a principal agent problem with heterogeneous demand distributions for a carbon capture and storage system abstract mechanism design problems optimize contract offerings from a principal to different types of agents who have private information about their demands for a product or a service we study the implications of uncertainty in agents demands on the principal s contracts specifically we consider the setting where agents demands follow heterogeneous distributions and the principal offers a menu of contracts stipulating quantities and transfer payments for each demand distribution we present analytical solutions for the special case when there are two distributions each taking two discrete values as well as a method for deriving analytical solutions from numerical solutions we describe one application of the model in carbon capture and storage systems to demonstrate various types of optimal solutions and to obtain managerial insights

rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

uncertainty and optimal taxation in defense of commodity taxes abstract this paper re examines the theory of optimal commodity taxation in the presence of a linear income tax under wage uncertainty there are two categories of goods the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after the paper i characterizes the structure of the optimal commodity taxes in view of the insurance they provide against random wage movements ii proves that optimal taxation requires a mix of differential commodity taxes and a uniform lump sum tax and iii demonstrates that the post uncertainty goods should face a positive tax rate which is higher than the tax rate on the pre committed goods

historical reference hume and critical realism the purpose of this paper is to make the case for discussing developments in the history of thought as having the potential to inform modern discussion this is not to deny the importance of context or that new knowledge emerges over time which was not available to earlier thinkers but neither is taken as sufficient reason to deny any possibility of us learning from past thought the case is made by means of discussion of the particular relevance of david hume s thought for critical realism this is particularly controversial in that hume has been identified by critical realists as the inspiration for logical positivism from which critical realism dissents while critical realism is a body of thought of recent development it is argued here that hume has sufficient in common with critical realism to warrant considering the possibility that critical realists might learn from hume the notion that context is significant is used constructively by suggesting that important elements in common between the contexts of hume and of modern discussions reinforce the potential value of considering hume s ideas it is concluded that there is the potential for growth in knowledge from reference between the history of thought and modern discussions in economics and in particular between the nature and origins of hume s thought and the development of critical realism

a life cycle consumption model with liquidity constraints theory and empirical results a structural consumption model incorporating endogenous liquidity constraints is fit to a cross section of 798 u s families liquidity constrained families are estimated to constitute 19 4 percent of the population sampled a group that accounts for 16 7 percent of consumption in the population sampled in sample simulations of the model suggest that a temporary tax has three to four times more impact on aggregate consumption than it would if liquidity constraints were not in effect copyright 1987 by the econometric society

consumption income and retirement the authors use canadian family expenditure survey data to estimate consumption and income age profiles for married couple families paying attention to the transition between work and retirement the common presumptions of numerical simulation life cycle models upward sloping consumption age profiles and dissaving in retirement are not supported there is some evidence that the consumption of certain blue collar households declines discontinuously near retirement which casts doubt upon the frequently encountered assumption that the marginal utility of consumption is independent of the quantity of leisure consumed the results also imply that the functional form of euler equations should be sufficiently flexible to permit preretirement consumption to have an inverted u shape in addition the paper shows that the uncertain lifetime model with the addition of a bequest motive can rationalize the empirical results

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

estimation of moments and production decisions under uncertainty the purpose of this paper is to examine production decisions under output price uncertainty using a nonparametric estimation technique to estimate the first four moments of the unknown price distribution and applying duality we provide a simple empirical framework for the analysis of supply and demand decisions under price uncertainty the model is used to examine the importance of higher moments in the firm s production decisions and to investigate underlying attitudes toward risk

theory creation and the methodological foundation of post keynesian economics for the last 15 years there have been extensive discussions about the foundations of post keynesian economics from these discussions post keynesians have reached the consensus that their economics is based on a philosophical foundation of realism and critical realism however the methodological foundation of post keynesian economics which refers to the methodological guidelines used for creating and developing theory has received relatively less discussion and development the aim of this paper is to stimulate discussion in this area by advocating that the method of grounded theory is consistent with critical realism and is a better and more developed set of guidelines for theory creation than the currently accepted alternatives copyright 2002 oxford university press

bank regulation property prices and early warning systems for banking crises in oecd countries abstract early warning systems ews for banking crises generally omit bank capital bank liquidity and property prices most work on ews has been for global samples dominated by emerging market crises where time series data on bank capital adequacy and property prices are typically absent we estimate logit crisis models for oecd countries finding strong effects from capital adequacy and liquidity ratios as well as property prices and can exclude traditional variables higher capital adequacy and liquidity ratios have a marked effect on the crisis probabilities implying long run benefits to offset some of the costs that such regulations may impose

a spatial productivity index in the presence of efficiency spillovers evidence for u s banks 1992 2015 abstract we present the methodology for a new spatial decomposition of total factor productivity tfp growth the relevant literature is underdeveloped as there is just one short study which proposes a partial spatial tfp growth decomposition we develop this literature in four respects the first two developments are methodological to go from a partial decomposition to a complete one first we augment the partial decomposition with a cost efficiency spillover growth component second we introduce own and spillover allocative efficiency growth components third we provide a more detailed coverage of the spatial decomposition of tfp growth fourth in contrast to the traditional application to geographical areas e g countries in the relevant literature we apply our decomposition using firm level data which suggests that there can be an important role for spatial productivity analysis in or our application is to large u s banks over the period 1992 2015 among other things we find for the average large u s bank that tfp growth since the financial crisis has become much more dependent on the bank itself and less so on spatial spillovers

the retirement consumption puzzle a marital bargaining approach abstract evidence from several countries reveals a substantial drop in household consumption around the age of retirement that is difficult to explain with life cycle models using food consumption data from more than 550 households from the panel study of income dynamics for the years 1979 1986 and 1989 1992 we find that married couple households decrease their expenditures on both food consumed at home and away from home by about 9 following the retirement of the male household head no significant decrease in consumption is found for single households either in a sample of males or a pooled sample of single males and females these results are consistent with a model of marital bargaining in which wives prefer to save more than their husbands do to support an expected longer retirement period and relative control over household decisions is affected by control over market income the pattern of the consumption decline which is increasing in the age gap between husband and wife lends further support to this interpretation

the saving behaviour of a two person household the facts that wives are typically younger than their husbands and that women typically live longer than men imply that wives may have more incentive to save for old age than do husbands a theoretical model of the determination of household saving and portfolio choice is introduced which takes into account differences in preferences for saving the most important result is that the level and the composition portfolio of saving and the time path of consumption are dependent on the distribution of income within the household women typically live longer than men and wives are typically younger than their husbands these two facts imply that preferences about saving for old age in married households with forward looking members may differ between husband and wife this paper presents a theoretical analysis of saving and portfolio behaviour if the members of the household have differ ent preferences over future consumption as compared to current consump tion the analysis stands in contrast to unitary models of household intertemporal allocation which assume that the household has a single utility function thus this paper is a contribution in a novel context to the burgeoning literature on intra household decision making the base case analysis is for a simple two person husband and wife1 two period model in which there is only one asset saving it is assumed that because of the two facts given at the start of the introductory paragraph the husband discounts the future more than the wife in section ii the implications of a non cooperative decision making process for the base case are derived see ulph 1988 for a non cooperative model of demand and

consumption during retirement the missing link in the life cycle this study presents the first evidence on the relation of consumption to lifetime wealth based on data from the 1973 and 1975 retirement history survey that have been linked to social security earnings records nearly 500 white married fully retired couples ages 62 69 form the basis of the analysis on average their consumption early in retirement exceeds by 14 percent the income that their financial pension and social security wealth can generate this implies that their saving both private and through social security is insufficient to sustain consumption throughout the rest of their lives additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement these two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate coupled with either a bequest motive or uncertainty about the length of life they also imply that even when combined with private pensions and savings social security in the united states today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired this abstract was borrowed from another version of this item

financialised internationalisation and structural hierarchies a mixed method study of exchange rate determination in emerging economies this paper conducts an extensive mixed method study of exchange rate determination in the brazilian foreign exchange market it combines semi structured interviews with foreign exchange market participants in brazil and london and advanced time series econometrics in line with post keynesian theory and critical realist ontology the interviews uncover the context specific expectations and underlying processes and structures that condition exchange rate dynamics in brazil and emerging economies more generally the results point to important structural changes in brazil s financial integration in the form of currency internationalisation and financialisation moreover they show that this internationalisation has been mediated through a structured and hierarchic international monetary system which fundamentally distinguishes exchange rate drivers in emerging economies from those in developed ones

a multidimensional approach to measuring bank branch efficiency abstract bank branch efficiency measurements range from simple ratio and standard regression analyses to more complex frontier approaches each with specific strengths and weaknesses however in isolation the indexes that these approaches generate fail to capture the multidimensional nature of bank branch efficiency this paper develops a three step procedure that enables combining the strengths of the existing approaches we begin by taking the widest number of efficiency indexes proposed in literature step 1 reduce the redundant information through a collinearity analysis step 2 and categorize bank branches into efficiency classes through a clustering procedure step 3 we test our approach on 23 branches of an italian regional bank the results show that this three step approach is able to provide a multidimensional view of efficiency based on indexes employing a wide range of theoretical and methodological approaches with different ways of conceiving intermediation vs production and measuring stock vs flow or physical measures bank outputs and inputs different definitions of efficiency technical and cost efficiency and different measurement approaches ratios standard regression analysis and frontier functions the resulting efficiency ranking is consistent with those that univariate indexes generate and provides a balanced evaluation of branch efficiency when such indexes produce contradictory indications

quasi hyperbolic discounting and retirement abstract some people have self control problems regularly this paper adds endogenous retirement to laibson s quasi hyperbolic discounting savings model quarterly journal of economics 112 1997 443 477 earlier selves think that the deciding self tends to retire too early and may save less to induce later retirement still earlier selves may think the pre retirement self does this too much saving more to induce early retirement the consumption pattern may be different from that with exponential discounting other observational non equivalence includes the impact of changing mandatory retirement rules or work incentives on savings and a possibly negative marginal propensity to consume out of increased future earnings naive agents are briefly considered

do husbands and wives pool their resources evidence from the united kingdom child benefit common preference models of family behavior imply income pooling a restriction on family demand functions such that only the sum of husband s income and wife s income affects the allocation of goods and time testing the pooling hypothesis is difficult because most family income sources are not exogenous to the allocations being analyzed in this paper we present an alternative test based on a natural experiment a policy change in the united kingdom that transferred a substantial child allowance to wives in the late 1970s using family expenditure survey data we find strong evidence that a shift toward greater expenditures on women s clothing and children s clothing relative to men s clothing coincided with this income redistribution

work health and income among the elderly contents include introduction and summary public policy implications of declining old age mortality aging the ability to work policy issues and recent trends occupational effects on the health and work capacity of older men involuntary early retirement and consumption life cycle labor supply and social security a time series analysis life insurance of the elderly its adequacy and determinant

are scale economies in banking elusive or illusive evidence obtained by incorporating capital structure and risk taking into models of bank production abstract this paper explores how to incorporate banks capital structure and risk taking into models of production in doing so the paper bridges the gulf between 1 the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of production and 2 the literature that uses dual profit and cost functions to study the microeconomics of bank production without explicitly considering how banks production decisions influence their riskiness various production models that differ in how they account for capital structure and in the objectives they impute to bank managers cost minimization versus value maximization are estimated using u s data on highest level bank holding companies modeling the bank s objective as value maximization conveniently incorporates both market priced risk and expected cash flow into managers ranking and choice of production plans estimated scale economies are found to depend critically on how banks capital structure and risk taking are modeled in particular when equity capital in addition to debt is included in the production model and cost is computed from the value maximizing expansion path rather than the cost minimizing path banks are found to have large scale economies that increase with size moreover better diversification is associated with larger scale economies while increased risk taking and inefficient risk taking are associated with smaller scale economies

does labour regulation affect technical and allocative efficiency evidence from the banking industry in light of the ongoing restructuring of the european banking industry and the challenging macroeconomic environment banks have increased their efforts to reduce operating costs yet the institutional features that affect banks ability to adjust costs and in particular personnel expenses which comprise a significant part of banks non interest cost structure have not been adequately studied this paper investigates the effect of labour market institutions and regulations on bank performance in 15 european countries over the period 2005 2010 using the fraser index for labour regulation and its disaggregated sub components we propose a novel methodology to measure performance based on the seminal work of kumbhakar and tsionas 2005 which allows the estimation of technical and allocative efficiency and the examination of the effect of labour market regulations in a single stage results indicate the existence of a positive relationship between the liberalisation of eu labour markets and allocative efficiency while the effect on technical efficiency appears to be negative although not statistically significant when looking at the disaggregated components of the labour index we further confirm that different forces are at play

parameters measuring bank risk and their estimation the paper develops estimation of three parameters of banking risk based on an explicit model of expected utility maximization by financial institutions subject to the classical technology restrictions of neoclassical production theory the parameters are risk aversion prudence or downside risk aversion and generalized risk resulting from a factor model of loan prices the model can be estimated using standard econometric techniques like gmm for dynamic panel data and latent factor analysis for the estimation of covariance matrices an explicit functional form for the utility function is not needed and we show how measures of risk aversion and prudence downside risk aversion can be derived and estimated from the model the model is estimated using data for eurozone countries and we focus particularly on i the use of the modeling approach as a device close to an early warning mechanism ii the bank and country specific estimates of risk aversion and prudence downside risk aversion and iii the derivation of a generalized measure of risk that relies on loan price uncertainty moreover the model provides estimates of loan price distortions and thus allocative efficiency

risk aversion indivisible timing options and gambling in this paper we model the behavior of a risk averse agent who seeks to maximize expected utility and who has an indivisible asset and a timing option over when to sell this asset our main contribution is to show that contrary to intuition optimal behavior for such a risk averse agent can include risk increasing gambles for example a manager with a choice over when to disinvest from a project a private homeowner with a property to sell or an employee with a grant of american style stock options may be better off taking positions in other assets with zero sharpe ratio that are uncorrelated with the underlying project house or stock price risk the results have wider implications for the modeling and interpretation of portfolio optimization problems involving american style timing decisions

risk in banking and capital regulation this paper investigates the role of bank capital regulation in risk control it is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance bank capital regulation is a way to redress this bias toward risk utilizing the mean variance model the following results are shown a the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks b as a solution to problems of the capital ratio regulation the theoretically correct risk weights under the risk based capital plan are explicitly derived and c the theoretically correct risk weights are restrictions on asset composition which alters the optimal portfolio choice of banking firms the recent increase in bank failures especially after the 1980 and 1982 deregulatory acts has again ignited a controversy over the risk portfolio of the banking industry given the importance of this sector there has been increased scrutiny of the industry s motives for risk taking and possible regulatory changes to improve its stability these investigations have centered around two rather complementary areas the first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations the works of buser chen and kane 4 kane 9 and benston et al 2 have made substantive contributions the authors demonstrates the way in which our current fixed rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation this realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry these include a shift to market value accounting risk based deposit insurance premiums and additional capital regulation the last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management in essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system the regulators ceteris paribus prefer more capital to

procrastination and obedience in this lecture i shall focus on situations involving repeated decisions with time inconsistent behavior although each choice may be close to maximizing and therefore result in only small losses the cumulative effect of a series of repeated errors may be quite large thus in my examples decision makers are quite close to the intelligent well informed individuals usually assumed in economic analysis but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics this lecture discusses and illustrates several pathological modes of individual and group behavior procrastination in decision making undue obedience to authority membership of seemingly normal individuals in deviant cult groups and escalation of commitment to courses of action that are clearly unwise in each case individuals choose a series of current actions without fully appreciating how those actions will affect future perceptions and behavior the standard assumption of rational forwardlooking utility maximizing is violated the nonindependence of errors in decision making in the series of decisions can be explained with the concept from cognitive psychology of undue salience or vividness for example present benefits and costs may have undue salience relative to future costs

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

a portfolio view of banking with interest and noninterest activities this paper uses a portfolio framework to evaluate the impact of increased noninterest income on equity market measures of return and risk of u s bank holding companies from 1997 to 2004 the results indicate that the banks most reliant on activities that generate noninterest income do not earn higher average equity returns but are much more risky as measured by return volatility both total and idiosyncratic and market betas this suggests that the pervasive shift toward noninterest income has not improved the risk return outcomes of u s banks in recent years

or forum design of risk weights banking regulations set minimum levels of capital for banks these requirements are generally formulated through a ratio of capital to risk weighted assets a risk weighting scheme assigns a weight to each asset or category of assets and effectively functions as a linear constraint on a bank s portfolio choice it also changes the incentives for banks to hold various kinds of assets in this paper we investigate the design of risk weights to align regulatory and private objectives in a simple mean variance framework for portfolio selection by setting risk weights proportional to profitability rather than risk the regulator can induce a bank to reduce its overall level of risk without distorting its asset mix because the regulator is unlikely to know the true profitability of assets we introduce an adaptive formulation in which the regulator sets weights by observing a bank s portfolio the adaptive scheme converges to the same combination of weights and portfolio choice that would hold if the regulator knew the asset profitability we also investigate other objectives including steering banks to a target mix of assets adding robustness mitigating procyclicality and reducing system wide risk in a setting with multiple heterogeneous banks

endogenous bank risk and efficiency we develop a framework to incorporate bank risk as measured from the variance of profits or returns within a model of frontier efficiency our framework follows the premise that risk is endogenously related to efficiency we estimate our model using panel data for u s banks and bayesian techniques we show that excluding risk from the efficiency model significantly biases the efficiency estimates and the ranking of banks according to their competitive advantage we also demonstrate that there is a negative risk efficiency nexus with causality running both ways while our estimates of risk are fully consistent with the developments in the banking industry over the period 1976 2014

uncertainty optimal taxation and the direct versus indirect tax controversy this paper examines how the presence of uncertainty affects the design of tax policy when both indirect taxes and a general income tax are available to the government there are two categories of goods the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after the paper proves that contrary to a b atkinson and j e stiglitz s 1976 result differential commodity taxation remains a useful instrument of optimal tax policy even if preferences are separable between labor and produced goods copyright 1995 by royal economic society

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

economies of scale technical change and persistent and time varying cost efficiency in indian banking do ownership regulation and heterogeneity matter abstract banks with different ownership types adjust differently to changes in regulatory environments although this topic has been widely studied all the previous studies fail to control for bank heterogeneity bank specific effects in estimating cost structure and efficiency we propose a model where we control for bank heterogeneity and introduce persistent and time varying inefficiency additionally we incorporate determinants of both persistent and time varying inefficiency as well as production risks furthermore our model allows estimation of different technologies for different ownership types jointly we use this model to analyze the effect of regulation in indian banking we find that private banks have not exhausted their economies of scale foreign banks are operating under diseconomies of scale especially after the reforms and scale economies of state owned banks are unaffected by regulation banks of all ownership types have enjoyed technical progress however foreign banks have benefited the most followed by state owned banks only state banks were able to improve their cost efficiency while private banks and especially foreign banks were lagging behind their cost frontiers

taxation as insurance and the case of rate differentiation according to consanguinity under inheritance taxation abstract does there exist an economically convincing reason for differentiating tax rates according to consanguinity as it is the rule under inheritance taxation in most western countries many writers have answered this question in the negative in this paper inheritance expectations are treated like income expectations as in friedman 1957 they fall into a permanent and a transitory component if people take the permanent one as known and the transitory one as random then an insurance theoretic argument can be made for progressive taxation in general and rate differentiation according to consanguinity under inheritance taxation in particular

formalism logic and reality a keynesian analysis in the view of many perhaps most economists to state a theory in terms of a formal model is an unambiguous improvement rather than as we see it a matter of costs and benefits the benefits greater rigour more precision demonstrable results are widely understood while the costs are underexplored the costs are associated with the way in which formalising an argument can change its meaning i e with its non neutrality this paper will focus on the particular costs of formalism associated with the obstacles formal ism poses for translating from formalist theory to practical application

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

microfoundations for stochastic frontiers the purpose of the paper is to propose microfoundations for stochastic frontier models previous work shows that a simple bayesian learning model supports gamma distributions for technical inefficiency in stochastic frontier models the conclusion depends on how the problem is formulated and what assumptions are made about the sampling process and the prior after the new formulation of the problem it turns out that the distribution of the one sided error component does not belong to a known family moreover we find that without specifying a utility function or even the cost inefficiency function the relative effectiveness of managerial input can be determined using only cost data and estimates of the returns to scale the point of this construction is that features of the inefficiency function u z can be recovered from the data based on the solid microfoundation of expected utility of profit maximization but the model does not make a prediction about the distribution

what accounts for the variation in retirement wealth among u s households even among households with similar socioeconomic characteristics saving and wealth vary considerably life cycle models attribute this variation to differences in time preference rates risk tolerance exposure to uncertainty relative tastes for work and leisure at advanced ages and income replacement rates these factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile using the panel study of income dynamics and the consumer expenditure survey we find little support for these implications the data are instead consistent with rule of thumb mental accounting or hyperbolic discounting theories of wealth accumulation jel di d91 e21

predicting financial crises the statistical significance of the signals approach abstract the signals approach as an early warning system has been fairly successful in detecting crises but it has so far failed to gain popularity in the scientific community because it cannot distinguish between randomly achieved in sample fit and true predictive power to overcome this obstacle we test the null hypothesis of no correlation between indicators and crisis probability in three applications of the signals approach to different crisis types to that end we propose bootstraps specifically tailored to the characteristics of the respective datasets we find 1 that previous applications of the signals approach yield economically meaningful results 2 that composite indicators aggregating information contained in individual indicators add value to the signals approach and 3 that indicators which are found to be significant in sample usually perform similarly well out of sample

the ubiquity of habits and rules under what circumstances is it necessary or convenient for an agent to rely on habits or rules this paper focuses on the types of decision situations giving rise to their use even optimization requires the deployment of rules and for this reason mainstream economics cannot legitimately ignore these questions the argument is that habits and rules are ubiquitous in human activity in a new taxonomy seven types of decision situations are considered classified according to the type of information problem involved neither neoclassical nor behavioral economics can provide a complete account of the bases of habits or rules in these cases copyright 1997 by oxford university press

two studies of women s retirement incomes in australia assessing some outcomes of pluralism in economic research to illustrate the potential use of plural research methods two studies of australian women s retirement incomes are examined the first study employed quantitative microsimulation techniques its outcomes emphasised low lifetime earnings as a cause of women s lower retirement incomes the second study used an inductive approach known as grounded theory and its conclusions emphasised household decision making processes as a cause of both women s low lifetime earnings and lower retirement incomes using runde s criteria for assessing causal explanations a comparison is made of the outcomes of the two studies the conclusion is that rather than being seen as competing accounts the outcomes of the two varying research methods can be viewed as complementary by demonstrating the different insights afforded by contrasting research methods this paper provides some support for pluralism of research methods within the discipline of economics

risk management strategies for banks abstract we analyze optimal risk management strategies of a bank financed with deposits and equity in a one period model the bank s motivation for risk management comes from deposits which can lead to bank runs in the event of such a run liquidation costs arise the hedging strategy that maximizes the value of equity is derived we identify conditions under which well known results such as complete hedging maximal speculation or irrelevance of the hedging decision are obtained the initial debt ratio the size of the liquidation costs regulatory restrictions the volatility of the risky asset and the spread between the riskless interest rate and the deposit rate are shown to be the important parameters that drive the bank s hedging decision we further extend this basic model to include counterparty risk constraints on the forward contract used for hedging

liquidity shortages and banking crises we show in this article that bank failures can be contagious unlike earlier work where contagion stems from depositor panics or contractual links between banks we argue that bank failures can shrink the common pool of liquidity creating or exacerbating aggregate liquidity shortages this could lead to a contagion of failures and a total meltdown of the system given the costs of a meltdown there is a possible role for government intervention unfortunately liquidity and solvency problems interact and can cause each other making it hard to determine the cause of a crisis we propose a robust sequence of intervention banks are often found at the center of systemic financial crises the causes of these crises have long been debated do they stem from depositor panics or do they arise because bank balance sheets are exposed to common factors if it is the latter then is there any sense in which bank failures can be contagious can anything be done to prevent these crises or stop them from propagating once they begin our purpose in this paper is to reexamine whether bank failures can start and propagate systemic crises even if we assume that depositors do not panic that is even if depositors actions are coordinated and they do not run simply because they fear others will run our focus is not because we think that panics are empirically unimportant the jury is still out on that instead we show that contagion can stem from an underlying real general equilibrium problem rather than just from lack of coordination among depositors from a policy perspective attempts to reassure investors through confidence building measures will not work if panic and lack of coordination are not the reasons for a crisis we begin in this paper with a model of a bank that we developed in diamond and rajan 2001 assets in this model are illiquid they cannot be borrowed against or sold for the full value of resources they will generate in their best use because the human capital necessary to generate that full value cannot

interbank lending and systemic risk systemic risk refers to the propagation of a bank s economic distress to other economic agents linked to that bank through financial transactions banking authorities often prevent systemic risk through an implicit insurance of interbank claims or by reducing interbank transactions and centralizing banks liquidity management this paper investigates whether the flexability afforded by decentralized bank interactions can be preserved while protecting the central banks from the necessity of conducting undesired rescue operations it develops a model in which decentralized interbank leading is motivated by peer monitoring in this context the paper derives the optimal prudential rules and in particular looks at the impact of interbank monitoring on the solvency and liquidity ratios of borrowing and lending banks last it provides conditions which a too big to fail policy is or is not justified and studies the possibility of propagation of a bank s liquidity shock throughout the financial system copyright 1996 by ohio state university press

separate spheres bargaining and the marriage market this paper introduces the separate spheres bargaining model a new model of distribution within marriage it differs from divorce threat bargaining models e g manser brown mcelroy horney in that the threat point is not divorce but a noncooperative equilibrium within marriage this noncooperative equilibrium reflects traditional gender roles the predictions of our model thus differ from those of divorce threat bargaining models in the separate spheres model cash transfer payments to the mother and payments to the father can but need not imply different equilibrium distributions in existing marriages in the long run the distributional effects of transfer policies may be substantially altered by changes in the marriage market equilibrium

incentives for effective risk management under the new capital accord banks choose between two different types of risk management systems the standard or the internal rating based approach the paper considers how a bank s preference for a risk management system is affected by the presence of supervision by bank regulators the model uses a principal agent setting between a bank s owner and its risk management the main conclusion is that previously unregulated institutions can be expected to switch to the lower quality standard approach subsequent to becoming regulated i e the presence of regulation may induce a bank to decrease the quality of its risk management system

does risk aversion affect bank output loss the case of the eurozone abstract we propose a new model to infer the evolution of bank specific output losses due to the uncertainty in bank output prices losses are based on bank risk aversion with micro foundations tethered to the uncertainty regarding prices our model allows us to measure time varying bank specific output losses and risk aversion while taking into account all bank cross sectional heterogeneity we employ a panel data set to estimate the input and output elasticities with both parametric and non parametric techniques we are the first to document that increasing risk aversion among eurozone banks during the financial crisis resulted in sizable output losses although subdued thereafter losses have been resurging in recent years both conventional and unconventional monetary policy responses by the european central bank ecb mitigated uncertainty in bank output prices though unequally so across countries certain measures of unconventional monetary policy may have even enhanced bank risk aversion and thereby output losses but mainly so for large countries

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement