infonet-economy

We document two facts. First, during the Great Recession, consumers traded down in the quality of the goods and services they consumed. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. When households traded down, labor demand fell, increasing the severity of the recession. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We show that embedding quality choice in a business-cycle model improves the model's amplification and comovement properties.

Purpose: Herding is a phenomenon by which individuals follow the behavior of others rather than deciding independently on the basis of their own private information. A herding-like phenomenon can occur in multiple sclerosis (MS) when a neurologist follows a therapeutic recommendation by a colleague even though it is not supported by best practice clinical guidelines. Limited information is currently available on the role of herding in medical care. The objective of this study was to determine the prevalence (and its associated factors) of herding in the management of MS.
Methods: We conducted a study among neurologists with expertise in MS care throughout Spain. Participants answered questions regarding the management of 20 case scenarios commonly encountered in clinical practice and completed 3 surveys and 4 experimental paradigms based on behavioral economics. The herding experiment consisted of a case scenario of a 40-year-old woman who has been stable for 3 years on subcutaneous interferon and developed a self-limited neurological event. There were no new magnetic resonance imaging (MRI) lesions. Her neurological examination and disability scores were unchanged. She was advised by an MS neurologist to switch from interferon to fingolimod against best practice guidelines. Multivariable logistic regression analysis was conducted to evaluate factors associated with herding.
Results: Out of 161 neurologists who were invited to participate, 96 completed the study (response rate: 60%). Herding was present in 75 (78.1%), having a similar prevalence in MS experts and general neurologists (68.8% vs 82.8%; P=0.12). In multivariate analyses, the number of MS patients seen per week was positively associated with herding (odds ratio [OR] 1.08, 95% CI 1.01–1.14). Conversely, physician’s age, gender, years of practice, setting of practice, or risk preferences were not associated with herding.
Conclusion: Herding was a common phenomenon affecting nearly 8 out of 10 neurologists caring for MS patients. Herding may affect medical decisions and lead to poorer outcomes in the management of MS.

We study the effect of family income and maternal hours worked on child development. Our instrumental variable analysis suggests different results for cognitive and behavioral development. An additional 1,000 USD in family income improves cognitive development by 4.4 percent of a standard deviation but has no effect on behavioral development. A yearly increase of 100 work hours negatively affects both outcomes by approximately 6 percent of a standard deviation. The quality of parental investment matters and the substitution effect (less parental time) dominates the income effect (higher earnings) when the after-tax hourly wage is below 13.50 USD. Results call for consideration of child care and minimum wage policies that foster both maternal employment and child development.

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.

Since the seminal contribution of Jackson and Wolinsky (J Econ Theory 71(1):44–74, 1996) it has been widely acknowledged that the formation of social networks exhibits a general conflict between individual strategic behavior and collective outcome. What has not been studied systematically are the sources of inefficiency. We approach this omission by analyzing the role of positive and negative externalities of link formation. This yields general results that relate situations of positive externalities with stable networks that cannot be “too dense” in a well-defined sense, while situations with negative externalities tend to induce “too dense” networks. Those results are neither restricted to specific assumptions on the agents’ preferences (e.g. homogeneity), nor to a specific notion of stability or efficiency.

We study how the scope of negative externalities from market activity affects the willingness of market actors to exhibit social responsibility. Using the laboratory experimental paradigm introduced by Bartling et al. (Q J Econ 130(1):219–266, 2015), we compare the voluntary internalization of negative social impacts by market actors in cases where the negative externality is diffused among many subjects or is concentrated on a single subject. We (1) replicate earlier results demonstrating substantial degrees of market social responsibility and (2) find that the willingness of market actors to act pro-socially is only slightly affected by whether the impacts are concentrated or diffused.

The recent fall of labor's share of GDP in numerous countries is well-documented, but its causes are poorly understood. We sketch a "superstar firm" model where industries are increasingly characterized by "winner take most" competition, leading a small number of highly profitable (and low labor share) firms to command growing market share. Building on Autor et al. (2017), we evaluate and confirm two core claims of the superstar firm hypothesis: the concentration of sales among firms within industries has risen across much of the private sector; and industries with larger increases in concentration exhibit a larger decline in labor's share.

This paper is concerned with a comparison of immigrants and Swiss citizens with respect to level of education, labor market outcomes and healthcare utilization. The evidence is based on data for 1999 from the first wave of the Swiss Household Panel. In order to control for confounding influences, linear and non-linear (negative binomial) regressio nmodels are used. The main result is that differences in economic position between immigrants and Swiss nationals tend to be smaller than those found in other countries. The observed differences (higher employment levels of immigrant women, lower earnings of immigrant men, higher healthcare utilization rates of all immigrants) tend to be no larger than those observed between Swiss citizens living in different parts of the country.

Die Studie untersucht die Eigenschaften der Unternehmen, die als Erste in einen sich neu oeffnenden Markt investieren. Fuer den ersten Investor bestehen gewisse Vorteile (first-mover-advantages), die einen moeglichst fruehen Eintritt in den Markt nahe legen. Andererseits fuehrt die politische und wirtschaftliche Unsicherheit in Osteuropa zu einem Anreiz, die Investitionsentscheidung hinauszuzoegern, um von den Erfahrungen der anderen zu profitieren. Die Einflussfaktoren fuer die Wahl des Zeitpunktes der ersten Direktinvestition in Osteuropa werden anhand der Daten von rund 1000 Industrieunternehmen aus der Schweiz geschaetzt. Die Ergebnisse zeigen, dass grosse und international erfahrene Unternehmen aus dem Konsumgueterbereich einen fruehen Markteintritt bevorzugen. Zudem werden Direktinvestitionen, die auf den lokalen Markt ausgerichtet sind, frueher getaetigt als Investitionen zur Ausnutzung der niedrigen Arbeitskosten.

Health economists have studied the determinants of the expected value of health status as a function of medical and nonmedical inputs, often finding small marginal effects of the former. This paper argues that both types of input have an additional benefit, viz. a reduced variability of health status. Using OECD health data for 24 countries between 1960 and 2004, medical and nonmedical inputs are found to reduce the variability of life expectancy. While the evidence supports the "flat-of-the-curve medicine" hypothesis with respect to the expected value of life expectancy and its variability, healthcare expenditure is comparatively effective in reducing variability.