GSDS Working Papers

2017-07: Family Planning and Development: Aggregate Effects of Contraceptive Use

Tiago Cavalcanti, University of Cambridge and EESP/FGV-SP, Georgi Kocharkov, University of Konstanz and Cezar Santos, EPGE/FGV-Rio

Abstract

What is the role of family planning interventions on fertility, savings, human capital investment, and development? To examine this, endogenous unwanted fertility is embedded in an otherwise standard quantity-quality overlapping generations model of fertility and growth. The model features costly fertility control and families can (partially) insure against a fertility risk by using costly modern contraceptives. In the event of unexpected pregnancies, households can also opt to abort some pregnancies, at a cost. Given the number of children born, parents decide how much education to provide and how much to save out of their income. We fit the model to Kenyan data, implement several family planning policies and decompose their aggregate effects. Our results suggest that given a small budget (up to 0.5 percent of GDP), legalizing and subsidizing the price of abortion is a more cost-effective policy for improving long-run living standards and reducing inequality than policies that either subsidize the price of modern contraceptives or subsidize basic education.


Keywords: education, income per capita, contraception, abortion
JEL Classification: E24, I15, J13, O11.

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2017-06: Testing learning mechanisms of rule-based judgment

Janina Hoffmann, University of Konstanz, Bettina von Helversen, University of Zürich and Jörg Rieskamp, University of Basel

Abstract

Weighing the importance of different pieces of information is a key determinant of making
accurate judgments. In social judgment theory, these weighting processes have been
successfully modeled with linear models. How people learn to make judgments has received
less attention. Although the hitherto proposed least mean squares or delta learning rule
can perfectly learn to solve linear problems, we found in a first study that it does not
adequately describe human learning. To provide a more accurate description of learning
processes we amended the delta learning rule with three learning mechanisms —a decay, an
attentional learning mechanism, and a capacity limitation —and tested in a further study
how well those learning mechanisms can describe and predict learning in linear judgment
tasks.
In the study, participants first learned to predict a continuous criterion based on four
cues. To test the three learning mechanisms rigorously against each other, we changed the
importance of the cues after 200 trials so that the mechanisms make different predictions
with regard to how fast people adapt to the new environment. On average, judgment
accuracy improved from trial 1 to 200, dropped when the task structure changed, but
improved again until the end of the task. The capacity-restricted learning model best
described and predicted the learning curve of the majority of participants. Taken together,
these results suggest that human learning when making inferences is governed by cognitive
capacity limitations.

Keywords: Multiple-cue Judgment; Rule-based Processes; Learning

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2017-05: Tracing the path of forgetting in rule abstraction and exemplar retrieval

Janina Hoffmann, University of Konstanz, Bettina von Helversen, University of Zürich, Regina A. Weilbächer, University of Basel and Jörg Rieskamp, University of Basel

Abstract

People often forget acquired knowledge over time such as names of former classmates.
Which knowledge people can access, however, may modify the judgment process and affect
judgment accuracy. Specifically, we hypothesized that judgments based on retrieving past
exemplars from long-term memory may be more vulnerable to forgetting than remembering
rules that relate the cues to the criterion. Experiment 1 tracked the individual course of
forgetting in a judgment task facilitating rule-based or exemplar-based strategies by
systematically prolonging the retention interval between a training in which participants
learned to make judgments and later tests (immediate, one day, and one week). Practicing
the acquired judgment strategy in repeated tests helped participants to consistently apply
the learnt judgment strategy and retain a high judgment accuracy even after a week. Yet,
whereas a long retention interval did not affect judgments in the rule-based task, a long
retention interval impaired judgments in the exemplar-based task. If practice was restricted
as in Experiment 2, judgment accuracy suffered in both tasks. In addition, after a week
without practice participants tried to reconstruct their judgments by applying rules in the
exemplar-based task. These results emphasize that the extent to which decision makers can
still retrieve previously learned knowledge limits their ability to make accurate judgments
and that the preferred strategies change over time if the opportunity for practice is limited.

Keywords: Judgment, forgetting, rule-based and exemplar-based processes

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2017-04: Justifying the judgment process affects confidence but neither accuracy, nor strategy use

Janina Hoffmann, University of Konstanz, Wolfgang Gaissmaier, University of Konstanz and Bettina von Helversen, University of Zürich

Abstract

The quality of a decision in daily life is often evaluated based on whether one can adequately explain how one came to this decision. Holding decision makers accountable for the decision process often improves judgment quality because decision makers weigh and integrate information more thoroughly. Our research aimed to identify the conditions under which process accountability may lead to favorable or disadvantageous judgments. Specifically, we hypothesized that process accountability may hinder accurate judgments in tasks that require remembering previously encountered cases (Experiment 1) whereas it may improve judgment accuracy in tasks that require weighing and integrating information (Experiment 2). To test these hypothesis, participants learned to solve either a multiplicative (Experiment 1) or a linear multiple-cue judgment task (Experiment 2) with or without accountability instructions. We manipulated process accountability by randomly selecting trials in which participants had to justify their judgment. In both experiments, process accountability neither changed how accurately people made a judgment, nor the cognitive processes underlying their judgments. In trials asking participants to justify their judgment process participants were less confident about their judgments. Overall, these results imply that process accountability may impact judgment quality only to a small. We discuss the limits of our results with respect to the e ectiveness of the manipulation.

Keywords: Judgment; Accountability; Cognitive processes

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2017-03: Foundation Owned Firms - A Detailed Decomposition of Differences in Return Distributions

Matthias Draheim, University of Konstanz and Phillip Heiler, University of Konstanz

Abstract

We study if and how differences in firm policies have an impact on differences in return on assets of foundation owned firms (FoFs) and other firms (Nons) in Germany. We perform the analysis for return differences at the mean and at several quantiles. We document that for high-performing FoFs and Nons the return on asset difference is more pronounced in favor of Nons, for low-performing firms the difference vanishes. Performance differences are substantially driven by differences in firm policies. We find that (1) lower risk in FoFs increases FoF underperformance at high quantiles, but offsets it at low quantiles, (2) a lower leverage of FoFs offsets FoF underperformance at low quantiles and the median, (3) higher labor intensity in FoFs offsets their underperformance at low quantiles, (4) the larger size of FoFs increases FoF underperformance for the mean and all quantiles, (5) lower growth rates of FoFs increase FoF underperformance at high quantiles, and (6) residual differences
beyond firm policies tend to be insignificant.

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2017-02: We Belong Together - A Cross-Smoothing Approach for Non-overlapping Group Mean Estimates

Phillip Heiler, University of Konstanz and Jana Mareckova, University of Konstanz

Abstract

We propose a general framework for estimating means of orthogonal groups stemming from e.g. categorical regressors or (quasi-)experimental data. It penalizes the loss function by adding squared L2-norm differences between group location parameters and a first stage estimate for potentially all other groups. Under quadratic loss, the penalized estimation problem has a simple interpretable closed form solution that is related to methods established in the literature on discretized support smoothing kernels and model averaging methods. We provide optimal smoothing parameters that serves as a benchmark method, propose a plug-in approach and study their comparative statics. The behavior of both methods is analyzed in an asymptotic local to zero framework that allows for the
presence of moderate test statistics for arbitrary sample sizes. We introduce a class of sequences for close and distant systems that is sufficient for describing a large range of data generating processes. We show consistency, derive the asymptotic distribution under fixed, theoretically optimal and estimated smoothing parameters and provide upper limits for the statistical complexity of the estimators. The method is applied to the estimation of time trends in a short panel based on the Haifa field experiment by Gneezy and Rustichini (2000a) and to the difference-in-differences minimum wage study by Card and Krueger (1994).

Keywords: Categorical data analysis, shrinkage, smoothing

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2017-01: Teenage Childbearing and the Welfare State

Andra Filote, Georgi Kocharkov and Jan Mellert (University of Konstanz)

Abstract

Teenage childbearing is a common incident in developed countries. However, the occurrence of teenage births is much more likely in the United States than in any other industrialized country. The majority of these births are delivered by female teenagers coming from low-income families. The hypothesis put forward here is that the welfare state (a set of redistributive institutions) plays a significant role for teenage childbearing behavior. We develop an economic theory of parental investments and risky sexual behavior of teenagers. The model is estimated to fit stylized facts about income inequality, intergenerational mobility and sexual behavior of teenagers in the United States. The welfare state institutions are introduced via tax and public education expenditure functions derived from U.S. data. In a quantitative experiment, we impose Norwegian taxes and/or education spending in the economic environment. The Norwegian welfare state institutions go a long way in explaining the differences in teenage birth rates between the United States and Norway.

Keywords: Teenage risky sexual behavior, teenage birth rates, progressive taxation, education, redistribution.

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2016-05: Volatility forecasting using global stochastic financial trends extracted from non-synchronous data

Lyudmila Grigoryeva, University of Konstanz, Juan-Pablo Ortega, University of St. Gallen and Anatoly Peresetsky, International Laboratory of Quantitative Finance, Higher School of Economics, Moscow

Abstract

This paper introduces a method based on various linear and nonlinear state space models that are used to extract global stochastic financial trends (GST) out of non-synchronous financial data. More speci cally, these models are constructed to take advantage of the intraday arrival of closing information coming from di fferent international markets to improve volatility description and forecasting. A set of three major asynchronous international stock market indices is used in order to empirically show that this forecasting scheme is capable of signi cant performance gains when compared to standard models like the dynamic conditional correlation (DCC) family.

Keywords: multivariate volatility modeling and forecasting, global stochastic trend, extended Kalman fi lter, dynamic conditional correlations (DCC), non-synchronous data.

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2016-04: Singular ridge regression with homoscedastic residuals: generalization error with estimated parameters

Lyudmila Grigoryeva, University of Konstanz and Juan-Pablo Ortega, University of St. Gallen

Abstract

This paper characterizes the conditional distribution properties of the nite sample ridge regression estimator and uses that result to evaluate total regression and generalization errors that incorporate the inaccuracies committed at the time of parameter estimation. The paper providesexplicit formulas for those errors. Unlike other classical references in this setup, our results take place in a fully singular setup that does not assume the existence of a solution for the non-regularized regression problem. In exchange, we invoke a conditional homoscedasticity hypothesis on the regularized regression residuals that is crucial in our developments.

Key Words: ridge regression, singular regression, training error, testing error, generalization error, regularization methods, high-dimensional regression.

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2016-03: Sources of German Income Inequality across Time and Space

Franziska K. Deutschmann, University of Konstanz

Abstract

Income inequality rose in Germany since the 1970s. To quantify the impact of socio-economic trends on inequality, I construct counterfactual distributions of net household income with rich German data. The procedure controls for marital sorting in education and allows for indirect influences, such as the influence of education on employment. I fi nd that the prevalence of singlehood can account for the observed increase in inequality since the 1970s to a vast extent. The inequality increase is also associated with a change of employment among males and single females. Compared to West Germany, in 2011, the stronger labor attachment of East German married females combined with the high East German unemployment produce more income inequality. East-West diff erences in children per household also boost East German inequality. East German education works against it. I find no evidence that positive assortative mating in education or the aging society augment income inequality signi ficantly.

JEL classi cation: D31, E25, I24, J11, J12, J21.

Keywords: inequality, demography, household structure, assortative mating,
education, employment, Germany

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2016-02: Anti-poverty Income Transfers in the U.S.: A Framework for the Evaluation of Policy Reforms

Salvador Ortigueira, University of Miami and Nawid Siassi, University of Konstanz

Abstract

We develop a dynamic model of labor supply, consumption, savings and marriage decisions to study the behavioral responses of low-income workers to anti-poverty income transfers in the U.S. The model is calibrated to match moments from a sample of non-college-educated workers with children drawn from the 2014 Annual Social and Economic Supplement. The categorical, asset and income eligibility criteria of the transfer programs, along with the income and payroll taxes, yield complex budget constraints and introduce a web of interactions whose e ects we identify and measure. We examine the workers' behavioral responses across the model's equilibrium distribution over living arrangements, labor productivities, wealth and number of children. Then we use the model to assess the e ects of three recent proposals to reform the U.S. tax-transfer system, including the "21st Century Worker Tax Cut Act" and the "Tax Reform Act of 2014". A core objective of these proposals is the mitigation of the disincentives introduced by the Earned Income Tax Credit to married mothers' labor market participation.

JEL-Codes:  E21, H24, H31, J12

Keywords: Anti-poverty income transfers; household decisions; cohabitation and marriage.

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2016-01: Revisiting the Oil Curse: Does Ownership Matter?

Arpita Khanna, University of Konstanz

Abstract

A large body of scholarship finds a negative relationship between oil abundance and economic growth. The existing empirical evidence on the oil curse, however, does not account for variations in the ownership of oil. This article investigates whether the effect of oil abundance on growth varies with ownership structures. It also investigates whether institutional quality influences the effect of different ownership structures. Using a novel database on ownership structures and employing a panel fixed-effects estimation method, it analyzes a sample of 20 oil-exporting developing countries during the period 1984-2005. The results show that different ownership structures have differential effects on growth, and that their effect is influenced by the quality of institutions. State ownership and control reduces growth when the institutional quality is poor, but increases growth when the institutional quality is good. Private ownership, on the other hand, increases growth when the institutional quality is poor, but reduces growth when the institutional quality is good. The results contrast the existing knowledge that institutional quality alone is decisive for the resource curse; the results show that the choice of ownership structure in the oil sector plays an important role in determining whether oil-exporting countries benefit from their oil wealth or suffer from the curse. The policy advice in this article is: retain state ownership and control if the institutions are strong, if the institutions are weak, transfer ownership to foreign oil companies.

Keywords: oil curse, ownership, economic growth, institutional quality

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2015-04: Discounted Stochastic Games with Voluntary Transfers

Susanne Goldlücke, University of Konstanz and Sebastian Kranz, Ulm University

Abstract

This paper studies discounted stochastic games with perfect or imperfectpublic monitoring and the opportunity to conduct voluntary monetarytransfers. This generalization of repeated games with transfers is ideallysuited to study relational contracting in applications that allow for longterminvestments, and also allows to study collusive industry dynamics. We show that for all discount factors every public perfect equilibrium payoffcan be implemented with a simple class of equilibria that have a stationarystructure on the equilibrium path and optimal penal codes with astick and carrot structure. We develop algorithms that exactly compute orapproximate the set of equilibrium payoffs and find simple equilibria thatimplement these payoffs.

Keywords: dynamic games, relational contracting, monetary transfers, computation,imperfect public monitoring, public perfect equilibria
JEL-Codes: C73, C61, C63

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2015-03: One Fits All? Explaining Support for Immigration Control in a Group Comparative Perspective

Claudia Diehl, University of Konstanz, Katrin Auspurg, Goethe University Frankfurt and Thomas Hinz, University of Konstanz

Abstract

By using data from a factorial survey we analyze the role of economic and cultural threat in explaining support for immigration control in Switzerland. Threat is modeled more directly than in many previous studies: Economic threat is assumed to be high when migrants and natives have similar levels of education, and perceived cultural threat is assumed to be high when nationally pride natives are confronted with migrants unwilling to adapt culturally.

Furthermore, it is analyzed whether threat varies across immigrant groups that differ in size, aggregate skill level and cultural background. Results show that both economic and cultural threat play a role in explaining support for immigration control. In line with previous studies economic threat seems to be an issue for highly-skilled natives when they are confronted with large groups of migrants with similar skill levels to their own. Likewise, nationally pride natives seem threatened not only by culturally distant migrants, but also by large migrant groups who are not willing to adapt culturally while not being dissimilar enough to stay culturally apart. Further studies are necessary to examine whether these patterns generalize to other countries and immigration groups.

Keywords: Immigration, Switzerland, cultural threat, economic threat, migration related attitudes, factorial survey experiment

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2015-02: The Changing Psychology of Culture in Germany: A Google Ngram Study

Nadja Younes, University of Konstanz and Ulf-Dietrich Reips, University of Konstanz

Abstract

The paper provides evidence for the long-term affiliation between ecological and cultural changes in Germany, based on the assumptions derived from social change and human development theory by Greenfield (2009). Greenfield (2009, 2013) assumes that the increase in urbanization is associated with significant cultural changes of psychology. Whereas urbanization is linked to greater individualistic and materialistic awareness, rural environments are strongly associated with allegiance, prevalence of religion, and intense feelings of belonging and benevolence. Due to a similar rate of urbanization in Germany compared to the US, this study aims to replicate the results of Greenfield (2013) for Germany and to improve on the method. Results indicate that prognoses about the implications of an urbanizing population for the psychology of culture hold true. Individualistic values increased, whereas collectivistic values decreased. Further, a predictable reversal for the time during and after World War II is observed, reflecting Nazi propaganda and influence.

Keywords: Google Ngram, social change and human development theory, urbanization, internet science

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2015-01: A Quantitative Model of Sovereign Debt, Bailouts and Conditionality

Fabian Fink, University of Konstanz and Almuth Scholl, University of Konstanz

Abstract

In times of sovereign debt crises, International Financial Institutions provide temporary financial support contingent on the implementation of specific macroeconomic policies. This paper develops a model of sovereign debt and default with endogenous participation rates in bailout programs. Conditionality enters as a constraint on fiscal policy. In the model, the insurance character of bailouts generates incentives for debt accumulation. Quantitative results suggest that bailouts prevent sovereign defaults in the short-run but may come at a cost of a greater default probability in the long-run. Increasing the intensity of conditionality lowers the bailout participation rate and generates a hump-shaped pattern of sovereign default risk.


Keywords: sovereign debt, sovereign default risk, bailouts, conditionality, fiscal policy
JEL-Codes: E44, E62, F34


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