optimal interventions in markets with adverse selection we study the design of interventions to stabilize financial markets plagued by adverse selection our contribution is to analyze the information revealed by participation decisions taking part in a government program carries a stigma and outside options are mechanism dependent we show that the efficiency of an intervention can be assessed by its impact on the market interest rate the pres ence of an outside market determines the nature of optimal interven tions and the choice of financial instruments debt guarantees in our model but it does not affect implementation costs jel d82 d86 g01 g20 g31

network models and financial stability abstract systemic risk is a key concern for central banks charged with safeguarding overall financial stability in this paper we investigate how systemic risk is affected by the structure of the financial system we construct banking systems that are composed of a number of banks that are connected by interbank linkages we then vary the key parameters that define the structure of the financial system including its level of capitalisation the degree to which banks are connected the size of interbank exposures and the degree of concentration of the system and analyse the influence of these parameters on the likelihood of knock on defaults first we find that the better capitalised banks are the more resilient is the banking system against contagious defaults and this effect is non linear second the effect of the degree of connectivity is non monotonic i e initially a small increase in connectivity increases the contagion effect but after a certain threshold value connectivity improves the ability of a banking system to absorb shocks third the size of interbank liabilities tends to increase the risk of knock on default even if banks hold capital against such exposures fourth more concentrated banking systems are shown to be prone to larger systemic risk all else equal in an extension to the main analysis we study how liquidity effects interact with banking structure to produce a greater chance of systemic breakdown we finally consider how the risk of contagion might depend on the degree of asymmetry tiering inherent in the structure of the banking system a number of our results have important implications for public policy which this paper also draws out

decentralization and intra country transfers in the great recession the case of the european union empirical evidence is found supporting the assignment of the redistribution function to the central government viewing the great recession or recessions in general as a shock it is found that a

interbank market liquidity and central bank intervention we develop a simple model of the interbank market where banks trade a long term safe asset when there is a lack of opportunities for banks to hedge idiosyncratic and aggregate liquidity shocks the interbank market is characterized by excessive price volatility in such a situation a central bank can implement the constrained efficient allocation by using open market operations to fix the short term interest rate it can be constrained efficient for banks to hoard liquidity and stop trading with each other if there is sufficient uncertainty about aggregate liquidity demand compared to idiosyncratic liquidity demand

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

decentralized income redistribution reconsidered decentralized income redistribution reconsidered i introduction which is the appropriate level of government to undertake income redistribution this issue is receiving renewed attention from economists examining how migration and labor supply responses affect the costs of transfer payments at the state or federal level in a recent paper brown and oates 1987 use a formal public choice model to show that the possibility of migration of transfer recipients between states leads to suboptimal transfer levels even when taxpayers care only about transfer recipients within their own states with benefit spillovers across states their argument for federal responsibility for redistribution is presumably even stronger gramlich 1985 also argues that migration is large enough to lead to suboptimal levels of transfers at the state level because states with low benefit levels will be able to export their poor increasing the cost of redistribution to high benefit states gramlich s conclusion is based on the empirical work in gramlich and laren which finds that the migration effect is very strong though only in the very long run 1984 510 the implicit argument is that migration raises the cost of redistribution at the state level compared to the federal level 1 however neither brown and oates nor gramlich consider labor supply responses that is hours and participation in their analyses on the other hand several recent papers have attempted to estimate the cost of redistribution at the national level incorporating labor supply responses to taxes and transfers but not interjurisdictional migration 2 some empirical evidence is available which is consistent with either migration or labor supply effects for example helms 1985 uses time series cross section data on state expenditure and tax policies and finds that while spending on public services schools highways etc increases personal income increased state transfer payments financed by state taxes significantly reduce total state personal income this reduction could be caused by either migration or labor supply responses to taxes and transfers indeed helms s estimates indicate a very large response to transfer spending one more dollar of transfers reduces state personal income in the long run by 14 83 helms concludes states which seek to devote substantial tax revenues to transfer payments will experience significantly reduced growth prospects which limits the scope for redistribution at the state and local levels 1985 581 a concise summary of the standard argument concerning federalism and redistribution might be as follows 1 interstate migration of taxpayers and transfer recipients raises the taxpayer cost of income redistribution at the state level above the cost at the federal level 2 state wide redistribution confers spillover benefits to residents of other states 3 therefore as compared with a national system decentralized responsibility for income redistribution yields a less redistribution because its cost is higher and b less than the socially optimal amount of redistribution because of externalities my 1988 paper shows that step 1 of the above argument is not necessarily true because the migration effect which previous authors have stressed can be offset by a tax exporting effect by which residents of one state shift some of the fiscal cost of redistribution to residents of other states both the income effect and the substitution effect of increased redistribution will reduce the labor supply and hence earnings of transfer recipients the labor supply and earnings of taxpayers may also fall if substitution effects are strong enough the tax exporting effect arises if taxes and transfers on net reduce total earnings in a state since the state s federal tax obligations depend on its earnings

welfare payments and other economic determinants of female migration this article investigates the effects of welfare payments wages and unemployment on women s probability of interstate migration in the united states it also investigates if the income attraction of locations varies with recency of labor market experience welfare gains increase the probability of interstate migration welfare effects are largest for single mothers with small children and stronger among women with no recent labor market experience the welfare effects albeit small are larger than the wage effects the wage effects are weaker among women with no recent work experience ethnic specific analyses suggest differences in migration behavior among anglos african americans and puerto ricans

migration and income redistribution responsibilities this study examines whether afdc benefits determine or discourage state to state migration flows in the united states a pooled cross section time series model is developed to estimate afdc benefits in a state and recipients and whether benefits in one state affect benefits in other states a second model using data from the 1980 census and the panel study of income dynamics estimates migration of afdc recipients and the level of benefits in in migration and out migration states both models indicate that small but statistically significant amounts of migration occur which may be quite important but only in the long run movers although small in number are much more likely to move to a state with higher benefits states perceive this migration as important indicating that states should have less control and the federal government more control over income redistribution

the effect of welfare and wage levels on the location decisions of female headed households abstract this paper develops and estimates a model designed to calculate the impact of welfare benefit levels wages and tax rates on the location choices of female headed households the empirical model assumes that women simultaneously choose both where they will live and whether or not they will participate in the welfare system based on their expected income and expected hours of work for each location participation possibility these income and hours expectations depend in turn on the welfare benefits wage and tax rates facing each household in each location it is found that both regional welfare levels and wage rates have a significant effect on the location decisions of this population the probability of a typical female headed household with little outside income leaving an area with low welfare payments and low wages can be as much as 12 points higher over a 4 year period than the probability of leaving a high welfare high wage area

do states play welfare games abstract this paper uses a panel of state level annual data from 1983 to 1994 for each of the contiguous united states and the district of columbia to explore the degree to which states simultaneously set welfare benefits using instrumental variables estimation we find substantial empirical evidence that is supportive of the notion of welfare competition furthermore we find that state responses to neighbor benefit decreases tend to be significantly larger in magnitude as their responses to neighbor benefit increases our results therefore have potential implications for public policy in the wake of the increased decentralization of welfare policy associated with the welfare reform of 1996

efficient local charity with self selection how is charitable giving within a city influenced by the prospect of donor and recipient migration the theoretical literature on charitable contributions in a closed economy has mainly argued that the market level of private giving will tend to be lower than optimal wherever there exists a local fiscal externality between donors and recipients interjurisdictional models of voluntary redistribution on the other hand abstract from altruism to explore the interjurisdictional fiscal externality resulting from the failure of one community to account for the migration impacts of its actions on other communities this paper integrates and extends both literatures by allowing for local altruism among the mobile residents of a system of local economies within a single community mobility thus introduces adverse selection considerations for each donor via the migration of both recipients and other donors moreover any change in the local transfer level influences both equilibrium wages and donor behavior system wide

locational choice of afdc recipients within california a conditional logit analysis abstract this paper examines factors that influence migration of afdc recipients within california a county level conditional logit model is used to analyze the impact of cost adjusted benefits on intrastate moves during recipients first year of welfare participation costs of living particularly housing costs differ considerably across counties of california yet the welfare benefit is set at the state level this creates the potential for variation in the purchasing power of the welfare benefit if a family chooses to move variation in cost of living is shown to have a significant effect on migration patterns of afdc recipients estimates suggest that a 150 decrease in fair market rent results in 15 more migration to the county recipients migration is more responsive to cost of living than migration of the general population

welfare generosity the importance of administrative efficiency community values and genuine benevolence using 1988 1991 state level data a public expenditure model is estimated for benefits paid through the aid to families with dependent children afdc programme the paper investigates whether differences in programme efficiency community attitudes perceptions of the effects of afdc on recipient behaviour and tastes for redistribution explain the variation in public support for welfare across states

budget spillovers and fiscal policy interdependence evidence from the states abstract this paper formalizes and tests the notion that states expenditures depend on the spending of similarly situated states we find that even after allowing for fixed state effects year effects and common random shocks among neighbors a state government s level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors ceteris paribus a one dollar increase in a state s neighbors expenditures increases its own expenditure by over 70 cents

nonmonotonic demand for income redistribution benefits the case of afdc two different motives are often advanced to explain taxpayer nonrecipient support for income redistribution programs the first motive is the result of interdependent utilities between nonrecipients and the recipients of redistribution program benefits the source of this interdependence could be taxpayer altruism alternatively redistribution might be seen as one way to alleviate the potential for crime or social unrest recent theoretical analyses have suggested a second motiveincome redistribution programs act as protection against the possibility of unforseen loss in personal income 5 6 21 32 researchers using panel data find widespread random and temporary movements in individual income poverty and welfare program use that would seem to suggest a potentially significant insurance demand for redistribution programs 2 the results from one study for example indicate that while four to five percent of the total u s population could be classified as persistent recipients of welfare program benefits between 1969 and 1978 receiving program benefits in at least five of those years over one quarter of the u s population participated in welfare programs at least once over this same ten year period 9 74 in the past researchers estimating nonrecipient support for income transfer programs have considered only one of these two motives while ignoring the other 3 this paper extends the examination of the demand for income redistribution by integrating the public good and social insurance demand motives into one model the first part of the paper sets up the individual s decision model for income redistribution one consequence of interacting the public good and social insurance motives into one model is that support for higher benefit payments is expected to come from the tails of the income distribution low income individuals both recipients and nonrecipients benefit directly from the reduced risk of income randomness while high income

the empirical evidence for citizen information and a local market for public goods in their 1993 article in this review paul teske mark schneider michael mintrom and samuel best sought to establish the microfoundations for a model of a competitive market for public 5 services between local governments in polycentric regions an important part of their model focused on subgroups of informed citizens especially recent movers theoretical analysis was supplemented by an empirical study of the factors shaping accuracy of long island homeowners information about relative expenditures and tax rates of their school districts david lowery w e lyons and ruth hoogland dehoog criticize the relevance of this empirical evidence suggesting the atypical nature of education as a service especially in this site and challenging the sufficiency of the demonstrated levels of information for generating a competitive market teske and his colleagues reply by pointing out the general importance of education throughout american local policymaking and by defending the relevance of their measures and conclusions for their market model

assistance to the poor in a federal system abstract this paper explores the roles of different levels of government in assisting the poor using a model incorporating utility interdependence the paper first presents some theoretical results indicating how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support it then provides a survey of the empirical work on migration of the poor along with a brief historical discussion of the experience under the english poor laws the concluding section turns to normative issues and contends that mobility of the poor is a basic source of inefficiency in wholly decentralized systems of support this inefficiency along with certain other equity considerations establishes a role for the central government in assistance to the poor

the winner s curse and bidder competition in acquisitions evidence from failed bank auctions this study examines the effect of bidder competition in acquisitions we use predictions from auction theory to test whether acquirers of failed banks overpay the winner s curse when bidding in fdic sealed bid purchase and assumption p a transactions auctions the empirical results indicate that winning bids tend to increase as the number of competitors increases as predicted by theory we also find that bid levels of all bidders increase with increased competition which is consistent with bidders failing to adjust for the winner s curse in a common value auction setting however additional tests using winning bids only are consistent with both a common value and a private values model so this result should be interpreted with caution the winner s curse hypothesis states that the winner of a sealed bid auction in which the value of the object being competed for is uncertain tends to be the one who most overestimates the true value of the auctioned object as a result auction winners who fail to recognize this possibility are likely to be cursed by having paid more for the object than its true worth this hypothesis has been applied to various situations including bidding on oil and gas leases capen et al 3 and corporate takeovers roll 16 varaiya 19 support for the existence of the winner s curse has been reported primarily from laboratory experiments bazerman and samuelson 1 kagel and levin 12 testing of the winner s curse hypothesis with market data is in its early stages gilley karels and leone s 7 study of bidding for oil leases provides mixed suport brannman klein and weiss 2 examine bidding behavior in a variety of auction markets and interpret some of their results as supporting the winner s curse hypothesis our study examines the effects of bidder competition and the winner s curse hypothesis within the context of fdic auctions of failed banks our study may also have relevance for the broader corporate control literature this literature uniformly indicates that shareholders of acquired firms earn large

a model of welfare competition with evidence from afdc in this paper we test empirically for strategic behavior among the states using the cash support program aid to families with dependent children afdc to motivate the empirical work we adapt wildasin s model of income redistribution 1991 american economic review 81 757 773 to a model of interjurisdictional welfare competition although welfare competition may be generated from different frameworks we choose wildasin s model to illustrate how welfare benefit interdependence is genereated in the context of welfare migration we estimate a representative reaction function for afdc using both cross sections and pooled cross section data after controlling for other determinants of afdc benefit levels and for spatial error autocorrelation we find evidence showing competition 2000 academic press

the demand for welfare generosity this paper estimates economic models of the determinants of state benefit levels in the aid to families with dependent children afdc program using 1969 1992 data these models have been extensively researched however the existing literature has produced an unacceptably wide range of estimates using alternative econometric procedures this paper systematically examines both the specification assumptions underlying previous analyses as well as several additional specification issues it is therefore able to replicate and reconcile estimates from previous studies and to provide updated consensus estimates of the demand for welfare generosity it finds that changes in the average level of income within states have small but statistically significant positive effects on benefits with the confidence bounds on the elasticity extending from 0 11 to 0 82 changes in the effective price of redistribution are found to have at most weak negative effects with elasticities in the range of 0 14 to 0 02 these results are used to evaluate the effects of block grant provisions in the recently enacted welfare reform legislation

the information sensitivity of debt in good and bad times abstract we empirically show the dynamics of information production and information sensitivity of bank debt around the great recession as more precise information is produced at the onset of the crisis bank debt becomes informationally sensitive along two separate dimensions first precise information amplifies the effect of market expectations on default risk second for banks that are already expected to perform poorly more precise information further increases default risk both effects are muted in good times overall our findings are consistent with information based models of financial crises

an empirical study of matching grants the cap on cap abstract funding mechanisms for social expenditures are currently being reformed in many countries while the theoretical implications of these changes are often easily identified their empirical magnitude is not always as clear for example in federal systems social expenditure is often funded by matching grants and estimates of the effect of varying matching rates on expenditures by sub national governments vary widely the ambiguity is due in part to inherent difficulties identifying price and income effects of federal grants given the structure of the funding mechanisms in most countries in this paper we examine a recent reform in canada in which federal grants for welfare expenditures were capped converted from an open ended to a closed ended matching grant importantly the cap applied to only three of 10 provincial governments our empirical strategy exploits the time series cross section variation in the funding mechanism provided by the differential application of the reform this approach potentially surmounts some of the difficulties which have beset earlier studies we find that the affected provinces did respond to the reform by reducing the growth rate of expenditures it was 8 to 9 percentage points lower than predicted in the absence of the cap over the medium term

discount window stigma during the 2007 2008 financial crisis abstract we provide empirical evidence for the existence magnitude and economic cost of stigma associated with banks borrowing from the federal reserve s discount window dw during the 2007 2008 financial crisis we find that banks were willing to pay a premium of around 44 basis points bps across funding sources 126 bps after the bankruptcy of lehman brothers to avoid borrowing from the dw dw stigma is economically relevant as it increased some banks borrowing cost by 32 bps of their pre tax return on assets roa during the crisis the implications of our results for the provision of liquidity by central banks are discussed

the effect of the social welfare system on metropolitan migration in the us by income group gender and family structure this research paper addresses some important issues regarding out migration from and in migration to metropolitan areas in the u s particularly the effect of the social welfare system on migration decisions the primary focus is on migration by income group poor versus non poor with a secondary focus on how gender and family status relate to migration the results provide only very weak support for the hypothesis that social welfare benefits influence out migration decisions only of non poor female headed households but moderate support for the effect of such benefits on in migration decisions especially of low income and female headed households excerpt

the political economy of state level welfare benefits several new relationships ware indicated by this study first the percentage of adults with a college degree seems to increase welfare spending as noted above this does not necessarily imply that this group is particularly altruistic overall higher afdc levels could be encouraged by a politically productive minority in this group second the percentage black in the population is a better predictor of afdc levels than is the percentage of black afdc recipients that is discrimination against blacks via lower afdc levels is more closely related to the relative size of the black community than the relative size of the black welfare population the results suggest similar discrimination against hispanics in regard to afdc levels the percentage catholic increases afdc levels this does not necessarily imply that catholics have a higher preference for welfare spending than non catholics although this may be the case it may reflect the effect of pressure from catholic interest groups since catholics are the largest religious group in most states they may be better able to support political pressure groups that demand more generous welfare programs union pressures may contribute to higher levels of welfare benefits this is more likely to be the case when unemployment levels are particularly high the relative size of the poverty population is not significantly related to benefit levels the greater cost to taxpayers of increasing benefit levels when the poverty group is large seems to offset the rent seeking efforts of a larger recipient group finally jurisdiction size play a significant role in determining benefit levels with larger states providing more generous benefits in general the results suggest that the influence of rent seeking recipients is not a dominant factor in explaining afdc benefit levels this result is not surprising given the lack of political influence of this particular recipient group it is likely that rent seeking behavior is more important among more politically active groups such as social security recipients and public employees the influence of altruistic motives in affecting aid levels is more subtle than has been suggested in many past studies income was not found to be an important direct determinant of afdc levels the presence of altruistic motives coupled with the ability to effectuate these desires politically seems to be the key to explaining this type of transfer

liquidity regulation and the implementation of monetary policy in addition to revamping existing rules for bank capital basel iii introduces a new global framework for liquidity regulation one part of this framework is the liquidity coverage ratio lcr which requires banks to hold sufficient high quality liquid assets to survive a 30 day period of market stress as monetary policy typically involves targeting the interest rate on loans of one of these assets central bank reserves it is important to understand how this regulation may impact the efficacy of central banks current operational frameworks we introduce term funding and an lcr requirement into an otherwise standard model of monetary policy implementation our model shows that if banks face the possibility of an lcr shortfall then the usual link between open market operations and the overnight interest rate changes and the short end of the yield curve becomes steeper our results suggest that central banks may want to adjust their operational frameworks as the new regulation is implemented

welfare induced migration at state borders new evidence from micro data abstract this paper extends and synthesizes the various approaches used in the recent welfare migration literature to both offer the most comprehensive set of tests to date for welfare migration and to also determine the relative importance of short distance moves in welfare migration flows the current study follows on the finding of mckinnish mckinnish t importing the poor welfare magnetism and cross border welfare migration journal of human resources 2005 40 57 76 of welfare migration effects obtained by comparing welfare participation at state borders to state interiors this identification strategy is extended to micro data from the 1980 and 1990 decennial censuses and combined with the demographic comparisons used elsewhere in the welfare migration literature the signs and patterns of the estimates are consistent with the presence of welfare migration effects and the magnitudes of the estimates are consistent with the importance of short distance moves in welfare induced migration flows but most of the estimates are not statistically significant

afdc benefits and the inter urban variation in poverty among female headed households the percentage of families headed by females in poverty varies widely across metropolitan areas for example 8 37 of all families in albany georgia were female headed and in poverty in 1980 while in sheboygan wisconsin the figure was 1 1 though not as dramatic as this interregional difference intra regional variation can also be significant in detroit michigan 4 90 of families were femaled headed and in poverty and in the closest interstate metropolitan area toledo ohio the figure was 3 77 recent research into the behavior of low income femaleheaded families suggests that state benefit differentials in aid to families with dependent children afdc may in part be responsible in this paper we construct a model that explains an important and overlooked implication of non uniform benefit standards among states the inter urban variation in the size of the potential and actual afdc recipient population particular attention is given to 1 the impact of interurban differences in real afdc payments 2 the potential of afdc to alter the number of female headed families in poverty and 3 the relative importance of other urban characteristics in explaining the size of the potential and actual afdc recipient population the model uses 1980 census data and is estimated for all standard metropolitan statistical areas for which we were able to obtain data

rediscounting under aggregate risk abstract this paper compares three institutions that offer an elastic currency open market operations a discount window and a private banknote issuing clearinghouse in an economy with financial markets otherwise hampered by a lack of liquidity when this economy is subject to aggregate financial shocks these alternative forms of central banking are shown to differ in their implications for risk sharing interesting implications include i central bank losses and monetary innovations that are part of an efficient equilibrium and ii desirable quantity restrictions at the discount window

tiebout or not tiebout the market metaphor and america s devolution debate the market metaphor of intergovernmental choice as a spur to efficiency formalized by charles m tiebout is often invoked to support the shift away from washington and toward the states but the model translates badly to governments governmental entry and exit is costly public sector co11usion often serves citizens interests heterogeneous mobility distorts the signals sent by interstate migration and while tiebout and followers condition efficiency predictions on optimal distribution the u s devolution movement coincides with rising inequality and has gone furthest where distribution matters most the metaphor is misapplied devolution will likely do more to enfeeble government than to improve it

migration and the public sector a survey charney a h 1993 migration and the public sector a survey reg studies 27 3133 326 a review of the existing literature on human migration reveals relatively few studies that explicitly examine the relationships between public policy decisions and human migration flows the surveyed literature includes studies of national policies such as defence spending migration subsidies and intergovernmental transfers as well as sub national policies such as welfare and unemployment benefits state and local taxes education and other public services suggestions for incorporating public sector information into existing migration analysis frameworks and further areas of research are provided charney a h 1993 la migration et le secteur public une etude reg studies 27 313 326 faire la critique de la documentation disponible sur la migration humaine laisse voir que rares sont les etudes traitant explicitement des rapports entre la politique d etat et les flux migratoires la documentation examinee c

decentralized welfare will there be underprovision abstract this paper develops an asymmetric nash equilibrium model of welfare provision by states when the benefit payment is a local public good and a fixed population of welfare recipients distributes itself between states with logistic migration function the model shows that state size is an important demand shifter across states because it alters the supply elasticity of recipients the model provides estimates of how the degree of benefit under provision varies with this migration elasticity other demand instruments such as taxpayer resources and generosity likewise generate positive correlation between benefits and recipients while supply shifters generate negative correlation between benefits and recipients the model s predictions are closely matched empirically when examining the reduced form impact of these instruments on the pattern of welfare benefits and recipients across states using these impacts to assign the instruments to either supply or demand sides of the model it is possible to estimate the model s structural elasticities these turn out to be high enough so that simulated solutions to the model generate considerable welfare underprovision and thus raise concern about a race to the bottom with decentralized control over afdc

american federalism welfare policy and residential choices the relationship between welfare benefit levels and the residential choices of the poor raises two issues for federalism in the united states do state benefit levels affect the residential choices of the poor do residential choices of the poor affect the level at which a state sets its benefit levels empirical studies have seldom studied the interconnection between these two issues this research estimates simultaneously the mutual effects of welfare benefits and poverty rates while controlling for other economic and political variables when benefit levels become high the size of the poverty population increases conversely when poverty rates become high benefit levels are cut the findings are consistent with the claim that state determined benefit levels distort policy and residential choices

is there a race to the bottom in the setting of welfare benefit levels evidence from a policy intervention abstract in this paper we investigate whether local governments react on the welfare benefit levels in neighboring jurisdictions when setting their own benefit levels we solve the simultaneity problem arising from the welfare game by utilizing a policy intervention more specifically we use a centrally geared exogenous placement of a highly welfare prone group refugees among swedish municipalities as an instrument the iv estimates indicate that there exists a race to the bottom and that the effect is economically as well as statistically significant if the neighboring municipalities decrease their welfare benefit level by 100 sek a municipality decreases its benefit level with approximately 41 sek this result is robust to several alternative model specifications

voluntary income redistribution with migration abstract this paper examines theoretically the welfare magnet problem brought about by income redistribution in a small area where disparities across jurisdictions in transfer policies may induce both recipient and resource migration we show that the level of redistribution determined by majority rule may either rise or decline as household mobility increases and that this level will be either higher or lower than the efficient level to an extent that depends on local market conditions the social value of migrants and the mobility of both the rich and the poor in particular an economy may benefit from the immigration of transfer recipients we also derive the form of an efficient community specific subsidy to transfers which in some cases will be negative

non aggressive bidding behavior and the winner s curse previous authors have noted a curious result that arises within the context of sealed bid auctions in certain situations it is in the bidder s interest to respond non aggressively to increased competition we consider a decision theoretic formulation of the bidder s problem and derive necessary conditions for the choice of a non aggressive bidding strategy the resulting conditions relate closely to a phenomenon that has been described rather loosely by bidding practitioners as the winner s curse in the course of this paper we develop a specific definition of the winner s curse and demonstrate how it affects the firm s competitive behavior

migration the life cycle and state benefits how low is the bottom i show that among women likely to use welfare movers move to higher benefit states i also find that the probability likely welfare users will move at all is lower in higher benefit states this effect is concentrated early in the life cycle as theory predicts i construct a theoretical framework to measure the impact of welfare migration on optimal state benefits simulation results suggest little impact in higher benefit states but possibly a more substantial impact in other states finally evidence suggests little reason for concern due to welfare migration in using cross state variation in welfare generosity to identify incentive effects of the welfare system on other outcome variables

establishing the micro foundations of a macro theory information movers and the competitive local market for public goods e tiebout model of competition in the local market for public goods is an important and controversial theory the current debate revolves around the apparent disparity between macro 5 x empirical studies that show greater efficiency in the supply of public goods in polycentric regions compared to consolidated ones and micro evidence of widespread citizen consumer ignorance which has been used to argue that individual actions cannot plausibly lead to efficiency enhancing competition between local governments we argue that competitive markets can be driven by a subset of informed consumers who shop around between alternate suppliers and produce pressure for competitive outcomes from which all consumers benefit using data from a survey of overfive hundred households we analyze the role of these marginal citizen consumers and incorporate the costs of information gathering and the strategic interests of local governments into the competitive market model

migration consequences of welfare reform abstract we investigate whether recent changes in welfare policy affect the migration of low educated unmarried mothers estimates indicate that welfare reform is associated with an increase in employment related intrastate migration and a decrease in non employment related migration both within and between states the net effect was a small increase in intrastate migration and a small decrease in interstate migration the close link between migration and employment suggests that welfare reform has motivated low income women to move for economic reasons in general welfare policy appears to have a much larger effect on residential location because of its relationship to employment than because of benefit differences between states

the effect of the term auction facility on the london interbank offered rate abstract the term auction facility taf the first auction based liquidity initiative by the federal reserve during the global financial crisis was aimed at improving conditions in the dollar money market and bringing down the significantly elevated london interbank offered rate libor the effectiveness of this innovative policy tool is crucial for understanding the role of the central bank in financial stability but academic studies disagree on the empirical evidence of the taf effect on libor we show that the disagreement arises from mis specifications of econometric models regressions using the daily level of the libor ois spread as the dependent variable miss either the permanent or temporary taf effect depending on whether the dummy variable indicates the events of the taf or the regimes before and after an taf event those regressions also suffer from the unit root problem and produce unreliable test statistics by contrast regressions using the daily change in the libor ois spread are robust to the persistence of the taf effect and the unit root problem consistently producing reliable evidence that the downward shifts of the libor ois spread were associated with the taf the evidence indicates the efficacy of the taf in helping the interbank market to relieve liquidity strains

coordination failures and the lender of last resort was bagehot right after all the classical doctrine of the lender of last resort lolr elaborated by bagehot 1873 asserts that the central bank should lend to illiquid but solvent banks under certain conditions several authors have argued that this view is now obsolete in modern interbank markets a solvent bank cannot be illiquid this paper provides a possible theoretical foundation for rescuing bagehot s view our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs we built a model of banks liquidity crises that possesses a unique bayesian equilibrium in this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market we derive policy implications about banking regulation solvency and liquidity ratios and interventions of the lender of last resort furthermore we find that public bailout and private bail in involvement are complementary in implementing the incentive efficient solution and that bagehot s lender of last resort facility must work together with institutions providing prompt corrective action and orderly failure resolution finally we derive similar implications for an international lender of last resort ilolr jel g21 g28

the role of interbank markets in monetary policy a model with rationing the empirical research on monetary transmission has reported a number of puzzles challenging extant theoretical models of the transmission mechanism in this paper we argue that asymmetric information in the interbank market may be important to have a better understanding of the mechanisms at work in the transmission process we show that asymmetric information may induce an equilibrium with rationing this in turn has two major implications first it reconciles the apparent irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy magnitude puzzle and second it shows that this impact will not be limited to short term credit supply but will also affect long term lending even if the corresponding interest rate is unaffected composition puzzle

effects of ambiguity in market experiments prior studies have shown that individuals are averse to ambiguity in probability many decisions are however made in market settings where an individual s decision is influenced by decisions of others participating in the market in this paper we extend the previous research to evaluate the effect of ambiguity on individual decisions and the resulting market price in market settings we therefore examine an important issue whether ambiguity effects persist in the face of market incentives and feedback two different market organizations the sealed bid auction and the double oral auction were employed the subjects in the experiments were graduate business students and bank executives our results show that the individual bids and market prices for lotteries with ambiguous probabilities are consistently lower than the corresponding bids and market prices for equivalent lotteries with well defined probabilities the aversion to ambiguity therefore does not vanish in market settings our results provide insights into what a manager can expect in bidding situations where the object of the sale oil leases mineral rights involves ambiguity in probability due to for example lack of information or prior experience the results may also be useful in understanding some phenomena in insurance and equity markets

games the states don t play welfare benefits and the theory of fiscal federalism fiscal federalism theory predicts that states will behave strategically in welfare programs because voter demand for welfare is sensitive to tax price while the tax price itself changes because of welfare induced migration this paper tests these propositions on afdc in the united states for a panel from 1982 88 using new models for the determination of the recipiency ratio the tax price and composite neighbors the data do not support any substantial tax price elasticity of demand for welfare estimates of migration effects on tax price are found to be sensitive to specification copyright 1995 by mit press

the effect of immigration on public finances the impact of immigration on the public finances is an important influence on public opinion this study aims to provide a thorough conceptual survey pointing out the complexities of a full understanding and the relevance of indirect effects and covering both static perspectives and longer run dynamic issues it considers simple accounting approaches which are relatively neglectful of behavioural responses but also tries to bring out the complexities in the nature of the relationship between immigration and the public exchequer that come with more sophisticated modelling of its economic effects

interventions in markets with adverse selection implications for discount window stigma i study the implications for central bank discount window stigma of the model by philippon and skreta 2012 i take an equilibrium perspective for a given discount window program instead of following the mechanism design approach of the original paper this allows me to highlight the impact of equilibrium multiplicity on the set of possible outcomes in the model firms banks need to borrow to finance a productive project there is limited liability and firms have private information about their ability to repay their debts this creates an adverse selection problem the central bank can ameliorate the impact of adverse selection by lending to firms discount window borrowing is observable and it may be taken as a signal of firms ability to repay debts under some conditions firms borrowing from the discount window may pay higher interest rates to borrow in the market a phenomenon often associated with the presence of stigma i discuss these conditions in detail and what they suggest about the relevance of stigma as an empirical phenomenon

uncertainty experience and the winner s curse in ocs lease bidding this paper presents an empirical test of the major hypothesis of the currently accepted bidding models in two regions of differing tract value uncertainty the most significant result is an empirical verification that the more bidders that bid on a particular parcel in the face of great uncertainty the lower the bid levels of individual firms that participate given all else is constant no such relationship was observed however in the sale where there was previous bidding experience and prior ownership of closely related tracks prior models have not been able to identify the inverse relationship because of a bias that occurs when only positive bids are employed in these models and the use of data where previous experience reduces uncertainty in the analysis of the competitive bidding situation we use a two stage procedure which adjusts for this selection bias by allowing for the incorporation of information from the dichotomous bid no bid decision in the modeling of bid level

an empirical investigation of interstate afdc benefit competition claims that states which offer generous welfare benefits attract the poor and that some states pay low benefits intending to drive the poor away are neither uncommon nor entirely un founded this paper employs a two player state generalized game to model states choice of a benefit level in the aid to families with dependent children afdc program migration by the poor in response to interstate differentials in earnings and welfare opportunities and the subse quent changes in afdc caseloads drive this game estimation of the model using 1979 data suggests that states within approximately 750 miles of each other do engage in a benefit setting game the rival s initial number of poor and preference for non afdc consumption appear to be the more influential rival characteristics these findings while derived from a different methodological approach are consistent with previous studies which indicate that welfare recipients tend to move toward higher benefit states such migration may impede the efficient spatial allocation of labor the results also indicate that states will tend to offer lower benefits given recipient migration than would be the case otherwise state jurisdiction over benefits consequently leads to underprovision of afdc federalization of the afdc program would improve efficiency in terms of the spatial allocation of labor and the provision of afdc

extensive or intensive generosity the price and income effects of federal grants knowing the responsiveness of state spending to federal subsidies along different dimensions allows for the optimal design of joint federal state programs welfare is an important case in point states have the ability to choose both the extent of welfare eligibility and the intensity of benefits provided through the program this paper estimates the sensitivity of state spending to separate federal subsidies for increasing benefits and for increasing recipients because the federal match rate schedule changed several times during the early years that i study i am able to estimate elasticities in a way that is not biased by the endogenous relationship between income spending and federal contributions i find that state behavior is quite sensitive to these federal subsidies and much more sensitive than a simple ols regression would imply a 10 increase in the cost of benefits causes a 3 8 decrease in benefit amounts whereas a 10 increase in the cost of recipients causes a 2 8 decrease in the numb

equilibrium patterns of competition in ocs lease sales an equilibrium model of bidding behavior is developed that accounts for observed fluctuations in the degree of competition to acquire offshore petroleum leases as one might expect such fluctuations are related to the heterogeneity of geological prospects that are offered for sale with a relatively high degree of competition to acquire tracts of the highest quality the equilibrium configuration of bids is also shown to reflect structural characteristics such as capital market constraints that may restrict competition in the lease auction empirical evidence is presented which tends to confirm our general theory of bidding equilibria but which contradicts the popular notion that capital constraints have restricted competition in ocs lease sales policy implications are discussed in the concluding section

financial crises payment system problems and discount window lending in a developed economy financial crises are rapidly conveyed to the payment system which tends to rely on private credit extensions in most countries while many authors recommend that the central bank do no more than provide adequate aggregate liquidity during a crisis this policy requires well functioning private credit markets to channel liquidity to solvent but illiquid firms this paper presents a model of private lending which defines a crisis as a time when lenders become uncertain about how to assess financial risks and therefore rationally withdraw from making new loans in such an environment a government lender of last resort can improve social welfare copyright 1996 by ohio state university press

interbank contagion at work evidence from a natural experiment this article tests financial contagion due to interbank linkages for identification we exploit an idiosyncratic sudden shock caused by a large bank failure in conjunction with detailed data on interbank exposures first we find robust evidence that higher interbank exposure to the failed bank leads to large deposit withdrawals second the magnitude of contagion is higher for banks with weaker fundamentals third interbank linkages among surviving banks further propagate the shock finally we find results suggesting that there are real economic effects these results suggest that interbank linkages act as an important channel of contagion and hold important policy implications jel g01 g21 g28 e58 since the onset of the financial turmoil increased uncertainty reflected particularly in counterparty risk has led banks to hoard liquidity this has resulted in a significant decline of trading in the interbank money markets jean claude trichet president of the european central bank december 2008

who borrows from the lender of last resort understanding why banks borrow from the lender of last resort lolr during a nancial crisis is crucial to understanding the macroeconomic impact of such largescale interventions we document a strong divergence among banks take up of lolr assistance during the nancial crisis in the euro area as banks which borrowed heavily also used increasingly risky collateral we propose four explanations for this divergence

immigration and welfare magnets this article investigates if the location choices made by immigrants when they arrive in the united states are influenced by the interstate dispersion in welfare benefits income maximizing behavior implies that foreign born welfare recipients unlike their native born counterparts may be clustered in the states that offer the highest benefits the empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high benefit states than the immigrants who do not receive welfare or than natives as a result the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives

welfare reform and the race to the bottom theory and evidence economists have argued that welfare migration leads to a race to the bottom in the choice of welfare benefits although a system of federal matching grants can remedy this problem the recent welfare reform law replaced the existing matching grant structure with block grants a policy change that appears undesirable to judge whether this critique of welfare reform is justified this paper evaluates the evidence in favor of a race to the bottom after explaining the theoretical effects of welfare migration the paper surveys the empirical evidence on the occurrence of such migration concluding that the evidence is mixed the discussion also considers recent empirical tests for strategic interaction which show that benefit levels in nearby states affect a given state s benefit choice the most plausible source of such interaction is a concern about welfare migration which leads policymakers to look at benefits in neighboring states when making their own choices judging that the evidence appears consistent with the existence of a race to the bottom the paper concludes that the demise of matching grants may be undesirable from a policy perspective

who should act as lender of last resort an incomplete contracts model this paper presents a model of a bank subject to liquidity shocks that require borrowing from a lender of last resort two govern ment agencies may perform this function a central bank and a de posit insurance corporation the agencies share supervisory information which provides a nonverifiable signal of the bank s fi nancial condition and use it to decide whether to support it it is shown that the optimal institutional design involves the two agen cies the central bank dealing with small liquidity shocks and the deposit insurance corporation with large shocks furthermore ex cept for very small shocks they should lend at penalty rates