Mishael Milaković

First results of the introduction of DRGs in Germany and overview of experience from other DRG countries

In spite of numerous discussions and programs aimed at reducing public health care costs in Germany, the country has seen a massive increase in health care costs at an annual average rate of 7% since 1972. When German policymakers decided to reform the health care system by passing legislative measures on 22 December 1999, one of the key elements was to oblige hospitals and health insurance providers to replace the existing retrospective and procedural reimbursement system with a new prospective and diagnostic system based on diagnosis-related groups (DRGs). German policymakers are hoping to accomplish two feats with the introduction of DRGs: firstly, to improve the profitability of the health care system, and secondly, to improve the quality of health care services because DRGs require documentation and coding, which leads to increased transparency and allows for an external comparison of rendered services (benchmarking), as well as for an analysis and assessment of how appropriate and how successful the rendered services were in each particular case. Although the intentions underlying the introduction of DRGs are unquestionable, it remains to be determined whether the introduction has negative effects as well, and to which extent these negative effects have shown up so far. Hence the purpose of our survey will be to provide an extensive and systematic overview of results from other countries, along with preliminary results from Germany. In order to judge the trade-off between the desired and negative effects in a DRG system, we will define the set of parameters that determine the incentives of health care agents in such a system before surveying the economic and medical literature in light of these parameters in Section 3 and summarizing the results in Section 4. In view of the literature analysed, we find that the introduction of DRGs hasstarted a tendency towards a reduction in costs and towards a focus on profitability. If the legislator takes the necessary actions to reduce possible negative effects like manipulation and upcoding, the introduction of G-DRGs will lead to an increase in economic effectiveness and efficiency, while bringing more transparency into the quality of medical services at the same time.

The small core of the German corporate board network

We consider the bipartite graph of German corporate boards and identify a small core of directors who are highly central in the entire network while being densely connected among themselves. To identify the core, we compare the actual number of board memberships to a random benchmark, focusing on deviations from the benchmark that span several orders of magnitude. The board appointment decisions of largely capitalized companies appear to be the driving force behind the existence of a core in Germany’s corporate network.

A note on institutional hierarchy and volatility in financial markets

From a statistical point of view, the prevalence of non-Gaussian distributions in financial returns and their volatilities shows that the Central Limit Theorem (CLT) often does not apply in financial markets. In this article, we take the position that the independence assumption of the CLT is violated by herding tendencies among market participants, and investigate whether a generic probabilistic herding model can reproduce non-Gaussian statistics in systems with a large number of agents. It is well known that the presence of a herding mechanism in the model is not sufficient for non-Gaussian properties, which crucially depend on the details of the communication network among agents. The main contribution of this article is to show that certain hierarchical networks, which portray the institutional structure of fund investment, warrant non-Gaussian properties for any system size and even lead to an increase in system-wide volatility. Viewed from this perspective, the mere existence of financial institutions with socially interacting managers contributes considerably to financial volatility.

SWITCHING RATES AND THE ASYMPTOTIC BEHAVIOR OF HERDING MODELS

Markov chains have experienced a surge of economic interest in the form of behavioral agent-based models that aim at explaining the statistical regularities of financial returns. We review some of the relevant mathematical facts and show how they apply to agent-based herding models, with the particular goal of establishing their asymptotic behavior since several studies have pointed out that the ability of such models to reproduce the stylized facts hinges crucially on the size of the agent population (typically denoted by N), a phenomenon that is also known as N-dependence. Our main finding is that N-(in)dependence traces back to both the topology and the velocity of information transmission among heterogeneous financial agents.

Do We All Face the Same Constraints

There seems to be widespread agreement on the functional form of wealth and income distributions observing a power law tail [3, 13, 9, 14], while the left part of wealth and income distributions is somewhat more controversial and typically found to follow an exponential or Gamma-like distribution [1, 3, 13, 11]. The presentations by Clementi, Galegatti, Fujiwara, Souma, Sinha, and Yakovenko at this conference certainly point in the same direction but the evidence on income distributions clearly outweighs that on wealth—which is hardly surprising because it is much easier to observe income flows than the stock of wealth. None the less, we would like to focus our attention on the distribution of wealth and argue that the observed distributional regularities are statistical equilibrium outcomes of two distinct economic processes.

A nonparametric approach tothe noise density in stochastic volatility models

We propose a nonparametric method to determine the functional form of the noise density in discrete-time stochastic volatility models of financial returns. Our approach suggests that the assumption of Gaussian noise is often adequate, but we do observe deviations from Gaussian noise for some assets, for instance gold.

The small core of the German corporate board network: New evidence from 2010

Milakovic, Alfarano and Lux (2010) have identified a small core of directors who are both highly central to the entire network of German corporate boards as well as closely connected among themselves. While their analysis has been based on data for the management and supervisory boards of a sample of 287 publicly traded companies with high market capitalization as of May 2008, a subsequent study by Milakovic, Raddant and Birg (2010) using somewhat smaller samples from the years 1993, 1999, and 2005 has confirmed that this closely connected core is a persistent stylized fact for the German corporate sector. In this note, we provide an update of our previous results using the composition of management and supervisory boards as of December, 2010. Again, almost all qualitative properties of previous samples are confirmed despite considerable turnover within the group of persons constituting the network core.

Hierarchy in Germany's Corporate Network

We examine the bipartite graphs of German corporate boards in 1993, 1999 and 2005, where we observe the persistence of a core in the corporate network, in spite of substantial turnover among core directors and changes incorporate governance and in the tail distribution of multiple board membership. Our analysis suggests that core persistence originates from selective board appointment decisions.

A spectral perspective on excess volatility

We perform a careful spectral analysis of the correlation structures observed in real and financial returns for a large pool of long-lived US corporations and find that financial returns are characterized by strong collective fluctuations that are absent from real returns. Once the excessive comovement is subtracted from individual financial time series, the behaviour of real and financial returns is virtually identical in both the cross-sectional and time series domains, thereby demonstrating the inherently collective nature of excessive fluctuations. Put differently, if excess volatility is to be reduced, then one would do well to inhibit excess comovement first. At any rate, the excessive behaviour in volatility and comovement should no longer be studied in isolation of each other.

Der dichte Kern des Netzwerks deutscher Aufsichtsräte und Unternehmensvorstände@@@The Small Core of the German Corporate Board Network: The 2010 Update: Verflechtungsstrukturen im Jahr 2010

ZusammenfassungFür die sogenannte Deutschland AG war eine enge Verflechtung von Personen in Aufsichtsräten und Vorständen typisch. Diese Strukturen haben sich über die Zeit kaum geändert. Dies zeigen die Autoren mit Hilfe der Netzwerkanalyse — einer Methode, die aus den Naturwissenschaften kommend immer häufiger auch für ökonomische Zusammenhänge genutzt wird.AbstractIn a previous study the authors have identified a small core of directors who are both highly central to the entire network of German corporate boards as well as closely connected among themselves. In this note the authors provide an update of their previous results using the composition of management and supervisory boards as of December 2010. Almost all qualitative properties of previous samples are confirmed despite considerable turnover within the group of people constituting the network core.