Hans-Werner Sinn - Research

Research

With the exception of his diploma dissertation, also published in a journal, on the Marxian Law of the tendential decline of the rate of profit, Sinn dealt in his early years particularly with economic risk theory. He made a name for himself with his dissertation "Ökonomische Entscheidungen bei Ungewissheit" (1980), published in English as "Economic Decisions under Uncertainty" (1983), with numerous spin-off articles. Subsequent work focused on the axiomatic basis of mean-variance analysis, on the foundation of the principle of insufficient reason, on the psychological foundation of risk preference functions and on the analysis of risk decisions under limited liability, which he subsequently developed into a theory of bank regulation in his Yrjö Jahnsson Lectures, "The New Systems Competition". In 2003, in the journal Finanzarchiv, he touched off an academic debate on banking regulation in which he was criticised by liberal economists for his favouring of stronger banking regulation to prevent excess risk-taking. With his disseration in 1977 on excess risk propensity under liability restrictions, Sinn, in the opinion of Martin Hellwig, preceded the pioneering analysis of Stiglitz and Weiss of 1981. His work in this area was published as a reprint volume in 2008. On the basis of his research on risk theory, Sinn developed his influential theory of the insurer state, in which he interpreted the redistributing activity of the state via the tax-transfer system as insurance protection, showing that this activity can have a favourable influence on people's willingness to take risks. His work on the Theory of the Welfare State in 1995 is considered an important contribution on the legitimacy of state redistribution activity.

Sinn has published numerous studies on the theory of economic cycles, environmental economics, foreign trade issues, including ones on the so-called asset approach and on the micro foundations of a model of temporary general equilibrium.

Problems of longer-term economic growth were also on his research agenda. Sinn was the first economist to formulate the central-planning model of economic growth in the tradition of Robert Solow as a general equilibrium model with decentrally optimizing agents and market clearing conditions in an article published in German in 1980 and two years later in English, and before similar work by Chamley in 1981 and Abel and Blanchard in 1983.

His study on the stimulating effects of accelerated depreciation and the various components of capital income taxation on intertemporal, international and intersectoral allocation is still considered one of the standard works in this field.

Sinn contributed to the discussion on German pension reform with his article "Pension Reform and Demographic Crisis. Why a Funded System is Needed and Why it is Not Needed" published in 2000. Here, with the help of cash-value equivalents, he showed that the low returns from statutory pension insurance based on the pay-as-you-go method has only an apparent efficiency disadvantage in comparison to a capitally funded procedure. This finding was further developed in a number of subsequent studies.

Recently Sinn has turned to the problem of the global climate in an article "Public Policies against Global Warming" and in his book "Das grüne Paradoxon" (The Green Paradox). In these studies Sinn developed a supply-side theory of climate change by linking climate-theory approaches with the theory of exhaustible natural resources. The Green paradox that he has identified states that environmental policies that over time promote with increasing intensity substitute technologies and in the process lower the prices for fossil fuels will induce the resource suppliers to accelerate extraction, thus contributing to global warming.