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Is trade a promoter of peace? Adam Smith, one of the earliest defenders of trade, worries that commerce may instigate some perverse incentives, encouraging wars. The wealth that commerce generates decreases the relative cost of wars, increases the ability to finance wars through debts, which decreases their perceived cost, and increases the willingness of commercial interests to use wars to extend their markets, increasing the number and prolonging the length of wars. Smith, therefore, cannot assume that trade would yield a peaceful world. While defending and promoting trade, Smith warns us not to take peace for granted.
We investigate how inviting students to set task-based goals affects usage of an online learning platform and course performance. We design and implement a randomized field experiment in a large mandatory economics course with blended learning elements. The low-cost treatment induces students to use the online learning system more often, more intensively, and to begin earlier with exam preparation. Treated students perform better in the course than the control group: they are 18.8% (0.20 SD) more likely to pass the exam and earn 6.7% (0.19 SD) more points on the exam. There is no evidence that treated students spend significantly more time, rather they tend to shift to more productive learning methods. The heterogeneity analysis suggests that higher treatment effects are associated with higher levels of behavioral bias but also with poor early course behavior.
The experimental literature on antitrust enforcement provides robust evidence that communication plays an important role for the formation and stability of cartels. We extend these studies through a design that distinguishes between innocuous communication and communication about a cartel, sanctioning only the latter. To this aim, we introduce a participant in the role of the competition authority, who is properly incentivized to judge communication content and price setting behavior of the firms. Using this novel design, we revisit the question whether a leniency rule successfully destabilizes cartels. In contrast to existing experimental studies, we find that a leniency rule does not affect cartelization. We discuss potential explanations for this contrasting result.
We test the price-setting behavior of firms using the Rotemberg (1982) model in order to explain puzzles in the New Keynesian Phillips curve (NKPC). For our tests, we conducted experiments that adapt the model into an individual decision-making problem. We find systematic deviations in price-setting according to the subjects’ degree of information acquisition. Subjects rarely make use of past information. On the other hand, subjects that decide to acquire relatively little information about future desired prices tend to overweight their own past set price when they set prices. We study the impact of this heterogeneous price-setting behavior for theoretically derived forward-looking Phillips curves. Our estimated NKPCs are in line with the empirical literature. The deviations from theoretical predictions in our NKPCs are driven by the less-informed subjects.
This paper studies the effect of public transport policies on urban pollution. It uses a quantitative equilibrium model with residential choice and mode choice. Pollution comes from commuting and residential energy use. The model parameters are calibrated to replicate key variables for American metropolitan areas. In the counterfactual, I study how free public transport coupled with increasing transit speed affects the equilibrium. In the baseline simulation, total pollution falls by 0.4%, as decreasing emissions from transport are partly offset by rising residential emissions. A second counterfactual compares a city with and without public transit. This large investment decreases pollution by 1.7%. When jobs are decentralized, emissions fall by 0.5% in the first and by 3% in the second counterfactual.
Despite increasing empirical evidence of strong links between climate and economic growth, there is no established model to describe the dynamics of how different types of climate shocks affect growth patterns. Here we present the first comprehensive, comparative analysis of the long-term dynamics of one-time, temporary climate shocks on production factors, and factor productivity, respectively, in a Ramsey-type growth model. Damages acting directly on production factors allow us to study dynamic effects on factor allocation, savings and economic growth. We find that the persistence of impacts on economic activity is smallest for climate shocks directly impacting output, and successively increases for direct damages on capital, loss of labor and productivity shocks, related to different responses in savings rates and factor-specific growth. Recurring shocks lead to large welfare effects and long-term growth effects, directly linked to the persistence of individual shocks. Endogenous savings and shock anticipation both have adaptive effects but do not eliminate differences between impact channels or significantly lower the dissipation time. Accounting for endogenous growth mechanisms increases the effects. We also find strong effects on income shares, important for distributional implications. This work fosters conceptual understanding of impact dynamics in growth models, opening options for links to empirics.
This paper studies the effects of two different frames on decisions in a dictator game. Before making their allocation decision, dictators read a short text. Depending on the treatment, the text either emphasizes their decision power and freedom of choice or it stresses their responsibility for the receiver’s payoff. Including a control treatment without such a text, three treatments are conducted with a total of 207 dictators. Our results show a different reaction to these texts depending on the dictator’s gender. We find that only men react positively to a text that stresses their responsibility for the receiver, while only women seem to react positively to a text that emphasizes their decision power and freedom of choice.
With his September 2015 speech “Breaking the tragedy of the horizon”, the President of the Central Bank of England, Mark Carney, put climate change on the agenda of financial market regulators. Until then, climate change had been framed mainly as a problem of negative externalities leading to long-term economic costs, which resulted in countries trying to keep the short-term costs of climate action to a minimum. Carney argued that climate change, as well as climate policy, can also lead to short-term financial risks, potentially causing strong adjustments in asset prices. Analysing the effect of a sustainability transition on the financial sector challenges traditional economic and financial analysis and requires a much deeper understanding of the interrelations between climate policy and financial markets.
This dissertation thus investigates the implications of climate policy for financial markets as well as the role of financial markets in a transition to a sustainable economy. The approach combines insights from macroeconomic and financial risk analysis. Following an introduction and classification in Chapter 1, Chapter 2 shows a macroeconomic analysis that combines ambitious climate targets (negative externality) with technological innovation (positive externality), adaptive expectations and an investment program, resulting in overall positive macroeconomic outcomes. The analysis also reveals the limitations of climate economic models in their representation of financial markets. Therefore, the subsequent part of this dissertation is concerned with the link between climate policies and financial markets. In Chapter 3, an empirical analysis of stock-market responses to the announcement of climate policy targets is performed to investigate impacts of climate policy on financial markets. Results show that 1) international climate negotiations have an effect on asset prices and 2) investors increasingly recognize transition risks in carbon-intensive investments. In Chapter 4, an analysis of equity markets and the interbank market shows that transition risks can potentially affect a large part of the equity market and that financial interconnections can amplify negative shocks. In Chapter 5, an analysis of mortgage loans shows how information on climate policy and the energy performance of buildings can be integrated into risk management and reflected in interest rates.
While costs of climate action have been explored at great depth, this dissertation offers two main contributions. First, it highlights the importance of a green investment program to strengthen the macroeconomic benefits of climate action. Second, it shows different approaches on how to integrate transition risks and opportunities into financial market analysis. Anticipating potential losses and gains in the value of financial assets as early as possible can make the financial system more resilient to transition risks and can stimulate investments into the decarbonization of the economy.
With the onset of the global food crisis, the discussion about the use and misuse of agricultural market interventions regained academic attention. As a result of economies of scale, centralized policy implementation at the regional level has the potential to reduce the budgetary costs of policies. Borrowing from the literature on international unions and international policy coordination, we develop a conceptual framework to analyze when regional policy implementation makes sense. This is the case whenever spill-overs from centralization are large and policy preferences, driven by country-specific characteristics, are homogeneous. Subsequently, we examine the advantageousness of centralized policy implementation for the West African region regarding the most common food security policies. We show that centralization of trade policies and emergency food reserves is beneficial, while buffer stocks, safety net policies, and producer support policies should be implemented at the national level.
We analyze workers’ risk preferences and training investments. Our conceptual framework differentiates between the investment risk and insurance mechanisms underpinning training decisions. Investment risk leads risk-averse workers to train less; they undertake more training if it insures them against future losses. We use the German Socio-Economic Panel (SOEP) to demonstrate that risk affinity is associated with more training, implying that, on average, investment risks dominate the insurance benefits of training. Crucially, this relationship is evident only for general training; there is no relationship between risk attitudes and specific training. Thus, as expected, risk preferences matter more when skills are transferable – and workers have a vested interest in training outcomes – than when they are not. Finally, we provide evidence that the insurance benefits of training are concentrated among workers with uncertain employment relationships or limited access to public insurance schemes.
Interest in evaluating the effects of continuous treatments has been on the rise recently. To facilitate the estimation of causal effects in this setting, the present paper introduces entropy balancing for continuous treatments (EBCT) by extending the original entropy balancing methodology of Hainmüller (2012). In order to estimate balancing weights, the proposed approach solves a globally convex constrained optimization problem, allowing for much more computationally efficient implementation compared to other available methods. EBCT weights reliably eradicate Pearson correlations between covariates and the continuous treatment variable. This is the case even when other methods based on the generalized propensity score tend to yield insufficient balance due to strong selection into different treatment intensities. Moreover, the optimization procedure is more successful in avoiding extreme weights attached to a single unit. Extensive Monte-Carlo simulations show that treatment effect estimates using EBCT display similar or lower bias and uniformly lower root mean squared error. These properties make EBCT an attractive method for the evaluation of continuous treatments. Software implementation is available for Stata and R.
Labor market policy tools such as training and sanctions are commonly used to help bring workers back to work. By analogy to medical treatments, the individual exposure to these tools may have side effects. We study effects on health using individual-level population registers on labor market events outcomes, drug prescriptions and sickness absence, comparing outcomes before and after exposure to training and sanctions. We find that training improves cardiovascular and mental health and lowers sickness absence. The results suggest that this is not due to improved employment prospects but rather to instantaneous features of participation such as, perhaps, the adoption of a more rigorous daily routine. Unemployment benefits sanctions cause a short-run deterioration of mental health, possibly due higher stress levels, but this tapers out quickly.
Stochastic uncertainty can cause difficult coordination problems that may hinder mutually beneficial cooperation. We propose a mechanism of ex-post voluntary transfers designed to circumvent these coordination problems and ask whether it can do so. To test this, we implement a controlled laboratory experiment based on a repeatedly played Ultimatum Game with a stochastic endowment. Contrary to our hypothesis, we find that allowing voluntary transfers does not entail an efficiency increase. We suggest and analyze two main reasons for this finding: First, the stochastic uncertainty forces proposers to accept high strategic uncertainty if they intend to cooperate by claiming a low amount (which many proposers do not). Second, many responders behave only incompletely conditionally cooperative by transferring too little (which hinders cooperation in future periods).
Numerous studies investigate which sanctioning institutions prevent cartel formation but little is known as to how these sanctions work. We contribute to understanding the inner workings of cartels by studying experimentally the effect of sanctioning institutions on firms’ communication. Using machine learning to organize the chat communication into topics, we find that firms are significantly less likely to communicate explicitly about price fixing when sanctioning institutions are present. At the same time, average prices are lower when communication is less explicit. A mediation analysis suggests that sanctions are effective in hindering cartel formation not only because they introduce a risk of being fined but also by reducing the prevalence of explicit price communication.
Modern health care systems are characterized by pronounced prevention and cost-optimized treatments. This dissertation offers novel empirical evidence on how useful such measures can be. The first chapter analyzes how radiation, a main pollutant in health care, can negatively affect cognitive health. The second chapter focuses on the effect of Low Emission Zones on public heath, as air quality is the major external source of health problems. Both chapters point out potentials for preventive measures. Finally, chapter three studies how changes in treatment prices affect the reallocation of hospital resources. In the following, I briefly summarize each chapter and discuss implications for health care systems as well as other policy areas. Based on the National Educational Panel Study that is linked to data on radiation, chapter one shows that radiation can have negative long-term effects on cognitive skills, even at subclinical doses. Exploiting arguably exogenous variation in soil contamination in Germany due to the Chernobyl disaster in 1986, the findings show that people exposed to higher radiation perform significantly worse in cognitive tests 25 years later. Identification is ensured by abnormal rainfall within a critical period of ten days. The results show that the effect is stronger among older cohorts than younger cohorts, which is consistent with radiation accelerating cognitive decline as people get older. On average, a one-standarddeviation increase in the initial level of CS137 (around 30 chest x-rays) is associated with a decrease in the cognitive skills by 4.1 percent of a standard deviation (around 0.05 school years). Chapter one shows that sub-clinical levels of radiation can have negative consequences even after early childhood. This is of particular importance because most of the literature focuses on exposure very early in life, often during pregnancy. However, population exposed after birth is over 100 times larger. These results point to substantial external human capital costs of radiation which can be reduced by choices of medical procedures. There is a large potential for reductions because about one-third of all CT scans are assumed to be not medically justified (Brenner and Hall, 2007). If people receive unnecessary CT scans because of economic incentives, this chapter points to additional external costs of health care policies. Furthermore, the results can inform the cost-benefit trade-off for medically indicated procedures. Chapter two provides evidence about the effectiveness of Low Emission Zones. Low Emission Zones are typically justified by improvements in population health. However, there is little evidence about the potential health benefits from policy interventions aiming at improving air quality in inner-cities. The chapter ask how the coverage of Low Emission Zones air pollution and hospitalization, by exploiting variation in the roll out of Low Emission Zones in Germany. It combines information on the geographic coverage of Low Emission Zones with rich panel data on the universe of German hospitals over the period from 2006 to 2016 with precise information on hospital locations and the annual frequency of detailed diagnoses. In order to establish that our estimates of Low Emission Zones’ health impacts can indeed be attributed to improvements in local air quality, we use data from Germany’s official air pollution monitoring system and assign monitor locations to Low Emission Zones and test whether measures of air pollution are affected by the coverage of a Low Emission Zone. Results in chapter two confirm former results showing that the introduction of Low Emission Zones improved air quality significantly by reducing NO2 and PM10 concentrations. Furthermore, the chapter shows that hospitals which catchment areas are covered by a Low Emission Zone, diagnose significantly less air pollution related diseases, in particular by reducing the incidents of chronic diseases of the circulatory and the respiratory system. The effect is stronger before 2012, which is consistent with a general improvement in the vehicle fleet’s emission standards. Depending on the disease, a one-standard-deviation increase in the coverage of a hospitals catchment area covered by a Low Emission Zone reduces the yearly number of diagnoses up to 5 percent. These findings have strong implications for policy makers. In 2015, overall costs for health care in Germany were around 340 billion euros, of which 46 billion euros for diseases of the circulatory system, making it the most expensive type of disease caused by 2.9 million cases (Statistisches Bundesamt, 2017b). Hence, reductions in the incidence of diseases of the circulatory system may directly reduce society’s health care costs. Whereas chapter one and two study the demand-side in health care markets and thus preventive potential, chapter three analyzes the supply-side. By exploiting the same hospital panel data set as in chapter two, chapter three studies the effect of treatment price shocks on the reallocation of hospital resources in Germany. Starting in 2005, the implementation of the German-DRG-System led to general idiosyncratic treatment price shocks for individual hospitals. Thus far there is little evidence of the impact of general price shocks on the reallocation of hospital resources. Additionally, I add to the exiting literature by showing that price shocks can have persistent effects on hospital resources even when these shocks vanish. However, simple OLS regressions would underestimate the true effect, due to endogenous treatment price shocks. I implement a novel instrument variable strategy that exploits the exogenous variation in the number of days of snow in hospital catchment areas. A peculiarity of the reform allowed variation in days of snow to have a persistent impact on treatment prices. I find that treatment price increases lead to increases in input factors such as nursing staff, physicians and the range of treatments offered but to decreases in the treatment volume. This indicates supplier-induced demand. Furthermore, the probability of hospital mergers and privatization decreases. Structural differences in pre-treatment characteristics between hospitals enhance these effects. For instance, private and larger hospitals are more affected. IV estimates reveal that OLS results are biased towards zero in almost all dimensions because structural hospital differences are correlated with the reallocation of hospital resources. These results are important for several reasons. The G-DRG-Reform led to a persistent polarization of hospital resources, as some hospitals were exposed to treatment price increases, while others experienced reductions. If hospitals increase the treatment volume as a response to price reductions by offering unnecessary therapies, it has a negative impact on population wellbeing and public spending. However, results show a decrease in the range of treatments if prices decrease. Hospitals might specialize more, thus attracting more patients. From a policy perspective it is important to evaluate if such changes in the range of treatments jeopardize an adequate nationwide provision of treatments. Furthermore, the results show a decrease in the number of nurses and physicians if prices decrease. This could partly explain the nursing crisis in German hospitals. However, since hospitals specialize more they might be able to realize efficiency gains which justify reductions in input factors without loses in quality. Further research is necessary to provide evidence for the impact of the G-DRG-Reform on health care quality. Another important aspect are changes in the organizational structure. Many public hospitals have been privatized or merged. The findings show that this is at least partly driven by the G-DRG-Reform. This can again lead to a lack in services offered in some regions if merged hospitals specialize more or if hospitals are taken over by ecclesiastical organizations which do not provide all treatments due to moral conviction. Overall, this dissertation reveals large potential for preventive health care measures and helps to explain reallocation processes in the hospital sector if treatment prices change. Furthermore, its findings have potentially relevant implications for other areas of public policy. Chapter one identifies an effect of low dose radiation on cognitive health. As mankind is searching for new energy sources, nuclear power is becoming popular again. However, results of chapter one point to substantial costs of nuclear energy which have not been accounted yet. Chapter two finds strong evidence that air quality improvements by Low Emission Zones translate into health improvements, even at relatively low levels of air pollution. These findings may, for instance, be of relevance to design further policies targeted at air pollution such as diesel bans. As pointed out in chapter three, the implementation of DRG-Systems may have unintended side-effects on the reallocation of hospital resources. This may also apply to other providers in the health care sector such as resident doctors.
Drinking is Different!
(2020)
Unhealthy behavior can be extremely costly from a micro- and macroeconomic perspective and exploring the determinants of such behavior is highly important from an economist’s point of view. We examine whether locus of control (LOC) can explain alcohol consumption as an important domain of health behavior. LOC measures how much an individual believes that she is in control of the consequences of her own actions for her life’s future outcomes. While earlier literature showed that an increasing internal LOC is associated with increased health-conscious behavior in domains such as smoking, exercise or diets, we find that drinking seems to be different. Using German panel data from the Socio-Economic Panel (SOEP) we find a significant positive effect of having an internal LOC on the probability of moderate and regular drinking. We suggest and discuss two likely mechanisms for this relationship and find interesting gender differences. While social investments play an important role for both men and women, risk perceptions are especially relevant for men.
Growing out of the crisis
(2013)
Greece’s currently planned institutional reforms will help to get the country going with limited economic growth. With an economy based primarily on tourism, trade, and agriculture, Greece lacks an established competitive industry and an innovation-friendly environment, resulting in a low export ratio given the small size of the country and its long-time EU-membership. Instead, Greece exports only its nation's talent, with low returns. To become prosperous, the country must better capitalize on its Eurozone membership and add innovative sectors to its economic structure. Given Greece's hidden assets, such as the attractiveness of the country, a small number of strong research centers and an impressive diaspora in research, finance and business, we envision a Greek “Silicon Valley” and propose a ten point policy plan to achieve that goal.