PREFERENCES UNDER IGNORANCE

A decision maker (DM) makes choices from different sets of alternatives. The DM is initially ignorant of the payoff associated with each alternative and learns these payoffs only after a large number of choices have been made. We show that, in the presence of an outside option, once payoffs are learned, the optimal choice rule from sets of alternatives can be rationalized by a DM with strict preferences over all alternatives. Under this model, the DM has preferences for preferences while being ignorant of what preferences are “right.”     

Fiscal adjustment and the costs of public debt service: evidence from OECD countries

We use a panel of 21 OECD countries from 1970 to 2009 to investigate the effects of different fiscal adjustment strategies on long-term interest rates – a key fiscal indicator reflecting the costs of government debt service. As Europe’s sovereign debt crisis has shown, governments confronted with high deficits and rising debt may be forced to enact fiscal adjustments in order to avoid increasing market pressure and solvency problems. Over the last four decades, such measures taken by governments in OECD countries have varied in duration, size, composition and in their success to re-establish fiscal sustainability. We find that large and expenditure-based adjustments lead to substantially lower long-term interest rates. Small and revenue-based measures do not have an effect on interest rates. Financial markets thus only seem to value strict and decisive measures – a clear sign that the government’s pledge to cut the deficit is credible.     

A Delphi-based risk analysis — Identifying and assessing future challenges for supply chain security in a multi-stakeholder environment

Identifying and assessing the potential impact and likelihood of future events, which might evolve into risks, are a prerequisite to identify future security challenges. In particular, risks associated with global supply chains are special since they involve a multitude of international stakeholders with different perspectives on security needs and measures. Therefore, it is essential to determine which techniques and instruments are best suited for risk assessment in complex and multi-organizational environments. The Delphi expert survey technique has proven to be a valuable instrument for long-term decision making support as well as foresight, and has a potential value for risk assessment. We contribute to this research strand and conduct a Delphi-based risk analysis. Our research concentrates on man-made risks in global supply chains which are particularly uncertain in terms of type, location, and affected supply chain partners and can therefore be classified as inherently “wicked” issues, i.e. issues that are multidimensional with often unpleasant outcomes. We illustrate that Delphi research makes a fivefold contribution to risk analysis by: (1) identifying and quantifying risks; (2) analyzing stakeholder perceptions and worldviews; (3) stimulating a global communication process; (4) identifying weak signals, outlier opinions, and wildcards; (5) and facilitating risk scenario development.     

Patterns of Welfare Dependence before and after a Reform: Evidence from First Generation Immigrants and Natives in Germany

This paper studies the patterns of welfare dependence among first generation immigrants and natives in Germany before and after a substantial recent reform of the welfare system. Using data from the German Socio‐Economic Panel Study, the analysis presents life cycle trajectories of transfer receipt for immigrants and natives and studies the correlation between contextual factors and transfer receipt. We find no statistically significant differences in the probability of transfer receipt between immigrants and natives once socioeconomic characteristics are taken into account. Being a single parent, labor market status, and human capital are most closely correlated with the incidence of transfer receipt for both natives and immigrants. Interestingly, recent welfare reforms did not reverse prior patterns of welfare dependence.     

A Mixed Logit Approach to Study Preferences for Safety on Alpine Roads

This paper presents a mixed logit approach to the valuation of reductions in mortality risk on Alpine roads. In addition to common road accidents, users of these roads face risks from natural hazards such as avalanches and rockfalls. Moreover, the individual risk of road users varies with the frequency of their exposure. Drawing on choice experimental data of frequently exposed respondents from a mountainous region and less frequently exposed respondents from a city in Switzerland, we are able to estimate the value of statistical life (VSL). Furthermore, we explore how respondents differ in their individual willingness-to-pay depending on exposure and other individual characteristics. Our estimates of the VSL in the context of fatal accidents on Alpine roads are in the range of CHF 6.0–7.8 million (€3.9–5.1 million). We find the VSL to be dependent on socio-economic and perceptional factors but to be not significantly altered by the type of hazard. These findings imply that the VSL might be adjusted to account for heterogonous risk preferences of different societal groups, but there is no evidence of a ‘dread’ premium for natural hazards.     

Efficiency losses from overlapping regulation of EU carbon emissions

In order to achieve their climate policy targets EU member states apply various regulatory instruments. We investigate the potential efficiency losses arising from the imposition of emission taxes on sectors that are covered by the EU Emissions Trading Scheme (EU ETS). Our analysis indicates the possibility of substantial excess cost through overlapping regulation. We show that unilateral emission taxes on sectors subject to the EU ETS are environmentally ineffective and increase overall compliance cost of the EU ETS.      

Is there a Core of Macroeconomics that Euro Area Forecasters Believe In?

The quantity theory of money, Okun's law, and the Phillips curve are cornerstones of macroeconomic theory. But are they also of practical relevance? Using survey data for the euro area, we found that professional economists’ forecasts are consistent with a version of the quantity theory in which forecasts of the growth rate of money supply correlate in a proportional way with forecasts of the inflation rate. We also found that forecasts of changes in the unemployment rate and forecasts of the growth rate of real output are consistent with Okun's law. Evidence of a systematic link between forecasts of the inflation rate and forecasts of the unemployment rate, however, is not strong.     

Sharing the burden for climate change mitigation in the Canadian federation

Dividing the burden for greenhouse gas abatement among the provinces has proven challenging in Canada and contributes to Canada's failure to limit emissions. This paper uses a computable general equilibrium model to compare a number of rules for sharing the burden of emission reductions among Canadian provinces. Because of the substantial heterogeneity among Canadian provinces, these different rules imply significantly different relative abatement effort among provinces, and also significantly different welfare implications. We compare these archetypal burden sharing rules to existing provincial emission reduction commitments and find that none of the standard burden sharing rules comes close to existing commitments.     

Rating Agencies – An Experimental Analysis of Their Remuneration Model

Does it matter who pays for ratings? Yes, but not for the rating agencies’ behavior. These are the findings of our experiment where we analyze the effect of the remuneration model of rating agencies on their assessments as well as on investors’ and issuers’ behavior. First, we find that rating agencies’ assessments are comparable whether the agency is (partially) paid by issuers, investors or solely by the experimenter. Issuers, on the other hand, more often do not return investor's trust when they or investors pay for ratings. Further, investors more often act according to the agencies’ recommendations when they have to pay for this information.