This paper examines the impact of different ways of inducing discounting in alternating-offer bargaining games in the lab. We examine this by following the framework of Ochs and Roth (Am Econ Rev, pp. 355–384, 1989) and test whether the model’s predictions find support in data under three different discounting implementations; the shrinking-pie procedure, the effective-discounting procedure and the bargaining-delay procedure. We find no sensitivity to the number of periods in any of the three procedures. However, we find mixed evidence for the effect of changing the discount factor in the effective-discounting procedure and the shrinking-pie procedure, but the magnitude of effects are small. Furthermore, there was more disagreement in both the effective-discounting and bargaining-delay procedures than in the shrinking-pie procedure.
We introduce loss aversion in an infinite-horizon, alternating-offers model. When outside options serve as reference points, the equilibrium of our model follows that of the standard Rubinstein bargaining model, i.e., outside options do not affect the equilibrium unless they are binding. However, when reference points are given by the resources players contribute to the pie, the bargaining outcome changes such that a player's share increases in her contribution. We test our model's predictions in the laboratory. As predicted, only binding outside options impact the division of the pie. Data also show that contributions matter for bargaining outcomes when they are activated as reference points, but not quite as predicted by our theory. Proposers gain a higher share of the pie only when they have contributed a higher share than the opponent has.
In the Varian (1980; American Economic Review 70(4) (1980), 651–59) model of price competition, a change from simultaneous to sequential price setting dramatically changes equilibrium strategies, and in the unique symmetric, equilibrium prices are pushed up to the monopoly price. There also exists an asymmetric equilibrium with lower average prices. Our main contribution is to test these predictions in the laboratory. Our data strongly support the qualitative model predictions. However, a fraction of players set low prices in accordance with the asymmetric equilibrium, which is puzzling. We show that the puzzle to a large extent can be resolved by introducing competitive preferences in the model.
Heggedal, Tom-Reiel; Helland, Leif & Knutsen, Magnus Våge (2022)
The power of outside options in the presence of obstinate types
We experimentally investigate the role of two-sided reputation-building in dynamic bargaining. In the absence of outside options, rational bargainers have an incentive to imitate obstinate types that are committed to an aggressive demand, inducing delay. Outside options remove this incentive and ensure immediate agreement whenever two rational bargainers match. Our data support the hypothesis that outside options cut down on imitation and ensure timely agreements, but only if subjects share a belief about what constitutes obstinacy. Further, we find that outside options are exercised excessively and that efficiency is no better than it is in their absence. We ascribe this result to the presence of fairness preferences in the subject pool.
We investigate the effects of wages and uncertainty on political corruption as measured by rent-taking. First, our laboratory data show that contrary to standard theory, rent-taking is not independent of, but decreases with wages in the absence of popularity shocks. Second, the orthodox view that rent-taking is greater in the presence of popularity shocks, given wages, is not necessarily true. Third, we find that in the presence of popularity or ideological shocks rent-taking is increasing in the variance of the shock for given wages, and is decreasing in wages for a given variance of the shock. While our third finding is in line with the directional predictions of the Nash equilibria, the deviation from Nash is large when the variance of the popularity shock is high and wages are low. We show that the deviations can be explained using a Quantal Response Equilibrium approach and taking risk-attitudes into account.
Ageing is often believed to induce a movement towards the right of the political spectrum. Yet, empirical evidence remains inconclusive due to a dearth of longitudinal datasets covering multiple cohorts. Using eleven rotating panels of the Norwegian Election Studies (1977–2017) and exploiting first-derivative properties of the vote choice function, our empirical approach identifies non-linear life-cycle effects while controlling for cohort and period effects. Our main findings indicate that shifting towards the left is more likely among the young (under 40 years) whereas shifting towards the right occurs at an older age (over 55 years). Evaluating potential mechanisms, we find that individuals’ income, retirement, family status and political interest explain only a small part of the observed ageing effect. Life-cycle shifts in (some) policy preferences may play a bigger role. Finally, aging effects are similar across women and men, and only marginally stronger among groups with lower education and income levels.
Building on agency-theoretical perspectives of public bureaucracies, we argue that politician–bureaucrat preference alignment can have important implications for bureaucrats’ pay. We study such
private gains to bureaucrats from their political alignment with elected politicians using detailed
data on all 1,632 top administrators active in all Norwegian municipalities over a period of 25 years
(1991–2015). Whereas existing studies generally rely on proxies for politician–bureaucrat political
alignment, a rare feature of our data allows measuring it directly since 27% of top bureaucrats ran
for political office. We focus explicitly on individuals at the very top of the administrative hierarchy
and are able to separate the intensive margin (i.e., wage increases) from any additional effects at
the extensive margin (i.e., new appointments). Using close elections for inference in a regression
discontinuity analysis, we find that politician–bureaucrat alignment significantly increases top bureaucrats’ wage even in the Norwegian civil service system. This has important implications also
from a theoretical perspective. Our results indeed go against predictions from models with policymotivated bureaucrats, but are consistent with politically aligned principal–agent matches being
more productive.
Support for environmental protection is generally perceived as driven by cohort or generational effects. We argue and empirically illustrate that such attitudes also fluctuate over the life cycle. Using rotating panels of the Norwegian Election Studies (1989-2013), our analysis is able to identify such life-cycle effects while controlling for cohort and period effects through a methodological innovation exploiting the first-derivative properties of the environmental concern function. Our main findings provide strong evidence of an inverted U-shape over the life cycle, which implies that substantial population aging in advanced economies may partially offset any generational shift towards a greater emphasis on protecting the environment.
Political parties commited to grab rents may run for election, and even win, if citizens are uninformed. But, how is the political equilibrium affected if citizens can mitigate this information problem through costly information search? We propose a political equilibrium theory with endogenous information search and turnout. We show that: (i) the political equilibrium generates political uncertainty characterized by a distribution of rent policies; (ii) the expectation of this rent distribution is inversely U-shaped in the information search cost; (iii) turnout is lower and rents are higher the more proportional is the electoral system.
Bjertnæs, Geir Haakon Malterud; Heggedal, Tom-Reiel & Jacobsen, Karl (2018)
Knowledge Spillovers and the Timing of Environmental R&D Subsidies
We experimentally investigate the impact of strategic uncertainty and complementarity on leader and follower behavior using the model of Farrell and Saloner (1985). At the core of the model are endogenous timing, irreversible actions and private valuations. We find that strategic complementarity strongly determines follower behavior. Once a subject decides to abandon the status quo the probability that other players jump on the bandwagon increases sharply. However, there is a reluctance to lead when leading is a conditional best response. We explain this deviation from the neo-classical equilibrium by injecting some noise in the equilibrium concept. We also find that cheap talk improves efficiency.
Recent research explores the effect of financial and career incentives on public-sector hiring processes and subsequent performance. The reverse relation between performance and bureaucrats’ compensation and turnover has received only limited attention. Due to the distinct features of public-sector organizations, bureaucrats are traditionally argued to require either permanent positions and fixed wages, or low-powered performance incentives. This article studies how the performance of top civil servants in Norwegian local governments affects their compensation and turnover. We thereby build on a unique new dataset over the period 1991-2014. Our results indicate that better performing top civil servants obtain a higher compensation and are less likely to be replaced. Nonetheless, these incentives remain low-powered in line with agency theory prescriptions.
Greaker, Mads; Heggedal, Tom-Reiel & Rosendahl, Knut Einar (2017)
Environmental Policy and the Direction of Technical Change
Should governments direct R&D from "dirty" into "clean" technologies? How im-portant is this compared to carbon pricing? We inquire into this, introducing twonovelties compared to recent literature. We introduce decreasing returns to R&D, andallow future carbon taxes to in‡uence current R&D decisions. Our results suggest thatgovernments should prioritize clean R&D. Dealing with major environmental problemsrequires R&D to shift to clean technology. However, with most researchers workingwith clean technology, both productivity spillovers and future risks of being replacedincrease. Consequently, the wedge between private and social value of an innovation islargest for clean technologies.
Heggedal, Tom-Reiel; Moen, Espen Rasmus & Preugschat, Edgar (2017)
Productivity spillovers through labor mobility in search equilibrium
This paper proposes an explicit model of spillovers through labor flows in a framework with search frictions. Firms can choose to innovate or to imitate by hiring a worker from a firm that has already innovated. We show that if innovating firms can commit to long-term wage contracts with their workers, productivity spillovers are fully internalized. If firms cannot commit to long-term wage contracts, there is too little innovation and too much imitation in equilibrium. Our model is tractable and allows us to analyze welfare effects of various policies in the limited commitment case. We find that subsidizing innovation and taxing imitation improves welfare. Moreover, allowing innovating firms to charge different forms of fees or rent out workers to imitating firms may also improve welfare. By contrast, non-pecuniary measures that reduce the efficiency of the search process, always reduce welfare.
Heggedal, Tom-Reiel & Rosendahl, Knut Einar (2015)
Emerging literature explores experimental platform selection games. These games con- verge rapidly on the superior platform under a wide range of conditions. We replicate the remarkable results of Hossain and Morgan (2009) in which such a game tips almost perfectly to the superior platform. Next, we show that platform coordination fails when seemingly innocent increases in out-of-equilibrium payo¤s are introduced. The in ated payo¤s keep the best reply structure unchanged and do not in uence players security levels. Our de- sign allows control for the explanatory force of risk dominance. We nd that equilibrium selection theory is unable to account for coordination failure while observed behavior is con- sistent with non-rational learning. Furthermore, and contrary to the literature, we nd that e¢ ciency su¤ers when an inferior platform is granted initial monopoly.
Heggedal, Tom-Reiel & Jacobsen, Karl (2011)
Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis
Political Rents and Voter Information in Search Equilibrium
[Conference Lecture]. Event
Heggedal, Tom-Reiel; Moen, Espen Rasmus & Riis, Christian (2015)
Agglomerasjonsmodell
[Report Research].
Agglomerasjonsffekter en samlebetegnelse for svært ulike mekanismer som har det til felles at de stimuleres av økt befolkningstetthet. Det er grunn til å tro at infrastrukturinvesteringer som knytter befolkningskonsentrasjoner tettere sammen, vil kunne gi effekter langs flere av de samme dimensjonene. Vi vil derfor ikke her forsøke å identifisere enkeltårsaker, men benytte estimater fra etablerte studier for makroeffekter av økt effektiv populasjon som en tilnærming - riktignok med den viktige modifikasjon at vi tar eksplisitt hensyn til at avstand har en dempende effekt.
Heggedal, Tom-Reiel; R, Moen Espen & Riis, Christian (2015)
Arbeidstilbudsmodell
[Report Research].
Dette modellnotatet presenterer prinsippene for beregning av arbeidsmarkedsvirkninger i merverdianalyser av samferdselsinvesteringer.
Heggedal, Tom-Reiel; Moen, Espen R & Riis, Christian (2014)
Samfunnsøkonomiske virkninger av fergefri E-39 Stavanger-Bergen
[Report Research].
Rapporten drøfter og beregner de samfunnsøkonomiske virkningene av en fergefri veiforbindelse E-39 fra Stavanger til Bergen. Det er to strekninger med to nye forbindelsespunkter som blir gjenstand for analyse. Den første strekningen er Stavanger- Haugesund, der nåværende ferge over Boknafjorden erstattes av tunnelforbindelse. Den andre strekningen er Stord-Bergen der fergen over Bjørnefjorden erstattes med broforbindelse. De nye forbindelsene evalueres hver for seg i et konsistent kost-nytte rammeverk. I analysen inkluderer vi både de direkte nytte- og kostnadseffektene, som tidsbesparelser og investeringskostnader, samtidig som vi inkluderer avledete virkninger forbundet med at økt integrasjon tenderer til å øke produktiviteten i markedene. Det viktige nye bidraget i vår analyse er analysen av agglomerasjonsgevinstene forbundet med økt integrasjon av markeder. Når det gjelder de direkte nytte- og kostnadsvirkningene benytter vi etablert metodikk, slik de er beskrevet i NOU 2012:16 Samfunnsøkonomiske analyser. For agglomerasjonseffektene baserer vi oss på en etter hvert rik litteratur2. Denne drøfter teoretisk de ulike mekanismene som genererer produktivitetsgevinster av integrasjon, og empirisk anslår størrelsesorden på effektene. Vi bidrar ikke med en selvstendig empirisk analyse, men benytter estimater som er dokumentert i kvalifiserte og kjente arbeider. Disse integreres i et modellverktøy som korrigerer for at veiinvesteringer reduserer den effektive avstanden mellom befolkningskonsentrasjoner, uten at det medfører full integrasjon. Vi gjennomfører en hovedanalyse som suppleres med en alternativ beregning. I hovedanalysen legger vi til grunn anslag for trafikkveksten utført i analyser av Transportøkonomisk institutt. I den alternative beregningen benyttes noen alternative anslag gitt fra Statens vegvesen.
Heggedal, Tom-Reiel; Moen, Espen R & Edgar, Preugschat (2014)
Productivity spillovers through labor mobility
[Report Research].
Heggedal, Tom-Reiel; Rosendahl, Knut Einar & Greaker, Mads (2013)
The Environment and Redirection of Technical Change
First, we replicate the remarkable result of Hossain & Morgan (AER 2009), in which subjects in an experimental market tip almost perfectly to the superior platform even if an inferior platform enjoys initial monopoly. Next, we show that this result disappear when seemingly innocent increases in out-of-equilibrium payoffs are introduced. The inflated payoffs do not alter payoff- or risk-dominance relations, and does not impact on players' security levels. We conclude that the need for a theory of equilibrium selection cannot be bypassed by appealing to the realities of the (experimental) market place.
Knowledge Spillovers in Competitive Search Equilibrium
[Conference Lecture]. Event
Heggedal, Tom-Reiel & R., Moen Espen (2011)
Knowledge Spillovers in Competitive Search Equilibrium
[Conference Lecture]. Event
Bjertnæs, Geir Haakon Malterud; Heggedal, Tom-Reiel & Jacobsen, Karl (2010)
Knowledge spillovers and the timing of environmental R&D subsidies
[Professional Article].
Bye, Brita; Heggedal, Tom-Reiel & Jacobsen, Karl (2009)
Er særskilt støtte til "månelandingen" på Mongstad effektiv politikk?
[Professional Article]. (6) , s. 42- 48.
Regjeringens ”månelandingsprosjekt” innebærer at norske myndigheter gir særskilt støtte til forskning og
utvikling av teknologier for karbonfangst og -lagring. I denne artikkelen drøfter vi om en slik selektiv virkemiddelbruk er effektiv forsknings- og utviklingspolitikk. Imperfeksjoner knyttet til markedene for forskning
og utvikling av nye teknologier kan variere mellom forskjellige teknologiområder, og dermed gi grunnlag for
ulik virkemiddelbruk. Både modenheten til et teknologiområde og forventning om fremtidig prisutvikling for
en teknologi kan påvirke de ufullkommenhetene som er til stede i markedene. Imidlertid er det usikkert om
disse effektene tilsier at forskning på teknologier for karbonfangst og -lagring bør støttes mer enn forskning på
andre teknologier. Resultater fra simuleringsmodeller av norsk økonomi tyder på at det ikke bør drives selektiv
støtte til forskning på teknologier for karbonfangst og -lagring på bekostning av annen teknologiutvikling
Er teknologipolitikk et egnet virkemiddel i den norske klimapolitikken?
[Popular Science Article].
Bye, Brita; Heggedal, Tom-Reiel & Hatlen, Liv Mari (2009)
Teknologiutvikling, klima og virkemiddelbruk. Rapport til Utvalget for bærekraftig utvikling og klima
Bye, Brita; Heggedal, Tom-Reiel & Hatlen, Liv Mari (red.). Teknologiutvikling, klima og virkemiddelbruk.
Rapport til Utvalget for bærekraftig utvikling og klima
An innovation and climate policy model with factor-biased technological change: A small, open economy approach.
[Report Research].
This report documents the model structure and empirical implementation procedures of a dynamic computable general equilibrium (CGE) model that includes induced technological change (ITC). The model is developed for analyses of economy-wide welfare and growth impacts of innovation and greenhouse gas abatement policy. It accounts for macroeconomic productivity and productivity
growth effects in an realistic economic and political setting, where several simultaneous reallocations take place and interact with each other.
