Insurance demand and social comparison: An experimental analysis

This paper analyzes whether social comparison can explain the low take-up of disaster insurance usually reported in field studies. We argue that risks in the case of disasters are highly correlated between subjects whereas risks for which high insurance take-up can be observed (e.g. extended warranties or cell phone insurance) are typically idiosyncratic. We set up a simple model with social reference points and show that in the presence of inequality aversion social comparison makes insurance indeed less attractive if risks are correlated. In addition we conducted a simple experiment which confirms these theoretical results. The average willingness to pay for insurance is significantly higher for idiosyncratic than for correlated risks.     

Testing transitivity in choice under risk

Recently proposed models of risky choice imply systematic violations of transitivity of preference. This study explored whether people show the predicted intransitivity of the two models proposed to account for the certainty effect in Allais paradoxes. In order to distinguish “true” violations from those produced by “error,” a model was fit in which each choice can have a different error rate and each person can have a different pattern of preferences that need not be transitive. Error rate for a choice is estimated from preference reversals between repeated presentations of the same choice. Results showed that few people repeated intransitive patterns. We can retain the hypothesis that all participants were transitive.     

The role of deliberate and experiential learning in developing capabilities: Insights from technology licensing

We discuss the interdependencies between deliberate and experiential learning in developing a dynamic technology licensing capability, which was termed ‘desorptive capacity’ in earlier conceptual work. We use new three-year lagged data from two surveys of 79 firms to examine the role of dedicated licensing employees and prior licensing experience in developing firms’ sensing, seizing, and transforming capacities in technology out-licensing. The findings emphasize capabilities’ multidimensionality and critical trade-offs due to interdependencies between deliberate and experiential learning in developing capabilities. Besides interdependencies with experiential learning, deliberate learning strengthens sensing and seizing capacity, but it negatively affects transforming capacity based on inertia.     

Ethnic Prejudice and Discrimination in Europe

This article provides an introduction to research on European prejudice and discrimination. First, we list the distinctive characteristics of a European perspective and provide a short sketch of European immigration and ethnic groups. Europe has become a multicultural community. Nevertheless, public opinion and the continent's politics often do not reflect this empirical fact. Prejudice and discrimination directed at immigrants are a widespread phenomena across Europe. Several cross-European surveys support this conclusion, although theoretically driven surveys on prejudice and discrimination in Europe remain rare. Cross-European research studies classical and modern theories of prejudice and discrimination and attempts to uncover the psychological mechanisms that explain individual readiness to exclude ethnic groups. A brief sketch of recent European research is presented. This issue offers both important cross-national perspectives as well as needed comparisons with the more studied case of racial prejudice and discrimination in the United States.     

Relative Deprivation and Intergroup Prejudice

Using three diverse European surveys, we test the relationship between relative deprivation (RD) and anti-immigrant prejudice. We find that both group relative deprivation (GRD) and individual relative deprivation (IRD) are found primarily among working-class respondents who are politically alienated. We also find that GRD, but not IRD, serves as a proximal correlate of prejudice. IRD's effects on prejudice are largely mediated through GRD. In addition, GRD partially mediates the effects of such distal predictors of prejudice as education and family income. Finally, blaming the victim mediates in part the GRD link with prejudice. These results lead to a socially situated path model of RD's effects on prejudice with public policy implications.     

Third-generation prospect theory

We present a new theory of decision under uncertainty: third-generation prospect theory (PT³). This retains the predictive power of previous versions of prospect theory, but extends that theory by allowing reference points to be uncertain while decision weights are specified in a rank-dependent way. We show that PT³ preferences respect a state-conditional form of stochastic dominance. The theory predicts the observed tendency for willingness-to-accept valuations of lotteries to be greater than willingness-to-pay valuations. When PT³ is made operational by using simple functional forms with parameter values derived from existing experimental evidence, it predicts observed patterns of the preference reversal phenomenon.

The right to be different: Multiculturalism and the racialization of scandinavian welfare politics; The case of Denmark

‘Multiculturalism’ as an influential ideology for structuring ethnic relations has become exposed to increasing critique also in the Scandinavian context. The paper discusses a racialized political debate, legislation, and institutional practices, taking Denmark as the prime example. An increasingly ‘dual welfare’ is becoming legitimized through a hegemonic culturalized language, consistently interpreting ‘the right to be different’ as ‘being different’, and ‘being different’ as being ‘non‐integrated’. In a society where public debate on ethnic and racial discrimination is less than rudimentary, tolerant claims of multiculturalist relativism are effectively turned upside down in the service of neo‐racism, the preachings of which are imperceptibly becoming adopted as the conventional wisdom. This calls for a discussion on ‘politics of recognition’ which brings the debate on the universalism and particularity out of the abstract, while focusing on the vicissitudes of contemporary democracy in a changing welfare state.     

Essentially lexicographic aggregation

In the paper a new approach to lexicography is developed by which in the general framework of ordered blocks with a monotonic basis it is shown that a nontrivial ordering is translation-invariant if and only if it is essentially lexicographic of degree n. Here, the latter means that the ordering can be represented by an ordinary lexicographic ordering in n dimensions. As an application it is shown that a nontrivial social welfare ordering on Euclidean space possesses a useful invariance property (cardinality and non comparability) if and only if the ordering is essentially lexicographic of a strong kind in that it can be obtained from ordinary lexicography by permutation, cutting-off and order reversal with respect to components. This result generalizes the characterization of lexical individual dictatorship obtained by Gevers and d'Aspremont and it provides, within the social welfare approach, a strong version of Arrow's impossibility theorem by not invoking any Pareto principle at all.The author thanks K. Arrow, W. Gaertner, L. Gevers, and two anonymous referees for helpful hints and suggestions.     

International business taxation and the business cash flow tax

Investments and business profits are internationally mobile. Countries respond by tackling international profit shifting. As a result, the international allocation of taxable profits becomes an increasingly complex and costly issue. Reform proposals either address the Organisation of Economic Co-operation and Development approach to international profit allocation or target tax bases that are less mobile than profits. This paper investigates cash flow as a tax base. A business cash flow tax abolishes current accrual accounting and has the potential to block international profit shifting. Financing vanishes to become a tax-planning tool because the investments’ market return is tax free under a cash flow tax. Profit shifting via intra-group transactions is eliminated if the business cash flow tax is based on the country of destination principle. However, a destination-based business cash flow tax might distort the investment decisions of international groups.     

The influence of different dimensions of social comparison on performance measure choice and team composition

Empirical research in the economic literature is increasingly addressing the implications of social comparison on incentive contracts by using analytical principal-agent models. Contrary to the existing investigations, which are primarily based on the assumption that individuals exclusively compare monetary income, theories of behavioral science suggest that monetary income and effort represent different dimensions of social comparison, which are weighted individually. Using a LEN framework, the present study focuses on this aspect of social comparisons and discusses how these dimensions and their individual weights affect optimal contract design and contract efficiency. I consider status-seeking agents who compare themselves to each other and differ with regard to their intensity of social preferences and the specific relevance of dimensions. Finally, I draw conclusions for the drafting of contracts with respect to (1) the choice of performance measures and (2) an optimal team composition.