Showing papers in "The Scandinavian Journal of Economics in 2013"
TL;DR: The authors argue that the political commitment problem provides an explanation for why much income redistribution takes an inefficient form, particularly employment in the public sector, and that the need to make offers of employment incentive-compatible leads to inefficiencies in the supply of public goods.
Abstract: In this paper, we argue that the political-commitment problem provides an explanation for why much income redistribution takes an inefficient form, particularly employment in the public sector. A job is a credible way of redistributing when it provides rents (such as in situations with moral hazard), and employment is optimal ex post. Moreover, a job is selective and reversible, and thus ties the continuation utility of a voter to the political success of a particular politician. We show that the need to make offers of employment incentive-compatible leads to inefficiencies in the supply of public goods. We also show that such inefficient redistribution becomes relatively attractive in situations with high inequality and low productivity. Inefficiency is increased when the stakes from politics are high, when inequality is high, and when money matters less than ideology in politics.
376 citations
TL;DR: The authors compare two reforms that raised the minimum school-leaving age to 16 in France (1967) and in England and Wales (1972) using a regression discontinuity design, and find that while the reform in English and Wales led to a 6−7 percent increase in hourly wages per additional year of compulsory schooling, the impact of the change to French law was close to zero.
Abstract: In this paper, I compare two reforms that raised the minimum school-leaving age to 16 in France (1967) and in England and Wales (1972). Using a regression discontinuity design, I find that while the reform in England and Wales led to a 6−7 percent increase in hourly wages per additional year of compulsory schooling, the impact of the change to French law was close to zero. The results suggest that the major difference between the two reforms was that the fraction of individuals holding no qualifications dropped sharply after the introduction of the new minimum school-leaving age in England and Wales, whereas it remained unchanged in France.
121 citations
TL;DR: In this article, the authors study the determinants of trust in the European Central Bank (ECB) as measured by the European Commission's Eurobarometer survey, in particular during the global financial crisis and the European sovereign debt crisis.
Abstract: We study the determinants of trust in the European Central Bank (ECB) as measured by the European Commission's Eurobarometer survey, in particular during the global financial crisis and the European sovereign debt crisis. We find that the fall in trust in the ECB in crisis times can be rather well explained based on the pre-crisis determinants. We also show that the fall in trust reflected the macroeconomic deterioration, a more generalized fall in the trust in European institutions in the wake of the crisis, and the severity of the banking sector's problems, to which the ECB was associated in the public opinion.
101 citations
TL;DR: In this paper, high-school students from disadvantaged high schools in Toronto were invited to take two surveys, about three weeks apart, and half of the students taking the first survey were also shown a three-minute video about the benefits of post-secondary education.
Abstract: High-school students from disadvantaged high schools in Toronto were invited to take two surveys, about three weeks apart. Half of the students taking the first survey were also shown a three-minute video about the benefits of post-secondary education (PSE) and were invited to try out a financial-aid calculator. Most students’ perceived returns to PSE were high, even among those not expecting to continue. Those exposed to the video, especially those initially unsure about their own educational attainment, reported significantly higher expected returns and lower concerns about costs, and expressed a greater likelihood of PSE attainment.
96 citations
TL;DR: This article showed that a two-tier pension system with a pay-as-you-go first tier and a fully funded, defined wage-indexed second tier can provide optimal intergenerational risk sharing without distorting the labour supply, thereby achieving the first best.
Abstract: We show that a two-tier pension system, with a pay-as-you-go first tier and a fully funded, defined wage-indexed second tier, can provide for optimal intergenerational risk-sharing without distorting the labour supply, thereby achieving the first best. Other arrangements with a fully-funded second tier fail to achieve the first best.
87 citations
TL;DR: This article showed that there is a stable positive relationship between oil abundance and long-run economic growth, and there is no evidence that higher oil rents hinder economic growth in oil-rich countries.
Abstract: We show that previous results from the body of literature on the resource curse have primarily been driven by the collapse in oil prices during the mid-1980s. By exploiting cross-country variations in the size of initial oil endowments and the timing of oil discoveries, we find that there is a stable positive relationship between oil abundance and long-run economic growth. Using dynamic panel data methods, we also find that there is no evidence that higher oil rents hinder growth. However, to focus on material gain means that the welfare gain from oil is understated, because oil-rich countries benefit more by the reduction in infant mortality and the gain in longevity. Interestingly, such oil-led health improvements are more pronounced in non-democratic countries, where initial heath conditions were poor and oil wealth is concentrated among the ruling elites.
58 citations
TL;DR: In this article, the authors present a model of a multispecies fishery and show that consumer preferences for seafood diversity can trigger a sequential collapse of fish stocks under open-access fishery.
Abstract: We present a model of a multispecies fishery, and we show the following. (i) Consumer preferences for seafood diversity can trigger a sequential collapse of fish stocks under open-access fishery. (ii) The stronger the preferences are for diversity, the higher is the need for coordinated multispecies regulation. (iii) Second-best optimal management of only one (or a few) species is less strict than socially optimal management of the same species. (iv) Myopic regulation of one species, ignoring spillovers to other species, can cause depletion of other stocks that would not be depleted under open access.
56 citations
TL;DR: In this paper, the authors address the problem of sabotage in tournaments with heterogeneous contestants and develop a formal model, which yields the prediction that favorites exert higher productive effort, while underdogs are more tempted to engage in destructive actions (sabotage).
Abstract: In this paper, we address the problem of sabotage in tournaments with heterogeneous contestants. In a first step, we develop a formal model, which yields the prediction that favorites exert higher productive effort, while underdogs are more tempted to engage in destructive actions (sabotage). This is because favorites have a higher return on productive effort and both types of effort are substitutes. In a second step, we use data from German professional soccer to test this prediction. In line with the model, we find that favorite teams win more tackles in a fair way, while underdog teams commit more fouls.
52 citations
TL;DR: In this paper, the authors investigated how the first childbirth affects the wage processes of women who are well-established in the labour market, and they used register data on West Germany and exploit the expansionary family policy during the late 1980s and 1990s for identi…cation.
Abstract: This study investigates how the …rst childbirth aects the wage processes of women who are well-established in the labour market. We estimate a ‡exible …xed-eects wage regression model extended by post-childbirth …xed eects. We use register data on West Germany and exploit the expansionary family policy during the late 1980s and 1990s for identi…cation. On their return to work after childbirth, mothers'wages drop by 3 to 5.7 per cent per year of leave. We …nd negative selection back to full-time work after childbirth. We discuss policy implications regarding statistical discrimination and results concerning the family gap.
52 citations
TL;DR: In this article, the authors analyzed the impact that networks have on the structure of international migration flows and investigated whether diaspora externalities are different across education levels and gender, and found that network effects vary by education level, but not by gender.
Abstract: In this paper, we analyze the impact that networks have on the structure of international migration flows. In particular, we investigate whether diaspora externalities are different across education levels and gender. Using new data that include both dimensions, we analyze the respective impact that networks have on the proportion of each category of migrant. Therefore, in contrast to the preceding body of literature on the macro determinants of international migration, we can identify the factors that influence the selection in terms of skills and in terms of gender. We find that network effects vary by education level, but not by gender.
51 citations
TL;DR: In this article, the authors show that the problem of sabotage in tournament-like reward schemes can be solved by concealing intermediate information on the performances of workers (i.e., by clever information management).
Abstract: Sabotage is one of the main problems of tournament-like reward schemes. Workers who are leading in a tournament are more dangerous rivals, and are therefore sabotaged more heavily. This implies that there is an extra cost to becoming a leader and, hence, to choosing high productive effort in the early stages of a tournament. The incentives to exert productive effort are thereby reduced. We show that this problem can be solved by concealing intermediate information on the performances of workers (i.e., by clever information management). Moreover, we offer experimental evidence indicating that such information management does increase productive efforts.
TL;DR: This article pointed out the major contribution of multi-product rms in international trade activity, and this observation has motivated a lively theoretical research on the eects of trade liberalization.
Abstract: Recent literature has pointed to the major contribution of multi-product rms in international trade activity. This observation has motivated a lively theoretical research on the eects of trade liberalization (Bernard, Redding and Schott (2009),
TL;DR: In this article, the authors examine Norwegian gasoline pump prices using daily station-specific observations from 2003 to 2006, and observe de facto simultaneous decision-making by the headquarters (without knowledge of their rivals' prices) when every Monday around noon they decide to increase pump prices to the same level.
Abstract: We examine Norwegian gasoline pump prices using daily station-specific observations from 2003 to 2006. The four big gasoline companies use a vertical restraint that is adopted industry-wide (labeled price support). This moves price control from the hands of independent retailers into the hands of the headquarters. Retail gasoline prices follow a fixed weekly pattern, where we observe de facto simultaneous decision-making by the headquarters (without knowledge of their rivals’ prices) when every Monday around noon they decide to increase pump prices to the same level. The price level on Mondays corresponds to the recommended prices published by the headquarters of the gasoline companies.
TL;DR: This paper developed a heterogeneous-firm model in which ex-ante identical workers learn from their employers in proportion to the firm's productivity and found considerable evidence of higher wages and wage growth in large and/or foreign-owned firms.
Abstract: Foreign-owned firms are often hypothesized to generate productivity "spillovers" to the host country, but both theoretical micro-foundations and empirical evidence for this are limited. We develop a heterogeneous-firm model in which ex-ante identical workers learn from their employers in proportion to the firm's productivity. Foreign-owned firms have, on average, higher productivity in equilibrium due to entry costs, which means that low-productivity foreign firms cannot enter. Foreign firms have higher wage growth and, with some exceptions, pay higher average wages, but not when compared to similarly large domestic firms. The empirical implications of the model are tested on matched employer-employee data from Denmark. Consistent with the theory, we find considerable evidence of higher wages and wage growth in large and/or foreign-owned firms. These effects survive controlling for individual characteristics, but, as expected, are reduced significantly when controlling for unobservable firm heterogeneity. Furthermore, acquired skills in foreign-owned and large firms appear to be transferable to both subsequent wage work and self-employment.
TL;DR: In this article, a peer-reviewed version of the article is published in final form at https://doi.org/10.1111/sjoe.12015 This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Abstract: "This is the peer reviewed version of the article, which has been published in final form at https://doi.org/10.1111/sjoe.12015 This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions."
TL;DR: In a controlled laboratory experiment as mentioned in this paper, subjects had to fold letters in order to earn money, and the gross income varied and the tax rate was 0, 25, and 50 percent.
Abstract: In a controlled laboratory experiment, subjects had to fold letters in order to earn money. While the net income per letter was the same in the three treatments, the gross income varied and the tax rate was 0, 25, and 50 percent. Although work incentives should be the same in all treatments, subjects worked harder and longer when they were taxed. We conclude that this is because of a net wage illusion effect. The existence of this effect demonstrates that not only are the tax rate and the tax base of importance for work incentives, but the perception of a tax is also important.
TL;DR: In this paper, three types of theories have been used to explain the wage premium in foreign firms: the theories of heterogeneous workers, heterogeneous learning, and heterogeneous firms.
Abstract: Three types of theories have been used to explain the wage premium in foreign firms: the theories of heterogeneous workers, heterogeneous learning, and heterogeneous firms. We set up a model that explicitly encompasses two of these theories, and that can illustrate the third. This unifying framework allows us to rigorously compare the predictions of the different theories. Thus, it is a useful tool for interpreting new and existing empirical evidence. We illustrate the usefulness of the model on matched employer−employee data, and we find considerable support for all three theories. In particular, the theory of heterogeneous workers can explain up to 75 percent of the premium.
TL;DR: In this article, the authors exploit a policy reform that consisted of the abolishment of a waiting day together with an increase of cash benefits for short sick leaves, and find that the total number of days of sickness absence was reduced by the reform, which is likely due to the fact that the abolition of the waiting period made it less costly for workers to be absent for short periods.
Abstract: Most developed countries have compulsory insurance programs for temporary disability, that is, cash benefits for non-work-related sickness. Despite the economic significance of these programs, little is known about their effects on work absenteeism or labor supply. We exploit a policy reform that consisted of the abolishment of a waiting day together with an increase of cash benefits for short sick leaves. We find that the total number of days of sickness absence was reduced by the reform, which is likely due to the fact that the abolishment of the waiting period made it less costly for workers to be absent for short periods.
TL;DR: In this article, the authors consider an economy that is constrained by the use of natural resources and driven by knowledge accumulation, and they show that population growth and poor input substitution are not detrimental but, on the contrary, are even necessary to obtain a sustainable consumption level.
Abstract: In this paper, I consider an economy that is constrained by the use of natural resources and driven by knowledge accumulation. Resources are essential inputs in all sectors. I show that population growth and poor input substitution are not detrimental but, on the contrary, are even necessary to obtain a sustainable consumption level. I find a general rule to define the conditions for a constant innovation rate. The rule does not apply to capital but to labor growth, which is the crucial input in research. Furthermore, the rule relates to the sectoral structure of the economy, and to demographic transition. The results continue to hold with a backstop technology, and are extended for the case of minimum resource constraints.
TL;DR: In this article, the role of house prices and stock prices in the monetary-policy transmission mechanism in the US, using a structural vector autoregressive model, was analyzed, and it was shown that house prices contribute more than stock prices to fluctuations in gross domestic product and inflation.
Abstract: We analyze the role of house prices and stock prices in the monetary-policy transmission mechanism in the US, using a structural vector autoregressive model. If we allow the interest rate and asset prices to react simultaneously to news, we find different roles for house prices and stock prices in the monetary transmission mechanism. Following a contractionary monetary-policy shock, stock prices fall immediately, while the response in house prices is more gradual. Regarding the systematic response in monetary policy, stock prices play a more important role than house prices. As a consequence, house prices contribute more than stock prices to fluctuations in gross domestic product and inflation.
TL;DR: In this paper, the authors provide a model of committee decision-making that explains the public's demand for transparency and committee members' aversion to it, and show how pressures to become transparent induce committee members to organize pre-meetings away from the public eye.
Abstract: Transparent decision-making processes are widely regarded as a prerequisite for the working of a representative democracy. It facilitates accountability, and citizens might suspect that decisions, if taken behind closed doors, do not promote their interests. Why else would there be the secrecy? We provide a model of committee decision-making that explains the public's demand for transparency, and committee members' aversion to it. In line with case study evidence, we show how pressures to become transparent induce committee members to organize pre-meetings away from the public eye. Transparency does not improve accountability, but it might improve the decision.
TL;DR: In this paper, the authors used Danish longitudinal data with information about wealth for a sample of first-time house buyers and their parents, and found no evidence of direct financial transfers from parents to children in connection with the house purchase, or with unemployment spells occurring just after the purchase, when children typically hold few liquid assets.
Abstract: Using Danish longitudinal data with information about wealth for a sample of first-time house buyers and their parents, we test whether there are direct financial transfers from parents to children in connection with the house purchase, or in connection with unemployment spells occurring just after the purchase, when children typically hold few liquid assets. First, we document that child and parent financial resources are correlated. Then, we introduce conditioning variables and exploit the panel aspect of the data to also condition on fixed unobserved factors, which arguably govern preferences and/or productivity. We find no evidence of direct financial transfers.
TL;DR: In this article, the authors consider a two-type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure, and they show that increased consumption positionality typically implies higher marginal income tax rates for both the high-ability and low-ability types, whereas leisure positionality has an offsetting role.
Abstract: Previous studies on public policy under relative consumption concerns have ignored the role of leisure comparisons. This paper considers a two-type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both the high-ability and the low-ability type, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component, i.e., a component that is larger for the high-ability than for the low-ability type. Moreover, leisure positionality does not modify the policy rule for public good provision when the income tax is optimally chosen.
TL;DR: In this article, the authors make use of a large-scale randomized experiment to test whether social behavior is important for work absence due to illness and conclude that the social-behaviour effects most likely stem from fairness concerns.
Abstract: By making use of a large-scale randomized experiment, we test whether social behaviour is important for work absence due to illness. The individuals treated in the experiment were exposed to less monitoring of their eligibility to collect sickness insurance benefits, which sharply increased their non-monitored work absence. This exogenous variation is exploited in two complementary analyses. In both analyses, we find significant social-behaviour effects. Using detailed data, we conclude that the social-behaviour effects most likely stem from fairness concerns.
TL;DR: In this paper, the authors consider a group of individuals who face a binary collective decision, where each group member holds some private information, and all agree about what decision should be taken in each state of nature.
Abstract: We consider a group of individuals who face a binary collective decision. Each group member holds some private information, and all agree about what decision should be taken in each state of nature. However, the state is unknown, and members can differ in their valuations of the two types of mistakes that might occur, and in their prior beliefs about the true state. For a slightly randomized majority rule, we show that informative voting by all voters is the unique Nash equilibrium, that this equilibrium is strict, and that the Condorcet asymptotic efficiency result holds in this setting.
TL;DR: In this article, the authors test the argument that increased taxes on earnings correspond to increased incentives to shirk, thus causing an increase in the rate of worker absenteeism, and show that a higher marginal net-of-earnings-tax rate reduces absenteeism.
Abstract: In this paper, I test the argument that increased taxes on earnings correspond to increased incentives to shirk, thus causing an increase in the rate of worker absenteeism. After fixed job effects are taken into account, panel register data on prime-age Norwegian males who work full-time show that a higher marginal net-of-earnings-tax rate reduces the rate of absenteeism. When the net-of-tax rate is increased by 1.0 percent, absenteeism decreases by 0.3−0.5 percent. Injury-related absences are less affected by tax changes than other absences. Absenteeism becomes more sensitive to tax changes as the occupational unemployment rate increases.
TL;DR: In this article, the effect of changes in annuity prices on the decision to annuitize was investigated in several Swiss occupational pension plans and it was shown that the price change reduced the propensity to annuize among affected individuals by 16.8 percentage points.
Abstract: In this paper, we present new evidence for the effect of changes in annuity prices on the decision to annuitize. We exploit an unprecedented change in policy in several Swiss occupational pension plans. There is an implied 8 percent reduction in the rate at which retirement capital is translated into an annuity, and this represents a net present value loss of CHF 18,500 (around US$ 20,000). To estimate the impact of this change, we use data from companies that changed their prices and from one large company that did not. We find that the price change reduces the propensity to annuitize among affected individuals by 16.8 percentage points.
TL;DR: In this article, the authors investigated whether people's donations in the field are affected by the presence of others and found that donations are significantly more frequent for individuals who are members of a group.
Abstract: We investigate whether people's donations in the field are affected by the presence of others. In the analysis, we distinguish between individuals who arrived at a national park alone and those who arrived as members of a group. We also investigated the effect of donations being made in the presence of a third party made in the presence of a third party. We find that donations are significantly more frequent for individuals who are members of a group. When a third party is present, we find that the total donations by individuals who are a part of a group are significantly higher than those of lone travelers, mainly because of the increased probability of donating.
TL;DR: A survey of Shapley's contributions to matching theory and game theory can be found in this article, starting with the work that inspired the Swedish Academy to award the 2012 Nobel Memorial Prize in Economic Sciences to Lloyd Shapley and Alvin Roth.
Abstract: This is a survey of Lloyd Shapley’s contributions to matching theory and game theory in general, starting with the work that inspired the Swedish Academy to award the 2012 Nobel Memorial Prize in Economic Sciences to Lloyd Shapley and Alvin Roth.
TL;DR: In this article, the role of productive and unproductive entrepreneurship in economic growth was studied in a setting where firms compete in both economic and political markets, and they vie for influence over government transfer policy through rent-seeking activities.
Abstract: We study the role of productive and unproductive entrepreneurship in economic growth, in a setting where firms compete in both economic and political markets. Specifically, firms compete for market share through cost-reducing technological innovation, and they vie for influence over government transfer policy through rent-seeking activities. We find that rent-seeking affects growth in two ways: it allows firms to ignore economic competition, leading to less innovation, and it alters the number of firms that are supported in equilibrium. The former effect is negative, while the latter is ambiguous. We show how these effects depend on various characteristics of economic and political markets.