Contributions in Merlin

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."

"Recent monetary models with explicit microfoundations are made tractable by assumingnthat agents have access to centralized markets after one round of decentralized trade. Given quasi-linear preferences, this makes the distribution of money degenerate — which keeps the models simple but precludes discussion of distributional effects of monetary policy. We generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically. We show that unexpected symmetric lump-sum money injections may increase short-run output and welfare,nwhile asymmetric injections may increase long-run output and welfare."

Individuals make systematic mistakes in their decisions, because they mispredict utility from choice options. When deciding, extrinsic attributes of choice options are more salient than intrinsic attributes. Adaptation is neglected, recollection of feelings is distorted, decisions are rationalized and wrong intuitive theories of happiness are applied. People overestimate extrinsic attributes and therefore put too much emphasis on acquiring income and gaining status. In contrast, they underestimate intrinsic attributes and devote too littlentime to their family, friends or hobbies, which lowers their utility level. The theoreticalnanalysis is consistent with an econometric study on commuting decisions using reported subjective well-being data.

World governance today is characterized by international organizations lacking democratic legitimacy and control by the citizens they claim to represent. They are also criticized for being inefficient. This leads to violent protests and to NGOs having great influence. To address these problems, we propose international governance base on the democratic idea of citizen participation: All citizens of the member countries of international organizations have the potential right to participate in the decision-making of international organizations via initiatives, referendums and recalls. In order to reduce transaction costs, a representative group of citizens is randomly selected who can actually exercise their participation rights.

We examine vertical backward integration in a reducedform model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.

Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, andnadds costs to principal-agent relationships. The imprinting effect states that the more one tries to forget a piece of information the more vivid it stays in memory, leading to a paradoxical outcome. The effects are based on, and are supported by, psychological experiments, and it is shown that they are relevant in many economic situations and beyond.