CER-ETH Research Seminar, Spring Term 2013

Speakers

Tom Krebs

We develop a macroeconomic model with physical and human capital, human capital risk, and limited
contract enforcement. We show analytically that young (high-return) households are the most exposed
to human capital risk and are also the least insured. We document this risk-insurance pattern in data
on life-insurance drawn from the Survey of Consumer Finance. A calibrated version of the model
can quantitatively account for the life-cycle variation of insurance observed in the US data and implies
welfare costs of under-insurance for young households that are equivalent to a 4 percent reduction
in lifetime consumption. A policy reform that makes consumer bankruptcy more costly leads to a substantial
increase in the volume of credit and insurance.

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Vincenzo Galasso

Our theoretical framework predicts that the prevailing internal organization of the family, characterized by weak or strong ties, affected the initial design of pension systems. Using a historical classification, we show that in societies dominated by (weak) absolute nuclear families safety net pension systems emerged; and viceversa in societies dominated by strong families. These results are robust to controlling for alternative legal, religious, and political explanations. Evidence on individual data confirm these findings: US citizens whose ancestors came from "strong family" countries (communitarian or egalitarian nuclear) support the government as a provider of old age security through generous retirement benefits.

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Bard Harstad

We analyze participation in international environmental agreements (IEAs) in a dynamic game where countries pollute and invest in green technologies. If complete contracts are feasible, participants eliminate the hold-up problem associated with their investments; however, most countries prefer to free-ride rather than participate. If investments are non-contractible, countries face a hold-up problem every time they negotiate; but the free-rider problem can be mitigated and significant participation is feasible. Participation becomes attractive because only large coalitions commit to long-term agreements that circumvent the hold-up problem. Under well-specified conditions even the first-best outcome is possible when the contract is incomplete. Since real-world IEAs fit in the incomplete contracting environment, our theory may help explaining the rising importance of IEAs and how they should be designed.

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David Martimort

We analyze international environmental agreements in contexts
with asymmetric information, voluntary participation by sovereign countries
and possibly limited enforcement. Taking a mechanism design perspective,
we study how countries can agree on effort targets and compensations
to take into account multilateral externalities. We highlight a tradeoff
between solving free riding in effort provision at the intensive margin
for participating countries and free riding at the extensive margin to ensure
participation of all countries. We also show that the optimal mechanism
admits a simple approximation by menus with attractive implementation
properties. Finally, we also highlight how limits on enforcement and commitment
might strongly hinder performances of optimal mechanisms.

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Marko Köthenbürger

The paper empirically analyzes whether electoral rules make legislators differently responsive to changes in fiscal incentives. Key to the analysis are two unique reforms in the German state of Lower Saxony which changed (i) the municipal charter by replacing the council-manager system (featuring appointed mayors) by a mayor-council system (with directly-elected mayors) and (ii) the fiscal incentives inherent to the equalization system. We find that municipalities with appointed mayors react less strongly to changes in fiscal incentives. The change in municipal tax rates is three times smaller compared with a system of direct mayoral elections. We point to the different electoral incentives of mayors in the two systems to explain the result.

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Achim Wambach

We compare two commonly used mechanisms in procurement: auctions and negotiations. The
execution of the procurement mechanism is delegated to an agent of the buyer. The agent has
private information about the buyer’s preferences and may collude with one of the sellers. We
provide a precise definition of both mechanisms and show – contrary to conventional wisdom
– that an intransparent negotiation yields a higher buyer surplus than a transparent auction for
a range of parameters. In particular, for small expected punishments there exists a lower and
an upper bound on the number of sellers such that the negotiation yields a higher buyer
surplus with a probability arbitrary close to 1 in the parameter space. Moreover, if the
expected punishment is small, the negotiation is always more efficient and generates a higher
surplus for the sellers.

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Monika Bütler

to be announced

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Juan-Pablo Montero

to be announced

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