We introduce loss aversion in an infinite-horizon, alternating-offers model. When outside options serve as reference points, the equilibrium of our model follows that of the standard Rubinstein bargaining model, i.e., outside options do not affect the equilibrium unless they are binding. However, when reference points are given by the resources players contribute to the pie, the bargaining outcome changes such that a player's share increases in her contribution. We test our model's predictions in the laboratory. As predicted, only binding outside options impact the division of the pie. Data also show that contributions matter for bargaining outcomes when they are activated as reference points, but not quite as predicted by our theory. Proposers gain a higher share of the pie only when they have contributed a higher share than the opponent has.
In the Varian (1980; American Economic Review 70(4) (1980), 651–59) model of price competition, a change from simultaneous to sequential price setting dramatically changes equilibrium strategies, and in the unique symmetric, equilibrium prices are pushed up to the monopoly price. There also exists an asymmetric equilibrium with lower average prices. Our main contribution is to test these predictions in the laboratory. Our data strongly support the qualitative model predictions. However, a fraction of players set low prices in accordance with the asymmetric equilibrium, which is puzzling. We show that the puzzle to a large extent can be resolved by introducing competitive preferences in the model.
Heggedal, Tom-Reiel; Helland, Leif & Knutsen, Magnus Våge (2022)
The power of outside options in the presence of obstinate types
We experimentally investigate the role of two-sided reputation-building in dynamic bargaining. In the absence of outside options, rational bargainers have an incentive to imitate obstinate types that are committed to an aggressive demand, inducing delay. Outside options remove this incentive and ensure immediate agreement whenever two rational bargainers match. Our data support the hypothesis that outside options cut down on imitation and ensure timely agreements, but only if subjects share a belief about what constitutes obstinacy. Further, we find that outside options are exercised excessively and that efficiency is no better than it is in their absence. We ascribe this result to the presence of fairness preferences in the subject pool.
Building on agency-theoretical perspectives of public bureaucracies, we argue that politician–bureaucrat preference alignment can have important implications for bureaucrats’ pay. We study such private gains to bureaucrats from their political alignment with elected politicians using detailed data on all 1,632 top administrators active in all Norwegian municipalities over a period of 25 years (1991–2015). Whereas existing studies generally rely on proxies for politician–bureaucrat political alignment, a rare feature of our data allows measuring it directly since 27% of top bureaucrats ran for political office. We focus explicitly on individuals at the very top of the administrative hierarchy and are able to separate the intensive margin (i.e., wage increases) from any additional effects at the extensive margin (i.e., new appointments). Using close elections for inference in a regression discontinuity analysis, we find that politician–bureaucrat alignment significantly increases top bureaucrats’ wage even in the Norwegian civil service system. This has important implications also from a theoretical perspective. Our results indeed go against predictions from models with policymotivated bureaucrats, but are consistent with politically aligned principal–agent matches being more productive.
Support for environmental protection is generally perceived as driven by cohort or generational effects. We argue and empirically illustrate that such attitudes also fluctuate over the life cycle. Using rotating panels of the Norwegian Election Studies (1989-2013), our analysis is able to identify such life-cycle effects while controlling for cohort and period effects through a methodological innovation exploiting the first-derivative properties of the environmental concern function. Our main findings provide strong evidence of an inverted U-shape over the life cycle, which implies that substantial population aging in advanced economies may partially offset any generational shift towards a greater emphasis on protecting the environment.
Political parties commited to grab rents may run for election, and even win, if citizens are uninformed. But, how is the political equilibrium affected if citizens can mitigate this information problem through costly information search? We propose a political equilibrium theory with endogenous information search and turnout. We show that: (i) the political equilibrium generates political uncertainty characterized by a distribution of rent policies; (ii) the expectation of this rent distribution is inversely U-shaped in the information search cost; (iii) turnout is lower and rents are higher the more proportional is the electoral system.
Bjertnæs, Geir Haakon Malterud; Heggedal, Tom-Reiel & Jacobsen, Karl (2018)
Knowledge Spillovers and the Timing of Environmental R&D Subsidies
Sasson, Amir (red.). At the Forefront, Looking Ahead: Research-Based Answers to Contemporary Uncertainties of Management
We experimentally investigate the impact of strategic uncertainty and complementarity on leader and follower behavior using the model of Farrell and Saloner (1985). At the core of the model are endogenous timing, irreversible actions and private valuations. We find that strategic complementarity strongly determines follower behavior. Once a subject decides to abandon the status quo the probability that other players jump on the bandwagon increases sharply. However, there is a reluctance to lead when leading is a conditional best response. We explain this deviation from the neo-classical equilibrium by injecting some noise in the equilibrium concept. We also find that cheap talk improves efficiency.
Greaker, Mads; Heggedal, Tom-Reiel & Rosendahl, Knut Einar (2018)
Environmental Policy and the Direction of Technical Change
Should governments direct R&D from "dirty" into "clean" technologies? How im-portant is this compared to carbon pricing? We inquire into this, introducing twonovelties compared to recent literature. We introduce decreasing returns to R&D, andallow future carbon taxes to in‡uence current R&D decisions. Our results suggest thatgovernments should prioritize clean R&D. Dealing with major environmental problemsrequires R&D to shift to clean technology. However, with most researchers workingwith clean technology, both productivity spillovers and future risks of being replacedincrease. Consequently, the wedge between private and social value of an innovation islargest for clean technologies.
Recent research explores the effect of financial and career incentives on public-sector hiring processes and subsequent performance. The reverse relation between performance and bureaucrats’ compensation and turnover has received only limited attention. Due to the distinct features of public-sector organizations, bureaucrats are traditionally argued to require either permanent positions and fixed wages, or low-powered performance incentives. This article studies how the performance of top civil servants in Norwegian local governments affects their compensation and turnover. We thereby build on a unique new dataset over the period 1991-2014. Our results indicate that better performing top civil servants obtain a higher compensation and are less likely to be replaced. Nonetheless, these incentives remain low-powered in line with agency theory prescriptions.
Heggedal, Tom-Reiel; Moen, Espen Rasmus & Preugschat, Edgar (2017)
Productivity spillovers through labor mobility in search equilibrium
This paper proposes an explicit model of spillovers through labor flows in a framework with search frictions. Firms can choose to innovate or to imitate by hiring a worker from a firm that has already innovated. We show that if innovating firms can commit to long-term wage contracts with their workers, productivity spillovers are fully internalized. If firms cannot commit to long-term wage contracts, there is too little innovation and too much imitation in equilibrium. Our model is tractable and allows us to analyze welfare effects of various policies in the limited commitment case. We find that subsidizing innovation and taxing imitation improves welfare. Moreover, allowing innovating firms to charge different forms of fees or rent out workers to imitating firms may also improve welfare. By contrast, non-pecuniary measures that reduce the efficiency of the search process, always reduce welfare.
Heggedal, Tom-Reiel & Rosendahl, Knut Einar (2015)
Knowledge Spillovers in Competitive Search Equilibrium
[Academic lecture]. Search and Matching inaugural conference.
Bjertnæs, Geir Haakon Malterud; Heggedal, Tom-Reiel & Jacobsen, Karl (2010)
Knowledge spillovers and the timing of environmental R&D subsidies
[Article in business/trade/industry journal]. SSB - Discussion papers
Bye, Brita; Heggedal, Tom-Reiel & Hatlen, Liv Mari (2009)
Teknologiutvikling, klima og virkemiddelbruk. Rapport til Utvalget for bærekraftig utvikling og klima
Olsen, Øystein; Bolland, Olav, Christiansen, Bente, Nyborg, Karine, Hoel, Michael Olaf & Maurseth, Per Botolf (red.). Globale miljøutfordringer – norsk politikk: Hvordan bærekraftig utvikling og klima bedre kan ivaretas i offentlige beslutningsprosesser.
Er teknologipolitikk et egnet virkemiddel i den norske klimapolitikken?
[Popular scientific article]. Samfunnsøkonomen
Bye, Brita; Heggedal, Tom-Reiel & Jacobsen, Karl (2009)
Er særskilt støtte til "månelandingen" på Mongstad effektiv politikk?
[Article in business/trade/industry journal]. Økonomiske analyser, s. 42- 48.
Regjeringens ”månelandingsprosjekt” innebærer at norske myndigheter gir særskilt støtte til forskning og utvikling av teknologier for karbonfangst og -lagring. I denne artikkelen drøfter vi om en slik selektiv virkemiddelbruk er effektiv forsknings- og utviklingspolitikk. Imperfeksjoner knyttet til markedene for forskning og utvikling av nye teknologier kan variere mellom forskjellige teknologiområder, og dermed gi grunnlag for ulik virkemiddelbruk. Både modenheten til et teknologiområde og forventning om fremtidig prisutvikling for en teknologi kan påvirke de ufullkommenhetene som er til stede i markedene. Imidlertid er det usikkert om disse effektene tilsier at forskning på teknologier for karbonfangst og -lagring bør støttes mer enn forskning på andre teknologier. Resultater fra simuleringsmodeller av norsk økonomi tyder på at det ikke bør drives selektiv støtte til forskning på teknologier for karbonfangst og -lagring på bekostning av annen teknologiutvikling
An innovation and climate policy model with factor-biased technological change: A small, open economy approach.
[Report]. Statistisk sentralbyrå..
This report documents the model structure and empirical implementation procedures of a dynamic computable general equilibrium (CGE) model that includes induced technological change (ITC). The model is developed for analyses of economy-wide welfare and growth impacts of innovation and greenhouse gas abatement policy. It accounts for macroeconomic productivity and productivity growth effects in an realistic economic and political setting, where several simultaneous reallocations take place and interact with each other.