Life-cycle funds: Much Ado about Nothing?

The core idea of life-cycle funds or target-date funds is to decrease the fund's equity exposure and conversely increase its bond exposure towards the fund's target date. Such funds have been gaining significant market share and were recently set as default choice of asset allocation in numerous defined contribution schemes or related old-age provision products in several countries. Hence, an assessment of life-cycle funds’ risk-return profiles – that is, the probability distribution of returns – is essential for sustainable financial planning of a large group of investors. This paper studies the risk-return profile of life-cycle funds in particular compared to simple balanced or lifestyle funds that apply a constant equity portion throughout the fund's term instead. In a Black–Scholes model, we derive balanced funds that reproduce the risk-return profile of an arbitrary life-cycle fund for single and regular contributions. We then analyze the accuracy of our results under more complex asset models with stochastic interest rates, stochastic equity volatility and jumps. We further show that frequently used ‘rule of thumb approximations’ that only take into account the life-cycle fund's average equity portion are not suitable to approximate a life-cycle fund's risk-return profile. Our results on the one hand facilitate sustainable financial planning and on the other hand challenge the very existence of life-cycle funds since appropriately calibrated balanced funds can offer a similar (often dominating) risk-return profile.     

An examination of mobile app usage and the user’s life satisfaction

Increased engagement with mobile apps is an emerging trend with people today. Mobile devices have become so personalized that many people consider their mobile device as an extension of themselves. Research has suggested that one driving factor in a person’s adoption of mobile apps is the pursuit of happiness. However, there is little research regarding the influence of apps on a person’s well-being. The purpose of this paper was to examine mobile app usage among college students and the relationship between app usage and one’s satisfaction with life. Findings suggest that there is a correlation between mobile app usage and a person’s level of satisfaction with life. Gender differences in app usage were also found.     

Can tourism be part of the decarbonized global economy? The costs and risks of alternate carbon reduction policy pathways

Global leaders agree on the need to substantially decarbonize the global economy by 2050. This paper compares potential costs associated with different policy pathways to achieve tourism sector emission reduction ambitions (?50% by 2035) and transform the sector to be part of the mid-century decarbonized economy (?70% by 2050). Investment in emissions abatement within the tourism sector, combined with strategic external carbon offsets, was found to be approximately 5% more cost effective over the period 2015–2050 than exclusive reliance on offsetting. The cost to achieve the ?50% target through abatement and strategic offsetting, while significant, represents less than 0.1% of the estimated global tourism economy in 2020 and 3.6% in 2050. Distributed equally among all tourists (international and domestic), the cost of a low-carbon tourism sector is estimated at US$11 per trip, equivalent to many current travel fees or taxes. Exclusive reliance on offsetting would expose the sector to extensive and continued carbon liability costs beyond mid-century and could be perceived as climate inaction, increasing reputational risks and the potential for less efficient regulatory interventions that could hinder sustainable tourism development. Effective tourism sector leadership is needed to develop a strategic tourism policy framework and emission measurement and reporting system.     

Öffentliches und Geheimes

In the second half of 2009, the entire media agenda in Germany was dominated by the swine flu, next to the German Federal Parliament elections. Criticism was voiced in the media against the pharmaceutical industry for lobbying the nationwide swine flu vaccination, which was widely considered nothing but a product of the industry’s lobbying power. In order to avoid the usual interviews with lobbyists, we attempted to apply a new methodological framework approach in analysing lobbying processes and key stakeholders in the public sphere—and outside. Crucial to the diversified approach, which involves quantitative content analysis of media coverage and press releases, are interviews with journalists, lobbyists’ network analysis and internet research on biographies. Although a conspiracy could not be conclusively proven, the results do indicate associations that validate the criticism of the industry’s lobbying activities.     

The impacts of international tourism demand on economic growth of small economies dependent on tourism

This paper studies the impacts on economic growth of a small tourism-driven economy caused by an increase in the growth rate of international tourism demand. We present a formal model and empirical evidence. The ingredients of the dynamic model are a large population of intertemporally optimizing agents and an AK technology representing tourism production. The model shows that an increase in the growth of tourism demand leads to transitional dynamics with gradually increasing economic growth and increasing terms of trade. In our empirical application, an econometric methodology is applied to annual data of Antigua and Barbuda from 1970 to 2008. We perform a cointegration analysis to look for the existence of a long-run relationship among variables of economic growth, international tourism earnings and the real exchange rate. The exercise confirms the theoretical findings.     

Comparing Interpersonal Comparisons in Utility Theory and Happiness Research

Social scientists are reluctant to make explicit interpersonal comparisons of well-being. However, implicit comparisons are made on a surprisingly regular basis. These comparisons are based on the wealth and the Kaldor–Hicks concept in utility theory and on self-reported well-being in happiness research. Taking a utilitarian stance, this paper tests the ethical foundations of both principles. While self-reported well-being serves as an acceptable proxy for utilitarian decision-making, the Kaldor–Hicks concept does not appear so. Implications for evaluating policies are outlined.

Federalism and decentralization—a critical survey of frequently used indicators

The economic effects of federalism are unclear: some papers find that federalism has strong positive effects on a number of economically relevant variables, others find negative effects. The results often crucially hinge on the proxies for federalism used. In this paper, we critically survey the existing indicators for both federalism and fiscal decentralization. We argue that federalism is a constitutional institution, whereas decentralization is the outcome of a policy choice, and that the two ought to be systematically distinguished because decentralization can also occur in nonfederally structured states. We further argue that institutional details are very important with regard to federalism and that dummy variables usually capture only very specific aspects of these institutional details. We use factor analysis to test whether the latent variables behind the observed indicators support these assumptions. More than two important factors are derived, implying that a more fine-grained differentiation beyond simply “‘federalism” and “decentralization” might be in order. The correlations of the most important proxies for various aspects of federalism and decentralization with a number of quasi-exogenous variables, as well as with institutional variables, are usually rather modest.