Social preferences and skill segregation

This paper shows that models where preferences of individuals dependnot only on their allocations, but also on the well-being of otherpersons, can produce both large and testable effects. We study theallocation of workers with heterogeneous productivities to firms. Weshow that even small deviations from purely selfish preferences leadsto widespread workplace skill segregation. That is, workers ofdifferent abilities tend to work in di¤erent firms, as long as theycare somewhat more about the utilities of workers who are close .

On the origins of electoral systems and political parties. The role of elections in multi-member districts

The old, understudied electoral system composed of multi-member districts, open ballot and plurality rule is presented as the most remote scene of the origin of both political parties and new electoral systems. A survey of the uses of this set of electoral rules in different parts of the world during remote and recent periods shows its wide spread. A model of voting by this electoral system demonstrates that, while it can produce varied and pluralistic representation, it also provides incentives to form factional or partisan candidacies. Famous negative reactions to the emergence of factions and political parties during the 18th and 19th centuries are reinterpreted in this context. Many electoral rules and procedures invented since the second half of the 19th century, including the Australian ballot, single-member districts, limited and cumulative ballots, and proportional representation rules, derived from the search to reduce the effects of the originating multi-member district system in favor of a single party sweep. The general relations between political parties and electoral systems are restated to account for the foundational stage here discussed.

Social preferences: Some simple tests and a new model

Departures from pure self interest in economic experiments have recently inspired models of "social preferences". We conduct experiments on simple two-person and three-person games with binary choices that test these theories more directly than the array of games conventionally considered. Our experiments show strong support for the prevalence of "quasi-maximin" preferences: People sacrifice to increase the payoffs for all recipients, but especially for the lowest-payoff recipients. People are also motivated by reciprocity: While people are reluctant to sacrifice to reciprocate good or bad behavior beyond what they would sacrifice for neutral parties, they withdraw willingness to sacrifice to achieve a fair outcome when others are themselves unwilling to sacrifice. Some participants are averse to getting different payoffs than others, but based on our experiments and reinterpretation of previous experiments we argue that behavior that has been presented as "difference aversion" in recent papers is actually a combination of reciprocal and quasi-maximin motivations. We formulate a model in which each player is willing to sacrifice to allocate the quasi-maximin allocation only to those players also believed to be pursuing the quasi-maximin allocation, and may sacrifice to punish unfair players.

The gain-loss asymmetry and single-self preferences

Kahneman and Tversky asserted a fundamental asymmetry between gains and losses, namely a reflection effect which occurs when an individual prefers a sure gain of $ pz to anuncertain gain of $ z with probability p, while preferring an uncertain loss of $z with probability p to a certain loss of $ pz.We focus on this class of choices (actuarially fair), and explore the extent to which thereflection effect, understood as occurring at a range of wealth levels, is compatible with single-self preferences.We decompose the reflection effect into two components, a probability switch effect,which is compatible with single-self preferences, and a translation effect, which is not. To argue the first point, we analyze two classes of single-self, nonexpected utility preferences, which we label homothetic and weakly homothetic. In both cases, we characterize the switch effect as well as the dependence of risk attitudes on wealth.We also discuss two types of utility functions of a form reminiscent of expected utility but with distorted probabilities. Type I always distorts the probability of the worst outcome downwards, yielding attraction to small risks for all probabilities. Type II distorts low probabilities upwards, and high probabilities downwards, implying risk aversion when the probability of the worst outcome is low. By combining homothetic or weak homothetic preferences with Type I or Type II distortion functions, we present four explicit examples: All four display a switch effect and, hence, a form of reflection effect consistent a single self preferences.

Assesing the political viability of labour market reform: The case of employment protection

We analyze the political support for employment protection legislation.Unlike my previous work on the same topic, this paper pays a lot ofattention to the role of obsolescence in the growth process.In voting in favour of employment protection, incumbent employeestrade off lower living standards (because employment protectionmaintains workers in less productive activities) against longer jobduration. The support for employment protection will then depend onthe value of the latter relative to the cost of the former. Wehighlight two key deeterminants of this trade-off: first, the workers'bargaining power, second, the economy's growth rate-more preciselyits rate of creative destruction.

Optimal contracts, adverse selection and social preferences: An experiment

It has long been standard in agency theory to search for incentive-compatible mechanisms on the assumption that people care only about their own material wealth. However, this assumption is clearly refuted by numerous experiments, and we feel that it may be useful to consider nonpecuniary utility in mechanism design and contract theory. Accordingly, we devise an experiment to explore optimal contracts in an adverse-selection context. A principal proposes one of three contract menus, each of which offers a choice of two incentive-compatible contracts, to two agents whose types are unknown to the principal. The agents know the set of possible menus, and choose to either accept one of the two contracts offered in the proposed menu or to reject the menu altogether; a rejection by either agent leads to lower (and equal) reservation payoffs for all parties. While all three possible menus favor the principal, they do so to varying degrees. We observe numerous rejections of the more lopsided menus, and approach an equilibrium where one of the more equitable contract menus (which one depends on the reservation payoffs) is proposed and agents accept a contract, selecting actions according to their types. Behavior is largely consistent with all recent models of social preferences, strongly suggesting there is value in considering nonpecuniary utility in agency theory.

Biased quantitative measurement of interval ordered homothetic preferences

We represent interval ordered homothetic preferences with a quantitative homothetic utility function and a multiplicative bias. When preferences are weakly ordered (i.e. when indifference is transitive), such a bias equals 1. When indifference is intransitive, the biasing factor is a positive function smaller than 1 and measures a threshold of indifference. We show that the bias is constant if and only if preferences are semiordered, and we identify conditions ensuring a linear utility function. We illustrate our approach with indifference sets on a two dimensional commodity space.

Betting on Hitler: The value of political connections in Nazi Germany

This paper examines the value of connections between German industry andthe Nazi movement in early 1933. Drawing on previously unused contemporarysources about management and supervisory board composition and stock returns,we find that one out of seven firms, and a large proportion of the biggest companies,had substantive links with the National Socialist German Workers Party. Firmssupporting the Nazi movement experienced unusually high returns, outperformingunconnected ones by 5% to 8% between January and March 1933. These resultsare not driven by sectoral composition and are robust to alternative estimatorsand definitions of affiliation.

The political economy of employment protection

This paper develops a model of job creation and job destruction in agrowing economy with embodied technical progress, that we use toanalyze the political support for employment protection legislationssuch as the ones that are observed in most European countries.We analyze the possibility of Condorcet cycles due to the fact thatworkers about to become unemployed prefer both an increase and areduction in firing costs over the status quo. Despite this problem, we show the existence of local, and sometimes global majority winners.In voting in favour of employment protection, incumbent employeestrade off lower living standards (because employment protectionmaintains workers in less productive activities) against longer job duration. We show that the gains from, and consequently the politicalsupport for employment protection (as defined by maximunjob tenure) are larger, the lower the rate of creative destruction and the largerthe worker's bargaining power. Numerical simulations suggest a hump-shaped response of firing costs to these variables, as well as negative impact of exogeneous turnover on employment protection.

Increasing political returns and rural-urban migrations

This paper analyzes the different equilibria in rural-urban migrationsand political redistribution that result from the interaction betweenincreasing political returns, the distribution of land, and creditmarket imperfections. Governments that put a special weight on thewelfare of urban workers when setting agricultural prices generate apolitical externality in the urban sector, giving peasants anincentive to migrate in anticipation of policy determination. Ifcredit markets are imperfect, land ownership confers higherproductivity to peasants, who require large price changes to migrate.In this context, land inequality would lead to large migrations and tolarge policy change, while an egalitarian land distribution would leadto no migration and to a small policy change. This interaction shedslight on the contrasting experience of Latin America and East Asia atthe outset of World War II.

Social security in theory and practice (I): Facts and political theories

166 countries have some kind of public old age pension. What economic forcescreate and sustain old age Social Security as a public program? We document some of the internationally and historically common features of Social Security programs including explicit and implicit taxes on labor supply, pay-as-you-go features, intergenerational redistribution, benefits which areincreasing functions of lifetime earnings and not means-tested. We partition theories of Social Security into three groups: "political", "efficiency" and "narrative" theories. We explore three political theories in this paper: the majority rational voting model (with its two versions: "the elderly as the leaders of a winning coalition with the poor" and the "once and for all election" model), the "time-intensive model of political competition" and the "taxpayer protection model". Each of the explanations is compared with the international and historical facts. A companion paper explores the "efficiency" and "narrative" theories, and derives implicationsof all the theories for replacing the typical pay-as-you-go system with a forced savings plan.

Eliciting consumers preferences using stated preference discrete choice models: Contingent ranking versus choice experiment

The aim of this paper is twofold: firstly, to carry out a theoreticalreview of the most recent stated preference techniques used foreliciting consumers preferences and, secondly, to compare the empiricalresults of two dierent stated preference discrete choice approaches.They dier in the measurement scale for the dependent variable and,therefore, in the estimation method, despite both using a multinomiallogit. One of the approaches uses a complete ranking of full-profiles(contingent ranking), that is, individuals must rank a set ofalternatives from the most to the least preferred, and the other usesa first-choice rule in which individuals must select the most preferredoption from a choice set (choice experiment). From the results werealize how important the measurement scale for the dependent variablebecomes and, to what extent, procedure invariance is satisfied.

Electoral competition under the threat of political unrest

We study elections in which one party (the strong party) controls a source of political unrest; e.g., this party could instigate riots if it lost the election. We show that the strong party is more likely to win the election when there is less information about its ability to cause unrest. This is because when theweak party is better informed, it can more reliably prevent political unrest by implementing a ``centrist'' policy. When there is uncertainty over the credibility of the threat, ``posturing'' by the strong party leads to platform divergence.

Will EMU increase eurosclerosis?

In this paper we study the relationship between labor market institutions and monetary policy. We use a simple macroeconomic framework to show how optimal monetary policy rules depend on labor institutions (labor adjustment costs, and nominal and real wage rigitidy) and social preferences regarding inflation, employment, and real wages. We also calibrate our model tocompute how the change in social welfare brought about by giving up monetary policy as a result of joining the Economic and Monetary Union (EMU) depends on institutions and preferences. We then use the calibrated model to analyze how EMU affects the incentives for labor market reform, both for reformsthat increase the economy's adjustment potential and for those that affect the long-run unemployment rate.

Is there a connection between the tax administration and the political power?

This paper offers empirical evidence from Spain of a connection between the tax administration and the political power. Firstly, the regional tax administration is not immune to the budgetary situation of regional government, and tends to exert a greater (or lesser) effort in tax collection the greater (or lower) the (expected) public deficit. At the same time, the system of unconditional grants from the central layer of government provokes an ¿income effect¿ which disincentivises the efforts of the tax administration. Secondly, these efforts also decrease when the margin to lose a parliamentary seat in an electoral district is cut, although the importance of this disincentive decreases according to the parliamentary strength of the incumbent