Research

Working Papers:

Spiteful Preferences or Inequality Aversion: What drives the Relative Income Effect?

Abstract

This paper uses happiness data to distinguish between spiteful and inequality averse preferences. Both are consistent with the Easterlin paradox but have quite different implications for the relationship between happiness and income inequality. Empirical evidence suggests that happiness is decreasing in the income of relevant others (i.e. comparison income). On its own, this relationship provides insufficient evidence
to pin down the underlying preferences but a remedy is available. The simple comparison income model is nested in a more general utility function which accounts for several types of interdependent preferences. Using data from the German Socio-Economic Panel (SOEP) survey, I demonstrate that the full model has more predictive power than the reduced one. Moreover, aversion to income inequality appears to drive the comparison income effect. The results are robust to several alternative model specifications.


Consumption-savings decisions with interdependent preferences. Staying ahead or catching up?

Abstract

Consumption of relevant others affects household consumption choices. This paper measures and disentangles the effect of consumption disparity on household consumption using a novel instrumental variable.
The representative household shows envious preferences in that growing disparity to those with higher consumption and reduction in the disparity to others with lower consumption leads to increased household consumption. To solve the endogeneity problem arising from unobserved correlated effects, I instrument changes in consumption disparity with changes in the share of households who receive windfall incomes. The results are not driven by the shape of the consumption distribution and persist when habit formation is accounted for. 


Rural Finance and Agricultural Production Choices: Evidence from India's Banking Experiment

Abstract

This paper evaluates the effect of financial expansion on agricultural production choices in India. We exploit policy regulations guiding the rural bank branch expansion during the 1980s in an instrumental variable approach. Banks are found to have closely adhered to the policy guidelines, significantly increasing the number of rural branches in targeted districts identified using a stipulated population per bank branch ratio.
Improved access to finance in turn affected a range of production choices. We .find that a 1% growth in rural banks at the district level increased aggregate yields by 0.3%. We attribute this increase to an uptake in the cultivation of high-yielding variety seeds and crops unsuitable for home consumption. Access to financial services attenuated the effect of rainfall on agricultural output by increasing the use of artificial irrigation after unfavorable weather shocks. Reduced dependence on rainfall improved the conditions for multi seasonal cropping in districts with high bank growth.


Analysis of financial transaction taxes from a regulator's perspective

Abstract

The implementation of a tax on financial transactions is often suggested as an adequate instrument to curb speculation. In modern financial markets destabilizing speculation by noise traders potentially causes capital misallocation and market instability which could wind up to long price swings and asset price bubbles. Prices can depart from fundamental values when speculation on stale information makes up a large part of the trading volume and arbitrageurs fail to correct the noise due to e.g. limits to arbitrage. Surprisingly little is known about regulatory potential of a financial transaction tax (FTT) on preventing self-fulfilling speculative asset price bubbles. This paper presents an original approach to assessing the regulatory capabilities of the FTT in reducing long-term price volatility. When irrational demand shocks can trigger self-fulfilling speculative asset price bubbles, noise traders are able to exploit arbitrage attempts and dominate the market. This outcome arises when price risk and short investment horizon limits sophisticated investors’ arbitrage and their ability to correct the price disturbances originating from noise traders’ misconceptions. The regulatory impact of the FTT depends on the prevailing price variance. Since price variance and magnitude of asset price bubbles only decrease when the price variance is already relatively low, other regulatory instruments with unambiguous effects on long-term volatility should be considered.

 


Work in progress:

"Inheritage Law and Structural Change in the German Empire", with Natalie Obergruber and Simon Jäger.

 

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Johannes Eigner,
Jul 4, 2018, 12:06 PM
Ċ
Johannes Eigner,
Mar 21, 2016, 12:31 AM
Ċ
Johannes Eigner,
Jul 4, 2018, 9:02 AM
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