Financial literacy and voluntary savings for retirement: novel causal evidence

ABSTRACT

We utilise recent Household Finance and Consumption Survey microdata to report first causal effects of financial literacy on voluntary private pension schemes participation for a Central and Eastern European (CEE) country, namely Slovakia. Savings for retirement in the supplementary pension schemes are positively associated with financial literacy after controlling for a set of relevant socio-economic variables. One additional correctly answered financial literacy question leads to a 5.6 percentage points increase in the probability of having a voluntary pension savings plan in our ordinary least squares estimates. The causal impact of financial literacy increases to 19.5 percentage points when we address potential endogeneity problems by novel to the literature instrumental variables.     

Firm efficiency: Domestic owners,coalitions, and FDI

In this paper we analyze the evolution of firm efficiency in the Czech Republic. Using a large panel of more than 190,000 Czech firm/years we study whether firms fully utilize their resources, how firm efficiency evolves over time, and how firm efficiency is determined by ownership structure. We employ a panel version of a stochastic production frontier model for the period 1996–2007 with time-varying efficiency. We differentiate among various degrees of ownership concentration and domestic or foreign origin. In a two-stage set-up we first estimate the degree of firm inefficiency and then the effect of ownership structure on the distance from the efficiency frontier. Our results support the hypothesis that concentrated ownership is positively related to efficiency. FDI has beneficial effects at the microeconomic level. However, we show that a simple majority is not necessarily the best structure to improve efficiency. We further analyze the effects of ownership coalitions and shed light on many other subtleties of how ownership and the specific industry affect firm efficiency.     

A Search Cost Perspective on Formation and Duration of Trade

More than half of all US import relationships begin with less than $10,000 annually. The median relationship is observed to last just one year. The incidence and duration of import relationships are consistent with a search model of international trade. The preponderance of small starting relationships reveals uncertainty present in the formation of trade relationships. Initial size, reliability, and search costs play an important role. Larger initial purchase results in longer relationships. Higher reliability and lower search costs lead to larger initial purchases and longer relationships.     

Noise and aggregation of information in large markets

We study the relation between noise (liquidity traders, endowment shocks) and the aggregation of information in financial markets with large number of agents. We show that as long as noise increases with the number of agents, the limiting equilibrium is well-defined and leads to non-trivial information acquisition, even when per-capita noise tends to zero. In such equilibrium risk sharing and price revelation play different roles than in the standard limiting economy in which per-capita noise is finite. We apply our model to study information sales by a monopolist, and information acquisition in multi-asset markets, showing that it leads to qualitatively different results with respect to those in the existing literature. Our conditions on noise are shown to be necessary and sufficient to have limiting economies with perfectly competitive behavior consistent with endogenous information acquisition.     

An examination of the effect of messages on cooperation under double-blind and single-blind payoff procedures

Previous research has suggested that communication and especially promises increase cooperation in laboratory experiments. This has been taken as evidence for internal motivations such as guilt aversion or preference for promise keeping. The goal of this paper was to examine messages under a double-blind payoff procedure to test the alternative explanation that promise keeping is due to external influence and reputational concerns. Employing a 2×2 design, we find no evidence that communication increases the overall level of cooperation in our experiments with double-blind payoff procedures. However, we also find no evidence that communication impacts cooperation in our experiments with single-blind payoff procedures. Further, the payoff procedure does not appear to impact aggregate cooperation.     

Free trade versus strategic trade as a choice between two ‘second best’ policies: A symmetric versus asymmetric information analysis

Abstract

We analyse the following policy dilemma: strategic trade policy versus free trade when the domestic government is bound to intervene only after the domestic firm's strategic variable in the form of R&D investment is chosen, and when the information can be either symmetric or asymmetric. The novel feature of our model is that the information asymmetry stems from the assumption that the government may not a priori know the true mode of competition. The intervention in the above set-up allows the domestic firm to manipulate the domestic government and results in a socially inefficient choice of the strategic variable. However, commitment to free trade leads to forgoing the benefits from profit-shifting. Yet, from the social point of view, free trade may be optimal even under the assumption of symmetric information. Due to costly signalling, this result is reinforced in the case of asymmetric information.     

Book review article In search of an alternative theory: a critique of Dosi et al.'s Technical change and economic theory

In this article the author discusses the main contributions and controversial issues raised in an important bookTechnical change and economic theory. The book represents a cornerstone in theorizing technical change. The main features of the book are summarized and the author discusses a number of controversial issues, such as: the evolutionary perspective; the notion of a technoeconomic paradigm; the analysis of firms' technological behaviour; the notion of institutions; the problem of ‘catching up’ in technology; the treatment of formal modelling and policy implications; and treatment of social aspects of technical change. The author concludes that the book should be treated as a work in progress and not as a fully developed and comprehensive approach. However, the critical mass of findings, gathered in this book, is important reading, and represents an important step forward in the exploration of a new approach to economic theory.     

How to quantify the influence of correlations on investment diversification

When assets are correlated, benefits of investment diversification are reduced. To measure the influence of correlations on investment performance, a new quantity—the effective portfolio size—is proposed and investigated in both artificial and real situations. We show that in most cases, the effective portfolio size is much smaller than the actual number of assets in the portfolio and that it lowers even further during financial crises.