longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

time inconsistent preferences and the annuitization decision good news can involve difficult decisions for example winning a lottery jackpot can go along with the decision whether to have the jackpot paid out immediately as a lump sum or as periodic annual payments also when entering retirement most people face the decision whether they want their defined contribution account balance paid as a lump sum or to annuitize that amount the fact that people tend to choose the lump sum even if economic reasons suggest that they should choose the annuity is called the annuity paradox in a large online survey we find that people behave time inconsistent older people have a stronger tendency to choose the lump sum than younger people when they are asked to predict today what to choose when they retire this effect is considerably stronger for participants that answer simple time preference questions inconsistently our findings suggest to think about precommitment devices for the annuitization decision in the retirement case already at the time when the defined benefit plan is started

patent validation at the country level the role of fees and translation costs one feature of the european patent system that is heavily criticized nowadays is related to its complex fragmentation and the induced cost burden for applicants once a patent is granted by the epo the assignee must validate and often translate it and pay the renewal fees to keep it in force in each country in which the applicant seeks protection the objective of this paper is to assess to what extent validation and renewal fees as well as translation costs affect the validation behavior of applicants we rely on a gravity model that aims at explaining patent flows between inventor and target countries within the european patent system the results show that the size of countries their wealth and the distance between their capital cities are significant determinants of patent flows validation fees and renewal fees further affect the validation behavior of applicants translation costs seem to have an impact as well the important role played by fees suggests that the implementation of cost reducing policy interventions like the london protocol would induce a significant increase in the number of patents validated in each european country

choice proliferation simplicity seeking and asset allocation abstract in settings such as investing for retirement or choosing a drug plan individuals typically face a large number of options in this paper we analyze how the size of the choice set influences which alternative is selected we present both laboratory experiments and field data that suggest larger choice sets induce a stronger preference for simple easy to understand options the first experiment demonstrates that in seeming violation of the weak axiom of revealed preference subjects are more likely to select a given sure bet over non degenerate gambles when choosing from a set of 11 options than when choosing from a subset of 3 the second experiment clarifies that large choice sets induce a preference for simpler rather than less risky options lastly using records of more than 500 000 employees from 638 institutions we demonstrate that the presence of more funds in an individual s 401 k plan is associated with a greater allocation to money market and bond funds at the expense of equity funds

framing and retirement age the gap between willingness to accept and willingness to pay summaryin a large online experiment we relate the retirement timing decision to the disparity between the willingness to accept wta and the willingness to pay wtp in the wtp treatment participants indicate the maximum amount of monthly benefits they are willing to give up to retire early in the wta treatment the minimum increase of monthly payments to delay retirement is elicited our results reveal that the framing of the decision problem strongly influences participants reservation price for early retirement the wta for early retirement is more than twice as high as the corresponding wtp using actual values from the german social security system as market prices we demonstrate that the presentation in a wta frame can induce early retirement in this frame the implicit probability of retiring early increases by 30 percentage points we further show that the disparity between wta and wtp is correlated with loss aversion repeating the analysis with data from a representative household survey german save panel we find similar results

how deep is the annuity market participation puzzle using microeconomic data for the united kingdom we analyze the empirical determinants of voluntary annuity market demand we find that annuity market participation increases with financial wealth life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses we then show that these empirically motivated determinants of annuity market participation have the same quantitatively important effects in a life cycle model of annuity and life insurance demand saving and portfolio choice moreover reasonable preference parameters predict annuity demand levels comparable to the data for stockholders a strong bequest motive can simultaneously generate balanced portfolios and low annuity demand

trends and volatilities in foreign patents registered in the usa this study analyses the patent trends and volatilities for the top 12 foreign patenting countries in the us market from 1975 to 1997 japan is ranked first in terms of foreign patents registered in the usa followed by germany patent registrations from each of these countries have increased steadily over time but at different rates using monthly time series data for 1975 1997 the time varying volatility of australian japanese and german patents registered in the usa is examined in detail the asymmetric ar 1 gjr 1 1 model is found to be suitable for australia and japan while the best fitting model for germany is the symmetric ar 1 garch 1 1 model

aging and strategic learning the impact of spousal incentives on financial literacy women tend to be less financially literate than men consistent with a division of labor where husbands manage finances however women tend to outlive their husbands i find that older women acquire financial literacy as they approach widowhood 80 percent would catch up with their husbands by the expected onset of widowhood these gains are not attributable to husbands cognitive decline as captured by cognition tests the results are consistent with a model in which the division of labor collapses when a spouse dies women have incentives to delay acquiring financial human capital but also to begin learning before widowhood

cohort mortality risk or adverse selection in annuity markets abstract we show that tests for adverse selection in annuity markets using prices are not identified within the uk annuity market different annuity products create the potential for a rothschild stiglitz separating equilibrium as different risk types could choose different annuities empirical analyses using the money s worth suggest that prices are indeed consistent with this explanation however we show that this pattern of annuity prices would also result from the actions of regulated annuity providers who must reserve against cohort mortality risk annuity products that might attract different consumer risk types also have different risks for the provider

thanatology and economics the behavioral economics of death death is an integral part of life yet the economic modeling of death is perfunctory with most of the controversy focused on whether people s planning horizon ends with their own life or extends beyond that in contrast one might expect that of all aspects of life decisions that require facing up to one s own mortality engender unique fears and psychological reactions 1 that we are forwardlooking and can anticipate death distinguishes human beings from other species sigmund freud s student otto rank 1941 argued that mortality anxiety was the fundamental human fear and he attributed the genesis of man s religious impulses and the source of humanity s construction of meaning and order to the awareness of one s personal finitude rank s ideas were revived and popularized in ernest becker s 1973 book the denial of death the idea that many people live in denial of their own mortality is common in literature and philosophy perhaps best summarized in the words of the 17th century french epigrammist francois la rochefoucauld one cannot look directly at either the sun or death many central issues in economics such as the intertemporal pattern of consumption are at stake if people systematically deviate from the predictions of standard models with regard to decisions concerning their own death assessing whether this is true requires enriching the models of how people behave in the face of death and testing them against observed patterns of behavior

cognitive constraints on valuing annuities this paper documents consumers difficulty valuing life annuities using a purpose built experiment in the american life panel we show that the prices at which people are willing to buy annuities are substantially below the prices at which they are willing to sell them we also find that buy values are negatively correlated with sell values and that the sell buy valuation spread is negatively correlated with cognition this spread is larger for those with less education weaker numerical abilities and lower levels of financial literacy our evidence contributes to the emerging literature on heterogeneity in financial decision making abilities particularly regarding retirement payouts jel d14 d91 g11 h55

international stock market linkages evidence from the pre and post october 1987 period abstract this paper uses recent developments in the theory of cointegration to provide new methods of testing the linkage and dynamic interactions among stock market movements our findings are in sharp contrast with previous research which discovered strong interdependence among national stock markets prior to october 1987 for the post october 1987 period however our results show that the degree of international co movements among stock price indices has increased substantially with the nikkei index the only exception furthermore the us stock market is found to have a considerable impact on the french german and uk markets in the post crash period we also find the response of the french german and uk markets to us stock market innovations to be consistent with the view of cross border informationally efficient stock markets finally we find the japanese equity market performance to have no links with both the us stock market and the stock markets in france germany and uk during the pre and post october crash period

survival ambiguity and welfare abstract nearly all life cycle models adopt yaari s 1965 assumption that individuals know the survival probabilities that they face given that an individual s exact survival probabilities are likely unknown we explore the implications of relaxing this assumption if there is no annuity market then the welfare cost of survival ambiguity is large and regressive ambiguity neutral individuals would pay as much as 1 of total lifetime consumption for immediate resolution of ambiguity and the bottom income quintile is 4 times worse off than the top quintile alternatively with the availability of competitive annuity contracts survival ambiguity is welfare improving because it allows competitive insurance companies to pool risk across survival types even though social security and annuities share some properties social security does not help to hedge survival ambiguity

evaluation of the subjective probabilities of survival in the health and retirement study in the health and retirement study respondents were asked about the chances they would live to 75 or to 85 we analyze these responses to determine if they behave like probabilities of survival if their averages are close to average probabilities in the population and if they have correlations with other variables that are similar to correlations with actual mortality outcomes we find that generally they do behave like probabilities and that they do aggregate to population probabilities most remarkable however is that they covary with other variables in the same way actual outcomes vary with the variables for example respondents with higher socioeconomic status give higher probabilities of survival whereas respondents who smoke give lower probabilities we conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty

international diversification of investment portfolios u s and japanese perspectives in this paper we analyze the gains from international diversification of investment portfolios from the japanese as well as the u s perspectives the major findings of this paper include first the potential gains from international as opposed to purely domestic diversification are much greater for u s investors than for japanese investors for u s investors the gains accrue not so much in terms of lower risk as in terms of higher return and the opposite holds for japanese investors second using various ex ante international investment strategies designed to control parameter uncertainty u s investors can realize substantial gains from international diversification in out of sample periods japanese investors however can gain relatively little third hedging exchange risk generally allows the u s but not japanese investors to benefit more from international diversification for u s investors the international bond diversification with exchange risk hedging offers a superior risk return trade off than the international stock diversification with or without hedging

behavioral impediments to valuing annuities complexity and choice bracketing this paper examines two behavioral factors that diminish people s ability to value a lifetime income stream or annuity drawing on a randomized experiment with about 4 000 adults in a u s national

inter vivos transfers and bequests in three oecd countries reforms reducing the generosity of pensions have distributional effects on future generations if individuals care about their descendants welfare but only affect elderly individuals if bequests are the unintentional result of precautionary savings and safety net programmes such as unemployment insurance may displace sources of private help such as that provided by living parents to their children in need this paper provides comparable measures of how expected bequests and transfers vary with cumulated parental earnings in the united states west germany and the united kingdom the strength of bequest motives is empirically very weak in the available data private inter vivos transfers which appear to depend on the recipients economic situation are partly crowded out by public unemployment insurance programmes together involuntary bequests and intentional inter vivos transfers appear to be an important channel of intergenerational inequality transmission and strengthen substantially the relationship between an individual s and his parents economic status ernesto villanueva

life cycle responses to health insurance status this paper studies the lifetime effects of exogenous changes in health insurance coverage e g medicare ppaca termination of employer provided plans on the dynamic optimal allocation consumption leisure health expenditures status health and wealth and welfare we solve simulate and structurally estimate a parsimonious life cycle model with endogenous exposure to morbidity and mortality risks and exogenous health insurance by varying coverage we identify the marginal effects of insurance when young and or when old on allocations statuses and welfare our results highlight positive effects of insurance on health wealth and welfare as well as mid life substitution away from healthy leisure in favor of more health expenses caused by peaking wages and accelerating health issues

empirical of the taiwan stock index option price forecasting model applied artificial neural network this work presents a novel neural network model for forecasting option prices using past volatilities and other options market factors out of different approaches to estimating volatility in the option pricing model this study uses backpropagation neural network to forecast prices for taiwanese stock index options the ability to develop accurate forecasts of grey prediction volatility enables practitioners to establish an appropriate hedging strategy at in the money option

expectations life expectancy and economic behavior this study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival people do extrapolate past improvements in longevity when they determine their subjective horizons and they are fully aware of levels of and movements within todays life tables the subjective distribution has greater variance than its actuarial counterpart and the subjective variance decreases with age the implications of these findings for optimal social security for the construction of annuities for the analysis of savings behavior and for evaluating lifetime earnings are discussed the data were collected in the united states from a sample of 411 white male economists and a sample of 363 white males in a midwestern smsa excerpt

how does country risk affect innovation an application to foreign patents registered in the usa abstract innovation can occur at the national level under a wide range of settings however the leading innovative countries internationally have several common traits including economic financial and political stability which are reflected in various measures of country risk the purpose of the paper is to examine for the first time the relationship between the economic financial and political country risk ratings on the one hand and innovation as measured by a country s registered patents on the other the relationships between various monthly country risk ratings and registered patents are analyzed for the leading 12 foreign patenting countries in the usa from 1975 to 1997 the empirical results show that economic financial and political risk ratings have a considerable impact on the innovative activities of the 12 countries total us patent applications are also influential in inducing innovation in the 12 countries such issues have not previously been addressed in the literature on country risk and innovation

an empirical analysis of patents flows and r d flows around the world in this article we empirically investigate the effect of research and development r d flows on patent flows around the world we do this using an unbalanced panel consisting primarily of organization for economic co operation and development oecd countries that have both patent and r d expenditure information broken down by domestic and foreign sources our analysis shows that even among a fairly homogeneous group of countries the sources of patents and r d differ substantially using a dynamic panel framework we find that domestic r d per capita increases domestic patents per capita only for the european patent convention epc countries that already have a decentralized approach to innovation foreign r d per capita increases foreign patents per capita in all countries even though foreign r d constitutes a very small fraction of total r d we find that some of these differences can be attributed to the locations of the patent applications including those to the european patent office epo unit

the effect of inheritance receipt on retirement abstract this paper provides new evidence on how wealth shocks influence retirement behavior economic theory generally posits that leisure is a normal good yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply we use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement especially when the inheritance is unexpected this evidence has important implications for how public policies such as pension or tax reform may influence retirement behavior through the wealth effect

an investigation of time preferences life expectancy and annuity versus lump sum choices can smoking harm long term saving decisions abstract we exploit the fact that israeli pension insurance policies do not take health conditions or smoking status into account in annuity pricing to investigate the potential effect of being a smoker on retirement payout choices contrary to the idea that smokers have higher discount rates and thus should prefer the lump sum option and even though the insurance pricing mechanism means that smokers would be offered the same annuity as nonsmokers all else equal we find that smokers do not prefer the lump sum option we offer and test several potential explanations for our findings illusions regarding life expectancy self control and advantageous selection

why don t people insure late life consumption a framing explanation of the under annuitization puzzle rational models of risk averse consumers have difficulty explaining limited annuity demand we posit that consumers evaluate annuity products using a narrow investment frame that focuses on risk and return rather than a consumption frame that considers the consequences for lifelong consumption under an investment frame annuities are quite unattractive exhibiting high risk without high returns survey evidence supports this hypothesis whereas 72 percent of respondents prefer a life annuity over a savings account when the choice is framed in terms of consumption only 21 percent of respondents prefer it when the choice is framed in terms of investment features

what is the price of prevention new evidence from a field experiment how does increasing access to treatment affect the demand for preventive testing in this paper we present results from a field experiment in nigeria in which we offered cervical cancer screening to women at randomly chosen prices to test our hypothesis we also offered women a lottery where the payoff was a subsidy towards the cost of cervical cancer treatment conditional upon a diagnosis of cervical cancer we find that women randomly selected to receive the conditional cancer treatment subsidy were about 4 percentage points more likely to take up screening than those in the control group we also show that reducing the price of screening by 10 cents increased take up by about 1 percentage point these results offer compelling evidence that the optimal set of subsidies to increase take up of preventive testing in developing countries must include subsidies towards treatment costs in addition to price subsidies

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

cohort and target age effects on subjective survival probabilities implications for models of the retirement phase abstract subjective survival scaling factors are often estimated from one observation of life expectancy and treated as constant to any target age using new survey data on subjective survival probabilities we estimate a model incorporating cohort and target age varying beliefs in scaling factors both cohort age and target age matter respondents are pessimistic about overall life expectancy but optimistic about survival at advanced ages and older respondents are more optimistic than younger we propose a new theoretical model incorporating cohort and target age varying beliefs and illustrate their effects on the perceived value of annuities and on retirement phase consumption plans

how strong are bequest motives evidence based on estimates of the demand for life insurance and annuities this paper presents new empirical evidence in support of the view that a significant fraction of total saving is motivated by the desire to leave bequests specifically i find that social security annuity benefits significantly raise life insurance holdings and depress private annuity holdings among elderly individuals these patterns indicate that the typical household would choose to maintain a positive fraction of its resources in bequeathable forms even if insurance markets were perfect evidence on the relationship between insurance purchases and total resources reinforces this conclusion

environmental policy stringency and technological innovation evidence from survey data and patent counts this article uses patent data to examine the impact of public environmental policy on innovations in environment related technology the analysis is conducted using data on an unbalanced panel of 77 countries between 2001 and 2007 drawing upon data obtained from the european patent office epo world patent statistical patstat database and the world economic forum s wef executive opinion survey the results support our hypotheses concerning the positive role of both general innovative capacity and environmental policy stringency on environment related innovation a subsequent two stage model assesses the factors which drive innovation in general and uses the fitted values to estimate environmental innovation while the analysis is conducted on a smaller sample they confirm the findings of the reduced form model

recent theoretical results for time series models with garch errors this paper provides a review of some recent theoretical results for time series models with garch errors and is directed towards practitioners starting with the simple arch model and proceeding to the garch model some results for stationary and nonstationary arma garch are summarized various new arch type models including double threshold arch and garch arfima garch charma and vector arma garch are also reviewed copyright 2002 by blackwell publishers ltd

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

optimal annuitization with stochastic mortality and correlated medical costs the conventional wisdom since yaari 1965 is that households without a bequest motive should fully annuitize their investments numerous frictions do not break this sharp result we modify the yaari framework by allowing a household s mortality risk itself to be stochastic due to health shocks a lifetime annuity still helps to hedge longevity risk but the annuity s remaining present value is correlated with medical costs such as those for nursing home care thereby reducing annuity demand even without ad hoc liquidity constraints we find that most households should not hold a positive level of annuities and many should hold negative amounts jel d14 d82 g23 i12 j14 j26

measuring consumer uncertainty about future inflation we introduce a survey based measure of uncertainty about future inflation asking consumers for density forecasts across inflation outcomes consumers are willing and able to express uncertainty showing high response rates and response patterns that are reliably related to qualitative measures of uncertainty heterogeneity in expressed uncertainty is associated with demographic characteristics and financial literacy and measures of central tendency derived from density forecasts are strongly correlated with point forecasts furthermore expressed uncertainty is positively related to point forecast levels and to larger revisions in point forecasts over time copyright 2011 john wiley sons ltd

foreign patent flows to and from the united kingdom abstract a substantial part of the stock of technological knowhow in any given country is determined by foreign companies flows of technology are reflected in part by the international pattern of patenting behaviour this paper examines both the patent applications in the uk by foreign countries and uk patent applications abroad it concludes that each country is exposed to a subset of world wide technology determined by the profitability of transfer of new knowhow profitability is affected by the size of potential supply of new inventions in donor countries by the attractiveness of markets for knowhow in recipient countries and by the costs of transfer

a stochastic dominance analysis of yen carry trades abstract yen carry trades have made headline news for over a decade we examine the profitability of such trades for the period 2001 2009 yen carry trades generated high mean returns and sharpe ratios prior to the recent financial crisis they continued to outperform major stock markets for the full sample period given the non normality of carry trade returns we apply non parametric tests based on stochastic dominance sd to evaluate whether the high returns of yen carry trades are compatible with risk as reflected in returns on us and global stock market indices we apply a general test for sd developed recently by linton maasoumi and whang 2005 to six currencies as well as portfolios of these currencies for a large class of risk averse investors profits from yen carry trades cannot be attributed to risks

what percentage of innovations are patented empirical estimates for european firms abstract a 1993 survey on the innovative activities of europe s largest industrial firms obtained useable results on patenting activities for 604 respondents the data are used to calculate the sales weighted propensity rates for 19 industries the propensity rates equal the percentage of innovations for which a patent application is made the propensity rates for product innovations average 35 9 varying between 8 1 in textiles and 79 2 in pharmaceuticals the average for process innovations is 24 8 varying from 8 1 in textiles to 46 8 for precision instruments only four sectors have patent propensity rates for both product and process innovations combined that exceed 50 pharmaceuticals chemicals machinery and precision instruments regression results that control for the effect of industry sector show that patent propensity rates increase with firm size and are higher among firms that find patents to be an important method for preventing competitors from copying both product and process innovations the effect of secrecy is not so straightforward firms that find secrecy to be an important protection method for product innovations are less likely to patent as expected but secrecy has little effect on the propensity to patent process innovations the r d intensity of the firm has no effect on patent propensity rates for both product and process innovations the sector of activity has a strong influence on product patent propensities but very little effect on process patent propensities after controlling for the effect of other factors

do retirement dreams come true the effect of unanticipated events on retirement plans analyzing data from the retirement history study the authors find that the retirement plans of male workers aged 58 63 in 1969 were significantly affected by unanticipated events over the next decade specifically unanticipated increases in social security wealth induced retirement earlier than originally planned as did deterioration in personal health whereas the recession of the 1970s tended to delay retirement this evidence that policy changes do affect retirement behavior in systematic ways provides support for the decision by congress to defer until the turn of the century the application of several important provisions of the 1983 amendments to the social security act

corruption perceptions vs corruption reality abstract this paper examines the accuracy of corruption perceptions by comparing indonesian villagers reported perceptions about corruption in a road building project in their village with a more objective measure of missing expenditures in the project i find that villagers reported perceptions do contain real information and that villagers are sophisticated enough to distinguish between corruption in a particular road project and general corruption in the village the magnitude of the reported information however is small in part because officials hide corruption where it is hardest for villagers to detect i also find that there are biases in reported perceptions the findings illustrate the limitations of relying solely on corruption perceptions whether in designing anti corruption policies or in conducting empirical research on corruption

accounting for non annuitization why don t people buy annuities several explanations have been provided by the previous literature large fraction of preannuitized wealth in retirees portfolios adverse selection bequest motives and medical expense uncertainty this paper uses a quantitative model to assess the importance of these impediments to annuitization and also studies three newer explanations government safety net in terms of means tested transfers illiquidity of housing wealth and restrictions on minimum amount of investment in annuities this paper shows that quantitatively four explanations play a big role in reducing annuity demand preannuitized wealth minimum annuity purchase requirement illiquidity of housing wealth and bequest motives the annuity purchase involves big upfront investment especially if there is a minimum purchase restriction this is binding for many especially if housing is illiquid and part of wealth is preannuitized while bequest motives significantly reduce the overall annuity demand the model with a strong bequest motive cannot match the empirical fact that high income people have the highest demand for annuities

what is behind the recent surge in patenting abstract we investigate the cause of an unprecedented surge of us patenting over the past decade conventional wisdom points to the establishment of the court of appeals of the federal circuit by congress in 1982 we examine whether this institutional change which has benefited patent holders explains the burst in us patenting using both international and domestic data on patent applications and awards we conclude that the evidence is not favorable to the conventional view instead it appears that the jump in patenting reflects an increase in us innovation spurred by changes in the management of research

what makes annuitization more appealing we conduct and analyze two large surveys of hypothetical annuitization choices we find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an all or nothing decision very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value highlighting the effects of inflation increases demand for cost of living adjustments frames that highlight flexibility control and investment significantly reduce annuitization a majority of respondents prefer to receive an extra bonus payment during one month of the year that is funded by slightly lower payments in the remaining months concerns about later life income spending flexibility and counterparty risk are the most important self reported motives that influence the annuitization decision

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

who chooses annuities an experimental investigation of the role of gender framing and defaults research suggests that women are more risk averse and less financially literate than men as evidenced by their choice of less risky asset investments we contribute to the literature by focusing on the role of gender in an increasingly important financial decision facing individuals at retirement the choice between purchasing an annuity in this case a fixed immediate lifetime annuity or investing their savings on their own by using a controlled experiment we eliminate the role of adverse selection and unfair annu ity pricing and are able to focus specifically on gender we also explore the role of defaults and framing and whether women react differently to these features we find that women are more likely to choose the annuity and this is only partly explained by differences in risk aversion and financial literacy furthermore biases in a five minute presentation of information signifi cantly affect choices in ways that differ across men and women

annuities and individual welfare advancing annuity demand theory we present suffcient conditions for the optimality of full annuitization under market completeness that are substantially less restrictive than those used by yaari 1965 we examine demand with market incompleteness finding that positive annuitization remains optimal widely but complete annuitization does not how uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk a new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases

further evidence on international islamic and conventional portfolios diversification under regime switching abstractthis article investigates the comparative performance of international islamic and conventional portfolio diversification across different financial market regimes and provides an optimal choice from an american investor s viewpoint during the period 2002 2014 using a bootstrap based stochastic dominance sd test and monthly msci prices of islamic stock market indices and their conventional counterparts in 38 countries from north and latin america europe and asia pacific regions we find that sd relationships between islamic and conventional optimal diversified portfolios change systematically according to investment region and market regime essentially for all regimes us investors are indifferent between islamic diversification and its conventional counterpart which implies that arbitrage diversification opportunities are rare and short lived in all regions however across all regions especially in a crisis regime islamic portfolio diversification can be a good substitute for convention

a technology gap approach to why growth rates differ abstract this paper contains a discussion and test of the technology gap approach to development and growth the basic hypotheses of the theory are tested on pooled cross sectional and time series data for 25 industrial countries for the period 1960 1983 the sample includes in addition to 19 oecd countries 6 of the most important industrial economies from the non oecd area the findings of the paper confirm that there exists a close correlation between the level of economic development measured as gdp per capita and the level of technological development measured through r d or patent statistics furthermore for the group of 25 countries as a whole technology gap models of economic growth are found to explain a large part of the actual differences in growth rates both between countries and periods as expected both the scope for imitation growth in innovative activity and efforts to narrow the gap investment appear as powerful explanatory factors of economic growth however when the non oecd countries and later usa and japan are removed from the sample the explanatory power of the technology variables especially growth in innovative activity diminishes

framing effects earnings expectations and the design of student loan repayment schemes abstract income driven student loan repayment idr plans provide protection against unaffordable loan payments and default by linking loan payments to borrower s earnings despite the advantages idr would offer to many borrowers take up remains low we use a survey experiment investigate how framing affects university of maryland undergraduates take up of idr in a set of hypothetical scenarios students are significantly more likely to choose idr when the insurance aspects of idr are emphasized and significantly less likely to do so when costs are emphasized idr framing interacts with expected labor market outcomes emphasizing the insurance aspects of idr has larger effects on students who anticipate a higher probability of nonemployment and or low earnings at graduation in contrast when costs are emphasized the choice of irdr is uncorrelated with students expected labor market outcomes simulation results suggest that a simple change in the framing of idr could generate substantial reductions in loan defaults with only small decreases in long run federal revenue

the influence of demand and supply side pressures on the quantity and quality of inventive activity 1984 the influence of demand and supply side pressures on the quantity and quality of inventive activity applied economics vol 16 no 1 pp 131 146

health status and health dynamics in an empirical model of expected longevity expected longevity is an important factor influencing older individuals decisions such as consumption savings purchase of life insurance and annuities claiming of social security benefits and labor supply it has also been shown to be a good predictor of actual longevity which in turn is highly correlated with health status a relatively new literature on health investments under uncertainty which builds upon the seminal work by grossman grossman m 1972 on the concept of health capital and demand for health journal of political economy 80 223 255 has directly linked longevity with characteristics behaviors and decisions by utility maximizing agents our empirical model can be understood within that theoretical framework as estimating a production function of longevity using longitudinal data from the health and retirement study we directly incorporate health dynamics in explaining the variation in expected longevities and compare two alternative measures of health dynamics the self reported health change and the computed health change based on self reports of health status in 38 of the reports in our sample computed health changes are inconsistent with the direct report on health changes over time and another 15 of the sample can suffer from information losses if computed changes are used to assess changes in actual health these potentially serious problems raise doubts regarding the use and interpretation of the computed health changes and even the lagged measures of self reported health as controls for health dynamics in a variety of empirical settings our empirical results controlling for both subjective and objective measures of health status and unobserved heterogeneity in reporting suggest that self reported health changes are a preferred measure of health dynamics

a penny for your quotes patent citations and the value of innovations the use ofpatents in economic research has been seriously hindered by the fact that patents vary enormously in their importance or value and hence simple patent counts cannot be informative about innovative output the purpose of this article is to put forward patent counts weighted by citations as indicators of the value of innovations thereby overcoming the limitations of simple counts the empirical analysis of a particular innovation computed tomography scanners indeed shows a close association between citation based patent indices and independent measures of the social value of innovations in that field moreover the weighting scheme appears to be nonlinear increasing in the number of citations implying that the informational content of citations rises at the margin as in previous studies simple patent counts are found to be highly correlated with contemporaneous rd however here the association is within afield over time rather than cross sectional

life expectancy and claiming behavior in a flexible pension system we study the relationship between early claiming of pensions and incentives in the highly flexible norwegian public pension system measuring incentives to claim based on an estimated model for expected longevity despite a strong correlation between incentives and claiming decisions the additional costs to public budgets arising from this selection turn out to be modest based on analyses exploiting only variation in expected pensions generated by variation in parental longevities and only claiming of pensions not in conjunction with retirement we conclude that part of the selection is active some individuals claim pensions early because they gain from doing so this article is protected by copyright all rights reserved

estimates of the value of patent rights in european countries during the post 1950 period this paper examines the distribution of the values of patent rights in the united kingdom france and germany during the post 1950 period these values are inferred from the behavior of patentees with respect to payment of renewal fees on their patents a simple economic model of renewal decisions is combined with data on the proportion of patents renewed at alternative ages and the renewal fee schedules to produce estimates of the distribution and the total value of patent rights in these countries moreover the data indicate that there have been changes in the value distribution and we follow these changes over the period the empirical results of particular interest concern the total value of patent rights and the relationship between changes in it and changes in the quantity of patents the skew in the distribution of patent values and the rate of obsolescence on the returns to patents

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

testing patent value indicators on directly observed patent value an empirical analysis of ocean tomo patent auctions the valuation of patents is an important albeit challenging task extant research to identify patent value indicators has so far relied on expert estimates of patent value exploited patent renewal data or depended on more indirect measures of patent value recently specialized market places for patent transactions have emerged that allow us for the first time to directly observe patent s private value one of the most prominent market places for patents is ocean tomo a platform that offers periodical patent auctions we make use of this auction data to empirically test predictions on patent value identifiers on real world auction prices we find empirical support for forward citations and the patent s family size however both indicators explain only a small variance in patent value in contrast our full model explains a large share of variance making us optimistic that with increased directly observed patent value such models can be useful tools in patent valuation

the life insurance market asymmetric information revisited abstract this paper finds evidence for the presence of asymmetric information in the life insurance market a conclusion contrasting with the existing literature in particular we find a significant and positive correlation between the decision to purchase life insurance and subsequent mortality conditional on risk classification individuals who died within a 12 year time window after a base year were 19 more likely to have taken up life insurance in that base year than were those who survived the time window moreover as might be expected when individuals have residual private information we find that the earlier an individual died the more likely she was to have initially bought insurance the primary factor driving the difference between our and the prior literature s findings is that we focus on a sample of potential new buyers rather than on the entire cross section to address the sample selection problem induced by potential mortality differences between those with and those without coverage

the value of u s patents by owner and patent characteristics abstract this paper uses renewal data to estimate the value of u s patents controlling for patent and owner characteristics estimates of u s patent value are substantially larger than estimates for european patents however the ratio of u s patent value to r d for firms is only about 3 contrary to a common assertion patents issued to small patentees are much less valuable than those issued to large corporations litigated patents are more valuable as are highly cited patents however patent citations explain little variance in value suggesting limits to their use as a measure of patent quality

demand for annuities price sensitivity risk perceptions and knowledge abstract the demand for voluntary individual lifetime annuities is low as merely 10 of soon to be retired canadians care to buy such contracts to assess the reasons why we design a stated preference experiment in which we vary characteristics of annuity contracts to estimate individuals sensitivity to an annuity s money s worth that is the value to cost ratio using different measures of longevity risk and survival expectations we investigate how knowledge of annuity products and mortality risk misperceptions affect the take up and the sensitivity of the demand for annuities we find that annuities are objectively actuarially neutral in general meaning that annuity premiums are equal to their expected payment and can appear to offer great value for the money given an individual s subjective mortality risk we also find that demand is somewhat price inelastic so that lowering the price of annuities could increase demand by at most 2 percentage points for a base of 10 lack of knowledge of annuities explains another 0 8 percentage points we find limited additional interest for deferred annuities compared to immediate annuities although respondents are less sensitive to deferred annuity prices

why do retired workers claim their social security benefits so early a potential explanation based on the cumulative prospect theory abstractsocial security provides longevity insurance for older americans according to expected utility theory models rational households who are not liquidity constrained should delay claiming th

retirement expectations pension reforms and their impact on private wealth accumulation abstract we estimate the effect of pension reforms on households expectations of retirement outcomes and private wealth accumulation decisions exploiting a decade of intense italian pension reforms as a source of exogenous variation in expected pension wealth the survey of household income and wealth a large random sample of the italian population elicits expectations of the age at which workers expect to retire and of the ratio of pension benefits to pre retirement income between 1989 and 2002 we find that workers have revised expectations in the direction suggested by the reform and that there is substantial offset between private wealth and perceived pension wealth particularly by workers that are better informed about their pension wealth

new evidence on the money s worth of individual annuities this paper presents new information on the expected present discounted value of payouts on individual life annuities the annuity we examine is the single premium immediate life annuity an insurance product that pays out a nominal level sum as long as the covered person lives in exchange for an initial lump sum premium this annuity offers protection against the risk of someone outliving his saving given uncertainty about longevity for reasonable estimates of behavioral parameters we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption we also find that the expected present discounted value of payouts relative to the initial cost of the annuity has increased over the last decade these findings bear on the policy debate regarding the role of individual choice and self reliance in retirement planning this abstract was borrowed from another version of this item

the composition and drawdown of wealth in retirement as the baby boomers approach and enter their retirement years the accumulation phase of their life cycle is nearly over thus the focus of many researchers financial services firms and public policymakers concerned with retirement saving is shifting from the accumulation of resources while working to the drawdown of resources during retirement retired households are dependent on the annuitized income streams that they have built up during their working careers and on the wealth that they have accumulated in other forms the two most common annuitized income streams are social security benefits and the payments from defined benefit pension plans these payout streams provide income for life and thus provide some protection against falling into poverty if one lives an especially long life the three most common sources of accumulated wealth are equity in an owner occupied home financial assets such as bonds and stocks and financial assets held in a personal retirement account such as an individual retirement arrangement or a 401 k plan throughout our analysis we will define retirement age households as those headed by someone between the ages of 65 and 69 in 2008 just over 80 percent of these households had some equity in their home or another property while 52 percent had assets in personal retirement accounts a much higher fraction 87 percent had some financial assets outside their retirement accounts but for many households the amount of such assets was relatively modest only 45 percent had more than 20 000 in non retirement account financial assets the median financial asset holding for this group including holdings in personal retirement accounts is 52 000 in short many households have small enough amounts of accumulated wealth that they will depend heavily on the life contingent payout streams offered by social security and if they have one a defined benefit pension this paper presents evidence on the resources available to households as they enter retirement it draws heavily on data collected by the health and retirement study which we sometimes refer to as the hrs we calculate the potential additional annuity income that households could purchase given their holdings of non annuitized financial assets at the start of retirement even if households used all of their financial assets inside and outside personal retirement accounts to purchase a life annuity only 47 percent of households between the ages of 65 and 69 in 2008 could increase their life contingent income by more than 5 000 per year at the upper end of the wealth distribution however a substantial number of households could make large annuity purchases we also consider the role of housing equity in the portfolios of retirement age households and explore the extent to which households draw down housing equity and financial assets as they age we find that many households appear to treat housing equity and non annuitized financial assets as precautionary savings tending to draw them down only when they experience a shock such as the death of a spouse or a period of substantial medical outlays because home equity is often conserved until very late in life for many households it may provide some insurance against the risk of living longer than expected a brief conclusion summarizes our findings and indicates how they bear on a number of policy issues such as the role for annuity defaults in retirement saving plans

on the use of expectations data in estimating structural dynamic choice models despite the importance of expectations in models of decision behavior under uncertainty few empirical economists have made use of subjective expectations data in estimating such models assuming that expectations about future behavior accurately portray optimal future behavior conditional on current information it is shown that such data can provide similar information about the decision process as can data on current or retrospective behavior the value of self reported choice expectations is illustrated by using information on respondents expected future occupation in the estimation of a structural dynamic model of teacher career decisions under uncertainty

can patent family size and composition signal patent value abstractrecent research has proposed a method of patent valuation based on weighting patent family size by the market size of the countries in the family the premise is that inventors tend to seek

private pensions mortality risk and the decision to annuitize abstract this paper examines household decisions about whether or not to annuitize retirement resources a life cycle model of consumption implemented with the use of dynamic programming techniques is used to construct a utility based measure of annuity value for individuals and couples in the health and retirement survey variation in the calculated annuity equivalent wealth arises from differences in mortality risk marital status risk aversion and the presence of pre existing annuities such as social security i find that a one percentage point increase in the annuity equivalent wealth leads to nearly a one percentage point increase in the ex ante probability of annuitizing balances in defined contribution pension plans however because much of the variation in the expected annuity decision is left unexplained by the life cycle model other factors are also analyzed health status and an individual s time horizon for financial decision making are significant determinants of the decision there is no evidence that bequest motives are an important factor in making marginal annuity decisions

why do markets move together an investigation of u s japan stock return comovements this article explores the fundamental factors that affect cross country stock return correlations using transactions data from 1988 to 1992 we construct overnight and intraday returns for a portfolio of japanese stocks using their nyse traded american depository receipts adrs and a matched sample portfolio of u s stocks we find that u s macroeconomic announcements shocks to the yen dollar foreign exchange rate and treasury bill returns and industry effects have no measurable influence on u s and japanese return correlations however large shocks to broadbased market indices nikkei stock average and standard and poor s 500 stock index positively impact both the magnitude and persistence of the return correlations stock return cross country covariances play a key role in international finance changes in these covariances affect the volatility of portfolios and asset prices as these covariances increase one expects that a fewer domestic risks are internationally diversifiable so portfolio volatility increases b the risk premium on the world market portfolio increases 1 c the cost of capital increases for individual firms and d the domestic version of the capm becomes increasingly inadequate 2 despite the important economic consequences of changes in cross country covariances the determinants of the levels and dynamics of these covariances have been little studied from an academic

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

the choice between an annuity and a lump sum results from swiss pension funds this paper uses unique micro data from swiss employer based pension plans to study the annuitization decision at retirement the administrative nature of our data though limited with respect to individual background characteristics allows us to analyze real choices over large retirement balances rather than subjectively reported intentions to annuitize we find a strong and robust impact of a utility based measure of the annuity s value computed within a life cycle framework on individual annuitization rates low accumulation of retirement assets is strongly associated with the choice of the lump sum presumably due to the availability of means tested social assistance the sponsor s default option in most cases the annuity is also found to be highly influential in the decision to annuitize

patent quality and research productivity measuring innovation with multiple indicators we analyse the determinants of the decline in research productivity using panel data on manufacturing firms in the us for the period 1980 93 we focus on three factors the level of demand the quality of patents and technological exhaustion we develop an index of patent quality using detailed patent information and show that using multiple indicators substantially reduces the measured variance in quality research productivity at the firm level is inversely related to patent quality and the level of demand as predicted by theory and patent quality is positively associated with the stock market value of firms

stock market crash and expectations of american households this paper utilizes data on subjective probabilities to study the impact of the stock market crash of 2008 on households expectations about the returns on the stock market index we use data from the health and retirement study that was fielded in february 2008 through february 2009 the effect of the crash is identified from the date of the interview which is shown to be exogenous to previous stock market expectations we estimate the effect of the crash on the population average of expected returns the population average of the uncertainty about returns subjective standard deviation and the cross sectional heterogeneity in expected returns disagreement we show estimates from simple reduced form regressions on probability answers as well as from a more structural model that focuses on the parameters of interest and separates survey noise from relevant heterogeneity we find a temporary increase in the population average of expectations and uncertainty right after the crash the effect on cross sectional heterogeneity is more significant and longer lasting which implies substantial long term increase in disagreement the increase in disagreement is larger among the stockholders the more informed and those with higher cognitive capacity and disagreement co moves with trading volume and volatility in the market

crash and wait the impact of the great recession on the retirement plans of older americans this study uses data from pre and post crash surveys from the cognitive economics study to examine the impact of recent stock and labor market wealth losses on the planned retirement ages of older americans regression estimates imply that the average wealth loss between july 2008 and may june 2009 is associated with an increase in planned retirement age of approximately 2 5 months furthermore pessimism about future stock market returns is found to amplify the impact of wealth losses on retirement timing