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Among non-human animals, a key strategy to resolve conflicts without fighting relies on assessing relative fighting ability on the basis of physical cues such as size and strength. Recent studies suggest that the human mind too contains mechanisms for spontaneously coordinating conflict behavior on the basis of difference in physical strength, even if strength is not rationally relevant to the conflict. We provide the first direct, experimental test of the existence of such mechanisms. We do so by applying a non-physical, anonymous, economic game - the war-of-attrition - in which male contestants compete by means of perseverance to win a monetary prize. While three initial studies provided some support for the prediction, the final well-powered and pre-registered study failed to support the prediction. We interpret our findings as suggestive evidence that in conflict situations the human mind does not attribute relevance to physical factors that are irrelevant for the conflict.

To achieve the Paris Agreement requires aggressive mitigation strategies alongside negative emission technologies. Recent studies suggest that increasing tree cover can make a substantial contribution to negative emissions, with the tropics being the most suitable region from a biogeophysical perspective. Yet these studies typically do not account for subsequent carbon cycle and climate responses to large-scale land-use change. Here we quantify the maximum potential temperature and CO2 benefits from pantropical forest restoration, including the Earth system response, using a fully coupled, emission-driven Earth system model (HadGEM2-ES). We perform an idealised experiment where all land use in the tropics is stopped and vegetation is allowed to recover, on top of an aggressive mitigation scenario (RCP2.6). We find that tropical restoration of 1529 Mha increases carbon stored in live biomass by 130 Pg C by 2100 CE. Whilst avoiding deforestation and tropical restoration in the tropics removes 42 Pg C compared to RCP2.6, the subsequent reduction in extratropical and ocean carbon uptake means that carbon in the atmosphere only reduces by 18 Pg C by 2100. The resulting small CO2 (9 ppm) benefit does not translate to a detectable reduction in global surface air temperature compared to the control experiment. The greatest carbon benefit is achieved 30–50 years after restoration before the Earth system response adjusts to the new land-use regime and declining fossil fuel use. Comparing our results with previous modelling studies, we identify two model-independent key points: (i) in a world where emission reductions follow the Paris Agreement, restoration is best deployed immediately, and (ii) the global carbon cycle response to reduced emissions limits the efficacy of negative emissions technologies by more than half. We conclude that forest restoration can reduce peak CO2 mid-century, but it can only modestly contribute to negative emissions.

Among non-human animals, a key strategy to resolve conflicts without fighting relies on assessing relative fighting ability on the basis of physical cues such as size and strength. Recent studies hypothesize that the human mind also contains mechanisms for spontaneously coordinating conflict behavior on the basis of difference in physical strength, even if strength is not rationally relevant to the conflict. We provide the first direct, experimental test of the existence of such mechanisms. We do so by applying a non-physical, anonymous, economic game - the war of attrition - in which male contestants compete by means of perseverance to win a monetary prize. While initial studies provided some support for the prediction, the final well-powered and pre-registered study failed to support the prediction. Overall, we interpret our findings as evidence against the hypothesis that the human mind attributes relevance to physical factors that are irrelevant for the actual resolution of a conflict. We discuss implications for existing findings in the field and provide directions for further research.

We examine whether different phenomena of narrow bracketing can be traced back to some common characteristic and whether and how different phenomena are related. We find that making dominated lottery choices or ignoring the endowment when making risky choices are related phenomena and are both associated with low levels of cognitive reflection. In contrast, the phenomena of setting narrow goals or narrow mental budgets seem not to reflect choice errors due to low cognitive reflection, but are tools to overcome self-control problems. Buying small scale insurance is associated with having narrow mental budgets - suggesting that people buy such insurance to insure themselves against the consequences of their own self-control strategy.

Plans to triple the area of plantations will not meet 1.5 °C climate goals. New natural forests can, argue Simon L. Lewis, Charlotte E. Wheeler and colleagues. Plans to triple the area of plantations will not meet 1.5 °C climate goals. New natural forests can, argue Simon L. Lewis, Charlotte E. Wheeler and colleagues.

The land surface is absorbing carbon from the atmosphere. Tropical forests play a key role in this carbon uptake. Recent analyses of 565 long-term forest inventory plots across Africa and Amazonia show that structurally intact tropical forest are a large carbon sink, but that this sink has recently saturated and is projected to be in long-term decline. Here we compare these results with estimates from the two most recent generations of Earth System Models, CMIP5 (19 models) and CMIP6 (17 models). We show that, while CMIP5 and CMIP6 are of similar skill, they do not reproduce the observed 1985-2014 carbon dynamics. The pan-tropical net sink from inventory data is 0.99 Pg C yr-1 (95% CI 0.7–1.3) between 2000–2010, the best sampled decade, double the CMIP6 multimodel-mean of 0.45 Pg C yr-1 (95% CI 0.35–0.55) over the same decade. The observed saturating and declining sink beginning in Amazonia in the 1990s and Africa in the 2010s is not captured by the models, which show modest increases in sink strength. The future pan-tropical net sink from the statistical model decreases by 0.23 Pg C per decade (95% CI 0.09–0.39) until the 2030s, while CMIP6 multimodel-means project an increasing carbon sink under all scenarios (0.01–0.03 Pg C per decade; 95% CI 0.00–0.06) except the low-CO2 scenario (-0.02 Pg C per decade; 95% CI -0.01–0.03). CMIP models balance positive CO2 fertilisation with negative responses to higher temperatures and droughts on carbon gains from tree growth similarly to observations, but the modelling of carbon losses from tree mortality does not correspond well to the inventory data. Reason for the model-observation differences is the treatment of mortality in models. Integrated research programs combining continued tropical forest monitoring and targeted experiments are needed to reduce the uncertainties in this key carbon cycle feedback in next-generation models.

Tropical forests play a key role in absorbing carbon from the atmosphere into the land surface. Recent analyses of long-term (1985-2014) forest inventory plots across the tropics show that structurally intact tropical forest are a large carbon sink, but that this sink has saturated and is projected to be in long-term decline. Here we compare these results with estimates from the two latest generations of Earth System Models, Climate Modelling Intercomparison Project 5 (CMIP5) (19 models) and CMIP6 (17 models). While CMIP5 and CMIP6 are of similar skill, they do not reproduce the observed 1985-2014 carbon dynamics. The "natural" pan-tropical carbon sink from inventory data is 0.99 Pg C yr(-1) (95% CI 0.7-1.3, n = 614) between 2000 and 2010, the best sampled decade, double the CMIP6 multimodel-mean of 0.45 Pg C yr(-1) (95% CI 0.35-0.55). The observed saturating and declining sink is not captured by the models, which show modest increases in sink strength. The future (2015-2040) "natural" pan-tropical sink from a statistical model driven by extrapolating past trends of its putative environmental drivers decreases by 0.23 Pg C per decade (95% CI 0.09-0.39) until the 2030s, while the CMIP6 multimodel-mean under the climate change scenario closest to the statistical model project an increasing carbon sink (0 54 Pg C per decade; 95% CI 0.25-0.67). CMIP multimodel-means reproduce the response of carbon gains from tree growth to environmental drivers, but the modeling of carbon losses from tree mortality does not correspond well to the inventory data. The model-observation differences primarily result from the treatment of mortality in models. Plain Language Summary: The land surface is absorbing carbon from the atmosphere. Tropical forests play a key role in this carbon uptake. Recent long-term analyses of forest inventory plots across Africa and Amazonia show that structurally intact tropical forest are a large carbon sink, but that this sink has recently saturated and is projected to be in long-term decline. Earth System Models featuring in the Climate Modelling Intercomparison Project (CMIP) are used to project the influence of future climate change on this critical part of the global carbon cycle. As the current CMIP6 and its predecessor, CMIP5, directly inform future policy decisions through the IPCC Assessment Report and other channels, assessing the models' perfomance is crucial to better inform future climate policy. We show that the observed saturating and declining carbon sink is not captured by the CMIP models, which show modest increases in sink strength. The future pan-tropical net sink from the statistical model decreases by 0.23 Pg C per decade until the 2030s, while CMIP6 multimodel-means project an increasing carbon sink under all scenarios (0.01-0.03 Pg C per decade) bar one (-0.02 Pg C per decade). Reason for this is the treatment of vegetation mortality in the models.

We evaluate two variants of a school-based, intensive learning camp for pupils who are assessed 'not ready' for further education after compulsory school, using a stratified cluster randomized trial involving 15,559 pupils in 264 schools in Denmark. Next to training pupils in Danish and mathematics, the main variant targets non-cognitive skills, while the alternative variant instead uses this time for more training in Danish and math. In the short-run, in the academic areas that are targeted in the camp, we find small positive effects in math and weak evidence for positive effects in Danish. Yet, we find no evidence of lasting effects and we do not find short-run effects on non-targeted areas in math and Danish or on non-cognitive skills. Further, we find no evidence that training of non-cognitive skills affects academic outcomes. These results provide a perspective on recent evidence regarding the effects of training non-cognitive skills in schools - by running such an intervention with older pupils and in a comparatively high-resource school system.

The sensitivity of tropical forest carbon to climate is a key uncertainty in predicting global climate change. Although short-term drying and warming are known to affect forests, it is unknown if such effects translate into long-term responses. Here, we analyze 590 permanent plots measured across the tropics to derive the equilibrium climate controls on forest carbon. Maximum temperature is the most important predictor of aboveground biomass (-9.1 megagrams of carbon per hectare per degree Celsius), primarily by reducing woody productivity, and has a greater impact per °C in the hottest forests (>32.2°C). Our results nevertheless reveal greater thermal resilience than observations of short-term variation imply. To realize the long-term climate adaptation potential of tropical forests requires both protecting them and stabilizing Earth's climate., Our plot monitoring networks havebeen supported by multiple grants from a large number of funding bodies: European Research Council; Natural Environment Research Council; European Union’s Fifth, Sixth, and Seventh Framework Programme; Royal Society, Leverhulme Trust; Gordon and Betty Moore Foundation; David and Lucile Packard Foundation; State of São Paulo Research Foundation (FAPESP); National Council for Science and Technology Development of Brazil (CNPq); Agence Nationale de la Recherche; Conservation International; Missouri Botanical Garden; Smithsonian Institution; Wildlife Conservation Society; National Geographic Society; Centre for International Forestry; and Gabon’s National Park Agency.

We study theoretically and experimentally how the bracketing of non-binding goals in a repeated task affects the level of goals that people set for themselves, the actual effort provided, and the pattern of effort over time. In our model, a sophisticated or partially naive individual sets either daily or weekly goals to overcome a motivational problem caused by present-biased preferences. In an online, real-effort experiment, we randomly allocated subjects to treatments where they set either daily goals for how much to work over a one-week period or a single weekly goal. Consistent with the theoretical predictions, in the treatment with daily goals, the aggregate goal level for the week was higher and subjects provided more effort compared to the treatment with a weekly goal. The higher effort was driven by the higher aggregate goal level. Additional treatments complemented internal commitment through goals with an externally enforced minimum work requirement to get started working each day.

The application of economic theory and principles to firms’ human resource problems is commonplace today. Personnel economics has come a long way since its early days in the late 1970s and 1980s, when scholars developed its theoretical foundations. In this contribution and introduction to the Special Issue ‘Advances in personnel economics’ of the German Journal of Human Resource Management, we would like to illustrate the origins of the field, outline how personnel economics relates to other research areas, describe major developments in the field and address its future challenges.

Structurally intact tropical forests sequestered about half of the global terrestrial carbon uptake over the 1990s and early 2000s, removing about 15 per cent of anthropogenic carbon dioxide emissions1,2,3. Climate-driven vegetation models typically predict that this tropical forest ‘carbon sink’ will continue for decades4,5. Here we assess trends in the carbon sink using 244 structurally intact African tropical forests spanning 11 countries, compare them with 321 published plots from Amazonia and investigate the underlying drivers of the trends. The carbon sink in live aboveground biomass in intact African tropical forests has been stable for the three decades to 2015, at 0.66 tonnes of carbon per hectare per year (95 per cent confidence interval 0.53–0.79), in contrast to the long-term decline in Amazonian forests6. Therefore the carbon sink responses of Earth’s two largest expanses of tropical forest have diverged. The difference is largely driven by carbon losses from tree mortality, with no detectable multi-decadal trend in Africa and a long-term increase in Amazonia. Both continents show increasing tree growth, consistent with the expected net effect of rising atmospheric carbon dioxide and air temperature7,8,9. Despite the past stability of the African carbon sink, our most intensively monitored plots suggest a post-2010 increase in carbon losses, delayed compared to Amazonia, indicating asynchronous carbon sink saturation on the two continents. A statistical model including carbon dioxide, temperature, drought and forest dynamics accounts for the observed trends and indicates a long-term future decline in the African sink, whereas the Amazonian sink continues to weaken rapidly. Overall, the uptake of carbon into Earth’s intact tropical forests peaked in the 1990s. Given that the global terrestrial carbon sink is increasing in size, independent observations indicating greater recent carbon uptake into the Northern Hemisphere landmass10 reinforce our conclusion that the intact tropical forest carbon sink has already peaked. This saturation and ongoing decline of the tropical forest carbon sink has consequences for policies intended to stabilize Earth’s climate.

Cyberloafing – non-work related internet use – is a prominent problem in modern firms. While incomplete contracts typically rule out direct control of workers’ effort, many employers hope to increase productivity through ‘soft’ control, by restricting the private use of internet at work. In a lab experiment with real effort, we investigate how the temptation of the internet and a manager's decision whether to restrict workers’ access to it affect the morale of workers. When tempted by internet access, workers reciprocate fair wages less than without access. Nevertheless, a manager's decision to actively grant internet access might increase workers’ effort: we find that highly reciprocal workers perceive the autonomy such a policy gives as a gift which they reciprocate with high effort despite the temptation of the internet. For less reciprocal workers the temptation aspect dominates and restricting internet access is better for the manager.

A number of studies discuss whether and how economists differ from other disciplines in the amount that they contribute to public goods. We view this debate as incomplete because it neglects the willingness to sanction non-cooperative behavior, which is crucial for maintaining social order and for sustaining the provision of public goods. We study the decision whether to engage in costly punishment of a free rider in a survey-based experiment with 1423 students from seven study areas in the social sciences, as well as medicine at Aarhus University, Denmark. Using a dictator game and a social dilemma game, that captures essential features of the public goods game, we replicate previous findings that economics students give significantly less than students from other disciplines. However, when subjects decide whether or not to punish a free rider, we find that economics students are just as likely to punish as students from other disciplines.

Little is known about the demand side of paternalism. We investigate attitudes towards paternalism among Danish students. The main question is whether demand for paternalism is related to self-control, either because people with self-control problems seek commitment devices to overcome these problems, or because people with good self-control want those who lack it to change their behaviours. We find no evidence linking self-control to attitudes towards weak forms of paternalism (e.g., nudges or information about health consequences). But respondents with good self-control are significantly more favourable towards strong paternalism (e.g., restricting choices or sin taxes) than those struggling with self-control.

Self-administered rewards are ubiquitous. They serve as incentives for personal accomplishments and are widely recommended to increase personal motivation. We show that in a model with time-inconsistent and reference-dependent preferences, self-rewards can be a credible and effective tool to overcome self-control problems. We also discuss the different types of self-rewards the individual can use, such as vice goods and virtue goods, and analyze which types of goods the individual prefers.

A widely documented empirical regularity in gambling markets is that bets on high probability events (a race won by a “favourite”) have higher expected returns than bets on low probability events (a “longshot” wins). Such favourite-longshot (FL) biases however appear to be more severe and per-sistent in bookmaker markets than in pari-mutuel markets; the latter sometimes exhibit no bias or a reverse FL bias. Our results help understand these differences: the odds grid in bookmaker markets leads to a built-in FL bias, whereas that used in pari-mutuel betting pushes these markets toward a reverse FL bias. This paper benefited from helpful comments from an anonymous referee, Michael Mandler, David Metcalf, David Paton, Jonathan Wadsworth, Justin Wolfers, and par-ticipants of the conference on “The Growth of Gambling and Prediction Markets: Economic and Financial Implications” in May 2007. We are grateful to Paul David-son, Tony Lusardi, Chris Ralph, and Leighton Vaughan Williams for information about bookmaker odds and bookmaker software.

Behavioral economics struggles to explain why people sometimes evaluate outcomes separately (narrow bracketing of mental accounts) and sometimes jointly (broad bracketing). We develop a theory of endogenous bracketing, where people set goals to tackle self-control problems. Goals induce reference points that make substandard performance painful. Evaluating goals in a broadly bracketed mental account insulates an individual from exogenous risk of failure; but because decisions or risks in different tasks become substitutes there are incentives to deviate from goals that are absent under narrow bracketing. Extensions include goal revision, naivete about self-control, income targeting, and firms' bundling strategies.

With today's rapidly changing vehicle market, many advanced vehicle technologies are being evaluated at varying levels of governments and private organizations. This paper is intended to provide insight into the evaluation of vehicle power train technology and a brief state of the industry regarding new vehicle technology and alternative fuels. The paper proposes that public policymakers focus on metrics such as well-to-wheel greenhouse gas emissions and criteria air pollutants. Such a focus makes hydrogen vehicle technology much more attractive. The integration of a plug-in hydrogen fuel cell vehicle is described as it is found to be a promising vehicle architecture for the long-term automotive power train. Detailed mechanical and electrical integration is described in the paper. An innovative control system that was used on this vehicle and the control system is described. Copyright © 2011 John Wiley & Sons, Ltd.

Goals are an important motivator. But little is known about why and how people set them. We address this issue in a model based on two stylized facts. First, goals serve as reference points for performance. Second, present-biased preferences create self-control problems. We show the power and limits of self-regulation through goals. Goals increase an individual's motivation—but only up to a certain point. Furthermore, they are painful self-disciplining devices. Thus, greater self-control problems may result in tougher goals; but for a severe present bias goals either lack a motivating force, or are too painful to be accepted.

Labor turnover creates longer term career concerns incentives that motivate employees in addition to the short-term monetary incentives provided by the current employer. We analyze how these incentives interact and derive implications for the design of incentive contracts and organizational choice. The main insights stem from a trade-off between "good monetary incentives" and "good reputational incentives." We show that the principal optimally designs contracts to create ambiguity about agents' abilities. This may make it optimal to contract on relative performance measures, even though the extant rationales for such schemes are absent. Linking the structure of contracts to organizational design, we show that it can be optimal for the principal to adopt an opaque organization where performance is not verifiable, despite the constraints that this imposes on contracts. (JEL D82, J33, L14) The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Recent bargaining experiments demonstrate an effect of anonymity and incomplete information on behavior. This has rekindled the question whether "fair" behavior is inspired by regard for others or driven by external forces. To test this, we compare a dictator game treatment that provides receivers with information about the source of offers with one that does not, controlling for anonymity in a double-blind setting. Combined with extant results, our findings suggest that about half of dictator giving observed in experiments is internally motivated, and the other half is driven by external factors, such as experimenter observability or regard by receivers.

In empirical analyses of games, preferences and beliefs are typically treated as independent. However, if beliefs and preferences interact, this may have implications for the interpretation of observed behavior. Our sequential social dilemma experiment allows us to separate different interaction channels. When subjects play both roles in such experiments, a positive correlation between first- and second-mover behavior is frequently reported. We find that the observed correlation primarily originates via an indirect channel, where second-mover decisions influence beliefs through a consensus effect, and the first-mover decision is a best response to these beliefs. Specifically, beliefs about second-mover cooperation are biased toward own second-mover behavior, and most subjects best respond to stated beliefs. However, we also find evidence for a direct, preference-based channel. When first movers know the true probability of second-mover cooperation, subjects' own second moves still have predictive power regarding their first moves. © 2014 Elsevier Inc.

Self-administered rewards are ubiquitous. They serve as incentives for personal accomplishments and are widely recommended to increase personal motivation. We show that in a model with time-inconsistent and reference-dependent preferences, self-rewards can be a credible and effective tool to overcome self-control problems. We also characterize the type of self-rewards that can be used, such as vice goods and virtue goods, and analyze which types of goods will be preferred by the individual.

The Peter Principle captures two stylized facts about hierarchies: first, promotions often place employees into jobs for which they are less well suited than for that previously held. Second, demotions are extremely rare. Why do organizations not correct 'wrong' promotion decision? This paper shows in a complete contracting setting that a simple trade-off between incentive provision and efficient job assignment may make it optimal to promote some employees to a job at which they produce less than they would at the previous level.

Promotions and cross-firm mobility provide substantial gains in earnings – a well established finding based on gross income data. Yet, what matters for incentives is how much an individual can consume or save after taxation. We show that net and gross income growth patterns may differ substantially when a progressive tax system allows for deduction opportunities. Exploiting unique matched employer-employee data with information on tax payments and employee mobility, we find that gross income gains from promotions and cross-firm mobility do not translate into significantly higher net income growth, because employees adjust their tax-shielded consumption and savings (in particular, deductible private pension contributions and mortgage-financed housing) to maintain constant net income growth.

Belief elicitation in economics experiments usually relies on paying subjects according to the accuracy of stated beliefs in addition to payments for other decisions. Such incentives, however, allow risk-averse subjects to hedge with their stated beliefs against adverse outcomes of other decisions in the experiment. This raises two questions: (i) can we trust the existing belief elicitation results, (ii) can we avoid potential hedging confounds? Our results instill confidence regarding both issues. We propose an experimental design that eliminates hedging opportunities, and use this to test for the empirical relevance of hedging effects in the lab. We find no evidence for hedging, comparing the standard "hedging-prone" belief elicitation treatment to a "hedging-proof" design in a sequential prisoners' dilemma game. Our findings are strengthened by the absence of hedging even in an additional non-belief elicitation treatment using a financial investment frame, where hedging arguably would be most natural.

This appendix to the paper “Belief elicitation in experiments: Is there a hedging problem?” (http://ssrn.com/abstract=1557803) reports further details of procedures and results, in particular for treatments that are only briefly summarized in the paper. Furthermore, we document in detail questionnaire responses and reproduce the instructions for all treatments.

Holmstrom's (1982/99) career concerns model has become a workhorse for analyzing agency issues in many fields. The underlying signal jamming argument requires players to use information in a Bayesian way, which is difficult to directly test with field data: typically little is known about the information that individuals base their decisions on. Our laboratory experiment provides prima facie evidence: i) the signal jamming mechanism successfully creates incentives on the labor supply side; ii) decision errors take time to decrease; iii) while subjects' average beliefs are remarkably consistent with play, a mild winner's curse arises on the labor demand side.

It is a puzzle why people often evaluate consequences of choices separately (narrow bracketing) rather than jointly (broad bracketing). We study the hypothesis that a present-biased individual, who faces two tasks, may bracket his goals narrowly for motivational reasons. Goals motivate because they serve as reference points that make substandard performance psychologically painful. A broad goal allows high performance in one task to compensate for low performance in the other. This partially insures against the risk of falling short of ones' goal(s), but creates incentives to shirk in one of the tasks. Narrow goals have a stronger motivational force and thus can be optimal. In particular, if one task outcome becomes known before working on the second task, narrow bracketing is always optimal.

Goals are an important source of motivation. But little is known about why and how people set them. We address these questions in a model based on two stylized facts from psychology and behavioral economics: i) Goals serve as reference points for performance. ii) Present-biased preferences create self-control problems. We show how goals permit self-regulation, but also that they are painful self-disciplining devices. Greater self-control problems therefore lead to stronger self-regulation through goals only up to a certain point. For severely present-biased preferences, the required goal for self-regulation is too painful and the individual rather gives up.

We show that firms' practice of anonymous contracts (“one-size-fits-all”) can be reconciled with standard agency theory if careers are marked by frequent transitions between employers, and agents have career concerns because complete long-term contracts are not feasible.

Belief elicitation in economics experiments usually relies on paying subjects according to the accuracy of stated beliefs in addition to payments for other decisions. Such incentives, however, allow risk-averse subjects to hedge with their stated beliefs against adverse outcomes of other decisions in the experiment. This raises two questions: (i) can we trust the existing belief elicitation results, (ii) can we avoid potential hedging confounds? Our results instill confidence regarding both issues. We propose an experimental design that eliminates hedging opportunities, and use this to test for the empirical relevance of hedging effects in the lab. We find no evidence for hedging, comparing the standard “hedging-prone” belief elicitation treatment to a “hedging-proof” design in a sequential prisoners’ dilemma game. Our findings are strengthened by the absence of hedging even in an additional non-belief elicitation treatment using a financial investment frame, where hedging arguably would be most natural.

More liquid financial contracts are claimed to draw trading volume from contracts for which they are close substitutes. We provide the first analysis of how trading volume across existing financial contracts is affected by changes in the factors that govern the degree to which they are substitutes. Using data on DAX options with different strike prices, we identify these factors and their impact on the distribution of trades across contracts. The results are relevant for exchange design since they help gauge when options with different strike prices are good (bad) substitutes and the strike price grid should be coarse (fine).

Labor turnover creates longer term career concerns incentives that motivate employees in addition to the short term monetary incentives provided by the current employer. We analyze how these incentives interact and derive implications for the design of incentive contracts and organizational choice. The main insights stem from a trade-off between 'good monetary incentives' and 'good reputational incentives'. We show that the principal optimally designs contracts to create ambiguity about agents' abilities. This may make it optimal to contract on relative performance measures, even though the extant rationales for such schemes are absent. Linking the structure of contracts to organizational design, we show that it can be optimal for the principal to adopt an opaque organization where performance is not verifiable, despite the constraints that this imposes on contracts.

We show that inefficient job assignments arise in organizations even if there is full information about employees’ types and complete contracts are possible. Our model also provides a new perspective on the Peter Principle: the output of an employee who is promoted into a job for which he is not well suited need not decline postpromotion, because he is pushed to exert more effort. Although promotions are desirable for most employees, they make the least able in a hierarchy level worse off: for them earnings increase only because they work harder to compensate for their “incompetence.”

Recent bargaining experiments demonstrated an impact of anonymity and incomplete information on subjects' behavior. This has rekindled the question whether "fair" behavior is inspired by regard for others or is explained by external forces. To test for the importance of external pressure we compare a standard double blind dictator game to a treatment which provides no information about the source of dictator offers, and where recipients do not even know that they participate in an experiment. We find no differences between treatments. This suggests that those dictators who give are purely internally motivated, as asserted by models of other-regarding preferences.

Young professionals typically do not enter into life-long employment relations with a single firm. Therefore, future employers can learn about individuals' abilities from the observable facts regarding earlier work relations. We show that these informational spill-overs have profound implications for organizational design and the resulting optimal incentive contracts. Through the organizational choice and the contracts that it offers individuals, a firm can strategically manipulate the flow of information to future employers and sharpen incentives. Using a simple moral hazard model, we demonstrate that relative performance contracts, such as rank-order tournaments, can be optimal even though the extant explanations for the optimality of such compensation schemes are absent. The paper discusses the distortions that can arise and explores the robustness of the result.

Holmström’s (1982/99) career concerns model has become an important workhorse for the analysis of agency issues in many fields. The underlying signal jamming argument requires players to use information in a Bayesian way – which may or may not reasonably approximate real-life decision makers’ behavior. Testing this theory with field data is difficult since typically little is known about the information that individuals base their decisions on, and this explains the dearth of empirical studies. We provide experimental evidence that the signal jamming mechanism works in a laboratory setting. Moreover, subjects’ beliefs fit remarkably well requirements imposed by the Bayesian equilibrium concept.

More liquid financial contracts are claimed to draw trading volume from contracts for which they are close substitutes. We provide the first analysis of how trading volume across existing financial contracts is affected by changes in the factors that govern the degree to which they are substitutes. Using data on DAX options with different strike prices, we identify these factors and their impact on the distribution of trades across contracts. The results are relevant for exchange design since they help gauge when options with different strike prices are good (bad) substitutes and the strike price grid should be coarse (fine).

Trades in DAX index options with identical maturities cluster around particular classes of strike prices. For example, options with strikes ending on 50 are less traded than options with strikes ending on 00. Clustering is higher when options with close strike prices are good substitutes. The degree of substitution between options with neighboring strikes depends on the strike price grid and options' characteristics. Using regression analysis we analyze the relation between clustering, grid size, and the options' characteristics. To our knowledge this paper is the first to explore how the grid size of strike prices affects options' trading volume.

During the last decade knowledge about human behavior from psychology and sociology has enhanced the field of economics of education. By now research recognizes cognitive skills (as measured by achievement tests) and soft skills (personality traits not adequately measured by achievement tests) as equally important drivers of later economic outcomes, and skills are seen as multi-dimensional rather than one-dimensional. Explicitly accounting for soft skills often implies departing from the standard economic model by integrating concepts studied in behavioral and experimental economics, such as self-control, willingness to compete, intrinsic motivation, and self-confidence. We review how approaches from behavioral economics help our understanding of the complexity of educational investments and outcomes, and we discuss what insights can be gained from such concepts in the context of education.

Recent bargaining experiments demonstrate an impact of anonymity and incomplete information on behavior. This has rekindled the question whether "fair'' behavior is inspired by regard for others or driven by external forces. To test this, we compare a dictator game treatment that provides receivers with information about the source of offers with one that does not, controlling for anonymity in a double blind setting. Combined with extant results, our findings suggest that about half of dictator giving observed in experiments is internally motivated and the other half is driven by external factors such as experimenter observability or regard by receivers.

While it is well established that both promotions within firms and mobility across firms lead to substantial earnings progression, few studies offer an integrated analysis of the effects of these two types of mobility on earnings growth. To do this, we exploit a large Danish panel data set and techniques from the literature on earnings dynamics. Furthermore, linked measures of income taxation - a unique feature of our data - allow us to estimate whether the effects of mobility on gross income growth carry over to net income. We show that vertical mobility, either within or across firms, and not horizontal mobility across firms is what ultimately matters for gross earnings growth. However, because of progressive taxation, we do not see any effects of vertical mobility on net earnings growth. Instead, the fruits of promotions are enjoyed in the form of tax shields such as future consumption via tax deductable pension contributions and more expensive real estate or financed consumption where interest is tax deductable. While it is well established that both promotions within firms and mobility across firms lead to substantial earnings progression, few studies offer an integrated analysis of the effects of these two types of mobility on earnings growth. To do this, we exploit a large Danish panel data set and techniques from the literature on earnings dynamics. Furthermore, linked measures of income taxation - a unique feature of our data - allow us to estimate whether the effects of mobility on gross income growth carry over to net income. We show that vertical mobility, either within or across firms, and not horizontal mobility across firms is what ultimately matters for gross earnings growth. However, because of progressive taxation, we do not see any effects of vertical mobility on net earnings growth. Instead, the fruits of promotions are enjoyed in the form of tax shields such as future consumption via tax deductable pension contributions and more expensive real estate or financed consumption where interest is tax deductable.

We provide a tractable model of motivational goal bracketing by a present-biased individual, extending previous work to show that the main insights from models with rational goals carry over to a setting with non-rational goals. Goals motivate because they serve as reference points that make substandard performance psychologically painful. A broad goal allows high performance in one task to compensate for low performance in the other. This partially insures against the risk of falling short of ones’ goal(s), but creates incentives to shirk in one of the tasks. Narrow goals have a stronger motivational force and thus can be optimal, providing an explanation for observed instances of narrow bracketing. In particular, if one task outcome becomes known before working on the second task, narrow bracketing is always optimal.