Wage expectations in northern and southern Italian regions: An interpretation based on psychological and social factors

Individual wage expectations of Italian unemployed are studied. The analysis is carried out separately for the North‐Central and southern Italian regions using semiparametric additive models. Results show a marked difference in expectations formation across regions. We argue that as far as the labour market information in the South is less diffuse and more ambiguous than in the North, the divergence between the econometric model based on a utility‐maximisation mainstream theory and the actual wage expectation mechanism may be large. A tentative explanation based on psychological and social factors is offered.     

The Role of Income Effects in Early Retirement

We provide a long‐term perspective on the individual retirement behavior and on the future of retirement by emphasizing the role of (negative) income effects. We consider a political economic theoretical framework, with actuarially “fair” and “unfair” early retirement schemes, and derive a political equilibrium with positive social security contribution rates and early retirement. A reduction in the wages in youth, consistent with the recent labor market trends since the massive introduction of temporary jobs, induces workers to postpone retirement, and—in the “unfair” system—leads to lower contribution rates. A reduction in the growth rate of the economy has opposite effects on the retirement decisions, leading—in the “unfair” system—to more early retirement. Aging induces a negative income effect, but has also an opposite political effect on social security contributions and retirement decisions. For an actuarially “fair” social security system, we provide conditions for the political effect to dominate; in an “unfair” scheme, numerical simulations confirm a slight predominance of the political effect, as contribution rates increase. These results may shed some light on the future of early retirement in aging societies.     

A Lobbying Approach to Evaluating the Sarbanes‐Oxley Act of 2002

We evaluate the impact of the Sarbanes‐Oxley Act (SOX) on shareholders by studying the lobbying behavior of investors and corporate insiders in order to affect the final implemented rules under SOX. Investors lobbied overwhelmingly in favor of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation. We identify firms most affected by the law as those whose insiders lobbied against strict implementation. Such firms appear to be characterized by agency problems, rather than motivated by concerns over compliance costs. Cumulative stock returns during the five and a half months leading up to SOX passage were approximately 7% higher for corporations whose insiders lobbied against SOX disclosure‐related provisions than for similar non‐lobbying firms, consistent with an expectation that SOX would reduce agency problems. Analysis of returns in the post‐passage implementation period suggests that investors' positive expectations with regards to the effects of these provisions were warranted.     

Monetary Equilibrium and the Cost of Banking Activity

We investigate the effects of banks' operating costs on allocations and welfare in a low interest rate environment. We introduce an explicit production function for banks in a microfounded model where banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium, this generates a spread between interest rates on loans and deposits, which reflects the underlying monetary policy and the efficiency of financial intermediation. In a deflation or low-inflation environment, equilibrium deposits yield zero returns. Hence, banks soak up labor resources to offer deposits that do not outperform idle balances, thus reducing aggregate efficiency.     

The Determinants of Attitudes toward Strategic Default on Mortgages

We use survey data to measure households’ propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The willingness to default increases in both the absolute and the relative size of the home‐equity shortfall. Our evidence suggests that this willingness is affected by both pecuniary and non‐pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.     

Overconfidence and Preferences for Competition

We study when preferences for competition are a positive economic trait among high earners and the extent to which this trait can explain the gender gap in income among a master's degree in business administration (MBAs). Consistent with the experimental evidence, preferences for competition are a positive economic trait only for individuals who are not overconfident. Preferences for competition correlate with income only at graduation when bonuses are guaranteed and not a function of performance. Overconfident competition-loving MBAs observe lower compensation and income growth, and experience greater exit from high-reward industries and more frequent job interruptions. Preferences for competition do not explain the gender pay gap among MBAs.     

Trusting the Stock Market

We study the effect that a general lack of trust can have on stock market participation. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function of the objective characteristics of the stocks and the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. In Dutch and Italian micro data, as well as in cross‐country data, we find evidence consistent with lack of trust being an important factor in explaining the limited participation puzzle.