High‐Powered Contracts, Self‐Selection and Welfare in Settings with Externalities
In: Economica, Band 87, Heft 346, S. 328-363
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In: Economica, Band 87, Heft 346, S. 328-363
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In: Economica, Band 87, Heft 346, S. 328-363
ISSN: 1468-0335
We extend the experimental analysis of sorting and effort effects of high‐powered contracts on welfare to situations with negative externalities. Participants solve brainteasers from Raven's matrices. The difference between right and wrong answers represents our measure of welfare per capita. We compare two contract schemes: fixed‐wage and bonus contracts that reward subjects for the number of correct answers, regardless of the number of wrong answers. With fixed wages, selfish individuals have no effort incentive. With bonuses, they have incentives to answer as many questions as possible. The two contract schemes are further separated depending on whether participants self‐select or are randomly assigned to a contract. The self‐selection treatments correspond to cases where countries do not regulate contracts. The random assignment treatments mimic situations where countries either offer only bonuses or ban them. We find that bonuses generate lower welfare per capita than fixed wages as the higher effort incentives are outweighed by the detrimental effect of answering too many questions. However, due to productivity sorting, a general ban on bonuses does not increase welfare per capita compared to offering both contract schemes.
In: The Dynamics of Complex Urban Systems, S. 75-94
Tolls are frequently discussed policies to reduce traffic in cities. However, road pricing measures are seldom implemented due to high investments and unpopularity. Transportation planning tools can support planning authorities by solving those problems if they take into account the following aspects: – Demographic attributes like income and time constraints – Time reactions to the policy – Schedule changes of population's individuals during the whole day Our approach uses multi-agent simulations to model and simulate full daily plans. Each of our agents has a utility function that appraises the performance of a typical, microscopically simulated day. The sum of all utility changes to a policy change can be interpreted as the change in the system's welfare thus the economic evaluation of a measure straightforward. The approach is tested with travel behavior of the Zurich metropolitan region in Switzerland. Several tolling schemes are investigated. It is shown that the simulation can be used to model travelers' reactions to time-dependent tolls in a way most existing transportation planning tools are not able to do. It is demonstrated that route adjustment only, as is done in many traditional transport planning packages, results in no economic gains from the tolls. As time-dependent tolls are a much-debated subject in transportation politics, the ability to fully model such tolls and the reactions of travelers may help to find better toll schemes. In a world where individuals have more and more freedom to schedule their daily plans, agent-based simulations offer an intuitive way to research complex topics with lots of interdependencies.
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