Three essays on prices and selection

Competitive Market Segmentation Abstract In a two-firm model where each firm sells a high-quality and a low-quality version of a product, customers differ with respect to their brand preferences and their attitudes towards quality. We show that the standard result of quality-independent markups crucially depends on the assumption that the customers' valuation of quality is identical across firms. Once we relax this assumption, competition across qualities leads to second-degree price discrimination. We find that markups on low-quality products are higher if consuming a low-quality product involves a firm-specific disutility. Likewise, markups on high-quality products are higher if consuming a high-quality product creates a firm-specific surplus. Selection upon Wage Posting Abstract We discuss a model of a job market where firms announce salaries. Thereupon, they decide through the evaluation of a productivity test whether to hire applicants. Candidates for a job are locked in once they have applied at a given employer. Hence, such a market exhibits a specific form of the bargain-then-ripoff principle. With a single firm, the outcome is efficient. Under competition, what might be called "positive selection" leads to market failure. Thus our model provides a rationale for very small employment probabilities in some sectors. Exclusivity Clauses: Enhancing Competition, Raising Prices Abstract In a setting where retailers and suppliers compete for each other by offering binding contracts, exclusivity clauses serve as a competitive device. As a result of these clauses, firms addressed by contracts only accept the most favorable deal. Thus the contract-issuing parties have to squeeze their final customers and transfer the surplus within the vertical supply chain. We elaborate to what extent the resulting allocation depends on the sequence of play and discuss the implications of a ban on exclusivity clauses.

Essays on behavioral aspects of the design and disclosure of compensation contracts

This thesis consists of four essays on the design and disclosure of compensation contracts. Essays 1, 2 and 3 focus on behavioral aspects of mandatory compensation disclosure rules and of contract negotiations in agency relationships. The three experimental studies develop psychology- based theory and present results that deviate from standard economic predictions. Furthermore, the results of Essay 1 and 2 also have implications for firms’ discretion in how to communicate their top management’s incentives to the capital market. Essay 4 analyzes the role of fairness perceptions for the evaluation of executive compensation. For this purpose, two surveys targeting representative eligible voters as well as investment professionals were conducted. Essay 1 investigates the role of the detailed ‘Compensation Discussion and Analysis’, which is part of the Security and Exchange Commission’s 2006 regulation, on investors’ evaluations of executive performance. Compensation disclosure complying with this regulation clarifies the relationship between realized reported compensation and the underlying performance measures and their target achievement levels. The experimental findings suggest that the salient presentation of executives’ incentives inherent in the ‘Compensation Discussion and Analysis’ makes investors’ performance evaluations less outcome dependent. Therefore, investors’ judgment and investment decisions might be less affected by noisy environmental factors that drive financial performance. The results also suggest that fairness perceptions of compensation contracts are essential for investors’ performance evaluations in that more transparent disclosure increases the perceived fairness of compensation and the performance evaluation of managers who are not responsible for a bad financial performance. These results have important practical implications as firms might choose to communicate their top management’s incentive compensation more transparently in order to benefit from less volatile expectations about their future performance. Similar to the first experiment, the experiment described in Essay 2 addresses the question of more transparent compensation disclosure. However, other than the first experiment, the second experiment does not analyze the effect of a more salient presentation of contract information but the informational effect of contract information itself. For this purpose, the experiment tests two conditions in which the assessment of the compensation contracts’ incentive compatibility, which determines executive effort, is either possible or not. On the one hand, the results suggest that the quality of investors’ expectations about executive effort is improved, but on the other hand investors might over-adjust their prior expectations about executive effort if being confronted with an unexpected financial performance and under-adjust if the financial performance confirms their prior expectations. Therefore, in the experiment, more transparent compensation disclosure does not lead to more correct overall judgments of executive effort and to even lower processing quality of outcome information. These results add to the literature on disclosure which predominantly advocates more transparency. The findings of the experiment however, identify decreased information processing quality as a relevant disclosure cost category. Firms might therefore carefully evaluate the additional costs and benefits of more transparent compensation disclosure. Together with the results from the experiment in Essay 1, the two experiments on compensation disclosure imply that firms should rather focus on their discretion how to present their compensation disclosure to benefit from investors’ improved fairness perceptions and their spill-over on performance evaluation. Essay 3 studies the behavioral effects of contextual factors in recruitment processes that do not affect the employer’s or the applicant’s bargaining power from a standard economic perspective. In particular, the experiment studies two common characteristics of recruitment processes: Pre-contractual competition among job applicants and job applicants’ non-binding effort announcements as they might be made during job interviews. Despite the standard economic irrelevance of these factors, the experiment develops theory regarding the behavioral effects on employees’ subsequent effort provision and the employers’ contract design choices. The experimental findings largely support the predictions. More specifically, the results suggest that firms can benefit from increased effort and, therefore, may generate higher profits. Further, firms may seize a larger share of the employment relationship’s profit by highlighting the competitive aspects of the recruitment process and by requiring applicants to make announcements about their future effort. Finally, Essay 4 studies the role of fairness perceptions for the public evaluation of executive compensation. Although economic criteria for the design of incentive compensation generally do not make restrictive recommendations with regard to the amount of compensation, fairness perceptions might be relevant from the perspective of firms and standard setters. This is because behavioral theory has identified fairness as an important determinant of individuals’ judgment and decisions. However, although fairness concerns about executive compensation are often stated in the popular media and even in the literature, evidence on the meaning of fairness in the context of executive compensation is scarce and ambiguous. In order to inform practitioners and standard setters whether fairness concerns are exclusive to non-professionals or relevant for investment professionals as well, the two surveys presented in Essay 4 aim to find commonalities in the opinions of representative eligible voters and investments professionals. The results suggest that fairness is an important criterion for both groups. Especially, exposure to risk in the form of the variable compensation share is an important criterion shared by both groups. The higher the assumed variable share, the higher is the compensation amount to be perceived as fair. However, to a large extent, opinions on executive compensation depend on personality characteristics, and to some extent, investment professionals’ perceptions deviate systematically from those of non-professionals. The findings imply that firms might benefit from emphasizing the riskiness of their managers’ variable pay components and, therefore, the findings are also in line with those of Essay 1.

Three essays on the concept of trust and its foundations

The present dissertation focuses on trust and comprises three empirical essays on the concept itself and its foundations. All three essays investigate trust as an expectation and rely on selfreport measures of trust. Whereas the first two chapters investigate social trust, the third chapter investigates political trust. Essentially, there are three related important debates to which the following chapters contribute. A first debate discusses problems with current selfreport measures. Scholars recently started to question whether standard trust questions really measure the same across countries and languages. Chapter 1 engages in this debate. Using data from Switzerland it studies whether different trust questions measure the same latent trust constructs across individuals belonging to three different culturallinguistic regions. The second debate concerns the socalled forms or dimensions of trust. Recently, scholars started investigating whether trust is a onedimensional construct, i.e. whether an individual's trust judgment differs for categories of trustees such as strangers, neighbors, family members and friends or not. Relying on confirmatory factor analysis Chapter 2 investigates whether individuals really do make a difference between different trustee categories and to what extent these judgments can be summarized into higherorder latent trust constructs. The third debate is concerned with causes of differences in trust across humans. Chapter 3 focuses on the role of laterlife experiences, more precisely victimization experiences and investigates their causal relationship with generalized social trust. Chapter 4 focuses on the impact of direct democratic institutions on the trust relationship between citizens and political authorities.

Three Essays on Age and Firm Performance

Old captains at the helm: Chairman age and firm performance Urs Waelchli and Jonas Zeller December, 2012 This paper examines whether the chairmen of the board (COBs) impose their life-cycles on the firms over which they preside. Using a large sample of unlisted firms we find a robust negative relation between COB age and firm performance. COBs age much like ‘ordinary’ people. Their cognitive abilities deteriorate and they experience significant shifts in motivation. Deteriorating cognitive abilities are the main driver of the performance effect that we observe. The results imply that succession planning problems in unlisted firms are real. Mandatory retirement age clauses cannot solve these problems. Corporate Aging around the World Jonas Zeller January, 2014 This paper examines whether firms internationally age as US firms do (Loderer, Stulz, and Wälchli, 2013). Using a large panel, I find that Tobin’s Q monotonically falls with firm Age across all nineteen countries in the sample. The decrease varies across countries but is generally extremely robust and economically significant. ROA, sales growth, and market share decrease over a firm’s lifetime in most countries as well. Furthermore, older firms reduce their capital expenditures and R&D outlays. Instead, they distribute more cash to their shareholders. Overall, the results suggest that corporate aging is not confined to the US but is a genuine phenomenon that affects listed firms worldwide. This evidence supports the hypothesis that corporate aging is driven by managers who optimally focus on managing their assets in place and neglect the development of growth opportunities. I finally ask whether the managers’ choice and with it the magnitude of the decline in Tobin’s Q is a function of country-level institutional settings. I find that most notably firms age faster in countries where employees are relatively well protected by labor regulation. Is employment protection the fountain of corporate youth? Claudio Loderer, Urs Wälchli, Jonas Zeller* September 2014 Acharya, Baghai, and Subramanian (2012, 2013) find that employment protection legislation (EPL) encourages innovation. We argue that this effect should be particularly strong in mature firms. We would therefore also expect EPL to boost growth opportunities. Using the natural Experiment created by the staggered passage of changes in EPL across seventeen countries, we find evidence that employment protection legislation does indeed stimulate Innovation efforts, especially in mature firms. The effect is stronger in countries in which patents are owned by the firm and in the context of regular contracts. Consistent with that, EPL encourages risk taking. Overall, however, there is Little evidence that the effect of EPL on innovation effort translates into higher firm value, not even in mature firms. EPL does motivate employees in those firms to put in a greater effort, as evidenced by stronger sales growth. Yet it also increases costs, reduces profitability, and depresses Tobin’s Q ratios in all firms, especially the mature ones, possibly because of the rigidities that characterize these firms [Loderer, Stulz, and Waelchli (2014)].

The Character of Christian-Muslim Encounter: Essays in Honour of David Thomas

The Character of Christian-Muslim Encounter is a Festschrift in honour of David Thomas, Professor of Christianity and Islam, and Nadir Dinshaw Professor of Inter Religious Relations, at the University of Birmingham, UK. The Editors have put together a collection of over 30 contributions from colleagues of Professor Thomas that commences with a biographical sketch and representative tribute provided by a former doctoral student, and comprises a series of wide-ranging academic papers arranged to broadly reflect three dimensions of David Thomas’ academic and professional work – studies in and of Islam; Christian-Muslim relations; the Church and interreligious engagement. These are set in the context of a focussed theme – the character of Christian-Muslim encounters – and cast within a broad chronological framework.

Essays on Inequality and Integration

Inequality and integration have been sociology’s two key paradigms since the classics, associated with the names of Marx and Durkheim and Europe’s current economic crisis has forcefully reinvigorated their joint relevance. Above all, the debt crisis has fueled the wheel of social inequality: cash-starved states are further forced to cut back on public expenditures, to minimize the margin for redistribution and to raise new challenges for the integration policies addressing the emerging disparities. At the same time, global environmental and demographic problems, intertwined with escalating migration pressure, tear at the texture of European and all Western societies, in particular, the unequal impact of climate change and the unequal distribution of population growth make migration and integration paramount public policy issues and a soaring source of social conflict. In principle, the inequalities engendered by these cascading processes are also an opportunity. They increase the diversity of society and can bring about innovation and growth. Our desire and ability for social integration depends, above all, on the ultimate balance between these advantages and disadvantages. The chapters in the volume concentrate on the opportunities as well as the risks associated with these social changes from various angles. They are a handpicked set of outstanding contributions from the Congress of the Swiss Sociological Association that took place at the University of Bern, June 26–28, 2013.