Working Paper Series

The Berlin Doctoral Program in Economics and Management Science periodically publishes working papers that highlight the findings of its research. They are also linked on RePec.


Prices versus Quantities: The Impact of Fracking on the Choice of Climate Policy Instruments in the Presence of OPEC

by Daniel Nachtigall

This paper analyzes the impact of declining extraction costs of shale oil producers on the choice of the policy instrument of a climate coalition in the presence of a monopolistic oil supplier such as OPEC. Shale oil producers’ extraction costs represent an upper bound for the oil price OPEC can charge. Declining extraction costs ultimately limit OPEC’s price setting behavior and thus impacts the optimal climate policy of the climate coalition. A pure cap-and-trade system is weakly welfare-inferior relative to a carbon tax for the climate coalition. While high extraction costs allow OPEC to appropriate the whole climate rent in case of quantity regulation, declining extraction costs imply OPEC to capture only a part of the climate rent. A carbon tax always generates positive revenue and thus is welfare-superior in general. However, low extraction costs prevent OPEC from exerting its market power, leading the climate coalition to implement the Pigouvian tax in the first place. Both market-based instruments are equivalent in this case. Complementing a quota with a base tax cannot outperform a pure carbon tax. 

BDPEMS Working Paper Series # 2017-01

 

Climate policy under firm relocation: The implications of phasing out free allowances

by Daniel Nachtigall

The allocation of free allowances for firms belonging to the carbon leakage list of the European Union Emissions Trading Scheme (EU ETS) was found to lead to substantial overcompensation, which is why some stakeholders re- cently have called for a phasing out of free allowances in the near term. This paper analyzes the consequences of phasing out free allowances in a dynamic two-period model when one group of countries unilaterally implements cli- mate policies such as an emissions trading scheme. A carbon price induces firms to invest in abatement capital, but may also lead to the relocation of some firms. The social planner addresses the relocation problem by of- fering firms transfers, i.e. free allowances, conditional on maintaining the production in the regulating country.If transfers are unrestricted in both periods, then the social planner can implement the first best by setting the carbon price equal to the marginal en- vironmental damage and using transfers to prevent any relocation. However, if transfers in the future period are restricted, it is optimal to implement a declining carbon price path with the first period price exceeding the marginal environmental damage. A high carbon price triggers investments in abate- ment capital and thus creates a lock-in effect. With a larger abatement cap- ital stock, firms are less affected by carbon prices in the future and therefore less prone to relocate in the second period where transfers are restricted.

BDPEMS Working Paper Series # 2016-07

 

Assessing the Role of Workplace Heterogeneity in Recent Trends of the Gender Wage Gap

Online-Appendix

by Benjamin Bruns

Using linked employer-employee data for Germany, I study the relationship between two major developments of the 1990s and 2000s: a stagnation of the wage gap between genders, and a pronounced rise of establishment-specific wage premiums in shaping the trends in inequality. I find that establishment premiums contribute to the wage gap between genders, and that their role has grown considerably over time: in the absence of rising workplace heterogeneity, the gender gap would have declined by around 0.6-3.6 log points, or 2.5-14.3%. An overrepresentation of women at low wage establishments is the main source of the workplace contribution in each period, whereas within-establishment wage gaps tend to reduce the role of workplaces, but decreasingly so. The trend increase of the role of workplaces is equally attributable to changes in employment and a widening of gender-specific premiums at each establishment. I document that these patterns are consistent with collective bargaining institutions compressing the wage gap within firms, and that the growing decentralisation of wage determination acts as a catalyst for the rising importance of workplaces in determining the gender wage gap.

BDPEMS Working Paper Series # 2016-06

 

Cooperative and noncooperative R&D in an asymmetric multi-product duopoly with spillovers

by Juliane Fudickar and Ruzica Rakicy

We consider R&D investment with spillovers in a market where a multi-product firm competes with a single-product firm. We analyze whether investment incentives are higher under R&D cooperation or competition and show that this depends not only on the technology spillover but also on the degree of product differentiation. R&D investments under cooperation are lower when the products are close substitutes even if the spillover is substantial.

BDPEMS Working Paper Series # 2016-05

 

How Important is Precautionary Labor Supply?

by Robin Jessen, Davud Rostam-Afschar and Sebastian Schmitz

We quantify the importance of precautionary labor supply using data from the German Socio-Economic Panel (SOEP) for 2001-2012. We estimate dynamic labor supply equations augmented with a measure of wage risk. Our results show that married men choose about 2.5% of their hours of work or one week per year on average to shield against unpredictable wage shocks. This implies that about 26% of precautionary savings are due to precautionary labor supply. If self-employed faced the same wage risk as the median civil servant, their hours of work would reduce by 4%.

BDPEMS Working Paper Series # 2016-04

 

Banks’ balance sheets and the international transmission of shocks

by Johanna Krenz

I propose a framework to think about the global comovement in macroeconomic variables during the recent financial crisis. The framework is used to address one question in particular: what is the role of banks’ balance sheet exposure to foreign assets for the international transmission of country-specific shocks? It is shown that this role depends on the nature of the shock: balance sheet exposure is essential for global comovement in the case of capital quality shocks. Conditional on technology shocks and shocks to the net worth of bankers, however, the share of foreign assets in banks’ portfolios does not play a decisive role for cross-country correlations. This implies that an evaluation of the risks arising from financial integration needs to take into account the nature of the shocks which are likely to hit the economy. An additional result of the model is that if financial institutions undertake the international portfolio choice decision instead of households, they do not necessarily choose the portfolio which yields the highest degree of consumption risk sharing. Given that a large part of international portfolio holdings are managed by financial intermediaries, this provides a possible explanation for the well-known empirical finding of modest international risk sharing despite open financial markets.

BDPEMS Working Paper Series # 2016-03

 

Scoring rules and implementation in iteratively undominted strategies

by Chrsitian Basteck

We characterize voting procedures according to the solution that they implement when voters cast ballots strategically, applying iteratively undominated strategies. In elections with three candidates, the Borda Rule is the unique positional
scoring rule that satisfies unanimity (U) (i.e., elects a candidate whenever it is unanimously preferred) and is majoritarian after eliminating a worst candidate (MEW)(i.e., if there is a unanimously disliked candidate, the majoritypreferred among the other two is elected). In the larger class of direct mechanism scoring rules, Approval Voting is characterized by a single axiom – it is majoritarian after eliminating a Pareto dominated candidate (MEPD)(i.e., if there is a Pareto-dominated candidate, the majority-preferred among the other two is elected). However, it fails a desirable monotonicity property: a candidate that is elected for some preference profile, may lose the election once she gains further in popularity. In contrast, the Borda Rule is the unique direct mechanism scoring rule that satisfies U, MEW and monotonicity (MON). Finally, there exists no direct mechanism scoring rule that satisfies both MEPD and MON or Condorcet consistency (CON).

BDPEMS Working Paper Series # 2016-02

 

Fair solutions to the random assignment problem

by Christian Basteck

We study the problem of assigning indivisible goods to individuals where each is to receive one good. To guarantee fairness in the absence of monetary compensation, we consider random assignments that individuals evaluate according to first order stochastic dominance (sd). In particular, we find that solutions that guarantee sd-no-envy (e.g. the Probabilistic Serial) are incompatible even with the weak sd-core from equal division. Solutions on the other hand that produce assignments in the strong sd-core from equal division (e.g. Hylland and Zeckhauser’s Walrasian Equilibria from Equal Incomes) are incompatible with the strong sd-equal-division-lower-bound. As an alternative, we present a solution, based on Walrasian equilibria, that is sd-efficient, in the weak sd-core from equal division and satisfies the strong sd-equal-division-lower-bound.

BDPEMS Working Paper Series # 2016-01