In the course of eurozone exit, the underlying stocks of American Depositary Receipts (ADRs) would be redenominated from euros into the new national currency. We exploit ADR investors’ exposure to currency redenomination losses to derive a novel measure of eurozone exit risk. We find that while domestic bank stocks are not significantly affected by domestic exit risk, there is a negative exposure to exit risk of other countries that is channeled through bilateral credit risk. For the real sector, exposure to eurozone exit risk is heterogeneous among industries and is less negative for more indebted companies.

To many economists the public's support for the minimum wage (MW) institution is puzzling, since the MW is considered a "blunt instrument'' for redistribution. To delve deeper in this issue we build models in which workers are heterogeneous in ability. In the first model, the government does not engage in any type of redistributive policies - except for the payment of unemployment benefits; we find that the MW is preferred by the majority of workers (even when the unemployed receive very generous unemployment benefits). In the second model, the government engages in redistribution through the public provision of private goods. We show that (i) the introduction of a MW can be preferred by a majority of workers only if the unemployed receive benefits which are substantially below the after-tax earnings they would have had in the perfectly competitive case, (ii) for a given generosity of the unemployment benefit scheme, the maximum, politically viable, MW is lower than in the absence of in-kind redistribution, and (iii) the MW institution is politically viable only when there is a limited degree of in-kind redistribution. These findings can possibly explain why a well-developed social safety net in Scandinavia tends to co-exist with the absence of a national MW, whereas in Southern Europe the MW institution "complements'' the absence of a well-developed social safety net.

This paper analyzes the utilization of repression and democratic institutions by a non-democratic government striving for political power and private rents. We find that economic development has different impacts on policy choices, depending on whether it appears in the form of rises in income or in education: A higher income level reduces democracy, whereas more education leads to both more democracy and more repression. These theoretical findings are corroborated by panel data regressions.

In many federal countries, local governments run large deficits, even when fiscal supervision by state authorities is tight. I investigate to which extent party alignment of governments and fiscal supervisors influences budget deficits. The dataset includes 427 German local governments for the period 2000–2004. I exploit a period after a far-reaching institutional reform that entirely re-distributed political powers on both the government level and the fiscal supervisor level. Results do not show that party alignments of governments and supervisors (co-partisanship) drive short-term deficits. Instead, I find that the ideology of partisan governments and supervisors matters: left-wing local governments run higher deficits than their right-wing counterparts; left-wing supervisors tolerate higher deficits than right-wing supervisors. These findings imply that political independence for fiscal supervisors is recommended.

We set up a general equilibrium model, in which offshoring to a low-wage country can lead to job polarisation in the high-wage country. Job polarisation is the result of a reallocation of labour across firms that differ in productivity and pay wages that are positively linked to their profits by a rent-sharing mechanism. Offshoring involves fixed and task-specific variable costs, and as a consequence it is chosen only by the most productive firms, and only for those tasks with the lowest variable offshoring costs. A reduction in those variable costs increases offshoring at the intensive and at the extensive margin, with domestic employment shifted from the newly offshoring firms in the middle of the productivity distribution to firms at the tails of this distribution, paying either very low or very high wages. We also study how the reallocation of labour across firms affects economy-wide unemployment. Offshoring reduces unemployment when it is confined to high-productivity firms, while this outcome is not guaranteed when offshoring is also chosen by low-productivity firms.

The paper shows that taking inventory control out of the hands of retailers and assigning it to an intermediary increases the value of a supply chain when demand volatility is high. This is because an intermediary can help solve two incentive problems associated with retailers\' inventory control and thereby improve the intertemporal allocation of inventory. Adding an intermediary as a new link in a supply chain is also shown to reduce total inventory, to make shipments from the manufacturer less frequent and more variable in size, as well as to reduce social welfare.

Challenges in global politics like climate change, maritime piracy and fighting highly contagious diseases concern global public goods. The related policy decisions are mostly made by teams. In contrast, economic models of global public goods typically assume a single rational decision-maker. We use a laboratory experiment to compare team decisions to decisions of individuals in a finitely repeated public good game with and without a costly punishment option. Teams of three participants coordinate on decisions either by majority or unanimity rule. We find that in absence of a punishment option teams contribute more to the public good than individuals. With a punishment option subsequently to the contribution decision team treatments exhibit a less frequent use of anti-social punishment and lower levels of social as well as anti-social punishment. Extreme preferences for punishment are eliminated by the majority decision rule. Overall, team decisions are closer to the social optimum and teams yield higher net payoffs when compared to individuals.

We have developed a computerized version of Charles Holt’s classical market game that can be used even in classes with a large audience. The Pit market game gives students intuitive access to the interaction of supply and demand in real-world markets. Even though trade can take place at non-uniform prices in the classroom game, the average price and the quantity traded are usually very close to the equilibrium values predicted by supply and demand curves. The classroom game can also be used for a lively discussion about the efficiency of markets or to show the consequences of taxes and regulatory interventions.

We examine the working mechanisms and efficiencies of zoning (regulation of floor area ratios and land-use types) and fiscal instruments (tolls, property taxes, and income transfer), and extend the instrument choice theory to include the congestion of road and nonroad infrastructure. We show that in the spatial model with heterogeneous households the standard first-best instruments do not work because they trigger distortion of spatial allocations. In addition, because of the household heterogeneity and real estate market distortions, zoning could be less efficient than, as efficient as, or more efficient than pricing instruments. However, when the zoning enacted deviates from the optimum, zoning not only becomes inferior to congestion charges but is also likely to reduce welfare. In addition, we provide a global platform that extends the instrument choice theory of pollution control to include various types of externalities and a wide range of discrete policy deviations for any reasons beyond cost–benefit uncertainties.

Total factor productivity (TFP) growth allows for additional health care services under restricted resources. We examine whether hospital policy can stimulate hospital TFP growth. We exploit variation across German federal states in the period 1993 to 2013. State governments decide on hospital capacity planning (number of hospitals, departments and beds), ownership, medical students, and hospital investment funding. We show that TFP growth in German hospital care reflects quality improvements rather than increases in output volumes. Second-stage regression results indicate that reducing the length of stay is generally a proper way to foster TFP growth. The effects of other hospital policies depend on the reimbursement scheme: under activity-based (DRG) hospital funding, scope-related policies (privatization, specialization) come with TFP growth. Under fixed daily rate funding, scale matters to TFP (hospital size, occupancy rates). Differences in capitalization in East and West Germany allows to show that deepening capital may enhance TFP growth if capital is scarce. We also show that there is less scope for hospital policies after large-scale restructurings of the hospital sector.