We study what determines taxpayers' deduction behavior when filing tax returns. Preliminary deficits might be viewed as losses assuming zero preliminary balance as reference point. Swedish taxpayers may escape these losses by claiming deductions after receiving information about the preliminary balance. Furthermore, the Swedish income tax system has a substantial kink (20 percentage points) where the central government tax applies. Taxpayers slightly above the governmental tax kink have substantially higher (standard economic) incentives to claim deductions than taxpayers slightly below the kink. Using a regression kink and discontinuity approach with individual fixed effects, we study a panel of 4.1 million Swedish taxpayers in 1999 to 2006. We find strong causal effects of preliminary deficits on the probability of claiming deductions. The initial empirical evidence for a kink in deduction probability at the central government threshold, anticipated by standard economic theory, is weaker but significant. However, a more detailed analysis reveals that the kink at the tax threshold is not likely due to the tax incentives per se. When controlling for the preliminary tax deficit, the kink at the tax threshold disappears. Taxpayers just above the tax kink are namely more likely to run a preliminary tax deficit than those just below it. Hence, the most plausible explanation also for the kink at the tax threshold is therefore loss aversion and not standard economic incentives. The Swedish taxpayers are thus "misbehaving", in a Thaler (2015) sense, on two separate margins: they are highly loss averse but surprisingly inattentive to standard monetary incentives.
Post-harvest loss (PHL) is a major source of inefficiency in the agricultural value chain in Sub-Saharan Africa (SSA). It wastes productive resources, reduces economic agents' income, and aggravates the problem of insufficient consumption of adequate, nutritious and safe food. Addressing the problem of PHL therefore has to be an important part of any strategic approach for improving food security in the region. As a first step, the extent and nature of the problem has to be more precisely investigated, as differences in available estimates of PHL vary widely. On the policy level, interventions have traditionally focused on the adoption of technical solutions by farmers, which is primarily suited to address the quantitative loss aspect. However, to reduce the equally common losses through reduced quality, it is also relevant to understand to what extent buyers are willing to compensate farmers for the costs involved with adopting new technologies to supply crops of superior quality. The objective of this thesis is to assess strategies for reducing PHL in SSA focusing on (i) measurement concepts of losses and the implication for reliable estimates (ii) analyzing the determinants, extent and economic benefits of technology use in PHL reduction and (iii) assessing marketers' (intermediary buyers) aversion to loss. The approaches applied in achieving the objective of this thesis involve a detailed methodological review of studies providing post-harvest loss estimates; empirical analysis of the use, determinants and economic benefits of advanced technology use in PHL reduction; and empirical assessment of marketers' aversion to loss. Each empirical analysis uses both descriptive and regression frameworks based on data from farmers and marketers obtained in 2015. The result on measurement approaches shows that problems associated with obtaining consistent PHL estimates for SSA include, insufficient micro-level assessments, different estimation methods, and varying temporal and spatial extrapolations applied in the estimation process. Results for the use of advanced PHL reduction technologies show that incentives are inadequate and that buyer power is crucial in the decision to use these technologies. The assessment of aversion to loss shows that marketers' aversion is more evident where grades and standards are clearly defined. The findings highlight the need for updated micro-level studies in order to obtain reliable and consistent estimates for the region, while addressing the institutional development of markets to make PHL reduction efforts profitable for economic agents in SSA. ; Nachernteverluste sind eine der Hauptursachen für Ineffizienzen in der Agrar-Wertschöpfungskette in Subsahara-Afrika. Sie führen zur Verschwendung produktiver Ressourcen, Einkommensminderungen und verstärken das Problem unzureichenden Konsums von adäquaten und sicheren Lebensmitteln. Die Verringerung von Nachernteverlusten ist daher ein wichtiger Bestandteil jedes strategischen Ansatzes zur Verbesserung der Ernährungssicherheit in der Region. Hierzu ist ein verbessertes Verständnis der Art und des Umfangs des Problems erforderlich, zumal die vorhandenen Schätzungen von Nachernteverlusten stark variieren. Einschlägige Politikmaßnahmen basieren traditionell auf der Umsetzung technischer Lösungen mit dem Ziel, quantitative Verluste zu verringern. Allerdings geht mit dem quantitativen Verlust meist auch eine Qualitätsverringerung des Ernteguts einher. Um Verluste durch Qualitätsverringerung zu begrenzen, ist es daher wichtig, zu verstehen, inwiefern Käufer bereit sind, Landwirte für die Kosten zu kompensieren, die diesen durch die Verwendung neuer Technologien für die Herstellung qualitativ hochwertiger Produkte entstehen. Das Ziel dieser Arbeit ist die Untersuchung von Strategien für die Verringerung von Nachernteverlusten in Subsahara-Afrika. Behandelt werden (i) Messverfahren für Verluste und deren Auswirkungen auf zuverlässige Schätzungen, (ii) die Analyse der Faktoren und das Ausmaß wirtschaftlicher Vorteile durch die Nutzung von Technologien für die Reduktion von Nachernteverlusten und (iii) die Untersuchung der Verlustaversion von Händlern (Zwischenkäufern). Die Herangehensweise umfasst einen detaillierten methodologischen Literaturüberblick einschließlich einer Zusammenstellung von Schätzungen für Nachernteverluste. Darauf aufbauend folgt eine empirische Analyse der Nutzung, Determinanten und wirtschaftlichen Vorteile fortgeschrittener Technologien zur Reduktion von Nachernteverlusten, ebenso wie eine empirische Untersuchung der Verlustaversion von Händlern. Jede der empirischen Untersuchungen ist auf deskriptiven und Regressionsmethoden aufgebaut und nutzt Umfrageergebnisse unter Landwirten und Händlern aus dem Jahr 2015. Die Ergebnisse bei den Messverfahren zeigen Probleme bei der Beschaffung konsistenter Nachernteverlustschätzungen auf, d.h. unzureichende Untersuchungen auf der Mikro-Ebene, Unterschiede zwischen Schätzverfahren sowie variierende zeitliche und räumliche Hochrechnungsmethoden in den Schätzverfahren. Die Untersuchung der Anwendung fortschrittlicher Technologien zur Verlustminderung zeigt, dass vorhandene Anreize unzulänglich sind und die Marktmacht der Käufer ausschlaggebend für die Entscheidung ist, diese Technologien seitens der Landwirte anzuwenden. Eine Abneigung der Händler gegen Verluste wird vor allem dann deutlich, wenn klar definierte Standards und Güteklassen angeboten werden. Die Erkenntnisse unterstreichen den Bedarf an aktuellen Studien auf der Mikro-Ebene, um zuverlässige und konsistente Schätzungen für die Region zu erhalten. Gleichzeitig wird die Wichtigkeit einer institutionellen Weiterentwicklung der regionalen Märkte deutlich, um die Rentabilität der Verringerung von Nachernteverlusten für die Marktteilnehmer in Subsahara-Afrika zu verbessern.
We study what determines taxpayers' deduction behavior when filing tax returns. Preliminary deficits might be viewed as losses assuming zero preliminary balance as reference point. Swedish taxpayers may escape these losses by claiming deductions after receiving information about the preliminary balance. Furthermore, the Swedish income tax system has a substantial kink (20 percentage points) where the central government tax applies. Taxpayers slightly above the governmental tax kink have substantially higher (standard economic) incentives to claim deductions than taxpayers slightly below the kink. Using a regression kink and discontinuity approach with individual fixed effects, we study a panel of 4.1 million Swedish taxpayers in 1999 to 2006. We find strong causal effects of preliminary deficits on the probability of claiming deductions. The initial empirical evidence for a kink in deduction probability at the central government threshold, anticipated by standard economic theory, is weaker but significant. However, a more detailed analysis reveals that the kink at the tax threshold is not likely due to the tax incentives per se. When controlling for the preliminary tax deficit, the kink at the tax threshold disappears. Taxpayers just above the tax kink are namely more likely to run a preliminary tax deficit than those just below it. Hence, the most plausible explanation also for the kink at the tax threshold is therefore loss aversion and not standard economic incentives. The Swedish taxpayers are thus "misbehaving", in a Thaler (2015) sense, on two separate margins: they are highly loss averse but surprisingly inattentive to standard monetary incentives.
This paper is closed access until 26 June 2020. ; This study explores how information helps housing consumers make informed decisions and discusses potential market outcomes. We analyse the interaction between the disclosure of information on property conditions and the disparity between home sellers' willingness to accept (WTA) and home buyers' willingness to pay (WTP). Three hypotheses are derived and validated through field experimental investigation within the property market. We find that a WTA–WTP disparity exists. The identified policy instrument for information disclosure appears to function as expected. The WTA–WTP disparity is considerably reduced after information disclosure, and market liquidity and efficiency are improved. This study is an important complement to prior research on how information changes the behaviour of consumers in housing markets. Findings can inform central governments about the wider benefits of smart disclosure in the future, as well as the scope, format and structure of information supplied to general housing consumers to promote efficiency.
Prospect theory describes people as bounded rational decision maker. What sparked widespread discussion after its initial introduction in 1979 is today criticized for lack of applicability. I use the debate about whistleblowing laws to show that prospect theory may be applied prescriptively in economics as a tool to design effective legislation. Whistleblowing is often seen as an important way to uncover fraud, which causes billions of USD in damages annually. I first examine the fragmented legal landscape across Europe, showing that it can be framed as one favoring rewards or the prevention of losses. I conduct an experiment with 39 university students, wherein legislative incentives are evaluated under a prospect theoretical frame in a setting of ambiguity and high stakes. Results suggest that people exhibit the typical s-shaped value function and loss aversion in line with prospect theory. In addition, their intention to whistleblow is more heavily reduced by losses than increased by gains. The study adds to the scarce literature of prospect theory on decisions in ambiguous contexts-as well as to the applicability of the theory as a prescriptive instrument in designing institutional frames. For whistleblowing in particular, a protection-based approach seems most promising.
The main purpose of this paper is to study the influence of game players' behavior preferences on the strategy choice and equilibrium results in the game process of large-scale engineering projects' extreme disputes. In contrast to the self-interested preference and completely rational assumptions of traditional economics, this paper focuses on the discussion of loss aversion preference and fairness preference against the background of incomplete information about the game subject. Considering the influence of the decision-makers' multidimensional preferences, this paper establishes a three-party game model for the government, the project construction units, and the public. Furthermore, the equilibrium results of four different types of extreme disputes are deduced using the game method. We deduce the evolutionary paths and equilibrium characteristics and discuss them in combination with actual cases in China in an attempt to provide theoretical support and scientific analysis tools to avoid serious disputes and conflict decision results. Through research, this paper finds that the transformation of prior beliefs, the role of multidimensional preference sets, and a lack of information between the game players in the game process are key to the evolution of project disputes into extreme dispute decisions.
This paper studies the issue of constitutional design, and supermajorities in particular, from a behavioral economics perspective. The relevant parameters are voting power, risk aversion, and pessimism. Voters who feel powerful prefer lower thresholds, while risk averters and those who feel pessimistic about the majority prefer higher thresholds. We also analyze the effects of loss aversion and overconfidence. The former leads voters to prefer more protective voting rules, a manifestation of their bias towards the status quo. The latter leads them to prefer overly low (high) protection when they receive good (bad) news about how others will vote. Finally, we study constitutional agreements on the voting rule. Members of the constituent assembly are heterogeneous in the parameters above. Weak and minority members anticipate high expropriation risk in future decisions. This gives them consistent leverage to push for a protective constitution.
A novel Covid-19 virus initially threatens the Chinese metropolis of Wu-Han and has been causing a global pandemic in 2020. In order to impede the spread of the virus and thus relieve the burden on the respective health care systems, governments around the world are being forced to impose unprecedented restrictions on social life. In addition to closing all forms of public life and cancelling all public events, the measures taken in Austria also include an initial restriction for the individual to stay at home. From an economic-psychological point of view, the decision to comply with these measures can be described as a social dilemma. The individual would profit from defection but at the expense of the general public. The Federal Government must therefore provide appropriate incentives to convince citizens to still comply either through trust or sanctions. Using the example of Austria, this article examines how the emergence of the crisis is first perceived, which communication strategies are used to motivate citizens to comply and why citizens sometimes react with supposedly irrational actions.
We study the asset allocation of an investor with prospect theory (PT) preferences. First, we solve analytically the two-asset problem of the PT investor for one risk-free and one risky asset and find that loss aversion and the reference return affect differently less ambitious investors and more ambitious investors. Second, we empirically investigate the performance of a PT portfolio when diversifying among a stock market index, a government bond and gold, in Europe and the US. We focus on investors with PT preferences under different scenarios regarding the reference return and the degree of loss aversion and compare their portfolio performance with the performance of investors under CVaR, risk neutral, linear loss averse and in particular mean-variance (MV) preferences. We find that, in the US, PT portfolios significantly outperform (in terms of returns) mean-variance portfolios in the majority of cases. Also with respect to riskadjusted performance, PT investment outperforms MV investment in the US. Similar results, however, can not be observed in Europe. Finally, we analyze asymmetric effects along economic uncertainty and observe that PT investment leads to higher returns than MV investment in times of larger economic uncertainty, especially in the US.
This dissertation focuses on how executive compensation is designed and its implications for corporate finance and government regulations. Chapter 2 analyzes several proposals to restrict CEO compensation and calibrates two models of executive compensation that describe how firms would react to different types of restrictions. We find that many restrictions on CEO compensation would have unintended consequences. Restrictions on total realized (ex-post) payouts lead to higher average compensation, higher rewards for mediocre performance, lower risk-taking incentives, and the fact that some CEOs would be better off with a restriction than without it. Restrictions on total ex-ante pay lead to a reduction in the firm's demand for CEO talent and effort. Restrictions on particular pay components, and especially on cash payouts, can be easily circumvented. Chapter 3 examines how executive dividend protection affects corporate payout policy. I find that the dividend protection on executive restricted stock and option grants is associated with higher dividend payouts and lower share repurchases. Using the 2003 tax reform as an exogenous shock in dividend payouts, I provide further evidence that executive dividend protection causes changes in dividend payout policies. Chapter 4 studies a special subset of CEOs who works for a one-dollar annual salary. Rather than being the sacrificial acts they are projected to be, our findings suggest that some adoptions of one-dollar CEO salaries are opportunistic behavior of the wealthier, more overconfident, influential CEOs. Overall, these findings support the literature which claims that CEOs employ camouflage in compensation schemes to reduce the likelihood of public outrage over private benefits.
This paper studies the relationship between export policy and food prices. We show that, when individuals are loss averse, food exporters may use trade policy to shield the domestic economy from large price shocks. This creates a complementarity between the price of food in international markets and export policy. Specifically, unilateral actions by exporting countries give rise to a multiplier effect: when a shock in the international food market drives up (down) its price, governments respond by imposing export restrictions (subsidies), thus exacerbating the initial shock and soliciting further export activism. We test this theory with a new dataset that comprises monthly information on trade measures across 125 countries and 29 food products for the period 2008-10, finding evidence of a multiplier effect. Global restrictions in a product (i.e. the share of international trade covered by export restrictions) are positively correlated with the probability of imposing a new export restriction on that product, especially for staple foods. Large exporters are found to be more reactive to restrictive measures, suggesting that the multiplier effect is mostly driven by this group. Finally, we estimate that a 1 per cent surge in global restrictions increased international food prices by 1.1 per cent on average during 2008-10. These findings contribute to inform the broader debate on the proper regulation of export policy within the multilateral trading system.
We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following Koszegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to costless for the consumer to observe the realized price of the product, then – in a pattern consistent with several recently documented facts regarding supermarket pricing – the monopolist chooses low and variable "sale" prices with some probability and a high and sticky "regular" price with the complementary probability. Realizing that she will buy at the sale prices and hence that she will purchase with positive probability, the consumer chooses to avoid the painful uncertainty in whether she will get the product by buying also at the regular price. If it is more costly for the consumer to observe the realized price, then – in a pattern consistent with the pricing behavior of some other retailers (e.g. movie theaters) – the monopolist chooses a sticky price and holds no sales. In this case, a sale is less tempting and hence less effective in generating an expectation to purchase with positive probability. We also show that ex-ante competition for loyal consumers leads to sticky pricing while ex-post competition leads to marginal-cost pricing, and discuss several other extensions of the model.
The Income Stabilization Tool, a risk management scheme introduced within the Common Agricultural Policy (CAP) 2014–2020, could help European Union farmers manage the income risks they face. This study assesses the potential impact of implementing this tool through the maximum level of contribution to the fund which determines an indifference to participate in the fund and its financial sustainability. The study relies on an expected utility approach and assesses the variability of loss ratios over time using a sample of Italian hazelnut farms as a case study. The participation depends on the level of farmers' contributions and their degree of risk aversion. However, the CAP public support makes the scheme financially sustainable.
I consider two-period self-insurance and self-protection models in the presence of ambiguity that either affects the loss or the probabilities, and analyze the effect of ambiguity aversion. I show that in most common situations, ambiguity prudence is a sufficient condition to observe an increase in the level of effort. I proposes an interpretation of the model in the context of climate change, such that self-insurance and self-protection are respectively seen as adaptation and mitigation efforts a policymaker should provide to deal with an uncertain catastrophic event, and interpret the results obtained as an expression of the Precautionary Principle. ; info:eu-repo/semantics/published
We study the asset allocation of an investor with prospect theory (PT) preferences. First, we solve analytically the two-asset problem of the PT investor for one risk-free and one risky asset and find that loss aversion and the reference return affect differently less ambitious investors and more ambitious investors. Second, we empirically investigate the performance of a PT portfolio when diversifying among a stock market index, a government bond and gold, in Europe and the US. We focus on investors with PT preferences under different scenarios regarding the reference return and the degree of loss aversion and compare their portfolio performance with the performance of investors under CVaR, risk neutral, linear loss averse and in particular mean-variance (MV) preferences. We find that, in the US, PT portfolios signiffcantly outperform (in terms of returns) mean-variance portfolios in the majority of cases. Also with respect to riskadjusted performance, PT investment outperforms MV investment in the US. Similar results, however, can not be observed in Europe. Finally, we analyze asymmetric effects along economic uncertainty and observe that PT investment leads to higher returns than MV investment in times of larger economic uncertainty, especially in the US.
