The age-productivity gradient: Evidence from a sample of F1 drivers

Estimating the effect of aging on productivity requires clean measures of productivity. Additionally, one needs to control for unobserved heterogeneity at the worker, firm and worker/firm level, to account for the role of experience and to correct for selection bias. We tackle these issues exploiting a panel of Gran Prix Formula One drivers, which provides a unique setting to single out the data requirements needed to credibly estimate the effect of age on productivity. Results robust to the inclusion of worker, firm and match effects show that the age-productivity link has an inverted U-shape profile with a peak at the age of 30-32. The use of repeated cross-sections of individuals also produces consistent results provided that cohort effects are properly accounted for. Relying on team-average measures of productivity makes instead inference harder.     

A test for the too-big-to-fail hypothesis for European banks during the financial crisis

Motivated by the theoretical prediction of the opportunistic behaviour of large banks that face expected public intervention, we test a full and a partial form of the too-big-to-fail (TBTF) hypothesis. The full form of the hypothesis implies the increase in the risk undertakings and profitability of banks that exceed a certain dimension; the partial form of the hypothesis implies only an augmented risk appetite of large banks compared to their smaller counterparts. The examined area is the European banking industry, whose behaviour is observed over the first wave of the present financial crisis (2007/09). The estimation of a quadratic fit that links change in a bank’s credit risk profile and profitability retention rates with a bank’s size suggests the existence of a partial form of the TBTF hypothesis. However, a more precise, local rolling windows estimation of the size sensitivities reveals that large banks – those whose liabilities exceed approximately 2% of the country of origin’s GDP (15% of our sample) – show an increase in credit risk profile and a superior capability of retaining higher ROA scores, vis-à-vis their smaller counterparts. With the caveats of our investigation, we interpret these results as evidence of a full form of the TBTF hypothesis.     

A test of the rational expectations hypothesis using data from a natural experiment

Data on contestants’ choices in Italian Game Show Affari Tuoi are analysed in a way that separates the effect of risk attitude (preferences) from that of beliefs concerning the amount of money that will be offered to contestants in future rounds. This separate identification is possible by virtue of the fact that, at a certain stage of the game, beliefs are not relevant, and risk attitude is the sole determinant of choice. The rational expectations hypothesis is tested by comparing the estimated belief function with the ‘true’ offer function which is estimated extraneously using data on offers actually made to contestants. We find a close correspondence, leading us to accept the rational expectations hypothesis. The importance of belief formation is confirmed by the estimation of a mixture model which establishes that the vast majority of contestants are forward looking as opposed to myopic.     

Assessing social impact in the field of sustainable tourism development: Evidence from Cabo Delgado (MZ)

ABSTRACT

Assessing the social impact of tourism-related activities is of paramount importance to promoting sustainable development. The present study aimed to assess the social impact of a project in Cabo Delgado (MZ), designed to increase local community residents’ employability in the emerging tourism sector through the delivery of vocational training programmes, utilising a multi-phase and mixed-method design. The study comprised three different phases (before, during, and after the intervention) and took into account the perspective of a variety of stakeholders. Programmes were perceived to be effective by local operators in the tourism sector and trainees, as they enhanced their living conditions and increased their employability. International operators and tourists, however, had not yet perceived their effectiveness. This study offers a methodological framework for social impact assessment by performing a programme evaluation as an integral part of the intervention itself. This methodology can be extended to other non-tourism related contexts.     

The Race Towards Transparency: An Experimental Investigation

To understand the current tendency toward transparency, we studied the effects of accounting disclosure in a laboratory. In our experiment, transparency in the financial accounts of the listed companies improved information efficiency; but, even after checking for fundamentals, the transparency increased the volatility of market prices. Moreover, transparency improved investors' utility, so that their preference for more certain assets emerged. Therefore, we argue that the current race toward transparency may be better explained by firms' and markets' intention to attract household investments rather than to improve market efficiency.
(J.E.L.: G92, D44, D81, G12, G28).     

Capital Requirements in a Financially Driven Business Cycle Model

We consider a simple overlapping generations economy where, because of asymmetric information and limited liability both in the loan and the deposits markets, firms have the incentive to undertake less efficient investment projects, while intermediaries have the incentive to monitor a smaller number of firms. Because of the positive relationship between the deposit interest rate and the level of monitoring, the lending activity of intermediaries may cause endogenous fluctuations in the level of economic activity.
In this economy, a higher capital requirement, introduced to render deposit contracts incentive compatible, implies a higher steady state stock of capital, fewer bankruptcies among intermediaries and smaller fluctuations in the level of economic activity.
(J.E.L. E32, D82, G28)     

Asymptotic search behavior based on the Weibull distribution

Fixed sample size search rules are examined for the case of a small marginal cost of search. The asymptotic Weibull distribution of minimum price is used to derive the optimal number of searches for a large class of parent price distributions. It is shown that the asymptotic price elasticity of the demand for search is a negative rational number less than 1 in absolute value.     

Can inflation data improve the real‐time reliability of output gap estimates?

Potential output plays a central role in monetary policy and short‐term macroeconomic policy making. Yet, characterizing the output gap involves a trend‐cycle decomposition, and unobserved component estimates are typically subject to a large uncertainty at the sample end. An important consequence is that output gap estimates can be quite inaccurate in real time, as recently highlighted by Orphanides and van Norden ( 2002 ), and this causes a serious problem for policy makers. For the cases of the US, EU‐11 and two EU countries, we evaluate the benefits of using inflation data for improving the accuracy of real‐time estimates. Copyright © 2004 John Wiley & Sons, Ltd.     

Parents’ Use of Subsidiaries to “Push Down” Earnings Management: Evidence from Italy

We find evidence consistent with Italian nonlisted subsidiaries engaging in accrual and real earnings management, so that their listed parents can meet or beat benchmarks. Thus, the parent firm drives the earnings management of the subsidiaries. We identify parents that are more likely to have managed earnings as the ones that avoid a small loss or meet or beat analyst forecast by a few cents. Cross‐sectional analysis reveals that Big 4 auditors mitigate accrual earnings management at the subsidiary level and that family‐owned firms use earnings management through nonlisted subsidiaries mainly to avoid reporting losses. Finally, we find that parent firms communicate earnings management strategies to their subsidiaries using board proximity. Our evidence shows that business groups manage earnings differently from single firms, pushing earnings management down to subsidiaries. It also supports the monitoring role of Big 4 auditors in a business group setting and contributes to understanding financial reporting decisions in family‐owned firms.     

Seeds of distrust: conflict in Uganda

We study the effect of civil conflict on social capital, focusing on Uganda’s experience during the last decade. Using individual and county-level data, we document large causal effects on trust and ethnic identity of an exogenous outburst of ethnic conflicts in 2002–2005. We exploit two waves of survey data from Afrobarometer (Round 4 Afrobarometer Survey in Uganda, 2000, 2008), including information on socioeconomic characteristics at the individual level, and geo-referenced measures of fighting events from ACLED. Our identification strategy exploits variations in the both the spatial and ethnic intensity of fighting. We find that more intense fighting decreases generalized trust and increases ethnic identity. The effects are quantitatively large and robust to a number of control variables, alternative measures of violence, and different statistical techniques involving ethnic and spatial fixed effects and instrumental variables. Controlling for the intensity of violence during the conflict, we also document that post-conflict economic recovery is slower in ethnically fractionalized counties. Our findings are consistent with the existence of a self-reinforcing process between conflicts and ethnic cleavages.