Securitization makes mortgage-related risks internationally tradeable and thus contributes considerably to the international diversification of macroeconomic risk: in the years 2003–2008, the increase in international cross-holdings of securitized mortgage debt has lowered industrialized countries’ conditional consumption volatility (relative to the United States) by about 10–15 percentage points. We turn to the role of domestic credit in explaining this result. Domestic credit leads to better international risk sharing only if debt is securitized and traded internationally. Conversely, the risk-sharing benefits from securitization seem to evaporate if credit dries up – as it did in the recent financial crisis.La titrisation fait que les risques attachés aux hypothèques peuvent être transigés internationalement. Voilà qui contribue de manière significative à la diversification internationale des risques macroéconomiques : dans les années 2003–2008, l’accroissement dans la dette hypothécaire titrisée détenue dans d’autres pays a réduit la volatilité de la consommation relative (par rapport aux États-Unis) des pays industrialisés de 10–15 points de pourcentage. On examine le rôle du crédit domestique dans l’explication de ce résultat. On montre que le crédit domestique entraîne un meilleur partage international du risque seulement si la dette est titrisée et négociée internationalement. A contrario, les avantages de la titrisation semblent s’évaporer si le crédit s’assèche – comme ce fut le cas dans la récente crise financière.
Probability weighting has been largely ignored by economics despite abundant evidence that riskattitudes are in fact probability dependent. Probability weighting, however, provides a unifyingaccount of many real-world phenomena that are diffcult to reconcile with expected utility theory,such as the equity premium puzzle, the long-shot bias in betting markets, households'underdiversification and their willingness to buy small-scale insurance at exorbitant prices. Recentfindings suggest that probability dependence is not just a feature of laboratory data but is indeedpresent in financial, insurance and betting markets. Thus, the neglect of probability weightingprevents economists from comprehending important phenomena. In this paper, we discuss thefoundations and economic consequences of probability weighting and offer a practitioner's guideto understanding and modeling probability-dependent risk preferences.
LECTURE SERIES ON SCIENCES AND SCIENCE COMMUNICATION Lecture 1. Communicating science on the Internet: new genres for new social practices Maria José Luzon Marco, University of Zaragoza Tuesday, April 4, 2017 12.30-13.45 room 351 Discussant: Sara Greco // In this lecture I will discuss a ...
We consider a regulator's choice between environmentally motivated emissions taxes and output taxes. We investigate how the optimal instrument depends on the monitoring cost function, the firm's technology, and on social preferences regarding output and environmental quality. Pure emissions taxes are usually not optimal with monitoring costs. Pure output taxes are optimal under sufficiently high monitoring costs, sufficiently limited options for emission reduction by means other than output reduction, and sufficiently high substitutability of the output. Finally, conditions for the optimality of mixed taxes are given.
Auctions are generally not efficient when the object’s expected value depends on
private and common value information. We report a series of first-price auction
experiments to measure the degree of inefficiency that occurs with financially
motivated bidders. While some subjects fall prey to the winner’s curse, they
weigh their private and common value information in roughly the same manner
as rational bidders, with observed efficiencies close to predicted levels. Increased
competition and reduced uncertainty about the common value positively
affect revenues and efficiency. The public release of information about the
common value also raises efficiency, although less than predicted.
A quantal response specifies choice probabilities that are smooth, increasing functions of expected payoffs. A quantal response equilibrium has the property that the choice distributions match the belief distributions used to calculate expected payoffs. This stochastic generalization of the Nash equilibrium provides strong empirical restrictions that are generally consistent with data from laboratory experiments with human subjects. We define the concept of regular quantal response equilibrium and discuss several applications from the recent literature.
Ending violent international conflicts requires understanding the causal factors that perpetuate them. In the Israeli–Palestinian conflict, Israelis and Palestinians each tend to see themselves as victims, engaging in violence only in response to attacks initiated by a fundamentally and implacably violent foe bent on their destruction. Econometric techniques allow us to empirically test the degree to which violence on each side occurs in response to aggression by the other side. Prior studies using these methods have argued that Israel reacts strongly to attacks by Palestinians, whereas Palestinian violence is random (i.e., not predicted by prior Israeli attacks). Here we replicate prior findings that Israeli killings of Palestinians increase after Palestinian killings of Israelis, but crucially show further that when nonlethal forms of violence are considered, and when a larger dataset is used, Palestinian violence also reveals a pattern of retaliation: (i) the firing of Palestinian rockets increases sharply after Israelis kill Palestinians, and (ii) the probability (although not the number) of killings of Israelis by Palestinians increases after killings of Palestinians by Israel. These findings suggest that Israeli military actions against Palestinians lead to escalation rather than incapacitation. Further, they refute the view that Palestinians are uncontingently violent, showing instead that a significant proportion of Palestinian violence occurs in response to Israeli behavior. Well-established cognitive biases may lead participants on each side of the conflict to underappreciate the degree to which the other side's violence is retaliatory, and hence to systematically underestimate their own role in perpetuating the conflict.
