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170
We designed and fielded an experimental module in the 2014 HRS which seeks to measure older persons’ willingness to voluntarily defer claiming of Social Security benefits. In addition we evaluate the stated willingness of older individuals to work longer, depending on the Social Security incentives offered to delay claiming their benefits. Our project extends previous work by analyzing the results from our HRS module and comparing findings from other data sources, which included very much smaller samples of older persons. We show that half of the respondents would delay claiming if no work requirement were in place under the status quo, and only slightly fewer, 46 percent, with a work requirement. We also asked respondents how large a lump sum they would need with or without a work requirement. In the former case, the average amount needed to induce delayed claiming was about $60,400, while when part-time work was required, the average was $66,700. This implies a low utility value of leisure foregone of only $6,300, or about 10 percent of older households’ income.
169
On average young people \undersave" whereas old people \oversave" with respect to the rational expectations model of life-cycle consumption and savings. According to numerous studies on subjective survival beliefs, young people also \underestimate" whereas old people \overestimate" their objective survival chances on average. We take a structural behavioral economics approach to jointly address both empirical phenomena by embedding subjective survival beliefs that are consistent with these biases into a rank-dependent utility (RDU) model over life-cycle consumption. The resulting consumption behavior is dynamically inconsistent. Considering both naive and sophisticated RDU agents we show that within this framework underestimation of young age and overestimation of old age survival probabilities may (but need not) give rise to the joint occurrence of undersaving and oversaving. In contrast to this RDU model, the familiar quasi-hyperbolic discounting (QHD), which is nested as a special case, cannot generate oversaving.
168
We test two hypotheses, based on sexual selection theory, about gender differences in costly social interactions. Differential selectivity states that women invest less than men in interactions with new individuals. Differential opportunism states that women’s investment in social interactions is less responsive to information about the interaction’s payoffs. The hypotheses imply that women’s social networks are more stable and path dependent and composed of a greater proportion of strong relative to weak links. During their introductory week, we let new university students play an experimental trust game, first with one anonymous partner, then with the same and a new partner. Consistent with our hypotheses, we find that women invest less than men in new partners and that their investments are only half as responsive to information about the likely returns to the investment. Moreover, subsequent formation of students’ real social networks is consistent with the experimental results: being randomly assigned to the same introductory group has a much larger positive effect on women’s likelihood of reporting a subsequent friendship.
167
We document that natural disasters significantly weaken the stability of banks with business activities in affected regions, as reflected in lower z-scores, higher probabilities of default, higher non-performing assets ratios, higher foreclosure ratios, lower returns on assets and lower bank equity ratios. The effects are economically relevant and suggest that insurance payments and public aid programs do not sufficiently protect bank borrowers against financial difficulties. We also find that the adverse effects on bank stability dissolve after some years if no further disasters occur in the meantime.
166
The impact of network connectivity on factor exposures, asset pricing and portfolio diversification
(2017)
This paper extends the classic factor-based asset pricing model by including network linkages in linear factor models. We assume that the network linkages are exogenously provided. This extension of the model allows a better understanding of the causes of systematic risk and shows that (i) network exposures act as an inflating factor for systematic exposure to common factors and (ii) the power of diversification is reduced by the presence of network connections. Moreover, we show that in the presence of network links a misspecified traditional linear factor model presents residuals that are correlated and heteroskedastic. We support our claims with an extensive simulation experiment.
165
Causality is a widely-used concept in theoretical and empirical economics. The recent financial economics literature has used Granger causality to detect the presence of contemporaneous links between financial institutions and, in turn, to obtain a network structure. Subsequent studies combined the estimated networks with traditional pricing or risk measurement models to improve their fit to empirical data. In this paper, we provide two contributions: we show how to use a linear factor model as a device for estimating a combination of several networks that monitor the links across variables from different viewpoints; and we demonstrate that Granger causality should be combined with quantile-based causality when the focus is on risk propagation. The empirical evidence supports the latter claim.
164
People who delay claiming Social Security receive higher lifelong benefits upon retirement. We survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment. Using a moment-matching approach, we calibrate a lifecycle model tracking observed claiming patterns under current rules and predict optimal claiming outcomes under the lump sum approach. Our model correctly predicts that early claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present.
163
The international diffusion of technology plays a key role in stimulating global growth and explaining co-movements of international equity returns. Existing empirical evidence suggests that countries are heterogeneous in their attitude toward innovation: Some countries rely more on technology adoption while other countries rely more on internal technology production. European countries that rely more on adoption are also typically characterized by lower fiscal policy exibility and higher labor market rigidity. We develop a two-country model – where both countries rely on R&D and adoption – to study the short-run and long-run effects of aggregate technology and adoption probability shocks on economic growth in the presence of the aforementioned asymmetries. Our framework suggests that an increase in the ability to adopt technology from abroad stimulates economic growth in the country that benefits from higher adoption rates but the beneficial effects also spread to the foreign country. Moreover, it helps explaining the differences in macro quantities and equity returns observed in the international data.
162
Asymmetric social norms
(2017)
Studies of cooperation in infinitely repeated matching games focus on homogeneous economies, where full cooperation is efficient and any defection is collectively sanctioned. Here we study heterogeneous economies where occasional defections are part of efficient play, and show how to support those outcomes through contagious punishments.
161
I show that disruptions to personal sources of financing, aside from commercial lending supply shocks, impair the survival and growth of small businesses. Entrepreneurs holding deposit accounts at retail banking institutions that defaulted following the financial crisis reduce personal borrowing and are consequently more likely to exit their firm. Exposure to the corresponding investment losses from delisted publicly traded bank stocks strongly reduces the rate of firm survival, particularly for early-stage ventures. At the intensive margin, owners who remain in business reduce employees after personal wealth losses. My results suggest that personal finance is an important component of firm financing.