German Institute for Economic Research

This paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects' homes. Using a question asking people about their willingness to take risks "in general", we find that gender, age, height, and parental background have an economically significant impact on willingness to take risks. The experiment confirms the behavioral validity of this measure, using paid lottery choices. Turning to other questions about risk attitudes in specific contexts, we find similar results on the determinants of risk attitudes, and also shed light on the deeper question of stability of risk attitudes across contexts. We conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks, occupational choice, and smoking. The question about risk taking in general generates the best all-round predictor of risky behavior.

Recent theories endogenize the attitude endowments of individuals, assuming that they are shaped by the attitudes of parents and other role models. This paper tests empirically for the relevance of three aspects of the attitude transmission process highlighted in this theoretical literature: (1) transmission of attitudes from parents to children; (2) an impact of prevailing attitudes in the local environment on child attitudes; and (3) positive assortative mating of parents, which enhances the ability of a parent to pass on his or her attitudes to the child. We focus on two fundamentally important attitudes, willingness to take risks and willingness to trust others. We find empirical support for all three aspects, providing an empirical underpinning for the literature. An investigation of underlying mechanisms shows that socialization is important in the transmission process. Various parental characteristics and aspects of family structure are found to strengthen the socialization process, with implications for modeling the socialization production function and for policies focused on affecting children's non-cognitive skills. The paper also provides evidence that the transmission of risk and trust attitudes affects a wide variety of child outcomes, implying a potentially large total effect on children's economic situation.

Correlation does not imply causation; but often, observational data are the only option, even though the research question at hand involves causality. This article discusses causal inference based on observational data, introducing readers to graphical causal models that can provide a powerful tool for thinking more clearly about the interrelations between variables. Topics covered include the rationale behind the statistical control of third variables, common procedures for statistical control, and what can go wrong during their implementation. Certain types of third variables—colliders and mediators—should not be controlled for because that can actually move the estimate of an association away from the value of the causal effect of interest. More subtle variations of such harmful control include using unrepresentative samples, which can undermine the validity of causal conclusions, and statistically controlling for mediators. Drawing valid causal inferences on the basis of observational data is not a mechanistic procedure but rather always depends on assumptions that require domain knowledge and that can be more or less plausible. However, this caveat holds not only for research based on observational data, but for all empirical research endeavors.

BACKGROUND: VX-445 is a next-generation cystic fibrosis transmembrane conductance regulator (CFTR) corrector designed to restore Phe508del CFTR protein function in patients with cystic fibrosis when administered with tezacaftor and ivacaftor (VX-445-tezacaftor-ivacaftor). METHODS: ) from baseline. RESULTS: (P<0.001). In both groups, there was a decrease in sweat chloride concentrations and improvement in the respiratory domain score on the Cystic Fibrosis Questionnaire-Revised. CONCLUSIONS: The use of VX-445-tezacaftor-ivacaftor to target Phe508del CFTR protein resulted in increased CFTR function in vitro and translated to improvements in patients with cystic fibrosis with one or two Phe508del alleles. This approach has the potential to treat the underlying cause of cystic fibrosis in approximately 90% of patients. (Funded by Vertex Pharmaceuticals; VX16-445-001 ClinicalTrials.gov number, NCT03227471 ; and EudraCT number, 2017-000797-11 .).

Price forecasting is becoming increasingly relevant to producers and consumers in the new competitive electric power markets. Both for spot markets and long-term contracts, price forecasts are necessary to develop bidding strategies or negotiation skills in order to maximize profits. This paper provides an approach to predict next-day electricity prices based on the Generalized Autoregressive Conditional Heteroskedastic (GARCH) methodology that is already being used to analyze time series data in general. A detailed explanation of GARCH models is presented and empirical results from the mainland Spain and California deregulated electricity-markets are discussed.

ABSTRACT We analyze the transmission of the 2007 to 2009 financial crisis to 415 country‐industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the United States and the global financial sector, the effects are small. By contrast, there has been substantial contagion from domestic markets to individual domestic portfolios, with its severity inversely related to the quality of countries’ economic fundamentals. This confirms the “wake‐up call” hypothesis, with markets focusing more on country‐specific characteristics during the crisis.

We conduct a genome-wide association study (GWAS) of educational attainment (EA) in a sample of ~3 million individuals and identify 3,952 approximately uncorrelated genome-wide-significant single-nucleotide polymorphisms (SNPs). A genome-wide polygenic predictor, or polygenic index (PGI), explains 12-16% of EA variance and contributes to risk prediction for ten diseases. Direct effects (i.e., controlling for parental PGIs) explain roughly half the PGI's magnitude of association with EA and other phenotypes. The correlation between mate-pair PGIs is far too large to be consistent with phenotypic assortment alone, implying additional assortment on PGI-associated factors. In an additional GWAS of dominance deviations from the additive model, we identify no genome-wide-significant SNPs, and a separate X-chromosome additive GWAS identifies 57.

Introducing findings from the 2004 Survey of Health, Ageing, and Retirement in Europe (SHARE), this research complements the large number of recent U.S. studies on the role of grandparents in caring for their grandchildren. For 10 continental European countries, the authors investigate cross-national variations in grandparent-provided child care as well as differences in characteristics of the providers and recipients of care. Although they find strong involvement of grandparents in their grandchildren's care across all countries, they also identify significant variations in the prevalence and intensity of care along the geographic lines of different child care and (maternal or female) employment regimes in Europe. Rooted in long-standing family cultures, the observed patterns suggest a complex interaction between welfare state—provided services and intergenerational family support in shaping the work—family nexus for younger parents. The authors conclude with a brief discussion of possible consequences of grandmothers' increasing labor force participation for child care arrangements.

Based on the conditional independence or unconfoundedness assumption, matching has become a popular approach to estimate average treatment effects. Checking the sensitivity of the estimated results with respect to deviations from this identifying assumption has become an increasingly important topic in the applied evaluation literature. If there are unobserved variables that affect assignment into treatment and the outcome variable simultaneously, a hidden bias might arise to which matching estimators are not robust. We address this problem with the bounding approach proposed by Rosenbaum (Observational Studies, 2nd ed., New York: Springer), where mhbounds lets the researcher determine how strongly an unmeasured variable must influence the selection process to undermine the implications of the matching analysis.

Two transition pathways towards a 100% renewable energy (RE) power sector by 2050 are simulated for Europe using the LUT Energy System Transition model. The first is a Regions scenario, whereby regions are modelled independently, and the second is an Area scenario, which has transmission interconnections between regions. Modelling is performed in hourly resolution for 5-year time intervals, from 2015 to 2050, and considers current capacities and ages of power plants, as well as projected increases in future electricity demands. Results of the optimisation suggest that the levelised cost of electricity could fall from the current 69 €/MWh to 56 €/MWh in the Regions scenario and 51 €/MWh in the Area scenario through the adoption of low cost, flexible RE generation and energy storage. Further savings can result from increasing transmission interconnections by a factor of approximately four. This suggests that there is merit in further development of a European Energy Union, one that provides clear governance at a European level, but allows for development that is appropriate for regional contexts. This is the essence of a SuperSmart approach. A 100% RE energy system for Europe is economically competitive, technologically feasible, and consistent with targets of the Paris Agreement.

A flexible coupling of power and heat sectors can contribute to both renewable energy integration and decarbonization. We present a literature review of model-based analyses in this field, focusing on residential heating. We compare geographical and temporal research scopes and identify state-of-the-art analytical model formulations, particularly considering heat pumps and thermal storage. While numerical findings are idiosyncratic to specific assumptions, a synthesis of results indicates that power-to-heat technologies can cost-effectively contribute to fossil fuel substitution, renewable integration, and decarbonization. Heat pumps and passive thermal storage emerge as particularly favorable options.

Open Science is an umbrella term encompassing a multitude of assumptions about the future of knowledge creation and dissemination. Based on a literature review, this chapter aims at structuring the overall discourse by proposing five Open Science schools of thought: The infrastructure school (which is concerned with the technological architecture), the public school (which is concerned with the accessibility of knowledge creation), the measurement school (which is concerned with alternative impact measurement), the democratic school (which is concerned with access to knowledge) and the pragmatic school (which is concerned with collaborative research).

Cross-sectional studies show that divorced people report lower levels of life satisfaction than do married people. However, such studies cannot determine whether satisfaction actually changes following divorce. In the current study, data from an 18-year panel study of more than 30,000 Germans were used to examine reaction and adaptation to divorce. Results show that satisfaction drops as one approaches divorce and then gradually rebounds over time. However, the return to baseline is not complete. In addition, prospective analyses show that people who will divorce are less happy than those who stay married, even before either group gets married. Thus, the association between divorce and life satisfaction is due to both preexisting differences and lasting changes following the event.

We examined measurement invariance and age-related robustness of a short 15-item Big Five Inventory (BFI-S) of personality dimensions, which is well suited for applications in large-scale multidisciplinary surveys. The BFI-S was assessed in three different interviewing conditions: computer-assisted or paper-assisted face-to-face interviewing, computer-assisted telephone interviewing, and a self-administered questionnaire. Randomized probability samples from a large-scale German panel survey and a related probability telephone study were used in order to test method effects on self-report measures of personality characteristics across early, middle, and late adulthood. Exploratory structural equation modeling was used in order to test for measurement invariance of the five-factor model of personality trait domains across different assessment methods. For the short inventory, findings suggest strong robustness of self-report measures of personality dimensions among young and middle-aged adults. In old age, telephone interviewing was associated with greater distortions in reliable personality assessment. It is concluded that the greater mental workload of telephone interviewing limits the reliability of self-report personality assessment. Face-to-face surveys and self-administrated questionnaire completion are clearly better suited than phone surveys when personality traits in age-heterogeneous samples are assessed.

The existential threat to small businesses, based on their crucial role in the economy, is behind the plethora of scholarly studies in 2020, the first year of the COVID-19 pandemic. Examining the 15 contributions of the special issue on the "Economic effects of the COVID-19 pandemic on entrepreneurship and small businesses," the paper comprises four parts: a systematic review of the literature on the effect on entrepreneurship and small businesses; a discussion of four literature strands based on this review; an overview of the contributions in this special issue; and some ideas for post-pandemic economic research.

Taller populations are typically richer populations, and taller individuals live longer and earn more. In consequence, adult height has recently become a focus in understanding the relationship between health and wealth. We investigate the childhood determinants of population adult height, focusing on the respective roles of income and of disease. Across a range of European countries and the United States, we find a strong inverse relationship between postneonatal (ages 1 month to 1 year) mortality, interpreted as a measure of the disease and nutritional burden in childhood, and the mean height of those children as adults. Consistent with these findings, we develop a model of selection and stunting in which the early-life burden of undernutrition and disease not only is responsible for mortality in childhood but also leaves a residue of long-term health risks for survivors, risks that express themselves in adult height and in late-life disease. The model predicts that at sufficiently high mortality levels, selection can dominate scarring, leaving a taller population of survivors. We find evidence of this effect in the poorest and highest-mortality countries of the world, supplementing recent findings on the effects of the Great Chinese Famine.

We find new empirical regularities in the business cycle in a cross-country panel of 22 OECD countries for the period 1972 to 2007; entrepreneurship Granger-causes the cycles of the world economy. Furthermore, the entrepreneurial cycle is positively affected by the national unemployment cycle. We discuss possible causes and implications of these findings.

The current economic crisis requires fast information to predict economic behavior early, which is difficult at times of structural changes. This paper suggests an innovative new method of using data on internet activity for that purpose. It demonstrates strong correlations between keyword searches and unemployment rates using monthly German data and exhibits a strong potential for the method used.

This paper gives an overview of the empirical research on the effects of new business formation on regional development and introduces the contributions to this special issue. The effects of new businesses on regional development emerge over a longer time-period of up to ten years. A main focus of the contributions to this special issue is on the distribution of these effects over time and on the magnitude of the overall effect. While the basic pattern found for the different countries and regions is quite similar, the magnitude of the overall effect can be different and may even be negative. There are strong indications, that the type of entrants plays an important role in this respect.

Abstract We examine the impact of a disclosure mandate for greenhouse gas emissions on firms’ subsequent emission levels and financial operating performance. For UK-incorporated listed firms a carbon disclosure mandate was adopted in 2013. Our difference-in-differences design shows that firms affected by the mandate reduced their emissions by about 8% relative to a control group of European firms. At the same time, our tests indicate that the treated firms experienced no significant changes in their gross margins. Taken together, our findings indicate that the reporting mandate had a real effect on the variable to be disclosed without adversely affecting the financial operating performance of the treated firms.