Externalities in Recruiting

According to the previous literature on hiring, ?rms face a trade-off when deciding on external recruiting: From an incentive perspective, external recruiting is harmful since admission of external candidates reduces internal workers’ career incentives. However, if external workers have high abilities hiring from outside is bene?cial to improve job assignment. In our model, external workers do not have superior abilities. We show that external hiring can be pro?table from a pure incentive perspective. By opening its career system, a ?rm decreases the incentives of its low-ability workers. The incentives of high-ability workers can increase from a homogenization of the pool of applicants. Whenever this effect dominates, a ?rm prefers to admit external applicants. If vacancies arise simultaneously, ?rms face a coordination problem when setting wages. If ?rms serve the same product market, weaker ?rms use external recruiting and their wage policy to offset their competitive disadvantage.contest, externalities, recruiting, wagepolicy

Externalities in Recruiting

External recruiting at least weakly improves the quality of the pool of applicants, but the incentive implications are less clear. Using a contest model, this paper investigates the pure incentive effects of external recruiting. Our results show that if workers are heterogeneous, the opening of a firm’s career system may lead to a homogenization of the pool of contestants and, thus, encourage the firm’s high ability workers to exert more effort. If this positive effect outweighs the discouragement of low ability workers, the firm will benefit from external recruiting. If, however, the discouragement effect dominates the homogenization effect, the firm should disregard external recruiting. In addition, product market competition makes opening of the career system less attractive for a firm since it increases the incentives of its competitors’ workers and hence strengthens the competitors

Five Essays in Economic Theory

The five essays in this thesis study game-theoretic auction models and their application to economic theory. Chapter 1 analyzes asymmetric all-pay auctions where the bidders' private types are independently drawn out of distinct two-point probability distributions. We characterize the unique equilibrium of the two bidder case. For the n bidder case, we study the all-pay auction with asymmetric random participation. The results are applied to models of information disclosure in contests, endogenous choice of type-probabilities, and competing contests. Chapter 2 considers a market model with rational firms that know the distributions from which their opponents' qualities are drawn. Firms engage in price competition. Consumers only see the firms' prices and rely on word-of-mouth in order to judge the firms' different qualities. All equilibria of the model are characterized. Different equilibria generate identical payoffs for the firms, but different welfare results. In the unique monotone pricing equilibrium, welfare converges to zero in the number of firms. Chapter 3 (joint work with Philipp Weinschenk) studies a price competition game in which customers are heterogeneous in the rebates they get from either of two firms. We characterize the transition from competitive pricing (without rebates) over mixed strategy equilibrium (for intermediate rebates) to monopolistic pricing (for larger rebates). In the mixed equilibria, each firm's strategy is a mixture of two distinct strategies: (i) aggressive pricing that can steal away customers from the other firm and (ii) defensive pricing that can only attract customers who get the rebate. Chapter 4 studies the optimal release of advertising and information in independent private values second-price auctions. The seller costly chooses for each bidder a probability of learning about the auction or of receiving information. Mild but sharp conditions are developed under which the seller allocates his informational efforts among the potential bidders as concentrated as possible. The seller overinvests in advertising if the valuations of the bidders are drawn from a distribution with increasing failure rate. He underinvests if the distribution has decreasing failure rate. The overall level of advertising is higher under distributions that are more dispersed in terms of the excess wealth order. Chapter 5.analyzes a similar problem of information release as in Chapter 4, yet in a different setting. The bidders' valuations are sums of independent, identically distributed random variables. By sending a costly information package to a bidder, the seller can reveal to the bidder the realization of one of the random variables. Our main focus lies on the case of two bidders and on the situation where the seller can sell his information packages to the bidders. It is shown that, essentially, giving the same number of packages to both bidders is dominated by any other choice of dividing the same number of packages

A little good is good enough: ethical consumption, cheap excuses, and moral self-licensing

We explore the role of cheap excuses in product choice. If a product improves upon one ethically relevant dimension, agents may care less about other, completely independent ethical facets of the product. This 'static moral self-licensing' would extend the logic of the well-studied moral self-licensing over time. Our data document that static moral self-licensing exists. Furthermore, effects spill over to later, unrelated but ethically relevant contexts. Thus, static moral self-licensing and moral self-licensing over time amplify each other. Outsiders, though incentivized for correct estimates, are completely oblivious to effects of moral selflicensing, both, static and over time

Understanding demand for COVID-19 antibody testing

We study individual demand for COVID-19 antibody tests in an incentivized study on a representative sample of the US population. Almost 2,000 participants trade off obtaining an at home test kit against money. At prices close to zero, 80 percent of individuals want the test. However, this broad support of testing falls sharply with price. Demand decreases by 19 percentage points per $10 price increase. Demand for testing increases with factors related to its potential value, such as age, increased length and strength of protective immunity from antibodies, and greater uncertainty about having had the virus. Willingness to pay for antibody tests also depends on income, ethnicity and political views. Black respondents show significantly lower demand than white and Hispanic respondents, and Trump-supporters demonstrate significantly lower demand for testing. The results suggest that charging even moderate prices for antibody tests could widen health inequalities

Pleasures of skill and moral conduct

As was recognized by Bentham, skillfulness is an important source of pleasure. Humans like achievement and to excel in tasks relevant to them. This paper provides controlled experimental evidence that striving for pleasures of skill can have negative moral consequences and causally reduce moral values. In the study, subjects perform an IQ-test. They know that each correctly solved question not only increases test performance but also the likelihood of moral transgression. In terms of self-image, this creates a trade-off between signaling excellence and immoral disposition. We contrast performance in the IQ-test to test scores in an otherwise identical test, which is, however, framed as a simple questionnaire with arguably lower self-relevance. We find that subjects perform significantly better in the IQ-test condition, and thus become more willing to support morally problematic consequences. Willingness to reduce test performance in order to behave more morally is significantly less pronounced in the IQ versus the more neutral context. The findings provide controlled and causal evidence that the desire to succeed in a challenging, self-relevant task has the potential to seduce subjects into immoral behaviors and to significantly decrease values attached to moral outcomes

A little good is good enough: Ethical consumption, cheap excuses, and moral self-licensing

This paper explores the role of cheap excuses in product choice. If agents feel that they fulfill one ethical aspect, they may care less about other independent ethical facets within product choice. Choosing a product that fulfills one ethical aspect may then suffice for maintaining a high moral self-image in agents and render it easier to ignore other ethically relevant aspects they would otherwise care about more. The use of such cheap excuses could thus lead to a “static moral self-licensing” effect, and this would extend the logic of the well-known dynamic moral self-licensing. Our experimental study provides empirical evidence that the static counterpart of moral self-licensing exists. Furthermore, effects spill over to unrelated, ethically relevant contexts later in time. Thus, static moral self-licensing and dynamic moral self-licensing can exist next to each other. However, it is critical that agents do not feel that they fulfilled an ethical criterion out of sheer luck, that is, agents need some room so that they can attribute the ethical improvement at least partly to themselves. Outsiders, although monetarily incentivized for correct estimates, are completely oblivious to the effects of moral self-licensing, both static and dynamic

Physical distance and cooperativeness towards strangers

Cooperativeness among genetically unrelated humans remains a major puzzle in the social sciences. We explore the causal impact of physical distance on willingness to help. In a field setting, participants decide about supporting local refugees at the dispense of money to themselves. We vary physical distance only, and keep other factors such as cultural distance fixed. The data shows that an increase in local physical distance decreases willingness to donate. A laboratory experiment confirms this finding. We further explore the causal roles of exposure (in the field) and of larger distances (in the lab) with a total of 475 participants

Diffusion of being pivotal and immoral outcomes

We study how the diffusion of being pivotal affects immoral outcomes. In a first set of experiments, subjects decide about agreeing to kill mice and receiving money versus objecting to kill mice and foregoing the monetary amount. In a baseline condition, subjects decide individually about the life of one mouse. In the main treatment, subjects are organized into groups of eight and decide simultaneously. Eight mice are killed if at least one subject supports the killing. The fraction of subjects agreeing to kill is significantly higher in the main condition compared to the baseline condition. In the second set of experiments, we run the same baseline and main conditions but use a charity context and additionally study sequential decisions. We replicate our main finding from the mouse paradigm and additionally show that in the sequential treatment, prosocial behavior is even less pronounced. We further show that the observed effects increase with experience, i.e., when we repeat the experiment for a second time. Finally, we report evidence on beliefs, elicited in our main experiments but also from a treatment of noninvolved observers, and show that beliefs about being pivotal are a main driver of our results