Optimal pension insurance design

In this paper we analyze how the traditional life and pension contracts with a guaranteed rate of return can be optimized to increase customers’ welfare. Given that the contracts have to be priced correctly, we use individuals’ preferences to find the preferred design. Assuming CRRA utility, we cannot explain the existence of any form of guarantees. Through numerical solutions we quantify the difference (measured in certainty equivalents) to the preferred Merton solution of direct investments in a fixed proportion of risky and risk free assets. The largest welfare loss seems to come from the fact that guarantees are effective by the end of each year, not only by the expiry of the contract. However, the demand for products with guarantees may be explained through behavioral models. We use cumulative prospect theory as an example, showing that the optimal design is a simple contract with a life-time guarantee and no default option.     

On the role of market insurance in a dynamic model

Durables like cars or houses are a substantial component in the balance sheets of households. These durables are exposed to risk and can be insured in the market. We build a dynamic model in which agents have three possibilities to cope with the risk exposure of the durable stock: (i) purchase of market insurance, (ii) buffer-stock saving of the riskless asset or (iii) adjustment of the durable stock. We calibrate our model to the US economy and find a small role for market insurance.

Text-analytic measurement of effectuation and causation orientations among small and global business managers

We demonstrate how one can measure overall quality in texts gathered from interviews by means of PERTEX text analytic method. We compare text analytic measures and content for locally active Scandinavian small business managers and globally operating Indian IT managers when recapitulating the reasons behind company growth. Using Ward’s clustering method (J Am Stat Assoc 58:236–244, 1963) on a binary matrix for connections between textual components, we suggest using the ESS value from clustering to calculate AFFI as an overall measure of quality. By further splitting the AFFI into three sub-components we are also able to display the degree of fragmentation, focus and integration in the text. We show how AFFI measures differ between managers with a causation or effectuation orientation irrespective of their role as small business manager or as an established global manager. Hence, we posit that effectuation and causation orientations may be generic characteristic of managers in general.     

The effects of development aid on exports

Of what benefit cooperation with developing countries is in actual fact to the industrialized countries is a question which is receiving increasing attention in the discussions on development policy. In the present economic situation special interest attaches in this context of course to the repercussions of public development aid services on the export activities of enterprises in the donor countries. The following article is based on the findings of a study into “Job procurement through development aid credits and exports to developing countries“ (Arbeitsplatzsicherung durch Entwicklungshilfekredite und Exporte in Entwicklungsländer, Basle 1978) which was undertaken by the author together with Christel Bergmann on behalf of the Federal Ministry for Economic Cooperation.