INVESTMENT CHOICE ARCHITECTURE IN TRUST GAMES: WHEN “ALL‐IN” IS NOT ENOUGH

While many economic interactions feature “All‐or‐Nothing” options nudging investors towards going “all‐in,” such designs may unintentionally affect reciprocity. We manipulate the investor's action space in two versions of the “trust game.” In one version investors can invest either “all” their endowment or “nothing.” In the other version, they can invest any amount of the endowment. Consistent with our intentions‐based model, we show that “all‐or‐nothing” designs coax more investment but limit investors' demonstrability of intended trust. As a result, “all‐in” investors are less generously reciprocated than when they can invest any amount, where full investments are a clearer signal of trustworthiness. (JEL C72, C90, C91, D63, D64, L51)     

INFORMAL SECTOR AND ECONOMIC DEVELOPMENT: THE CREDIT SUPPLY CHANNEL

The standard view suggests that removing barriers to entry and improving judicial enforcement reduces informality and boosts investment and growth. However, a general equilibrium approach shows that this conclusion may hold to a lesser extent in countries with a constrained supply of funds because of, for example, a more concentrated banking sector or lower financial openness. When the formal sector grows larger in those countries, more entrepreneurs become creditworthy, but the higher pressure on the credit market limits further capital accumulation. We show empirical evidence consistent with these predictions. (JEL O16, O43, E26)     

R&D AND CREDIT RATIONING IN SMEs

We study the effects of credit rationing on research and development (R&D) investment using survey and accounting data on a large representative sample of manufacturing small‐ and medium‐sized enterprises (SMEs). Our econometric model accounts for the endogeneity of our credit rationing indicator and employs an innovative theory‐based identification strategy. We find that credit rationing has a significantly negative effect on both the probability to set up R&D activities and on the level of R&D spending (conditioned on the R&D decision), but the overall estimated reduction in R&D spending is largely to be associated with the first effect. (JEL G21, D82, O32, C35)     

Developmental Changes and Individual Differences in Trust and Reciprocity in Adolescence

A Trust Game was used to examine trust and reciprocity development in 12–18‐year‐old‐adolescents (N = 496), as findings have been conflicting and transitions in adolescence remain elusive. Furthermore, this study tested the roles of gender, risk, and individual differences in empathy, impulsivity, and antisocial tendencies in trust and reciprocity. Results indicate stability in trust and a decrease in reciprocity across adolescence, but also show that trust and reciprocity choices were influenced by risk, and that empathy mediated the age‐related decrease in reciprocity. Males trusted more than females, but there were no gender differences in reciprocity. These findings highlight the importance of considering individual differences and adolescents’ sensitivities to varying contexts in explaining trust and reciprocity development in adolescence.     

CORPORATE TAX GAMES WITH CROSS‐BORDER EXTERNALITIES FROM PUBLIC INFRASTRUCTURE

We construct a model of corporate tax competition in which governments also use public infrastructure investment to attract foreign direct investment, thus enhancing their tax bases. In doing so, we allow for cross‐border infrastructural externalities. Depending on the externality, governments are shown to strategically over‐ or underinvest in infrastructure. We also examine how tax cooperation influences investment in infrastructure and find that welfare may be lower under tax cooperation than under tax competition; this is the case when infrastructure is very effective in raising the tax base and generates a large negative cross‐border externality. (JEL F23, H40)     

SLEEPING WITH THE ENEMY: THE ECONOMIC COST OF INTERNAL ENVIRONMENTAL CONFLICTS

This paper extends the literature on collective rent‐seeking by introducing the possibility that a competing group may be a subset of another. We develop a model that incorporates the potential for some individuals to be party of both sides of a conflict, which creates interdependence of payoffs. Results indicate that strategic individual behavior, and the resulting rent dissipation, is affected by the relative size of the groups. We conduct an experimental test of the model and find that observed laboratory behavior corresponds well with the game‐theoretic comparative‐static predictions. (JEL C72, C9, Q5, D74)     

Familial Reciprocity and Subjective Well‐being in Ghana

The authors investigated variations in reciprocity and the impact of reciprocity on well‐being in a West African society. They hypothesized that household size and income diversity encourage reciprocity, which in turn enhances subjective well‐being. In empirical testing of these hypotheses the authors used the data of the Core Welfare Indicators Questionnaire of Ghana, a national sample of household heads (N males = 33,949, N females = 13,900) collected in 2003. A regression analysis showed that remittance facilitates balanced or credited reciprocity, whereas size‐related measures (marital status and generational relationships) produce mixed results. Reciprocity clearly strengthens perceived economic security and level of happiness among Ghanaians. This research suggests that extensive reciprocity among kin, rather than household configurations, should be stressed in efforts to understand the structure of familial relationships and its consequences for well‐being.     

Short‐Term Reciprocity in Late Parent‐Child Relationships

Long‐term concepts of parent‐child reciprocity assume that the amount of support given and received is only balanced in a generalized fashion over the life course. We argue that reciprocity in parent‐child relationships also operates in the short term. Our analysis of short‐term reciprocity focuses on concurrent exchange in its main upward and downward currencies, time and money. Fixed‐effects models with data from SHARE (N = 8,816 dyads) revealed that within a family, parents gave financial transfers to those children who supported them with time transfers of help and care. Reciprocal patterns emerged most clearly if parents were highly dependent, received intense support, and had sufficient financial opportunities to reciprocate. We conclude that short‐term reciprocity eases the burden of late parent‐child relationships.     

BENIGN NEGLECT OF COVENANT VIOLATIONS: BLISSFUL BANKING OR IGNORANT MONITORING?

Theoretically, bank's loan monitoring activity hinges critically on its capitalization. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank‐firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalized banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands‐off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks. (JEL G21, G32, G33, G34)     

Behavioral and Physiological Components of Communication Training: Does the Topic Affect Outcome?

This study experimentally examined the Speaker‐Listener technique when couples (N= 30) were instructed to either discuss an issue within or outside their marriage, on marital satisfaction, and communication behaviors. This study examined the J. M. Gottman, J. Coan, S. Carrere, and C. Swanson (1998) hypothesis that the Speaker‐Listener technique may lead to improved marital satisfaction when the couple is discussing a third party issue, but discussing an issue about each other may weaken the marital relationship. Behavioral and physiological data during marital interactions were sequentially analyzed. Results suggested that the Speaker‐Listener technique reduced negativity but did not increase positivity in marital interactions. There were significant differences in positive reciprocity across the 2 experimental groups, but no differences in negativity. Additionally, adherence to the Speaker‐Listener technique was poor, which has implications for both research and theory. Possible interpretations and areas for further investigation are suggested.     

THE POLITICAL ECONOMY OF INTERGENERATIONAL INCOME MOBILITY

The intergenerational elasticity of income is considered one of the best measures of the degree to which a society gives equal opportunity to its members. While much research has been devoted to measuring this reduced‐form parameter, less is known about its underlying structural determinants. Using a model with exogenous talent endowments, endogenous parental investment in children, and endogenous redistributive institutions, we identify the structural parameters that govern the intergenerational elasticity of income. The model clarifies how the interaction between private and collective decisions determines the equilibrium level of social mobility. Two societies with similar economic and biological fundamentals may have vastly different degrees of intergenerational mobility depending on their political institutions. We offer empirical evidence in line with the predictions of the model. We conclude that international comparisons of intergenerational elasticity of income are not particularly informative about fairness without taking into account differences in politico‐economic institutions. (JEL E24, J62, J68, P16)     

CONTRACT DESIGN AND SELF‐CONTROL WITH ASYMMETRIC INFORMATION

We study optimal contracting by a monopolistic seller of investment goods to a time‐inconsistent consumer and, in doing so, introduce asymmetric information to the model of DellaVigna and Malmendier (2004) . We find (1) the below‐marginal‐cost‐pricing rule may fail for a low‐value consumer; (2) the firm's profit is no longer unaffected by the consumer's short‐run impatience, as the latter is sophisticated. We find that there is an important threshold value of short‐run patience. When the consumer's short‐term patience is below this level, then, as the patience increases, the firm suffers. When the consumer's short‐run patience is above this threshold, then, as it increases, the firm benefits. Finally, we show that unlike monopoly, perfect competition with asymmetric information achieves the first‐best outcome. (JEL D03, D82, D91)     

POPULAR SUPPORT FOR TRADE AGREEMENTS AND PARTNER COUNTRY CHARACTERISTICS: EVIDENCE FROM AN UNEXPECTED ELECTION OUTCOME

Using quasi‐experimental data from a survey that was conducted immediately before and after the November 2016 presidential election, we analyze how the election of Donald Trump affected the willingness of Europeans to sign a trade and investment agreement with the United States. We find that the election outcome lead to an immediate and sizable negative effect on Europeans' image of the United States. But we do not find that, at the same time, there was a negative reaction in the willingness of Europeans to sign an agreement with the United States. (JEL F14, F55, C26, F50)     

Extending the Intergenerational Stake Hypothesis: Evidence of an Intra‐individual Stake and Implications for Well‐being

The intergenerational stake hypothesis suggests that parents are more invested in their children and experience better quality parent–child ties than do their children. In this study the authors examined variation in reports of relationship quality regarding parents and children intra‐individually (do people report better quality ties with their children than with their parents?) and whether within‐person variations have implications for well‐being. Participants age 40–60 (N = 633) reported on their relationship quality (importance, positive quality, and negative quality) with their parents and adult children. Individuals reported their relationships with children were more important and more negative than relationships with parents. Individuals with feelings that were in the opposite direction of the intergenerational stake hypothesis (i.e., greater investment in parents than children) reported poorer well‐being. The findings provide support for the intergenerational stake hypothesis with regard to within‐person variations in investment and show that negative relationship quality may coincide with greater feelings of investment.     

Competition for Resources: A Reexamination of Sibship Composition Models of Parental Investment

The predictions of resource dilution and sibship gender composition models of educational investment are tested using the Japanese Nationwide Survey on Families (N = 6,985). Japan is an important case because of its postindustrial economy, coupled with high levels of dependence on parental investment to attend a university and persisting gender inequality in educational attainment. In previous between‐family analyses of educational attainment in Japan, boys were found to drain resources from their sisters. The within‐family, multilevel models of parental educational investments in this analysis show that girls with college‐educated brothers fare better than their peers without brothers. An alternative model incorporating the educational investments received by brothers in the same family is proposed.     

Accounting for surveillance

This contribution discusses the ways people hold themselves and others accountable for everyday practices of surveillance. It analyses three examples: (1) the “breeching experiments” of the video artist “Surveillance Camera Man,” (2) a “stop and frisk” incident involving a 17‐year‐old boy in Harlem, and (3) the pop‐up windows on websites that ask for users’ consent to use “cookies.” Understanding the relationship between language and securitization, it is argued, requires that we pay attention to the interactional basis of surveillance and the ways rights and responsibilities are negotiated, ratified, challenged, or ignored in the moment‐by‐moment unfolding of communication.     

CLIMBING TO THE TOP? FOREIGN DIRECT INVESTMENT AND PROPERTY RIGHTS

This article operates at the interface of the literature on the impact of foreign direct investment (FDI) on host countries and the literature on the determinants of institutional quality. We argue that FDI contributes to economic development by improving institutional quality in the host country. This proposition is tested within a large panel data set of 70 developing countries for the period 1981–2005. We show that FDI inflows have a positive and highly significant impact on property rights. Results are very robust and not affected by model specification, different control variables, or estimation technique. To our knowledge this is the first article to empirically test the FDI—property rights linkage. (JEL F23, O43, P48)     

THE ECONOMICS OF EMERGENCY MEETINGS

In this article, we examine the timing of emergency meetings. Meetings are critical to the success of organizations, allowing them to coordinate information, discuss strategies, and realign policies to meet their objectives. We treat the emergency meetings between scheduled meetings as real options. The optimal strategy involves time‐varying threshold values that, when exceeded, trigger an emergency meeting. The model explains why organizations need both scheduled and emergency meetings. The model also predicts more frequent emergency meetings during periods of high volatility and a hump‐shaped distribution for the timing of emergency meetings. We find empirical support for these predictions using data from the Organization of Petroleum Exporting Countries and the Federal Open Market Committee of the U.S. Federal Reserve system. (JEL C44, C61, C63)     

PRIZE SCARCITY AND OVERDISSIPATION IN ALL‐PAY AUCTIONS

We compare bidding behavior in complete information all‐pay auction experiments that vary in the prizes and number of players. We confirm the observation from prior single‐prize experiments that there is overbidding relative to equilibrium predictions. Our primary results are that increasing the number of prizes and players proportionally does not reduce overbidding but increasing the number of prizes with a fixed number of players eliminates overbidding. We conclude that the overbidding phenomenon is related to the scarcity of the prize. We provide new theoretical results on the multi‐prize logit equilibrium, and our experimental results are qualitatively consistent with logit equilibrium predictions. (JEL D72, D91, C91, D44)     

FDI AND INCOME INEQUALITY: EVIDENCE FROM A PANEL OF U.S. STATES

This study employs state‐level panel data to explore the relationship between inward foreign direct investment (FDI) and income inequality in the United States. Using panel cointegration techniques that allow for cross‐sectional heterogeneity and cross‐sectional dependence, we find that, in the long run, FDI exerts a significant and robust negative effect on income inequality in the United States. This result for the United States as a whole does not imply that FDI narrows income gaps in each individual state. There is considerable heterogeneity in the long‐run effects of FDI on income inequality across states, with some states (21 out of 48 cases) exhibiting a positive relationship between FDI in income inequality.(JEL F21, D31, C23)