Original Research Articles
Auctions versus bookbuilding: The effects of IPO regulation in Japan Link to article (open access)
Timo Lehmann and Matthias Weber (2023). Financial Review, 58(1):117–141.
We analyze a regulatory change in the Japanese IPO market that created an abrupt shift from hybrid price-discriminatory auctions to bookbuilding. We find that bookbuilding leads to higher underpricing than hybrid price-discriminatory auctions. Furthermore, we find evidence that price accuracy tends to be higher for auctions than for bookbuilding. The results hold under a variety of OLS specifications and with regression discontinuity designs exploiting the abrupt change of the regulation.
Regularized Regression When Covariates Are Linked on a Network: The 3CoSE Algorithm Link to article (open access)
Matthias Weber, Jonas Striaukas, Martin Schumacher, and Harald Binder (2023). Journal of Applied Statistics, 50:(3), 535–554.
Covariates in regressions may be linked to each other on a network. Knowledge of the network structure can be incorporated into regularized regression settings via a network penalty term. However, when it is unknown whether the connection signs in the network are positive (connected covariates reinforce each other) or negative (connected covariates repress each other), the connection signs have to be estimated jointly with the covariate coefficients. This can be done with an algorithm iterating a connection sign estimation step and a covariate coefficient estimation step. We develop such an algorithm, called 3CoSE, and show detailed simulation results and an application forecasting event times. The algorithm performs well in a variety of settings. We also briefly describe the publicly available R-package developed for this purpose.
Experience Does not Eliminate Bubbles: Experimental Evidence Link to article (open access)
Anita Kopányi-Peuker and Matthias Weber (2021). Review of Financial Studies, 34(9):4450–4485.
We study the role of experience in the formation of asset price bubbles. Therefore, we conduct a call market experiment in which participants trade assets with each other and a learning-to-forecast experiment in which participants only forecast future prices (while trade based on these forecasts is computerized). Each experiment comprises three treatments varying the information that participants receive about the fundamental value. Each market is repeated three times. Throughout, we observe sizable bubbles that do not disappear with experience. Our findings in the call market experiment stand in contrast to the literature. Our findings in the learning-to-forecast
experiment are novel.
The Behavioral Economics of Currency Unions: Economic Integration and Monetary Policy Link to article (open access)
Akvile Bertasiute, Domenico Massaro, and Matthias Weber (2020). Journal of Economic Dynamics and Control, 112:103850.
We analyze different behavioral models of expectation formation in a multi-country New Keynesian currency union model. Our analyses yield the following robust results. First, economic integration is of crucial importance for the stability of the economic dynamics in a currency union. Second, when the economic dynamics are unstable, more activist monetary policy does not lead to stable economic dynamics. These findings have natural counterparts in the rational expectations version of the model: there, economic integration is crucial for the determinacy of the equilibrium and when the equilibrium is indeterminate, more activist monetary policy does not lead to a determinate equilibrium. In an application to euro area data, we find that the behavioral macroeconomic model outperforms its rational counterpart in terms of prediction performance.
Choosing the Rules: Preferences over Voting Systems for Assemblies of Representatives Link to article Accepted version (PDF)
Matthias Weber (2020). Journal of Economic Behavior and Organization, 174:420–434.
There are many situations in which different groups make collective decisions by voting in an assembly or committee where each group is represented by a single person. There is a lot of theoretical, normative literature on the question of what voting system such an assembly should use, but so far there has been no consensus. Instead of studying the choice of voting systems based on theoretical concepts, I ask which voting systems individuals actually prefer. This is important for the legitimacy and acceptance of voting institutions. To answer this question, I design a laboratory experiment in which participants choose voting systems when they do not know which group they will be in (and as a control when they do know it). Behind the veil of ignorance, participants predominantly choose voting systems that allocate more voting power to larger groups than the most prominent theoretical concept suggests.
Note: An earlier version of this paper was called “Choosing Voting Systems behind the Veil of Ignorance: A Two-Tier Voting Experiment”.
Monetary Policy under Behavioral Expectations: Theory and Experiment Link to article (open access) Online Appendix Slides (PDF)
Cars Hommes, Domenico Massaro, and Matthias Weber (2019). European Economic Review, 118:193–212.
In the media: Bloomberg.
Expectations play a crucial role in modern macroeconomic models. We consider a New Keynesian framework under a behavioral model of expectation formation and under rational expectations. Contrary to the rational model, the behavioral model predicts that inflation volatility can be lowered if the central bank reacts to the output gap in addition to inflation. We test the opposing theoretical predictions in a learning-to-forecast experiment. In line with the behavioral model, the results support the claim that output stabilization can lead to less volatile inflation.
An Experimental Study of Bond Market Pricing Link to article (read-only for non-subscribers)
Matthias Weber, John Duffy, and Arthur Schram (2018). Journal of Finance, 73(4):1857–1892.
In the media: LSE Business Review.
An important feature of bond markets is the relationship between the IPO price and the probability that the issuer defaults. On the one hand, the default probability affects the IPO price. On the other hand, IPO prices affect the default probability. It is a priori unclear whether agents can competitively price such assets and our paper is the first to explore this question. We do so using laboratory experiments. We develop two flexible bond market models that are easily implemented in the laboratory. We find that subjects learn to price the bonds well after only a few repetitions.
Under full rationality, a labour market tax levied on employers and a corresponding income tax levied on employees are equivalent. With boundedly rational agents, this equivalence is no longer obvious. In a real-effort experiment, we study the effects of these taxes on preferences concerning the size of the public sector, subjective well-being, labour supply and on-the-job performance. Our findings suggest that employer-side taxes induce preferences for a larger public sector. Subjective well-being is higher under employer-side taxes while labour supply is lower, at least at the extensive margin. We discuss three mechanisms that may underlie these results.
Other (Reviews, Perspectives, Technical Notes, Smaller Articles, Book Reviews, Commentary)
Subsidies versus Intellectual Property Rights When Innovators Operate in Two Markets Link to article (open access)
Egle Skliaustyte and Matthias Weber (2023). PLOS ONE, 18(4):e0284880.
Intellectual property rights are monopoly rights, which have undesirable welfare properties. Therefore, several studies suggest using rewards as incentives for innovation instead. However, these studies have thus far had little effect on actual policy, possibly because such rewards may be difficult to implement in practice. We suggest a new way of providing incentives to originators, which is easier to implement. Our suggestion can be used if there is an additional market in which originators operate, where copying is not easily possible. In this case, intellectual property rights in one market can be replaced by subsidies in the other market. Taking the music industry as example, copyrights in the records market could be replaced by subsidies in the market for live performances. We develop a partial equilibrium model that can be used to analyze in which cases the replacement of intellectual property rights in one market with subsidies in another market is welfare improving and better for the originator. A numerical application example suggests that the subsidy scheme may indeed be better in the music industry. The subsidy scheme can be implemented as a voluntary option, which would even be possible without changing the legal framework of intellectual property rights.
Behavioral Optimal Taxation: Aspirations Link to article (open access)
Matthias Weber (2021). Journal of Behavioral Economics for Policy, 5(1):19–26.
I show the results of a novel simple two-period model comparing lump-sum taxes with proportional labor taxes. The difference to the classical optimal taxation literature is that people’s aspirations change from one period to another, as suggested by empirical evidence. It turns out that the policy implication from this model differs considerably from the one assuming full rationality. In the behavioral model, a lump-sum tax is much less attractive. The model does not aim to be a full-fledged quantitative model, it should rather be seen as a cautionary tale about the robustness of classical optimal taxation results when deviating from full rationality.
Emmanuel Saez and Gabriel Zucman: The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay Link to article (read-only for non-subscribers)
Matthias Weber (2020). Financial Markets and Portfolio Management, 34:349–352.
“The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay” is a book about taxation and inequality in the United States. It contains some comparisons to other countries and is certainly relevant beyond the US. The book describes how US taxes became less and less progressive, up to the point where the richest of the rich pay a lower fraction of their income in taxes than the middle class. The authors propose a variety of measures to address this, including the introduction of a progressive wealth tax and of an effective minimum corporate income tax.
Thoughts on Voting Power and the Public Good Index Link to article (open access)
Matthias Weber (2020). Munich Social Science Review, New Series, 3:199–206.
Among the wide variety of voting power indices, the public good index (PGI) is one of the less well-known ones. Holler (2019) posits hypotheses about why this is the case. In response to these hypotheses, I share a few thoughts about voting power in general and about the popularity of the PGI.
The Effects of Listing Authors in Alphabetical Order: A Review of the Empirical Evidence Link to article (free access)
Matthias Weber (2018). Research Evaluation, 27(3):238–245.
Each time researchers jointly write an article, a decision must be made about the order in which the authors are listed. There are two main norms for doing so. The vast majority of scientific disciplines use a contribution-based norm, according to which authors who contributed the most are listed first. Very few disciplines, most notably economics, instead resort primarily to the norm of listing authors in alphabetical order. It has been argued that (1) this alphabetical norm gives an unfair advantage to researchers with last name initials early in the alphabet and that (2) researchers are aware of this ‘alphabetical discrimination’ and react strategically to it, for example by avoiding collaborations with multiple authors. This article reviews the empirical literature and finds convincing evidence that alphabetical discrimination exists and that researchers react to it.
The question whether the position of a researcher’s last name in the alphabet matters for his or her scientific career is important. This comment reflects on the methodology used in Abramo and D’Angelo (2017, Journal of Informetrics 11(1):121-127) and shows the weaknesses of the chosen approach.
There are many situations in which different groups make collective decisions by committee voting, with each group represented by a single person. This paper is about two closely related problems. The first is that of how to measure the inequality of a voting system in such a setting. The second is the inverse power problem: the problem of finding voting systems that approximate equal indirect voting power as well as possible. I argue that the coefficient of variation is appropriate to measure the inequality of a voting system and to specify the inverse problem. I then show how specifying the inverse problem with the coefficient of variation compares to using existing objective functions.
Mostly Sunny: A Forecast of Tomorrow’s Power Index Research Article (PDF)
Sascha Kurz, Nicola Maaser, Stefan Napel, and Matthias Weber (2015). Homo Oeconomicus, 32(1):133–146.
Power index research has been a very active field in the last decades. Will this continue or are all the important questions solved? We argue that there are still many opportunities to conduct useful research with and on power indices. Positive and normative questions keep calling for theoretical and empirical attention. Technical and technological improvements are likely to boost applicability.