a note on comparative downside risk aversion abstract we provide comparative global conditions for downside risk aversion which are similar to the ones studied by ross for risk aversion we define a coefficient of downside risk aversion and study its local properties

economic mobility and poverty dynamics in developing countries this study provides an introduction to this special issue of the journal of development studies on economic mobility and poverty dynamics in developing countries in addition to providing a conceptual framework it outlines how the contributions fit into the extant literature a series of regularities emerge across these studies the poor consist of those who are always poor poor at all dates and those who move in and out of poverty with the latter group tending to be strikingly large such movements in and out of poverty are apparent when looking at poverty in either absolute or relative terms changes in returns to endowments can be a potent source of increased incomes finally seemingly transitory shocks can have long term consequences the study concludes by drawing out the policy implications of these regularities

on multivariate prudence in this paper we extend the theory of precautionary saving to the case in which uncertainty is multidimensional and we develop a matrix measure of multivariate prudence furthermore we characterize comparative prudence decreasing and increasing prudence the effect of uncertainty on the marginal propensity to consume out of wealth and the dreze modigliani substitution effect in this multivariate setting we also characterize the concept of multivariate downside risk aversion as a multivariate preference for harm disaggregation we show that our definition is equivalent to a positive precautionary saving motive we propose an alternative measure of the intensity of downside risk aversion and show that this measure is useful in understanding several economic problems that involve multivariate preferences

intragenerational income mobility in latin america economic mobility has not been widely studied in developing countries until very recently owing to the lack of suitable data studying mobility requires longitudinal data tracking economic units that is individuals households or firms over time collecting this type of data is expensive and historically few latin american countries carried it out now however such data sets are available for a number of latin american and caribbean countries table a 1 in the appendix provides a list of available panel data sets that can be used for income mobility studies for these countries in this paper we discuss how the knowledge gleaned from mobility studies differs from comparable cross sectional analysis the structure of the paper is as follows the next section discusses what mobility is how it can be measured and how it differs from inequality the subsequent section reviews previous mobility studies in latin american countries the paper then summarizes the contributions of our own recent work and the final section discusses what lies ahead in mobility research for latin american economies

intergenerational economic mobility in the united states 1940 to 2000 we estimate trends in intergenerational economic mobility by matching men in the census to synthetic parents in the prior generation we find that mobility increased from 1950 to 1980 but has declined sharply since 1980 while our estimator places greater weight on location effects than the standard intergenerational coefficient the size of the bias appears to be small our preferred results suggest that earnings are regressing to the mean more slowly now than at any time since world war ii causing economic differences between families to become more persistent however current rates of positional mobility appear historically normal

higher order generalizations of arrow pratt and ross risk aversion a comparative statics approach abstract we analyze comparative risk aversion in a new way through a comparative statics problem in which for a cost agents can shift from an initial probability distribution toward a preferred distribution the ross characterization arises when the original distribution is riskier than the preferred distribution and the cost is monetary and the arrow pratt characterization arises when the original distribution differs from the preferred distribution by a simple mean preserving spread and the cost is a utility cost higher order increases in risk lead to higher order generalizations and the comparative statics method yields a unified approach to the problem of comparative risk attitudes

the economics of poverty traps and persistent poverty an asset based approach abstract longitudinal data on household living standards open the way to a deeper analysis of the nature and extent of poverty while a number of studies have exploited this type of data to distinguish transitory from more chronic forms of income or expenditure poverty this paper develops an asset based approach to poverty analysis that makes it possible to distinguish deep rooted persistent structural poverty from poverty that passes naturally with time due to systemic growth processes drawing on the economic theory of poverty traps and bifurcated accumulation strategies this paper briefly discusses some feasible estimation strategies for empirically identifying poverty traps and long term persistent structural poverty as well as relevant extensions of the popular foster greer thorbecke class of poverty measures the paper closes with reflections on how asset based poverty can be used to underwrite the design of persistent poverty reduction strategies

slipping into and out of poverty the dynamics of spells this paper examines the dynamics of poverty previous analyses have examined either fluctuations in the male heads earnings or the frequency of poverty periods over a fixed time frame our approach depends on a definition of spells of poverty using this methodology we find that the majority of poor persons at any time are in the midst of a rather long spell of poverty the methodology also allows us to estimate that less than 40 percent of poverty spells begin because of a drop in the heads earnings while 60 percent of the spells end when the heads earnings increase thus researchers must focus on household formation decisions and on the behavior of secondary family members there has been a dramatic resurgence recently of discussion of the underclass the discussion is reminiscent of debates about poverty during the 1960s when the notions of a culture of poverty particularly as popularized by michael harrington s other america 1962 dominated both intellectual and policy thinking the idea of an underclass seems inconsistent however with much of the research on the dynamics of poverty during the 1970s that research using new longitudinal data seemed to show that the bulk of the poor were poor for only a few years the research also showed that the poor were a very heterogeneous group including a small minority of persistently poor the persistence of poverty is of interest both for understanding the phenomenon and for developing policy claims about dependency and separate life styles among the poor rest on assumptions about the long term nature of poverty questions

mixed risk aversion abstract we analyze the class of increasing utility functions exhibiting all derivatives of alternating sign this property that we call mixed risk aversion is satisfied by the utility functions most commonly used in financial economics the utility functions displaying mixed risk aversion can be expressed as mixtures of exponential functions we characterize stochastic dominance and we find conditions for both mutual aggravation and mutual amelioration of risks when agents are mixed risk averse finally the analysis of the distribution function describing a mixed utility allows one to characterize the behaviour of its indexes of risk aversion and to discuss its implications for portfolio selection journal of economic literature classification numbers d81 g11

trends in intergenerational income mobility previous studies of recent u s trends in intergenerational income mobility have produced widely varying results partly because of large sampling errors by making more efficient use of the available information in the panel study of income dynamics we generate more reliable estimates of the recent time series variation in intergenerational mobility our results which pertain to the cohorts born between 1952 and 1975 do not reveal major changes in intergenerational mobility

centralization fiscal federalism and private school attendance a cge model is used to analyze the impact of public school financing on private school attendance the common perception that public school finance centralization will necessarily lead to greater private school attendance is not correct in such a model even when that centralization involves an extreme equalization as in california furthermore if centralization is less dramatic as in most states declines in private school attendance are even more pronounced this weakens the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization

understanding rent dissipation on the use of game theory in industrial organization game theory has had a deep impact on the theory of industrial organization in a similar but less controversial way as the rational expectations revolution in macroeconomics the reason it has been embraced by a majority of researchers in the field is that it imposes some discipline on theoretical thinking it forces economists to clearly specify the strategic variables their timing and the information structure faced by firms as is often the case in economics the researcher learns as much from constructing the model the extensive form as from

biases in standard measures of intergenerational income dependence abstract estimates of the most common mobility measure the intergenerational elasticity can be severely biased if snapshots are used to approximate lifetime income however little is known about biases in other popular dependence measures using long swedish income series we provide such evidence for log linear and rank correlations and rank based transition probabilities attenuation bias is considerably weaker in rank based measures life cycle bias is strongest in the elasticity moderate in log linear correlations and small in rank based measures however there are important exceptions persistence in the tails of the distribution is considerably higher and long distance downward mobility lower than estimates from short run income suggest

efficiency of dynamic quantity competition a remark on markovian equilibria this paper extends maskin and tirole analysis of dynamic quantity competition in terms of markov perfect equilibria to the case in which firms have different fixed costs it is proved that allocative efficiency still prevails but not productive efficiency

inflation in mozambique empirical facts based on persistence seasonality and breaks this article investigates inflation in mozambique using long range dependence lrd techniques in monthly data from december 1995 to october 2012 two important features of the data are analysed persistence and seasonality looking at aggregated and disaggregated data the stability of the parameters across the sample is also investigated the results indicate a high degree of persistence in the data along with a strong seasonal pattern policy implications are discussed

pay as you go social security and the distribution of altruistic transfers this paper studies the impact of an unfunded social security system on the distribution of altruistic transfers in a framework where savings are due to both life cycle and random altruistic motivations we show that the effect of social security on the distribution of these transfers depends crucially on the strength of the bequest motive in explaining savings behaviour we measure this strength by the expected weight that individuals attach to the utility of future generations on the one hand if the bequest motive is strong then an increase in the social security tax raises the bequests left by altruistic parents on the other hand when the importance of altruism in motivating savings is sufficiently low the increase in the social security tax could result in a reduction of the bequests left by altruistic parents under some conditions on the attitude of individuals toward risk and on the relative returns associated with private saving and social security some implications concerning the transitional effects of introducing an unfunded social security scheme are also discussed

household income dynamics a four country story in this article we analyse the dynamics of household per capita incomes using longitudinal data from indonesia south africa spain and venezuela we find that in all four countries reported initial income and job changes of the head are consistently the most important variables in accounting for income changes overall and for initially poor households we also find that changes in income are more important than changes in household size and that changes in labour earnings are more important than changes in other sources of household income

putting risk in its proper place this paper examines preferences toward particular classes of lottery pairs we show how such concepts as prudence and temperance can be fully characterized by a preference relation over these lotteries if preferences are defined in an expected utility framework with differentiable utility the direction of preference for a particular class of lottery pairs is equivalent to signing the nth derivative of the utility function what makes our characterization appealing is its simplicity which seems particularly amenable to experimentation

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

intergenerational earnings mobility in norway levels and trends using longitudinal data for norwegian children born in 1950 1955 1960 and 1965 we find a relatively high degree of earnings mobility there is no tendency toward decreasing mobility over the cohorts conditioning on the position in the earnings distribution the analysis indicates quite high mobility in the middle of the distribution and somewhat more persistence at the top and bottom this approach also reveals increased mobility over time for sons but a less clear picture for daughters

alternative approaches to comparative nth degree risk aversion this paper extends the three main approaches to comparative risk aversion the risk premium approach and the probability premium approach of pratt 1964 risk aversion in the small and in the large

inequality income growth and mobility the basic facts during the 1950s and 1960s mean wages in the united states grew rapidly and the dispersion around this growing mean changed very litde starting in the 1970s and continuing into the 1980s and 1990s these patterns were reversed mean wages grew slowly and inequality increased rapidly these changes in labor markets were reflected in changes in the distribution of family income the mean of the distribution of family income did increase after 1973 in spite of the near constancy of mean real wages as family members increased the number of hours they worked however the increase in inequality of wages was mirrored by an increase in the dispersion of family income a large descriptive literature has documented the rise in inequality while a smaller behavioral literature has sought to delineate the causes of this rise these changes in the distribution of family income a fected rates of poverty directly during the 1950s and 1960s temporary increases in poverty during recessions were more than offset by declines in poverty during economic expansions as long as the poor gained along with everyone else fi om the secular growth in the mean one could be confident that poverty rates would ratchet down this is exactly what happened as poverty rates fell from 22 4 percent in 1959 to 11 1 percent in 1973

economic and mechanical models of intergenerational transmission the author critically examines gary beckers attempt to integrate the theory of income distribution intragenerational differences with the theory of mobility intergenerational differences in an economic model of the family he assesses beckers claims of distinctiveness integration explanatory power and surprise and arrives at a rather skeptical view of the contribution that the core of microeconomics has made to this study of the family a reply by becker is included pp 514 8 excerpt

a note on the comparative statics approach to nth degree risk aversion jindapon and neilson 2007 propose a comparative statics approach to nth degree risk aversion they consider a decision problem where an agent incurs either a monetary or a utility cost to reduce the nth degree risk in his payoff they find that when the cost is monetary one agent always invests more in risk reduction than another if and only if the former is nth degree ross more risk averse than the latter but this is not the case when the cost takes the form of utility reductions we show that within an appropriately normalized risk reducing problem with a utility cost individuals relative optimal risk reducing efforts are also governed by the nth degree ross more risk aversion

selection in dynamic entry games abstract this paper proposes a game theoretic framework to study dynamic competition with entry deterrence sufficient conditions are given such that the competition process results in the most efficient firm being eventually selected we show this selection property for asymmetric firms to be the natural economic extension to the rent dissipation property obtained for symmetric firms this framework is used to discuss previous models in which the selection property had not been studied dynamic limit pricing and capacity renewal or may fail to hold quantity competition journal of economic literature classification numbers c73 d43 l12

stronger measures of higher order risk attitudes this paper aims to extend the results by ross 1981 15 and by modica and scarsini 2005 13 to stochastic dominance of degree 4 and over specifically it is shown that ross approach can be extended to any order of risk attitude beyond the generalization proposed by modica and scarsini by means of sth degree increase in risk defined by ekern 1980 8 c 2010 elsevier inc all rights reserved

spatial preemption with finitely lived equipments abstract this paper proposes a dynamic approach to potential competition in a spatial framework where productive investments are location specific and have finite duration we define a notion of strategic sustainability against multiple entries in which spatial preemption comes from anticipated renewal policies of plants we show that in an infinite horizon model with no discounting potential competition leads to average cost renewal but a positive value can be attached to incumbency the conditions for the existence of such strategically sustainable structures are determined in the model of the circular city under mill or discriminatory pricing rules our results are finally related to the usual two stage notion of free entry equilibrium in spatial models

intergenerational persistence of earnings the role of early and college education recent empirical evidence from the united states indicates a high degree of persistence in earnings across generations designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings we provide a quantitative model of intergenerational human capital transmission that focuses on three sources innate ability early education and college education we find that approximately one half of the intergenerational correlation in earnings is accounted for by parental investment in education in particular early education we show that these results have important implications for education policy

forward induction and sunk costs give average cost pricing abstract this paper applies the idea of forward induction to a classical economic problem the existence of an efficient form of competition in the case of increasing returns to scale it proves that properly formalized this idea leads to average cost pricing as the horizon goes to infinity journal of economic literature classification numbers

family economics and macro behavior in this 1987 presidential address to the american economic association the author explores the contributions of the field of family economics to macroeconomic analysis the focus is on family behavior as an active endogenous factor that both affects and is affected by the evolution of the economy much of the time is spent on long term economic growth although i also discuss short and long cycles in economic activity and the interaction between overlapping generations through social security transmission of inequality and in other ways many conclusions in these and presumably other macro areas change radically when family choices get the attention they deserve excerpt

earnings mobility in times of growth and decline argentina from 1996 to 2003 summary in recent years argentina s economy has experienced both rapid growth and severe decline in this paper we use a series of one year long panels to study who gained the most in pesos when the economy grew and who lost the most in pesos when the economy contracted various considerations led us to expect that mobility would be divergent that is that the individuals who started with the highest initial earnings would enjoy the largest earnings gains in pesos contrary to expectations and for a wide range of specifications mobility is found to be mostly convergent sometimes neutral and never divergent

the monetary utility premium and interpersonal comparisons the utility premium is generally defined as the pain or reduction in expected utility caused by an nth degree risk increase where n 2 while it is a very useful concept in understanding a decision maker s choice in uncertain situations the utility premium is not interpersonally comparable this note shows that the monetary utility premium the utility premium divided by the expected marginal utility at the random starting wealth is interpersonally comparable and the comparison is characterized by ross more risk aversion of the corresponding degree

unobservable family and individual contributions to the distributions of income and wealth this paper uses combinations of full brothers half brothers and fathers and sons to measure the effect of common family background on a household s income and wealth while the data are drawn from a nineteenth century population the intraclass correlation for income ranges from 13 to 18 which is similar to that found in modern samples intraclass correlations for wealth are significantly higher 18 35 than are those for income intraclass correlations of half brothers compared to those for full brothers suggest that fathers play a dominant role in the transmission of the common family effect when unobserved background is decomposed into individual and family effects the individual effect dominates the family effect for income while the family effect dominates the individual effect for wealth

parental wealth and adult children s welfare in marriage abstract many studies find that parental resources importantly determine children s human capital schooling returns and earnings the collective household approach suggests that in addition parental resources of marital partners may importantly affect resource distributions within marriage this paper presents empirical results consistent with this framework they suggest that parental wealth continues to play roles in augmenting welfare of children into adulthood beyond provision of human capital in early life cycle stages or direct financial aid during adulthood and that actual transfers from parents to adult children do not fully measure influences of parental wealth on behaviors and welfare of adult children

health and portfolio choices a diffidence approach the effect of health status on portfolio decisions has been extensively studied from an empirical viewpoint in this paper we propose a theoretical model of individuals choice of financial assets under bivariate utility functions depending on wealth and health our approach makes an extensive use of the diffidence theorem we establish the conditions under which the share of wealth held in risky assets falls as 1 individuals health status deteriorates and 2 individuals health status becomes risky these conditions are shown to be related to the behavior of the intensities of correlation aversion and of cross prudence as wealth increases

substituting one risk increase for another a method for measuring risk aversion abstract this paper defines the rate of substitution of one stochastic change to a random variable for another it then focuses on the case where one of these changes is an nth degree risk increase and the other is an mth degree risk increase where n m 1 the paper shows that the rate of substitution for these two risk increases can be used to provide a broader definition and two additional characterizations of the nth degree ross more risk averse partial order the implications for local intensity measures of nth degree risk aversion are also examined the analysis organizes the existing results as well as generates new ones

snapshots versus movies empirical studies of the intergenerational inheritance of economic status should use observations on complete lifetime status profiles of parents and children to be consistent with underlying theory but they cannot only snapshots rather than movies on status are currently available in samples estimates of the degree of intergenerational inheritance may therefore be subject to lifecycle biases the paper investigates these in the context of a lifecycle earnings model and shows that these biases may be large that their direction varies and that correction methods suggested hitherto have questionable reliability until more complete data sets become available researchers should be more temperate in the conclusions they draw

what do discounted optima converge to a theory of discount rate asymptotics in economic models abstract this paper considers a sequence of stochastic dynamic problems in which the discount rate goes to zero sufficient conditions are given under which the limit of discounted optimal policies and normalized values are a i long run average optimal and ii catching up optimal policy and value these conditions are shown to be satisfied in many economic models a new decision criterion for the undiscounted problem the strong long run average is introduced this criterion refines the long run average is often equivalent to the catching up and is easier to use than the latter since it has a recursive representation a generalization of fatou s lemma which has wider applicability is also proved

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

how effective is potential competition abstract i examine robustness of perfect contestability a small sunk cost s causes large deviations from the results if the response lag l is even smaller there is an essential discontinuity at s 0 l i also examine what happens if incumbant not entrant exists after l

the utility premium of friedman and savage comparative risk aversion and comparative prudence we show that the utility premium of friedman and savage can be used to explain comparative risk aversion and comparative prudence more precisely we show that the greater the risk aversion measure the greater a risk s utility premium normalized by the marginal utility and that the greater the prudence measure the greater the utility premium for disaggregating a certain loss of wealth and a zero mean risk normalized by the utility function s second derivative

factor proportions and relative wages the supply side determinants of wage inequality supply side factors may contribute to rising wage inequality first certain changes in the supply of skills allegedly exacerbate wage inequality women s increased labor force participation and increased immigration are the leading candidates both allegedly reduce the wages of less skilled men however immigration s impact on wage inequality has been minor and the effects of women s participation is inconclusive second in evaluating the likelihood that human capital investment will mitigate future inequality evidence suggests that rising returns to education have increased the proportion of young people attending college limiting the growth of inequality among high wage workers

intergenerational health mobility an empirical approach based on the echp despite the importance of the study of health mobility few attempts have been made to measure intergenerational mobility not only in the european union but also in other countries such as united states this article is focused on the study of intergenerational health mobility using data from the european community household panel echp in particular the relationships between self assessed health of parents and their sons are analysed the evidence obtained suggests that in spain sons reported health depends significantly on the self assessed health of their fathers

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society