Preprints [463]

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2017
How to Protect Entitlements: An Experiment
05
2017
Abstract
In a full-information, zero transactions costs world, the degree of protection afforded to an entitlement does not affect the likelihood of efficient trade. In reality, imperfect information is often inevitable. Specifically, a party will usually have incomplete information about fairness norms held by the other party – fairness norms that affect the other party’s willingness to pay (WTP) or willingness to accept (WTA). Importantly, these fairness norms may depend on how strongly the entitlement is protected. We experimentally test the effect of the degree of protection on the parties’ WTP and WTA and on the likelihood of efficient trade by varying the legal remedy for infringing upon the owner’s entitlement. We show that our participants can be divided into three groups corresponding to three different fairness norms: negative types whose WTP and WTA are decreasing in the strength of the legal remedy; positive types whose WTP and WTA are increasing in the strength of the legal remedy; and flat types whose WTP and WTA do not depend on the strength of the legal remedy. We find that type is role-dependent, such that a higher WTP and a lower WTA – the combination most conducive to efficient trade – is obtained with a weaker legal remedy.
The Valuation of Moral Rights: A Field Experiment
04
2017
Abstract
U.S. intellectual property law is firmly rooted in utilitarian principles. Copyright law is viewed as a means to give proper monetary incentives to authors for their creative effort. Many European copyright systems pursue additional goals: Authors have the right to be named as author, to control alterations and to retract their work in case their artistic beliefs have changed. Protecting these “moral rights” might be justified by the preferences of typical authors. We present the first field experiment on moral rights revealing the true valuation of these rights by over 200 authors from 24 countries. A majority of authors are not willing to trade moral rights in the first place. They demand substantial prices in case they decide to trade. The differences between authors from the U.S. and Europe are small. These results call into question whether moral rights protection should differ across the Atlantic and whether a purely profit-based theory of copyright law is sufficient to capture the complex relationship between human behavior and creativity.
Carving out legacy assets: a successful tool for bank restructuring?
03
2017
Abstract
Beginning with the proposal by Enria (2017), the paper discusses the scope for successful bank restructuring through a carveout of impaired assets and a transfer of these assets to a government-sponsored asset management company. The paper argues that the success of such an operation requires a use of public funds, either outright or through contingent commitments. Clawback provisions are problematic because they create contingent liabilities that merely shift risks from the assets side to the liabilities sides of banks’ balance sheets. The paper distinguishes between asset impairments coming from considerations of prospective returns and asset impairments coming from frictions in the markets in which these assets are traded. It also distinguishes between threats to bank solvency and threats to bank funding/liquidity. In each case, the success of bank restructuring from asset carveouts depends on the extent to which threats to the bank’s solvency is eliminated. If these threats concern bank funding and asset liquidations at depressed prices, public funds may eventually not be needed. If threats to bank solvency come from nonperforming loans, taxpayer support may be essential. The notion of “real economic value” as the price at which assets should be transferred is problematic and leaves ample room for hidden subsidies. The success of restructuring of the individual bank may itself come at a risk to financial stability as the preservation of existing capacities maintains competitive pressure and depresses bank profitability. Additional risks may come from the burden on the government’s fiscal stance.
The Generic Possibility of Full Surplus Extraction in Models with Large Type Spaces
02
2017
Abstract
McAfee and Reny (1992) have given a necessary and sufficient condition for full surplus extraction in naive type spaces with a continuum of payoff types. We generalize their characterization to arbitrary abstract type spaces and to the universal type space and show that in each setting, full surplus extraction is generically possible. We interpret the McAfee-Reny condition as a much stronger version of injectiveness of belief functions and prove genericity by arguments similar to those used to prove the classical embedding theorem for continuous functions. Our results can be used to also establish the genericity of common priors that admit full surplus extraction.
Inherited Institutions: Cooperation in the Light of Democratic Legitimacy
01
2017
Abstract
We experimentally investigate whether the procedural history of a sanctioning institution affects cooperation in a social dilemma. Subjects inherit the institutional setting from a previous generation of subjects who either decided on the implementation of the institution democratically by majority vote or were exogenously assigned a setting. In order to isolate the impact of the voting procedure, no information about the cooperation history is provided. In line with existing empirical evidence, we observe that in the starting generation cooperation is higher (lower) with a democratically chosen (rejected) institution, as compared to the corresponding, randomly imposed setting. In the second generation, the procedural history only partly affects cooperation. While there is no positive democracy effect when the institution is implemented, the vote-based rejection of the institution negatively affects cooperation in the second generation. The effect size is similar to that in the first generation.
2016
Selling Money on Ebay: A Field Study of Surplus Division
20
2016
Abstract
We study the division of trade surplus in a competitive market environment by conducting a natural field experiment on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. Randomly arriving buyers, the subjects of our experiment, make price offers according to eBay rules. Using a novel decomposition method, we infer offered shares of trade surplus and find that the average share proposed to the seller amounts to 29%. Additionally, we document: (i) insignificant effects of stake size; (ii) poor use of strategically relevant public information; and (iii) behavioural differences between East and West German subjects.
The International Court of Justice and the Judicial Politics of Identifying Customary International Law
19
2016
Abstract
It is often observed in the literature on customary international law that the identification practice of the International Court of Justice for customary norms deviates from the traditional definition of customary law in Art. 38 (1) lit. b of the ICJ Statute. However, while there are many normative and descriptive accounts on customary law and the Court’s practice, few studies try to explain the jurisprudence of the ICJ. This study aims at closing this gap. I argue that the ICJ’s argumentation pattern is due to the institutional constraints that the Court faces. In order for its decisions to be accepted, it has to signal impartiality through its reasoning. However, the analysis of state practice necessarily entails the selection of particular instances of practice, which could tarnish the image of an impartial court. In contrast, if the Court resorts to the consent of the parties or widely accepted international documents, it signals impartiality.
Internal conflict, market uniformity, and transparency in price competition between teams
18
2016
Abstract
The way profits are divided within successful teams imposes different degrees of internal conflict. We experimentally examine how the level of internal conflict, and whether such conflict is transparent to other teams, affects teams' ability to compete vis-à-vis each other, and, consequently, market outcomes. Participants took part in a repeated Bertrand duopoly game between three-player teams which had either the same or different level of internal conflict (uniform vs. mixed). Profit division was either private-pay (high conflict; each member received her own asking price) or equal-pay (low conflict; profits were divided equally). We find that internal conflict leads to (tacit) coordination on high prices in uniform private-pay duopolies, but places private-pay teams at a competitive disadvantage in mixed duopolies. Competition is softened by transparency in uniform markets, but intensified in mixed markets. We propose an explanation of the results and discuss implications for managers and policy makers.
A Homeomorphism Theorem for the Universal Type Space with the Uniform Weak Topology
17
2016
Abstract
Kolmogorov’s extension theorem provides a natural mapping from the space of coherent hierarchies of an agent’s first-order, second-order, etc. beliefs to the space of probability measures over the exogenous parameters and the other agents' belief hierarchies. Mertens and Zamir (1985) showed that, if the spaces of belief hierarchies are endowed with the product topology, then this mapping is a homeomorphism. This paper shows that this mapping is also a homeomorphism if the spaces of belief hierarchies are endowed with the uniform weak topology of Chen et al. (2010) or the universal strategic topology of Dekel et al. (2006), both of which ensure that strategic behaviour exhibits desirable continuity properties.
Investment in education under disappointment aversion
16
2016
Abstract
This paper develops a model of risky investment in education under disappointment aversion, modelled as loss aversion around one's endogenous expectation. The model shows that disappointment aversion reduces the optimal investment in education for lower ability people and increases it for higher ability people, thereby magnifying the investment gap between them generated by the riskiness of education. Policies aimed at influencing students' expectations can reduce early dropout.