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on Utility Models and Prospect Theory |
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Issue of 2019‒04‒01
forty-four papers chosen by |
| By: | Chen, Zhuoqiong (Charlie); Ong, David; Segev, Ella |
| Abstract: | We extend previous theoretical work on n-player complete information all-pay auctions to incorporate heterogeneous risk- and loss-averse utility functions. We provide sufficient and necessary conditions for the existence of equilibria with a given set of active players with any strictly increasing utility functions and characterize the players’ equilibrium mixed strategies. Assuming that players can be ordered by their risk aversion (player a is more risk-averse than player b, if whenever player b prefers a certain payment over a given lottery, so does player a), we find that in equilibrium, the more risk-averse players either bid higher than the less risk-averse players and win with higher ex-ante probability – or they drop out. Furthermore, while each player’s expected bid decreases with the other players’ risk aversion, her expected bid increases with her own risk aversion. Thus, increasing a player’s risk aversion creates two opposing effects on total expected bid. A sufficient condition for the total expected bid to decrease with a player’s risk aversion is that this player is relatively more risk-averse compared to the rest of the players. Our findings have important implications for the literature on gender differences in competitiveness and for gender diversity in firms that use personnel contests for promotions. |
| Keywords: | All-pay auction; Risk aversion; Loss aversion |
| JEL: | D44 D72 D81 |
| Date: | 2017–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:70793&r=all |
| By: | Robert Breunig; Owen Freestone |
| Abstract: | This paper explores risk aversion among Australian households using panel data from the Household Income and Labour Dynamics in Australia (HILDA) survey. Using households’ share of risky assets, we test whether relative risk aversion is constant in wealth. After accounting for measurement error, we cannot reject the constant relative risk aversion (CRRA) assumption. Using an Euler equation that adjusts for measurement error in consumption data, we estimate the coefficient of relative risk aversion in the CRRA utility function. Point estimates from our preferred non-linear models suggest a moderate degree of risk aversion for the typical Australian household, with values ranging from 1.2 to 1.4. These findings can provide guidance for calibrating household preferences in macroeconomic models of the Australian economy. |
| Keywords: | risk aversion, intertemporal consumption choice, Euler equation, measurement error, GMM, instrumental variables |
| JEL: | D12 E21 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-27&r=all |
| By: | Sona Kilianova; Daniel Sevcovic |
| Abstract: | In this paper we investigate a dynamic stochastic portfolio optimization problem involving both the expected terminal utility and intertemporal utility maximization. We solve the problem by means of a solution to a fully nonlinear evolutionary Hamilton-Jacobi-Bellman (HJB) equation. We propose the so-called Riccati method for transformation of the fully nonlinear HJB equation into a quasi-linear parabolic equation with non-local terms involving the intertemporal utility function. As a numerical method we propose a semi-implicit scheme in time based on a finite volume approximation in the spatial variable. By analyzing an explicit traveling wave solution we show that the numerical method is of the second experimental order of convergence. As a practical application we compute optimal strategies for a portfolio investment problem motivated by market financial data of German DAX 30 Index and show the effect of considering intertemporal utility on optimal portfolio selection. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.10065&r=all |
| By: | Galanis, S. |
| Abstract: | Ambiguity sensitive preferences must fail either Consequentialism or Dynamic Consistency (DC), two properties that are compatible with subjective expected utility and Bayesian updating, while forming the basis of backward induction and dynamic programming. We examine the connection between these properties in a general environment of convex preferences over monetary acts and find that, far from being incompatible, they are connected in an economically meaningful way. In single-agent decision problems, positive value of information characterises one direction of DC. We propose a weakening of DC and show that one direction is equivalent to weakly valuable information, whereas the other characterises the Bayesian updating of the subjective beliefs which are revealed by trading behavior. In financial markets, we characterize no speculative trade, without requiring any form of Consequentialism, and show that there is weakly negative value of public information in risk-sharing environments with no aggregate uncertainty. |
| Keywords: | Updating; Ambiguity; Dynamic Consistency; Bayesian; Consequentialism; Value of Information; No Trade; Speculative Trade |
| Date: | 2019–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:19/02&r=all |
| By: | Douadia Bougherara (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Laurent Piet (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRA - Institut National de la Recherche Agronomique - AGROCAMPUS OUEST) |
| Abstract: | A growing number of studies in finance and economics seek to explain insurance choices using the assumptions advanced by behavioral economics. One recent example in agricultural economics is the use of cumulative prospect theory (CPT) to explain farmer choices regarding crop insurance coverage levels (Babcock, 2015). We build upon this framework by deriving willingness to pay (WTP) for insurance programs under alternative assumptions, thus extending the model to incorporate farmer decisions regarding whether or not to purchase insurance. Our contribution is twofold. First, we study the sensitivity of farmer WTP for crop insurance to the inclusion of CPT parameters. We find that loss aversion and probability distortion increase WTP for insurance while risk aversion decreases it. Probability distortion in losses plays a particularly important role. Second, we study the impact of yield distribution skewness on farmer WTP assuming CPT preferences. We find that WTP decreases when the distribution of yields moves from negatively- to positively-skewed and that the combined effect of probability weighting in losses and skewness has a large negative impact on farmer WTP for crop insurance. |
| Keywords: | skewness,Crop Insurance,Cumulative Prospect Theory,premium subsidy |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01947417&r=all |
| By: | Anna Bogomolnaia; Herve Moulin; Fedor Sandomirskiy |
| Abstract: | A fixed set of $n$ agents share a random object: the distribution $\mu$ of the profile of utilities is IID across periods, but arbitrary across agents. We consider a class of online division rules that learn the realized utility profile, and only know from $\mu$ the individual expected utilities. They have no record from past realized utilities, and do not know either if and how many new objects will appear in the future. We call such rules prior-independent. A rule is fair if each agent, ex ante, expects at least $1/n$-th of his utility for the object if it is a good, at most $1/n$-th of his disutility for it if it is a bad. Among fair prior-independent rules to divide goods (bads) we uncover those collecting the largest (lowest) total expected (dis)utility. There is exactly one fair rule for bads that is optimal in this sense. But for goods, the set of optimal fair rules is one dimensional. Both in the worst case and in the asymptotic sense, our optimal rules perform much better than the natural Proportional rule (for goods or for bads), and not much worse than the optimal fair prior-dependent rule that knows the full distribution $\mu$ in addition to realized utilities. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.10361&r=all |
| By: | Balcombe, Kelvin; Fraser, Iain; Williams, Louis; McSorley, Eugene |
| Abstract: | We investigate the relationship between visual attention and attendence with the rate of "preference reversals" in a discrete choice experiment (DCE) that employed eyetracking. We nd that visual attention and attendance, counter to our initial expectations, is positively related to the rate of preference reversal. Our results indicate that moderately low levels of visual attention should not be used as a way of identifying individuals with low levels of engagement, nor should preference reversals necessarily be assumed to indicate low levels of participant engagement. We nd that those reversing preferences do not substantively di¤er from the rest of the population in terms of their underlying preferences. Rather, these respondents spend longer looking at tasks that are similar in terms of utility, so more complex, and as a result these respondents are more uncertain of the choice to make. |
| Keywords: | Research and Development/Tech Change/Emerging Technologies |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare19:285050&r=all |
| By: | Mark Schneider (Economic Science Institute, Chapman University and University of Alabama); Jonathan W. Leland (National Science Foundation) |
| Abstract: | The axioms of expected utility and discounted utility theory have been tested extensively. In contrast, the axioms of social welfare functions have only been tested in a few questionnaire studies involving choices between hypothetical income distributions. In this note, we conduct a controlled experiment with 100 subjects in the role of social planners that tests ve fundamental properties of social welfare functions to provide a basic test of cardinal social choice theory. We nd that four properties of the standard social welfare functions tested are systematically violated, producing an Allais paradox, a common ratio eect, a framing eect, and a skewness eect in social choice. We also develop a model of salience based social choice which predicts these systematic deviations and highlights the close relationship between these anomalies and the classical paradoxes for risk and time. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:19-08&r=all |
| By: | Philippe Le Coent (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Raphaële Preget (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Sophie Thoyer (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | This article analyses the role played by social norms in farmers' decisions to enroll into an agri-environmental scheme (AES). First, it develops a simple theoretical model highlighting the interplay of descriptive and injunctive norms in farmers' utility functions. Second, an empirical valuation of the effect of social norms is provided based on the results of a stated preference survey conducted with 98 wine-growers in the South of France. Proxies are proposed to capture and measure the weight of social norms in farmers' decision to sign an agri-environmental contract. Our empirical results indicate that the injunctive norm seems to play a stronger role than the descriptive norm. |
| Keywords: | agri-environmental contracts,behaviour,social norms |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:halshs-01936004&r=all |
| By: | Brice Magdalou (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | We establish an equivalence theorem between (i) dominance of one society by another, according to a finite sequence of social welfare improving transfers and (ii) dominance according to a class of social welfare functions, in the following framework: individual outcomes are multidimensional but finitely divisible in each dimension, a distribution simply counts the number of individuals having each possible outcome, and the considered set of transfers has the structure of a discrete cone. This framework encompasses most of the social welfare improving transfers investigated in the literature such as, for instance, Pigou-Dalton progressive transfers. As by-products, our model sheds new light on some surprising results in the literature on social deprivation, and provides new arguments on the key role of the expected utility model in decision-making under risk. |
| Keywords: | welfare-improving transfers,stochastic dominance.,inequality,social welfare |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01975452&r=all |
| By: | Malakhov, Sergey |
| Abstract: | If the time horizon for consumption is divided between labor, search, and leisure, the search represents any activity, which decreases labor costs of the purchase price. The search costs are allocated between pre-purchase search and after-purchase treatment of the bought item, including shopping and home production. While these activities reduce leisure time and might be pleasurable, the search does not enter directly into the consumption-leisure utility function. The search determines the equilibrium price reduction, which creates marginal savings on purchase and serves as the part of the budget constraint to the optimal consumption-leisure choice under the equilibrium price dispersion. In this way the search provides both the consumption-leisure substitutability and complementarity. The income elasticity of demand produces the trade-off between efficiency and pleasure for both pre-purchase search and after-purchase treatment. The search for inelastic demand is very efficient in malls while the search for elastic demand is more pleasurable either like the habit of leisurely shopping in boutiques or in the form of the willingness to take care of purchased big-ticket items. The trade-off between efficiency and pleasure of the after-purchase treatment including home production becomes clear on the analytical level of the attributes of the purchased item when the demand for cars is analyzed as the demand for mileage, the demand for trees in gardening is observed like the demand for fruits, and the demand for vinyl disks depends on number of records of songs and symphonies. The income elastic demand of attributes hides the shift from the “common model” of behavior to the “leisure model” when consumers purchase excessive and unnecessary quantity of attributes that gets the negative marginal utility of consumption. |
| Keywords: | : consumption-leisure substitutability, search, home production, equilibrium price dispersion, income elasticity of demand, willingness to take care of big-ticket items |
| JEL: | D11 D83 |
| Date: | 2019–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92971&r=all |
| By: | Kyung Hwan Baik; Subhasish M. Chowdhury; Abhijit Ramalingam |
| Abstract: | We experimentally investigate the effects of conflict budget on conflict intensity. We run a between-subjects Tullock contest in which we vary the contest budget from Low to Medium to High, while keeping the risk-neutral Nash equilibrium bid the same. We find a non-monotonic relationship: bids increase when the budget increases from Low to Medium, but decrease when the budget further increases from Medium to High. This can happen for players with concave utility, if a high budget has a wealth effect that reduces the marginal utility of winning resulting in lower bids. To test this, we run a Wealth treatment in which the budget remains the Medium, but contestants receive a fixed payment (as wealth) independent of the contest outcome. The bids in the Wealth treatment are lower than the Medium treatment, but are not different from the High treatment, supporting the hypothesis of a wealth effect. We then support this empirical observation by a theoretical model with risk-aversion. Key Words: Conflict; Experiment; Budget constraint; Wealth effect |
| JEL: | C72 C91 D72 D74 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:19-06&r=all |
| By: | Dertwinkel-Kalt, Markus; Köster, Mats |
| Abstract: | Whether people seek or avoid risks on gambling, insurance, asset, or labor markets crucially depends on the skewness of the underlying probability distribution. In fact, people typically seek positively skewed risks and avoid negatively skewed risks. We show that salience theory of choice under risk can explain this preference for positive skewness, because unlikely, but outstanding payoffs attract attention. In contrast to alternative models, however, salience theory predicts that choices under risk not only depend on the absolute skewness of the available options, but also on how skewed these options appear to be relative to each other. We exploit this fact to derive novel, experimentally testable predictions that are unique to the salience model and that we find support for in two laboratory experiments. We thereby argue that skewness preferences - typically attributed to cumulative prospect theory - are more naturally accommodated by salience theory. |
| Keywords: | Salience Theory,Cumulative Prospect Theory,Skewness Preferences |
| JEL: | D81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:310&r=all |
| By: | Jordà, Òscar; Schularick, Moritz; Taylor, Alan M. |
| Abstract: | The risk premium puzzle is worse than you think. Using a new database for the U.S. and 15 other advanced economies from 1870 to the present that includes housing as well as equity returns (to capture the full risky capital portfolio of the representative agent), standard calculations using returns to total wealth and consumption show that: housing returns in the long run are comparable to those of equities, and yet housing returns have lower volatility and lower covariance with consumption growth than equities. The same applies to a weighted total-wealth portfolio, and over a range of horizons. As a result, the implied risk aversion parameters for housing wealth and total wealth are even larger than those for equities, often by a factor of 2 or more. We find that more exotic models cannot resolve these even bigger puzzles, and we see little role for limited participation, idiosyncratic housing risk, transaction costs, or liquidity premiums. |
| Keywords: | Consumption-based asset pricing; Equity premium; housing premium; risk aversion |
| JEL: | E44 G12 G15 N20 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13595&r=all |
| By: | Thomas Dohmen; Simone Quercia; Jana Willrodt |
| Abstract: | We show that the disposition to focus on favorable or unfavorable outcomes of risky situations affects willingness to take risk as measured by the general risk question. We demonstrate that this disposition, which we call risk conception, is strongly associated with optimism, a stable facet of personality, and that it predicts real-life risk taking. The general risk question captures this disposition alongside pure risk preference. This likely contributes to the predictive power of the general risk question across domains. Our results also rationalize why risk taking is related to optimism. |
| Keywords: | Risk taking behavior,optimism,preference measure,risk conception |
| JEL: | D91 C91 D81 D01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp1026&r=all |
| By: | Hagenhoff, Tim; Lustenhouwer, Joep |
| Abstract: | We analyze differences in consumption and wealth that arise because of different degrees of rationality of households. In particular, we use a standard New Keynesian model and let a certain fraction of households be fully rational while the other fraction possesses less cognitive ability. We identify the rationality bias of boundedly rational agents, defined as a deviation from the fully rational benchmark, as the driver of consumption and wealth heterogeneity. It turns out that the rationality bias can be decomposed into three individual components: the consumption expectation bias, the real interest rate bias and the preference shock expectation bias. We show that for certain specifications of monetary policy the rationality bias can be eliminated because its individual components exactly offset each other although they are individually non-zero. However, it might not be desirable from a welfare perspective to eliminate the rationality bias as this comes along with high inflation volatility. |
| Keywords: | heterogeneous expectations,bounded rationality,consumption and wealth heterogeneity,monetary policy |
| JEL: | E32 E52 D84 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:144&r=all |
| By: | Jorda, Oscar (Federal Reserve Bank of San Francisco); Schularick, Moritz (University of Bonn); Taylor, Alan M. (University of California, Davis;) |
| Abstract: | The risk premium puzzle is worse than you think. Using a new database for the U.S. and 15 other advanced economies from 1870 to the present that includes housing as well as equity returns (to capture the full risky capital portfolio of the representative agent), standard calculations using returns to total wealth and consumption show that: housing returns in the long run are comparable to those of equities, and yet housing returns have lower volatility and lower covariance with consumption growth than equities. The same applies to a weighted total-wealth portfolio, and over a range of horizons. As a result, the implied risk aversion parameters for housing wealth and total wealth are even larger than those for equities, often by a factor of 2 or more. We find that more exotic models cannot resolve these even bigger puzzles, and we see little role for limited participation, idiosyncratic housing risk, transaction costs, or liquidity premiums. |
| JEL: | E44 G12 G15 N20 |
| Date: | 2019–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-10&r=all |
| By: | Geert Bekaert; Eric C. Engstrom; Nancy R. Xu |
| Abstract: | We develop measures of time-varying risk aversion and economic uncertainty that are calculated from financial variables at high frequencies. We formulate a dynamic no-arbitrage asset pricing model for equities and corporate bonds. The joint dynamics among asset-specific cash flows, macroeconomic fundamentals and risk aversion feature heteroskedasticity and non-Gaussianity. Variance risk premiums on equity are very informative about risk aversion, whereas credit spreads and corporate bond volatility are highly correlated with economic uncertainty. Model-implied risk premiums outperform standard instruments for predicting excess returns on equity and corporate bonds. A financial proxy to our economic uncertainty predicts output growth significantly negatively. |
| JEL: | C01 G10 G12 G13 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25673&r=all |
| By: | Benyam, Addis; Rolfe, John; Kinnear, Susan |
| Abstract: | The cost of disposing domestic food waste (DFW) in open landfills is a significant financial expenditure for most Councils in regional Australia. However, there is little information about the extent that householders value the environmental goods and services that are impacted by DFW disposal. This paper presents non-market valuations for a hypothetical kerbside domestic food waste collection service from a household survey in two local government areas in the Central Queensland region. Choice modelling (CM) and contingent valuation method (CVM) were employed to elicit and estimate willingness to pay (WTP) of the community for a DFW collection service. In the CM exercise, latent class analysis results for the sub-groups supporting an improvement option revealed that the respondents’ utility increased by $4.13 for lifespan expansion of the local landfill. On the contrary, the group had $3.05 and $0.28 utility declines for a fortnightly DFW collection service and an increase in the rate of methane emission from DFW disposal, respectively. For the status quo group, utility increased by $5.05 for a landfill lifespan extension but decreased by $16.26 for potential odour from the collection bins. Under the CVM exercise, a Multilogit estimator model for the overall sample population showed a WTP of $30.42 for the service, with 58% participation rate in the improvement option. This valuation study provides policy insights on the importance of full-cost accounting of environmental goods and services attributes, which is useful information for future implementation of voluntary or mandatory DFW diversion schemes. |
| Keywords: | Consumer/Household Economics |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare19:285074&r=all |
| By: | Graham, Victoria; Fleming, Christopher M; Smart, James CR |
| Abstract: | The Southport Spit, as a relatively green and open space at the northern end of the Gold Coast beaches, is under continual development pressure and has been subject to a number of contentious development proposals over the past 50 years. In order to better understand the preferences of Gold Coast residents for the future of the site, we employ a survey-based method known as choice experiments. This is a method whereby respondents are asked to choose between alternative outcomes, described in terms of their attributes and the levels these take. Development alternatives were described in terms of four attributes: development focus (cruise ship terminal, casino, neither or both), height of future development (low-, medium- or high-rise), extent of developed space (25%, 50% or 75% of the available footprint) and open space preservation and recreational space charge ($70, $50, $35, $20, $10, $0). We received 345 usable responses to our online survey, with results revealing three distinct segments within the community. Approximately 45% of the sample were labelled ‘pro-conservation’ and are opposed to the idea of both a cruise ship terminal and casino being developed, prefer the maximum three-storey (low-rise) development limits to be retained and oppose the extent of developed space increasing to 75% of the available footprint. Approximately 33% of the sample were labelled ‘pro-development’ and are in favour of all three development options, prefer medium-rise over low- and high-rise options, and have no clear preferences for the extent of developed space. Approximately 22% of the sample were labelled ‘middle ground’ and reveal a slight preference for a cruise ship terminal, prefer low-rise development and an increase in the extent of developed space to 50% of the available footprint. In all, our results suggest there is some level of community support for the development of a cruise ship terminal, but far less support for a casino. |
| Keywords: | Community/Rural/Urban Development |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare19:285079&r=all |
| By: | KONDO Keisuke |
| Abstract: | This study measures the disutility of long-distance commuting by structurally estimating a gravity model of inter-municipal commuting flows in Japan. Structural estimation based on the random utility model allows for the quantification of the extent to which workers incur disutility from commuting. Counterfactual results clarify that commuting disutility differs significantly across male and female workers at each stage of their lives even if they commute the same distance. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:19014&r=all |
| By: | Mickaël Beaud (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Mathieu Lefebvre (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Julie Rosaz (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper investigates if and how other-regarding preferences governing giving decisions in dictator games are affected in risky environments in which the payoff of the recipient is random. We demonstrate that, whenever the risk is actuarially neutral, the donation of dictators with a purely ex post view of fairness should, in general, be affected by the riskyness of the recipient's payoff, while dictators with a purely ex ante view should not be. Our experimental data show no statistically significant impact of the recipient's risk exposure on dictators' giving decisions and, therefore, give weak empirical support to the purely ex post view of fairness. This result appears to be robust to both the experimental design (within or between subjects) and to the origin of the recipient's risk exposure (chosen by the recipient or imposed to the recipient). |
| Keywords: | inequality aversion,impure altruism,background risk,ex ante and ex post views of fairness,laboratory experiments dictator games,otherregarding preferences |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01954928&r=all |
| By: | James Andreoni; Amalia Di Girolamo; John List; Claire Mackevicius; Anya Samek |
| Abstract: | We conduct experiments eliciting risk preferences with over 1,400 children and adolescents aged 3-15 years old. We complement our data with an assessment of cognitive and executive function skills. First, we find that adolescent girls display significantly greater risk aversion than adolescent boys. This pattern is not observed among young children, suggesting that the risk gap in risk preferences emerges in early adolescence. Second, we find that at all ages in our study, cognitive skills (specifically math ability) are positively associated with risk taking. Executive functions among children, and soft skills among adolescents, are negatively associated with risk taking. Third, we find that greater risk-tolerance is associated with higher likelihood of disciplinary referrals, which provides evidence that our task is equipped to measure a relevant behavioral outcome. For academics, our research provides a deeper understanding of the developmental origins of risk preferences and highlights the important role of cognitive and executive function skills to better understand the association between risk preferences and cognitive abilities over the studied age range. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:feb:artefa:00668&r=all |
| By: | Hubert J. Kiss (Centre for Economic and Regional Studies Hungarian Academy of Sciences and Department of Economics, Eötvös Loránd University); Laszlo A. Koczy (Centre for Economic and Regional Studies Hungarian Academy of Sciences, and Faculty of Economic and Social Sciences, Budapest University of Technology and Economics); Agnes Pinter (Department of Economic Analysis, Universidad Autónoma de Madrid); Balazs R. Sziklai (Centre for Economic and Regional Studies Hungarian Academy of Sciences, and Faculty of Economics, Corvinus University Budapest) |
| Abstract: | A recent stream of experimental economics literature studies the factors that contribute to the emergence of financial bubbles. We consider a setting where participants sorted according to their degree of risk aversion trade in experimental asset markets. We show that risk sorting is able to explain bubbles partially: Markets with the most risk-tolerant traders exhibit larger bubbles than markets with the most risk averse traders. In our study risk aversion does not correlate with gender or cognitive abilities, so it is an additional factor that helps understand bubbles. |
| Keywords: | experiment, risk sorting, asset bubble |
| JEL: | C91 G12 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1905&r=all |
| By: | Blumenstock, Joshua; Chi, Guanghua; Tan, Xu |
| Abstract: | What is the value of a social network? Prior work suggests two distinct mechanisms that have historically been difficult to differentiate: as a conduit of information, and as a source of social and economic support. We use a rich 'digital trace' dataset to link the migration decisions of millions of individuals to the topological structure of their social networks. We find that migrants systematically prefer 'interconnected' networks (where friends have common friends) to 'expansive' networks (where friends are well connected). A micro-founded model of network-based social capital helps explain this preference: migrants derive more utility from networks that are structured to facilitate social support than from networks that efficiently transmit information. |
| Keywords: | Big Data; Development; migration; networks; social capital; Social Networks |
| JEL: | D85 O12 O15 R23 Z13 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13611&r=all |
| By: | Jean-Baptiste Simon Combes; Alain Paraponaris; Yann Videau |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:eru:erudwp:wp19-09&r=all |
| By: | Linda Kleemann (IfW Kiel, Germany); Marie-Catherine Riekhof (ETH Zurich, Switzerland) |
| Abstract: | Decisions involving risk are usually taken in the presence of other insurable or non-insurable risks, the latter type called background risk. We examine how changing background risk influences risk-taking based on panel data with monthly observations from Senegalese fishermen. Fishing income is volatile and income risk depends on weather conditions and on technologies employed. To measure risktaking, we use an incentivized investment task. To measure background risk, we consider long-run wind conditions and a measure based on comparing standardized monthly income deviations from the yearly individual mean. We find that the latter measure that controls for technology choices and thus takes conscious reduction of risk exposure into account has a significant impact when overall fishing income is below average. Then, higher income risk increases risk-taking, suggesting intemperate behavior in low-income situations. This effect is stronger for poorer fishermen, highlighting the need for safety nets. |
| Keywords: | risk-taking, background risk, temperance, investment, fisheries, Senegal |
| JEL: | C93 D81 O12 O13 Q22 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:18-301&r=all |
| By: | Notheisen, Benedikt; Weinhardt, Christof |
| Abstract: | Despite a growing interest, researchers and practitioners still struggle to transfer the blockchain concept introduced by Bitcoin to market-oriented application scenarios. To shed light on the technology's usage in markets with asymmetric information, this study analyzes the effect of the blockchain's public transparency paradigm on behavioral patterns and market outcomes. In line with prior research, our findings indicate that the blockchain's shared record mitigates adverse selection effects and reduces moral hazard of good market participants (plums). In addition, we identify an incentive for bad market participants (lemons) to behave opportunistically in the presence of perfect quality information. More specifically, the disclosed information allows them to learn about quality differences between plums and lemons, deceive their counterparties, and move to a new equilibrium with increased utility. As a result, the market collapses despite a welfare gain and future generations are denied market access. In addition, plums and lemons are committed to inefficient equilibria following irrational behavior. In total, this study aims to provide initial guidance for blockchain adoption in the context of markets with information asymmetries and highlights risks that arise from competition, the exposure to irrational behavior, and the implementation of services on the infrastructure level. |
| Keywords: | Blockchain,Transparency,Market for Lemons,FinTech,Moral Hazard,Information Sharing,Credit Markets |
| JEL: | D53 D82 G21 L86 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:130&r=all |
| By: | Frederik Schwerter; Florian Zimmermann |
| Abstract: | Social interactions pervade daily life and thereby create an abundance of social experiences. Such personal experiences likely shape what we believe and who we are. In this paper, we ask if and how personal experiences from social interactions determine individuals’ inclination to trust others? We implement an experimental environment that allows us to manipulate prior social experiences—either being paid or not being paid by a peer subject for a task—and afterwards measure participant’s willingness to trust others. We contrast this situation with a control condition where we keep all aspects of the prior experiences identical, except that we remove the social dimension. Our key finding is that after positive social experiences, subjects’ willingness to trust is substantially higher relative to subjects who made negative social experiences. No such effect is obtained in the control condition where we removed the social aspect of experiences. Findings from a difference-in-difference analysis confirm this pattern. Our results cannot be explained by rational learning, income effects, pay or social comparison related mood, disappointment aversion and expectations-based or social reference points. Delving into the underlying mechanisms, we provide evidence that non-standard belief patterns are an important driver of experience effects. |
| Keywords: | determinants of trust, experiences, beliefs, non-standard learning, experiments |
| JEL: | C91 D03 D81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7545&r=all |
| By: | Neha Deopa (IHEID, Graduate Institute of International and Development Studies, Geneva); Daniele Rinaldo (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | We present a model of firm investment under uncertainty and partial irreversibility in which uncertainty is represented by a jump diffusion. This allows to represent both the continuous Gaussian volatility and the discontinuous uncertainty related to information arrival, sudden changes and large shocks. The model shows how both sources of uncertainty negatively impact the optimal investment and disinvestment policies, and how the presence oflarge negative jumps can drastically affect the firm’s ability to recover. Our results show that the standard Gaussian framework consistently underestimates the negative effect of uncertainty on firm investment decisions. We test these predictions on a panel dataset of UK firms: we first structurally estimate the uncertainty parameters using multinomial maximum likelihood and differential evolution techniques and subsequently study their impact on firm investment rates, validating our model predictions. |
| Keywords: | firm investment, uncertainty, jump diffusions, partial irreversibility, real options |
| JEL: | C61 C62 D21 D22 D8 |
| Date: | 2019–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp04-2019&r=all |
| By: | Boris Hofmann; Ilhyock Shim; Hyun Song Shin |
| Abstract: | In emerging market economies, currency appreciation goes hand in hand with compressed sovereign bond spreads, even for local currency sovereign bonds. This yield compression comes from a reduction in the credit risk premium. Crucially, the relevant exchange rate involved in yield compression is the bilateral US dollar exchange rate, not the trade-weighted exchange rate. Our findings highlight endogenous co-movement of bond risk premia and exchange rates through the portfolio choice of global investors who evaluate returns in dollar terms. |
| Keywords: | bond spread, capital flow, credit risk, emerging market, exchange rate |
| JEL: | G12 G15 G23 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:775&r=all |
| By: | Pahlke, Marieke (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | Beauchêne, Li, and Li (2019) show that ambiguous persuasion leads to new interim equilibria with higher ex ante value for the Sender compared to the standard Bayesian persuasion. However, in their equilibrium the strategy of the Receiver is in general not ex ante optimal. This note, de fines rectangular beliefs over the full state space in the same setting as Beauchêne et al. (2019) and shows that given rectangular be- liefs the Receiver behaves dynamically consistent. Hence, the interim equilibrium of Beauchêne et al. (2019) is an ante equilibrium, as well. |
| Keywords: | Bayesian Persuasion, Ambiguity Aversion, Dynamic Consistency |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:611&r=all |
| By: | William Brock; Anastasios Xepapadeas |
| Abstract: | We study climate change policies using the novel pattern scaling approach of regional transient climate response, to develop a regional economy-climate model under conditions of deep uncertainty associated with: (i) temperature dynamics, (ii) regional climate change damages, and (iii) policy in the form of carbon taxes. We analyze cooperative and noncooperative outcomes. Under deep uncertainty, robust control policies are more conservative regarding emissions, the higher the aversion to ambiguity is, while damage uncertainty seems to produce more conservative behavior than climate dynamics uncertainty. As concerns about uncertainty increase, cooperative and noncooperative policies tend to move close together. Asymmetries in concerns about uncertainty tend to produce large deviations in regional emissions policy at the noncooperative solution. We calculate the cost of robustness in terms of welfare. If aversion to ambiguity is suciently high, optimal regulation might not be possible. The result is associated with the existence of regional hot spots and temperature spillovers across regions, a situation which emerges in the real world. In such cases, deep uncertainty about the impacts of climate change makes robust regulation infeasible. We show that, if resources are devoted to learning, which reduces uncertainty concerns, robust regulation is facilitated. |
| Keywords: | Regional temperature anomalies, Deep uncertainty, Cooperative solution solutions, Robust Open Loop Nash Equilibrium, Cost of Robustness, Learning |
| JEL: | Q54 Q58 D81 |
| Date: | 2019–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1903&r=all |
| By: | Hans Gersbach (ETH Zurich, Switzerland); Akaki Mamageishvili (ETH Zurich, Switzerland); Oriol Tejada (ETH Zurich, Switzerland) |
| Abstract: | We analyze Assessment Voting, a new two-round voting procedure that can be applied to binary decisions in democratic societies. In the first round, a randomly-selected number of citizens cast their vote on one of the two alternatives at hand, thereby irrevocably exercising their right to vote. In the second round, after the results of the first round have been published, the remaining citizens decide whether to vote for one alternative or to abstain. The votes from both rounds are aggregated, and the final outcome is obtained by applying the majority rule, with ties being broken by fair randomization. Within a costly voting framework, we show that large electorates will choose the preferred alternative of the majority with high probability, and that average costs will be low. This result is in contrast with the literature on one-round voting, which predicts either higher voting costs (when voting is compulsory) or decisions that often do not represent the preferences of the majority (when voting is voluntary). |
| Keywords: | voting; referenda; rational behavior |
| JEL: | C72 D70 D72 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:17-284&r=all |
| By: | Daniel Horn (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Eötvös Loránd University); Hubert Janos Kiss (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Eötvös Loránd University) |
| Abstract: | We measure risk aversion and patience in a non-incentivized way using a representative sample of the Hungarian adult population. We elicit risk aversion with a task similar to Gneezy and Potters (1997)'s investment game and find that females risk about 8.5 % less than males when we do not consider any additional controls. However, even when we add extensive controls (related to demography, region, family, education, employment, income and wealth) the difference decreases only slightly and remains significant at conventional levels. We carry out the same exercise for patience and document no significant gender differences in any specification. |
| Keywords: | gender differences, patience, representative survey, risk attitude |
| JEL: | D8 J16 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1901&r=all |
| By: | Kate Farrow (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Gilles Grolleau (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier, CEREN - Centre de Recherche sur l'ENtreprise [Dijon] - BSB - Burgundy School of Business (BSB) - Ecole Supérieure de Commerce de Dijon Bourgogne (ESC)); Lisette Ibanez (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | Social norm interventions represent a low-cost and effective policy tool that have been shown to generate behaviour change in a number of contexts. We investigate whether valence framing impacts the effectiveness of a social norm intervention on prosocial behaviour. We use Amazon Mechanical Turk in conjunction with oTree to conduct an experiment in which we manipulate descriptive beliefs and original endowments in the context of a dictator game. We find that the impact of a social norm intervention appears to be significantly greater in a frame of negative valence vs. a frame of positive valence. Loss aversion and positional preferences could play a role in these findings. Regression results furthermore indicate a differences in the determinants of allocation decisions across frames, suggesting that normative beliefs matter more in a positive frame, whereas descriptive beliefs matter more in a negative frame. This work contributes to a better understanding of framing effects as well as the conditions under which normative considerations are most salient. On a practical level, it points to an opportunity for policymakers to substantially improve upon the design of social norm interventions |
| Keywords: | social information,social norms,behavioral intervention,framing |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01954927&r=all |
| By: | Alberini, Anna; Gans, Will; Towe, Charles |
| Abstract: | We use a unique dataset that combines the responses from an original survey of households, information about the structural characteristics of their homes, utility-provided longitudinal electricity usage records, plus utility program participation information, to study the uptake of energy efficiency incentives and their effect on residential electricity consumption. Attention is restricted to homes where heating and cooling are provided exclusively by heat pumps, which are common in our study area—four counties in Maryland—and were covered by federal, state and utility incentives during our study period (2007-2012). We deploy a difference-in-difference study design. We find that replacing an existing heat pump with a new one does reduce electricity usage: the average treatment effect is an 8% reduction. However, the effect differs dramatically across households based upon whether they receive an incentive towards the purchase of a new heat pump. Among those that receive the purchase incentive, the effect is small or nil, and indeed, the larger the incentive, the smaller the reduction in electricity usage. Those that do not receive incentives reduce usage by about 16%. Our results appear to be driven by the numerous free riders in our sample and by persons who—inferred from their responses to survey questions—might be exploiting the subsidy to purchase a larger system and increase usage, with no emissions reductions benefits to society. |
| Keywords: | Resource /Energy Economics and Policy |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemer:158739&r=all |
| By: | Oumar Mbodji (Department of Mathematics and Statistics, McMaster University, Hamilton, Canada); Adrien Nguyen Huu (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Traian A. Pirvu (Department of Mathematics and Statistics, McMaster University, Hamilton, Canada) |
| Abstract: | We study an intra-household decision process in the Merton financial portfolio problem.This writes as an optimal consumption-investment problem in finite horizon for the case of two separate consumption streams and a shared final wealth, in a linear social welfare setting. We show that the aggregate problem for multiple agents can be linearly separated in multiple optimal single agent problems given an optimal sharing rule of the initial endowment. Consequently, an explicit closed form solution is obtained for each subproblem, and for the household as a whole. We show the impact of asymmetric risk aversion and market price of risk on the sharing rule in a specified setting with mean-reverting price of risk, with numerical illustration. |
| Keywords: | household decision,Portfolio optimization,market price of risk,martingale techniques,time inconsistency,C61 (secondary),portfolio management,optimal consumption,martingale tech-niques JEL: G11 (primary) |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-00940233&r=all |
| By: | Julia Blasch (Institute for Environmental Studies (IVM), VU University Amsterdam); Claudio Daminato (ETH Zurich, Switzerland) |
| Abstract: | The literature on the energy-efficiency gap discusses the status-quo bias as a behavioral anomaly that potentially increases the energy consumption of a household through at least three channels: (1) by making consumers keep their energy-using durables as long as possible, until wearout forces them to replace their equipment (2) by making consumers choose new energy-using durables that resemble the existent ones that need replacement, and (3) by making consumers overuse appliances in an attempt to mentally amortize the initial investment cost. The results presented in this study are an attempt to empirically investigate the extent to which the presence of a bias towards the status quo is linked to residential electricity consumption through two out of the above mentioned three channels: non-replacement of old appliances and overuse of appliances. Using data from a large household survey conducted in three European countries, we find that our measure of status-quo bias is a significant predictor of both the age of home appliances as well as the level of consumption of energy services of a household. The tendency of status-quo biased individuals to keep their appliances longer and to use them more intensely is also reflected in the total electricity consumption of their households, which is found to be around 5.7% higher than for households of non-biased individuals. This research thus provides some first empirical evidence that the status-quo bias has the potential to create a substantial barrier to increasing residential energy efficiency. Our findings prompt policy makers to design instruments that take this barrier into account. |
| Keywords: | status-quo bias; loss aversion; appliances replacement; residential energy consumption; energy-related financial literacy |
| JEL: | D12 D91 Q41 Q50 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:18-300&r=all |
| By: | Jean-Baptiste Combes (EHESP-ARENES - EHESP-ARENES - EHESP - École des Hautes Études en Santé Publique [EHESP], Institut Convergences Migrations - Collège de France); Alain Paraponaris (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, ORS PACA - Observatoire régional de la santé Provence-Alpes-Côte d'Azur [Marseille]); Yann Videau (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Delegating tasks to paramedics is a fairly recent development in France. So far it has essentially been developed in hospitals and is incipient in general practice. This paper focuses on the willingness of general practitioner to do so. A 2012 survey of 2,000 GPs might help anticipate GPs' willingness to delegate. This paper tests whether a more favourable funding system might help increase GP willingness. We implement a quasi-experimental design wherein GPs are randomly selected to form three groups of equal size, each of them being exposed to a different funding scheme when declaring their willingness to delegate tasks to nurses: Fully Funded (FF) by the social security administration, self-funded by GPs' revenues (Self-Funded, SF) and half-funded by both the social security administration and GPs (Half-Funded, HF). GPs' likelihood to favour task delegation is estimated with a probit model that especially considers a GP's attitude towards risk (aversion or tolerance) among a set of covariates, such as age, gender, rural/urban area, GP density and funding scheme. This article shows that, first, GPs are more likely to favour delegation, when they share a lower proportion of the cost. Second, the effect of risk aversion on the likelihood of favouring delegation is not altered by the funding scheme. |
| Keywords: | financial incentives,skill mix,task shifting,risk aversion |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02071522&r=all |
| By: | Sarwosri, Arieska |
| Abstract: | Even though oil palm is not a native cash crop in Indonesia, the cultivation of oil palm is rapidly developed by smallholder farmers. This study examines if the adoption of oil palm is reasoned in underlying economic preferences. We utilized an incentivized field experiment to elicit smallholders’ risk attitude and discount rate and estimated both preferences jointly. The field experiments included 636 smallholders from Sumatra Island, Indonesia. We compared the risk attitude and discount rate of the oil palm adopters to non-adopters, i.e., rubber smallholders which is the main alternative cash crop of oil palm. We found that adopters are more risk-averse compared to non-adopters. Furthermore, the finding also confirms that risk-averse farmers diversify cultivated crops to mitigate income risks from agriculture. However, we do not find statistically significant differences in the discount rates between the two groups. |
| Keywords: | Risk and Uncertainty |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare19:285091&r=all |
| By: | Lucas Bretschger (ETH Zurich, Switzerland); Alexandra Vinogradova (ETH Zurich, Switzerland) |
| Abstract: | Climate economics has been criticized for ignoring uncertainty, catastrophic changes, and tipping points (Stern 2016). The present paper addresses these issues. We consider multiple climate shocks which are recurring, random, uninsurable, and potentially large. The associated damages and the hazard rate are endogenously driven by the stock of greenhouse gases. We provide closed-form solutions for the optimal climate policy and the growth rate of the economy. The optimal path is characterized by a constant growth rate of consumption and of the capital stock until a shock arrives, triggering a downward jump in both variables. The mitigation policy consists of a simple and intuitive rule which requires spending a constant fraction of output on emissions abatement. In a quantitative assessment we show that under favorable conditions the abatement expenditure represents 0.5% of output, equivalent to $37 per ton carbon. Under less favorable conditions with respect to abatement technology and damages, coupled with a relative risk aversion which exceeds unity, the abatement propensity increases to 2.9%, equivalent to $212 per ton carbon, and it jumps to a striking 10% in the pessimistic scenario involving severe shocks and a possible crossing of a tipping point. |
| Keywords: | Climate policy, uncertainty, natural disasters, endogenous growth |
| JEL: | O10 Q52 Q54 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:18/2891&r=all |
| By: | Mamadou Gueye (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Nicolas Querou (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Raphaël Soubeyran (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | In this paper, we use a laboratory experiment to analyze the relationship between equity and coordination success in a game with Pareto ranked equilibria. Equity is decreased by increasing the coordination payoffs of some subjects while the coordination payoffs of others remain unchanged. Theoretically, in this setting, difference aversion may lead to a positive relationship between equity and coordination success, while social welfare motivations may lead to a negative relationship. Using a within-subject experimental design, we find that less equity unambiguously leads to a higher level of coordination success. Moreover, this result holds even for subjects whose payoffs remain unchanged. Our results suggest that social welfare motivations drives the negative relationship between equity and coordination success found in this experiment. Moreover, our data suggest that the order of treatment matters. Groups facing first the treatment with high inequality in coordination payoffs, then the treatment with low inequality in coordination payoffs, reach the Pareto dominant equilibrium more often in both treatments compared to groups playing first the treatment with low inequality in coordination payoffs, then the treatment with high inequality in coordination payoffs. |
| Keywords: | effciency,social welfare motivation,equity,coordination game,difference aversion |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01947414&r=all |
| By: | Tristan Le Cotty (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Elodie Maitre d'Hotel (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - CIHEAM - Centre International des Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Raphaël Soubeyran (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Julie Subervie (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier) |
| Abstract: | In January 2013, we collected data from 653 farmers in Burkina Faso, whowere asked hypothetical questions about risk aversion and time discounting. Ten months later, these farmers were offered the opportunity to participate in an inventory credit system, also called warrantage, in which they receive a loan in exchange for storing a portion of their harvest as a physical guarantee in one of the newly-built warehouses of the program. We found that farmers who exhibit stronger hyperbolic preferences are significantly more likely to participate in the warrantage system than other, otherwise similar, farmers. We interpret this result as evidence that farmers use warrantage as a means to commit to saving a portion of their crop until the lean season, which may improve their capacity to ensure the food security of their household |
| Keywords: | inventory credit,commitment savings,hyperbolic discounting. |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01947421&r=all |