CPB Discussion papers 2010
n° 165, December 2010
Are older workers overpaid? A literature review
DE HEK Paul, VAN VUUREN Daniel
It is widely believed that wage and productivity profiles of individual workers do not coincide at all ages. We give an overview of the theories which provide a rationale for this, and discuss the empirical literature. Human capital theories typically imply that wages rise with tenure, so that job reallocation at old age would imply a wage cut. Incentive theories typically imply that wages exceed productivity at the end of a worker’s career. Bargaining power of unions may also lead to ‘overpayment’ of older workers. Some general conclusions regarding the wages of older workers are formulated on basis of the authors’ reading of the empirical literature.
( texte du n° 165)n° 164, December 2010
Banking risk and regulation: Does one size fit all?
KLOMP Jeroen, DE HAAN Jakob
Using data for more than 200 banks from 21 OECD countries for the period 2002 to 2008, we
examine the impact of bank regulation and supervision on banking risk. Supervisory control, and regulations on capital and market entry have a significant impact on 'capital and asset risk', while supervisory control and regulations on activities restrictions, private monitoring, market entry, and liquidity, have a significant effect on 'liquidity and market risk'. However, quantile regressions suggest that the effect of regulation and supervision differs across banks: most indicators of bank regulation and supervision do not have a significant effect on low-risk banks,
while they do affect high-risk banks.
n° 163, December 2010
Measuring competition using the Profit Elasticity
American Sugar Industry, 1890-1914
BOONE Jan, VAN LEUVENSTEIJN Michiel
The Profit Elasticity (PE) is a new competition measure introduced in Boone (2008). So far, there was no direct proof that this measure can identify regimes of competition empirically. This paper focuses on this issue using data of Genesove and Mullin (1998) in which different regimes of competition are identified. We derive a version of PE suitable for this data set. This competition measure classifies the monopoly/cartel regime correctly as being less competitive than both the price-war regime and break-up of cartel regime.
n° 161, November 2010
Measuring and interpreting trends in the division of labour in the Netherlands
AKCOMAK I. Semih, BORGHANS Lex, TER WEEL Bas
This paper introduces indicators about the division of labour to measure and interpret recent trends in employment in the Netherlands. We show that changes in the division of labour occur at three different levels: the level of the individual worker, the level of the industry and the spatial level. At each level, the current organisation of work is determined by an equilibrium of forces that glue tasks together and unbundled tasks. Communication costs are the main force for clustering or gluing together tasks; comparative advantage stimulates unbundling and specialisation. Our results show that on average the Netherlands has witnessed unbundling in the period 1996-2005. So, on average the advantages of specialisation have increased. These developments can explain to a considerable extent changes in the structure of employment. Especially at the spatial level, our approach explains a substantial part of the increase in offshoring during this period.
n° 160, October 2010
Private wealth and planned early retirement
A panel data analysis for the Netherlands 1994-2009
OOIJEN Raun van, MASTROGIACOMO Mauro, EUWALS Rob
We study the causal relation between private wealth and retirement age. We propose two estimation strategies based on expected retirement age. The outcome variable is observed repeatedly over time. We correct first for the unobserved heterogeneity in the disutility of work by using panel data techniques. Next, we exploit information on expected wealth accumulation in order to identify the unexpected component in wealth accumulation. In line with the literature we find a small but significant effect of private wealth on planned early retirement.
n° 159, October 2010
The Precautionary Saving Motive and Wealth Accumulation
MASTROGIACOMO Mauro, ALESSIE Rob
We quantify the relative importance of the precautionary saving motive in determining wealth accumulation. Puzzling results have appeared on the relative importance of the precautionary motive when this is derived either using a self reported measure of uncertainty about future income rather than observed life-cycle income variation. In this study we show that if one takes into account explicitly the uncertainty of the second income earner results converge using both methods. Precautionary savings account for about 30% of wealth accumulation. However we also claim that obtaining converging results does not necessarily answer the question on the empirical relevance of precautionary savings, as the amounts being saved largely differ among studies due to the country specific incentives to save and to the measure of wealth accumulation.
n° 158, September 2010
Small firms captive in a box like lobsters; Causes of poor productivity performance in European business services
KOX Henk, VAN LEEUWEN George, VAN DER WIEL Henry
The paper empirically investigates whether a lack of competition determines the poor productivity performance of the European business services. It uses detailed panel data for 13 EU countries over the period 2000-2005. We apply parametric and nonparametric methods to estimate the productivity frontier and subsequently explain the distance to the productivity frontier by market characteristics, entry- and exit dynamics and national regulation. We find that the most efficient scale in business services is close to 20 employees. Scale inefficiencies show a hump-shape pattern with strong potential scale economies for the smallest firms. Nonetheless, some 95% of the firms operate at a scale below the minimal optimal scale. While they are competitive in the sense that their productivities are very similar, they have strong scale diseconomies compared to the larger firms. Their scale inefficiency is persistent over time, which points to growth obstacles that hamper the achievement of scale economies. Regulation characteristics explain this inefficiency, particularly regulation-caused exit and labour reallocation costs are found to have a large negative impact on productivity performance.
n° 157, September 2010
The effect of competition on process and outcome quality of hospital care. An empirical analysis for the Netherlands
BIJLSMA Michiel, KONING Pierre, SHESTALOVA Victoria, AOURAGH Ali
The paper focuses on the relationship between competition and quality in the Dutch hospital sector. We analyse the period of 2004-2008, in which a healthcare reform took place in the Netherlands, introducing competition in the healthcare sector. The increased attention to hospital quality and its growing importance in a new institutional environment have resulted in a gradual increase of the voluntary disclosure of quality indicators by Dutch hospitals. We use panel data on Dutch general and academic hospitals in 2004-2008, including both process indicators (e.g., share of operation cancellations on short notice and share of diagnoses within 5 days) and outcome indicators (e.g., mortality rates) of hospital quality. We take the correlation between the disclosure decision and the level of the disclosed quality indicators explicitly into account by estimating a bivariate model. We find that competition explains differences in performance on process indicators, but not on outcome indicators.
n° 156, August 2010
A Meta-Analysis of the Equity Premium
VAN EWIJK Casper, DE GROOT Henri, SANTING Coos
The equity premium is a key parameter in asset allocation policies. There is a vigorous debate in the literature regarding the actual measurement of the equity premium, its size and the determinants of its variation. This study aims to take stock of this literature by means of a meta-analysis. We identify how the size of the equity premium depends on the way it is measured, along with its evolution over time and its variation across regions in the world. We find that the equity premium is significantly lower if measured by ex ante methods rather than ex post, in more recent periods, and for more developed countries. In addition, looking at the underlying fundamentals, we find that larger volatility in GDP growth tends to raise the equity premium while a higher nominal interest rate has a negative impact on the equity premium.
n° 155, August 2010
Analyzing female labor supply Evidence from a Dutch tax reform
BOSCH Nicole, VAN DER KLAAUW Bas
Among OECD countries, the Netherlands has average female labor force participation, but by far the highest rate of part-time work. This paper investigates the extent to which married women respond to financial incentives. We exploit the exogenous variation caused by a substantial Dutch tax reform in 2001. Our main conclusion is that the positive significant effect of tax reform on labor force participation dominates the negative insignificant effect on working hours. Our preferred explanation is that women respond more to changes in tax allowances than to changes in marginal tax rates.
n° 154, July 2010
The effects of a change in market abuse regulation on abnormal returns and volumes. Evidence from the Amsterdam stock market
PREVOO Tyas, TER WEEL Bas
The Market Abuse Directive came into effect on 1 October 2005. One of its purposes is to reduce illegal insider trading and leakage of information prior to official releases by increasing penalties. Applying an event study approach to a dataset of almost 5,000 corporate news announcements, the analysis reveals that the information value of announcements, measured by the announcement day abnormal return and abnormal volume, is not significantly different after the new regulation than it was before although the number of releases has increased significantly. Trading suspicious of illegal insider trading and leakage of information, measured in terms of cumulative average abnormal returns and volumes for the 30 days prior to the news announcement, has significantly declined for small capitalization firms, for announcements containing information about alliances and mergers and acquisitions and for firms in the technology sector.
n° 153, June 2010
Regulatory legacy, VoIP adoption and investment incentives
DE BIJL Paul, PEITZ Martin
The introduction of VoIP telephony raises concerns about current regulatory practice. Access regulation has been designed for PSTN and the liberalization of the PSTN market. This paper explores the effects of access regulation of PSTN networks on consumers? adoption of a new technology in the form of VoIP. It also discusses the link between access regulation and the incentives to invest in VoIP.
n° 152, June 2010
Health insurance competition: the effect of group contracts
BOONE Jan, DOUVEN Rudy, DROGE Carline, MOSCA Ilaria
In countries like the US and the Netherlands health insurance is provided by private firms. These private firms can offer both individual and group contracts. The strategic and welfare implications of such group contracts are not well understood. Using a Dutch data set of about 700 group health insurance contracts over the period 2007-2008, we estimate a model to determine which factors explain the price of group contracts. We find that groups that are located close to an insurers? home turf pay a higher premium than other groups. This finding is not consistent with the bargaining argument in the literature as it implies that concentrated groups close to an insurer?s home turf should get (if any) a larger discount than other groups. A simple Hotelling model, however, does explain our empirical results.
n° 151, June 2010
Intergenerational risk sharing and labour supply in collective funded pension schemes with defined benefits
BONENKAMP Jan, WESTERHOUT Ed
In many countries, collective funded pension schemes with defined benefits (DB) are being replaced by individual schemes with defined contributions. Collective funded DB pensions may indeed reduce social welfare. This will be the case when the schemes feature income-related contributions that distort the labour-leisure decision. However, these schemes also share risks between generations. This adds to welfare if these risks cannot be traded on capital markets. This paper compares the welfare gains from intergenerational risk sharing with the welfare losses that are due to labour market distortions. We adopt a two-period overlapping-generations model for a small open economy with risky returns to equity holdings. We derive analytically that the gains dominate the losses for the case of Cobb-Douglas preferences between labour and leisure. Numerical simulations for the more general CES case confirm these findings which also withstand a number of other model modifications, like the introduction of a short-sale constraint for households and the inclusion of a labour income tax. These results suggest that collective funded schemes with well-organized risk sharing are preferable over individual schemes, even if labour market distortions are taken into account.
n° 150, May 2010
Ranking the Schools: How Quality Information Affects School Choice in the Netherlands
KONING Pierre, VAN DER WIEL Karen
This paper analyzes whether information on high school quality published by a national newspaper affects school choice in the Netherlands. For this purpose, we use both school level and individual student level data. First, we study the causal effect of quality scores on the influx of new high school students using a longitudinal school dataset. We find that negative (positive) school quality scores decrease (increase) the number of students choosing a school after the year of publication. The positive effects are particularly large for the academic school track. An academic school track receiving the most positive score sees its inflow of students rise by 15 to 20 students. Second, we study individual school choice behavior to address the relative importance of the quality scores, as well as potential differences in the quality response between socio-economic groups. Although the probability of attending a school is affected by its quality score, it is mainly driven by the traveling distance. Students are only willing to travel about 200 meters more in order to attend a well-performing rather than an average school. In contrast to equity concerns that are often raised, we cannot find differences in information responses between socio-economic groups.
n° 149, May 2010
School Responsiveness to Quality Rankings: An Empirical Analysis of Secondary Education in the Netherlands
KONING Pierre, VAN DER WIEL Karen
This paper analyzes the response of secondary schools to changes in quality ratings. In doing this, we contribute to the literature in two respects. First, the current analysis is the first to address the impact of quality scores that have been published by a newspaper (Trouw), rather than public interventions that aim to track and improve failing schools. Second, our research design exploits the substantial lags in the registration and publication of the Trouw scores and that takes into account all possible outcomes of the ratings, instead of the lowest category only. Overall, we find evidence that school quality performance does respond to Trouw quality scores. Both average grades increase and the number of diplomas go up after receiving a negative score. These responses cannot be attributed to gaming activities of the school board as an improvement is also observed in the gaming-proof quality indicators. For schools that receive the most negative ranking, the short-term effects (one year after a change in the ranking of schools) of quality transparency on final exam grades equal 10% to 30% of a standard deviation compared to the average of this variable. The estimated long run impacts are roughly equal to the short-term effects that are measured.
n° 148, April 2010
Exploring the ambiguous impact of employment protection on employment and productivity
JONGEN Egbert, VISSER Sabine
The impact of employment protection on employment and productivity seems ambiguous in empirical work. We seek to explain why, studying various types of employment protection in a vintage model with specific investments by firms and workers. First, the analysis shows that the impact of severance pay can be quite different from other types of employment protection. Lumping them together, as in the OECD indicator, then seems a poor empirical strategy, and we provide empirical support for this. Second, starting from underinvestment in specific investments, firing costs may actually raise productivity, despite the sclerosis effect on the production structure. Third, we show that the tenure profile of employment protection matters. The impact of constant employment protection, popular in theoretical work, is quite different from the impact of rising employment protection, popular in practice. We illustrate a number of points quantitatively in a calibration exercise for the Netherlands.
n° 147, April 2010
Reinforcing buyer power: Trade quotas and supply diversification in the EU natural gas market
IKONNIKOVA Svetlana, ZWART Gijsbert T.J.
We consider a market with concentrated domestic buyers and concentrated foreign sellers and explore the extent to which domestic regulation helps to increase the buyers? countervailing power against the foreign sellers. We use the Shapley value to describe the distribution of the trade surplus and market power in this bilateral oligopoly. With the EU natural gas market in mind, we consider how a regulator (the EU) can use import quotas and encourage supply diversification to strengthen the buyers? power and increase their surplus. We find that buyers can benefit from bilateral but not aggregate trade restrictions. Those who invest in supply diversification gain, with other buyers enjoying positive externalities; sellers lose profits and power. Thus we provide a rationale for the current EU support for importers? investment plans.
n° 146, April 2010
Geographical range of amenity benefits: hedonic price analysis for railway stations
OSSOKINA Ossokina
People want to live nearby consumption amenities as this saves time on commuting. By developing land nearby existing or new amenities local governments can try to internalize these proximity benefits. This paper develops a residential location model in which the geographical range and the magnitude of amenity benefits as reflected in residential prices can ex post be assessed. First we extend a standard residential location model with a non-essential consumption amenity. We show that the geographical range of amenity benefits can be determined as the minimal distance to the amenity beyond which residential rents are independent of the distance to the amenity. We apply this insight in a hedonic analysis of the effect of proximity to a railway station on local housing prices in the wider metropolitan area of Amsterdam, the Netherlands. The geographical range of the railway stations is estimated to be 1.1 kilometer and the house price premium paid for station proximity is estimated to be 3 to 5 percent. We show furthermore that failing to account for the localized character of the amenity benefits can lead to a considerable under- or overestimation of the magnitude of the benefits.
n° 145, March 2010
A decomposition of the growth in self-employment
VAN ES Frank, VAN VUUREN Daniel
We decompose the rise of self-employment in the Netherlands in the period 1992-2006. The observed upturn is remarkable, as it contrasts with the decline in earlier decennia. Using Logit estimates we try to identify the most important determinants of this trend, separately for women and for men. Contrasting some findings for the US, we find that the industrial composition only plays a small role in explaining the upturn. For women, we find that intra-sectoral developments have been important in spurring self-employment. In particular, it has become more common for women to be self-employed in the Trade and Culture sectors. The aging of society (older people are self-employed more often) is an important cause of the observed increase. This effect is partly compensated by the negative effect of a higher educated labour force. This causes, in the context of our model, most of the upturn to be related to year effects, which could either be an indication of generic policy effects or a socio-cultural trend. The latter is reflected in an improved reputation of self-employment. We postulate that generic policy effects have been the most important cause of the increase in self-employment. The largest effects were seen just in the last few years of our sample (2004-2006), which appears to be inconsistent with the notion of a longer lasting socio-cultural trend.
n° 144, March 2010
The effect of accountability policies in primary education in Amsterdam
CHORNY Victoria, WEBBINK Dinand
In 1995, the municipality of Amsterdam introduced accountability policies for schools in primary education. Population statistics show a large increase of test scores in the decade after the introduction of the new urban policies. This paper assesses this increase in test scores by analyzing data of a large sample of schools including scores on the published test and scores on similar independently taken tests that are not published. Difference-in-differences estimates show that after the introduction of the accountability policies, test scores for both tests taken in grade 8 increased substantially more in Amsterdam than in the rest of the country and more than in a sample of Low SES students. Approximately 60 percent of the increase of the published test scores can be attributed to an increase in general skills and 40 percent to an increase in testspecific skills. Test scores of pupils in lower grades also improved in Amsterdam. We do not find evidence for strategic behavior of schools. Although part of the gains in test scores might be test-specific, the accountability policies in Amsterdam seem to have succeeded in raising educational achievements in primary schools.
n° 143, March 2010
Exports and productivity selection effects for Dutch firmKOX Henk, ROJAS-ROMAGOSA Hugo
This study presents recently available data on the microstructure of Dutch exports and the relation between export participation and productivity at the firrm and establishment-level. We test whether recent theories of international trade with heterogeneous firms can explain the patterns in the Dutch data. We find significant evidence that firms self-select into export participation, even after controlling for sector and firm-specific characteristics. In general, only the most productive Dutch firms participate in exports and foreign direct investment. In addition, we find evidence for the learning-by-exporting hypothesis once we control for the firm's distance to the international productivity frontier
n° 142, February 2010
Supply of Renewable Energy Sources and the Cost of EU Climate Policy
BOETERS Stefan, KOORNNEEF Joris
What are the excess costs of a separate 20% target for renewable energy as a part of the EU climate policy for 2020? We answer this question using a computable general equilibrium model, WorldScan, which has been extended with a bottom-up module of the electricity sector. The model set-up makes it possible to directly use available estimates of costs and capacity potentials for renewable energy sources for calibration. In our base case simulation, the costs of EU climate policy with the renewables target are 6% higher than those of a policy without this target. As information on the supply of renewable energy is scarce and uncertain, we perform an extensive sensitivity analysis with respect to the level and steepness of the supply curves for wind energy and biomass. In the range we explore, the excess costs vary from zero (when the target is not binding) to 23% (when the cost progression and the initial cost disadvantage for renewables are doubled).
n° 141,February 2010
Identifying options for regulating the coordination of network investments with investments in distributed electricity generation
NIESTEN Eva
The increase in the distributed generation of electricity, with wind turbines and solar panels, necessitates investments in the distribution network. The current tariff regulation in the Dutch electricity industry, with its ex post evaluation of the efficiency of investments and the frontier shift in the x-factor, delays these investments. In the unbundled electricity industry, the investments in the network need to be coordinated with those in the distributed generation of electricity to enable the DSOs to build enough network capacity. The current Dutch regulations do not provide for a sufficient information exchange between the generators and the system operators to coordinate the investments. This paper analyses these two effects of the Dutch regulation, and suggests improvements to the regulation of the network connection and transportation tariffs to allow for sufficient network capacity and coordination between the investments in the network and in the generation of electricity. These improvements include locally differentiated tariffs that increase with an increasing concentration of distributed generators.
n° 140, February 2010
Selective contracting and foreclosure in health care markets
BIJLSMA Michiel, BOONE Jan, ZWART Gijsbert
This paper provides an analysis of exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.
n° 139, February 2010
The effect of education on smoking behaviour; new evidence from smoking durations of a sample of twins
KONING Pierre, WEBBINK Dinand, MARTIN Nicholas G.
This paper analyses the causal effect of education on starting and quitting smoking, using longitudinal data of Australian twins. The endogeneity of education, censoring of smoking durations and the timing of starting smoking versus the timing of completion of education are taken into account by using the flexible Mixed Proportional Hazard (MPH) specification. Unobserved effects in the specification are assumed to be twin specific and possibly correlated with completed education years. In addition, we use various unique control indicators reflecting the discounting behaviour of individuals that may affect both the smoking decision and the number of education years. In contrast to previous studies in our model specification, differences in the number of education years cannot explain differences in smoking behaviour at young ages. We find one additional year of education to reduce the duration of smoking with 9 months, but no significant effect of education on starting smoking. The effect of education on quitting smoking largely confines to male twins. This suggests that education policies that succeed in raising the level of education may improve public health through an increase of smoking cessation, but are not effective in preventing smoking at young ages.
n° 138, February 2010
Systems of Innovation
SOETE Luc, VERSPAGEN Bart, TER WEEL Bas
We review the literature on national innovation systems. We first focus on the emergence of the concept of innovation systems, reviewing its historical origins and three main flavours (associated to three ?founding fathers? of the concept). After this, we discuss how the notion of innovation systems filled a need for providing a broader basis for innovation policy. We conclude with some perspectives on the future of the innovation systems literature.
n° 137, January 2010
Improving the energy efficiency of buildings The impact of environmental policy on technological innovation
NOAILLY Joelle
This paper investigates the impact of alternative environmental policy instruments on technological innovations aiming to improve energy efficiency in buildings. The empirical analysis focuses on three main types of policy instruments, namely regulatory energy standards in buildings codes, energy taxes as captured by energy prices and specific governmental energy R&D expenditures. Technological innovation is measured using patent counts for specific technologies related to energy efficiency in buildings (e.g. insulation, high-efficiency boilers, energy-saving lightings). The estimates for seven European countries over the 1989-2004 period imply that a strengthening of 10% of the minimum insulation standards for walls would increase the likelihood to file additional patents by about 3%. In contrast, energy prices have no significant effect on the likelihood to patent. Governmental energy R&D support has a small positive significant effect on patenting activities.
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