Economics - Research Publications
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ItemReplication: Belief elicitation with quadratic and binarized scoring rules(Elsevier, 2020-12-01)Researchers increasingly elicit beliefs to understand the underlying motivations of decision makers. Two commonly used methods are the quadratic scoring rule (QSR) and the binarized scoring rule (BSR). Hossain and Okui (2013) use a within-subject design to evaluate the performance of these two methods in an environment where subjects report probabilistic beliefs over binary outcomes with objective probabilities. In a near replication of their study, we show that their results continue to hold with a between-subject design. This is an important validation of the BSR given that researchers typically implement only one method to elicit beliefs. In favor of the BSR, reported beliefs are less accurate under the QSR than the BSR. Consistent with theoretical predictions, risk-averse subjects distort their reported beliefs under the QSR.
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ItemIntra-industry spill-over effect of default: Evidence from the Chinese bond market(WILEY, 2021-09)Abstract We investigate the intra‐industry spill‐over effect of defaults in the Chinese bond market by using a sample of public corporate debt securities for the period 2014–2018. We find that both industry portfolios and individual firms witness a strong contagion effect, which further spreads to the primary bond market, triggering a surge in the debt financing cost for default industries. Moreover, this contagion effect is stronger for low‐competition industries and regulated industries, as well as when a default happens to state‐owned enterprises. Better information access and higher bond liquidity alleviate the contagion effect, lending support to the information updates and liquidity dry‐up hypotheses.
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ItemOn the optimality of joint periodic and extraordinary dividend strategies(ELSEVIER, 2021-08-13)In this paper, we model the cash surplus (or equity) of a risky business with a Brownian motion (with a drift). Owners can take cash out of the surplus in the form of “dividends”, subject to transaction costs. However, if the surplus hits 0 then ruin occurs and the business cannot operate any more. We consider two types of dividend distributions: (i) periodic, regular ones (that is, dividends can be paid only at countably many points in time, according to a specific arrival process); and (ii) extraordinary dividend payments that can be made immediately at any time (that is, the dividend decision time space is continuous and matches that of the surplus process). Both types of dividends attract proportional transaction costs, but extraordinary distributions also attract fixed transaction costs, which is a realistic feature. A dividend strategy that involves both types of distributions (periodic and extraordinary) is qualified as “hybrid”. We determine which strategies (either periodic, immediate, or hybrid) are optimal, that is, we show which are the strategies that maximise the expected present value of dividends paid until ruin, net of transaction costs. Sometimes, a liquidation strategy (which pays out all monies and stops the process) is optimal. Which strategy is optimal depends on the profitability of the business, and the level of (proportional and fixed) transaction costs. Results are illustrated.
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ItemSynthETIC: An individual insurance claim simulator with feature control(ELSEVIER, 2021-07-07)Recent years have seen rapid increase in the application of machine learning to insurance loss reserving. They yield most value when applied to large data sets, such as individual claims, or large claim triangles. In short, they are likely to be useful in the analysis of any data set whose volume is sufficient to obscure a naked-eye view of its features. Unfortunately, such large data sets are in short supply in the actuarial literature. Accordingly, one needs to turn to synthetic data. Although the ultimate objective of these methods is application to real data, the use of synthetic data containing features commonly observed in real data is also to be encouraged. While there are a number of claims simulators in existence, each valuable within its own context, the inclusion of a number of desirable (but complicated) data features requires further development. Accordingly, in this paper we review those desirable features, and propose a new simulator of individual claim experience called SynthETIC. Our simulator is publicly available, open source, and fills a gap in the non-life actuarial toolkit. The simulator specifically allows for desirable (but optionally complicated) data features typically occurring in practice, such as variations in rates of settlements and development patterns; as with superimposed inflation, and various discontinuities, and also enables various dependencies between variables. The user has full control of the mechanics of the evolution of an individual claim. As a result, the complexity of the data set generated (meaning the level of difficulty of analysis) may be dialed anywhere from extremely simple to extremely complex. The default version is parameterized so as to include a broad (though not numerically precise) resemblance to the major features of experience of a specific (but anonymous) Auto Bodily Injury portfolio, but the general structure is suitable for most lines of business, with some amendment of modules.
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ItemOn the modelling of multivariate counts with Cox processes and dependent shot noise intensities(ELSEVIER, 2021-04-03)In this paper, we develop a method to model and estimate several, dependent count processes, using granular data. Specifically, we develop a multivariate Cox process with shot noise intensities to jointly model the arrival process of counts (e.g. insurance claims). The dependency structure is introduced via multivariate shot noise intensity processes which are connected with the help of Lévy copulas. In aggregate, our approach allows for (i) over-dispersion and auto-correlation within each line of business; (ii) realistic features involving time-varying, known covariates; and (iii) parsimonious dependence between processes without requiring simultaneous primary (e.g. accidents) events.
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ItemOptimal periodic dividend strategies for spectrally negative Levy processes with fixed transaction costs(Taylor and Francis Group, 2021-02-04)Maximising dividends is one classical stability criterion in actuarial risk theory. Motivated by the fact that dividends are paid periodically in real life, periodic dividend strategies were recently introduced (Albrecher et al. 2011). In this paper, we incorporate fixed transaction costs into the model and study the optimal periodic dividend strategy with fixed transaction costs for spectrally negative Lévy processes. The value function of a periodic (bu,bl) strategy is calculated by means of exiting identities and Itô's excusion when the surplus process is of unbounded variation. We show that a sufficient condition for optimality is that the Lévy measure admits a density which is completely monotonic. Under such assumptions, a periodic (bu,bl) strategy is confirmed to be optimal. Results are illustrated.
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ItemNo Preview AvailableIs it a fallacy to believe in the hot hand in the NBA three-point contest?(Elsevier BV, 2021-09-01)
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ItemNo Preview AvailableBehavioral Constraints on the Design of Subgame-Perfect Implementation Mechanisms(AMER ECONOMIC ASSOC, 2021-04)We study subgame-perfect implementation (SPI) mechanisms that have been proposed as a solution to incomplete contracting problems. We show that these mechanisms, which are based on off-equilibrium arbitration clauses that impose large fines for lying and the inappropriate use of arbitration, have severe behavioral constraints because the fines induce retaliation against legitimate uses of arbitration. Incorporating reciprocity preferences into the theory explains the observed behavioral patterns and helps us develop a new mechanism that is more robust and achieves high rates of truth-telling and efficiency. Our results highlight the importance of tailoring implementation mechanisms to the underlying behavioral environment. (JEL C92, D44, D82, D86, D91)
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ItemNo Preview AvailableLabor market policies during an epidemic(Elsevier, 2021-02-01)We study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost-equivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The small share of payroll subsidies is sufficient to preserve high-productivity jobs, but it leaves room for social assistance to workers who face inevitable job loss.
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ItemFood Price Elasticities for Policy Interventions: Estimates from a Virtual Supermarket Experiment in a Multistage Demand Analysis with (Expert) Prior Information(WILEY, 2021-12)Food price elasticities (PEs) are essential for evaluating the impacts of food pricing interventions to improve dietary and health outcomes. This paper innovates the use of experimental purchasing data from a recent New Zealand virtual supermarket experiment to estimate PEs for a large set of disaggregated foods across major food groups relevant for food policies in a Bayesian multistage demand framework. We propose the use of available prior information to elicit prior demand parameter assumptions that are consistent with published PEs and economic assumptions and are weighted according to expert knowledge, increasing precision in PE inference and policy predictions, and yielding somewhat stronger price effects.