Incentive Effects of Funding Contracts: An Experiment

We examine the incentive effects of funding contracts on entrepreneurial effort decisions and allocative efficiency. We experiment with four types of contracts (standard debt contract, outside equity, non-monotonic contract, full-subsidy contract) that differ in the structure of investor repayment and, therefore, in the incentives for entrepreneurial effort provision. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces effort distortions and increases efficiency. We test this non-monotonic-contracts hypothesis in the laboratory as well. Our results reveal that the incentive effects of funding contracts need to be experienced before they reect in observed behavior. With sufficient experience observed behavior is consistent with the theoretical predictions and supports the non-monotonic-contracts hypothesis: we find that the replacement of a standard debt contract by a repayment-neutral non-monotonic contract increases entrepreneurial income by 170% and total surplus by 30% in our setting.hidden information, funding contracts, incentives, experiment, standard debt contract, non-monotonic contract

A pure variation of risk in private-value auctions

We introduce a new method of varying risk that bidders face in first-price and second-price private value auctions. We find that decreasing bidders’ risk in first-price auction reduces the degree of overbidding relative to the risk-neutral Bayesian Nash equilibrium prediction.This finding is consistent with the risk-aversion explanation of overbidding. Furthermore, we apply the method to second-price auctions and find that bidding behavior is robust to manipulating bidders'' risk as generally expected in auction theory.microeconomics ;

A pure variation of risk in first-price auctions

We introduce a new method of varying the risk that bidders face in first-price private value auctions. We find that decreasing bidders’ risk significantly reduces the degree of overbidding relative to the risk-neutral Bayesian-Nash equilibrium prediction. This implies that risk affects bidding behavior as generally expected in auction theory. While resolving a long-standing debate on the effect of risk on auction behavior, our results give rise to a new puzzle. As risk is diminished and overbidding decreases for most of the value range, a significant degree of underbidding sets in for very low valuesEconomics (Jel: A)

The size and performance of public sector activities in Europe

The obvious difference in the economic performance of countries has led to the question why some countries are so much wealthier than others, and whether the size, the structure, and the organisation of the public sector contribute to cross-country income and growth gaps. Public sector activities may have an effect on overall productivity and growth either directly by the level and changes of productivity within the public sector, or indirectly by triggering off productivity changes in private production. This paper is concerned with the former aspect. It provides an overview of the size and the structure of the public sector in Europe and compares it with the US and Japan. This is related to the more recent empirical literature on public sector performance. After reviewing some of the measurement issues related to public services, the evidence on the size of government and its performance is analysed. The results on industrial countries are not fully conclusive, but seem to attribute more efficiency to smaller rather than to larger governments. Public sector reforms to consolidate the size of government are therefore likely to enhance the sector's own productivity and thereby positively contribute to overall economic performance.public sector size, performance of public sector

The shifted proper orthogonal decomposition: A mode decomposition for multiple transport phenomena

Transport-dominated phenomena provide a challenge for common mode-based model reduction approaches. We present a model reduction method, which extends the proper orthogonal decomposition (POD) by introducing time-dependent shifts of the snapshot matrix. The approach, called shifted proper orthogonal decomposition (sPOD), features a determination of the multiple transport velocities and a separation of these. One- and two-dimensional test examples reveal the good performance of the sPOD for transport-dominated phenomena and its superiority in comparison to the POD.DFG, SFB 1029, Substantial efficiency increase in gas turbines through direct use of coupled unsteady combustion and flow dynamic

Non-monotonic Repayment Contracts are Superior: An Experimental Approach

We experimentally investigate if theoretically superior non-monotonic repayment contracts yield superior results in the laboratory. We find replacing standard debt contracts with repayment-equivalent non-monotonic contracts increases entrepreneurial income by 170% and total surplus by 30%.financial economics and financial management ;