Preprints [477]

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2017
Strategic Inattention in Product Search
21
2017
Abstract
Online platforms provide search tools that help consumers to get betterfitting product offers. But this technology makes consumer search behavior also easily traceable for the platform and allows for real-time price discrimination. Consumers face a trade-off: Search intensely and receive better fits at potentially higher prices or restrict search behavior – be strategically inattentive – and receive a worse fit, but maybe a better deal. We study the strategic buyer-seller interaction in such a situation theoretically as well as experimentally. The search technology we use in the laboratory leads by construction to better-fitting products, but we indeed find that only sellers profit from the buyers’ use of the offered search tools.
Does Efficiency Trump Legality? The Case of the German Constitutional Court
20
2017
Abstract
The US Supreme Court has the power of certiorari. It may pick its fights. As a beneficial side effect, the court may allocate its resources, in particular the time and energy the justices spend on a case, to worthy causes. In economic parlance, this discretion makes the court more efficient. Efficiency comes at a political cost, though. This discretion also gives the court political power. It may direct its verdict to causes that are politically most relevant, or it may put an issue on the political agenda. Officially German constitutional law does not have certiorari. The Constitutional Court must decide each and every case that is brought. Yet over time the court has crafted a whole arsenal of more subtle measures for managing the case load. This paper shows that it uses these tools to engage in its version of allocating resources to cases. It investigates whether the ensuing efficiency gain comes at the cost of biasing the court’s jurisprudence. The paper exploits a new comprehensive data set. It consists of all (mostly only electronically) published cases the court has heard in 2011. While the data is rich, in many technical ways it is demanding. The paper uses a factor analysis to create a latent variable: to which degree has the court taken an individual case seriously? It then investigates whether observed indicators for bias explain this latent variable. Since the paper essentially investigates a single (independent) case, in statistical terms the findings are to be interpreted with caution. The paper can only aim at finding smoking guns.
Finanzstabilität, Transparenz und Verantwortlichkeit: Stellungnahme für das Bundesverfassungsgericht
19
2017
Abstract
Der Text beruht auf einer am 9. Mai 2017 vor dem Bundesverfassungsgericht abgegebenen Stellungnahme in der mündlichen Verhandlung zu einem Verfahren über den Umfang der Verpflichtung der Bundesregierung zur Information des Parlaments (Az. 2BvE 2/11). Das Gericht hatte um Auskünfte zur möglichen Gefährdung der Funktionsfähigkeit der Finanzmarktaufsicht und zur möglichen Gefährdung des Erfolgs der staatlichen Stützungsmaßnahmen durch eine öffentliche Beantwortung von Fragen der Bundestagsfraktion Bündnis 90/Die Grünen durch die Bundesregierung im November und Dezember 2010 gebeten. Die Stellungnahme zeigt, dass die Argumente, mit denen die Bundesregierung eine öffentliche Beantwortung ablehnte, in großen Teilen fehlerhaft waren. Die Ablehnung half, eine öffentliche Diskussion über die Ursachen und die Verantwortung für die besondere deutsche Betroffenheit durch die Finanzkrise zu vermeiden. In Anbetracht der im internationalen Vergleich sehr hohen Kosten der Krise für den deutschen Steuerzahler wäre eine solche Diskussion angebracht gewesen, auch eine Diskussion darüber, wie zweckdienlich die seitherigen Reformmaßnahmen wirklich sein würden. Die Stellungnahme vertritt die Auffassung, dass Einschränkungen des Anspruchs eines Finanzinstituts auf Vertraulichkeit vertretbar und ohne Schäden für die Funktionsfähigkeit der Aufsicht durchzusetzen sind, wenn diese Einschränkungen im Zusammenhang mit einer Staatshilfe stehen, die das Institut vor der Zahlungsunfähigkeit bewahrt hat. Bei Instituten, die eine Unterstützung durch den Steuerzahler benötigt und erhalten haben, war und ist das Risiko einer erneuten Destabilisierung durch Informationen über die Vergangenheit gering. Die Stellungnahme weist auch die pauschale Vorstellung zurück, dass Transparenz an sich schon die Stabilität einzelner Banken oder gar des gesamten Finanzsystems gefährde, da jegliche Information panikartige Marktreaktionen hervorrufen könne. Modelle panikartiger Reaktionen auf „Sonnenflecken“, d.h. Informationen, die irrelevant sind oder keinen Neuigkeitswert haben, sind in der Wirtschaftstheorie populär, aber in der Realität werden Paniken durch neue Informationen ausgelöst, die die Erwartungen der Anleger über wirtschaftlichen Aussichten substantiell beeinflussen.
How uncertainty and ambiguity in tournaments affect gender differences in competitive behavior
18
2017
Abstract
Tournament incentives prevail in labor markets, in particular with respect to promotions. Yet, it is often unclear to competitors how many winners there will be or how many applicants compete in the tournament. While it is hard to measure how this uncertainty affects work performance and willingness to compete in the field, it can be studied in a controlled lab experiment. We present a novel experiment where subjects can compete against each other, but where the number of winners is either uncertain (i.e., unknown numbers of winners, but known probabilities) or ambiguous (unknown probabilities for different numbers of winners). We compare these two conditions with a control treatment with a known number of winners. We find that ambiguity induces a significant increase in performance of men, while we observe no change for women. Both men and women increase their willingness to enter competition with uncertainty and ambiguity, but men react slightly more than women. Overall, both effects contribute to men winning the tournament significantly more often than women under uncertainty and ambiguity. Hence, previous experiments on gender differences in competition may have measured a lower bound of differences between men and women.
Behaviorally Efficient Remedies – An Experiment
17
2017
Abstract
Under common law, the standard remedy for breach of contract is expectation damages. Under continental law, the standard is specific performance. The common law solution is ex post efficient. But is it also ex ante efficient? We use experimental methods to test whether knowing that non-fulfilment will only lead to damages deters mutually beneficial trade. The design excludes aversion against others willfully breaking their promises. We find that there is indeed less trade if specific performance is not guaranteed, provided the preference for the traded commodity is sufficiently pronounced.
Committing the English and the Continental Way – An Experiment
16
2017
Abstract
On the doctrinal surface, there is a deep divide between common and continental law when it comes to the origin of contractual obligations. Under continental law, in principle a unilateral promise suffices. Common law by contrast requires consideration. When it comes to deciding cases, the divide is much less pronounced. But for the most part the law does not govern people's lives through adjudication. It matches or molds their moral intuitions. We test these intuitions in the lab. If consideration is required, participants believe that all participants make more ambitious promises. But they themselves make a more cautious promise. These two effects cancel out, so that promises are not more likely to be kept with consideration.
Abuse of Power – An experimental investigation of the effects of power and transparency on centralized punishment
15
2017
Abstract
We investigate power abuse of a single punisher in a public-goods-game subject to variations in punishment power and contribution transparency. We find a high amount of abuse across all conditions. More power led to more abuse over time, while transparency could only curb abuse in the high power conditions. These findings highlight the dangers of power centralization, but suggest a more complex relation of power and transparency.
Precautionary recapitalisations: time for a review
14
2017
Abstract
The first part of the paper considers the effects of pre-empting a resolution procedure for a troubled financial institution by a precautionary recapitalization as specified in Article 32 (4) (d) of the Bank Recovery and Resolution Directive (BRRD). Benefits are seen for the maintenance of systemically important operations of an institution with legally independent subsidiaries in multiple jurisdictions and possibly for the maintenance of lending in situations where an entire banking system is involved. Other systemic concerns, such as the maintenance of lending when only part of a banking system is affected, the avoidance of damage to money markets, and potential systemic effects from bailing in creditors, can be addressed in a resolution procedure under the rules of the BRRD and do not require the instrument of a precautionary recapitalization. The second part of the paper provides a critical assessment of Article 32 (4) (d) of the BRRD and finds some weaknesses that contribute to raising taxpayers’ costs or to reducing the effectiveness of the operation. The availability of precautionary recapitalization outside of resolution contributes to undue and costly delays in acknowledging and addressing problems. The conditions specified in the Directive are problematic, sometimes too tough, sometimes too lenient, most importantly because the objectives of State aid control differ from the objectives of the BRRD. The paper concludes with suggestions for reform.
Strategy-proofness of stochastic assignment mechanisms
13
2017
Abstract
This paper compares two prominent stochastic assignment mechanisms in the laboratory: Random serial dictatorship (RSD) and top trading cycles with random endowments (TTC). In standard theory, both mechanisms are strategy-proof and Pareto-effcient for the house allocation problem without endowments. In the experiment, RSD outperforms TTC. This can be attributed to more dominant strategy play under RSD. The behavioral theory of obvious strategy-proofness can partly explain this difference in dominant strategy play. Generally, subjects with extremely high and low levels of contingent reasoning play their dominant strategies. These results suggest that one strategy-proof mechanism may outperform another one if individuals are boundedly rational.
Volunteering under Population Uncertainty
12
2017
Abstract
There is ample evidence that the number of players can have an important impact on the cooperation and coordination behavior of people facing social dilemmas. With extremely few exceptions, the literature on cooperation assumes common knowledge about who is a player and how many players are involved in a certain situation. In this paper, we argue that this assumption is overly restrictive, and not even very common in real-world cooperation problems. We show theoretically and experimentally that uncertainty about the number of players in a Volunteer's Dilemma increases cooperation compared to a situation with a certain number of players. We identify additional behavioral mechanisms amplifying and impairing the effect.