Evelyn Korn

A Theory of Prostitution

Prostitution is low‐skill, labor intensive, female, and well paid. This paper proposes a marriage market explanation to this puzzle. If a prostitute compromises her marriage market prospects, she will have to be compensated for forgone marriage market opportunities. We discuss the link between poverty and prostitution and show that prostitution may decrease with male income if wives and prostitutes are drawn from the same pool of women. We point to the role of male sex ratios, and males in transit, in sustaining high levels of prostitution, and we discuss possible reasons for its low reputation and implications for marriage patterns.

Voluntary Disclosure of Partially Verifiable Information

I consider voluntary disclosure of nonproprietary information. Established research presents two classes of models. Some authors assume that the manager can be sanctioned prohibitively high if he lies. Others assume cheap talk.I analyze a setting with positive but non-prohibitive punishments. In my scenario, misreporting is part of the information equilibrium. To assess the consequences of such misreporting, I present two distinct cases: If the capital market is already well informed about possible firm values prior to the disclosure, the majority of misreportings is detected. If the capital market has only very rough information, misreportings may lead to failures in the market’s valuation and thus damage investors.

Duopolistic Competition, Taxes and the Arm's-Length Principle

Numerous (high-tax) countries presume that multinational firms use their transfer-pricing policies to shift profits into countries with lower tax rates. To avoid the corresponding loss in tax revenues, tax authorities develop constantly tightening rules to curb transfer-price distortions. Affected firms include the decision of compliance to these rules into their strategic considerations. In a scenario with arms-length regulation in two countries, we analyze the transfer-pricing policy of a firm that uses the same transfer price for tax and managerial incentive purposes. Thus, the transfer-pricing policy is driven by three issues: interaction with competitors, minimization of tax burden, and avoidance of punishments. The model shows that tighter transfer-pricing rules may help firms to mitigate competition and to increase their profits and that non-compliance to the arms-length principle is part of their equilibrium strategy.

Dealing with stochastic environmental variation in space and time: bet hedging by generalist, specialist, and diversified strategies

Building on previous work, we derive an optimization model for a two-state stochastic environment and evaluate the fitnesses of five reproductive strategies across generations. To do this, we characterize spatiotemporal variation and define grain (=patch) size as the scale of fitness autocorrelation. Fitness functions of environmental condition are Gaussian. The strategies include two specialists on each of the environmental conditions; two generalists that each fare equally well under both conditions, but one (a conservative bet hedger) optimizes the shape of the fitness function; and a diversified bet hedger producing an optimal mix of the two specialists within individual broods. When the environment is primarily in one of the two states, the specialist on that state achieves the highest fitness. In the more interesting situation where the two environments are equally prevalent in the long term, with low-moderate environmental variation, a generalist strategy (that copes with both states well) does best. Higher variation favors diversified bet hedgers, or surprisingly, specialists, depending mainly on whether spatial or temporal variation predominates. These strategies reduce variance in fitness and optimize the distribution of offspring among patches differently: specialists by spreading offspring among many independently varying patches, while diversified bet hedgers put all offspring into a few patches or a single patch. We distinguish features consistent with strategies like diversified bet hedgers that spread risk in time from features linked to strategies like specialists that spread risk in space. Finally, we present testable hypotheses arising from this study and suggest directions for future work.

Sales-Discount Regulation: How Much Bazaar Do Consumers Want?

In July 2001 the 70-year-old German „Rabattgesetz“ that prevented negotiations in retail business has been abolished. During the abolition process consumer- as well as retailer pressure groups claimed that significant damages for their clients were to be expected. Using game theoretic modelling this paper discusses which economic consequences could arise from the amendment. It shows that none of the abovementioned fears were justified. In addition, it uses a revealed-preference argument based on these predictions and on data concerning the dissemination of customer cards to describe consumers’ general attitudes towards bargaining.

From Sex to Gender

Why are we not hermaphrodites? This paper argues that while hermaphroditism is an e±cient means by which genes may propagate themselves, inherent tendencies towards polygyny undermine its stabil- ity. Understanding the forces that have established a segregation of sex functions between male and female individuals provides insight into the concept of gender.

Working Mums and Informal Care Givers: The Anticipation Effect

Abstract Fertility and the provision of long-term care are connected by an aspect that has not received attention so far: both are time consuming activities that can be produced within the household or bought at the market and are, thus, connected through the intertemporal budget constraint of the household that accounts for time and money. This paper models that link and analyzes the effect of intervention in the long-term-care market on female labor-market related decisions. It shows that women’s fertility and their labor supply when young are affected by such policies. The overall effect can be decomposed into an opportunity-cost effect and a consumption-smoothing effect that each impact fertility as well as labor supply in opposite directions. Using survey data, the paper provides some evidence that in the member states of the European Union the consumption-smoothing effect is dominant.

Optimal sex allocation under pollen limitation

Most flowering plants are simultaneous hermaphrodites. Within species and even within local populations, sex allocation is usually highly plastic. Here, we link pollen sufficiency to the size of pollen-exchanging groups (i.e., pollen neighborhoods) and to pollen transfer efficiency, using an individual-based game-theoretic framework to determine the stable distribution of sex allocation that does not require the unrealistic assumption of infinitely large, panmictic populations. In the absence of selfing, we obtain the novel result that pollen limitation destabilizes hermaphroditism and favors separate sexes, whereas hermaphroditism remains stable without pollen limitation. With mixed mating, hermaphroditism is stable except when the fitness value of selfed offspring is less than half that of outcrossed offspring (i.e., strong inbreeding depression). In that case, the size of pollen neighborhoods, pollen transfer efficiencies, and the relative fitness of selfed offspring determine whether separate sexes or hermaphroditism is the stable outcome. The model thus predicts that separate sexes can derive from either of two ancestral states: obligate outcrossing under pollen limitation, or mixed mating (competing self-fertilization) under severe inbreeding depression. It also predicts conditions under which variance in sex-allocation among hermaphrodites within pollen exchanging groups along a gradient of pollen limitation can range from high (dioecy) to near zero (equal proportions of male and female investment).

Contracting Still Matters! Or: How (and Why) to Design a Letter of Intent

Any cooperation that involves relation-specific investments can suffer from the well-known hold-up problem. If the contract is not enforceable by an outside authority, individual opportunism, caused by a free-rider problem, may occur. If, in addition, individual investments exhibit positive cross-effects, Che and Hausch (1999) show that contracts will not be able to overcome the holdup due to a lack of verifiable commitment. This paper develops such a commitment device. This mechanism includes (1) an acknowledgment game that procures reliable information and (2) embeds the original contract in two institutional designs - a market-based one and a private one - that support enforcement. These two features make investment efficient as it can be enforced by way of the contract.

The Information Content of Mandatory Disclosures

The information quality of mandatory financial reporting depends on two factors: (1) Are standards appropriate to produce financial statements that provide investors with sufficient information? (2) Is compliance to s tandards enforced by appropriate institutions? This paper addresses the question if firms should be able to create hidden reserves as an example for the effect of standards on information quality. The analysis shows that rational investors are able to correctly decipher financial statements – independent of the standards in use. The question of sufficient enforcement proves to have a deeper impact on the quality of information.