This note proposes a growth model that is derived from the standard Solow growth model by replacing the neoclassical production function with Kaldor’s technical progress function while maintaining a marginalist theory of factor prices in the spirit suggested by von Weizsäcker (1966, 1966b). The hybrid model so obtained accounts for balanced growth in a way that appears less arbitrary than the Solow model, especially because it directly accounts for Harrod neutral technical change, without any need for further assumptions.

We investigate whether risk, time, environmental, and social preferences affect single family homeowners’ investments in energy efficient renovations and energy quality of their house using established experimental measures and questionnaires. We find that homeowners who report to be more risk taking are more likely to have renovated their house. Pro-environmental and future-oriented renovators, i.e. renovators with lower discount factors, live in homes with higher energy efficiency. Controlling for the energy efficiency of houses, we further find that energy consumption as measured by heating and energy costs are lower for future-oriented and pro-environmental individuals. Social preferences measured in a dictator and a generosity game play a mixed role for investments in energy efficiency and energy consumption.

Do international trade and technological change influence how firms create incentives for human capital? I present a model that incorporates agency problems into a framework with firm heterogeneity and human capital. My model indicates that trade liberalizations and skill-biased technological change alter the way how the largest firms in an economy incentivize their managers. Increases in managerial reservation wages lead to a reduction in corporate governance investments and a rise in performance compensation since monitoring managers becomes less efficient. Using data on CEO compensation and entrenchment opportunities in public industrial firms in the U.S., I document strong empirical regularities in support of the model predictions. Firms allow for more managerial entrenchment and offer larger CEO compensation when their industries become more open to trade or when production becomes more I.T. intensive.

We introduce credit frictions motivated by moral hazard in a general equilibrium model of international trade with two dimensions of heterogeneity and endogenous investments. Firms’ competitiveness consists of capabilities to conduct process and quality innovations at low costs, whereas investment outlays have to be financed by external capital. We show that the scope for vertical product differentiation in a sector determines how credit tightening affects investment and price setting. Consistent with recent empirical evidence, our model rationalizes positive as well as negative correlations of firm-level FOB prices with financial frictions and variable trade costs. Faced with an increase in the borrowing rate, producers reduce both types of innovation resulting in opposing effects on marginal production costs and prices. In general equilibrium, financial frictions intensify quality-based (cost-based) sorting of firms if the scope for vertical product differentiation is high (low). Consequently, credit tightening leads to firm exit, increased innovation activity among existing suppliers, and welfare losses that are larger in sectors with low investment intensity.

μCap (muCap) is a software package (citeware) for economic experiments enabling experimenters to analyze emotional states of subjects using z-Tree and FaceReader™. μCap is able to create videos of subjects on client computers based on stimuli shown on screen and restrict recording material to relevant time frames. Another feature of μCap is the creation of time stamps in csv format at prespecified screens (or at prespecified points in time) during the experiment, measured on the client computer. The software makes it possible to import these markers into FaceReader™ easily. Until recently, connecting z-Tree and FaceReader™ was only possible using workarounds or by undertaking many successive actions manually. μCap is the first program that significantly simplifies this process with the additional benefit of extremely high precision. This paper describes the usage, underlying principles as well as advantages and limitations of μCap. Furthermore, we give a brief outlook of how μCap can be beneficial in other contexts.

This paper analyses long-term effects of forced WWII migration on educational outcomes. Specifically Sudeten German expellees in post-war Bavaria coming from highly industrialized Sudetenland (Czechoslovakia) had strong preferences for higher secondary schooling, especially in form of a practical, business-related, and general education school. As a result they became actively engaged in the development of post-war middle track education (Realschule, Fachschule). Employing county-level data on student numbers and graduates of secondary education, empirical analysis including ordinary least squares, instrumental variable, and differences-in-differences models reveals that counties housing a higher share of Sudeten Germans after the war are significantly associated with higher educational development some 20 years later. An increase in the share of Sudeten Germans by 1 percentage point increases the share of children (graduates) in middle track education by at least 0.8 (0.1) percentage points, respectively. Calculations suggest that these effects are not mechanically caused by Sudeten Germans and their children demanding education, but are the actual result of educational spillovers to the local population.

We show that socio-economic status (SES) is a powerful predictor of many facets of a child's personality. The facets of personality we investigate encompass time preferences, risk preferences, and altruism, as well as crystallized and fluid IQ. We measure a family's SES by the mother's and father's average years of education and household income. Our results show that children from families with higher SES are more patient, tend to be more altruistic and less likely to be risk seeking, and score higher on IQ tests. We also discuss potential pathways through which SES could affect the formation of a child's personality by documenting that many dimensions of a child's environment differ systematically by SES: parenting style, quantity and quality of time parents spend with their children, the mother's IQ and economic preferences, a child's initial conditions at birth, and family structure. Finally, we use panel data to show that the relationship between SES and personality is fairly stable over time at age 7 to 10. Personality profiles that vary systematically with SES might offer an explanation for social immobility.

I study the optimal audit mechanism when the principal cannot commit to an audit strategy. Invoking a relevation principle, the agent reports her type to a mediator whi assigns contracts and recommends the principla whether to audit. For each reported type the mediator randomizes over a base-contract and the audit contract, accompanied by a recommendation to audit. For large penalties the optimal mechanism uses strictly more contracts than types and cannot be implemented via offering a menu of contracts. The analysis provides a proper benchmark for studying auditing under limited commitment and sheds new light on the usefulness of mediation in contracting and on the design of optimal mechanisms.

We study monetary policy at the ZLB in a traceable three-period model, in which price-level targeting emerges endogenously in the welfare function. We characterize optimal price-level forward guidance under discretion and commitment. Potentially non-monotonic discretionary welfare losses are lowest with perfectly flexible prices. Price-level targeting introduces a new constraint on optimal forward guidance that restricts the credible amount of overshooting. With this constraint, the zero lower bound may be binding even after the shock has abated. We characterize conditions when the commitment to hold nominal rates at zero for an extended period is optimal. Finally, we introduce government spending and show that under persistently low policy rates optimal government spending becomes more front-loaded, while procyclical austerity fares worse than discretionary government spending.

An extensive literature has studied ambiguity aversion in economic decision

making, and how ambiguity aversion can account for empirically observed violations of expected utility-based theories. Almost all relevant applied models presume a general

dislike of ambiguity. In this paper, we provide a systematic experimental assessment of ambiguity attitudes in different likelihood ranges and in the gain domain, the loss Domain and with mixed outcomes. We draw on a unified framework with more than 500 participants and find that ambiguity aversion is the exception, not the rule. We replicate the usual finding of ambiguity aversion for moderate likelihood gains. However, when introducing losses or lower likelihoods, we observe either ambiguity neutrality or even ambiguity seeking behavior. Our results are robust to different elicitation procedures.