The Impact of Explicit Deposit Insurance on Market Discipline

This paper studies the impact of explicit deposit insurance on market discipline in a framework that resembles a natural experiment.We improve upon previous studies by exploiting a unique combination of country-specific circumstances, design features, and data availability that allows us to distinguish between demand and supply effects.We show that deposit insurance causes a significant reduction in market discipline.We also show that the effect of deposit insurance depends on the coverage rate.When the coverage rate is more than 60 percent, market discipline is significantly reduced and it is completely eliminated when the coverage rate reaches 100 percent.Our results also suggest that most market discipline comes from large depositors and that the introduction of deposit insurance affected mainly those who were already active in imposing discipline.Our findings emphasize the need for binding coverage limits per depositor, high degrees of co-insurance, and "tailor made" deposit insurance systems that preserve the incentives of a critical mass of depositors that are willing and able to perform this function.market discipline;deposit insurance;deposit insurance coverage

Pension fund sophistication and investment policy

This paper assesses the sophistication of pension funds' investment policies using data on 748 Dutch pension funds during the 1999.2006 period. We develop three indicators of sophistication: gross rounding of investment choices, investments in alternative sophisticated asset classes and 'home bias'. We find that pension funds' strategic portfolio choices are often based on coarse and possibly less sophisticated approaches. Most pension funds, particularly the medium-sized and smaller ones, round strategic asset allocations to the nearest multiple of 5%, similar to age heaping in demographic and historical studies. Second, many pension funds invest little or nothing in alternative asset classes besides equities and bonds, resulting in limited asset diversification. Third, medium-sized and smaller pension funds favor regional investments and as such not fully employ the opportunities of international diversification. Finally, we show that pension funds using less sophisticated asset allocation rules tend to opt for investment strategies with a lower risk-return profile.Pension funds, investment policy, portfolio choice, gross rounding, heaping, diversification, home bias, alternative investments, behavioral finance.

Oxytocin-motivated ally selection is moderated by fetal testosterone exposure and empathic concern

In humans, the hypothalamic neuropeptide oxytocin shifts the individual’s focus on self-interest towards group-serving cognitions and decision making. Here we examine this general tendency in the context of group formation, where individuals included into their group (or not) 18 targets morphed as having low or high-threat potential (with high-threat targets being beneficial to group-interests but potentially hurting the recruiter’s self-interest). Ninety healthy males self-administered oxytocin or placebo in a randomized double-blind, placebo-controlled study design, had their hands scanned to derive fetal testosterone vs. estradiol exposure from their 2D:4D ratio, and self-reported on their chronic empathic concern. Multilevel regression models revealed that when given oxytocin rather than placebo, individuals with low fetal testosterone priming included low-threat targets more and high-threat targets (somewhat) less. Individuals with high fetal testosterone (i.e., low estradiol) exposure, however, included high-threat targets more, and low-threat targets less when given oxytocin rather than placebo. Second, when given oxytocin rather than placebo, individuals with low empathic concern included low-threat targets more and high-threat targets less. Individuals with high empathic concern, however, included high-threat targets more, and low-threat targets less when given oxytocin rather than placebo. We conclude that oxytocin shifts the individual’s focus from self to group-serving cognition and decision making, and that these tendencies are stronger for males with high rather than low fetal testosterone exposure, and high rather than low empathic concern. Implications and avenues for future research are discussed