22.04.2015 Yikai Wang, University of Oslo

Will China Escape the Middle-income Trap? A Politico-economic Theory of Growth and State Capitalism

Is China’s rapid growth sustainable if the current labor and capital market distortions persist? Will democratization occur given that Chinese middle-class are supportive of the regime? To answer the above questions, this paper proposes the following politico-economic theory. In oligarchy, a political elite extracts surplus from the state sector and taxes the private sector, but it also needs political support from sufficiently many citizens to maintain its power. “Divide-and-rule” strategy is implemented to guarantee such support: state workers receive high wages and become supporters, while private worker wages are reduced due to this policy distortion. In the short-run, the low wages in the private sector lead to rapid growth of the private firms and total output. However, long-run growth is harmed by capital market distortions favoring the state firms. The theory suggests that the economy develops along an endogenous three-stage transition: “rapid growth”, “state capitalism”, and two cases in the third stage: “middle-income trap” or “sustained growth”, depending on whether democratization occurs. The theory is consistent with salient aspects of China’s recent development and gives predictions on China’s future development path.


29.04.2015 Steffen Künn, IZA

The Return to Labor Market Mobility: An Evaluation of Relocation Assistance for the Unemployed

In many European countries, labor markets are characterized by high regional disparities in terms of unemployment rates on the one hand, and low geographical mobility among the unemployed on the other hand. This is somehow surprising and raises the question why only minor shares of unemployed job seekers relocate in order to find employment. The German active labor market policy offers a subsidy covering moving costs to incentivize unemployed job seekers to search/accept jobs in distant regions. Based on administrative data, this study provides first empirical evidence on the impact of this subsidy on participants' prospective labor market outcomes. We use an instrumental variable approach to take endogenous selection based on observed and unobserved characteristics into account when estimating causal treatment effects. We find that unemployed job seekers who participate in the subsidy program and move to a distant region receive higher wages and find more stable jobs compared to non-participants. The positive outcomes are a mixture of both better economic conditions in the new region and better job matches.


20.05.2015 Robert Schmidt, Humboldt-University Berlin

 A simple dynamic climate cooperation model with large coalitions and deep emissions cuts

A standard result from the game theoretic literature on international environmental agreements is that coalitions are either 'broad but shallow' or 'narrow but deep'. Hence, the stable coalition size is small when the potential welfare gains are large. We modify a standard climate coalition game by adding a - seemingly - small but realistic feature: we allow countries to delay climate negotiations until the next 'round' if a coalition forms but decides to remain inactive. It turns out that results are surprisingly dierent under this modication. In particular, a large coalition with deep emissions cuts forms if countries are sufficiently patient. Our results also indicate that countries should try hard to overcome coordination problems in the formation of a coalition. A more cooperative outcome may then be reached, and it may be reached more quickly.


10.06.2015 Holger Kraft, Goethe-University Frankfurt

Housing Habits and their Implications for Life-Cycle Consumption and Investment

We set up and solve a rich life-cycle model of household decisions involving consumption of both perishable goods and housing services, stochastic and unspanned labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. The model features habit formation for housing consumption, which leads to optimal decisions closer in line with empirical observations. Our model can explain (i) that stock investments are low or zero for many young agents and then gradually increasing over life, (ii) that the housing expenditure share is age- and wealth-dependent, (iii) that perishable consumption is more sensitive to wealth and income shocks than housing consumption, and (iv) that non-housing consumption is hump-shaped over life.


17.06.2015 Paola Conconi, ECARES Brussels

From Final Goods to Inputs: the Cascade Effect of Preferential Rules of Origin

Recent decades have witnessed a surge of trade in intermediate goods and a pro-liferation of free trade agreements (FTAs). FTAs use rules of origin (RoO) to distinguish goods originating from member countries from those originating from third countries. In this paper, we show that the sourcing restrictions embedded in RoO greatly distort trade in intermediaries. We focus on the North American Free Trade Agreement (NAFTA), the world's largest FTA, and construct a unique dataset that allows us to map the input-output linkages in its RoO. Using a dierence-in-dierences approach, we nd that RoO on nal goods reduced imports of intermediate goods from third countries by around 30 percentage points. Even if external taris are unchanged, FTAs may thus violate multilateral trade rules, by substantially increasing the level of protection faced by non-members.


Hinweis: Das Forschungsseminar findet am 17.06.2015 ausnahmsweise um 10.30 Uhr im Raum LC 133 statt.


24.06.2015 Elisabeth Schulte, Philips-University Marburg

Preselection and Expert Advice (Mike Felgenhauer, Elisabeth Schulte)

We study the effects of preselection on an expert’s incentive to give truthful advice in a decision environment in which certain decisions yield more precise estimates about the expert’s expertise. The introduction of a preselection stage, in which the decision maker can study the case before asking for advice, alters the expert’s perception of the problem. We identify conditions under which preselection occurs in equilibrium. We show that if the expert adjusts his behavior, the option to preselect may reduce the expected utility of the decision maker.


01.07.2015 Maja Adena, WZB Berlin

Radio and the Rise of Nazis in Pre-War Germany (Maja Adena, Ruben Enikolopov, Veronica Santarosa, Katia Zhuravskaya)

How do the media affect public support for democratic institutions in a fragile democracy? What role do they play in a dictatorial regime? We study these questions in the context of Germany of the 1920s and 1930s. During the democratic period, when the Weimar government introduced progovernment political news, the growth of Nazi popularity slowed down in areas with access to radio. This effect was reversed during the campaign for the last competitive election as a result of the pro-Nazi radio broadcast following Hitler’s appointment as German chancellor. During the consolidation of dictatorship, radio propaganda helped the Nazis to enroll new party members. After the Nazis established their rule, radio propaganda incited anti-Semitic acts and denunciations of Jews to authorities by ordinary Germans. The effect of anti-Semitic propaganda varied depending on the listeners’ predispositions toward the message. Nazi radio was most effective in places where anti-Semitism was historically high and had a negative effect in places with historically low anti-Semitism.


08.07.2015 Martin Gregor, Karls-University Prag

Lobbying as transactions with evidence

We model informational lobbying as bilateral transactions between a lobby and a policy-maker, where the subject of a transaction is disclosure of private verifiable evidence. The policy-maker announces transaction prices, and each lobby agrees or disagrees. In the equilibrium, a negative sign of a transaction surplus implies a prohibitive transaction price, and a non-negative sign implies a non-prohibitive transaction price. We apply this method to a binary setting with two competing lobbies. For most of the information structures, we conveniently construct the signs of the surpluses and thereby identify the equilibrium set of transactions. Through this method, we explain how the existence of countervailing lobbying depends on timing of transactions and the information complementarity of the private evidence. We also identify information structures and timings for which an ex ante disadvantaged lobby may paradoxically end up better than an ex ante advantaged lobby. Finally, we demonstrate that if one lobby gets organized and thereby gains ability to trade with evidence, the equilibrium amount of information may decrease because the policy-maker may replace a more informative transaction by a less informative transaction.