Projects

The Gravity of Mobility and International Trade

Central Bank Digital Currency: Design, Adoption and Macroeconomic Implications

Financial Mistakes and Credit Market Regulation

On the Theory and Testing of Changing Choice Baviour

Funding agency: Austrian National Bank (OeNB)

Project number: 18719

Amount: Euro 99.000,-

Project duration: 10/2021 - 09/2023

Project team: Karl Schlag (Lead), Philipp Peitler

Short description:

Experimental economists assume that choice behaviour is constant over the course of the experiment, when interpreting their results. This assumption is problematic, since ignoring the possibility of changing choice behaviour might lead to false rejections of descriptively accurate theories and might misguide efforts to develop alternative theories. On the other hand, to allow too much freedom in how choice behaviour can change over time will easily reconcile many different observed behaviours and hence isn't useful either. Even though there is neither theoretical justification nor empirical evidence for the constancy of choice, there is surprisingly little research on how to model choice behaviour without this assumption. We close a gap in the literature, by dropping this assumption and developing a model of changing choice behaviour that is falsifiable.

This project consists of two sub-projects. In the first part we will develop a general theoretical model of choice behaviour, where choice behaviour can change over time. The novelty of our approach is that we explicitly model the experimental environment, e.g. the incentive scheme, and the limitations on observability of the choice correspondence. Once we have developed the general model, we will look into specific popular theories of choice behaviour, like expected utility and MinMax regret, and how they can be extended by allowing choice behaviour to change. Furthermore, we will do a thorough reanalysis of prominent experimental studies and see whether we will be able to detect changing choice behaviour. The second part is an experiment to test whether subjects actually exhibit changing choice behaviour in an controlled environment. The design allows us to distinguish changing choice behaviour from random choice behaviour and violations of the Independence axiom.

Paternity Leave: Monetary Incentives or Flexibility?

Pricing in imperfectly competitive markets

Funding agency: FWF

Project number: FG 6-G

Amount: Euro 1'339'041,91

Project duration: 03/2021 - 02/2026

Project team: Garcia, Daniel (Co-Lead), Janssen, Maarten (Co-Lead); Mauring, Eeva (Co-Lead); Schmidt-Dengler, Philipp (Co-Lead); Zulehner, Christine (Speaker, Co-Lead)

Short description

Economists have formally studied pricing in imperfectly competitive markets since the mid nineteenth century. By analyzing the potential inefficiencies of such markets this research has guided regulatory and competition policy. With more and more transactions being shifted to online markets, research in this area remains highly relevant. The behavior of firms in imperfectly competitive markets is also studied in the management literature, with a stronger focus on strategies available to firms to become more profitable. Applications include bookings for hotel rooms, pricing of online airline tickets, as well as pricing in vertical contracts between firms.

This project brings together the economics and management literatures and studies pricing in imperfectly competitive markets both from an empirical and a theoretical perspective. Our analytical framework uses game-theoretic models to capture strategic behavior in imperfectly competitive markets. To carry out the empirical analysis, we resort to econometric methods. In doing so, we bring new tools to the study of classical questions. We also aim to tackle new issues related to online markets and algorithmic pricing. By interacting with competition authorities, the project also aims to deliver insights that are relevant for competition policy.

The project covers five themes: dynamic pricing, pricing under information asymmetries, consumer search, collusion, and retail pricing.

Dynamic pricing is particularly important in online markets (e.g., related to hospitality management, but also in electricity), where firms can easily and frequently change their prices. The project on information asymmetries is motivated by the fact that especially in global markets firms often lack relevant business information about their competitors or their suppliers. Search frictions constitute the predominant framework to reconcile persistent price dispersion in many markets in the presence of continuous advances in ICT, that have made information about prices widely available and easily accessible for market participants. The focus on collusive pricing is motivated the difficulty competition authorities face in detecting this illegal practice from competitive behavior, especially when firms' costs are unknown. The project on retail pricing develops and estimates empirical models for gasoline and telecommunication markets that allow to quantify the effects of different policies, like taxation or regulation. There is substantial overlap among the five themes and we strive to exploit these synergies.

Understanding Social Mobility – An experimental approach

Self-serving Views on Redistributive Fairness

Funding agency: Hertha Firnberg Programme of the Austrian Science Fund (FWF)

Amount: Euro 234'000

Project duration: Feb 2019 - Jan 2022

Project team: Deszö, Linda; Tyran, Jean-Robert

Short description:

Experimental research on distributive preferences reports that people prefer compensating low income through redistribution when it is due to factors one cannot control. However, there are situations where partners' incomes were previously unequal, while in a new, present income allocation they receive equal outcomes. Only one paper examines a similar situation, finding that the person with the unfortunate history self-servingly believes that he is entitled to compensation for his past, while the person with the fortunate history believes that the past is irrelevant to the present. We propose an agenda investigating how history shapes distributive preferences, and the association between distributive fairness violations and unethical behavior. We argue that examining the relationship between history and distributive preferences sheds light, for example, on whether a fair welfare system should consider individual contribution history.
First, we ask if asymmetric contribution history to joint earnings leads to self-serving invocations of history between partners when proposing divisions.
Second, we address whether partners sharing asymmetric initial income levels due to a previous allocation hold divergent views about the fair distribution of new, jointly created proceeds to which they contributed
equally. We study the extent to which preferences for maintaining income hierarchy and inequality aversion (beyond greed) drive distributive preferences.
Relatedly, we examine the association between imposing a distributive scheme on the rich and poor and subsequent unethical behavior. Imposed distributive schemes would systematically vary how much post-distribution rank is maintained/reversed and how income inequality is decreased/increased between them.