Inequality aversion and the house money effect

In this paper, we analyse if individual inequality aversion measured with simple experimental games depends on whether the monetary endowment in these games is either a windfall gain (“house money”) or a reward for a certain effort-related performance. We then examine whether the way of preference elicitation affects the explanatory power of inequality aversion in social dilemma situations. Our results indicate that individual inequality aversion measured by the model of Fehr and Schmidt (Quarterly Journal of Economics 114(3):817–868, 1999) is not generally robust to the way endowments emerge. The inequality aversion model has only low predictive power for individual behaviour. It performs best when the endowment is house money and relatively small.     

Do casinos pay their customers to become risk-averse? Revising the house money effect in a field experiment

The house money effect predicts that individuals show increased risk-seeking behavior in the presence of prior windfall gains. Although the effect’s existence is widely accepted, experimental studies that compare individuals’ risk-taking behavior using house money to individuals’ risk-taking behavior using their own money produce contradictory results. This experimental field study analyzes the gambling behavior of 917 casino customers who face real losses. We find that customers who received free play at the entrance showed not higher but significantly lower levels of risk-taking behavior during their casino visit, expressed through lower average wagers. This study thus provides field evidence against the house money effect. Moreover, as a result of lower levels of risk seeking, endowed customers yield better economic results in the form of smaller own-money losses when leaving the casino.     

Is it my money or not? An experiment on risk aversion and the house-money effect

The house-money effect, understood as people’s tendency to be more daring with easily-gotten money, is a behavioral pattern that poses questions about the external validity of experiments in economics: to what extent do people behave in experiments like they would have in a real-life situation, given that they play with easily-gotten house money? We ran an economic experiment with 122 students to measure the house-money effect on their risk preferences. They received an amount of money with which they made risky decisions involving losses and gains; a randomly selected treatment group received the money 21 days in advance and a control group got it the day of the experiment. From a simple calculation we found that participants in the treatment group only spent on average approximately 35 % of their cash in advance. The data confirms the well documented results that men are more tolerant to risk than women, and that individuals in general are more risk tolerant towards losses than towards gains. With our preferred specification, we find a mean CRRA risk aversion coefficient of 0.34, with a standard deviation of 0.09. Furthermore, if subjects in the treatment group spent 35 % of the endowment their CRRA risk aversion coefficient is higher than that of the control group by approximately 0.3 standard deviations. We interpret this result as evidence of a small and indirect house money effect operating though the amount of the cash in advance that was actually spent. We conclude that the house money effect may play a small role in decisions under uncertainty, especially when involving losses. Our novel design, however, could be used for other domains of decision making both in the lab and for calibration of economic models used in micro and macroeconomics.     

Existence of a Condorcet Winner When Voters Have Other‐Regarding Preferences

In standard political economy models, voters are “self‐interested” that is, care only about “own” utility. However, the emerging evidence indicates that voters often have “other‐regarding preferences” (ORP), that is, in deciding among alternative policies voters care about their payoffs relative to others. We extend a widely used general equilibrium framework in political economy to allow for voters with ORP, as in Fehr and Schmidt (1999) . In line with the evidence, these preferences allow voters to exhibit “envy” and “altruism,” in addition to the standard concern for “own utility.” We give sufficient conditions for the existence of a Condorcet winner when voters have ORP. This could open the way for an incorporation of ORP in a variety of political economy models. Furthermore, as a corollary, we give more general conditions for the existence of a Condorcet winner when voters have purely selfish preferences.     

Near-efficient equilibria in contribution-based competitive grouping

We examine theoretically and experimentally how competitive contribution-based group formation affects incentives to free-ride. We introduce a new formal model of social production, called a “Group-based Meritocracy Mechanism” (GBM), which extends the single-group-level analysis of a Voluntary Contribution Mechanism (VCM) to multiple groups. In a GBM individuals are ranked according to their group contributions. Based on this ranking, participants are then partitioned into equal-sized groups. Members of each group share their collective output equally amongst themselves according to a VCM payoff function. The GBM has two pure-strategy Nash equilibria. One is non-contribution by all; this equilibrium thus coincides with the VCM's equilibrium. The second equilibrium is close to Pareto optimal. It is asymmetric and quite complex from the viewpoint of experimental subjects, yet subjects tacitly coordinate this equilibrium reliably and precisely. Extensions of the basic GBM model to incorporate various features of naturally occurring group formation are suggested in the conclusion.     

New hope for the voluntary contributions mechanism: The effects of context

This research examines how three common contextual factors can affect contributions in the linear voluntary contributions mechanism (VCM). Using business student subjects and a low marginal per capita rate of return, the results show that contributions in the last of ten rounds range from 18% for the traditional VCM with no initial cheap talk, no voting, and a status quo of not giving to 94% in a VCM with initial cheap talk, voting, and a status quo of giving. The results demonstrate that context can make the VCM produce sustained efficiencies similar to incentive-compatible public-good mechanisms.     

A model of trust in quality and North–South trade

Why do some countries produce higher quality goods than other countries? This paper suggests that one reason is self-perpetuating reputations, modelling the idea with a Klein–Leffler reputation model embedded in a general equilibrium model of trade. Reputation differences are particularly interesting because reputation is a form of “social capital”. Like product differentiation, it can explain why countries might trade even if their technologies and endowments are identical, why firms could profit from exports even if the foreign price is no higher than the domestic one, and why governments like to have “high-value” sectors. Ideally, a developing country would shift its own producers to a high-quality equilibrium; if that is not possible, the next best thing is to import experience goods and substitute to home production of goods for which reputation is not important.     

Author׳s gender affects rating of academic articles: Evidence from an incentivized,deception-free laboratory experiment

Even though women׳s position in academia has changed dramatically over the last few decades, there is still some evidence that when it comes to evaluation of scientific achievements, gender may play a significant role. Gender bias is particularly likely to take the form of statistical discrimination. In this study we sought to verify the hypothesis that researcher׳s gender affects evaluation of his or her work, especially in a field where women only represent a minority. Towards this end we asked a sample of subjects, mostly economics majors, to evaluate a paper written by mixed-gender couples, indicating that it was (co-)authored by a “female economist”, “male economist”, “young female economist” or “young male economist” or giving no information about the author at all. While age factor played no role, female authors appeared to be seen as less competent than males, in that subjects (being incentivized to give their best judgment) less often believed that their papers have been published. This effect did not interact strongly with the gender of the subject.     

MONEY CYCLES

Operating overheads are widespread and lead to concentrated bursts of activity. To transfer resources between active and idle spells, agents demand financial assets. Futures contracts and lotteries are unsuitable, as they have substantial overheads of their own. We show that money—under efficient monetary policy—is a liquid asset that leads to efficient allocations. Under all other policies, agents follow inefficient “money cycle” patterns of saving, activity, and inactivity. Agents spend their money too quickly—a hot‐potato effect of inflation. We show that inflation can stimulate inefficiently high aggregate output.     

The 100% money proposal and its implications for banking: the Currie–Fisher approach versus the Chicago Plan approach

The literature on the 100% money proposal often reveals some confusion when it comes to its implications for the banking sphere. We argue that this can be partly explained by a failure to have distinguished between two divergent approaches to the proposal: the “Currie–Fisher” (or “transaction”) approach, on the one hand, which would preserve banking; and the “Chicago Plan” (or “liquidity”) approach, on the other hand, which would abolish banking. This division among 100% money proponents stemmed, in particular, from different definitions of money, and different explanations of monetary instability. The present paper attempts to clarify this divergence of views.     

FDI and the Capital Intensity of "Dirty" Sectors: A Missing Piece of the Pollution Haven Puzzle

In an increasingly integrated world, falling trade barriers mean that the role environmental regulations play in shaping a country's comparative advantage is greater than ever. This has lead to fears that “dirty” industries will relocate to developing regions where environmental regulations may be less stringent. A number of reasons have been offered to explain why, despite anecdotal evidence and the predictions of theoretical studies, little empirical verification for the existence of pollution havens has been found. Little attention, however, has been paid to the capital intensity of pollution intensive sectors. We investigate the relationship between US outward FDI and factor endowments across sectors to two developing countries. We highlight the role of capital and believe it partially explains why pollution havens are not more widespread. Our approach also highlights those countries that are likeliest to become pollution havens. A multivariate analysis reveals some evidence of pollution haven consistent behavior.     

VCM or PPM? A comparison of the performance of two voluntary public goods mechanisms

Little progress has been made toward understanding the relative performance of the two mechanisms most widely used for fundraising: the Voluntary Contribution (VCM) and Provision Point (PPM) mechanisms. This paper provides direct comparisons of the relative performance of variants of the VCM and PPM as they are most commonly implemented in the field. The research makes use of 1296 individual observations from 721 subjects, including 40 observations from a field experiment. A meta-analysis of the determinants of contribution levels and bootstrap estimates of the relative efficiency of the two mechanisms provide novel analyses of public goods experimental data. Overall, the PPM is found to increase total contributions, to be more responsive to changes in induced value, and to be generally more efficient than the VCM. For public goods with a benefit-cost ratio in the interval [1, 1.4), however, the VCM captures a greater portion of available benefits than the PPM.     

Multilateral currency substitution and capital flows as sources of instability in the soe demand for money function — A case study

Using monthly data for Ireland we test the hypothesis that the combined effects of currency substitution and capital mobility renders the demand for money function subject to instability over time. The empirical evidence supports the view that both “the” expected exchange rate change, giving rise to currency substitution, and the latter as a component, along with “the” foreign interest rate, of the gross yield on foreign currency-denominated assets, giving rise to capital mobility, are important determinants of the domestic demand for money. Their inclusion as arguments yields a money demand function which is more stable than if they are (incorrectly) excluded.     

Identity, morals, and taboos: beliefs as assets

We develop a theory of moral behavior, individual and collective, based on a general model of identity in which people care about “who they are” and infer their own values from past choices. The model sheds light on many empirical puzzles inconsistent with earlier approaches. Identity investments respond nonmonotonically to acts or threats, and taboos on mere thoughts arise to protect beliefs about the “priceless” value of certain social assets. High endowments trigger escalating commitment and a treadmill effect, while competing identities can cause dysfunctional capital destruction. Social interactions induce both social and antisocial norms of contribution, sustained by respectively shunning free riders or do-gooders.     

Direct Versus Indirect Taxation: The Design of the Tax Structure Revisited

This article studies the optimal direct/indirect tax mix problem when individuals differ in several unobservable characteristics (productivity and endowments). It presents general expressions for the optimal commodity tax rates and proves that contrary to Atkinson and Stiglitz's (1976) result, differential commodity taxation remains a useful instrument of tax policy even if preferences are separable between labor and produced goods. When cross substitution effects are zero, the expressions resemble traditional many households Ramsey rules. In a Cobb–Douglas illustration, where endowments differ only in good 1 (interpreted as “wealth”), the tax on good 2 provides an indirect way to tax the unobservable wealth.     

经济发展、结构变化与“货币消失”——兼对“中国之谜”的再解释

2 0世纪 90年代中后期以来 ,中国的“超额”货币供给与宏观经济运行表现出了新的特点。本文试图利用发展经济学方法 ,从“货币消失”问题入手 ,对这一时期经济增长、货币供给与通货膨胀之间的关系进行解释。我们发现 ,中国经济的两部门特点导致了阻碍经济发展的“结构约束”与“需求约束”。而“中国之谜”出现的新特点 ,很大程度上正是经济运行内在机制的变化在货币方面的反映。     

Consumption-loan type models the Samuelson case

This is a further study of the overlapping generations model with fixed amount of fiat money. We show that when the economy is Samuelsonian then there exists some Pareto optimal stationary competitive equilibrium from some initial money holdings. Moreover, if the steady-state interest factor is less than unity, then a non-monetary Pareto optimal equilibrium exists from any initial money endowments.     

Offshoring and skill overlap: An empirical investigation

Conventional international trade theory predicts that bilateral offshoring flows will be highest when two countries have very different relative factor endowments. In contrast, the new trade theory contends that offshoring is more likely to exist when countries’ relative factor endowments are similar. This paper empirically tests the relationship between offshoring and relative factor endowments, measured by the skill overlap index between two countries and finds evidence that there is an inverted U‐shape relationship. Our empirical results predict that the rise in educational attainment in China will motivate U.S. multinationals to send their tasks to China in the short run; over the long run, however, U.S. multinationals will have fewer incentives to send their tasks to China. This finding sheds new light on the current trade tensions between the United States and China and has implications for trade policy.     

Economic Determinants of Free Trade Agreements Revisited: Distinguishing Sources of Interdependence

One of the most notable international economic events since 1990 has been the enormous increase in the number of free trade agreements (FTAs). While Baier and Bergstrand were the first to show empirically the impact of a country‐pair's economic characteristics on the likelihood of the pair having an FTA, the literature has been extended to demonstrate the importance empirically of FTA “interdependence”—the effect of other FTAs on the probability of a pair having an FTA. In the context of the Baier–Bergstrand framework, this paper delves deeper into the sources of interdependence—an “own‐FTA” effect and a “cross‐FTA” effect. The authors argue that the own‐FTA effect (the impact on the net welfare gains of an FTA between two countries owing to either already having other FTAs) likely dwarfs the cross‐FTA effect (the impact on the net welfare gains of an FTA between the pair owing to other FTAs existing in the rest of the world, or ROW). Augmenting a parsimonious logit model with simple “multilateral FTA” and “ROW FTA” terms to differentiate the own and cross effects empirically, it is shown that the marginal impact on the probability of a country‐pair having an agreement of either country having one more FTA with a third country is 50 times that of one more FTA between another pair in ROW. The results suggest that “domino (own‐FTA) effects” have far exceeded “competitive liberalization (cross‐FTA) effects” in the proliferation of FTAs.     

Agents' evaluations and the disparity in measures of economic loss

Recent studies have revealed a large and unexpected disparity between willingness-to-pay and compensation-demanded measures of economic loss. Further evidence of this difference is presented here, together with the results of a series of survey and real money exchange experiments which indicate that when advisors evaluate entitlements on behalf of third parties the variation between the measures is far less than is shown by individuals acting on their own behalf. Given the wide dependence on agents, a finding that they may weigh losses differently from people they act for suggests that agents' choices may compromise welfare positions.