Employment protection reform in search economies

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layos and introduces a U.S.-style experiencerating system, which we model as a combination of a layo tax and a payroll subsidy. The reform considered shows that it is possible to improve the eciency of employment protection policies without aecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation nance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.Search and Matching Models; Employment Protection; State-Contingent Layo Tax; Experience-Rating

Employment Protection Reform in Search Economies

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layoffs and introduces a U.S.-style experience- rating system, which we model as a combination of a layoff tax and a payroll subsidy. The reform considered shows that it is possible to improve the efficiency of employment protection policies without affecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation finance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.Search and Matching Models, Employment Protection, State-Contingent Layoff Tax, Experience-Rating

Does Bargaining Matter in the Small Firm Matching Model?

In this article, we use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. We apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm’s matching model of unemployment. To the best of our knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search-matching economies. Our results are twofold. First from the theoretical/methodological viewpoint, we extend a somewhat flexible search-matching economy to alternative bargaining solutions. In particular, we prove that the Egalitarian and the Kalai-Smorodinsky solutions are easily implementable and mathematically tractable within search-matching economies. Second, our results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected. This is of particular relevance in comparison with the results established in the earlier literature.search and matching models, bargaining theory, Nash, Egalitarian, Kalai-Smorodinsky

Does bargaining matter in the small firm's matching Mmodel?

In this article, the authors use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. They apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm’s matching model of unemployment. To the best of their knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search matching economies. Their results are twofold. First from the theoretical/methodological viewpoint, they extend a somewhat flexible search matching economy to alternative bargaining solutions. In particular, they prove that the Egalitarian and the Kalai -Smorodinsky solutions are easily implementable and mathematically tractable within search-matching economies. Second, their results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected. This is of particular relevance in comparison with the results established in the earlier literature.Search and matching models; Bargaining theory; Nash; Egalitarian; Kalai-Smorodinsky

All over the map: a worldwide comparison of risk preferences

We obtain rich measurements of risk preferences for 2939 subjects across 30 countries, and use the data to paint a picture of the distribution of risk preferences across the globe using structural equation models. Reference dependence and likelihood-dependence are found to be important everywhere. Model parameters in non-Western countries differ systematically from those in Western countries, with poorer countries substantially more risk tolerant than rich countries on average. We qualify previous findings on gender effects and cognitive ability by showing how they mainly impact likelihood-dependence. We further add novel evidence on the correlation between risk preferences and study major. Whereas we confirm previous results on observable characteristics of subjects explaining little of overall preference heterogeneity, a few macroeconomic indicators can explain a considerable part of the between-country heterogeneity

Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses

International audienceIn the loss domain, both practical and ethical considerations rule out the systematic use of an incentive-compatible procedure involving real losses. The experimental study presented here aims at investigating whether some easier-to-implement procedure could be adequately used. For that purpose, the subjects' degree of risk aversion is compared across three payment conditions: a real-losses condition based on a random-lottery (incentive-compatible) system, which serves as a benchmark, and two challengers, namely a "losses-from-an-initial-endowment" procedure and a hypothetical-losses condition. As a by-product, our experimental design also allows us to investigate the impact of monetary incentives in the gain domain. The main result is twofold: no significant difference arises between the three payment conditions in the loss domain, while real and hypothetical choices significantly differ in the gain domain. Our results suggest that the use of monetary incentives may be more crucial in the gain domain than in the loss domain

A Tractable Method to Measure Utility and Loss Aversion under Prospect Theory

This paper provides an efficient method to measure utility under prospect theory, the most important descriptive theory of decision under uncertainty today. Our method is based on the elicitation of certainty equivalents for two-outcome prospects, a common way to measure utility. We applied our method in an experiment and found that most subjects were risk averse for gains and risk seeking for losses but had concave utility both for gains and for losses. This finding illustrates empirically that risk seeking and concave utility can coincide under prospect theory, a result that was derived theoretically by Chateauneuf and Cohen (1994). Utility was steeper for losses than for gains, which is consistent with loss aversion. Utility did not depend on the probability used in the elicitation, which offers support for prospect theory

Multivariate risk preferences in the QALY model

In recent years the interest in multivariate and higher-order risk preferences has increased noticeably. A growing body of literature has demonstrated both the relevance and the impact of these preferences in several domains, although for health the empirical evidence is lacking. In this study we empirically measure multivariate and higher-order risk preferences for quality of life and longevity, the two elements of the Quality-Adjusted Life Year (QALY) model. We observe overwhelming support for correlation seeking between these two attributes as well as significant evidence of cross-imprudence and cross-intemperance. These findings indicate that higher-order risk preferences appear to deviate more from neutrality for health than for money. Furthermore, we test if preferences for a risky treatment for a disease affecting only quality of life, depend on life expectancy. Our results show no systematic evidence of such a relation, although there is a marginally significant positive relation between riskiness of the comorbidity affecting life expectancy and risk aversion for a treatment affecting quality of life. We therefore observe no definitive deviation from the QALY model, although the model appears to be more robust when expected longevity is high

Multivariate risk preferences in the QALY model

In recent years the interest in multivariate and higher-order risk preferences has increased noticeably. A growing body of literature has demonstrated both the relevance and the impact of these preferences in several domains, although for health the empirical evidence is lacking. In this study we empirically measure multivariate and higher-order risk preferences for quality of life and longevity, the two elements of the Quality-Adjusted Life Year (QALY) model. We observe overwhelming support for correlation seeking between these two attributes as well as significant evidence of cross-imprudence and cross-intemperance. These findings indicate that higher-order risk preferences appear to deviate more from neutrality for health than for money. Furthermore, we test if preferences for a risky treatment for a disease affecting only quality of life, depend on life expectancy. Our results show no systematic evidence of such a relation, although there is a marginally significant positive relation between riskiness of the comorbidity affecting life expectancy and risk aversion for a treatment affecting quality of life. We therefore observe no definitive deviation from the QALY model, although the model appears to be more robust when expected longevity is high

Estimating sign-dependent societal preferences for quality of life

This paper is the first to apply prospect theory to societal health-related decision making. In particular, we allow for utility curvature, equity weighting, sign-dependence, and loss aversion in choices concerning quality of life of other people. We find substantial inequity aversion, both for gains and losses, which can be attributed to both diminishing marginal utility and differential weighting of better-off and worse-off. There are also clear framing effects, which violate expected utility. Moreover, we observe loss aversion, indicating that respondents give more weight to one group’s loss than another group’s gain of the same absolute magnitude. We also elicited some information on the effect of the age of the studied group. The amount of inequity aversion is to some extent influenced by the age of the considered patients. In particular, more inequity aversion is observed for gains of older people than gains of younger people