We warmly congratulate our young researcher Kai Fischer on receiving the Reinhard Selten Prize 2025, the most important award for early-career economists in German-speaking countries. The prize is awarded annually by the Verein für Socialpolitik (VfS) for outstanding research contributions.
In his award-winning paper, Kai Fischer examines a unique industrial policy in the declining German coal mining sector during the 1960s and 1970s. At that time, coal mining still accounted for around 4.5% of German GDP but faced increasing competition from oil imports. Rather than trying to stop the decline through subsidies, the government implemented an unconventional strategy: companies were offered closure premiums to shut down 25% of production capacity.
For his analysis, Fischer collected and digitized previously unused archival data at the mine level for the entire German coal industry. Methodologically, he combined reduced-form estimations, a structural production function, and markup approaches following Ackerberg et al. (2015), De Loecker & Warzynski (2012), and De Loecker & Scott (2022).
His findings are striking:
- Productivity gains: The consolidation policy led to a 10% increase in labor productivity over ten years compared to Belgian mines in the same coalfield.
- Efficiency improvements: Closure premiums drove the exit of less efficient mines, while remaining mines of participating firms saw lower marginal costs, cost savings exceeding state spending, and an average six-year extension of mine lifetimes. Workers in these mines also benefited from wage increases.
- Reallocation effects: The policy encouraged resource shifts toward larger, more productive mines, resulting in the emergence of fewer but highly efficient mining operations.
Fischer further shows that this policy was more cost-effective than common alternatives such as price subsidies, wage subsidies, or state-led demand measures – and more successful than fostering mergers.
His research provides important insights into how industrial policy can not only cushion structural change but also enhance productivity in shrinking industries – a perspective highly relevant for current debates on the future of coal-fired power plants or combustion-engine industries.