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Tinbergen Magazine is published byTinbergen Institute, the research

institute and graduate schoolof Erasmus University Rotterdam,

University of Amsterdam and VU University Amsterdam

Spring 2015

Featured InterviewsMassimo GiuliodoriJon Levin and Liran Einav Franklin Allen Academic Job Marketby Kostas Mavromatis

Digital issue

contents

30magazine30magazine30magazine

Tinbergen Magazine is published byTinbergen Institute, the research

institute and graduate schoolof Erasmus University Rotterdam,

University of Amsterdam and VU University Amsterdam

Spring 2015

Featured InterviewsMassimo GiuliodoriJon Levin and Liran Einav Franklin Allen Academic Job Marketby Kostas Mavromatis

Digital issue

15139_TI_nummer30_digitaal.indd 1 04-06-15 12:06

Colophon | Spring 2015 | #30

Tinbergen Magazine is published by

Tinbergen Institute, the research

institute and graduate school operated

jointly by the Economics and

Econometrics faculties of three Dutch

universities: Erasmus University

Rotterdam, University of Amsterdam

and VU University Amsterdam.

Tinbergen Magazine highlights

ongoing research at Tinbergen

Institute and is published twice a year.

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Henk Thomas, Amsterdam

Levien Willemse, Rotterdam

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TI News 4

upClose 7Talent Scout and Coach for Bright MindsInterview with Massimo Giuliodori

by Barbara Sadaba

upClose 12Markets with Asymmetric InformationInterview with Jonathan Levin and Liran Einav

By Benoît Crutzen

Column 17Willing and Able on the Academic Job Market Konstantinos Mavromatis

upClose 18Understanding Systemic Risk: Refreshing the Research AgendaInterview with Franklin Allen

by Oana Furtuna

Letters from Alumni 22Berber Kramer IFPRI, Washington, DC

inShort 23References 28

Papers in journals 28Discussion papers 31Theses 31

About us 33 PhD Corner 34

tinbergen magazine spring 2015 3 2

magazine

3422

15

4TI News

TI News 4

upClose 7Talent Scout and Coach for Bright MindsInterview with Massimo Giuliodori

by Barbara Sadaba

upClose 12Markets with Asymmetric InformationInterview with Jonathan Levin and Liran Einav

By Benoît Crutzen

Column 17Willing and Able on the Academic Job Market Konstantinos Mavromatis

upClose 18Understanding Systemic Risk: Refreshing the Research AgendaInterview with Franklin Allen

by Oana Furtuna

Letters from Alumni 22Berber Kramer IFPRI, Washington, DC

inShort 23References 28

Papers in journals 28Discussion papers 31Theses 31

About us 33 PhD Corner 34

Letters Alumnifrom

177

tinbergen magazine spring 2015 3

New research fellowsSjoerd van Bekkum is Assistant Professor of Finance at Erasmus School of Economics (EUR). Before joining ESE in January 2011, he was a visiting scholar at the Stern School of Business, New York University (2010-2011) and a research fellow at The Conference Board, New York City (2008). Sjoerd is a TI

alumnus and received a PhD in Economics from Erasmus University Rotterdam (2010). His research, which covers a range of topics in empirical corporate finance and asset pricing, currently appears in journals such as Financial Management, Journal of Banking and Finance (forthcoming), and the Journal of Financial and Quantitative Analysis (forthcoming).

Jurjen Kamphorst is Assistant Professor in Economics at the Erasmus School of Economics (EUR), since 2008. Before joining ESE, he was Assistant Professor in Economics at the Utrecht School of Economics. His primary research field is organizational economics. Jurjen’s other

research interests include network formation, competition policy, personnel economics and industrial organization. He has published in several leading economics journals, including the Journal of Economic Behavior and Organization (2015), European Economic Review (2013), Economic Theory (2009) and the American Economic Journal: Microeconomics (forthcoming). Jurjen is a TI alumnus and received a PhD in Economics from VU University Amsterdam (2005).

Chaim Fershtman is Associate Professor in Economics at the Erasmus School of Economics (EUR) and Professor of Economics and the chair of Public Economics at the Eitan Berglas School of Economics, Tel Aviv University. He is also a research fellow with the CEPR. Chaim has published in leading

top journals in economics, including recent articles in the Quarterly Journal of Economics, RAND Journal of Economics, American Economic Journal: Microeconomics and Journal of Industrial Organization. His research interests include industrial organization, behavioral economics, experimental economics and sociological aspects in economics.

TI News


Aleksandar Andonov is Assistant Professor in Finance at the Erasmus School of Economics (EUR) since September 2014. He received his PhD in Finance (2014) from Maastricht University, School of Business and Finance. His supervisors were Rob Bauer and Piet Eichholtz. Aleksandar also holds an

MSc in International Business – Finance (2009) from Maastricht University.

Niels Rietveld is Assistant Professor at the department of Applied Economics at the Erasmus School of Economics (EUR) and is affiliated with the Erasmus University Rotterdam Institute for Behavior and Biology (EUR). He received his PhD on ‘Essays on the Intersection of Economics and

Biology’ in October 2014 from Erasmus University, under the supervision of TI Fellows Roy Thurik and Philip Koellinger (with Patrick Groenen and Albert Hofman).

Thomas Peeters is Assistant Professor of Applied Industrial Organization at the department of Applied Economics of the Erasmus School of Economics (EUR), since September 2014. Thomas received his PhD (May 2014) on ‘Applications of industrial economics to the professional sports

industry’ from the University of Antwerp, Belgium. His dissertation studies the economics of professional sports and includes chapters on revenue sharing, collective sales of media rights and financial fair play.

Achim Czerny joined the department of Spatial Economics of VU University Amsterdam on July 1, 2014 as a postdoctoral researcher. Achim received his PhD (2007) on “Regulating Air Transport Markets”, from the TU Berlin, Germany. In 2008 he started as Assistant Professor of Regulatory

Economics at WHU – the Otto Beisheim School of Management (Koblenz / Düsseldorf).

New candidate fellows

Appointments TI fellows van den Assem and Zwinkels appointed associate editors JEBOTI fellows Martijn van den Assem and Remco Zwinkels have been appointed as associate editors of the Journal of Economic Behavior and Organization (JEBO). The appointment builds on a special JEBO issue on Empirical Behavioral Finance, which featured Van den Assem and Zwinkels as guest editors in cooperation with Doron Kliger (Haifa). This issue has now been published: JEBO, Volume 108, December 2014.

ProgramsAccreditation Report NVAO praises quality TI Research Master ProgramThe Accreditation Organisation of the Netherlands and Flanders (NVAO) has officially re-accredited TI’s Master of Philosophy in Economics Program, based on a highly positive assessment report of the review commission of the Royal Netherlands Academy of Arts and Sciences (KNAW). The accreditation term runs from 2015 until 2021. In the NVAO report, this commission reviewed the intended attainment targets, educational environment, and system of review and testing of the TI research master program. The review commission praised the high quality of researchers teaching in the MPhil program. ‘The academic teaching staff has excellent qualifications and clearly transmits the ambitious educational goals of the program to their students. The policy of selective admissions prepares the students well to meet the ambitious requirements and high level standards of the MPhil program.’

Placement and Job MarketPlease visit our placement record (http://www.tinbergen.nl/placement/ ) for the latest news about the TI job market candidates. Recent positions include Pompeu Fabra, Rutgers University, INSEAD, the IMF and Max Planck Institute.

Facebook: Tinbergen Institute has two new exciting social media features. To raise the profile and visibility of TI’s graduate school and research institute we have developed a Facebook page to let the wider world know of TI’s challenging MPhil and PhD programs and cutting-edge research. Please ‘like’ our Facebook page and spread the word! TI’s Facebook page can be found at: www.facebook.com/InstituteTinbergen

Twitter: TI has also set up a Twitter account to highlight TI’s research and to facilitate interaction and discussion between TI fellows, PhD students and others. Stay in touch with new developments in the field of economics, econometric and finance. Please follow TI on Twitter: @ResearchTI

TI on social media


Key PublicationsLindquist, Matthew J., Joeri Sol and Mirjam Van Praag, (2015), Why Do Entrepreneurial Parents Have Entrepreneurial Children? Journal of Labor Economics, 33 (2): 269-296.

Lemmon, Michael L., Laura Xiaolei Liu, Mike Qinghao Mao and Greg Nini, (2014), Securitization and Capital Structure in Nonfinancial Firms: An Empirical Investigation, The Journal of Finance, 69 (4): 1787-1825.

Lin, Melissa, Massimo Massa and Hong Zhang, (2014), Mutual Funds and Information Diffusion: The Role of Country-Level Governance. The Review of Financial Studies, 27: 3343-3387.

Hendershott, Terrence, and Albert J. Menkveld, (2014), ‘Price Pressures’, Journal of Financial Economics 114 (3): 405-423.

Buser, Thomas, Muriel Niederle and Hessel Oosterbeek, (2014), The Quarterly Journal of Economics 129 (3): 1409-1447.

TI Econometrics Lectures 2015: TI is very proud to announce that Nobel Prize winner Christopher Sims will give the Tinbergen Econometrics Lectures in 2015. These lectures are a joint event with the Econometric Institute of the Erasmus School of Economics. Chris Sims is the John F. Sherrerd ’52 University Professor of Economics at Princeton University. Together with Thomas Sargent, Sims won the Nobel Prize in Economics in 2011. TI honorary fellow Herman van Dijk organizes the Lectures series, to be held on June 17-19, 2015 at TI Rotterdam, with an introduction held on June 15-16.

Thomas Buser wins KVS Medal for Best PhD Thesis in Economics

On December 12, TI fellow Thomas Buser received the prestigious KVS Medal (‘Penning’) for having written and defended the best PhD thesis in the field of economics in the years 2011-2014, from the Royal Dutch Economics Association (‘Koninklijke Vereniging voor Staathuishoudkunde’). Thomas, who is also a

TI MPhil alumnus (2009), won the prestigious medal for his PhD thesis, entitled ‘Essays in Behavioural Economics’, defended on September 4, 2012 at the University of Amsterdam. His supervisors were TI fellows Hessel Oosterbeek and Erik Plug.

Grants and Awards

Lukáš Tóth selected International

Scholar-in-Residence by ABA

Congratulations to TI PhD student Lukáš Tóth, who has been nominated as the 2015 Interna-tional Scholar-in-Residence by the American Bar Association (ABA), Section Antitrust Law. The Section of Antitrust Law International Scholar-in-Residence Program (“SAL SIR”) of the ABA provides funding for up to two scholars to visit

the United States to pursue competition policy-related research in the spring of 2015. Lukáš has been awarded a scholarship of $10,000.00 to fund his research in Washington, DC for a period of three months. From April this year, he will be a visiting researcher with William Kovacic, Global Competition Professor of Law and Policy at George Washington University.

Anne Opschoor wins JAE Dissertation PrizeCandidate TI fellow Anne Opschoor won the 2014 Journal of Applied Econometrics Dissertation Prize for his paper “Improving Density Forecasts and Value-at-Risk Estimates by Combining Densities”, written with TI fellows Dick van Dijk and Michel van der Wel. Opschoor received a prize of $2,500 for this award.

ERC Starting Grant for Fellow Aurélien Baillon

TI fellow and ESE-TI doctoral director Aurélien Baillon received a Starting Grant of € 1.5 million from the European Research Council (ERC) for his research project “Unverifiable Truths”. ERC grants are among the most prestigious grants in the world. ERC Starting Grants aim to support up-and-coming

research leaders who are about to establish a proper research team and to start conducting independent research in Europe. The scheme targets promising researchers who have the proven potential of becoming independent research leaders. Aurelien’s project, entitled “Bayesian markets for unverifiable truths”, will develop a new approach to obtain correct answers to questions that are otherwise unverifiable— e.g. concerning one’s happiness or the estimated likelihood of dramatic fatal events.

TI Lectures and Conferences


upClose

Talent Scout and Coach for Bright Minds

by Barbara Sadaba

Interview with Massimo Giuliodori, Director of Graduate Studies of Tinbergen Institute

TI: As a kick-off question, I would like to ask you how you first become interested in your research topics.

I simply observe what happens around me; if something intrigues me and makes me curious, I investigate whether the current literature has already addressed that specific issue. If not, I start working on it. Let me give an example of one of the recent projects I have been involved in. During the euro crisis, the financial media started paying particular attention to the response of financial markets to sovereign debt auctions— particularly in those countries with high levels of debt. I come from Italy, and during the high volatility periods of the crisis, all newspapers and TV news programs were commenting either on the key significance of some upcoming primary debt auctions or on their success. My colleagues and I started wondering if in the secondary market there was any systematic reaction of sovereign bond prices to upcoming auctions. The research topic seemed interesting, and nobody had looked closely at this issue.

One of the reasons soon became clear. There was no ready-to-use dataset on the primary debt auctions. So what we did was simple. We started constructing a unique dataset on all individual auctions since 1999 for a number of European countries, which allowed us to address a number of interesting research questions related to the presence of auction cycles and auction spillover effects among euro countries. This is not really the place to discuss the results we found in these projects (the papers are downloadable from my web page), but going back to your question of how I become interested in my research topics, the answer is based on a few principles. First, I ask myself if the research topic I observe has any policy relevance at all. If this requirement is met and nobody has addressed this issue, then I start working on it. I tend to choose topics which involve creating and using unique datasets. Moreover, I love projects which I can tackle with a completely agnostic approach.

Read more


TI: What kind of policy implications can be extracted from your work? Do you think that this should even be an important part of academic research— to deliver some policy advice?

Absolutely. As I said earlier, I believe that before undertaking any research project we should first consider whether the topic has policy implications. We owe this to society in general, and in particular to the taxpayers who fund our research.

TI: Since the financial crisis, uncertainty for investors and consumers has increased considerably. The general state of tranquility and confidence seems to have been broken. You are doing some very interesting research on this topic— more precisely, about the impact of fiscal measures aimed at restoring confidence. Could you tell us a little bit about this?

I suppose you are referring to one of the other recent projects I have been working on with some of my colleagues at the UvA and the ECB. Recently, many commentators and policymakers have started speculating on the positive or negative effects (depending on the camp they belonged to) of fiscal austerity programs on the financial markets— and in particular on the level of confidence of consumers and firms. The confidence effect is one of the key fiscal transmission channels in explaining potential expansionary or contractionary effects of fiscal policy actions. Surprisingly enough, nobody had looked at the how confidence measures reacted in real time to announcements of fiscal consolidation measures. But the main reason became rather obvious to me. There was no ready-to-use dataset on the precise identification of the timing (and size) of

fiscal announcements aimed at reducing public deficits and debt. So again, it took us a few months of reading official documents to construct a unique dataset. Then we used it to look at the reaction of a broad set of confidence measures to fiscal austerity announcements in a number of OECD countries, over the last three decades. The results we have found thus far are quite clear-cut, but they may become more nuanced, as this is still a work in progress.

TI: Now, changing the topic and referring to your new role as the Director of Graduate Studies, why did you accept this challenge of becoming director? How did it happen?

Before becoming DGS, I enjoyed being the director of the first-year English-taught Economics Bachelor program at the UvA. In that context I already had had the chance to get in touch with issues such as application procedures, entry requirements, selection of students with the best fit, and dealing with an international environment. I enjoyed that experience, but also felt that although I had plenty of ideas to improve the program and the selection

procedure, internal constraints were too strong and at too high a level. In some respects, I was finding it a little bit frustrating. So when I had the opportunity to become the DGS of TI, I jumped at it. I liked the idea very much. This job fully fits my interests and personality. I love the idea of playing a role in the development of talented young people. They simply need to be put on the right path to achieve their dream of becoming successful researchers. I also like the challenge of dealing with the TI fellows and students, who each have strong (and in many cases opposing) views on what a graduate program should look like. I enjoy giving them the chance to express their views. Of course, these suggestions and ideas are not always implementable— due to internal and external constraints— but I love finding the optimal balance and squeezing the best out of a constrained environment. I also like the dynamic nature of the TI graduate program. One of the main challenges of a graduate program in general lies in outside competition. If you are not aware of this, you lose your niche; so you have to be proactive and foresee what is going on, and introduce new features if needed.

“I believe that before undertaking

any research project we should

first consider whether the topic

has policy implications. We

owe this to society in general,

and in particular to the taxpayers

who fund our research.”


TI: So it was a natural choice?

Yes it was. It is challenging and very time consuming (above all, if you want to do it properly and with passion), but I like it a lot and feel privileged to play such an important role in the development and future success of our TI students. It makes me proud and causes me to easily forget about the amount of time I end up dedicating to TI.

TI: What do you believe are the challenges ahead of such a position? Perhaps you could give us some examples of improvements you would like to introduce.

Since my very first day in the DGS position, I have worked hard at introducing or completing several improvements which I believe were needed. In this respect, I thank my colleagues from the TI management team and the support staff, who have always helped me and supported me in each step. Without going into too many details, let me mention some of the major improvements we have introduced or we plan to introduce, following the principal milestones in the life of a TI student.

AdmissionsWhereas a few years ago the TI application process could be handled by the DGS and the admissions officer, nowadays TI receives around 300 applications a year and, as in many top graduate programs, the admission process involves a team of around eight to ten TI fellows (e.g. the members of the admission committee and the admission board). It was clear that with this structure, we needed a new system to handle all applications quickly and to be able to exchange information among the members of the admission team.


So we changed the online admission platform. We now have a new online application program (e.g. Embark) which allows us to get through all of the applications more quickly and efficiently. At the same time, the new application platform looks much more professional and more in line with the reputation of the TI graduate program. We also tried to improve the way we select our students. One aspect that I noted straight after I started as DGS was the extremely fierce competition among graduate schools in selecting the best students. Certainly, the financial incentive of scholarships is a major way for TI to attract students, but we also had to improve the way we communicated to the applicants the quality of our graduate program. One way to achieve this was through a more informative webpage, but also through a more personal approach. I now interview one by one the best candidates before any offer is sent. Besides mathematical and quantitative skills, there are a number of other aspects that are key for the success of any graduate student at TI. These include writing, presentation and social skills, and most of all, independence and creativity. Some of these aspects can be assessed through the documentation

we require for each application, but there is nothing more informative than having an interview with the applicant. Although interviewing more than 50-80 people a year is time-consuming, I find it the best way to select the right students.

ProgramBesides making a number of improvements to the quality assurance of the graduate program, we are continuously reevaluating and (if needed) refreshing the core course sequences in relation to what other top graduate programs offer and in line with the strengths of TI. Last year we restructured the micro sequence in which behavioral economics plays a more central role. Currently we are working on the core econometrics sequences. We have also made the second-year specializations of the TI graduate program a reflection of the eight research groups of TI. Thus, the second-year field courses are structured according to eight specializations, each of which corresponds to the TI research groups. This not only facilitates the general understanding of the relationship between the TI graduate program and the TI research institute to prospective applicants, but also allows us to involve more directly the coordinators of the research groups in the choice of the field courses that each specialization offers.

MatchingMatching is another fundamental part of the program. My general principle is that each student should be able to choose the PhD topic and the best advisor they feel they can work with. I see my role as a catalyst for the matching, but the process should be as natural and mutual as possible. In this matching phase, I talk a lot with each student to understand what is best for them. At times, this implies taking

“We are continuously reevaluating and (if needed) refreshing the core course sequences in relation to what other top graduate programs offer and in line with the strengths of TI.”


difficult actions. If I believe that a particular student, although being able to complete the MPhil program, does not have the right prerequisites to become a successful PhD student (and as a result finds it difficult to find a supervisor), I try to discuss alternative options, possibly outside TI. To me, the perfect match should be a win-win situation. Anything below this standard is going to generate future problems either for the PhD student, the supervisor, or both. Job marketA top graduate program cannot be judged as such if it doesn’t have a good placement record for its PhD students. This is what applicants look at before deciding to apply for a graduate program. Over the last couple of years the job placement team directed by José Luis Moraga has done tremendous work in training job market candidates, using mock interviews. The results in terms of placement have been excellent, and we are proud of what we have achieved. Still, we believe that this area of TI can be improved further. Preparing the PhD candidates for the job market is a long process that begins at the very beginning. The job market for new PhD students is very different from what it was ten or twenty years ago. It is extremely competitive and professional. I think that it is fundamental that the supervisors are aware of what is expected for a PhD student in order to be successful in the job market. This implies stimulating PhD students to write a sole-authored job market paper (if feasible), to learn to present their work and to handle tough questions from a demanding audience. In other words, we have to make sure that all supervisors know the rules of the job market game and keep the job market in

mind from day one. And this is what we are working on— besides making sure that TI provides the best possible training, of course.

TI: Given the heavy workload of being the DGS, together with conducting your own research, it is only natural to ask you this question: how do you manage to combine all these activities together?

I have to admit that in the last two years research has become a residual component of my professional focus. Especially in my first year, the DGS duties took much more time than expected. Research has clearly suffered; but fortunately, I have very good and patient coauthors.

TI: But you are happy with this trade-off?

I have to admit that if the trade-off for the coming years were as sharp as it was in the first year as DGS, I would not be thrilled. But I am becoming increasingly more efficient with my DGS work, and I expect that this trade-off will become more balanced in the future. Still, when I took this position I was prepared for that— and if my costs in terms of research time lead to a better graduate program, I will be content.

TI: Which activities do you believe can help the DGS get closer to the students in order to foster the connection with them?

I don’t think that there is a specific activity that should be introduced. The connection with the students is a question of communication. I talk to them continuously and my door is always open in case they need any advice. They know that they are always welcome to come

along if they need me for any personal or academic concern. And typically they do come along. I always try to provide my point of view and I feel they appreciate my honesty and transparency. I also greatly appreciate any suggestions they might have to improve the program, and if they have a good point I take their suggestions on board. This creates a relationship of trust which I believe is beneficial for everyone and for the overall atmosphere at TI.

TI: Finally, what would you like to be remembered for?

Very simply, I want to be remembered as someone who not only maintained but also improved the quality of the TI graduate program. Also, I would like to be remembered by the TI students as someone who played an important role in their development— someone who at times was strict and at times accommodative, but someone who always provided honest (and hopefully useful) advice.


TI: Professors Levin and Einav, according to the Tinbergen Institute course flyer, the series of lectures you gave at TI was on “market failures and inefficiencies due to asymmetric information”. So an obvious first question would be: what got you interested in this topic?

JL: I’ve been interested in information economics, in one way or another, my whole career. I’m not sure I remember a particular moment where I got interested. I do remember reading Mike Spence’s book on market signaling when I was a PhD student, and thinking that was pretty much the ideal for a dissertation: take a problem that was sort of intuitive but also complex and come up with a theory that was beautiful and concise and immediately lets you see how lots of economic situations were related by a single idea— in this case, the goal of credibly communicating private information.LE: In my case, I actually got to this area somewhat randomly. In my first year at Stanford, a former classmate from graduate school approached me and asked if I would work with her on a project that

By Benoît Crutzen

An interview with Jonathan Levin and Liran Einav*

Jonathan Levin and Liran Einav, both professors at Stanford

University, presented the Tinbergen Institute Economics

Lectures 2014. Levin is an applied economist interested in industrial organization, market

design and the economics of technology. Einav carries out

research in industrial organization and applied

microeconomics, investigating insurance markets and using

empirical analyses to explore the implications of adverse selection and moral hazard.

Read more

*


An interview with Jonathan Levin and Liran Einav*

upCloseDuo

interviewwas based on new data she received from an Israeli auto insurance company. The dataset was quite amazing in size and detail (at least, relative to the type of datasets that were used 15 years ago), so I started working with her and in the process became fascinated by the topic and by the close interplay between theory and empirical work that it allowed.

TI: Why focus more on the empirics as opposed to the theory? Is it just that theory has been relatively well developed already, whereas empirical research in the area still faces larger challenges?

JL: The theory of asymmetric information is one of the major contributions of 20th century economics. Market failures due to asymmetric information are commonly used to motivate the regulation of major industries, from banking and finance to insurance to healthcare, and many product and professional service markets as well. It’s also an area where economists spent decades developing the theory and its implications with less concerted effort on empirical evidence and measurement.

"Information technology has had an enormous effect on almost all of the industries that we think of as having serious informational asymmetries."


Nowadays a great deal of data is available to look at markets where we think there might be big imperfections due to asymmetric information— so there’s an opportunity to try to come at all the old questions in a fresh way. LE: Actually, now that really terrific data are available and a fair amount of empirical work has been carried out in this context, there are aspects of the theory that appear limited, which means that some empirical results could spur on new extensions and modifications to the theory. In a sense, this is really a cycle of interplay between theory and empirics, and it just happened to be that the empirical part has seen more exciting developments over the last two decades. One could easily imagine the answer to flip if we were asked the same question twenty years from now.

TI: What are the fundamental challenges that are specific to your area of research interest?

JL: They’re probably the same as in any field: trying to identify issues that are important and then finding a way to formulate questions or models or gather data that lets you make some progress and say something interesting.

TI: Are globalization and the innovations in information and communication technology helping in reducing the (negative) effects of asymmetric information in markets or, to the contrary, is the ICT revolution making these issues more pressing than ever?

JL: Information technology has had an enormous effect on almost all of the industries that we think of as having serious informational asymmetries. To take just one example, the traditional concern

in insurance and credit markets is that consumers know much more than the firms offering insurance or loans— but that’s not the case anymore. Nowadays, insurers and lenders often have incredibly data that arguably flip the problem around and make them better forecasters than individuals are. LE: This being said, the extent to which the problem “flips” and the asymmetric information becomes less of an issue depends a lot on the market setting and the market institutions. In some markets (financial markets or auto and home insurance) pricing is quite sophisticated, and residual private information on the consumer side is presumably not as important as it used to be. However, many other markets— due either to regulation or to “sticky” tradition— do not use much of the newly available information. So while the information problems could be solved in principle, they do not really get solved in practice, which means that these markets still face much of the same “old” problems.

TI: It seems all too obvious that we should ask what your opinion is regarding the importance of the topics you have at heart in explaining the crisis that started in 2008. After all, wasn’t it to a large extent an insurance and credit crisis due to asymmetric information (and wrongly designed incentives)?

JL: The most common view among economists is that the crisis was brought on by excessive lending and household leverage. Why did this happen? Most textbook theories of credit markets will actually try to explain why the market will under-provide credit to borrowers, not over-provide it. You can come up with theories where lending is excessive for

various informational or incentive reasons (and no doubt there were plenty of incentive problems in credit markets in 2007), but our own view is that it’s hard to understand something like the housing and mortgage boom in the US in the 2000s without moving somewhat outside of the standard optimizing rational expectations models we use in economics.LE: You would need to add several other forces that would go along with the more standard theories. Either way, the crisis was quite a complicated chain of events … It is probably hard for a single researcher to fully understand all its pieces, and we doubt that any single theory would suffice to explain it. The crisis was quite a complicated chain of events … It is probably hard for a single researcher to fully understand all its pieces, and we doubt that any single theory would suffice to explain it.

TI: Turning now to your coverage of the empirical analysis of big data, could you perhaps first explain to the non-specialists: 1) what is meant by the term “big data”; 2) what is special about big data; and 3) what specific challenges do researchers face in this area?

JL: Well it’s sort of a buzzword, so I’m not sure there is a specific definition, but I think people generally mean very large or high frequency datasets— often with less obvious structure than the datasets we’ve traditionally used in economics that you might open up in Excel and look at. One challenge involves just that: figuring out how to “look at” the data. LE: For the interested reader, here are two links with in-depth reviews on the above matters. Section II of the first paper focuses specifically on points 1 and 2. Both papers also address point 3.


TI: Big data are not specific to economics. Yet, economists have arguably developed and are developing still research tools that could give them an advantage over other professions when it comes to big data analysis. What is your take on this possibility? Are there any red lines we should be wary of crossing? Is collaborative research with scholars from other relevant fields a strategy to defend and advocate?

JL: Collaborations across fields can be great, and sometimes they lead to really interesting research, but if we had a recipe for research breakthroughs, we’d have more of them. LE: I’m not a great fan of advocating general principles on how people should do research… Having said that, the last part of the Science article – in the second link I gave you— speaks a little bit about related topics.

TI: If we turn to outright violations of the usual codes of integrity, in the last few years, and in the Netherlands as well, there have been a few important cases of such wrongdoings (plagiarism and fraud for example). Regarding the latter, it seems that empirical research is more susceptible to fraud (data massage, non-random data selection, non- or misreporting of results, etc.) than theory is. Do you share this view? What can we do about these issues?JL: Well, outright fabrication of data is really unfortunate and hopefully doesn’t happen very often. At the same time, anyone who has done empirical research in economics understands that it involves dozens or hundreds of judgment calls about how to construct samples, deal with data quality issues, specify regression models, choose what to report and so forth. That’s why, at the end of the day,

when you read an empirical paper you inevitably have to assess whether you think the authors are being transparent and making good decisions, and whether the results square with other evidence. You’ve also got to rely to some extent on the authors’ reputations as scholars. LE: That being said, if an empirical result is influential enough, it will go through enough scrutiny and replication, which will reveal any fabrication. If fabrication isn’t revealed, most likely it is because it didn’t get enough scrutiny, which must mean that it wasn’t very influential— and if this is the case, then the downside is limited. Of course, we would ideally want to live in an honest world with no crime; but even absent the ideal, given what we just said, we are not overly worried about data fabrication in economics.

"Actually, now that really terrific data are available and a fair amount of empirical work has been carried out in this context, there are aspects of the theory that appear limited, which means that some empirical results could spur on new extensions and modifications to the theory."


TI: Big data are likely to gain in importance in the future. Does this constitute a curse or a blessing when it comes to minimizing the risk of misbehavior by researchers?

JL: We don’t know. Certainly the growing use of proprietary data poses a problem for doing replication or follow-on studies. That being said, we’re not sure the recent history of replication studies in economics is a great model for science, either, because assuming there is no obvious malfeasance or coding error, once you get into the details there are usually so many judgment calls and decisions to argue about that it can become a real mess to replicate someone else’s findings.LE: Yet, we would reiterate that we believe that the really influential discoveries are not going to be affected by any of this type of misbehavior. Let me try to draw an analogy … It’s like asking someone who moves from a small house to a big house if he is more worried about burglary because the new house has more windows. Perhaps he should worry, but the benefits of living in the big house seem (to us) so much more important than the increased risk of burglary, that we do not know why we need to focus on this.

TI: The usual closing questions: do you have any words of advice for young students who wish to follow your footsteps?

LE: They shouldn’t worry about following anyone’s footsteps, and just be confident in what they do and enjoy it.

JL: Wow, that question makes me feel old! I think I need to wait a few years to answer it.

"The crisis was quite a complicated chain of events … It is probably hard for a single researcher to fully understand all its pieces, and we doubt that any single theory would suffice to explain it."


columnTI Magazine’s column highlights a current news topic.

The job market period is tough— not only for

candidates but also for hiring committees.

People involved in the selection process have

to go through a massive pile of applications

and figure out who are the most suitable

candidates. Of course, that requires a quick

and efficient screening.

Job market candidates from good schools are

very well prepared for the interviews. They

know how to act, which sometimes makes the

job of interviewers more challenging. It was

only this year that I understood how tough

that job would be, to operate on this side of

the market rather than be a candidate. People

carrying out the interviews need to figure out

not only the quality of the candidate, but also

his or her potential. Potential refers to the

candidate’s willingness to join the department

and to his commitment to contribute to it at all

levels. Willingness to join is related to genuine

interest. This can be tough to understand,

sometimes. Hiring committees spend a lot of

time preparing, and wrong signals from a

candidate can lead to uncertain decisions by a

committee. Willingness to contribute refers to

the quality of the candidate’s research and his

or her teaching abilities. At this stage, the

committee is quite well informed about the

quality of the research a candidate is able to

produce. However, the picture can become

vague when it comes to teaching.

Personally, I believe that there is another

aspect that a committee needs to explore.

This is the willingness and the ability of the

candidate to collaborate with other faculty

members in terms of research, once he or she

joins the department. Doing research that is

very closely related to that of other members

does not necessarily mean that collaboration

is deemed to be successful. Fortunately,

departments are given the chance to partly

figure that out during the fly-out day. I tend to

believe that dealing with a strong candidate

showing genuine interest in the department

can make the job of the hiring committee very

easy. And that can be considered as a bit of

advice to our future job market candidates.

My toughest moment during interviews was

with candidates who were clearly very good,

but were overly stressed during the interview.

One could easily see from their files that they

had great potential. However, due to high

stress they did not do very well in the

interview. Given the time pressure and the

bulk of interviews the committee has to go

through, bad performance may rule a

candidate out, unfairly. Fortunately, though,

I have the impression that we were quite fair

with the candidates we interviewed.

If I could give some advice to our future job

market candidates, it would be to go through

as many mock interviews as possible before

the formal interviews take place. That, I believe,

is the only possible way to overcome stress.

Practice gives confidence. More importantly,

this can make the decisions of the hiring

committee easier. It is very important that a

candidate provides the committee right

away— within only a few minutes— with a

crystal clear picture about the key message of

his or her job market paper and the importance

of the contribution. And that can only be

achieved through continuous practice in the

months before January.

At the UvA this year, we had a very successful

job market, and were able to hire excellent

candidates who, I am convinced, will be

excellent colleagues and make great

contributions in the future.

Willing and Able on the Academic Job Market

Konstantinos Mavromatis is Assistant Professor at the University of Amsterdam, where his research focuses on international macroeconomics and monetary economics. Read more


by Oana Furtuna

Interview with Franklin Allen*

Understanding Systemic Risk: Refreshing the Research Agenda

TI: After your experience teaching the TI Finance Lectures 2014, could you please share your impressions about the atmosphere and the students at Tinbergen Institute?

The atmosphere is impressive. TI is research-focused; the student research proposals I read were very good and interesting.

TI: Turning towards research-related questions, could you please explain what you mean by systemic risk, and what you believe its source to be?

Systemic risk is risk that affects the whole financial system and threatens its operation. During the course we discussed how it has many potential sources— and that’s what makes it such a difficult but interesting phenomenon for academic research.

TI: Of the many sources of systemic risk discussed in the lectures, do you think that there is a prevalent one?

I think that falls in asset prices— particularly real estate prices— are probably the most dangerous, the most prevalent, for systemic risk over time. When real estate prices collapse, this causes big problems for the banks.

TI: With regard to the financial crisis, there are many explanations regarding which factors contributed to the build-up: financial innovation, the oversupply of liquidity prior to the crisis, regulatory arbitrage, overconfidence in ever-increasing prices, and so forth. Which explanation do you see as the most important?

Franklin Allen is Executive Director of the Brevan

Howard Centre and Professor of Finance and

Economics at Imperial College London.

He is currently on leave from the Wharton School

of the University of Pennsylvania, where he is the Nippon Life Professor

of Finance and Professor of Economics. Professor Allen

received his doctorate from Oxford University, and his main areas of interest are

corporate finance, asset pricing, financial innovation,

comparative financial systems and financial

crises. Allen also provided the Tinbergen Finance

Lectures 2014: Systemic Risk and Financial Crises

Read more

*


upClose

I think that what triggered the crisis was a credit boom that set off a house price boom, which then burst and triggered the crisis. That exposed a lot of weaknesses, and many of the things you’ve just mentioned are there. But it’s an involved and complex process, I would say.

TI: In your lectures, you mentioned that macroprudential policies should be used to eliminate bubbles and increase the resilience of the banking sector. You have also applied network theory to the study of contagion in interbank markets. Do you think that regulators should impose structure on financial networks, or let them “blossom” naturally?

I think that we are probably at too early a stage to answer that question. Potentially, you could imagine that regulators would impose macroprudential policies, but I would say that we’re still a long way (in terms of our understanding) from actually doing that. I think we need to know a lot

more before we start engaging in that kind of thing.

TI: Along the same lines, in an internationally interconnected financial system do you see room for coordinating macroprudential policies across countries and especially in a currency union?

There is certainly room for it; whether it is feasible or not is very difficult to say. This seems to be what is going on with the negotiations occurring between Germany and Greece at the moment. So, we will see. I think there is a wide range of opinions on what is going to happen: from ‘they’ll do a deal’ to ‘they won’t’. The markets seem to believe they will do a deal; my own view is that this time there is a good chance they won’t do a deal. I don’t think that the Germans will move, or the Dutch or the Finns, for that matter— and I don’t think that the Greeks can afford (given what they’ve done) to do nothing. They can push out maturities somewhat, they can

rename things, but I don’t think there’s much scope for that…

TI: In light of the recent political developments in Greece, what future do you see for Greece and for the Eurozone? In your work with Victor Ngai (University of Pennsylvania) you mention that a Grexit might be a good way to deal with debt overhang. How would that work in practice and what would be the consequences?

I think that people are much too negative on Grexit in terms of what it would do for Greece. A lot depends on how contracts would be enforced and so forth. Since we don’t really know that, people are very averse to taking that risk. However, given what’s happened to them, it’s difficult to imagine they would do so much worse than they currently are doing, and what their prospects would be in the Eurozone. What seems to be happening in the Eurozone is that it has slowed down.


And some people think that what the ECB is doing will magically revive it. My own view is that I doubt that. If even countries like Germany are growing at very slow rates, I don’t think that we’re going to see a big revival just from quantitative easing. My guess is that if Greece stays within the Eurozone it’s probably got a decade of fairly low growth rates ahead, and I doubt whether it would get back to where it was before the crisis erupted. Now, if they leave, I think it’s quite possible that they may do better because they’ll have a big exchange rate change, which often leads to growth. It’s by no means certain— and there are lots of risks— but the paper we wrote gives some examples of countries that have done much better by doing that.

“I don’t think that we’re going to see a big revival just from quantitative easing.”

TI: What would then be the consequences for the Eurozone?

It’s an interesting question. The conventional view is that in the 1930s the countries that cut exchange rates didn’t do very well, but actually, if you look at Britain (which I think is a lot like many of the countries), it did very poorly in the 1920s— despite the fact that the rest of the world was doing well. But in the 1930s, when it went off the gold standard, Britain actually did pretty well, growing certainly not only in relative but also in absolute

terms. A paper by Eichengreen and Temin1 argues, for example, that countries that went off the gold standard did somewhat better. If Greece did do better, I think that what you would see is a number of other countries joining them. It is not clear to me that they wouldn’t do better. I know the prevailing wisdom is that they wouldn’t— and I think this is kind of a scare tactic— but the truth is that the people who designed these policies of austerity have not had a good track record. If you look at their predictions for where we would be now, they are drastically different than what actually happened. So what they have done is consign a generation of lower-educated young people in these countries to a very bad future. And they saved the French and German banks, but it’s not clear they’ve done a very good job in looking after people. So what I think would happen is that some countries would leave, and then you would end up with the remnants of the Eurozone in the South and the remnants of the Eurozone in the North. But I’m not sure that that wouldn’t be a better outcome.

TI: If Greece were to exit right now, wouldn’t yields on its government bonds skyrocket?

They probably won’t default on the private sector debt but if they default on everything else… if you look at countries that have defaulted in the past, it is not so clear that people aren’t willing to lend again quite quickly.

TI: Like Argentina, Russia…

Yes, there is a nice paper by Viral Acharya and Raghu Rajan2 with a survey of the literature on this. But, yes, many countries get back quite quickly.

TI: You’ve mentioned in your lectures that incorporating monetary policy in models of the financial sector is growing in importance. Why is this?

If you consider what happened in the crisis, one view of it is that monetary policy helped spark the bubble in housing prices, and when that burst it started off the crisis. I think that the big problem at the moment is that monetary policy is again distorting asset prices. In some countries it’s real estate once again, but many other asset prices also get distorted (debt markets, and so forth). And when policy starts to try to push things back to normality, we’ll see big changes in asset prices, and that can cause financial stability problems. Here’s an example: the Swiss National Bank was imposing a ceiling relative to the euro, and at some point they had to worry that that was too much of a distortion. So they changed that policy, prices went back to where they were before, and many institutions got into trouble. It seems to me that the Swiss National Bank did the right thing, but when prices go back to market prices, it can cause a problem— and I think that monetary policy should start working out when it is a problem and when it is not.

TI: Do you think that the knowledge and insights obtained from models of financial crises can help us prevent future crises?

I think they can reduce the probability of future crises and help ameliorate the impact. The problem is that, to a large

“The big problem at the moment is that monetary policy is again distorting asset prices.”

1 Barry Eichengreen and Peter Temin, 2010. Fetters of gold and paper, Oxford Review of Economic Policy, 26(3), 370-384.2 Viral V. Acharya and Raghuram G. Rajan, 2013. Sovereign Debt, Government Myopia, and the Financial Sector, Review of Financial Studies, 26 (6), 1526-1560.


extent, most central banks and many treasuries are dominated by people trained in macroeconomics. And so these kinds of models were not things they thought of as very important; most of the models they used didn’t allow any possibility for crises. This is getting better— it’s changing. So if you look at a lot of the appointments today in central banks, people who work on financial crises are playing a much more prominent role. They are still not in charge, but they are beginning to fill key policy positions.

TI: After the financial crisis, what fundamental changes do you observe or would like to see happening in the way financial institutions are run?

I think that what we need is a much better mind-set of systemic risk: what causes it and how it’s likely to affect things— not only in financial institutions but also in government bodies. We are beginning to see that, but there seems to be still a long way to go.

TI: How do you think your field will develop in future years? What are the hottest areas of research in theoretical finance?

I think that models of banking and financial stability will be key— what’s missing at present is particularly the coordination of government policies to mitigate and possibly eliminate systemic risk. What we have now is a situation of different actors doing different things— and I think we need a whole change in the way we think about preventing systemic risk. It’s not enough to just put in some banking regulation and have higher banking capital. Central banks must be concerned about the effects of their actions on asset prices

and systemic risk, and governments need to worry about systemic risk in terms of their fiscal policy and their other policies.

TI: How would you summarize the main message you wanted to communicate during the lectures?

Systemic risk is really important; it determines how the economy functions and grows, and policy responses to it are critical. What we’ve seen in the last seven and a half years (coming up on eight years now) is that systemic risk can continue to have tremendous impact for many, many years— and what we’re doing now is living through some of the problems that directly follow on … and they are by no means over. Look at what is happening in Greece—it’s very much connected to the whole issue of the crisis, and it’s one symptom of the huge debt overhang that is growing in the world.

TI: Finally, for our PhD students: what makes a good job market paper, in your opinion?

I’d advise something that’s novel, important, and not too difficult to explain. Getting all three is obviously quite tricky, but I think you have to have something in your job market paper that you can explain to a wide range of people, because in the job market it is a little bit different than in

regular research (once you become an assistant professor). In the job market you have to talk to a wide group of people within the department from very different backgrounds (in terms of corporate finance, asset pricing, banking and so on), and you have to be able to explain to them what you are doing— and interest them. And that’s what is different.

"What’s missing at present is particularly the coordination of government policies to mitigate and possibly eliminate systemic risk."


Letters Alumnifrom

life after TI?

It is 5:45pm. Flight KL652 from Washington Dulles International Airport has finished boarding. The flight attendant announces that the doors are closed, and it suddenly hits me – it is for real! I am not traveling for fieldwork this time… no, I am flying back to Amsterdam for my PhD defense. Although I was told that the defense is just a formality, I am so nervous that I do not catch any sleep before hitting Dutch soil. When I enter the Aula of the VU in my ball gown (to the surprise of my officemate, whose advisor wore flip-flops to her defense), I get even more nervous from seeing so many familiar faces. But then, while my ‘lekenpraatje’ PowerPoint gets stuck, adrenaline takes over, my voice stops trembling, and I enjoy the act of coming up with lengthy answers to avoid a second round of questions. An hour later, my advisors propose a toast to the new PhD.

Today, one and a half years later, I work at the International Food Policy Research Institute (IFPRI) in Washington DC. Next to submitting my dissertation articles on liquidity constraints and the poor’s demand for health insurance, I started new projects on health (insurance)-related issues in sub-Saharan Africa, including the burden of chronic diseases such as hypertension and diabetes. I also branched into South Asia, where I implement field experiments on bundling insurance, and prevention and nutrition awareness.

I landed here via the job market, after spending a semester at the University of California Berkeley. The market was by no means easy: I spent months polishing my job market paper, writing research and teaching statements, applying to so many schools and institutions (some I had never even heard of), and preparing one-, three- and seven-minute elevator pitches for the ASSA meetings in San Diego — only to receive few invitations for interviews. But just weeks before the meetings, things brightened up as more interviews came in and I actually enjoyed

the meetings: Hiring committees were interested in my paper, I stayed in a lovely AirBnB home, and San Diego was sunny, so no plowing through snow in high heels, as at previous meetings...

The interviews went well. Half of them resulted in a fly-out, and all fly-outs led to a job offer, including academic tenure tracks. I am very happy with my decision to move to IFPRI. Its research gets published in top economic journals and is extremely policy-relevant. IFPRI has a critical mass of development economists, helping me improve my research and obtain funding for new projects. I receive ample time and freedom to carry out my research. Also, the social life is good. Happy hours occur regularly and spontaneously, and I proudly wear orange socks while playing for the IFPRI soccer team. DC is a young and extremely vibrant city, significantly enhancing quality of life.

As in regular university tenure tracks, my publication record will determine whether I can stay at IFPRI. I keep my fingers crossed: I would be thrilled to stay a few more years!

Berber KramerIFPRI, Washington, DC Read more


Letters AlumniinShort

conditions to policy variables (interest rates and potentially macro prudential tools), thereby helping to identify how policy can help prevent countries from landing in such places. The mechanism that drives instability is primarily self-fulfilling expectations across heterogeneous agents. The data shows that at any point in time some agents believe that prices will return to fundamentals, while the rest believe that prices will continue to move away from them. The proportions of the two types can shift from period to period to allow for one view to prevail. The average view, dubbed “market sentiment”, determines the stability of the estimated model and whether the housing market is in a bubble or mean-reverting regime. The model developed in this paper provides a potential early warning tool that can help monitor and assess housing market developments by allowing:1) a real-time discussion of how market sentiment affects the dynamic properties of house prices, and2) a discussion on where the system is going and how policy can help steer it in the right direction. Read more

Discussion paperWilko Bolt (De Nederlandsche Bank), Maria Demertzis (De Nederlandsche Bank and European Commission), Cees Diks (UvA), Cars Hommes (UvA), Marco van der Leij (UvA), Identi- fying Booms and Busts in House Prices under Heteroge-neous Expectations, TI 14-157/II

••••••••••••••••••••••••••••ECTOR Econometrics and Operations Research Global Credit Risk: World, Country and Industry FactorsRecent studies provide evidence that there are many cross-country links and common global dynamics in macroeconomic fluctuations and financial asset returns. Do these common movements in macroeconomic fluctuations and asset returns influence the time variation in corporate default rates?This paper investigates the dynamic properties of systematic default risk conditions for firms from different countries, industries and rating groups. We use a high-dimensional nonlinear non-Gaussian state space model to estimate common components in corporate defaults in a sample of 41 countries, between 1980Q1-2014Q4, covering both the global financial crisis and euro-area sovereign debt crises. We find evidence of a world default risk cycle: common world-level macro and default-specific factors are a primary source of default clustering across countries. The presence of such global macro and frailty dynamics limits the scope for cross-border credit risk diversification in the financial industry and may negatively affect the risk-bearing capacity of globally active lenders as a result. For all firms, deviations of systematic default risk from macro fundamentals are correlated with net tightening

bank lending standards, implying that bank credit supply and systematic default risk are inversely related. Read more

Discussion paperBernd Schwaab (European Central Bank), Siem Jan Koopman (VU), Andre Lucas (VU) Global Credit Risk: World, Country and Industry Factors. TI 15-029III

••••••••••••••••••••••••••••FIN FINANCE

Conditional Euro Area Sovereign Default RiskThe issue of measuring and monitoring interconnected sovereign default risk has received a great deal of interest in the wake of the sovereign debt crisis in the euro area. This paper introduces a novel empirical framework to estimate marginal, joint and conditional probabilities of sovereign default from observed prices for credit default swaps (CDS) on sovereign debt. Such joint- and conditional probabilities of default can be informative for risk management as well as financial sector surveillance purposes. In addition, conditional probabilities shed light on the extent to which euro area capital markets are affected by contagion concerns, and the extent to which priced credit event risks are affected by policy measures. The paper’s methodology is novel in that the joint risk measures are derived from a multivariate framework that is

A selection made by the editorial board of key journal papers, discussion papers and PhD theses

••••••••••••••••••••••••••••CSC Cooperative Behaviour, Strategic Interaction and Complex Systems

Identifying booms and busts in house prices under heterogeneous expectationsIn a recent article, Olivier Blanchard argued that econo-mies occasionally land in “dark corners”— that is, situations in which the economy mal-functions. These are moments where variables react in very non-linear ways, such that even small shocks produce very large and unpredictable effects. Can we tell when economic systems are in such “dark corners”, and what can policy do to move away from them? This paper investigates the housing market in eight countries from the early 1970s to 2013, a period featuring excessive house price increases and subsequent corrections. The paper identifies conditions when housing markets are in such dark corners and — more importantly— links these


based on a flexible (dynamic GHST) multivariate density that naturally accommodates skewed and heavy-tailed changes in marginal risks as well as time variation in uncertainty and multivariate dependence. This paper makes three main contributions to the literature on risk assessment. First, it provides time series estimates of the variation in euro area joint- and conditional sovereign default risk based on the modelling framework in the paper and CDS data from January 2008 to February 2013. For example, a computation might be made of the conditional probability of a default on Portuguese debt given a credit event in, say, Greece, as expected by the market. Second, the paper analyzes the extent to which parametric assumptions matter for joint- and conditional sovereign risk assessments. The paper demonstrates that the distributional assumptions matter most for the conditional assessments made, whereas simpler joint default estimates are less sensitive to the assumed dependence structure. Finally, the paper provides an in-depth analysis of the impact of key policy announcements by the European Central Bank in May 2010 and in August 2012 on sovereign joint- and conditional risks. Read more

Paper in JournalLucas, A., B. Schwaab and X. Zhang, (2014), Conditional Euro Area Sovereign Default Risk Journal of Business & Economic Statistics, vol. 32 (2) pp.271-284.

Price Pressures I plead for a new, more general definition of liquidity suppliers in securities markets. I propose: “He who trades against price pressures, supplies liquidity,” instead of “He whose price quote is taken by an incoming market order, supplies liquidity.” If you actively bought during the Flash Crash, did you supply liquidity? The current definition says “No”, because active buying means taking the ask quote of others.The new definition says “Yes”, as you bought when prices collapsed. You traded against what turned out to be huge price pressure. The price was temporarily below fundamental value to accommodate a large seller’s desire to rid himself of a $4.2 billion position in twenty minutes. The new definition makes more economic sense, as by buying you were serving the large seller’s demand for immediacy. If you are an intermediary, the discount you got when buying compensates you for the price risk you run over this newly acquired inventory. Risk-averse agents need to be compensated for such risk. Should we care? Well actually, yes, we should. There is a great deal of debate on the role of various types of traders in securities markets—in particular, high-frequency traders (HFTs). One of the main arguments in favor of HFTs is that they supply liquidity. But, do they? The answer might be different when comparing the outcome across the two definitions.To apply the new definition, one needs to identify price pressures. This paper proposes a state-space approach, and illustrates that, not surprisingly, the NYSE specialist supplies liquidity. He trades against price pressure. The

paper goes a lot further and, for example, backs out his risk aversion coefficient through structural estimation. One of the main takeaways of the paper is nevertheless that price pressures and liquidity supply are intimately linked. Read more

Paper in JournalHendershott, T. and A. Menkveld, (2014), Price Pressures, Journal of Financial Economics, vol. 114, pp. 405-423.

Empirical Analysis of Affine vs. Nonaffine Variance Specifications in Jump-Diffusion Models for Equity Indices This paper aims to make a statement about an adequate model for equity returns by comparing and extending two strands of the literature; “complex” (nonaffine) pure stochastic volatility (SV) models versus “simpler” (affine) stochastic volatility jump diffusion models.Modeling the return dynamics of equities is a major concern of academics and practitioners alike. It is crucially important that the model used be adequate for the task, since the model will serve as a basic building block for a broad range of applications. For example, a reliable underlying model is necessary for conducting portfolio optimization, asset allocation, and risk measurement. In all these cases, choosing an inadequate model could lead to severe errors in the calculations or to the wrong economic conclusion, which, in turn, could lead to large losses.The difference between the two strands of literature on modeling equity returns is important. Both approaches

employ a stochastic volatility term, but use different procedures to model sudden large movements in the price and variance process. The nonaffine specification introduces nonlinearities into the drift and diffusion term of a pure stochastic variance process. This provides more flexibility when attempting to capture large sudden movements in returns and variance. The second approach generates large movements in returns and variance by staying within an affine framework and assuming a jump in the price and, possibly, the variance process. The advantage of staying within the affine model class is that it allows for quasi-closed-form solutions for European option prices, portfolio rules, and the computation of transition densities, all of which are advantageous for practical implementation. Furthermore, the mathematical properties of these models are well understood. The nonaffine models lack these benefits.In particular, the paper’s empirical analysis is designed to answer the question of whether we can disregard a jump component when modeling the variance process in a nonaffine way. The findings in the paper clearly show that jumps do indeed play an important role in modeling the return process of a major equity index such as the S&P 500 — even after leaving the affine model class. Specifically, the paper finds the strong result that even the worst-performing jump model outperforms every pure stochastic volatility model considered.A second question analyzed is whether a nonaffine specification outperforms an


future date. The construction of these measures is based on the theory of comonotonicity. Both types of herd behavior indices are model-free and risk-neutral, derived from available option data. Depending on its particular definition, each index represents a particular aspect of the market sentiment concerning future co-movement of the underlying stock prices. Read more

Discussion paperDaniël Linders (KU Leuven), Jan Dhaene (KU Leuven), Wim Schoutens (KU Leuven), Option Prices and Model-free Measurement of Implied Herd Behavior in Stock Markets,TI 15-002/IV/DSF 83

Comonotonic Approximations of Risk Measures for Variable Annuity Guaranteed Benefits with Dynamic Policyholder BehaviorThe computation of various risk metrics is essential to the quantitative risk management of variable annuity guaranteed benefits. The current market practice of Monte Carlo simulation often requires intensive computations, which can be very costly for insurance companies to implement and take so much time that the companies cannot obtain information and take actions in a timely manner. In an attempt to find low-cost and efficient alternatives, this paper explores the techniques of comonotonic bounds to produce closed-form approximation of the risk measures for variable annuity guaranteed benefits. The techniques are further developed in this paper to systematically address risk measures for death benefits

with the consideration of dynamic policyholder behavior. Read more

Discussion paperRunhuan Feng (University of Illinois at Urbana-Champaign), Xiaochen Jing (University of Illinois at Urbana-Champaign), Jan Dhaene (KU Leuven), Comonotonic Approximations of Risk Measures for Variable Annuity Guaranteed Benefits with Dynamic Policyholder Behavior, TI 15-008/IV/DSF85

Mixed Density based Copula LikelihoodThis paper considers a new copula method for mixed marginals of discrete and continuous random variables. Instead of the Bayesian methods in the literature, the paper uses maximum likelihood estimation based on closed-form copula functions. Using a simulation, the paper shows that the methodology performs similar to the method of Hoff (2007) for mixed data, but is considerably simpler to estimate. The paper then extends it to a time series setting, where the parameters are allowed to vary over time. In an empirical application using data from the 2013 Household Finance Survey, the paper shows how the copula dependence between income (continuous) and discrete household characteristics varies across groups who were affected differently by the recent economic crisis. Read more

Discussion paperKazim Azam (VU), Andre Lucas (VU), Mixed Density based Copula Likelihood, TI 15-003/IV/DSF084

••••••••••••••••••••••••••••LHED Labour, Health, Education and Development

Joint Retirement of Couples Using data on married couples in the Netherlands, this paper finds that retirement of the husband increases the probability that the wife retires by 24.6 percentage points. The paper focuses on the wife’s retirement being induced by a unilateral retirement move of her husband, and hence measures the impact of the husband’s choice on the wife’s retirement transition. To identify the causal effect, the paper exploits a policy change affecting central government employees of certain birth cohorts. These employees were quite suddenly offered the opportunity to retire during the year 2005— up to eight years earlier than had otherwise been possible. Administrative population-level data from Statistics Netherlands made it possible to analyze a clean sample of interest: namely, couples close to the age of retirement with both individuals meeting various sample inclusion criteria. We tailor the data with much precision to those that are in the treatment group of the policy change and that can be meaningfully compared to individuals in a control group. The focus is on stable dual-earner couples in which both spouses have a strong labor force attachment. Husbands were offered the unanticipated reduction in retirement age, while the wife was not. The data also allow for the precise within-couple sequencing of retirement, as opposed to earlier studies that made use of biennial survey data.

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affine specification within a jump diffusion setting. This question relates to the principle of keeping a model specification as simple as possible. The higher computational costs of using a nonaffine model instead of the more familiar affine specification can be justified only if the nonaffine specification results in significantly better model performance. The paper finds that nonaffine specifications do perform considerably better than affine setups— even after including a jump term. Read more

Paper in JournalSeeger, N.J., P.J.M. Rodrigues and K. Ignatieva, (2015), Empirical Analysis of Affine vs. Nonaffine Variance Specifications in Jump-Diffusion Models for Equity Indices. Journal of Business & Economic Statistics, 33(1), 68-75.

Option Prices and Model-free Measurement of Implied Herd Behavior in Stock MarketsThis paper introduces two classes of indices that can be used to measure the market perception concerning the degree of dependency that exists between a set of random variables, representing different stock prices at a fixed


The findings suggest that policymakers ought to take into account that changes in pension and retirement system parameters may affect not only the individuals aimed at by the reforms, but also their associated spouses. Ignoring such effects may have direct implications for the evaluation of policy measures. After the nationwide abolition of financial incentives to retire early in 2006, the average age of retirement rose from 61 to 64 within a span of eight years. Part of that increase may be due to similar spillover effects as measured in the paper. Read more

Discussion paperHans Bloemen (VU), Stefan Hochguertel (VU), Jochem Zweerink (Utrecht University), Joint Retirement of Couples, TI 2015-028/V

••••••••••••••••••••••••••••MIE Macroeconomics and International Economics

Systemic tail riskThis paper tests for the presence of a systematic tail risk premium in the cross-section of expected returns by applying a measure on the sensitivity of assets to extreme market downturns, the tail beta. Empirically, historical tail betas help to predict the future performance of stocks under extreme market downturns. During a market crash, stocks with historically high tail betas suffer losses that are approximately two to three times larger than their low tail beta counterparts. The paper finds no evidence, however, of a premium associated with tail betas. The theoretically additive and empirically persistent tail betas can help to

assess portfolio tail risks. Read more

Paper in JournalZou, C. and M. van Oordt, Systemic tail risk, forthcoming Journal of Financial and Quantitative Analysis.

Forecasting Aggregate Productivity using Information from Firm-level DataThis paper contributes to the productivity literature by using results from Örm-level productivity studies to improve forecasts of macro-level productivity growth. The paper employs current research methods on estimating Örm-level productivity to build time-series components that capture the joint dynamics of the Örm-level productivity and size distributions. The main aim of the paper is to assess whether the micro-aggregated components of productivity— the so-called productivity decompositions— add useful information to improve the performance of macro-level productivity forecasts. The paper explores various specifications of decompositions and various forecasting experiments. The result from these horse-races is that microaggregated components improve simple aggregate total factor productivity forecasts. While the results are mixed for richer forecasting specifications, the paper shows, using Bayesian model averaging techniques (BMA), that the forecasts using micro-level information were always better than the macro alternative. Read more

Paper in JournalBartelsman, E.J., Z. Wolf, (2014), Forecasting Aggregate

Productivity Using Information from Firm-level Data, The Review of Economics and Statistics 96(4), 745-55.

Sovereign Default and the Stability of Inflation-Targeting RegimesThis paper analyzes the impact of interactions between monetary and fiscal policy on macroeconomic stability. We find that in the presence of sovereign default, macroeconomic stability requires monetary policy to be passive if the feedback from debt surprises back to the primary surplus is too weak. However, an active monetary policy can contribute to the stabilization of inflation and output only if the primary surplus is increasing in debt with a slope that increases with the default probability. The results are relevant for the design of fiscal and monetary policy in emerging markets where sovereign credibility is not well established. Recent debt developments in Western Europe and in the United States suggest that these results may also become relevant for more mature financial markets — once the current low inflation period is over. Read more

Paper in Journal Schabert, A., S.J.G. van Wijn-bergen, 2014, Sovereign Default and the Stability of Inflation-Targeting Regimes, IMF Econo- mic Review, 62(2) 261-287.

On-the-Job Search and City Structure This paper investigates an equilibrium search model in which the search frictions are increasing with the distance to the central business district, allowing for on-the-job search

and endogenous (monopsony) wage formation and land allocation. The paper finds that there are many different possible outcomes with respect to the location of unemployed workers within a metropolitan area. The city structure of the decentralized market is only efficient when commuting costs of the employed workers are large. Policies reducing the rental costs of unemployed workers for locations close to the central business district can potentially increase welfare. Read more

Discussion paperAico van Vuuren (VU), On-the-Job Search and City Structure, TI 15-016/VI

On the Effectiveness of Feed-in Tariffs in the Development of Photovoltaic SolarIn the last decades, an increasing number of governments have responded to growing concern for climate change and rising scarcity of fossil fuels by stimulating the development of renewable electricity sources, such as photovoltaic (PV) solar. A so-called Feed-in Tariff (FiT) has evolved as the most popular policy instrument in supporting PV generation. The general idea of a FiT is that the owner of a PV system receives a guaranteed price for every produced kWh that is fed into the grid during a fixed period of time. This paper empirically studies whether FiT policies have been effective in the development of solar PV. This is the first paper in the literature in which design characteristics and consistency of FiT policies are explicitly taken into account. Panel data estimations, using data of 30 OECD member countries over the period 1990‐2011, show a strong positive effect of the


have already invested heavily in recycling policies for many years, the average rate is only 50%. The recycling rate has even dropped from 50% in 1998 to 48% in 2012 — with virtually no Dutch municipality having a rate above 70%. Using a large panel data set for Dutch municipalities, the paper shows that unit-based pricing, avoiding a duo-bin for unsorted and compostable waste, and decreasing the frequency of collecting for unsorted and compostable waste at the curbside are effective in raising the recycling rate. However, a substantial effect can be achieved only with unit-based pricing with a priced bag for unsorted waste and no price for compostable waste. Nevertheless, such a system can have serious adverse effects. There is an incentive for households to put as much waste as possible in each bag, which makes them difficult to handle, and labor legislation limits the number of bags carried per waste collection employee. In addition, for some Dutch (coastal) municipalities these plastic bags have another disadvantage, as they attract the undesirable attention of seagulls. Unit-based pricing may, furthermore, lead to illegal dumping. Overall, the goal of 70% in the EU is out of reach for many Dutch municipalities, as the bag-based system itself has only an effect of 25% at its maximum, and the effects of other policy options are very small. Read more

Discussion paperElbert Dijkgraaf (EUR), Raymond Gradus (VU), The Effectiveness of Dutch Municipal Recycling Policies, TI 14-155/VI

••••••••••••••••••••••••••••OM ORGANIZATIONS AND MARKETS

Ability Dispersion and Team Performance Do dispersed levels of cognitive ability among members of a (business) team help the team to perform better? And to what extent may dispersion be even more discriminative for team performance than the average ability level? These questions are important in a world where teamwork and (team) entrepreneurship are of vital importance for value creation. This paper reports the results of a year-long field experiment among teams of students starting up and managing real companies under identical circumstances. The tasks of these teams are often complex and broad in scope, entailing the sustained application of members’ cognitive abilities. We ensured exogenous variation in team composition by assigning students to teams based on their measured cognitive abilities (using Raven’s Advanced Progressive Matrices Test).The key result of the field experiment is that the performance of business teams first increases and then decreases with ability dispersion, following an inverse u-shaped pattern. Average team ability, though, is not related to team performance. These novel findings enhance our under-standing of the effect of team composition on team perfor-mance. We further seek to understand these findings by developing a model in which team members of different ability levels form sub-teams with other team members with similar ability levels to specialize in different productive tasks. Diversity spreads production

over different tasks in order to escape diminishing marginal returns under specialization. The model comes with a boundary condition: our experimental finding is most likely to emerge in settings where different tasks exhibit moderate differences in their productive contributions to total output. Read more

Discussion paper Sander Hoogendoorn (CPB), Simon C. Parker (Richard Ivey School of Business, University of Western Ontario, Canada), Mirjam van Praag (Copenhagen Business School, Denmark), Ability Dispersion and Team Performance, TI 14-053/VII

••••••••••••••••••••••••••••STEE SPATIAL, TRANSPORT AND ENVIRONMENTAL ECONOMICS

Historic Amenities and Housing Externalities: Evidence from the Netherlands In many countries, vast amounts of public money are invested to preserve historic buildings. In the Netherlands, for example, total public expenditures on renovation subsidies have been more than a billion euros since the 1970s. This paper studies the effects of investments in renovations of historic buildings on the house prices of surrounding houses. The study uses a huge dataset on more than two million housing transactions since 1985 and twelve thousand subsidies on investments in renovation projects, provided by the RCE. These renovation investments are the lion’s share of all investments in cultural

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presence of a FiT on the development of a country’s share of PV in the electricity mix. This effect increases if policies are consistent in consecutive years. The tariff level is the most important design characteristic of a FiT. Other characteristics, such as cost level, duration of contract, and restrictions on capacity levels, turn out to be important as well. Read more

Discussion paperElbert Dijkgraaf (EUR), Tom van Dorp (Solarplaza International BV), Emiel Maasland (Erasmus University Centre for Contract Research and Business Support (ERBS) BV), On the Effectiveness of Feed-in Tariffs in the Development of Photovoltaic Solar, TI 14-156/VI

The effectiveness of Dutch municipal recycling policiesThere is much discussion among politicians whether it is wise for the European Union to introduce a minimum household waste recycling rate of 70%. Recently, despite great opposition of EU environment ministers and some MEPs, Commission First Vice-President Frans Timmermans did proclaim that he would skip this legislation in his deregulation plan. Although Dutch municipalities


Papers in journalsBehavioral and Experimental Economics

Baillon, A., H. Bleichrodt, A. Cillo (2014), A tailor-made test of intransitive choice, Operations Research, 63(1), 198-211.

Brunner, C., A. (X.) Hu, J. Oechssler (2014), Premium auctions and risk preferences: An experimental study, Games and Economic Behavior, 87, 467-484.

Buser, T., M. Niederle, H. Oosterbeek (2014), Gender, competitive-ness, and career choices, Quarterly Journal of Economics, 129(3), 1409-1447.

Durante, R., L. Putterman, J.J. van der Weele (2014), Preferences for redistribution and perception of fairness: An experimental study, Journal of the European Economic Association, 12(4), 1059-1086.

Goeree, J.K., Y. Lien (2014), An equilibrium analysis of the simulta-neous ascending auction, Journal of Economic Theory, 153, 506-533.

Goeree, J.K., J. Zhang (2014), Communication & competition, Experimental Economics, 17(3), 421-438.

Nosenzo, D., T.J.S. Offerman, M. Sefton, A. van der Veen (2014), Encouraging compliance: Bonuses versus fines in inspection games, Journal of Law Economics & Organization, 30(3), 623-648.

Van der Weele, J.J., J. Kulisa, M. Kosfeld, G. Friebel (2014), Resisting moral wiggle room: How robust is reciprocal behavior? American Economic Journal-Microeconomics, 6(3), 256-264.

Van Dijk, F., J.H. Sonnemans, E. Bauw (2014), Judicial error by groups and individuals, Journal of Economic Behavior & Organization, 108 SI, 224-235.

Cooperative Behavior, Strategic Interaction, and Complex Systems

Assenza, T., J. Grazzini, C.H. Hommes, D. Massaro (2015), PQ strategies in monopolistic competition: Some insights from the lab, Journal of Economic Dynamics & Control, 50, 62-77.

Ductor, L., M. Fafchamps, S. Goyal, M.J. van der Leij (2014), Social networks and research output, Review of Economics and Statistics 96(5), 936-948.

ReferencesinShort

heritage in the Netherlands.Of course, many factors determine the attractiveness of neighbourhoods, and therefore house prices, apart from investments in historic buildings. To isolate the effects of renovation subsidies, the study compares price changes with changes in investments in cultural heritage over time, and uses somewhat fancy econometric techniques. The results are then subjected to a wide range of robustness checks— for example by only including neighbourhoods that are in recently designated historic districts, which should be very comparable. All results point towards the same conclusion: cultural heritage investments have a positive

effect on house prices. The external benefits are on average at least € 160,000, while the investment costs are on average € 140,000, representing a net societal gain of about 14%.The study also investigates whether there are indirect effects of investments in cultural heritage. It has been hypothesized that people may adjust their own investments if the building quality in their neighbourhood changes. However, we do not find that these indirect effects are at all important. This suggests that cultural heritage subsidies mainly have a direct effect due to the fact that households appreciate the recently renovated buildings. Read more

Discussion paper Hans R.A. Koster (VU), Jan Rouwendal (VU), Historic Amenities and Housing Externalities: Evidence from the Netherlands, TI 15-023/VIII


References

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Tuinstra, J., M. Wegener, F. Westerhoff (2014), Positive welfare effects of trade barriers in a dynamic partial equilibrium model, Journal of Economic Dynamics & Control, 48, 246-264.

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Econometrics and Operations Research

Boswijk, H.P., M. Jansson, M.O. Nielsen (2015), Improved likelihood ratio tests for cointegration rank in the VAR model, Journal of Econometrics, 184(1), 97-110.

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Finance

Alfaro, L., S. Kalemli-Ozcan, V. Volosovych (2014), Sovereigns, upstream capital flows, and global imbalances, Journal of the European Economic Association, 12(5), 1240-1284.

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Giambona, E., J. Golec, A. Schwienbacher (2014), Debt capacity of real estate collateral, Real Estate Economics, 42(3), 578-605.

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Hendershott, T., A.J. Menkveld (2014), Price pressures, Journal of Financial Economics, 114(3), 405-423.

Hytonen, K., G. Baltussen, M.J. van den Assem, V. Klucharev, A.G. Sanfey, A. Smidts (2014), Path dependence in risky choice: Affective and deliberative processes in brain and behaviour, Journal of Economic Behavior & Organization, 107 SI, 566-581 Part: B.

Ignatieva, K., P. Rodrigues, N.J. Seeger (2015), Empirical analysis of affine versus nonaffine variance specifications in jump-diffusion models for equity indices, Journal of Business & Economic Statistics, 33(1), 68-75.

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Kliger, D., M.J. van den Assem, R.C.J. Zwinkels (2014), Empirical behavioral finance, Journal of Economic Behavior & Organization, 107SI, 421-427 Part: B.

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Markiewicz, A.P., A. Pick (2014), Adaptive learning and survey data, Journal of Economic Behavior & Organization, 107 SI, 685-707 Part: B.

Siganos, A., E. Vagenas-Nanos, P. Verwijmeren (2014), Facebook’s daily sentiment and international stock markets, Journal of Economic Behavior & Organization, 107 SI, 730-743.

Labor, Health, Education and Development

Borghans, L., A.C. Gielen, E.F.P. Luttmer (2014), Social support substitution and the earnings rebound: Evidence from a regres-sion discontinuity in disability insurance reform, American Economic Journal-Economic Policy, 6(4), 34-70.

Buser, T., M. Niederle, H. Oosterbeek (2014), Gender, competitive-ness, and career choices, Quarterly Journal of Economics, 129(3), 1409-1447.

Elbers, C.T.M., J.-W. Gunning (2014), Evaluation of development programs: randomized controlled trials or regressions?, World Bank Economic Review, 28(3), 432-445.

Ferracci, M., G. Jolivet, G.J. van den Berg (2014), Evidence of treatment spillovers within markets, Review of Economics and Statistics, 96(5), 812-823.

Garcia-Gomez, P., C. Hernandez-Quevedo, D. Jimenez-Rubio, J. Oliva-Moreno (2015), Inequity in long-term care use and unmet need: Two sides of the same coin, Journal of Health Economics (39) 147-158.

Hartog, J. (2014), The dynamics of the research agenda in labour economics, Labour Economics, 30 SI, 1-3.

Hidalgo, D., H. Oosterbeek, H.D. Webbink (2014), The impact of training vouchers on low-skilled workers, Labour Economics, 31, 117-128.

Hullegie, P.G.J., J.C. van Ours (2014), Seek and ye shall find: How search requirements affect job finding rates of older workers, Economist-Netherlands, 162(4), 377-395.

Koning, P.W.C., A. van de Meerendonk (2014), The impact of scoring weights on price and quality outcomes: An application to the procurement of Welfare-to-Work contracts, European Economic Review, 71, 1-14.

Scholte, R.S., G.J. van den Berg, M. Lindeboom (2015), Long-run effects of gestation during the Dutch hunger winter famine on labor market and hospitalization outcomes, Journal of Health Economics, 39, 17-30.

Van den Berg, G.J., P. Lundborg, P. Nystedt, D.O. Rooth (2014), Critical periods during childhood and adolescence, Journal of the European Economic Association, 12(6), 1521-1557.

Van der Klaauw, B. (2014), From micro data to causality: Forty years of empirical labor economics, Labour Economics, 30SI, 88-97.

Van Kippersluis, J.L.W., T.J. Galama (2014), Wealth and health behavior: Testing the concept of a health cost, European Economic Review, 72, 197-220.

Macroeconomics and International Economics

Den Butter, F.A.G., S.A. ten Wolde (2014), The institutional econom-ics of stakeholder consultation; how experts can contribute to reduce the costs of reaching compromise agreements. In: (C. Martini, M. Boumans (Eds.)), Experts and Consensus in Social Sciences (Ethical Economy, Vol. 50) (pp. 17-48). New York: Springer.

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Hering, L., S. Poncet (2014), Environmental policy and exports: Evidence from Chinese cities, Journal of Environmental Economics and Management, 68(2), 296-318.

Namini, J. Emami (2014), The short and long-run impact of globalization if firms differ in factor input ratios. Journal of Economic Dynamics and Control, 38, 37-64.

Van Wijnbergen, S.J.G., T. Willems (2015), Optimal learning on climate change: Why climate skeptics should reduce emissions, Journal of Environmental Economics and Management, 70, 17-33.

Organizations and Markets

Arampatzi, E.; M.J. Burger, R. Veenhoven (2015), Financial distress and happiness of employees in times of economic crisis, Applied Economics Letters, 22(3), 173-179.

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Camacho, N., M.G. de Jong, S. Stremersch (2014), The effect of customer empowerment on adherence to expert advice, Interna-tional Journal of Research In Marketing, 31(3), 293-308.

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Hinloopen, J., A.M. Onderstal (2014), Going once, going twice, reported! Cartel activity and the effectiveness of antitrust policies in experimental auctions, European Economic Review, 70, 317-336.

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Spatial, Transport, and Environmental Economics

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Discussion papersVisit www.tinbergen.nl/discussionpapers for an overview of current TI discussion papers.

Theses594MARCIN (M.P.) WOJTOWICZ (November 4, 2014) Pricing Credit Derivatives and Credit Securitization

596SANNE (S.L.) BLAUW (December 19, 2014) Well-to-do or Doing Well? Empirical Studies of Wellbeing and Development

598PEDRO (P.M.) ROBALO (December 3, 2014) Understanding Political Behavior: Essays in Experimental Political Economy

599ROBIN ZOUTENBIER (January 29, 2015) Work Motivation and Incentives in the Public Sector

600MARTIJN (M.B.W.) KOBUS (January 9, 2015) Economic Studies on Public Facility Use

601ROGIER (R.J.D.) POTTER VAN LOON (December 11, 2014) Modeling Non-standard Financial Decision Making

602GEERT (G.) MESTERS (January 16, 2015) Essays on Nonlinear Panel Time Series Models

603SERGEJS GUBINS (February 9, 2015) Information Technologies and Travel

604DÁVID KOPÁNYI (February 13, 2015) Bounded Rationality and Learning in Market Conditions

605NATALYA MARTYNOVA (February 12, 2015) Incentives and Regulation in Banking

606DENNIS KARSTANJE (March 26, 2015) Unraveling Dimensions: Commodity Futures Curves and Equity Liquidity

607TOM (T.C.A.P.) GOSENS (March 2, 2015) The Value of Recreational Areas in Urban Regions

608Lukasz (Ł.M.) MARC (April 17, 2015) The Impact of Aid on Total Government Expenditures

609CHEN LI (March 26, 2015) Hitchhiking on the Road of Decision Making under Uncertainty

610LAURA ROSENDAHL HUBER (April 16, 2015) Entrepreneurship, Teams and Sustainability: A Series of Field Experiments

612HARRY (A.H.) VAN DER WEIJDE (April 8, 2015) The Industrial Organization of Transport Markets: Modeling Pricing, Investment and Regulation in Rail and Road Networks

613HUGO (H.E.) SILVA MONTALVA (April 8, 2015) Airport Pricing Policies: Airline Conduct, Price Discrimination, Dynamic Congestion and Network Effects

614CHRIS DIETZ (March 31, 2015) Hierarchies, Communication and Restricted Cooperation in Cooperative Games

Visit http://www.tinbergen.nl/phd-theses/phd-theses-2016/ for an overview of PhD theses in the Tinbergen Institute Research Series.

References

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Tinbergen Research Institute Eight themes distinguish TinbergenInstitute’s research program:I. Econometrics and Operations Research – ECTORII. Finance – FINIII. Labour, Health, Education, and Development – LHEDIV. Macroeconomics and International Economics – MIEV. Behavioral and Experimental Economics – BEEVI. Organizations and Markets – OMVII. Spatial, Transport and Environmental Economics – STEEVIII. Cooperative Behaviour, Strategic Interaction and Complex Systems – CSC

Discussion PapersResearch is pre-published in the institute’s own Discussion Paper Series. Download discussion papers at www.tinbergen.nl/discussionpapers E-mail address for correspondence: [email protected].

Tinbergen Graduate SchoolTinbergen Institute offers a Research Master’s Program (MPhil) with three tracks: a track in economics, a track in econometrics and a track in finance. Due to the demanding nature of the programs, the MPhil programs are open only to a rigorously selected group of students. An excellent preparation for PhD thesis research, the MPhil programs are connected to three-year PhD positions in the economics departments of Erasmus University Rotterdam, University of

Amsterdam, and VU University Amsterdam.The research master program has been accredited by the Dutch and Flemish Accreditation Organization for higher education (NVAO), and eligible students can claim two years of financial aid (“studiefinanciering”). In addition, Tinbergen Institute allocates scholarships each year based on academic merit.Detailed information on the institute’s graduate program and the application procedure can be found in the Prospective Students section of www.tinbergen.nl.Please send any questions to [email protected].

BoardC.N. Teulings (Chair), H.P. Boswijk, A. Italianer, E.J. Bartelsman, H.D. Webbink

General DirectorB. Visser

Director of Graduate StudiesM. Giuliodori

Research Program CoordinatorsEconometrics and Operations Research – ECTOR:R. Paap, S.J. Koopman, A.P.M. Wagelmans Read moreFinance – FIN:P. Verwijmeren, A.J. Menkveld Read moreLabour, Health, Education, and Development – LHED:E.J.S. Plug, E.K.A. van Doorslaer Read more

Macroeconomics and International Economics – MIE:E.M. Bosker, P.A. Gautier Read moreBehavioral and Experimental Economics – BEE:J.H. Sonnemans, H. Bleichrodt Read moreOrganizations and Markets – OM:O.H. Swank, J. Hinloopen Read moreSpatial, Transport and Environmental Economics – STEE:C.A.A.M. Withagen Read moreCooperative Behaviour, Strategic Interaction and Complex Systems – CSC:C.H. Hommes Read more

Editorial Board Tinbergen InstituteB. Sadaba, O. Furtuna, L. Geijtenbeek, B.S.Y. Crutzen, E.E.W. van den Berg, B. Visser

How to subscribe?Address for correspondence/subscriptions:

Tinbergen Institute RotterdamBurg. Oudlaan 503062 PA Rotterdamthe Netherlands E-mail: [email protected] Address changes may be sent to the above e-mail address.

About us

tinbergen magazine spring 2015 33

PhD Corner

www.tinbergen.nl

Joint search on the job marketDoing the job market was quite

an experience. We spent probably

about three months, full time,

on the whole process of sending

applications, preparing for

interviews and doing fly outs.

The academic job market is typically considered to be quite random: getting a position requires sending many applications and being rather flexible in terms of location, while the actual influence on where you end up is relatively small. In our case there was an extra complication, since preferred to end up in the same city (or at least the same area). Therefore we decided to only apply in Western Europe and in particular to cities that offered multiple positions either within a university or across different universities. This, we hoped, would increase the chances of receiving job offers within commuting time of each other.

After the applications the busy time began. Within six weeks we went to the University of Edinburgh for a practice fly out, to Mallorca for interviews at the Spanish (=European) job market, to Boston for

interviews at ASSA meetings, and also did some Skype interviews in-between. Soon afterwards, we were happy to receive invitations for some fly outs, meaning that most of January was full of two-day trips across Europe.As tiring and stressful as it was sometimes, it was a great experience and an amazing way of learning about different institutes and departments, and meeting lots of people. Beforehand I had not fully realized that this is a major benefit of the process: it is great for networking and getting a feel for how different departments can be and in which fields they specialize.

In our applications we had deliberately not mentioned our ‘joint’ search, to prevent reducing our chances for getting interviews. In most interviews we did explain the situation, and if not, this information was often communicated through informal channels. As a result, we were lucky to have significant overlap in our fly outs.Still, there were no guarantees for success, since coordination was still required. We were hoping that by now, our joint search was actually an advantage: it could function as a commitment device because a joint offer of any of the institutes would probably be accepted by us. After some stressful days with exploding offers and timing issues we eventually accepted a joint offer from the University of Gothenburg, where we will start in October. We are extremely happy with this outcome and look forward to continuing our career together in Sweden.

Paul Muller and Nadine Ketel

tinbergen magazine spring 2015 PB 34

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