a political economy model of congressional careers our main goal is to quantify the returns to a career in the united states congress we specify a dynamic model of career decisions of a member of congress and estimate this model using a newly collected dataset given estimates of the structural model we assess reelection probabilities estimate the effect of congressional experience on private and public sector wages and quantify the value of congressional seat moreover we assess how an increase in the congressional wage or the imposition of term limits would affect the career decisions of politicians and the returns from a career in congress

the empirical content of the roy model this paper clarifies and extends the classical roy model of self selection and earnings inequality the original roy model based on the assumption that log skills are normally distributed is shown to imply that pursuit of comparative advantage in a free market reduces earnings inequality compared to the earnings distribution that would result if workers were randomly assigned to sectors aggregate log earnings are right skewed even if one sectoral distribution is left skewed most major implications of the log normal roy model survive if differences in skills are log concave however few implications of the model survive if skills are generated from more general distributions we consider the identifiability of the roy model from data on earnings distributions the normal theory version is identifiable without regressors or exclusion restrictions sectoral distributions can be identified knowing only the aggregate earnings distribution for general skill distributions the model is not identified and has no empirical content with sufficient price variation the model can be identified from multimarket data cross sectional variation in regressors can substitute for price variation in restoring empirical content to the roy model

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

affirmative action in higher education how do admission and financial aid rules affect future earnings this paper addresses how changing the admission and financial aid rules at colleges affects future earnings i estimate a structural model of the following decisions by individuals where to submit applications which school to attend and what field to study the model also includes decisions by schools as to which students to accept and how much financial aid to offer simulating how black educational choices would change were they to face the white admission and aid rules shows that race based advantages had little effect on earnings however removing race based advantages does affect black educational outcomes in particular removing advantages in admissions substantially decreases the number of black students at top tier schools while removing advantages in financial aid causes a decrease in the number of blacks who attend college

correlations of brothers earnings and intergenerational transmission correlations between parent and child earnings reflect intergenerational mobility and more broadly correlations between siblings earnings reflect shared community and family background these earnings relationships capture important aspects of relations in socioeconomic status more generally we estimate intergenerational transmission and sibling correlations of life cycle earnings jointly within a unified framework that nests previous models using data on the danish population of father first son second son triads we find that intergenerational effects account for on average 72 percent of sibling correlations this share is higher than all previous studies because we allow for heterogeneous intergenerational transmission between families sibling correlations exhibit a u shape over the working life consistent with differences in human capital investments between families

semiparametric inference in dynamic binary choice models we introduce an approach for semiparametric inference in dynamic binary choice models that does not impose distributional assumptions on the state variables unobserved by the econometrician the proposed framework combines bayesian inference with partial identification results the method is applicable to models with finite space of observed states we demonstrate the method on rust s model of bus engine replacement the estimation experiments show that the parametric assumptions about the distribution of the unobserved states can have a considerable effect on the estimates of per period payoffs at the same time the effect of these assumptions on counterfactual conditional choice probabilities can be small for most of the observed states

detecting multiple factors in panel data an application on the growth of local regions in china abstractdue to unbalanced growth in china s local regions we construct a panel data model with multiple common factors to examine the differences among the growth factors in these areas this article shows the various impacts from the supply and demand sides on economic growth different from the demand side the supply side impacts have permanent influences this article focuses on these deep and profound impacts to explain the reasons behind china s fast economic growing by using data on 27 regions from 1958 to 2013 we summarize the main permanent influences along three lines the first comes from the coastal regions which have learned modern technology and systems from foreign companies such as in guangdong zhejiang fujian and liaoning the second comes from big cities such as beijing and shanghai in which a huge migration has given the companies opportunities to recruit excellent workers making the resource allocation specialized and more efficient the third is from the government s major p

earnings instability and earnings inequality of males in the united states 1967 1991 although much research has focused on recent increases in annual earnings inequality in the united states the increases could have come from either of two sources the distribution of lifetime earnings could have become more unequal or the receipt of lifetime earnings could have become more unstable based on an analysis of the 1968 92 panel study of income dynamics we find that lifetime earnings inequality increased during the early 1980s and that earnings instability increased during the 1970s we also examine how these trends are related to changes in the distribution of wages and hours and the returns to education

rising u s earnings inequality and family labor supply the covariance structure of intrafamily earnings this paper studies the labor supply contributions to individual and family earnings inequality during the period of rising wage inequality in the early 1980 s working couples have positively correlated labor market outcomes which are almost entirely attributable to permanent factors an intertemporal family labor supply model with this feature is used to estimate labor supply elasticities for husbands of 0 05 and wives of 0 40 this implies that labor supply explains little of the rising annual earnings inequality for married men but over 20 percent of the rise in family inequality and 50 percent of the modest rise in female inequality

the effect of work experience on female wages and labour supply this paper develops and implements a semiparametric estimator for investigating with panel data the importance of human capital and time nonseparable preferences to females when aggregate shocks are present it provides a set of conditions for making statistical inferences about agents expectations of their correlated future choices from a short panel under the assumption that observed allocations are pareto optimal a dynamic model of female labour supply and participation is estimated in which experience on the job raises future wages and time spent off the job in the past directly affects current utility or indirectly through productivity in the nonmarket sector

birth order schooling and earnings birth order effects are posited by many to affect earnings and schooling we show how such effects can be interpreted to shift either the earnings possibility frontier for siblings or parental preferences we find empirical evidence for birth order effects on age adjusted schooling and on earnings for young u s adults though the latter is not robust for all specifications the examination of intrahousehold allocations suggests that these birth order differences occur despite parental preferences or prices by birth order favoring later borns apparently because of stronger endowment effects that favor firstborns

trends in the transitory variance of male earnings methods and evidence we estimate the trend in the transitory variance of male earnings in the united states using the michigan panel study of income dynamics from 1970 to 2004 using an error components model and simpler but only approximate methods we find that the transitory variance started to increase in the early 1970s continued to increase through the mid 1980s and then remained at this new higher level through the 1990s and beyond thus the increase mostly occurred about 30 years ago its increase accounts for between 31 and 49 percent of the total rise in cross sectional variance depending on the time period

estimating a simultaneous search model the primary goal of this article is to specify and estimate a structural simultaneous search model and then determine the empirical importance of simultaneous search the results indicate that new labor force entrants search simultaneously a secondary goal is to identify and estimate job offer arrival rates and wage offer rejection probabilities separately the results indicate that a significant portion of unemployment spells are caused by slow arrival rates but policies intended to speed arrival rates would increase the average length of unemployment spells

obstacles to school progression in rural pakistan an analysis of gender and sibling rivalry using field survey data abstract this paper aims to identify the obstacles to school progression by using field surveys that were conducted in twenty five pakistani villages the full information maximum likelihood fiml estimation of the sequential schooling decision model reveals important dynamics of the gender difference in educational attainment intrahousehold resource allocation patterns and transitory income and wealth effects in the descriptive statistics as well as the econometric analyses we find a high educational retention rate and observe that school progression rates between male and female students after secondary school are comparable in particular we find gender specific and schooling stage specific birth order effects on education our overall findings are consistent with the implications of optimal schooling behavior under binding credit constraints and the self selection of education friendly households finally we find serious supply side constraints which might arise from a village level lack of demand for primary schools for girls

job search and asset accumulation under borrowing constraints this article examines the relationship between wealth accumulation and job search dynamics it proposes a model in which risk averse individuals search for jobs save and borrow to smooth their consumption one motivation for accumulating wealth is to finance voluntary quits in order to search for better jobs using data on men from the national longitudinal survey 1979 cohort i estimate the individual s dynamic decision problem the results show that borrowing constraints are tight and reinforce the influence of wealth on job acceptance decisions namely that more initial wealth and access to larger amounts of credit increase wages and unemployment duration

growth rate heterogeneity and the covariance structure of life cycle earnings using u s panel data on adult males i compare the profile heterogeneity model of earnings dynamics in which the earnings experience profile varies across individuals to a competing model in which earnings has a unit root the latter specification enjoys increasing popularity among researchers my analysis questions this favor suggesting the profile heterogeneity model provides a more consistent representation of the data i also provide new estimates of the variation in earnings growth rates previous evidence is from relatively unrepresentative samples individuals one standard deviation above the mean enjoy a 20 30 earnings advantage in just 10 years

the return to schooling in structural dynamic models a survey this papers contains a survey of the recent literature devoted to the returns to schooling within a dynamic structural framework i present a historical perspective on the evolution of the literature from early static models set in a selectivity framework willis and rosen 1979 to the recent literature stimulated by keane and wolpin 1997 and which uses stochastic dynamic programming techniques after reviewing the literature thoroughly i compare the structural approach with the iv experimental approach i present their commonalities and i also discuss their fundamental di8erences to get an order of magnitude most structural estimates reported for the us range between 4 and 7 per year on the other hand iv estimates between 10 and 15 per year are often reported the discrepancy prevails even when comparable if not identical data sets are used the discussion is focussed on understanding this divergence the distinction between static and dynamic model specifications is a recurrent theme in the analysis i argue that the distinction between the iv approach and the structural approach may be coined in terms of a trade o8 between behavioral and statistical assumptions for this reason and unless one has very specific knowledge of the true data generating process it is neither possible nor sensible to claim which approach to estimation is more flexible more precisely i show that structural and iv approaches differ mainly at the level of i the compatibility of the underlying models with truly dynamic behavior ii the role of heterogeneity in ability and tastes iii the consideration of post schooling opportunities and iv the specification and interpretation of the mincer wage equation

does wealth explain black white differences in early employment careers in this article i inquire about the effects initial wealth has on black white differences in early employment careers i set up a dynamic model in which individuals simultaneously search for a job and accumulate wealth and fit it to data from the national longitudinal survey 1979 cohort regime changes and decompositions of racial differences reveal that differences in the labor market environment and in preferences account fully for racial gaps in wealth and in wages persisting several years after high school graduation differences in initial wealth partially explain differences in early employment careers

correcting for bias in retrospective data when panel data are not available retrospective data are used in the estimation of dynamic choice models however retrospective data are not reliable previous studies of voting choices for example have shown that respondents misreport their past choices in order to appear more consistent with their current choice such retrospective bias leads to inconsistent estimates especially when there is state dependence in choices specifically observed persistence in retrospective data may be due to a true state dependence b unobserved heterogeneity and c retrospective bias in reporting previous choices whereas heckman in his 1981 study deals with a and b we introduce a method to estimate true state dependence while accounting for both unobserved heterogeneity and retrospective reporting bias our method is based on modeling the reporting behavior and integrating it into the estimation the identification strategy is based on the correlation between the reported previous choices and current exogenous variables using data on israeli voters we find that the probability that a respondent whose vote intention in 1991 differed from his or her past voting choices would lie about their past choices is 0 23 copyright 2007 john wiley sons ltd

the relationship between wage growth and wage levels we estimate the covariance between the permanent component of wages and a random coefficient on experience in models both with potential experience and with actual experience actual experience is allowed to be arbitrarily correlated with both the permanent component of wages and the random component on experience we find no evidence that workers of higher ability experience faster wage growth our point estimates suggest that a worker with a one standard deviation higher level of permanent ability would have a return to annual potential experience that is 0 61 of a percentage point lower the analogous point estimate for actual experience is 0 87 of a point lower contrary to the popular perception wage growth among low skill workers appears to be at least as high as that for a medium skilled worker copyright 2009 john wiley sons ltd

health insurance and retirement of married couples summary most health insurance in the usa is provided by employers until eligibility for public health insurance medicare begins at age 65 retiring before 65 exposes workers who lack retiree health insurance coverage to the risk of catastrophic medical expenditure we solve and estimate a dynamic model of the employment behavior of older married couples that includes risky medical expenditure and health insurance parameter estimates imply that the risk reducing feature of health insurance can account for about half of the observed association between retiree health insurance and employment for married men but can account for only one tenth of the much larger observed association for married women policy simulations imply very small effects on employment of changing the age of eligibility for medicare from 65 to 67 copyright 2006 john wiley sons ltd

the costs of shareholder activism evidence from a sequential decision model abstract this paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism i model activism as a sequential decision process consisting of demand negotiations board representation and proxy contest and estimate the costs of each activism stage a campaign ending in a proxy fight has average costs of 10 71 million i find that the estimated monitoring costs reduce activist returns by more than two thirds the mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non activist investments the large sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements

heterogeneous treatment and self selection in a wage subsidy experiment abstract the self sufficiency project ssp is a research and demonstration project that offered a generous time limited income supplement to randomly selected welfare applicants under two conditions the first the eligibility condition required that they remain on welfare for at least 12 months the second the qualification condition required that they find a full time job within 12 months after establishing eligibility in this paper we focus on a neglected and important feature of the program namely that the financial reward for becoming qualified is inversely related to the expected wage rate under very simple assumptions we show that those who have a low expected wage rate have a clear incentive to establish eligibility empirical non parametric evidence strongly suggests that individuals self select into eligibility we jointly estimate a participation equation and a wage equation that are correlated through individual random effects our results show that the omission of self selectivity into qualification translates into slightly underestimated treatment effects

estimating dynamic models of quit behavior the case of military reenlistment we estimate the effect of financial incentives for reenlistment on military retention rates using a stochastic dynamic programming model we show that the computational burden of the model is relatively low even when estimated on panel data with unobserved heterogeneity the estimates of the model show strong effects of military compensation especially of retirement pay on retention rates we also compare our model with simpler to compute models and find that all give approximately the same fit but that our dynamic programming model gives more plausible predictions of policy measures that affect military and civilian compensation at future dates

consumption inequality and family labor supply we examine the link between wage and consumption inequality using a life cycle model incorporating consumption and family labor supply decisions we derive analytical expressions for the dynamics of consumption hours and earnings of two earners in the presence of correlated wage shocks nonseparability progressive taxation and asset accumulation the model is estimated using panel data for hours earnings assets and consumption we focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks once family labor supply assets and taxes are properly accounted for there is little evidence of additional insurance jel d12 d14 d91 j22 j31

an anatomy of u s personal bankruptcy under chapter 13 we build a structural model of chapter 13 bankruptcy that captures salient features of personal bankruptcy under chapter 13 we estimate our model using a novel data set we construct from bankruptcy court dockets recorded in delaware between 2001 and 2002 our estimation results highlight the importance of debtor s choice of repayment plan length on chapter 13 outcomes under the restrictions imposed by the bankruptcy law we use the estimated model to conduct policy experiments to evaluate the impact of more stringent provisions of chapter 13 that impose additional restrictions on the length of repayment plans we nd that these provisions would not

life cycle employment and fertility across institutional environments in this paper we formulate a dynamic utility maximization model of female labor force participation and fertility choices and estimate approximate decision rules using data on married women in italy spain and france the pattern of estimated state dependence effects across countries is consistent with aggregate patterns in part time employment and child care availability suggesting that labor market rigidities and lack of child care options are important sources of state dependence simulations of the model reveal that italian and spanish women would substantially increase their participation rates were they to face the french institutional environment

heterogeneous income profiles and lifecycle bias in intergenerational mobility estimation using short snapshots of income in intergenerational mobility estimation causes lifecycle bias if the snapshots cannot mimic lifetime outcomes we use uniquely long series of swedish income data to show that this bias is large and to examine current strategies to reduce it we confirm that lifecycle bias is smallest when incomes are measured around midlife a central implication from a widely adopted generalization of the classical errors in variables model however the model cannot predict the ideal age of measurement or eliminate lifecycle bias at other ages we illustrate how extensions of this model can reduce the bias further

the determinants of black white differences in early employment careers search layoffs quits and endogenous wage growth this paper studies the transition from school to full time employment and subsequent labor mobility during the first five postschooling years for several recent cohorts of black and white male terminal high school graduates using unique data from the 1979 youth cohort of the national longitudinal surveys of labor market experience a constrained optimization model of labor force dynamics is implemented empirically integrating features of models previously described in the literature the estimates of the model provide quantitative evidence on underlying structural differences in labor market constraints faced by blacks and whites for example while blacks have overall a substantially smaller wage return to work experience and face a less disperse wage offer distribution blacks face a higher probability of receiving job offers

switching toward capital intensive technologies in finnish dairy farms we analyze dairy farmers decisions to switch from the traditional labor intensive tied housing system to a more capital intensive free stall housing the choice of the housing system is modeled as a sequence of interrelated choices errors that are consistent with the observed choices are simulated and used to control for serial correlation and farm specific fixed effects the sequence of choices is estimated by the ghk simulation technique and simulated maximum likelihood sml the results suggest that the switch toward more capital intensive free stall housing responds positively and elastically to investment grants and a farmer s capital resources in addition positive revenue shocks significantly encourage switches to free stall housing

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

estimating a structural search model the transition from school to work this paper presents a finite horizon search model that is econometrically implemented using all of the restrictions impli ed by the theory following a sample of male high school graduates fr om the youth cohort of the national longitudinal surveys from graduat ion to employment search parameters are estimated reservation wages and offer probabilities are estimated to be quite low simulations a re performed of the impact of changing the parameters on the expected duration of unemployment copyright 1987 by the econometric society

the effect of incentive policies on the practice location of doctors a multinomial probit analysis in this article we estimate a spatial autoregressive multinomial probit model of the choice of location by general practitioners for establishing their initial practice this model allows us to account for potential interdependencies among location choices the model is used to assess the effect of various incentive measures introduced in quebec canada to influence the geographical distribution of physicians across 18 regions our data set covers subperiods before and after the introduction of these measures incentive policies are captured through price and income effects our results provide evidence that these measures had a significant effect on location choices

state dependence serial correlation and heterogeneity in intertemporal labor force participation of married women a dynamic search framework is developed to analyze the intertemporal labor force participation behavior of married women using longitudinal data to allow for a rich dynamic structure the sensitivity to alternative distributional assumptions is evaluated using linear probability and probit models the dynamic probit models are estimated using maximum simulated likelihood msl estimation to overcome the computational difficulties inherent in maximum likelihood estimation of models with nontrivial error structures the results find that participation decisions are characterized by significant state dependence unobserved heterogeneity and negative serial correlation in the error component the hypothesis that fertility decisions are exogenous to women s participation decisions is rejected when dynamics are ignored however there is no evidence against this hypothesis in dynamic model specifications women s participation response is stronger to permanent than current nonlabor income reflecting unobserved taste factors

intergenerational top income mobility in sweden capitalist dynasties in the land of equal opportunity this paper presents new evidence on intergenerational mobility at the top of the income and earnings distributions using a large dataset of matched father son pairs in sweden we find that intergenerational transmission is very strong at the top more so for income than for earnings at the extreme top top 0 1 income transmission is remarkable with an intergenerational elasticity of approximately 0 9 we also study potential transmission mechanisms and find that iq non cognitive skills and education of the sons are all unlikely channels in explaining the strong transmission within the top percentile increases in the income of the fathers if they are related at all are negatively associated with these variables wealth on the other hand has a significantly positive association our results suggest that sweden known for having relatively high intergenerational mobility in general is a society in which transmission remains strong at the very top of the distribution and wealth is the most likely channel

the intergenerational transmission of employers we find that about 40 of a cohort of young canadian men have been employed at some time with an employer for which their father also worked and 6 9 have the same employer in adulthood the intergenerational transmission of employers is positively related to paternal earnings particularly at the very top of the earnings distribution and to the presence of self employment income and the number of employers with which the father has had direct contact it has an important influence on nonlinear patterns in the intergenerational elasticity of earnings

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

fortunate sons new estimates of intergenerational mobility in the united states using social security earnings data previous studies relying on short term averages of fathers earnings have estimated the intergenerational elasticity ige in earnings to be approximately 0 4 due to persistent transitory fluctuations these estimates have been biased down by approximately 30 or more using administrative data containing the earnings histories of parents and children the ige is estimated to be around 0 6 this suggests that the united states is substantially less mobile than previous research indicated estimates of intergenerational mobility are significantly lower for families with little or no wealth offering empirical support for theoretical models that predict differences due to borrowing constraints

an estimable dynamic stochastic model of fertility and child mortality this paper develops a finite horizon dynamic stochastic model of discrete choice with respect to life cycle fertility within an environment where infant survival is uncertain the model yields implications for the number timing and spacing of children a tractable estimation method is developed for the linear constraint quadratic utility case that is intimately tied to the dynamic optimization problem and the method is applied to malaysian household data estimation is based on integrating the numerical solution of the dynamic programming model of behavior with a maximum likelihood procedure

unemployment insurance wage dynamics and inequality over the life cycle we investigate the relationship between life cycle wages and individual membership of unemployment insurance schemes in denmark we separate permanent from transitory wages and characterise them using membership of unemployment insurance funds we find that unemployment insurance is associated with lower wage growth heterogeneity over the life cycle and greater wage instability changing the nature of wage inequality from permanent to transitory although we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance robustness checks suggest that moral hazard is the relevant interpretation

dynamic female labor supply the increase in female employment and participation rates is one of the most dramatic changes to have taken place in the economy during the last century however while the employment rate of married women more than doubled during the last 50 years that of unmarried women remained almost constant to empirically analyze these trends we estimate a female dynamic labor supply model using an extended version of eckstein and wolpin 1989 to compare the various explanations in the literature for the observed trends this dynamic model provides a much better fit to the life cycle employment pattern than a static version of the model and a standard static reduced form model heckman 1979 the main finding using the dynamic model is that the rise in education levels accounts for about 33 percent of the increase in female employment and the rise in wages and narrowing of the gender wage gap account for another 20 percent while about 40 percent remains unexplained by observed household characteristics we show that this unexplained portion can be empirically attributed to cohort specific changes in preferences or the costs of child rearing and household maintenance finally the decline in fertility and the increase in divorce rates account for only a small share of the increase in female employment rates

a dynamic approach to environmental compliance decisions in u s electricity market the acid rain program revisited the acid rain program arp was implemented in 1995 since then coal fired boilers have had to choose among three main compliance alternatives purchase pollution permits switch to an alternative lower sulfur coal or adopt a scrubber this decision problem is driven by the evolution of several economic variables and is revised when significant changes to prices quality of inputs output level technology transport costs regulations among others occur using a structural dynamic discrete choice model i recover cost parameters and use them to evaluate two different counterfactual policies the results confirm there is a trade off between fuel switching and scrubbing costs with the latter having a higher investment cost and a lower variable cost and also the existence of regional heterogeneity finally the arp implied cost savings of approximately 4 7 billions if compared to a uniform emission rate standard and 14 8 billions if compared to compulsory scrubbing for the 1995 2005 period

bootstrap inference in econometrics the astonishing increase in computer performance over the past two decades has made it possible for economists to base many statistical inferences on simulated or bootstrap distributions rather than on distributions obtained from asymptotic theory in this paper i review some of the basic ideas of bootstrap inference the paper discusses monte carlo tests several types of bootstrap test and bootstrap confidence intervals although bootstrapping often works well it does not do so in every case

the effects of exposure to better neighborhoods on children new evidence from the moving to opportunity experiment the moving to opportunity mto experiment offered randomly selected families housing vouchers to move from high poverty housing projects to lower poverty neighborhoods we analyze mto s impacts on children s long term outcomes using tax data we find that moving to a lower poverty neighborhood when young before age 13 increases college attendance and earnings and reduces single parenthood rates moving as an adolescent has slightly negative impacts perhaps because of disruption effects the decline in the gains from moving with the age when children move suggests that the duration of exposure to better environments during childhood is an important determinant of children s long term outcomes jel i31 i38 j13 r23 r38

a longitudinal analysis of sibling correlations in economic status numerous previous studies have used sibling correlations to measure the importance of family background as a determinant of economic status the sibling correlations estimated in these studies however have been depressed by a failure to distinguish transitory and permanent income variation and in some cases by overly homogeneous samples this paper presents a methodology to address these problems and applies it to longitudinal data from the panel study of income dynamics our main conclusion is that family background exerts greater influence on economic status than has been indicated by most earlier research

the dynamics of markups and inventories in retailing firms this paper is concerned with the interaction between price and inventory decisions in retailing firms and its implications for the dynamics of markups and the existence of sales pro motions we consider a model where a monopolistically competitive retailer decides price and inventories and assumes lump sum costs when placing orders or changing nominal prices tn this model the existence of stockout probabilities and fixed ordering costs generate a cyclical price behaviour characterized by long periods without nominal price changes and short periods with very low prices i e sales promotions we estimate this model using a unique longitudinal dataset with information about retail and wholesale prices inventories orders and sales for several brands in a supermarket chain based on the estimated model we perform several counterfactual experi ments that show the important role that inventories and fixed ordering costs play in the dynamics of retail prices and the frequency of sales promotions in this dataset

intergenerational earnings mobility revisited estimates based on lifetime earnings using norwegian intergenerational data which include a substantial part of the life cycle earnings for children and almost the entire life cycle earnings for their fathers we present new estimates of intergenerational mobility extending the length of fathers earnings window from 5 to 25 years increases estimated elasticities increasing the age at which fathers earnings are observed has the opposite effect biases in the estimated elasticities are related to both transitory earnings variation and life cycle measurement error the former appear to be more important than the latter estimation bias stemming from persistence in transitory innovations plays only a minor role our findings indicate that intergenerational earnings mobility in norway might have been strongly overstated in many earlier studies with shorter earnings histories some of our new estimates are twice as large as earlier estimates

the specification and estimation of dynamic stochastic discrete choice models a survey our main goal is to quantify the returns to a career in the united states congress we specify a dynamic model of career decisions of a member of congress and estimate this model using a newly collected dataset given estimates of the structural model we

a framework for investigating habits the hand of the past and heterogeneity in dynamic brand choice in this paper we develop a general class of dynamic brand choice models called lightning bolt lb models which are consistent with the theory of random utility maximization of consumer choice behavior the underlying random utility process is markov and the inter temporal evolution of the utility maximizing brand choice process is also markov the models permit parsimonious parameterizations of the random utility process in brand choices with the resulting switching probabilities being functionally related to explanatory variables the model allows for structural state dependence feedback habit persistence inertia and unobserved heterogeneity the theoretical development shows that several well known stochastic brand choice models can be deduced from random utility maximization theory from a managerial perspective the usefulness of the proposed model stems from its ability to separate out the effects of habits state dependence and heterogeneity strong state dependence effects imply incentives for inducing trial of a brand e g product sampling in contrast with state dependence a strong habit persistence effect may be indicative of buyer behavior where inducement of trial of a different brand may not be sufficient to maintain a sustained defection of the consumer from the habitually purchased brand to the trial brand failure to distinguish between these two effects has important implications for example a model that only accounts for state dependence effects would in the presence of only habit persistence incorrectly attribute it to state dependence based on this the manager could decide to embark on an expensive sampling program that might prove ineffective due to the absence of state dependence it is also important to distinguish between the effects of unobserved heterogeneity and state dependence in the absence of true state dependence failing to account for unobservable variations across households such as differences in price sensitivities results in the temporally persistent unobservable elements showing up as state dependence in the model hence a manager may incorrectly opt for sampling as the appropriate marketing action whereas a couponing or price promotion strategy should have been preferred we estimate the model parameters using the ac nielsen household scanner panel data set on catsup purchases further we investigate empirical techniques for overcoming the initial conditions problem that affects many dynamic models of brand choice through simulation analysis using the estimated parameters we show that the calculated profitability of a promotion must take into account the multi period impact due to state dependence further we demonstrate how ignoring heterogeneity can result in spurious state dependence thereby making marketing tactics such as product sampling appear far more attractive than they actually are specifically the model that accounts only for habit persistence and state dependence effects predicts a share increase of 2 4 points through sampling for one of the brands in the empirical analysis once the effects of unobserved heterogeneity are accounted for however this number drops precipitously to 0 3 while even this low number might fulfill the objectives of the brand manager it ensures that expectations are not eight times that number it is important to note that this paper is a first attempt at analyzing the three fundamental dimensions of dynamic brand choice behavior our formulation represents a reduced form approach as opposed to a structural approach other limitations of the model include our focus on time invariant choice sets extensions of the model to situations where choice sets vary over time are possible but are difficult another limitation is the dependence on multivariate extreme value distributions an alternative would be to use multivariate normal distributions i e a probit like structure which has certain useful properties a comparison of the two approaches would be useful empirical extensions of the model to allow for higher order processes and nested logit type model structures could also be fruitful explicitly incorporating variety seeking behavior in the model would further enrich the theoretical framework proposed in this paper

precautionary saving credit constraints and irreversible investment theory and evidence from serniarid india this article investigates the extent to which poor households are discouraged from making a non divisible but profitable investment using data on irrigation wells in india we estimate the parameters of a structural model of irreversible investment results show that poor farmers fail to undertake a profitable investment that they could in principle self finance because the nondivisibility of the investment puts it out of their reach irreversibility constitutes an additional disincentive to invest simulations show that the availability of credit can dramatically increase investment in irrigation and that interest rate subsidization has little impact

modeling earnings dynamics in this paper we use indirect inference to estimate a joint model of earnings employment job changes wage rates and work hours over a career we use the model to address a number of important questions in labor economics including the source of the experience profile of wages the response of job changes to outside wage offers and the effects of seniority on job changes we also study the dynamic response of wage rates hours and earnings to various shocks and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime we find that human capital accounts for most of the growth of earnings over a career although job seniority and job mobility also play significant roles unemployment shocks have a large impact on earnings in the short run as well as a substantial long term effect that operates through the wage rate shocks associated with job changes and unemployment make a large contribution to the variance of career earnings and operate mostly through the job specific error components of wages and hours

dynamic logit with choice aversion we characterize a generalization of discounted logistic choice that incorporates a parameter to capture different views the agent might have about the costs and benefits of larger choice sets the discounted logit model used in the empirical literature is the special case that displays a preference for flexibility in the sense that the agent always prefers to add additional items to a menu other cases display varying levels of choice aversion where the agent prefers to remove items from a menu if their ex ante value is below a threshold we show that higher choice aversion as measured by dislike of bigger menus also corresponds to an increased preference for putting off decisions as late as possible

on the turnover of business firms and business managers this paper develops a model of small business failure and sale that is motivated by recent evidence concerning how the failure and sale of small businesses vary with the age of the business and the tenure of the manager this evidence motivates two key features of the model a match between the manager and the business and characteristics of businesses that survive beyond the current match the parameters of the model are estimated and the properties of this parametric model are studied this analysis results in a simple characterization of the workings of the small business sector

who surfs who manipulates the determinants of opportunistic election timing and electorally motivated economic intervention in this paper i develop a career concerns model of government policy choice within a dynamic optimal stopping framework to predict the degree of surfing opportunistic timing and manipulation politically motivated economic intervention under alternate institutional structures and voter characteristics among other results i find that the likelihood of opportunistic elections rises with exogenous economic performance with longer maximum term lengths with future electoral uncertainty and with economic volatility but diminishes in the value of office holding manipulation increases with the maximum term length and with the value of office holding but decreases with exogenous economic performance and with economic volatility the model suggests that single party governments should be highly opportunistic in calling elections and that countries that allow opportunistic election timing should experience less economically distortionary political intervention than their fixed timing counterparts

a dynamic model of contraceptive choice of spanish couples in this paper we propose a simple dynamic stochastic model of sterilization and contraceptive use and we estimate its structural parameters using a sample of married couples from the 1995 spanish family and fertility survey the estimated structural model improves on previous studies in terms of its ability to rationalize observed behavior the large proportion of women contracepting at parity 0 is interpreted as evidence of precautionary contraceptive behavior allowing for simple forms of permanent unobserved heterogeneity across couples in their ability to conceive has important implications for estimates of utility and cost parameters our estimates of child valuation parameters imply that most spanish couples would have two children but significant deviations from this goal are brought about by imperfect and costly fertility control our simulations suggest that the introduction of sterilization has reduced fertility by an average of 0 2 children per couple and that the availability of more effective reversible contraceptive methods would reduce expected fertility by up to 0 4 children per couple

carry trade and foreign exchange rate puzzles this article demonstrates that carry trade is part of the explanation of foreign exchange rate puzzles we introduce carry traders in a heterogeneous agent model in addition to fundamentalists and chartists our model has the ability to produce the stylized facts observed in empirical exchange rates such as heavy tails excess volatility and volatility clustering as well as the negative relationship between market volatility and carry trade activity we find that the interaction between carry traders and chartists provides an explanation for the forward premium puzzle this effect is strengthened by chartists who extrapolate the trend induced by carry trade

snapshots versus movies empirical studies of the intergenerational inheritance of economic status should use observations on complete lifetime status profiles of parents and children to be consistent with underlying theory but they cannot only snapshots rather than movies on status are currently available in samples estimates of the degree of intergenerational inheritance may therefore be subject to lifecycle biases the paper investigates these in the context of a lifecycle earnings model and shows that these biases may be large that their direction varies and that correction methods suggested hitherto have questionable reliability until more complete data sets become available researchers should be more temperate in the conclusions they draw

life cycle variations in the association between current and lifetime income replication and extension for sweden we apply haider and solon s generalized errors in variables model to swedish income tax data to produce estimates of the association between current and lifetime income our estimates demonstrate strong life cycle patterns this implies that the widespread use of current income as a proxy for lifetime income leads to inconsistent parameter estimates i e life cycle bias even when the proxy is used as the dependent variable estimates for comparable cohorts of swedish and american men demonstrate surprising similarities there are however significant gender and cohort differences in this association that lead to statistically significant and quantitatively meaningful differences in life cycle biases

modeling employment dynamics with state dependence and unobserved heterogeneity this study extends existing work on the dynamics of labor force participation by distinguishing between full time and part time employment and by allowing unobserved heterogeneity in the effects of previous employment outcomes children and education on labor supply behavior in addition unobserved heterogeneity may feature autocorrelation and correlated random effects the results reveal significant variation in the effects of children and education on labor supply behavior moreover the omission of random coefficients and autocorrelation biases estimates of state dependencies on average temporary shocks that increase the rate of part time employment lead subsequently to lower rates of nonemployment than do shocks that temporarily increase the rate of full time work the article has additional online supplementary material

estimating the impact of consumer expectations of coupons on purchase behavior a dynamic structural model we examine the basic premise that consumers may anticipate future promotions and adjust their purchase behavior accordingly we develop a structural model of households who make purchase decisions to minimize their expenditure over a finite period the model allows for future expectations of promotions to enter the purchase decision households with adequate inventory of the product may face a trade off of buying in the current period with a coupon or defer the purchase until next period given their expectations of future promotions thus we provide a framework for examining the impact of consumer expectations on choice behavior the target audiences for our paper are a empirical researchers who intend to make structural models part of their applied research agenda and b managers who value and seek to understand the impact of consumers coupon expectations on current purchase behavior our research objective is to provide an empirical framework to examine whether and to what extent consumers anticipate future coupon promotions and adjust purchase behavior the central premise of our approach is that a rational consumer minimizes the present discounted value of the cost of a purchase where cost in a single period consists of purchase price inventory holding cost gains from coupons and potential stockout cost we aim to test whether our hypotheses regarding the various elements of the cost structure are supported and that whether consumers take into account future discounted cost when making current purchase decisions the research methodology we adopt is relatively new in econometrics and known as the estimable stochastic structural dynamic programming method the methodology amounts to incorporating a maximum likelihood routine embedded in a dynamic programming problem the dynamic programming problem is solved several times within a maximum likelihood iteration for each value of the state space elements and for each value of the parameters in the parameter set the state space in our model consists of purchase and nonpurchase alternatives in each time period coupon availability and no coupon availability in each time period level of inventory in each time period for each household and consumption rate of each household we use scanner panel data on purchases in the disposable diaper product category and promotions we estimate the inventory holding and stockout costs brand specific value of coupons and consumers expectations of future coupons the key insights and lessons learned can be summarized as follows 1 our results are consistent with the notion that consumers hold beliefs about future coupons and that such beliefs affect the purchase decision we find that the dynamic optimization model performs significantly better than a single period optimization model and a naive benchmark model 2 we find a high and significant stockout cost consistent with the essential nature of the product category our estimate of the holding cost yields a reasonable annualized percentage value when converted to the cost of capital we find that consumer valuation of coupons differ markedly across brands 3 our empirical evidence supports the notion that consumers hold beliefs about future coupon availability we also find that the expectations about future coupons estimated endogenously differ depending upon whether or not a coupon was available in the current period thus the proposed model structure yields rich managerial insights and facilitates several what if scenarios a possible limitation of our model and estimable structural models in general is the computational cost while it is possible to conceptually extend the state space to accommodate variations across households and add a richer parameter structure each addition multiplies the size of the state space and the computation time for this reason we have kept the state space as tight as possible and refrained from additions that would otherwise enable us to incorporate heterogeneity in consumer decisions for example we assumed that consumers are similar other than reflected by their purchase behavior we built a category purchase incidence model rather than a brand choice model we refrained from including unobserved heterogeneity in the parameters we chose to opt out of modeling autocorrelation and other time dependent error term patterns in the likelihood function thus we have made an effort to build a structural model that reasonably reflects consumer purchase behavior without requiring expensive computation currently there are developments in econometrics to approximate the computation of the valuation functions without sacrificing much accuracy when these methods are well developed we expect that structural models will become more commonplace in marketing

patents as options some estimates of the value of holding european patent stocks in many countries holders of patents must pay an annual renewal fee in order to keep their patents in force this paper uses data on the proportion of patents renewed and the renewal fees faced by post world war ii cohorts of patents in france the united kingdom and germany in conjunction with a model of patent holders renewal decisions to estimate the returns earned from holding patents in these countries since patents are often applied for at a nearly stage in the innovation process the model allows agents to be uncertain about the sequence of returns that will be earned if the patent is kept inforce formally then the paper presents and solves a discrete choice optimal stochastic control model derives the implications of the model on aggregate behaviour and then estimates the parameters of the model from aggregate data the estimates enable a detailed description of the evolution of the distribution of returns earned from holding patents over their life spans and calculations of both the annual returns earned from holding the patents still in force or the patent stocks in the alternative countries and the distribution of the discounted value of returns earned from holding the patents in a cohort this abstract was borrowed from another version of this item

the hidden costs of nudging experimental evidence from reminders in fundraising abstract we document the hidden costs of a popular nudge and show how these costs distort policy making when neglected in a field experiment with a charity we find reminders increasing intended behavior donations but also increasing avoidance behavior unsubscriptions from the mailing list we develop a dynamic model of donation and unsubscription behavior with limited attention we test the model in a second field experiment which also provides evidence that the hidden costs are anticipated the model is estimated structurally to perform a welfare analysis not accounting for hidden costs overstates the welfare effects for donors by factor ten and hides potential negative welfare effects of the charity

endowments and the allocation of schooling in the family and in the marriage market the twins experiment 03 we show how comparisons between the within twin correlations of human capital outcomes across identical and nonidentical twins can be used to identify the variability in the individual specific component of endowments and the responsiveness of schooling to individual specific endowments in the family and in the marriage market even when schooling is measured with error estimates from two twins samples indicate that 27 42 percent of the variance in log earnings obesity is due to variability in individual specific endowments allocations of schooling reinforce specific endowments and individual specific earnings endowments of men and their wives schooling are negatively associated

the more the merrier the effect of family size and birth order on children s education there is an extensive theoretical literature that postulates a tradeoff between child quantity and quality within a family however there is little causal evidence that speaks to this theory using a rich dataset on the entire population of norway over an extended period of time we examine the effects of family size and birth order on the educational attainment of children while we find a negative correlation between family size and children s education when we include indicators for birth order and or use twin births as an instrument family size effects become negligible in addition birth order has a significant and large negative effect on children s education we also study adult earnings employment and teenage childbearing and find strong evidence for birth order effects with these outcomes particularly among women these findings suggest the need to revisit economic models of fertility and child production focusing not only on differences across families but differences within families as well

estimating the impact of immigrants on the host country social security system when return migration is an endogenous choice in this paper i examine the impact of immigrants on the social security system in germany when return migration is an endogenous choice for this purpose i develop a dynamic stochastic model of joint return migration and saving decisions that accounts for uncertainty in future employment and income and estimate this model using a longitudinal dataset on immigrants from five different source countries i find that immigrants make positive net contributions to both the pension and unemployment insurance systems in germany regardless of their country of origin and age at entry moreover the magnitudes of the net contributions are remarkable for certain groups return migration plays a critical role in generating these positive net contributions in a counterfactual i examine how much exogenous modeling of the return decision which has been the practice of the literature so far changes immigrants net contributions such a restriction causes a serious misestimation of net contributions i also examine the impact of a counterfactual policy experiment in which financial bonuses are provided conditional on return to certain unemployed immigrants such a policy turns out to be ineffective in a number of dimensions

semiparametric information bound of dynamic discrete choice models abstract we develop a simulation based approach that can determine whether the semiparametric efficiency bound of a dynamic discrete choice model with fixed effects is zero or not we illustrate the usefulness of our approach by considering a simplified version of keane and wolpin s 1997 model where we show that the semiparametric information is zero

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

the past present and future of macroeconomic forecasting he reports of the death of large scale macroeconomic forecasting models are not exaggerated but many observers interpret the failure of the early models as indicative of a bleak future for macroeconomic forecasting more generally such is not the case although the large scale macroeconomic forecasting models didn t live up to their original promise they nevertheless left a useful legacy of lasting contributions from which macroeconomic forecasting will continue to benefit they spurred the development of powerful identification and estimation theory computational and simulation techniques comprehensive machinereadable macroeconomic databases and much else moreover past failures do not necessarily imply a bleak future we learn from our mistakes just as macroeconomics has benefitted from rethinking since the 1970s so too will macroeconomic forecasting understanding the future of macroeconomic forecasting requires understanding the interplay between measurement and theory and the corresponding evolution of the nonstructural and structural approaches to forecasting nonstructural macroeconomic forecasting methods attempt to exploit the reduced form correlations in observed macroeconomic time series with little reliance on economic theory structural models in contrast view and interpret economic data through the lens of a particular economic theory structural econometric forecasting because it is based on explicit theory rises and falls with theory typically with a lag structural keynesian macroeconomic forecasting based on postulated systems of decision rules enjoyed a golden age in the 1950s and 1960s following the advances in keynesian theory in the 1930s and 1940s

the role of economic incentives in teenage nonmarital childbearing choices abstract in this paper we explore whether behaviors of youths that are likely to result in a teen nonmarital birth event are influenced by their expectations of the net economic benefits or costs associated with the occurrence of such a birth we posit and find that an increase in the perceived costs associated with the occurrence of a nonmarital birth would lead to a reduction in these risky behaviors and to a lower probability of a nonmarital birth event we represent these economic incentives by the income expectations of young women conditional on either giving birth as an unmarried teen or forgoing childbearing while unmarried and an adolescent we also measure the effects of an extensive list of other factors including the characteristics of the girl s family and its choices the social and economic environment in which she lives including policy related factors such as expenditures by states on family planning programs and the generosity of aid to families with dependent children and her own prior choices

job matching and occupational choice this paper presents a model of job matching the generalizes the existing literature by allowing for different jobs types or occupations such differences affect the value of job specific experience inducing a career profile where certain types are sampled before others more specifically the analysis shows that it is optimal for the young and inexperienced to gravitate toward jobs exhibiting a certain kind of risk then after deriving the equilibrium job turnover rate for an economy in which people do not switch occupations panel data are used to estimate its underlying parameters the hypothesis that people do not switch occupations is rejected against the alternative that they do thus providing empirical support for the theoretical extension undertaken here

fostering educational enrolment through subsidies the issue of timing summary the purpose of this paper is to build a dynamic structural model of educational choices in which cognitive skills shape decisions the model is estimated by maximum likelihood using cohort data where individuals are observed from birth to the middle of their working life these data are unique in that they include cognitive skills test scores collected as early as age 7 we then investigate how alternative policies foster educational enrolment in particular we simulate the effect of two subsidies different in the timing of disbursement the first consists of grants assigned directly to individuals aged between 16 and 18 the second is assigned to the parents earlier on when the cohort is still in its childhood the latter subsidy affects cognitive skills accumulation and in turn educational choices our results suggest that a grant fosters enrolment at the lowest cost but the parental income subsidy generates more welfare as measured by a class of social welfare functions nevertheless these differences in costs and welfare are small overall the results reinforce the view that government investments in cognitive skill accumulation during childhood are worthwhile however the results also indicate that such investments should be well structured to ensure a high return copyright 2010 john wiley sons ltd