Wintersemester 2023/2024

18.10.2023Sebastian Ottinger, CERGE-EI, Charles University Prague

The American Origin of the French Revolution (joint with Lukas Rosenberger)

France sent five thousand men to fight alongside George Washington's army in the American Revolutionary War. We show that the French combatants' exposure to the United States of America increased support for the French Revolution a decade later. French regions (départements) from which more American combatants originated had more revolts against feudal institutions, revolutionary societies, volunteers for the revolutionary army, and emigrants from the Old Regime’s elite. To establish causality, we exploit two historical coincidences: i) originally, a French army of seven and a half thousand was ready to board ships, but one-third did not sail to America because of logistical problems; ii) among the regiments who fought in America against the British, some regiments were stationed for one year in New England before the main battle, and in Virginia afterwards, while others were stationed in the Caribbean colonies. We find that only the combatants who were exposed to the United States affected the French Revolution after their return.

08.11.2023Ro'i Zultan, Ben-Gurion University of the Negev

Social image and Social distance

Social image concerns motivate people to behave pro-socially if others are watching—as pro-social behavior leads to an update of the observer’s beliefs about the actor’s intrinsic pro-sociality. Thus, the effect of being observed depends on the magnitude of the shift in the observer’s beliefs. This, in turn, depends on the prior belief distribution. The more prior information available to the observer, the less effect new information has on posterior beliefs. This generates the novel hypothesis that the effect of observation on pro-social behavior increases with the social distance between the observer and the observed. Although people care more about what their friends think, they may be more motivated to impress a stranger who does not know them as well as a friend. We test this hypothesis in a field experiment. Participants were 670 high-school students who walked to generate donations for a public good. Participants were either unobserved, observed by a friend, or observed by another random participant. To identify social image concerns, we also manipulated whether effort up to a certain threshold yielded a personal benefit in addition to the public-good provision. The results provide support for the hypothesis, with age as a moderator.

15.11.2023Anna Ressi, WHU-Otto Beisheim School of Management, Vallendar

On the interaction of prospective relative performance information and reference groups’ performance standards: Employee performance and self-selection

This paper presents two experiments on the behavioral effects of prospective relative performance information (RPI) when facing a reference group with either a high or a low implicit performance standard. Our baseline study 1 focuses on a centralized organizational structure where employees are exogenously assigned to one of the two reference groups. We find that the anticipation of RPI boosts the performance of high-performers assigned to the low-standard group, while low-performers assigned to the high-standard group seem to become discouraged. Study 2 shows that prospective RPI affects employees substantially differently under a decentralized organizational structure where employees can self-select their reference group. We demonstrate that the anticipation of RPI especially induces relatively low-performing employees to select the high-standard group as a self-set target, spurring motivation. For relatively high-performing employees, our results suggest they become complacent when self-selecting the low-standard reference group. Hence, the benefits of providing self-selection options depend on how employees use them.

22.11.2023Johannes Jaspersen,  LMU Munich

Insurance Take-up as Premiums Increase (joint with Benjamin L. Collier, Tobias Huber, Andreas Richter)

The growing costs of severe climate events raise new questions regarding property oweners' willingness to insure their homes against catastrophes. We examine the responses of existing policyholders to an exogenous price increase on their heavily subsidized flood insurance. This high-risk population was informed that despite the price increase, their insurance remained cheaper than the actuarial price. Using a differnece-in-differneces estimation on a panel of over two million policy-year observations, we find that about one fourth of the homeowners stopped insuring due to the reform. The forgone insurance was a large free lunch - the median homeowner paid 20 % of the actuarial value - making this behavior surprising. The most likely mechanisms - adverse selection, liquidity constraints, and the reforms' effects on home values - do not appear to explain homeowners' choices. Instead, consumer non-renewals appear to reflect negative sentiment as they closely correspond to periods of media coverage of the reform. Our findings speak to housholds' difficulties in assessing risk-based contracts and the challenges of increasing climate risk.


Timothy King, University of Vaasa

Deterred or inspired by aspirant customers? Customers’ industry tournament incentives and supplier innovation (joint with Yaoyao Fan and Yichu Huang)

Applying the logic of tournament theory, we explore the effect of customer CEOs’ industry tournament incentives (CITIs), captured by industry pay gap, on supplier innovation. Our main findings demonstrate that customer CITIs can enhance supplier innovation. This is evident in terms of the quantity, quality and efficiency of innovation, and are associated with a valuation premium for supplier firms. Moreover, we uncover a moderating effect for high-tech and large customers, whereby the positive impact of CITIs is more pronounced for high-tech customers but weakened for large customers. Finally, in an online appendix, we demonstrate that our results are robust to alternative models and addressing potential endogeneity concerns. Overall, our study contributes to interdisciplinary research in supply chain management and corporate outcomes by providing insight into the relevance of customers’ aspiration to supplier analysis and valuation

10.01.2024Oliver Bos, ENS Paris-Saclay

Auctions with Signaling Bidders: Optimal Design and Information Disclosure (with Martin Pollrich)

We study optimal auctions in a symmetric private values setting, where bidders have signaling concerns: they care about winning the object and a receivers inference about their type. Signaling concerns arise in various economic situations such as takeover bidding, charity auctions, procurement and art auctions. We show that auction revenue can be decomposed into the standard revenue from the respective auction without signaling concern, and a signaling component. The latter is the bidders' ex-ante expected signaling value net of an endogenous outside option: the signaling value for the lowest type. The revenue decomposition restores revenue equivalence between different auction designs, provided that the same information about bids is revealed. Revealing information about submitted bids affects revenue via the endogenous outside option. In general, revenue is not monotone in information revelation: revealing more information about submitted bids may reduce revenue. We show that any bid disclosure rule allowing to distinguish whether a bidder submitted a bid or abstained from participation minimizes the outside option, and therefore maximizes revenue.

24.01.2024Giorgio Ottonello, Nova

Excess Volatility in Professional Stock Return Forecasts

Consensus professional forecasts of stock returns are three times more volatile than those of non-professionals and econometricians. This “excess” volatility in professional forecasts is not due to noise. Rather, professional forecasts respond immediately, strongly, and countercyclically to macro shocks. Business cycle, technology, and oil supply shocks each account for 20% to 40% of the total variation in the difference between professional and other forecasts. We also replicate prior work’s finding that professional forecasts of GDP growth are no more responsive to macro shocks than those of non-professionals and econometricians. We argue that professionals’ forecasts of stock returns respond differently from (i) other forecasts of stock returns and (ii) professional forecasts of macro variables, because they are better able to identify discount rate shocks. To this end, we run a two-stage test using standard discount rate proxies. In the first stage, we identify "shock-sensitive'' proxies as those for which macro shocks are strong instruments. In the second stage, the shock-sensitive proxies, and particular the part instrumented using macro shocks, strongly predict professional forecasts. Our survey-based evidence complements standard present-value findings that macro shocks lead to time variation in professionals' expected returns. We conclude that professionals are particularly adept at correctly identifying discount rate fluctuations from macro shocks. In contrast to us, a large literature in macro-finance finds that consensus forecasts of professionals are no better than other forecasts.