Showing papers in "Journal of the European Economic Association in 2017"
TL;DR: This paper found that the inflow of immigrants into a community has a significant impact on the increase in the community's voting share for the FPO, explaining roughly a tenth of the regional variation in vote changes.
Abstract: Does the presence of immigrants in one's neighborhood affect voting for far right-wing parties? We study the case of the Freedom Party of Austria (FPO) that, under the leadership of Jorg Haider, increased its vote share from less than 5% in the early 1980s to 27% by the end of the 1990s and continued to attract more than 20% of voters in the 2013 national election. We find that the inflow of immigrants into a community has a significant impact on the increase in the community's voting share for the FPO, explaining roughly a tenth of the regional variation in vote changes. Our results suggest that voters worry about adverse labor market effects of immigration, as well as about the quality of their neighborhood. In fact, we find evidence of a negative impact of immigration on “compositional amenities”. In communities with larger immigration influx, Austrian children commute longer distances to school, and fewer daycare resources are provided. We do not find evidence that Austrians move out of communities with increasing immigrant presence.
191 citations
TL;DR: This paper found that women receive systematically lower teaching evaluations than their male colleagues, and that the bias is driven by male students' evaluations, is larger for mathematical courses and particularly pronounced for junior women.
Abstract: This paper provides new evidence on gender bias in teaching evaluations. We exploit a quasi-experimental dataset of 19,952 student evaluations of university faculty in a context where students are randomly allocated to female or male instructors. Despite the fact that neither students’ grades nor self-study hours are affected by the instructor’s gender, we find that women receive systematically lower teaching evaluations than their male colleagues. This bias is driven by male students’ evaluations, is larger for mathematical courses and particularly pronounced for junior women. The gender bias in teaching evaluations we document may have direct as well as indirect effects on the career progression of women by affecting junior women’s confidence and through the reallocation of instructor resources away from research and towards teaching.
169 citations
TL;DR: In this article, the authors analyze a Bayesian signaling model of an agent who cares about self-image and has the opportunity to learn the social benefits of a personally costly action, and show that willful ignorance can serve as an excuse for selfish behavior by obfuscating the signal about the decision maker's preferences, and serve to maintain the idea that the agent would have acted virtuously under full information.
Abstract: Avoiding information about adverse welfare consequences of self-interested decisions, or willful ignorance, is an important source of socially harmful behavior. We analyze a Bayesian signaling model of an agent who cares about self-image and has the opportunity to learn the social benefits of a personally costly action. We show that willful ignorance can serve as an excuse for selfish behavior by obfuscating the signal about the decision maker’s preferences, and serves to maintain the idea that the agent would have acted virtuously under full information. We derive several behavioral predictions that are inconsistent with either outcome-based preferences or social-image concern and conduct experiments to test them. Our findings, as well as a number of previous experimental results, offer support for these predictions and thus, the broader theory of self-signaling.
131 citations
TL;DR: The authors studied job search durations along the Swiss language border and found that Romance language speakers search for work almost seven weeks (or 22%) longer than their German speaking neighbors, which is a quantitatively large effect, comparable to a large change in unemployment insurance generosity.
Abstract: Unemployment varies across space and in time Can attitudes towards work explain some of these differences? We study job search durations along the Swiss language border, sharply separating Romance language speakers from German speakers According to surveys and voting results, the language border separates two social groups with different cultural background and attitudes towards work Despite similar local labor markets and identical institutions, Romance language speakers search for work almost seven weeks (or 22%) longer than their German speaking neighbors This is a quantitatively large effect, comparable to a large change in unemployment insurance generosity
85 citations
TL;DR: In this article, the authors discuss situations in which consumers search through their options in a deliberate order, in contrast to more familiar models with random search, and show how ordered search can be reformulated as a simpler discrete choice problem without search frictions.
Abstract: The paper discusses situations in which consumers search through their options in a deliberate order, in contrast to more familiar models with random search. Topics include: network effects (consumers may be better off following the same search order as other consumers); the use of price and non-price advertising to direct search; the impact of consumers starting a new search with their previous supplier; the incentive sellers have to merge or co-locate with other sellers; and the incentive a seller can have to raise its own search cost. I also show how ordered search can be reformulated as a simpler discrete choice problem without search frictions.
83 citations
TL;DR: The model offers guidance for empirical studies of reminders, making a distinction between anticipated and unanticipated reminders: anticipated reminders can induce additional procrastination, lowering both welfare and the probability the task is completed.
Abstract: The interaction between present bias and limited memory can explain why individuals do not act at deadlines and why providing reminders can have large effects. Individuals in my model must choose when and whether to complete a task, but may forget or procrastinate. A calibration exercise shows that assuming perfect memory leads to biased estimates of present bias because the rate of task completion at the deadline is much lower with imperfect memory. Naive procrastination explains why individuals do not set up reminders despite large gains to doing so. The model offers guidance for empirical studies of reminders, making a distinction between anticipated and unanticipated reminders: anticipated reminders can induce additional procrastination, lowering both welfare and the probability the task is completed. I then use this framework to show how to optimally set deadlines and time the delivery of reminders to present-biased individuals.
73 citations
TL;DR: In this paper, the authors develop a simple model to study coordination among traders between the source and the destination and competition between alternative combinations of intermediaries, and test the theoretical predictions in experiments.
Abstract: Intermediation is a prominent feature of economic production and exchange. Two features of intermediation are salient: coordination among traders between the ‘source’ and the ‘destination’ and competition between alternative combinations of intermediaries. We develop a simple model to study these forces and we test the theoretical predictions in experiments. Our theoretical analysis yields a complete characterization of pricing equilibrium in networks. There exist both ecient and inecient equilibria, suggesting a key role of coordination among intermediaries. Strategic interaction leads to either buyer and seller retaining all surplus or intermediaries extracting all surplus. We develop conditions on network structure under which these di↵erent extremal outcomes arise, respectively. Laboratory experiments show that eciency prevails in almost all cases: so traders are successful in coordination. Subjects coordinate on extreme surplus division. Finally, experiments highlight the role of network structure in determining pricing and the
71 citations
TL;DR: The potential of an infant intervention to improve life expectancy is investigated, contributing to emerging interest in the early life origins of chronic disease, and no evidence of selective utilisation is found.
Abstract: This paper investigates the potential of an infant intervention to improve life expectancy, contributing to emerging interest in the early life origins of chronic disease. We track individuals from birth to death, and are able to identify age and cause of death. The intervention was pioneered in Sweden in 1931–1933, and appears to have been pivotal in the emergence of universal infant care programmes in the Scandinavian countries during the creation of the Welfare State. It provided information and support to mothers, with an emphasis on nutrition and sanitation, while monitoring infant care through home visits and clinics. We estimate that the average duration of programme exposure in infancy led to a 1.56% point decline in the risk of infant death (24% of baseline risk) and a 2.56% point decline in the risk of dying by age 75 (7.0% of baseline risk), and these impacts are much larger for children born out of wedlock. Intervention-led declines in the risk of dying after the age of 50 are dominated by reductions in cancer and cardiovascular mortality. We find no evidence of selective utilisation, and the estimates are similar when we exploit within-mother variation in outcomes. (Less)
64 citations
TL;DR: In this paper, the authors discuss China's institutional and economic transformation through the lens of the model of growth and convergence developed in Acemoglu, Aghion, and Zilibotti (JEEA 2006), which emphasizes the dichotomy between investment-and innovation-led growth.
Abstract: This article is based on the presidential address delivered at the EEA Annual Congress 2016. It discusses China’s institutional and economic transformation through the lens of the model of growth and convergence developed in Acemoglu, Aghion, and Zilibotti (JEEA 2006), which emphasizes the dichotomy between investment- and innovation-led growth. The economic reforms introduced in the 1980s and 1990s have enabled the Chinese economy to grow at historically unprecedented rates through fostering investment, reallocation, and technology adoption from abroad. The Chinese stimulus package introduced in 2008 appears to have prolonged the longevity of China’s investment-driven growth beyond its optimal point. Over the last decade, China has activated the engine of innovation-led growth. The article discusses the virtues and limits of such ongoing transition, based on research in progress using firm-level data on R&D and productivity growth. Finally, it provides an appraisal of the institutional and policy reforms that are necessary for China to continue on its path of rapid convergence.
62 citations
TL;DR: In this paper, a Vector AutoRegressive (VAR) framework is proposed to measure the SMP impact and its persistence, and the results show that SMP interventions have been effective in reducing yields of government bonds for countries under the program.
Abstract: Policy impact studies often suffer from endogeneity problems. Consider the case of the European Central Bank (ECB) Securities Markets Programme: If Eurosystem interventions were triggered by sudden and strong price deteriorations, looking at daily price changes may bias downward the correlation between yields and the amounts of bonds purchased. Simple regressions of daily changes in yields on quantities often give insignificant or even positive coefficients and therefore suggest that Securities Markets Programme (SMP) interventions have been ineffective, or worse counterproductive. We use high-frequency data on purchases of the ECB Securities Markets Programme and sovereign bond quotes to address the simultaneity and endogeneity issues. We propose a Vector AutoRegressive (VAR) framework estimated at several frequencies to better measure the SMP impact and its persistence. Our results show that SMP interventions have been effective in reducing yields of government bonds for the countries under the program.
61 citations
TL;DR: This paper studied the transformation of petroleum rents, almost universally under direct government control, into hidden wealth using unique data on bank deposits in offshore financial centers that specialize in secrecy and asset protection and found that plausibly exogenous shocks to petroleum income are associated with significant increases in hidden wealth, but only when institutional checks and balances are weak.
Abstract: Do political institutions limit rent seeking by politicians? We study the transformation of petroleum rents, almost universally under direct government control, into hidden wealth using unique data on bank deposits in offshore financial centers that specialize in secrecy and asset protection. Our main finding is that plausibly exogenous shocks to petroleum income are associated with significant increases in hidden wealth, but only when institutional checks and balances are weak. The results suggest that around 15% of the windfall gains accruing to petroleum-producing countries with autocratic rulers is diverted to secret accounts. We find very limited evidence that shocks to other types of income not directly controlled by governments affect hidden wealth.
TL;DR: The authors analyzed information production incentives for traders in financial markets and showed that traders' private value of information about a firm's investment project increases with the ex ante likelihood the project will be undertaken, which generates an informational amplification effect of shocks to firm value.
Abstract: We analyze information production incentives for traders in financial markets, when firms condition investment decisions on information revealed through stock prices. We show that traders’ private value of information about a firm’s investment project increases with the ex ante likelihood the project will be undertaken.
This generates an informational amplification effect of shocks to firm value. Information production by traders may exhibit strategic complementarities for projects that would not be undertaken in the absence of positive news
from the stock market. A small decline in fundamentals can lead to a market breakdown where information production ceases, and investment and firm value
collapse. Our theory sheds light on how productivity shocks are amplified over the business cycle.
TL;DR: In this article, the authors conduct a laboratory experiment that tests two fundamental predictions unique to salience theory: saliency theory predicts that demand for the high-quality product is larger if the price level is expectedly high than if it is unexpectedly high.
Abstract: We conduct a laboratory experiment that tests two fundamental predictions unique to salience theory. If an agent purchases one of two vertically differentiated products, salience theory makes the following two distinct predictions. First, it hypothesizes that a higher expected price level for both products shifts demand toward the more expensive, high-quality product. Second, it predicts that demand for the high-quality product is larger if the price level is expectedly high than if it is unexpectedly high. In our experiment, subjects purchased fast or slow Internet access at different price levels. Our results strongly support both predictions of salience theory.
TL;DR: This work conducts a real-effort experiment manipulating expectations and examining consequences on effort provision, documenting substantial nonmonotonicities in the effort response to changing expectations.
Abstract: Theories of expectations-based reference-dependent preferences have provided a critical modeling innovation, incorporating a structured theory of the formation of reference points. An important prediction of these models is a monotone response in behavior to changes in expectations. To test such models we conduct a real-effort experiment manipulating expectations and examining consequences on effort provision. In contrast to the theory, we document substantial nonmonotonicities in the effort response to changing expectations. Our results provide some evidence on the limitations of expectations-based reference dependence. (JEL: D81, D84, D12, D03)
TL;DR: In this paper, the authors provide evidence that German savings banks, which are controlled by county-level politicians, systematically adjust lending policies in response to local electoral cycles and find that election-induced lending negatively impacts savings bank profitability and is associated with an increase in credit defaults roughly three years after an election.
Abstract: We provide evidence that German savings banks, which are controlled by county-level politicians, systematically adjust lending policies in response to local electoral cycles. The different timings of county elections across states and the existence of a comparable group of cooperative banks-that are very similar to savings banks but lack their political connectedness-allow for identification of the effects of county elections on savings bank lending. These effects are economically meaningful and very robust to various specifications. We find that election-induced lending negatively impacts savings bank profitability and is associated with an increase in credit defaults roughly three years after an election. Examining the political-economy aspects of our findings, we provide evidence that savings bank excess lending and public spending at the county level are substitute levers for county politicians. Finally, we find indications that subpar pre-election economic county performance hurts re-election prospects and increases the intensity of lending cycles.
TL;DR: In this article, the authors investigate empirically if there is systematic evidence for a home bias in sovereign ratings and find that the bias becomes more accentuated following the onset of the Global Financial Crisis and appears to be driven by economic and cultural ties.
Abstract: Credit rating agencies are frequently criticized for producing sovereign ratings that do not accurately reflect the economic and political fundamentals of rated countries. This article discusses how the home country of rating agencies could affect rating decisions as a result of political economy influences and culture. Using data from nine agencies based in six countries, we investigate empirically if there is systematic evidence for a home bias in sovereign ratings. Specifically, we use dyadic panel data to test whether, all else being equal, agencies assign better ratings to their home countries, as well as to countries economically, politically and culturally aligned with them. While most of the variation in ratings is explained by the fundamentals of rated countries, our results provide empirical support for the existence of a home bias in sovereign ratings. We find that the bias becomes more accentuated following the onset of the Global Financial Crisis and appears to be driven by economic and cultural ties, not geopolitics.
TL;DR: The authors found that even in a simple, incentivized setup many subjects do not treat money as fungible, and when a label is attached to a part of their budget, subjects change consumption according to the label.
Abstract: Fungibility of money is a central assumption in the theory of consumer choice: any unit of money is substitutable for another. This implies that the composition of income or wealth is irrelevant for consumption. We nd in a eld experiment that even in a simple, incentivized setup many subjects do not treat money as fungible. When a label is attached to a part of their budget, subjects change consumption according to the label. A controlled laboratory experiment conrms this result and further shows that subjects with lower cognitive abilities are more likely to violate fungibility. The ndings lend support to behavioral models of narrow bracketing and mental accounting. One implication of our results is that in-kind benets distort consumption more strongly than usually assumed.
TL;DR: In this paper, the authors propose to assess financial intermediation efficiency in Germany, France, the UK, and Europe more broadly, over the past 60 years, based on Philippon's (2012) methodology, which calculates the unit cost of financial intermediary through the ratio of 'financial consumption' | measured by financial income | to 'financial output' | approximated by the sum of outstanding assets intermediated.
Abstract: This paper proposes to assess financial intermediation efficiency in Germany, France, the UK, and Europe more broadly, over the past 60 years. I rely on Philippon's (2012) methodology, which calculates the unit cost of financial intermediation through the ratio of 'financial consumption' | measured by financial income | to 'financial output' | approximated by the sum of outstanding assets intermediated. The contribution of this paper is threefold. First, because financial industry VA ignores banks' capital income (capital gains, dividends and interest on securities) it is an imperfect measure of the consumption of financial intermediation. So long as capital income generates wages and profits to financial intermediaries, it is akin to an implicit consumption of financial services. Using banking income instead of banking VA to measure the consumption of banking services, I show that the GDP share of finance has increased continuously in Germany, France, the UK and Europe as a whole. Second, the unit cost of financial intermediation increased over the past 40 years, except in France where, overall, it stagnated. In addition, the European unit cost matches the US unit cost calculated by Philippon (2012). Finally, because financial intermediaries deal with nominal stocks and ows, and because the unit cost increases during periods of monetary troubles, I focus here on nominal rates of interest to explain the evolution of unit cost. I show that a rise in nominal rates of interest increases the spread of bank interest, so that 1970s and 1980s high unit costs are statistically explained by increases in short-term interest rates. On the other hand, post-1990s high unit cost seems to coincide with the development of new market-based activities.
TL;DR: This article analyzed the effect of immigrants' legal status on their consumption behavior using unique survey data that samples both documented and undocumented immigrants and found that undocumented immigrants consume about 40% less than documented immigrants, conditional on background characteristics.
Abstract: We analyze the effect of immigrants’ legal status on their consumption behavior using unique survey data that samples both documented and undocumented immigrants. To address the problem of sorting into legal status, we propose two alternative identification strategies as exogenous source of variation for current legal status: First, transitory income shocks in the home country, measured as rainfall shocks at the time of emigration. Second, amnesty quotas that grant legal residence status to undocumented immigrants. Both sources of variation create a strong first stage, and—although very different in nature—lead to similar estimates of the effects of illegal status on consumption, with undocumented immigrants consuming about 40% less than documented immigrants, conditional on background characteristics. Roughly one quarter of this decrease is explained by undocumented immigrants having lower incomes than documented immigrants. Our findings imply that legalization programs may have a potentially important effect on immigrants’ consumption behavior, with consequences for both the source and host countries.
TL;DR: The authors found that the prices at which people are willing to buy annuities are substantially below the prices that they would be willing to sell them, and they also found that buy values are negatively correlated with sell values and that the sell-buy valuation spread is negatively associated with cognition.
Abstract: This paper documents consumers’ difficulty valuing life annuities. Using a purpose-built experiment in the American Life Panel, we show that the prices at which people are willing to buy annuities are substantially below the prices at which they are willing to sell them. We also find that buy values are negatively correlated with sell values and that the sell–buy valuation spread is negatively correlated with cognition. This spread is larger for those with less education, weaker numerical abilities, and lower levels of financial literacy. Our evidence contributes to the emerging literature on heterogeneity in financial decision-making abilities, particularly regarding retirement payouts. (JEL: D14, D91, G11, H55)
TL;DR: In this article, the relative importance of intrinsic moral motivation and extrinsic social motivation in explaining moral behavior was studied and a dictator game was introduced to manipulate the moral argument for sharing and the information given to the recipient about the context of the experiment and the dictator's decision.
Abstract: We study the relative importance of intrinsic moral motivation and extrinsic social motivation in explaining moral behavior. The key feature of our experiment is that we introduce a dictator game design that manipulates these two sources of motivation. In one set of treatments, we manipulate the moral argument for sharing, in another we manipulate the information given to the recipient about the context of the experiment and the dictator's decision. The paper offers two main findings. First, we provide evidence of intrinsic moral motivation being of fundamental importance. Second, we show that extrinsic social motivation matters and is crowding-in with intrinsic moral motivation. We also show that intrinsic moral motivation is strongly associated with self-reported charitable giving outside the lab and with political preferences.
TL;DR: In this paper, the authors acknowledge financial support from the Spanish Ministry of Science and Technology (grant ECO2009-13357), the Spanish National Institute of Economics and Competitiveness (GECO2012-35430), and the Andalusian Council of Innovation and Science (Excellence Project SEJ-4546).
Abstract: The authors acknowledge financial support from the Spanish Ministry of Science and Technology (grant ECO2009-13357), the Spanish Ministry of Economics and Competitiveness (grant ECO2012-35430) and the Andalusian Council of Innovation and Science (Excellence Project SEJ-4546).
TL;DR: It is found that for the one quarter of the population most deficient in iodine this intervention raised IQ by approximately one standard deviation, which can explain roughly one decade's worth of the upward trend in IQ in the US (the Flynn Effect).
Abstract: Iodine deficiency is the leading cause of preventable mental retardation in the world today. The condition, which was common in the developed world until the introduction of iodized salt in the 1920s, is connected to low iodine levels in the soil and water. We examine the impact of salt iodization on cognitive outcomes in the US by taking advantage of this natural geographic variation. Salt was iodized over a short period of time beginning in 1924. We use military data collected during WWI and WWII to compare outcomes of cohorts born before and after iodization in localities that were naturally poor and rich in iodine. We find that for the one quarter of the population most deficient in iodine this intervention raised IQ by approximately one standard deviation. Our results can explain roughly one decade's worth of the upward trend in IQ in the US (the Flynn Effect). We also document a large increase in thyroid-related deaths following the countrywide adoption of iodized salt, which affected mostly older individuals in localities with high prevalence of iodine deficiency.
TL;DR: In this article, the effect of foreign ownership on firm performance was examined by combining a difference-in-differences approach with propensity score matching, and the results indicated that divestment is associated with a drop in total factor productivity accompanied by a decline in output, markups, as well as export and import intensities.
Abstract: The literature has documented a positive effect of foreign ownership on firm performance. But is this effect due to a one-time knowledge transfer or does it rely on continuous injections of knowledge? To shed light on this question we focus on divestments, that is, foreign affiliates that are sold to local owners. To examine the effect of the ownership change we combine a difference-in-differences approach with propensity score matching.We use plant-level panel data from the Indonesian Census of Manufacturing covering the period 1990-2009. We consider 157 cases of divestment, where a large set of plant characteristics is available two years before and three years after the ownership change and for which observationally similar control plants exist. The results indicate that divestment is associated with a drop in total factor productivity accompanied by a decline in output, markups, as well as export and import intensities. The findings are consistent with the benefits of foreign ownership being driven by continuous supply of headquarter services from the foreign parent.
TL;DR: It is shown that having access to a fast Internet connection is an important determinant of capitalization effects in property markets, and increasing speed and connecting unserved households passes a cost-benefit test in urban and some suburban areas, while the case for universal delivery in rural areas is not as strong.
Abstract: This paper shows that having access to a fast Internet connection is an important determinant of capitalization effects in property markets. Our empirical strategy combines a boundary discontinuity design with controls for time-invariant effects and arbitrary macro-economic shocks at a very local level to identify the causal effect of broadband speed on property prices from variation that is plausibly exogenous. Applying this strategy to a micro data set from England between 1995 and 2010 we find a significantly positive effect, but diminishing returns to speed. Our results imply that disconnecting an average property from a high-speed first-generation broadband connection (offering Internet speed up to 8 Mbit/s) would depreciate its value by 2.8%. In contrast, upgrading such a property to a faster connection (offering speeds up to 24 Mbit/s) would increase its value by no more than 1%. We decompose this effect by income and urbanization, finding considerable heterogeneity. These estimates are used to evaluate proposed plans to deliver fast broadband universally. We find that increasing speed and connecting unserved households passes a cost-benefit test in urban and some suburban areas, while the case for universal delivery in rural areas is not as strong.
TL;DR: The authors developed and estimated a structural model that incorporates a sizable public sector in a labor market with search frictions, taking into account the private sector's endogenous response to public sector employment policies.
Abstract: We develop and estimate a structural model that incorporates a sizable public sector in a labor market with search frictions. The wage distribution and the employment rate in the public sector are taken as exogenous policy parameters. Overall wage distribution and employment rate are determined within the model, taking into account the private sector’s endogenous response to public sector employment policies. Job turnover is sector specific and transitions between sectors depend on the worker’s decision to accept alternative employment in the same or different sector by comparing the value of employment in the current and prospective jobs. The model is estimated on British data by a method of moments. We use the model to simulate the impact of various counterfactual public sector wage and employment policies.
TL;DR: In this article, the authors study whether leaders influence the unethical conduct of followers in an environment in which groups compete, with dishonest behavior enhancing group earnings to the detriment of social welfare.
Abstract: We study whether leaders influence the unethical conduct of followers. To avoid selection issues present in natural environments, we use a laboratory experiment in which we form groups and assign leadership roles at random. We study an environment in which groups compete, with dishonest behavior enhancing group earnings to the detriment of social welfare. We vary, by treatment, two instruments through which leaders can influence follower conduct-prominent statements to the group and the allocation of monetary incentives. In general, the presence of active group leaders gives rise to significantly more dishonest behavior. Moreover, appointing leaders who are likely to have acted dishonestly in a preliminary stage of the experiment yields groups with significantly more unethical conduct. The analysis of leaders' strategies reveals that leaders' statements have a stronger effect on follower behavior than the ability to distribute financial rewards, and that leaders' propensity to act dishonestly correlates with their use of statements or incentives as a means for encouraging dishonest follower conduct.
TL;DR: In this article, the authors estimate the upper-level elasticity of substitution between goods and services of a nested aggregate CES preference specification, derived from the long-run response of the relative price of a good to a change in its VAT rate.
Abstract: We estimate the upper-level elasticity of substitution between goods and services of a nested aggregate CES preference specification. We show how this elasticity can be derived from the long-run response of the relative price of a good to a change in its VAT rate. We estimate this elasticity using new data on changes in VAT rates across 74 goods and services for 25 European Union countries from 1996 through 2015. Depending on the level of aggregation, we find a VAT pass-through rate between 0.4 and 0.7. This implies an upper-level elasticity of 3, at the lowest level of aggregation with 74 categories, and 1 (Cobb–Douglas preferences) at a high level of aggregation that distinguishes 10 categories of goods and services.
TL;DR: In this paper, the authors conduct an experimental test of the decision by a group with fixed membership, playing over a finite number of periods, to choose between a "tipping" game, in which every player wants to contribute to the public good provided enough other players contribute, and a prisoners' dilemma, the classic cooperation game.
Abstract: In some important multiplayer situations, such as efforts to supply a global public good, players can
choose the game they want to play. In this paper we conduct an experimental test of the decision by a
group with fixed membership, playing over a finite number of periods, to choose between a “tipping”
game, in which every player wants to contribute to the public good provided enough other players
contribute, and a prisoners’ dilemma, the classic cooperation game. In the prisoners’ dilemma, the
first best outcome is attainable, but cannot be sustained as a Nash equilibrium. In the tipping game,
only a second best outcome may be attainable, but there exists a Nash equilibrium that is strictly
preferred to the one in the prisoners’ dilemma. We show that many groups persistently choose the
prisoners’ dilemma despite its strategic disadvantage, and that the groups that eventually choose
the tipping game do better than the ones that stick with the prisoners’ dilemma.
TL;DR: In this article, the authors rely on a historical natural experiment in the United States, where mineral discoveries occurred sometimes before, sometimes after formal institutions were established in the county of discovery.
Abstract: We document interpersonal violence as a dimension of the resource curse. We rely on a historical natural experiment in the United States, where mineral discoveries occurred sometimes before, sometimes after formal institutions were established in the county of discovery. In places where mineral discoveries occurred before formal institutions were established, there were more homicides per capita historically and the effect has persisted to this day. Today, the share of homicides and assaults explained by the historical circumstances of mineral discoveries is comparable to the effect of education or income. Our results imply that short-term and quasi-exogenous variations in the institutional environment can lead to large and persistent differences in cultural and institutional development.