Predicting the Trend of Well-Being in Germany: How Much Do Comparisons, Adaptation and Sociability Matter?

Using longitudinal data from the German Socio-Economic Panel, we estimate the variation of subjective well-being experienced by Germans over the last two decades testing the role of some of the major correlates of people’s well-being. Our results suggest that the variation of Germans’ well-being between 1996 and 2007 is well predicted by changes over time of income, demographics and social capital. The increase in social capital predicts the largest positive change in subjective well-being. Income growth, also predicts a substantial change in subjective well-being, but it is compensated for about three fourths by the joint negative predictions due to income comparison and income adaptation. Finally, we find that aging of the population predicts the largest negative change in subjective well-being. This result appears to hinge on the large loss of satisfaction experienced by individuals in old age.     

Insider Trading With a Random Deadline

We consider a model of strategic trading with asymmetric information of an asset whose value follows a Brownian motion. An insider continuously observes a signal that tracks the evolution of the asset's fundamental value. The value of the asset is publicly revealed at a random time. The equilibrium has two regimes separated by an endogenously determined time T. In [0, T), the insider gradually transfers her information to the market. By time T, all her information has been transferred and the price agrees with the market value of the asset. In the interval [T, ∞), the insider trades large volumes and reveals her information immediately, so market prices track the market value perfectly. Despite this market efficiency, the insider is able to collect strictly positive rents after T.     

Agency Models With Frequent Actions

The paper analyzes dynamic principal–agent models with short period lengths. The two main contributions are: (i) an analytic characterization of the values of optimal contracts in the limit as the period length goes to 0, and (ii) the construction of relatively simple (almost) optimal contracts for fixed period lengths. Our setting is flexible and includes the pure hidden action or pure hidden information models as special cases. We show how such details of the underlying information structure affect the optimal provision of incentives and the value of the contracts. The dependence is very tractable and we obtain sharp comparative statics results. The results are derived with a novel method that uses a quadratic approximation of the Pareto boundary of the equilibrium value set.     

Did the Decline in Social Connections Depress Americans’ Happiness?

During the last 30 years US citizens experienced, on average, a decline in reported happiness, social connections, and confidence in institutions. We show that a remarkable portion of the decrease in happiness is predicted by the decline in social connections and confidence in institutions. We carry out our investigation in three steps. First, we run a happiness regression that includes various indicators of social connections and confidence in institutions, alongside with own income, reference income, and the usual socio-demographic controls. We find that indicators of social connections and confidence in institutions are positively and significantly correlated with happiness. Second, we investigate the evolution of social connections and confidence in institutions over time, finding that they generally show a declining trend. Third, we calculate the variation in happiness over time as predicted by each of its statistically significant correlates, finding that the decrease in happiness is mainly predicted by the decline in social connections and by the growth in reference income. More precisely, the sum of the negative changes in happiness predicted by the reduction in social connections and the increase in reference income more than offsets the positive change predicted by the growth of household income. Also, the reduction in happiness predicted by the decline in confidence in institutions is non-negligible, although substantially smaller than the one predicted by either social connections or reference income.     

Sequential Equilibria in a Ramsey Tax Model

This paper presents a full characterization of the equilibrium value set of a Ramsey tax model. More generally, it develops a dynamic programming method for a class of policy games between the government and a continuum of households. By selectively incorporating Euler conditions into a strategic dynamic programming framework, we wed two technologies that are usually considered competing alternatives, resulting in a substantial simplification of the problem.