Three Essays in Economics of Ageing

This thesis is a collection of three essays in economics of ageing. The research question of the first two chapters was motivated by the willingness to investigate about the effects of the recent financial crisis on saving behavior and the possible effects of pension reforms applied in several European countries on informal care provision. Instead the third chapter employs a statistical approach to treat the problem of non-classical measurement error with recall data affected by heaping and rounding. While this chapter is not strictly related to economics of ageing, applications of this method can be useful to treat problems of non-classical measurement error also with health variables such as the recall number of hospital days or the expenditures for health care which can be affected by this type of rounding mechanism. The first chapter is titled “How the Experience in Financial Stock Markets Affect Stockholding and Portfolio Choice” and investigates about the long-lasting effects of the financial crisis on stock market participation. In the last decade financial stock markets have been affected by several downturns, but in the long run it is supposed that equities give a premium with respect to other less risky financial assets. An analysis on the past performance of the German stock market (DAX) confirms this idea. Investing in stocks markets could have been a great opportunity but many Europeans have not participated. Moreover if the experience of negative returns has long-lasting effects, we may expect even lower participation in the market than we saw before the crisis. Within a behavioral finance approach I allow for the presence of some impressionable financial years and I consider two types of experience in financial stock markets: a potential and actual experience. The potential experience is the observed performance of the stock market when individuals start saving for retirement as predicted by the standard life-cycle model (after age 40), the actual experience is the observed performance of the stock market after the first investment in stocks or shares. Using European data from SHARE and SHARELIFE, I find evidence for the presence of financial impressionable years. Myopic loss aversion and disappointment aversion are found when potential experience is considered: individuals who experienced periods of downturn in the market when they are expected to start saving for retirement are more willing to stay out of the market. Myopic behavior is also found for actual experience: investors who had a good (bad) actual experience with stocks within three years after their first investment are more (less) willing to participate in the financial stock market later in life. Findings also suggest that many Europeans may have invested in stocks to hedge against inflation. The second chapter titled “Occupational Choices and Informal Caregiving Among Young Old Europeans” wants to analyze the effect of occupational choices on informal caregiving. In the recent years many European countries have adopted pension reforms to postpone retirement age. This could lower the informal long-term caregiving potential provided by young old. Using European data from SHARE I investigate about the effect of occupational choices on informal caregiving, both in probability and time, taking into account household formation between a care giver and a care recipient. Four different types of care recipients are considered: parents, grandchildren, adult children and other people who live outside the family. The occupational choices are considered as binary: participating or not in the labour market. Women who never participated in the labour market are distinguished from those who worked in the past, because the choice of never entering in the labour market was made in a distant past and it is more related to family preferences. Endogeneity of the occupational choices are also checked using the potential eligibility to pension benefits based on pension reforms. Results show that there is a positive effect of being not employed on coresiding with a parent or an adult child and on the informal care provision, especially for women and for care given to look after grandchildren. The endogeneity problem is relevant for women as it is considering coresiding as an alternative choice of providing informal care outside the household. Households with a woman who never worked provide more care inside the family and the woman is usually the one who specializes on care provision. A simulation of a pension reform with an increase of one year in the eligibility age to receive a public pension benefit, based on the estimated parameters, suggests that demand for formal care may increase a lot, but less for countries which adopt flexible time working arrangements policies for young old. The third chapter is titled “Estimating the Intertemporal Elasticity of Substitution on error-ridden micro data” and it is based on a joint work with Gugliemo Weber. We estimate the Intertemporal Elasticity of Substitution (IES) using Italian data from SHIW (Bank of Italy). The consumption data from SHIW are based on recall questions and are affected by severe heaping and rounding. The measurement is non-classical. To treat the heaping and rounding we apply a multiple imputation technique proposed by Heitjan and Rubin (1990), following Battistin et al. (2003), to model the coarsening process and to impute true consumption expenditures. We also propose an extension to consider the panel feature of the data. We estimate the Euler equation using four different estimators: the log-linearized version, the standard GMM estimator (EGMM), and two GMM estimators proposed by Alan et al. (2009) which both assume a classical measurement error, the first one is more efficient (GMM-K) and the second one is more robust (GMM-D). We show that EGMM and GMM-K estimators produce implausible estimates of the IES when recall data are used. Instead when multiple imputations of non-durable consumption are used the GMM-K estimator produces plausible estimates in line with the recent micro-based literature (in the 0.5-0.8 range), and the overidentifying restrictions are not rejected at least if I focus on a sample of couples. Parameter estimates using the log-linearized version and GMM-D estimator turn out to be similar to the ones based on the previous method, but less precise and do not change much when we use reported or imputed consumption.