There is field evidence from online procurement for services to suggest that some suppliers bid excessively low prices that can only be rationalized through subsequent surcharges. Many factors can affect surcharging in the field, including widely studied aspects such as cost overruns, the expected cost of litigation or reputation. We conduct a pre-registered online experiment to evaluate which social-norm-related aspects of the decision environment drive surcharging. We develop a stylized procurement game and disentangle the role of three additional factors: (i) transparent pricing, (ii) fairness, and (iii) competition. We find that norms about transparency and fairness influence surcharging and interact with one another. Competitive pressure does not crowd out social norms per se.

Almost overnight, the 2012 hit “Gangnam Style” made a district in South Korea’s capital Seoul world famous. Using a difference-in-differences framework and data on all real estate purchases in Korea’s megacity between 2009 and 2022, we examine how Gangnam’s sudden popularity affected its housing market. Our results show that after the release of the song prices increased significantly while the number of transactions significantly declined – a clear indication that the market was driven by rapidly adjusting expectations, a view that is supported by the concomitant and significant increase in the number of available hotel rooms in Gangnam. Our analysis reveals that real estate market participants attach great importance to art and culture when assessing the quality of life in an urban center.

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Financial debt covenants rely on imperfect accounting signals, resulting in false alarms (inefficient liquidation due to understatement error) and false positive errors (inefficient continuation due to overstatement error). More accounting conservatism increases the false alarm error but lowers the false positive error. Theoretical papers have shown that most liberal accounting minimizes the sum of expected losses from both inefficient liquidation and inefficient continuation. This is at odds with mounting empirical evidence showing that accounting conservatism, but not liberal accounting, is strongly associated with debt contracting. This paper shows that accounting conservatism will be efficient in a single-lender setting when the lender has sufficiently precise private information, e.g., a relationship lender. The lender is likely to waive debt covenant violations that cause inefficient liquidation. However, inefficient continuation is still possible and the relationship lender will prefer accounting conservatism as this reduces Type-2 errors. In a multiple-lender setting, sufficient accounting conservatism has limited information value on financial distress, thereby preventing inefficient lender coordination and inefficient project liquidation. This also holds for a single-lender scenario. Thus, sufficient accounting conservatism will prevent both the cost of false positives, but also the cost of false alarms and therefore is efficient – even when we abstract from agency problems of debt, managerial earnings management or renegotiation costs.

Our novel empirical analysis provides evidence that real effects of financial shocks are amplified by leverage of financial institutions in a financial-constraint regime. We build a market-based measure of leverage of financial institutions employing institution-level data and find that it is a useful indicator as input for financial stability policy. We also provide evidence of heterogeneity in how depository financial institutions, global systemically important banks and nonbank financial institutions affect the transmission of shocks to the macroeconomy. These results are based on our novel endogenous regime-switching structural vector autoregressive model with time-varying transition probabilities and the new identification techniques we propose. (with Kirstin Hubrich und Daniel Waggoner)

We used a vignette experiment to study preferences for tax revenue allocation by persons with different, identical, and no migration backgrounds. The participants divided tax revenue between non-migrants and migrants. Variation in individual and group financial status disentangled the underlying determinants of self-interest, other-regarding preferences (ORP), and group interests. Our results show that non-migrants allocated more tax revenue to non-migrants than to migrants. While participants with identical and different migration backgrounds exhibited equal migrant allocation, analysis of the underlying determinants revealed significant differences between homogeneous and heterogeneous migrant groups. Consequently, caution is advised when examining migrants as a homogeneous group. (with André Machwart)

We study a situation where an employee chooses productive effort to achieve a target but can also manipulate a performance measure to pretend target achievement and earn an undeserved bonus. Whereas the firm's shareholders may benefit from undetected manipulation, both the employee and the shareholders realize a loss in case of detected manipulation. We analyze how performance pay, internal control, and external control (e.g., by a public authority) interact to prevent or promote manipulation. We show that internal control may be implemented to enhance effort but also to induce manipulation more often or at lower costs. Whether the introduction of internal control reduces the ex ante probability of manipulation by inducing higher effort, which yields a lower failure probability and, thus, a lower probability that manipulation occurs, crucially depends on the extent of external control that the firm and the employee face. In particular, internal control reduces the probability of manipulation when external control is sufficiently high for the firm or sufficiently low for the employee.

We study how circadian rhythm disruptions affect the performance of highly skilled knowledge workers. Using data from GitHub, we build a panel of daily output and work patterns of almost 50,000 professional software developers. We exploit transitions into and out of daylight saving time (DST) as exogenous shocks to the circadian rhythm. Despite flexible schedules allowing partial adjustment, developers’ output declines by 5.4% immediately after the DST spring transition. Besides, this shock generates spillover effects within developer teams: Developers outside North America who collaborate with North American peers experience a 3.9% drop in output after the U.S. spring transition. To explore the impact of chronic circadian misalignments, we classify developers into morning and evening types, based on their temporal activity profiles. Morning types outperform evening types by 14% in output quantity and 2% in quality. Because prevailing social schedules are more aligned with natural rhythms of morning-types, this performance gap points to adverse impacts of a chronic circadian misalignment. Our findings highlight substantial economic costs of circadian rhythm disruptions in the knowledge economy and underscore the need for policy and workplace strategies that mitigate their effects.

Non-governmental organizations (NGOs) compete in the market for do- nations through fundraising activities. Commonly, NGOs are hesitant to disclose their fixed costs. In line with research in accounting and economics on disclosure, this paper asks if NGOs that engage in fundraising activities to elicit donations have strategic reasons (not) to disclose information about their fixed costs to rival NGOs. Investigating the voluntary (ex ante) disclosure policies of competing NGOs, I find that the optimal disclosure policy strongly depends on information spillovers, fundraising spillovers, and the donors‘ assessment of their donations to the two NGOs projects. If donors perceive their donations as strong substitutes or if fixed cost information of one NGO is not too informative about the rival NGO‘s fixed costs, then disclosure is a dominant strategy for NGOs. This equilibrium choice of dis-closure policies also maximizes welfare in the majority of cases. If donors perceive their donations as weak substitutes or complements and fixed cost information of one NGO is sufficiently informative about the rival NGO‘s fixed cost (i.e., the correlation between the cost signals is sufficiently high), then a no disclosure policy is adopted in equilibrium. In this situation, the no disclosure choices maximize welfare if the correlation between cost signals is sufficiently high, but not too high. Since welfare is maximized in the majority of cases if disclosure decisions are delegated to the competing NGOs, interventions of a regulatory authority would either be moot or decrease welfare.

This paper explores communication strategies for anchoring households’ medium-term inflation expectations in a high inflation environment. We conducted a survey experiment with a representative sample of 4,000 German households at the height of the recent inflation surge in early 2023, with information treatments including a qualitative statement by the ECB president and quantitative information about the ECB’s inflation target or projected inflation. Inflation projections are most effective, but combining information about the target with a qualitative statement also significantly improves anchoring. The treatment effects are particularly pronounced among respondents with high financial literacy and high trust in the central bank