INCOMPLETE INFORMATION STRENGTHENS THE EFFECTIVENESS OF SOCIAL APPROVAL

We present a theoretical model of a public good game in which the expression of social approval induces pro‐social behavior. Using a laboratory experiment with earned heterogeneous endowments, we test our model. The main hypothesis is that the expression of social approval increases cooperative behavior even if reputation building is impossible. We vary the information available and investigate how this affects the expression of social approval and individual contributions. The expression of social approval significantly increases contributions. However, the increase is smaller if additional information is provided, suggesting that social approval is more effective if subjects receive a noisy signal about others' contributions. (JEL C72, C91, D71, D83)     

DETERMINANTS OF TRADE AND SPECIALIZATION IN THE ORGANISATION FOR ECONOMIC CO‐OPERATION AND DEVELOPMENT COUNTRIES

This paper empirically investigates the relative importance of productivity, factor endowments, trade costs, and tastes in determining the current pattern of trade and specialization. The results show that productivity and taste differences are the first and second most significant determinants of trade and specialization. Factor endowments are the least influential for the average country in the data set, but their effects are much greater in the poorer than richer countries. The results also show the substantial role of trade costs, which is amplified through interactions with other determinants of trade. Trade costs affect the relative costs of intermediate inputs and final goods, link preferences with specialization, and reduce the geographical range of comparative advantages. (JEL F1, F10)     

RANK‐ORDER COMPETITION IN THE VOLUNTARY PROVISION OF IMPURE PUBLIC GOODS

Publicly provided goods often create differential payoffs due to timely or spatial distances of group members. We design and test a provision mechanism which utilizes rank competition to mitigate free‐riding in impure public goods. In our Rank‐Order Voluntary Contribution Mechanism (Rank‐Order‐VCM) group members compete via observable contributions for a larger share of the public good; high contributors receive preferential access (a larger share), while low contributors receive restricted access (a lower share). In a laboratory experiment, Rank‐Order‐VCM elicits median contributions equal to the full endowment throughout the finitely played games with constant groups. In the control treatment, with randomly assigned ranks, the contributions are significantly lower and decline over time. We thus provide evidence of rank competition, in situations where discriminatory access to public goods is possible, being efficiency enhancing. (JEL C91, H41)     

LIMITS OF THE EFFECT OF SOCIAL INFORMATION ON THE VOLUNTARY PROVISION OF PUBLIC GOODS: EVIDENCE FROM FIELD EXPERIMENTS

Previous work has demonstrated the effect of social information in the voluntary provision of public goods in the field. In this article, we demonstrate the boundary conditions of the effect. We show that when social information is too extreme, it ceases to influence individual contributions. The results highlight a natural limitation of the social information effect, and provide a characterization of the most effective levels for an organization to use. (JEL M31, H41, D64)     

COMPARING THE EFFECTIVENESS OF REGULATION AND PRO‐SOCIAL EMOTIONS TO ENHANCE COOPERATION: EXPERIMENTAL EVIDENCE FROM FISHING COMMUNITIES IN COLOMBIA

This paper presents the results from a series of framed field experiments conducted in fishing communities off the Caribbean coast of Colombia. The goal is to investigate the relative effectiveness of exogenous regulatory pressure and pro‐social emotions in promoting cooperative behavior in a public goods context. The random public revelation of an individual's contribution and its consequences for the rest of the group leads to significantly higher public good contributions and social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions. (JEL C93, H41, Q20, Q28)     

HISTORY DEPENDENCE AND THE FORMATION OF SOCIAL PREFERENCES: AN EXPERIMENTAL STUDY

We study the minimal contributing set (MCS) game, a three‐person sequential step‐level public goods game. The behavior of critical third players changes with experience in this game even though they face no strategic or payoff uncertainty. We explore why these changes occur by manipulating subjects' experience in the first half of the experiment. The treatments give subjects very different initial experiences, but all treatments move subjects' choices toward experienced subjects' play in the control sessions. Long‐run play is indistinguishable across treatments. Our results are more consistent with the “discovered preferences” hypothesis ( Plott 1996 ) than either the “constructed preference” or “reference point” hypotheses. (JEL H41, C72, C92)     

SALIENCE AND THE GOVERNMENT PROVISION OF PUBLIC GOODS

This paper examines how behavioral biases caused by salient events affect the government provision of public goods. We develop a theory in which competing communities lobby the government for allocations of a local public good. Salient events bias community demands for the good, which results in inefficient allocations. We empirically test this theory using salient wildfires and government projects to reduce wildfire risk. Wildfires reduce risk to nearby communities, but may increase demand for fuels management projects because of biases induced by salient wildfires. We find that communities experiencing recent nearby fires are more likely to receive fuels management projects. (JEL D03, H41, Q24)     

THE COMPOSITION OF GOVERNMENT EXPENDITURE: ECONOMIC CONDITIONS AND PREFERENCES

This paper examines the question of why the composition of government expenditure differs among democratic countries and to what extent it may be explained by differences in economic conditions or preferences. A simple overlapping generations model, which allows for a range of relevant factors, is constructed to examine the division of expenditure on public goods and a transfer payment under majority voting. The model yields a closed‐form solution for the majority choice of the expenditure ratio. An empirical examination suggests that income inequalities play a minor role while different preferences for public goods reflecting cultural differences across countries may play an important role in accounting for the substantial variations in expenditure patterns. (JEL D72, H41, H53, H11)     

PROVIDING GLOBAL PUBLIC GOODS: ELECTORAL DELEGATION AND COOPERATION

This study experimentally examines the effect of electoral delegation on providing global public goods shared by several groups. Each group elects one delegate who can freely decide on each group member's contribution to the global public goods. Our results show that people mostly vote for delegates who assign equal contributions for every group member. However, in contrast to standard theoretical predictions for our delegation mechanism, unequal contributions across groups drive cooperation down over time, and it decreases efficiency by almost 50% compared to the selfish benchmark. This pattern is not driven by delegates trying to exploit their fellow group members, as indicated by theory. It is driven by conditional cooperation of delegates across groups. Since one of the potential sources of the resulting inefficiency is the polycentric nature of global public goods provision together with other‐regarding preferences, we use the term P‐inefficiency to describe our finding. (JEL C92, D72, H41)     

MINIMUM LEVELS AND FRAMING IN PUBLIC GOOD PROVISION

Using a laboratory experiment in the field, we examine how the framing of a social dilemma, give to or take from a public good, interacts with a policy intervention that enforces a minimum contribution level to the public good. We find significantly higher cooperation in the give frame than in the take frame in our standard public goods experiment. When a minimum contribution level is introduced, contributions are crowded out in the give frame but crowded in in the take frame. Our results show the importance of choosing the frame when making policy recommendations. (JEL C91, H41)     

EXPERIMENTAL ANALYSIS OF RISK AND UNCERTAINTY IN PROVISIONING PRIVATE AND PUBLIC GOODS

This paper uses laboratory evidence from public goods games to examine how in payoff-equivalent situations, decision makers contribute toward private or public goods when they are exposed to different kinds of risks and uncertainties in the provision of these goods. We find that location matters with subjects moving away from the environmental uncertainty in favor of strategic uncertainty when that uncertainty is located on the private good. When the uncertainty relates to the public good, subjects face both kinds of uncertainties on the same good, leading to a significant drop in contributions. An opportunity to reduce uncertainty increases cooperation. ( JEL C90, D81, H41)     

ENTRY AND EXIT,PRODUCT VARIETY,AND THE BUSINESS CYCLE

We study the stochastic behavior of a dynamic general equilibrium model with monopolistic competition. Each seller sells his product in the consumption goods as well as the investment goods market and has market power in both. Consumers derive utility from a constant elasticity of substitution (CES) aggregate of all the consumption goods and augment their capital stock by a CES aggregate of all the investment goods. We analyze the equilibrium of this economy allowing for an endogenous determination of the number of firms and therefore of products. The principal effect we wish to highlight is the endogenous propagation and magnification of technology and preference disturbances through product space variations. (JEL E32, D43, L16)     

OFFSHORING AND THE POLARIZATION OF THE DEMAND FOR CAPITAL

In the past decades, the importance of different capital goods has gradually changed, which has led to a structural shift in the composition of the demand for capital at the expense of more traditional capital inputs such as machinery and equipment. In this paper, we focus on a novel driver of this development by analyzing the effect of offshoring on the demand for capital by asset class using a rich country-sector panel dataset. Estimating a system of factor demand equations, we document that offshoring reduces the relative demand for non-ICT capital, thereby polarizing the demand for capital. (JEL F14, F62, E22)     

Enforcement of property rights in a barter economy

If property rights to consumption goods are insecure, the incentives to trade in a barter economy are reshaped. In a pure exchange economy, we examine the case where two contestable consumption goods are vital to two agents and initial endowments follow a binary distribution. In line with the existing literature, we examine in a two-stage game how the equilibrium security of claims to property is determined. We find that, depending on the exogenous preference and appropriation-effectiveness parameters, two different regimes emerge in equilibrium: trade and appropriation, and peaceful coexistence, with the latter regime exhibiting efficiency with respect to the goods traded. However, inefficiencies arise due to the investment in defensive activities necessary to deter appropriation. Thus, we have found an endogenously determined measure for the transaction cost underlying a market which replicates the outcome of a Walrasian market.     

AGRICULTURAL TRANSITION AND THE ADOPTION OF PRIMITIVE TECHNOLOGY

This paper tests Jared Diamond's influential theory that an earlier transition from a hunter‐gatherer society to agricultural production induces higher levels of technology adoption. Using a proxy for the geographic diffusion barriers of Neolithic technology and an index of biogeographic endowments to isolate the exogenous component of the timing of agricultural transition, the findings indicate that countries that experienced earlier transitions to agriculture were subsequently more capable of adopting new technologies in 1000 BC, 1 AD, and 1500 AD. These results lend strong support to Diamond's hypothesis. (JEL O30, O40)     

CONSPICUOUS SPENDING AND THE INCOME DISTRIBUTION OF SOCIAL GROUPS

Using South African household expenditure data, we analyze how the spending of a household on visible goods, such as jewelry and clothes, depends on the distribution of income within its social group. We find that this spending is positively correlated with the share of peers who possess a similar income level to the household, what we dub the “local income share.” Moreover, we find that the spending of a household on visible goods is positively correlated with the average income of peers that are poorer than this household. We interpret this as evidence for cascade effects through which income changes among the poorest in the social group can trigger adjustments in the visible spending patterns of the wealthy. In line with previous research (Charles et al. 2009), we also find that visible spending of a household is negatively correlated with the average income of its social group. We present a simple model of status competition based on Hopkins and Kornienko (2004) that synthesizes these effects and can account for our results. (JEL D12, D31, O12)     

THE RISE OF SERVICES,DEINDUSTRIALIZATION, AND THE LENGTH OF ECONOMIC RECOVERY

Economic recovery is longer in service‐providing economies than in goods‐producing economies. Services cannot be produced and inventoried ahead of demand; goods can. We are the first to document this macroeconomic repercussion of the sectoral shift away from the secondary sector toward the tertiary sector, that is, of deindustrialization and the rise of services. We distinguish between nontradable services and all other sectors, using U.S. state‐level employment data for post‐1960 recessions. Concerns over the endogeneity of services are addressed in two ways: by using 3‐year pre‐recession averages of sector shares, and separately by invoking instrumental variables. Our results are robust to alternative specifications. The increase in service production and deindustrialization in the United States over the last half‐century lengthens the trough‐to‐peak employment recovery from recessions by about 40%. (JEL E24, E32, L80, N12)     

THE IMPACT OF FISCAL POLICY ON PROFITS

This paper investigates the impact of fiscal policy on profits using panel data for 18 high‐income OECD countries during the period 1975–1999. We estimate a profit equation allowing a consistent treatment of the government budget constraint, and we try to disentangle the effects of different spending and taxation items. As far as public spending is concerned, our results strongly suggest that capital expenditures are associated with higher profits, while expenditures on goods and services and in particular on wages and salaries deteriorate profits. In general, “productive” expenditures seem to increase profits while the effect of “unproductive” expenditures is insignificant. Transport and communication expenditures seem to have a positive impact on profits. On the revenue side, we find that both direct and indirect taxation has a negative impact on profits. (JEL E62, H32, H54)     

THE EXTENT OF THE MARKET AND INTEGRATION THROUGH FACTOR MARKETS: EVIDENCE FROM WHOLESALE ELECTRICITY

We document the influence of factor markets in determining the extent of the market, appealing to the Mundell hypothesis that trade in goods and factor markets are substitutes. We confirm this influence using the U.S. wholesale market for electric power. Although the Eastern, Western, and Texas regions cannot trade electricity, inputs such as natural gas move freely across these regions. Through a set of price transmission ratios, and a supply model for natural gas, we find regional electricity shocks do propagate across regions. We conclude output markets institutionally in autarky achieve modest degrees of economic integration through factor markets. (JEL C32, L94, Q41)     

PRODUCTIVITY GROWTH IN GOODS AND SERVICES ACROSS THE HETEROGENEOUS STATES OF AMERICA

In this study, we examine the importance of multifactor productivity (MFP) growth in goods and services for U.S. States during 1980–2007 by applying the dual growth accounting framework. We find that MFP growth was relatively high and converged in the goods sector, but was low and did not converge in services. Although low growth in MFP in services was due to declining real user cost, particularly in real estate services, the lack of convergence itself was due to variation in wage growth. We also document that while the gap between productivity and wage growth was higher in goods, the two series were more strongly correlated in services. Finally, states with higher initial human capital experienced higher growth in both sectors. (JEL O47, R11)