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How to weaken Russian oil and gas strength

Ricardo Hausmann, Agata Łoskot-Strachota, Axel Ockenfels, Ulrich Schetter, Simone Tagliapietra, Guntram Wolff and Georg Zachmann
2022. Science Letter, 376(6592), 469.

Oil and gas exports represent Russia’s key geopolitical strength, as well as its major source of hard currency revenues (13). At current prices, these are estimated at around US$1 billion per day (4), representing an important lifeline for an economy under heavy financial sanctions in response to Russian President Vladimir Putin’s invasion of Ukraine. The European Union (EU) buys 75% of Russian gas exports and 50% of Russian oil exports (5). An EU embargo on Russia would substantially undermine Putin’s geopolitical and economic positions. However, given a full embargo’s potential impacts on the EU, securing the approval of all EU countries is difficult. To limit Russia’s oil and gas revenues while keeping up the flows, the EU should instead introduce a tariff on Russian oil and gas imports. The tariff can be adapted to the economic and political dynamics of the conflicts.
A tariff ’s effect on domestic prices depends on the relative elasticities of supply and demand—i.e., on whether sellers and buyers have relatively better alternatives. The more inelastic the supply (e.g., because Russian exports cannot be diverted) and the more elastic the demand (e.g., because the EU can replace Russian supplies), the more of the tariff will be paid by the supplier (6). Russian oil and gas exports to Europe are inelastic in the medium term because infrastructural bottlenecks prevent a substantial redirection to Asia. The EU therefore has a real chance to ensure that tariff revenues are mostly paid by Russia.
To improve its position, the EU needs to increase its demand elasticity. This can be done by incentivizing a reduction of oil and gas demand in Europe and by increasing the use of all available alternative energy resources. By implementing a bold energy strategy, Europe can credibly threaten to cut Russia’s oil and gas revenue while minimizing the domestic economic consequences of a tariff.

 

Three ways Europe could limit Russian oil and gas revenues

Axel Ockenfels, Simone Tagliapietra and Guntram Wolf
2022. Nature Correspondence, 604, 246.

Despite major sanctions on Russia following its invasion of Ukraine, the European Union is still importing almost US$1 billion’s worth of energy per day from Russia. Phasing out Russian gas and oil entirely (as the United Kingdom and United States are doing, for example) is difficult for the EU, because they account for 45% and 25% of its imports, respectively. Instead, the EU should directly limit Russian oil and gas revenues by introducing a tariff or setting a price cap on imports, while keeping them flowing. There are three ways to reduce the risk of Russian retaliation. First, the EU — Russia’s main fossil-fuel market — should assemble a large international demand cartel with an unavoidable minimum tariff on Russian energy or a maximum price cap. Second, the EU needs to improve its strategic options to buy oil and gas from elsewhere — the Middle East, for instance. Third, the EU might use an escrow account (see go.nature.com/3lnzthi) to disburse part of the withheld payments to Russia after the war; a share could go to Ukraine to repair war damage. Importantly, the tariff could be fine-tuned to incentivize diversification in the West and to control the degree of economic pressure on Russia.

 

The influence of empirical and normative expectations on cooperation

Felix Kölle and Simone Quercia
2021. Journal of  Economic Behavior & Organization, 190, 691-703.

In this paper, we investigate the importance of empirical and normative expectations for cooperative behavior. We conduct two experimental studies (n=243) in which we separately elicit (i) behavior in a public goods game and (ii) normative and empirical expectations of cooperation. In a situation where others’ contributions are known, we find a strong norm of conditional cooperation whereby people find it socially appropriate to match others contribution and believe others to comply with such rule of behavior. In contrast, when there is strategic uncertainty regarding others’ behavior, empirical and normative expectations diverge substantially. While individuals believe that contributing fully to the public good is the most appropriate action, they expect others to contribute only half of their resources. This renders normative expectations unpredictive for average behavior and underlines the importance of a close alignment of empirical and normative expectations for the influence of social norms on behavior.

 

Pandemiebereitschaft, internationale Kooperation und Marktdesign

Axel Ockenfels
2021. Wirtschaftsdienst, 101, 594-596.

 

Marktdesign für eine resiliente Impfstoffproduktion

Axel Ockenfels
Pre-published online by De Gruyter on July 1, 2021.

Zusammenfassung: Manche Märkte erlauben es auf sich alleine gestellt nicht, robuste Krisenvorsorge zu treffen. Der Markt für Impfstoffe gehört dazu. Der Preismechanismus versagt besonders in der Krise, wenn beide Marktseiten große Marktmacht besitzen. Daher muss interveniert werden, um die Impfstoffproduktion zuverlässiger zu machen. Axel Ockenfels entwickelt ein hybrides Marktdesign, das auf Kapazitätspreise und Leistungspreisesetzt, um den systemischen Herausforderungen einer globalen Krisensituation mit ihren politischen, ökonomischen und sozialen Verwerfungen zu begegnen. Das hybride Modell erlaubt einen gleitenden Übergang von normalen Zeiten in den Krisenmodus- und wieder zurück.

 

Do People Intervene to Make Others Behave Prosocially?

Viola Ackfeld and Axel Ockenfels
2021. Games and Economic Behavior, 128, 58-72

We experimentally investigate people's willingness to intervene in others' decision-making in order to promote a charitable donation. We find that only a minority of those subjects who would donate themselves enforce the donation by banning the selfish choice from the decision-maker's choice menu. Bans are more acceptable if they are implemented only after the decision-makers could choose between the selfish and the prosocial option themselves. Also, many subjects decide against offering decision-makers a monetary incentive to switch from the selfish to the prosocial choice. We discuss potential hypotheses about underlying motivations for the (non-) usage of interventions, with a special focus on the hypothesis that interventions to promote prosocial choice are more acceptable the more they respect the autonomy of others.
 

Focusing climate negotiations on a uniform common commitment can promote cooperation

Klaus M. Schmidt and Axel Ockenfels
2021. PNAS, 118(11).

International cooperation on the reduction of greenhouse gas emissions, disarmament, or free trade needs to be negotiated. The success of such negotiations depends on how they are designed. In the context of international climate change policy, it has been proposed [e.g., M. L. Weitzman J. Assoc. Environ. Resour. Econ. 1, 29–49 (2014)] that shifting the negotiation focus to a uniform common commitment (such as a uniform minimum carbon price) would lead to more ambitious cooperation. Yet, a proof-of-concept for this important claim is lacking. Based on game theoretical analyses, we present experimental evidence that strongly supports this conjecture. In our study, human subjects negotiate contributions to a public good. Subjects differ in their benefits and costs of cooperation. Participation in the negotiations and all commitments are voluntary. We consider treatments in which agreements are enforceable, and treatments in which they have to be self-enforcing. In both situations, negotiating a uniform common commitment is more successful in promoting cooperation than negotiating individual commitments (as in the Paris Agreement) and complex common commitments that tailor the commitment to the specific situation of each party (as attempted with the Kyoto Protocol). Furthermore, as suggested by our model, a uniform common commitment benefits most from being enforced.
 

What Motivates Paternalism? An Experimental Study

Sandro Ambuehl, B. Douglas Bernheim and Axel Ockenfels
2021. American Economic Review, 111, 787-830.

We study experimentally when, why, and how people intervene in others' choices. Choice Architects (CAs) construct opportunity sets containing bundles of time-indexed payments for Choosers. CAs frequently prevent impatient choices despite opportunities to provide advice, believing Choosers benefit. They violate common behavioral welfare criteria by removing impatient options even when all pay-offs are delayed. CAs intervene not by removing options they wish they could resist when choosing for themselves (mistakes-projective paternalism), but rather as if they seek to align others' choices with their own aspirations (ideals-projective paternalism). Laboratory choices predict subjects' support for actual paternalistic policies.
 

Not all Group Members are created Equal: Heterogeneous Abilities in Intergroup Contests

Francesco Fallucchi, Enrique Fatas, Felix Kölle and Ori Weisel
2021. Experimental Economics, 24(2), 669-697

Competition between groups is ubiquitous in social and economic life, and typically occurs between groups that are not created equal. Here we experimentally investigate the implications of this general observation on the unfolding of symmetric and asymmetric competition between groups that are either homogeneous or heterogeneous in the ability of their members to contribute to the success of the group. Our main finding is that relative to the benchmark case in which two homogeneous compete against each other, heterogeneity within groups per se has no discernable effect on competition, while introducing heterogeneity between groups leads to a significant intensification of conflict as well as increased volatility, thereby reducing earnings of contest participants and increasing inequality. We further find that heterogeneous groups share the labor much more equally than predicted by theory, and that in asymmetric contests group members change the way in which they condition their efforts on those of their peers.