Volkswirtschaft - Open Access LMU - Teil 01/03 Archiv

This paper surveys recent experimental and field evidence on the impact of concerns for fairness, reciprocity and altruism on economic decision making. It also reviews some new theoretical attempts to model the observed behavior.

Recent econometric evidence has noticeably changed views on the desirability and the appropriate design of explicit Deposit Insurance Schemes (DIS). The purpose of this paper is to take a second look at the data. After surveying recent empirical work and providing a theoretical framework, we argue that existing studies may suffer from a selection bias. Building on a new database on explicit deposit insurance compiled by the author, we perform a variety of semi-parametric and parametric tests to see whether and how explicit deposit insurance (de)stabilizes banking systems. We find that the evidence indeed suggests that a selection bias is present. Controlling for this bias leads to a reassessment of recent studies. In particular, making deposit insurance explicit has a rather moderate and, if any, stabilizing effect on the probability of experiencing a systemic crisis.

Standard explanations for the income heterogeneity within neighborhoods rely on differences of preferences across households and heterogeneity of the housing stock. We propose an alternative and complementary explanation. We construct a stochastic equilibrium sorting model where (1) income is the sole dimension of household heterogeneity, (2) households form state-contingent housing location plans that may involve moves over their lifetimes, (3) households choose whether to own or rent depending on the housing expenditure risk associated with each tenure mode, and (4) there is a probability that newcomer households move in and compete for homes with native households. Income mixing within neighborhood arises for two reasons. First, allowing natives to form state-contingent housing location plans breaks the indivisibility of housing consumption implicit in the literature where households choose their location once and for all. Second, natives can insure themselves against rent fluctuations by buying their home prior to the realization of the population shock; newcomers cannot. As a result, poorer natives stay in the more desirable communities and only richer newcomers move in these communities. Evidence from U.S. metropolitan areas supports the effects predicted by the model.

We propose a life-cycle model of the housing market with a property ladder and a credit constraint. We focus on equilibria which replicate the facts that credit constraints delay some households' first home purchase and force other households to buy a home smaller than they would like. The model helps us identify a powerful driver of the housing market: the ability of young households to afford the down payment on a starter home, and in particular their income. The model also highlights a channel whereby changes in income may yield housing price overshooting, with prices of trade-up homes displaying the most volatility, and a positive correlation between housing prices and transactions. This channel relies on the capital gains or losses on starter homes incurred by credit-constrained owners. We provide empirical support for our arguments with evidence from both the U.K. and the U.S.

This paper discusses how an industrialized country could defend the wages and social benefits of its unskilled workers against wage competition from immigrants. It shows that fixing social standards harms the workers and that fixing social replacement incomes implies migration into unemployment. Defending wages with replacement incomes brings about first-order efficiency losses that outweigh the budget cost to the government. By contrast, wage subsidies involve much smaller welfare losses. While the exclusion of migrants from a national replacement program does not improve the situation, the (temporary) exclusion of migrants from a national subsidy program makes it possible to avoid a distortion of the migration pattern.

Utilitarian voting (UV) is defined in this paper as any voting rule that allows the voter to rank all of the alternatives by means of the scores permitted under a given voting scale. Specific UV rules that have been proposed are approval voting, allowing the scores 0, 1; range voting, allowing all numbers in an interval as scores; evaluative voting, allowing the scores -1, 0, 1. The paper deals extensively with Arrow’s impossibility theorem that has been interpreted as precluding a satisfactory voting mechanism. I challenge the relevance of the ordinal framework in which that theorem is expressed and argue that instead utilitarian, i.e. cardinal social choice theory is relevant for voting. I show that justifications of both utilitarian social choice and of majority rule can be modified to derive UV. The most elementary derivation of UV is based on the view that no justification exists for restricting voters’ freedom to rank the alternatives on a given scale.

This note comments briefly on Mehdad Vahabi's article on Alfred Marshall's concept of "Normal Value." It points out, in particular, the relationship between normality and equilibrium in the context of Marshall's moving equilibrium method.

We argue that with interdependent utility functions growth can lead to a decline in total welfare of a society if the gains from growth are sufficiently unequally distributed in the presence of negative externalities, i.e., envy.

Standard explanations for the income heterogeneity within neighborhoods rely on differences of preferences across households and heterogeneity of the housing stock. We propose an alternative and complementary explanation. We construct a stochastic equilibrium sorting model where (1) income is the sole dimension of household heterogeneity, (2) households form state-contingent housing location plans that may involve moves over their lifetimes, (3) households choose whether to own or rent depending on the housing expenditure risk associated with each tenure mode, and (4) there is a probability that newcomer households move in and compete for homes with native households. Income mixing within neighborhood arises for two reasons. First, allowing natives to form state-contingent housing location plans breaks the indivisibility of housing consumption implicit in the literature where households choose their location once and for all. Second, natives can insure themselves against rent fluctuations by buying their home prior to the realization of the population shock; newcomers cannot. As a result, poorer natives stay in the more desirable communities and only richer newcomers move in these communities. Evidence from U.S. metropolitan areas supports the effects predicted by the model.

The physical stature of lower- and upper-class English youth are compared to one another and to their European and North American counterparts. The height gap between the rich and poor was the greatest in England, reaching 22 cm at age 16. The poverty-stricken English children were shorter for their age than any other European or North American group so far discovered, while the English rich were the tallest in their time: only 2.5 cm shorter than today’s US standards. Height of the poor declined in the late-18th century, and again in the 1830s and 1840s conforming to the general European pattern, while the height of the wealthy tended rather to increase until the 1840s and then levelled off.

We estimate the height of various European populations in the first half of the 18th century. English and Irish male heights are estimated at c. 65 inches (165 cm), and c. 66 inches (168 cm) respectively. These values are below those obtained from the only other sample available for the period pertaining to British and Irish men, namely those of runaway indentured and convict servants in colonial North America, whose height is estimated as between 66.4 and 67.0 inches (168,7 and 170,2 cm). At c. 64.5 inches (164 cm) Saxon, German and Scotch military heights appear to be near the bottom of the European height distribution in this period. The English were about as tall as Bohemians and French, but shorter than the Irish and Hungarians. A large decline in English heights is evident among the birth cohorts of 1725-29, suggesting that the subsistence crisis of this period must have had a substantial lasting impact on the nutritional status of the cohort born during a time of nutritional deprivation.

In an influential paper Mankiw, Romer, and Weil (1992) argue that the evidence on the international disparity in levels of per capita income and rates of growth is consistent with a standard Solow model, once it has been augmented to include human capital as an accumulable factor. In a study on Austria and Germany we augment the Solow model to allow for the accumulation of human capital. Based on a perpetual inventory estimation procedure we construct an aggregate measure of the stock of human capital of Austria and Germany by weighting workers of different schooling levels with their respective wage income. We obtain an estimate of the wage income of workers with different schooling from a Mincer type wage equation which quantifies how wages change with years of schooling. We find that the time series evidence on Austria and Germany is not consistent with a human capital augmented Solow model. Factor accumulation (broadly defined to include human capital) appears to be less (and not more) able to account for the cross-country growth performance of Austria and Germany when human capital accumulation is included in the analysis. Our results indicate that differences in technology are a driving factor in understanding cross country growth between these two neighboring countries with similar political and institutional background.

Some Remarks on Lujo Brentano's View of Labor Market Problems Lujo Brentano (1844-1931) aimed for "realism" in economics. Regarding labor market theory, two topics are of particular interest: His investigations on "Hours and Wages in Relation to Production" (Scribner's 1894) and his analysis "On the History and Development of Gilds and the Origins of Trade Unions" (Trubner 1870). The topics of are discussed with a view on recent developments in labor economics.

Engelmann and Strobel (AER 2004) question the relevance of inequity aversion in simple dictator game experiments claiming that a combination of a preference for efficiency and a Rawlsian motive for helping the least well-off is more important than inequity aversion. We show that these results are partly based on a strong subject pool effect. The participants of the E&S experiments were undergraduate students of economics and business administration who self-selected into their field of study (economics) and learned in the first semester that efficiency is desirable. We show that for non-economists the preference for efficiency is much less pronounced. We also find a non-negligible gender effect indicating that women are more egalitarian than men. However, perhaps surprisingly, the dominance of equality over efficiency is unrelated to political attitudes.