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11-41 François, Pascal; Hübner, Georges; Sibille, Jean-Roch - A Structural Balance Sheet Model of Sovereign Credit Risk

This article studies sovereign credit spreads using a contingent claims model and a balance sheet representation of the sovereign economy. Analytical formulae for domestic and external debt values as well as for the financial guarantee are derived in a framework where recovery rate is endogenously determined as the solution of a strategic bargaining game. The approach allows to relate sovereign credit spreads to observable macroeconomic factors, and in particular accounts for contagion effects through the corporate and banking sectors. Pricing performance as well as predictions about credit spread determinants are successfully tested on the Brazilian economy.

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11-40 Christensen, Ian; Meh, Césaire; Moran, Kevin - Bank Leverage Regulation and Macroeconomic Dynamics

This paper assesses the merits of countercyclical bank balance sheet regulation for the stabilization of financial and economic cycles and examines its interaction with monetary policy. The framework used is a dynamic stochastic general equilibrium model with banks and bank capital, in which bank capital solves an asymmetric information problem between banks and their creditors. In this economy, the lending decisions of individual banks affect the riskiness of the whole banking sector, though banks do not internalize this impact. Regulation, in the form of a constraint on bank leverage, can mitigate the impact of this externality by inducing banks to alter the intensity of their monitoring efforts. We find that countercyclical bank leverage regulation can have desirable stabilization properties, particularly when financial shocks are an important source of economic fluctuations. However, the appropriate contribution of countercyclical capital requirements to stabilization after a technology shock depends on the size of the externality and on the conduct of the monetary authority.

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11-39 Emons, Winand; Fluet, Claude - Non-Comparative versus Comparative Advertising of Quality

Two firms produce a good with a horizontal and a vertical characteristic called quality. The difference in the unobservable quality levels determines how the firms share the market. We consider two scenarios: in the first one, firms disclose quality; in the second one, they send costly signals thereof. Under non-comparative advertising a firm advertises its own quality, under comparative advertising a firm advertises the quality differential. In either scenario, under comparative advertising the firms never advertise together which they may do under non-comparative advertising. Moreover, under comparative advertising firms do not advertise when the informational value to consumers is small.

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11-38 Bauwens, Luc; Dufays, Arnaud; Rombouts, V.K. - Marginal Likelihood for Markov-Switching and Change-Point GARCH Models

GARCH volatility models with fixed parameters are too restrictive for long time series due to breaks in the volatility process. Flexible alternatives are Markov-switching GARCH and change-point GARCH models. They require estimation by MCMC methods due to the path dependence problem. An unsolved issue is the computation of their marginal likelihood, which is essential for determining the number of regimes or change-points. We solve the problem by using particle MCMC, a technique proposed by Andrieu, Doucet and Holenstein (2010). We examine the performance of this new method on simulated data, and we illustrate its use on several return series.

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11-37 Dionne, Georges; Rothschild, Casey G. - Risk Classification and Health Insurance

Risk classification refers to the use of observable characteristics by insurers to group individuals with similar expected claims, compute the corresponding premiums, and thereby reduce asymmetric information. An efficient risk classification system generates premiums that fully reflect the expected cost associated with each class of risk characteristics. This is known as financial equity. In the health sector, risk classification is also subject to concerns about social equity and potential discrimination. We present different theoretical frameworks that illustrate the potential trade-off between efficient insurance provision and social equity. We also review empirical studies on risk classification and residual asymmetric information.

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11-36 Dostie, Benoit; Léger, Pierre Thomas - Firm-Sponsored Classroom Training: is it Worth it for Older Workers ?

We use longitudinal linked employer-employee data and find that the probability of participating in firm-sponsored classroom training diminishes rapidly for workers aged 45 years and older. Although the standard human capital investment model predicts such a decline, we also consider the possibility that returns to training decline with age. Taking into account endogenous training decisions, we find that the training wage premium diminishes only slightly with age. However, estimates of the impact of training on productivity decrease dramatically with age, suggesting that incentives for firms to invest in classroom training are much lower for older workers.

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11-35 (revised) Haeck, Catherine; Lefebvre, Pierre; Merrigan, Philip - The Distributional Impacts of a Universal School Reform on Mathematical Achievements : a Natural Experiment from Canada

We investigate the impact of an ambitious provincial school reform in Canada on students’ mathematical achievements. It is the first paper to exploit a universal school reform of this magnitude to identify the causal effect of a widely supported teaching approach on students’ math scores. Our data set allows us to differentiate impacts according to the number of years of treatment and the timing of treatment. Using the changes-in-changes model, we find that the reform had negative effects on students’ scores at al points on the skills distribution and that the effects were larger the longer the exposure to the reform.

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11-34 Barattieri, Alessandro - Comparative Advantage, Service Trade, and Global Imbalances

The large current account deficit of the U.S. is the result of a large deficit in the goods balance and a modest surplus in the service balance. The opposite is true for Japan, Germany and China. Moreover, I document the emergence from the mid-nineties of a strong negative relation between specialization in export of services and current account balances in a large sample of OECD and developing countries.

Starting from these new stylized facts, I propose in this paper a “service hypothesis” for global imbalances, a new explanation based on the interplay between the U.S. comparative advantage in services and the asymmetric trade liberalization process in goods trade versus service trade that took place in the last 15 years.

First, I use a structural gravity model to show that service trade liberalization lagged behind goods trade liberalization, and I quantify the extent of this asymmetry.

Second, I show that a simple two-period model can rationalize the emergence of current account deficits in the presence of such asymmetric liberalization. The key inter-temporal mechanism is the asymmetric timing of trade policies, which affects savings decisions.

Finally, I explore the quantitative relevance of this explanation for global imbalances. A multi-period version of the model, fed with the asymmetric trade liberalization path found in the data, generates a current account deficit of about 1% of GDP (roughly 20% of what was observed in the U.S. in 2006).

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11-33 Barattieri, Alessandro - Estimating Trade and Investment Flows: Partners and Volumes

I present a new stylized fact from a large sample of countries for the period 2000-2006: bilateral foreign direct investment (FDI) flows are almost never observed in the absence of bilateral trade flows. I document a similar pattern using bilateral foreign affiliate sales (FAS), aggregating them up from a large firm level dataset (ORBIS), which includes over 45,000 firms. 

I propose a model where heterogeneous firms can decide whether to serve foreign markets through export or FDI. I derive theory-based gravity-type equations for the aggregate bilateral trade and foreign affiliate sales (FAS) flows. I then suggest a two-stage estimation procedure structurally derived from the model. In the first stage, an ordered Probit model is used to retrieve consistent estimates of the terms needed to correct the flows equations for firms’ heterogeneity and selection into exports and FDI. In the second stage, a maximum likelihood estimator is applied to the corrected trade and FAS equations. 

The main results of the analysis are as follows: 1) The impact of distance, border and regional trade agreements on the amount bilateral foreign affiliate sales becomes substantially smaller after controlling for selection and firms’ heterogeneity (hence separating the impact on the extensive versus the intensive margin). 2) The same “attenuation” result is found also for the trade equations, consistently with previous literature. 3) When FAS are observed, failing to take this into account when correcting for heterogeneity and selection in the trade equations does not leads to significant differences in the estimated coefficients.

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11-32 Mirman, Leonard J.; Santugini, Marc - On Risk Aversion, Classical Demand Theory, and KM Preferences

Building on Kihlstrom and Mirman (1974)’s formulation of risk aversion in the case of multidimensional utility functions, we study the effect of risk aversion on optimal behavior in a general consumer’s maximization problem under uncertainty. We completely characterize the relationship between changes in risk aversion and classical demand theory. We show that the effect of risk aversion on optimal behavior depends on the income and substitution effects. Moreover, the effect of risk aversion is determined not by the riskiness of the risky good, but rather the riskiness of the utility gamble associated with each decision.

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11-31 Fesselmeyer, Eric; Santugini, Marc - Strategic Exploitation of a Common Resource under Environmental Risk (version révisée)

We study the effect of environmental risk on the extraction of a common resource. Using a dynamic and non-cooperative game in which an environmental event impacts the renewability and the quality of the resource, we show that the anticipation of such an event has an ambiguous effect on extraction and the tragedy of the commons. A risk of a reduction in the renewability induces the agents to extract less today while a risk of a deterioration in the quality has the opposite effect. Moreover, when environmental risk induces conservation, the tragedy of the commons is worsened.

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11-30 Boubakri, Narjess; Cosset, Jean-Claude; Debab, Nassima; Valéry, Pascale - Privatization and Globalization: an Empirical Analysis

This paper examines the link between globalization measured by foreign direct investment (FDI) and foreign portfolio investment (FPI) and privatization of state-owned enterprises in a multi-country sample that focuses on developing countries. We hypothesize that privatization has an effect on FDI/FPI as the process of fostering private sector participation was often accompanied by liberalization reforms, and by allocations of substantial shares in newly privatized firms to foreign investors. Similarly, we expect FDI/FPI to foster privatization efforts as new capital inflows, technology and managerial skills that accompany FDI/FPI make the environment more prone to competition, providing governments with incentives to privatize inefficient firms that need to be turned around. This relation is assessed in two ways, first in a dynamic panel using a generalized method of moments approach, and second through panel causality tests.

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11-29 Clavet, Nicholas-James; Duclos, Jean-Yves; Lacroix, Guy - Minimum Income Proposal in Québec

In 2002 the Government of Quebec enacted Bill 112, known as An Act to Combat Poverty and Social Exclusion. It has also instituted an advisory committee whose role is to advise the government on policies that may have a direct or indirect impact on poverty and social exclusion. The Committee published a series of recommendations in 2009 that more or less amount to a Guaranteed Minimum Income scheme. We investigate the likely consequences of the recommendations on employment and income of all individuals residing in the Province of Quebec. We do this through the use of a behavioural micro-simulation model. Our results show that the proposed recommendations would have a large negative impact on hours of work and labor force participation – and mostly so among low-income workers. The recommendations would involve outlays in the order of $2.2 billion per year.

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11-28 Cuchet, Romain; François, Pascal; Hübner, Georges - Currency Total Return Swaps: Valuation and Risk Factor Analysis

Currency total return swaps (CTRS) are hybrid derivatives instruments that allow to simultaneously hedge against credit and currency risks. We develop a structural credit risk model to evaluate CTRS premia. Empirical test on a sample of 23,005 price observations from 59 underlying issuers yields an average percentage error of around 10%. This indicates that, beyond interest rate risk, firm-specific factors are major drivers of the variations in the valuation of these instruments. Regression analysis of residuals shows that exchange rate determinants account for up to 40% of model pricing errors – indicating that a currency risk premium affects the CTRS price significantly but only marginally, which confirms the prevalence of credit risk in the pricing of CTRS.

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11-27 Chemin, Matthieu; DeLaat, Joost; Kurmann, André - Reciprocity in Labor Relatons: Evidence from a Field Experiement with Long-Term Relationships

We followed field workers administering a household survey over a 12-week period and examined how their reciprocal behavior towards the employer responded to a sequence of exogenous wage increases and wage cuts. To disentangle the effects of reciprocal behavior from other explicit incentives that occur naturally in long-term employment relationships, we devised a novel measure of effort that not only captures the notion of work morale but that field workers perceived as unmonitored. While wage increases had no significant effect, wage cuts led to a strong and significant decline in unmonitored effort. This finding provides clear evidence of a highly asymmetric reciprocity response to wage changes. Our estimates further imply that field workers quickly adapted to higher wages and revised their reference point accordingly when deciding on reciprocity. Finally, we consider a second measure of effort that was explicitly monitored and found no significant effect to any of the wage changes. This lack of impact illustrates that explicit incentives can easily outweigh the effects of reciprocity and highlights the importance of having a measure of effort that workers perceive as unmonitored when testing for reciprocity in long-term relationships.

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11-26 Lefebvre, Pierre; Merrigan, Philip; Michaud, Pierre-Carl - The Recent Evolution of Retirement Patterns in Canada

Using data from three waves of the General Social Survey on retirement and older workers (1994, 2002 and 2007), we document the evolution of retirement patterns over the last three decades. We combined the analysis of retirement ages of actual retirees with data on expected retirement ages of current workers to create a longer perspective on changes in retirement behaviour in Canada. We also investigate trends in work after retirement. Our findings are in line with findings from other countries. There is an upward trend in retirement ages which likely started around year 2000 for cohorts born after 1945. This trend contrasts with the slow decline in retirement ages observed prior to the end of the millennium. While the downward trend was likely due to factors such as the offering of early retirement programs in private firms, the upward trend is likely to be caused by a wider variety of sources, including better health, less pervasive defined benefit pensions and in general less generous pensions.

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11-25 Bellemare, Charles; Sebald, Alexander - Learning about a Class of Belief-Dependent Preferences without Information on Beliefs

We show how to bound the effect of belief-dependent preferences on choices in sequential two-player games without information about the (higher-order) beliefs of players. The approach can be applied to a class of belief-dependent preferences which includes reciprocity (Dufwenberg and Kirchsteiger, 2004) and guilt aversion (Battigalli and Dufwenberg, 2007) as special cases. We show how the size of the bounds can be substantially reduced by exploiting a specific invariance property common to preferences in this class. We illustrate our approach by analyzing data from a large scale experiment conducted with a sample of participants randomly drawn from the Dutch population. We find that behavior of players in the experiment is consistent with significant guilt aversion: some groups of the population are willing the pay at least 0.16€ to avoid “letting down” another player by 1€. We also find that our approach produces narrow and thus very informative bounds on the effect of reciprocity in the games we consider. Our bounds suggest the model of reciprocity we consider is not a significant determinant of decisions in our experiment.

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11-24 Mirman, Leonard J.; Santugini, Marc - Firms, Shareholders, and Financial Markets

We study the influence of the financial market on the decisions of firms in the real market. To that end, we present a model in which the shareholders portfolio selection of assets and the decisions of the publicly-traded firms are integrated through the market process. Financial access alters the objective function of the firms, and the market interaction of shareholders substantially influences firms behavior in the real sector. After characterizing the unique equilibrium, we show that the financial sector integrates the preferences of all shareholders into the decisions for production and ownership structure. The participation from investors in the financial market also limits the firms’ ability to manipulate real prices, i.e., there is a loss of market power in the real sector. Note that, while the loss of market power changes expected profits, it is not detrimental to shareholders since the expected return of equity share depends on the variance (and not the mean) of profits. Indeed, any change in expected profits is absorbed by the financial price. We also show that financial access increases production, thereby altering the distribution of profits. In particular, financial access induces firms to take on more risk. Finally, financial access makes the relationship between risk-aversion and risk-taking ambiguous. For example, it is possible that an increase in risk-aversion leads to more risk-taking, i.e., the variance of real profits increases.

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11-23 Bouakez, Hafedh; Chihi, Foued; Normandin, Michel - Fiscal Policy and External Adjustment: New Evidence

Relatively little empirical evidence exists about countries’ external adjustment to changes in fiscal policy and, in particular, to changes in taxes. This paper addresses this question by measuring the effects of tax and government spending shocks on the current account and the real exchange rate in a sample of four industrialized countries. Our analysis is based on a structural vector autoregression in which the interaction of fiscal variables and macroeconomic aggregates is left unrestricted. Identification is instead achieved by exploiting the heteroscedasticity of the structural disturbances. Three main findings emerge: (i) the data provide little support for the twin-deficit hypothesis, (ii) the estimated effects of unexpected tax cuts are generally inconsistent with the predictions of standard economic models, except for the US, and (iii) the puzzling real depreciation triggered by an expansionary public spending shock is substantially larger in magnitude than predicted by traditional identification approaches.

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11-22 Emons, Winand; Fluet, Claude - Adversarial versus Inquisitorial Testimony

An arbiter can decide a case on the basis of his priors, or the two parties to the conflict may present further evidence. The parties may misrepresent evidence in their favor at a cost. At equilibrium the two parties never testify together. When the evidence is much in favor of one party, this party testifies. When the evidence is close to the prior mean, no party testifies. We compare this outcome under a purely adversarial procedure with the outcome under a purely inquisitorial procedure where it is for the arbiter to decide how much testimony he wants to hear.

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11-21 Dionne, Georges; Wang, Kili C. - Does Opportunistic Fraud in Automobile theft Insurance Fluctuate with the Business Cycle ?

We analyze the empirical relationship between opportunistic fraud and business cycle. We find that residual opportunistic fraud exists both in the contract with replacement cost endorsement and the contract with no-deductible endorsement in the Taiwan automobile theft insurance market. These results are consistent with previous literature on the relationship between fraud activity and insurance contracting. We also show that the severity of opportunistic fraud fluctuates in the opposite direction to the business cycle. Opportunistic fraud is stimulated during periods of recession and mitigated during periods of expansion.

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11-20 Dionne, Georges - Book Review of The Theory of Corporate Finance

The book proposes an original contribution to the economics and finance literature by developing the foundations of corporate finance. It also covers in detail various corporate governance issues faced by organizations. The common treatment of corporate finance and corporate governance started with the contribution of Williamson (Journal of Finance, 1988), who argued that corporate finance and corporate governance must be treated simultaneously because they are complementary. This book fills this gap in the literature.

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11-19 Bergerès, Anne-Sophie; d'Astous, Philippe; Dionne, Georges - Is there Any Dependence Between Consumer Credit Line Utilization and Default Probability on a Term Loan? Evidence from Bank-Level Data

Whereas recent studies on revolving lines of credit suggest a positive relationship between exposure at default and default probability on the line, this paper considers the relationship between two financial instruments through the simultaneous analysis of credit line utilization and default probability on a personal loan. We model both financial instruments endogenously in a simultaneous equation system and find strong evidence of a positive relationship between the two instruments. Individuals in the default state use their credit line 59% more than those in the non-default state, and full utilization of the credit line increases the default probability on the loan by 46% when compared with non-utilization. Our results suggest that banks should manage both financial instruments simultaneously.

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11-18 Behrens, Kristian; Murata, Yasusada - Trade, Competition, and Efficiency (revised version)

We present a general equilibrium model of monopolistic competition featuring pro-competitive effects and a competitive limit, and investigate the impact of trade on welfare and efficiency. Contrary to the constant elasticity case, in which all gains from trade are due to product diversity, our model allows for a welfare decomposition between gains from product diversity and gains from pro-competitive effects. We show that the market outcome is not efficient because too many firms operate at an inefficiently small scale by charging too high markups. We further illustrate that trade raises efficiency by narrowing the gap between the equilibrium utility and the optimal utility. As the population gets arbitrarily large in the integrated economy, the equilibrium utility converges to the optimal utility because of the competitive limit. We finally extend the variable elasticity model to a multi-sector setting, and show that intersectoral distortions are eliminated in the limit. The multi-sector model allows us to illustrate some new aspects arising from intersectoral and intrasectoral allocations, namely that trade leads to structural convergence, rather than sectoral specialization, and that trade induces domestic exit in the nontraded sector.

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11-17 Behrens, Kristian; Corcos, Gregory; Mion, Giordano - Trade Crisis ? What Trade Crisis ?

We investigate the dramatic 2008-2009 trade collapse using microdata from a small open economy, Belgium. Belgian trade essentially fell because of reduced quantities and unit prices, rather than fewer firms involved in international transactions, fewer trading partners per firm, or fewer products traded. Our difference-in-difference results point to a fall in the demand or tradables – especially durables and capital goods – as the main driver of the recent collapse. Finance and involvement in global value chains player only minor roles. Firm-level exports-to-turnover and imports-to-intermediates – as well as exports-to-production and imports-to-production – ratios reveal a comparable collapse of domestic and cross-border operations. Access to credit affected both types of activities to the same extent. Overall, our results point to a general fall in demand and not a crisis of Belgian cross-border trade per se.

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11-16 Connolly Pray, Marie - Some Like It Mild and Not Too Wet: the Influence of Weather on Subjective Well-Being

More and more economists and politicians are advocating the use of comprehensive measures of well-being, on top of the usual national accounting measures, to assess the welfare of populations. Researchers using subjective well-being data should be aware of the potential biasing effects of the weather on their estimates. In this paper, I investigate the responsiveness of well-being to climate and transitory weather conditions by analyzing subjective well-being data collected in the Princeton Affect and Time Survey. I study general satisfaction questions about life in general, life at home, health and one’s job, as well as questions concerning feelings intensities during specific episodes. I find that women are much more responsive than men to the weather, and that life satisfaction decreases with the amount of rain on the day of the interview. Low temperatures increase happiness and reduce tiredness and stress, raising net affect, and high temperatures reduce happiness, consistent with the fact that  the surveys was conducted in the summer. I conclude by suggesting methods to reduce the possible biases.

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11-15 Fabre, Alice; Pallage, Stéphane - Child Labor, Idiosyncratic Shocks, and Social Policy

In this paper, we measure the welfare effects of banning child labor in an economy with strong idiosyncratic shocks to employment. We then design two different policies: an unemployment insurance program and a universal basic income system. We show that they can often lead to an endogenous elimination of child labor. We work within a dynamic, general equilibrium model calibrated to South Africa in the 1990s.

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11-14 Bibi, Sami; Duclos, Jean-Yves; Araar, Abdelkrim - Mobility, Taxation and Welfare

Income mobility is often thought to equalize permanent incomes and thereby to improve social welfare. The welfare analysis of mobility often fails, however, to account for the cost of the variability of periodic incomes around permanent incomes. This paper assesses the net welfare benefit of mobility by assuming both a social aversion to inequality in permanent incomes and an individual aversion to variability in periodic incomes. The paper further investigates the combined (and comparative) impact of mobility and of the tax system (another presumed income equalizer) on the dynamics of income across time and on the inequality of income across individuals. Using panel data, we find that Canada’s tax system limits significantly the redistributive impact of mobility while also lowering considerably the cost of income variability. The permanent income equalizing effect of taxes can reach up to 23 percent of mean income at the higher values of inequality aversion that we use. Globally, the net social welfare effect of both mobility and taxation is (almost always) positive and substantial, often amounting to around 30 percent of mean income. For all choices of parameter values, the tax effect exceeds by far the net effect of mobility on inequality and social welfare.

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11-13 Annabi, Amira; Breton, Michèle; François, Pascal - Game Theoretic Analysis of Negotiations under Bankruptcy

We extend the contingent claims framework for the levered firm in explicitly modeling the resolution of financial distress under formal bankruptcy as a non-cooperative game between claimants under the supervision of the bankruptcy judge. The identity of the class of claimants proposing the first reorganization plan is found to be a key determinant of the likelihood of liquidation and of the renegotiated value of claims. Our quantitative results confirm the economic intuition that a bankruptcy design must trade-off the initial priority of claims with the viability of reorganized firms.

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11-12 Échevin, Damien; Fortin, Bernard - Physician Payment Mechanisms, Hospital Lenght of Stay and Riks of Readmission: a Natural Experiment

We provide an analysis of the effect of physician payment methods on their hospital patients’ length of stay and risk of readmission. To do so, we exploit a major reform implemented in Quebec (Canada) in 1999. The Quebec Government introduced an optional mixed compensation (MC) scheme for specialist physicians working in hospital. This scheme combines a fixed per diem with a reduced fee for services provided, as an alternative to the traditional fee-for-service system. We develop a simple theoretical model of a physician’s decision to choose the MC scheme. We show that a physician who adopts this system will have incentives to increase his time per clinical service provided. We demonstrate that as long as this effect does not improve his patients’ health by more than a critical level, they will stay more days in hospital over the period. At the empirical level, using a large patient-level administrative panel data set from a major teaching hospital, we estimate a model of transition between spells in and out of hospital analog to a difference-in-differences method. The model is based on a two-state Mixed Proportional Hazard approach. We find that the hospital length of stay of patients treated in departments that opted for the MC system increased on average by 10.8% (0.71 days). However, the risk of readmission to the same department with the same diagnosis does not appear to be overall affected by the reform.
 

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11-11 Dionne, Georges; Li, Jingyuan - First-order (Conditional) Risk Aversion, Background Risk and Risk Diversification

In the literature, utility functions in the expected utility class are generically limited to second-order (conditional) risk aversion, while non-expected utility functions can exhibit either first-order or second-order (conditional) risk aversion. This paper extends the concepts of order of conditional risk aversion to orders of conditional dependent risk aversion. We show that first-order conditional dependent risk aversion is consistent with the framework of the expected utility hypothesis. We relate our results to risk diversification and provide additional insights into its application in different economic and finance examples.

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11-10 Boubakri, Narjess; Cosset, Jean-Claude; Saffar, Walid - Corporate Risk-Taking in Privatized Firms: International Evidence on the Role of State and Foreign Owners

Using a unique database of 190 newly privatized firms from 36 countries, we investigate the impact of shareholders’ identify on corporate risk-taking behavior. We find strong and robust evidence that state (foreign) ownership is negatively (positively) related to corporate risk-taking. Moreover, we find that these relations depend on the level of government extraction. Our results suggest that relinquishment of government control, openness to foreign investment, and improvement of country-level governance institutions are key factors in the success of privatization reform.

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11-09 Michaud, Pierre-Carl; Goldman, Dana; Lakdawalla, Darius; Zheng, Yuhui; Gailey, Adam H. - The Value of Medical and Pharmaceutical Interventions for Reducing Obesity

This paper attempts to quantify the private and public economic value of reducing obesity through pharmaceutical and medical interventions. We find that the economic value of such treatments, in particular bariatric surgery, is large for treated patients, with incremental cost-effectiveness ratios typically under $20,000 per life-year saved. Our approach accounts for competing risks to life expectancy, health care cost savings, and other non-medical fiscal consequences. Most of the therapeutic value is generated by longer healthy life expectancy, with modest contributions from health spending, taxes and other spending. Obesity treatment generates substantial per-period savings in medical costs, but it also raises lifetime medical and annuity costs by extending life. On balance, treatment generates substantial private economic value and lowers the prevalence of obesity, but the aggregate fiscal effects on the public-sector are small.

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11-08 Lacroix, Guy; Brouard, Marie-Ève - Work Absenteeism Due to a Chronic Disease

Research on health-related work absenteeism focuses primarily on moral hazard issues but seldom discriminates between the types of illnesses that prompt workers to stay home or seek care. This paper focuses on chronic migraine, a common and acute illness that can prove to be relatively debilitating. Our analysis is based upon the absenteeism of workers employed in a large Fortune-100 manufacturing firm in the United States. We model their daily transitions between work and absence spells between January 1996 up until December 1998. Only absence due to migraine and depression, its main comorbidity, are taken into account. Our results show that there is considerable correlation between the different states we consider. In addition, workers who are covered by the Blue Preferred Provided Organization tend to have shorter employment spells but also shorter migraine spells.

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11-07 Makdissi, Paul; Yazbeck, Myra; Coldeboeuf, Hugo - A Fuzzy Approach to the Measurement of Leakages for North American Health System

This paper uses a fuzzy-fuzzy stochastic dominance approach to compare patients’ leakages in the Canadian and the U.S. health care systems. Leakages are defined in terms of individuals who are in bad health and could not have access to health care when needed. To carry his comparison we rely on the assumption that Canada is a strong counterfactual for the U.S. We first develop a class of fuzzy leakages indices and incorporate them in a stochastic dominance framework to derive the dominance criterion. We then use the derived criterion to perform inter-country comparisons on the global level. To provide more insight, we decompose the analysis with respect to gender, ethnicity, income and education. Intra-country comparisons reveal the presence of income based leakage inequalities in both countries yet, gender, ethnic and education based disparities appear to be present in the U.S. only. As for inter-country comparisons, results are in general consistent with the hypothesis that leakages are less important under the Canadian health care system.

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11-06 Bourbeau, Emmanuelle; Lefebvre, Pierre; Merrigan, Philip - Provincial Returns to Education for 21 to 35 year-olds: Results from the 1991-2006 Canadian Analytic Censuses Files

This paper examines the evolution of the returns to education and experience from 1990 to 2005 in Canada and across the provinces. The focus is on the earnings of young adults, age 21 to 35 at the times of the Censuses, classified by very detailed education groups, age and gender. Returns to higher education are very different across provinces and are particularly high in the western part of the nation. Over time, they are quite stable, but they are increasing for females in 2005 relative to 2000 in particular Bachelor’s degree and higher degrees. This is surprising given the very important increase in the supply of well educated females since 1991. These returns can explain partially why so many young women turned to higher education over time. It is also surprising that males have not followed suit, given that the returns are just as high for them as for women. Yet, the returns for university education are much higher than the returns for college or CEGE. Also, returns for trade degrees are much higher for males than for females. The male-female gap in higher education will certainly help to reduce the wage gap between genders, however, public policy must be concerned by the difference between male and female participation in higher education.

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11-05 Laurent-Lucchetti, Jérémy; Leroux, Justin; Sinclair-Desgagné, Bernard - Splitting an Uncertain (Natural) Capital

Most natural commons are subject to discontinuities and threshold effects, so their gradual depletion may result in a sudden irreversible loss of the associated ecological services. Yet, it is often impossible to locate these thresholds with certainty. We analyze this context using a variant of the divide-the-dollar game, in which the amount to be split among players follows a discrete or multimodal probability distribution. “Cautions equilibria” – where agents collectively behave as if the worst-case scenario were certain – are found to coexist with “dangerous equilibria” – where overall demand for ecological services might lead to their collapse – and “dreadful equilibria” – where agents collectively request so much natural capital that a collapse of ecological services is certain, even if all agents are risk averse. Communication/cooperation among agents, however, which raises the possibility of coordinated group deviations, would eliminate dreadful equilibria and reduce the occurrence of dangerous equilibria, while cautions equilibria are robust to such deviations. A direct corollary is that dangerous equilibria are Pareto-dominated by any cautions equilibrium in which all agents claim less natural capital. These results shed light on the management of common-pool resources, international climate change negotiations, and the implementation of precautionary policies.

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11-04 Bauwens, Luc; Koop, Gary; Korobilis, Dimitris; Rombouts, Jeroen V.K. - A Comparison of Forecasting Procedures for Macroeconomic Series: the Contribution of Structural Break Models

This paper compares the forecasting performance of different models which have been proposed for forecasting in the presence of structural breaks. These models differ in their treatment of the break process, the parameters defining the model which applies in each regime and the out-of-sample probability of a break occurring. In an extensive empirical evaluation involving many important macroeconomic time series, we demonstrate the presence of structural breaks and their importance for forecasting in the vast majority of cases. However, we find no single forecasting model consistently works best in the presence of structural breaks. In many cases, the formal modeling of the break process is important in achieving good forecast performance. However, there are also many cases where simple, rolling OLS forecasts perform well.

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11-03 Fortin, Bernard; Yazbeck, Myra - Peer Effects, Fast Food Consumption and Adolescent Weight Gain

This paper aims at opening the black box of peer effects in adolescent weight gain. Using Add Health data on secondary schools in the U.S., we investigate whether these effects partly flow through the eating habits channel. Adolescents are assumed to interact through a friendship social network. We first propose a social interaction model of fast food consumption using a generalized spatial autoregressive approach. We exploit results by Bramoullé, Djebbari and Fortin (2009) which show that intransitive links within a network (i.e., a friend of one of my friends is not my friend) help identify peer effects. The model is estimated using maximum likelihood and generalized 2SLS strategies. We also estimate a panel dynamic weight gain production function relating an adolescent’s Body Mass Index (BMI) to his current fast food consumption and his lagged BMI level. Results show that there are positive significant peer effects in fast food consumption among adolescents belonging to a same friendship school network. The estimated social multiplier is 1.59. Our results also suggest that, at the network level, an extra day of weekly fast food restaurant visits increases BMI by 2.4%, when peer effects are taken into account.

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11-02 Fluet, Claude - L'économie de la preuve judiciaire

Cet article développe un modèle simple permettant d’analyser les dispositifs fondamentaux de la preuve judiciaire. Le survol est centré sur les notions de charge de la preuve, de présomptions légales, de normes de preuve, sur le rôle de la procédure et le pouvoir d’initiative du juge. Les règles de preuve sont analysées du point de vue des coûts de litige, du risque d’erreur judiciaire et des incitations à l’adoption de comportements socialement efficients.

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11-01 Lefebvre, Pierre; Merrigan, Philip; Roy-Desrosiers, Francis - Québec's Childcare Universal Low Fees Policy 10 Years After: Effects, Costs and Benefits

More than ten years ago the province of Québec implemented a universal early childhood education and care policy. This paper examines if the two objectives pursued, to increase mothers’ participation in the labour market (balance the needs of workplace and home) and to enhance child development and equality of opportunity for children, were reasonable meet. A non-experimental evaluation framework based on multiple pre- and post-treatment periods is used to estimate the policy effects. First, year after year the number of children and their weekly of hours in childcare have increased. More preschool children are in non-parental childcare at a younger age and the intensity of childcare has increased over the years. Second, the policy has significantly increased the labour force participation and annual weeks worked for mothers with at least a child aged 1 to 4 years compared to mothers in the same situation in the Rest of Canada. Third, the evidence presented show that the policy has not enhanced school readiness or child early literacy skills in general, with negative significant effects on the PPVT scores of children aged 5 and possibly negative for children of age 4. Simulations show the bounds of the public benefits in terms of additional net taxes (income taxes less refundable credits and transfers based on household’s “net” income). Unless one suppose that mothers in the upper part of the earnings distribution are those who returned early to the labour market after giving birth or a maternity leave, and who have worked more weeks, the effect on governments revenues are modest. The main beneficiary of the larger tax base of a higher labour supply of mothers with young children is the federal government which do not support the significant public funding of the program. The policy has some drawbacks in terms of social efficiency and equity. The structure of the program with its very low $7/day fee before taxes creates strong incentives for families to use long hours of daycare for children at a very young age, which may not be the best mechanism for children development. The high transfers in-kind (1.9 billion in 2009) to families using subsidized childcare raise the question of their horizontal and vertical equity. The paper concludes on three modifications to the program that could correct some of its weaknesses.

Centre interuniversitaire sur le risque, les politiques économiques et l'emploi
ESG UQAM, Université du Québec à Montréal, C.P. 8888, Succ. Centre-Ville, Montréal (Québec) CANADA H3C 3P8
Madame Hélène Diatta  | Téléphone : 514 987-6181 | Télécopieur : 514 987-4707 | Courriel : diatta.helene@uqam.ca
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