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This paper uses laboratory experiments to provide a systematic analysis of how di↵erent presentation formats a↵ect individuals’ investment decisions. The results indicate that the type of presentation as well as personal characteristics influence both, the consistency of decisions and the riskiness of investment choices. However, while personal characteristics have a larger impact on consistency, the chosen risk level is determined more by framing e↵ects. On the level of personal characteristics, participants’ decisions show that better financial literacy and a better understanding of the presentation format enhance consistency and thus decision quality. Moreover, female participants on average make less consistent decisions and tend to prefer less risky alternatives. On the level of framing dimensions, subjects choose riskier investments when possible outcomes are shown in absolute values rather than rates of return and when the loss potential is less obvious. In particular, reducing the emphasis on downside risk and upside potential simultaneously leads to a substantial increase in risk taking.
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.
The Solvency II standard formula employs an approximate Value-at-Risk approach to define risk-based capital requirements. This paper investigates how the standard formula’s stock risk calibration influences the equity position and investment strategy of a shareholder-value-maximizing insurer with limited liability. The capital requirement for stock risks is determined by multiplying a regulation-defined stock risk parameter by the value of the insurer’s stock portfolio. Intuitively, a higher stock risk parameter should reduce risky investments as well as insolvency risk. However, we find that the default probability does not necessarily decrease when reducing the investment risk (by increasing the stock investment risk parameter). We also find that depending on the precise interaction between assets and liabilities, some insurers will invest conservatively, whereas others will prefer a very risky investment strategy, and a slight change of the stock risk parameter may lead from a conservative to a high risk asset allocation.
A greater firm-level transparency through enhanced disclosure provides more information regarding the risk situation of an insurer to its outside stakeholders such as stock investors and policyholders. The disclosure of the insurer's risktaking can result in negative influences on, for example, its stock performance and insurance demand when stock investors and policyholders are risk-averse. Insurers, which are concerned about the potential ex post adverse effects of risk-taking under greater transparency, are thus inclined to limit their risks ex ante. In other words, improved firm-level transparency can induce less risktaking incentive of insurers. This article investigates empirically the relationship between firm-level transparency and insurers' strategies on capitalization and risky investments. By exploring the disclosure levels and the risk behavior of 52 European stock insurance companies from 2005 to 2012, the results show that insurers tend to hold more equity capital under the anticipation of greater transparency, and this strategy on capital-holding is consistent for different types of insurance businesses. When considering the influence of improved transparency on the investment policy of insurers, the results are mixed for different types of insurers.
This article explores life insurance consumption in 31 European countries from 2003 to 2012 and aims to investigate the extent to which market transparency can affect life insurance demand. The cross-country evidence for the entire sample period shows that greater market transparency, which resolves asymmetric information, can generate a higher demand for life insurance. However, when considering the financial crisis period (2008-2012) separately, the results suggest a negative impact of enhanced market transparency on life insurance consumption. The mixed findings imply a trade-off between the reduction in adverse selection under greater market transparency and the possible negative effects on life insurance consumption during the crisis period due to more effective market discipline. Furthermore, this article studies the extent to which transparency can influence the reaction of life insurance demand to bad market outcomes: i.e., low solvency ratios or low profitability. The results indicate that the markets with bad outcomes generate higher life insurance demand under greater transparency compared to the markets that also experience bad outcomes but are less transparent.
In my paper I take issue with proponents of ‘intersectionality’ which believe that a theoretical concept cannot/should not be detached from its original context of invention. Instead, I argue that the traveling of theory in a global context automatically involves appropriations, amendment and changes in response to the original meaning. However, I reject the idea that ‘intersectionality’ can be used as a freefloating signifier; on the contrary, it has to be embedded in the respective (historical, social, cultural) context in which it is used. I will start by mapping some of the current debates engaging with the pros and cons of the global implementation of the concept (the controversy about master categories, the dispute about the centrality of ‘race’, and the argument about the amendment of categories). I will then turn to my own use of ‘intersectionality’ as a methodological tool (elaborated in Lutz and Davis 2005). Here, we shifted attention from how structures of racism, class discrimination and sexism determine individuals’ identities and practices to how individuals ongoingly and flexibly negotiate their multiple and converging identities in the context of everyday life. Introducing the term doing intersectionality we explored how individuals creatively and often in surprising ways draw upon various aspects of their multiple identities as a resource to gain control over their lives.
In my paper I will show how ‘gender’ or ‘ethnicity’ are invariably linked to structures of domination, but can also mobilize or deconstruct disempowering discourses, even undermine and transform oppressive practices.
Obstetrical care as a matter of time: ultrasound screening in anticipatory regimes of pregnancy
(2014)
This article explores the ways in which ultrasound screening influences the temporal dimensions of prevention in the obstetrical management of pregnancy. Drawing on praxeographic perspectives and empirically based on participant observation of ultrasound examinations in obstetricians’ offices, it asks how ultrasound scanning facilitates anticipatory modes of pregnancy management, and investigates the entanglement of different notions of time and temporality in the highly risk-oriented modes of prenatal care in Germany. Arguing that the paradoxical temporality of prevention – acting now in the name of the future – is intensified by ultrasound screening, I show how the attribution of risk regarding foetal growth in prenatal check-ups is based on the fragmentation of procreative time and ask how time standards come into play, how pregnancy is located in calendrical time, and how notions of foetal time and the everyday life times of pregnant women clash during negotiations between obstetricians and pregnant women about the determination of the due date. By analysing temporality as a practical accomplishment via technological devices such as ultrasound, the paper contributes to debates in feminist STS studies on the role of time in reproduction technologies and the management of pregnancy and birth in contemporary societies.
This assessment concept paper provides a methodological approach for the formative assessment and summative assessment of GIZ’s International Water Stewardship Programme (IWaSP) and its component partnerships. IWaSP promotes partnerships between the private sector (corporations and SMEs), the public sector and the society to tackle shared water risks and to manage water equitably to meet competing demands. This evaluative assessment concept describes the generic approach of the assessment, the cycle for the assessment of partnerships, the country coordination and the programme.
The overall goal of the assessment is to provide evidence for taxpayers in the donor countries and for citizens in the partnership countries. It also aims to examine the relevance of the programme’s approach, its underlying assumptions, and the heterogeneity of stakeholders and their specific interests. Since the assessment is also formative feedback to GIZ and IWaSP stakeholders, it aims to guide the future implementation of the partnerships and the programme.
The assessment is guided by several generic principles: assessing for learning (formative assessment); assessment of learning (summative assessment); iteration; structuring complex problems; unblocking results; and conformity with other assessment criteria set out by the OECD the Development Assistance Committee (DAC) and GIZ’s Capacity Works success factors (GTZ 2010).
These generic criteria are adapted to the three levels of the IWaSP structure. First, the assessment cycle for partnerships includes the validation of stakeholders (mapping), the analysis of secondary literature, face-to-face interviews and a process for feeding back the findings. Generic tools are provided to guide the assessment, such as a list of key documents and an interview guide. Partnerships will undergo a baseline, interim assessment and final assessment. As progress varies across individual IWaSP partnerships, the steps taken by each partnership to assess shared water risks, prioritise and agree interventions, are expected to differ slightly. In response to these differences the sequencing and content of the assessment may need to be adapted for the different partnerships.
Second, the country-level assessment considers issues such as the coordination of partnerships within a country, scoping strategies, and interaction between partnership and the programme. Information gathered during the partnership assessment feeds into the country-level assessment.
Third, the assessment cycle for the programme involves a document and monitoring plan analysis, reflection on the different perspectives of the programme staff, country staff and external stakeholders.
The final section is concerned with reporting. Several annexes are provided relating to the organisation and preparation of the assessment, including question guidelines and analysis procedures.
Europe's debt crisis casts doubt on the effectiveness of fiscal austerity in highly-integrated economies. Closed-economy models overestimate its effectiveness, because they underestimate tax-base elasticities and ignore cross-country tax externalities. In contrast, we study tax responses to debt shocks in a two-country model with endogenous utilization that captures those externalities and matches the capital-tax-base elasticity. Quantitative results show that unilateral capital tax hikes cannot restore fiscal solvency in Europe, and have large negative (positive) effects at "home" ("abroad"). Restoring solvency via either Nash competition or Cooperation reduces (increases) capital (labor) taxes significantly, and leaves countries with larger debt shocks preferring autarky.
After the Global Financial Crisis a controversial rush to fiscal austerity followed in many countries. Yet research on the effects of austerity on macroeconomic aggregates was and still is unsettled, mired by the difficulty of identifying multipliers from observational data. This paper reconciles seemingly disparate estimates of multipliers within a unified and state-contingent framework. We achieve identification of causal effects with new propensity-score based methods for time series data. Using this novel approach, we show that austerity is always a drag on growth, and especially so in depressed economies: a one percent of GDP fiscal consolidation translates into 4 percent lower real GDP after five years when implemented in the slump rather than the boom. We illustrate our findings with a counterfactual evaluation of the impact of the U.K. government’s shift to austerity policies in 2010 on subsequent growth.
Austerity
(2014)
We shed light on the function, properties and optimal size of austerity using the standard sovereign model augmented to include incomplete information about credit risk. Austerity is defined as the shortfall of consumption from the level desired by a country and supported by its repayment capacity. We find that austerity serves as a tool for securing a more favorable loan package; that it is associated with over-investment even when investment does not create collateral; and that low risk borrowers may favor more to less severe austerity. These findings imply that the amount of fresh funds obtained by a sovereign is not a reliable measure of austerity suffered; and that austerity may actually be associated with higher growth. Our analysis accommodates costly signalling for gaining credibility and also assigns a novel role to spending multipliers in the determination of optimal austerity.
Does austerity pay off?
(2014)
Policy makers often implement austerity measures when the sustainability of public finances is in doubt and, hence, sovereign yield spreads are high. Is austerity successful in bringing about a reduction in yield spreads? We employ a new panel data set which contains sovereign yield spreads for 31 emerging and advanced economies and estimate the effects of cuts of government consumption on yield spreads and economic activity. The conditions under which austerity takes place are crucial. During times of fiscal stress, spreads rise in response to the spending cuts, at least in the short-run. In contrast, austerity pays off, if conditions are more benign.
In this paper, we investigate how the introduction of complex, model-based capital regulation affected credit risk of financial institutions. Model-based regulation was meant to enhance the stability of the financial sector by making capital charges more sensitive to risk. Exploiting the staggered introduction of the model-based approach in Germany and the richness of our loan-level data set, we show that (1) internal risk estimates employed for regulatory purposes systematically underpredict actual default rates by 0.5 to 1 percentage points; (2) both default rates and loss rates are higher for loans that were originated under the model-based approach, while corresponding risk-weights are significantly lower; and (3) interest rates are higher for loans originated under the model-based approach, suggesting that banks were aware of the higher risk associated with these loans and priced them accordingly. Further, we document that large banks benefited from the reform as they experienced a reduction in capital charges and consequently expanded their lending at the expense of smaller banks that did not introduce the model-based approach. Counter to the stated objectives, the introduction of complex regulation adversely affected the credit risk of financial institutions. Overall, our results highlight the pitfalls of complex regulation and suggest that simpler rules may increase the efficacy of financial regulation.
We show that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of a multi year fiscal plan rather than of individual fiscal shocks. Simulation of fiscal plans adopted by 16 OECD countries over a 30-year period supports the hypothesis that the effects of consolidations depend on their design. Fiscal adjustments based upon spending cuts are much less costly, in terms of output losses, than tax-based ones and have especially low output costs when they consist of permanent rather than stop and go changes in taxes and spending. The difference between tax-based and spending-based adjustments appears not to be explained by accompanying policies, including monetary policy. It is mainly due to the different response of business confidence and private investment.
This paper investigates the risk channel of monetary policy on the asset side of banks’ balance sheets. We use a factoraugmented vector autoregression (FAVAR) model to show that aggregate lending standards of U.S. banks, such as their collateral requirements for firms, are significantly loosened in response to an unexpected decrease in the Federal Funds rate. Based on this evidence, we reformulate the costly state verification (CSV) contract to allow for an active financial intermediary, embed it in a New Keynesian dynamic stochastic general equilibrium (DSGE) model, and show that – consistent with our empirical findings – an expansionary monetary policy shock implies a temporary increase in bank lending relative to borrower collateral. In the model, this is accompanied by a higher default rate of borrowers.
Are rules and boundaries sufficient to limit harmful central bank discretion? Lessons from Europe
(2014)
Marvin Goodfriend’s (2014) insightful, informative and provocative work explains concisely and convincingly why the Fed needs rules and boundaries. This paper reviews the broader institutional design problem regarding the effectiveness of the central bank in practice and confirms the need for rules and boundaries. The framework proposed for improving the Fed incorporates key elements that have already been adopted in the European Union. The case of ELA provision by the ECB and the Central Bank of Cyprus to Marfin-Laiki Bank during the crisis, however, suggests that the existence of rules and boundaries may not be enough to limit harmful discretion. During a crisis, novel interpretations of the legal authority of the central bank may be introduced to create a grey area that might be exploited to justify harmful discretionary decisions even in the presence of rules and boundaries. This raises the question how to ensure that rules and boundaries are respected in practice
This country report was prepared for the 19th World Congress of the International Academy of Comparative Law in Vienna in 2014. It is structured as a questionnaire and provides an overview of the legal framework for Free and Open Source Software (FOSS) and other alternative license models like (e.g.) Creative Commons under German law. The first set of questions addresses the applicable statutory provisions and the reported case law in this area. The second section concerns contractual issues, in particular with regard to the interpretation and validity of open content licenses. The third section deals with copyright aspects of open content models, for example regarding revocation rights and rights to equitable remuneration. The final set of questions pertains to patent, trademark and competition law issues of open content licenses.
Concepts of legal capacity and legal subjectivity have developed gradually through intermediate stages. Accordingly, there are numerous types of legal subjects and partial legal subjects, and ever-new types can develop, at the latest once the law confronts new social and technological challenges. Today such challenges seem to be making themselves felt especially in the field of information and communication technologies. Their specific communicative conditions resulting from the technological networking of social communication have a particularly pronounced influence on legal attributions of identity and action, and hence above all on issues of liability in electronic commerce. Here in particular it is becoming increasingly difficult to distinguish concrete human actors and, for example, to identify them as authors of declarations of intent or even as individually responsible agencies of legal transgressions. The communicative processes in this area appear instead as new kinds of chains of effects whose actors seem to be more socio-technical ensembles of people and things – whereby the artificial components of these hybrid human being-thing linkages can sometimes even be represented as driving forces and independent agents.
This article examines how the shale oil revolution has shaped the evolution of U.S. crude oil and gasoline prices. It puts the evolution of shale oil production into historical perspective, highlights uncertainties about future shale oil production, and cautions against the view that the U.S. may become the next Saudi Arabia. It then reviews the role of the ban on U.S. crude oil exports, of capacity constraints in refining and transporting crude oil, of differences in the quality of conventional and unconventional crude oil, and of the recent regional fragmentation of the global market for crude oil for the determination of U.S. oil and gasoline prices. It discusses the reasons for the persistent wedge between U.S. crude oil prices and global crude oil prices in recent years and for the fact that domestic oil prices below global levels need not translate to lower U.S. gasoline prices. It explains why the shale oil revolution unlike the shale gas revolution is unlikely to stimulate a boom in oil-intensive manufacturing industries. It also explores the implications of shale oil production for the transmission of oil price shocks to the U.S. economy.