Preprints [471]

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2017
Abuse of Power – An experimental investigation of the effects of power and transparency on centralized punishment
15
2017
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.
Diffusion of Legal Innovations: The Case of Israeli Class Actions
11
2017
Abstract
In law and economics, it is standard to model legal rules as an opportunity structure. The law’s subjects maximize expected profit, given these constraints. In such a model, the reaction to legal innovation is immediate. This is not what we observe after class action is introduced into Israeli law. For a long time, the new remedy is almost unused. Then the adoption process gains momentum. We discuss alternative options for theorizing the effect. We find that market entry is not only explained by the available information about profitability, but also by the adoption pattern of others. When deciding whether to bring further claims, law firms also react to the experiences they have made themselves. We thus explain the pattern by individual and social learning, and cannot exclude mere social imitation.
Optimal income taxation with labor supply responses at two margins: When is an Earned Income Tax Credit optimal?
10
2017
Abstract
This paper studies optimal non-linear income taxation in an empirically plausible model with labor supply responses at the intensive (hours, effort) and the extensive (participation) margin. In this model, redistributive taxation gives rise to a previously neglected trade-off between two aspects of effciency: To reduce the deadweight loss from distortions at the extensive margin, the social planner has to increase distortions at the intensive margin and vice versa. Due to this trade-off, minimizing the overall deadweight loss requires to distort labor supply by low-skill workers upwards at both margins. Building on these insights, the paper is the first to provide conditions under which social welfare is maximized by an Earned Income Tax Credit with negative marginal taxes and negative participation taxes at low income levels.
People Are Conditional Rule Followers
09
2017
Abstract
Experimental participants are more likely to follow an arbitrary rule the more of their peers do so as well. The difference between unconditional and conditional rule following is most pronounced for individuals who follow few rules unconditionally.
Sophisticated and naïve procrastination: an experimental study
08
2017
Abstract
The model of time-inconsistent procrastination by O'Donoughe and Rabin shows that individuals who are not aware of their present-bias (naïve) procrastinate more than individuals who are aware of it (sophisticated) or are not present-biased (time-consistent). This paper tests this prediction. We classify participants into types using a novel measure, and require them to perform a real-effort task on one out of three dates. We find that sophisticated participants perform the task significantly later than naïve participants. Our data suggest that this result may be explained by habit formation.
Empirical Methods for the Law
07
2017
Abstract
To their credit, empirical legal scholars try to live up to the highest methodological standards from the social sciences. But these standards do not always match the legal research question. This paper focuses on normative legal argument based on empirical evidence. Whether there is a normative problem, and whether legal intervention promises to mitigate the problem, requires a decision. If uncertainty cannot be completely removed, the legal decision-maker must weigh the risk of false positives against the risk of false negatives. This may call for an adjustment of the significance level. The fact that all legal choice is historically contingent, that legal problems tend to be ill-defined, and that strategic actors have an incentive to bias the generation of evidence defy frequentist statistics. Yet the law can capitalize on the adversarial principle. Competition among interested parties helps contain the strategic element and spurs the creative search for better evidence. This leads to suggestive, but institutionally contained empirical evidence.
Probability Measures on Product Spaces with Uniform Metrics
06
2017
Abstract
For a countable product of complete separable metric spaces with a topology induced by a uniform metric, the set of Borel probability measures coincides with the set of completions of probability measures on the product σ-algebra. Whereas the product space with the uniform metric is non-separable, the support of any Bofrel measure is separable, and the topology of weak convergence on the space of Borel measures is metrizable by both the Prohorov metric and the bounded Lipschitz metric.