unauthorized immigration and fiscal competition abstract reflecting upon recent enforcement policy activism of us states and countries within the eu towards unauthorized workers we examine the overlap of centralized federal and decentralized state or regional enforcement of immigration policies in a spatial context among other results we find that if interstate mobility is costless internal enforcement is overprovided and border enforcement and local goods are underprovided when regions take more responsibility in deciding policies this leads to higher levels of unauthorized immigration under decentralization interregional migration costs moderate such over underprovision moreover income distributive motives in the host country may shape the design of immigration policies in specific ways the basic model is extended in several ways first we study how the policies change when regions can exclude unauthorized immigrants from the consuming of regionally provided goods or services second we assume that the potential number of unauthorized immigrants is endogenous and finally we examine the effect of considering an alternative spatial configuration that includes border and interior regions

who gains from capital market integration tax competition between unionized and non unionized countries the welfare effects of capital market integration are examined under a model of tax competition with two asymmetric countries the asymmetry is expressed through the labour market one country has a perfect labour market whereas the other country s labour market is unionized our results indicate that the welfare effects of capital market integration differ depending on whether governments are active or passive in attracting capital in the absence of active governments capital market integration benefits the country with a competitive labour market whereas it harms the unionized country capital market integration benefits both countries if governments are active and compete for mobile capital using taxes subsidies

performance rating and yardstick competition in social service provision abstract this paper investigates whether national evaluation of decentralised government performance tends by lessening local information spill overs to reduce the scope for local performance comparisons and consequently to lower the extent of spatial auto correlation among local government expenditures it analyses local government expenditures on personal social services in the uk before and after the introduction of a national performance assessment system sspr social services performance rating that would attribute a rating to each local authority the empirical evidence is consistent with the hypothesis that the sspr has reduced local yardstick competition

decentralization and intra country transfers in the great recession the case of the european union empirical evidence is found supporting the assignment of the redistribution function to the central government viewing the great recession or recessions in general as a shock it is found that a

factor mobility and income redistribution in a federation abstract jurisdictions in a federation redistribute income by taxing capital and providing transfers to labor capital and labor move to earn higher returns net of taxes or gross of transfer benefits between jurisdictions in determining its redistributive policy the government for each jurisdiction thus takes into account the effects of its policy on the movement of factors from and to the jurisdiction hence the extent of redistribution depends on the mobility of factors the mobility of capital or labor leads to less redistribution than under autarky however mobility of both capital and labor may lead to more redistribution than if only capital moves as a consequence increased mobility of factors is not necessarily harmful to redistribution

clearly irrational financial market behavior evidence from the early exercise of exchange traded stock options this paper analyzes the early exercise of exchange traded options by different classes of investors over the 1996 to 1999 period a large number of exercises are identified as clearly irrational without invoking any model of market equilibrium customers of discount brokers and customers of full service brokers both engage in a significant number of irrational exercises while traders at large investment houses exhibit no irrational early exercise behavior rational and irrational exercise is triggered for discount and full service customers by the underlying stock price attaining its highest level over the past year and by high returns on the underlying stock it is well known that in the absence of market frictions it is irrational to exercise american call options early except in some circumstances just before the underlying stock goes ex dividend even in the presence of market frictions it is possible to identify without the imposition of any model of market equilibrium call exercises that are clearly irrational in this paper we employ a previously unavailable data set to analyze the rationality of early exercises of chicago board option exchange cboe calls over the 1996 to 1999 period by customers of discount brokers discount customers customers of full service brokers full service customers and traders at large investment houses trading for their firms own accounts firm proprietary traders our first main finding is that there are a large number of early exercises that can be definitively identified as irrational and irrational exercise activity is not evenly distributed across the investor classes discount customers and full ser

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

psychological factors and stock option exercise we investigate stock option exercise decisions by over 50 000 employees at seven corporations controlling for economic factors psychological factors influence exercise consistent with psychological models of beliefs employees exercise in response to stock price trends exercise is positively related to stock returns during the preceding month and negatively related to returns over longer horizons consistent with psychological models of values that include reference points employee exercise activity roughly doubles when the stock price exceeds the maximum price attained during the previous year

state government cash and in kind benefits intergovernmental fiscal transfers and cross program substitution abstract us states provide both cash and health insurance benefits for the poor partially financed by fiscal transfers from the federal government the 1996 welfare reform drastically reduces federal support for cash transfers at the margin lowering the relative price to states of providing benefits to the poor through medicaid this paper analyzes the comparative statics response of state governments to such changes in intergovernmental transfers showing in central cases that they can contribute not only to reductions in state expenditures on cash benefits but to increases in expenditures on medicaid whether or not beneficiary populations are mobile among states

matching grants and ricardian equivalence this paper investigates the effectiveness of matching grants to correct for interjurisdictional spillovers in the light of bernheim general neutrality result indeed this result suggests that the usual argument that matching grants are needed to internalize the externality arising from the existence of interjuridictional spillovers is an artifact of the assumption that jurisdictions neglect the impact that their decisions have on the federal budget relaxing this assumption and using a classical model where the arbitrage resulting from labor mobility implies that redistribution has the properties of a public good we find that matching grants are relevant although somewhat less ective we also find that optimal matching rates are independent of the number of jurisdictions and their strategic variables contrarily to the case where jurisdictions ignore the impact of their decisions on the federal budget

federal grants and yardstick competition abstract citizens may see a government which wins a grant in competition with other states as especially effective and may therefore want it to increase spending similarly a voter who sees that a neighboring jurisdiction got a grant which his jurisdiction did not may think poorly of the ability of local officials and therefore reduce his demand for local spending data on spending by states in the united states show these effects

welfare payments and other economic determinants of female migration this article investigates the effects of welfare payments wages and unemployment on women s probability of interstate migration in the united states it also investigates if the income attraction of locations varies with recency of labor market experience welfare gains increase the probability of interstate migration welfare effects are largest for single mothers with small children and stronger among women with no recent labor market experience the welfare effects albeit small are larger than the wage effects the wage effects are weaker among women with no recent work experience ethnic specific analyses suggest differences in migration behavior among anglos african americans and puerto ricans

migration and income redistribution responsibilities this study examines whether afdc benefits determine or discourage state to state migration flows in the united states a pooled cross section time series model is developed to estimate afdc benefits in a state and recipients and whether benefits in one state affect benefits in other states a second model using data from the 1980 census and the panel study of income dynamics estimates migration of afdc recipients and the level of benefits in in migration and out migration states both models indicate that small but statistically significant amounts of migration occur which may be quite important but only in the long run movers although small in number are much more likely to move to a state with higher benefits states perceive this migration as important indicating that states should have less control and the federal government more control over income redistribution

the effect of welfare and wage levels on the location decisions of female headed households abstract this paper develops and estimates a model designed to calculate the impact of welfare benefit levels wages and tax rates on the location choices of female headed households the empirical model assumes that women simultaneously choose both where they will live and whether or not they will participate in the welfare system based on their expected income and expected hours of work for each location participation possibility these income and hours expectations depend in turn on the welfare benefits wage and tax rates facing each household in each location it is found that both regional welfare levels and wage rates have a significant effect on the location decisions of this population the probability of a typical female headed household with little outside income leaving an area with low welfare payments and low wages can be as much as 12 points higher over a 4 year period than the probability of leaving a high welfare high wage area

skewness preference and the popularity of technical analysis abstract we propose a simple model of how investors evaluate a trading rule and show that the market timing of technical trading rules induces lottery like trading profits therefore investors preference for positive skewness caters to the popularity of technical analysis since prospect theory implies strong skewness preference it can explain why investors trade extensively on chart patterns that are meaningless in light of the efficient market hypothesis technicians often invoke behavioral finance as its theoretical foundation contrary to this view we show that ideas from behavioral finance explain why technical analysis is popular despite the lack of theoretical foundation and empirical success

welfare magnet hypothesis fiscal burden and immigration skill selectivity in this paper we investigate the effect of welfare state generosity on the difference between skilled and unskilled migration rates and the role of mobility restriction in shaping this effect we utilize the free labor movement within the european union plus norway and switzerland eur and the restricted movement from outside the eur in order to compare the free migration regime to the restricted migration regime we find strong support for the magnet hypothesis under the free migration regime and the fiscal burden hypothesis under the restricted migration regime even after controlling for differences in educational quality and returns to skills in source and host countries

learning to love the dutch disease evidence from the mineral economies abstract recent literature proposes that a booming minerals sector may not only lead to dutch disease effects it may also be a development curse mineral economy case studies have tentatively confirmed this recourse curse thesis this paper examines the long run economic and development performance of a more general grouping of mineral based economies and finds little corroborating evidence

do states play welfare games abstract this paper uses a panel of state level annual data from 1983 to 1994 for each of the contiguous united states and the district of columbia to explore the degree to which states simultaneously set welfare benefits using instrumental variables estimation we find substantial empirical evidence that is supportive of the notion of welfare competition furthermore we find that state responses to neighbor benefit decreases tend to be significantly larger in magnitude as their responses to neighbor benefit increases our results therefore have potential implications for public policy in the wake of the increased decentralization of welfare policy associated with the welfare reform of 1996

prospect theory liquidation and the disposition effect there is a well known intuition linking prospect theory with the disposition effect the tendency of investors to sell assets that have risen in value rather than fallen recently several authors have studied rigorous models in an attempt to formalize the intuition however some have found it difficult to predict a disposition effect while others produce a more extreme prediction where investors never voluntarily sell at a loss we solve a model of asset liquidation where investors realize utility over gains and losses and utility is concave over gains and convex over losses under the preferences of tversky and kahneman tversky a d kahneman 1992 advances in prospect theory cumulative representation of uncertainty j risk uncertainty5 4 297 323 and lognormal asset prices investors exhibit a disposition effect as gains are realized at a greater rate than losses nonetheless in contrast to the extant literature we find that the investor will give up and sell at a loss when the asset has a sufficiently low sharpe ratio this paper was accepted by brad barber teck ho and terrance odean special issue editors

on the intergenerational allocation of natural resources it is known hartwick and others that under standard assumptions a society that invests in reproducible capital the competitive rents on its current extraction of exhaustible resources will enjoy a consumption stream constant in time it is shown here that this result can be interpreted as saying that an appropriately defined stock of capital including the initial endowment of resources is being maintained intact and that consumption can be interpreted as the interest on that patrimony this seems like a useful rule of thumb for policy

optimal exercise of executive stock options and implications for firm cost this paper conducts a comprehensive study of the optimal exercise policy for an executive stock option and its implications for option cost average life and alternative valuation concepts the paper is the first to provide analytical results for an executive with general concave utility wealthier or less risk averse executives exercise later and create greater option cost however option cost can decline with volatility we show when there exists a single exercise boundary yet demonstrate the possibility of a split continuation region we also show that for constant relative risk averse utility the option value does not converge to the black and scholes value as the correlation between the stock and the market portfolio converges to one we compare our model s option cost with the modified black and scholes approximation typically used in practice and show that the approximation error can be large or small positive or negative depending on firm characteristics

optimal portfolio choice under loss aversion this paper analyzes the optimal investment strategy for loss averse investors assuming a complete market and general ito processes for the asset prices the loss averse investor follows a partial portfolio insurance strategy when the investor s planning horizon is short less than 5 years he or she considerably reduces the initial portfolio weight of stocks compared to an investor with smooth power utility the empirical section of the paper estimates the level of loss aversion implied by historical u s stock market data using a representative agent model we find that loss aversion and risk aversion cannot be disentangled empirically

delayed integration as a possible remedy for the race to the bottom abstract it has been a long standing concern in the literature that household mobility implies a serious threat to redistributive taxation this paper considers the effects of delayed integration of migrants into the redistributive system of the target country we argue that delayed integration may introduce a time consistency problem into governments tax plans that reduces a region s incentive to undercut other regions tax rates and can bring tax competition to a halt due to delayed integration rich migrants cease to benefit from the lower tax rate in the current period at the same time the region s promise of a low rate in the future lacks credibility since delayed integration locks in migrants once they are settled we also explore the case where poor recipients of social assistance are mobile while the rich are immobile

prospect theory and the disposition effect this paper shows that prospect theory is unlikely to explain the disposition effect prospect theory predicts that the propensity to sell a stock declines as its price moves away from the purchase price in either direction trading data on the other hand show that the propensity to sell jumps at zero return but it is approximately constant over a wide range of losses and increasing or constant over a wide range of gains further the pattern of realized returns does not seem to stem from optimal after tax portfolio rebalancing a belief in mean reverting returns or investors acting on target prices

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

portfolio choice and trading volume with loss averse investors this paper presents a model of portfolio choice and stock trading volume with lossaverse investors the demand function for risky assets is discontinuous and non monotonic as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy this behavior is consistent with the evidence in favor of the disposition effect in addition loss averse investors will not hold stocks unless the equity premium is quite high the elasticity of the aggregate demand curve changes substantially depending on the distribution of wealth across investors in an equilibrium setting the model generates positive correlation between trading volume and stock return volatility but suggests that this relationship should be non linear

fiscal decentralization and spillover effects of local government public spending the case of italy abstractfiscal decentralization and spillover effects of local government public spending the case of italy regional studies this paper investigates the presence of spatial interdependencies in the regional public expenditure decision process and the impact of fiscal decentralization on its determinants the analysis refers to the constitutional reform concluded in italy in 2001 that redefined the legislative powers of the regions and their sectoral competence the results highlight the opportunistic behaviour of regional governments in sectors where they can benefit from neighbours public expenditure spillovers other findings comprise the presence of congestion and mobility effects a shift in demand to the private sector except for education and the mobility of individuals towards richer regions

assistance to the poor in a federal system abstract this paper explores the roles of different levels of government in assisting the poor using a model incorporating utility interdependence the paper first presents some theoretical results indicating how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support it then provides a survey of the empirical work on migration of the poor along with a brief historical discussion of the experience under the english poor laws the concluding section turns to normative issues and contends that mobility of the poor is a basic source of inefficiency in wholly decentralized systems of support this inefficiency along with certain other equity considerations establishes a role for the central government in assistance to the poor

importing the poor welfare magnetism and cross border welfare migration i test for welfare induced migration by comparing afdc participation in border counties to interior counties in the same state if migration costs are lower for border county residents border counties on the high benefit side of a state border should have higher welfare participation relative to the state s interior counties border counties on the low benefit side should have lower welfare participation relative to the state s interior counties the results obtained using county level data from 1970 90 indicate that having a neighbor with benefits that are 100 lower increases afdc expenditures in border counties by 4 0 6 8 percent relative to interior counties

risk managing tail risk seekers var and expected shortfall vs s shaped utility abstract we consider market players with tail risk seeking behaviour modelled by s shaped utility as introduced by kahneman and tversky we argue that risk measures such as value at risk var and expected shortfall es are ineffective in constraining such players as such measures cannot reduce the traders expected s shaped utilities indeed when designing payoffs aiming to maximize utility under a var or es risk limit the players will attain the same supremum of expected utility with or without var or es limits by contrast we show that risk management constraints based on a second more conventional concave utility function can reduce the maximum s shaped utility that can be achieved by the investor indeed product designs leading to progressively larger s shaped utilities will lead to progressively lower expected constraining conventional utilities violating the related risk limit these results hold in a variety of market models including the black scholes options model and are particularly relevant for risk managers given the historical role of var and the endorsement of es by the basel committee in 2012 2013

a model of welfare competition with evidence from afdc in this paper we test empirically for strategic behavior among the states using the cash support program aid to families with dependent children afdc to motivate the empirical work we adapt wildasin s model of income redistribution 1991 american economic review 81 757 773 to a model of interjurisdictional welfare competition although welfare competition may be generated from different frameworks we choose wildasin s model to illustrate how welfare benefit interdependence is genereated in the context of welfare migration we estimate a representative reaction function for afdc using both cross sections and pooled cross section data after controlling for other determinants of afdc benefit levels and for spatial error autocorrelation we find evidence showing competition 2000 academic press

federalizing benefits the introduction of supplemental security income and the size of the safety net abstract in 1974 supplemental security income ssi federalized cash welfare programs for the elderly blind and individuals with disabilities imposing a national minimum benefit and differentially raising payment levels in states that paid below its benefit floor we show that this increased disability participation but shrank non disability cash transfer programs for every four new ssi recipients three came from other welfare programs each dollar of per capita ssi income increased total per capita transfer income by just over 50 cents federalizing part of a patchwork safety net need not increase redistribution by as much as traditional models of fiscal federalism suggest

second best institutions the focus of reforms in the developing world has moved from getting prices right to getting institutions right this reflects the recognition that markets are unlikely to work well in the absence of a predictable and legitimate set of rules that support economic activity and dis pense its fruits governance reforms have become the buzzword for bilateral donors and multilateral institutions in much the same way that liberalization privatization and stabiliza tion were the mantras of the 1980s but what kind of institutions should reform ers strive to build it is easier to list the func tions that good institutions perform than it is to describe the shape they should take desirable institutions provide security of property rights enforce contracts stimulate entrepreneurship foster integration in the world economy maintain macroeconomic stability manage risk taking by financial intermediaries supply social insurance and safety nets and enhance voice and account ability but as the variety of institutional forms that prevail in the advanced countries themselves suggests richard freeman 2000 peter hall and david soskice 2001 each one of these ends can be achieved in a large number of different ways rodrik 2007a

geographical variations in expenditure of learning disability services in england this article investigates the determinants of local authority learning disability ld expenditure in england it adopts a reduced form of demand and supply model extended to account for possible interdependence between municipalities risk factors such as people aged under 14 mortality rate and lone parents seem to play an important role in explaining geographical variation of spending further labour municipalities on average allocate lower resources on ld than do other political parties finally results corroborate recent findings in economics that authorities interact with each other when allocating public resources

capital theory and the measurement of sustainable development an indicator of weak sustainability the measurement of sustainable development is not without considerable difficulties yet this should not detract from the positive advances that can be made in this direction in this paper we present one form that a weak sustainability indicator can take derived from a simple but intuitive savings rule it incorporates the idea that the level of overall capital stock should be non decreasing although subject to qualification at this stage some interesting results emerge from the application of the rule to 18 countries

spillover effects of stricter immigration policies abstract we provide evidence for the existence of spillover effects of national immigration policies by estimating the effect of stricter family reunification rules in denmark on migration behavior we reach three main conclusions using danish register data we first show that stricter rules for reunification led to a clear and significant increase in emigration of danish citizens with immigrant background most of the emigrants left denmark for sweden a neighboring country in which reunification was possible next using swedish register data we find that affected individuals emigrating to sweden actually came for family formation purposes finally we demonstrate that not all individuals that came to sweden to reunite with a partner stayed in the country of those leaving return migration to denmark was most common our results indicate that potential spillover effects from national migration policies should be taken into account when forming migration policy

trade and payments regime and the balance of payments in ghana abstract by 1982 the ghanaian economy was in the doldrums facing a severe foreign exchange constraint this state of the economy was attributed partly to the trade and exchange rate policies which had created distorsions and disincentives against exporting in particular and production in general since 1983 ghana has for the second time embarked on a trade and payments liberalization program this study examines the effect of the changing trade and payments regime on the balance of payments of ghana it provides some answers as to why the first liberalization episode was not sustained it also contrasts the experience of controlled and liberalized trade regime episodes the paper concludes by providing some lessons from the ghanaian experience

exporting the norwegian model the effect of administrative design on oil sector performance norway has administered its petroleum resources using three distinct government bodies a national oil company engaged in commercial hydrocarbon operations a government ministry to direct policy and a regulatory body to provide oversight and technical expertise norway s relative success in managing its hydrocarbons has prompted development institutions to consider whether this norwegian model of separated government functions should be recommended to other oil producing countries by studying ten countries that have used widely different approaches in administering their hydrocarbon sectors we conclude that separation of functions is not a prerequisite to successful oil sector development countries where separation of functions has worked are characterized by the combination of high institutional capacity and robust political competition unchallenged leaders often appear able to adequately discharge commercial and policy regulatory functions using the same entity although this approach may not be robust against political changes where institutional capacity is lacking better outcomes may result from consolidating commercial policy and regulatory functions until such capacity has further developed countries with vibrant political competition but limited institutional capacity pose the most significant challenge for oil sector reform unitary control over the sector is impossible but separation of functions is often difficult to implement

savings growth and the resource curse hypothesis an important connection between recent attempts to understand the determinants of economic growth and the measurement of sustainability is the finding of a negative and significant relationship between natural resource abundance and economic growth this is the so called resource curse hypothesis using cross country regressions we offer evidence that the curse may itself be a manifestation of the inability of governments to manage large resource revenues sustainably in particular these results offer another perspective on the resource curse hypothesis the countries where growth has lagged are those where the combination of natural resource macroeconomic and public expenditure policies have led to a low rate of genuine saving net saving adjusted for resource depletion

mental health expenditure in england a spatial panel approach we empirically investigate the determinants of local authority mental health expenditure in england we adopt a reduced form demand and supply model extended to incorporate possible interaction among authorities as well as unobserved heterogeneity the model is estimated using an annual panel dataset that allows us to explore both time series and cross municipality variation in mental health expenditure results are consistent with some degree of interdependence between neighbouring municipalities in spending decisions this first attempt to apply spatial panels in investigating health expenditure offers insights and raises new questions

vertical competition in the spanish national health system nhs in unitary states competitive decentralisation structures can take place by increasing the visibility of politically accountable jurisdictions in certain policy responsibilities such as health care drawing from the spanish decentralisation process we examine the mechanisms and determinants of vertical competition in the development of health policies in the spanish national health system the spanish example provides qualitative evidence of vertical competition that assimilates government outcomes of unitary states to that of federal structures the spanish experience indicates that the specific vertical competition mechanisms in place until 2002 are likely to be responsible for significant policy innovation and welfare state development

oil and regime type in latin america reversing the line of causality abstract in its first generation the literature on the resource curse typically posited that resource dependence shapes a country s economy and politics more recent work posits that the effects are mediated by institutions we take this newer approach further by arguing that economic and political institutions not just mediate but actually shape resource dependence our focus is on performance across national oil companies nocs in latin america we explain performance variation by invoking variations in regime and market features nocs that operate in contexts of greater independence from the executive branch stronger checks and balances within and outside the sector and greater market forces though not necessarily private actor dominance exhibit better performance institutions thus influence sector conditions rather than the other way around we advance this argument using original data from colombia and venezuela and supplementary data from mexico brazil and argentina our study focuses on the oil boom bust cycle of 2003 2016

testing for strategic interaction among local governments the case of growth controls this paper helps to fill a gap in the public economics literature by providing empirical evidence on strategic interaction among local governments using the methodology of case et al journal of public economics 52 285 307 1993 the paper focuses on the adoption of growth control measures by cities in california and looks for evidence of policy interdependence in these choices the data are drawn from an elaborate survey of growth control practices in california cities conducted by glickfeld and levine regional growth local reaction lincoln institute of land policy cambridge ma 1992 the survey results are used to compute an index of the stringency of growth controls in each city which serves as the dependent variable for the study

until the bitter end on prospect theory in a dynamic context many economic and financial decisions depend crucially on their timing people decide when to invest in a project when to liquidate assets or when to stop gambling in a casino we provide a general result on prospect theory decision makers who are unaware of the time inconsistency induced by probability weighting if a market offers a sufficiently rich set of investment strategies then such naive investors postpone their stopping decisions indefinitely we illustrate the drastic consequences of this never stopping result and conclude that probability distortion in combination with naivete leads to unrealistic predictions for a wide range of dynamic setups

welfare and the multifaceted decision to move are poor single mothers more likely to stay in or move to states with higher welfare benefits this question has important implications on at least two levels as a policy matter the answer will enlighten us about the effects of welfare on society and will assist efforts to understand whether states systematically lower benefits in order to avoid becoming welfare magnets peterson and rom 1989 rom peterson and scheve 1998 volden 2002 this answer will also help us anticipate how welfare policies may evolve in other areas of the world where it is or is becoming as easy to move across jurisdictional boundaries as in the united states as a theoretical matter understanding the relationship between welfare and migration can help us better understand how the increasing mobility of people firms and capital affects governmental capacities to provide welfare and other redistributive benefits if generous government benefits prompt people who receive them to flow in and the people who pay for them to flow out the benefits will become increasingly difficult to sustain this is true not only for a federal system such as the united states but also for the international system in which political social and economic barriers to migration have fallen dramatically in recent years finding that welfare induced migration occurs in the united states would enhance concern about governmental capacity for social services finding no such behavior on the other hand would make us less inclined to believe that migration constrains governments in other less likely contexts lately most scholars researching the question have found very little or no support for the idea that welfare affects migration in the united states allard and danziger 2000 levine and zimmerman 1999 schram nitz and krueger 1998 schram and soss 1999 they conclude that the evidence is at best mildly in favor of the idea that welfare affects migration brueckner

decentralized welfare will there be underprovision abstract this paper develops an asymmetric nash equilibrium model of welfare provision by states when the benefit payment is a local public good and a fixed population of welfare recipients distributes itself between states with logistic migration function the model shows that state size is an important demand shifter across states because it alters the supply elasticity of recipients the model provides estimates of how the degree of benefit under provision varies with this migration elasticity other demand instruments such as taxpayer resources and generosity likewise generate positive correlation between benefits and recipients while supply shifters generate negative correlation between benefits and recipients the model s predictions are closely matched empirically when examining the reduced form impact of these instruments on the pattern of welfare benefits and recipients across states using these impacts to assign the instruments to either supply or demand sides of the model it is possible to estimate the model s structural elasticities these turn out to be high enough so that simulated solutions to the model generate considerable welfare underprovision and thus raise concern about a race to the bottom with decentralized control over afdc

does welfare policy affect residential choices an empirical investigation accounting for policy endogeneity abstract this paper studies how changes in welfare policy affect welfare recipients residential choices although several empirical studies have stressed that welfare policy may affect residential choices of welfare recipients few studies have simultaneously taken into account that residential choices of welfare recipients are also likely to affect welfare policy this paper utilizes a policy reform to address this policy endogeneity the results show that welfare policy exerts a substantial effect on residential choices of welfare recipients

american federalism welfare policy and residential choices the relationship between welfare benefit levels and the residential choices of the poor raises two issues for federalism in the united states do state benefit levels affect the residential choices of the poor do residential choices of the poor affect the level at which a state sets its benefit levels empirical studies have seldom studied the interconnection between these two issues this research estimates simultaneously the mutual effects of welfare benefits and poverty rates while controlling for other economic and political variables when benefit levels become high the size of the poverty population increases conversely when poverty rates become high benefit levels are cut the findings are consistent with the claim that state determined benefit levels distort policy and residential choices

competition for migrants in a federation tax or transfer competition this paper provides an analysis of competition for migrants competing in taxes transfers renders migration flows less more elastic with respect to changes in fiscal policy jurisdictions with aligned preferences i e jurisdictions that maximize the interest of the same type of households either mobile or immobile households prefer to reduce the competitive pressure and compete in taxes jurisdictions with distinct preferences on the other hand prefer to expose themselves to more competitive pressure and compete in transfers this paper offers insights into the optimal use and design of transfers and helps interpret existing empirical evidence

taking the bite out of fiscal competition regions can benefit by offering infrastructure services that are differentiated by quality thus segmenting the market for industrial location regions that compete on infrastructure quality have an incentive to increase the degree of differentiation between them this places an upper bound on the number of regions successfully able to participate in the location market and limits the dissipation of regional surplus through tiebout competition it indicates a process of fiscal agglomeration through which regional concentrations arise which does not depend on the circular causation underlying much of the recent literature on economic geography

decentralized redistribution in a laboratory federation abstract the idea of laboratory federalism provides a strong argument in favor of fiscal decentralization it views autonomous jurisdictions in a federation as laboratories where new policies can be tested at low risk for the entire system if successful these policies will spread out by imitation otherwise they will be discarded studying this idea in a dynamic setting of fiscal competition we show that due to externalities between jurisdictions policies that appear successful and are therefore mimicked do not necessarily enhance welfare and vice versa specifically in the classical framework of decentralized rich to poor income redistribution with labor mobility the long run outcome entails a complete breakdown of redistribution with zero subsidies to the poor everywhere

subsidies as sorting devices abstract the divergence between tax payments and the cost of providing public services that arise from financing local public services provides an incentive for higher income communities to deter the entry of lower income households into their community here we demonstrate that higher income households to insure that low income households do not enter their community or reduce the number that do enter subsidize goods consumed by higher income households more than by lower income households this strategy will make the rich community less attractive to the poor deterring their entry to the community

the negative income tax and the evolution of u s welfare policy the negative income tax proposed by milton friedman represents one of the fundamental ideas of modern welfare policy however the academic literature has raised two difficulties with it one challenging its purported work incentives and the other suggesting the possible superiority of work requirements in addition work requirement approaches have gained ground in actual u s welfare policy over the last 30 years and the number of different programs has proliferated another development counter to the negative income tax on the other hand the earned income tax credit has produced a negative income tax like program on a vast scale

emerging technologies and ethics a race to the bottom or the top does national success with an emerging technology require ethical sacrifices this question is considered through the simultaneous consideration of ethics investment and outcomes in the nine jurisdictions that are making the largest investments in nanotechnologies an important emerging technology it is found that while ethical environment has no notable effect on pure and applied research a more positive ethical environment is associated with measures associated with invention and commercialization in summary a race to the top supports invention and commercialization of emerging technologies a critical finding as it suggests that issues such as corruption and regulation could be critical in limiting the extraction of social and economic benefit from emerging technologies like nanotechnologies

migration consequences of welfare reform abstract we investigate whether recent changes in welfare policy affect the migration of low educated unmarried mothers estimates indicate that welfare reform is associated with an increase in employment related intrastate migration and a decrease in non employment related migration both within and between states the net effect was a small increase in intrastate migration and a small decrease in interstate migration the close link between migration and employment suggests that welfare reform has motivated low income women to move for economic reasons in general welfare policy appears to have a much larger effect on residential location because of its relationship to employment than because of benefit differences between states

is there a race to the bottom in the setting of welfare benefit levels evidence from a policy intervention abstract in this paper we investigate whether local governments react on the welfare benefit levels in neighboring jurisdictions when setting their own benefit levels we solve the simultaneity problem arising from the welfare game by utilizing a policy intervention more specifically we use a centrally geared exogenous placement of a highly welfare prone group refugees among swedish municipalities as an instrument the iv estimates indicate that there exists a race to the bottom and that the effect is economically as well as statistically significant if the neighboring municipalities decrease their welfare benefit level by 100 sek a municipality decreases its benefit level with approximately 41 sek this result is robust to several alternative model specifications

do jurisdictions compete on taxes a meta regression analysis a sizable empirical literature examines government fiscal interactions however the empirical evidence is very mixed we apply meta regression analysis to quantify the size of inter jurisdictional fiscal interactions and to explain the heterogeneity in empirical estimates several robust results emerge while there are significant country differences tax interactions exist in all countries studied and they are strongest in terms of total tax and weakest in terms of income tax interactions differ according to level of government compared to the municipal level horizontal tax competition is stronger when the jurisdiction is a county or a nation we show that tax competition has actually not grown over time and that econometric specifications and estimation strategies influence reported fiscal interactions

redistribution fiscal competition and the politics of economic integration the paper examines the consequences of the economic integration of factor markets in a model with two countries that redistribute income among their residents the social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants if either capital or labour is internationally mobile the countries engage in fiscal competition and the partial integration of capital or labour markets is detrimental to the countries redistributive ability a move from partial to full integration however may alleviate rather than intensify fiscal competition particularly if the two countries face sufficiently similar economic and political conditions in such a situation for example tax competition for mobile capital is softened as the labour market becomes more integrated and even vanishes if both factors are fully mobile as a result there is more redistribution in equilibrium and a majority of the population in each country is strictly better off copyright 2002 wiley blackwell

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

prospect theory and liquidation decisions we solve a liquidation problem for an agent with preferences consistent with the prospect theory of kahneman and tversky econometrica 47 1979 263 291 we find that the agent is willing to hold a risky project with a relatively inferior sharpe ratio if the project is currently making losses and intends to liquidate it when it breaks even on the other hand the agent may liquidate a project with a relatively superior sharpe ratio if its current profits rise or drop to the break even point our results capture the spirit of the disposition effect and the break even effect documented in empirical and experimental studies

ambiguity attitudes in a large representative sample using a theorem showing that matching probabilities of ambiguous events can capture ambiguity attitudes we introduce a tractable method for measuring ambiguity attitudes and apply it in a large representative sample in addition to ambiguity aversion we confirm an ambiguity component recently found in laboratory studies a insensitivity the tendency to treat subjective likelihoods as 50 50 thus overweighting extreme events our ambiguity measurements are associated with real economic decisions specifically a insensitivity is negatively related to stock market participation ambiguity aversion is also negatively related to stock market participation but only for subjects who perceive stock returns as highly ambiguous this paper was accepted by james smith decision analysis

risk aversion and block exercise of executive stock options abstract it is well documented that executives granted stock options tend to exercise early and in a few large transactions or blocks standard risk neutral valuation models cannot explain these patterns and attempts to capture the exercise behavior of risk averse executives have been limited to the special case of one option this paper solves for the optimal exercise behavior for a risk averse executive who is granted multiple stock options we show that utility based models do not predict block exercise behavior rather the risk averse executive exercises stock options individually at a sequence of increasing price thresholds when in addition the executive faces frictions such as costly exercise he faces a trade off between exercising little and often to maximize return and exercising larger quantities on fewer occasions to minimize effort this generates realistic block exercise behavior and yields new predictions in particular executives should begin by exercising large blocks of options but the block sizes should become smaller over time our framework also allows us to study the impact of multiple exercise dates on estimates of the cost of options to the company we find that assuming the executive can only exercise on a single occasion underestimates the cost of the options compared with allowing for optimal exercise behavior

industrial policy reform in six large newly industrializing countries the resource curse thesis abstract all six large newly industrializing countries nics in this study favored an autarkic industrial policy aip in the 1950s aip required however the rapid build up of heavy and chemical industry hci which caused foreign exchange shortages if the hci matured slowly this is because the import and subsidy demands of the growing protected hci sector became too burdensome for the competitive primary sector whose rents shrank in relative importance as the economic structure evolved the two least well endowed nics abandoned aip early in favor of a competitive industrial policy cip which relied on labor intensive exports to earn foreign exchange and resulted in rapid economic growth in contrast the resource bonus of the four best endowed nics sustained aip longer but the longer aip lasted the harder it became to reform and the slow maturing hci sector adversely affected economic growth in this way the resource bonus became a curse rather than a blessing

exclusionary policies in urban development under servicing migrant households in brazilian cities localities in developed countries often enact regulations to deter low income households from moving in in developing countries such restrictions lead to the emergence of informal housing sectors to deter low income migrants localities in developing countries withhold public services to the informal housing sector using a large sample of brazilian localities we examine migration and exclusion focusing on the public provision of water to small houses where low income migrants are likely to live withholding water connections reduces the locality growth rate particularly of low education households in terms of service provision during dictatorship in brazil we find evidence of strategic exclusion where localities appear to withhold services to deter in migration we also find evidence of strategic interactions among localities within metro areas in their setting of service levels if one locality provides more services to migrant households other localities respond by withholding service

games the states don t play welfare benefits and the theory of fiscal federalism fiscal federalism theory predicts that states will behave strategically in welfare programs because voter demand for welfare is sensitive to tax price while the tax price itself changes because of welfare induced migration this paper tests these propositions on afdc in the united states for a panel from 1982 88 using new models for the determination of the recipiency ratio the tax price and composite neighbors the data do not support any substantial tax price elasticity of demand for welfare estimates of migration effects on tax price are found to be sensitive to specification copyright 1995 by mit press

an empirical investigation of interstate afdc benefit competition claims that states which offer generous welfare benefits attract the poor and that some states pay low benefits intending to drive the poor away are neither uncommon nor entirely un founded this paper employs a two player state generalized game to model states choice of a benefit level in the aid to families with dependent children afdc program migration by the poor in response to interstate differentials in earnings and welfare opportunities and the subse quent changes in afdc caseloads drive this game estimation of the model using 1979 data suggests that states within approximately 750 miles of each other do engage in a benefit setting game the rival s initial number of poor and preference for non afdc consumption appear to be the more influential rival characteristics these findings while derived from a different methodological approach are consistent with previous studies which indicate that welfare recipients tend to move toward higher benefit states such migration may impede the efficient spatial allocation of labor the results also indicate that states will tend to offer lower benefits given recipient migration than would be the case otherwise state jurisdiction over benefits consequently leads to underprovision of afdc federalization of the afdc program would improve efficiency in terms of the spatial allocation of labor and the provision of afdc

the disposition effect in securities trading an experimental analysis the disposition effect is the tendency to sell assets that have gained value winners and keep assets that have lost value losers disposition effects can be explained by the two features of prospect theory the idea that people value gains and losses relative to a reference point the initial purchase price of shares and the tendency to seek risk when faced with possible losses and avoid risk when a certain gain is possible our experiments were designed to see if subjects would exhibit disposition effects subjects bought and sold shares in six risky assets asset prices fluctuated in each period contrary to bayesian optimization subjects did tend to sell winners and keep losers when the shares were automatically sold after each period the disposition effect was greatly reduced

hysteresis price acceptance and reference prices the existence of price thresholds in grocery retailing is well documented most authors explain the existence of price thresholds using assimilation contrast theory adaptation level theory or prospect theory however each of these theories is untenable if consumers are believed to behave rationally we offer a theoretical explanation grounded in real options theory rot and economic hysteresis we test the rot hypothesis against three plausible alternatives using a maximum likelihood friction model that we augment for unobserved heterogeneity our findings support the rot hypothesis and suggest that the existence of price thresholds in aggregate data are driven by a common recognition of real option values which do not disappear with the inclusion of consumer heterogeneity

welfare induced migration at state borders new evidence from micro data abstract this paper extends and synthesizes the various approaches used in the recent welfare migration literature to both offer the most comprehensive set of tests to date for welfare migration and to also determine the relative importance of short distance moves in welfare migration flows the current study follows on the finding of mckinnish mckinnish t importing the poor welfare magnetism and cross border welfare migration journal of human resources 2005 40 57 76 of welfare migration effects obtained by comparing welfare participation at state borders to state interiors this identification strategy is extended to micro data from the 1980 and 1990 decennial censuses and combined with the demographic comparisons used elsewhere in the welfare migration literature the signs and patterns of the estimates are consistent with the presence of welfare migration effects and the magnitudes of the estimates are consistent with the importance of short distance moves in welfare induced migration flows but most of the estimates are not statistically significant

immigration and welfare magnets this article investigates if the location choices made by immigrants when they arrive in the united states are influenced by the interstate dispersion in welfare benefits income maximizing behavior implies that foreign born welfare recipients unlike their native born counterparts may be clustered in the states that offer the highest benefits the empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high benefit states than the immigrants who do not receive welfare or than natives as a result the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives

welfare reform and the race to the bottom theory and evidence economists have argued that welfare migration leads to a race to the bottom in the choice of welfare benefits although a system of federal matching grants can remedy this problem the recent welfare reform law replaced the existing matching grant structure with block grants a policy change that appears undesirable to judge whether this critique of welfare reform is justified this paper evaluates the evidence in favor of a race to the bottom after explaining the theoretical effects of welfare migration the paper surveys the empirical evidence on the occurrence of such migration concluding that the evidence is mixed the discussion also considers recent empirical tests for strategic interaction which show that benefit levels in nearby states affect a given state s benefit choice the most plausible source of such interaction is a concern about welfare migration which leads policymakers to look at benefits in neighboring states when making their own choices judging that the evidence appears consistent with the existence of a race to the bottom the paper concludes that the demise of matching grants may be undesirable from a policy perspective