Working Papers

[1] Equilibrium Contracts and Boundedly Rational Expectations, joint with Heidi Christina Thysen [pdf]

We study a principal-agent framework in which the agent forms beliefs based on a misspecified subjective model of the principal’s project. She fits this model to the objective probability distribution to predict output under alternative actions. Misspecifications in the subjective model may lead to biased beliefs. However, under mild restrictions, the agent has correct beliefs on the equilibrium path so that the optimal contract is non-exploitative. This allows for a behavioral version of the informativeness principle: The optimal contract conditions on an additional variable only if it is informative about the action according to the agent’s subjective model. We further characterize when misspecifications affect the optimal contract. One implication of this characterization is that the scope for belief biases depends on the agent’s job, e.g., her position in the hierarchy.

[2] Consumer Search and the Uncertainty Effect, joint with Heiko Karle [pdf]

We consider a model of Bertrand competition where consumers are uncertain about the qualities and prices of firms‘ products. Consumers can inspect all products at zero cost. Some consumers are expectation-based loss averse. For them, a purchase plan that involves buying products of varying quality and price with positive probability creates scale-dependent disutility from gain-loss sensations. Even for modest degrees of loss aversion, they may refrain from inspecting all products, and choose an individual default that is first-order stochastically dominated. Firms‘ strategic behavior can exacerbate this uncertainty effect, and sellers of inferior products may earn positive profits despite Bertrand competition.

[3] Work Meaning and Labor Supply, joint with Iris Kesternich, Bettina Siflinger, and Stefan Schwarz [pdf]

We analyze to what extent work meaning – the significance of a job for others or for society –  increases the willingness of employed and unemployed individuals to accept a job. To this end, we elicit reservation wages for a one-hour job and randomly vary its description as having either high or low meaning. Our subjects participate in the Panel Study of Labour Market and Social Security (PASS), which comprises a random draw from the German population and a random draw of unemployed individuals from the unemployment register. We can thus link subjects’ experimental behavior to rich survey data and control for selection into the experiment. For subjects who consider work meaning as very important (around one third of PASS respondents), high-meaning reduces the reservation wage by around 18 percent. By contrast, among unemployed individuals, work meaning increases the reservation wage by around 14 percent. We discuss how work meaning can have both positive and negative effects on labor supply when it interacts with fairness concerns or work norms.

[4] Reservation Wages and Labor Supply, joint with Iris Kesternich, Bettina Siflinger, and Franziska Valder [pdf]

Survey measures of the reservation wage reflect both the consumption-leisure trade-off and job search concerns (the arrival rate of job offers and the wage distribution). We examine what a survey measure of the reservation wage reveals about labor supply when search concerns are absent. To this end, we combine the reservation wage measure from a large labor market survey with the reservation wage for a one-hour job that we elicit in an online experiment. The two measures show a strong positive association. For unemployed individuals, the experimental reservation wage increases on average by around one Euro for every Euro increase in the survey measure. For employed individuals, the association between the two measures is weaker, but still positive and statistically significant. We show that these results are robust to selection into the experiment, and that demographic variables have a similar influence on both reservation wage measures.