Sustainable Architecture for Finance in Europe (SAFE)
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In times of crisis, insurance companies may invest into riskier assets to benefit from expected price recoveries. Using daily stock market data for 34 European insurers, I investigate how a stock market contraction, as experienced during the Covid-19 pandemic, affects insurers’ decision on the allocation of their corporate bond portfolio. I find that insurers shift their portfolio holdings pro-cyclically towards lower credit risk assets in the first month of the market contraction. As the crisis progresses, I find evidence for counter-cyclical investment behavior by insurers, which can neither be explained by credit rating downgrades of held bonds nor by hedging with CDS derivatives. The observed counter-cyclical investment behavior of insurers could be beneficial for the financial system in attenuating price declines, but excessive risk-taking by insurance companies over longer periods can also reinforce stress in the system.
This paper studies discrete time finite horizon life-cycle models with arbitrary discount functions and iso-elastic per period power utility with concavity parameter θ. We distinguish between the savings behavior of a sophisticated versus a naive agent. Although both agent types have identical preferences, they solve different utility maximization problems whenever the model is dynamically inconsistent. Pollak (1968) shows that the savings behavior of both agent types is nevertheless identical for logarithmic utility (θ = 1). We generalize this result by showing that the sophisticated agent saves in every period a greater fraction of her wealth than the naive agent if and only if θ ≥ 1. While this result goes through for model extensions that preserve linearity of the consumption policy function, it breaks down for non-linear model extensions.
Mitigating climate change necessitates global cooperation, yet global data on individuals’ willingness to act remain scarce. In this study, we conducted a representative survey across 125 countries, interviewing nearly 130,000 individuals. Our findings reveal widespread support for climate action. Notably, 69% of the global population expresses a willingness to contribute 1% of their personal income, 86% endorse pro-climate social norms and 89% demand intensified political action. Countries facing heightened vulnerability to climate change show a particularly high willingness to contribute. Despite these encouraging statistics, we document that the world is in a state of pluralistic ignorance, wherein individuals around the globe systematically underestimate the willingness of their fellow citizens to act. This perception gap, combined with individuals showing conditionally cooperative behaviour, poses challenges to further climate action. Therefore, raising awareness about the broad global support for climate action becomes critically important in promoting a unified response to climate change.