Matthias Benz

Being Independent is a Great Thing: Subjective Evaluations of Self-Employment and Hierarchy

One can be independent, or subject to decisions made by others. This paper empirically tests whether individuals attach an intrinsic value to the institutional difference between independence and hierarchy. Taking self-employment as an important case of independence, it is shown that the self-employed derive more utility from their work than people employed by an organization, irrespective of income gained or hours worked. This is evidence for procedural utility: people do not only value outcomes, but also the conditions and processes leading to these outcomes.

Introducing Procedural Utility: Not only What, but also How Matters

People not only care about outcomes, they also value the procedures which lead to the outcomes. Procedural utility is a potentially important source of human well-being. This paper aims at introducing the concept of procedural utility into economics, and argues that it should be incorporated more widely into economic theory and empirical research. Three building blocks of a concept of procedural utility are outlined and it is suggested how procedural utility can be fruitfully integrated. Evidence from a broad range of social sciences is reviewed in order to show that procedural utility is a relevant concept for economics.

Are Voters Better Informed When They Have a Larger Say in Politics? Evidence for the European Union and Switzerland

Public choice theory takes citizens as rationally ignorant about political issues, because the costs of being informed greatly exceed the utility individuals derive from it. The costs of information (supply side) as well as the utility of information (demand side), however, can vary substantially depending on the political system under which citizens live. Using survey data from the European Union and Switzerland, we present empirical evidence that citizens are politically better informed when they have more extended political participation rights. The results corroborate theoretical arguments and circumstantial evidence that voter information should be treated as endogenously determined by political institutions.

From Imperialism to Inspiration: A Survey of Economics and Psychology

Economics and psychology are both sciences of human behaviour. This paper gives a survey of their interaction. First, the changing relationship between the two sciences is discussed: while economics was once imperialistic, it has become a science inspired by psychological insights. In order to illustrate this, recent developments and evidence for three major areas are presented: bounded rationality, non-selfish behaviour, and the economics of happiness.

The Relevance of Procedural Utility for Economics

This paper aims at showing the relevance of procedural utility for economics: people do not only care about outcomes, as usually assumed in economics, they also value the processes and conditions leading to outcomes. The psychological foundations of procedural utility are outlined and it is discussed how the concept differs from other related approaches in economics, like outcome utility, outcome fairness or intentions. Institutions at the level of society and fair procedures are shown to be sources of procedural utility, and novel empirical evidence on the role of procedural utility in important areas of the economy, polity and society is presented.

Can Private Learn from Public Governance

Corporate governance is importantly based on agency theory and relies on extrinsic incentives to align the interests of managers, employees and shareholders. This article argues that in view of recent corporate scandals, private governance can learn from public governance: (1) Goal-oriented intrinsic motivation of agents should be supported by fixed incomes and an extensive selection process of employees; (2) Extrinsic, but non-monetary incentives (e.g. conferring orders and titles) can be used; (3) The power of actors should be restricted by a clear division of power, appropriate rules of succession and institutionalised competition for positions in firms.

Do Workers Enjoy Procedural Utility

People are likely to obtain utility not only from actual outcomes, but also from the conditions which lead to these outcomes. This paper empirically tests the notion of procedural utility for the context of work relationships. Using a large survey among British workers, we find substantial procedural effects on the utility workers derive from their pay. Utility from pay is not only strongly influenced by economic outcomes (the pay levels workers get for given inputs), but also by the way pay is determined. The findings are robust to a series of alternative explanations.

Are Stock Options the Managers' Blessing? Stock Option Compensation and Institutional Controls

Stock option grants to top managers have largely contributed to the dramatic increase in US executive pay in recent years. In this paper it is argued that stock options, compared to other forms of compensation, have created strong incentives for managers to engage in lobbying activities for higher compensation. The empirical results presented for the S&P 500 firms and the years from 1992 to 1997 show that the relative success of such skimming activities is shaped by institutional controls. Stock option grants are substantially lower when control by the board of directors and the shareholders is higher, and competition on the product market of a firm is stronger.

Stock Options for Top Managers — The Possibilities and Limitations of a Motivational Tool

Relying solely on extrinsic motivational incentives creates both problems and unintentional results. This chapter will demonstrate this, using the example of stock options for top managers. The widespread practice of granting stock options is based on the idea that managers will thus be motivated to gear their interest and activities toward increasing the value of their company. Until now, this connection has been hard to document. In our empirical research, we find that stock options moreover have an unintentional negative impact. They enable top-level managers who are not sufficiently supervised to amass large incomes at the owners’ expense. Stock options allow managers to act in a selfish manner and may even encourage such behavior. Therefore, the complex task of motivating managers cannot be reduced to simple extrinsic incentives. On the contrary, new, alternative motivational tools should be actively sought out.

Direct Democracy and Citizens’ Information about Politics

In the Netherlands, the government opposed a referendum about the European Constitution in 2005 arguing that the constitution would be too complex for the citizens to understand and to decide upon. This opinion was not shared by a majority of the Dutch Parliament, but it describes a common criticism about direct democratic decision-making. The reasoning that citizens are not informed enough to vote on substantive political issues can be seen as an understandable reaction of politicians to the widespread political alienation in the citizenry of Western democracies. It also echoes the sceptical assessment of Public Choice theorists about the rationally ignorant voter who is aware of his low probability of changing the outcome of a vote in his preferred direction and decides to abstain from the voting process altogether.