majority voting and corporate control the rule of the dominant shareholder this paper incorporates a model of corporate control into a general equilibrium framework for production economies with incomplete markets the classical objective of value maximization is extended but is indeterminate instead firms are viewed as being subject to shareholder control via some decision mechanism as long as this decision mechanism is responsive to a unanimous preference by shareholders shareholder control is consistent with but stronger than value maximization next the particular institution of majority voting by shareholders is examined it is shown that for generic economies a majority rule equilibrium for a firm implies that production is optimal for the largest or dominant shareholder finally a more realistic control mechanism is considered in which majority voting by shareholders is constrained by a group of shareholders or board of directors who control the voting agenda the result is that shareholders not on the board have no influence on the equilibrium production choice of the firm

the relative valuation of caps and swaptions theory and empirical evidence although traded as distinct products caps and swaptions are linked by noarbitrage relations through the correlation structure of interest rates using a string market model we solve for the correlation matrix implied by swaptions and examine the relative valuation of caps and swaptions we find that swaption prices are generated by four factors and that implied correlations are lower than historical correlations long dated swaptions appear mispriced and there were major pricing distortions during the 1998 hedge fund crisis cap prices periodically deviate significantly from the no arbitrage values implied by the swaptions market the growth in interest rate swaps during the past decade has led to the creation and rapid expansion of markets for two important types of swap related derivatives interest rate caps and swaptions these over the counter derivatives are widely used by many firms to manage their interest rate risk exposure and collectively represent the largest class of fixed income options in the financial markets the international swaps and derivatives association isda estimates that the total notional amount of caps and swaptions outstanding at the end of 1997 was over 4 9 trillion which was more than 300 times the 15 billion notional of all chicago board of trade treasury note and bond futures options combined caps and swaptions are generally traded as separate products in the financial markets and the models used to value caps are typically different from those used to value swaptions furthermore most wall street firms use a piecemeal approach in calibrating their models for caps and swaptions making it difficult to evaluate whether these derivatives are fairly priced

wages experience and seniority in this paper we study the sources of wage growth we identify the contribution to such growth of general sector specific and firm specific human capital our results are interpretable within the context of a model where the returns to human capital may be heterogeneous and where firms may offer different combinations of entry level wages and firm specific human capital development we allow for the possibility that wages are match specific and that workers move jobs as a result of identifying a better match to estimate the average returns to experience sector tenure and firm specific tenure within this context we develop an identification strategy which relies on the use of firm closures our data source is a new and unique administrative data set for germany that includes complete work histories as well as individual characteristics we find positive returns to experience and firm tenure for skilled workers the returns to experience for unskilled workers are small and insignificant after 2 years of experience their returns to sector tenure are also zero however their returns to firm tenure are substantial in this paper we study the growth of wages of young workers in germany knowing the extent and reasons for individual wage growth over the life cycle is important for a number of areas in economics just to mention two examples first it is a key element to understanding and designing active labour market programmes many such programmes offer temporary and often subsidized work opportunities examples are the new deal in the u k and the swedish programmes as well as a number of programmes in germany these programmes are based on the assumption that general skills are sufficiently enhanced while working so as to render the workers employable without a wage subsidy thus the success of these programmes depends on how skills improve on the job for the target population and whether this skill enhancement is transferable across jobs second it is a key to understanding the benefits and costs of job mobility this in turn matters for a number of policy issues including the design of pension policies relating for example to final salary schemes as a result of this widespread interest a large body of empirical research has focused on obtaining estimates for the returns of experience and seniority 1 our study uses a new and unique administrative data set with a number of features that are important for our analysis and allow us to avoid many problems encountered in earlier work in this field in our model wages grow due to learning by doing which may be heterogeneous across individuals moreover since firms offer different career profiles and because we allow for match specific effects on wages investments take the form of searching for the firm with the most desirable learning by doing characteristics career structure 2

optimal currency risk hedging abstract this paper investigates the optimal hedging strategy of a domestic expected utility maximizer endowed with a temporarily non traded position in a foreign investment the domestic and foreign yield curves the exchange rate between the two involved currencies and the foreign investment value are stochastic and obey fairly general diffusion processes we compare the hedger s optimal strategies using either exchange rate forward contracts or futures contracts for both strategies the optimal number of contracts held can be broken down into several components having clear economic interpretations however while futures contracts are known in such a context to be more difficult to price than their forward counterparts the optimal strategy using them is simpler this is due to the fact that when forward contracts are used incurred profits or losses that accrue to the investor s wealth at each instant are locked in in the forward position up to the contract maturity thus discounting these gains or losses back at the current date brings about an interest rate risk therefore the investor s hedging strategy itself generates an additional risk which in turn induces the need for additional hedging the magnitude of the difference between the two hedge ratios may be significant under a set of plausible assumptions since in general financial markets are not complete the additional interest rate risk cannot be perfectly hedged hence the marking to market mechanism that characterizes futures contracts and allows for the complete elimination of this risk is valuable for risk averse agents

estimating the effects of family background on the return to schooling this article examines the causal link between family background characteristics parental education and family size and returns to schooling i implement a model of schooling and earnings with heterogeneous returns to education using data from the occupational change in a generation survey i find that men raised in larger families have substantially lower returns to education whereas the combined effects of parental education are more modest in addition like other supply side instrumental variables studies of the causal effect of education i find two stage least squares estimates that are larger than the corresponding ordinary least squares estimates the results suggest an alternative explanation for this phenomenon constant marginal return to schooling combined with a negative absolute ability bias and a positive comparative advantage bias

computational economics and economic theory substitutes or complements abstract this essay examines the idea and potential of a computational approach to theory discusses methodological issues raised by such computational methods and outlines the problems associated with the dissemination of computational methods and the exposition of computational results we argue that the study of a theory need not be confined to proving theorems that current and future computer technologies create new possibilities for theoretical analysis and that by resolving these issues we will create an intellectual atmosphere in which computational methods can make substantial contributions to economic analysis

fertilizer subsidies and private market participation the case of kano state nigeria this article estimates the effect of a fertilizer voucher program on farmer participation in the private fertilizer market in nigeria using a double hurdle model to address corner solution challenges with estimating input demand and a control function approach to account for the endogeneity of subsidized fertilizer acquired the study finds evidence that receiving subsidized fertilizer in kano nigeria increased both the probability and extent of participation in the private fertilizer market findings demonstrate that under certain circumstances e g where input dealers links to farmer are weak there could be significant gains from the temporary use of voucher programs to strengthen such links

the returns to schooling a selectivity bias approach with a continuous choice variable the essence of selection bias is that we do not observe nonoptimal choices this applies whether the choice variable is discrete or continuous this paper extends the selection bias methodology to the case where the choice variable is continuous and the choice set is ordered the leading practical application of this analysis is the schooling choice problem schooling is treated as a continuous choice variable and selectivity corrected rates of return are estimated the findings suggest selectivity is of considerable importance and support the comparative advantage hypothesis of willis and rosen 18

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

schooling and seat belt use in the health production literature schooling has distinguished itself as the most important correlate of good health according to fuchs 11 economists have been so persuasive in their demonstration of the importance of schooling that medical researchers are increasingly drawing attention to lack of schooling as a risk factor in a variety of diseases 24 while there is little doubt among health economists about the empirical strength of the relation between schooling and health there is considerable controversy surrounding explanations for the empirical association grossman 15 16 maintains that schooling directly enhances health for example by increasing knowledge pertaining to healthy habits fuchs 11 12 on the other hand maintains that schooling serves as an empirical proxy for some unobserved third variable which also happens to be associated with health the third variable most frequently mentioned is time preference fuchs rejects the grossman idea that education plays a direct role in promoting health the debate has relevance for policy if schooling promotes health it could be argued that expenditures on schooling could be compared to for example expenditures on medical care as an alternative for increasing average life spans but if fuchs is right any expenditure comparisons would be futile

are small firms less efficient this paper compares the technical efficiency of small and medium sized enterprises smes with that of large firms and studies the factors influencing technical efficiency for taiwan s electronics industry unlike conventional studies we use two alternative approaches to control for the influence of size effect one is the two stage switching regression to correct for endogenous size effect on technical efficiency and the other is a metafrontier production function for firms in different groups the main results are as follows first the average technical efficiency for large firms is higher than that of smes without considering the size effect and lower when considering the endogenous choice on firm size this study cannot therefore conclude that there is a negative size technical efficiency relationship it however sheds light on the importance of size effect on the size technical efficiency nexus second the estimates on the determinants of technical efficiency show that being a subcontractor has a statistically significant positive influence on smes technical efficiency but the effect decreases with firm size

the estimation of human capital by administrative archives in a static and longitudinal perspective the case of milan this paper focuses on the estimation of the latent variable human capital hc at disaggregated level worker by available routinely institutional data flows in particular we utilize the lombardy region administrative archive employment centers of the province of milan collecting information about careers of workers in the private sector of the milan area and administrative flows collecting mandatory workers individual income tax returns filed with the national internal revenue service first we propose and empirically estimate hc scores in a static referred to 2004 framework by means of a realistic measurement model within causal relationships among endogenous and exogenous investment hc indicators furthermore the model also specifies a set of concomitant indicators that not belonging to hc investment indicators have causal impact on endogenous variables and on hc scores too second we propose a longitudinal analysis period 2000 2004 aimed to investigate how workers earned income growth rates vary over workers educational levels and other personal characteristics the empirical results of both analyses confirm the characteristics of the italian job market denoted by marked inequalities and knowledge regarding the process of school to work transition characterized by a weak incidence of education on longitudinal trajectories of earned income

monotone instrumental variables with an application to the returns to schooling for fifty years econometric analyses of treatment response have made extensive use of instrumental variable iv assumptions holding that mean response is constant across specified subpopulations of a population of interest 2 yet the credibility of mean independence conditions and other iv assumptions has often been a matter of considerable disagreement with much debate about whether some covariate is or is not a valid instrument in an application of interest there is therefore good reason to consider weaker but more credible assumptions to this end we introduce monotone instlumental variable miv assumptions holding that mean response varies weakly monotonically across specified subpopulations we study the identifying power of these miv assumptions and give an empirical application the findings reported here add to the literature developing nonparametric bounds on treatment effects 3 this paper uses the same formal setup as manski 1997 there is a probability space j x2 p of individuals each member j of population j has observable covariates xi e x and a response function yj t y mapping the mutually exclusive and exhaustive treatments t e t into outcomes yj t e y person j has a realized treatment zj e t and a realized outcome y 1 y zi both of which are observable the latent outcomes yj t

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

computing equilibria when asset markets are incomplete existence of equilibrium with incomplete markets is problematic because demand functions are typically not continuous discontinuities occur at prices for which a marketed asset suddenly becomes redundant we show that this discontinuity disappears if we allow an agent in the economy to introduce a new asset when such redundancies occur this enables us to prove existence with incomplete markets using a standard path following argument hence available algorithms for path following in r k can be applied to compute equilibria in the gei case we demonstrate this by computing equilibrium for a numerical example

against the wind bargaining recentralisation and wage inequality in norway 1987 91 in the late 1980s norway s labour market experienced similar supply and demand shifts for skills to other countries but unlike other oecd nations norway s wage setting system became more centralised the pay distribution in norway became more compressed at the bottom from 1987 to 1991 while low wage workers in other countries lost ground relatively using norwegian microdata for 1987 and 1991 i found that changing labour market prices helped cause this wage compression further the less educated had declining relative overall employment but increasing relative public sector employment both possible labour market responses to the wage compression

observed choice and optimism in estimating the effects of government policies a policy will be used more heavily in a time and place where its cost is lower the analyst who treats times and places as identical will overestimate the policy s net benefit especially for policy intensities greater than exist in his sample in regression analysis the problem can be solved by instrumental variables using state level data the technique substantially increases the estimated responsiveness of illegitimacy to transfers

the earnings impact of training duration in a developing country an ordered probit selection model of colombia s servicio nacional de aprendizaje sena this study estimates the earnings impact of one of the most extensive in service training programs in the developing world colombia s sena through a comparison of nongraduates and graduates earnings profiles the possible influence of selection is corrected through the use of an ordered probit model to determine participation in short and long courses the correction causes a significant decline in sena s earnings effect the results are robust with respect to alternative specifications of the selection model

nonlinearities in intergenerational earnings mobility consequences for cross country comparisons we show that the patterns of intergenerational earnings mobility in denmark finland and norway unlike those for the us and the uk are highly nonlinear the nordic relationship between log earnings of sons and fathers is flat in the lower segments of the fathers earnings distribution sons growing up in the poorest households have the same adult earnings prospects as sons in moderately poor households and is increasingly positive in middle and upper segments this convex pattern contrasts sharply with our findings for the us and the uk where the relationship is much closer to being linear as a result cross country comparisons of intergenerational earnings elasticities may be misleading with respect to transmission mechanisms in the central parts of the earnings distribution and uninformative in the tails of the distribution it is now a stylised fact that intergenerational earnings mobility is higher in the nordic welfare state economies than in more market oriented economies such as the us see

measuring heterogeneity in the returns to education using an education reform abstract in this paper we explore the impact of a mandatory education reform as well as pre reform availability of schools above the mandatory level on educational attainment and returns to education in norway we contribute to the existing literature by focusing on the heterogeneity of the impact of reforms our results indicate that increased compulsory education from seven to nine years increased the general level of education beyond the compulsory education we also find that the effect of family background on educational attainment was weaker after the reform the average treatment effect on returns to education is surprisingly high for education of intermediate duration this means that increasing the general level of education potentially generates high returns in the form of wages we also find that the effect of treatment on the treated on the returns to education is 1 4 percentage points higher than the average treatment effect

estimating the returns to schooling a likelihood approach based on normal mixtures published with subsequent amendments in journal of applied econometrics volume 26 issue 4 june july 2011 pages 613 640 john k dagsvik torbjorn haegeland and arvid raknerud http dx doi org 10 1002 jae 1172

unobserved ability and the return to schooling in the empirical literature it is customary to estimate the return to schooling by ordinary least squares ols or instrumental variable iv techniques 2 the choice of ols is justified only if realized schooling and unobserved labor market ability are uncorrelated if not ols estimates suffer the ability bias and other estimation methods such as iv may be used the volume of work devoted to the return to schooling is a good indication of the importance of this topic as perceived by economists 3 frequently instrumental variables iv techniques are applied in a context where the instrument is only weakly correlated with schooling attainments staiger and stock 1997 as a consequence the validity of very high returns to schooling reported in a simple regression framework should be seriously questioned see manski and pepper 2000 4 when iv techniques are chosen the log wage regression is usually assumed to be linear in schooling however there is no obvious reason to presume that the local returns to schooling are independent of grade level indeed heterogeneity in any component of schooling choices subjective discount rates ability or specific taste for schooling will lead to improper inference if the local returns are erroneously assumed to be constant as individuals with lower taste for schooling tend to stop school earlier ols or iv estimates of the return to schooling which impose equality between local and average returns at all levels of schooling will be strongly affected by the relative frequencies of individuals with high and low taste for schooling more precisely if there are large differences in local returns between various grade levels the ols estimate measuring an average log wage increment per year of schooling will tend to be biased toward the co editor and three anonymous referees for comments and suggestions on this version or earlier versions belzil thanks the social sciences and humanities research council of canada for generous funding the usual disclaimer applies 2 to use the same terminology as in the reduced form literature the return local to schooling refers to the percentage wage increase per additional year of schooling in the paper the terms local and marginal returns may be used interchangeably the average return refers to the slope of the straight line between the intercept and the expected log wage at a given number of years of schooling 3 a world wide web survey of the most recent literature indicates that since 1970 more than 200 published articles or working papers set in a reduced form have been devoted to the estimation of the return to schooling or surrounding issues very often studies based on iv methods conclude that the returns to schooling can be between 20 and 40 above the ols estimates reported estimates around 15 per year for the us are not uncommon although standard errors are typically very high see card 1999 for a survey 4 manski and pepper 2000 obtain upper bound estimates of the return to schooling from a sample taken from the nlsy their results cast doubts on the high returns reported in the literature

pricing caps with hjm models the benefits of humped volatility in this paper we compare different multifactor hjm models with humped volatility structures to each other and to models with strictly decreasing volatility all the models are estimated on euribor and swap rates panel data maximizing the quasi likelihood function obtained from the kalman filter we develop the analysis in two steps first we study the in sample properties of the estimated models then we test the pricing performance on caps we find the humped volatility specification to greatly improve the model estimation and to provide sufficiently accurate cap prices although the models has been calibrated on interest rates data and not on cap prices moreover we find the two factor humped volatility model to outperform the three factor models in pricing caps

implied volatility functions in arbitrage free term structure models abstract we test six term structure models in the heath jarrow and morton 1992 class using eurodollar futures and options data from 1987 1992 we study the time series of implied interest rate volatilities from these models using one day lagged implied volatilities our one and two parameter models simultaneously price an average of 18 5 options each day with an average absolute error of one and a half to two basis points although the models fit well we document systematic strike price and time to maturity biases for all models we also implement simple trading strategies to test whether the models identify genuine biases

should the personal computer be considered a technological revolution evidence from u s metropolitan areas the introduction and diffusion of personal computers are widely viewed as a technological revolution using u s metropolitan area level panel data this paper asks whether links between pc adoption educational attainment and the return to skill conform to a model of technological revolutions in which the speed and extent of adoption are endogenous the model implies that cities will adjust differently to the arrival of a more skill intensive means of production with the returns to skill increasing most where skill is abundant and its return is low we show that the cross city data fit many of the predictions of the model during the period 1980 2000 the pc diffusion era

pricing mortgage backed securities in a multifactor interest rate environment a multivariate density estimation approach multivariate density estimation mde suggests that mortgage backed security mbs prices can be well described as a function of the level and slope of the term structure we analyze bow this function varies across mbss with different coupons an important finding is that the interest rate level proxies for the moneyness of the option the expected level of prepayments and the average life of the cash flows while the term structure slope controls for the average rate at which these cash flows should be discounted though the origination and prepayment behavior of mortgages differ substantially across coupons there remains an unexplained common factor in mbs prices this factor does not seem to be related to the usual suspects and therefore presents a puzzle to financial economists coauthors are robert f whitelaw matthew richardson and richard stanton article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

declining returns to education in norway comparing estimates across cohorts sectors and over time we examine the role of the norwegian education system in explaining the moderate and stable earnings dispersion in norway estimating earnings equations for 1980 and 1990 we find that returns to education have been remarkably stable in norway also when we compare returns to education across different sectors of the economy our analysis controls for self selection into education by using an instrumental variable technique we estimate separate education earnings profiles for different cohorts to identify the effect on wage premiums of the large changes that have taken place in the norwegian education system the substantially higher level of educational attainment for more recent cohorts does not cet par seem to have a negative effect on educational wage premiums for these younger cohorts jel classification j24 j31 i

returns to endogenous education the case of honduras the rapid expansion of the education sector in developing countries and the scarcity of public funds have increased the need for an accurate evaluation of educational policies estimates of rates of return to education have often been used as an integral part of cost benefit studies and programme evaluation efforts this study uses household survey data from honduras for 1990 to estimate returns to education that allow for worker heterogeneity and individual self selection in the education process a sequential estimation procedure is used that enables study of the interaction between educational attainment and earnings determination it is found that accounting for endogenous educational attainment leads to substantially higher estimated returns to education compared to traditional least squares estimates the possible magnitude of the bias underscores the importance of recognizing the role of self selection and comparative advantage in the education process

the dynamics of the forward interest rate curve a formulation with state variables the objective of this paper is twofold first the paper develops a class of models of the term structure of interest rates in the heath jarrow and morton 1992 framework with dynamics characterized by the evolution of a small set of state variables second the paper exploits this characterization of the dynamics of the term structure in an estimation exercise that makes use of both the time series and cross section of bond prices in this way our class of models bridges the gap between traditional models such as cox ingersoll and ross 1985 and vasicek 1977 that emphasize the dynamics of interest rates and the models of heath jarrow and morton 1992 that stress fitting the cross section of bond prices

unspanned stochastic volatility and fixed income derivatives pricing we propose a parsimonious unspanned stochastic volatility model of the term structure and study its implications for fixed income option prices the drift and quadratic variation of the short rate are affine in three state variables the short rate its long term mean and variance which follow a joint markov vector process yet bond prices are exponential affine functions of only two state variables independent of the current interest rate volatility level because this result holds for an arbitrary volatility process such a process can be calibrated to match fixed income derivative prices furthermore this model can be extended by relaxing the time homogeneity to fit any arbitrary term structure in its hjm form this model nests the analogous stochastic equity volatility model of heston 190 heston s l 1993 a closed form solution for options with stochastic volatility review of financial studies 6 327 343 in particular if the volatility process is specified to be affine closed form solutions for interest rate options obtain we propose an efficient algorithm to compute these prices an application using data on caps and floors shows that the model can capture very well the implied black spot volatility surface while simultaneously fitting the observed term structure c 2005 elsevier b v all rights reserved

the empirical implications of the cox ingersoll ross theory of the term structure of interest rates the one factor version of the cox ingersoll and ross model of the term structure is estimated using monthly quotes on u s treasury issues trading from 1952 through 1983 using data from a single yield curve it is possible to estimate implied short and long term zero coupon rates and the implied variance of changes in short rates analysis of residuals points to a probable neglected tax effect the term structure of interest rates is important to economists because the relationship among the yields on default free securities that differ in their term to maturity reflects the information available to the market about the future course of events the expectations hypothesis the liquidity preference hypothesis hicks 10 and the market segmentation hypothesis culbertson 6 are theories of the term structure that predict little more than that the implied forward rate is either equal to or not equal to the expectation of future spot rates cox ingersoll and ross 5 cir model the term structure of interest rates in a competitive equilibrium context their model has elements in common with the earlier hypotheses of the term structure however the cir model has a rich class of empirical implications not only for the pricing of default free securities but also for the pricing of bond options callable bonds and other types of financial claims this paper examines the extent to which the model in its simplest one factor form is descriptive of the prices of u s treasury bills bonds and notes traded from 1952 to 1983 section i describes the model and the parsimonious representation of bond prices which it implies section ii describes the data and section iii outlines the preliminary results obtained by fitting the model to observed data the final section outlines directions for future research

inequality income growth and mobility the basic facts during the 1950s and 1960s mean wages in the united states grew rapidly and the dispersion around this growing mean changed very litde starting in the 1970s and continuing into the 1980s and 1990s these patterns were reversed mean wages grew slowly and inequality increased rapidly these changes in labor markets were reflected in changes in the distribution of family income the mean of the distribution of family income did increase after 1973 in spite of the near constancy of mean real wages as family members increased the number of hours they worked however the increase in inequality of wages was mirrored by an increase in the dispersion of family income a large descriptive literature has documented the rise in inequality while a smaller behavioral literature has sought to delineate the causes of this rise these changes in the distribution of family income a fected rates of poverty directly during the 1950s and 1960s temporary increases in poverty during recessions were more than offset by declines in poverty during economic expansions as long as the poor gained along with everyone else fi om the secular growth in the mean one could be confident that poverty rates would ratchet down this is exactly what happened as poverty rates fell from 22 4 percent in 1959 to 11 1 percent in 1973

forecasting marketing mix responsiveness for new products abstract before a new product launch marketers need to infer how demand will respond to various levels of marketing mix variables to set an appropriate marketing plan a critical challenge in estimating marketing mix responsiveness from historical data is that the observed decisions were affected by private information possessed by managers about the heterogeneous effects of marketing mix variables on sales the authors refer to this as the slope endogeneity problem such endogeneity differs from the intercept endogeneity problem which has been widely acknowledged in the literature to correct for the slope endogeneity bias the authors develop a conceptually simple control function approach that is amenable to multiple endogenous variables and marketing mix carryover effects the method is applied to forecasting advertising responsiveness in the u s dvd market the results suggest that advertising responsiveness varies substantially across dvd titles and that estimated marketing mix elasticities w

a dynamic model for the forward curve this article develops and estimates a dynamic arbitrage free model of the current forward curve as the sum of i an unconditional component ii a maturity specific component and iii a date specific component the model combines features of the preferred habitat model the expectations hypothesis et and affine yield curve models it permits a class of low parameter multiple state variable dynamic models for the forward curve we show how to construct alternative parametric examples of the three components from a sum of exponential functions verify that the resulting forward curves satisfy the heath jarrow morton hjm conditions and derive the risk neutral dynamics for the purpose of pricing interest rate derivatives we select a model from alternative affine examples that are fitted to the fama bliss treasury data over an initial training period and use it to generate out of sample forecasts for forward rates and yields for forecast horizons of 6 months or longer the forecasts of this model significantly outperform those from common benchmark models jel c53 e43 e47 the structure of forward rates for fixed maturity loans to begin at various dates in the future can be inferred from the prices of treasury securities or directly observed from the extremely active eurodollar futures market the constellation of these rates or of the related yields plays a central role intheallocationofcapital therandombehaviorofthis yieldcurve or the relationship between the yields and the term to maturity is a subject of considerable theoretical and empirical study

theoretical and practical arguments for modeling labor supply as a choice among latent jobs models of labor supply derived from stochastic utility representations and discretized sets of feasible hours of work have gained popularity because they are more practical than standard approaches based on marginal calculus in this paper we argue that practicality is not the only feature that can be addressed by means of stochastic choice theory this theory also offers a powerful framework for developing a more realistic model for labor supply choices founded on individuals having preferences over jobs and facing restrictions on the choice of jobs and hours of work we discuss and clarify how this modeling framework deviates from both the conventional discrete approach van soest 1995 as well as the standard textbook approach based on marginal calculus hausman 1985 we furthermore discuss how the model based on job choice offers the possibility of conducting a richer set of simulations of alternative policies

child labor and schooling responses to access to microcredit in rural bangladesh microcredit has been shown to be effective in reducing poverty in many developing countries however less is known about its effect on human capital formation in this paper we develop a model examining the relation between microcredit and child labour we then empirically examine the impact of access to microcredit on children s education and child labour using a new and large data set from rural bangladesh we address the selection bias using the instrumental variable method where the instrument relies on an exogenous variation in treatment intensity among households in different villages the results show that household participation in a microcredit program may increase child labour and reduce school enrolment the adverse effects are more pronounced for girls than boys younger children are more adversely affected than their older siblings and the children of poorer and less educated households are affected most adversely our findings remain robust to different specifications and methods and when corrected for various sources of selection bias

returns to schooling implicit discount rates and black white wage differentials a simple econometric model of investment in schooling is developed and estimated the measure of individual discount rates implicit in their educational investment decisions suggests no difference between individuals from different socioeconomic backgrounds differences in individual speeds of educational attainment which do vary with background explain most of the variation in levels of attainment that is attributable to family background

testing the heath jarrow morton ho lee model of interest rate contingent claims pricing this paper presents empirical tests of the constant volatility version of the heath jarrow and morton model which is also the continuous time limit of the ho and lee model using a generalized method of moments gmm test on three years of daily data for eurodollar futures and futures options the model can be rejected for most subperiods various biases in the fitted option prices relative to the market prices are documented through a regression study the small sample properties and power of the gmm framework to this setting are also studied through simulations

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

unspanned stochastic volatility evidence from hedging interest rate derivatives most existing dynamic term structure models assume that interest rate derivatives are redundant securities and can be perfectly hedged using solely bonds we find that the quadratic term structure models have serious difficulties in hedging caps and cap straddles even though they capture bond yields well furthermore at the money straddle hedging errors are highly correlated with cap implied volatilities and can explain a large fraction of hedging errors of all caps and straddles across moneyness and maturities our results strongly suggest the existence of systematic unspanned factors related to stochastic volatility in interest rate derivatives markets

retornos privados da escolaridade no parana the present studys goal is to estimate the returns of parana state private sectors labor schooling by means of heckman method in other words we carry through an analysis of schooling effects on wage return in parana state and evaluate which level of education primary secondary or tertiary is more important on income generation and therefore on labor productivity additionally we attempt to identify other factors that determine parana states labor income and we compare the results of the present analysis with other studies results for the brazilian and parana economies carried out by other authors

work environment and opt out rates at motherhood across high education career paths observing a sample of harvard alumnae in their late thirties the authors study the relationship between workplace flexibility and the labor force participation of mothers they first document a large variation in labor force participation rates across higher education fields mindful of the possibility of systematic patterns in the types of women who complete various graduate degrees they use the rich information available for the sample supplemented by the longitudinal nature of a subset of these data to assess the extent to which these labor supply patterns may reflect variation in the difficulty of combining work with family although ruling out systematic sorting entirely is not possible their evidence suggests that inflexible work environments push women out of the labor force at motherhood

computing equilibria in the general equilibrium model with incomplete asset markets abstract we present an intuitive homotopy algorithm for the computation of equilibria in the general equilibrium model with incomplete asset markets the central concept is the introduction of utility maximization problems for all but one agent with penalties for transactions on the asset markets we compute equilibria with homotopy path following techniques using the first order conditions of the agents optimization problems and gradually lifting the penalty restriction as the algorithm proceeds finally we present computational results from an implementation of the algorithm showing convincingly that the algorithm is very reliable in general and suitable for large scale computations

empirical tests of two state variable heath jarrow morton models models for pricing interest rate claims developed under the heath jarrow morton paradigm differ according to the volatility structure imposed on forward rates for most general hjm structures the resultant path dependence creates implementation problems ritchken and sankarasubramanian have recently identified necessary and sufficient conditions on the class of volatility structures of forward rates that enable the term structure dynamics to be captured by a finite set of state variables the class is quite rich the instantaneous spot rate volatility may be quite general but the model curtails the structure of forward rate volatilities relative to this spot rate volatility this article provides empirical tests for this class of volatility structures unlike other studies the volatility structure is examined over a broad section of maturities in the yield curve using treasury data over the period 1982 94 we find support for this class furthermore unlike other studies no evidence of a volatility hump is identified copyright 1996 by ohio state university press

do bonds span the fixed income markets theory and evidence for unspanned stochastic volatility most term structure models assume bond markets are complete that is that all fixed income derivatives can be perfectly replicated using solely bonds however we find that in practice swap rates have limited explanatory power for returns on at the money straddles portfolios mainly exposed to volatility risk we term this empirical feature unspanned stochastic volatility usv while usv can be captured within an hjm framework we demonstrate that bivariate models cannot exhibit usv we determine necessary and sufficient conditions for trivariate markov affine systems to exhibit usv for such usv models bonds alone may not be sufficient to identify all parameters rather derivatives are needed

a selectivity model of employer size wage differentials this article investigates wage differentials for employees of different size firms utilizing an econometric methodology that allows the size of employer to be treated as endogenous in the context of discrete ordered employer size data as a result we are able to estimate i employer size wage gaps which are corrected for selectivity bias and ii the magnitude and direction of the selection bias decompositions of the resulting wage differentials are computed with comparisons of the conditional on sorting across employer size and unconditional wage gaps

increasing returns in infinite horizon economies this paper shows that in a general equilibrium model with an infiniite holizonl in whichi productionl may exhibit increasing returns to scale or non conivexities marginal cost pricing equilibria exist anid are essential that is stable witlh respect to small perturbationis of the economily as in many important models of mairket imperfections marginal cost pricinig equilibria need not be pareto optimal in the presence of noni convexities so the systematic approaches to equilibrium analysis in infinite dimenisionial commodity spaces which rely crucially oln the first welfare theorem cainnot be used instead this paper introduces leray schauder degree theory the extension of degree theor y to banacih and locally convex spaces as the natural methodology for showinlg that equilibria exist and for anialyzing qualitative features of equilibria such as local uniqueness or essentiality

income schooling and ability evidence from a new sample of identical twins we develop a model of optimal schooling investments and estimate it using new data on approximately 700 identical twins we estimate an average return to schooling of 9 percent for identical twins but estimated returns appear to be slightly higher for less able individuals simple cross section estimates are marginally upward biased these empirical results imply that abler individuals attain more schooling because they face lower marginal costs of schooling not because of higher marginal benefits

exploiting the conditional density in estimating the term structure an application to the cox ingersoll and ross model we propose an empirical method that utilizes the conditional density of the state variables to estimate and test a term structure model with known price formulae using data on both discount and coupon bonds the method is applied to an extension of a two factor model due to cox ingersoll and ross 1985 cir our results show that estimates based on only bills imply unreasonably large price errors for longer maturities we reject the original cir model using a likelihood ratio test and conclude that the extended cir model also fails to provide a good description of the treasury market

life cycle schooling and dynamic selection bias models and evidence for five cohorts of american males this paper examines an empirical regularity found in many societies that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education we examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it we show that the implicit economic model assumes myopia the intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data we produce an alternative choice theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions

general equilibrium models and homotopy methods abstract our purpose is to argue the inevitable and lasting role which homotopy methods will play in both theoretical and applied economic analysis the essence of our position is that large equilibrium models are needed to anticipate adjustments in the economy following policy changes or shock events and that homotopy methods are needed to analyze these equilibrium models in addition to the computation of equilibria homotopy methods will play an important role in the study of multiplicity of equilibria t tonnement comparative statics and market instability

a note on parental and child risk valuation the paper develops a model that allows the estimation of parent s valuation of own and child health in an endogenous risk framework where parents can employ multiple activities to protect themselves and their children from a health risk these risk reducing activities may differ in their effectiveness and their intensity of use we suggest how to estimate the parent s ex ante marginal willingness to pay for a reduction in the ambient level of health risk unencumbered by expected utility terms

does competition among public schools benefit students and taxpayers comment school choice policies promise to align the incentives of school administrators with the demands of parents and may therefore lead to more efficient educational production milton friedman 1962 geoffrey brennan and james buchanan 1980 john chubb and terry m moe 1990 absent a large scale school voucher program in the united states however this prediction has been difficult to test several authors e g melvin v borland and roy m howsen 1992 clive r belfield and henry m levin 2002 have suggested studying the effects of tiebout choice the use of the residential location decision to select among local monopoly education providers the idea here is that fragmented governance induces competition among school districts analogous to that which would occur among schools with nonresidential choice in an influential paper caroline m hoxby 2000 points out that current governance structures are potentially endogenous to school productivity and proposes that variation in topography which may have influenced optimal jurisdiction size before modern transportation technologies provides a source of exogenous variation she estimates instrumental variables regressions of individual test scores and school spending on a metropolitan level tiebout choice index defined as one minus a herfindahl concentration index with districts enrollments as their market shares using as excluded instruments the number of larger and smaller streams in the area she reports substantial positive effects of district fragmentation on student test scores and negative effects on spending this comment presents a reanalysis of hoxby s test score results which form the core of her empirical analysis these results turn out to be quite sensitive to plausible alterations to hoxby s specification in particular the large significant effect of choice on achievement obtains

ethnic enclaves and the economic success of immigrants evidence from a natural experiment recent immigrants tend to locate in ethnic enclaves within metropolitan areas the economic consequence of living in such enclaves is still an unresolved issue we use an immigrant policy initiative in sweden when government authorities distributed refugee immigrants across locales in a way that may be considered exogenous this policy initiative provides a unique natural experiment which allows us to estimate the causal effect on labor market outcomes of living in enclaves we find substantive evidence of sorting across locations when sorting is taken into account living in enclaves improves labor market outcomes for instance the earnings gain associated with a standard deviation increase in ethnic concentration is in the order of four to five percent

the effectiveness of private versus public schools the case of indonesia abstract in most developing countries education is largely publicly provided however the scarcity of public funds and recent evidence of public school inefficiency calls for an examination of the dominant role of the state in this paper we use data from indonesia to examine the effectiveness of public versus private schools we use labor market earnings as our measure of effectiveness controlling for observable personal characteristics and school selection we find that graduates of private secondary schools perform better in the labor market this is contrary to the widely held belief in indonesia that public secondary schools are superior our findings coupled with the existing literature on private school cognitive and cost advantages suggest the need for greater private participation in the education sector

the effect on black white wage differences of differences in the quantity and quality of education using data from the national longitudinal survey of youth for the years 1979 88 the author examines the extent to which black white differences in educational attainment educational quality and unmeasured individual ability can explain black white wage differences an analysis that corrects for both selectivity and ability biases inherent in estimating the education wage relationship shows that the main source of the black white wage differential is the racial difference in the quality rather than quantity of schooling in fact the author concludes closing the racial gap in the basic skills learned in school could reduce the wage differential by two thirds

the observed choice problem in estimating the cost of policies abstract a policy will be used more heavily when its marginal cost is lower in a regression setting this can mean that the equation to be estimated is actually y i i x i the analyst who treats times and places as identical will underestimate the policy s average cost ols is biased towards small coefficients and instrumental variables should be used

on correlation and default clustering in credit markets we establish markovian models in the heath jarrow and morton 1992 paradigm that permit an exponential affine representation of riskless and risky bond prices while offering significant flexibility in the choice of volatility structures estimating models in our family is typically no more difficult than in the workhorse affine family besides diffusive and jump induced default correlations defaults can impact the credit spreads of surviving firms allowing for a greater clustering of defaults numerical implementations highlight the importance of incorporating interest rate credit spread correlations credit spread impact factors and the full credit spread curve when building a unified framework for pricing credit derivatives the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

unspanned stochastic volatility and the pricing of commodity derivatives commodity derivatives are becoming an increasingly important part of the global derivatives market here we develop a tractable stochastic volatility model for pricing commodity derivatives the model features unspanned stochastic volatility quasi analytical prices of options on futures contracts and dynamics of the futures curve in terms of a low dimensional affine state vector we estimate the model on nymex crude oil derivatives using an extensive panel data set of 45 517 futures prices and 233 104 option prices spanning 4082 business days we find strong evidence for two predominantly unspanned volatility factors jel g13

non graduation and the earnings function an inquiry on self selection abstract we model schooling careers in the dutch educational systems including the decision to drop out as a discrete sequential choice in which expected earnings play an important role selectivity biasd from correlation between the errors in the decision function and the earnings function appears empirically relevant and we correct for it by applying a proper maximum likelihood estimation procedure the results indicate that drop outs behave differently from graduates in the decision functions on schooling careers expected earnings based on estimated earnings functions in mid career are never significant yet the educational choices appear ex post consistent with choices according to comparative earnings advantage

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

educational choice families and young people s earnings this paper presents two optimizing models of educational choice discusses issues of identification estimates earnings equations in the context of these models and presents conditions under which we can test one against the other the estimates indicate that education is endogenous for young people s earnings creating a downward bias in estimated returns from education that assume exogeneity identification and estimation relies on family background information from a special sample from the british household panel study 1991 95 which matches mothers and their young adult children our estimates favor a family model over an individual model and they suggest that parents allocate resources to education to compensate for differences in their children s earnings endowments

cohort effects and the returns to education in west germany using a mincer type wage function we estimate cohort effects in the returns to education for west german workers born between 1925 and 1974 the main problem to be tackled in the specification is to separately identify cohort experience and possibly also age effects in the returns for women we find a large and robust decline in schooling premia in the private sector the returns to a further year of post compulsory education fell from twelve per cent for the 1945 49 cohort to about seven per cent for those born in the early 1970s cohort effects in men s returns to education are less obvious but we do find evidence that they too have declined we conclude by identifying possible reasons for the decline

accounting for heterogeneity in multicrop micro econometric models implications for variable input demand modeling this article aims to show that if the farm sample under consideration is characterized by significant heterogeneity recovering output specific input uses or modeling farm level input uses may be more complicated than previously recognized the article theoretically investigates the problems implied by farm heterogeneity in input allocation equations and multicrop econometric models proposes an empirically tractable solution for overcoming these problems and assesses the empirical relevance of the theoretically identified problems the results demonstrate that heterogeneity matters but that the revealed heterogeneity bias has a limited impact on the empirical results copyright 2012 oxford university press

study duration and earnings a test in relation to the human capital versus screening debate in this paper we propose a simple test in relation to the human capital versus screening debate it is argued that these theories lead to different predictions with respect to the earnings effects of deviations between actual and nominal durations of a study earnings and study duration equations are estimated to test these predictions the results support the human capital theory

risk management implications of time inconsistency model updating and recalibration of no arbitrage models a widespread approach in the implementation of asset pricing models is based on the periodic recalibration of its parameters and initial conditions to eliminate any conflict between model implied and market prices modern no arbitrage market models facilitate this procedure since their solution can usually be written in terms of the entire initial yield curve as a result the model fits by construction the interest rate term structure this procedure is however generally time inconsistent since the model at time t 0 completely specifies the set of possible term structures for any t 0 in this paper we analyze the pros and cons of this widespread approach in pricing and hedging both theoretically and empirically the theoretical section of the paper shows a under which conditions recalibration improves the hedging errors by limiting the propagation of an initial error b that recalibration introduces timeinconsistent errors that violate the self financing argument of the standard replication strategy the empirical section of the paper quantifies the trade off between a and b under several scenarios first we compare this trade off for two economies with and without model specification error then we discuss the trade off when the underlying economy is not markovian 2005 elsevier b v all rights reserved

the effect of education on crime evidence from prison inmates arrests and self reports we estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling we begin by analyzing the effect of high school graduation on incarceration using census data instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites when estimating the impact of high school graduation only ols and iv estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration we clarify the relationship between ols and iv estimates and show that the weights placed on the impact of each schooling progression can explain differences in the estimates overall the estimates suggest that completing high school reduces the probability of incarceration by about 76 percentage points for whites and 3 4 percentage points for blacks we corroborate these findings using fbi data on arrests that distinguish among different types of crimes the biggest impacts of graduation are associated with murder assault and motor vehicle theft we also examine the effect of drop out on self reported crime in the nlsy and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime we estimate that the externality of education is about 14 26 of the private return to schooling suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction

education and earnings in the netherlands an empirical analysis abstract in this paper three models which describe the relation between earnings and education are estimated using one single data set one model is a simple dummy regression model in which the educational variables are exogenous both other models take account of the fact that individuals choose their optimal amount of education and is therefore endogenous in all three models i try to specify the equations in the same way as others have done with other data sets it turns out that in each model important conclusions reached in earlier research are not supported by the empirical findings reported here

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

self selectivity bias with a continuous variable potential pitfall in a common procedure when the choice variable is continuous selectivity bias can in principle be dealt with by a procedure first suggested by garen 1984 however work reported in this paper on the estimation of hedonic wage equations with compensation for dangerous jobs where selectivity bias could arise through the endogenous choice of jobs according to their riskiness suggests that the garen technique may not be robust the lack of robustness comes from collinearity which is a result of the common situation where the empirical fit of the choice equation is moderately successful but not outstanding

racial segregation and the black white test score gap abstract racial segregation is often blamed for some of the achievement gap between blacks and whites we study the effects of school and neighborhood segregation on the relative sat scores of black students across different metropolitan areas using large microdata samples for the 1998 2001 test cohorts our models include detailed controls for the family background of individual test takers school level controls for selective participation in the test and city level controls for racial composition income and region we find robust evidence that the black white test score gap is higher in more segregated cities holding constant family background and other factors a shift from a highly segregated city to a nearly integrated city closes about one quarter of the raw black white gap in sat scores specifications that distinguish between school and neighborhood segregation suggest that neighborhood segregation has a consistently negative impact while school segregation has no independent effect though we cannot reject equality of the two effects additional tests indicate that much of the effect of neighborhood segregation operates through neighbors incomes not through race per se data on enrollment in honors courses suggest that within school segregation increases when schools are more highly integrated potentially offsetting the benefits of school desegregation and accounting for our findings

observed choice estimation and optimism about policy changes a policy will be used more heavily in a time and place where its cost is lower the analyst who treats times and places as identical will overestimate the policy s net bene t especially for policy intensities greater than exist in his sample in regression analysis the problem can be solved by weighted instrumental variables using state level data the technique substantially increases the estimated responsiveness of illegitimacy to transfers indiana university school of business rm 456 1309 e 10th street bloomington indiana 47405 1701 o ce 812 855 9219 fax 812 855 3354 email erasmuse indiana edu jel numbers and

an extension of the modigliani miller theorem to stochastic economies with incomplete markets and interdependent securities the modigliani miller theorem is shown to hold in a general model of a multiperiod stochastic economy with incomplete markets and perfect foresight in the model firms are allowed to trade all available securities thus share prices and dividends become fully interdependent also several mechanisms of corporate control are considered including value maximization and shareholder voting it is demonstrated that firms have no incentive to trade securities in equilibrium further any such trading does not alter the set of equilibrium allocations this is done by establishing that agents are able to adjust their own portfolios and neutralize corporate policy journal of economic literature classification numbers 021 022 this paper extends the modigliani miller argument on the irrelevance of corporate financial policy to an economy with incomplete markets and fully interdependent securities the approach taken is a general equilibrium model incorporating multiple periods and uncertain states the market is idealized in that there are no transaction costs short sales restrictions or limited liability constraints also agents are assumed to have fully rational expectations regarding future events within this context it is shown that value maximizing firms have no incentive to change the composition of their portfolios and that any such changes have no effect on equilibrium prices and allocations within the economy finally the theory is shown to

employment vulnerability and earnings in urban west africa this article develops indicators of vulnerability in employment in seven economic capitals of west africa and studies their links with individual incomes quantitative distributional and qualitative analyses show that vulnerability compensating mechanism is mainly seen in the informal sector in the upper tail of the earnings distribution and particularly in the circumstance of visible underemployment employment vulnerability is not compensated for the poorest workers in the private sector long job queues and weak institutional protection of workers may have reduced bargaining power in the formal sector

the returns to vocational training and academic education evidence from tanzania in this paper we ask what can account for the continuing strong preference for academic education in africa where the level of development is so low and there are few wage jobs and which form of educational investment the academic or vocational is most profitable we argue that the answers to these questions are linked through the shape of the earnings function and the importance of firm effects high levels of academic education have far higher returns than those available either from vocational or lower levels of academic however at lower levels the vocational return can exceed the academic

tariffs as insurance optimal commercial policy when domestic markets are incomplete free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile ex post and markets for contingent claims are incomplete the government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti trade bias we also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context this abstract was borrowed from another version of this item