BONN GRADUATE SCHOOL OF ECONOMICS Sprecher: Prof. Dr. Urs Schweizer

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1 BONN GRADUATE SCHOOL OF ECONOMICS Sprecher: Prof. Dr. Urs Schweizer BONN ECON NEWS Universität Bonn, Adenauerallee 24-26, D Bonn, Tel ; Fax: www-server: Redaktion: Dorte Huth, Wirtschaftspolitische Abteilung Tel ; Fax: ; Nr. 365 Montag, VERANSTALTUNGEN DIESER WOCHE / ACTIVITIES OF THIS WEEK Dienstag, IZA Forschungsseminar Uhr, IZA Schaumburg-Lippe Str. 9 LawEcon Workshop Uhr, Juridicum, Raum 055 Mittwoch, Micro Workshop BGSE Uhr, Juridicum, Raum 055 Micro Theory Seminar Uhr, Juridicum, Fakultätszimmer Donnerstag, Finance and Insurance Seminar Uhr, Juridicum, Sitzungszimmer der Fakultät IZA Brown Bag Seminar Uhr, IZA, Schaumburg-Lippe-Str. 9 Freitag, Applied Micro Workshop Uhr, Juridicum, Raum 055 Thomas K. Bauer, IZA The Economic Integration of Forced Migrants Eric van Damme, Universität Tilburg Producing coinsurance contracts for large risks Deniz Dizdar, BGSE Surplus Division and Efficient Matching Leonardo Felli, London School of Economics Why Stare Decisis? Filip Uzelac, BGSE DB vs. DC Plans: Portability vs. Asset Price & Contribution Risk Karina Doorley, IZA Decomposing household wealth portfolios across countries: An age old question? Thomas Deckers, BGSE Nominal or Real? The Impact of Regional Price Levels on Satisfaction with Life

2 2 IZA FORSCHUNGSSEMINAR Thomas K. Bauer, IZA (joint work with Sebastian Braun and Michael Kvasnicka) The Economic Integration of Forced Migrants The flight and expulsion of Germans from Eastern Europe during and after World War II constitutes one of the largest forced population movements in history. We analyze the economic integration of these forced migrants and their off spring in West Germany. The empirical results suggest that even a quarter of a century after displacement, first generation migrants and native West Germans that were comparable before the war perform strikingly different. Migrants have substantially lower incomes and are less likely to own a house or to be self-employed. Displaced agricultural workers, however, have significantly higher incomes. This income gain can be explained by faster transitions out of low-paid agricultural work. Differences in the labor market performance of second generation migrants resemble those of the first generation. We also find that displacement considerably weakens the intergenerational transmission of human capital between fathers and children, especially at the lower tail of the skill distribution. LAWECON WORKSHOP Eric van Damme, Universität Tilburg Producing coinsurance contracts for large risks In the Netherlands, municipalities usually insure property risks by means of coinsurance, that is, the risk is shared by several insurance companies. In the past, such contracts were established by means of active broker involvement through a negotiation procedure, but this changed after the European Commission intervened and enforced using an EU-tender procedure. The question then is how to organize such a tender. In particular, does coinsurance indeed yield efficiency benefits, as compared to single-sourcing, as insurance companies argue? Or does coinsurance limit competition, as the competition authority fears? In this paper, we analyze, by means of game theoretic modeling, several tender procedures. Some of the models are stylized versions of procedures that are currently used; others (such as menu auctions) are inspired by the academic literature. We show that with an adequate design of the tender procedure, coinsurance indeed benefits the insurance taker. Some procedures might yield anti-competitive outcomes, with the do or die procedure from practice being particularly vulnerable.

3 3 MICRO WORKSHOP BGSE Deniz Dizdar, BGSE Surplus Division and Efficient Matching We study a two-sided matching model with a finite number of agents who are characterized by privately known, multi-dimensional attributes that jointly determine the match surplus of each potential partnership. Utility functions are quasi-linear, and monetary transfers among agents are feasible. We ask the following question: what divisions of surplus within matched pairs are compatible with information revelation leading to the formation of an efficient (surplusmaximizing) matching? Our main result shows that the only robust rules compatible with efficient matching are those that divide realized surplus in a fixed proportion, independently of the attributes of the pair's members. In other words, to enable efficient match formation, it is necessary that each agent expects to get the same fixed percentage of surplus in every conceivable match. A more permissive result is obtained for one-dimensional attributes and supermodular value functions. MICRO THEORY SEMINAR Leonardo Felli, London School of Economics (joint work with Luca Anderlini and Alessandro Riboni) Why Stare Decisis? All Courts rule ex-post, after most economic decisions are sunk. This might generate a timeinconsistency problem. From an ex-ante perspective, Courts will have the (ex-post) temptation to be excessively lenient. This observation is at the root of the principle of stare decisis. Stare decisis forces Courts to weigh the benefits of leniency towards the current parties against the beneficial effects that tougher decisions have on future ones. We study these dynamics and find that stare decisis guarantees that precedents evolve towards ex-ante efficient decisions, thus alleviating the Courts' time-inconsistency problem. However, the dynamics do not converge to full efficiency.

4 FINANCE AND INSURANCE SEMINAR Filip Uzelac, BGSE DB vs. DC Plans: Portability vs. Asset Price & Contribution Risk 4 This paper compares two different types of private retirement plans from the perspective of a representative beneficiary: Defined Benefit (DB) and Defined Contribution (DC) plan. One of the key differences is that DB plans carry portability risks, whereas DC plans bear asset and contribution risk. We model this tradeoff explicitly in this paper and compare these two plans in a utility based framework. Our numerical analysis focuses on determining the critical job switching intensity or the critical long-term contribution rate such that the beneficiary is indifferent between the DB and DC plan. IZA BROWN BAG SEMINAR Karina Doorley, IZA Decomposing household wealth portfolios across countries: An age old question? Using harmonized wealth data and a novel decomposition approach, we show that cohort effects exist in the income pro?les of asset and debt portfolios for a sample of European countries and the U.S. We find that observable characteristics explain a sizable portion of the wealth participation gap for the young in particular. Similar patterns are observed for most countries for the level of wealth held, conditional on participation. The bottom of the wealth distribution in the European countries (particularly Spain and Luxembourg) is, however, characterized by large unexplained differences to the U.S. distribution, possibly pointing to the existence of important safety nets, which shape wealth holdings in these countries. In accordance with past literature, we find that institutions and other unobservables play a larger role for mature households (50 and over). We will also discuss the potential effect of the crisis on these results.

5 5 APPLIED MICRO WORKSHOP Thomas Deckers, BGSE (joint with Hannah Schildberg-Hörisch and Armin Falk) Nominal or Real? The Impact of Regional Price Levels on Satisfaction with Life We study the effect of real versus nominal income on life satisfaction. According to standard economic theory real income, i.e., nominal income adjusted for purchasing power, should be the relevant source of life satisfaction. Previous work, however, has only studied the impact of nominal income. We use a novel data set comprising about 7 million data points that are used to construct a price level for each of the almost 400 administrative districts in Germany. We estimate a fixed effects model that controls for individual and local heterogeneity other than the price level. Our results show that higher price levels significantly reduce life satisfaction for individuals in the four lowest deciles of the income distribution. Furthermore, our findings suggest that people do not perceive money as neutral: the loss in life satisfaction caused by a higher price level is much larger than the loss in life satisfaction induced by a corresponding decrease in nominal income. Our results provide an argument in favor of regional indexation of government transfer payments such as social welfare benefits Redaktionsschluß für BONN ECON NEWS Nr. 366 MITTWOCH, Uhr BONN ECON NEWS by (pdf) *send to majordomo@listserv.uni-bonn.de with "subscribe econ-news" or "unsubscribe econ-news" in the body of the