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This paper is the first to conduct an incentive-compatible experiment using real monetary payoffs to test the hypothesis of probabilistic insurance which states that willingness to pay for insurance decreases sharply in the presence of even small default probabilities as compared to a risk-free insurance contract. In our experiment, 181 participants state their willingness to pay for insurance contracts with different levels of default risk. We find that the willingness to pay sharply decreases with increasing default risk. Our results hence strongly support the hypothesis of probabilistic insurance. Furthermore, we study the impact of customer reaction to default risk on an insurer’s optimal solvency level using our experimentally obtained data on insurance demand. We show that an insurer should choose to be default-free rather than having even a very small default probability. This risk strategy is also optimal when assuming substantial transaction costs for risk management activities undertaken to achieve the maximum solvency level.
This dissertation consists of three essays, which study the implication of financial frictions in business cycles and monetary policy making. The first essay develops a Dynamic Stochastic General Equilibrium (DSGE) model to study how the instability of the banking sector can amplify and propagate business cycles. Model simulations show that in an economic down turn, in addition to credit demand contraction induced by low firm net worth, low bank capital
position can create strong credit supply contraction, and have a quantitatively significant effect on business cycle dynamics. The second essay studies the optimal Taylor-type monetary policy rules based on the model developed in the first chapter and find that with interest rate smoothing, 'leaning against the wind' can significantly dampen the procyclicality of financial distortions, and increase the welfare of the economy. The third chapter examines the role of households frugality in a financial crisis and finds that higher savings by more frugal households provide an important cushion for the fall in private investment funding.
Highlights
• Pathways for a circular economy towards the EU goals require policy support that, in turn, requires legitimacy.
• Legitimacy is often contested in the public discourse at all phases in the technological innovation system.
• Legitimacy remains poorly understood for ‘in-between’ technologies that struggle to move from the formative to the growth stage.
• The article explores legitimacy for chemical recycling primarily based on evidence from the UK, Germany, and Italy.
Abstract
The European Commission aims to increase the recycling of plastic packaging to 60% by 2025, requiring fundamental changes towards a more circular economy. Pathways for this transition require policy support that largely depends on their legitimacy in the public discourse. These normative aspects remain poorly understood for ‘in-between’ technologies, i.e., technologies that are no longer novel but struggle to move to the growth phase within the technological innovation system. Therefore, we ask: How do discourses shape technology legitimacy for in-between technologies? Drawing on the empirical example of chemical recycling, the analysis renders two principal findings. First, legitimising and delegitimising storylines present contesting views on in-between technologies regarding their technological aspects, environmental and social impacts, and economic and policy implications. Second, how discourses contribute to technology legitimacy depends on the actors and interests that drive the prevalent storylines in particular contexts.
Biodiversity loss poses a significant threat to the global economy and affects ecosystem services on which most large companies rely heavily. The severe financial implications of such a reduced species diversity have attracted the attention of companies and stakeholders, with numerous calls to increase corporate transparency. Using textual analysis, this study thus investigates the current state of voluntary biodiversity reporting of 359 European blue-chip companies and assesses the extent to which it aligns with the upcoming disclosure framework of the Task Force on Nature-related Financial Disclosures (TNFD). The descriptive results suggest a substantial gap between current reporting practices and the proposed TNFD framework, with disclosures largely lacking quantification, details and clear targets. In addition, the disclosures appear to be relatively unstandardized. Companies in sectors or regions exposed to higher nature-related risks as well as larger companies are more likely to report on aspects of biodiversity. This study contributes to the emerging literature on nature-related risks and provides detailed insights on the extent of the reporting gap in light of the upcoming standards.
Contemporary information systems make widespread use of artificial intelligence (AI). While AI offers various benefits, it can also be subject to systematic errors, whereby people from certain groups (defined by gender, age, or other sensitive attributes) experience disparate outcomes. In many AI applications, disparate outcomes confront businesses and organizations with legal and reputational risks. To address these, technologies for so-called “AI fairness” have been developed, by which AI is adapted such that mathematical constraints for fairness are fulfilled. However, the financial costs of AI fairness are unclear. Therefore, the authors develop AI fairness for a real-world use case from e-commerce, where coupons are allocated according to clickstream sessions. In their setting, the authors find that AI fairness successfully manages to adhere to fairness requirements, while reducing the overall prediction performance only slightly. However, they find that AI fairness also results in an increase in financial cost. Thus, in this way the paper’s findings contribute to designing information systems on the basis of AI fairness.
With free delivery of products virtually being a standard in E-commerce, product returns pose a major challenge for online retailers and society. For retailers, product returns involve significant transportation, labor, disposal, and administrative costs. From a societal perspective, product returns contribute to greenhouse gas emissions and packaging disposal and are often a waste of natural resources. Therefore, reducing product returns has become a key challenge. This paper develops and validates a novel smart green nudging approach to tackle the problem of product returns during customers’ online shopping processes. We combine a green nudge with a novel data enrichment strategy and a modern causal machine learning method. We first run a large-scale randomized field experiment in the online shop of a German fashion retailer to test the efficacy of a novel green nudge. Subsequently, we fuse the data from about 50,000 customers with publicly-available aggregate data to create what we call enriched digital footprints and train a causal machine learning system capable of optimizing the administration of the green nudge. We report two main findings: First, our field study shows that the large-scale deployment of a simple, low-cost green nudge can significantly reduce product returns while increasing retailer profits. Second, we show how a causal machine learning system trained on the enriched digital footprint can amplify the effectiveness of the green nudge by “smartly” administering it only to certain types of customers. Overall, this paper demonstrates how combining a low-cost marketing instrument, a privacy-preserving data enrichment strategy, and a causal machine learning method can create a win-win situation from both an environmental and economic perspective by simultaneously reducing product returns and increasing retailers’ profits.
By focusing on the cost conditions at issuance, I find that not only the Covid-19 pandemic effects were different across bonds and firms at different stages, but also that the market composition was significantly affected, collapsing on investment- grade bonds, a segment in which the share of bonds eligible to the ECB corporate programmes strikingly increased from 15% to 40%. At the same time the high-yield segment shrunk to almost disappear at 4%. In addition to a market segmentation along the bond grade and the eligibility to the ECB programmes, another source of risk detected in the pricing mechanism is the weak resilience to pandemic: the premium requested is around 30 basis points and started to be priced only after the early containment actions taken by the national authorities. On the contrary, I do not find evidence supporting an increased risk for corporations headquartered in countries with a reduced fiscal space, nor the existence of a premium in favour of green bonds, which should be the backbone of a possible “green recovery”.
We assess the degree of market fragmentation in the euro-area corporate bond market by disentangling the determinants of the risk premium paid on bonds at origination. By looking at over 2,400 bonds we are able to isolate the country-specific effects which are a suitable indicator of the market fragmentation. We find that, after peaking during the sovereign debt crisis, fragmentation shrank in 2013 and receded to pre-crisis levels only in 2014. However, the low level of estimated market fragmentation is coupled with a still high heterogeneity in actual bond yields, challenging the consistency of the new equilibrium.
We analyze the risk premium on bank bonds at origination with a special focus on the role of implicit and explicit public guarantees and the systemic relevance of the issuing institutions. By looking at the asset swap spread on 5,500 bonds, we find that explicit guarantees and sovereign creditworthiness have a substantial effect on the risk premium. In addition, while large institutions still enjoy lower issuance costs linked to the TBTF framework, we find evidence of enhanced market disciple for systemically important banks which face, since the onset of the financial crisis, an increased premium on bond placements.
Unconventional green
(2023)
We analyze the effects of the PEPP (Pandemic Emergency Purchase Programme), the temporary quantitative easing implemented by the ECB immediately after the burst of the Covid-19 pandemic. We show that the differences in aim, size and flexibility with respect to the traditional Corporate Sector Purchase Programme (CSPP) were able to significantly involve, in addition to the directly targeted bonds, also the green bond segment. Via a standard difference- in-differences model we estimate that the yield on green bonds declined by more than 20 basis points after the PEPP. In order to take into account also the differences attributable to the eligibility to the programme, we employ a triple difference estimator. Bonds that at the same time were green and eligible benefitted of an additional premium of 39 basis points.
Chen and Zadrozny (1998) developed the linear extended Yule-Walker (XYW) method for determining the parameters of a vector autoregressive (VAR) model with available covariances of mixed-frequency observations on the variables of the model. If the parameters are determined uniquely for available population covariances, then, the VAR model is identified. The present paper extends the original XYW method to an extended XYW method for determining all ARMA parameters of a vector autoregressive moving-average (VARMA) model with available covariances of single- or mixed-frequency observations on the variables of the model. The paper proves that under conditions of stationarity, regularity, miniphaseness, controllability, observability, and diagonalizability on the parameters of the model, the parameters are determined uniquely with available population covariances of single- or mixed-frequency observations on the variables of the model, so that the VARMA model is identified with the single- or mixed-frequency covariances.
Linear rational-expectations models (LREMs) are conventionally "forwardly" estimated as follows. Structural coefficients are restricted by economic restrictions in terms of deep parameters. For given deep parameters, structural equations are solved for "rational-expectations solution" (RES) equations that determine endogenous variables. For given vector autoregressive (VAR) equations that determine exogenous variables, RES equations reduce to reduced-form VAR equations for endogenous variables with exogenous variables (VARX). The combined endogenous-VARX and exogenous-VAR equations comprise the reduced-form overall VAR (OVAR) equations of all variables in a LREM. The sequence of specified, solved, and combined equations defines a mapping from deep parameters to OVAR coefficients that is used to forwardly estimate a LREM in terms of deep parameters. Forwardly-estimated deep parameters determine forwardly-estimated RES equations that Lucas (1976) advocated for making policy predictions in his critique of policy predictions made with reduced-form equations.
Sims (1980) called economic identifying restrictions on deep parameters of forwardly-estimated LREMs "incredible", because he considered in-sample fits of forwardly-estimated OVAR equations inadequate and out-of-sample policy predictions of forwardly-estimated RES equations inaccurate. Sims (1980, 1986) instead advocated directly estimating OVAR equations restricted by statistical shrinkage restrictions and directly using the directly-estimated OVAR equations to make policy predictions. However, if assumed or predicted out-of-sample policy variables in directly-made policy predictions differ significantly from in-sample values, then, the out-of-sample policy predictions won't satisfy Lucas's critique.
If directly-estimated OVAR equations are reduced-form equations of underlying RES and LREM-structural equations, then, identification 2 derived in the paper can linearly "inversely" estimate the underlying RES equations from the directly-estimated OVAR equations and the inversely-estimated RES equations can be used to make policy predictions that satisfy Lucas's critique. If Sims considered directly-estimated OVAR equations to fit in-sample data adequately (credibly) and their inversely-estimated RES equations to make accurate (credible) out-of-sample policy predictions, then, he should consider the inversely-estimated RES equations to be credible. Thus, inversely-estimated RES equations by identification 2 can reconcile Lucas's advocacy for making policy predictions with RES equations and Sims's advocacy for directly estimating OVAR equations.
The paper also derives identification 1 of structural coefficients from RES coefficients that contributes mainly by showing that directly estimated reduced-form OVAR equations can have underlying LREM-structural equations.
Having a gatekeeper position in a collaborative network offers firms great potential to gain competitive advantages. However, it is not well understood what kind of collaborations are associated with such a position. Conceptually grounded in social network theory, this study draws on the resource-based view and the relational factors view to investigate which types of collaboration characterize firms that are in a gatekeeper position, which ultimately could improve firm performance in subsequent periods. The empirical analysis utilizes a unique longitudinal data set to examine dynamic network formation. We used a data crawling approach to reconstruct collaboration networks among the 500 largest companies in Germany over nine years and matched these networks with performance data. The results indicate that firms in gatekeeper positions often engage in medium-intensity collaborations and less likely weak-intensity collaborations. Strong-intensity collaborations are not related to the likelihood of being a gatekeeper. Our study further reveals that a firm's knowledge base is an important moderator and that this knowledge base can increase the benefits of having a gatekeeper position in terms of firm performance.
I propose a dynamic stochastic general equilibrium model in which the leverage of borrowers as well as banks and housing finance play a crucial role in the model dynamics. The model is used to evaluate the relative effectiveness of a policy to inject capital into banks versus a policy to relieve households of mortgage debt. In normal times, when the economy is near the steady state and policy rates are set according to a Taylor-type rule, capital injections to banks are more effective in stimulating the economy in the long-run. However, in the middle of a housing debt crisis, when households are highly leveraged, the short-run output effects of the debt relief are more substantial. When the zero lower bound (ZLB) is additionally considered, the debt relief policy can be much more powerful in boosting the economy both in the short-run and in the longrun. Moreover, the output effects of the debt relief become increasingly larger, the longer the ZLB is binding.
Ad blockers allow users to browse websites without viewing ads. Online news publishers that rely on advertising income tend to perceive users’ adoption of ad blockers purely as a threat to revenue. Yet, this perception ignores the possibility that avoiding ads—which users presumably dislike—may affect users’ online news consumption behavior in positive ways. Using 3.1 million visits from 79,856 registered users on a news website, this research finds that ad blocker adoption has robust positive effects on the quantity and variety of articles users consume. Specifically, ad blocker adoption increases the number of articles that users read by 21.0%–43.2%, and it increases the number of content categories that users consume by 13.4%–29.1%. These effects are stronger for less-experienced users of the website. The increase in news consumption stems from increases in repeat visits to the news website, rather than in the number of page impressions per visit. These postadoption visits tend to start from direct navigation to the news website, rather than from referral sources. The authors discuss how news publishers could benefit from these findings, including exploring revenue models that consider users’ desire to avoid ads.
The first part of the following paper deals with varying points of criticism forwarded against Ordoliberalism. Here, it is not the aim to directly falsify each argument on its own; rather, the author tries to give a precise overview of the spectrum of critique. The second section picks out one argument of critical review – namely that the ordoliberal concept of the state is somewhat elitist and grounded on intellectual experts. Based on the previous sections, the final part differentiates two kinds of genesis of norms: an evolutionary and an elitist one – both (latently) present within Ordoliberalism. In combination with the two-level differentiation between individual and regulatory ethics, the essay allows for a distinction between individual-ethical norms based on an evolutionary genesis of norms and regulatory-ethical norms based on an elitist understanding of norms. A by-product of the author’s argument is a (further) demarcation within neoliberalism.
Based on Foucault’s analysis of German Neoliberalism and his thesis of ambiguity, the following paper draws a two-level distinction between individual and regulatory ethics. The individual ethics level – which has received surprisingly little attention – contains the Christian foundation of values and the liberal-Kantian heritage of so called Ordoliberalism – as one variety of neoliberalism. The regulatory or formal-institutional ethics level on the contrary refers to the ordoliberal framework of a socio-economic order. By differentiating these two levels of ethics incorporated in German Neoliberalism, it is feasible to distinguish dissimilar varieties of neoliberalism and to link Ordoliberalism to modern economic ethics. Furthermore, it allows a revision of the dominant reception of Ordoliberalism which focuses solely on the formal-institutional level while mainly neglecting the individual ethics level.
June 4th, 2013 marks the formal launch of the third generation of the Equator Principles (EP III) and the tenth anniversary of the EPs – enough reasons for evaluating the EPs initiative from an economic ethics and business ethics perspectives. In particular, this essay deals with the following questions: What are the EPs and where are they going? What has been achieved so far by the EPs? What are the strengths and weaknesses of the EPs? Which necessary reform steps need to be adopted in order to further strengthen the EPs framework? Can the EPs be regarded as a role-model in the field of sustainable finance and CSR? The paper is structured as follows: The first chapter defines the term EPs and introduces the keywords related to the EPs framework. The second chapter gives a brief overview of the history of the EPs. The third chapter discusses the Equator Principles Association, the governing, administering, and managing institution behind the EPs. The fourth chapter summarizes the main features and characteristics of the newly released third generation of the EPs. The fifth chapter critically evaluates the EP III from an economic ethics and business ethics perspectives. The paper concludes with a summary of the main findings.
Freiburg School of Law and Economics, Freiburg (Lehrstuhl-)Tradition and the Genesis of Norms
(2014)
The paper analyzes the parallels and differences between the Freiburg School of Law and Economics represented by the works of Eucken (and Röpke) and the Freiburg (Lehrstuhl-)Tradition represented by the works of Hayek and Vanberg. The parallels are illustrated by making use of the constitutional economics concepts Ordnungspolitik (i.e., order of rules/choices over rules) as well as freedom of privileges and discrimination. The differences, which have received surprisingly little attention, include the following aspects: 1. philosophy of science and epistemology, 2. genesis of norms, and 3. political philosophy. The paper tackles these issues in three steps. The second chapter presents Vanberg’s constitutional economics theory with special emphasis on the concepts of citizen sovereignty and normative individualism. The third chapter reviews the ordoliberal concepts of science and the state which are – to a certain degree – elitist and expertocratic, that is, they rely to a considerable degree on intellectual experts (in particular, scientists) being part of the societal elite. The fourth chapter differentiates two kinds of genesis of norms: an evolutionary one and an elitist-expertocratic one allowing for a differentiation between Eucken’s and Röpke’s Ordoliberalism on the on the hand and Vanberg’s Hayekian -- and Buchanan-style constitutional economics approach on the other hand. The paper ends with a summary of the main findings.