Automation with Heterogeneous Agents: The Effect on Consumption Inequality
Tommaso Santini
IWH Discussion Papers,
No. 28,
2022
Abstract
In this paper, I study technological change as a candidate for the observed increase in consumption inequality in the United States. I build an incomplete market model with educational choice combined with a task-based model on the production side. I consider two channels through which technology affects inequality: the skill that an agent can supply in the labor market and the level of capital she owns. In a quantitative analysis, I show that (i) the model replicates the increase in consumption inequality between 1981 and 2008 in the US (ii) educational choice and the return to wealth are quantitatively important in explaining the increase in consumption inequality.
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Where to Go? High-skilled Individuals’ Regional Preferences
Sabrina Jeworrek, Matthias Brachert
IWH Discussion Papers,
No. 27,
2022
Abstract
We conduct a discrete choice experiment to investigate how the location of a firm in a rural or urban region affects job attractiveness and contributes to the spatial sorting of university students and graduates. We characterize the attractiveness of a location based on several dimensions (social life, public infrastructure, connectivity) and combine this information with an urban or rural attribution. We also vary job design as well as contractual characteristics of the job. We find that job offers from companies in rural areas are generally considered less attractive. This is true regardless of the attractiveness of the region. The negative perception is particularly pronounced among persons with urban origin and singles. These persons rate job offers from rural regions significantly worse. In contrast, high-skilled individuals who originate from rural areas as well as individuals with partners and kids have no specific preference for jobs in urban or rural areas.
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Trading away Incentives
Stefano Colonnello, Giuliano Curatola, Shuo Xia
IWH Discussion Papers,
No. 23,
2022
Abstract
Equity pay has been the primary component of managerial compensation packages at US public firms since the early 1990s. Using a comprehensive sample of top executives from 1992-2020, we estimate to what extent they trade firm equity held in their portfolios to neutralize increments in ownership due to annual equity pay. Executives accommodate ownership increases linked to options awards. Conversely, increases in stock holdings linked to option exercises and restricted stock grants are largely neutralized through comparable sales of unrestricted shares. Variation in stock trading responses across executives hardly appears to respond to diversification motives. From a theoretical standpoint, these results challenge (i) the common, generally implicit assumption that managers cannot undo their incentive packages, (ii) the standard modeling practice of treating different equity pay items homogeneously, and (iii) the often taken for granted crucial role of diversification motives in managers’ portfolio choices.
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Financial Stability
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Behaviour
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Consumer Defaults and Social Capital
Brian Clark, Iftekhar Hasan, Helen Lai, Feng Li, Akhtar Siddique
Journal of Financial Stability,
April
2021
Abstract
Using account level data from a credit bureau, we study the role that social capital plays in consumer default decisions. We find that borrowers in communities with greater social capital are significantly less likely to default on loans, even after adjusting for different levels of income and other characteristics such as credit scores. The results are strongest for potentially strategic defaults on mortgages; a one standard deviation increase in social capital reduces such defaults by 12.4 %. These results can be generalized to any mortgage default. Our results also indicate that the effect of social capital is most prominent among more creditworthy borrowers, suggesting that when given a choice, the social cost of defaulting is an important factor affecting default decisions. We find a similar impact of social capital on consumer defaults in other datasets with more detailed information on borrowers as well. Our results are robust to modeling and methodology choices, as well as controlling for other drivers of default such as wealth, income and amenities from homeownership. Our results suggest that increasing social capital via measures to build community cohesion such as promotion of owner-occupied home ownership may be one avenue to deter consumer default.
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Optimizing Policymakers’ Loss Functions in Crisis Prediction: Before, Within or After?
Peter Sarlin, Gregor von Schweinitz
Macroeconomic Dynamics,
No. 1,
2021
Abstract
Early-warning models most commonly optimize signaling thresholds on crisis probabilities. The expost threshold optimization is based upon a loss function accounting for preferences between forecast errors, but comes with two crucial drawbacks: unstable thresholds in recursive estimations and an in-sample overfit at the expense of out-of-sample performance. We propose two alternatives for threshold setting: (i) including preferences in the estimation itself and (ii) setting thresholds ex-ante according to preferences only. Given probabilistic model output, it is intuitive that a decision rule is independent of the data or model specification, as thresholds on probabilities represent a willingness to issue a false alarm vis-à-vis missing a crisis. We provide simulated and real-world evidence that this simplification results in stable thresholds and improves out-of-sample performance. Our solution is not restricted to binary-choice models, but directly transferable to the signaling approach and all probabilistic early-warning models.
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