Pension fund finance and sponsoring companies

Copyright © Cambridge University Press 2012.We present empirical evidence on the funding and portfolio allocation of around 200 Dutch corporate pension funds over the period 1996-2005, with a special focus on the influence of the sponsoring firm. We find that unprofitable and small firms contribute less to their pension funds than profitable and large firms, consistent with theories of capital market imperfections. Sponsor contributions are found to be positively correlated with leverage, suggesting that tax effects play a role. Defined benefit funds invest relatively more in equity and less in bonds than their defined contribution counterparts, which is in accordance with the risk shifting theory

Auctions with rent seeking

We present a model which combines elements of an auction and a rent-seeking contest. Players compete for a prize. Apart from exerting lobbying efforts, they also have to submit a bid which is payable only if they win the prize. First, we ana-lyze the model if the returns-to-scale parameters of both bids and efforts are unity. We present a necessary and sufficient condition for the existence of a unique Nash equilibrium. In the equilibrium each player submits the same bid, while the sum of all efforts equals that bid. Second, we analyze the case in which the returns-to-scale parameters may differ from unity, and derive the implications of that specification.

Longevity, Life-Cycle Behavior and Pension Reform

How can public pension systems be reformed to ensure fiscal stability in the face of increasing life expectancy? To address this pressing open question in public finance, we estimate a life-cycle model in which the optimal employment, retirement and consumption decisions of forward-looking individuals depend, inter alia, on life expectancy and the design of the public pension system. We calculate that, in the case of Germany, the fiscal consequences of the 6.4 year increase in age 65 life expectancy anticipated to occur over the 40 years that separate the 1942 and 1982 birth cohorts can be offset by either an increase of 4.34 years in the full pensionable age or a cut of 37.7% in the per-year value of public pension benefits. Of these two distinct policy approaches to coping with the fiscal consequences of improving longevity, increasing the full pensionable age generates the largest responses in labor supply and retirement behavior.life expectancy, public pension reform, retirement, employment, life-cycle models, consumption, tax and transfer system

A Structural Approach to Estimating the Effect of Taxation on the Labor Market Dynamics of Older Workers

We estimate a dynamic structural life-cycle model of employment, non-employment and retirement that includes endogenous accumulation of human capital and intertemporal non-separabilities in preferences. Additionally, the model accounts for the effect of the tax and transfer system on work incentives. The structural parameter estimates are used to evaluate the effects of a tax reform targeted at low income individuals on employment behavior and retirement decisions.life-cycle labor supply, income taxation

Pension fund finance and sponsoring companies: Empirical evidence on theoretical hypotheses

This study presents empirical evidence on the influence of sponsoring companies on the funding and portfolio allocation of pension funds, an issue on which most extant literature is theoretical. We use a unique microdataset of 550 Dutch defined benefit company pension funds and 100 sponsoring firms over 1996-2005 to test the relevance of the main theoretical hypotheses, the first paper to do so in a comprehensive manner. We find that pension funds have lower cover ratios when (1) their sponsoring company is highly leveraged, (2) the fund’s return on assets is relatively low, and (3) the sponsoring firm is small. Further, defined benefit pension funds are found to invest more in shares when their sponsoring companies are highly leveraged. These links in general suggest higher risk in the sponsor leads to correspondingly higher risk in the fund, and warrant close attention by regulators

Advertising for attention in a consumer search model

We model the idea that when consumers search for products, they first visit the firm whose advertising is more salient. The gains a firm derives from being visited early increase in search costs, so equilibrium advertising increases as search costs rise. This may result in lower firm profits when search costs increase. We extend the basic model by allowing for firm heterogeneity in advertising costs. Firms whose advertising is more salient and therefore raise attention more easily charge lower prices in equilibrium and obtain higher profits. As advertising cost asymmetries increase, aggregate profits increase, advertising falls and welfare increases.Advertising; attention; consumer search; saliency;

Employment Effects of Welfare Reforms: Evidence from a Dynamic Structural Life-Cycle Model

In this paper we develop a dynamic structural life-cycle model of labor supply behavior which fully accounts for the effect of income tax and transfers on labor supply incentives. Additionally, the model recognizes the demand side driven rationing risk that might prevent individuals from realizing their optimal labor supply state, resulting in involuntary unemployment. We use this framework to study the employment effects of transforming a traditional welfare state, as is currently in place in Germany, towards a more Anglo-American system in which a large proportion of transfers are paid to the working poor.life-cycle labor supply, involuntary unemployment, in-work credits

In-plane Theory of Non-Sequential Triple Ionization

We describe first-principles in-plane calculations of non-sequential triple ionization (NSTI) of atoms in a linearly polarized intense laser pulse. In a fully classically correlated description, all three electrons respond dynamically to the nuclear attraction, the pairwise e-e repulsions and the laser force throughout the duration of a 780nm laser pulse. Nonsequential ejection is shown to occur in a multi-electron, possibly multi-cycle and multi-dimensional, rescattering sequence that is coordinated by a number of sharp transverse recollimation impacts.Comment: 4 pages, 4 figure

Using a bootstrap method to choose the sample fraction in tail index estimation

Tail index estimation depends for its accuracy on a precise choice of the sample fraction, i.e. the number of extreme order statistics on which the estimation is based. A complete solution to the sample fraction selection is given by means of a two step subsample bootstrap method. This method adaptively determines the sample fraction that minimizes the asymptotic mean squared error. Unlike previous methods, prior knowledge of the second order parameter is not required. In addition, we are able to dispense with the need for a prior estimate of the tail index which already converges roughly at the optimal rate. The only arbitrary choice of parameters is the number of Monte Carlo replications.tail index;bias;bootstrap;mean squared error;optimal extreme sample fraction