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Work in Progress & Working Papers

Key Publications:

All Publications:

  • Filistrucchi, Lapo and Jens Prüfer (forthcoming), “Faithful Strategies: How Religion Shapes Nonprofit Management,” Management Science. Online Appendix.
    • Paper_image This paper studies the strategies employed by Catholic and Protestant nonprofit hospitals in Germany and traces them back to the theological foundations of those religions. Using a unique data set, we find that Catholic nonprofit hospitals follow a strategy of horizontal diversification and maximization of the number of patients treated. By contrast, Protestant hospitals pursue a strategy of horizontal
      specialization and focus on vertical differentiation, putting in more sophisticated inputs and producing more complex services. These effects increase if the environment of a hospital gets more competitive. We present a model that rationalizes the strategic differences as a result of the difference between Catholic and Protestant values identified in the literature. We then test alternative explanations to the observed empirical differences and show that none of them is supported by the data.
  • Herbst, Patrick and Jens Prüfer (2016), “Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice,” Annals of Public and Cooperative Economics, 87(3), 315-343.
    • Paper_imageWe formalize the difference between profit-maximizing firms, nonprofits, and cooperatives and identify optimal organizational choice in a model of quality provision. Firms provide lowest and nonprofits highest levels of quality. Efficiency, however, depends on the competitive environment, the decision making process among owners and technology. Firms are optimal when decision making costs are high. Else, firms are increasingly dominated by either nonprofits or cooperatives. Increased competition improves relative efficiency of firms and decreases relative efficiency of nonprofits.
  • Prüfer, Jens (2016), “Business Associations and Private Ordering,Journal of Law, Economics, and Organization, 32(2), 306-358.
    • Paper_image We study the capacity of business associations—private, formal, noncommercial organizations designed to promote the common business interests of their members—to support contract enforcement and collective action. Inspired by recent empirical literature, our theoretical framework connects the organizational and institutional features of formal and informal business organizations with socioeconomic distance. We show how associations provide value to their members even if members are already embedded in social networks, and which players join an association. We propose explanations for empirical puzzles, put forward novel testable hypotheses, and relate business associations to alternative private ordering institutions.
  • Larrain, Maria and Jens Prüfer (2015) “Trade Associations, Lobbying, and Endogenous InstitutionsJournal of Legal Analysis, 7(2), 467-516. 
    • Paper_image This paper explores whether positive or negative effects of trade associations – private, formal, nonprofit organizations designed to promote the common interests of their members – on the economy prevail. We construct a model that endogenizes association membership of firms and the main functions of associations, which can have positive or negative spillovers on the economy. We show that, all else equal, the incentives of associations to lobby for better property rights are highest when property rights are unprotected. In turn, incentives to seek rents are strongest when property rights are well protected. This suggests that associations can be a valuable private ordering institution when governments are ineffective but recommends caution when governments supply a functioning legal system.
  • Masten, Scott E. and Jens Prüfer (2014), “On the Evolution of Collective Enforcement Institutions: Communities and Courts,” Journal of Legal Studies, 43(2), 359-400. Supplement to section 2.4.
    • Paper_image We analyze the capacities of communities (or social networks) and courts to secure cooperation among heterogeneous, impersonal transactors. We find that communities and courts are complementary in that they tend to support cooperation for different types of transactions but that the existence of courts weakens the effectiveness of community enforcement. Our findings are consistent with the emergence of the medieval Law Merchant and its subsequent supersession by state courts as changes in the costs and risks of long-distance trade, driven in part by improvement in shipbuilding methods, altered the characteristics of merchant transactions over the course of the Commercial Revolution in Europe. We then contrast the European experience with the evolution of enforcement institutions in Asia over the same period.
  • Prüfer, Jens (2013), “How to Govern the Cloud?” IEEE CloudCom 2013, DOI 10.1109/CloudCom.2013.100, 33-38
    • Paper_image This paper applies economic governance theory to the cloud computing industry. We analyze which governance institution may be best suited to solve the problems stemming from asymmetric information about the true level of data protection, security, and accountability offered by cloud service providers. We conclude that certification agencies – private, independent organizations which award certificates to cloud service providers meeting certain technical and organizational criteria – are the optimal institution available. Those users with high valuation for accountability will be willing to pay more for the services of certified providers, whereas other users may patronize uncertified providers.
  • Prüfer, Jens and Uwe Walz (2013), “Academic Faculty Governance and Recruitment Decisions”, Public Choice, 155(3), 507-529.
    • Paper_image We analyze the implications of the governance structure in academic faculties for their recruitment decisions when competing for new researchers. The value to individual members through social interaction within the faculty depends on the average status of their fellow members. In recruitment decisions, incumbent members trade off the effect of entry on average faculty status against alternative uses of the recruitment budget if no entry takes place. We show that the best candidates join the best faculties but that they receive lower wages than some lesser ranking candidates. We also study the allocation of surplus created by the entry of a new faculty member and show that faculties with symmetric status distributions maximize their joint surplus under majority voting.
  • Argenton, Cedric and Jens Prüfer (2012), “Search Engine Competition with Network Externalities”Journal of Competition Law & Economics, 8(1), 73-105.
    • Paper_image The market for Internet search is not only economically and socially important, it is also highly concentrated. Is this a problem? We study the question of whether “competition is only a free click away.” We argue that the market for Internet search is characterized by indirect network externalities and construct a simple model of search engine competition, which produces a market share development that fits well the empirically observed developments since 2003. We find that there is a strong tendency toward market tipping and, subsequently,
      monopolization, with negative consequences on economic welfare. Therefore, we propose to require search engines to share their data on previous searches. We compare the resulting “competitive oligopoly” market structure with the less-competitive current situation and show that our proposal would spur innovation, search quality, consumer surplus, and total welfare. We also discuss the practical feasibility of our policy proposal and sketch the legal issues involved.
  • Binswanger, Johannes and Jens Prüfer (2012), “Democracy, Populism, and (Un)bounded Rationality”, European Journal of Political Economy, 28, 358-372.
    • Paper_image In this paper we aim to understand how bounded rationality affects performance of democratic institutions. We consider policy choice in a representative democracy when voters do not fully anticipate a politician’s strategic behavior to manipulate his reelection chances. We find that this limited strategic sophistication affects policy choice in a fundamental way. Under perfect sophistication, a politician does not make any use of his private information but completely panders to voters’ opinions. In contrast, under limited sophistication, a politician makes some use of private information and panders only partially. Limited sophistication crucially determines how welfare under representative democracy compares to welfare under alternative political institutions such as direct democracy or governance by experts. We find that, under limited strategic sophistication, representative democracy is preferable to the other institutions from an ex ante perspective.
  • Prüfer, Jens (2011), “Competition and Mergers among Nonprofits”, Journal of Competition Law & Economics, 7(1), 69-92.
    • Paper_image Should mergers among nonprofit organizations be assessed differently than mergers among for-profit firms? A recent debate in law and economics, boosted by apparently one-sided court decisions, has produced the result that promoting competition is socially valuable regardless of the particular objectives of producers. In this paper, I challenge the general validity of this result by showing that it may indeed depend on the particular objectives of producers whether a merger between two nonprofits is welfare-decreasing or -increasing. This implies that it is impossible to assess the net effects of a merger between two nonprofits without examining the objectives of the owners involved.
  • Prüfer, Jens and David Zetland (2010), “An Auction Market for Journal Articles,” Public Choice, 145, 379-403.
    • Paper_image We recommend that an auction market replace the current system for submitting academic papers and show a strict Pareto-improvement in equilibrium. Besides the benefit of speed, this mechanism increases the average quality of articles and journals and rewards editors and referees for their effort. The “academic dollar” proceeds from papers sold at auction go to authors, editors and referees of cited articles. This nonpecuniary income indicates the academic impact of an article—facilitating decisions on tenure and promotion. This auction market does not require more work of editors.
  • Jahn, Eric and Jens Prüfer (2008), “Interconnection and Competition among Asymmetric Networks in the Internet Backbone Market,” Information Economics and Policy, 20 (3), 243-256.
    • Paper_image We examine the interrelation between interconnection and competition in the Internet backbone market. Networks that are asymmetric in size choose among different interconnection regimes and compete for end-users. We show that a direct interconnection regime, peering, softens competition as compared to indirect interconnection since asymmetries become less influential when networks peer. If interconnection fees are paid, the smaller network pays the larger one. Sufficiently symmetric networks enter a Peering agreement while others use an intermediary network for exchanging traffic. This is in line with considerations of a non-US policy maker. In contrast, US policy makers prefer that relatively asymmetric networks peer.
  • Prüfer, Jens and Eric Jahn (2007), “Dark Clouds over the Internet?” Telecommunications Policy, 31, 144-154.
    • Paper_image Currently, the Internet is characterized by excess capacity, which benefits consumers and producers of Internet-based services alike. High quality and declining prices of interconnection are the basis for many e-commerce, software and equipment businesses. However, tough competition in the Internet backbone market driving these developments could ruin network operators and threaten other markets, too. This paper will pursue the idea of the Internet backbone market’s decline based on standard economic theory. The paper will present several scenarios and discuss potential market- and policy-based remedies. It is argued that due to a phenomenon called capacity paradox the industry’s future development is overshadowed by ‘‘dark clouds’’.