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Governance and competition

Felix Kölle
2022, European Economic Review, 148, 104199

When groups compete against each other in contests or tournaments they typically differ with regard to the way they are organized and how decisions within groups are determined. In this paper, I experimentally investigate the impact of a group’s organizational structure on inter-group contests. My results show that letting group members decide autonomously leads to significantly lower levels of competition compared to when groups are organized democratically or autocratically. Contrary to my theoretical predictions, I observe no differences between democratically and autocratically organized groups. One reason for this finding is that many individuals in the role of autocratic decision-makers do not use their power to fully exploit their subordinates. Despite this, I find that when giving group members the choice, most individuals prefer the democratic regime, which guarantees them participation in the decision-making process and protects them from exploitation.
 

Preferences and perceptions in Provision and Maintenance public goods

Simon Gächter, Felix Kölle and Simone Quercia
2022, Games and Economic Behavior, 135, 338-355.

We study two generic versions of public goods problems: in Provision problems, the public good does not exist initially and needs to be provided; in Maintenance problems, the public good already exists and needs to be maintained. In four lab and online experiments (n= 2105), we document a robust asymmetry in preferences and perceptions in two incentive-equivalent versions of these public good problems. We find fewer conditional cooperators and more free riders in Maintenance than Provision, a difference that is replicable, stable, and reflected in perceptions of kindness. Incentivized control questions administered before gameplay reveal dilemma-specific misperceptions but controlling for them neither eliminates game-dependent conditional cooperation, nor differences in perceived kindness of others' cooperation. Thus, even when sharing the same game form, Maintenance and Provision are different social dilemmas that require separate behavioral analyses.
 

On the persistence of dishonesty

Stefania Bortolotti, Felix Kölle and Lukas Wenner
2022, Journal of Economic Behavior & Organization, 200, 1053-1065.

In social and economic interactions, individuals often exploit informational asymmetries and behave dishonestly to pursue private ends. In many of these situations, the costs and benefits from dishonest behavior do not accrue immediately and at the same time. In this paper, we experimentally investigate the role of time on dishonesty. Contrary to our predictions, we find that neither delaying the gains from cheating nor increasing temporal engagement with one’s own unethical behavior reduces the likelihood of cheating. Furthermore, providing individuals with an excuse to lie by inserting a delay between the time when private information is obtained and when it is reported does not affect cheating.
 

Who Opts In? Composition Effects and Disappointment from Participation Payments

Ambuehl Sandro, Axel Ockenfels and Colin Stewart
Forthcoming, The Review of Economics and Statistics

Participation payments are used in many transactions about which people know little, but can learn more: incentives for medical trial participation, signing bonuses for job applicants, or price rebates on consumer durables. Who opts into the transaction when given such incentives? We theoretically and experimentally identify a composition effect whereby incentives disproportionately increase participation among those for whom learning is harder. Moreover, these individuals use less information to decide whether to participate, which makes disappointment more likely. The learning-based composition effect is stronger in settings in which information acquisition is more difficult.
 

Large but diminishing effects of climate action nudges under rising costs

Sebastian Berger, Andreas Kilchenmann, Oliver Lenz, Axel Ockenfels, Francisco Schlöder and Annika M. Wyss
2022. Nature Human Behaviour (2022), 1-5.

Behavioural public policy has received broad research attention, particularly in the domain of motivating pro-environmental behaviours. We investigate how far the efficacy of arguably one the most popular behavioural policy tools (green ‘default change’ nudges) depends on the associated cost. On the basis of a field study involving carbon offsets for over 30,000 flights booked by more than 11,000 airline customers, we show that green defaults have a large effect on voluntary climate action, even when several hundreds of Euros are at stake. The effect fully vanishes only as costs approach approximately €800.
 

How to make the EU Energy Platform an effective emergency tool

Walter Boltz, Klaus-Dieter Borchardt, Thierry Deschuyteneer, Jean Pisani-Ferry, Leigh Hancher, François Lévêque, Ben McWilliams, Axel Ockenfels, Simone Tagliapietra and Georg Zachmann
2022. Policy Contribution, 2022(10), 1-13.

Uncertainty about the supply of Russian natural gas is causing extremely high and volatile European gas and electricity prices. European Union countries may struggle to import sufficient volumes of  natural gas at reasonable prices. During the summer, the imperatives are to fill storage sites sufficiently in a coordinated manner and to organise sufficient import volumes to replace a substantial share of gas that might no longer come from Russia. Coordination is essential to ensure that disruptions during difficult winter months do not lead to a break-up of the EU internal gas market with potentially serious political repercussions.
Part of the EU response is establishment of an EU Energy Platform for the purchase of gas, LNG and hydrogen. This aims to pool demand to leverage the bloc’s economic clout, international outreach to reliable partners and efficient use of existing infrastructure. EU leaders have backed the plan but it has not yet been translated into a feasible scheme.
The platform should be developed into an effective emergency tool to safeguard gas supply in case Russian flows stop. We detail two complementary proposals to achieve this. First, there should be EU-wide auctioning of remuneration for filling storage sites in specific regions. Companies would remain responsible for all stages of the value chain, benefitting from remuneration and in return offering the market operator some control over how this gas is released during winter months. Second, EU demand for additional LNG quantities, and the sourcing of this on international markets, should be coordinated through a platform, creating a transparent market for these volumes.
These mechanisms would resolve the prevention paradox and prevent free-riding. If EU countries buy gas jointly, they will find it much easier to let markets allocate scarce volumes across borders in case of a complete stop to Russian supplies. This would reduce the risk of energy market fragmentation, as well as the subsequent energy security, economic and political impacts of a shock that would hit member states very differently.

 

An EU gas-purchasing cartel framework

Peter Cramton, François Lévêque, Axel Ockenfels and Steven Stoft  
2022. VOX CEPR Policy Portal. 26 May

“Instead of outbidding each other and driving prices up,” on 25 March, the 27 EU nations decided to “pool [their] purchasing power” for the “voluntary common purchase of gas”. In short, they decided to form a buyers’ cartel. So far, difficulties have been identified, but what is needed is a systematic design effort addressing those difficulties. This column proposes a simple, but fairly comprehensive framework for an EU gas-purchasing cartel.
 

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.