Status and the demand for visible goods: experimental evidence on conspicuous consumption

Some economists argue that consumption of publicly visible goods is driven by social status. Making a causal inference about this claim is difficult with observational data. We conduct an experiment in which we vary both whether a purchase of a physical product is publicly visible or kept private and whether the income used for purchase is linked to social status or randomly assigned. Making consumption choices visible leads to a large increase in demand when income is linked to status, but not otherwise. We investigate the characteristics that mediate this effect and estimate its impact on welfare.     

BEHAVIOR IN GROUP CONTESTS: A REVIEW OF EXPERIMENTAL RESEARCH

Group contests are ubiquitous. Some examples include warfare between countries, competition between political parties, team‐incentives within firms, and rent‐seeking. In order to succeed, members of the same group have incentives to cooperate with each other by expending effort. However, since effort is costly, each member also has an incentive to abstain from expending any effort and instead free ride on the efforts of other members. Contest theory predicts that the intensity of competition between groups and the amount of free riding within groups depend on the group size, sharing rule, group impact function, contest success function, and heterogeneity of players. We review experimental studies testing these theoretical predictions. Most studies find significant over‐expenditure of effort relative to the theory and significant heterogeneity of behavior within and between groups. Also, most studies find support for the comparative statics predictions of the theory (with the exception of the “group size paradox”). Finally, studies show that there are effective mechanisms that can promote within‐group cooperation and conflict resolution mechanisms that can de‐escalate and potentially eliminate between‐group conflict.     

Statement of the Financial Economists Roundtable: Bank Capital as a Substitute for Prudential Regulation

The Financial CHOICE Act recently passed by the House proposes to create an “off‐ramp” that would allow banks to escape burdensome prudential regulation if the ratio of their equity capital to their total assets is 10% or more. The Financial Economists Roundtable supports this idea as a means of reducing regulatory costs, but believes some additional safeguards are needed. A capital ratio of 10% may not be high enough to discourage banks from excessive risk taking. A solution is to have two capital requirements for banks choosing the off‐ramp: one absolute (as proposed in the act) and one risk‐based. The FER believes that many banks will prefer this regime to the current burdensome prudential regulation, especially if regulators simplify the setting of risk weights and make them more rule‐based. Regulators setting minimum capital requirements should consider not only a bank’s stand‐alone risk, but also the systemic risk posed by banks, as well as the tendency of accounting measures of income and assets to overstate the economic value of banks’ equity capital. The Financial Choice Act would also eliminate useful elements of ongoing supervision and regulation, not all of which can be addressed by higher capital alone. Furthermore, to facilitate regulatory learning about risks, off‐ramped banks should continue to report the data that regulators use for stress tests, even if they are no longer subjected to the discipline of stress tests. Finally, the act is viewed as too permissive in its treatment of off‐ramped banks that get into trouble. To prevent gaming of regulation, FERC recommends that off‐ramped banks that subsequently fall below the minimum requirements should be required to raise new capital immediately.     

Media,sentiment and market performance in the long run

This paper investigates the impact of media pessimism on financial market returns and volatility in the long run. We hypothesize that media sentiment translates into investor sentiment. Based on the underreaction and overreaction hypotheses [Barberis, N., A. Shleifer, and R. Vishny. 1998. “A Model of Investor Sentiment.” Journal of Empirical Economics 49 (3): 307–343], we suggest that media pessimism has an effect on market performance after a lag of several months. We construct a monthly media pessimism indicator by taking the ratio of the number of newspaper articles that contain predetermined negative words to the number of newspaper articles that contain predetermined positive words in the headline and in the lead paragraph. Our results indicate that media pessimism is associated with negative (positive) market returns 14–17 (24–25) months in advance and positive market volatilities 1–20 months in advance. Our results are statistically and economically significant. We find evidence for Granger causality of media pessimism on market performance. Our media pessimism indicator possesses additional predictive power for the Baker and Wurgler [2006. “Investor Sentiment and the Cross-section of Stock Returns.” Journal of Finance 61 (4): 1645–1680] investor sentiment index and the Chicago Board Options Exchange Market Volatility Index.     

Individual and place-based drivers of self-employment in Chile

This paper analyzes the importance of individual and place characteristics on the selection into self-employment in Chile. Following a structural and multilevel empirical approach, we test whether both sets of variables explain the variation of individual wages, self-employed earnings, and the propensity of being in independent work. The results indicate that while most of the variation in these three outcomes is explained by individuals’ traits, place-related variables account for a non-negligible share of spatial variation. Second, as suggested by occupational choice theories, the propensity of being in self-employment positively correlates with larger expected earning differentials, but only in the case of employers. This, along with other results, suggests that while employers seem to choose their occupational status, own accounts in Chile seem to respond to factors pushing them into self-employment.     

Electrification of a city bus network—An optimization model for cost-effective placing of charging infrastructure and battery sizing of fast-charging electric bus systems

The deployment of battery-powered electric bus systems within the public transportation sector plays an important role in increasing energy efficiency and abating emissions. Rising attention is given to bus systems using fast charging technology. This concept requires a comprehensive infrastructure to equip bus routes with charging stations. The combination of charging infrastructure and bus batteries needs a reliable energy supply to maintain a stable bus operation even under demanding conditions. An efficient layout of the charging infrastructure and an appropriate dimensioning of battery capacity are crucial to minimize the total cost of ownership and to enable an energetically feasible bus operation. In this work, the central issue of jointly optimizing the charging infrastructure and battery capacity is described by a capacitated set covering problem. A mixed-integer linear optimization model is developed to determine the minimum number and location of required charging stations for a bus network as well as the adequate battery capacity for each bus line. The bus energy consumption for each route segment is determined based on individual route, bus type, traffic, and other information. Different scenarios are examined in order to assess the influence of charging power, climate, and changing operating conditions. The findings reveal significant differences in terms of required infrastructure. Moreover, the results highlight a trade-off between battery capacity and charging infrastructure under different operational and infrastructure conditions. This paper addresses upcoming challenges for transport authorities during the electrification process of the bus fleets and sharpens the focus on infrastructural issues related to the fast charging concept.     

Green decisions: demographics and consumer understanding of environmental labels

This research examined the demographic profiles of Australian green consumers in relation to their satisfaction of environmental labelling. It examined consumers’ understanding of labelling and empirically investigated the association of demographic profile of consumers with their attitudes towards such labels. The results indicated that some of the demographic variables were significant, which is largely consistent with earlier findings by other researchers in this area. Label dissatisfaction was higher in the older and middle age respondents. However, some respondents disagreed that labels were accurate while commenting that labels were easy to understand. The key issue arising from the findings is that in order to provide perception of accuracy in labels, it is an option to use Type I or Type III labelling on products. These labels are, arguably, more credible because they are endorsed by third party labelling experts. This would come at a cost and for green products that use third party labelling, they will also have to bear in mind to keep the prices competitive.