Correcting for the Missing Rich: An Application to Wealth Survey Data

It is a well‐known criticism that if the distribution of wealth is highly concentrated, survey data are hardly reliable when it comes to analyzing the richest parts of society. This paper addresses this criticism by providing a general rationale of the underlying methodological problem as well as by proposing a specific methodological approach tailored to correcting the arising bias. We illustrate the latter approach by using Austrian data from the Household Finance and Consumption Survey. Specifically, we identify suitable parameter combinations by using a series of maximum‐likelihood estimates and appropriate goodness‐of‐fit tests to avoid arbitrariness with respect to the fitting of the Pareto distribution. Our results suggest that the alleged non‐observation bias is considerable, accounting for about one quarter of total net wealth in the case of Austria. The method developed in this paper can easily be applied to other countries where survey data on wealth are available.     

The dynamics of premium reserves of life annuities under the regime of Solvency II

The article considers the solvency requirements for a whole portfolio of annuities under the regime of Solvency II. More precisely, the following question is investigated: Which demand of interest on the initial capital – the Solvency II premium reserves – is needed in order to fit the balance for Solvency II capital requirements in the next year? It turns out, that even for a model portfolio of simple annuities with say guaranteed interest rate of 1,25% the demand of interest in one year is greater than 3%. So even if a life insurance company fulfill the capital requirements of Solvency II in 2016 the mentioned effect causes eventually problems in future times.     

Trust and Understanding,Two Psychological Aspects of Randomized Response

This study examines two different Randomized Response methods to see whether they evoke sufficient understanding and trust, and ensure fewer evasive answers to socially sensitive questions. Two Randomized Response methods were employed by trained interviewers to study fraud: the Forced Response method, using dice, and Kuk's method, using playing cards. Respondents were selected from the files of the social security offices of three Dutch cities. A total of 334 respondents participated voluntarily in this study of two Randomized Response methods. Most respondents were known to have committed some form of fraud, and their answer on the Randomized Response question is validated with this information. The results indicate that subjects who have a better understanding of the Forced Response technique give more socially undesirable answers. The interviewer has a most important role establishing trust and understanding. Respondents who are less able to understand the instructions, e.g., have limited language abilities, develop less trust in the method.     

Multidimensionales Verfahren zur Bestimmung des Regelleistungsbedarfes unter Berücksichtigung von Unsicherheiten

One of the most crucial constraints in operation of electrical power supply systems is the permanent balance between generation and load. Reserve power is held ready to be able to keep this balance also in case of the occurrence of unpredictable events like power plant outages or inevitable deviations of power injections from their predicted values. At this, the allocation of operating reserves is in the field of conflict between level of reliability and cost effectiveness. The amount of reserve generation capacity required in a control area heavily depends on prediction quality which constitutes the need for high quality predictions. This article is about the influence of prediction quality on the amount of reserve generation capacity required in a control area. The algorithms for the assessment of required reserve generation capacity known from literature use the variation calculus technique to account for the aforementioned unpredictable events and prediction errors. In this article, an extension to a convolution-based method is presented in which the uncertainties of the predictions are expressed using intervals. Each parameter is represented by an independent dimension, assuming statistical independence among them. This allows the distinct analysis of each parameter’s influence on the amount of required reserve generation capacity. In addition, two methods for the visualization of the multi-dimensional results are presented, allowing a comprehensive analysis of the parameters’ influences. Standard distribution functions are used to represent the parameters for the simulation and the results are shown as probability density functions of possible imbalances. Based on forecasts of the development of conventional power plants and regenerative generation in the years 2020, 2030 and 2040, the required control power of the future German transmission system is calculated. Influences and dependencies are identified with the extended convolution-based method.     

Economic Aspects of Loneliness in Australia

We highlight the problem of loneliness, and argue that it is not only a public health issue but also an economic problem. We provide a brief review of findings from the key literature on the associations between loneliness, mental and physical health, and healthcare costs; and then present some evidence on its trends, the extent of socioeconomic inequalities and its links with health and healthcare usage, in Australia. We hope to encourage further economics research on loneliness, and related issues of social isolation and poor social support, to aid the design of policies and interventions to reduce loneliness.     

Heterogeneous Mortgage Markets: Implications for Business Cycles and Welfare in the EMU

This paper evaluates business cycle effects of asymmetric cross‐country mortgage market developments in a monetary union. By employing a two‐country New Keynesian DSGE model with collateral constraints tied to housing values, we show that a change in institutional characteristics of mortgage markets, such as the loan‐to‐value (LTV) ratio, is an important driver of asymmetric developments in housing markets and economic activity. Our analysis suggests that the home country where credit standards are lax booms, while the rest of European Monetary Union faces a negative output gap. Overall welfare is lower if LTV ratios are higher.     

Seize the Moment: Financial Crisis and the Making of the Finnish Competition State

In this paper we examine how Finnish Governments dismantled the Nordic welfare state paradigm from the 1990s onwards and adopted Schumpeterian ideas of a competitive workfare state. In the early 1990s, Finland went through a financial crisis that was the most severe in OECD countries since the Second World War and came to play a major role in the paradigm change. In the crisis, the Ministry of Finance gained a central role as a consensus-building power broker, and formulated a political strategy of national competitiveness, which was adopted as a rationale of power for consensual governments and has been maintained since. We suggest that financial crises can become formative moments in which new ideas are adopted and policies are reformulated. They can also become moments which provide opportunity to overcome citizen opinion. In Finland, the wide popular and party support for the Nordic welfare model was not reflected in the new paradigm.     

Momentum strategies of German mutual funds

The existence of the momentum effect in stock returns has been documented for the US (e.g., Jegadeesh and Titman in J. Finance 48(1), 65–91, 1993) and many other national equity markets worldwide (e.g., Griffin et al. in J. Finance 58(6), 2515–2547, 2003). However, little is known about the active employment of momentum strategies among institutional investors outside the US. This paper provides first evidence of momentum behavior among German mutual funds. We find the fund trades to follow stock returns on an aggregated institutional level. Moreover, we detect significant momentum behavior among funds with a European and global equity focus, as well as among funds predominantly investing in Asia. In contrast, German funds do not seem to engage in momentum strategies when trading domestic stocks. While only half the funds in our sample trade in accordance with past returns, 66 % of the funds within the largest size quintile follow momentum strategies. Finally, we do not find momentum trading funds to outperform the other funds.     

The warnings puzzle: an upstream explanation

Enforcement agencies issuing warnings are an empirical regularity in the enforcement of laws and regulations, but a challenge to the standard economic theory of public enforcement. A number of recent contributions explain the popularity of warnings as a response to information asymmetries between regulator and regulatee. We offer a distinct, but complementary explanation: Warnings can serve as a signaling device in the interaction between the enforcement agency and its budget-setting authority. By using costly warnings for minor offenses that would otherwise not be pursued, the agency can generate observable activity to escape budget cuts in subsequent periods. We show in a stylized model that warnings may indeed occur in an equilibrium of a game in which warnings are entirely unproductive in the agency-regulatee interaction, and thereby derive a testable hypothesis on regulatory agency behavior.