“Heart Breaking” and the Future of the Eurozone: Kai A. Konrad on European Convergence

Kai Konrad, director at the Max Planck Institute for Tax Law and Public Finance in Munich

Kai A. Konrad, director at the Max Planck Institute for Tax Law and Public Finance in Munich, has made grim predictions about the future of the European Union, giving the euro “a limited chance of survivial” in an April interview with the Telegraph. While Konrad’s remarks were a departure from the official position taken by the German government, his work studying political economy and public economics has given him some unique insights into the ways that individuals and groups interact to achieve their desired objectives.

This is not the first time that Konrad’s views on group incentives and effective motivation have put him at odds with the official policies of Germany and the European Union. In a December 2012 interview with Der Spiegel magazine, he stated that the European Union’s pioneering role on climate protection had been taken up “under the mistaken assumption that other countries would follow.” In Konrad’s opinion, leading by example was the wrong course for Germany and Europe to adopt, because their actions reduced the need for other countries to respond to climate change, essentially “inviting freeloaders.”

Konrad’s work has examined the benefits and disadvantages for individual members participating in a larger group structure. In “Hanging Together or Hanged Separately: The Strategic Power of Coalitions where Bargaining Occurs with Incomplete Information,” a forthcoming paper to be published in the Journal of Conflict Resolution, Konrad looks at the optimal behavior for members of a coalition engaged in negotiations with an external player, weighing participation in the group against fully decentralized negotiations.

Some of the motivation that Konrad discusses at work on an individual level, especially the forces at work in the marriage market, will be familiar to observers of the eurozone’s ongoing difficulties — even though Konrad himself has not drawn public comparisons between the two. His paper, “Affection, Speed Dating and Heart Breaking” (PDF), finds that individuals are less likely to enter into a union if they are choosing from a larger range of potential partners. Those individuals are also more willing to seek divorce (i.e., dissolve the union) if their expectations of value are not met.

At the Sixth Annual CFA Institute European Investment Conference, Konrad will discuss current eurozone attitudes surrounding austerity fatigue and rescue fatigue, looking at the threat they pose to support for European integration. Attendees at the event will be able to hear Konrad’s thoughts on European convergence in person during his presentation “The European Debt Crisis: Where Do We Stand?”

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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