Axel Börsch-Supan

Smooth Unbiased Multivariate Probability Simulators for Maximum Likelihood Estimation of Limited Dependent Variable Models

We apply a new simulation method that solves the multidimensional probability integrals that arise in maximum likelihood estimation of a broad class of limited dependent variable models. The simulation method has four key features: the simulated choice probabilities are unbiased; they are a continuous and differentiable function of the parameters of the model; they are bounded between 0 and 1; and their computation takes an effort that is nearly linear in the dimension of the probability integral, independent of the magnitudes of the true probabilities. We also show that the new simulation method produces probability estimates with substantially smaller variance than those generated by acceptance-rejection methods or by Sterns (1987) method. The simulated probabilities can therefore be used to revive the Lerman and Manski(1981) procedure of approximating the likelihood function using simulated choice probabilities by overcoming its computational disadvantages.

Data Resource Profile: The Survey of Health, Ageing and Retirement in Europe (SHARE)

SHARE is a unique panel database of micro data on health, socio-economic status and social and family networks covering most of the European Union and Israel. To date, SHARE has collected three panel waves (2004, 2006, 2010) of current living circumstances and retrospective life histories (2008, SHARELIFE); 6 additional waves are planned until 2024. The more than 150 000 interviews give a broad picture of life after the age of 50 years, measuring physical and mental health, economic and non-economic activities, income and wealth, transfers of time and money within and outside the family as well as life satisfaction and well-being. The data are available to the scientific community free of charge at www.share-project.org after registration. SHARE is harmonized with the US Health and Retirement Study (HRS) and the English Longitudinal Study of Ageing (ELSA) and has become a role model for several ageing surveys worldwide. SHAREs scientific power is based on its panel design that grasps the dynamic character of the ageing process, its multidisciplinary approach that delivers the full picture of individual and societal ageing, and its cross-nationally ex-ante harmonized design that permits international comparisons of health, economic and social outcomes in Europe and the USA.

Aging, Pension Reform, and Capital Flows: A Multi-Country Simulation Model

We present a quantitative analysis of the effects of population aging and pension reform on international capital markets. First, demographic change alters the time path of aggregate savings within each country. Second, this process may be amplified when a pension reform shifts old-age provision towards more pre-funding. Third, while the patterns of population aging are similar in most countries, timing and initial conditions differ substantially. Hence, to the extent that capital is internationally mobile, population aging will induce capital flows between countries. All three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from fast-aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility

Would you like to shrink the welfare state? A survey of European citizens

Welfare state reform A survey of what Europeans want The fundamental problems facing European welfare states – high unemployment and unsustainable public pensions plans in particular – have been in the political debate for years, so why have we seen so little reform? To find out, we surveyed the opinions of citizens in France, Germany, Italy and Spain on their welfare states and on various reform options. This is what we found. First, most workers underestimate the costs of public pensions, though they are aware of their unsustainability. Second, the status quo is a majoritarian outcome: a majority of citizens opposes cuts to social security and welfare spending, but also opposes further increases. Since population ageing without reform implies an automatic expansion, our results suggest that most citizens would favour reforms that stabilize but do not shrink the current welfare states. Third, many would welcome changes in the allocation of benefits. A large number of workers in Italy and Germany would be willing to opt out of public pensions and replace them with private pensions, though the details of how this scheme is formulated matter for its popularity. And many Italians and Spaniards would welcome an extension of the coverage of unemployment insurance. Fourth, conflicts over the welfare state are mainly shaped by the economic situation of the respondent, while political ideology plays a limited role. Disagreements are found along three dimensions: young versus old, rich versus poor, and ‘outsider’ versus ‘insider’ in terms of labour market status. From a practical point of view, this suggests that there is scope to bundle reforms strategically in order to build a large and mixed coalition of supporters. — Tito Boeri, Axel Borsch‐Supan and Guido Tabellini

Extended Framework for Modeling Choice Behavior

We review the case against the standard model of rational behavior and discuss the consequences of various ‘anomalies’ of preference elicitation. A general theoretical framework that attempts to disentangle the various psychological elements in the decision-making process is presented. We then present a rigorous and general methodology to model the theoretical framework, explicitly incorporating psychological factors and their influences on choices. This theme has long been deemed necessary by behavioral researchers, but is often ignored in demand models. The methodology requires the estimation of an integrated multi-equation model consisting of a discrete choice model and the latent variable model system. We conclude with a research agenda to bring the theoretical framework into fruition.

Incentive effects of social security on labor force participation: evidence in Germany and across Europe

All across Europe, old age labor force participation has declined dramatically during the last decades. This secular trend coincides with population aging. The European social security systems therefore face a double threat: retirees receive pensions for a longer time while there are less workers per retiree to shoulder the financial burden of the pension systems. This paper shows that a significant part of this problem is homemade: most European pension systems provide strong incentives to retire early. The correlation between the force of these incentives with old age labor force participation is strongly negative. The paper provides qualitative and econometric evidence for the strength of the incentive effects on old age labor supply across Europe and for the German public pension program.

A new comprehensive and international view on ageing: introducing the 'Survey of Health, Ageing and Retirement in Europe'

This paper introduces the ‘Survey of Health, Ageing and Retirement in Europe’ (SHARE) to researchers on ageing. SHARE provides an infrastructure to help researchers better understand the individual and population ageing process: where we are, where we are heading to, and how we can influence the quality of life as we age, both as individuals and as societies. The baseline wave in 2004 provides data on the life circumstances of some 27,000 persons aged 50 and over in 11 European countries, ranging from Scandinavia across Western and Central Europe to the Mediterranean. SHARE has made great efforts to deliver truly comparable data, so we can reliably study how differences in cultures, living conditions and policy approaches shape the life of Europeans just before and after retirement. The paper first describes the SHARE data. In order to demonstrate its value, it then presents highlights from the three main research areas covered by SHARE, namely economics, sociology, and health.

An Applied Econometricians' View of Empirical Corporate Governance Studies

Abstract The economic analysis of corporate governance is in vogue. In addition to a host of theoretical papers, an increasing number of empirical studies analyze how ownership structure, capital structure, board structure, and the market for corporate control influence firm performance. This is not an easy task, and indeed, for reasons explained in this survey, empirical studies on corporate governance have more than the usual share of econometric problems. This paper is a critical survey of the recent empirical literature on corporate governance - to show which methodological lessons can be learned for future empirical research in the field of corporate governance, paying particular attention to German institutions and data availability.

Household formation, housing prices, and public policy impacts

Abstract This paper specifies and estimates a model of housing demand that explicitly includes the decision of individuals to form independent households. Parameter estimates reveal a considerable response of headship rates not only to income but also to housing prices. Analysis of housing policies ignoring the endogeneity of household formation is thus potentially biased. The model is employed to evaluate the effects of a housing voucher program. Simulated responses indicate that such a program creates a substantial additional demand for housing due to its positive impact on the propensity of young and elderly persons to live independently.

Life cycle savings and consumption constraints

Recent tests of both the pure and the extended life cycle hypothesis have generated inconclusive results on the life cycle behavior of the elderly. We extend the life cycle model by introducing a constraint on the physical consumption opportunities of the elderly which, if binding, imposes a consumption trajectory declining in age. This explains much of the received evidence on the elderlys consumption and savings behavior, in particular declining consumption, and increasing savings and wealth with increasing age. Our analysis of German data gives additional support to our theory. We finally draw the implications of the theory on the incidence of consumption and income (wealth) taxes, and on the recent (inconclusive) tests of intergenerational altruism.