Heiner Schumacher

The Value of Recommendations

Many markets without repeated seller–buyer relations feature third-party “monitors” that sell recommendations. We analyze the profit-maximizing recommendation policies of such monitors. In an infinitely repeated game with seller moral hazard and short-lived consumers, a monopolistic monitor with superior information about the sellerʼs past effort decisions sells recommendations about the seller to consumers. We show that the monitor has an incentive to make its recommendations hard to predict, which in general leads to inefficient effort provision by the seller. These results hold under perfect and imperfect monitoring and in a variety of informational setting. When there are multiple competing sellers, the conflict between the monitorʼs profit-maximization objective and efficient effort provision is mitigated.

Information management and incentives

We ask how the incentives of an agent are affected by an information management system that lets the agent receive information about the performance of a colleague before (“transparent firm”) rather than after he provides effort (“nontransparent firm”). Transparency is detrimental for incentives if the performance of the colleague provides information on the relative impact of the agent’s effort on his success probability. The findings imply that firms in which comparisons between employees play a minor role for compensation are transparent. Firms in which they play a major role sometimes choose to be nontransparent despite the flexibility gains transparency provides.

Imitating cooperation and the formation of long-term relationships

We study the infinitely repeated prisonerʼs dilemma with the option to maintain or to quit relationships. We show that if agents imitate successful strategies infrequently, defection is not dynamically stable and cooperation emerges regardless of the initial distribution of strategies.

Unfair incentives: A behavioural note on sharecropping

We conducted a laboratory‐in‐the‐field experiment with real‐life tenants in Ethiopia to test the incentive effects of fixed wage, sharecropping, fixed rent, and ownership contracts. The experimental task resembles a common process in agricultural production. The sharecropping contract is a piece rate scheme framed as a profit‐sharing agreement. Sharecropping output was about 12 percent smaller than the fixed rent output. Surprisingly, it is statistically indistinguishable from the fixed wage output, despite substantial piece rates. This effect is driven by real‐life sharecroppers. Their sharecropping output was smaller than that of non‐sharecroppers, especially in a region where a controversial land reform took place. We argue that our subjects dislike sharecropping contracts because of the unfair profit sharing and the disputed allocation of land. Fairness concerns, therefore, may be another impediment to efficiency under the sharecropping contract.

Student characteristics, professional preferences, and admission to medical school

Objectives: A potential new avenue to address the shortage of country doctors is to change the rules for admission to medical school. We therefore study the link between high-school grade point average and prospective physicians’ choice to work in rural areas. To further inform the discussion about rules for admission, we also study the effects of other predictors: a measure of students’ attitudes towards risk; whether they waited for their place of study (Wartesemester); whether their parents worked as medical doctors; and whether they have some practical experience in the medical sector. Methods: We conducted two internet surveys in 2012 and 2014. In the first survey, the sample comprised 701 students and in the second, 474 students. In both surveys, we asked students for their regional preferences; in the 2014 survey, we additionally asked students for their first, second, and third preferences among a comprehensive set of specializations, including becoming a general practitioner. In both surveys, we asked students for basic demographic information (age and gender), their parents’ occupation, a measure of subjective income expectations, a measure of risk attitudes, and their high-school grade point average (Abiturnote), and First National Boards Examination grade (Physikum). In 2014, we additionally asked for waiting periods (Wartesemester) as well as for prior professional experience in the health-care sector. Results: We find that three factors increase the probability of having a preference for working in a rural area significantly, holding constant all other influences: having a medical doctor among the parents, having worse grades in the high-school grade point average, and being more risk averse. Moreover, we find that those willing to work in the countryside have significantly more experience in the medical sector before admission to medical school. Discussion: Our results suggest that a change in the selection process for medical school may increase the supply of country doctors. Instead of focusing on the high-school grade point average, universities could even more intensely screen for study motivation through interviews or by taking into account students’ background, extracurricular activities, or waiting periods.

Entrepreneurial Risk Choice and Credit Market Equilibria

We analyze under what conditions competitive credit markets are efficient in providing loans to entrepreneurs who can start a new project after failure. An entrepreneur of uncertain talent chooses the riskiness of her project. If banks privately observe the entrepreneur’s risk choices, two equilibria coexist: (1) an inefficient equilibrium in which the entrepreneur realizes a low-risk project and has no access to finance after failure and (2) a more efficient equilibrium in which the entrepreneur first realizes high-risk projects and then, after continuous failures, a low-risk project. There is a non-monotonic relationship between bank information and potential credit market inefficiency. We discuss the implications for credit registers and entrepreneurial education.

Zu den Folgen einer Arbeitszeitverlängerung aus wettbewerbstheoretischer Sicht

Jahrzehntelang ist die regulare Arbeitszeit fur viele Beschaftigte in Deutschland gesunken. Das Jahr 2004 markierte jedoch eine Trendwende. Immer mehr Unternehmen sind in der Lage, hohere Wochenarbeitszeiten auch gegen den massiven Widerstand der Gewerkschaften durchzusetzen. Arbeitgeber und Befurworter von Arbeitszeitverlangerungen erachten diesen Schritt als notwendig, um die Wettbewerbsfahigkeit der Unternehmen zu starken. Gegner befurchten, dass das bestehende Arbeitsvolumen auf weniger Beschaftigte verteilt wird und damit die Arbeitslosigkeit in Deutschland weiter ansteigt.