Andreas Wagener

Inefficient Group Organization as Optimal Adaption to Dominant Environments

Contests between groups are plagued by intra-group externalities (freeriding). Yet, costless incentive schemes that entirely avoid free-riding within a group might not be desirable, neither individually nor socially. In contests among two groups, a relatively weak (i.e., small or unproductive) group will optimally not implement them because they compound strength differences between groups. If both groups rein in their intra-group externalities, they are both worse off, compared to a situation with free-riding, if they are relatively similar. If they are sufficiently heterogenous, the weak group loses at the expense of the relatively strong group.

Tax competition, relative performance and policy imitation

Rather than about their absolute payoffs, governments in fiscal competition often seem to care about their performance relative to other governments. Moreover, they often appear to mimic policies observed elsewhere. I study such behavior in a standard tax competition game. Both with relative payoff concerns and for imitative policies, evolutionary stability for games with finitely many players is the appropriate solution concept. Independently of the number of jurisdictions involved, an evolutionarily stable tax policy coincides with the competitive outcome of a tax competition game with infinitely many players. It, thus, involves drastic efficiency losses.

The Political Economy of Conscription

Though in decline recently, military conscription is still a widely used mode of staffing armies. Since not many valid economic, social or military arguments in favor of the draft can be put forward, the question emerges why societies choose to rely on it. In this survey we explain the political allure of military conscription by its specific intra- and intergenerational incidence as a tax. From a public choice perspective, there is always a vast majority of people in favor of the introduction and maintenance of military draft, as compared to a professional army. Empirical evidence for this conclusion appears to be mixed, however. Political preferences with respect to conscription involve concerns about its unfairness and questionable record on social accounts. Special interests may also matter.

Military Draft and Economic Growth in OECD Countries

Economic theory predicts that military conscription is associated with static inefficiencies as well as with dynamic distortions of the accumulation of human and physical capital. Relative to an economy with an all‐volunteer force, output levels and growth rates should be lower in countries that rely on a military draft to recruit their army personnel. For OECD countries, we show that military conscription indeed has a statistically significantly negative impact on economic performance.

Dynamic Costs of the Draft

Abstract We propose a dynamic general-equilibrium model with human capital accumulation to evaluate the economic consequences of compulsory services (such as military draft or social work). Our analysis identifies a so far ignored dynamic cost arising from distortions in time allocation over the life cycle.We provide conservative estimates for the excess burden that arises when the government relies on forced labor rather than on income taxation to finance public expenditures. Our results suggest that eliminating the draft could produce considerable dynamic gains, both in terms of GDP and lifetime utility.

Multiple Risks and Mean-Variance Preferences

We analyze comparative static effects under uncertainty when a decision maker has mean-variance preferences and faces a generic, quasi-linear decision problem with both an endogenous risk and a background risk. In terms of mean-variance preferences, we fully characterize the effects of changes in the location, scale, and concordance parameters of the stochastic environment on optimal risk taking. Presupposing compatibility between the mean-variance and the expected-utility approach, we then translate these mean-variance properties into their analogues for von Neumann-Morgenstern utility functions.

Variance Vulnerability, Background Risks, and Mean-Variance Preferences

An agent with two-parameter, mean-variance preferences is called variance vulnerable if an increase in the variance of an exogenous, independent background risk induces the agent to choose a lower level of risky activities. Variance vulnerability resembles the notion of risk vulnerability in the expected utility (EU) framework. First, we characterize variance vulnerability in terms of two-parameter utility functions. Second, we identify the multivariate normal as the only distribution such that EU- and two-parameter approach are compatible when independent background risks prevail. Third, presupposing normality, we show that—analogously to risk vulnerability—temperance is a necessary, and standardness and convex risk aversion are sufficient conditions for variance vulnerability.

Chebyshev's Algebraic Inequality and comparative statics under uncertainty

Abstract We apply a non-monotonic version of Chebyshevs Algebraic Inequality in problems of comparative statics under uncertainty.

Prudence and risk vulnerability in two-moment decision models

Abstract Prudence, risk vulnerability, temperance and some related concepts have recently been introduced into the expected-utility framework of decision making under uncertainty. We demonstrate how they can be meaningfully formulated in terms of two-moment, mean-standard deviation preferences.

Conscription: Economic costs and political allure

Since Adam Smith, most economists have held that a professional army is superior to a conscript army, thanks to benefitting from comparative advantage and specialization. We summarize recent literature on the benefits and costs of the military draft, with special emphasis on its dynamic effects on human capital formation. Empirical evidence refutes the claim that the economic costs of the draft would be balanced by increased democratic control or reduced likelihood of war. Rather, the political allure of conscription seems to arise from the possibility to concentrate the tax burden on a minority of voters in a way that is generally held to be unacceptable with normal taxation.