longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

social security liquidity constraints and pre retirement consumption one of the primary goals of the social security retirement program is the maintenance of consumption in old age in the past decade since the pioneering paper by feldstein 13 studies have examined the impact of the system on consumption over the entire life cycle and not just in old age empirical work has tested the impact on consumption of the individual wealth transfers accompanying the introduction of a pay as you go social security system extending this discussion of the impact of social security on pre retirement consumption hubbard 21 has shown in the context of lifetime uncertainty that even an actuarially fair fully funded social security system can raise lifetime consumption hence previous partial equilibrium estimates of the impact of social security on consumption drawn solely from consideration of the intergenerational wealth transfer at the introduction of the system are underestimates of the potential effect 2 an important assumption in the approaches cited above is that of perfect capital markets i e that individuals can borrow against prospective gains from participating in the social security system such an assumption is at variance with actual limitations on borrowing e g upward sloping interest rate schedules collateral requirements and quantity restrictions hayashi 18 found that approximately twenty percent of all consumption in the u s is accounted for by liquidity constrained consumers 3 flavin 16 found that the estimate of the marginal propensity to consume is affected dramatically by the inclusion of proxies for liquidity constraints suggesting that liquidity constraints are an important part of the observed excess sensitivity of consumption to current income since its inception in 1935 old age and survivors insurance oasi provided

the effect of annuity insurance on savings and inequality this paper examines the amount of precautionary savings and wealth inequality arising from life span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements namely when longevity risk can be pooled only with members of one s own family the central findings of the paper are that 1 perfecting insurance arrangements can sharply lower savings in both intergenerationally altruistic and life cycle economies and that 2 in altruistic economies perfecting annuity insurance can greatly influence inequality indeed in the long run in our model switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality

empirical strategies for incorporating weak complementarity into consumer demand models abstract this article appraises existing empirical strategies for incorporating weak complementarity into consumer demand models the repackaging integrating back and discontinuity approaches are evaluated in terms of their behavioral implications and potential usefulness for applied research the appraisal suggests that the repackaging approach offers the most flexibility and tractability in the multi good demand system framework but the integrating back approach holds considerable promise in the single good context a multi good empirical comparison suggests that qualitatively similar policy inference arises from different repackaging approaches

green price indices abstract this paper suggests two theoretically consistent and empirically tractable ways that a cost of living index can be expanded to include the environment and other public goods in addition it presents an empirical illustration of such an index for los angeles california incorporating air quality and other spatially varying public goods using a hedonic model the results indicate that the required information can be recovered and that including public goods can make a substantial difference in the index

the indian gaming regulatory act and its effects on american indian economic development the indian gaming regulatory act igra passed by the us congress in 1988 was a watershed in the history of policymaking directed toward reservation resident american indians igra set the stage for tribal government owned gaming facilities it also shaped how this new industry would develop and how tribal governments would invest gaming revenues since then indian gaming has approached commercial state licensed gaming in total revenues gaming operations have had a far reaching and transformative effect on american indian reservations and their economies specifically indian gaming has allowed marked improvements in several important dimensions of reservation life for the first time some tribal governments have moved to fiscal independence native nations have invested gaming revenues in their economies and societies often with dramatic effect

the effect of social security on the steady state distribution of consumption abstract abel has shown that the introduction of a fully funded social security ss would decrease the variances of the steady state distribution of young period and old period consumptions eckstein et al have shown that a perfect ss would increase the steady state expected utility of consumptions we intend to give a caveat on their positive results by showing that the assumptions from which the above propositions are derived have some unrealistic implications and that by replacing these assumptions with more reasonable ones we may obtain very different results the only positive conclusion we are certain of is that a marginal ss insurance in the no insurance situation can always reduce the steady state coefficient of variation of both young and old period consumption distributions

aggregate and distributional effects of fair social security abstract in an overlapping generations economy with production endogenous labor supply a bequest motive and uncertain lifetime we show that a fair fully funded social security program reduces the aggregate levels of output employment capital and savings we determine the necessary and sufficient conditions for this social security program to increase the inequality of the income distribution the conclusions apply to the entire non stationary competitive equilibrium path taken by the economy following the introduction of social security

a novel approach to identifying hedonic demand parameters abstract this note presents a new solution to the classic problem with using hedonic price functions to recover demand curves unexpected changes in the composition of a differentiated product can generate instruments that support a simple reduced form approach to demand estimation

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

estimating the general equilibrium benefits of large changes in spatially delineated public goods the purpose of this article is to report a new approach for measuring the general equilibrium willingness to pay for large changes in spatially delineated public goods such as air quality we estimate the parameters of a locational equilibrium model and compute equilibria for alternative scenarios characterizing the availability of public goods within a system of communities welfare measures take into consideration the adjustments of households in equilibrium to nonmarginal changes in public goods the framework is used to analyze willingness to pay for reductions in ozone concentrations in southern california between 1990 and 1995

unemployment insurance and precautionary saving abstract models of precautionary saving imply that households will hold more assets when faced with greater income uncertainty however previous empirical studies of income uncertainty have produced somewhat mixed support for the precautionary saving hypothesis in this paper we note that differences in the state contingent income stream available to workers through the unemployment insurance ui program provides an excellent source of variation for testing the presence of a precautionary savings motive simulations of a stochastic life cycle model suggest that a ui system similar to the type currently in place in the u s can lead to a significant reduction in the assets accumulated by a median worker moreover there is considerable variation in the ui benefit schedules for workers living in different states in the u s which provides an exogenous source of variation for empirically testing the precautionary saving hypothesis we carry out this test using data on expected ui benefit replacement rates and financial assets held by households in the survey of income and program participation our empirical results are consistent with the predictions of the model and suggest that reducing the ui benefit replacement rate by 50 percent would increase gross financial asset holdings by 14 percent or 241 for the average worker we also find empirical evidence that this crowd out effect of ui on household saving is stronger for those facing higher unemployment risk and weaker for older workers both of which are implications from our precautionary saving model

government intervention as a bequest substitute abstract a subsequent generations model is used in order to characterize consumption allocation under the future generation s income uncertainty altruistic concerns towards future generations give rise to precautionary bequests which act as a hedge on risk it is shown that given a first order correlation between mean future income and the present generation s income government can provide a pareto improvement through a tax transfer policy with universal participation this policy acts as a substitute for precautionary bequests distributional aspects of government tax transfer policy are also discussed

the estimation of demand parameters in hedonic price models this paper shows that the econometric problem of estimating hedonic demand parameters is not a standard identification problem caused by demand supply interaction as has been often assumed estimation procedures based on this assumption lead to biased results the hedonic estimation problem is instead caused by the endogeneity of both prices and quantities when households face a nonlinear budget constraint an instrumental variables solution to this problem is suggested using instruments that exogenously shift the budget constraint

inheritance and wealth inequality the case of the punjab abstract this study follows a wealth function approach to quantify the role of inheritance in wealth inequality in the region of punjab india using household data from the national sample survey 25th round the specification of the wealth function is fairly general it is used to test the hump shaped pattern of wealth age relationship and also to decompose the reported wealth holding of each sample household into inherited and accumulated components it is found that inheritance accounts for 53 38 and 24 13 percent of wealth inequality in the rural and urban sectors respectively some policy implications of our results are stated

quasi hyperbolic discounting and social security systems hyperbolic discounting has become a common assumption for modeling bounded rationality with respect to individual savings decisions we examine the effects of hyperbolic discounting on the comparison of alternative social security systems we show that this form of bounded rationality breaks the equivalence between funded and pay as you go systems established in sheshinski and weiss 1981 intergenerational transfers within a payg economy are usually secured by the social security system and independent of longevity whereas this is not the case for the funded economy the savings level under hyperbolic discounting is lower than under exponential discounting laibson et al 1996 but the ratio between the savings level under hyperbolic discounting within a funded economy and a payg economy depends on the effectiveness of the commitment devices it is shown that if individuals are hyperbolic discounters then in a payg economy any change in the mandated level of intergenerational transfers is neutralized by individuals voluntary bequests this does not apply to a funded system

estimating the marginal willingness to pay function without instrumental variables abstract the hedonic model of rosen 1974 has become a workhorse for valuing the characteristics of differentiated products despite a number of well documented econometric problems including a source of endogeneity that has proven difficult to overcome here we outline a simple likelihood based estimation approach for recovering the marginal willingness to pay function that avoids this endogeneity problem using this framework we find that marginal willingness to pay to avoid violent crime increases by sixteen cents with each additional incident per 100 000 residents accounting for the slope of the marginal willingness to pay function has significant impacts on welfare analyses

optimal long run fiscal policy constraints preferences and the resolution of uncertainty we construct a computational dynamic stochastic overlapping generations general equilibrium model with uncertain lifetimes and explore the impact of policy stickiness specifically a major reform will preclude future reforms for a generation on optimal long run fiscal policy under such circumstances entitlement reforms exhaust a valuable option to move in the future we explore the conditions under which the gain to waiting is large enough to induce optimizing policymakers to delay reforming a suboptimal system we also allow for the uncertainty to have arch characteristics and explore the impact of time varying uncertainty on the optimality of delayed policy action

tax policy the interest elasticity of saving and capital accumulation numerical analysis of theoretical models increasing disillusionment with traditional empirical methods is having a major impact on research methodology which is increasingly turning to simulation analysis based on theoretical models and assumed parameter values in research on saving and wealth accumulation there have been several recent studies consisting of simulation of theoretical models based on the life cycle model a particular focus has been tax policy and capital formation which is the area of concentration of this paper the aim is to analyze in a theoretical simulation context the impact on saving and wealth of an increase in the after tax rate of return to saving generated by a cut in the tax rate on income from capital this paper suggests that such simulation analysis while instructive as to the behavior of the class of models examined and as to the critical channels of influence does not yield a theoretical presumption in favor of cutting taxes on income from capital as a means of stimulating capital formation the development of this literature derives in part from disillusionment with traditional empirical methods many such papers begin by listing a litany of the problems involved in the usual type of empirical analysis before proceeding to simulation of theoretical structures the implicit conclusion at times appears to be that because of the daunting problems of standard empirical methodology the results derived from it can be ignored and that empirical magnitudes can perhaps be discovered by deductive means the temptation to think of the precise numerical results derived from theoretical simulation as empirical can be rather strong it needs to be reemphasized that empirical magnitudes can only be determined by empirical studies in section i the theoretical structure of a zero bequest life cycle model2 is outlined and several numerical simulations of this model are presented these simulations highlight interesting and nontrivial interactions of theoretical parameters and also demonstrate the difficulty involved in attempts to develop robust aggregate implications from such a framework for instance it is argued that summers claim to have developed a prima facie theoretical case for a high interest elasticity of savings 1981a p 537 does not stand up to sensitivity analysis a small change in the assumed rate of pure time preference or in other parametric assumptions generate otherwise plausible cases in which the interest elasticity of aggregate saving is low the experiments conducted in section i are partial equilibrium in the sense that the interest rate is changed exogenously which changes savings and hence the capital stock but the feedback effect of the capital international monetary fund this paper derives from chs 2 and 3 of my doctoral dissertation completed during a research fellowship at the brookings institution financial support was received from brookings and the social science research council i am grateful to henry aaron barry bosworth maxim engers irwin friend laurence kotlikoff franco modigliani joseph pechman duncan ripley robert shiller patricia stack and my supervisor albert ando for comments and guidance on earlier drafts none of the above institutions or individuals is responsible for the views expressed or any remaining errors for example see james tobin and walter dolde betsy white lawrence summers 1978 1981a b g moore alan auerbach and laurence kotlikoff and auerbach kotlikoff and j skinner 2it is popular to establish a sharp dichotomy between life cycle models and bequest models this taxonomy ignores the frequent references to the potential significance of bequests in the writings of the originators of the life cycle hypothesis a distinction between zero bequest life cycle models and life cycle models incorporating bequests is more accurate in terms of doctrinal history see for example albert ando and franco modigliani and modigliani and richard brumberg

income uncertainty and the demand for annuities abstract two well known results concerning the demand for annuities in an overlapping generations model are i egoistic agents should annuitize all their wealth and ii altruistic agents should segment their savings between riskless bonds for bequests and annuities for own consumption this paper extends the analysis by considering income uncertainty it is shown that while the segmentation result holds under future generation s income uncertainty fgiu altruistic agents do not segment their savings in the presence of second period income uncertainty spiu the intuition for this result is that income uncertainty in the second period of life is contingent on being alive and therefore at the optimum the covariance between one s offspring s consumption and life uncertainty is not zero as in the case of certainty and fgiu the effects of precautionary savings on the demand for annuities are also analyzed

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

hedonic methods for baskets of goods a b s t r a c t existing hedonic methods cannot be easily adapted to estimate willingness to pay for product character istics when willingness to pay depends on a very large basket of goods we show how to marry these methods with revealed preference arguments to estimate bounds on willingness to pay using data on purchases of seemingly impossibly high dimensional baskets of goods this allows us to use observed purchase prices and quantities on a large basket of products to learn about individual household s will ingness to pay for characteristics while maintaining a high degree of flexibility and also avoiding the biases that arise from inappropriate aggregation we illustrate the approach using scanner data on food purchases to estimate bounds on willingness to pay for the organic characteristic

comment on kotlikoff shoven and spivak in the absence of perfect annuity markets individual consumers generally undertake precautionary saving to provide resources for their future consumption in the event that they live longer than expected kotlikoff shoven and spivak in this issue hereafter kss have provided us with a well conceived and well executed study of the effects of various annuity arrangements on individual and aggregate saving in the presence of lifetime uncertainty each of these authors has had a long standing interest in this area and their current paper reflects their accumulated expertise their results indicate that a potentially sizable fraction of u s household wealth represents precautionary saving resulting from the absence of perfect annuity markets the strategy of the kss paper is to develop simple models of individual saving behavior on the basis of utility maximization and then to aggregate the behavior of individuals both intraand intertemporally by comparing the results of models that differ in the specification of bequest motives and opportunities for creating annuities kss provide insights about the effects of various annuity arrangements on saving and capital accumulation although the models are all conceptually simple analytic solutions cannot be obtained in many cases therefore kss provide numerical solutions to their models in addition because the models are conceptually

on barro s theorem of debt neutrality the irrelevance of net wealth the effects of national debt on real economic activity has been a recurring topic in the literature on macroeconomic policy analysis since the time of adam smith the problem is usually stated as follows for a given level of government spending is the economy sensitive to the financing mix between tax and debt historically attention has focused on the question of whether or not individuals perceive government bonds as net wealth the link between wealth and real activity being taken as given the main point of debate is well established the issue of bonds raises private assets by the full value of the bonds the corresponding tax liabilities for interest payments and retirement of the debt extend indefinitely into the future the perception of bonds as net wealth would then appear to depend on the length of the individual s optimization horizon the most recent contribution to this debate was made by robert barro 1974 in which he argued that despite the limitation of finite lives bonds will not be regarded as net wealth in a system characterized by operative intergenerational transfers the essence of his argument is that inclusion of a bequest motive effectively converts a finite horizon into an infinite one in that paper barro acknowledged a potential limitation on his proof of the neutrality result it was only valid for bonds that are redeemed at a known point in the future this limitation was raised again in a subsequent exchange with martin feldstein in which barro 1976 agreed that for a growing economy an increase in steady state per capita debt will generate net wealth if the rate of growth is greater than the interest rate however he argued that such a steadystate growth situation would not be consistent with rational utility maximizing behavior the main theme of this paper is that the literature has focused attention on the wrong question the real effects of national debt are independent of whether or not individuals perceive the debt as net wealth the correct question is whether or not changes in the level of debt force individuals into patterns of intertemporal consumption that they are unable to neutralize by adjustments in their portfolio behavior viewing neutrality in this light leads to some reinterpretation of the conditions under which neutrality is likely to hold my analysis starts where barro and feldstein leave off within the framework of the overlapping generations model with gift and bequest motives i show that steady state equilibrium growth is consistent with a growth rate in excess of the interest rate indeed without specific knowledge of the parameters of the economy there are no a priori grounds on which to expect any particular relationship between the growth and interest rates more importantly so long as it is valid to view the aggregate economy as behaving like a composite individual changes in the steady state level of government debt are neutral regardless of which relationship prevails provided one or the other of the intergenerational transfer motives is operative i will refer to this as the extended neutrality theorem section i presents an analysis of steadystate growth with gift and bequest behavior the steady state growth path is shown to lie above the golden rule solution if the gift

panel data hedonics rosen s first stage as a sufficient statistic traditional cross sectional estimates of hedonic price functions can recover marginal willingness to pay for characteristics but face endogeneity problems for estimating non marginal welfare measures i show that when panel data on household demands are available one can construct a second order approximation to non marginal welfare measures using only the first stage marginal prices with repeated cross sections of product prices the measure can be set identified or under a single crossing restriction point identified bounds also can be constructed when there are mobility costs finally a variant remains valid when individual preferences shift over time

intergenerational aspects of public transfers borrowing and debt the paper analyzes intergeneration distributional effects of taxes transfer payments public borrowing and debt a two period life cucle model with overlapping generations is constructed the model has two specific features private wealth in both periods enter as arguments in the preference function and the individuals inelastically supply labor in both periods it turns out that some fiscal policy actions favor both of the currently lliving generations possibly at the expense of future generations while other actions generate conflicts between the currently living generations the analysis also shows that it makes considerable difference whether the burden of public spending debt and borrowing is defined in terms of wealth consumption and utility the different implications of foreign vs domestic debt are examined

bureaucrats and indians principal agent relations and efficient management of tribal forest resources abstract under pl 638 indian tribes can contract with the bureau of indian affairs to take over the management and marketing of tribal timber resources when indian principals replace bureau agents in these tasks both the quantity of timber harvested relative to potential and the price obtained increase tribes participation in the program is related both to their levels of economic development and the pecuniary gains available from improved incentives

do capitalization effects for public goods reveal the public s willingness to pay this article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets we extend rosen s hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities the model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these capitalization effects and welfare changes we test this hypothesis in the context of changes in measures of school quality in five metropolitan areas results from boundary discontinuity designs suggest that capitalization effects understate parents willingness to pay for public school improvements by as much as 75

pay as you go social security and the distribution of altruistic transfers this paper studies the impact of an unfunded social security system on the distribution of altruistic transfers in a framework where savings are due to both life cycle and random altruistic motivations we show that the effect of social security on the distribution of these transfers depends crucially on the strength of the bequest motive in explaining savings behaviour we measure this strength by the expected weight that individuals attach to the utility of future generations on the one hand if the bequest motive is strong then an increase in the social security tax raises the bequests left by altruistic parents on the other hand when the importance of altruism in motivating savings is sufficiently low the increase in the social security tax could result in a reduction of the bequests left by altruistic parents under some conditions on the attitude of individuals toward risk and on the relative returns associated with private saving and social security some implications concerning the transitional effects of introducing an unfunded social security scheme are also discussed

time preference and life cycle consumption with endogenous survival we provide a structural theory of time preference and derive a functional form of intertemporal preferences by postulating that individuals make their life cycle consumption choices as if to maximize expected lifetime this yields a nontime separable expected utility representation where the inverse of the coefficient of intertemporal substitution exceeds the coefficient of relative risk aversion the rate of time preference depends on the inverse of expected remaining lifetime and the effect of age on the productivity of consumption in affecting health the preference formulation is applied in a standard intertemporal consumption model to illustrate the implied life cycle consumption choices

longevity and public old age pensions i introduction conventional economic analysis of intertemporal or intergenerational resource allocation takes longevity as exogenously determined by biological or technological factors within this framework the institution of a mandatory public old age pensions of a pay as you go type unambiguously reduces capital accumulation the intuition behind this result is that when the young expect an old age pension after retirement and at the same time pay an earmarked payroll tax that lowers disposable income the ability and the incentive to save are reduced such a result however ignores the possibility that an individual who has a survivorship contingent title to an old age pension might use resources to increase the likelihood of survival to acquire the promised pension the fact that over the past century both longevity and the size of old age pensions have risen suggests that a more complete model that incorporates longevity as a choice variable may be useful in understanding the simultaneous increase in longevity and old age pensions ehrlich and chuma 1990 consider the demand for longevity in a world where the certain length of life is a fixed function of health care expenditures thus making longevity endogenous in their model consumers choose the optimal depreciation rate for human capital by choosing the path of health care expenditures their work paves the way for consideration of the effect of longevity contingent property rights on behavior in a more recent paper philipson and becker 1998 build on the work of ehrlich and chuma by modeling longevity contingent claims in the form of old age pensions among other things they find that an increase in a longevity contingent old age pension will induce individuals to live longer as a result of this longer life philipson and becker question the traditional result that pay as you go old age pensions always reduce the capital stock because workers who choose greater longevity may also choose to save more during their working years to finance their longer retirement period in this paper we introduce endogenous and uncertain lifetime into a two period overlapping generations olg model we depart from the traditional diamond type olg model by measuring longevity as the probability of survival into the second period and by allowing individuals to affect their survival probability through spending on longevity extending activities within this framework we examine the effects of a pay as you go old age pension on longevity and capital accumulation under two polar assumptions concerning the existence and absence of a fair intragenerational annuity market in either case the longevity effect of an increase in the old age pension is neutral while the capital stock effect is strictly negative if the interest rate and population growth rate are equal e g if the economy is on a golden rule path surprisingly increasing the old age pension produces both a negative longevity and savings effect for the more relevant case where the interest rate is larger than the population growth rate that an increase in the old age pension produces a negative capital stock effect is anticipated but the neutral or negative effect on longevity is counterintuitive it is counterintuitive because the empirical evidence seems to show lockstep increases in both longevity and government provided retirement benefits in the form of pensions and heath care benefits furthermore longevity insurance conjures up the moral hazard problem where increased utilization is expected with government provision the funding pool expands with use the cost being borne by workers the fact that the workers bear the burden of increasing the old age pension helps explain the longevity results we obtain when the population grows at the same rate as the return on capital an increase in the pension is offset by a dollar for dollar reduction in private savings leaving second period consumption unchanged

income uncertainty bequests and annuities abstract life uncertainty and income uncertainty are modeled simultaneously in order to analyze the influence of perfecting income insurance in the size of bequests and the demand for annuities the main result shows that government intervention aimed at providing intergenerational risk sharing acts as a bequest substitute and if annuities are available reduces the demand for annuities

the wealth age relation among the aged aged people face the problem of allocating over the rest of their lifetimes the wealth that they have accumulated during their working years this problem is fairly complex because they are uncertain about the dates of their death and because they may wish to use their wealth to finance general consumption or hold it to meet emergencies leave estates or maintain power or status whether skilled at dynamic programming or not aged people effectively do make these decisions what are the results some studies of the entire lifetime pattern of saving and wealth tend to support the simple life cycle model in which the aged use up their wealth to help finance consumption harold lydall for example found saving rates to increase and then decrease with age in the whole population and to be negative for the group aged 65 and over guarded support for the theory was found by franco modigliani and albert ando in britain and by dorothy projector in the united states more recently a f shorrocks examined the lifetime pattern of wealth holding in estate tax data for a single cohort and found the hump pattern that is characteristic of life cycle saving other evidence on wealth holding runs contrary to this however in a study of estate tax returns in washington d c james d smith found that wealth increased with age among the aged after controlling for other demographic variables examining national estate tax data john brittain found wealth to increase with age in the united states and a b atkinson and a j harrison reported the same pattern in england and wales in a sample of tiaa annuity recipients analyzed by james mulanaphy over half reported that their total savings had increased during retirement and another quarter reported that their savings had remained about the same in this paper i examine wealth holding patterns among aged married couples using survey data representing the entire aged population of the united states in 1968 the statistical analysis serves as a test of the hypothesis that emerges from life cycle theory and provides some further exploration into the economic behavior of the aged i find that the aged tend to increase their wealth over time

estate taxation with intended and accidental bequests abstract in this paper we examine the properties of the optimal estate tax in the presence of a complete set of tax instruments available to the social planner we allow for both types of bequest motives namely altruistic and accidental we examine the case for estate taxation which seems to be the strongest but not impeccable with accidental bequests in general the estate tax is highly sensitive to the relative importance of the two bequest motives

how inheriting affects bequest plans we present and test the idea that bequest planning is linked with the experience of inheriting we consider a family tradition of bequeathing as a channel through which the intention to bequeath is moulded by and is positively correlated with the experience of inheriting using data from the survey on health ageing and retirement in europe share we find that the experience of inheriting enhances the intention to bequeath independently of the positive impact of wealth we also find that the expectation of inheriting has a positive impact on the intention to bequeath controlling for the expected increase in wealth on account of future inheritances

informal family insurance and the design of the welfare state we study unemployment benefit provision when the family also provides social insurance in the benchmark case more generous state transfers crowd out family risk sharing one for one an extension gives the state an advantage in enforcing transfers through taxes whereas families rely on self enforcement more generous state transfers lead to more than one for one reductions in intra family insurance so that total transfers to the unemployed fall as the state s generosity increases this does not imply that the optimal size of the welfare state is zero our results still hold when families are assumed to be better than the state at monitoring job search activities of unemployed

population uncertainty social insurance abstract uncertainty in the size of the working population leads to uncertainty in wages and in the return to capital and to the possible desirability of an insurance contract between unborn workers and future retirees however green 1977 1988 finds that an insurance contract is unlikely to benefit both generations we show that a worker has two potential sources of actuarial bias green s result is due to workers in his model being of different types and some workers having only one source of bias a representative worker must have both sources of bias and an insurance contract will benefit both generations the results are generalized

on the contribution of economics to the evaluation and formation of social insurance policy if one had to choose a single policy that best characterizes the postwar behavior of governments it might well be their expansion of social insurance today s citizen of a typical developed country is insured through government programs against unemployment disability medical expenses impoverishment in youth and middle age through welfare systems impoverishment in old age through old age pensions loss of spousal support due to divorce through social security dependent benefits fluctuating earnings through progressive tax systems early death of a spouse via survivor s insurance and late death via annuity insurance the remarkable growth of social insurance has occurred against a backdrop of increased geographic mobility dramatic changes in demographics and at least in the united states a dissolution of the family the extent to which social insurance has been the cause of family decline and demographic change or its result is one of many complex questions that economics or any other social science is unlikely to ever fully answer economic analysis while not being able to discover the precise recipe leading to our social insurance institutions has at least been able to taste many of the key ingredients economics has and can provide real insight into a the need for social insurance programs b the appropriate size of such programs and c how social insurance programs affect the economy this paper seeks to illustrate each of these three kinds of economic contributions to the evaluation and formation of social insurance policy section i drawing on my 1987 article presents an efficiency argument for compulsory saving through a progressive social security system section ii drawing on my paper with avia spivak and laurence summers 1982 and on alan auerbach s and my 1987b paper illustrates an analysis of the appropriate size of social insurance programs examining in turn the questions of whether households save enough and buy enough life insurance or whether more government intervention in these matters is appropriate section iii drawing on my 1989 book illustrates how social insurance programs can affect the economy by discussing potential savings effects of health insurance particularly an asset tested medicaid scheme section iv concludes the paper with suggestions for future research and policy options as indicated the paper draws on my own and coauthored research and it provides only limited references for no better reason than easing my task and saving space in so doing i do not pretend to suggest that this is more than a very small subset of a huge volume of research sparked in the 1970s in large part by martin feldstein

uncertainty and optimal social security systems this paper examines the annuity aspect of social security within the framework of an overlapping generations model the duration of life is assumed to be uncertain under a fully funded system demand for social security is determined by each generation so as to maximize expected lifetime utility taking into account the welfare of future generations under a pay as you go system with intergenerational transfers demand for retirement benefits by the working population takes into account taxes paid by descendants it is shown that the two modes of finance are equivalent in terms of all real aggregates effects of changes in expected lifetime and in the birth rate are analyzed starting at the optimal level a compulsory balanced increase in social security taxes and benefits is shown to increase short run savings

welfare and comparative statics implications of fair social security a steady state analysis abstract this paper examines the steady state welfare and comparative statics implications of fair social security in an overlapping generations model with uncertain lifetime the model is designed to capture the effects of lifetime uncertainty extending over the individual s entire lifespan the effects of intentional and unintentional bequests and the effects of the earning profile he shows that the welfare effects depend on the size of the benefits and the structure of the social security tax in particular even fair social security may have negative welfare implications if the underlying tax structure is ill designed some comparative statics implications are analyzed

intergenerational transfers and savings in recent years the role of intergenerational transfers in the process of wealth accumulation has been the subject of substantial empirical and theoretical analysis the key question stimulating this research is what is the main explanation for savings is it primarily accumulation for retirement as claimed by albert ando richard brumberg and franco modigliani in their celebrated life cycle model of savings is it primarily intentional accumulation for intergenerational transfers or is it primarily precautionary savings much of which may be bequeathed because of imperfections in annuity markets this paper examines a range of findings on the importance of intergenerational transfers the strong conclusion that emerges from this evidence is that intergenerational transfers play a very important if not a key role in aggregate wealth accumulation while intergenerational transfers figure very large in savings the precise motivation for such transfers is unclear intergenerational altruism might appear the most likely candidate but at least sane stylized facts such as the equal allocation of bequests among children are strongly at adds with the altruism model other explanations involving imperfect insurance arrangements or payments for child services do not appear capable of explaining the substantial amounts of transfers actually observed sorting cut the relative contributions of different models to intergenerational transfers and the precise role of intergenerational transfers in the process of wealth accumulation remains an intriguing and exciting enterprise this abstract was borrowed from another version of this item

the economic effects of social security toward a reconciliation of theory and measurement abstract in this paper we argue that actuarial valuation of social security benefit streams is theoretically inconsistent with the assumption of pure life cycle motives instead we show that the simple discounted value of future benefits ignoring the possibility of death is often a good approximation to the relevant concept of value this observation motivates a re examination of existing empirical evidence concerning the economic effects of social security we focus our attention on studies of distributional equity and personal saving behavior in both cases we argue that the use of simple rather than actuarial discounting of survival contingent income streams produces results that differ dramatically from previous findings specifically estimates based on actuarial valuation may overstate the importance of redistribution between and within generations and may understate the depressive effect of social security on personal wealth accumulation by a factor of three or more

estimating the demand for the characteristics of housing a hstract estimates of the demand for the characteristics contained in a differentiated product such as housing can be based on hedonic regressions however previous studies have not dealt with several potential problems in such estimation a more appropriate framework for the estimation is provided in this paper also data from a number of cities are used to eliminate the identification problem and the endogeneity of the marginal prices derived from non linear hedonic equations is considered in the estimation the results on own and cross price elasticities expenditure elasticities and the effects of socio economic vafiables accord well with expectations

estimating spatial differences in the brazilian cost of living with household location choices abstract this paper uses a model of optimal household residential decisions to construct a comprehensive true spatial cost of living index with readily available brazilian census data we find evidence of a decreasing or u shaped relationship differing with education level and region between the cost of living and urbanization suggesting that both market disintegration and congestion play roles in raising costs controlling for spatial differences in the cost of living is shown to have important consequences for the determinants of poverty and contrary to many previous results to increase income inequality

education social security and growth abstract we study the role of government s allocation of tax revenues between two outlays public investment in education a transfer to the young generation and social security benefits to the older generation in an overlapping generations economy with pay as you go social security and altruistically motivated transfers from parents to children we analyze how the allocation of the tax revenues between the two outlays affects growth and welfare in competitive equilibria a we obtain comparative dynamics results for nonstationary equilibria subject to a change in the allocation profile b for stationary equilibria we show that for a given allocation profile of the tax revenues educational subsidies can either increase the growth rate or decrease it depending on the parameters of the model preferences production function and the tax rate c if government seeks to allocate funds in a way that maximizes the growth rate we demonstrate that under some plausible conditions it is not optimal to maintain pay as you go social security however if parents preferences combine strong concern for their retirement with significant degree of altruism towards their children then pay as you go social security system does enhance growth and welfare

the distribution of wealth and welfare in the presence of incomplete annuity markets this paper examines the implications of the absence of complete annuity markets on the distribution of wealth and welfare of agents whose saving decisions are obtained under uncertainty regarding the length of their life the absence of annuities is shown to yield a unique nondegenerate intragenerational distribution of wealth which is fully characterized this characterization is then used to evaluate the pareto desirability of an annuity system alternative welfare criteria that can be used when the proposed change has differential impacts on the initial state of subsequent generations are considered

stock market wealth and consumer spending martha starr mccluer this article investigates the effects of stock market wealth on consumer spending traditional macroeconometric models estimate that a dollar s increase in stock wealth boosts consumption by three to seven cents with the substantial 1990s rise in stock prices the nature and magnitude of this wealth effect have been much debated after describing the issues and previous research i present new evidence from a well known consumer survey the results are broadly consistent with life cycle saving and a modest wealth effect most stockholders reported no appreciable effect of stock prices on their saving or spending but many mentioned retirement saving in explaining their behavior jel e21 e30 d12 i introduction the relationship between stock market wealth and consumer spending has been a subject of long standing interest traditional macroeconometric models estimate that a dollar s increase in household wealth boosts consumer spending by three to seven cents per year such an effect is consistent with predictions from a simple life cycle model in which consumers spend more over their lifetimes in response to higher wealth however the stock market is known to play a role as a passive predictor of information thus it is also possible that stock prices simply lead aggregate economic activity without any short run change in spending induced by changes in wealth understanding the response of spending to changes in wealth is important for determining how stock market fluctuations affect the macroeconomy the question also bears directly on theories of saving behavior and on the issue of retirement preparedness by today s workers the experience of the past few years provides an interesting opportunity to revisit this issue stock prices increased substantially in the 1990s with the standard poor s 500 more than doubling from 1994 to 1997 and rising another 44 through 1999 at the same time stock ownership broadened considerably mostly through mutual funds and retirement accounts so that a large number of households likely experienced wealth gains the increase in wealth might be expected to boost consumer spending and lower the saving rate and indeed these trends occurred however it is hard to separate the influence of the wealth effect from other factors that also would have promoted spending such as strong income growth and favorable labor market conditions this article presents some new evidence on the response of spending to changes in wealth the data come from the michigan survey research center src survey of consumers an ongoing nationally representative survey of u s households in interviews conducted between july and september 1997 households owning stock were asked special questions about their spending and saving the questions covered a number of factors that may influence the effect of wealth on spending including the value and form of stockholdings stock price expectations concerns about retirement and perceptions of income uncertainty in brief the results are broadly consistent with life cycle saving and a modest wealth effect the vast majority of stockholders reported no appreciable effect of stock prices on their spending or saving but many mentioned retirement saving in explaining their behavior the next section reviews previous research on the relationship between stock market wealth and consumer spending the third section describes the data from the michigan survey and the fourth presents the results a final section summarizes and concludes ii background and previous research to frame the discussion it is useful to review how an unexpected increase in wealth would affect consumption in a simple lifecycle model this model though restrictive in its assumptions provides valuable intuition about the propensity to consume unexpected stock gains consequences of refinements to the model are discussed below

to harvest or not to harvest an analysis of cutting behavior on federal timber sales contracts economists have studied the environmental consequences and competitiveness of alternative sales techniques for publicly owned na tural resources little attention has been paid however to fluctuat ions in revenues resulting from the option nature of public resourc e sales this paper analyzes how the contract structure of public res ource sales leads to defaults and thereby revenue instability data on u s forest service timber sales contracts which were modified i n the early 1980s in response to default problems suggest that reduc ed contract lengths and more stringent requirements for extensions in crease harvest rates but that price adjustment clauses are unlikely to have similar effects copyright 1988 by mit press

social security longevity and moral hazard abstract recently several authors have argued that social security can have positive effects on savings and welfare when individuals possess hidden information about their longevity that is when there is adverse selection in annuity markets this paper considers the related problem of the effects of social security when individuals can take hidden actions to affect their longevity that is when there is moral hazard in annuity markets in contrast to the adverse selection models we show that social security never raises welfare in a pure moral hazard economy as well social security may either increase or reduce longevity depending on the characteristics of the health related goods consumed it is suggested that a complete analysis of social security needs to consider both adverse selection and moral hazard

learning from a piece of pie we investigate the empirical content of the nash solution to two player bargaining games the bargaining environment is described by a set of variables that may affect agents preferences over the agreement sharing the status quo outcome or both the outcomes i e whether an agreement is reached and if so the individual shares and the environment including the size of the pie are known but neither are the agents utilities nor their threat points we consider both a deterministic version of the model in which the econometrician observes the shares as deterministic functions of the variables under consideration and a stochastic one in which because of latent disturbances only the joint distribution of incomes and outcomes is recorded we show that in the most general framework any outcome can be rationalized as a nash solution however even mild exclusion restrictions generate strong implications that can be used to test the nash bargaining assumption stronger conditions further allow to recover the underlying structure of the bargaining and in particular the cardinal representation of individual preferences in the absence of uncertainty an implication of this finding is that empirical works entailing nash bargaining could and should use much more general and robust versions than they usually do copyright 2012 oxford university press

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

racial and ethnic price differentials in the housing market do minorities pay more than whites for similar housing we revisit this important question using a rich new dataset that covers two million repeat sales housing transactions drawn from four major metropolitan areas our analysis applies a repeat sales framework including house and neighborhood by time fixed effects to control for unobserved differences in the quality of homes and their associated neighborhoods in contrast to most of the recent literature we find that black and hispanic homebuyers pay premia of around 2 on average across the four cities differences not explained by variation in buyer income or access to credit we also show black and hispanic buyers pay more for housing regardless of the race or ethnicity of the seller suggesting that the estimated premia are unlikely to be driven by a very direct form of racial prejudice our estimates have implications for the levels and persistence of racial differences in home ownership the segregation of neighborhoods and the dynamics of wealth accumulation

uncertain lifetimes and the welfare enhancing properties of annuity markets and social security this paper explores the implications of social security programs and annuity markets through which agents who are characterized by different distributions of length of lifetime share deathrelated risks when annuity markets operate a non discriminatory social security program affects only the intragenerational allocation of resources in the absence of private information regarding individual survival probabilities such a program will lead to a non optimal intragenerational allocation of resources however the presence of adverse selection considerations gives rise to a pareto improving role for a mandatory non discriminatory social security program

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

should social security benefits be means tested social security retirement benefits distort the saving decisions of workers who are rational enough to save for their future since the implicit rate of return in an unfunded social security program is less than the marginal product of capital the resulting decline in saving causes a welfare loss the present paper examines the conditions under which the welfare loss could be reduced by replacing the current universal social security program with a means tested program that pays benefits only to those individuals with little or no other retirement income or assets every society must solve the problem of supporting those individuals who become too old to work but have not made adequate provision for their own old age by saving when they were young at the present time the major industrial countries of the world have responded to this problem by creating social security programs that tax the working population and use the proceeds to provide a universal benefit to all retirees regardless of their financial condition this universal provision of social security benefits distorts the saving decisions of those workers who are rational enough to plan for the future since the implicit rate of return that taxpayers get on their this research is part of the nber study of the government budget and the private economy a more complete version of this paper with some numerical calculations is available as nber working paper no 1775 feldstein 1985b i am grateful to gilbert metcalf for assistance with the calculations presented in this paper and for helpful discussions for a discussion of the effect of promised retirement benefits on the savings of employees see feldstein 1974 1982 barro 1974 1978 has discussed an interesting

income uncertainty and optimal redistribution 1 introduction redistribution policy under a utilitarian criterion aims to transfer dollars from one group in the population to another if the weighted utility gain to the recipients exceeds the utility cost to the donors under diminishing marginal utility of income part of any exogenous change in one group s income should be shared with the other group for example if taxpaying workers suffer a negative shock to their mean earnings then part of this utility shock should be spread to nonworkers in the form of lower transfer payments and vice versa for the case of a positive shock this article demonstrates the counterintuitive result that under reasonable preference representations a policymaker may respond optimally to a negative utility shock by redistributing income away from the harmed group thus exacerbating the group s utility loss in particular under risk aversion a mean preserving increase in the variance of income typically has an effect on well being analogous to a decrease in mean income 1 it may nevertheless be welfare enhancing to transfer income away from those suffering an increase in income uncertainty even though this policy compounds their welfare loss the main ideas can be demonstrated in a simple framework for illustration the analysis will focus on redistribution from taxpaying workers to nonworkers the central result is that a meanpreserving increase in earnings uncertainty among taxpayers can increase optimal transfer amounts to nonworkers increasing optimal income replacement rates even though the redistribution exacerbates the taxpayers utility loss from the increase in uncertainty 2 model footnote 1 many factors in the economy affect earnings uncertainty even conditional on being employed such as the form of compensation e

the effects of annuities bequests and aging in an overlapping generations model of endogenous growth we examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth the complete annuitisation of agents wealth is not in general dynamically optimal the degree of annuitisation that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay as you go social security tax rate the government has an incentive to restrict the availability of actuarially fair annuities contracts and can often move the economy from a pay as you go to a fully funded social security system via voluntary contributions to a government sponsored actuarially fair pension today accompanied by reductions in social security taxes tomorrow

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

social security and endogenous growth abstract this paper examines the effects of social security on the steady state growth of per capita income in an endogenous growth model in which agents care about their own consumption the number of children and the welfare of each child it shows that an unfunded program may simulate growth by reducing fertility and increasing the ratio of human capital investment per child to per family income when bequests are positive also it may cause faster growth than funded programs especially when receipts from funded programs are independent of contributions when voluntary saving is positive funded social security is neutral if receipts are linked to contributions and most likely depresses growth if receipts are independent of contributions

saving social security and uncertainty since alteration of the saving behavior of the present working generation may have such a significant impact on capital stock growth some concern has arisen about the effect of the social security system on saving behavior in response to this concern numerous empirical and theoretical analyses have been forthcoming most of the theoretical analyses either in the form of overlapping generations models 9 11 or simpler life cycle models 6 15 have indicated that unless specific parameter values utility functions and in some cases production functions are chosen the effect of a social security system on saving is indeterminate for example kurz 11 has shown that the introduction of a simple pay as you go social security system in an overlapping generations model in which individuals do not have a leisure choice will not have a predictable effect on the steady state level of the capital stock unless parameter values and the form of the production function are known similarly in life cycle models that include a leisure choice the effect of social security is difficult to determine although feldstein 6 shows that when the leisure choice is suppressed in such a model a social security system will have a negative impact on saving this indeterminacy has not been completely resolved by empirical work although the bulk of evidence 7 8 10 12 tends to support the view that social security has depressed saving in the past unfortunately with the exception of the work of sheshinski and weiss 16 little of the theoretical analysis deals with the effect on saving behavior of participants who are faced with uncertainty about future prices wages and social security benefits sheshinski and weiss have shown that in an overlapping generations model with uncertain lifetimes the effect of increasing the role of social security through balanced increases in benefits and contributions will actually lead to an increase in saving their analysis however does not include a leisure choice nor does it deal with other forms of uncertainty facing participants consequently we still lack more complete answers to the following basic questions will the introduction of a social security program in the presence of uncertainty

uncertain health and survival effects on end of life consumption this article analyzes the impact of health and survival uncertainty on the saving and consumption decisions of retirees a dynamic programming approach is used to model the household s planning problem the utility parameters are estimated using panel data we find that a fall into poor health raises the marginal utility from consumption simulations are used to indicate the effects of falling into poor health and loss of spouse they reveal a large transfer from the healthy to the sick partner and a strong dependence of saving on the survivor benefits suggesting that concern about the surviving spouse is an important motive for saving

unlocking amenities estimating public good complementarity abstract public goods may exhibit complementarities that are essential for determining their individual value our results indicate that improving safety near parks can turn them from public bads to goods ignoring complementarities may lead to i undervaluing the potential value of public goods ii overestimating heterogeneity in preferences and iii understating the value of public goods to minority households recent reductions in crime have unlocked almost 7 billion in property value in chicago new york and philadelphia still two fifths of the potential value of park proximity 10 billion remains locked in

the distribution of wealth with uncertain income it is well known that an uncertain income stream will induce individuals to save if they are forward looking in this paper we investigate the consequences of such saving on the distribution of wealth among households the inquiry is motivated by the fact that both the dispersion of the us wealth distribution and the variance of transitory income have increased in the recent past surprisingly we find that an increase in earnings uncertainty is more likely to decrease than increase the inequality in wealth holdings

pay as you go or funded social security a general equilibrium comparison abstract this paper demonstrates that the analysis of fiscal sustainability of social security must include the education funding dimension of public policy which affects the productivity of future workers this fact is true under both social security regimes pay as you go payg and fully funded ff we consider an olg economy where the government in addition to running social security also funds education via a dedicated tax the education tax rates are chosen in each period by a majoritarian rule we demonstrate contrary to conjectures in the literature that the ff social security system produces political support for a relatively higher compared to payg education funding and hence generates higher rates of human capital accumulation physical capital accumulation and economic growth furthermore it also results in a comparatively lower degree of income inequality

precautionary saving and accidental bequests this paper presents a simple general equilibrium model of precautionary saving and accidental bequests this model is used to analyze the implications of individual lifetime uncertainty for aggregate consumption and capital accumulation a precautionary demand for saving arises because an individual consumer does not know in advance the date at which he will die and he wants to avoid low levels of consumption in the event that he lives longer than expected an implication of this precautionary saving is that when death does occur the consumer is generally holding some wealth which is then passed on to his heirs in the form of an accidental bequest even if all consumers have the same ex ante mortality probabilities there will be some intracohort variation in the date of death consequently there will be a nondegenerate distribution of bequests left by consumers in a cohort this nondegenerate distribution of bequests left by one generation induces variation in the distributions of wealth consumption and bequests of subsequent generations the importance of bequests in aggregate saving has been established by laurence kotlikoff and lawrence summers 1981 who reported that 80 percent of u s household wealth is inherited wealth one interpretation of this finding is that the simple life cycle model without bequest motives is an inadequate description of saving behavior in the united states but the model i present demonstrates that accidental bequests by selfish consumers can account for a potentially sizeable fraction of aggregate wealth although some part of bequests especially by the wealthy undoubtedly results from an explicit bequest motive accidental bequests also play a role in the intergenerational transfer of wealth as well as in the intragenerational variation in wealth in order to focus on the role of accidental bequests i purposely exclude a bequest motive from the specification of the utility function the effects of lifetime uncertainty on individual consumption behavior were first examined formally in a seminal paper by menachem yaari 1965 yaari s model provided the basic framework for virtually all subsequent work on uncertain lifetimes including well known papers by nils hakansson 1969 stanley fischer 1973 robert barro and james friedman 1977 david levhari and leonard mirman 1977 and kotlikoff and avia spivak 1981 however all of these papers focused on the consumption decision of an individual and ignored the effect of accidental bequests on the behavior of the recipients of these accidental bequests 2 as will be shown at various points in this paper changes in the economic environment can have effects on aggregate behavior which differ sharply from the effects on individual behavior because of the endogenous adjustment of bequests the effects of department of economics harvard university cambridge ma 02138 this paper is a revised version of bequests and social security with uncertain lifetimes nber working paper no 1372 june 1984 i thank olivier blanchard john burbidge christopher cavanagh robert clower stanley fischer benjamin friedman elhanan helpman mervyn king nobuhiro kiyotaki laurence kotlikoff robert mcdonald james pesando julio rotemberg lawrence summers lars svensson mark watson and jeffrey wolcowitz for valuable conversations and correspondence i also thank the participants in seminars at boston university columbia university cornell university federal reserve board harvard university university of iowa mit university of minnesota university of montreal national bureau of economic research north carolina state university the wharton school and yale university and two anonymous referees for their helpful comments i also thank the national science foundation for financial support 1 in the presence of perfect annuity and life insurance markets there may or may not be bequests depending on the presence or absence of a bequest motive but there would be no accidental bequests 2 kotlikoff and spivak focus on the role of the family in providing an incomplete annuities market but stop short of a full scale overlapping generations model in which the distribution of bequests is determined endogenously

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

hedonic prices and implicit markets estimating demand and supply functions for differentiated products in choosing the level of quality to purchase the buyer of a differentiated product also chooses a point on the marginal price schedule for that product hence in general the demand functions for product characteristics cannot be consistently estimated by ordinary least squares market equilibrium results in a matching of characteristics of demanders and suppliers this matching restricts the use of buyer and seller characteristics as instruments when estimating demand and supply functions for product characteristics the paper develops these issues a stochastic structure for hedonic equilibrium models is then proposed identification results are presented and estimation procedures are outlined

uncertain inflation and social security indexation abstract this paper provides a theoretical analysis of the effects of the insurance feature of social security indexation on portfolio allocation and the stability of income and consumption of the retiree within the framework of a life cycle model of allocation under uncertainty the paper shows that the magnitudes of such effects depend on the importance of social security in total wealth the covariance of real portfolio returns with the inflation rate and more importantly whether there exists market failure in providing for inflation insurance

the effect of death tax on the labour supply of donors evidence from tra97 exploiting estate tax cuts from the taxpayer relief act of 1997 tra97 this paper estimates the effect of death tax on the labour supply of living potential donors to this end difference in dif