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The industrialized world has experienced a demographic shift that is straining public pension systems. Employer‐sponsored pension plans change from defined benefit to defined contribution. More emphasis is put on individually managed retirement funds. One concern with this movement is the potential negative effect on individual welfare if households' investment behaviour is suboptimal. Using micro‐level...
Researchers still lack consensus about the size of the user cost elasticity of capital. The divergence in prior estimates may have arisen because one of the two strands of research has neglected cointegration among capital, its user costs, and sales. Using German firm‐level panel data, I show that estimating a distributed lag model, prevalent in prior literature, leads to low estimates of the user...
Unemployment insurance tends to distort incentives in the labour market, affecting job search and wage formation adversely. We show in a search‐matching model that this moral hazard problem can be reduced by attaching a workfare requirement to the eligibility conditions for claiming unemployment benefits. Even when workfare has no effects on human capital or productivity, it is possible to improve...
Data from the 2001 Census of India is used to examine how social divisions are associated with access to tap water across rural India. Different types of social fragmentation are associated with different outcomes for tap water access. Communities that are heterogeneous in terms of caste have lower access to tap water, while communities that are fragmented across religions have higher access. This...
This Economica Coase Lecture reviews research that has revolutionized the field of international trade and foreign direct investment. It explains the motivation behind the development of new analytical frameworks, the nature of these frameworks, and the empirical studies that sprouted from them.
Using a collective model of consumption, we characterize optimal commodity taxes aimed at targeting specific individuals within the household. The main message is that distortionary indirect taxation can circumvent the agency problem of the household. Essentially, taxation should discourage less the consumption of a certain group of goods—those for which the slope of the Engel curves is larger for...
Models of competition for the market with endogenous market structures show that, contrary to the Arrow view, an endogenous entry threat induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions using a unique dataset for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats...
We gain more insight into the heterogeneity in firms' productivity regarding agglomeration economies. Given a production function that allows for input factor substitution, we identify ratios of firm‐specific production parameters employing a hedonic price approach. We use unique microdata of commercial rents and firm characteristics, and employ semiparametric estimation techniques. The results show...
This paper derives Pareto‐efficient provision rules for national and global public goods in a two‐country world, where each individual cares about his or her relative consumption of private goods compared to other domestic and foreign residents. We contrast these rules with those following from a non‐cooperative Nash equilibrium. Both national and global public goods are underprovided in Nash equilibrium...
We investigate the effect of oil price shocks on UK inflation using a time‐varying vector autoregression with stochastic volatility. The estimates show that the oil price–inflation pass‐through declined from the early 1980s until the mid/late 1990s. Post‐2003, however, the importance of oil price shocks for UK inflation rose significantly. The rise in the pass‐through coincided with a significant...
In the Stiglitz–Weiss (1981) adverse selection model, pure credit rationing cannot arise in equilibrium. We show that this is due to the fact that single‐name risks are independent and a well‐diversified portfolio contains no risk. We introduce non‐diversifiable macroeconomic risk to the model and show that risk‐averse lenders possibly ration credit. Welfare analysis shows that an interest rate ceiling...
Unemployment rates are often higher for migrants than for natives. This could result from longer periods of unemployment as well as from shorter periods of employment. We jointly examine male native‐migrant differences in the duration of unemployment and subsequent employment using German panel data and bivariate discrete time duration models. Compared to natives, unemployed male migrant workers do...
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