Investment in financial literacy, social security and portfolio choice : [version may 21, 2013]

We present an intertemporal portfolio choice model where individuals invest in financial literacy, save, allocate their wealth between a safe and a risky asset, and receive a pension when they retire. Financial literacy affects the excess return and the cost of stock market participation. Since literacy depreciates over time and has a cost related to current consumption, investors simultaneously choose how much to save, the portfolio allocation, and the optimal investment in literacy. This last depends on households' resources, its preference parameters and on how much financial literacy affects the returns on risky assets and the stock market participation cost, and the returns on social security wealth. The model implies one should observe a positive correlation between stock market participation (and risky asset share, conditional on participation) and financial literacy, and a negative correlation between the generosity of the social security system and financial literacy. The model also implies that the stock of financial literacy accumulated early in life is positively correlated with the individual's wealth and portfolio allocations later in life. Using microeconomic cross-country data, we find support for these predictions

Beneath the Human Capital Investment: Modelling student debt awareness and a Critical examination of financial aid materials using Construal-level Theory

As student loans are increasingly utilized to invest in higher education, it is important to consider how students perceive and understand their loan commitments. Study 1 surveyed a sample of 147 Bard students on their attitudes towards debt and how much they knew about their loan commitments. Over half of the students sampled could not report how much they currently owed in student loans (N=76, 51.4%), 23.8% (N=35) could not identify the types of loans they held, 25.2% of participants could not provide an estimate of how much debt they expect to graduate with within a range of $5,000-$10,000, and the strongest predictor of debt ignorance was whether parents completely managed the financial aid process. Parents and students alike report the financial aid process to be extremely confusing and overwhelming, and the present study suggests an intervention to support financial aid decision-making. Study 2 primed participants to either think abstractly (think about why you do something) or concretely (think about how you do something), and compared how participants processed financial aid information when presented in a list with additional written descriptions versus a table which summarized all aid information in a concise, uniform structure. Those that read the financial aid package in a list with written descriptions displayed better recall of details of the aid package, and focused more on the total amount of aid offered than those that read the financial aid package in a table. It is suggested that aid packages separate types of aid into financial gifts and loans rather than bundling them into a single category of financial aid. The need for more personal and engaging student loan education is pressing, and may have long-term effects on financial behavior if designed carefully

I Like The Way You Move: An Empirical Investigation into the Mechanisms Behind First Mover and Follower Strategies

There appears to be an ambivalent dimension in innovation strategies: timing. When is an innovation ready for the market or when is the market ready for the innovation? This paper empirically investigates the determinants of a firm?s decision to become a first mover or a follower in innovation strategies. Much of theoretical and empirical work has focused on whether first mover strategies pay off or not. Here we take a different approach by analysing the determinants that lead companies to opt for either a first mover or a follower strategy. One of this paper?s major goals is to distinguish between firm and industry specific effects on this particular strategic choice. We estimate our model using the most recent data from the German innovation survey of 2003. This dataset allows us to identify deliberate followers rather than outstripped first movers. One of our main findings is that firms choosing a first mover strategy operate in industries with intensive knowledge exchange and further leverage this advantage through excellent internal absorptive capacities. Followers, though, compete by way of their operational excellence for streamlining processes and cutting costs. Hence, we argue that neither of these two innovation strategies is per se superior to the other. --innovation strategy,first mover,bivariate probit

I Like the Way you Move - An Empirical Investigation into the Mechanisms Behind First Mover and Follower Strategies

There appears to be an ambivalent dimension in innovation strategies: timing. When is an innovation ready for the market or when is the market ready for the innovation? This paper empirically investigates the determinants of a firm’s decision to become a first mover or a follower in innovation strategies. Much of theoretical and empirical work has focused on whether first mover strategies pay off or not. Here we take a different approach by analysing the determinants that lead companies to opt for either a first mover or a follower strategy. One of this paper’s major goals is to distinguish between firm and industry specific effects on this particular strategic choice. We estimate our model using the most recent data from the German innovation survey of 2003. This dataset allows us to identify deliberate followers rather than outstripped first movers. One of our main findings is that firms choosing a first mover strategy operate in industries with intensive knowledge exchange and further leverage this advantage through excellent internal absorptive capacities. Followers, though, compete by way of their operational excellence for streamlining processes and cutting costs. Hence, we argue that neither of these two innovation strategies is per se superior to the other.innovation strategy, first mover, bivariat probit

Potential for cogeneration of heat and electricity in California industry, phase 2

The nontechnical issues of industrial cogeneration for 12 California firms were analyzed under three categories of institutional settings: (1) industrial ownership without firm sales of power; (2) industrial ownership with firm sales of power; and (3) utility or third party ownership. Institutional issues were analyzed from the independent viewpoints of the primary parties of interest: the industrial firms, the electric utilities and the California Public utilities Commission. Air quality regulations and the agencies responsible for their promulgation were examined, and a life cycle costing model was used to evaluate the economic merits of representative conceptual cogeneration systems at these sites. Specific recommendations were made for mitigating measures and regulatory action relevant to industrial cogeneration in California

Fiscal volatility shocks and economic activity

The authors study the effects of changes in uncertainty about future fiscal policy on aggregate economic activity. Fiscal deficits and public debt have risen sharply in the wake of the financial crisis. While these developments make fiscal consolidation inevitable, there is considerable uncertainty about the policy mix and timing of such budgetary adjustment. To evaluate the consequences of this increased uncertainty, the authors first estimate tax and spending processes for the U.S. that allow for time-varying volatility. They then feed these processes into an otherwise standard New Keynesian business cycle model calibrated to the U.S. economy. The authors find that fiscal volatility shocks have an adverse effect on economic activity that is comparable to the effects of a 25-basis-point innovation in the federal funds rate.Monetary policy ; Fiscal policy ; Uncertainty

Investment and Dividends under Irreversibility and Financial Constraints

Research finds that firms' investment and dividend policies are distorted by irreversibility and finance constraints. Whereas the existing literature examines these features separately, this paper considers their interaction. The main theoretical result concerns the separation of the investment and payout thresholds. The ordering of investment and distribution activities is endogenously determined and depends on the levels of capacity and cash balances in a manner consistent with a life- cycle interpretation of firm behaviour. The concavity of the revenue function is capital stock and the complementarily of the constraints drive these results. Important ramifications for empirical work on investment are discussed.Investment, dividend policy, irreversibility, financial constraints

Linkages between the Financial and the Real Sector of the Economy: A Literature Survey

This document reviews the literature on the relationship between financial markets and the real economy. In the light of the recent financial crises, we focus on channels that are likely to be important in times of financial stress. Some channels�are governed by balance sheet effects�like the Financial Accelerator and the Bank Lending Channel. We discuss the significance of these channels in the light of empirical evidence and try to extract their quantitative importance from the literature. Both channels seem to have played an important role in the aftermath of the crisis. Further, we discuss the role of trade finance in the collapse in world trade following the financial crisis 2007-2009. While finance is important for trade, the literature is not conclusive on whether finance was also the reason for the observed collapse. Naturally, risk is important during a financial crisis. Taking a look at risk channels, we find risk also to play an important role in feedback loops between finance and the real economy. The theoretical and empirical evidence found in the literature appears to be useful in explaining the severe and long-lasting effects of the recent financial crisis.