Volume 11, Issue 1

Awards are shown to be of great importance in all societies, in particular in the economy. Nevertheless, economic research has disregarded the determinants and consequences of awards. The paper argues that awards constitute a relevant extrinsic, but non-material form of reward systematically affecting work effort. Data are provided on the distribution of various types of awards in a selection of countries, discusses the differences between awards and money, and considers several possible methods such as surveys, vignette studies, laboratory and field experiments and econometric analyses of specific firms to capture the incentive effects of awards

In its annual report 2008/2009, the Council of Economic Advisors came forward with a proposal how to unify the German pension system. In this paper, we quantify the effects of this proposal. We show that the direction and size of the effects largely depend on the development of future wages. In the most realistic case we assume that the average wages in East Germany remain a constant fraction of the average wage in the West over time. In this case, the Council’s proposal only weakly affects the size of pensions in East andWest Germany. Thus, the effect on the contribution rate to the pension system is also weak. On the contrary, if average wages in East andWest fully converge in the future, this reform would lead to redistribution from pensioners in the East to pensioners in the West. In the most unrealistic case, where average wages in East and West Germany continue to diverge in the future, pensioners in both East and West Germany would be worse off with the reform. However, contribution rates to the pension system would be relatively lower, leading to redistribution from the old to the young.

Using newly available representative longitudinal data for German manufacturing enterprises over the period 1999 to 2006 this study presents the first comprehensive empirical evidence on subsidized and non-subsidized firms in East and West Germany. The share of subsidized firms in all firms was considerably larger in East Germany than inWest Germany in every year. In both parts of Germany many firms with subsidies receive only a small amount per employee, while only some firms receive large amounts. Subsidized and non-subsidized firms differ with regard to size, productivity, human capital intensity, profitability and research and development intensity. It is shown that subsidized firms had a higher intensity of research and development before receiving subsidies. We find no evidence for a positive causal effect of subsidies on any dimension of firm performance.

In the past, many WTO member states have liberalized their trade policies unilaterally. However, they were decreasingly prepared to guarantee these measures multilaterally, that is to “bind” themselves. This paper analyzes the background of this development by resorting to three political economy arguments pro multilateral binding: the terms of trade externality argument, the “tying hand” argument, that is to protect a government which is prone to liberalize against domestic lobby groups, and finally the argument that trade policies are instruments for general political targets. For all three arguments, it is shown why an important driving force of mercantilistically motivated trade negotiations has become weaker: the reciprocity requirement. The paper recommends narrower negotiation issues and mandates to prevent a further rising heterogeneity of issues and negotiation partners.

Laws and regulations are conditional for modern states and societies to prevail. But they cannot replace the individual responsibility of private subjects. Economists should know better than to completely shift moral responsibility from individual actors to the lawmakers.