# ZEW - Leibniz Centre for European Economic Research

• Mannheim, Germany
Recent publications
Competing power generation sources have experienced considerable shifts in both their revenue potential and their costs in recent years. Here we introduce the concept of Levelized Profit Margins (LPM) to capture the changing unit economics of both intermittent and dispatchable generation technologies. We apply this framework in the context of the California and Texas wholesale power markets. Our LPM estimates indicate that solar photovoltaic and wind power have both substantially improved their competitive position during the years 2012–2019, primarily due to falling life-cycle costs of production. In California, these gains far outweigh an emerging “cannibalization” effect that results from substantial additions of solar power having made energy less valuable in the middle of the day. As such, intermittent renewables in both states have been approaching or exceeding the break-even value of zero for the estimated LPMs. We also find the competitiveness of natural gas power plants to have either improved in Texas or held steady at negative LPMs in California. For these plants, declining capacity utilization rates have effectively been counterbalanced by a “dispatchability price premium” that reflects the growing market share of intermittent renewables.
This paper analyses the link between the use of Artificial Intelligence (AI) and innovation performance in firms. Based on firm-level data from the German part of the Community Innovation Survey (CIS) 2018, we examine the role of different AI methods and application areas in innovation. The results show that 5.8% of firms in Germany were actively using AI in their business operations or products and services in 2019. We find that the use of AI is associated with annual sales with world-first product innovations in these firms of about €16 billion (i.e. 18% of total annual sales of world-first innovations). In addition, AI technologies have been used in process innovation that contributed to about 6% of total annual cost savings of the German business sector. Firms that apply AI broadly (using different methods for different applications areas) and that have already several years of experience in using AI obtain significantly higher innovation results. These positive findings on the role of AI for innovation have to be interpreted with caution as they refer to a specific country (Germany) in a situation where AI started to diffuse rapidly.
We examine the economic impacts of using the revenues from environmental taxation to reduce a pre-existing distortionary tax in a multisector economy where the environmental regulation and pre-existing distortionary tax apply heterogeneously across polluting sectors. With a numerical framework including a detailed sectoral disaggregation, we quantify these in the specific case of the European Union where carbon pricing coexists with electricity levies employed to support renewable energy. We find that using auction revenues from the EU Emissions Trading System (ETS) to reduce the national levies results in a 1.8% ETS carbon price increase but a 5.9% drop in the non-ETS carbon constraint. While the energy intensive sectors often benefit from electricity levy exemptions, the combination of these exemptions and of the recycling of carbon auction revenues to support renewable energy makes the ETS sectors worse off than if carbon revenues are transferred to households. In aggregate, the recycling option analysed here results in a GDP gain due to its impacts on the non-ETS sectors, the reduction of the electricity levy and associated distortionary effects.
Plain English Summary It is often argued that failure is a particularly rich source of learning. It is reasonable to expect, therefore, that entrepreneurs who have failed once will do better the second time than those who try for the first time. In this paper, we compare the survival chances of businesses of entrepreneurs who failed with their ventures in the past with those of first-time entrepreneurs (novices). We find that entrepreneurs whose previous business has failed keep new businesses running for less time than novices do. This result remains even after a series of robustness checks in which we look at different subgroups of entrepreneurs. Thus, we cannot find evidence for the assumption that previous entrepreneurial failure is particularly valuable for entrepreneurs. To explain our result, we point to the selection process that takes place before we see failed entrepreneurs another time in business. Some of the failed entrepreneurs decide to start again, while others do not, and it is likely that this process is not random. A potential driver of this process is entrepreneurial talent and our results are consistent with the hypothesis that failed entrepreneurs are those with below-average entrepreneurial talent. Although this does not imply that all entrepreneurs who failed have poor talent, a general second-chance policy cannot be easily justified. A targeted search and support of high-profile entrepreneurs among the failed might be more sensible.
In an artefactual field experiment with a large and heterogeneous population sample, we test the implications of social norms for market interactions associated with negative real-world externalities. We run large stylized markets in which sellers and buyers decide whether to enter the market and how much to bid for experimental coupons. Trading leads to profits for sellers and buyers but at the same time destroys donations for a good cause. Calculated over all our treatments, we observe that two-thirds of the participants refuse to trade. Eliciting a controlled measure for conditional moral behavior in one treatment, we find that roughly a quarter of potential traders make their decisions contingent on the decisions of others, indicating that the desire to conform to social norms affects trading decisions in markets with negative externalities. If observers can sanction traders, we find that more than 80% of them are willing to incur personal costs to sanction trading, thus enforcing a social norm for moral behavior.
We test whether and, if so, how incentives to promote prosocial behavior affect the extent to which they spill over to subsequent charitable giving. To do so, we conduct a two-period framed field experiment to study repeated prosocial decisions of more than 700 participants. We vary how participants’ first prosocial behavior is incentivized by a wide range of interventions ranging from soft to hard paternalism. Our design allows us to decompose spillover effects into a pure spillover effect, which identifies the impact of previous prosocial behavior on subsequent donation decisions and crowding effects, which capture the extent to which the spillover effects are affected by the intervention exerted on the previous prosocial behavior. We find evidence for negative spillover effects. Participants donate less if they completed a prosocial task prior to the donation decision. Most importantly, we find that the spillover effects depend on how the initial prosocial behavior has been incentivized. Especially participants who are incentivized to donate through social comparisons are more willing to give to charity thereafter compared to participants whose initial prosocial behavior is incentivized by monetary rewards.
Green public procurement has gained high political priority and is argued to be an effective demand-side policy to trigger environmental innovations. However, the empirical evidence on its innovation impact is limited. We construct a novel firm-level dataset to investigate the effect of winning public procurement tenders with additional environmental award criteria on firms’ introduction of environmental innovations. Employing cross-sectional difference-in-differences methods, we find that winning public procurement awards with environmental selection criteria increases a firm's probability of introducing more environmentally friendly products on average by 20 percentage points. We show that this effect is driven by small and medium-sized firms and is not statistically significant for larger firms. Furthremore, there is no statistically significant effect on the introduction of more environmentally friendly processes.
How does fiscal austerity affect redistributive policies? We document that during austerity episodes, countries tend to increase marginal income tax rates on top earners, but not on average earners. We then show that, in response to an exogenously imposed fiscal rule, Italian municipalities increase local non-linear income taxes progressively. They do not adjust other fiscal policies. College-educated mayors are more likely than less educated mayors to implement progressive reforms, and they perform better in the upcoming election. Survey evidence suggests that the differential policy response can be explained by college-educated mayors being more informed about the available policy options.
Green start-ups play a vital role in the needed transition towards more environmentally sustainable economies. Yet our understanding of why some founders start green ventures and others do not remains incomplete. We build on the cognitive and decision-making perspectives on start-ups pro-environmental engagement to shed light on the role of founders' personality traits - focusing on the ‘Big 5’ and risk tolerance - in explaining whether founders' start new ventures with environmentally friendly products. Our analysis of a large, representative, manufacturing and service sector sample of German start-ups illustrates the important role of founder personality traits. Specifically, openness and extraversion promote environmentally friendly products while neuroticism inhibits them. We discuss the implications of these insights.
We analyze the problem of a buyer who chooses a supplier for a two-period production project. The buyer lacks the commitment not to renegotiate the contractual terms in the second period. The prospect of renegotiation makes suppliers cautious about the information revealed in period one. We derive the revenue-maximizing mechanism and highlight the role of information design for its implementation. We show that the buyer can achieve the full commitment surplus with the appropriate information design even without commitment.
Using a large sample of enterprises from a survey that was simultaneously conducted in Germany, Austria and Switzerland, we study the self-reported impacts of the adoption of “green” energy saving and related technologies (GETs). Our specific interest is in how different policy instruments associate with energy efficiency, the reduction of $$\hbox {CO}_{2}$$ CO 2 emissions, and competitiveness at the firm level. A first set of equations tracks how policy relates to the adoption of green energy technologies in distinct areas such as production, transport, buildings, ICT or renewables. In a second set of equations, we test the perceived impacts of adoption by the managers of the firms. The results confirm a differentiated pattern of varied transmission mechanisms through which policy can affect energy efficiency and $$\hbox {CO}_{2}$$ CO 2 emissions, while on average having a neutral impact on the firms’ competitiveness. Further, discarding the conventional dichotomy between incentive-based versus command-and-control type instruments, the results suggest to pursue a comprehensive policy mix, where standards, taxes and subsidies each capitalize on different transmission mechanisms.
Through the canon of the UN SDGs or the European Green Deal, sustainability goals are finding their way into legislation. From an economic point of view, these targets often aim to reduce negative external effects, which is in many cases in line with the economic goal of maximising welfare. The determination of welfare gains in this context is not trivial and raises new questions in economics. Because they are often not clearly defined, the anchoring of sustainability goals in legislation may weaken legal certainty and lead to an abusive pursuit of other goals under their guise. This should be prevented by formulating the goals as concretely and legally securely as possible and by building up competence in the authorities entrusted with their implementation.
Artificial intelligence (AI) is an area of increasing scholarly and policy interest. To help researchers, policymakers, and the public, this paper describes a novel dataset identifying AI in over 13.2 million patents and pre-grant publications (PGPubs). The dataset, called the Artificial Intelligence Patent Dataset (AIPD), was constructed using machine learning models for each of eight AI component technologies covering areas such as natural language processing, AI hardware, and machine learning. The AIPD contains two data files, one identifying the patents and PGPubs predicted to contain AI and a second file containing the patent documents used to train the machine learning classification models. We also present several evaluation metrics based on manual review by patent examiners with focused expertise in AI, and show that our machine learning approach achieves state-of-the-art performance across existing alternatives in the literature. We believe releasing this dataset will strengthen policy formulation, encourage additional empirical work, and provide researchers with a common base for building empirical knowledge on the determinants and impacts of AI invention.
Despite its limited effectiveness to date, economists continue to claim that carbon pricing is optimal for climate policy. As climate policy becomes more urgent, it is crucial to understand whether this optimality claim holds. We show how optimality is contingent upon normative premises of what constitutes well-being and politics. The optimality claim can only be sustained if well-being is conceptualized as preference satisfaction and politics is narrowly understood as the sphere within which social conflicts are resolved via efficient resource allocation. Both premises are contested, however. If well-being is understood as human need satisfaction, sustainable consumption corridors can be conceived as optimal. Alternative understandings of politics imply that carbon pricing requires revenue redistribution or an embedding in deliberative processes to become optimal, or might not be optimal at all. Based on the conceptual strengths of alternative views of well-being and politics, we illuminate blind spots in the theoretical case for carbon pricing. At the policy level, carbon pricing overlooks qualitative differences in economic production and the systemic nature of fossil fuel dependence. It bears little relation to the Earth’s biophysical limits or social justice. At the level of politics, focusing on carbon pricing fails to provide procedures beyond the market to address social conflicts. In particular, from a radical democratic view, carbon pricing represents a sustainability fix which stabilizes the fossil economy. Sustainable consumption corridors are in a much better position to re-politicize and ultimately deconstruct the hegemony of the fossil economy.
Civil society has played an important role in meeting the challenges of refugee migration in recent years. This commentary documents the importance of civic engagement for the integration of refugees by linking individual survey data on refugees to a regional measure of civic engagement in Germany. Using the density of newly established civic associations at the county level as a measure of civic engagement, we exploit regional differences in civic engagement in order to estimate its association with refugee integration outcomes. We find that in regions with particularly high levels of civic engagement, refugees have significantly more frequent contact to Germans, higher life satisfaction, and better German language skills. This correlation is robust to regional contextual factors such as the local population structure, economic strength, and the state of the labor market. In terms of language acquisition, women and refugees with a low level of education benefit the most from high civic engagement. Moreover, refugees with university degrees find significantly better-paying jobs in areas with higher civic engagement. However, no direct correlation could be established between civic engagement and the likelihood that refugees are employed. Nonetheless, the results suggest that support from civil society translates into improved access to government benefits. Our findings highlight that local civic engagement is an important complement to public assistance services and policy makers should give a high priority to partnering with the civil society to improve refugees’ integration outcomes.
This study deals with the issue of greenwashing, i.e. the false portrayal of companies as environmentally friendly. The analysis focuses on the US metal industry, which is a major emission source of sulfur dioxide (SO2), one of the most harmful air pollutants. One way to monitor the distribution of atmospheric SO2 concentrations is through satellite data from the Sentinel-5P programme, which represents a major advance due to its unprecedented spatial resolution. In this paper, Sentinel-5P remote sensing data was combined with a plant-level firm database to investigate the relationship between the US metal industry and SO2 concentrations using a spatial regression analysis. Additionally, this study considered web text data, classifying companies based on their websites in order to depict their self-portrayal on the topic of sustainability. In doing so, we investigated the topic of greenwashing, i.e. whether or not a positive self-portrayal regarding sustainability is related to lower local SO2 concentrations. Our results indicated a general, positive correlation between the number of employees in the metal industry and local SO2 concentrations. The web-based analysis showed that only 8% of companies in the metal industry could be classified as engaged in sustainability based on their websites. The regression analyses indicated that these self-reported”sustainable” companies had a weaker effect on local SO2 concentrations compared to their “non-sustainable” counterparts, which we interpreted as an indication of the absence of general greenwashing in the US metal industry. However, the large share of firms without a website and lack of specificity of the text classification model were limitations to our methodology.
Controversy remains as to whether nuclear power should be part of a sustainable future energy mix. Phasing out nuclear too rapidly could lead to substantial health damages from air pollution.
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• Department of Digital Economy
• Department of Labour Markets, Human Resources, and Social Policy
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