The relationship between risk attitudes and heuristics in search tasks: A laboratory experiment

Experimental studies of search behavior suggest that individuals stop searching earlier than the optimal, risk-neutral stopping rule predicts. Two different classes of decision rules could generate this behavior: rules that are optimal conditional on utility functions departing from risk neutrality, or heuristics derived from limited cognitive processing capacities and satisficing. To discriminate between these possibilities, we conducted an experiment that consists of a search task as well as a lottery task designed to elicit utility functions. We find that search heuristics are not related to measures of risk aversion, but to measures of loss aversion.     

Altschuldenentlastung der Bundesländer: Verteilungswirkungen ausgewählter Vorschläge

Due to large public deficits in the past, many German states face high interest payments in their budgets today. Therefore, a restructuring of this outstanding debt will be a major topic in forthcoming negotiations on the future design of the fiscal equalisation scheme. This article presents some proposals that are currently being discussed and calculates their redistributional effects between the federal government and the states. It is shown that all models would lead to a significantly higher burden for the federal budget. The only way to afford this is either to increase the value added tax rates or to keep the so-called solidarity surcharge that was originally introduced to finance transfers to East Germany.     

MULTIFRACTIONAL STOCHASTIC VOLATILITY MODELS

The aim of this work is to advocate the use of multifractional Brownian motion (mBm) as a relevant model in financial mathematics. mBm is an extension of fractional Brownian motion where the Hurst parameter is allowed to vary in time. This enables the possibility to accommodate for varying local regularity, and to decouple it from long‐range dependence properties. While we believe that mBm is potentially useful in a variety of applications in finance, we focus here on a multifractional stochastic volatility Hull & White model that is an extension of the model studied in Comte and Renault. Using the stochastic calculus with respect to mBm developed in Lebovits and Lévy Véhel, we solve the corresponding stochastic differential equations. Since the solutions are of course not explicit, we take advantage of recently developed numerical techniques, namely functional quantization‐based cubature methods, to get accurate approximations. This allows us to test the behavior of our model (as well as the one in Comte and Renault) with respect to its parameters, and in particular its ability to explain some features of the implied volatility surface. An advantage of our model is that it is able both to fit smiles at different maturities, and to take volatility persistence into account in a more precise way than Comte and Renault.     

Consumer versus Expert Hazard Identification: A Mental Models Study of Mutation‐bred Rice

Novel foods have been the object of intense public debate in recent years. Despite efforts to communicate the outcomes of risk assessments to consumers, public confidence in the management of potential risks has been low. Various reasons behind this have been identified, chiefly a disagreement between technical experts and consumers over the nature of the hazards on which risk assessments should focus, and perceptions of insufficient openness about uncertainties in risk assessment. Whilst previous research has almost exclusively focused on genetically modified foods, the present paper investigates plant varieties developed by means of mutation breeding, a less‐debated class of novel foods. Two studies were conducted that investigated the mental models of experts and laypeople. The results revealed that the mental models of both groups differed in terms of scope, depth and the role of uncertainty. Furthermore, a number of misconceptions became apparent in the study of laypeople's mental models, often related to the regulatory system governing risk assessments of novel foods. Critical issue are outlined and communication needs are discussed.     

Translating satisfaction determination from health care to the automotive industry

This study is based on the case of BMW, and aims to improve the determination of perceived consumer satisfaction in the automotive industry by transferring existing knowledge from the health care sector. A literature analysis of the health care sector and the automotive industry was conducted to identify the common concepts of determining satisfaction. These were the service encounter, situational factors, and sociodemographics. The practical application was tested by analyzing a contemporary survey from BMW. Based on the findings, managers responsible for customer satisfaction in after-sales services in the automotive industry could improve measurement of customer satisfaction.     

Firm size and job creation in Germany

This paper reports new results on the role of firms from various size classes in the job generation process in Germany. It is based on a unique longitudinal data set covering all manufacturing establishments that existed in at least one year between 1978 and 1993 in the German federal state Lower Saxony. We find that gross job creation and destruction rates tend to decline with firm size, while net job creation rates and firm size are not systematically related when firms are classified according to their average number of employees in the base and end year. Small firms create (destroy) quite a large share of all new (lost) jobs.     

Higher wages in exporting firms: self-selection, export effect, or both? First evidence from linked employer-employee data

While it is a stylized fact that exporting firms pay higher wages than non-exporting firms, the direction of the link between exporting and wages is less clear. Using a rich set of German linked employer-employee panel data we follow over time plants that start to export. We show that the exporter wage premium does already exist in the years before firms start to export, and that it does not increase in the following years. Higher wages in exporting firms are thus due to self-selection of more productive, better paying firms into export markets; they are not caused by export activities.     

Exports and Productivity Growth: First Evidence from a Continuous Treatment Approach

A recent survey of 54 micro-econometric studies reveals that exporting firms are more productive than non-exporters. However, previous empirical studies show that exporting does not necessarily improve productivity. One possible reason for this result is that most previous studies are restricted to analysing the relationship between a firm’s export status and the growth of its labour productivity, using the firms’ export status as a binary treatment variable and comparing the performance of exporting and non-exporting firms. In this paper, we apply the newly developed generalised propensity score (GPS) methodology that allows for continuous treatment, that is, different levels of the firms’ export activities. Using the GPS method and a large panel data set for German manufacturing firms, we estimate the relationship between a firm’s export-sales ratio and its labour productivity growth rate. We find that there is a causal effect of firms’ export activities on labour productivity growth. However, exporting improves labour productivity growth only within a sub-interval of the range of firms’ export-sales ratios. JEL no.  F14, F23, L60     

Inter-industry wage differentials and strategic trade policy

Recent studies suggest that inter-industry wage differentials exist which are neither caused by different endownments of the workers with human capital, nor by different working conditions, nor by institutional rigidities. Higher employment in high-wage sectors due to exports, therefore, raises welfare. According to empirical evidence presented here more likely than not net exports from sectors paying wage premia lead to some extra gains from trade (that cannot be explained by trade policy promoting primary sectors by high amounts of subsidies per employee) for the German economy. A case is made, however, against strategic trade policy in favour of these sectors pointing to uncertainty about the amount of the differentials, their international (dis)similarity, and their sources.

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Zusammenfassung Empirische Untersuchungen deuten darauf hin, daß auch in der Bundesrepublik Deutschland Arbeitskräfte mit gleicher Humankapitalausstattung, die unter gleichen Arbeitsbedingungen in Unternehmen gleicher Größe in einer Region arbeiten, unterschiedlich entlohnt werden, wenn sie in unterschiedlichen Sektoren arbeiten. Bestehen solche Sektorlohndifferentiale, dann hat eine Ausweitung der Beschäftigung in Hochlohnsektoren positive Wohlfahrtseffekte. Es wird daher vielfach gefordert, diese primären Sektoren vor internationaler Konkurrenz zu schützen und sie durch Subventionen zu fördern. Die vorliegende Arbeit präsentiert empirische Evidenz dafür, daß die Bundesrepublik Deutschland Extra-Gewinne aus dem Außenhandel bezieht, weil zwischen der Netto-Exportquote und der Höhe des Sektorlohndifferentials ein positiver Zusammenhang besteht, ohne daß sich die Subventionspolitik an diesen Differentialen orientiert. Gegen eine gezielte Förderung der Hochlohnsektoren im Rahmen einer strategischen Handelspolitik werden dann drei Argumente vorgebracht, die mit Unsicherheiten über Höhe, internationale Ähnlichkeit und Ursachen der Differentiale zusammenhängen.

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Earlier versions of this paper were presented at the annual meeting of the international economists' group of the Verein für Socialpolitik at Hohenheim University in May 1991, at the Sixth Annual Congress of the European Economic Association in Cambridge in September 1991, and at the Universities of Hamburg and Bielefeld. I would like to thank participants at the discussions and four anonymous referees for helpful comments. The usual disclaimer applies.