Consideration sets, intentions and the inclusion of "Don't know" in a two-stage model for voter choice

We present a statistical model for voter choice that incorporates a consideration set stage and final vote intention stage. The first stageinvolves a multivariate probit model for the vector of probabilities that a candidate or a party gets considered. The second stage of the model is a multinomial probit model for the actual choice. In both stages we use asexplanatory variables data on voter choice at the previous election, as well as socio-demographic respondent characteristics. Importantly, our modelexplicitly accounts for the three types of "missing data" encountered in polling. First, we include a no-vote option in the final vote intention stage. Second, the "do not know" response is assumed to arise from too little difference in the utility between the two most preferred options in the consideration set. Third, the "do not want to say" response is modelled as a missing observation on the most preferred alternative in the consideration set. Thus, we consider the missing data generating mechanism to be non-ignorable and build a model based on utility maximization to describe the voting intentions of these respondents. We illustrate the merits of the model as we have information on a sample of about 5000 individuals from the Netherlands for who we know how they voted last time (if at all), which parties they would consider for the upcoming election,and what their voting intention is. A unique feature of the data set is that information is available on actual individual voting behavior, measured at the day of election. We find that the inclusion of the consideration set stage in the model enables the user to make more precise inferences on the competitive structure in the political domain and to get better out-of-sample forecasts.Bayesian method;Choice model;Election data;Polling;Probit model

Insurability of export credit risks

Firms exporting their goods and services abroad face risks that are different from the risks faced by firms who do not engage in international trade. It is common practice to allow the receiving party to pay in instalments. The exporting firm faces credit risk, but as in most countries, Dutch firms can insure such risks. To some extent, such export credit risks can be insured on the private market. There are private insurance companies that insure short-term risks. On the Dutch market, Gerling NCM, Coface, and Euler-Cobac operate as insurers. The Dutch government acts as reinsurer of long-term export credit risks (three years or more). A reinsurance agreement exists with Gerling NCM for this purpose. Short-term and medium-term contracts can be reinsured in the private reinsurance market. In almost all OECD countries export credits are officially supported. This can take the form of direct finance (e.g. US, Canada) or the government can insure the export credit risks (directly as for example in the United Kingdom or indirectly by reinsuring a private insurer such as in the Netherlands). The role of this government-backed insurance on exports to certain countries is important as experience has shown that the private market is very reluctant to cover long term export risks to non-OECD countries. Considering the government involvement in this market, one can raise the following questions: 1. What are the key determinants of export credit risk insurability by the private market? 2. Which export credit risks can be covered by the private market? In the report, an answer to these questions is provided by means of a literature review and an extensive field study, with special emphasis on the role of the Dutch government as a reinsurer of export credit risks. The main conclusions are as follows. Economic theory predicts that firms that operate risk averse are willing to pay an insurance premium. Large (say listed) firms operate at a relative low degree of risk aversion. These firms can use internal risk hedging as a useful alternative to private export credit risk insurance. Medium-sized firms are more likely to apply for export credit risk insurance, while small firms probably face problems (since for this group there is only one supplier of insurance active in the Dutch market). Small firms do not have the knowledge to hedge export risks differently than by export credit insurance in the Netherlands. They lack the resources and knowledge to have access to the international insurance markets. Moreover, the duration of the coverage is often not as long as exporting companies would like (this is experienced by both large and small companies). This is partly due to reinsurance restrictions faced by the insurance companies. A related problem to insurability is the high market concentration of supply. Market dominance leads to monopolistic rent extraction. In the case of the Netherlands this might apply to Gerling NCM. On the other hand relationship insurance seems to be a popular model. In our field study, firms point at a preference for long-lasting relations. Most exporters seem to have low price elasticity of insurance demand. Economic theory predicts moral hazard to be an important determinant of insurability. The issue of moral hazard, though recognized by insurance companies, does not dominate the perception of insurability. The price of export credit insurance is largely determined by macroeconomic risk factors, such as political risk. This leads us to the second main issue: what role should the government play on the market for export credit risk insurance and which risks should be covered by the governement? We argue the following: ? In markets with asymmetric information it is likely that profitable projects will be denied insurance. If the government considers export growth as one of its main goals, it should interfere in the market by lowering relative prices; ? The government is equipped to hedge intertemporal risks due to a low social cost of capital. In our field study some market participants point at the responsibility the government should take, especially in the case of small exporting companies; ? The government should offer opportunities to hedge macroeconomic risks, such as political/country risk. These risk types are seen as the main drivers of export insurance premium contracts; ? Moral hazard of public (re-)insurance might be a problem, but is not perceived as such in our field study by (re)insurance companies operating in the private market. The relation between the Dutch government and Gerling NCM is different, though. Gerling NCM retains no risk on its public account, and the government cannot end its relation with Gerling NCM. Therefore, moral hazard could be a problem in this insurer/reinsurer relation; ? Besides direct interference, the government should take care of prudential regulation of the insurance sector. Monopolistic behaviour should be avoided by appropriate regulation. Especially contracts that have a large geographical nature are subject to at least monopolistic competition. Clients who are not satisfied with the monopoly supplier should be able to meet other suppliers (at home or abroad). This holds especially for long-term contracts. In all cases the government should operate in a prudential way. No involvement may prevent profitable projects from being insured, too much involvement may crowd out the market for private export credit risk insurance. Finally, based on the research, we recommend the following. ? It seems that the industrial organization of the market for export credit risks insurance is an important issue. Some firms that were interviewed mentioned the large number of alternatives in the London market. This reinforces the idea of increasing competition in the Netherlands. ? There is a large barrier to entry on the Dutch market: an insurance company needs extensive datasets to go into business. Old firms have a competitive advantage by controlling such databases. Perhaps public data collection (at EU level) could mitigate this problem. ? Especially smaller firms are not aware of possibilities on the international market for export credit risk insurance. A national campaign explaining and informing about alternative risk products (not necessarily insurance products) will help exporters to find a better solution for reducing the risks they are exposed to. Keywords: export credit risk, insurance, moral hazard, ratin

Consideration sets, intentions and the inclusion of "Don't know" in a two-stage model for voter choice

We present a statistical model for voter choice that incorporates a consideration set stage and final vote intention stage. The first stage involves a multivariate probit model for the vector of probabilities that a candidate or a party gets considered. The second stage of the model is a multinomial probit model for the actual choice. In both stages we use as explanatory variables data on voter choice at the previous election, as well as socio-demographic respondent characteristics. Importantly, our model explicitly accounts for the three types of "missing data" encountered in polling. First, we include a no-vote option in the final vote intention stage. Second, the "do not know" response is assumed to arise from too little difference in the utility between the two most preferred options in the consideration set. Third, the "do not want to say" response is modelled as a missing observation on the most preferred alternative in the consideration set. Thus, we consider the missing data generating mechanism to be non-ignorable and build a model based on utility maximization to describe the voting intentions of these respondents. We illustrate the merits of the model as we have information on a sample of about 5000 individuals from the Netherlands for who we know how they voted last time (if at all), which parties they would consider for the upcoming election, and what their voting intention is. A unique feature of the data set is that in