Università  della Svizzera italiana

Gender gaps in policy making: evidence from direct democracy in Switzerland

Description: 

This paper uses a unique data set on individual voting decisions to shed new light on gender gaps in policy making. Our analysis focuses on Switzerland, the world leader in direct democracy, where all citizens directly decide on a broad range of policies at the ballot box. Analysing all federal votes held between 1981 and 2003, we show that there are large gender gaps in the areas of health, environmental protection, defence spending and welfare policy. The gender gaps typically persist even conditional on socio-economic characteristics. We also find that female policy-makers have a substantial effect on the composition of public spending, but a small effect on the overall size of government

Costly institutions as substitutes: novelty and limits of the Coasian approach

Description: 

One of the main contributions of Ronald H. Coase was to demonstrate how mainstream economics was based on a contradictory amalgam of costly physical inputs and free institutional resources, and to give origin to the economics of institutions: each institution is a mode of allocation and organization of economic resources that is to be investigated. In particular, none of the institutions (including the market) is a free lunch. The Coasian approach regards institutions as costly substitutes and provides a fundamental starting point for comparative institutional analysis. However, Coase neglected two issues deriving from the observation that institutions are not cost-free. First, when institutions are costly, one should not only consider their possible substitutes but also how complementary institutions affect their costs, as well as the costs of the possible institutional substitutes. Second, the economic analysis should also take into account that the transition from one institutional setup to another cannot occur in costless meta-institutions. The initial conditions may substantially affect the final institutional arrangements. Both the novelty of Coase's approach and its limits were grossly undervalued. In particular, the costly institutions assumption requires a view of economics as a historical discipline

Essays in asset pricing

Description: 

My dissertation consists of three chapters, each of which focuses on a different area of research in asset pricing. The first chapter's focal point is the measurement of the premium for jump risks in index option markets. The second chapter is devoted to non- parametric measurement of pricing kernel dispersion. The third chapter contributes to the literature on latent state variable recovery in option pricing models. In the first chapter, "Big risk", I show how to replicate a large family of high-frequency measures of realised return variation using dynamically rebalanced option portfolios. With this technology investors can generate optimal hedging payoffs for realised variance and several measures of realised jump variation in incomplete option markets. These trading strategies induce excess payoffs that are direct compensation for second- and higher order risk exposure in the market for (index) options. Sample averages of these excess payoffs are natural estimates of risk premia associated with second- and higher order risk exposures. In an application to the market for short-maturity European options on the S&P500 index, I obtain new important evidence about the pricing of variance and jump risk. I find that the variance risk premium is positive during daytime, when the hedging frequency is high enough, and negative during night-time. Similarly, for an investor taking long variance positions, daytime profits are grater in absolute value than night-time losses. Compensation for big risk is mostly available overnight. The premium for jump skewness risk is positive, while the premium for jump quarticity is negative (contrary to variance, also during the trading day). The risk premium for big risk is concentrated in states with large recent big risk realisations. In the second chapter, "Arbitrage free dispersion", co-authored with Andras Sali and Fabio Trojani, we develop a theory of arbitrage-free dispersion (AFD) which allows for direct insights into the dependence structure of the pricing kernel and stock returns, and which characterizes the testable restrictions of asset pricing models. Arbitrage-free dispersion arises as a consequence of Jensen's inequality and the convexity of the cumulant generating function of the pricing kernel and returns. It implies a wide family of model-free dispersion constraints, which extend the existing literature on dispersion and co-dispersion bounds. The new techniques are applicable within a unifying approach in multivariate and multiperiod settings. In an empirical application, we find that the dispersion of stationary and martingale pricing kernel components in a benchmark long-run risk model yields a counterfactual dependence of short- vs. long- maturity bond returns and is insufficient for pricing optimal portfolios of market equity and short-term bonds. In the third chapter, "State recovery from option data through variation swap rates in the presence of unspanned skewness", I show that a certain class of variance and skew swaps can be thought of as sufficient statistics of the implied volatility surface in the context of uncovering the conditional dynamics of second and third moments of index returns. I interpret the slope of the Cumulant Generating Function of index returns in the context of tradable swap contracts, which nest the standard variance swap, and share its fundamental linear pricing property in the class of Affine Jump Diffusion models. Equipped with variance- and skew-pricing contracts, I investigate the performance of a range of state variable filtering setups in the context of the stylized facts uncovered by the recent empirical option pricing literature, which underlines the importance of decoupling the drivers of stochastic volatility from those of stochastic (jump) skewness. The linear pricing structure of the contracts allows for an exact evaluation of the impact of state variables on the observed prices. This simple pricing structure allows me to design improved low-dimensional state-space filtering setups for estimating AJD models. In a simulated setting, I show that in the presence of unspanned skewness, a simple filtering setup which includes only prices of skew and variance swaps offers significant improvements over a high-dimensional filter which treats all observed option prices as observable inputs.

Law enforcement, municipal budgets and spillover effects: evidence from a quasi-experiment in Italy

Description: 

In this paper, I empirically investigate the presence of spillover effects resulting from the strengthening of law enforcement against corruption and organized crime in local governments. Specifically, I take advantage of an Italian law that gives power to the central government to replace democratically elected municipal officials who are potentially connected with mafia with a commission of non-elected administrators. Fixed effects model estimates that focus on a sample of municipalities from three Italian regions (Campania, Calabria and Sicilia) for the period 1998 to 2013 show that the city council dismissal of a municipality fosters a reduction in public investments in neighboring municipalities. Additional empirical evidence suggests that this result could be explained by the presence of law enforcement spillovers potentially reducing misconducts in neighboring municipalities.

Corporate flat tax reforms and businesses' location choices: evidence from Switzerland

Description: 

Profit taxation affects corporate investment decisions through several channels. This paper focuses on the impact of corporate income flat tax reforms on businesses' location choices. Since 1990, Swiss states (cantons) have been switching from a graduated to a flat tax rate scheme on profits. The paper assesses the effects of such a reform on the number of establishments by computing a difference-in-differences estimation. Our results show a negative impact on the number of firms in a given jurisdiction. Interestingly, the effect is considerably larger for riskier firms, suggesting the presence of an insurance effect from progressive taxation for risk- averse entrepreneurs.

Persistent and transient productive inefficiency in a regulated industry: electricity distribution in New Zealand

Description: 

The productive efficiency of a firm can be decomposed into two parts, one persistent and one transient. So far, most of the cost efficiency studies estimated frontier models that provide either the transient or the persistent part of productive efficiency. This distinction seems to be appealing also for regulators. During the last decades, public utilities such as water and electricity have witnessed a wave of regulatory reforms aimed at improving efficiency through incentive regulation. Most of these regulation schemes use benchmarking, namely measuring companies' efficiency and rewarding them accordingly. The purpose of this study is to assess the level of persistent and transient efficiency in an electricity sector and to investigate their implications under price cap regulation. Using a theoretical model, we show that an imperfectly informed regulator may not disentangle the two parts of the cost efficiency; therefore, they may fail in setting optimal efficiency targets. The introduction of minimum quality standards may not offer a valid solution. To provide evidence we use data on 28 New Zealand electricity distribution companies between 1996 and 2011. We estimate a total cost function using three stochastic frontier models for panel data. We start with the random effects model (RE) proposed by Pitt and Lee (1981) that provides information on the persistent part of the cost effciency. Then, we apply the true random effects model (TRE) proposed by Greene (2005a, 2005b) that provides information on the transient part. Finally, we use the generalized true random effects model (GTRE) that allows for the simultaneous estimation of both transient and persistent efficiency. We find weak evidence that persistent efficiency is associated to higher quality, and wrong efficiency targets are associated to lower quality compliance.

The role of culture in long-term care

Description: 

The aim of this paper is to assess the role of culture in shaping individual preferences to- wards different long-term care (LTC) arrangements. The analysis uses Swiss data from two administrative databases covering the universe of formal LTC providers between 2007 and 2013. Switzerland is a multi-cultural confederation where state administrative borders do not always coincide with cultural groups. For this reason, we exploit the within-state variation in cultural groups to show evidence about cultural differences in LTC use. In particular, we use spatial regression discontinuity design (RDD) at the language border between French-speaking and German-speaking individuals living in bilingual cantons to provide causal interpretation of the differences in formal LTC use between these two main cultural groups. Our results suggest a strong role of culture in shaping household decisions about formal LTC use. In particular, elderly people residing in regions speaking a Latin language (French, Italian and Romansh) use home-based care services more intensely and enter in nursing homes at older ages and in worse health conditions with respect to elderly people in German regions. This difference across the two cultural groups are driven by different preferences towards LTC arrangements

Learning from the Swiss corporate governance exception

Description: 

The Swiss economy represents an exception to the legal origin theory (e.g., Roe (2006)). Although Switzerland is a country belonging to the civil law family, many of its public companies have diffused corporate ownership, as do those in common law countries. This paper maintains that the Swiss exception relies on the complementarity between corporate ownership and policies addressing employment protection and innovation. The Swiss case presents two lessons: first, the current corporate governance is the result of a long and composite path in which politics plays a pivotal role; second, the institutional differences and similarities across countries, which one would try to explain along with the legal origin theory, can derive diversely from additional politics-based accounts, such as those referring to policies on employment protection and innovation.

Exchange rate fluctuations and border crossings: evidence from the Swiss-Italian border

Description: 

This paper provides an empirical analysis of the effects of nominal exchange rate fluctuations on cross-border mobility and on retailer firms' sales. Exchange rate shocks may affect the labour supply decisions of cross-border workers and the propensity for consumers to shop across the border. By using hourly data on traffic flows in Ticino, the southernmost canton of Switzerland, and data on Italian supermarkets, I analyse the effects of the Swiss franc appreciation on cross-border travel by both Italian workers and Swiss consumers and on Italian retailers' sales. I find that a 10% appreciation of the Swiss franc increases the number of cars along the border by 1.5-3% more than in the rest of the canton. This effect is found only during specific time intervals, which differ according to the direction of the flow (the early morning from Italy to Switzerland, the afternoon from Switzerland to Italy and late morning for both directions). Moreover, I show that a stronger Swiss Franc positively affects supermarkets' sales in Italian provinces bordering Switzerland. Finally, I provide additional evidence for the labour supply hypothesis by using data on search volumes provided by Google Trends and official statistics on cross-border commuters in Switzerland.

What drives the substitutability between native and foreign workers?: evidence about the role of language

Description: 

This paper investigates the role of language in determining the degree of substitutability between foreign and native workers. To this end, we focus on Switzerland, an immigration-receiving country with four official languages spoken, three of which in common with bordering countries. We modify the model proposed by Ottaviano and Peri (2012) to account for the linguistic background of native and immigrant workers. We find that language plays a central role in determining the elasticity of substitution between foreign and native workers and accounts for much of their imperfect substitutability. These findings are robust to a number of robustness checks, such as different specifications of the model structure and the inclusion of cross-border workers. Then, we compute the total wage change for native and foreign workers caused by new immigration in flows. In the long run, the average percentage wage changes for native and foreign workers are quite small and not significant.

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