a market to implement the core abstract i present a mechanism whose subgame perfect equilibrium outcomes coincide with the core of an underlying convex tu game the mechanism resembles an asset market in which one of the players is randomly selected as a broker who centralizes trade in addition the rules of the mechanism are independent of the coalitional function therefore the mechanism is useful for an incompletely informed designer who wishes to implement the core of these games the mechanism is inspired by the reduced games relevant for the consistency of the core journal of economic literature classification numbers c71 and c72

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

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

bargaining foundations of shapley value1 a transferable utility economy in which each agent holds a resource which can be used in combination with the resources of other agents to generate value according to the characteristic function v is studied using a dynamic model of bargaining the main theorem establishes that the payoffs associated with efficient equilibria converge to the agents shapley values as the time between periods of the dynamic game goes to zero in addition it is demonstrated that an efficient equilibrium exists and is unique when an additivity condition is satisfied to demonstrate the sensitivity of the solution to the institutional detail we modify the model to allow for partnerships and show that the shapley value is no longer achieved

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

bargaining and value we present and analyze a model of noncooperative bargaining among n participants applied to situations describable as games in coalitional form this leads to a unified solution theory for such games that has as special cases the shapley value in the transferable utility tu case the nash bargaining solution in the pure bargaining case and the recently introduced maschler owen consistent value in the general nontransferable utility ntu case moreover we show that any variation in a certain class of our bargaining procedure which generates the shapley value in the tu setup must yield the consistent value in the general ntu setup

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

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

expectation formation in a new environment evidence from the german reunification abstract exploiting the german reunification we study how households adapt to a new environment in their macroeconomic forecasting east germans expect higher inflation than west germans decades after reunification these differences are likely driven by the persistent effect of the inflation shock after reunification which contrasted strongly with experiences of zero inflation in the gdr east germans higher inflation expectations are reflected in higher consumer debt and lower bond holdings our findings suggest that large changes in the environment can permanently impede people s ability to form expectations with an important role for the interaction of experiences before and after the event

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

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

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

reinterpreting the kernel the reduced game relevant for the consistency of the prekernel is used to reinterpret this solution concept in a way that makes it independent of interpersonal utility comparisons based on this reinterpretation a non cooperative model is presented that yields in stationary equilibria the prekernel kernel for the class of monotonic transferable utility games next we apply the same non cooperative model to more general coalitional games for pure bargaining problems the model yields the nash solution for general non transferable utility games a natural extension of the prekernel arises thus the prekernel is obtained as the set of payoffs where the relevant bargaining range between every pair of players is split in half journal of economic literatureclassification numbers c71 c72 c78

the nash program non convex bargaining problems we define and characterize an extension of the nash bargaining solution to non convex bargaining problems and in the spirit of the nash program of implementing cooperative solutions non cooperatively we show that this solution is supported by rubinstein s econometrica 50 1982 97 110 model of bargaining and its corresponding set of stationary subgame perfect equilibria

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

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

handbook of game theory with economic applications volume 3 this is the second of three volumes surveying the state of the art in game theory and its applications to many and varied fields in particular to economics the chapters in the present volume are contributed by outstanding authorities and provide comprehensive coverage and precise statements of the main results in each area the applications include empirical evidence the following topics are covered communication and correlated equilibria coalitional games and coalition structures utility and subjective probability common knowledge bargaining zero sum games differential games and applications of game theory to signalling moral hazard search evolutionary biology international relations voting procedures social choice public economics politics and cost allocation this handbook will be of interest to scholars in economics political science psychology mathematics and biology handbook of game theory with economic applications vol i

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

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

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

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

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

decision theory under ambiguity we review recent advances in the field of decision making under uncertainty or ambiguity we start with a presentation of the general approach to a decision problem under uncertainty as well as the standard bayesian treatment and issues with this treatment we present more general approaches choquet expected utility maximin expected utility smooth ambiguity and so forth that have been developed in the literature under the name of models of ambiguity sensitive preferences we draw a distinction between fully subjective models and models incorporating explicitly some information we review definitions and characterizations of ambiguity aversion in these models we mention the challenges posed by some of the models presented we end with a review of part of the experimental literature and applications of these models to economic settings

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

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

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

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