I am fascinated by the questions of why some countries are rich and others poor. What can we do to improve the well-being of people in developing countries and how can we sustain growth in developed economies? How can we share prosperity across different layers of society? These are the questions that motivated me to study Economic Growth and Innovation.
The central determinant of modern societies’ economic growth is technological progress fueled by basic research conducted at institutions such as Universities and Research Institutes. One part of my research analyzes how basic research interacts with private R&D-investments and how basic research should be optimally financed. I also address the questions of how much a country should invest in basic research depending on its openness to foreign direct investment and its distance to the world’s technological frontier.
Another part of my research addresses recent policy discussions at the intersections of Macroeconomics with Health Economics, with International Economics and with Environmental Economics. This includes the consequences of increased health expenditures and demographic change on economic growth and welfare, the incentives of developing countries to enforce intellectual property rights, and the interaction of intra-family decision making with human capital accumulation and public education policy. Furthermore, I examine the inter-generational distribution of costs and benefits of public good provision with long-run impact, such as public infrastructure or the mitigation of climate change.
While desirable to be implemented, economic policies leading to high levels of welfare may not be able to gather sufficient political support. It is therefore paramount to understand how political institutions work, how they shape economic policy and how we can design better political institutions.
These questions inspire my research in Political Economy. In particular, I analyze how legislative lobbying and the strengths of interest groups affect public policy and how the level of public good provision, tax rates and welfare in parliamentary democracies would be affected if political parties could credibly commit to some of their campaign promises, in particular on the level of tax rates, but not on others, such as spending on "pork barrel projects". In recent and very topical work, I am interested in the incentives of individuals who differ in honesty (regarding election campaign promises) to self-select into politics and how these self-selection incentives depend on the transparency of the political institutions.
In summary, my research interests are in
Dynamic Macroeconomics / Economic Growth
Buying Supermajorities in the Lab
(together with Sebastian Fehrler), Games and Economic Behavior, forthcoming
We provide the first empirical assessment of the prominent legislative lobbying model by Groseclose and Snyder (1996) by testing its central predictions in the laboratory. We also test the model's robustness by relaxing the assumption of sequential moves in additional treatments with simultaneous moves. We find that lobbies buy supermajorities as predicted by the theory. Our results also provide supporting evidence for most comparative statics predictions of the legislative lobbying model with respect to lobbies' willingness to pay and legislators' preferences.
Some of these results carry over to the simultaneous-move set-up but the predictive power of the model declines.
Growth and Welfare under Endogenous Lifetime
(with Ralph Winkler), Scandinavian Journal of Economics, forthcoming
We study the role of endogenous healthcare choices by households to extend their expected lifetimes on economic growth and welfare in a decentralized overlapping generations economy with annuitized wealth. We characterize endogenous healthcare spending in the decentralized market equilibrium and its effects on economic growth and identify the moral-hazard effect in healthcare investments when annuity rates are
conditioned on average mortality. In a numerical simulation of our model with OECD data from 2005, we find that the moral-hazard effect may be substantial and implies sizeable welfare losses of approximately 1.4 - 2.8%, depending on the share of annuitized retirement wealth
Macroeconomic Rationales for Public Investments in Science
(together with Hans Gersbach and Ulrich Schetter), Economic Inquiry, forthcoming
What is the economic rationale for investing in science? Based on an open economy model of creative destruction, we characterize four key factors of optimal investment in basic research: the stage of economic development, the strength of the manufacturing base, the degree of openness, and the share of foreign-owned firms. For each of these factors, we analyze its bearings on optimal basic research investment. We then show that the predicted effects are consistent with patterns observed in the data and discuss how the factor-based approach might inform basic research policies.
Honesty and Self-Selection into Cheap Talk
(with Sebastian Fehrler and Urs Fischbacher), The Economic Journal, 130, pp. 2468 - 2496, 2020
We examine the incentives of individuals who differ in their honesty regarding election campaign promises to self-select into politics and how these self-selection incentives depend on the transparency of the entry process. We set up a theoretical model of political competition and test its key mechanisms in the lab. We find that when the political entry process (e.g. party nomination or primaries) is relatively opaque, less honest individuals have higher incentives to stand for election. This adverse selection effect is not present when the selection at the entry stage is transparent to voters.
Taxation, Innovation and Entrepreneurship
(with Hans Gersbach and Ulrich Schetter), The Economic Journal, 129, pp. 1731 - 1781, 2019
We examine how public basic research investments should be financed optimally and under which conditions such policies will be politically viable.
Coalition-Preclusion Contracts and Moderate Policies
(with Hans Gersbach and Oriol Tejada), Games and Economic Behavior, 114, pp. 28 - 46, 2019
We study how policy outcomes and welfare would be affected if parties in a parliamentary democracy could credibly commit before the election not to form a coalition after the election with one or several other parties.
On the Global Supply of Basic Research
(with Hans Gersbach), Journal of Monetary Economics, 75, pp. 123 - 137, 2015
We study countries' incentives to invest in basic research depending on market size and the level of human capital. We explain why small countries' may over-invest in basic research and provide a justification for stronger international coordination of basic research policy.
Endogenous Enforcement of Intellectual Property Rights, North-South Trade and Growth
(with Andreas Schäfer), Macroeconomic Dynamics, 19 (5), pp 1074-1115, 2015
We characterize the incentives of developing and developed countries to enforce IPR depending on market size and technological capacities and explain why observed IPR enforcement can substantially differ from a country's preferred IPR enforcement level at the global scale.
Interest Group Size and Legislative Lobbying
Journal of Economic Behavior & Organization, 106, pp 29-41, 2014
This paper characterizes how policy outcomes depend on interest group size in legislative lobbying. We find a non-monotone relation, providing a rationale why some interests do not fully organize. we also discuss the social desirability of spending limits.
Basic Research, Openness and Convergence
(with Hans Gersbach and Olivier Schneller), Journal of Economic Growth, 18 (1), pp 33-68, 2013
We study how much countries should invest in basic research depending on their openness to foreign direct investment and their distance to the world's technological frontier.
Trading-off Generations: Equity, Discounting, and Climate Change
(with Christian Traeger and Ralph Winkler), European Economic Review, 56 (8), pp 1621-1644, 2012
We analyze the implications of the standard workhorse models in dynamic economic theory with respect to their intergenerational trade-offs and draw implications for the optimal provision of public goods. We also relate our results to the recent debate on climate change mitigation.
Tax Contracts and Elections
(with Hans Gersbach), European Economic Review 56 (7), pp 1461-1479, 2012
This paper examines how election outcomes and welfare would be affected if, before the election, political parties can commit to their campaign promises regarding tax rates, but not regarding public good provision and the level of perks.
Tax Contracts, Party Bargaining, and Government Formation
(with Hans Gersbach), Mathematical Social Science 64 (2), pp. 173-192, 2012
We study how coalition bargaining after elections and policy outcomes would be affected if political parties can commit to their campaign promises before the election regarding tax rates, but not with respect to public good provision and the level of perks.
(with Clive Bell and Hans Gersbach), Games and Economic Behavior 74, pp. 32-51, 2012
We examine how intra-family decision making affects education choices and consequently aggregate human capital accumulation. We also discuss policy measures such as compulsory schooling and bans on child labor..
Innovation Process ‘Fuel Cell Vehicle’: What Strategy Promises to be Most Successful?
(with Burkhard Schade and Hariolf Grupp), Technology Analysis & Strategic Management 16(2), pp. 147–172, 2004
This paper examines the introduction of Fuel Cell Vehicles and what strategies promise to be most successful for companies in launching innovative products in markets with network effects.
Artificial Intelligence: Economic Challenges of Technological Uncertainty
(with Andreas Schaefer)
With the 4th Industrial Revolution ahead there is huge uncertainty about the likely labor market impacts ranging from massive layoffs as a response to Automation and AI to the view that overall more jobs will be created than lost. Whatever the outcome in the end, there will be major structural change with substantial implications for individual labor income risk. We argue that technological uncertainty can make large parts of society worse off even though technological progress has a positive effect on average incomes and that precautionary savings are ineffective in protecting against labor market risk from major technological shifts. We examine whether policies such as a Universal Basic Income scheme or a ``Robot Tax'' can reduce the technological uncertainty and make people benefit from technological change. We also discuss whether a ``Technology Insurance” scheme is feasible and when it is favorable from a welfare perspective.
Inequality, Openness and Growth through Creative Destruction
(with Adrian Jaeggi and Ulrich Schetter)
We examine how inequality and a country's openness interact in shaping the long-run growth prospects of developing countries. To this end, we develop a Schumpeterian growth model with heterogeneous households and non-homothetic preferences for quality. We show that inequality affects growth very differently in an open economy as opposed to a closed economy: If the economy is close to the technological frontier, the positive demand effect of inequality on growth found in closed-economy models may be amplified by international competition. In countries with a larger distance to the technology frontier, however, rich households satisfy their demand for high quality via importing, and the effect of inequality on growth is smaller than in a closed economy and may even be negative. We show that this theoretical prediction holds up in the data, both when considering growth in export quality at the industry level and when considering growth in GDP per capita..
How Can Democracy Cope with Extreme Views?
(with Hans Gersbach and Oriol Tejada)
We investigate how democracy can cope with extreme views held by a minority of citizens. We argue that extreme policy shifts may be prevented if parties can credibly commit to precluding a coalition with an extremist party after an election. We characterise the general conditions under which such 'Coalition-Preclusion Promises' lead to welfare improvements..
Who Writes the Bill? The Role of the Agenda-Setter in Legislative Lobbying
We study how policy outcomes depend on lobby influence when the policy proposal is drafted and show how the incentives of the agenda setter depend on institutional details and the salience of the issue..
How Much Science? The 5 Ws (and one H) of Investing in Basic Research
(with Hans Gersbach and Ulrich Schetter)
We survey the literature on public policy regarding basic research investments. We offer new data and evidence on the linkages between basic research, key economic variables and economic growth and propose a new approach to guide basic research policy.
Optimal Mix of Applied and Basic Research, Distance to Frontier, and Openness
(with Hans Gersbach and Olivier Schneller)
We characterize the optimal relation between public basic research investments and applied research and development investments by private firms and discuss how this relation depends on a country's openness and distance to the world's technological frontier.