Publications

This paper provides a self-contained definition and a characterization of the class of extensive form games that are adequate for applications, but still do not employ any finiteness assumptions. In spite of its simplicity, the resulting definition is more general than the classical ones. Moreover, we show that this class satisfies the basic desiderata that strategies induce outcomes and do so uniquely. Within the class of playable extensive forms, the characterization is by the existence of an immediate predecessor function on the set of moves.

In the context of multidimensional measures of well-being, a key question for policy is whether particular groups have differing priorities and are therefore likely to react differently to given economic or social shocks. We explore this issue by presenting the results of two related analyses that suggest positive answers on both counts. First, we apply reference class weights to unique data on adult capabilities in the UK and show that relative weights vary across some groupings. Furthermore, in some cases, deprivation rankings of groups vary depending on which weights are used. Second, we explore possible behavioural consequences of different weights by examining the extent to which groups respond differently to three economic and social shocks (unemployment, widowhood and ill health). In this case, we find that weights and responses vary noticeably with age and region and sometimes with gender. We conclude that whilst equal weighting may be practically unavoidable when constructing indices of welfare in the absence of information on weights, their estimation from survey or experimental data is likely to be justified and may change views about policy needs or efficacy.

We examine the welfare implications of two types of central-bank transparency: the publication of the information underlying the central bank's decision (decision transparency) and the release of the information that the central bank observes afterwards (postdecision transparency). Decision transparency does not make the public better informed in equilibrium. Even so, it may be socially desirable because it eliminates harmful equilibria. Postdecision transparency has ambiguous effects. It reduces output variance and the distortions stemming from heterogeneous information. In this sense, it can be used as a substitute for monetary policy. However, postdecision transparency generally raises the variance of inflation. We argue that a conflict of interests may arise between society and the central bank with regard to transparency.

This paper argues that in practical applications the weighted average cost of capital (WACC) is often incorrectly estimated due to the simultaneous use of two inconsistent input parameters: (i) a beta of debt equal to zero when transforming asset betas into equity betas (beta levering) and (ii) a cost of debt above the risk-free interest rate when calculating the WACC. The paper discusses and quantifies the consequences of this inconsistency and offers viable solutions. By replacing the cost of debt with the risk-free rate, a more accurate WACC is calculated and the estimation of the cost of debt becomes obsolete. Furthermore, the paper presents a solution to obtain the correct WACC without increasing the calculation’s complexity.

Many countries use centralized exit exams as a governance devise of the school system. While abundant evidence suggests positive effects of central exams on achievement tests, previous research on university-bound students shows no effects on subsequent earnings. We suggest that labor-market effects may be more imminent for students leaving school directly for the labor market and, on rigid labor markets, for unemployment. Exploiting variation in exit-exam systems across German states, we find that central exams are indeed associated with higher earnings for students from the school type directly bound for the labor market, as well as with lower unemployment.

We relate differences in problem drinking symptoms within pairs of identical twins to their respective differences in years of schooling. Isolating in this way the influences of family background and genes, we find that an increase in schooling attainment results in a significantly lower incidence of problem drinking for men. Thus, an extra year of schooling reduces the number of health problems caused by drinking by 0.14, and the probability of developing symptoms of Alcohol Dependence (AD) by 0.06. This negative link is robust to a variety of modifications to the identifying assumptions underlying our statistical analysis. Socio-economic implications of our findings are discussed.