Assignment Mechanisms, Selection Criteria, and the Effectiveness of Training Programmes (with Annabelle Doerr)
We analyse the effectiveness of vocational training under two dierent assignment mechanisms. The direct assignment mechanism is characterised by the strong influence of caseworkers who can directly assign the unemployed to vocational training courses. Under the voucher assignment mechanism unemployed have more freedom to choose among dierent courses and training providers. Simultaneously with the assignment mechanism the selection criteria for potential training participants is changed. Unemployed awarded with a voucher are supposed to have higher employment probabilities after training than unemployed directly assigned to a training programme. We find that the voucher assignment system reduces the returns to vocational training over the short term. These negative effects fade and eventually, after seven years, become positive. The stricter selection rules appear to be poorly constructed and to reduce the effectiveness of training.
The Selection of High-Skilled Migrants (with Jens Ruhose, Fabian Waldinger and Nicolai Netz)
We measure selection of high-skilled migrants from Germany using predicted earnings. Migrants to less equal countries are positively selected relative to non-migrants, while migrants to more equal countries are negatively selected, consistent with the prediction in Borjas (1987). Positive selection to less equal countries is driven by university quality and grades, and negative selection to more equal countries by university subject and gender. Migrants to the U.S. are highly positively selected and concentrated in STEM fields. Our results highlight the relevance of the Borjas model for high-skilled individuals when credit constraints and other migration barriers are unlikely to be binding.
Measuring Multivariate Risk Preferences (with Sebastian Ebert)
We measure risk preferences for decisions that involve more than a single, monetary attribute. According to theory, correlation aversion, cross-prudence and cross-temperance determine how risk preferences over two single attributes co-vary and interact. We obtain model-free measurements of these cross-risk attitudes in three economic domains, viz., time preferences, social preferences, and preferences over waiting time. This first systematic empirical exploration of multivariate risk preferences provides evidence for assumptions made in economic models on inequality, labor, time preferences, saving, and insurance. We observe non-neutrality of cross-risk attitudes in all domains which questions the descriptive accuracy of economic models that assume that utility is additively separable in its arguments.
Trade and Inequality in the Spatial Economy (with Farid Farrokhi)
Inequality has long fascinated economists, and growing income inequality has been recently and heatedly discussed in public forums. A remarkable fact emerging from this discussion is the strong positive relationship between wage inequality and city size (Baum-Snow and Pavan, 2012). In this paper, we add to the study of inequality and distribution of economic activity in two ways. First, we document new facts on the interaction of geography with inequality. Second, we develop a quantiable model which explains our findings and their implications. In particular, we study the eects of improving trade infrastructure on wage and welfare inequality. Our rst contribution is to document facts about inequality and geography. We assign to each American city a measure of remoteness meant to capture its distance from all other cities. We then show that this measure correlates negatively with the skill premium, the ratio of the mean wage of college degree to the mean wage of non-college degree workers. That is, wage inequality is lower in remote cities. To our knowledge, our paper is the rst to document this fact.
Cutting the Credit Line: Evidence from Germany (with Stefan Goldbach)
The massive decline in international trade in 2008/09 is often attributed to the global deterioration in financial conditions after the bankruptcy of a US investment bank, Lehman Brothers. This paper examines the association between external finance and firm activity in Germany in more detail. In particular, we explore a novel data set that matches a full sample of quarterly bank-firm lending data with detailed information on borrowers and lenders. Our results indicate that foreign sales are insensitive to variations in external finance. While German banks affected by the crisis have significantly reduced their credit supply, we only observe a causal (negative) effect on domestic sales. Exporting firms, in contrast, seem to be particularly good borrowers.
Cities and Economic Development: Urbanization and US Industrial Success, 1880-1930 (with Nick Crafts)
It is widely recognized that successful urbanization is fundamental for achieving economic development. Yet, remarkably little is known about the extent or nature of such externalities in U.S. cities during the so-called ‘second industrial revolution’ in 1880-1930 when United States overtook the United Kingdom to become the world’s leading economy. This paper establishes a connection between specialization and diversity of industrial structure in American cities, and industrial productivity. We find strong evidence of Marshallian (intra-sector) agglomeration externalities but rather weak evidence of Jacobian (inter-sectoral) externalities. We also find that these productivity gains in U.S. cities accounted for over half of all manufacturing productivity growth in the period.
Prospect Games and Dominated Strategies
We investigate a framework for non-cooperative games in normal form where players have behavioral preferences following Prospect Theory (PT) or Cumulative Prospect Theory (CPT). On theoretical grounds CPT is usually considered to be the superior model, since it normally does not violate first order stochastic dominance in lottery choices. We find, however, that CPT when applied to games may select purely dominated strategies, while PT does not. For both models we also characterize the cases where mixed dominated strategies are preserved and where violations may occur.