the effect of annuity insurance on savings and inequality this paper examines the amount of precautionary savings and wealth inequality arising from life span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements namely when longevity risk can be pooled only with members of one s own family the central findings of the paper are that 1 perfecting insurance arrangements can sharply lower savings in both intergenerationally altruistic and life cycle economies and that 2 in altruistic economies perfecting annuity insurance can greatly influence inequality indeed in the long run in our model switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality

labor migration and risk aversion in less developed countries in this paper we question the pioneering work of todaro which states that rural to urban labor migration in less developed countries ldcs is an individual response to a higher urban expected income we demonstrate that rural to urban labor migration is perfectly rational even if urban expected income is lower than rural income we achieve this under a set of fairly stringent conditions an individual decision making entity a one period planning horizon and global risk aversion we obtain the result that a small chance of reaping a high reward is sufficient to trigger rural to urban labor migration

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

agent based computational transaction cost economics this article explores the use of agent based computational economics ace for modelling the development of transactions between firms transaction cost economics neglects learning and the development of trust ignores the complexity of multiple agents and assumes rather than investigates the efficiency of outcomes efficiency here refers to minimum cost or maximum profit we model how co operation and trust emerge and shift adaptively as relations evolve in a context of multiple interacting agents this may open up a new area of application for the ace methodology a simulation model is developed in which agents make and break transaction relations on the basis of preferences based on trust and potential profit profit is a function of product differentiation specificity of assets economy of scale and learning by doing in ongoing relations agents adapt their trust in a partner as a function of his loyalty exhibited by his continuation of a relation they also adapt the weight they attach to trust on the basis of realized profit the model enables an assessment of the efficiency of outcomes relative to the optimum as a function of trust and market conditions we conduct a few experiments to illustrate this application of ace

heuristic learning and the discovery of specialization and exchange abstract i develop and calibrate an agent based model of boundedly rational adaptive agents in a two good production and exchange economy to replicate human subject outcomes in the same eight person experimental economy to test agents ability to capture human behavior i extend the model and use its output to make predictions about a second experimental environment in which the group of eight agents is slowly constructed by merging smaller groups this environment improves human subject performance in the specialization and exchange task and commensurate improvement emerges for some parameterizations of the agent based model this iterative process yields incremental improvement of decision level theories about economic discovery

job exit behavior of older men a dynamic programming model of job exit behavior and retirement is constructed and estimated using the method of simulated moments the model and estimation method allow for both unobserved individual effects and unobserved job specific match effects the model is estimated using two different assumptions about individual discount factors first a static model with the discount factor equal to zero is estimated then a dynamic model with the discount factor equal to 95 is estimated in both models it is found that bad health age and lack of education increase the probability of retirement the dynamic model performs better than the static model and has different implications for retirement behavior the job specific effects are an important source of unobserved heterogeneity copyright 1991 by the econometric society

agency relationships in family firms theory and evidence does owner management necessarily eliminate the agency costs of ownership drawing on agency literature and on the economic theory of the household we argue that private ownership and owner management expose privately held owner managed firms to agency threats ignored by jensen s and meckling s 1976 agency model private ownership and owner management not only reduce the effectiveness of external control mechanisms they also expose firms to a self control problem created by incentives that cause owners to take actions which harm themselves as well as those around them jensen 1994 p 43 thus shareholders have incentive to invest resources in curbing both managerialand owner opportunism we extend this thesis to the domain of the family firm after developing hypotheses which describe how family dynamics and specifically altruism exacerbate agency problems experienced by these privately held owner managed firms we use data obtained from a large scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory finally we discuss the implications of our theory for research on family and other types of privately held owner managed firms

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

complexity and the character of stock returns empirical evidence and a model of asset prices based on complex investor learning empirical evidence on the distributional characteristics of common stock returns indicates 1 a power law tail index close to three describes the behavior of the positive tail of the survivor function of returns pr r x x a reflection of fat tails 2 general linear and nonlinear dependencies exist in the time series of returns 3 the time series return process is characterized by short run dependence short memory in both returns as well as their volatility the latter usually characterized in the form of autoregressive conditional heteroskedasticity and 4 the time series return process probably does not exhibit long memory but the squared returns process does exhibit long memory we propose a model of complex self referential learning and reasoning amongst economic agents that jointly produces security returns consistent with these general observed facts and which are supported here by empirical results presented for a benchmark sample of 50 stocks traded on the new york stock exchange the market we postulate is populated by traders who reason inductively while compressing information into a few fuzzy notions that they can in turn process and analyze with fuzzy logic we analyze the implications of such behavior for the returns on risky securities within the context of an artificial stock market model dynamic simulation experiments of the market are conducted from which market clearing prices emerge allowing us to then compute realized returns we test the effects of varying values of the parameters of the model on the character of the simulated returns the results indicate that the model proposed in this paper can jointly account for the presence of a power law characterization of the positive tail of the survivor function of returns with exponent on the order of three for autoregressive conditional heteroskedasticity for long memory in volatility and for general nonlinear dependencies in returns

willingness to pay for car safety evidence from sweden this study estimates a marginal willingness to pay wtp function for a road mortality risk reduction observed marginal wtp from the swedish car market is used and found to be positively correlated with the baseline risk of the cars no statistically significant relationships between examined owner attributes e g wealth and background risk and marginal wtp are found when comparing the estimated monetary value of a non marginal risk reduction derived from the integral of the marginal wtp function with an estimate based on marginal wtp we find in line with expectations that the difference between the estimates is negligible for smaller risk reductions and small 4 10 also for relatively large risk reductions

migrations risks and uncertainty a field experiment in china abstract we report data from the first incentivized artefactual field experiment conducted in china to understand whether chinese migrants differ from non migrants in terms of preferences regarding risk and uncertainty in various contexts we find that compared to non migrants migrants are significantly more likely to enter competitions when they expect competitive entries from others however migrants are not different from non migrants in risk and ambiguity preferences where strategic uncertainty is absent our results suggest that migration may be driven more by a stronger belief in one s chance of succeeding in an uncertain competitive environment than by differences risk attitudes related to state uncertainty

equilibrium and reinforcement learning in private information games an experimental study abstract this paper examines the abilities of standard game theoretic solution concepts static nash equilibrium and a simple model of individual learning to describe subject behavior in an experiment involving private information games with mixed strategy nash equilibrium outcomes the experimental data are compared in several ways with the predictions of static nash equilibrium and the quite different predictions of the learning model which is based on the models of roth and erev 1995 games and economic behavior special issue nobel symposium vol 8 pp 164 212 nash equilibrium does not adequately describe subject behavior whereas the learning model performs well in describing aspects of the evolution in behavior over time

learning by imitation abstract this paper introduces a learning algorithm that allows for imitation in recursive dynamic games the kiyotaki wright model of money is a well known example of such decision environments in this context learning by experience has been studied before here we introduce imitation as an additional channel for learning in numerical simulations we observe that the presence of imitation either speeds up social convergence to the theoretical markov nash equilibrium or leads every agent of the same type to the same mode of suboptimal behavior we observe an increase in the probability of convergence to equilibrium as the incentives for optimal play become more pronounced

a sealed bid auction mechanism for siting noxious facilities this paper proposes a sealed bid mechanism for facilitating the siting process of noxious facilities such as prisons trash disposal plants and incinerators for hazardous waste these facilities have created such opposition by communities that the acronyms nimby not in my backyard or lulu local undesirable land use are now in common usage to describe the public s reaction to them the noxious facility siting problem arises because there are economies of scale associated with having only one plant to serve the needs of a wide region the community that hosts the plant absorbs all of the environmental costs while the rest of the region enjoys the benefits of the facility one reason that these facilities have been so strongly opposed by communities is that they generate relatively little new employment and provide limited additional taxes in relation to their perceived negative impact d morell and c magorian 1982 some compensation arrangement is thus needed to share the gains from the winners to the potential loser this paper discusses a sealed bid auction mechanism for selecting a location for the facility so that all communities feel they are better off than under the status quo

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

consumption and demand during the recent economic downturn anec dotal reports in the press indicate that some demands are recession resistant beer while others are very procyclical e g wine this naturally causes economists to attempt to infer something about engel curves just as macroe conomists think differently about growth and business cycles so it seems should microe conomists think differently about how con sumption responds to growth and business cycles using quarterly national income and product account nipa data figure 1 depicts consumption and food expenditure growth mean percentage growth rates for food con sumption was 2 3 in the period 1948 1977 and 1 85 in the period 1978 2009 while the standard deviation of growth rates fell from 0 37 in the earlier period to 0 27 in the later pe riod consistent with engel s law the growth rate of food consumption has fallen over time in either total or per capita forms unsur prisingly the quarterly growth rate of medical consumption not shown is higher than food with a mean growth of 5 97 in the earlier period and reduced growth of 3 4 and de clining in the later period interestingly stan dard deviation d of medical growth rate has fallen substantially from 0 51 to 0 18 the mean growth of overall consumption expendi tures was 3 9 d 4 15 in the earlier period and 3 1 d 2 62 in the later period finally housing expenditure growth rates not shown halved from 5 04 in the early period to 2 51 in the latter period with very stable rates of growth d 0 15 however negative growth rates occur during recessions 2001 is an ex ception indeed food expenditures fell almost 15 in the recent quarter from the previous quarter which was also negative growth sim ilar patterns of negative growth rates during re cessions occur for the other two categories of consumption in the period 1978 2009 and for total consumption as expected consumption and consumption growth behave very differ ently in recessions the question is are the negative growth rates just due to a fall in cur rent income or do they reflect uncertainty if uncertainty is key then one must funda mentally think about model future expecta tions in order to understand measure current demand as simple as these basic engel curve consid erations are one of the liveliest debates in eco nomics centers on consumption in response to income for decades there has been the steady accumulation of evidence for and against a keynesian type view that people consume out of current income the contrary view is most commonly called the permanent income hypothesis or pih due to modigliani and brumberg 1954 friedman 1957 and oth ers generally forward looking intertemporal models of consumption and savings might be called the life cycle hypothesis with pih as a special case yet economists have not been particularly successful at amassing convincing evidence that is consistent with the life cycle model of behavior in all of its ramifications and many find models of conventionally ra tional economic agents wanting e g laibson 1998 the pih is that individuals consume out of an annuity derived from expected lifetime wealth this is particularly relevant when dis cussing the effects of countercyclical fiscal pol icy john taylor 2008 recently sided with the pih against the keynesian or neo keynesian view a second major issue is whether liquid ity constraints mitigate the forward looking life cycle predictions a third issue is how un certainty affects consumption and saving pre cautionary behavior much research has focused on the demand response to changes in total expenditure or even food expenditure allocations to particu lar foods engel curve notions of this research could be stated as dqt dc 1 n where c is real total consumption expenditures c j2 i piqi where qt and pt are the th quantity and real price respectively macroeconomics fellows address rulon d pope is professor of economics at brigham young university the author would like to thank daniel sullivan for assistance fellows address was presented at the 2008 aaea annual meet ing in milwaukee wi august 2009 invited addresses are not sub jected to the journal s standard refereeing process

direct evidence on risk attitudes and migration geographic mobility is important for the functioning of labor markets because it brings labor resources to where they can be most efficiently used it has long been hypothesized that individuals migration propensities depend on their attitudes towards risk but the empirical evidence to the extent that it exists has been indirect in this paper we use newly available data from the german socio economic panel to measure directly the relationship between migration propensities and attitudes towards risk we find that individuals who are more willing to take risks are more likely to migrate between labor markets in germany this result is robust to stratifying by age sex education national origin and a variety of other demographic characteristics as well as to the level of aggregation used to define geographic mobility the effect is substantial relative to the unconditional migration propensity and compared to the conventional determinants of migration we also find that being more willing to take risks is more important for the extensive than for the intensive margin of migration

the long term impact of international migration on economic decision making evidence from a migration lottery and lab in the field experiments this paper studies how migration from a poor to a rich country affects key economic beliefs preference parameters and transnational household decision making efficiency the setting is the migration of tongans to new zealand through a migration lottery program in a 10 year follow up survey of individuals applying for this program the study elicited risk and time preferences and pro market beliefs it also linked migrants and potential migrants to a partner household consisting of family members who would stay behind if the migrants moved survey participants played lab in the field games designed to measure the degree of intra family trust and the efficiency of intra family decision making migration provides a large and permanent positive shock to income a large change in economic institutions and a reduction in interactions with partner household members despite these changes the study finds no significant impacts of migration on risk and time preferences pro market beliefs or the decision making efficiency of transnational households this stability in the face of such a large and life changing event lends credence to economic models of migration that treat these determinants of decision making as time invariant and contrasts with recent evidence on preference changes after negative shocks

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

using survey questions to measure preferences lessons from an experimental validation in kenya can a short survey instrument reliably measure a range of fundamental economic preferences across diverse settings we focus on survey questions that systematically predict behavior in incentivized experimental tasks among german university students becker et al 2016 and were implemented among representative samples across the globe falk et al 2018 this paper presents results of an experimental validation conducted among low income individuals in nairobi kenya we find that quantitative survey measures hypothetical versions of experimental tasks of time preference attitude to risk and altruism are good predictors of choices in incentivized experiments suggesting these measures are broadly experimentally valid at the same time we find that qualitative questions self assessments do not correlate with the experimental measures of preferences in the kenyan sample thus caution is needed before treating self assessments as proxies of preferences in new contexts

life cycle effects of health risk abstract health status affects individuals labor supply asset accumulation and welfare through four main channels productivity medical expenditures time endowments and survival probabilities using a life cycle model calibrated to the u s for different education groups i evaluate the relative importance of each channel and quantify their interactions the productivity and time endowment channels dominate in importance and the risks implied by them contribute significantly to income inequality and precautionary savings health effects are larger for the non college than college educated and account to a large extent for the lower labor supply and higher reliance on government transfers of the non college group

the impact of violence on individual risk preferences evidence from a natural experiment this study estimates the impact of kenya s post election violence on individual risk preferences because the crisis interrupted a longitudinal survey of more than five thousand kenyan youth this timing creates plausibly exogenous variation in exposure to civil conflict by the time of the survey the study measures individual risk preferences using hypothetical lottery choice questions which are validated by showing that they predict migration and entrepreneurship in the cross section the results indicate that the post election violence sharply increased individual risk aversion immediately after the crisis the fraction of subjects who are classified as either risk neutral or risk loving dropped by roughly 26 percent the findings remain robust to an iv estimation strategy that exploits random assignment of respondents to waves of surveying

are risk aversion and impatience related to cognitive ability is the way that people make risky choices or tradeoffs over time related to cognitive ability this paper investigates whether there is a link between cognitive ability risk aversion and impatience using a representative sample of the population and incentive compatible measures we conduct choice experiments measuring risk aversion and impatience over an annual time horizon for a randomly drawn sample of roughly 1 000 german adults subjects also take part in two different tests of cognitive ability which correspond to sub modules of one of the most widely used iq tests interviews are conducted in subjects own homes we find that lower cognitive ability is associated with greater risk aversion and more pronounced impatience these relationships are significant and robust to controlling for personal characteristics educational attainment income and measures of credit constraints we perform a series of additional robustness checks which help rule out other possible confounds

corruption and the shadow economy an empirical analysis this paper analyzes the influence of the shadow economy on corruption and vice versa we hypothesize that corruption and the shadow economy are substitutes in high income countries while they are complements in low income countries the hypotheses are tested for a cross section of 98 countries our results show that there is no robust relationship between corruption and the size of the shadow economy when perceptions based indices of corruption are used employing an index of corruption based on a structural model however corruption and the shadow economy are complements in countries with low income but not in high income countries

self efficacy beliefs and imitation a two armed bandit experiment abstract it is generally believed that individuals imitate others to gain status minimise regret or simply ameliorate their performance psychology provides a complementary explanation imitation becomes appealing when agents have little faith in their abilities we investigate the extent to which self efficacy beliefs affect agents propensities to imitate others we propose an experimental task which is a modified version of the two armed bandit we measure participants self assessed self efficacy then study individual learning subsequently we measure how individuals use the information they gather observing a randomly selected group leader we find that in stable environments a 1 increase in individual self efficacy reduces the propensity to imitate others by 3

migration remittances and capital accumulation evidence from rural mexico this paper studies the link between migration remittances and productive assets accumulation for a panel of poor rural households in mexico over the period 19972006 in a context of nancial markets imperfections migration may act as a substitute for imperfect credit and insurance provision through remittances from migrants and thus exert a positive eect on investment however it may well be the case that remittances are channelled towards increasing consumption and leisure goods exploiting within family variation and an instrumental variable strategy we show that migration indeed accelerates productive assets accumulation moreover when we look at the eect of migration on consumption of non productive assets durable goods we nd instead a negative eect our results then suggest that

uncertainty and optimal social security systems this paper examines the annuity aspect of social security within the framework of an overlapping generations model the duration of life is assumed to be uncertain under a fully funded system demand for social security is determined by each generation so as to maximize expected lifetime utility taking into account the welfare of future generations under a pay as you go system with intergenerational transfers demand for retirement benefits by the working population takes into account taxes paid by descendants it is shown that the two modes of finance are equivalent in terms of all real aggregates effects of changes in expected lifetime and in the birth rate are analyzed starting at the optimal level a compulsory balanced increase in social security taxes and benefits is shown to increase short run savings

genetic algorithm learning and the cobweb model this paper presents the cobweb model in which competitive firms in a market for a single good use a genetic algorithm to update their decision rules about next period production and sales the results of simulations show that the genetic algorithm converges to the rational expectations equilibrium for a wider range of parameter values than other algorithms frequently studied within the context of the cobweb model price and quantity patterns generated by the genetic algorithm are also compared to the data of experimental cobweb economies it is shown that the algorithm can capture several features of the experimental behavior of human subjects better than three other learning algorithms that are considered

the influence of serotonin deficiency on choice deferral and the compromise effect abstractpsychological and physiological states such as mood hunger stress and sleep deprivation are known to affect decision making processes and therefore crucially influence consumer behavior a possible biological mechanism underlying the observed variability of consumer behavior is the context sensitive variation in the levels of neuromodulators in the brain in a series of four experimental studies the authors pharmaceutically reduce the levels of the neurotransmitter serotonin in the brain to diminish the availability of subjects cognitive resources in doing so they study how serotonin brain levels influence 1 subjects tendency to avoid buying and 2 consumers preference for product options positioned as a compromise in a given choice set rather than for more extreme alternatives i e the compromise effect using realistic product choice scenarios in a binding decision framework they find that a reduction of brain serotonin levels leads to choice deferral and decreases the compromise

salaries or piece rates on the endogenous matching of harvest workers and crops the objective of this paper is to determine whether the choice of payment schemes hourly vs piece rates is systematically related to the workers risk aversion and ability we derive the equilibrium relationship between agents risk aversion and ability and the power of incentives payment scheme in a market where many heterogeneous principals and agents are endogenously matched the equilibrium matching between principals and agents depends on the traits and is critical in determining the contract choice using confidential data from the national agricultural workers survey naws we find evidence of matching between agricultural workers and the riskiness of their jobs crops they harvest based on workers risk aversion and no matching based on ability when controlling for matching we find strong evidence that high risk averse workers choose hourly rates and low risk averse workers choose piece rates we also found that high ability types choose piece rates and low ability types choose hourly rates but the evidence is weaker jel j33 d82 q12

a natural experiment approach to contingent valuation of private and public uv health risk reduction strategies in low and high risk countries we present the results of a natural experiment to test how variations in exogenous risk levels affect resultant willingness to pay wtp for risk reduction the case study presented considers wtp for reductions in the skin cancer risks associated with exposure to solar uv radiation a common design contingent valuation survey is conducted in four countries across which variation in geographical latitude and genetic mix mean that exogenous risks differ substantially survey respondents were presented with both a private and public good route for affecting risk reduction in both cases results confirm that once adjustment had been made for expected relationships with other covariates such as income and risk averting behaviour valuation responses for both goods conformed to expectations with the ordering of values across countries reflecting the ordering of scientifically established health risks this suggests that links between values and objective health risks may be observed within such situations and provides a justification for continuing research into more natural representations of risk and risk reductions in order to yield consistent and robust measures of associated values

shocks individual risk attitude and vulnerability to poverty among rural households in thailand and vietnam summary we examine whether the experience of shocks influences individual risk attitude we measure the risk attitude of more than 4 000 households in thailand and vietnam via a simple survey item the experience of adverse shocks which is typical for poor and vulnerable households is related to a higher degree of risk aversion even when controlled for a large set of socio demographic variables therefore shocks perpetuate vulnerability to poverty via their effect on risk attitude we extend this general finding to various categories of shocks and find differences between thailand and vietnam this suggests that risk coping strategies profit from case specific design

the intergenerational transmission of risk and trust attitudes recent theories endogenize the attitude endowments of individuals assuming that they are shaped by the attitudes of parents and other role models this paper tests empirically for the relevance of three aspects of the attitude transmission process highlighted in this theoretical literature 1 transmission of attitudes from parents to children 2 an impact of prevailing attitudes in the local environment on child attitudes and 3 positive assortative mating of parents which enhances the ability of a parent to pass on his or her attitudes to the child we focus on two fundamentally important attitudes willingness to take risks and willingness to trust others we find empirical support for all three aspects providing an empirical underpinning for the literature an investigation of underlying mechanisms shows that socialization is important in the transmission process various parental characteristics and aspects of family structure are found to strengthen the socialization process with implications for modeling the socialization production function and for policies focused on affecting children s non cognitive skills the paper also provides evidence that the transmission of risk and trust attitudes affects a wide variety of child outcomes implying a potentially large total effect on children s economic situation

long term care utility and late in life saving older wealth holders spend down assets much more slowly than predicted by classic life cycle models this paper introduces health dependent utility into a model with incomplete markets in which pre

queues rations and market comparisons of outcomes for the poor and the rich this paper presents a positive comparison of the outcomes of several alternative allocation systems the queue system convertible and nonconvertible rations and the unhindered market to distribute the limited quantity of a deficit good among heterogeneous individuals the authors show that for the poor the ranking of systems from better to worse is convertible rations nonconvertible rations the queue system and nonintervention the rich are found to be better off under nonintervention than under other systems these and other results are notably robust not only to many parameters of the economy but also to certain types of commodity taxes and administrative costs copyright 1987 by american economic association

not just a work permit eu citizenship and the consumption behavior of documented and undocumented immigrants this paper explores the impact of the 2007 european union enlargement on the consumption behavior of immigrant households using data from a unique italian survey and a difference in differences approach we find that the enlargement induced a significant consumption increase for the immigrant households from new member states both in the short and in the medium run this enlargement effect cannot be attributed to the mere legalization as it concerns both undocumented and documented immigrants albeit through different channels detailed information on immigrants legal status undocumented documented and sector of employment informal formal allows us to shed light on the exact mechanisms following the enlargement previously undocumented immigrants experienced an increase in the labor income by moving from the informal towards the formal economy whereas immigrants who were already working legally in italy benefitted from the increased probability of getting a permanent contract enhanced employment stability in turn reduced the uncertainty about future labor income leading to an increase in documented immigrants consumption expenditure

risk aversion time preferences and out migration experimental evidence from ghana and indonesia abstract it has long been hypothesized that migrants and non migrants differ in their individual risk and time preferences due to a lack of reliable data on migrants preferences empirical evidence however is scarce therefore this paper has sought to advance research on preferences and migration decisions by using original household survey data from two developing countries that are both characterized by a longstanding tradition in regional migration in coastal communities in ghana and indonesia individual risk and time preferences have not only been elicited through survey questions but also through experimental tasks with real and relatively large monetary payoffs there is evidence that out migrants from both study regions are significantly less risk averse and have a lower time preference than non migrants overall the results indicate that the considered individual preferences are as important as employment status education or networks which have mainly been the focus of migration theories

heterogeneous preferences and the individual change to alternative electricity contracts abstract based on data from a large scale computer based survey among more than 3700 citizens in germany this paper empirically disentangles the determinants of the general change of electricity contracts and the specific change from any green or non green to current green electricity contracts within the last ten years our econometric analysis reveals a strong relevance of behavioral factors and individual values and norms for example patience which was measured by an incentivized experiment included in the survey has a significantly positive effect on both general switches to alternative electricity contracts and specific switches to green electricity contracts furthermore trust and less robust social preferences also measured by an incentivized experiment have additional significantly positive effects on the specific change to green electricity contracts our estimation results also imply an important role of political identification i e an ecological policy orientation is strongly significantly positively correlated with the change to green electricity contracts furthermore several household specific factors like relocation decisions as well as socio demographic and socio economic variables like household income are also relevant the empirical analysis thus provides new explanation patterns for the phenomenon that relatively few households regularly change their electricity contracts and specifically switch to green electricity contracts although they have high stated preferences for such changes our insights suggest several directions for policy and electricity suppliers to increase these switching rates for example the high importance of trust for the change to green electricity contracts suggests transparency initiatives of electricity suppliers to decrease concerns against renewable energies

political economy based institutional industry complex and sustainable development the case of the salt chemical industry in huai an china abstract this article explains how the salt chemical industry may evolve over time from a high energy consumption based industry complex in the local community to a consolidated pro growth pluralist regime at the urban scale the salt chemical industry is resisting to restructure to a sustainable environmental friendly economic system by spilling over in the form of pro growth political economic coalition in local society theories of the logan and molotch s growth machine stone s urban regime together with the extension of unruh s thesis concerning the characteristics of lock in in the technological or institutional economics approach were used to propose an enlarged lock in political economic framework and pro growth institutional industry complex iic it is further used to explain the consensus building of the pro growth governance a study of the salt chemical and new material industry park in the huai an metropolitan area china serves as an illustrative case the article also suggests that the path dependence followed in constructing a pro growth coalition could serve as a program to unlock the pro growth institutional industry complex of salt chemical industry and foster the anti coalition needed

acquisition of costly information an experimental study abstract i study decision making in a situation where subjects can buy information in order to uncover the initially unknown deterministic structure the majority of subjects fail to find the most economical way of choosing between two possible prospects many subjects underestimate the value of information and as a result make avoidable forecasting errors other subjects learn correctly which action is most successful under any given condition but fail to implement this knowledge efficiently they either accept errors for the sake of economizing on small amounts of information costs or they invest in redundant information the measured losses are substantial however in certain settings the fact that half of the economist subjects and one fourth of non economist subjects learn to behave optimally may be sufficient for efficient market functioning the present findings thus help to explain the near competitive outcomes observed in many experimental and actual markets

health and consumption preferences estimating the health state dependence of utility using equivalence scales abstract this paper estimates health state dependence of utility in europe for identification we introduce a new method using insights from the research domain of living standards we estimate how much extra or less income is needed to maintain the same level of material wellbeing after a health shock and we derive a simple relation between this estimate and the health state dependence parameter the results show positive health state dependence this is not driven by medical expenditures and is robust across alternative specifications and health measures interestingly for cognitive limitations we find negative health state dependence presumably resulting from a decreased ability to plan

evaluating impacts from noxious facilities including public preferences in current siting mechanisms abstract this paper describes an approach to facility siting that ranks potential sites in terms of their social impacts a contingent choice survey based on paired comparisons is used to construct a utility index to rank sites consistent with predicting results of a hypothetical referendum based on the attributes of the sites the method is likely to be acceptable to public decision makers since it is analogous to site scoring methods that have been commonly used indeed our approach is currently being employed as part of a larger landfill site selection process in the state of rhode island

household labor supply and the gains from social insurance the marginal gains from social income insurance programs are captured by the gap in the marginal utility of consumption across states of nature to identify this gap in the context of the household this paper offers a new labor supply based approach that leverages household level economic interactions and optimality conditions we demonstrate that in frameworks of efficient household allocations spousal labor supply responses to shocks have direct implications for the gains from more generous government benefits to households we show that this holds for both intensive and extensive margin responses under fairly general conditions our analysis illustrates how labor market data can be used for assessing marginal welfare gains in a general class of social insurance schemes including the large and important programs of disability insurance and survivors benefits hence household labor supply behavior and responses to shocks which are widely studied in theoretical and empirical work hold valuable information for the optimal design of social insurance

a learning to forecast experiment on the foreign exchange market with a classifier system abstract this paper reports on an experiment of learning and forecasting on the foreign exchange market by means of an artificial intelligence methodology a classifier system which simulates learning and adaptation in complex and changing environments the experiment has been run for two different exchange rates the us dollar d mark rate and the us dollar yen rate representative of two possibly different market environments a fictitious artificial agent is first trained on a monthly data base from 1973 to 1990 and then tested out of sample from 1990 to 1992 its forecasting performance is then compared with the performance of decision rules which follow the prescription of various economic theories on exchange rate behaviour and the performance of forecasts given by var estimations of the exchange rate s determinants

on migration and risk in ldcs the authors develop the hypothesis that aversion to risk rather than expectations of higher income is the primary motivation for rural urban migration in developing countries this hypothesis maintains that an optimizing risk averse small farmer family will try to place a family member in the urban sector in order to diversify its income portfolio an additional hypothesis related to risk is also considered at the individual rather than the family level annotation

tragic choices and collective decision making an empirical study of voter preferences for alternative collective decision making mechanisms central to this paper has been the idea that there might be a demand on the part of the citizens for having specific decision mechanisms in specific types of situations this demand cannot be deduced on purely theoretical grounds but rather should be registered case by case theory might help in categorising classes of situations where decisions can be tackled with the same approach in any case the choice of a decision mechanism should not be left completely at the discretion of the policy maker if the citizens s welfare is to be promoted in a suitable way

disability insurance and the dynamics of the incentive insurance trade off we provide a life cycle framework for comparing insurance and disincentive effects of disability benefits the risks that individuals face and the parameters of the disability insurance di program are estimated from consumption health disability insurance and wage data we characterize the effects of disability insurance and study how policy reforms impact behavior and welfare di features high rejection rates of disabled applicants and some acceptance of healthy applicants despite worse incentives welfare increases as programs become less strict or generosity increases disability insurance interacts with welfare programs making unconditional means tested programs more generous improves disability insurance targeting and increases welfare

how vulnerable is the emissions market to transaction costs an abms approach abstract the impact of transaction costs on the early emissions trading market is examined by applying an agent based model and simulation abms approach for a realistic model set up bounded rationality stochastic characteristics and learning by doing are considered in our search processes marginal abatement cost parameters are obtained from yoo et al 2010 which is an experimental study on the emissions trading in the korean power sector sensitivity analyses are performed on market performance indices with regard to transaction cost parameters which represent scales and the learning elasticities of transaction costs a total of 960 simulations were run in this sensitivity analysis sensitivity analysis results consistently show that higher transaction costs worsen market performance the most remarkable finding in these results is that welfare performance of all the transactions decreases by up to 50 as the scale parameters of transaction costs increase implying that welfare gain from introducing emissions trading disappears significantly however with learning curve effect welfare performance could be regained by up to 26 in sum although transaction costs significantly encroach upon trade gains at the early stage based on our simulation results the welfare loss by way of transaction costs is lessened as the knowledge of market participants progresses

should social security benefits be means tested social security retirement benefits distort the saving decisions of workers who are rational enough to save for their future since the implicit rate of return in an unfunded social security program is less than the marginal product of capital the resulting decline in saving causes a welfare loss the present paper examines the conditions under which the welfare loss could be reduced by replacing the current universal social security program with a means tested program that pays benefits only to those individuals with little or no other retirement income or assets every society must solve the problem of supporting those individuals who become too old to work but have not made adequate provision for their own old age by saving when they were young at the present time the major industrial countries of the world have responded to this problem by creating social security programs that tax the working population and use the proceeds to provide a universal benefit to all retirees regardless of their financial condition this universal provision of social security benefits distorts the saving decisions of those workers who are rational enough to plan for the future since the implicit rate of return that taxpayers get on their this research is part of the nber study of the government budget and the private economy a more complete version of this paper with some numerical calculations is available as nber working paper no 1775 feldstein 1985b i am grateful to gilbert metcalf for assistance with the calculations presented in this paper and for helpful discussions for a discussion of the effect of promised retirement benefits on the savings of employees see feldstein 1974 1982 barro 1974 1978 has discussed an interesting

children s rationality risk attitudes and field behavior abstract we investigate the relationship between risk attitudes choice consistency and field behavior of children by conducting economic experiments with 1275 8th graders choices are not completely consistent with any of the economic theories we consider however they are not random either we use our experimental data to structurally estimate risk preferences and correct for decision error using a measure constructed from the estimates and individual choices we find that risk preferences do predict future field behavior children who are more risk averse are less likely to receive disciplinary referrals one and two years after the experiment and are more likely to complete high school even controlling for economic rationality family background scholarly achievement and past misbehavior accounting for decision error turns out to be important as a simple aggregate measure of risk is not found to be correlated with field behavior

healthy bodies and thick wallets the dual relation between health and economic status there is abundant evidence of a quantitatively large association between many measures of economic status including income and wealth and a variety of health outcomes such as mortality or morbidity however considerable and often heated debate remains especially across disciplines about the direction of causation and about why the association arises although medical scientists are often convinced that the dominant if not exclusive pathway is that variation in socioeconomic status produces health disparities they are increasingly debating among themselves about why low economic status might lead to poor health at least for modern industrial countries 1 the old standby arguments the less well to do have access to less or lower quality medical care or a stronger pattern of deleterious personal behaviors have been rejected as insufficient instead a series of intriguing competing theories have arisen that emphasize long term impacts of early childhood or even inter uterine environmental factors the cumulative effects of prolonged exposures to individual stressful events or reactions to macro societal factors such as rising levels of income inequality a common link is that each theory attempts to document the physiological processes through which low economic status leads to poorer health while these scientific questions are extremely important this research has taken place with little input from economists economists are now making contributions about the alternative pathway the impact poor health may have on economic resources poor health may restrict a family s capacity to earn income or to accumulate assets by limiting work or by raising medical expenses at a minimum this work should provide a caution against exaggerating the magnitude of causation from economic status to health outcomes but the potential contribution runs deeper as people age the evolving variation in individual health outcomes may offer additional statistical information to estimate parameters of household savings and consumption behavior that so far have proven to be somewhat elusive thus incorporating health uncertainty and risk into economic models should eventually enrich our understanding of basic tenets of household behavior the first section of this paper documents the size of the association between health and one prominent economic status measure household wealth section two deals with how health influences economic status by sketching out reasons why health may alter household savings and eventually wealth and then providing estimates of the empirical magnitude of these effects section three shifts attention to the alternative pathway the links between economic status and health and summarizes 2major controversies and evidence surrounding these issues

social security and endogenous growth abstract this paper examines the effects of social security on the steady state growth of per capita income in an endogenous growth model in which agents care about their own consumption the number of children and the welfare of each child it shows that an unfunded program may simulate growth by reducing fertility and increasing the ratio of human capital investment per child to per family income when bequests are positive also it may cause faster growth than funded programs especially when receipts from funded programs are independent of contributions when voluntary saving is positive funded social security is neutral if receipts are linked to contributions and most likely depresses growth if receipts are independent of contributions

portfolio choice in retirement health risk and the demand for annuities housing and risky assets in a life cycle model a retiree faces stochastic health depreciation and chooses consumption health expenditure and the allocation of wealth between bonds stocks and housing the model explains key facts about asset allocation and health expenditure across health status and age the portfolio share in stocks is low overall and is positively related to health especially for younger retirees the portfolio share in housing is negatively related to health for younger retirees and falls significantly in age finally out of pocket health expenditure as a share of income is negatively related to health and rises in age

the utility of health and wealth abstract tradeoffs between health and wealth are among the most important decisions individuals make and are central to social and economic policy yet only a few studies have investigated the utility of health and wealth empirically this paper investigates this utility function both theoretically and empirically we conduct detailed personal interviews with 180 cancer patients and also obtain questionnaires from 132 diabetes patients we find strong support for the utility function u h w h log w where h denotes health and w denotes wealth

fuzzy inductive reasoning expectation formation and the behavior of security prices abstract this paper extends the santa fe artificial stock market model sfasm studied by lebaron arthur and palmer 1999 journal of economic dynamics and control 23 1487 1516 in two important directions first some might question whether it is reasonable to assume that traders are capable of handling a large number of rules each with numerous conditions as is assumed in the sfasm we demonstrate that similar results can be obtained even after severely limiting the reasoning process we show this by allowing agents the ability to compress information into a few fuzzy notions which they can in turn process and analyze with fuzzy logic second lebaron et al have reported that the kurtosis of their simulated stock returns is too small as compared to real data we demonstrate that with a minor modification to how traders go about deciding which of their prediction rules to rely on when making demand decisions the model can in fact produce return kurtosis that is comparable to that of actual returns data

uncertain health and survival effects on end of life consumption this article analyzes the impact of health and survival uncertainty on the saving and consumption decisions of retirees a dynamic programming approach is used to model the household s planning problem the utility parameters are estimated using panel data we find that a fall into poor health raises the marginal utility from consumption simulations are used to indicate the effects of falling into poor health and loss of spouse they reveal a large transfer from the healthy to the sick partner and a strong dependence of saving on the survivor benefits suggesting that concern about the surviving spouse is an important motive for saving

measuring multivariate risk preferences in the health domain we investigate univariate and multivariate risk preferences for health longevity and wealth we measure attitudes toward correlation and attitudes toward higher order dependence structures such as cross prudence and cross temperance making use of the risk apportionment technique proposed by eeckhoudt et al 2007 for multivariate gains we find correlation aversion and cross prudence in longevity and wealth for losses we observe correlation seeking and cross imprudence we do not find clear evidence for cross temperance our results indicate that longevity and wealth are considered to be substitutes for gains but not for losses second univariate higher order risk preferences are comparable for longevity and wealth although somewhat closer to linearity for wealth third we find evidence that attitudes toward dependence structures in the health domain are sign dependent

genetic algorithms and inflationary economies abstract this paper studies overlapping generations economies in which agents use genetic algorithms to learn correct decision rules the results of computer simulations show that a genetic algorithm converges to the unique monetary steady state in case of a constant money supply policy and to the low inflation stationary equilibrium in case of a constant real deficit financed through seignorage features of the genetic algorithm adaptation are compared to the performance of other learning algorithms and to the behavior observed in experiments with human subjects in the same olg environments

multi agent simulations to explore rules for rural credit in a highland farming community of northern thailand thanks to recent advances in the field of distributed artificial intelligence agentbased models abm can now be used to run simulations of social phenomena based on their computerized representations and to apply experimental methods in social sciences axelrod 1997 gilbert and troitzsch 1999 jager 2000 in the field of renewable resource management and environmental sciences several abm simulation platforms offer the possibility to explore interactions between social and ecological dynamics costanza and ruth 1998 bousquet et al 1998 lansing 2002 in these complex systems the social and economic dynamics can be viewed as a set of interactions among heterogeneous agents generating aggregate phenomena that are different from the behaviour of groups of average individuals considered in classical economic thinking rouchier and bousquet 1998 such a view was adopted in the research presented here

crises and confidence systemic banking crises and depositor behavior abstract we show that individuals who have experienced a systemic banking crisis are 11 percentage points less likely to use banks in the u s than otherwise similar individuals who emigrated from the same country but did not live through a crisis this finding is robust to controlling for exposure to other macroeconomic events and to various methods for addressing potential bias due to migrant self selection consistent with the view that personal experience plays an important role in decision making the effects are larger for individuals who were older and more likely to have had wealth entrusted to the banking system at the time of the crisis and for people who experienced crises in countries without deposit insurance

direct evidence of risk aversion as a source of advantageous selection in health insurance abstract using the self stated degree of risk aversion regarding health from the gsoep we find some evidence for risk aversion being a source of advantageous selection risk averse men more often procure supplementary insurance for hospital visits despite needing the additional coverage less

is there monopsonistic discrimination against immigrants the authors investigate immigrants and natives labor supply to the firm within an estimation approach based on a dynamic monopsony framework applying duration models that account for unobserved worker heterogeneity to a large administrative employer employee data set for germany they find that immigrants supply labor less elastically to firms than do natives under monopsonistic wage setting the estimated elasticity differential predicts a 7 7 log points wage penalty for immigrants thereby accounting for the entire unexplained native immigrant wage differential of 5 8 to 8 2 log points when further distinguishing immigrant groups differing in their time spent in the german labor market their immigration cohort and their age at entry the authors find that the observed unexplained wage differential is larger for those groups that show a larger elasticity differential relative to natives these findings not only suggest that search frictions are a likely cause of employers more pronounced monopsony

for better or for worse the long term effects of postwar reconstruction on family formation abstractthis article estimates the long term legacies of female labour force mobilization on women s family formation outcomes such as marriage age at first marriage and divorce we identify the long term marriage effects of female labour force mobilization by exploring postwar mandatory employment in germany using difference in differences analysis we find that participation in postwar reconstruction efforts increased women s probability of being currently married ever married and marrying at younger ages we also find that postwar employment had no differential effect on divorce rates of the affected cohorts of women these results persist after accounting for the potential changes in the composition of the population demand for female labour war relief payments and postwar state specific policies