Economics

‘Fairness views and political preferences: evidence from a large and heterogeneous sample ’ (With Daniel Müller)

Published in Social Choice and Welfare (2020) Full text available, open journal article

We elicit distributional fairness ideals of impartial spectators using an incentivized experiment in a large and heterogeneous sample of the German population. We document several empirical facts: (i) egalitarianism is more popular than efficiency- and maxi-min ideals; (ii) females are more egalitarian than men; (iii) men are relatively more efficiency minded; (iv) left-leaning voters are more likely to be egalitarians, whereas right-leaning voters are more likely to be efficiency-minded; and (v) young and high-educated participants hold different fairness ideals than the rest of the population. Moreover, we show that fairness ideals predict preferences for redistribution and intervention by the government, as well as actual charitable giving, even after controlling for a range of covariates. This paper thus contributes to our understanding of the underpinnings of voting behavior and ideological preferences and to the literature that links laboratory measures and field behavior.

‘Flip a coin or vote: An experiment on the implementation and efficiency of social choice mechanisms’ (With Timo Hoffmann)

Published in Experimental Economics (2021) Full text available, open journal article

Corporate boards, experts panels, parliaments and cabinet, and even nations all take important decisions as a group. Selecting an efficient decision rule to aggregate individual opinions is paramount to the decision quality of these groups. In our experiment we elicit the preferences of group members over several important decision rules and test the empirical performance of these decision rules. We find that: 1) the efficiency of the theoretically optimal rule is not as robust as simple majority voting and theoretical efficiency rankings can reverse in the lab; 2) participation constraints often hinder implementation of more efficient mechanisms; 3) these constraints are relaxed if the less efficient mechanism is risky; 4) participation preferences appear to be driven by realized rather than theoretic pay-offs of the decision rules. These findings highlight the difficulty of relying on theory alone to predict what mechanism is better and acceptable to the participants in practice.

‘As Easy as ABC? Multidimensional Screening in Public Finance’ (With Floris Zoutman) pdf available here

We characterize the second-best allocation in a Mirrleesian optimal tax model with multidimensional heterogeneity and multiple continuous choice variables. Using a first-order approach, 4 properties of the optimal allocation are derived. First, the optimal tax schedule can be described by a generalized version of Diamond's (1998) and Saez' (2001) ABC-formula. Second, a no-distortion at the top/bottom result holds. Third, the famous Atkinson-Stiglitz theorem that commodity tax rates should be uniform does not generalize to multidimensional heterogeneity. Fourth, the optimal wedges found contain as many interdependencies as the dimension of the type space. All these findings can be explained intuitively by interpreting the tax system as the tool used by the planner to elicit information from the agents. The interdependencies in the optimal tax schedule are similar to the ones found in the stochastic dynamic models of the New Dynamic Public Finance. This suggests that the complexity in NDPF tax systems might be related to multidimensional heterogeneity in the type space. This note was initially written with Floris Zoutman. It is now a part of a project with Ettienne Lehmann's project "Optimal multidimensional and nonlinear taxation" and, Kevin Spiritus "Characterizations for Optimal Multidimensional Taxation with Multidimensional Heterogeneity of Agents" (2017). It is intended to be combined with these into a common paper

‘When a Price is Enough: Implementation in Optimal Tax Design’ (With Floris Zoutman) pdf available here

This paper studies the design of tax systems that implement a planner's second-best allocation in a market economy. An example shows that the widely used Mirrleesian (1976) tax system cannot implement all incentive-compatible allocations. Hammond's (1979) "principle of taxation" proves that any incentive-compatible allocation can be implemented through at least one tax system. However, this tax system is often undesirable since it severely restricts the choice space of agents in the economy. In this paper we derive necessary and sufficientcient conditions to verify whether a given tax system can implement a given incentive-compatible allocation. We show that when an incentive-compatible allocation is on the Pareto frontier, and/or surjective onto the choice space, a tax system that equates the marginal tax rates to the optimal wedges can implement the second best, without restricting the choice space of the agents. It follows that the Mirrleesian tax system can successfully implement the second best in the identified classes. Since the secondbest allocation of welfarist planners is always on the Pareto frontier, our results (ex post) validate most tax systems proposed in the literature. Outside of the identified classes, the planner may need to restrict the choice space of agents to implement its second best in the market. This sheds new light on rules, quotas and prohibitions used in real-world tax and benefit systems. This note was initially written with Floris Zoutman. It is now a part of a project with Ettienne Lehmann's project "Optimal multidimensional and nonlinear taxation" and, Kevin Spiritus "Characterizations for Optimal Multidimensional Taxation with Multidimensional Heterogeneity of Agents" (2017). It is intended to be combined with these into a common paper

‘Balancing the Bids, Solutions for Unit Price Auctions ’ pdf available here

Many organizations use procurement tenders to buy large amounts of goods and services. Especially in the public sector the use of these reverse auctions has grown rapidly over the past decades. For the (reverse) unit price auction experience as well as theory has shown that they can attract skewed/unbalanced bids, i.e. bids where the price structure is distorted to take advantage of estimation errors. This paper offers two possible strategies that can make bid skewing less profitable, without resorting to ex-post rejection of bids or altering the nature of the unit-price procedure. I show that by allowing for some secrecy or post tender competition, bid-skewing is discouraged. This reduces the incentive to skew all-together and thus more closely aligns bidders and bid-takers interests in creating a contract profitable for both.

‘Career Concerns in Committees: An Experimental Analysis.’’ (with Bauke Visser) SSRN working paper page

Career concerned management teams may take decisions to inflate labor markets assessments of their abilities. Theory predicts that rational markets take such attempts into account when forming their beliefs. We set up a laboratory experiment to study whether management teams attempt to fool markets and whether markets can undo such fooling. Managers indeed use investment decisions to manipulate market inferences. Markets are not misled by these attempts. Managers also inform markets about their confdence in the decisions taken. Contrary to theory, there is useful information about manager's abilities in such statements. Markets extract this information efficiently and update their assessments of managers accordingly.

Accounting

‘The CFO’s predicament: Between controller and business partner.’ (with Bert de Groot, Rene Segers and Philip Hans Franses) pdf available here

Recently, the role of the CFO has shifted towards that of executive manager, but it is unclear how this influences their traditional financial conscience role. To shed light on this issue, we analyze the responses of 263 active CFOs, CEOs and non-executive directors in an interactive survey. The results show a striking difference between expectations about the CFO and CFO choices. Respondents expect the non-executives and the CFOs to be significantly less willing to take corporate risk than the CEOs. As expected, the CEOs demand less return and experience less risk than non-executives for a given investment scenario. Against all expectations, however, CFOs experience less risk and demand a lower return than even the CEOs. Furthermore, discussions with groups of directors show that their role in the board is defined by contrasting it to other boardroom roles. A shift in role of the CFO should, therefore, cause corresponding shifts in the roles of other board members. In our survey, the shift of the CFO appears to be misjudged, which calls into question the shift in other roles. These findings suggest that models on corporate governance should be reviewed in light of the new role of the CFO.

‘When Debit=Credit, The balance constraint in bookkeeping, its causes and consequences for accounting.’ SSRN working paper

This paper studies the balance constraint (debit=credit) in bookkeeping, its causes and its consequences for accounting. Balance in the ledger is shown to: 1) imply balance in journal entries and vice versa; 2) link the value definitions in the earnings statement and balance sheet; 3) have direct implications for valuation puzzles encountered in accounting, like accounting for OCI or stock-based compensation, and the difference between earnings or balance-sheet approaches to valuation. These system-wide effects on accounting highlight a design question: why do we have the balance constraint in bookkeeping? Backward-engineering shows 6 axioms that logically lead to double-entry bookkeeping. The balance constraint follows from the existence of a residual account: owner's equity. A class of equivalently powerful record keeping systems is shown to exist. These systems use double-entry bookkeeping without the monetary-unit assumption and can be used to record other outputs of the organization, like societal impact. These systems can be implemented in relational databases, a blockchain, or a different technology all together. The discussion covers links with other mathematical descriptions of bookkeeping and potential avenues for future research in the mathematics of bookkeeping.

Other research

‘On intimate relationships between healthcare professionals and patients: a nationwide cohort analysis of medical tribunal decisions in the Netherlands.’ (with Wim Rietdijk)

Published in BMC Medical Ethics, 2021, full-text available here

Background: We examine the incidence of medical tribunal decisions and disciplinary actions (DAs) against healthcare professionals (HCPs). In addition, we studied whether an intimate relationship between an HCP and patient as part of the medical tribunal decision is associated with an increased likelihood of disciplinary actions.
Methods: We conducted a nationwide cohort analysis on the downloadable medical tribunal decisions from a medical disciplinary tribunal in the Netherlands from 2010 to 2017.
Results: We found that 117 (2.8%) of the 4,046 medical tribunal decisions involved an alleged intimate relationship between an HCP and patient. In these medical tribunal decisions the likelihood of a disciplinary action was significantly increased (odds ratio [OR] 12.97, 95% Confidence Interval [95% CI] 7.11–23.64). In addition, we found that nurses and psychiatrists are more frequently accused of and receive disciplinary actions due to intimate relationships than other HCP groups.
Conclusions: We found a limited number of medical tribunal decisions involving an intimate relationship. Especially given the total number of medical tribunal decisions and the number of yearly HCP-patient interactions, the number appears small. Furthermore, an alleged intimate relationship or inappropriate sexual conduct is associated with an increased likelihood of disciplinary action. Future research should obtain statistics on the number of intimate relationships that actually start between HCPs and patients.

‘Swaying citizen support for EU membership: Evidence from a survey experiment of German voters ’ (with Nikoleta Yordanova, Mariyana Angelova, Roni Lehrer, and Moritz Osnabrügge)

Published in European Union Politics, June 2020, full-text available here

The United Kingdom’s 2016 ‘Brexit’ referendum vote to leave the European Union (EU) raised concerns that other countries would follow suit. This article examines how arguments about EU membership related to economic, cultural, political, and security and peace issues could influence how citizens would vote in EU membership referendums. Our two-wave survey experiment on a random sample of the German population and difference-in-differences analysis revealed that only fears of being outvoted in EU decision-making swayed German voters’ attitudes about EU membership, particularly voters with weaker EU support, little EU knowledge and low levels of political engagement. We therefore conclude that concerns about sovereignty loss can be drivers of Euroscepticism even in a country that has vast influence over EU decisions.

‘Designing the debate ’

This paper presents a model of legal systems as a set of optimal choices that follow from an initial choice of judgment function. Several prominent differences between civil and common law traditions, like the use of binding precedent, the activity level of the judge, and the relative levels of conflict intensity in the two traditions, are shown to be logical consequences of the different judgment functions chosen in these systems. This analysis highlights the co-evolution of material and procedural law. Furthermore, it is shown that both judgment fucntions, and thus the different forms of the legal systems, can be optimal solutions to a social maximization problem, and the solutions found are implementable. The winner-takes-all decision function that is characteristic of the Common law systems maximizes the power of incentives in the procedure and minimizes the amount of judicial interventions, thus maximizing individual freedom and responsibility for the outcomes. While the principle-based decision function of the Civil law system minimizes the amount of injustice in any individual case by allowing the judge to moderate the outcomes. The choices made in different countries can be attributed to differences in perception of justice and the differences between societal values that separate the Anglo-American and the Continental European nations more generally, while both are locally efficient and neither one is the one-size-fits-all optimum.

‘Bid Skewing in the EU, A Comparative Analysis. ’ (thesis written to obtain the LL.M. degree) pdf available here

I compare the US Federal Acquisition Regulation with the two big procurement directives in the EU. The FAR allows the bid-takers more freedom in rejecting skewed bids and therefore better protects bid-takers against this kind of gaming. I conclude that the EU should develop their own approach to deal with skewed bids, since difference in procedural law make simply copying the rules of the FAR impossible. Material legal provisions in the FAR could serve as a basis for future EU rules on skewed bids.