Imprecise information disclosure and truthful certification (with Lilo Wagner)
This paper studies the interaction of information disclosure and reputational concerns in certification markets. We argue that by revealing information less precisely, a certifier reduces the threat of capture because this constrains feasible bribes. As a result, only imprecise disclosure rules are implementable for intermediate discount factors. Our results therefore suggest that contrary to the common view, imprecise disclosure may be socially desirable. Regulatory intervention may provoke market failure especially in industries where certifier reputational rents are low
Moderating Political Extremism: Single Round vs Runoff Elections under Plurality Rule (with T. Nanncini and G. Tabellini)
We empirically compare single round vs runoff elections under plurality rule. We exploit a regression discontinuity design in Italy, where cities above 15,000 inhabitants elect the mayor with a runoff system, while those below hold single round elections. Under runoff elections, the number of political candidates is larger, but policy volatility is smaller. This finding is consistent with theoretical analysis showing that runoff elections reduce the influence of extremist voters, because they reduce the bargaining power of more extremist parties compared to single round elections.
Optimal Sequential Decision with Limited Attention (with Yeon-Koo Che)
We consider a sequential decision problem in which a decision maker (DM) may acquire information about an unknown state of the world before taking an action (whose payoff depends on the state). Unlike the classical treatment of this problem by Wald (1947) and its subsequent incarnations, the DM in our model may direct her limited attention to diverse sources of evidence that support alternative states at varying degrees of accuracy. The optimal policy combines three distinct strategies: (i) immediate action (ii) contradictory strategy seeking to “rule out the likely state,” and (iii) a confirmatory strategy seeking to “confirm the likely state.” A generalized model assumes a cost of signal that nests as a special case the entropy-based formulation used in the rational inattention literature (Sims, 2003; Matejka et al., 2015), and provides a dynamic foundation for its prediction, attaining it in the limit as the DM's discount rate goes to zero
Industrial Espionage and Productivity
In this paper, we investigate the economic returns to industrial espionage by linking information from East Germany’s foreign intelligence service to sector-specific gaps in total factor productivity between West and East Germany. Based on a data set that comprises the entire flow of information provided by East German spies over the period 1969-1989, we document a significant narrowing of sectoral West-to-East TFP gaps as a result of East Germany’s industrial espionage. This central finding holds across a wide range of specifications and is robust to the inclusion of several alternative proxies for technology transfer. We further demonstrate that the economic returns to industrial espionage are particularly strong in sectors that are closer to the West German technology frontier and in which constraints to the import of goods and services are particularly pronounced. Finally, our findings suggest that over the time period considered, industrial espionage crowded out standard overt R&D in East Germany.
On the Strategic Effect of International Permits Trading on Local Pollution (with Efthymia Kyriakopoulou)
We introduce a model of strategic environmental policy where two firms compete à la Cournot in a third market under the presence of multiple pollutants. Two types of pollutants are introduced, a local and a transboundary one. The regulator can only control local pollution as transboundary pollution is regulated internationally. The strategic effect present in the original literature is also replicated in this setup. However, we illustrate that when transboundary pollution is regulated through the use of tradable emission permits instead of non-tradable ones then a new strategic effect appears which had not been identified thus far. In this case, local pollution increases further and welfare is lowered. We also provide evidence from the implementation of EU ETS over the pollution of Particulates Matters (PM10 and PM2.5).
Religion, Division of Labor and Conflict: Anti-Semitism in German Regions over 600 Years (with Luigi Pascali)
Anti-Semitism continues to be a widespread societal problem rooted deeply in history. Using novel city-level data from Germany for more than 2,000 cities and county-level data, we study the role of economic incentives in shaping the co-existence of Jews, Catholics and Protestants. The Catholic ban on usury gave Jews living in Catholic regions a specific advantage in the moneylending sector. Following the Protestant Reformation (1517), the Jews lost this advantage in regions that became Protestant but not in those regions that remained Catholic. We show that 1) the Protestant Reformation induced a change in the geography of anti-Semitism with persecutions of Jews and anti-Jewish publications becoming more common in Protestant areas relative to Catholic areas; 2) this change was more pronounced in cities where Jews had already established themselves as moneylenders; 3) the Reformation reduced the specialization of Jews in the financial sector in Protestant regions but not in Catholic regions. We interpret these findings as evidence that, following the Protestant Reformation, the Jews living in Protestant regions lost their comparative advantage in lending. This change exposed them to competition with the Christian majority leading, eventually, to an increase in anti-Semitism.
Earnings losses and labor mobility over the lifecycle (with Moritz Kuhn)
Large and persistent earnings losses following displacement have adverse consequences for the individual worker and the macroeconomy. Leading models cannot explain their size and disagree on the sources. Two mean-reverting forces make earnings losses transitory in these models: search as an upward force allows workers to climb back up the job ladder; and separations as a downward force make non- displaced workers fall down the job ladder. We show that job stability at the top rather than search frictions at the bottom is the main driver of persistent earnings losses. We provide new empirical evidence on job stability and develop a life-cycle search model to explain the facts. Our model offers a quantitative reconciliation of key stylized facts of the U.S. labor market: large worker flows, a large share of stable jobs, and persistent earnings shocks. We explain the size of earnings losses by dampening the downward force. Regarding the sources, we find that over 85 % stem from the loss of a particularly good job at the top of the job ladder. We apply the model to study the effectiveness of two labor market policies, retraining and placement support, from the Dislocated Worker Program. We find that both are ineffective in reducing earnings losses in line with the program evaluation literature.
How Worker Participation affects Performance under Minimum Remuneration Policies: Experimental Evidence (with Katrin Köhler & Beatrice Pagel)
We analyze the role of worker participation for the success of minimum remuneration policies. In our experiments employers remunerate workers doing a real-effort task. We vary the way how a minimum remuneration policy is introduced. In the worker-participation treatment, workers bargain with the employer on the enforcement of the policy. In the control treatment the policy is exogenously introduced. We find a pronounced effort increase after the policy was enforced. An exogenous introduction has detrimental effects, i.e., employers frequently pay a premium to maintain performance. Thus, worker participation may be an effective means for maintaining reciprocity under minimum remuneration policies.
Norm Violations and their Spillovers (with Oliver Himmler & Tobias König)
In a series of lab experiments we investigate how subjects respond to norm violations. Before making their own decisions, subjects see the cheating behavior of other subjects. Being exposed to other subjects’ cheating increases the likelihood of cheating in the same and similar situations. In addition, we demonstrate that these findings are relevant beyond the laboratory environment. In a field experiment we demonstrate that the exposure to tax evasion can lead to adverse behavior outside the realm of taxation. We find significantly higher rates of theft at the workplace among subjects who were exposed to tax evasion, compared to those subjects that were not.