Alumni reflections for the Barcelona GSE Class of 2015

alumniNicola Cofelice ’14

Macroeconomic Policy and Financial Markets
Research Assistant, CaixaBank (Barcelona)

Nicola gave the following remarks to the new students in the Barcelona GSE Class of 2015 earlier this fall at a welcome reception in Bellaterra.

 

 

Before I begin, let me join the faculty and the School staff and congratulate all of you for having been accepted to the Barcelona Graduate School of Economics; I have to admit that it’s a pleasure to give you the welcome speech as Alumni speaker from the previous year.

I remember sitting where you are now exactly 1 year ago: I had no idea what lay ahead of me, what challenges I was going to face and the new friends I was going to make. Like all of you, I was at the beginning of a new path: in my case, I had been working as an engineer for 5 years when I decided to join the master in Macro. But still, I had plenty of questions in my mind: am I going to be up to the level of the School? What am I going to learn? Will I have time to go back home from time to time or is the rhythm of the Master going to destroy me J?

Now, after 1 year, I have been asked to share with you my experience at Barcelona GSE, and I will do my best to give you a few pieces of advice that may help you during this year:

First: Be open to sharing your knowledge and experience!

One of the main assets of the Master is not only what you can learn from the professors, but also what you can learn from your classmates, and what your classmates can learn from you. Some of you may already have working experience, some of you may come from a different background (political science, mathematics, physics, engineering, etc.) and you must take advantage of this cultural mix. The faculty will encourage you to study and carry out the assignments in small groups and after studying Game Theory, I understood that cooperating and helping each other is better than competing against each other (well, at least not during an exam, where you are not allowed to do that J). So my advice is to be open-minded and share your knowledge with others.

Second: Don’t be scared to work with data analysis software!

The Barcelona GSE is well known not only for the rigorous mathematical and statistical approach but also for the computational skills that you are going to acquire. You will have the possibility to work with different software (i.e. Matlab, Gretl, Stata, to mention only a few) and the knowledge of this software may help you find a job afterwards: companies and universities are strongly interested in candidates who are able to perform data analysis and work with numbers. If you work in a company, your future manager may ask you to help him or her in taking the right decision under uncertainty; and you will need to be able to process the information that you have available, both quantitative and qualitative. If you opt for a career at the University, you may develop a model to better understand the phenomena that you are investigating; in both cases you will need the programming skills that you can learn and develop this year. So, again, my advice is: don’t be afraid to get your hands “dirty” with data analysis software.

Third: Get involved!

This is once in a life opportunity, and you must take fully advantage of it! You have the unique chance to share this experience with people from all around the world, with different cultures, ages and backgrounds. This is something I found fascinating and my advice is to enjoy this opportunity. Although the Master is demanding, having a day off in a city like Barcelona will help you to recover your energy, and I am sure you will spend some unforgettable evenings and nights with your classmates.

All right, that’s all from my side. Once again, congratulations to everyone and good luck.

Mexican Energy Reform: A trigger for competition in the Mexican energy sector – Antonio Massieu ’13

Editor’s note: The following post was written by Barcelona GSE alumnus Antonio Massieu (Competition and Market Regulation ’13). Antonio is Senior Associate at Santamarina & Steta S.C. in Mexico City. 

Flickr / CC
Mexico City illuminated at night / Flickr / CC

The energy industry in Mexico is experiencing the biggest paradigm shift in the past seven decades, since the oil expropriation in the late 30’s. The energy reform that was recently enacted will dramatically change the way the energy sector is developed in Mexico, meaning the most significant economic happening since the execution of NAFTA, in 1994. Said reform will shake the Mexican energy industry vigorously, transforming a monopolistic sector operated by two state companies that performs the vast majority of the productive sector activities, into an open-market industry where players can freely participate through clear and transparent rules, under the regulation of operators and agencies endowed with broad powers. The profound changes brought by the reform occurred both in the substantive areas of the industry and in the institutional structures that shape the energy sector. In one hand, the new legal framework redefined the way the activities that constitute the productive chains of the hydrocarbons and electricity sectors are carried out; in the other hand, the institutions responsible for supervising and regulating the market performance were considerably strengthened.

Naturally, as a new market emerges, market problems also emerge. Therefore, it will be essential that the new Mexican energy market is wrapped by rules and institutions that seek to correct eventual market failures that arise, and that through their actions, establish an appropriate competitive process that yields benefits to competitors, to final consumers, and of course, to the Mexican State.

Oil&Gas

Modifications made to the Mexican Oil&Gas sector meant undoubtedly, the most important change in the whole energy industry, as a result of the energy reform. Said sector becomes an open market, where Petroleos Mexicanos (Pemex) –formerly the State-owned company that carried out all Oil&Gas exploration and exploration (E&E) activities, will compete against other players from the private sector. This competitive process is implemented through tenders conducted by the federal government, where both the private sector and Pemex will freely participate, in order to be granted with contracts for substantive E&E activities. Transparency will be an element of the utmost importance during the bidding rounds, since it will secure that Pemex and the private sector compete on equal grounds; in other words, a fair and clean competition process will only be possible as long as the federal government does not favor Pemex –which despite its participation in the open market, will remain as a state owned company- or any other bidder in the development and further resolution of the aforementioned bidding rounds, or allow any anti-competitive practices to take place (such as collusive behaviors among the bidders).

pemex
A fair and clean competition process will only be possible as long as the federal government does not favor Pemex / Flickr / CC

As for midstream activities, the energy reform introduced a new market dynamic that will foster a more effective and fair competition process. Currently, the activities of transport, storage and distribution that are developed through the pipeline grid will be operated and managed by a new government agency, the National Center for Control of Natural Gas (CENAGAS). This entity will assume control and ownership of all pipeline infrastructure that today belongs to Pemex[1] – which, due to its economic features, constitutes a natural monopoly-, and administer the activities carried out there. The CENAGAS will operate as a figure internationally known as an “ISO” (independent system operator), and will be obliged to fulfill important mandates, such as granting open and non-discriminatory access to the grid to all participants (including Pemex) and avoid problems of vertical integration in regulated activities, among others.

[1] More the 75% of the pipelines in Mexico belong to Pemex.

Electricity

The electricity sector in Mexico will also be transformed significantly by means of the energy reform, since it will stop being a vertically integrated industry where a State-owned company (Federal Electricity Commission “CFE”) conducts all activities of the productive chain industry, in order to be transformed into a liberalized sector where undertakings (both public and private) will compete against each other in an open market, aiming to satisfy the needs of consumers.

For such purpose, a wholesale spot market will be put into place. Said spot market will seek to replicate international models in order to foster competition among different companies that will be able to generate, trade and supply energy to final users. Domestic supply will be carried out by CFE –at a regulated tariff-, acquiring energy through tender processes, while industrial supply will happen through a free competition process, where generators, suppliers and consumers will complete transactions at market, non-regulated prices. In order to regulate the new market structure, the Government created the National Center of Energy Control (CENACE), which will serve as an ISO, aiming to operate and control the electric grid.

CENACE will be in charge of different relevant tasks, such as the granting of open access to undertakings participating in the electric industry, controlling the allocation of power into the grid (both demand and supply), surveilling the continuous bids posed by market participants into the spot market (in order to avoid coordinated anti-competitive effects) and coordinating the transactions executed by the market players, as well as the configuration of the market, in terms of possible vertical integration in the performance of activities by companies. This market will be particularly interesting in terms of competition policy, since CENACE will be in charge of regulating the operation of a natural monopoly –the electric grid- which is owned by one of the participants of the market, the CFE, which will compete against other undertaking in the activities of generation and supply of power; this represents a very unique case in the world, and will be added as one of the main challenges that Mexican authorities will face with the implementation of the energy reform.

CENACE  operates and controls Mexico's electric grid. / photo
CENACE operates and controls Mexico’s electric grid. / photo credit

Regulators and entities of the energy sector

One of the great challenges of the reform is to establish an institutional framework capable of operating the new emerging energy markets in Mexico, in which various companies (public and private) will interact in a competitive environment, hitherto unknown for the country. Of course, in order to accomplish this goal, it is imperative to create strong institutions, with high degrees of independence, able to issue clear regulations and impose heavy penalties to regulated undertakings.

Both regulatory agencies[1] and ISO’s will need to follow closely the development of the energy markets, and make sure that competition is achieved. Unlike what happened with the IFETEL, which is the independent body responsible for regulating the telecommunications market in Mexico, regulators and ISO’s in the energy sector were not endowed with broad powers in competition policy matters. In this sense, and despite some of its powers seek to create conditions of competition, these institutions will have to interact closely with the Federal Competition Commission, in order to timely detect and punish anti-competitive practices in the industry, in order to correct market failures and increase consumer welfare.

[1] Regulatory Commission of Energy and National Hydrocarbons Commission

Conclusions

Energy reform emerges as a great opportunity for Mexico to join the global trailblazers in the sector. At first glance, the work has been done satisfactorily, as sufficient legal and institutional conditions for implementing competitive markets were generated, where agents will interact correctly, generating consumer welfare. However, the correct development of the industry will depend not just on the rules and the institutions itself, but on the right behavior of both authorities and undertakings. Possibly the only advantage that Mexico has to be the second-to-last country in the world to undertake an opening process of this nature, is that it had the opportunity to study similar processes, and learn from positive and negative experiences in other countries. Now the challenge is to test that knowledge, and build a successful energy sector that can boost growth in the country.

Listen to a radio interview with Antonio Massieu on hydrocarbons in the Mexican energy sector (in Spanish, September 2014)


1 More than 75% of the pipelines in Mexico belong to Pemex.

2 Regulatory Commission of Energy and National Hydrocarbons Commission

Europe out of balance: an analysis of current accounts in Europe

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


Europe out of balance: an analysis of current accounts in Europe

Author:

Michel Carlo Nies

Master Program:

Economics

Paper Abstract:

The European sovereign debt crisis should not only be seen as the simple failure to manage public finances, but also as the consequence of divergent balance of payment positions. This paper attempts to shed light on this line of argument by analysing empirically the determinants of current accounts. The principal conclusion is that divergent developments in labour costs and misallocation of capital are behind the developments that led to the sovereign debt crisis. Given these results, this paper also evaluates different policy measures designed to address the issue of diverging current accounts.

Read the full paper or view slides below:

Collusion in auctions and the role of communication to sustain it: a microeconomic approach

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


Collusion in auctions and the role of communication to sustain it: a microeconomic approach

Author:

Giuseppe Leonello

Master Program:

Competition and Market Regulation

Paper Abstract:

Collusion among bidders in auctions is an important topic in competition economics since it decreases the seller’s revenues and the social welfare. In this project the focus will be on the role of communication among bidders for the incentives to collude.

In the literature, communication among bidders has always been treated as an exogenous variable. This assumption will be relaxed and the choice of communicate will be endogenous and function of the expected collusive profits and the expected costs of collusion represented by the risk to be catch and punished.

The auctioneer can monitor the market and the auction process to discover the collusive agreement, exerting a costly effort.

The model will find the minimum level of effort needed to make bidders not having incentives to communicate and collude. However, the auctioneer will exert this level of effort only when the expected gains are higher than expected costs. For this reason, in some case the optimal choice for the auctioneer will be to lead bidders to collude even if this will not maximize the social welfare.

Government interventions to reach the not collusive equilibrium will be discussed. In particular, they will take the form of an increase in the punishment when bidders are discovered to collude and the subsidization of the cost needed to exert the optimal level of effort.

Effectiveness of primary care ValCRÒNIC teleHealth program

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


Effectiveness of primary care ValCRÒNIC teleHealth program: outcome findings on mortality and healthcare service consumption in patients with high-risk chronic conditions. A cohort study with matched controls in Valencia community, Spain.

Author:

Sherman Kong

Master Program:

Health Economics and Policy

Paper Abstract:

We analyze the mortality and hospitalization level of 512 patients enrolled in the ValCRÒNIC teleHealth program in Valencia public health region with a matched control of 1023 patients with same risk profiles. We obtain medical records of patient sample for 12 months before start of trial and follow-up on consumption level from hospital and primary care facilities for 12 months during program. We observed utilization level before and after trial and found an increase in primary care nurse and home care visitations. We used logistic and zero-inflated Poisson models to estimate effect of program enrollment to intense acute hospital use, deaths and avoidable hospitalization rate. We found insignificant benefits to reducing mortality and intense acute hospital use.

Author’s note: This paper is a work in progress, pending revision of results.

Read the full paper or view slides below:

Government spending news and the term structure of interest rates

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


Government spending news and the term structure of interest rates

Authors:

Nicola Cofelice and Sarah Zoi

Master Program:

Macroeconomic Policy and Financial Markets

Paper Abstract:

Studying the effect of a fiscal policy shock on the term structure of interest rates has long been a controversial issue. On the one hand, economic theory predicts that government spending should drive up interest rates; on the other hand, many empirical analyses found negative or not significant responses of the yield curve to different types of fiscal shocks. A recent stream of literature on fiscal foresight showed how news about future fiscal policy may anticipate the effects of public expenditure and pose a challenge for the recovery of structural shocks due to a problem of non-fundamentalness. We study the effect of a “foresight shock” on the term structure of interest rates using an identification strategy based on the information contained in the projections by the Survey of Professional Forecasters. Our results support the evidence of fiscal foresight and show how changes in expectations stimulate positive responses of the term structure anticipating the effects of a government spending shock.

Read the full paper or view slides below:

Does Extended Time Improve Students’ Performance?

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


Does Extended Time Improve Students’ Performance? Evidence from Catalonia

Authors:

Ana María Costa Ramón, Laia Navarro-Sola, Patricia de Cea Sarabia

Master Program:

Economics

Project Summary:

Education is one of the main priorities of developed societies, and countries are investing huge amounts of resources in this area. However, little is known about the effectiveness of the inputs used in the education production function, leaving the final decision of investment to ideological or political reasons. In this context, there is an increasing support of extending class time among politicians and policy-makers as a way of improving education. Our paper is an investigation of the effect of an increase in the number of hours per day of class on the performance of the students.

As identification strategy, we exploit the exogenous variation generated by a policy change in Catalonia (a region of Spain), known as the “sixth hour policy”. This reform introduced one extra hour per day, representing an increase of 20% of the total number of hours per year. It involved an important investment for Catalonia and thus, knowing the effects of the policy is needed in order to assess whether it was effective or if there exists other alternatives. The specific characteristics of the policy implementation provide three different sources of variation: variation between cohorts, generated by the sudden implementation, variation between types of schools, since the policy was only addressed to public schools (leaving private schools timetable unchanged) and in last term, variation across regions, as the reform only affected public schools in Catalonia. These features allow us to take the policy implementation as a natural experiment and thus, to investigate more deeply the effects of extending school time.

Using the PISA database and the econometric specification of differences-in-differences, we find that there is no conclusive evidence of the causal relationship between extending school time and performance improvement. This difficulty comes from the implementation of the policy itself which was done simultaneously with other major educational changes, and thus it is hard to identify the channel through which this effect could be operating.

However, we face this lack of evidence on this causality introducing an innovative methodology in the study of extending time at school. To solve specific concerns about the suitability of the control group we construct a “synthetic control” group (an artificial control group), which is a weighted combination of other Spanish regions chosen to resemble education characteristics of Catalonia before the introduction of the “sixth hour policy” as much as possible. However, the particularities of the region of the study make it very hard to predict its behavior.

All in all, we believe that the use of the synthetic control approach can help to shed light on these issues in different case studies or with more detailed data. The analysis of time as an input in the education production function still requires a lot of research but as we have seen with our case study, natural experiments by themselves could be an imperfect tool. Maybe it is time to use more innovative approaches to this old topic.

Read the full paper or view slides below:

Competition and the Hold-Up Problem – Guillem Roig ’08

Editor’s note: The following post was written by Barcelona GSE alumnus Guillem Roig (Competition and Market Regulation ’08). Guillem is currently a PhD student at the Toulouse School of Economics in France.


Competition and the Hold-Up Problem: a Setting with Non-exclusive Contracts

words-roig

The paper

Why some of us do not spend the desired time and resources to nurture and improve the relationship with our parents, friends or business partners? Because once the time and resources are spent, we are afraid of possible opportunistic behavior. Economists frame opportunistic behavior in simple trading relationships where a buyer and seller are able to undertake specific investment into the exchanged good. Fisher Body, a manufacturer of body cars, refused to locate their body plants adjacent to General Motors assembly plans, a move that was necessary for production efficiency.

To fight opportunistic behavior we cannot rely on “good faith” alone, but we need to establish institutions to reduce its occurrence. Many modern societies have written laws, neutral courts of justice and arranged reasonable rules to resolve disputes. Yet, what happens when a sound and solid institutional system does not exists? In this paper, I consider situations where investment contracts cannot be enforced and I explore how the introduction of competition among the sellers of an homogeneous good gives the right incentives to undertake profitable specific investment.

In these types of models, the equilibrium payoff of the sellers is a measure of their indispensability, which directly depends on the outside option available to the buyer. The trading partners invest efficiently only when the trading outcome is the most competitive. When competition is the most severe, investments do not effect the outside option of the buyer and each seller appropriates his marginal contribution of the trading surplus. Any other equilibrium gives the seller incentives to over-invest. Sellers’ investments not only generate larger trading surpluses but also reduce the outside option of the buyer. The asymmetric partition of the trading surplus generates investment inefficiencies.

In a related article, I study how the configuration of the market structure is affected by the way an endogenous number of suppliers compete in the market. With non-exclusive trade and a common buyer undertaking cooperative investment, I obtain a direct link between the level of competition and investment that affects the market structure of the supply side of the market. Trading outcomes that are more competitive are associated with a larger and more homogeneous distribution of investment among active suppliers, and an equilibrium with no investment might occur in trading outcomes that are less competitive. Buyer’s investment works as a mechanism to incentivize competition and this becomes more effective the more competitive the trading outcome is. The paper gives a theoretical insight for the coexistence of first with second tier suppliers and predicts situations where investment does not materialize.

Download the full working paper [pdf]

The process

I started this project in September 2012, after a short visit at the University of Arizona where I meet a group of law academics working on the design of trading contracts. I soon became interested in topics of contract theory and organization design and researched in the area of transaction cost economics.

The upturn of the project came in May 2013 when I benefited from an ENTER exchange program at the Universitat Autònoma de Barcelona. I presented my work in a series of seminars and the suggestions of Prof. Inés Macho and David Pérez Castrillo were invaluable at that stage of the project. I dismissed the design of complex trading contracts and I went back to basics. I concentrated on framing the problem of transaction costs without any established formal institution.

In my model, I never talk about investment contingent contracts or contract enforceability, I only allow for the interaction of economic agents in the market. In many situations, we might not need a complex and sophisticated institutional framework but we just must allow “the invisible hand” to function.

Toulouse School of Economics
Toulouse School of Economics

The working paper series of the Toulouse School of Economics are free and accessible online, so for further information please check out my articles here!

A bullet a day keeps the doctor away: the effect of war over health expenditure

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


A bullet a day keeps the doctor away: the effect of war over health expenditure

Authors:

Rita Abdel Sater and María José Ospina Fadul

Master Program:

Health Economics and Policy

Project Summary:

Although there is an ongoing debate on how much an increase in health expenditure would actually improve the health condition of its population (as this relation also depends in factor such as efficiency), the truth is that the level of expenditure in many developing countries is still under the basic needed level suggested by the World Health Organization. Furthermore, it has become clear that the public budget plays a fundamental role in the financing of a health system: in fact, the public expenditure on health should increase by 5% on average in these countries to provide the basic conditions in order to accomplish the millennium goals. However, the struggle to achieve acceptable levels of health expenditure has faced several obstacles. This article intends to determine if war is in fact one of them.

Within this context, this article tries to determine the effect of war over health expenditure level and composition, particularly in terms of the public budget participation. So far several articles have examined the effects of war over public health but none have determined the effect that it has over the levels and the composition of the health expenditure. Additionally, this article contributes to the existent literature in the sense that it classifies conflicts as high or low intensity and discerners between these two when determining their effect over health expenditure.

We used panel data on the 27 countries that had both episodes of war and episodes of peace in the period that goes from 1995 to 2008. We applied clustering techniques to classify these conflicts as high or low intensity and after this we used Arellano-Bond estimators to determine the effect of war over the level and composition of health expenditure.

Sample and intensity classification
Sample and intensity classification

 

Surprisingly, we found that low intensity wars have a negative and statistically significant effect over health expenditure while there seems to be no effect when there is a high intensity war. Moreover, we found that public expenditure in health increases when there is a high intensity war while there is no change in the composition when there is a low intensity war. These results suggest that when there is a high intensity conflict the decrease in private investment in health is compensated by an increase in public expenditure, while in countries exposed to low intensity wars the decrease in private expenditure is not equalized by an increase in public expenditure.

Finally, in terms of the compositions of this expenditure we found that the public expenditure in health as a percentage of total public expenditure stays the same in countries exposed to high intensity conflicts while it decreases in countries with low intensity conflicts. These results, in combinations with the former, provide empirical evidence to support Peacock and Wiseman’s expenditure displacement theory according to which public expenditure increases during times of crisis.

 

Realized Volatility Estimation – Barcelona GSE Master Projects 2014

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.


Realized Volatility Estimation

Authors:

Miquel Masoliver, Guillem Roig, Shikhar Singla

Master Program:

Finance

Paper Abstract:

The main purpose of this study is to try to find the optimal volatility estimator in a non-parametric framework. In particular, this study focuses on the estimation of the daily integrated variance-covariance matrix of stock returns using simulated and high-frequency data in the presence of market microstructure noise, jumps, and non-synchronous trading. This work is structured in three building blocks: (i) price processes are simulated in the presence of jumps and market microstructure noise. This allows us to obtain some insight about the estimators’ performance. (ii) The aforementioned realized volatility estimators are applied to high-frequency data of the S&P 100 stocks of October 27th 2010 using 5-second, 10-second, 30-second, 1-minute and 2-minute time intervals. (iii) We use the estimated covariance matrices to construct the global minimum variance portfolio for each sampling frequency. These global minimum variance portfolios are used to build 30 day ex-post portfolio’s returns and we use the variance of these returns to compare between the performance of the estimators.

Read the full paper or view slides below: