SOCIAL COMPARISON AND EFFORT PROVISION: EVIDENCE FROM A FIELD EXPERIMENT

Social comparison has potentially far reaching consequences in many economic domains. We conducted a field experiment to examine how social comparison affects workers' effort provision if their own wage or that of a co‐worker is cut. Workers were assigned to groups of two, performed identical individual tasks, and received the same performance‐independent hourly wage. Cutting both group members' wages caused a decrease in performance. But when only one group member's wage was cut, the affected workers decreased their performance more than twice as much as when both workers' wages were cut. This finding indicates that social comparison among workers affects effort provision because the only difference between the two wage‐cut treatments is the other group member's wage level. In contrast, workers whose wage was not cut but who witnessed their group member's pay being cut displayed no change in performance relative to the baseline treatment in which both workers' wages remained unchanged. This indicates that social comparison exerts asymmetric effects on effort.     

SHADES OF BROWN AND GREEN: PARTY EFFECTS IN PROPORTIONAL ELECTION SYSTEMS

In proportional representation (PR) systems, political power is typically shared across several political parties. Many parties are small and focused on specific policies, such as environmental policy and immigration. Do these small parties matter for policy? I provide the first systematic evidence for this by developing the first regression discontinuity design tailored specifically for PR systems. With this method, which can be applied in all countries with PR systems, I estimate the causal effect of party representation on immigration policy, environmental policy and tax policy using data on Swedish municipalities. The results show that party representation has a large effect on the first two policies, but not on the tax policy.     

MANAGED COMPETITION IN HEALTH INSURANCE

Rising healthcare costs have sparked debate about the best way to provide high‐quality affordable health insurance. We discuss the potential for regulated insurance markets to outperform single‐payer public insurance. We use as an example the private Medicare plans that now provide insurance to almost a third of seniors in the United States. The evidence suggests that private plans can limit costs and potentially appeal to enrollees, and that well‐designed risk adjustment can mitigate market failures due to adverse selection. However, fostering competition between insurers, especially in smaller markets, is difficult. We discuss how future research might illuminate the relative advantages of public and private health insurance.     

DO WAGE CUTS DAMAGE WORK MORALE? EVIDENCE FROM A NATURAL FIELD EXPERIMENT

Employment contracts are often incomplete, leaving many responsibilities subject to workers' discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20%. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.     

Does Formal Education for Older Workers Increase Earnings? — Evidence Based on Rich Data and Long‐term Follow‐up

Governments in Europe, Canada and the USA have expressed an ambition to stimulate education of older. In this paper, we analyse if there are effects on annual earnings of formal education for participants aged 42–55 at the time of enrolment in 1994–95. The analysis explores longitudinal population register data stretching from 1982 to 2007. The method used is difference‐in‐differences propensity score matching based on a rich set of covariates, including indicators of health and labor market marginalization. Our findings underline the importance of long follow up periods and imply positive effects for women, especially so for women with children, and no significant average earnings effects for men. These results differ from earlier studies but are stable to several alternative assumptions regarding unobservable characteristics. Data further indicate that the gender gap in our estimates may stem from differences in underlying reasons for enrolment.     

UNEMPLOYED BUT OPTIMISTIC: OPTIMAL INSURANCE DESIGN WITH BIASED BELIEFS

This paper analyzes how biased beliefs about employment prospects affect the optimal design of unemployment insurance. Empirically, I find that the unemployed greatly overestimate how quickly they will find work. As a consequence, they would search too little for work, save too little for unemployment and deplete their savings too rapidly when unemployed. I analyze the use of the “sufficient‐statistics” formula to characterize the optimal unemployment policy when beliefs are biased and revisit the desirability of providing liquidity to the unemployed. I also find that the optimal unemployment policy may involve increasing benefits during the unemployment spell.     

UNEMPLOYMENT INSURANCE IN WELFARE STATES: THE IMPACTS OF SOFT DURATION CONSTRAINTS

Abstract Based on a major reform of Norwegian unemployment insurance (UI), we examine the behavioral impacts of soft and hard UI duration constraints. A constraint is interpreted as hard if a claimant cannot rely on any form of income support after exhaustion, and as soft if UI is replaced by follow‐on benefits or participation in active labor market programs (ALMP). We find that both hard and soft constraints raise the job hazard significantly, with surprisingly similar spikes at UI exhaustion. Participation in ALMP raises the probability of eventually finding a job, but at the cost of lengthening the overall job‐search period.     

THE TRADEOFF BETWEEN PERFORMANCE AND QUITTING IN HIGH POWER TOURNAMENTS

Tournaments may be characterized by the performance they induce as well as by the rate of quitting and dropouts of participants. Although most of the attention in the literature is on the performance induced by high power incentives, there are many daily situations in which dropouts and quitting are a major concern. Using a field experiment in schools and a model of dynamic tournament we examine the effect of different levels of rewards on the rate of quitting. Our experiment indicates that there is a possible tradeoff between performance and quitting. Strong incentives tournaments induced participants to exert more effort and exhibit a better performance but, at the same time, it induces a higher rate of quitting. We present a multi‐stage tournament model that gives rise to a similar characterization.     

UNEMPLOYMENT INSURANCE AND CULTURAL TRANSMISSION: THEORY AND APPLICATION TO EUROPEAN UNEMPLOYMENT

This paper emphasizes the two‐way causality between the provision of unemployment insurance and the cultural transmission of civicness. The returns to being uncivic are increasing in the generosity of unemployment insurance; but this generosity is decreasing in the number of uncivic individuals. In this context, I determine the evolution of preferences across generations and show that cultural heterogeneity is sustained over the long‐run. The dynamics of cultural transmission can generate a long lag between the introduction of unemployment insurance and an increase in people's willingness to live off government‐provided benefits. Hence, it offers an explanation to the ‘European unemployment puzzle’ due to the coexistence of generous unemployment insurance and low unemployment in the 1950s and 1960s.     

POVERTY AND THE POLITICAL ECONOMY OF PUBLIC EDUCATION SPENDING: EVIDENCE FROM BRAZIL

A large body of literature has emphasized the elite capture of democratic institutions as the explanation for the low levels of spending on public education in many low‐income democracies. This paper provides an alternative to that longstanding hypothesis. Motivated by new cross‐country facts and evidence from Brazilian municipalities, we hypothesize that many democratic developing countries might invest less in public education spending because poor decisive voters prefer the government to allocate resources elsewhere. One possible explanation is that low‐income voters could instead favor redistributive programs that increase their incomes in the short run, such as cash transfers. To test for this possibility, we design and implement an experimental survey and an incentivized choice experiment in Brazil. The findings from both interventions support our hypothesis.     

HOW DO ELECTORAL SYSTEMS AFFECT FISCAL POLICY? EVIDENCE FROM CANTONAL PARLIAMENTS, 1890–2000

Using a new data set on Swiss cantons since 1890, we analyze how the adoption of proportional representation affects fiscal policy. In line with economic theory, we show that proportional systems shift spending toward broad goods (like education and welfare benefits) but decrease spending on geographically targetable goods (like roads). We find little evidence that proportional representation increases the overall size of government. An analysis of the underlying theoretical mechanisms reveals that proportional representation increases electoral turnout, left‐wing representation, and political fragmentation. These changes in political representation explain a substantial share of the rise in education spending, but a small share of the rise in welfare spending or the decline in road expenditures.     

SEPARATING MORAL HAZARD FROM ADVERSE SELECTION AND LEARNING IN AUTOMOBILE INSURANCE: LONGITUDINAL EVIDENCE FROM FRANCE

The identification of information problems in different markets is a challenging issue in the economic literature. In this paper, we study the identification of moral hazard from adverse selection and learning about risk within the context of a multi‐period dynamic model. We extend the model of Abbring, Chiappori, and Pinquet (2003, Journal of the European Economic Association, 1, 767–820) to include learning about risk and insurance coverage choice over time. We derive testable empirical implications for panel data. We then perform tests using longitudinal data from France during the period 1995–1997. We find evidence of moral hazard among a sub‐group of policyholders with less driving experience (less than 15 years). Policyholders with fewer than five years of experience have a combination of learning about risk and moral hazard, whereas no residual information problem is found for policyholders with more than 15 years of experience.     

PUBLIC EDUCATION AND PENSIONS IN DEMOCRACY: A POLITICAL ECONOMY THEORY

A dynamic political economy theory of fiscal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium reproduces salient features of intergenerational fiscal policies in modern economies.     

LETTING DOWN THE TEAM? SOCIAL EFFECTS OF TEAM INCENTIVES

This paper estimates social effects of incentivizing people in teams. In three field experiments featuring exogenous team formation and opportunities for repeated social interactions, we find large team effects that operate through social channels. In particular, assignment to a team treatment increases productivity by 9%–17% relative to an individual incentive treatment, even though the individual incentive yields a higher private return. Further, we find that in a choice treatment individuals overwhelmingly prefer the individual incentive to the team incentive, despite the latter being more effective. These results are most consistent with the team effects operating through guilt or social pressure as opposed to pure altruism.     

CRITICAL PERIODS DURING CHILDHOOD AND ADOLESCENCE

We identify the ages that constitute sensitive (or critical) periods in children's development towards their adult health status, skills, and human capital. For this, we use data on families migrating into Sweden from countries that are poorer, with less healthy conditions. Late‐life health is proxied by adult height and other adult outcomes. The relation between siblings’ ages at migration and their adult outcomes allows us to estimate the causal effect of conditions at specific childhood ages. We effectively exploit that, for siblings, the migration occurs simultaneously in calendar time but at different developmental stages (ages). We find evidence that the period just before the puberty growth spurt constitutes a critical period for adult height and we find related critical periods for adult cognition, mental health, and education.     

Join the Union and Be Safe: The Effects of Unionization on Occupational Safety and Health in the European Union

This paper investigates the effect of unionization on occupational safety and health, as measured by the fatal and non‐fatal work accidents, after controlling for the country's gross domestic product. It uses a panel sample of 10 European Union countries, for the period 1982–2006. The study takes into account the time persistence in work injuries and the endogenous nature of the work injuries–union density relationship. In addition, the effect of union density is decomposed into a temporary and permanent effect. It is shown that increasing union density is associated with a decrease in the number of both fatal and non‐fatal work injuries.     

EXTERNALITIES IN PROGRAM EVALUATION: THE IMPACT OF A WOMEN'S EMPOWERMENT PROGRAM ON IMMUNIZATION

Impact evaluations of development programs usually do not explicitly take into account externalities on non‐participants. Based on a unique dataset we estimate the direct as well as the spillover effects of Mahila Samakhya, a women's empowerment program in India, on child immunization. The survey covers both participants and non‐participants in program villages, as well as respondents in control villages. We account for participation selection bias using instrumental variables. We propose a direct test for the exclusion restriction using the control villages. We find both direct effects on the immunization rates of participants’ children and significant spillovers on immunization rates of non‐participants’ children. The impact of interventions might be substantially underestimated if such external effects were not taken into account. Alternative estimation methods such as propensity score matching and a regression discontinuity approach yield comparable results.     

DICTATORS AND THEIR VIZIERS: ENDOGENIZING THE LOYALTY–COMPETENCE TRADE‐OFF

The possibility of treason by a close associate has been a nightmare of most autocrats throughout history. More competent viziers are better able to discriminate among potential plotters, and this makes them more risky subordinates for the ruler. To avoid this, rulers, especially those who are weak and vulnerable, sacrifice the competence of their agents, hiring mediocre but loyal subordinates. Furthermore, any use of incentive schemes by a personalistic dictator is limited by the fact that all punishments are conditional on the dictator’s own survival. We endogenize loyalty and competence in a principal‐agent game between a dictator and his viziers in both static and dynamic settings. The dynamic model allows us to focus on the succession problem that insecure dictators face.     

NORM ENFORCEMENT: ANGER,INDIGNATION, OR RECIPROCITY?

The enforcement of social norms often requires that unaffected third parties sanction offenders. Given the renewed interest of economists in norms, the literature on third‐party punishment is surprisingly thin. In this paper, we report the results of an experiment designed to replicate the anger‐based punishment of directly affected second parties and evaluate two distinct explanations for third‐party punishment: indignation and group reciprocity. We find evidence in favor of both, with the caveat that the incidence of indignation‐driven sanctions is perhaps smaller than earlier studies have hinted. Furthermore, our results suggest that second parties use sanctions to promote conformism while third parties intervene primarily to promote efficiency.     

Wage Expectations for Higher Education Students in Spain

We assess students' ability to forecast future earnings by using data on expected wages self‐reported by college students with different graduation horizons. We find a significant gender gap, by which wage expectations are systematically lower for women than for men. However, women do not fully account for the gender gap in their future earnings. We also find that student performance, degree type, and graduation horizon play a relevant role in wage forecasts. In any case, students' expectations do not conform market wages but become more realistic as they approach graduation.