children as collective goods and divorce settlements the failure of many divorced fathers to comply with court mandated child support awards has been identified as a major reason why a growing number of children live in poverty in female headed households this paper presents a model that seeks to explain why so many divorced fathers allow their children s welfare to suffer as a consequence of divorce the point of departure is the recognition that children are collective consumption goods from the point of view of the father and mother within marriage proximity and altruism serve to overcome the free rider problem associated with the provision of public goods however on divorce the noncustodial parent suffers a loss of control over the allocative decisions of the custodial parent and it is not feasible for the couple to achieve a pareto optimal allocation of their joint resources a model of optimal marriage contracts is constructed in which a couple decides on the allocation of resources within marriage and on the terms of a settlement in the event

the effects of welfare and tax reform the material well being of single mothers in the 1980s and 1990s abstract the tax and welfare programs that provide income and in kind benefits to single mothers have changed dramatically in recent years these changes began as far back as the mid 1980s and culminated with the 1996 welfare law that ended welfare as we knew it these tax and welfare changes have sharply increased the employment of single mothers and cut welfare rolls however little is know about the effects of these policy changes on the material well being of single mothers and their children studies of those leaving welfare have found that a substantial percentage have problems paying rent purchasing enough food and paying utility bills other studies found a decline in income among the worst off single mothers after 1994 or 1995 the goal of this paper is to examine the material well being of single mothers and their families before and after recent welfare and tax reforms using data from two nationally representative household surveys we examine the consumption patterns of single mothers and their families from 1984 2000 we find that the material conditions of single mothers did not decline in recent years either in absolute terms or relative to single childless women or married mothers this pattern holds for the average single mother as well as for low educated single mothers at both the 15th and 25th percentiles of the consumption distribution in most cases our evidence suggests that the material conditions of single mothers have improved slightly

a class of tractable incomplete market models for studying asset returns and risk exposure abstract we present a class of tractable incomplete market models where agents face both aggregate risk and limited participation in financial markets tractability relies on the assumptions of small asset volumes and of a period utility function that is linear beyond a threshold in line with fishburn s 1977 contribution in decision theory we prove the existence of an equilibrium and derive theoretical results regarding asset prices and consumption choices this small trade model is able to reproduce a low safe return and a high equity premium together with a realistic representation of household exposure to both idiosyncratic and aggregate risks

what have we learned from empirical studies of unemployment and turnover unemployment reminds economists that we have a lot to be modest about twenty years ago robert hall 1972 asked why is the unemployment rate so high at full employment at the time hall wrote male unemployment in the united states had risen to 3 5 percent and it would peak at 4 4 percent in the recession of 1971 since then every cyclical low of unemployment has exceeded the one before it the end of the 1980 s expansion reduced unemployment to about 4 5 percent and unemployment peaked at 7 4 percent of the labor force in the recession that just ended the natural rate of unemployment has evidently risen through time which led lawrence summers 1986 to place a modifier in hall s question why is the unemployment rate so very high in what follows i pose three questions about the causes and consequences of rising joblessness first who are the unemployed i will show that unemployment and nonparticipation are heavily concentrated among the least skilled and more importantly that virtually all of the long term increase in joblessness occurs among low wage men unemployment and nonparticipation among highly skilled men are unchanged since the 1960 s second what factors have caused jobless time to rise there are many theories including changes in labor force demographics social programs that discourage employment and changes in the amount of frictional unemployment caused by sectoral shifts none of these is consistent with the evidence which points instead to a secular decline in the demand for lessskilled workers the data also cast doubt on nonmarket clearing models of rising unemployment wages are demonstrably flexible in the long run and they have fallen dramatically among the unskilled whose jobless rates have risen third what happens to the unemployed in contrast to the view that unemployment spells cause transitory reductions in income recent evidence indicates that job losses have substantial and permanent effects on earning power many of the unskilled who are unemployed or out of the labor force appear to have been high wage workers whose specialized skills have become obsolete

on the option to invest in pollution control under a regime of tradable emissions allowances optimal decisions of a firm facing the option of retrofitting its plant to reduce pollution and thereby eliminate the need to purchase emissions allowances are analysed the decision is treated as a real option with the price of pollution permits following a known stochastic process the model is formulated as a set of one dimensional partial differential equations at discrete points in time the firm owner makes optimal decisions about the retrofit including whether to mothball temporarily the model is used to analyse a firm s decision to instal a scrubber as a result of the 1990 u s clean air act jel classification q25 d81 g31 sur la possibilite d investir dans le controle de la pollution dans un regime de permis d emission de pollution echangeables commercialement ce memoire examine les decisions optimales d une entreprise face a la possibilite d adapter ses installations pour reduire la pollution et ce faisant d eliminer le besoin de se procurer des permis d emission de pollution sur le marche le decision est traitee comme une option reelle ou le prix des permis resulte d un processus stochastique connu le modele est formule sous forme d un ensemble d equations differentielles partielles a une dimension a des points discontinus dans le temps le proprietaire de l entreprise prend des decisions optimales de mise a niveau des installations y compris la possibilite de les fermer temporairement le modele est utilise pour analyser une decision d installer un epurateur suite a la mise en place de la loi americaine de 1990 clean air act

the connection between public transfers and private interfamily transfers abstract this paper investigates the anti poverty effectiveness of public transfers taking private transfer responses into account widespread altruistically motivated private transfers would neutralize the distributional impact of public transfers but exchange motivated transfers can reinforce the effects of public transfers on the distribution of economic well being the common technique for gauging anti poverty effectiveness subtracting public transfers from other income and measuring the poverty rate counterfactual yields results that are close to a more complex procedure that takes private transfer responses into account and some of the empirical findings suggest an exchange rather than altruistic motive for private transfers indicating that the effects of public transfers can be magnified by private behavior this is an exact reversal of the prediction that public transfers merely supplant private ones

costs of business cycles for unskilled workers abstract unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers moreover unskilled workers earn less income which limits their ability to self insure we examine how this heterogeneity in unemployment risk and income across different skill groups translates into heterogeneity in the cost of business cycles we find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers

a note on the antipoverty effectiveness of child support among mother only families the current population survey is used to examine the antipoverty effectiveness of child support social insurance and welfare among motheronly families in 1995 child support brought about 6 7 percent of pretransfer poor mother only families over the poverty line an effect similar to that of social insurance and welfare a brief trend analysis shows that child support s antipoverty effectiveness has been growing some potential reasons why child support s effect is still so small in the face of substantial changes in child support policy are hypothesized

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

intergenerational transfers and liquidity constraints a growing body of evidence indicates that liquidity constraints could affect a substantial proportion of u s consumers but little is known about why these constraints might exist an important but little explored issue is the relationship between inter vivos intergenerational transfers and liquidity constraints these transfers can ease borrowing constraints empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity constrained consumers in particular the distinction between current and permanent incomes of potential recipients is a key aspect of private transfer behavior the findings have important implications for our understanding of consumer behavior

the impact of job security on job satisfaction in economic contractions versus expansions job security often measured using the perceived risk of job loss in the near future is a significant determinant of job satisfaction we posit that the impact job security has on job satisfaction is not only a function of how likely it is that a worker loses a job but also how likely it is that a worker could find another the effect this has on worker job satisfaction then is different depending on whether perceived job loss occurs or not when job openings are scarce or when job openings are plentiful we use difference in differences analysis of the 1997 and 2008 waves from the national study of the changing workforce to show that three measures of job security increase private sector worker job satisfaction and reduce worker incentives to quit more when job openings are relatively scarce during contractions than when job openings are relatively plentiful during expansions we find that our results are strongest among less educated workers

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

educational policy and the economics of the family this paper analyzes the implications of alternative ways to model decision making by families for educational policy we show that many of the policy implications associated with credit constraints cannot be distinguished from the implications of models of the family that differ from the conventional barro becker model we then argue that it is the combination of credit constraints and non conventional preferences that provides a robust basis for government intervention to promote educational investment

wealth distribution with random discount factors abstract to explain the pareto tail behavior empirically observed in wealth distributions the quantitative macro literature has occasionally assumed that agents have random discount factors this paper formally proves that the stationary wealth distribution in a simple huggett model with random discounting has power law tails and characterizes the pareto exponents analytically i find that in general there is no clear relationship between the return on wealth and inequality and that the pareto exponent is highly sensitive to the persistence of the discount factor process i also provide a practical guidance for how to characterize the pareto exponents in richer models

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

separations sorting and cyclical unemployment abstract this paper establishes a new fact about the compositional changes in the pool of unemployed over the us business cycle using microdata from the current population survey for the years 1962 2012 it documents that in recessions the pool of unemployed shifts toward workers with high wages in their previous job and that these shifts are driven by the high cyclicality of separations for high wage workers the paper finds that standard theories of wage setting and unemployment have difficulty in explaining these patterns and evaluates a number of alternative theories that do better in accounting for the new fact jel e24 e32 j31 j63 j64

filling the poverty gap multiple transfer program participation ata from the 1979 income survey development program are used to describe multiple transfer program participation and its effect on the poverty rate and the poverty gap of 87 1 million u s families and unrelated individuals 40 percent received some government transfer in april 1979 further more than 80 percent of pretransfer poor families received some transfer the benefits received by the elderly succeeded in reducing their poverty rate from 68 to 10 percent and reducing their poverty gap by 96 percent in contrast government transfers reduced the poverty rate for single parent families from a pretransfer rate of 48 percent to a posttransfer rate of 30 percent an examination of target efficiency indicates that 82 percent of all income conditioned transfers go to the pretransfer poor

inter vivos transfers and bequests in three oecd countries reforms reducing the generosity of pensions have distributional effects on future generations if individuals care about their descendants welfare but only affect elderly individuals if bequests are the unintentional result of precautionary savings and safety net programmes such as unemployment insurance may displace sources of private help such as that provided by living parents to their children in need this paper provides comparable measures of how expected bequests and transfers vary with cumulated parental earnings in the united states west germany and the united kingdom the strength of bequest motives is empirically very weak in the available data private inter vivos transfers which appear to depend on the recipients economic situation are partly crowded out by public unemployment insurance programmes together involuntary bequests and intentional inter vivos transfers appear to be an important channel of intergenerational inequality transmission and strengthen substantially the relationship between an individual s and his parents economic status ernesto villanueva

globalization and its challenges rudi was born and grew up in krefeld germany he was an undergraduate at the university of geneva and completed his ph d at the university of chicago in 1971 which is where we met he was a student of robert mundell and both the subject matter the development of the mundell fleming model and the elegance and insights of his early work reflected mundell s influence he taught at the university of rochester and at the university of chicago before accepting an offer from mit in 1975

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

an econometric analysis of emission allowance prices knowledge of the statistical distribution of the prices of emission allowances and their forecastability are crucial in constructing among other things purchasing and risk management strategies in the emissions constrained markets this paper analyzes the two emission permits markets co2 in europe and so2 in the us and investigates a model for dealing with the unique stylized facts of this type of data its effectiveness in terms of model fit and out of sample value at risk forecasting as compared to models commonly used in risk forecasting contexts is demonstrated

the family as an incomplete annuities market families can self insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers interfamily transfers need have nothing to do with altruistic feelings they may simply reflect risk sharing behavior of completely selfish family members although family annuity markets are incomplete even small families can substitute by more than 70 percent for perfect market annuities given adverse selection and transaction costs family risk pooling may be preferred to public market annuities in the absence of public annuities these risk sharing arrangements provide powerful incentives for marriage and family formation

crowding out of private support to the elderly evidence from a demogrant in mexico abstract to examine whether private support dampens or reinforces the impact of redistributive policies this paper estimates the effect of an exogenous increase in the income of the elderly caused by a recent demogrant in mexico on the amount of private transfers they receive my instrumental variables strategy overcomes the endogeneity of income that typically contaminates estimates and unlike related studies that use natural or policy experiments in reduced form estimations it yields evidence of a positive bias this suggests that an unobservable characteristic is positively correlated both with income and private transfer receipt and that treating income as exogenous could lead to an underestimation of the crowding out effect in contrast my preferred estimates are negative significant and not far from minus one implying an almost complete crowding out my findings suggest that private transfers could neutralize the changes in the public transfers for the elderly

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

the impact of state economic differentials on household welfare and labor force behavior abstract this paper calculates state specific income expectations for low income households using a simultaneous model of household labor force and welfare participation decisions a variety of simulations indicate the interlocking effects of existing state differences in welfare wages and taxes on work welfare choices and income significant differences among similar households in different states occur equalization of welfare benefits eliminates some but not all of these differences but generates potentially serious policy problems for the states

monetary transfers from children and the labour supply of elderly parents evidence from vietnam in the absence of a broad based pension scheme the elderly in developing countries may rely on monetary transfers made by their children and on their own labour supply this article examines whether monetary transfers from children help to reduce elderly parents need to work taking the possible endogeneity of children s transfers in the parents labour supply into account and using maximum likelihood methods and vietnamese data we find that monetary transfers help the elderly cope with risks associated with old age or illness at the same time however monetary transfers are not sufficient to fully substitute for parents labour supply

irreversible investment and knightian uncertainty when firms make a decision about irreversible investment they may not have complete confidence about their perceived probability measure describing future uncertainty they may think other probability measures perturbed from the original one are also possible such uncertainty characterized by not a single probability measure but a set of probability measures is called knightian uncertainty the effect of knightian uncertainty on the value of irreversible investment opportunity is shown to be drastically different from that of traditional uncertainty in the form of risk specifically an increase in knightian uncertainty decreases the value of investment opportunity while an increase in risk increases it

how public pension affects elderly labor supply and well being evidence from india summary i study the effect of a recent expansion in india s national old age pension scheme on elderly well being estimates suggest that public pension has a modestly negative effect on the employment of elderly near elderly men with a primary or lower education but no effect on the employment of similar women pension raised family expenditures lowering poverty and the effect was smaller on families headed by illiterate persons suggesting lower pension coverage of this most disadvantaged group further i find that households spent most of the pension income on medical care and education suggesting possible intra family transfers across generations

the effect of uncertainty on investment timing in a real options model abstract this paper examines the effect of uncertainty on investment timing in a canonical real options model we show that the critical value of a project that triggers the exercise of the investment option exhibits a u shaped pattern against the volatility of the project this is due to the two countervailing risk and return factors in effect we further show that such a u shaped pattern is inherited by the expected time to exercise the investment option thus for relatively safe projects greater uncertainty shortens the expected exercise time and thus enhances investment this is in sharp contrast to the negative investment uncertainty relationship commonly found in the extant literature finally we show that the positive investment uncertainty relationship is more likely for high growth projects than for low growth projects

the effect of mean reversion on investment under uncertainty abstract mean reverting processes are appropriate for most real option investment models yet geometric brownian motion gbm processes are generally used for tractability hassett and metcalf j econom dyn control 19 1995 1471 1488 argue that using a gbm process is justified because mean reversion has two opposing effects it brings the investment trigger closer and also reduces the conditional volatility thereby lowering the likelihood of reaching the trigger and the overall effect on investment should be negligible for most reasonable parameter values this paper extends the hassett and metcalf model by incorporating a third factor the effect of mean reversion on systematic risk the main result is that mean reversion in general does have a significant impact on investment moreover this effect could be either positive or negative depending on various factors such as project duration cost of investing interest rate etc thus it is generally inappropriate to use the gbm process to approximate a mean reverting process

on the investment uncertainty relationship in a real options model abstract it appears to be widely accepted in the real options literature that an increase in uncertainty should have an inhibiting effect on investment our article demonstrates that the notion of a negative uncertainty investment relationship is not always correct we show that in certain situations an increase in uncertainty can actually increase the probability of investing and thereby have a positive impact on investment

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

ecology driven real options an investment framework for incorporating uncertainties in the context of the natural environment the role of uncertainty within an organization s environment features prominently in the business ethics and management literature but how corporate investment decisions should proceed in the face of uncertainties relating to the natural environment is less discussed from the perspective of ecological economics the salience of ecology induced issues challenges management to address new types of uncertainties these pertain to constraints within the natural environment as well as to institutional action aimed at conserving the natural environment we derive six areas of ecology induced uncertainties and propose ecology driven real options as a conceptual approach for systematically incorporating these uncertainties into strategic management we combine our results in an integrative investment framework and illustrate its application with the case of carbon constraints

from the peaks to the valleys cross state evidence on income volatility over the business cycle abstract countercyclical variation in individuals idiosyncratic labor income risk could generate substantial welfare costs following past research we infer income volatility the variance of permanent income shocks a standard proxy for income risk from the rate at which cross sectional variances of income rise over the life cycle for a given cohort our novelty lies in exploiting cross state variation in state economic conditions or state sensitivity to national economic conditions we find that income volatility is higher in good state times than bad during good national times we find volatility is higher in states that are more sensitive to national conditions

sibling rivalry and strategic parental transfers this paper develops a noncooperative nash model in which two siblings compete for their parents financial transfers treating sibling rivalry as a rent seeking contest and using a tullock skaperdas contest success function we derive the conditions under which more financial resources are transferred to the sibling with lower earnings we find that parental transfers are compensatory and that the family as an institution serves as an income equalizer within a sequential game framework we characterize the endogeneity of parental transfers and link it to parents income altruism and children s supply of merit goods e g parent child companionship or child services we show that merit goods are subject to a moral hazard problem from the parents perspective

estimating the personal distribution of income with adjustment for within family variation the 1970 and 1979 current population surveys are used to compute the personal distribution of income the major innovation in this paper is that all individuals in the household are not treated identically in particular children receive a different proportion of income than do adults that proportion is estimated its variations with respect to household characteristics are discussed and a final distribution of personal income is computed that distribution has considerably fatter tails than does the one normally used

asset bubbles and the cost of economic fluctuations lucas 1987 2003 estimates that the cost of economic fluctuations is low a social planner would pay no more than 0 1 of permanent consumption to eliminate all future business cycle fluctuations the current paper extends lucas calculations by studying the costs of fluctuations arising from asset bubbles we estimate two classes of costs consumption volatility due to asset bubbles in a representative agent economy and consumption volatility that arises because households have heterogeneous exposure to the bubble assets we show that the magnitude of welfare costs is primarily driven by the existence of heterogeneity our benchmark calibration implies that the asset bubbles of the last decade generated a social welfare cost equal to a permanent 3 reduction in the level of national consumption if assets are held proportionately across the population these welfare costs fall by an order of magnitude our calculations are sensitive to the details of the calibration including the degree of balance sheet and trading heterogeneity the coefficient of relative risk aversion and the magnitude of the asset bubble our preferred specifications generate welfare costs ranging from 1 to 10 of permanent national consumption

a real option analysis of investments in hydropower the case of norway abstract this paper presents a valuation study of hydropower investment opportunities in the norwegian context according to nve norwegian water resources and energy directorate the regulator there is a potential of 39 twh not yet developed generation in a normal year is approximately 120 twh by using the conceptual real option framework of dixit and pindyck 1994 investment under uncertainty princeton university press princeton nj one can estimate the value of investment opportunities to nok 11 million gwh eur 1 4 million gwh furthermore the optimal trigger price for initiating an investment based on electricity forward prices is calculated to nok 0 32 kwh eur 0 04 kwh the analysis shows consistency between real option theory and aggregate investment behaviour in norwegian hydropower

risk uncertainty and option exercise many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty motivated by experimental evidence such as the ellsberg paradox we follow knight 1921 and distinguish risk from uncertainty to capture this distinction we adopt the multiple priors utility model we show that the impact of ambiguity on the option exercise decision depends on the relative degrees of ambiguity about continuation payoffs and termination payoffs consequently ambiguity may accelerate or delay option exercise we apply our results to investment and exit problems and show that the myopic npv rule can be optimal for an agent having an extremely high degree of ambiguity aversion

motives for household private transfers in burkina faso abstract resource transfers among households have received considerable interest among economists in recent years two of the main reasons for the surge of interest in household transfers are the information on human nature conveyed by transfer behavior and the implication on income redistribution policy that private transfer might have empirical studies however provide mixed results on transfer behavior this is because previous inquiries were confronted with several estimation issues and have focused on data from developed countries where private transfers are already small this paper contributes to the literature on transfer behavior by using a multifaceted econometric approach to examine the motives of household transfers in burkina a low income country with a well documented tradition of gift exchanges the findings suggest that risk sharing is not central to transfers altruistic transfers are apparent for the middle income class but not at low income level the evidence implies that crowding out may be minimal at low income level suggesting that public transfers targeting poor households may be effective

finite project life and uncertainty effects on investment abstract this paper revisits the important result of the real options approach to investment under uncertainty which states that increased uncertainty raises the value of waiting and thus decelerates investment typically in this literature projects are assumed to be perpetual however in today s economy firms face a fast changing technology environment implying that investment projects are usually considered to have a finite life the present paper studies investment projects with finite project life and we find that in contrast with the existing theory investments may be accelerated by increased uncertainty it is shown that this particularly happens at low levels of uncertainty and when project life is short

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

does unemployment insurance displace familial assistance the objective of this study is to examine the extent to whichbenefits received from the unemployment insurance programdisplace assistance that the unemployed receive from theirextended family using data from a supplement to the panelstudy of income dynamics it is found that the unemployedreceive private support and that these private networks arefairly pervasive twenty nine percent of those receivingunemployment insurance benefits also receive cash transfersfrom their family or friends moreover it is found thatunemployment benefits displace familial support by as much as24 40 cents per dollar

evaluating risky consumption paths the role of intertemporal substitutability abstract in dynamic stochastic welfare comparisons a failure clearly to distinguish between risk aversion and intertemporal substitutability can result in misleading assessments of the impact of risk aversion on the welfare costs of consumption risk changes the problem arises in any setting in which uncertainty is propagated over time notably but not exclusively in economies with stochastic consumption trends regardless of the preference setup adopted an increase in risk aversion amplifies the per period costs of risks the weights consumers use to cumulate the per period costs of risks with persistent effects should however depend on intertemporal substitutability as well as on risk aversion under time separable expected utility preferences an increase in the period utility function s curvature therefore alters the welfare effect of risk for reasons that are in part unrelated to risk aversion to illustrate these points i reconsider lucas s estimate of the cost of consumption instability for the postwar united states

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

as an economy becomes more developed do people become less altruistic abstractinter household private transfers are one of the main informal insurance mechanisms that prevalently implemented in developing countries unfortunately most of the literatures investigates

parental and public transfers to young women and their children this paper presents estimates of how an increase in welfare benefits for the welfare eligible affects the provision of parental support in the form of both financial transfers and shared residence based on an overlapping generations framework incorporating game theoretic interactions among parents their adult children and the government the empirical results obtained from two longitudinal data sets indicate that the parents view a dollar of income earned by their daughters as equivalent to a dollar increase in welfare benefits however there exists only a small trade off between the generosity of government aid and the incidence of parental aid data are for the united states and are from the national longitudinal survey of young women for 1968 1984 and the national longitudinal survey of youth for 1979 1984 excerpt

european co2 prices and carbon capture investments we assess the option to install a carbon capture and storage ccs unit in a coal fired power plant operating in a carbon constrained environment we consider two sources of risk namely the price of emission allowance and the price of the electricity output first we analyse the performance of the eu market for co2 emission allowances specifically we focus on the contracts maturing in the kyoto protocol s first commitment period 2008 to 2012 and calibrate the underlying parameters of the allowance price process then we refer to the spanish wholesale electricity market and calibrate the parameters of the electricity price process we use a two dimensional binomial lattice to derive the optimal investment rule in particular we obtain the trigger allowance prices above which it is optimal to install the capture unit immediately we further analyse the effect of changes in several variables on these critical prices among them allowance price volatility and a hypothetical government subsidy we conclude that at current permit prices immediate installation does not seem justified from a financial point of view this need not be the case though if carbon market parameters change dramatically carbon capture technology undergoes significant improvements and or a specific governmental policy to promote these units is adopted

ambiguity aversion asset prices and the welfare costs of aggregate fluctuations under the hypothesis that aggregate u s consumption is random and more importantly viewed as ambiguous by consumers we examine the implications for asset prices and for how consumption uctuations in uence consumer welfare first considering a simple mehra prescott style endowment economy with a representative agent facing consumption uctuations calibrated to match u s data we study to what extent ambiguity aversion can deliver asset prices that are consistent with data a high return on equity and a low return on riskfree bonds for some conflgurations of preference parameters a discount factor a degree of relative risk aversion and a measure of ambiguity aversion we flnd that it can we then use these parameter conflgurations to investigate how much consumers would be willing to pay to reduce endowment uctuations to zero thus delivering a lucas style welfare cost of uctuations these costs turn out to be very large consumers can be willing to pay over 10 of consumption in permanent terms

international capital mobility and unemployment dynamics empirical evidence from oecd countries we use a panel of 20 oecd countries over a 30 year period to estimate the implications of international capital mobility for unemployment we nd that the increase in capital ows since the mid 1980s has contributed to an ampli cation of the impulse response of unemployment to country speci c shocks and to a fall in the persistence of unemployment in response to the same shocks

structural estimates of the intergenerational education correlation using a structural dynamic programming model we investigate the relative importance of family background variables and individual specific abilities in explaining cross sectional differences in schooling attainments and wages each type of ability is the sum of one component correlated with family background variables and a residual orthogonal component which is purely individual specific household background variables especially parents education account for 68 of the explained cross sectional variations in schooling attainments while ability correlated with background variables accounts for 17 and pure individual specific ability accounts for 15 interestingly individual differences in wages are mostly explained by pure individual specific abilities as they account for as much as 73 of the explained variations in wages family background variables account for only 19 while ability endowments correlated with family background account for 8 copyright 2003 john wiley sons ltd

is there an intrahousehold flypaper effect evidence from a school feeding programme are public transfers targeted toward children neutralised by the household as the theory of altruism implies or is there an intrahousehold flypaper effect whereby such transfers stick to the child this paper studies the impact of a school feeding programme on child caloric intake in the philippines using a quasi experimental methodology the empirical results confirm an intrahousehold flypaper effect indeed they indicate virtually no intrahousehold reallocation of calories in response to the feeding programme in poorer households however children s gains from the programme appear to be taxed more heavily

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

the family inheritance and the intergenerational transmission of inequality unequal inheritance of material wealth is commonly considered a major cause of inequality in consumption however theoretical models of the intergenerational transmission of inequality by becker blinder and ishikawa imply that unequal inheritance may either increase or reduce consumption inequality differences in inherited wealth resulting from unequal parental incomes increase inequality in recipients consumption however unequal bequests caused by differences among families in the endowed ability of children or the costs of producing human capital are equalizing empirical results confirm these predictions the inheritance received by children is inversely related to both children s income and parental education thus bequests are compensatory in that ceteris paribus low income children inherit more than their advantaged contemporaries

how responsive are private transfers to income evidence from a laissez faire economy abstract in recent years there has been burgeoning interest in how private transfers respond to household income or transfer derivatives much of it is fueled by the specter of crowding out the more responsive are private transfers the more likely they could be supplanted by expansions in public transfers weakening or destroying the latter s distributive impact yet there is also an emerging consensus that actual transfer derivatives are trivial at least for the united states suggesting that crowding out might loom larger in the minds of some economists than in the data but perhaps crowding out is a fait accompli in the united states accordingly we focus on the philippines which has a much smaller public sector we also pursue a novel theoretical angle which generates a sharp non linear relationship between private transfer receipts and income in the form of a spline our empirical work applies recently developed estimation techniques that treat the spline s threshold as an unknown parameter and they uncover transfer derivatives much larger than conventional methods reveal notably private transfers patterns are consistent with altruistic preferences effective risk sharing or both in accord with theoretical predictions however strong transfer derivatives prevail only among low income households our findings suggest that attempts to aid the poor could be thwarted by private responses which leak benefits to richer households in the form of lighter burdens of support for less fortunate kin so the problems that operative private transfers create for public redistribution policy first pointed out by becker and barro over 25 years ago do indeed matter empirically

estimation in a class of simultaneous equation limited dependent variable models estimation in a class of simultaneous equation limited dependent variable models is considered the minimum chi squared method is used to compare the asymptotic relative efficiency of marginal and new conditional maximum likelihood estimators for this class of models efficient minimum chi squared estimation procedures are described a two step algorithm based on a conditional maximum likelihood estimator provides a natural framework for both computing a linearized and locating the joint maximum likelihood estimator the unimodality of the simultaneous equation tobit likelihood function is proved and this model is used to illustrate the empirical application of some of the estimators considered in the paper the relative efficiency of these estimators in the simultaneous equation tobit model is examined in a set of monte carlo experiments many applications of microeconomic theory to individual data face the joint problems of censoring and simultaneity in particular the dependent variable under investigation may not be continuously observed and some of the conditioning variables representing the outcome of other decisions by the individual may be simultaneously determined smith and blundell 1986 developed an asymptotically efficient test for exogeneity or simultaneity in the simultaneous equation tobit model as a byproduct a conditional maximum likelihood estimator was obtained which is consistent under the alternative hypothesis of simultaneity nelson and olsen 1978 amemiya 1978 1979 and heckman 1978 consider a number of consistent marginal maximum likelihood estimators based on marginal maximum likelihood estimators of the reduced form parameters for the probit and tobit models in contrast the estimator derived from smith and blundell 1986 is based on the corresponding conditional maximum likelihood estimators this paper is concerned with estimation in a class of simultaneous limited dependent variable regression models which includes the simultaneous probit and tobit models as special cases analogous marginal and conditional maximum likelihood estimators to those of nelson and olsen 1978 amemiya 1978 1979 heckman 1978 and smith and blundell 1986 are derived and other new estimators are suggested the minimum chi squared approach discussed by ferguson 1958 malinvaud 1970 and rothenberg 1973 is used to compare the asymptotic relative efficiency of various estimators considered a simple two step algorithm based on the conditional maximum likelihood

dowry and wife s welfare a theotrical and empirical analysis becker attributes the existence of marital transfers to inflexibility in the division of joint product within the marriage if that were the only reason we would not have observed the coexistence of dowries and bride prices this paper offers an alternative analysis while becker s interpretation is retained for bride prices a dowry is now represented as a premortem bequest by altruistic parents for a daughter it not only increases the wealth of the new conjugal household but also enhances the bargaining power of the bride in the allocation of the output within the household thereby safeguarding here welfare using micro data from taiwan we found that a dowry improves the bride s welfare whereas a bride price has no effect these empirical results support the theoretical predictions of the model

ex ante actions and ex post public responses to drought shocks evidence and simulations from zimbabwe abstract the study examines the consequences of alternative public responses to drought shocks it does so by drawing on household data from resettlement areas of rural zimbabwe from 1992 93 to 1995 96 and the estimation of four behavioral relations the determinants of crop income the determinants of investment in livestock the determinants of investment in agricultural capital stock and the determinants of private transfers this information is used to construct a series of simulations in which drought relief received in the aftermath of the 1994 95 the ex post response is made available to households in the form of agricultural capital stock and extension advice an ex ante action doing so is found to raise household welfare in nondrought years but provides only limited protection in the aftermath of drought

examining the impact of taiwan s cash allowance program on private households summary to fill the gap of crowding out literature in asia this study analyzes the crowding out impact of taiwan s public old age allowances on familial transfers to poor parents using government data during 1990 2003 we estimate that 1 of public transfers displaces 30 50 cents of inter household transfers one explanation is that the old parents in this analysis were from poor families and they reacted strongly to allowances however the overall consumption especially in luxury goods of the poor individuals has substantially increased this finding indicates that taiwan s old age allowance program does improve the welfare of older individuals

the effect of social entitlement programs on private transfers new evidence of crowding out working paper 2010 15 september 2010 abstract this paper exploits a natural policy experiment to directly identify the crowding out effects of public transfers on the incidence and level of private transfers the introduction of a large social security program in taiwan is used to estimate the effect of an exogenous increase in government transfer payments to the elderly on the private transfer behavior of their adult children using an instrumental variables strategy that accounts for the endogeneity of receiving public transfers the empirical results show strong evidence of crowding out on the extensive margin the probability of providing a positive transfer and weaker evidence of crowding out on the intensive margin the amount of the transfer conditional on it being positive jel classification h53 h55 h31 key words private transfers crowding out 1 introduction determining the impact of public transfer programs on private transfer behavior is a key issue from both a research and policy perspective if public transfers largely crowd out private transfers then the welfare impact of social redistributive programs will be smaller than perceived economic theory is ambiguous in its predictions about crowding out the altruism model developed in the seminal papers of barro 1974 and becker 1974 predicts essentially complete crowding out the model focuses on transfers from parents to children but can be applied equally well to transfers from adult children to their elderly parents in the model the child s utility is included in an altruistic parent s utility function which gives the parent an incentive to support the child the core of the altruism model is the prediction of redistribution neutrality which posits that the parents will adjust their transfer behavior in response to changes in the child s income for example an increase in the child s income due to welfare subsidies from the government will lower the amount of parental transfers if ricardian equivalence holds and the government subsidy is financed by a tax on the parents income then the parents will reduce their transfer exactly by the tax amount implying complete crowding out in contrast to the altruism model the exchange model of bernheim et al 1985 and cox 1987 argues that a child s services to the parents such as contacts and visits are at least in part financially motivated as the child expects monetary compensation in this model the amount of transfers could be a positive or negative function of the child s income as the child s income increases the opportunity cost of services increases and thus the amount of expected compensation for the services increases in such a setting the relationship between the child s income and the amount of parental transfers is not clear it could be positive if the parents demand for services is inelastic as they would need to increase transfer payments to the child in order to receive the same level of services if this were the case government subsidies would increase the amount of private transfers received and thus there would be no crowding effect on the other hand if the demand for services is highly elastic then parents demand would fall along with monetary compensation which would lead to crowding out 1 as a result of the ambiguous effect of crowding out predicted by theory a relatively large empirical literature has focused on the estimation of both the sign and magnitude of the crowding out effect of public transfer programs however due to data limitations most empirical studies have not been able to directly measure the crowding out effect of public redistribution programs most studies in this literature have attempted to indirectly measure the impact of such programs on beneficiaries by studying the response of private transfers to changes in the recipient s level of income the results from these papers however are not consistent

how widespread are nonlinear crowding out effects the response of private transfers to income in four developing countries this article investigates the relationship between household income and private transfers received in developing countries if private transfers are unresponsive to household income there is less likelihood of expansions in public social security crowding out private transfers most literature finds that private transfers are unresponsive but this may be because responses have been obscured by the methods that ignore nonlinearities threshold regression techniques find such nonlinearity in the philippines and scope for serious crowding out with 30 80 of private transfers potentially displaced for low income households cox et al 2004 to see if these nonlinear effects occur more widely semiparametric and threshold regression methods are used to model private transfers in four developing countries china indonesia papua new guinea and vietnam the results reported in this article suggest that nonlinear crowding out effects are not important features of transfer behaviour in these countries the

family networks and school enrolment evidence from a randomized social experiment we present evidence on whether and how a household s behavior is influenced by the presence and characteristics of its extended family using data from the progresa program in mexico we exploit information on the paternal and maternal surnames of heads and spouses in conjunction with the spanish naming convention to identify the inter and intra generational family links of each household to others in the same village we then exploit the randomized research design of the progresa evaluation data to identify whether the treatment effects of progresa transfers on secondary school enrolment vary according to the characteristics of extended family we find progresa only raises secondary enrolment among households that are embedded in a family network eligible but isolated households do not respond the mechanism through which the extended family influences household schooling choices is the redistribution of resources within the family network from eligibles that receive de facto unconditional cash transfers from progresa towards eligibles on the margin of enrolling children into secondary school

the interaction of public and private insurance medicaid and the long term care insurance market a long tradition in public finance examines how public programs can crowd out private activ ity in areas as diverse as education savings and insurance among others these studies typi cally focus on aggregate economic implications particularly for government expenditures and national savings in this paper we demonstrate that crowd out can also have an important effect on individual welfare specifically we show that the provision of even very incomplete public insurance can crowd out more comprehensive private policies by imposing a large implicit tax on private insurance benefits thus potentially increasing overall risk exposure for individuals we examine the interaction of public and private insurance for one of the largest uninsured financial risks facing the elderly in the united states long term care expenditures at 135 bil lion in 2004 long term care expenditures represented over 8 5 percent of total health expendi tures or all ages or roughly 1 2 percent of gdp moreover real long term care expenditures are projected to triple over the next 35 years due to rising medical costs and the aging of the baby boomers only 10 percent of the elderly however have any private long term care insurance and one third of expenditures are paid for out of pocket congressional budget office cbo 1999 cbo 2004 brown and finkelstein 2007 one potential explanation for the small size of the private market is that the public insurance provided by medicaid may crowd out demand for private insurance medicaid was designed to provide long term care insurance for the poor elderly mark v pauly 1989 1990 has established the qualitative result that as an incomplete but publicly funded source of long term care insur ance medicaid has the potential to reduce substantially demand for private long term care insur ance even among the nonpoor our work builds on this insight by quantifying the magnitude of medicaid s crowd out effect and the incomplete nature of medicaid coverage we also illustrate the mechanism behind medicaid s crowd out effect and are therefore able to assess the likely impact of alternative policies on private insurance demand we develop a utility based model of a 65 year old risk averse individual who chooses an opti mal intertemporal consumption path in the presence of uncertainty about long term care expen ditures we calibrate the model using data on the distribution of long term care expenditure risk common state medicaid rules and the prices and coverage of typical private long term care insurance policies

who benefits from public old age pensions evidence from a targeted program abstract given the aging of the population policies relating to the design and reform of public pension programs are prominent in policy debates for many developing countries a major concern centers around the possible displacement of traditional family based support by public programs one challenge in estimating this displacement or crowding out is the endogeneity of social security benefits the incidence and size of benefits may be correlated with unobserved determinants of private transfers especially if benefits are means tested using two rich data sets this article explores the impact of the taiwanese farmers pension program fpp on recipients and their noncohabiting adult children the fpp is targeted at elderly farmers and has relatively clean exogenous rules for eligibility that allow the endogeneity problem to be addressed estimates from multiple identification strategies consistently imply that 1 dollar of pension crowds out 30 39 cents of private transfers received by the elderly

child support welfare dependency and poverty female headed families have among the highest poverty rates of any major demographic group in the united states the purpose of this paperis to investigate empirically the effectiveness of current child support enforcement policies and to determine their role in reducing poverty and welfare dependency a special supplement to the april 1982 current population survey provides the data for the analysis the results indicate that child support enforce ment may represent an effective means for re ducing welfare program costs but isunlikely to have a dramatic effect on either welfare de pendency or poverty copyright 1986 by american economic association

investing in finite life carbon emissions reduction program under risk and idiosyncratic uncertainty this paper aims at emphasizing the ability of new frameworks of real option model to highlight key characteristics of industrial carbon emissions reduction program investment decision we develop both theoretical arguments and numerical simulations with structural parameters calibrated on real life data we find that both radical uncertainty and risk lead to speed up green investments compared to the predictions of real option models that are normally used in green investment literature the conventional wait and see attitude questioned in recent developments of the real option theory is not validated in conclusion our results should foster companies to implement green investments and help governments to define appropriate incentives to encourage green investments of particular note the paper highlights that finance theory is not necessarily an obstacle to green investment decisions

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

social norms and gift behavior theory and evidence from romania in many developing and transitional countries with limited public income redistribution inter household transfers in general and gifts in particular are sizable and very important we use unique romanian survey data that enables us to isolate pure gifts from other private transfers we explicitly focus on the importance of community wide social norms and find that they indeed play a major role for both the occurrence and the values of gifts more exactly our results suggest that the overall predominant gift motive among romanian households is a norm of reciprocity moreover this norm seems to be dominating for gifts to middle and high income households even though poor households receive to the same extent norms of both impure altruism and reciprocity tend to be important hence although the poor may not reciprocate gifts to the same extent as the rich they still receive since there is a social norm to give especially to the poor

the cost of business cycles under endogenous growth robert e lucas jr argued that the welfare gains from reducing aggregate consumption volatility are negligible subsequent work that revisited his calculation continued to find small welfare benefits further reinforcing the perception that business cycles do not matter this paper argues instead that fluctuations can affect welfare by affecting the growth rate of consumption i show that fluctuations can reduce growth starting from a given initial consumption which can imply substantial welfare effects as lucas himself observed empirical evidence suggests the welfare effects are likely to be substantial about two orders of magnitude greater than lucas original estimates

emissions trading and investment decisions in the power sector a case study in finland abstract organizations which consider investment in or divestment of power production licences capacity within the european community are exposed to the impacts of the european union emission allowance trading scheme eu ets in this paper the consequences of the eu ets on investment decisions are explored in a country specific setting in finland first we review the general mechanisms through which the eu ets influences size timing and cashflows of an investment next we discuss the projected changes in finnish power producers investment environment and examine the financial impacts due to the eu ets on a case investment decision a hypothetical condensing power plant 250 mwe the standard discounted cash flow dcf analysis is extended to take into account the value of two real options the option to wait and the option to alter operating scale in a quantitative investment appraisal the impact of emissions trading not only depends on the expected level of allowance prices but also on their volatility and correlation with electricity and fuel prices the case study shows that the uncertainty regarding the allocation of emission allowances is critical in a quantitative investment appraisal of fossil fuel fired power plants

time to build option value and investment decisions abstract investment decisions and outlays are often made sequentially for example the rate at which construction proceeds is usually flexible and can be adjusted with the arrival of new information traditional discounted cash flow methods which treat the pattern of investment as fixed ignore this flexibility and understate the value of the project this paper uses contingent claims analysis to derive optimal decision rules and to value such investments we determine the effects of time to build opportunity cost and uncertainty on the investment decision for reasonable parameter values we show how a simple npv rule can lead to gross errors

efficient responses to targeted cash transfers we estimate and test the restrictions of a collective model of household consumption using z conditional demands in the context of a large conditional cash transfer program in rural mexico the model can explain the impacts of the program on the structure of food consumption we use two plausible and novel distribution factors the random allocation of a cash transfer to women and the relative size and wealth of the husband s and wife s family networks our structure does better at predicting the effect of exogenous increases in household income than an alternative unitary structure we cannot reject efficiency of household decisions

the implications of changes in hours fluctuations on welfare costs of business cycles abstract hours volatility has changed non monotonically across skill groups since the mid 1980s the welfare cost of business cycles of mid skilled workers became similar to that of high skilled workers while the relative welfare cost of low to high skilled workers remains very high

did public transfers crowd out private transfers in korea during the financial crisis abstract how effective are public transfers in protecting households facing financial crisis induced negative shocks existing studies have not yet carefully considered the inter relationship between public transfers and the existing private transfer network in the context of the financial crisis in korea this paper investigates the possible crowding out effect of public transfers on private transfers by explicitly considering the endogenous responses of private transfers against public transfers by using two korean household level panel data sets for the periods of 1995 1998 and 1998 2003 we found a post crisis but not pre crisis crowding out effect of public transfers more importantly a crowding in effect is observed during the crisis the results suggest that private transfer networks were strengthened under the initial phase of the financial crisis which possibly complemented public transfers due to the lack of effective formal safety nets while public transfers became effective after the cri