Measuring Strategic Uncertainty in Coordination Games

Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004This paper explores predictability of behavior in coordination games with multiple equilibria. In a laboratory experiment we measure subjects' certainty equivalents for three coordination games and one lottery. Attitudes towards strategic uncertainty in coordination games are related to risk aversion, experience seeking, gender and age. From the distribution of certainty equivalents among participating students we estimate probabilities for successful coordination in a wide range of coordination games. For many games success of coordination is predictable with a reasonable error rate. The best response of a risk neutral player is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Data indicate that subjects have probabilistic beliefs about success or failure of coordination rather than beliefs about individual behavior of other players

Quantum Theory and Time Asymmetry

The relation between quantum measurement and thermodynamically irreversible processes is investigated. The reduction of the state vector is fundamentally asymmetric in time and shows an observer-relatedness which may explain the double interpretation of the state vector as a representation of physical states as well as of information about them. The concept of relevance being used in all statistical theories of irreversible thermodynamics is shown to be based on the same observer-relatedness. Quantum theories of irreversible processes implicitly use an objectivized process of state vector reduction. The conditions for the reduction are discussed, and I speculate that the final (subjective) observer system might even be carried by a spacetime point.Comment: Latex version of a paper published in 1979 (with minor revisions), 18 page

Firm heterogeneity and wages under different bargaining regimes : does a centralised union care for low-productivity firms?

This paper studies the relationship between wages and the degree of firm heterogeneity in a given industry under different wage setting structures. To derive testable hypotheses, we set up a theoretical model that analyses the sensitivity of wages to the variability in productivity conditions in a unionsised oligopoly framework. The model distinguishes centralised and decentralised wage determination. The theoretical results predict wages to be negatively associated with the degree of firm heterogeneity under centralised wage-setting, as unions internalise negative externalities of a wage increase for low-productivity firms. We test this prediction using a linked employeremployee panel data set from the German mining and manufacturing sector. Consistent with our hypotheses, the empirical results suggest that under industry-level bargaining workers in more heterogeneous sectors receive lower wages than workers in more homogeneous sectors. In contrast, the degree of firm heterogeneity is found to have no negative impact on wages in uncovered firms and under firm-level contracts

Beyond the mean gender wage gap : decomposition of differences in wage distributions using quantile regression

Using linked employer-employee data, this study measures and decomposes the differences in the earnings distribution between male and female employees in Germany. I extend the traditional decomposition to disentangle the effect of human capital characteristics and the effect of firm characteristics in explaining the gender wage gap. Furthermore, I implement the decomposition across the whole wage distribution with the method proposed by Machado and Mata (2005). Thereby, I take into account the dependence between the human capital endowment of individuals and workplace characteristics. The selection of women into less successful and productive firms explains a sizeable part of the gap. This selection is more pronounced in the lower part of the wage distribution than in the upper tail. In addition, women also benefit from the success of firms by rent-sharing to a lesser extent than their male colleagues. This is the source of the largest part of the pay gap. Gender differences in human capital endowment as well s differences in returns to human capital are less responsible for the wage differential

Technological Change in Economic Models of Environmental Policy: A Survey

This paper provides an overview of the treatment of technological change in economic models of environmental policy. Numerous economic modeling studies have confirmed the sensitivity of mid- and long-run climate change mitigation cost and benefit projections to assumptions about technology costs. In general, technical progress is considered to be a noneconomic, exogenous variable in global climate change modeling. However, there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous, induced by needs and pressures. Hence, some environmenteconomy models treat technological change as endogenous, responding to socio-economic variables. Three main elements in models of technological innovation are: (i) corporate investment in research and development, (ii) spillovers from R&D, and (iii) technology learning, especially learning-by-doing. The incorporation of induced technological change in different types of environmental-economic models tends to reduce the costs of environmental policy, accelerates abatement and may lead to positive spillover and negative leakage

Dynamic Model of Markets of Successive Product Generations

A dynamic microeconomic model is presented that establishes the price and unit sales evolution of heterogeneous goods consisting of successive homogenous product generations. It suggests that for a fast growing supply the mean price of the generations are governed by a logistic decline towards a floor price. It is shown that generations of a heterogeneous good are in mutual competition. Their market shares are therefore governed by a Fisher-Pry law while the total unit sales are governed by the lifecycle dynamics of the good. As a result the absolute unit sales of a generation exhibit a characteristic sales peak consisting of a rapid increase followed by a long tail. The presented approach shows that the evolution of successive product generations can be understood as an evolutionary adaptation process. The applicability of the model is confirmed by a comparison with empirical investigations on successive DRAM generations.Article no. BJEMT.2047

The Stature of the Self-Employed and its Premium

This discussion paper resulted in a publication in 'Economics and Human Biology' (forthcoming). Taller individuals typically have occupations with higher social status and higher earnings than shorter individuals. Further, entrepreneurship is associated with high social status in numerous countries; hence, entrepreneurs might be taller than wage workers. Using data from the German Socio-Economic Panel (2002-2010), we find that a 1 cm increase in an individuals height raises the probability of being self-employed (the most common proxy for entrepreneurship) versus paid employed by 0.16 percentage-points. Within self-employment the probability of being an employer is increased by 0.11 percentage-points as a result of a 1 cm increase in height whereas this increase is 0.05 percentage-points for an own-account worker. Furthermore, we confirm that a height premium in earnings exists for not only paid employees, as indicated by prior studies, but also for self-employed individuals. An additional 1 cm in height is associated with a 0.44% increase in hourly earnings for paid employees, and a 0.87% increase for self-employed individuals. The predicted earnings differences between short and tall individuals are substantial. Short paid employeesfirst quartile of heightearn 15.5 Euros per hour whereas tall paid employeesthird quartile of heightearn 16.5 Euros per hour; in self-employment the earnings are 12.8 and 14.4 Euros per hour, respectively. Another novel finding is that we establish the existence of a height premium for work and life satisfaction, but only for paid employees. Finally, our analysis reveals that 44% of the height premium in earnings is explained by differences in educational attainment whereas the height premium in work and life satisfaction is only marginally explained by education

Does Height Affect Labor Supply? Implications of Product Variety and Caloric Needs

The positive correlation between hourly wages and height, which results in higher labor supply of tall individuals, is well-documented in the literature. Accepting the utilitarian perspective and assuming that height does not affect utility implies that linking income taxes to height is welfare improving. This paper argues that height might not only affect an individual's income but also utility from consumption. Higher caloric needs of tall individuals should result in higher consumption expenditures for food to satisfy these needs. Size specific products should result in lower product variety for sizes where aggregate demand is low, typically sizes for individuals in the tails of the height distribution. Introducing these two channels into a household's maximization problem we derive a labor supply equation that allows for an empirical test for the relevance of these two channels. We use the German Socio-Economic Panel Study to estimate this labor supply equation. Caloric needs do not have a significant effect on labor supply. Product choice, on the other hand, does increase labor supply significantly. This implies that purely focusing on income might not be optimal under the utilitarian framework for tax analysis.Die positive Korrelation zwischen Stundenlöhnen und Körpergröße, welche in einem höheren Arbeitsangebot großer Individuen resultiert, ist in der einschlägigen Literatur hinreichend dokumentiert. Gegeben die utilitaristische Sichtweise und die Annahme, die Körpergröße habe keinen weiteren Einfluss auf den individuellen Nutzen, spräche dies für eine Ausrichtung der Einkommensteuer an der Körpergröße. In diesem Papier wird argumentiert, dass die Körpergröße jedoch nicht nur das Einkommen, sondern über weitere Kanäle auch den Nutzen eines Individuums beeinflusst. Ein höherer Kalorienverbrauch großer Individuen sollte in höheren Ausgaben für Nahrungsmittel resultieren. Größenspezifische Produkte sollten zu einer geringeren Produktauswahl für Größen mit geringerer Nachfrage führen, typischerweise für solche am Rand der Körpergrößenverteilung. Durch Einführung dieser beiden Kanäle in das Nutzenmaximierungskalkül von Haushalten leiten wir eine Arbeitsangebotsfunktion her, welche einen empirischen Test auf die Relevanz der beiden Kanäle erlaubt. Wir nutzen das Deutsche Sozioökonomische Panel, um die hergeleitete Arbeitsangebotsfunktion zu schätzen. Für Unterschiede beim Kalorienverbrauch finden wir keinen signifikanten Effekt auf das Arbeitsangebot. Eine höhere Produktauswahl steigert das Arbeitsangebot hingegen signifikant. Dies impliziert, dass im Rahmen der Steueranalyse nach utilitaristischer Sichtweise eine ausschließliche Fokussierung auf das Einkommen nicht optimal ist