consumption and debt response to unanticipated income shocks evidence from a natural experiment in singapore abstract this paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock consumption rose significantly after th

variations in farm consumption and their relationship to income an empirical investigation of illinois farm households empirical tests of household consumption have yielded mixed results regarding the validity of the life cycle permanent income lcpi hypothesis a significant problem with such studies is the diffi

the consumption response to predictable changes in discretionary income evidence from the repayment of vehicle loans abstract although the life cycle permanent income hypothesis is the primary framework for understanding household consumption and savings decisions only a few studies have used clearly identifiable income changes to test the basic predictions of the model the estimates produced using this empirical strategy have yet to lead to a consensus of beliefs since the results have both favored and rejected the model this paper contributes to this literature by examining the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan using data from the consumer expenditure survey the results show that a 10 increase in discretionary income due to a loan repayment leads to a 2 to 3 increase in nondurable consumption additional analysis suggests that these findings may be explained by the presence of borrowing constraints

household coping in war and peacetime cattle sales in rwanda 1991 2001 abstract the economic literature has given due attention to household coping strategies in peacetime in contrast little is known about such strategies in wartime this paper studies the use of cattle as a buffer stock by rwandan households during 1991 2001 a period characterized by civil war and genocide it is found that the probability of selling cattle increases upon the occurrence of both peacetime and wartime covariant adverse income shocks the peacetime cattle sales are largely explained by shifts in the household asset portfolio in contrast in 1994 the year of the genocide almost half of the cattle sales were motivated by the need to buy food however we argue that the effectiveness of this coping strategy was severely reduced due to the wartime conditions first during the year of ethnic violence cattle prices plummeted to less than half of their pre genocide value second we find that households most targeted in the violence did not sell cattle we discuss several explanations for this latter finding

does child labor decline with improving economic status between 1993 and 1997 child labor in vietnam declined by nearly 30 percent while the country s gdp grew by nearly 9 percent per year on average using a simple nonparametric decomposition i investigate the relationship between improvements in per capita expenditure and child labor with a panel data set that spans this episode of growth in vietnam improvements in per capita expenditure can explain 80 percent of the decline in child labor that occurs in households whose expenditures improve enough to move out of poverty this finding suggests a previously undocumented role for economic growth in the amelioration of child labor

on forchheimer s model of dominant firm price leadership abstract we show that in a simple price setting game with one large firm and many small firms the large firm does not accept the role of the price leader

are women more attracted to co operation than men we conduct a real effort experiment where participants choose between individual compensation and team based pay in contrast to tournaments we find that women choose team based pay at least as frequently as men in all our conditions and significantly more often in a well defined subset of conditions women s greater attraction to co operative incentives results in part from their more optimistic assessments of their prospective teammate s ability women also respond differently to alternative rules for team formation in a manner that is consistent with advantageous inequity aversion in contrast men show a greater responsiveness to efficiency gains associated with team production

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

consumer response to the reagan tax cuts abstract this paper uses micro data from the consumer expenditure survey to estimate the response of household consumption to the second and third phases of the reagan tax cuts since these phases were pre announced they allow for an unusually clean test of the canonical life cycle permanent income model consumption is found to be excessively sensitive to the tax cuts counter to the model liquidity constraints and other standard explanations do not appear to explain this excess sensitivity the consumption response is larger than previously estimated for tax refunds and more concentrated in nondurables these differences have important implications for the structure of tax changes in particular for choosing between varying withholding rates versus varying lumpy final tax payments and refunds

behavioral responses to risk in rural china does risk perpetuate poverty in a credit constrained economy jalan and ravallion study portfolio and other behavioral responses to measured risk using household panel data for rural china one quarter of wealth is held in unproductive liquid forms but only a small share of this appears to be a precaution against income risk the authors estimate that eliminating income risk would reduce the share of wealth held in liquid form by less than 1 percentage point moreover that effect is confined largely to middle income groups high income households do not it seems need to hold unproductive cautionary wealth and the poor probably cannot afford to do so the authors find no evidence that income risk discourages schooling but risk does inhibit the out migration of labor generally the results provide only limited support for the idea that uninsured risks promote unproductive portfolio behavior in this setting there is such an effect but it is small in magnitude and cannot be deemed an important cause of poverty

testing theories of consumption behavior using information on aggregate shocks income seasonality and rainfall in rural india we develop an integrated framework for testing theories of consumption behavior by examining how agricultural households in rural india respond to anticipated and unanticipated seasonal income fluctuations using information on village level rainfall surprises we estimate idiosyncratic unanticipated income shocks by allowing weather risk to impact households differently depending on observable characteristics in applying our methodology to unique panel data on consumption debt and intrahousehold gift exchanges we address a number of shortcomings in previous tests of theories of consumption behavior yet we find no evidence against the hypothesis that households smooth idiosyncratic fluctuations in their income our approach also uncovers several interesting features of rural credit and insurance markets

child labor and schooling responses to anticipated income in south africa abstract forward looking unconstrained households make child labor and schooling decisions considering their permanent income and weighing the relative returns to child time in various potential activities the timing of anticipated changes in income should have no effect on child labor and schooling in a setting where households can borrow against permanent income however this study documents large increases in schooling attendance and declines in total hours worked when black south african families become eligible for fully anticipatable social pension income as an explanation the data are most consistent with liquidity constraints for black elder males forcing rural families into less schooling for boys than they would choose absent the constraint perhaps because of schooling costs

how does working in a finance profession affect mortgage delinquency abstract this paper uses a dataset from a leading american subprime lender which contains detailed information on borrower and loan characteristics we find that financial professionals are less likely to become delinquent this effect cannot be explained by borrower characteristics such as income education loan terms property characteristics geographic effects or strategic default we also find variation in the effect of working in a financial profession across borrowers of different ages and income levels we discuss explanations for these results

family labor supply and the timing of cash transfers evidence from the earned income tax credit abstract this paper exploits the unique disbursement timing and benefit rules of the earned income tax credit eitc to provide new evidence on how families adjust their labor supply in response to receiving anticipated cash transfers i find that income seasonality caused by eitc receipt leads to changes in the intra year labor supply patterns of married women on average receiving a 1 000 payment significantly reduces the proportion of married women who work by 1 3 percentage points in the month when the eitc is received additionally this labor supply response is mainly driven by those who are secondary earners or liquidity constrained

prices credit markets and child growth in low income rural areas in this paper it is argued that fluctuations in child growth in rural areas of bangladesh during and after severe floods in i988 can provide insight into the structure of credit markets a model of intertemporal resource allocation is developed and euler equations relating growth patterns of children to the cost of borrowing by household are then derived from the model the evidence indicates that although some of the variation in growth patterns over the relevant period may be attributed to variation in illness and the price of rice growth patterns for children in landless households were influenced by credit market imperfections this paper links two prominent strands of research in economic development the first strand examines the extent to which households in poor rural economies are able to protect themselves from the adverse weather and other shocks that importantly influence earnings in underdeveloped areas while it has long been thought that credit market imperfections and other forms of market failure make it difficult for poor individuals in these economies to smooth consumption both within and across years there remains some question about the magnitude and pervasiveness of these imperfections while there is evidence that fluctuations in economic conditions result in inefficient allocation of resources e g morduch 1990 rosenzweig and wolpin i993 some recent papers have emphasised the fact that consumption patterns of households in the same village comove in a manner consistent with the idea that a substantial fraction of idiosyncratic variation in income is effectively

non excludable public good experiments we conduct a two stage game experiment with a non excludable public good in the first stage two subjects choose simultaneously whether or not they commit to contributing nothing to provide a pure public good in the second stage knowing the other subject s commitment decision subjects who did not commit in the first stage choose contributions to the public good we found no support for the evolutionary stable strategy equilibrium and the ratio of subjects who did not commit to contributing nothing increased as periods advanced that is the free riding rate declined over time furthermore this behavior did not arise due to altruism or kindness among subjects but from spiteful behavior of subjects

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

do consumers react to anticipated income changes evidence from the alaska permanent fund a central implication of the life cycle permanentincome hypothesis lc pih is that consumers should not respond to predictable changes in their income to test this hypothesis a number of recent papers have exploited natural experiments to identify anticipated income changes in particular recent work by parker 1999 uses the change in after tax income due to the cap on earnings subject to the social security tax and a related paper by souleles 1999 examines the response of consumption to income tax refunds surprisingly parker and souleles find that even when income is expected to change within the year expenditure is excessively sensitive to the timing of the income change while their results can be interpreted as evidence that our canonical model of consumption is inadequate an alternative explanation is that the anticipated income changes they exploit are small and irregular and that households will not bother to change their consumption paths when the computational costs involved are large relative to the utility gains in support of this interpretation browning and collado 2001 find that the seasonal consumption patterns of spanish households that work in sectors that provide regular bonus payments do not differ from those of households that do not receive bonus payments this paper adds to this evidence by exploiting a natural experiment provided by annual payments from the state of alaska s permanent fund to every resident in the state of alaska that should yield an unusually powerful test of the lc pih these payments are large and clearly anticipated by alaskan residents using the variation in the size of the payments over time and in the amount received by families of different sizes to identify the response of consumption to payments from the permanent fund i find no evidence that the consumption of alaskan households reacts to these payments in addition i find no evidence that the seasonal pattern of consumption in alaska differs from that in the other 49 states or that households in alaska are subject to fewer liquidity constraints engage in less buffer stock saving or spend a smaller fraction of their income on semidurable goods than households in the rest of the united states however although households in alaska do not overreact to payments from the permanent fund i find that the consumption of the very same households is excessively sensitive to their income tax refunds this evidence suggest that households will take anticipated income changes into account in their consumption decisions when the income changes are large regular and easy to predict but will not do so when they are small and irregular the paper proceeds as follows the next section of the paper presents details on the department of economics princeton university princeton nj 08544 and national bureau of economic research e mail chsieh princeton edu i am very grateful to the bureau of labor statistics bls for providing access to the data from the consumer expenditure survey and to its staff particularly steven henderson walter vandeheide and wolf weber for their generous assistance during my visits to the bls i also thank nanci jones for providing data and patiently answering questions on the operation of the alaska permanent fund anne case angus deaton jonathan parker and two referees provided useful comments the views expressed in this paper are personal and should not be attributed to the bls 1 i refer to the certainty equivalent version of the lc pih or one in which the expected variance of consumption is constant as is well known without these assumptions the lc pih only implies smoothing of marginal utility not necessarily of consumption 2 see christina h paxson 1992 john shea 1995 jonathan a parker 1999 nicholas s souleles 1999 martin browning and m dolores collado 2001 also see ronald a bodkin 1959 for an early example of the use of a natural experiment to test for excess sensitivity for comprehensive reviews of the large literature on empirical tests of the lc pih see angus deaton 1992 browning and annamaria lusardi 1996 and browning and thomas f crossley 2001 3 in 1998 for example the permanent fund paid 1 541 to every resident of the state of alaska

permanent household income and consumption in urban south america milton friedman s permanent income hypothesis pih is considerably more complex and difficult to test than it appears at first sight which is why certain of its postulates still cannot be accepted or rejected with certainty one of the chief difficulties is that of separating the effects on consumption of permanent income which is unobservable and of various observable household characteristics which may be highly correlated with permanent income but may also be presumed to affect consumption directly this difficulty can be overcome provided a variable can be found which is associated with permanent income but has no independent direct effect on the propensity to consume if households are grouped by classes of that variable the permanent consumption propensity or elasticity can be estimated from mean income and consumption in the groups this technique requires the assumption of zero mean transitory income in each group but does not depend on the postulate that transitory income is uncorrelated with consumption for these reasons it cannot be applied to individual households this paper presents and estimates a model which separates the direct and indirect effects on consumption of a series of observable characteristics using regression techniques on individual household observations this makes it possible to estimate all the parameters of the model both the consumption propensity or elasticity and the contribution to permanent income of each observable explanatory variable the technique still requires that at least one of the explanatory variables affect consumption only through permanent income but for all other variables both direct and indirect influences can be estimated and the propensity to consume a given income can vary among households with different characteristics another principal problem with the pih is the assumption that transitory income and consumption are uncorrelated efforts to test this postulate can lead to very different results ranging from agreement with the hypothesis to findings of high propensities to consume transitory income see robert ferber pp 1306 09 this inconsistency and continued controversy over the hypothesis is due to the fact that permanent income cannot be estimated exactly but can be known only with an error which is conceptually distinct from transitory income empirical work on the pih has uniformly overlooked this fact treating estimates of permanent income as exact and regarding the whole of the unexplained residual as transitory income the present model explicitly distinguishes the estimation error from the error of transitory income or consumption the two transitory components can then be assumed to be uncorrelated while the part of permanent income which is not explained is consumed exactly like the explained part whether residual income and consumption appear to be correlated or not then depends on the relative sizes of these two components the unexplained permanent part and the true transitory part this technique has the further advantage that estimating the variance of the error of estimation makes it possible to tell how well a set of observable variables explain permanentincome this explanation may be better than the brookings institution robert solow richard eckaus and robert hall supervised the dissertation 1974 on which this article is based i am particularly grateful to ross williams and robert hall for help in specifying and estimating the model and to denisard alves for a crucial suggestion william cline irwin friend ricardo ffrench davis and robert ferber provided helpful comments on earlier versions subsequent discussions with surjit bhalla and robert lawrence have been most useful i am also much indebted to the managing editor and to a referee for improvements in the final version

underinvestment in a profitable technology the case of seasonal migration in bangladesh hunger during pre harvest lean seasons is widespread in the agrarian areas of asia and sub saharan africa we randomly assign an 8 50 incentive to households in rural bangladesh to temporarily out migrate during the lean season the incentive induces 22 of households to send a seasonal migrant their consumption at the origin increases significantly and treated households are 8 10 percentage points more likely to re migrate 1 and 3 years after the incentive is removed these facts can be explained qualitatively by a model in which migration is risky mitigating risk requires individual specific learning and some migrants are sufficiently close to subsistence that failed migration is very costly we document evidence consistent with this model using heterogeneity analysis and additional experimental variation but calibrations with forward looking households that can save up to migrate suggest that it is difficult for the model to quantitatively match the data we conclude with extensions to the model that could provide a better quantitative accounting of the behavior

work environment and individual background explaining regional shirking differentials in a large italian firm the prevalence of shirking within a large italian bank appears to be characterized by significant regional differentials in particular absenteeism and misconduct episodes are substantially more prevalent in the south we consider a number of potential explanations for this fact different individual backgrounds group interaction effects sorting of workers across regions differences in local attributes different hiring policies and discrimination against southern workers our analysis suggests that individual backgrounds group interaction effects and sorting effects contribute to explaining the north south shirking differential none of the other explanations appears to be of first order importance i introduction whether individual behavior is determined by group interactions or by individual background is undoubtedly a fundamental question for the social sciences this question presented itself forcefully when we stumbled onto the following piece of evidence there appear to be significant regional differentials in the prevalence of shirking among the employees of a large italian bank in particular absenteeism and misconduct episodes are considerably more frequent in the southern branches of the bank in this paper we examine several potential explanations for this fact first individual preferences for shirking versus working may differ according to one s region of hirth we will refer to this hj othesis as one of different individual hackgrounds the second possibility is one of locational sorting low shirking types may tend to migrate to the north high shirking types may tend to migrate to the south or hoth third the northern and southern

financial systems in northern thai villages field research attempted to measure the risky environments the information structures the institutions and the risk response mechanisms of ten villages in northern thailand various key features are then modeled in an abstract but realistic way either with a full information risk sharing model or an information constrained version of the same model observations from some of the villages seem consistent with one or the other of these models but in many of the villages one is left with risk response variations across households which suggest that pareto improvements are possible

fertilizer use risk and off farm labor markets in the semi arid tropics of india a two period model is developed in which a risk averse farmer uses off farm labor to smooth consumption leading to greater use of fertilizer fertilizer demand is shown to increase with the depth of the off farm labor market controlling for exogenous weather risk farmers use more fertilizer the lower the unemployment rate and the higher the share of nonagricultural work in total off farm labor the results suggest that off farm labor markets and own farm production may be complementary in risky production environments so that policies which promote the depth of the off farm labor market in low income areas may also bolster farm productivity copyright 2003 oxford university press

risks and farmers investment in productive assets in nigeria the majority of farmers in sub saharan africa ssa lack the means to mitigate the impact of risks associated with rainfall and commodity prices due to capital constraints and the imperfect insurance market in these countries because most ssa farmers are risk averse they may be willing to invest in productive assets that can mitigate the impacts of such risks if their capital constraints are relaxed through external financial assistance we test this hypothesis by using panel data on investment behavior of nigerian farmers who received financial assistance on productive assets the empirical results show that farmers facing higher rainfall risks are more likely to invest in irrigation pumps that can mitigate the impact of rainfall risks while those facing higher risks of white gari price are more likely to invest in milling machines that enable them to process cassava into flour instead of gari which supports our hypothesis

incentive systems in a real effort experiment in the reported experiment different payment schemes are examined on their incentive effects payments based on individual team and relative performance are compared subjects conducted computerized tasks that required substantial effort the results show that individual and team payment induced the same effort levels in team production free riding occurred but it was compensated by many subjects providing more effort than in case of individual pay effort was higher but more variable in tournaments while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others finally attitudes towards work and other workers differed strongly between conditions

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

a price setting game with a nonatomic fringe abstract this paper extends the bertrand edgeworth price setting game with finitely many firms to a game with infinitely many firms taking a market with one significant firm and a nonatomic fringe we present a microfoundation of dominant firm price leadership

desert and inequity aversion in teams teams are becoming increasingly important in work settings we develop a framework to study the strategic implications of a meritocratic notion of desert under which team members care about receiving what they feel they deserve team members nd it painful to receive less than their perceived entitlement while receiving more may induce pleasure or pain depending on whether preferences exhibit desert elation or desert guilt our notion of desert generalizes distributional concern models to situations in

new york city cab drivers labor supply revisited reference dependent preferences with rational expectations targets for hours and income this paper reconsiders whether cabdrivers labor supply decisions reflect reference dependent preferences following botond koszegi and matthew rabin 2006 we construct a model with targets for hours as well as income both determined by rational expectations estimating using henry s farber s 2005 2008 data we show that the reference dependent model can reconcile his 2005 finding that drivers stopping probabilities are significantly related to hours but not income with the negative wage elasticity of hours found by colin camerer et al 1997 and farber 2005 2008 the model yields sensible estimates that avoid farber s 2008 criticism that drivers income targets are too unstable to allow a useful reference dependent model of labor supply

clean evidence on peer effects we study subjects who were asked to fill letters into envelopes with a remuneration independent of output in the pair treatment two subjects worked at the same time in the same room and peer effects were possible in the single treatment subjects worked alone and peer effects were ruled out we find evidence of peer effects in the pair treatment because the standard deviations of output are smaller within pairs than between pairs moreover average output is higher in the pair treatment thus peer effects raise productivity finally low productivity workers are the most sensitive to the behavior of peers

nutrition health birth order and seasonality intrahousehold allocation among children in rural india abstract nutrients available to children are determined largely by intrahousehold allocations there are a number of reasons why birth order may affect these allocations a model is developed to estimate critical parameters of parental preferences regarding the allocation of nutrients among their children latent variable estimates for rural south india indicate that parental preferences have productivity equity tradeoffs and parents favor older children the productivity equity tradeoff however is much less for the lean season therefore when food is scarcest parents follow more closely a pure investment strategy exposing their more vulnerable children to greater malnutrition tisk

evaluating seasonal food storage and credit programs in east indonesia abstract predictable annual lean seasons occur in many rural areas including west timor in indonesia imperfections in savings and credit markets make it difficult for staple farmers to convert harvest season output into lean season consumption we conduct a randomized evaluation of a seasonal food storage program and a food credit program by providing improved ways to transfer assets across seasons each program functions as a subsidy on lean season consumption we find that neither program had effects on staple food consumption the storage program increased non food consumption the credit program increased reported income and reduced seasonal gaps in consumption our results are consistent with positive income effects through the expansion of budget sets but suggest that the average household could be close to staple food satiation

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

long lasting income shocks and adaptations evidence from coral bleaching in indonesia abstract this paper explores how people adapt to climate shocks specifically coral bleaching that have long lasting impacts on income caused mainly by abnormally high sea surface temperature coral bleaching has significant effects on marine resources using panel data from indonesia and exogenous variations in bleaching i observe that fishery households in affected areas experienced a decrease in income relative to other households although consumption expenditures did not decline significantly in response to these income shocks these households reduced their protein consumption in the short and long runs regarding labor market outcomes the affected households tended to substantially increase their labor supply and switch industries only in the long run

inequality aversion and externalities abstract we conduct a general analysis of the effects of inequality aversion on decisions by homogeneous players in static and dynamic games we distinguish between direct and indirect effects of inequality aversion direct effects are present when a player changes his action to affect disutility caused by inequality indirect effects occur when the own action is changed to affect other players actions we provide necessary and sufficient conditions for the occurrence of either effect moreover we examine the direction of the effects whereas indirect effects induce players to internalize externalities they impose on others direct effects act in the opposite direction

paycheque receipt and the timing of consumption this article examines the consumption response to monthly paycheque receipt since the amount and arrival date of paycheques are known in advance the receipt of a paycheque does not coincide with the receipt of new information under the basic rational expectations life cycle permanent income hypothesis household consumption should not respond to paycheque arrival using data from the uk s family expenditure survey this article finds that household consumption is excessively sensitive to paycheque receipt the results cannot be explained by any underlying monthly expenditure fluctuations common to all households the presence of liquidity constraints as measured by wealth and age can account for the excess sensitivity results

relative performance or team evaluation optimal contracts for other regarding agents this paper derives optimal incentive contracts for agents with other regarding preferences it offers a behavioral explanation for the empirically observed lack of relative performance evaluation we analyze a principal multi agent model and assume that agents are inequity averse or status seeking we show that team contracts can be optimal even if the agents performance measures are positively correlated such that relative performance evaluation would be optimal with purely self interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other regarding preferences furthermore optimal incentive contracts for other regarding agents can be low powered as compared to contracts for purely self interested agents

transparency inequity aversion and the dynamics of peer pressure in teams theory and evidence we provide an explanation for peer pressure in teams based on inequity aversion analyzing a two period model with two agents we find that the effect of inequity aversion strongly depends on the information structure when contributions are unobservable agents act as though they were purely selfish however when contributions are made transparent at an interim stage agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period this form of peer pressure reduces free riding and thus more efficient outcomes are attained the results are confirmed in a real effort experiment

using weather variability to estimate the response of savings to transitory income in thailand this paper measures the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income time series information on regional rainfall is used to construct estimates of transitory income due to rainfall shocks the relationship between these measures of transitory income and savings indicates that farm households save a significantly higher fraction of transitory income than nontransitory income jel d91 016 the incomes of farm households in developing countries are notorious for being both low and uncertain policies that increase the incomes of farmers may well be different

measuring unfair in equality abstract this paper shows one way of generalizing the standard framework of inequality measurement to allow for a distinction between fair and unfair inequalities we introduce the unfairness lorenz curve and the unfairness gini which are generalizations of the standard versions of the lorenz curve and the gini with this more general framework in place we study the implications of responsibility sensitive theories of justice for the evaluation of the income distribution in norway from 1986 to 2005 we find that both the pre tax and the post tax income distributions have become less fair in norway even though the standard gini for the pre tax income distribution has decreased in the same period two trends explain this development the increase in income share of the top percentile and the change in the situation of females in the labor market the concentration of income at the top of the distribution contributes both to increased unfairness and increased inequality whereas the increase in females working hours and level of education primarily contributes to a reduction in inequality thus the latter effect dominates for the standard gini and the former effect for the unfairness gini furthermore we find that the increase in post tax unfairness is even larger than the increase in pre tax unfairness which shows that the tax system in norway contributes less to eliminating unfairness in 2005 than in 1986

further evidence of excess sensitivity of consumption nonseparability among goods and heterogeneity across households the standard theoretical framework for analysing households intertemporal decisions is the life cycle permanent income model among its implications testing the model allows to analyse the response of consumption to fiscal policy however the empirical literature with microdata has yielded mixed results this article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households for that purpose we test a rational expectations permanent income model with household data drawn from the spanish family expenditure survey this survey contains detailed information on total expenditure and the income presents large exogenous quarterly changes due to an institutional feature the article shows that assuming separability among commodities biases the test against the model when separability is not imposed we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not for those

output and wages with inequality averse agents we analyze a two task work environment with risk neutral but inequality averse individuals for the agent employed in task 2 eort is verifiable while in task 1 it is not accordingly agent 1 receives an incentive contract which due to his wealth constraint leads to a rent that the other agent resents we show that greater inequality aversion unambiguously decreases total output and therefore average labor productivity more specifically inequality aversion reduces eort wage

women s income and household expenditure patterns gender or flow evidence from niger be targeted for credit and small enterprise programs not only because their income boosts household income but also because it meets global societal objectives such as increased spending on food and children s goods some researchers however have speculated that the observed impact of female income share on household expenditure patterns does not reflect gender differentiated preferences but rather reflects the differential lumpiness seasonality of male and female income flows that is women may earn income in flows that ensure a higher propensity to purchase certain items

risk financial markets and human capital in a developing country this paper explores the link between financial market incompleteness and human capital accumulation we examine how child school attendance responds to seasonal fluctuations in the income of agrarian households using panel data from rural india to pinpoint market imperfections we study responses to aggregate and idiosyncratic as well as to anticipated and unanticipated income shocks our main finding is that seasonal fluctuations in school attendance are a form of self insurance but one which does not result in a substantial loss of human capital on average

savings behaviour in low income countries the empirical literature on savings in low income countries has exploited some remarkable data sets to shed new light on savings behaviour in the poor agricultural households that make up the majority of the population in such countries a number of conclusions have emerged i the degree of consumption smoothing over seasons within the year and across years in response to very large income fluctuations is higher than was supposed ii the lack of complete insurance and credit markets however is manifested in asset stocks and asset compositions among farmers especially small farmers that are inefficient iii the combination of low and volatile incomes is an important cause of inefficiency and income inequality iv the proximity of formal financial institutions increases financial savings and crowds out informal insurance arrangements thus in principle better facilitating financial intermediation and iv simple life cycle models of savings do not appear to explain long term savings in low income settings copyright 2001 oxford university press

are rainfed agricultural households insured evidence from five villages in vidarbha india there are several studies on risk and insurance in village economies in the developing world however there is a lack of evidence for recent decades in spite of profound changes including structural transformation and widespread market liberalization in most regions in this paper i use primary panel data from five rainfed villages in a high risk region of india and find evidence of considerable exposure as well as vulnerability to idiosyncratic and covariate risks further there is significant wealth differentiated heterogeneity in vulnerability the findings help identify the scope of public policy in improving risk management in rainfed agriculture

vulnerability seasonality and poverty in ethiopia most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods suggesting substantial short run movements in and out of poverty the consequence is that cross section poverty research may not be able to identify the poor in this study we explore this short run variability further we use a data set on a panel of 1450 households in different communities in rural ethiopia surveyed thrice over 18 months on average year to year poverty is very similar however we find high variability in consumption and poverty over the seasons and year by year econometric analysis suggests that consumption is affected by idiosyncratic and common shocks including rainfall and household specific crop failure while households respond to seasonal incentives related to changing labour demand and prices the results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics while some of the non poor in the

measuring corruption in china an expenditure based approach using household survey data most existing micro level empirical analyses of corruption rely on administrative records special purpose surveys or field experiments which can be difficult or very costly to obtain in some situations in this paper we apply an expenditure based method of quantifying the extent of corruption in a particular country using household survey data this method utilizes discrepancies between consumption and reported income to measure corruption another contribution of this paper is that it provides the first objective estimate of the extent of corruption in china we use a quadratic clothing expenditure function to estimate the extent of corruption in china in 2002

social norms and economic incentives in firms abstract this paper studies the interplay between economic incentives and social norms in firms we introduce a general framework to model social norms arguing that norms stem from agents desire for or peer pressure towards social efficiency in a simple model of team production we examine the interplay of three types of contracts with social norms we show that one and the same norm can be output increasing neutral or output decreasing depending on the contract multiplicity of equilibria and crowding out effects of steeper incentives can arise

on the existence of pure and mixed strategy nash equilibria in discontinuous games a game is better reply secure if for every nonequilibrium strategy x and every payoff vector limit u resulting from strategies approaching x some player i has a strategy yielding a payoff strictly above u i even if the others deviate slightly from x if strategy spaces are compact and convex payoffs are quasiconcave in the owner s strategy and the game is better reply secure then a pure strategy nash equilibrium exists better reply security holds in many economic games it also permits new results on the existence of symmetric and mixed strategy nash equilibria

seasonality of income and poverty in bangladesh abstract seasonal food deprivation in bangladesh locally known as monga sometimes rises to the level of famine during the pre harvest period of aman rice an analysis of household income and expenditure survey data shows that income and consumption are lower during monga than in other seasons and that seasonal income greatly influences seasonal consumption econometric estimates reject the hypothesis of perfect consumption smoothing in the northwestern region of greater rangpur rural households suffer disproportionately from monga seasonal differences in poverty across regions are due mainly to differences in household specific seasonality of income and consumption income diversification explains the lower incidence of income seasonality observed in non rangpur regions to contain seasonal hunger in greater rangpur public policies should promote rural income diversification together with seasonal migration a flexible microfinance scheme that provides both production and consumption loans on flexible repayment terms could help diversify income and reduce seasonality of income and poverty

urban bias in price risk the geography of food price distributions in low income economies the geography of agricultural marketing has important implications for the stochastic distribution of agricultural commodity prices this article proposes that objective food price risk differs between rural and urban areas of infrastructure poor economies characterised by spatially concentrated patterns of foodgrains storage this difference implies an urban bias having adverse welfare effects for peasants who seasonally switch between net food seller and net food buyer positions empirical analysis of rice price data from madagascar suggests that price variability and skewness indeed differ between rural and urban areas in ways that adversely influence the relative welfare of rural peasants

dynamic voluntary provision of public goods abstract the paper considers a dynamic public goods problem in which individuals contributions are accumulated over time analyzing the infinite duration dynamic game with continuous contributions and flow benefits the paper demonstrates that the free riding problem is aggravated when players contributions are conditional on the observable collective contributions hence without commitment an additional incentive to depress contributions arises a current contributor can free ride on all future contributions as well as on current ones

risks and spatial connectivity evidence from food price crisis in rural indonesia abstract this paper examines the impact of the agricultural commodity price surge globally experienced in 2007 2008 and thereafter on income growth of agricultural producers and non producers using recent panel data from indonesia first during this period producers experienced significantly higher earnings and total income growth than non producers narrowing their income gap second the negative effect on non producers real incomes was smaller in spatially well connected areas where to mitigate the impact private transfers such as remittances as well as employment incomes increased among non producers in contrast government programs did not effectively cushion the income shock therefore informal insurance was more effective than formal government funded social protection programs to mitigate the crisis shock

firm scale and the endogenous timing of entry a choice between commitment and flexibility abstract this paper presents a model of stochastic oligopoly with demand uncertainty where firms endogenously choose entry timing we examine two extreme types of market structure and show that the equilibrium correspondence that connects them is continous with two identically sized firms there are symmetric cournot type equilibria where the probability of early entry declines with greater uncertainty and for low uncertainty two asymmetric equilibria with one large firm with a continuum of nonatomic firms there is a unique stackelberg equilibrium we conclude that the behavior of a dominant firm with a finite fringe can be approximated by stackelberg equilibrium journal of economic literatureclassification numbers d21 l11

guilt in games a clear conscience is a good pillow why does this old proverb contain an insight the emotion of guilt holds a key psychologists report that the prototypical cause of guilt would be the infliction of harm loss or distress on a relationship partner roy baumeister arlene m stillwell and todd f heatherton 1994 245 june price tangney 1995 moreover guilt is unpleasant and may affect behavior to render the associated pangs counterfactual baumeister stillwell and heatherton state if people feel guilt for hurting their partners and for failing to live up to their expectations they will alter their behavior to avoid guilt in ways that seem likely to maintain and strengthen the relationship avoided guilt is the down of the sound sleeper s bolster how can guilt be modeled how are human interaction and economic outcomes influenced we offer a formal approach for providing answers start with an extensive game form which associates a monetary outcome with each end node say that player i lets player j down if as a result of i s choice of strategy j gets a lower monetary payoff than j expected to get before play started player i s guilt may depend on how much he lets j down player i s guilt may also depend on how much j believes i believes he lets j down we develop techniques to analyze equilibria when players are motivated in part by a desire to avoid guilt the intellectual home for our exercise is what has been called psychological game theory this framework originally developed by john geanakoplos david pearce and ennio stacchetti 1989 and recently extended by battigalli and dufwenberg 2005 henceforth b d allows players utilities to depend on beliefs about choices states of nature

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

3rd of tha month do social security recipients smooth consumption between checks this paper examines the response of consumption expenditures to the monthly receipt of social security checks since the amount and arrival date of these checks are known to the recipients the basic life cycle permanent income hypothesis lcpih predicts that consumption should not respond to the receipt of these checks using daily diary data from the consumer expenditure survey this paper finds evidence that both the dollar amount and probability of expenditures increase immediately following the receipt of this check most relevant to testing the lcpih categories of instantaneous consumption expenditure such as food away from home increase on the check arrival date the response is found primarily amongst households for whom social security is the primary source of income however the magnitude of the estimated responses are relatively small and do not suggest that the utility losses are large from this non smoothing behavior this abstract was borrowed from another version of this item

seasonal hunger and its mitigation in north west bangladesh seasonal hunger may result from seasonality of agriculture when households fail to smooth income and consumption using household survey data from the northwest region of bangladesh this paper examines alternative measures of seasonal hunger and provides some evidence to support policies and programs needed to mitigate seasonal hunger the results suggest that a large majority of food vulnerable households are the perpetual poor as opposed to a small percentage of households who are subject to food deprivation only during the lean period findings suggest that government safety net programs and microcredit provide a cushion for the poor to stave off seasonal hunger

optimal incentives for teams much of the existing theory of incentives describes a static relationship that lasts for just one transaction this static assumption is not only unrealistic but the resulting predictions appear to be at odds with many work organizations the current paper introduces possible long term interaction among agents and studies how the design of explicit incentives and work organizations can exploit and interact with the implicit incentives generated by the repeated interaction of the agents the optimal incentive scheme is shown to display observed features of the increasingly popular teams such as the use of low powered group incentives