According to several psychological and economic studies, non-binding communication can be an effective tool to increase trust and enhance cooperation. This paper focuses on reasons why people stick to a given promise and analyzes to what extent image concerns of being perceived as a promise breaker play a role. In a controlled laboratory experiment, we vary the ex post observability of the promising party's action in order to test for social image concerns. We observe that slightly more promises are kept if the action is revealed than if it is not, yet the difference is not significant. However, a variation in the selection of pre-defined messages across treatments delivers another interesting finding. While most of the promises are kept, statements of intent tend to be broken.

We provide causal evidence that German savings banks – where local politicians are by law involved in their management – systematically adjust lending policies in response to local electoral cycles. The different timing of county elections across states and the existence of a control group of cooperative

banks – that are very similar to savings banks but lack their political connectedness – allow for clean identification of causal effects of county elections on savings banks’ lending. These effects are economically meaningful and robust to various specifications. Moreover, politically induced lending increases in incumbent party entrenchment and in the contestedness of upcoming elections.

Much has been said about the stylized fact that the economically successful are not only wealthier but also healthier than the less affluent. There is little doubt about the existence of this socio-economic gradient in health,

but there remains a vivid debate about its source. In this paper, we review the methodological challenges involved in testing the causal relationships between socio-economic status and health. We describe the approach of testing for the absence of causal channels developed by Adams et al. (2003) that seeks identification without the need to isolate exogenous variation in economic variables, and we repeat their analysis using the full range of data that have become available in the Health and Retirement Study since, both in terms of observations years and age ranges covered. This analysis shows that causal inference critically depends on which time periods are used for estimation. Using the information of longer panels has the greatest effect on results. We find that SES causality cannot be ruled out for a larger number of health conditions than in the original study. An approach based on a reduced-form interpretation of causality thus is not very informative, at least as long as the confounding influence of hidden common factors is not fully controlled.

Individuals’ socioeconomic status (SES) is positively correlated with their health status. While the existence of this gradient may be uncontroversial, the same cannot be said about its explanation. In this paper, we extend the approach of testing for the absence of causal channels developed by Adams et al. (2003), which in a Granger causality sense promises insights on the causal structure of the health-SES nexus. We introduce some methodological refinements and integrate retrospective survey data on early childhood circumstances into this framework. We confirm that childhood health has lasting predictive power for adult health. We also uncover strong gender differences in the intertemporal transmission of SES and health: While the link between SES and functional as well as mental health among men appears to be established rather late in life, the gradient among women seems to originate from childhood circumstances.

We study exchanges between three overlapping generations with non-dynastic altruism.

The middleaged choose informal care provided to their parents and education expenditures for their children. The young enjoy their education, while the old may leave a bequest to their children. Within each period the three generations play a “game” inspired by Becker’s (1974, 1991) rotten kids framework, with the added features that the rotten kids turn into the altruistic parent in the next period and that parents invest in the education of their children. We show that Becker’s rotten kids theorem holds for the single period game in that informal aid is set according to an efficient rule. However, education is distorted upwards. In the stationary equilibrium the levels of both transfers are inefficient: education is too large and informal aid is too low.

We study the causal effect of school curricula on students' stated beliefs and attitudes. We exploit a major textbook reform in China that was rolled out between 2004 and 2010 with the explicit intention of shaping youths' ideology. To measure its effect, we present evidence from a novel survey we conducted among 2000 students at Peking University. The sharp, staggered introduction of the new curriculum across provinces allows us to identify the effects of the new educational content in a generalized difference in differences framework. We examine government documents articulating desired consequences of the reform, and identify changes in textbook content and college entrance exams that reflect the government's aims. These changes were often effective: study under the new curriculum is robustly associated with changed views on political participation and democracy in China, increased trust in government officials, and a more skeptical view of free markets.

Penalized splines have become a popular tool to model the trend component in economic time series. The outcome of the spline predominantly depends on the choice of a penalization parameter that controls the smoothness of the trend. This paper derives the penalization of splines by frequency domain aspects and points out their link to rational square wave filters. As a novel contribution this paper focuses on the so called excess variability at the margins that describes the undesired increasing variability of the trend estimation to the ends of the series. It will be shown that the too high volatility at the margins can be reduced considerably by a time varying penalization, which yields more reliable estimations for the most recent periods.

A particular problem of traditional Rational Choice Theory is that it cannot explain

equilibrium selection in simple coordination games. In this paper we analyze and discuss

the solution concept for common coordination problems as incorporated in the theory of

Team Reasoning (TR). Special consideration is given to TR's concept of opportunistic

choice and to the resulting restrictions in using private information. We report results

from a laboratory experiment in which teams were given a chance to coordinate on a particular pattern of behavior in a sequence of HiLo games. A modification of the

stage game offered opportunities to improve on the team goal through changing this

accustomed pattern of behavior. Our observations throw considerable doubt on the

idea of opportunistic team reasoning as a guide to coordination. Contrary to what TR

would predict, individuals tend to stick to accustomed behavioral patterns. Moreover,

we find that individual decisions are at least partly determined by private information not accessible to all members of a team. Alternative theories of choice, in particular cognitive hierarchy theory may be more suitable to explain the observed pattern of behavior.

We analyze the incentives for information disclosure in financial markets. We show that borrowers may have incentives to voluntarily withhold information and that doing so is most attractive for claims that are inherently hard to value, such as portfolios of subprime mortgages. Interestingly, opacity may be optimal even though it increases informational asymmetries between contracting parties. Finally, in our setting a government can intervene in ways that ensure the liquidity of financial markets and that resemble the initial plans for TARP. Even if such interventions are ex-post optimal, they affect incentives for information disclosure and have ambiguous ex-ante effects.

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.