Latest CESifo Working Papers

No. 3147 Fidrmuc, Jarko: Time-Varying Exchange Rate Basket in China from 2005 to 2009                

We use the Kalman filter to estimate the structure of the secret currency basket of the renminbi based on daily data between 2005 and 2009. The currency weights of selected currencies are modeled as stochastic processes (random walks). The official announcement of the new exchange rate regime in July 2005 with the introduction of a secret currency basket was followed by a smooth appreciation against the US dollar. Other currencies did not play a major role. We show that the US dollar again received a higher weight in the Chinese exchange rate policy already before the financial crisis of 2008. Download

No. 3146 Grossbard, Shoshana Amyra / Pereira, Alfredo Marvao: Will Women Save more than Men? A Theoretical Model of Savings and Marriage 

This paper presents an inter-temporal model of individual behavior with uncertainty about marriage and divorce and which accommodates the possible presence of economies or diseconomies of scale from marriage. We show that a scenario of higher marriage rates and higher divorce rates will be associated with higher savings rates in the presence of economies of marriage and with lower savings rates in the presence of diseconomies of marriage. In the context of traditional gender roles, this implies higher saving rates by young men and lower saving rates by young women than in less traditional countries, the opposite being the case with saving rates of married women relative to those of married men. We establish the relevance of traditional gender roles and marital status to understanding cross-country variation in gender differentials in savings behavior. Download

No. 3145 Di Addario, Sabrina / Vuri, Daniela: Entrepreneurship and Market Size. The Case of Young College Graduates in Italy 

We analyze empirically the effects of urban agglomeration on Italian college graduates’ work possibilities as entrepreneurs three years after graduation. We find that each 100,000 inhabitant-increase in the size of the individual’s province of work reduces the chances of being an entrepreneur by 0.2-0.3 percent. This result holds after controlling for regional fixed effects and is robust to instrumenting urbanization. Province’s competition, urban amenities and dis-amenities, cost of labor, earning differentials between employees and self-employed workers, unemployment rates and value added per capita account for 40 percent of the negative urbanization penalty. Our result cannot be explained by the presence of negative large-city differentials in returns to education either. In fact, as long as they succeed in entering the largest markets, young entrepreneurs are able to reap-off the benefits of urbanization externalities: every 100,000-inhabitant increase in the province’s population raises entrepreneurs’ net monthly income by 0.2-0.3 percent. Download

No. 3144 Graves, Philip E.: Benefit-Cost Analysis of Environmental Projects: A Plethora of Systematic Biases 

There are many reasons to suspect that benefit-cost analysis applied to environmental policies will result in policy decisions that will reject those environmental policies. The important question, of course, is whether those rejections are based on proper science. The present paper explores sources of bias in the methods used to evaluate environmental policy in the United States, although most of the arguments translate immediately to decision-making in other countries. There are some “big picture” considerations that have gone unrecognized, and there are numerous more minor, yet cumulatively important, technical details that point to potentially large biases against acceptance on benefit-cost grounds of environmental policies that have true marginal benefits greater than true marginal costs, both in net present value terms. It is hoped that the issues raised here will improve future conduct of benefit-cost analyses of environmental policies. Download [See article in this issue]

No. 3143 Osberghaus, Daniel / Reif, Christiane: Total Costs and Budgetary Effects of Adaptation to Climate Change: An Assessment for the European Union  

Adaptation to climate change is gaining increasing relevance in the public debate of climate policy. However, detailed and regionalised cost estimates as a basis for cost-benefit-analyses are rare. We compose available cost estimates for adaptation in Europe, and in particular Germany, Finland and Italy. Furthermore, a systematic overview on fiscal aspects of adaptation is provided, with focus on budgetary effects of adaptation in the different impact sectors. Combining cost estimates, considerations on fiscal aspects and governmental interventions in adaptation processes, we present data-based guesses of public adaptation costs in the EU, divided by impact sectors. The findings show an expectedly large public burden in the adaptation of transport infrastructure and coastal protection, while high adaptation costs in the agriculture sector are predominantly private. The change in energy demand may well lead to a significant decrease in public expenditure. Considering the regional heterogeneity of adaptation measures and the high uncertainty of quantitative adaptation analyses, further research in the form of bottom-up-studies is needed. Download

No. 3142 Koskela, Erkki: Outsourcing Cost and Tax Progression under Nash Wage Bargaining with Flexible Outsourcing  

It is analyzed the impacts of outsourcing cost and wage tax progression under labor market imperfections with Nash wage bargaining and flexible outsourcing. With sufficiently strong (weak) labor market imperfection, lower outsourcing cost has a wage-moderating (wage-increasing) effect so that there is a negative (positive) effect on equilibrium unemployment. Higher tax progression, to keep the relative tax burden per worker constant, has a wage moderating and a positive effect on employment and negative effect on outsourcing. Download

No. 3141 Heijdra, Ben J. / Mierau, Jochen O. / Reijnders, Laurie S. M.: The Tragedy of Annuitization

We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for long-run welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions. Download

No. 3140 Kahn, Lawrence: Labor Market Policy: A Comparative View on the Costs and Benefits of Labor Market Flexibility         

The author reviews theories and evidence on labor market policies and institutions in an international context. These include collective bargaining, minimum wages, employment protection laws, unemployment insurance (UI), mandated parental leave, and active labor market policies. Scandinavia and Central Europe follow more interventionist policies than Canada, the UK and the US. Vulnerability to external market forces and ethnic homogeneity may explain such differences. While the interventionist model appears to reduce wage inequality and raise job security for incumbent workers, it also often relegates new entrants (disproportionately women, youth and immigrants) and the less skilled to temporary jobs or unemployment. Download

No. 3139 Chen, Yu-Fu / Funke, Michael: Global Warming and Extreme Events: Rethinking the Timing and Intensity of Environmental Policy

The possibility of low-probability extreme events has reignited the debate over the optimal intensity and timing of climate policy. In this paper, the authors contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real options model with “tail risk”. In a nutshell, their results indicate the importance of tail risk and call for foresighted pre-emptive climate policies. Download

No. 3138 Löffler, Axel / Schnabl, Gunther / Schobert, Franziska: Inflation Targeting by Debtor Central Banks in Emerging Market Economies 

Given buoyant capital inflows and managed exchange rates the majority of emerging market central banks have continued to accumulate massive foreign reserves. If left unsterilized, the liquidity expansion can threaten domestic macroeconomic stability. To contain domestic inflation these central banks absorb rather than provide liquidity in their regular monetary policy operations. Based on an augmented Barro-Gordon framework, the authors that inflation targeting within an environment of surplus liquidity is less efficient, because absorbing liquidity raises the costs of monetary policy operations. By implementing sterilization costs into the central bank’s objective function the inflation bias increases. Download

No. 3137 Manzano, Carolina / Vives, Xavier: Public and Private Learning from Prices, Strategic Substitutability and Complementarity, and Equilibrium Multiplicity                     

The authors study a general static noisy rational expectations model, where investors have private information about asset payoffs, with common and private components, and about their own exposure to an aggregate risk factor, and derive conditions for existence and uniqueness (or multiplicity) of equilibria. They find that a main driver of the characterisation of equilibria is whether the actions of investors are strategic substitutes or complements. This latter property in turn is driven by the strength of a private learning channel from prices, arising from the multidimensional sources of asymmetric information, in relation to the usual public learning channel. When the private learning channel is strong (weak) in relation to the public one, there is strong (weak) strategic complementarity in actions and potentially multiple (unique) equilibria. The results enable a precise characterisation of whether information acquisition decisions are strategic substitutes or complements. The authors find that the strategic substitutability in information acquisition result obtained in Grossman and Stiglitz (1980) is robust. Download

No. 3136 Kolmar, Martin / Rommeswinkel, Hendrik: Group Contests with Complementarities in Efforts

Usually, groups increase their productivity by the specialization of their group members. In these cases, group output is no longer simply a sum of individual outputs. The authors analyse contests with group-specific public goods that allow for different degrees of complementarity between group members’ efforts. More specifically, they use a Tullock contest success function and a CES-impact function. They show that in equilibrium the degree of complementarity is irrelevant if groups do not differ in size and group members have an identical valuation of the public good. The equilibrium is discontinuous as the CES function converges to the Cobb-Douglas case. Except for the effects at the discontinuity, higher complementarity tends to favor larger groups. In groups with diverse valuations, higher complementarity also leads to higher similarity in group members’ efforts, which however is not necessarily an advantage for a more diverse group. Download

No. 3135 Baye, Michael R. / Kovenock J., Dan / Vries, Casper de: The Herodotus Paradox

The Babylonian bridal auction, described by Herodotus, is regarded as one of the earliest uses of an auction in history. Yet, to our knowledge, the literature lacks a formal equilibrium analysis of this auction. These authors provide such an analysis for the two-player case with complete and incomplete information, and in so doing identify what they call the “Herodotus Paradox.” Download

No. 3134 Boyd, John / De Nicolò, Gianni / Loukoianova, Elena: Banking Crises and Crisis Dating: Theory and Evidence

The authors formulate a simple theoretical model of a banking industry that they use to identify and construct theory-based measures of systemic bank shocks (SBS). These measures differ from “banking crisis” (BC) indicators employed in many empirical studies, which are constructed using primarily information on government actions undertaken in response to bank distress. Using both country-level and firm-level samples, the authors show that SBS indicators consistently predict BC indicators, indicating that BC indicators actually measure lagged policy responses to systemic bank shocks. They then re-examine the impact of macroeconomic factors, bank market structure, deposit insurance, and external shocks on the probability of SBS and on BC indicators. They find that the impact of these variables on the likelihood of a policy response to banking distress (as represented by BC indicators) is frequently quite different from that on the likelihood of an SBS. They argue that disentangling the effects of systemic bank shocks and policy responses is crucial in understanding the roots of banking crises. The authors believe that many findings of a large empirical literature need to be re-assessed. Download

No. 3133 Karagözoglu, Emin / Riedl, Arno: Information, Uncertainty, and Subjective Entitlements in Bargaining

More often than not production processes are the joint endeavor of people having different abilities and productivities. Such production processes and the associated surplus production are often not fully transparent in the sense that the relative contributions of involved agents are blurred; either by lack of information about the actual performance of collaborators or because of random noise in the production process or both. These variables likely influence the surplus sharing negotiations following the production. By means of a laboratory experiment, the authors systematically investigate the role of such variables for the whole bargaining process from opening offers to (dis)agreements and find that uncertainties in surplus production and (even) a very coarse performance information lead to bargaining asymmetries. In addition, they find that bargainers’ subjective entitlements are also influenced by performance information and the randomness inherent in the production process. These differences in subjective entitlements together with the differences in entitlements between better and worse performers influence the whole bargaining process and significantly contribute to the differences in bargaining outcomes. Download

No. 3132 Komlos, John / Brabec, Marek: The Trend of BMI Values by Centiles of US Adults, Birth Cohorts 1882-1986

Trends in body mass index (BMI) values are estimated by centiles of the US adult population by birth cohorts 1886-1986 stratified by ethnicity. The highest centile increased by some 18 to 22 units in the course of the century, while the lowest ones increased by merely 1 to 3 units. Hence, the BMI distribution became increasingly right-skewed as the distance between the centiles became increasingly larger. The rate of change of BMI centile curves varied considerably over time. The BMI of white men and women experienced upsurges after the two World Wars and downswings during the Great Depression and again after 1970. However, among blacks the pattern is different during the first half of the century, with men’s rate of increase in BMI values decreasing substantially and that of females remaining unchanged at a relatively high level until the Second World War. However, after the war the rate of change of BMI values of blacks resembled that of the whites, with an accelerating phase followed by a slowdown around the 1970s. In sum, the creeping nature of the obesity epidemic is evident, as the technological and lifestyle changes of the 20th century affected various segments of the population quite differently. Download

No. 3131 Posch, Olaf: Risk Premia in General Equilibrium

This paper shows that non-linearities imposed by a neoclassical production function alone can generate time-varying and asymmetric risk premia over the business cycle. These (empirical) key features become relevant, and asset market implications improve substantially when we allow for non-normalities in the form of rare disasters. We employ analytical solutions of dynamic stochastic general equilibrium models, including a novel solution with endogenous labor supply, to obtain closed-form expressions for the risk premium in production economies. In contrast to endowment economies, the curvature of the policy functions affects the risk premium through controlling the individual’s effective risk aversion. Download

No. 3130 Rege, Mari / Solli, Ingeborg F.: The Impact of Paternity Leave on Long-term Father Involvement

Using Norwegian registry data, these authors investigate how paternity leave affects fathers’ long-term earnings. In 1993 Norway introduced a paternity quota of the paid parental leave. The authors estimate a difference-in-differences model which exploits differences in fathers' exposure to the paternity quota. Their analysis suggests that four weeks paternity leave during the child’s first year decreases fathers’ future earnings by 2.1 percent. Importantly, this effect persists up until the last point of observation, when the child is five years old. The earnings effect is consistent with increased long-term father involvement, as fathers shift time and effort from market to home production. In an investigation of Norwegian time use data, the authors find additional evidence for this hypothesis. Download

No. 3129 Oprea, Ryan / Henwood, Keith / Friedman, Daniel: Separating the Hawks from the Doves: Evidence from Continuous-Time Laboratory Games

Human players in our laboratory experiment received flow payoffs over 120 seconds each period from a standard Hawk-Dove bimatrix game played in continuous time. Play converged closely to the symmetric mixed Nash equilibrium under a one-population matching protocol. When the same players were matched in a two-population protocol with the same bimatrix, they showed clear movement towards an asymmetric (and very inequitable) pure Nash equilibrium of the game. These findings support distinctive predictions of evolutionary game theory. Download

No. 3128 Meier, Volker / Rainer, Helmut: On the Optimality of Joint Taxation for Non-Cooperative Couples

The authors present a non-cooperative model of a family’s time allocation between work and a home-produced public good, and examine whether the income tax should apply to couples or individuals. While tax-induced labor supply distortions lead to overprovision of the public good, spouses’ failure to internalise the collective effect of their choices points towards underprovision. A large parameter range exists for which a move from individual to joint taxation improves the welfare of both spouses. The source of Pareto-improvement consists in moving the level of the public good closer to its first-best, while an adjustment of intra-family transfers compensates the secondary earner for the increased tax load. Download

No. 3127 Itaya, Jun-ichi / Okamura, Makoto / Yamaguchi, Chikara: Partial Tax Coordination in a Repeated Game Setting

This paper addresses the problem of partial tax coordination among regional or national sovereign governments in a repeated game setting. The authors show that partial tax coordination is more likely to prevail if the number of regions in a coalition subgroup is smaller and the number of existing regions in the entire economy is larger. They also show that under linear utility, partial tax coordination is more likely to prevail if the preference for a local public good is stronger. The main driving force for these results is the response of the intensity of tax competition. The increased (decreased) intensity of tax competition makes partial tax coordination more (less) sustainable. Download

No. 3126 Kotakorpi, Kaisa / Poutvaara, Panu: Pay for Politicians and Candidate Selection: An Empirical Analysis

A growing theoretical literature on the effect of politicians’ salaries on the average level of skills of political candidates yields ambiguous predictions. In this paper, the authors estimate the effect of pay for politicians on the level of education of parliamentary candidates. The authors take advantage of an exceptional reform where the salaries of Finnish MPs were increased by 35 % in the year 2000, intended to make the pay for parliamentarians more competitive. A difference-in-differences analysis, using candidates in municipal elections as a control group, suggests that the higher salary increased the fraction of candidates with higher education among female candidates, while we find no significant effect for male candidates. Download

No. 3125 Van der Ploeg, Frederick: Natural Resources: Curse or Blessing?

Are natural resources a “curse” or a “blessing”? The empirical evidence suggests either outcome is possible. The paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources. These include that a resource bonanza induces appreciation of the real exchange rate, deindustrialization and bad growth prospects, and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law, corruption, presidential democracies, and underdeveloped financial systems. Another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad, induces corruption especially in non-democratic countries, and keeps in place bad policies. Finally, resource-rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets. The survey also offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies. Download

No. 3124 Fiorio, Carlo V. / Florio, Massimo: A Fair Price for Energy? Ownership versus Market Opening in the EU15

In the past two decades privatisation and liberalisation of network industries providing services of general economic interest (SGEI), have been particularly significant in the European Union. Wide variations around a common policy trend can, however, be observed across countries and sectors. The authors focus on the electricity and gas sectors because energy sectors have usually been profit makers, not affected by direct government transfers, in contrast to other SGEI. We study the effects of privatisation and other reforms on consumer prices using both subjective data on consumers’ perception of utility prices and data on average prices paid. Download

No. 3123 Daveri, Francesco / Parisi, Maria Laura: Experience, Innovation and Productivity - Empirical Evidence from Italy's Slowdown

We investigate the role of workers’ and managerial experience as a determinant of firm innovation and productivity in a sample of Italian manufacturing firms. A high share of temporary – thus un-experienced - workers is associated to low innovation and productivity. The effect of managerial experience measured by age on firm performance depends instead on the type of firm: high age of managers and board members is bad for innovation and productivity growth, while costs and benefits of old managerial age cancel out for non-innovative firms. Download

No. 3122 Gollin, Douglas / Zimmermann, Christian: Global Climate Change and the Resurgence of Tropical Disease: An Economic Approach

We study the impact of global climate change on the prevalence of tropical diseases using a heterogeneous agent dynamic general equilibrium model. In our framework, households can take actions (e.g., purchasing bednets or other goods) that provide partial protection from disease. However, these actions are costly and households face borrowing constraints. Parameterizing the model, we explore the impact of a worldwide temperature increase of 3°C. We find that the impact on disease prevalence and especially output should be modest and can be mitigated by improvements in protection efficacy. Download

No. 3121 Chirinko, Robert S. / Wilson, Daniel J.: Can Lower Tax Rates be Bought? Business Rent-Seeking and Tax Competition among U.S. States

The standard model of strategic tax competition assumes that government policymakers are perfectly benevolent, acting solely to maximize the utility of the representative resident in their jurisdiction. We depart from this assumption by allowing for the possibility that policymakers also may be influenced by the rent-seeking (lobbying) behavior of businesses. This extension to the standard strategic tax competition model implies that business contributions may affect not only the levels of equilibrium tax rates but also the slope of the tax reaction function between jurisdictions, thus enhancing or retarding the mobility of capital across jurisdictions. The model is estimated with panel data for 48 U.S. states and unique data on business campaign contributions. Among other results, we document a significant direct effect of business contributions on tax policy; the economic value of a $1 business campaign contribution in terms of lower state corporate taxes is approximately $6.65. Download

No. 3120 Goerke, Laszlo / Pannenberg, Markus: 'Take it or Go to Court' - The Impact of Sec. 1a of the German Protection against Dismissal Act on Severance Payments

In 2004, a section was added to the German Protection against Dismissal Act, establishing a new procedure to dismiss an employee, given a predetermined severance payment. Most legal scholars presume the change to be without impact, while a minority of experts claims it to be either beneficial or unfavourable to employees. Our theoretical model suggests that firms will use the new procedure, but that the change in payoffs is indeterminate and, therefore, an empirical issue. Exploiting the fact that collective dismissals are not directly affected by the amendment, difference-in-differences estimates based on panel data for West Germany indicate that the legal change did have a negative effect on severance pay. Download

No. 3119 Dixon, Huw D. / Le Bihan, Hervé: Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications

The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counter-parts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard DSGE model. The Generalized Taylor model is found to help rationalizing the hump-shaped response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation. Download

No. 3118 Fisher, Eric O'N.: Heckscher-Ohlin Theory when Countries have Different Technologies

Rethinking the foundations of Heckscher-Ohlin theory when countries have different technologies, this paper shows how to make the proper adjustments for international productivity differences. The central tool is a factor conversion matrix that computes the local factor content of foreign Rybczynski effects. Factor-specific productivities are a special case of these more general linear relationships. Download

No. 3117 Crayen, Dorothee / Hainz, Christa / Ströh de Martinez, Christiane: Remittances, Banking Status and the Usage of Insurance Schemes

Empirical evidence that migrants send home more remittances after disasters raises the question of whether remittances can be used to self-insure, substituting for both formal and informal insurance. We investigate this question using a unique data set on the usage patterns of financial services by households in South Africa. We show that the likelihood that a respondent has a formal funeral cover increases with income and banking status. However, it is lower for individuals receiving remittances, which supports the idea that remittances act as (self-) insurance. We also show that purchasing formal funeral cover is influenced by other risk management strategies and that determinants of informal insurance differ from those of formal insurance. Download

No. 3116 Pesaran, M. Hashem: Predictability of Asset Returns and the Efficient Market Hypothesis

This paper is concerned with empirical and theoretical basis of the Efficient Market Hypothesis (EMH). The paper begins with an overview of the statistical properties of asset returns at different frequencies (daily, weekly and monthly), and considers the evidence on return predictability, risk aversion and market efficiency. The paper then focuses on the theoretical foundation of the EMH, and show that market efficiency could co-exit with heterogeneous beliefs and individual irrationality so long as individual errors are cross sectionally weakly dependent in the sense defined by Chudik, Pesaran, and Tosetti (2010). But at times of market euphoria or gloom these individual errors are likely to become cross sectionally strongly dependent and the collective outcome could display significant departures from market efficiency. Market efficiency could be the norm, but it is likely to be punctuated with episodes of bubbles and crashes. The paper also considers if market inefficiencies (assuming that they exist) can be exploited for profit. Download

No. 3115 Beirne, John / Caporale, Guglielmo Maria / Spagnolo, Nicola: Liquidity Risk, Credit Risk and the Overnight Interest Rate Spread: A Stochastic Volatility Modelling Approach

In this paper we model the volatility of the spread between the overnight interest rate and the central bank policy rate (the policy spread) for the euro area and the UK during the two main phases of the financial crisis that began in late 2007. During the crisis, the policy spread exhibited signs of volatility, owing to the breakdown in interbank market activity. The determinants of this volatility are assessed using Stochastic Volatility models to gauge the role played by liquidity risk, credit risk (financial and sovereign), and interest rate expectations. Our results suggest that liquidity risk is the main determinant of the volatility of the policy spread, but also that private bank credit risk has become more apparent in the post-Lehman collapse phase of the crisis for the euro area as financial CDS premia rose due to possible default fears. In addition, the ECB appears to have been more effective in addressing liquidity risk since the onset of the crisis, and this may be related to its greater direct access to a broader range of counterparties and its acceptance of a broader range of eligible collateral. The main implication is that, in crisis times, a sufficiently flexible operational framework for monetary policy implementation produces the most timely response to market tensions. Download

No. 3114 Poutvaara, Panu / Ropponen, Olli: School Shootings and Student Performance

In this paper, we study how high school students reacted to the shocking news of a school shooting. The shooting coincided with national high-school matriculation exams. As there were exams both before and after the shooting, we can use a difference-in-differences analysis to uncover how the school shooting affected the test scores compared to previous years. We find that the average performance of young men declined due to the school shooting, whereas we do not observe a similar pattern for women. Download

No. 3113 Buchholz, Wolfgang / Peters, Wolfgang: Equity as a Prerequisite for Stable Cooperation in a Public-Good Economy - The Core Revisited

In this paper we explore the relationship between an equitable distribution of the cost shares in public-good provision on the one hand and the core property of an allocation on the other. In particular we show that it is an inhomogeneous distribution of cost shares that motivates some coalition of agents to separate and to block an initially given Pareto optimal allocation which can be interpreted as the outcome of a negotiation process when all agents form a grand coalition. Distributional equity of the individual burdens of public-good contribution is assessed by a specific sacrifice measure (the “Moulin sacrifice”) which is derived from the egalitarian-equivalent concept suggested by Moulin (1987). We also develop a simple core test by which it can be checked whether a given allocation is in the core thus being a possible outcome of a cooperative agreement in the public-good economy. Download

No. 3112 Danziger, Leif: Uniform and Nonuniform Staggering of Wage Contracts

This paper provides a model that can account for the almost uniform staggering of wage contracts in some countries as well as for the markedly nonuniform staggering in others. In the model, short and long contracts as well as long contracts concluded in different periods are strategic substitutes, which provides a powerful rationale for staggering. We show that for realistic parameter values, there is a continuum of possible equilibria with various degrees of staggering of long contracts. If the contracting cost is not too large, then the lowest possible degree of staggering decreases with the contracting cost and increases with monetary uncertainty. Download

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