We measure the cost of consumption fluctuations using an approach that does not require the specification of preferences and instead uses asset prices. We measure the marginal cost of consumption fluctuations, the per unit benefit of a marginal reduction in consumption fluctuations...

We study how the framework of classical game theory changes when the preferences of the players are described by Prospect Theory instead of Expected Utility Theory. Specifically, we study the influence of framing effect and probability weighting on the existence and specific structure of Nash...

Many policy makers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the apparent importance of being financially informed? This paper presents results of a field study linking individual decisions to...

Private wealth holdings are likely to become an increasingly important determinant in the jobexit decision of elderly workers. Net wealth may correlate with worker’s characteristics thatalso determine the exit out of a job. It is therefore important to include a rich set of...

Much of the industrialized world is undergoing a significantdemographic shift, placing strain on public pension systems. Policymakers are responding with pension system reforms that put more weight on privately managed retirement funds. One concern with these changes is the effect on individual...

This paper poses the following question: Is it possible to improve welfare by increasing taxes and throwing away the revenues? This paper demonstrates that the answer to this question is yes. We show that there may be welfare gains from taxing capital income even when the additional capital...

To assess the employment effects of labor costs it is crucial to have reliable estimates of thelabor cost elasticity of labor demand. Using a matched firm-worker dataset, we estimate along run unconditional labor demand function, exploiting information on workers to correct forendogeneity in the...

Labor market studies on the effects of minimum wages are typically confinedto the sector or worker group directly affected. We present a two-sector searchmodel in which one sector is more productive than the other one and thus,pays higher wages. In such a framework, setting a minimum wage in...

Does it make us unhappier when we compare our consumptionwith that of the Joneses or our own past achievements? This paper tries ananswer by bringing together two disparate literatures: the macro (growth)theory on habit formation and the applied literature related to the Easterlinparadox. Using...

When the centre-left government came into power in Germany in 1998, a core promise of the new Chancellor, Schroeder, was to reduce the lack of jobs and to increase welfare. Facing persistently increasing unemployment rates from then on, the government finally launched “Hartz IV” in 2004; the...