In this paper, we explore the connection between labor market segmentation in two sectors, a modern protected formal sector and a traditional- unprotected-informal sector, and overeducation in a developing country. Informality is thought to have negative consequences, primarily through poorer working conditions, lack of social security, as well as low levels of productivity throughout the economy. This paper considers an aspect that has not been previously addressed, namely the fact that informality might also affect the way workers match their actual education with that required performing their job. We use micro-data from Colombia to test the relationship between overeducation and informality. Empirical results suggest that, once the endogeneity of employment choice has been accounted for, formal male workers are less likely to be overeducated. Interestingly, the propensity of being overeducated among women does not seem to be closely related to the employment choice.
Herrera-Idárraga, P. (AQR-IREA), López-Bazo, E. (AQR-IREA), Motellón, E. (AQR-IREA)
This paper examines why a financial entity’s solvency capital estimation might be underestimated if the total amount required is obtained directly from a risk measurement. Using Monte Carlo simulation we show that, in some instances, a common risk measure such as Value-at-Risk is not subadditive when certain dependence structures are considered. Higher risk evaluations are obtained for independence between random variables than those obtained in the case of comonotonicity. The paper stresses, therefore, the relationship between dependence structures and capital estimation.
Ferri, A. (RFA-IREA); Guillén, M. (RFA-IREA); Bermúdez, Ll. (RFA-IREA)
Drawing on data from two successive cohorts of PhD graduates, this paper analyses differences in overall job satisfaction and specific job domain satisfaction among PhDs employed in different sectors four years after completing their doctorate degrees. Covariate-adjusted job satisfaction differentials suggest that, compared to faculty members, PhD holders employed outside traditional academic and research jobs are more satisfied with the pecuniary facets of their work (principally, because of higher earnings), but significantly less satisfied with the content of their job and with how well the job matches their skills (and, in the case of public sector workers, with their prospects of promotion). The evidence regarding the overall job satisfaction of the PhD holders indicates that working in the public or private sectors is associated with less work well-being, which cannot be fully compensated by the better pecuniary facets of the job. It also appears that being employed in academia or in research centres provides almost the same perceived degree of satisfaction with the job and with its four specific domains. We also take into account the endogenous sorting of PhD holders into different occupations based on latent personal traits that might be related to job satisfaction. The selectivity-corrected job satisfaction differentials reveal the importance of self-selection based on unobservable traits, and confirm the existence of a certain penalisation for working in occupations other than academia or research, which is especially marked in the case of satisfaction with job content and job-skills match. The paper presents additional interesting evidence about the determinants of occupational choice among PhD holders, highlighting the relevance of certain academic attributes (especially PhD funding and pre-and-post-doc research mobility) in affecting the likelihood of being employed in academia, in a research centre or in other public or private sector job four years after completing their doctorate programme.
The effectiveness of R&D subsidies can vary substantially depending on their characteristics. Specifically, the amount and intensity of such subsidies are crucial issues in the design of public schemes supporting private R&D. Public agencies determine the intensities of R&D subsidies for firms in line with their eligibility criteria, although assessing the effects of R&D projects accurately is far from straightforward. The main aim of this paper is to examine whether there is an optimal intensity for R&D subsidies through an analysis of their impact on private R&D effort. We examine the decisions of a public agency to grant subsidies taking into account not only the characteristics of the firms but also, as few previous studies have done to date, those of the R&D projects. In determining the optimal subsidy we use both parametric and nonparametric techniques. The results show a non-linear relationship between the percentage of subsidy received and the firms’ R&D effort. These results have implications for technology policy, particularly for the design of R&D subsidies that ensure enhanced effectiveness.
Duch-Brown, N. (IEB); García-Quevedo, J. (IEB); Montolio, D. (IEB)
In a recent paper Bermúdez [2009] used bivariate Poisson regression models for ratemaking in car insurance, and included zero-inflated models to account for the excess of zeros and the overdispersion in the data set. In the present paper, we revisit this model in order to consider alternatives. We propose a 2-finite mixture of bivariate Poisson regression models to demonstrate that the overdispersion in the data requires more structure if it is to be taken into account, and that a simple zero-inflated bivariate Poisson model does not suffice. At the same time, we show that a finite mixture of bivariate Poisson regression models embraces zero-inflated bivariate Poisson regression models as a special case. Additionally, we describe a model in which the mixing proportions are dependent on covariates when modelling the way in which each individual belongs to a separate cluster. Finally, an EM algorithm is provided in order to ensure the models’ ease-of-fit. These models are applied to the same automobile insurance claims data set as used in Bermúdez [2009] and it is shown that the modelling of the data set can be improved considerably.
This paper computes and compares alternative quality-adjusted price indexes for new cars in Spain in the period 1990-2000. The proposed hedonic approach simultaneously controls for time-invariant unobserved product e¤ects and time-variant unobserved quality changes, that are assumed to be captured by model age e¤ects. The results show that the non-adjusted price index largely overstates the increase in the cost of living induced by changes in car prices and that previous evidence for this market have not measured the real extent of that bias, probably due to the omission of controls for unobservables. It is also shown that omitting age e¤ects can also lead to misleading conclusions. The estimated price indexes give also some insights on what could have been the determinants of price evolution in the Spanish car market.
This paper analyses the impact of using different correlation assumptions between lines of business when estimating the risk-based capital reserve, the Solvency Capital Requirement (SCR), under Solvency II regulations. A case study is presented and the SCR is calculated according to the Standard Model approach. Alternatively, the requirement is then calculated using an Internal Model based on a Monte Carlo simulation of the net underwriting result at a one-year horizon, with copulas being used to model the dependence between lines of business. To address the impact of these model assumptions on the SCR we conduct a sensitivity analysis. We examine changes in the correlation matrix between lines of business and address the choice of copulas. Drawing on aggregate historical data from the Spanish non-life insurance market between 2000 and 2009, we conclude that modifications of the correlation and dependence assumptions have a significant impact on SCR estimation.
Bermúdez, Ll. (RFA-IREA), Ferri, A. (RFA-IREA), Guillén, M. (RFA-IREA)
This article focuses on business risk management in the insurance industry. A methodology for estimating the profit loss caused by each customer in the portfolio due to policy cancellation is proposed. Using data from a European insurance company, customer behaviour over time is analyzed in order to estimate the probability of policy cancelation and the resulting potential profit loss due to cancellation. Customers may have up to two different lines of business contracts: motor insurance and other diverse insurance (such as, home contents, life or accident insurance). Implications for understanding customer cancellation behaviour as the core of business risk management are outlined.
Guillén, M. (RFA-IREA); Pérez-Marín, A. M. (RFA-IREA); Alcañiz, M. (RFA-IREA)
During the recent period of economic crisis, many countries have introduced scrappage schemes to boost the sale and production of vehicles, particularly of vehicles designed to pollute less. In this paper, we analyze the impact of a particular scheme in Spain (Plan2000E) on vehicle prices and sales figures as well as on the reduction of polluting emissions from vehicles on the road. We considered the introduction of this scheme an exogenous policy change and because we could distinguish a control group (non-subsidized vehicles) and a treatment group (subsidized vehicles), before and after the introduction of the Plan, we were able to carry out our analysis as a quasi-natural experiment. Our study reveals that manufacturers increased vehicle prices by the same amount they were granted through the Plan (1,000 €). In terms of sales, econometric estimations revealed an increase of almost 5% as a result of the implementation of the Plan. With regard to environmental efficiency, we compared the costs (inverted quantity of money) and the benefits of the program (reductions in polluting emissions and additional fiscal revenues) and found that the Plan would only be beneficial if it boosted demand by at least 30%.
Jiménez, J. L.; Perdiguero, J. (GiM-IREA); García, C.
This paper provides a new benchmark for the analysis of the international diversi…cation puzzle in a tractable new open economy macroeconomic model. Building on Cole and Obstfeld (1991) and Heathcote and Perri (2009), this model speci…es an equilibrium model of perfect risk sharing in incomplete markets, with endogenous portfolios and number of varieties. Equity home bias may not be a puzzle but a perfectly optimal allocation for hedging risk. In contrast to previous work, the model shows that: (i) optimal international portfolio diversi…cation is driven by home bias in capital goods, independently of home bias in consumption, and by the share of income accruing to labour. The model explains reasonably well the recent patterns of portfolio allocations in developed economies; and (ii) optimal portfolio shares are independent of market dynamics.