alter it in a systematic manner. We find that although almost nobody actually rejects an offered equal split in a bargaining game, proposers behave as if there would be a considerably large rejection rate for equal splits. This result is inconsistent with existing models of economic decision making. This includes models of selfish players as well as models of social utility and reciprocity, even when combined with erroneous decision making. Our data suggests that subjects fail to foresee their opponent's decision even for one step in our simple bargaining games. We consider models of bounded rational decision making such as rules of thumb as explanations for the observed behavioral pattern.

PDF Bounded Rationality in Bargaining Games: Do Proposers Believe That Responders Reject an Equal Split?

 

The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics

Ben Greiner
University of Cologne, Working Paper Series in Economics No. 10, 2004

Keywords: experiments; recruitment; subject pool management; methodology

We discuss several issues regarding the organization of economic laboratory experiments such as subject pool, recruitment, scheduling, and show how we solved them with the help of the Online Recruitment System for Economic Experiments (ORSEE) version 2.0. With this integrated software experimenters have a free, convenient, and very powerful tool to organize their experiments and sessions in a standardized way. Key features are: PHP/MySQL application, multiple language/ laboratory/ subject pool/ experimenters/ experiment types/ experiment classes support, attribute query selection, random recruitment, experiment calendar, automated reputation system, automated invitation and rule based reminder mailing, subjects manage their own account, overview about registration state, user rights management, pdf output and mailing, complete logging and statistics, and customizable layout. In version 2.0 the software has been completely reprogrammed in PHP. Several new features have been added. A test system has been installed in order to visually support the reader while reading the manual (www.orsee.org).