Publications

We develop and analyze a labor market model in which heterogeneous firms operate under decreasing returns and compete for labor by posting long-term contracts. Firms achieve faster growth by offering higher lifetime wages, which allows them to fill vacancies with higher probability, consistent with recent empirical findings. The model also captures several other regularities about firm size, job flows and pay, and generates sluggish aggregate dynamics of labor market variables. In contrast to existing bargaining models with large firms, efficiency obtains and the model allows a tractable characterization over the business cycle.

In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing constraints, preventing an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation which is a forward-looking variable. We argue that self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated sunspot shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity and output. We show that these sunspot shocks are quantitatively important, accounting for around half of output volatility.

In many groups heterogeneous incentives induce people to make unequal contributions to a common pool. This paper studies whether people consider the random assignment of such unequal incentives as unequal opportunities and demand more egalitarian distributions of the pool. The aggregate experimental results show that low contributors do not make such consideration if their incentive scheme provided opportunities for private gains in case of low contributions. When incentives induce lower contributions in order to avoid private losses, some people increase their claim but these increases are lower than in the case of unequal opportunities. Meanwhile high contributors reward low contributors if they do not follow incentives.

Limited evidence exists on the effects of the audit market regulation and the structure of the audit market on audit quality. We explore the link between regulation and three key earnings characteristics - discretionary accruals, loss avoidance, and conditional conservatism - by using time-series data from 2002 to 2011 on seven regulatory measures in 29 countries to identify the marginal effects of these measures on audit quality. We find a quality-increasing effect from the restriction of non-audit services, disclosure of auditor fees, and the existence of fee caps, whereas a mandatory rotation of the audit firm reduces the earnings’ quality. Our results are confirmed by a changes specification and a placebo test. Further tests show that these effects depend on the audit market’s concentration, whereas competition seems less important. In particular, regulations are more likely to be effective if the concentration is low. Our findings are helpful for regulators in determining the possible consequences of new regulations on the quality of audited financial statements.

Many experts claim that the incidence of suicide attacks is driven by religious cleavages. To test this hypothesis, we investigate whether the total number of suicide attacks per violent conflict or the annual number of suicide attacks per country is associated with simmering religious conflicts. We distinguish between two kinds of religious cleavages: cleavages at the macro level between the stake holders in violent conflicts and cleavages at the micro or battle field level between the actual perpetrators and victims of suicide attacks. Our results do not indicate that religious cleavages are an important precondition for the incidence of suicide attacks.

This paper develops a stochastic dynamic politico-economic model of sovereign debt to analyze the interaction of sovereign default risk and political turnover. Two parties differ in their preferred size of public spending which is financed by taxes and external debt. Electoral outcomes are characterized by tradeoffs between the economic benefits from the incumbent's policies against idiosyncratic ideological aspects. Quantitative simulations replicate the typical empirical facts of emerging markets. Endogenous political turnovers increase the parties' discrepancies between debt and default policies. Debt crises are associated with adverse economic shocks and trigger political turnovers. Political turnovers generate defaults even without negative shocks.

The paper studies an experimental conflict in a repeated game and tests the robustness of communication as an intermediate conflict resolution instrument. The results show a strong and persistent impact of communication. Most conflict parties refrain from conflict expenditures even after the opportunity for communication has expired. Third party involvement with punishment options do not enhance this effect while the indivisibility of the contest prize reduces it. The initial intensity of the conflict has a small but long-term negative impact on conflict resolution.

We investigate whether the field of study influences university students’ political attitudes. To disentangle self-selection from learning effects, we first investigate whether the fields of study chosen by the incoming students correlate with their political attitudes. In a second step we explore how the political attitudes change as the students progress in their studies. Our results are based on a German pseudo-panel survey, the sample size of which exceeds that of comparable student surveys by an order of magnitude. We find systematic differences between the students’ political attitudes across eight fields of study. These differences can in most cases be attributed to self-selection. A notable exception is economics. Even though self-selection is also important, training in economics has an unambiguous influence on the political attitudes: by the time of graduation, economics students are about 6.2 percentage points more likely than they were as freshmen to agree with liberal-democratic policy positions.