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Volume V(1) - July 2016

In this issue, results of Bachelor and master theses are presented by C. Schwerdtfeger, L. Kreitz, S. Häs, S. Schmickler and T. Dreyer. Additonally, Dr. Anne-Katrin Roesler discusses how an increase in available information due to sources like the internet results in changes in decision making and therefore in mechanism design.

Volume V(1) - July 2016

How to obtain the issue? A free digital copy of The Bonn Journal of Economics is accessible online. In addition, all theses and contributions are available separately. Please refer to the list of articles below for the corresponding links.

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Predicting Swiss Unemployment

Christoph Schwerdtfeger. Full Text. The Bonn Journal of Economics. Volume V, No. 1 (July 2016), pp. 1-12. Individuals’ job search outcomes are inherently hard to predict from standard demographic data: There are copious amounts of unobserved properties of jobseekers and there is the undeniable influence of luck in the job search process - not to speak of macroeconomic influences like business cyclicality. On the other hand there is practical as well as research interest in ex ante prediction of likely outcomes for a newly unemployed person. A precise estimate of job search durations would allow for better treatment of individual jobseekers by the unemployment agency (such as assigning appropriate training). This could improve both the personal welfare of the jobseeker and aggregate welfare (since resources are allocated less inefficiently). Predictions from a very noisy signal should utilize any information available, unearthing every pattern. The possibility of deriving inferential conclusions from the prediction process must appear remote, thus linearity or interpretability is not a requirement. This thesis applies strong machine learning, specifically support vector machines (SVM), to a focused prediction problem that originally stems from prior research but had to be adapted quite significantly.

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Demographic Change - The Relation between Fertility, Female Labor Force Participation, and Economic Growth

Lilian Kreitz. Full Text. The Bonn Journal of Economics. Volume V, No. 1 (July 2016), pp. 25-38. In the light of the ongoing trends of decreasing fertility and mortality rates, coupled with an increase in life expectancy over the past decades, more and more countries are facing aging societies. Demographic change towards an older population tends to induce both lower labor force participation rates and lower savings. Thus, while societies are aging, concerns about the sustainability of social security systems, as well as the growth potential of economies are rising (Bloom et al., 2011). It is therefore fundamental to observe how changes in demographics affect a country’s economy and growth potential.

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The Selection Effect by Priest and Klein (1984): Robustness towards the relaxation of initial assumptions

Silvan Häs. Full Text. The Bonn Journal of Economics. Volume V, No. 1 (July 2016), pp. 39-50. In their 1984 article Priest and Klein discuss which factors affect whether a dispute gets settled or litigated in court. Their model provides a framework under which a selection effect can be derived from certain assumptions. This means, that not an arbitrary collection of disputes gets settled or litigated, but that the selection very well depends on e.g. the cases’ value as well as litigation costs, settlement costs and so on. The following article will derive under which assumptions such a selection effect can be observed and how robust those assumptions are towards relaxation.

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High-Frequency Trading and Fundamental Price Efficiency

Simon Niklas Maria Schmickler. Full Text. The Bonn Journal of Economics. Volume V, No. 1 (July 2016), pp. 51-68. I present empirical evidence indicating that High-frequency trading (HFT) decreases medium- and long-term price efficiency. With HFT, stock market valuations predict future earnings less precisely. This harms welfare because market prices are the basis for real resource allocation. I identify the effect by exploiting the recently estimated HFT starting dates from Aitken et al. (2015) in a multi-event difference in differences (DiD) analysis. My result is consistent with additional findings. First, HFT tends to decrease real price efficiency. Prices reflect future investment less. Second, HFT temporarily im- proves financial analysts’ report quality. Lastly, I reveal inequality in the impact of HFT: The effect is even stronger for low market value firms. My results are robust to several specifications and are consistent with theoretical arguments.

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Wars and Innovation: Quantifying Long Term Effects

Timon Lucas Dreyer. Full Text. The Bonn Journal of Economics. Volume V, No. 1 (July 2016), pp. 69-82. There is a common perception that wars are intense drivers of innovation by providing outstanding inventions. Typical examples are the progress in chemistry during World War I or in rocketry during World War II. Putting aside those anecdotal examples however, the existence of an overall pattern is far from certain. This paper compiles a panel database with twelve countries in a time frame from 1870-1970. Innovation is approximated with patent counts and potential postwar effects are assessed via panel fixed effects analysis. There is no evidence for a positive effect of conflicts on war or postwar innovation likewise. Rather, patent application numbers are significantly reduced during wars. Also, it seems that this loss is not compensated by above-average patent application growth afterwards.

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Advances in Mechanism Design: Information Management and Information Design

Dr. Anne-Katrin Roesler. Full Text. The Bonn Journal of Economics. Volume V, No. 1 (July 2016), pp. 13-24. The rapid advance of information technologies has changed our access to information and the nature of decision making. Nowadays, a large amount of information is fully and freely available. The gathering of information has become easier, whereas the processing of information has become increasingly challenging. The changes in our information en- vironment are also reflected in some recent developments in economic theory. Questions such as the following currently receive increased attention. When facing a decision, should one use all of the available information? Or could there be benefits from committing to ignore information? Is ignorance bliss? If so, which information should one focus on? The recent literature on information management and information design addresses these kind of questions, and most of my research falls into this area. In this article, I wish to provide a brief overview on what information design is, and illustrate some questions and findings.

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