nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒01‒09
seven papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Normative Evaluation of Tax Policies: From Households to Individuals By Bargain, Olivier
  2. Co-Determination, Efficiency, and Productivity By FitzRoy, Felix R.; Kraft, Kornelius
  3. Relational Delegation By Alonso, Ricardo; Matouschek, Niko
  4. Do Ads Influence Editors? Advertising and Bias in the Financial Media By Jonathan Reuter; Eric Zitzewitz
  5. High status for all? Cheating the zero-sum mechanism of happiness. By Igor Galochkin
  6. Social Isolation and Inequality By Andrew Postlewaite; Dan Silverman
  7. Fact-Free Learning By Enriqueta Aragones; Itzhak Gilboa; Andrew Postlewaite; David Schmeidler

  1. By: Bargain, Olivier (IZA Bonn and DELTA, Paris)
    Abstract: In this paper, we analyze the impact of a tax policy change on social welfare by using jointly a collective model of household labor supply and a microsimulation program of the French taxbenefit system. The collective approach allows studying the intrahousehold distribution so that for the first time, social welfare can be characterized using individual utilities rather than an ambiguous concept of household welfare. This way, the planner’s preferences address not only inter-household inequalities but also intra-household inequalities often neglected in the literature. The other contribution of the paper derives from a larger interpretation of labor supply behaviors which represent more than the simple work duration and incorporate unobserved dimensions related to effort or intensity at work. We simulate an extended version of the British Working Family Tax Credit on married couples in France. Two types of conclusions emerge. First, the reform is not desirable for low values (utilitarian) or high values (rawlsian) of the social inequality aversion but rather for an intermediary range. In effect, on the efficiency side, the reform induces strong disincentive effects on the participation of second-earners while on the equity side, it does not specifically target the poorest households. Second, we show that the choice of unit – household or individual – strongly condition the results of the normative analysis when departing in a reasonable way from the assumption of equal sharing within the household.
    Keywords: collective model, intrahousehold distribution, social welfare, household labor supply, microsimulation, tax reform
    JEL: C71 D13 D31 D63 H21 H31 J22
    Date: 2004–12
  2. By: FitzRoy, Felix R. (University of St. Andrews and IZA Bonn); Kraft, Kornelius (University of Dortmund and IZA Bonn)
    Abstract: We present the first panel estimates of the productivity effects of the unique German institution of parity, board-level co-determination. Although our data span two severe recessions when labour hoarding costs of co-determination are probably highest, and the panel is too short to capture the likely long run benefits in terms of human capital formation and job satisfaction, we find positive productivity effects of the 1976 extension to parity codetermination in large firms.
    Keywords: co-determination, employee involvement, productivity
    JEL: D2 J5 L2
    Date: 2004–12
  3. By: Alonso, Ricardo (Northwestern University); Matouschek, Niko (Northwestern University and IZA Bonn)
    Abstract: We explore the optimal delegation of decision rights by a principal to a better informed but biased agent. In an infinitely repeated game a long lived principal faces a series of short lived agents. Every period they play a cheap talk game ala Crawford and Sobel (1982) with constant bias, quadratic loss functions and general distributions of the state of the world. We characterize the optimal delegation schemes for all discount rates and show that they resemble organizational arrangements that are commonly observed, including centralization and threshold delegation. For small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal is sufficiently impatient.
    Keywords: delegation, cheap talk, relational contract
    JEL: D23 D82 L23
    Date: 2005–01
  4. By: Jonathan Reuter (University of Oregon. Lundquist College of Business); Eric Zitzewitz (Stanford GSB)
    Abstract: We use mutual fund recommendations to test whether editorial content is independent from advertisers’ influence in the financial media. We find that major personal finance magazines (Money, Kiplinger’s Personal Finance, and SmartMoney) are more likely to recommend funds from families that have advertised within their pages in the past, controlling for fund characteristics like expenses, past returns and the overall levels of advertising. We find little evidence of a similar relationship for mentions in the New York Times or Wall Street Journal. Positive media mentions in both newspapers and magazines are associated with significant future inflows into the fund while advertising expenditures are not. Therefore, if we interpret our coefficients causally, a large share of the benefit of advertising in our sample of personal finance magazines comes via the apparent content bias. The welfare implications of this apparent bias are unclear, however, since our tests suggest that bias does not directly lead publications to recommend funds with significantly lower future returns than they might have recommended in the absence of any bias. In selecting funds to recommend, magazines overweight past returns relative to expenses, and as a group their recommendations do not outperform even an equal- weighted average of their peers. Nevertheless, this approach leaves magazines with large numbers of funds with high past returns from which to select, and so bias towards advertisers can be accommodated without significantly reducing readers’ future returns. Interestingly, the recommendations of Consumer Reports, which does not accept advertising, have future returns comparable to or below those of the publications which accept do advertising.
    Keywords: mutual fund recommendations
    JEL: G11 G23 L82 D83
    Date: 2005–01–03
  5. By: Igor Galochkin (Moscow Institute of International Relations)
    Abstract: We state the following hypotheses: 1) Happiness depends on social rank – a term from primatology meaning the place in group hierarchy which determines mating chances, number of offspring and food share; this dependence explains the correlation between relative income and subjective well-being in humans. 2) There are mechanisms of cheating the ranks, which boost happiness of all. 3) Intelligence is a happiness- boosting tool, which should be more developed by low-rank individuals. We report the results of a series of queries, which support hypotheses 1) and 2) and leave 3) unclear.
    Keywords: subjective well-being, happiness, social rank, relative income, intelligence, zero-sum, utility, sexual success, leadership
    JEL: D1 D2 D3 D4
    Date: 2005–01–03
  6. By: Andrew Postlewaite (Department of Economics, University of Pennsylvania); Dan Silverman (Department of Economics, University of Michigan)
    Abstract: There is an increasing interest in the concept of social exclusion and the related concept of social isolation and their potential role in understanding inequality. We examine the degree to which voluntary separation from social activities during adolescence affects adult wages. It is well-known that participation in high school athletic programs leads to higher adult wages. We present empirical evidence that this premium is not primarily due to selection on predetermined characteristics valued in the labor market.
    Keywords: Decision making; Bayesian; Behavioral Economics
    JEL: D81
    Date: 2004–02–01
  7. By: Enriqueta Aragones (Autonomous University of Barcelona - Institut d'Anàlisi Econòmica (CSIC)); Itzhak Gilboa (Eitan Berglas School of Economics, Tel Aviv University); Andrew Postlewaite (Department of Economics, University of Pennsylvania); David Schmeidler (Eitan Berglas School of Economics, Tel Aviv University)
    Abstract: People may be surprised by noticing certain regularities that hold in existing knowledge they have had for some time. That is, they may learn without getting new factual information. We argue that this can be partly explained by computational complexity. We show that, given a knowledge base, finding a small set of variables that obtain a certain value of R2 is computationally hard, in the sense that this term is used in computer science. We discuss some of the implications of this result and of fact-free learning in general.
    Keywords: Learning, Behavioral Economics
    JEL: D11
    Date: 2003–10–01

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