VERANSTALTUNGEN / ACTIVITIES:

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1 FACHBEREICH WIRTSCHAFTSWISSENSCHAFTEN DEPARTMENT OF ECONOMICS B ONN E CON N EWS Universität Bonn, Adenauerallee 24-42, D Bonn Redaktion / Editing: Regina Haverkamp, Fachbereich Wirtschaftswissenschaften Phone: +49 (0) ; Fax: +49 (0) ; econnews@uni-bonn.de No. 425 VERANSTALTUNGEN / ACTIVITIES: November 03 07, 2014 Tuesday, Nov 04, 2014 IZA Research Seminar 12:00, IZA, Schaumburg-Lippe-Str. 9 Wednesday, Nov 05, 2014 Micro Workshop BGSE 12:00, Juridicum, Room 055 IZA Brown Bag Seminar 12:15, IZA, Schaumburg-Lippe-Str. 9 Two IZA Brown Bag Seminars this week! Macro/Econometrics/Finance Workshop 12:30, Juridicum, Fakultätszimmer Micro Theory Seminar 16:30, Juridicum, Fakultätszimmer Thursday, Nov 06, 2014 Finance and Insurance Seminar 12:00, Juridicum, Faculty Lounge, Room IZA Brown Bag Seminar 12:15, IZA, Schaumburg-Lippe-Str. 9 Macro/Econometrics/Finance Seminar 16:15, Juridicum, Room 055 Friday, Nov 07, 2014 Bonn Law Econ Workshop 10:30, Room tba Change of day and time! Applied Micro Workshop 12:15, Juridicum, Room 055 Mark R. Rosenzweig, Yale Univ. Risk, Insurance and Wages in General Equilibrium Dmitriy Knyazev, BGSE Optimal Biased Mechanism Artjoms Ivlevs, (Univ. of the West of England, and IZA) Happy Moves? Assessing the Impact of Life Satisfaction on Emigration Intentions Ulrike Steins, BGSE Households' Nominal Portfolios and Redistribution through Inflation from 1962 to 2013 Michael Mandler, Univ. of London Coarse, Efficient Decision Making Valeriya Dinger, Univ. Osnabrück Are Banks Less Likely to Issue Equity When They are Less Capitalized? Andrew J. Clarke, Univ. of Melbourne Immigrant Skill Selection and Utilization: A Comparative Analysis of Australia, Canada, and the United States Zeno Enders, Univ. Heidelberg Growth Expectations, Undue Optimism, and short-run Fluctuations Daniel Markovits, Yale Law School The Distributional Preferences of an Elite Petr Savelyev, Vanderbilt Univ. Understanding the Mechanisms Linking Personality and Education with Longevity

2 IZA RESEARCH SEMINAR Mark R. Rosenzweig, Yale Univ. Risk, Insurance and Wages in General Equilibrium (Joint work with Ahmed Mushfiq Mobarak) We estimate the general-equilibrium labor market effects of a randomized control trial in which a rainfall index insurance product was marketed to both cultivators and agricultural wage laborers in India. Consistent with the theoretical predictions of a general-equilibrium model of wage setting with weather risk, we find that both labor demand and equilibrium wages become more rainfall sensitive when cultivators are offered rainfall insurance, because insurance induces cultivators to switch to riskier, higheryield production methods. The same insurance contract offered to agricultural laborers smoothes wages across rainfall states by reducing labor supply during droughts (when insurance payouts occur). Policy simulations based on our estimates suggest that selling insurance only to land-owning cultivators (which is the current regulatory practice in India and other developing countries) makes wage laborers worse off in some states of the world due to the increase in wage volatility, relative to a situation where insurance does not exist at all. Marketing insurance to both cultivators and the landless eliminates this adverse effect on the landless, and mildly increases average wages compared to a regime of no insurance. MICRO WORKSHOP BGSE Dmitriy Knyazev, BGSE Optimal Biased Mechanism We consider optimal allocation of one indivisible object to two potential buyers, when the designer wants to maximize the utility of one particular buyer (favorite). Agents have private valuations, but the designer knows valuation of his favorite. We find the optimal anonymous mechanism, which can't depend on the buyer's identity. In general, second-price auction with pooling turns out to be optimal. The size of pooling regions depends on the favorite's type, but they exist always. If distribution of the second agent type is convex, simple lottery is optimal. IZA BROWN BAG SEMINAR I Artjoms Ivlevs, (Univ. of the West of England, and IZA) Happy Moves? Assessing the Impact of Life Satisfaction on Emigration Intentions Recent literature suggests that higher levels of subjective well-being lead to greater work productivity, better physical health and enhanced social skills. Because of these positive externalities, policymakers across the world should be interested in attracting and retaining happy and life-satisfied migrants. This paper studies whether higher levels of life satisfaction contribute to one s desire to move abroad. Using survey data from 30 countries of Eastern Europe and Central Asia in instrumental variable analysis, I find that higher levels of life satisfaction have a positive effect on the probability of reporting intentions and willingness to migrate. This finding raises concerns about possible happiness drain in migrant-sending countries and questions the usefulness of happiness-enhancing policies. BONN ECON NEWS NO. 425 PAGE 2

3 MACRO/ECONOMETRICS/FINANCE WORKSHOP Ulrike Steins, BGSE Households' Nominal Portfolios and Redistribution through Inflation from 1962 to 2013 This paper analyzes households' nominal portfolios in the U.S. and their exposure to inflation from 1962 to During this time period there have been broadly three phases of inflation: low inflation until 1965, afterwards high inflation until the early 1980s and since then a phase of moderate inflation. It is quantitatively assessed in which way households' nominal positions and thus their exposure to inflation differ in these three periods. Besides, the change in nominal positions after the financial crisis of 2007 is determined. In a first step, the aggregate household sector is compared with the U.S. government sector and the rest of the world. Second, nominal positions of households for different age and wealth groups are constructed, so that redistribution caused by inflation within the household sector can be quantified. MICRO THEORY SEMINAR Michael Mandler, Univ. of London Coarse, Efficient Decision Making Suppose agents use sets of criteria, which need not be rational orders, to make choice decisions. Agents in practice use coarse criteria with only a few categories, seemingly due to their cognitive limitations. We show, however, that coarse criteria are more efficient: a coarser set of criteria incurs a smaller decisionmaking cost even though an agent, to maintain the number of choice distinctions, must then use more criteria. The most efficient sets of criteria therefore contain only binary criteria with two categories each. The optimality of binary criteria holds even when the marginal cost of additional categories rapidly diminishes. Binary criteria also generate choice functions that maximize rational preferences; decisionmaking efficiency thus leads to rational choice. FINANCE AND INSURANCE SEMINAR Valeriya Dinger, Univ. Osnabrück Are Banks Less Likely to Issue Equity When They are Less Capitalized? (Joint work with Francesco Vallascas) Debt overhang and moral hazard related to risk-shifting opportunities predict that low capitalized banks have a lower likelihood to issue equity. In contrast to this view, for an international sample of bank Seasoned Equity Offerings (SEOs), we show that the likelihood of issuing an SEO is generally higher in low capitalized banks. We provide a series of tests exploring the variation of capital regulation, systemic conditions and market discipline to understand the driving forces behind this result. We find that market mechanisms rather than capital regulation are the primary, key driver of the decision to issue by low capitalized banks. BONN ECON NEWS NO. 425 PAGE 3

4 IZA BROWN BAG SEMINAR II Andrew J. Clarke, Univ. of Melbourne Immigrant Skill Selection and Utilization: A Comparative Analysis of Australia, Canada, and the United States (Joint work with Mikal Skuterud) We compare literacy test scores and relative wage and employment outcomes of Australian, Canadian and U.S. immigrants using the 2003/2006 Adult Literacy and Life Skills Survey (ALLS). We find substantially higher immigrant skill levels at the lower end of the distribution in Australia, especially among recent arrivals, but little difference across countries at the top. In addition, we identify substantially larger wage returns to immigrant skill in the U.S., which we argue reflects language-skill complementarities, as opposed to more efficient skill utilization or unobserved productivity characteristics. Our results suggest that the benefit of a point system for the U.S. lies in its potential to limit unskilled immigration flows, rather than in raising skills at the top end of the distribution where the economic growth potential of immigration is likely greatest. MACRO/ECONOMETRICS/FINANCE SEMINAR Zeno Enders, Univ. Heidelberg Growth Expectations, Undue Optimism, and short-run Fluctuations We assess the contribution of "undue optimism" (Pigou) to business-cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines long-run economic activity. We develop a new strategy to estimate the effects of optimism shocks---autonomous, but fundamentally unwarranted changes in the assessment of productivity. Specifically, we show that by including survey-based nowcast errors regarding current output growth in a VAR model, it is possible to identify optimism shocks. These shocks, in line with theory, generate negative nowcast errors, but raise economic activity in the short run. They account for about 30 percent of short-run fluctuations. BONN LAW ECON WORKSHOP /CHANGE OF DAY AND TIME! Daniel Markovits, Yale Law School The Distributional Preferences of an Elite (Joint work with Raymond Fisman, Pamela Jakielaand Shachar Kariv) Distributional preferences are important inputs into any measure of social welfare and enter every realm of policy-making. We study the distributional preferences of an elite cadre of J.D. students at Yale Law School (YLS), a group that hold particular interest because they will assume future positions of power and influence in American society. Our experimental design provides a rigorous test of the rationality of redistributive decisions and allows us to decompose the underlying distributional preferences into two qualitatively distinct tradeoffs: the tradeoff between self-interestedness and fair-mindedness and the tradeoff between equality and efficiency. We find that the YLS students are much more rational than both the general population and an intermediately elite pool of college students and that the vast majority make choices that are almost perfectly consistent with utility maximization. YLS students are also less fairminded than the general population, but similar in this respect to intermediately elite college students. Most importantly, in spite of overwhelmingly self-identifying as Democrats rather than Republicans, YLS BONN ECON NEWS NO. 425 PAGE 4

5 students are substantially and significantly less inclined to sacrifice efficiency to promote equality than both college students and the general population. APPLIED MICRO WORKSHOP Petr Savelyev, Vanderbilt Univ. Understanding the Mechanisms Linking Personality and Education with Longevity (Joint work with Kai Hong and Kegon Tan) We go beyond estimation of treatment effects of education and psychological skills on longevity by uncovering the mechanisms behind these effects. We decompose each treatment effect with respect to observed and unobserved mediators. The mediators are health behaviors, lifestyles, and earnings. We estimate the contribution of each observed mediator and the joint contribution of all unobserved mediators. We find a number of major mediators such as smoking tobacco, binge drinking of alcohol, doing physical exercise, unhealthy diet, marriage, and income. We also find that different skills act through different mediators, and that effects through mediators may cancel each other. Redaktionsschluss / Deadline BONN ECON NEWS No. 426 WEDNESDAY, NOV 05, :00 BONN ECON NEWS by (pdf): send to majordomo@listserv.uni-bonn.de with "subscribe econ-news" or "unsubscribe econ-news" in the body of the BONN ECON NEWS NO. 425 PAGE 5