The Renaissance of the Big Cities—and the Opportunities for Berlin

Original Papers

The Renaissance of the Big Cities—and the Opportunities for Berlin     

Eliciting Subjective Beliefs about Mortality Risk Orderings

We develop an experimental method to elicit subjective beliefs about the ordering of mortality risk over different causes of death. The experimental procedure emphasizes incentive-compatibility, so that the individual has a positive financial incentive to respond truthfully. We also consider the extent to which individuals have subjective beliefs for sub-segments of the population that are more accurate than their beliefs about the risks for the population as a whole. We propose several hypotheses concerning the degree of familiarity of the risks, and find that the evidence supports those hypotheses. The evidence also suggests that there is no discernible difference between beliefs elicited using hypothetical or real financial rewards in the elicitation format we use. Our findings restore some confidence in the ability to elicit beliefs about mortality risks, and therefore to get reliable estimates of the monetary value of a statistical life. We dedicate this paper to the memory of J. Clay Lesley, who assisted us in the design and execution of the experiments and was a valued student, colleague and friend.     

Remittances,monetary institutions,and autocracies

ABSTRACT

How do remittances affect the choice of exchange rate regimes? Previous research shows that remittances, by easing the ‘impossible trinity’, increase the probability of governments adopting fixed exchange rates. However, that research overlooks the conditioning effect of monetary and political institutions. We argue that remittances, by altering recipient governments’ incentives to use monetary policy counter-cyclically, make central bank independence a credible anti-inflationary tool in less credible regimes; that is, autocracies. Thus, autocracies that receive remittances do not need to rely on fixed exchange rates. In this way, remittances open policy alternatives for developing autocracies. Statistical tests on a sample of 87 developing and transitional countries between 1980 and 2010 support our argument.     

Assessing individual differences in psychophysical functions

Individual differences in psychophysical data are examined in an olfactory experiment using a group of sixteen children (9 year olds) and three different techniques: magnitude estimation (ME), reglets or sticks (RE) and finger span (FS). From the responses given in the three techniques Steven's functions were calculated. Group and individual fits to the power law are analyzed. Comparisons of all individual curves were also done and consistency of the subjects responses across techniques was examined. Results show that: (1) while group data fit to the power law, individual data, in general, do not; (2) individual differences are found in both slopes and intercepts and (3) subjects are consistent in their judgments across techniques. These results might be interpreted in a sensory and cognitive context. Further research is needed to identify the specific contribution of sensory and cognitive sources to the individual differences in the psychophysical function.     

Competition in wholesale markets: Do MNOs compete to host MVNOs?

This paper extends previous research examining wholesale market shares of mobile network operators (MNOs). This study demonstrates that wholesale market concentration has decreased over time because of the increase of competition of MNOs for hosting mobile virtual network operators (MVNOs). However, differences in wholesale market shares between MNOs have not disappeared. We propose that those operators that are late entrants in a market and belong to an international group with a proactive attitude towards hosting virtual operators positively influences wholesale market shares of MNOs. The empirical analysis is based on a panel data from 2000 to 2010 corresponding to MNOs and virtual operators in five European countries with high development of the virtual mobile industry. By closely examining KPN we show how being an international mobile group specialising in the wholesale market across Europe has enabled it to exploit complementarities that exist between traditional and virtual businesses.     

OPTIMAL FISCAL POLICY IN THE DESIGN OF SOCIAL SECURITY REFORMS*

The quantitative literature has documented that a privatization of the social security system generates large long‐run welfare gains at the cost of welfare losses for transition generations. In this article, we maximize over the entire policy space, following the optimal fiscal policy approach. The resulting allocation, by construction, lies on the constrained Pareto frontier. We find that the optimal design of reforms exhibits sizeable welfare gains arising from a reduction in labor supply distortions. In contrast, the welfare gains coming from the reduction of savings distortions are relatively small.     

Are You Risk Averse over Other People's Money?

Decisions with uncertain outcomes are often made by one party in settings where another party bears the consequences. Whenever an individual is delegated to make decisions that affect others, such as in the typical corporate structure, does the individual make decisions that reflect the risk preferences of the party bearing the consequences? We examine this question in two simple settings, lottery choices and sealed‐bid auctions, using controlled laboratory experiments. We find that when an individual makes a decision for an anonymous stranger, there is a tendency to exhibit less risk aversion. This reduction in risk aversion is relative to his or her own preferences, and it is also relative to his or her belief about the preferences of others. This result has significant implications for the design of contracts between principals and agents.     

Testing static game theory with dynamic experiments: A case study of public goods

Game theory provides predictions of behavior in many one-shot games. On the other hand, most experimenters usually play repeated games with subjects, to provide experience. To avoid subjects rationally employing strategies that are appropriate for the repeated game, experimenters typically employ a “random strangers” design in which subjects are randomly paired with others in the session. There is some chance that subjects will meet in multiple rounds, but it is claimed that this chance is so small that subjects will behave as if they are in a one-shot environment. We present evidence from public goods experiments that this claim is not always true.     

Risk attitudes, randomization to treatment, and self-selection into experiments

Randomization to treatment is fundamental to statistical control in the design of experiments. However randomization implies some uncertainty about treatment condition, and individuals differ in their preferences towards taking on risk. Since human subjects often volunteer for experiments or are allowed to drop out of the experiment at any time if they want to, it is possible that the sample observed in an experiment might be biased because of the risk of randomization. On the other hand, the widespread use of a guaranteed show-up fee that is non-stochastic may generate sample selection biases of the opposite direction, encouraging more risk averse samples into experiments. We directly test these hypotheses that risk attitudes play a role in sample selection. Our results suggest that randomization bias does affect the overall level of risk aversion in the sample we observe, but that it does not affect the demographic mix of risk attitudes in the sample. We show that the common use of non-stochastic show-up fees can generate samples that are more risk averse than would otherwise have been observed.