the optimal level of social security benefits the optimal level of social security benefits depends on balancing the protection that these benefits offer to those who lack the foresight to provide for their own old age against the welfare costs of distorting economic behavior the primary such cost is the distortion in private saving the present paper derives the level of social security benefits that is optimal in three basic cases in the first section the paper derives the optimal level of benefits for an economy in which all individuals do not anticipate retirement at all and therefore do no saving the second and third sections then derive optimal benefits for two different definitions of incomplete myopia

cognitive constraints on valuing annuities this paper documents consumers difficulty valuing life annuities using a purpose built experiment in the american life panel we show that the prices at which people are willing to buy annuities are substantially below the prices at which they are willing to sell them we also find that buy values are negatively correlated with sell values and that the sell buy valuation spread is negatively correlated with cognition this spread is larger for those with less education weaker numerical abilities and lower levels of financial literacy our evidence contributes to the emerging literature on heterogeneity in financial decision making abilities particularly regarding retirement payouts jel d14 d91 g11 h55

housing tenure and labor market impacts the search goes on abstract we develop two search theoretic models emphasizing firm entry to examine the oswald hypothesis the idea that homeownership is linked to inferior labor market outcomes and compare their predictions to three extant theories the five models have surprisingly different predictions about the labor market at both the aggregate and micro levels using a suitable instrumental variable strategy we estimate both micro and aggregate level regression models of wages and unemployment and compare the estimates to those predictions we find that while homeowners are less likely to be unemployed they also have lower wages all else equal compared to renters in addition higher regional homeownership rates are associated with a greater probability of individual worker unemployment and higher wages the outcome of a horserace between our new search theoretic models is mixed the wage posting model predicts observed unemployment impacts while a bargaining variant does a better job explaining observed wages and aggregate labor market outcomes overall we conclude that firm behavior is important for understanding the labor market impacts of homeownership because this is the case regional homeownership rates are not good instruments for individual tenure choice in empirical work and while individual homeowners may have inferior labor market outcomes as compared to renters from the viewpoint of society higher homeownership rates may result in greater job creation and overall production among other benefits

local social capital and geographical mobility in the north of europe club membership is higher than in the south but the frequency of contacts with friends relatives and neighbors is lower we link this fact to another one the low geographical mobility rates in the south of europe relative to the north to interpret these facts we build a model of local social capital and mobility investing in local ties is rational when workers do not expect to move to another region we find that observationally close individuals may take different paths characterized by high local social capital low mobility and high unemployment vs low social capital high propensity to move and higher employment probability employment protection reinforces the accumulation of local social capital and thus reduces mobility european data supports the theory within a country and at the individual level more social capital is associated with lower mobility

corporate demography and income inequality we examine the relationship between income inequality and corporate demography in regional labor markets and specify two mechanisms through which the number and diversity of employers in a labor market affect wage dispersion vertical differentiation or variation in the ability of organizations of a particular kind to benefit from labor inputs amplifies inequality through quality sorting as the most productive employees in a particular domain pair with the most productive employers increasing horizontal differentiation variation in the kinds of organizations reduces inequality as individuals can more easily find firms interested in their distinctive attributes and talents our analysis of danish census data provides support for each thesis increased numbers of organizations operating within an industry in a region a proxy for vertical differentiation increases wage dispersion in that industry region variation in wages however declines with increased horizontal differentiation among employers th

home field advantage location decisions of portuguese entrepreneurs an investor s home bias in industrial location decisions may stem from personal factors social capital other non transferable assets and imperfect information about the urban and regional environment this paper explores the distinction between home base and non home location decisions in portugal we reach two important conclusions first the introduction of a variable accounting for prior base of economic activity significantly improves the statistical results second we find that the weighting of distinct location attributes differs between home and non home locations notably non home location choices are strongly governed by agglomeration economies and proximity to major urban centers possibly replicating prior location decisions to economize on search costs the results also enable us to quantify the investor s willingness to opt for a possible home field advantage for example entrepreneurs accept over three times higher labor costs to compete in their resident area of business 2002 elsevier science usa all rights reserved

expectations life expectancy and economic behavior this study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival people do extrapolate past improvements in longevity when they determine their subjective horizons and they are fully aware of levels of and movements within todays life tables the subjective distribution has greater variance than its actuarial counterpart and the subjective variance decreases with age the implications of these findings for optimal social security for the construction of annuities for the analysis of savings behavior and for evaluating lifetime earnings are discussed the data were collected in the united states from a sample of 411 white male economists and a sample of 363 white males in a midwestern smsa excerpt

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

defined benefit pension plan distribution decisions by public sector employees abstract studies examining pension distribution choices have found that the tendency of private sector workers is to select lump sum distributions instead of life annuities resulting in leakage of retirement savings in the public sector defined benefit pensions usually offer lump sum distributions equal to employee contributions not the present value of the annuity thus for terminating employees that are younger or have shorter tenures the lump sum distribution amount may exceed the present value of the annuity we discuss the factors that may influence the choice to withdraw funds or not in this environment using administrative data from the north carolina state and local government retirement systems we find that over two thirds of public sector workers under age 50 separating prior to retirement from public plans in north carolina left their accounts open and did not request a cash distribution from the pension system within one year of separation furthermore the evidence suggests many separating workers particularly those with short tenure may be forgoing substantial monetary benefits due to lack of knowledge understanding or accessibility of benefits we find no evidence of a bias toward cash distributions for public employees in north carolina

specification of the joy of giving insights from altruism this paper analyzes the joy of giving bequest motive in which the utility obtained from leaving a bequest depends only on the size of the bequest it exploits the fact that this formulation can be interpreted as a reduced form of an altruistic bequest motive to derive a relation between the value of the altruism parameter and the value of the joy of giving parameter using previous discussions of an a priori range of plausible values for the altruism parameter we then derive plausible restrictions on the joy of giving parameter we demonstrate that this parameter may well be orders of magnitude larger than assumed in the existing literature this abstract was borrowed from another version of this item

new evidence on altruism a study of tiaa cref retirees this paper investigates the role in household wealth accumulation of saving for bequests it employs data from a 1988 survey of tiaa cref annuitants designed to measure pension and other net worth as well as lifetime earnings about half of the households in the data plan to leave estates and the authors find that their behavior conforms with theoretical altruistic models for the same families the amount of wealth that the authors attribute to estate building is large nevertheless altruism towards one s children does not seem to be the major explanation of saving in the overall sample copyright 1996 by american economic association

increasing returns and perfect competition the role of land abstract the classical inconsistency between increasing returns and perfect competition is studied for example if firms must pay a fixed cost of entry but then can produce using a constant returns to scale technology they will generally operate at a loss necessitating a government subsidy in order to attain an efficient allocation here we provide examples demonstrating that perfect competition and increasing returns can be consistent by extending the alonso model to include production the key is that producers use intervals of land and the price they pay for land interior to the parcels can be adjusted to provide an implicit subsidy

health and mortality delta assessing the welfare cost of household insurance choice we develop a pair of risk measures health and mortality delta for the universe of life and health insurance products a life cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products we estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance annuities including private pensions and long term care insurance in the health and retirement study for the median household aged 51 to 57 the lifetime welfare cost of market incompleteness and suboptimal choice is 3 2 of total wealth

understanding the effects of homeownership and regional unemployment levels on internal migration during the economic crisis in spain the spanish labour market is characterised by high levels of unemployment which have increased during the global economic crisis spain is also a country which is characterised by a very high percentage of homeownership with more than 83 of households being owner occupiers both regional levels of unemployment and homeownership are known to be important factors influencing the spatial mobility decisions of households but little is known about how these factors influenced mobility during the recent economic crisis this paper uses rich individual level microdata from the last two spanish censuses 2001 and 2011 to study the effect of homeownership and regional unemployment levels on both short and long distance mobility our finding suggest that the role influence and interconnection of unemployment and homeownership in mobility decision have changed in the last decade

how strong are bequest motives evidence based on estimates of the demand for life insurance and annuities this paper presents new empirical evidence in support of the view that a significant fraction of total saving is motivated by the desire to leave bequests specifically i find that social security annuity benefits significantly raise life insurance holdings and depress private annuity holdings among elderly individuals these patterns indicate that the typical household would choose to maintain a positive fraction of its resources in bequeathable forms even if insurance markets were perfect evidence on the relationship between insurance purchases and total resources reinforces this conclusion

bequest behavior and the effect of heirs earnings testing the altruistic model of bequests that parents transfer resources to children because of altruistic concern is a reasonable a priori assumption however economic theories of altruistic transfers have produced many counterintuitive conclusions and consequently much debate when applied to bequests these theories predict that inheritances will compensate for earnings differences between siblings as well as between parents and children this paper tests these implications using a new data set centered on federal estate tax returns little support can be found for an altruistic theory of bequests this finding has implications for macroeconomic policy government transfer programs and inequality copyright 1996 by american economic association

differential mortality and wealth accumulation the issue of asset accumulation and decumulation is central to the life cycle theory of consumer behavior and to many policy questions one of the main implications of the life cycle model is that assets are decumulated in the last part of life most empirical studies in this area use cross sectional data of estimate mean or median wealth age profiles the use of cross sections to estimate the age profile of assets is full of pitfalls for example if wealth and mortality are related in that poorer individuals die younger one overestimates the last part of the wealth age profile when using cross sectional data because means or other measures of location are taken over a population which becomes richer as it ages this paper examines the effect of differential mortality on cross sectional estimates of wealth age profiles our approach is to quantify the dependence of mortality rates on wealth and use these estimates to correct wealth age profiles for sample selection due to differential mortality we estimate mortality rates as a function of wealth and age for a sample of married couples drawn from the survey of income and program participation sipp our results show that accounting for differential mortality produces wealth profiles with significantly more dissaving among the elderly

risk sharing between and within families this paper uses the panel study of income dynamics to test whether risk sharing is complete between or within american families the tests accommodate a wide variety in the configuration and availability of family data the test results reject inter as well as intra family full risk sharing even assuming that leisure is endogenous or that leisure and consumption are nonseparable

uncertainty resolution and the timing of annuity purchases abstract this paper considers the question of why the annuity market is thin a model is presented in which consumers have the option of purchasing annuities before discovering their survival probability they can then recontract the initial choice after the resolution of this form of uncertainty it is shown that consumers purchase insurance against their own survival probability type at a very young age and do not undertake further transactions this characterization is then used to analze the effects of introducing future income uncertainty and to investigate the trade off between old age insurance motive and portfilio flexibility

spatial wage disparities sorting matters spatial wage disparities can result from spatial differences in the skill composition of the workforce in non human endowments and in local interactions to distinguish between these explanations we estimate a model of wage determination across local labour markets using a very large panel of french workers we control for worker characteristics worker fixed effects industry fixed effects and the characteristics of the local labour market our findings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills interaction effects are mostly driven by the local density of employment not controlling for worker heterogeneity leads to very biased estimates of interaction effects endowments only appear to play a small role

job search in thick markets abstract i analyze empirically the effects of urban and industrial agglomeration on both search behavior and the efficiency of matching the analysis is based on a unique panel data set from the italian labor force survey micro data covering 520 randomly drawn local labor market areas 66 of the total over the four quarters of 2002 i compute transition probabilities from non employment to employment by jointly estimating the probability of searching and the probability of finding a job conditional on having searched i then test whether these are affected by market size industrial variety and or industry specialization the main results indicate that market size and industry specialization raise job seekers chances of finding employment conditional on having searched while industrial variety is not significantly different from zero finally the effect of agglomeration on non employed individuals search behavior cannot be significantly distinguished from zero

power couples changes in the locational choice of the college educated 1940 1990 college educated couples are increasingly located in large metropolitan areas these areas were home to 32 percent of all college educated couples in 1940 39 percent in 1970 and 50 percent in 1990 we investigate whether this trend can be explained by increasing urbanization of the college educated or the growth of dual career households and the resulting severity of the colocation problem we argue that the latter explanation is the primary one smaller cities may therefore experience reduced inflows of human capital relative to the past and thus become poorer

agglomeration economies types and sizes of cities abstract the objective of this paper is to investigate why cities have different sizes traditionally this phenomenon has been explained by differences among cities in either the degree of internal scale economies or the elasticity of external economies this paper relates size differences between cities to differences in the dominant agglomeration force between cities we analyze this relationship via an equilibrium model of two cities that are embedded in a national economy one of the cities produces two traded goods with urbanization economies being the dominant agglomeration force the other city produces only one traded good with localization economies being the dominant force our first main result is that the two product city can be larger than the one product city in stable equilibrium if at least one of the two industries exhibits decreasing returns in production otherwise the one product city is larger second we obtain an existence result for the equilibrium of both cities we also analyze the relationship between optimum sizes of the two cities using an optimum city size model for each city finally we compare the equilibrium and optimum city sizes by doing so we identify the condition under which the stable equilibrium city size is smaller than the optimum city size

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

heterogeneity in state dependent utility evidence from strategic surveys a standard result of life cycle models under uncertainty is that optimizing individuals equate the expected marginal utility of consumption across states of the world if insurance is available at actuarially fair rates a small empirical literature has suggested that the marginal utility of consumption is lower in less healthy states we use a novel survey based measure to document significant heterogeneity in health state dependence across individuals largely orthogonal to standard controls we further show that individuals value unhealthy states of the world more when facing work limiting disabilities than when facing disabilities requiring long term care and when facing physical rather than mental disabilities jel d12 i10

the attenuation of human capital spillovers abstract this paper uses 2000 census data to estimate the relationship of agglomeration and proximity to human capital to wages the paper takes a geographic approach and focuses on the attenuation of agglomeration and human capital effects differencing and instrumental variable methods are employed to address endogeneity in the wage agglomeration relationship and also to deal with measurement error in our agglomeration and human capital variables three key results are obtained first the spatial concentration of employment within five miles is positively related to wage second the benefits of spatial concentration are driven by proximity to college educated workers an instance of human capital spillovers third these effects attenuate sharply with distance

savings of the elderly and desired bequests cross section data often show that the wealth of the elderly increases with age even at advanced ages these and other results suggest that the life cycle hypothesis of consumption should be augmented to include a bequest motive for saving in this paper the author proposes a model of bequests and a test for a bequ est motive using panel data he finds that over a ten year period the elderly in the data set dissaved in contradiction to most cross section results the test offers no support for a bequest motive copyright 1987 by american economic association

breakthrough inventions and migrating clusters of innovation abstract we investigate the speed at which clusters of invention for a technology migrate spatially following breakthrough inventions we identify breakthrough inventions as the top 1 of us inventions for a technology during 1975 1984 in terms of subsequent citations patenting growth is significantly higher in cities and technologies where breakthrough inventions occur after 1984 relative to peer locations that do not experience breakthrough inventions this growth differential in turn depends on the mobility of the technology s labor force which we model through the extent that technologies depend upon immigrant scientists and engineers spatial adjustments are faster for technologies that depend heavily on immigrant inventors the results qualitatively confirm the mechanism of industry migration proposed in models like duranton duranton g 2007 urban evolutions the fast the slow and the still american economic review 97 197 221

recruiting for ideas how firms exploit the prior inventions of new hires when firms recruit inventors they acquire not only the use of their skills but also enhanced access to their stock of ideas but do hiring firms actually increase their use of new recruits prior inventions our estimates suggest they do quite significantly in fact by approximately 219 on average however this does not necessarily reflect widespread learning by hiring in fact we estimate that a recruit s exploitation of her own prior ideas accounts for almost half of the above effect with much of the diffusion to others being limited to the recruit s immediate collaborative network furthermore although one might expect the recruit s role to diminish rapidly as her tacit knowledge diffuses across her new firm our estimates indicate that her importance is surprisingly persistent over time we base these findings on an empirical strategy that exploits the variation over time in hiring firms citations to the recruits premove patents specifically we employ a difference in differences approach to compare premove versus postmove citation rates for the recruits prior patents and corresponding matched pair control patents our methodology has three benefits compared to previous studies that also examine the link between labor mobility and knowledge flow 1 it does not suffer from the upward bias inherent in the conventional cross sectional comparison 2 it generates results that are robust to a more stringently matched control sample and 3 it enables a temporal examination of knowledge flow patterns this paper was accepted by kamalini ramdas entrepreneurship and innovation

the migration of technical workers using panel data on the danish population we estimated the revealed preferences of scientists and engineers for the places in which they choose to work our results indicate that these technical workers exhibit substantial sensitivity to differences in wages but that they have even stronger preferences for living close to family and friends the magnitude of these preferences moreover suggests that the greater geographic mobility of scientists and engineers relative to the population as a whole stems from more pronounced variation across regions in the wages that they can expect these results remain robust to estimation on a sample of individuals who must select new places of work for reasons unrelated to their preferences those who had been employed at establishments that discontinued operations

social welfare and income inequality in a system of cities abstract this paper develops a general equilibrium model of a system of core periphery cities to examine the main determinants of intra and inter regional income disparities the economy is populated by a continuum of homogeneous unskilled and heterogeneous skilled workers unskilled workers whose wages are determined competitively specialize in food production in local cities skilled workers whose wages are determined according to a nash bargain manufacture a high tech commodity in the metropolis we establish conditions under which this core periphery equilibrium spatial configuration emerges we show that both intra and inter regional income disparities are present the determinants of each type of disparity and the social welfare implications are fully investigated our results suggest that public policy programs that improve income equality may not be necessarily welfare enhancing

optimal mandates and the welfare cost of asymmetric information evidence from the u k annuity market much of the extensive empirical literature on insurance markets has focused on whether adverse selection can be detected once detected however there has been little attempt to quantify its welfare cost or to assess whether and what potential government interventions may reduce these costs to do so we develop a model of annuity contract choice and estimate it using data from the u k annuity market the model allows for private information about mortality risk as well as heterogeneity in preferences over different contract options we focus on the choice of length of guarantee among individuals who are required to buy annuities the results suggest that asymmetric information along the guarantee margin reduces welfare relative to a first best symmetric information benchmark by about 127 million per year or about 2 percent of annuitized wealth we also find that by requiring that individuals choose the longest guarantee period allowed mandates could achieve the first best allocation however we estimate that other mandated guarantee lengths would have detrimental effects on welfare since determining the optimal mandate is empirically difficult our findings suggest that achieving welfare gains through mandatory social insurance may be harder in practice than simple theory may suggest

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

an ecological analysis of competition among us communities we apply the ecological concept of the organization s niche pioneered by john freeman and mike hannan to the study of geographic communities we define a community s market niche by the ties linking a community to the industries on which it depends for growth we then hypothesize that the extent to which a community s market niche is occupied by other communities is a source of constraint and opportunity depending on the geographical locations of the communities that occupy the same market niche geographically distant communities occupying similar market niches are hypothesized to experience primarily constraint arising from competition for opportunities of exchange geographically proximate communities occupying similar market niches are hypothesized to face constraint arising from competition for exchange opportunities as well as opportunity arising from access to valuable resources associated with the existence of similar others empirical analyses of firm foundings and exits across us communities support these hypotheses implications of our findings for ecological research on the niche and for the literature on communities are discussed copyright 2012 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

predicting retirement savings using survey measures of exponential growth bias and present bias in a nationally representative sample we predict retirement savings using survey based elicitations of exponential growth bias egb and present bias pb we find that egb the tendency to neglect compounding and pb the tendency to value the present over the future are highly significant and economically meaningful predictors of retirement savings these relationships hold controlling for cognitive ability financial literacy and a rich set of demographic controls we address measurement error as a potential confound and explore mechanisms through which these biases may operate back of the envelope calculations suggest that eliminating egb and pb would increase retirement savings by approximately 12 percent

private pensions mortality risk and the decision to annuitize abstract this paper examines household decisions about whether or not to annuitize retirement resources a life cycle model of consumption implemented with the use of dynamic programming techniques is used to construct a utility based measure of annuity value for individuals and couples in the health and retirement survey variation in the calculated annuity equivalent wealth arises from differences in mortality risk marital status risk aversion and the presence of pre existing annuities such as social security i find that a one percentage point increase in the annuity equivalent wealth leads to nearly a one percentage point increase in the ex ante probability of annuitizing balances in defined contribution pension plans however because much of the variation in the expected annuity decision is left unexplained by the life cycle model other factors are also analyzed health status and an individual s time horizon for financial decision making are significant determinants of the decision there is no evidence that bequest motives are an important factor in making marginal annuity decisions

measuring and modeling intergenerational links in relation to long term care long term care has profound intergenerational implications it can be costly for those who need it and onerous for loved ones who provide it we pinpoint three intergenerational aspects of long term care that require further research one concerns the link between costs of private care and intergenerational wealth transfers the second concerns the link between participation in care and the work and welfare of family providers the third relates to intergenerational tensions that these and other late in life interactions create we outline innovations in modeling and measurement that would improve understanding of intergenerational linkages and their implementation in appropriate panel data jel d91 i13 j22

new evidence on the money s worth of individual annuities this paper presents new information on the expected present discounted value of payouts on individual life annuities the annuity we examine is the single premium immediate life annuity an insurance product that pays out a nominal level sum as long as the covered person lives in exchange for an initial lump sum premium this annuity offers protection against the risk of someone outliving his saving given uncertainty about longevity for reasonable estimates of behavioral parameters we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption we also find that the expected present discounted value of payouts relative to the initial cost of the annuity has increased over the last decade these findings bear on the policy debate regarding the role of individual choice and self reliance in retirement planning this abstract was borrowed from another version of this item

local amenities and life cycle migration do people move for jobs or fun abstract do households move for jobs or fun and where do they go when they move we address these questions using the 1970 2000 us census based on a panel of quality of life and business environment measures households prefer msas in warm coastal areas and non metropolitan locations while firms prefer large growing cities in addition cities with improving business environments acquire increasing shares of workers especially workers with high levels of human capital cities with improving consumer amenities become relatively more populated by retirees further analysis of individual level migration decisions indicates that regardless of marital status young highly educated households tend to move towards places with higher quality business environments this tendency is especially pronounced among highly educated couples who are more subject to job market co location problems in contrast regardless of education couples near retirement tend to move away from places with favorable business environments and towards places with highly valued consumer amenities these patterns help explain why areas unattractive to both households and business have struggled as with upstate new york while the sun belt and other regions are thriving