product risk asymmetric information and trade credit the purpose of this paper is to explain cross sectional variations in trade credit terms across firms and industries this study shows that there is a separating equilibrium in which the size of the cash discount conveys information about product quality the driving forces of this equilibrium outcome are the risk sharing motives of the producer and buyer as well as asymmetric information about product quality the empirical implications of the model are derived and discussed in relation to industry practices

can self control explain avoiding free money evidence from interest free student loans abstract this paper uses insights from behavioral economics to explain a particularly surprising borrowing phenomenon one in six undergraduate students offered interest free loans turns them down models of impulse control predict that students may optimally reject subsidized loans to avoid excessive consumption during school using the national postsecondary student aid study we investigate students take up decisions and identify a group of students for whom the loans create an especially tempting liquidity increase students who would receive the loan in cash are significantly more likely to turn it down suggesting that consumers choose to limit their liquidity in economically meaningful situations

the perceived returns to education and the demand for schooling economists emphasize the link between market returns to education and investments in schooling though many studies estimate these returns with earnings data it is the perceived returns that affect schooling decisions and these perceptions may be inaccurate using survey data for eighth grade boys in the dominican republic we find that the perceived returns to secondary school are extremely low despite high measured returns students at randomly selected schools given information on the higher measured returns completed on average 0 20 0 35 more years of school over the next four years than those who were not

accounts receivable management policy theory and evidence this paper develops and tests hypotheses that explain the choice of accounts receivable management policies the tests focus on both cross sectional explanations of policy choice determinants as well as incentives to establish captives we find size concentration and credit standing of the firm s traded debt and commercial paper are each important in explaining the use of factoring accounts receivable secured debt captive finance subsidiaries and general corporate credit we also offer evidence that captive formation allows more flexible financial contracting however we find no evidence that captive formation expropriates bondholder wealth firms typically sell merchandise on credit rather than requiring immediate cash payment such credit sales generate accounts receivable although credit terms and credit collection procedures have been studied see smith 1980 there has been little systematic analysis of the organizational and financial structures employed to manage the firm s accounts receivable these decisions merit more careful attention for two reasons first receivables are a substantial fraction of corporate assets for example 1986 compustat data indicate that accounts receivable are 21 0 of u s manufacturing corporations total assets second we observe substantial diversity in firms use of specialized contracts and intermediaries in their accounts receivable management policies firms can 1 establish a captive finance subsidiary 2 issue accounts receivable secured debt 3 factor 4 employ a credit reporting firm 5 retain a credit collection agency or 6 purchase a credit insurance policy 1 in this paper we demonstrate that accounts receivable management policy offers opportunities for both the development of a robust theory as well as empirical testing of the theory s implications although the data necessary to

sustaining production chains through financial linkages abstract the technological constraints on sustaining production chains have been discussed extensively by development economists but the role of financial linkages has received less attention in a model of recursive moral hazard for a manufacturing supply chain we show that the structure of interlocking receivables and payables serve as the glue for the production chain that sustains complex manufacturing output the inefficiency associated with recursive moral hazard can be mitigated through optimal delays in payments along the chain however efficiency requires large stocks of working capital and invoice prices are high due to implicit amortization costs of inter firm credit

intergenerational linkages in consumption behavior consumption is partly a social activity yet most studies of consumer behavior treat households in isolation we investigate familial relationships in consumption patterns using a sample of parents and their children from the panel study of income dynamics we nd a positive and statistically signi cant parent speci c eect on children s consumption even after controlling for the eect of parental income and we nd similar eects for sibling pairs child consumption responds negatively to large post retirement shortfalls in consumption of the parents this behavior holds up even after allowing for the possibility of smaller parent to child transfers made necessary by the parental consumption shortfalls these results suggest that although income is an important source of the intergenerational correlation parental choices and experiences also aect consumption behavior of the children

why do parents socialize their children to behave pro socially an information based theory we present a model of intergenerational transmission of pro social values in which parents have information about relevant characteristics of society that is not directly available to their children dierently from existing models of cultural transmission of values such as bisin and verdier 2001 and tabellini 2008 we assume that parents are exclusively concerned with their children s material welfare if parents coordinate their educational choices a child would look at her system of values to predict the values of her contemporaries with whom she may interact a parent may thus choose to instil prosocial values into his child in order to signal to her that others can generally be trusted this implies that parents may optimally decide to endow their children with values that stand in contrast with maximization of material welfare even if their children s material welfare is all they care about jel codes d64 d82 h41 z13

does welfare spending crowd out charitable activity evidence from historical england under the poor laws this paper examines the relationship between government spending and charitable activity we present a novel way of testing the crowding out hypothesis making use of the fact that welfare provision under the old poor laws was decided on the parish level thus giving the heterogeneity we need to test for the impact of different levels of welfare support within a single country using data on poor relief spending combined with data on charitable incomes by county for two years before and after 1800 we find a positive relationship areas with more public provision also enjoyed higher levels of charitable income these results are confirmed when instrumenting for poor law spending using the distance to london and historical migration to london as well as when looking at first differences

choosing the field of study in postsecondary education do expected earnings matter abstract this paper examines the determinants of the choice of the college major when the length of studies and future earnings are uncertain we estimate a three stage schooling decision model focusing on the effect of expected earnings on major choice we control for dynamic selection through the use of mixture distributions exploiting variations across the french business cycle in the relative returns to the majors our results yield a very low though significant elasticity of major choice to expected earnings this suggests that at least for the french university context nonpecuniary factors are a key determinant of schooling choices

measuring subjective expectations in developing countries a critical review and new evidence the majority of economic decisions taken by individuals are forward looking and thus involve their expectations of future outcomes understanding the expectations that individuals have is thus of crucial importance to designing and evaluating policies in health education finance migration social protection and many other areas however the majority of developing country surveys are static in nature and do not contain information on the subjective expectations of individuals possible reasons given for not collecting this information include fears that poor illiterate individuals do not understand probability concepts that it takes far too much time to ask such questions or that the answers add little value this paper provides a critical review and new analysis of subjective expectations data from developing countries and refutes each of these concerns the authors find that people in developing countries can generally understand and answer probabilistic questions such questions are not prohibitive in time to ask and the expectations are useful predictors of future behavior and economic decisions the paper discusses the different methods being tried for eliciting such information the key methodological issues involved and the open research questions the available evidence suggests that collecting expectations data is both feasible and valuable suggesting that it should be incorporated into more developing country surveys

preferences and prices in choice of career the switch to business 1972 1987 abstract in the last two decades the largest single change in career plans of college students is the more than doubling from 1972 to 1987 of the proportion opting for business the evidence suggests that a shift in preferences a marked upsurge among the young in money making as a life goal was responsible for this as well as movements in prices the relative returns from different occupations the rise in interest in money making is not due to greater insecurity among the young about their economic future or worsened job expectations rather it reflects greater concern about money among older adults which influenced the young with a lag by re shaping their life goals as they grew up empirical study of occupational choice would benefit from more attention to such non market influences

trade credit and informational asymmetry commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held by offering trade credit a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short term financing the information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments traditional explanations for the widespread use of trade credit fall into two categories the financing motive holds that capital market imperfections enable sellers to finance buyer purchases at lower cost than financial institutions ferris 4 argues that trade credit provides payment flexibility and thus reduces the overall need for buyers and sellers to maintain precautionary balances emery 3 contends that noncompetitive rents of financial institutions can be circumvented by sellers and buyers through provision of trade credit however the financing motive is not sufficient to explain why small suppliers offer trade credit the wide cross sectional variation in terms or why large buyers often take the prompt payment discount late a second set of explanations is best described as pricing motivations for trade credit provision nadiri 10 argues that availability of alternative payment terms can increase product demand but does not indicate why the offered terms could not be duplicated by financial institutions schwartz and whitcomb 14 argue that trade credit is used to circumvent robinson patman and similar prohibitions on price discrimination the correctness of this position depends on the charge to users of trade credit exceeding the cost of provision by the seller although the explanation is possible in principle an empirical question remains as to why variations in actual credit terms appear to be based on product market rather than buyer characteristics the literature also contains analyses of the impact of changing macroeconomic conditions on trade credit terms and aggregate credit flows schwartz 13 for example employs a financing motive for trade credit to conclude that restrictive monetary policy can be partly mitigated by liberalization of trade credit terms by firms with relatively easy access to capital markets however a microeconomic

the implicit costs of trade credit borrowing by large firms we examine a novel but economically important characterization of trade credit relationships in which large investment grade buyers borrow from their smaller suppliers using a matched sample of large retail buyers and their much smaller suppliers we find that slower payment terms by large retailers are associated with lower investment at the supplier level the effects are sharpest during periods of tight bank credit and for firms which we might otherwise characterize as financially constrained the opportunity cost of extending credit to large buyers appears to be positive and sharply increasing in the financial frictions facing a firm

socially responsible investments among parents and adult children novel evidence is provided of a positive correlation between parents and their children s socially responsible mutual fund investment behavior although captured parent child correlations reflect

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

cross shareholdings and competition in a rent seeking contest abstract we consider a tullock rent seeking contest with two firms and two investors each investor owns a majority share in one firm and a silent minority cross shareholding in the other firm we measure competition by either firms aggregate efforts or rent dissipation we show that aggregate efforts are smaller in our contest than in the benchmark case without cross shareholdings next we provide the necessary and sufficient conditions such that equilibrium rent dissipation in our contest is larger than in the benchmark case rent dissipation is larger under cross shareholdings if and only if one firm is much more efficient than the other firm and the cross shareholding in the more efficient firm is sufficiently smaller than the cross shareholding in the less efficient firm

buyer intermediation in supplier finance small suppliers often face challenges to obtain financing for their operations especially in developing economies traditional financing methods can be very costly or unavailable to such suppliers to reduce channel costs large buyers have recently begun implementing their own financing methods that intermediate between suppliers and financing institutions in this paper we analyze the role and efficiency of buyer intermediation in supplier financing building a game theoretical model we show that buyer intermediated financing can significantly improve channel performance and can simultaneously benefit both supply chain participants using data from a large chinese online retailer and through structural regression estimation we demonstrate that buyer intermediation lowers interest rates and wholesale prices increases order fill rates and boosts supplier borrowing based on counterfactual analysis on the data we predict that the implementation of buyer intermediated financing will improve channel

a theory of impact philanthropy this article develops a new model of altruism called impact philanthropy an impact philanthropist is someone who wants to personally make a difference while that motive is straightforward its logical implications are significantly different from other models of philanthropy for example the contributions of other donors can reduce an impact philanthropist s charitable fulfillment as a result cooperation among impact philanthropists can reduce aggregate giving in addition impact philanthropy can lead to a codependent relationship between givers and receivers in which both benefit from the other finally the model suggests a conflict between charitable organizations and its donors concerning the allocation of charitable gifts in particular a charitable organization prefers to spread a donor s contribution across many goods whereas a donor prefers to target his or her contribution at a specific good d 2003 elsevier b v all rights reserved

the effect of liquid housing wealth on college enrollment this article uses short run housing wealth changes to identify the effect of housing wealth on college attendance i find that households used their housing wealth to finance postsecondary enrollment in the 2000s when housing wealth was most liquid each 10 000 in home equity raises college enrollment by 0 7 of a percentage point on average the effect is localized to lower resource families for whom a 10 000 increase in housing wealth increases enrollment by 5 7 percentage points these estimates imply that the recent housing bust could significantly negatively affect college enrollment through reduction in the housing wealth of families with college age children

the influence of higher moments of earnings distributions on career decisions a model where choice of occupation is sequential is applied to college graduates from the national longitudinal study of the high school class of 1972 to investigate how higher moments of occupational earnings distributions influence initial field of work individual specific life cycle earnings projections that incorporate option values of occupational mobility are generated and the relationship between these pay measures and choice of initial occupation is explored within a multinomial logit framework the findings indicate a strong positive relationship between these earnings predictions and the likelihood that college graduates enter an occupation

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

ex ante returns and occupational choice using data from duke university undergraduates we make three main contributions to the literature first we show that data on earnings beliefs and probabilities of choosing particular occupations

semiparametric censored regression models aregression model is censored when the recorded data on the dependent variable cuts off outside a certain range with multiple observations at the endpoints of that range when the data are censored variation in the observed dependent variable will understate the effect of the regressors on the true dependent variable as a result standard ordinary least squares regression using censored data will typically result in coefficient estimates that are biased toward zero traditional statistical analysis uses maximum likelihood or related procedures to deal with the problem of censored data however the validity of such methods requires correct specification of the error distribution which can be problematic in practice in the past two decades a number of semiparametric alternatives for dealing with censored data have been proposed in a semiparametric approach part of the functional form of the model usually the regression function is parametrically specified by the researcher based upon plausible assumptions while the rest of the model is not parameterized 1 while the theoretical literature has produced several semiparametric estimators for the censored data model published applications of these estimators to empirical problems in economics have lagged far behind this paper reviews the intuition and computation of a handful of semiparametric estimators proposed for the censored regression model the various estimators are used to examine changes in black white earnings inequality during the

the intergenerational transmission of risk and trust attitudes 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

a superior measure of consumption from the panel study of income dynamics abstract this paper provides a simple technique for assigning a measure of total consumption to households in the panel study of income dynamics psid using regressions from the consumer expenditure surveys of 1972 1973 and 1983 linear predictions of total consumption are estimated which are stable over time and explain up to 78 percent of the total variance in consumption

earnings expectations revisions and realizations during the spring and the fall of 1993 respondents to a national household survey were asked to report expectations of spring 1994 weekly earnings elicited in the form of subjective probabilities these data are potentially much more informative than are typical reports of economic expectations subjective probability distributions of future weekly earnings are estimated for each respondent based on his or her reports of a series of subjective probabilities this paper analyzes the cross sectional variation in expectations revisions of expectations between the spring and the fall of 1993 and the relationship between 1993 expectations and the distribution of spring 1994 earnings realizations generally positive findings on the validity of the data bode well for the prospects of eliciting expectations in future surveys

life cycle schooling and dynamic selection bias models and evidence for five cohorts of american males this paper examines an empirical regularity found in many societies that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education we examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it we show that the implicit economic model assumes myopia the intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data we produce an alternative choice theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions

the charity of the extremely wealthy our experience worldwide is that first generation wealth is actually more generous than dynastic wealth both here in india and u s and other countries the biggest givers are those who are receivers of first generation wealth bill gates quoted in thakur lee and frye 2011 i introduction in this article we study the charitable behavior of billionaires focusing on the impact of the source of their wealth on their charitable donations and pledges while billionaires play a leading role in both the economy and in philanthropy and they are watched closely by journalists and the public at large econometric studies that focus on the behavior of billionaires are rare 1 understanding the charitable behavior of the extremely wealthy is important because they are responsible for a disproportional share of overall giving directly through the amounts of money they give and also because their public status makes their behavior an example for others to follow while the determinants of individual giving have already been studied in experimental settings and using surveys reinstein and riener 2012 steinberg et al 2011 this article documents charitable behavior of a larger magnitude than that typically studied in experiments and of people who do not participate in experiments or fill out surveys 2 our analysis focuses on the question of whether self made billionaires are more charitable than billionaires who inherited their money as bill gates suggested in the quote above it is well documented that people s decisions on how to spend money often depend on how they received that money epley mak and chen idson 2006 for example show that the propensity to consume is bigger if income received is framed as a bonus rather than a rebate arkes et al 1994 show that windfall gains are more readily consumed than nonwindfall gains such evidence has been found both inside and outside the laboratory but in this article we investigate whether treatment of income varies depending on its source when the amounts at stake are much larger than previously studied in the literature in this article amounts range from millions to billions of dollars in comparison with the tens or hundreds of dollars in experimental literature or the tens of thousands of dollars studied in the research on decisions in every day life moreover studies that investigate how spending varies with the source of money typically conclude that earned income is spent more carefully than windfall gains however in the case of charitable giving self made money seems to be more rather than less likely to be spent on charity than inherited money steinberg et al 2011 indeed show using data from the charitable giving module of the panel study of income dynamics psid that the presence of inherited wealth increases giving but also that income held constant an increase in the proportion of income coming from an inheritance is associated with a decrease in charitable giving 3 to study the charitable behavior of the extremely wealthy we use data from the giving pledge a global public pledge to give away at least half of one s fortune during one s lifetime http givingpledge org which by now has been signed by more than 100 extremely wealthy people typically current billionaires in addition we use data on the presence of u s billionaires in the philanthropy top 50 and in the million dollar list a list of those who have given grants of 1 million or more since 2000 we find evidence that self made billionaires are three to four times more likely to sign the giving pledge and to enter the philanthropy top 50 list of biggest pledges compared with those who inherited their wealth at the same time we find that the gap in probabilities between self made and inherited wealth is much smaller at about 28 when looking at the presence in the million dollar list we also find that self made billionaires give more on average than inherited billionaires do when measuring total gifts using the million dollar list or the philanthropy top 50

the intergenerational transmission of generosity abstract this paper estimates the correlation between the generosity of parents and the generosity of their adult children using regression models of adult children s charitable giving new charitable giving data are collected in the panel study of income dynamics and used to estimate the regression models the regression models are estimated using a wide variety of techniques and specification tests and the strength of the intergenerational giving correlations is compared with intergenerational correlations in income wealth and consumption expenditure from the same sample using the same set of controls we find the religious giving of parents and children to be strongly correlated as strongly correlated as are their income and wealth the correlation in the secular giving e g giving to the united way educational institutions for poverty relief of parents and children is smaller similar in magnitude to the intergenerational correlation in consumption parents religious giving is positively associated with children s secular giving but in a more limited sense overall the results are consistent with generosity emerging at least in part from the influence of parental charitable behavior in contrast to intergenerational models in which parental generosity towards their children can undo government transfer policy ricardian equivalence these results suggest that parental generosity towards charitable organizations might reinforce government policies such as tax incentives aimed at encouraging voluntary transfers

university choice the role of expected earnings nonpecuniary outcomes and financial constraints we investigate the determinants of students university choice in pakistan with a focus on monetary returns nonpecuniary factors enjoyed at school and financial constraints to mitigate the iden

interest rates in trade credit markets all things equal interest rates should increase with the borrower s risk and yet klapper laeven and rajan 2012 cannot find such a positive relation in a broad sample of trade credit contracts we shed some light on this puzzle by arguing that competition between informed and uninformed suppliers weakens the link between the trade credit cost and the borrower s creditworthiness our model implies that trade credit rates are more likely to increase with the borrower s risk if suppliers are less profitable have high cost of funds or sell inputs to firms plagued by moral hazard and financial distress

a new test of borrowing constraints for education we discuss a simple model in which parents and children make investments in the children s education investments for other purposes and parents can transfer cash to their children we show that for an identifiable set of parent child pairs parents will rationally under invest in their child s education for these parent child pairs additional financial aid will increase educational attainment the model highlights an important feature of higher education finance the expected family contribution efc that is based on income assets and other factors the efc is neither legally guaranteed nor universally offered our model identifies the set of families that are disproportionately likely to not provide their full efc using a common proxy for financial aid we show in data from the health and retirement study that financial aid increases the educational attainment of children whose families are disproportionately likely to under invest in education financial aid has no effect on the educational attainment of children in other families the theory and empirical evidence identifies a set of children who face quantitatively important borrowing constraints for higher education

estimation of semiparametric censored regression models an application to changes in black white earnings inequality during the 1960s building on the work of chay 1995 this study examines the impact of civil rights policies on black economic progress using individual level panel data many earnings records are censored and the degree of censoring changed during the period of interest consequently valid estimates of the program effects must account for this censoring maximum likelihood estimation can be used if the error terms of the model are identically normally distributed we investigate the value of using weaker assumptions on the error process to estimate the laws impact the analysis shows that there was significant black white earnings convergence in the south during the 1960s we also find that semiparametric estimation methods are informative in pinpointing which parts of the model are mis specified

assessing the impact of a school subsidy program in mexico using a social experiment to validate a dynamic behavioral model of child schooling and fertility this paper uses data from a randomized social experiment in mexico to estimate and validate a dynamic behavioral model of parental decisions about fertility and child schooling to evaluate the effects of the progresa school subsidy program and to perform a variety of counterfactual experiments of policy alternatives our method of validation estimates the model without using post program data and then compares the model s predictions about program impacts to the experimental impact estimates the results show that the model s predicted program impacts track the experimental results our analysis of counterfactual policies reveals an alternative subsidy schedule that would induce a greater impact on average school attainment at similar cost to the existing program

what do parents value in education an empirical investigation of parents revealed preferences for teachers this paper examines revealed preferences of parents for their children s education using parent requests for individual elementary school teachers and information on teacher attributes including principal reports of teacher characteristics that are typically unobservable on average parents strongly prefer teachers whom principals describe as good at promoting student satisfaction though they also value teacher ability to raise academic achievement these aggregate effects mask striking differences across schools families in higher poverty schools strongly value student achievement and appear indifferent to the principal s report of a teacher s ability to promote student satisfaction the results are reversed for families in wealthier schools

social networks and private philanthropy abstract a theoretical model is provided in which an individual s social network enhances the consumption benefits from the public good we find conditions under which investments in network enhancing infrastructure would encourage individuals to donate time and money to charity an empirical investigation of the link between networks and private philanthropy is undertaken using the canadian national survey of giving volunteering and participating we find strong evidence that networks promote donations of time and money

on the use of expectations data in estimating structural dynamic choice models despite the importance of expectations in models of decision behavior under uncertainty few empirical economists have made use of subjective expectations data in estimating such models assuming that expectations about future behavior accurately portray optimal future behavior conditional on current information it is shown that such data can provide similar information about the decision process as can data on current or retrospective behavior the value of self reported choice expectations is illustrated by using information on respondents expected future occupation in the estimation of a structural dynamic model of teacher career decisions under uncertainty

does the source of capital affect capital structure prior work on leverage implicitly assumes capital availability depends solely on firm characteristics however market frictions that make capital structure relevant may also be associated with a firm s source of capital examining this intuition we find firms that have access to the public bond markets as measured by having a debt rating have significantly more leverage although firms with a rating are fundamentally different these differences do not explain our findings even after controlling for firm characteristics that determine observed capital structure and instrumenting for the possible endogeneity of having a rating firms with access have 35 more debt copyright 2006 oxford university press

predicted future earnings and choice of college major using data from the national longitudinal survey of young men the author of this paper examines the relationship between predicted future earnings for five broad fields of study and college students choice of major conditional logit models of major choice that incorporate alternative predicted earnings variables are specified and estimated the results indicate that holding family background characteristics constant individuals are likely to choose majors offering greater streams of future earnings rather than as some have argued majors with higher beginning earnings at the time of the choice it is also found that earnings profiles corrected for self selection bias have flattened for more recent graduates in business liberal arts and education the life cycle earnings in these disciplines appear to be more severely depressed than those in science and engineering

the effect of credit constraints on the college drop out decision a direct approach using a new panel study a serious difficulty in determining the importance of credit constraints in education arises because standard data sources do not provide a direct way of identifying which students are credit constrained this paper differentiates itself from previous work by taking a direct approach made possible by unique longitudinal data from the berea panel study the results from our study of berea college students suggest that while credit constraints likely play an important role in the drop out decisions of some students the large majority of attrition of students from low income families should be primarily attributed to reasons other than credit constraints jel i21 i22

educational attainment and the changing u s wage structure dynamic implications on young individuals choices we present a dynamic model of individuals educational investments that allows us to explore alternative modeling strategies for forecasting future wage distributions the key innovation we propose is an approach to forecasting that relies only on the information that would be available at the actual time decisions are made and which incorporates the role of parameter uncertainty into the decision making process we compare the performance of our method with alternative models of forecasting behavior based on cps data over the period 1964 2004

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate