CER-ETH Research Seminar, Spring Term 2016

Everyone who is interested is cordially invited!

If you would like to receive our weekly invitation via e-mail, or if you have any other question, please contact Marie-Catherine Riekhof

Speakers

Holger Strulik

In this paper we show for a panel of developed countries a long-run negative association between church attendance and total factor productivity with (Granger-) causality running from declining church attendance to productivity growth. In order to explain this phenomenon we integrate into endogenous R&D-based growth theory a micro-foundation of individual cognitive style, which is either intuitive-believing or reflective-analytical. We assume that the full benefit from religiosity is achieved by intuitive believers and that the general value of religion depends on average church attendance. In this setting we show that the individual decision to spend leisure time explains the gradual secularization of society whereby, ceteris paribus, individuals of high cognitive ability attend church less. Under the assumption that R&D-productivity is positively influenced by an reflective- analytical cognitive style, we find that secularization leads to an increasing labor share in R&D and gradually increasing productivity growth. We use these insights to reflect on trends in religiosity and R&D-based growth in the very long run from Enlightenment to the present day.

Raphaël Parchet

This paper examines the impact of highways on local tax bases and tax rates in Switzerland. We exploit the fact that the Swiss highway network was defined in 1960 by the federal parliament, but only gradually built over the decades that followed. We argue that from the viewpoint of a municipality located outside main agglomeration areas, the opening year of a particular highway section can be regarded as largely exogenous to local development. We show that the advent of a new highway network led to a long-term increase in the number of taxpayers of 8 percent in municipalities within 10 km reach of an highway access, whereas it had no effect for municipalities located 10-20 km away. We also show that highway access had a positive effect on income by increasing the share of high-income taxpayers. Results including municipalities that are part of the main urban agglomeration areas experienced a decrease of their population and share of top-income taxpayers (relative to their pre-opening trend). We find evidence that the effect is driven by an increase in economic activity rather than by individuals' location decisions. We also  find that non-agglomeration municipalities between 10-20 km from the highway access increased subsequently their local tax rate.

Michael Finus

We analyze the formation of public good agreements under the weakest-link technology. Coordination of and cooperation on migration policies, money laundering measures and biodiversity conservation efforts are prime examples of this technology. Whereas for symmetric players, policy coordination is not necessary, for asymmetric players cooperation matters but fails, in the absence of transfers. In contrast, with an optimal transfer scheme, asymmetry may not be an obstacle but an asset for cooperation, with even the grand coalition being stable. We characterize various types and degrees of asymmetry and relate them to the stability of agreements and associate gains from cooperation.

Thomas Mariotti

We study insurance markets in which consumers can purchase coverage from several insurers. We show that there is a single budget-balanced allocation that is implementable by an entry-proof tariff. In this allocation, different layers of coverage are fairly priced according to the types of consumers who purchase them, giving rise to cross-subsidies between types. This allocation can, under certain circumstances, be decentralized as the outcome of a game as long as cross-subsidies between contracts are prohibited. In such an equilibrium, riskier consumers demand greater aggregate coverage at an increasing unit price, but the contracts offered by firms exhibit quantity discounts. We emphasize the need to regulate the supply side of insurance markets, while consumers can be left free to choose their preferred coverage level.

Klaus Adam

The booms and busts in U.S. stock prices over the post-war period can to a large extent be explained by fluctuations in investors’ subjective capital gains expectations. Survey measures of these expectations display excessive optimism at market peaks and excessive pessimism at market troughs. Formally incorporating subjective price beliefs into an otherwise standard asset pricing model with utility maximizing investors, we show how subjective belief dynamics can temporarily delink stock prices from their fundamental value and give rise to asset price booms that ultimately result in a price bust. The model quantitatively replicates (1) the volatility of stock prices and (2) the positive correlation between the price dividend ratio and expected returns observed in survey data. We show that models imposing objective or `rational’ price expectations cannot simultaneously account for both facts. Our findings imply that large parts of U.S. stock price fluctuations are not due to standard fundamental forces, instead result from self-reinforcing belief dynamics triggered by these fundamentals.

Emanuel Borgonovo

Scoring rules and value of information have been independently recognized in decision and risk analysis as useful tools for measuring the information content of data and forecasts. In this paper, we bridge these two seemingly separate areas of research by providing a unifying framework in which scoring rules can be viewed as reward functions in the context of value of information. The analysis reveals that a decision maker is reassured that the null value of a sensitivity measure implies independence if and only if she considers reporting the entire distribution. One also obtains a general method to understand which global sensitivity measures can be reinterpreted as value of information. This allows a rigorous approach to the problem of choosing the sensitivity measure commensurate with the decision problem at hand. A climate change application illustrates the findings.

Muriel Roger

The existence of a pension system affects the saving behavior of households. We estimate the substitution effect between private savings and pension wealth using the French wealth survey Patrimoine and the pension microsimulation model Destinie of the French NIS (INSEE). Saving behavior is modeled after Gale (1998). Our results highlight the existence of a substitution effect between household savings and their pension. The magnitude of those effects is sensitive to the discount rate of agents. An increase in public pensions leads to a decrease in complementary pension products and real estate investment. The effect of the latter dominates.