Previous years

Abstract

This thesis studies the effects of health on financial decisions and on the short-run fluctuations of economic activity. The first paper analyses the effects of health status on household's portfolio choices; their decision to insure; their health and housing expenditures. Using data from the Panel Study of Income dynamics (PSID), the estimates highlights three results: 1) a significant effect of health on household's decisions, 2) a simultaneity in these decisions and 3) an evidence of health effects through the risk channel. Given these results, the second article explores the joint effects of health status and health-related risks on financial and health-related decisions. In so doing, this paper estimates the theoretical model of Hugonnier et al. (2013) on PSID data. The results show an effect of health through the income and risk channels. Mortality and morbidity risks impact the consumption, the investments in stocks and health insurance, and health expenditures decisions. Based on these empirical findings, the third paper explores the aggregate implications of health capital. This research develops a business cycle model in which agents are endowed with a stock of health capital and exposed to mortality and morbidity risks. Simulations reveal that this model fits well the business cycle stylized facts, as well as the cyclical patterns of health. In summary, these three studies suggest an active role for public health and insurance policies in the improvement of welfare. These policies may improve households' consumption and participation in the stock market. Further, they may contribute to smoothing economic fluctuations.

This thesis consists of three chapters.
The rst chapter analyzes the implications of entrepreneurial optimism for equity market signaling. Project quality is signaled either by retaining shares (Leland and Pyle, 1977) or by retaining shares and underpricing (Grinblatt and Hwang, 1989). On the one hand the existence of optimistic entrepreneurs allows realistic entrepreneurs to insure idiosyncratic risk more, but on the other hand makes it less pro table to sell equity because the presence of optimists reduces stock prices. Entrepreneurial optimism makes entrepreneurs' worse o because it raises the cost of signaling. In contrast, it can make outside investors better o since it increases the volume of stocks that are underpriced.
The second chapter models the impact of optimism on occupational choice. In-dividuals choose to become entrepreneurs or employees. Competition in the en-trepreneurship and employment sectors determines an entrepreneur's probability of success and the wage of employees. Realistic individuals know the probability of succeeding as entrepreneurs, while optimists overestimate it. We nd that when there is a moderate or a high number of optimists in the economy the number of entrepreneurs (number of projects undertaken) raises, the number of employees low-ers, the probability of success of projects lowers, the interest rate on entrepreneur's borrowings raises, entrepreneurs borrow less and undertake projects of smaller size. We show that in this case optimism lowers the individual expected payo of entre-preneurs and raises the individual payo of employees.
The third chapter extends lobbying theory by assuming that the policymaker has reference dependent preferences: he derives utility not only from social welfare and contributions given by the lobby but also from deviations in the lobby's contributions from a reference level. We show that if the reference contribution is small and the policymaker is very responsive to contributions that are higher than the reference one, then the lobby obtains a more favorable policy o ering lower contributions. This result provides a new explanation for Tullock's paradox: the empirical fact that lobbying contributions are small relative to the value of the policies at stake.

Evidence-based policy is understood as an approach that helps people make well informed decisions about policies and programs using systematic empirical evidence. The implementation of successful economic policy however requires a solid understanding of the causal effects of a policy intervention. Improvements in data quality, development of more robust estimation methods and better research designs have helped to develop a large toolkit of new instruments to identify causal effects of policies.

This thesis consists of three self-contained chapters in applied micro-econometrics. The first two chapters discuss related topics in labor economics. Both chapters rely on large administrative databases and use quasi-natural experiments to identify the causal effects of policy interventions using two distinct methodologies. While the first chapter focuses on a discussion of the empirical findings of reducing potential unemployment benefit duration on post-unemployment outcomes, the second chapter develops – inspired by job search theory – a new approach to learn about the relative importance of reservation wages for non-employment duration and survival probabilities. The third chapter is in the field of behavioral environmental economics and discusses the role of information for electricity consumption. This chapter is based on a randomized controlled field experiment and comes next to a purely randomized experiment situation. While the third chapter is not thematically linked to the first two chapters, all three chapters answer policy-relevant questions and contribute to a better understanding of the causal effects of economic policy interventions.

The first chapter, TAF Effect on Liquidity Risk Exposure, measures how much the Federal Reserve's Term Auction Facility helped to decrease liquidity risk in banks. The paper stresses the importance of the liability term structure and provides empirical support to those arguments in favour of the introduction of liquidity risk measures in international financial regulations, as is now being done with the Basel III accords.

In the second chapter, TARP Effect on Bank Lending Behaviour: Evidence from the last Financial Crisis, we assess the question whether the government is capable to increase lending of the banking sector to the real sector. The main result suggest that banks that benefitted from the government sponsored Troubled Asset Relief Program (TARP) provide on average 19% higher loan originations to small businesses compared to other banks. This result is of particular interest to policy makers in the Euro Area, where lending to the real sector is still contained.

The third chapter is a theoretical contribution in the field of macroeconomics. In the paper Liquid Assets in a Cash-in-Advance Model, I analyse an extension to the cash-in-advance (CIA) model. While the CIA framework usually imposes that only money can be used for purchases, I relax that strong assumption and allow that also a real asset provides some degree of liquidity. The main finding is that if the asset is also liquid, then the asset is valued more than what its real return would suggest. The difference between the effective value in the model and the fundamental value can be interpreted as the liquidity premium of the asset. I also calculate under which circumstances the liquidity premium is positive.

We analyse the strategic behaviours of agents in a market through the appropriate¬ness of their skills to the market. If agents' skills are well adapted to market and they can reach their target, they will not need to adopt strategic behaviours. The agents will behave as selfish individuals. However, if their skills are not well adapted and they cannot attain their target alone, they will adopt strategic behaviours to reach their objectives. These behaviours will have a different impact on the utilities of other agents, depending on the skills and the objectives of the agent.

If these agents need other agents to reach their objectives, they will behave as altruistic individuals who internalise the utilities of other agents in reaching their objectives and will adopt cooperative behaviours. However, if these agents fear that other agents could prevent them from reaching their target because they can foresee that the skills of other agents are better adapted than their own skills, the agents will then behave as predator individuals and will adopt destructive behaviours to attain their objective. It is in the interests of these agents to manipulate information to increase disorder and dissimulate their lack of skills. They will reproduce the strategies of animals that modify their appearance to escape predators or simulate being bait to attract their prey. These agents will seek to induce chaos into the behaviours of other agents to amplify the impact of their strategies.

The appropriateness of skills to the market allows an understanding of the emer-gence of networks and associated strategies. The members of a networks are inputs

who are excluded when their costs are higher than their benefits. A network simul-taneously allows cooperation and selfish, predatory behaviours among its members. A network may adopt informational strategies when seeking to become the leader in a market or when it cannot survive. The creation of networks and the manipulation of information are two overlapping evolutionary strategies, with the first strategy favouring the second.

In our model, an agent does not behave like a firm that aims only to maximise the profits of the firm but rather as a member of a network who adopts strategic behaviours as a function of the interests of this network. If his skills are well adapted to the market and he can innovate, he will not invest in erroneous input; in contrast, if his skills are not adapted, the agent will invest in the erroneous input of information into the market in order to survive.

Therefore, when any informational asymmetries between the agents and their principals characterise the market, the price cannot be the main element that allows equilibrium to be reached in the market; instead, the appropriateness of skills to the market enables equilibrium. We will now apply these hypotheses to explain the strategic behaviours of physicians and pharmaceutical companies.

Zero correlation between measurement error and model error has been assumed in existing panel data models dealing specifically with measurement error. We extend this literature and propose a simple model where one regressor is mismeasured, allowing the measurement error to correlate with model error. Zero correlation between measurement error and model error is a special case in our model where correlated measurement error equals zero. We ask two research questions. First, we wonder if the correlated measurement error can be identified in the context of panel data. Second, we wonder if classical instrumental variables in panel data need to be adjusted when correlation between measurement error and model error cannot be ignored. Under some regularity conditions the answer is yes to both questions. We then propose a two-step estimation corresponding to the two questions. The first step estimates correlated measurement error from a reverse regression; and the second step estimates usual coefficients of interest using adjusted instruments.

A significant share of deliveries are performed by Cesarian section (C-section) in Europe and in many developed and developing countries. The aims of this thesis are to highlight the non medical, especially economic and financial, incentives that explain the use of C-section, as well as the medical consequences of C-section on women's health, in regard with other factors of ob¬stetrical care quality such as hospital concentration. Those diagnoses enable us to exhibit ways of improvement of obstetrical care quality in France. Our analysis focus on two countries, France and Switzerland. In the first part of the thesis, we show the influence of two non medical factors on the C-section use, namely the hospital payment system on the one hand and the obstetricians behaviour, especially their demand for leisure, on the other hand. With French data on the year 2003, we show firstly that the fee-for-service payment system of private for profit hospitals induces a higher probability of using C-section. Obstetricians play also a preeminent role in the decision to use a C-section, as the probability of a C-section rises with the number of obstetricians. We then focus on a French reform introduced in 2004, to investigate the impact of Prospective Payment System on obstetric practise. We show that the rise of C-section rate between 2003 and 2006 is mainly caused by changes in hospitals and patients features. Obstetricians practises do not vary a lot for patients with the same risk code. In the mean time however, the number of women coded with a high risk rises. This can be caused by improvements in the quality of coding, obstetricians chosing codes that match better the real health state of their patients. Yet, it can also show that obstetricians change their coding practises to justify the use of certain practises, such as C-section, with no regard to the health state of patients. Financial factors are not the only non medical fac¬tors that can influence the resort to C-section. Using Shelton Brown ΠΙ identification strategy, we focus on the potential impact of obstetricians leisure preference on the use of C-section. We use the distributions of days and hours of delivering and the types of C-section - planned or emergency C-sections - to show that the obstetricians demand for leisure has a significant impact on the resort to C-section, but only in emergency situations. The second part of the thesis deals with some ways to improve obstetric care quality. We use on the one hand swiss and french data to study the impact of C-section on the patients' probability of having an obstetric complication and on the other hand the influence of hospital concentration on the quality of obstetric care. We find the same results as former medical studies about the risks entailed by C-section on obstetric complications.These results prove women ought to be better informed of the medical consequences of C-section and that the slowing of C-section use should be a priority of public health policy. We finally focus on another way to improve obstetric care quality, that is hospital lmarket concentration. We investigate the impact of hospital concentration by integrating the Herfindahl-Hirschman index in our model, on health care quality, measured by the HCUP indicator. We find that hospital concentration has a negative impact on obstetric care quality, which undermines today's policy of hospital closings in France.

Keywords: Hospital; C-section; Payment System; Counterfactual Estimation; Quality of Care.

Thesis co-supervised with the Ecole des Hautes Etudes en Sciences Sociales, Paris

Output, inflation and interest rates are key macroeconomic variables, in particular for monetary policy. In modern macroeconomic models they are driven by random shocks which feed through the economy in various ways. Models differ in the nature of shocks and their transmission mechanisms. This is the common theme underlying the three essays of this thesis. Each essay takes a different perspective on the subject: First, the thesis shows empirically how different shocks lead to different behavior of interest rates over the business cycle. For commonly analyzed shocks (technology and monetary policy errors), the patterns square with standard models. The big unknown are sources of inflation persistence. Then the thesis presents a theory of monetary policy, when the central bank can better observe structural shocks than the public. The public will then seek to infer the bank's extra knowledge from its policy actions and expectation management becomes a key factor of optimal policy. In a simple New Keynesian model, monetary policy becomes more concerned with inflation persistence than otherwise. Finally, the thesis points to the huge uncertainties involved in estimating the responses to structural shocks with permanent effects.

These three chapters, while fairly independent from each other, study economic situations in incomplete contract settings. They are the product of both the academic freedom my advisors granted me, and in this sense reflect my personal interests, and of their interested feedback. The content of each chapter can be summarized as follows:

Chapter 1: Inefficient durable-goods monopolies
In this chapter we study the efficiency of an infinite-horizon durable-goods monopoly model with a fmite number of buyers. We find that, while all pure-strategy Markov Perfect Equilibria (MPE) are efficient, there also exist previously unstudied inefficient MPE where high valuation buyers randomize their purchase decision while trying to benefit from low prices which are offered once a critical mass has purchased. Real time delay, an unusual monopoly distortion, is the result of this attrition behavior. We conclude that neither technological constraints nor concern for reputation are necessary to explain inefficiency in monopolized durable-goods markets.

Chapter 2: Downstream mergers and producer's capacity choice: why bake a larger pie when getting a smaller slice?
In this chapter we study the effect of downstream horizontal mergers on the upstream producer's capacity choice. Contrary to conventional wisdom, we find anon-monotonic relationship: horizontal mergers induce a higher upstream capacity if the cost of capacity is low, and a lower upstream capacity if this cost is high. We explain this result by decomposing the total effect into two competing effects: a change in hold-up and a change in bargaining erosion.

Chapter 3: Contract bargaining with multiple agents
In this chapter we study a bargaining game between a principal and N agents when the utility of each agent depends on all agents' trades with the principal. We show, using the Potential, that equilibria payoffs coincide with the Shapley value of the underlying coalitional game with an appropriately defined characteristic function, which under common assumptions coincides with the principal's equilibrium profit in the offer game. Since the problem accounts for differences in information and agents' conjectures, the outcome can be either efficient (e.g. public contracting) or inefficient (e.g. passive beliefs).

Although the chapters of this thesis address a variety of issues, the principal aim is common: test economic ideas in an international economic context. The intention has been to supply empirical findings using the largest suitable data sets and making use of the most appropriate empirical techniques.
This thesis can roughly be divided into two parts: the first one, corresponding to the first two chapters, investigates the link between trade and the environment, the second one, the last three chapters, is related to economic geography issues. Environmental problems are omnipresent in the daily press nowadays and one of the arguments put forward is that globalisation causes severe environmental problems through the reallocation of investments and production to countries with less stringent environmental regulations. A measure of the amplitude of this undesirable effect is provided in the first part. The third and the fourth chapters explore the productivity effects of agglomeration. The computed spillover effects between different sectors indicate how cluster-formation might be productivity enhancing. The last chapter is not about how to better understand the world but how to measure it and it was just a great pleasure to work on it. "The Economist" writes every week about the impressive population and economic growth observed in China and India, and everybody agrees that the world's center of gravity has shifted. But by how much and how fast did it shift? An answer is given in the last part, which proposes a global measure for the location of world production and allows to visualize our results in Google Earth.

At least since the Great Depression, explaining why there are business fluctuations has been one of the biggest challenges that the science of economics has had to face. The hope is that if we could better understand recessions, then we could also be more successful in overcoming them. This dissertation consists of three papers that are part of the general endeavor of economists to understand these fluctuations. The first paper discusses, for a particular model, whether a result related to fluctuations would still hold if time were modeled as continuous rather than discrete. The two other papers focus on price stickiness. The second paper discusses why, after a large devaluation, prices of non-tradables may change by only a small amount in comparison to the magnitude of the devaluation. The third paper examines price adjustment in a model in which information is imperfect and it is costly to change prices.

This paper analyses the outcomes of the EEA and bilateral agreements vote at the level of the 3025 communities of the Swiss Confederation by simultaneously modelling the vote and the participation decisions. Regressions include economic and political factors. The economic variables are the aggregated shares of people employed in the losing, Winning and neutral sectors, according to BRUNETTI, JAGGI and WEDER (1998) classification, Which follows a Ricardo-Viner logic, and the average education levels, which follows a Heckscher-Ohlin approach. The political factors are those used in the recent literature. The results are extremely precise and consistent. Most of the variables have the predicted sign and are significant at the l % level. More than 80 % of the communities' vote variance is explained by the model, substantially reducing the residuals when compared to former studies. The political variables do have the expected signs and are significant as Well. Our results underline the importance of the interaction between electoral choice and participation decisions as well as the importance of simultaneously dealing with those issues. Eventually they reveal the electorate's high level of information and rationality.

The unifying theme of this thesis is the pursuit of a satisfactory ways to quantify the riskureward trade-off in financial economics. First in the context of a general asset pricing model, then across models and finally across country borders. The guiding principle in that pursuit was to seek innovative solutions by combining ideas from different fields in economics and broad scientific research. For example, in the first part of this thesis we sought a fruitful application of strong existence results in utility theory to topics in asset pricing. In the second part we implement an idea from the field of fuzzy set theory to the optimal portfolio selection problem, while the third part of this thesis is to the best of our knowledge, the first empirical application of some general results in asset pricing in incomplete markets to the important topic of measurement of financial integration. While the first two parts of this thesis effectively combine well-known ways to quantify the risk-reward trade-offs the third one can be viewed as an empirical verification of the usefulness of the so-called "good deal bounds" theory in designing risk-sensitive pricing bounds.

This thesis presents three empirical studies in the field of health insurance in Switzerland. First we investigate the link between health insurance coverage and health care expenditures. We use claims data for over 60 000 adult individuals covered by a major Swiss Health Insurance Fund, followed for four years; the data show a strong positive correlation between coverage and expenditures. Two methods are developed and estimated in order to separate selection effects (due to individual choice of coverage) and incentive effects ("ex post moral hazard"). The first method uses the comparison between inpatient and outpatient expenditures to identify both effects and we conclude that both selection and incentive effects are significantly present in our data. The second method is based on a structural model of joint demand of health care and health insurance and makes the most of the change in the marginal cost of health care to identify selection and incentive effects. We conclude that the correlation between insurance coverage and health care expenditures may be decomposed into the two effects: 75% may be attributed to selection, and 25 % to incentive effects. Moreover, we estimate that a decrease in the coinsurance rate from 100% to 10% increases the marginal demand for health care by about 90% and from 100% to 0% by about 150%.
Secondly, having shown that selection and incentive effects exist in the Swiss health insurance market, we present the consequence of this result in the context of risk adjustment. We show that if individuals choose their insurance coverage in function of their health status (selection effect), the optimal compensations should be function of the se- lection and incentive effects. Therefore, a risk adjustment mechanism which ignores these effects, as it is the case presently in Switzerland, will miss his main goal to eliminate incentives for sickness funds to select risks. Using a simplified model, we show that the optimal compensations have to take into account the distribution of risks through the insurance plans in case of self-selection in order to avoid incentives to select risks.Then, we apply our propositions to Swiss data and propose a simple econometric procedure to control for self-selection in the estimation of the risk adjustment formula in order to compute the optimal compensations.

The field of public finance focuses on the spending and taxing activities of governments and their influence on the allocation of resources and distribution of income. This work covers in three parts different topics related to public finance which are currently widely discussed in media and politics. The first two parts deal with issues on social security, which is in general one of the biggest spending shares of governments. The third part looks at the main income source of governments by analyzing the perceived value of tax competition.