Contributions in Merlin

We ask whether offering a menu of unemployment insurance contracts is welfare improving in a heterogeneous population. We adopt a repeated moral-hazard framework as in Shavell/Weiss (1979) supplemented by unobservednheterogeneity about agents’ job opportunities. Our main theoretical contribution is an analytical characterizationnof the sets of jointly feasible entitlements that renders annefficient computation of these sets feasible. Our main economicnresult is that optimal contracts for ”bad” searchers tend to be upward-sloping due to an adverse-selection effect.nThis is in contrast to the well-known optimal decreasingntime-profile of benefits in pure moral hazard environmentsnthat continue to be optimal for ”good” searchers in our model.

Risk management and asset pricing benefit from simple functional descriptions of the distribution of real asset returns. Recently, several authors have proposed that asset returns in real stock markets are distributed according to a hyperbolic distribution. While asset returns are generated by trades over time, the natural question is: What does economic theory imply concerning return distributions? We propose a simple model of price formation and, thus, return distribution which is based on economic reasoning. The market’s behavior is represented by a pair consisting of a time-constant strategy and a dynamical trading strategy generating a flow between funds. Simulations of the price dynamics generate returns with fat-tail behavior in line with that of a hyperbolic distribution, and also volatility clustering, which is a mayor stylized fact of asset returns.

This paper examines the determinants of mergers and bankruptcies, using firm level data from the Swiss Business Census and the Dun & Bradstreet exit database for Switzerland (1995-2000). Employing duration analysis, we find considerable differences in the determinants of mergers and bankruptcies, in particular with respect to firm size, location and the impact of macroeconomic conditions. Our results support the notion that mergers are often undertaken to seize growth opportunities.

Right-wing extremism is a serious problem in many societies. A prominent hypothesis states that unemployment plays a crucial role for the occurrence of right-wing extremist crime. In this paper we empirically test this hypothesis. We use a previously not used data set which includes all officially recorded right-wing criminal acts in Germany. These data are recorded by the German Federal Criminal Police Office on a monthly and state level basis. Our main finding is that there is in fact a significant positive relation between unemployment and right-wing criminal activities. We show further that the big difference in right-wing crime between East and West German states can mostlynbe attributed to differences in unemployment. This finding reinforces the importance of unemployment as an explanatory factor for right-wing crime and questions explanations based solely on the different socialization in former communist East Germany and the liberal West German states. Our data furthernallow us to separate violent from non-violent right-wing crimes. We show that unemployment is closelynrelated to both types of crimes, but that the association with non-violent crimes is much stronger. Since right-wing crime is committed particularly by relatively young males, we also explore whethernthe youth unemployment rate is a better predictor for right-wing crime than total unemployment. This hypothesis can be rejected: given total unemployment, a higher share of youth unemployment does not affect right-wing extremist crime rates.

It is a widely held opinion that apprenticeship training represents a net investment for training firms, and that therefore firms only train if they have the possibility to recoup these investments after the training period. A recent study using a new firm-level dataset for Switzerland showed, however, that for 60 percent of the firms, the apprenticeship training itself does not result in net cost. In this context it seems important to examine the question whether the potential net cost of training (during the training period) are a major determinant for the demand for apprentices. Different count data models, in particular hurdle models, are used to estimate the effect of net cost on the demand for apprentices. The results show that the net cost have a significant impact on the training decision but no significant influence on the demand for apprentices, once the firm has decided to train. For policy purposes, these results indicate that subsidies for firms that already train apprentices would not boost the demand for apprentices.

Regulation fostering Managed Care alternatives in health insurance is spreading. This work reports on an experiment designed to measure the amounts of compensation asked by the Swiss population (in terms of reduced premiums) for Managed-Care type restrictions in the provision of health care. It finds that restrictions on the freedom of physician choice would require an average compensation of more than one-third of the premium, while generic substitution even meets with a small willingness to pay. Marked preference heterogeneity is an argument against regulation imposing uniformity of contract in Swiss social health insurance.

There is growing interest in discrete-choice experiments (DCE) as a method to elicit consumers' preferences in the health care sector. Increasingly this method is used to determine willingness-to-pay (WTP) for health-related goods. However, its external validity in the health care domain has not been investigated until today. This paper examines the external validity of DCE concerning the reduction of a health risk. Convergent validity is examined by comparing the value of a statistical life with other preference elicitation techniques, such as revealed preference. Criterion validity is shown by comparing WTP values derived from stated choices in the experiment with those derived from actual choices made by the same individuals. Both tests provide strong evidence in favor of external validity of the DCE method.

Typical of the AIDS epidemics is that governments in developing countries under-invest inndrugs production because of the possible appearance of a curative vaccine. We design a set ofnfinancial tools allowing to hedge against this event and achieving full risk-sharing. We shownthat the introduction of those assets increase social welfare in developing countries, as well asnthe number of treated patients and the provision of public good.

Economic research of the last decade linking macroeconomic fundamentals to asset prices has revealed evidence that standard intertemporal asset pricing theory is not successful in explaining (unconditional) first moments of asset market characteristics such as the risk-free interest rate, equity premium and the Sharpe-ratio. Subsequent empirical research has pursued the question whether those characteristics of asset markets are time varying and, in particular, varying over the business cycle. Recently intertemporal asset pricing models have been employed to replicate those time varying characteristics. The aim of our contribution is (1) to relax some of the assumptions that previous work has imposed on underlying economic and financial variables, (2) to extend the solution technique of Marcet and Den Haan (1990) for those models by nonparametric expectations and (3) to propose a new estimation procedure based on the above solution technique. To allow fornnonparametric expectations in the expectations approach for numerically solving the intertemporal economic model we employ the Local Linear Mapsn(LLMs) of Ritter, Martinetz and Schulten (1992) to approximate conditional expectations in the Euler equation. In our estimation approach based on non-parametric expectations we are able to use full structural information and,nconsequently, Monte Carlo simulations show that our estimations are less biased than the widely applied GMM procedure. Based on quarterly U.S. data we also empirically estimate structural parameters of the model and explore its time varying asset price characteristics for two types of preferences, power utility and habit persistence. We in particular focus on the Sharpe-ratio and find indication that the model is able to capture the time variation of thenSharpe-ratio.

"Starting from the reward-risk model for portfolio selection introduced in De Giorgi (2004), we derive the reward-risk Capital Asset Pricing Model (CAPM) analogously to the classical mean-variance CAPM. The reward-risk portfolio selection arises from an axiomatic definition of reward and risk measures based on few basic principles, including consistency with second order stochastic dominance. With complete markets,nwe show that at any financial market equilibrium, investors’ optimal allocations arencomonotonic and therefore the capital market equilibrium model can be reduced to a representative investor model. Moreover, the pricing kernel is an explicitly given,nmonotone function of the market portfolio return, corresponding to the increments of the distortion function characterizing the representative investor’s risk perceptions.nFinally, an empirical application shows that the reward-risk CAPM better captures the cross-section of US stock returns than the mean-variance CAPM does."