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The present paper proposes a novel approach for equilibrium selection in the infinitely repeated prisoner’s dilemma where players can communicate before choosing their strategies. This approach yields a critical discount factor that makes different predictions for cooperation than the usually considered sub-game perfect or risk dominance critical discount factors. In laboratory experiments, we find that our factor is useful for predicting cooperation. For payoff changes where the usually considered factors and our factor make different predictions, the observed cooperation is consistent with the predictions based on our factor.
In this paper, we study one channel through which communication may facilitate cooperative behavior – belief precision. In a prisoner’s dilemma experiment, we show that communication not only makes individuals more optimistic that their partner will cooperate but also increases the precision of this belief, thereby reducing strategic uncertainty. To disentangle the shift in mean beliefs from the increase in precision, we elicit beliefs and precision in a two-stage procedure and in three situations: without communication, before communication, and after communication. We find that the precision of beliefs increases during communication.
Leadership plays an important role for the efficient and fair solution of social dilemmas but the effectiveness of a leader can vary substantially. Two main factors of leadership impact are the ability to induce high contributions by all group members and the (expected) fair use of power. Participants in our experiment decide about contributions to a public good. After all contributions are made, the leader can choose how much of the joint earnings to assign to herself; the remainder is distributed equally among the followers. Using machine learning techniques, we study whether the content of initial open statements by the group members predicts their behavior as a leader and whether groups are able to identify such clues and endogenously appoint a “good” leader to solve the dilemma. We find that leaders who promise fairness are more likely to behave fairly, and that followers appoint as leaders those who write more explicitly about fairness and efficiency. However, in their contribution decision, followers focus on the leader’s first-move contribution and place less importance on the content of the leader’s statements.
Access to digital finance
(2024)
Financing entrepreneurship spurs innovation and economic growth. Digital financial platforms that crowdfund equity for entrepreneurs have emerged globally, yet they remain poorly understood. We model equity crowdfunding in terms of the relationship between the number of investors and the amount of money raised per pitch. We examine heterogeneity in the average amount raised per pitch that is associated with differences across three countries and seven platforms. Using a novel dataset of successful fundraising on the most prominent platforms in the UK, Germany, and the USA, we find the underlying relationship between the number of investors and the amount of money raised for entrepreneurs is loglinear, with a coefficient less than one and concave to the origin. We identify significant variation in the average amount invested in each pitch across countries and platforms. Our findings have implications for market actors as well as regulators who set competitive frameworks.
We examine how the gender of business-owners is related to the wages paid to female relative to male employees working in their firms. Using Finnish register data and employing firm fixed effects, we find that the gender pay gap is – starting from a gender pay gap of 11 to 12 percent - two to three percentage-points lower for hourly wages in female-owned firms than in male-owned firms. Results are robust to how the wage is measured, as well as to various further robustness checks. More importantly, we find substantial differences between industries. While, for instance, in the manufacturing sector, the gender of the owner plays no role for the gender pay gap, in several service sector industries, like ICT or business services, no or a negligible gender pay gap can be found, but only when firms are led by female business owners. Businesses in male ownership maintain a gender pay gap of around 10 percent also in the latter industries. With increasing firm size, the influence of the gender of the owner, however, fades. In large firms, it seems that others – firm managers – determine wages and no differences in the pay gap are observed between male- and female-owned firms.
The Women, Peace and Security Agenda (WPSA) is an international framework addressing the disproportionate impact of armed conflict on women and girls and promoting their meaningful participation in peacebuilding efforts. The Security Council called on Member States to develop National Action Plans (NAPs) to operationalize the four pillars of the Agenda. This study looks at the relevant steps undertaken by both Germany and the European Union. The author calls for improvements on either level and makes four recommendations.
High growth firms (HGFs) are important for job creation and considered to be precursors of economic growth. We investigate how formal institutions, like product- and labor-market regulations, as well as the quality of regional governments that implement these regulations, affect HGF development across European regions. Using data from Eurostat, OECD, WEF, and Gothenburg University, we show that both regulatory stringency and the quality of the regional government influence the regional shares of HGFs. More importantly, we find that the effect of labor- and product-market regulations ultimately depends on the quality of regional governments: in regions with high quality of government, the share of HGFs is neither affected by the level of product market regulation, nor by more or less flexibility in hiring and firing practices. Our findings contribute to the debate on the effects of regulations by showing that regulations are not, per se, “good, bad, and ugly”, rather their impact depends on the efficiency of regional governments. Our paper offers important building blocks to develop tailored policy measures that may influence the development of HGFs in a region.
The effects of energy price increases are heterogeneous between households and firms. Financially constrained poorer households, who spend a larger relative share of their income on energy, are particularly affected. In this analysis, we examine the macroeconomic and welfare effects of energy price shocks in the presence of credit-constrained households that have subsistence-level energy demand. Within a Dynamic Stochastic General Equilibrium (DSGE) model calibrated for the German economy, we compare the performance of different policy measures (transfers and energy subsidies) and different financing schemes (income tax vs. debt). Our results show that credit-constrained households prefer debt over tax financing regardless of the compensation measure due to their difficulty to smooth consumption. On the contrary, rich households tend to prefer tax-financed measures as they increase the labor supply of poor households. From an aggregate perspective, tax-financed measures targeting firms effectively cushion aggregate output losses.
Economic agents often irrationally base their decision-making on irrelevant information. This research analyzes whether men and women react to futile information about past outcomes. For this purpose, we run a laboratory experiment (Study 1) and use field data (Study 2). In both studies, the behavior of men is consistent with falsely assumed negative autocorrelation, often referred to as gambler’s fallacy Women’s behavior aligns with falsely assumed positive autocorrelation, a notion of the hot hand fallacy. On the aggregate, the two fallacies cancel out. Even when individuals are, on average, rational, the biases in the decision-making of subgroups might cause inefficient outcomes. In a mediation analysis, we find that a) the agents stated perceived probabilities of future outcomes are not blurred by irrelevant information and b) about 40 % of the observed biases are driven by differences in the perceived attractiveness of available choices caused by the irrelevant information.
Labor unions’ greatest potential for political influence likely arises from their direct connection to millions of individuals at the workplace. There, they may change the ideological positions of both unionizing workers and their non-unionizing management. In this paper, we analyze the workplace-level impact of unionization on workers’ and managers’ political campaign contributions over the 1980-2016 period in the United States. To do so, we link establishment-level union election data with transaction-level campaign contributions to federal and local candidates. In a difference-in-differences design that we validate with regression discontinuity tests and a novel instrumental variables approach, we find that unionization leads to a leftward shift of campaign contributions. Unionization increases the support for Democrats relative to Republicans not only among workers but also among managers, which speaks against an increase in political cleavages between the two groups. We provide evidence that our results are not driven by compositional changes of the workforce and are weaker in states with Right-to-Work laws where unions can invest fewer resources in political activities.