rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

marriage market divorce legislation and household labor supply this paper provides a theoretical framework for analyzing the impact of the marriage market and divorce legislation on household labor supply in our approach the sex ratio in the marriage market and the rules governing divorce are examples of distribution factors these factors are defined as variables that affect the household members bargaining position but not preferences or the joint budget set we extend the collective labor supply model developed by chiappori to allow for distribution factors we show that our model imposes new restrictions on the labor supply functions and eases the identification of individual preferences and the intrahousehold decision process the model is estimated using psid data for the year 1988 our results do not reject the restrictions imposed by the model also the sex ratio and divorce laws deemed favorable to women are found to affect labor supply behavior and the decision process in the directions predicted by the theory and to have sizable effects

financial intermediary coalitions abstract in this article an environment in which the investment opportunities of agents are private information is studied and it is shown that financial intermediaries arise endogenously within that environment it is established that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors private information core allocations these intermediaries which are coalitions of agents exhibit the following characteristics in equilibrium they borrow from and lend to large groups of agents they produce information about investment projects and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers

unemployment risk and precautionary wealth evidence from households balance sheets this paper examines precautionary behavior by relating job loss risk to household net worth we use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty instrumentation and incorporating theoretical restrictions we do not find precautionary variation in the wealth holdings of households with low permanent income but do find precautionary effects for moderate and higher income households when the dependent variable is total net worth these findings are robust to several alternative specifications but we do not find precautionary responses in subaggregates of wealth that exclude home equity

income and outcomes a structural model of intrahousehold allocation there is evidence from several sources that one cannot treat many person households as a single decision maker if this is the case then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household we develop a method of identifying how incomes affect outcomes given conventional family expenditure data the basic assumption we make is that household decision processes lead to efficient outcomes we apply our method to a sample of canadian couples with no children we find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

optimal capital income taxation with incomplete markets borrowing constraints and constant discounting for a wide class of infinitely lived agent models chamley has shown that the optimal capital income tax rate is zero in the long run lucas has argued that for the u s economy there is a significant welfare gain from switching to this policy this paper shows that for the bewley class of models with incomplete insurance markets and borrowing constraints the optimal tax rate on capital income is positive even in the long run therefore cutting the capital income tax to zero may well lead to welfare losses

labour supply and saving under uncertainty this article examines how variations in labour supply can be used to self insure against wage uncertainty and the impact of such self insurance on precautionary saving the analytical framework is a two period model with saving and labour supply decisions where preferences are consistent with balanced growth the main findings are that i labour supply flexibility raises precautionary saving when future wages are uncertain and ii uncertainty about future wages raises current labour supply and reduces future labour supply

the one sector growth model with idiosyncratic shocks steady states and dynamics abstract this paper investigates the one sector growth model where agents receive idiosyncratic labor endowment shocks and face a borrowing constraint it is shown that any steady state capital stock lies strictly above the steady state in the model without idiosyncratic shocks in addition the capital stock increases monotonically when it is sufficiently far below a steady state however near a steady state there can be non monotonic economic dynamics

optimal taxation and debt with uninsurable risks to human capital accumulation we consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt we show that in the presence of such risks it is beneficial to tax both labor and capital and to issue public debt we also assess the quantitative importance of these findings and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion jel d52 h21 h24 h25 h63 j24 human capital is an important component of wealth both at the individual and aggregate level and its role has been investigated in various fields in economics in public finance jones manuelli and rossi 1997 show that the zero capital tax result of chamley 1986 and judd 1985 1 can be strengthened if human capital accumulation is explicitly taken into account specifically they demonstrate that in a deterministic economy with human capital accumulation in the long run not only capital but also labor income taxes should be zero hence the government must accumulate wealth that is public debt be negative to finance its expenditure

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

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

optimal linear and two bracket income taxes with idiosyncratic earnings risk abstract this paper quantitatively characterizes optimal linear and two bracket income taxes we consider a dynamic stochastic general equilibrium model in which tax design involves redistributing income for both equity and social insurance substantive findings include i a significant fraction of agents supply zero labor or hold zero assets at the optimum ii neglecting tax distortion imposed on either of labor leisure and consumption saving decisions will lead to the prescription of tax codes that deviate substantially from the optimum and iii the optimal two bracket tax schedule will turn from regressivity to progressivity in the marginal tax rate once the volatility of idiosyncratic shocks becomes sufficiently large the last finding is consistent with the results in apps et al forthcoming and it also reconciles the contradictory results regarding the optimal two bracket tax schedule between slemrod et al 1994 and strawczynski 1998

transitional dynamics and the distribution of wealth in a neoclassical growth model abstract the evolution of the personal distribution of wealth in a standard neoclassical growth model is studied if the economy is growing toward the steady state and preferences are such that marginal utility from consumption is infinite finite at some all positive non negative consumption level s then the average saving propensity of agents is positively negatively related to their wealth if the economy is decaying toward the steady state these relationships are reversed if wealth and average saving propensity are positively negatively related the distribution of current period wealth lorenz dominates is lorenz dominated by next period s distribution of wealth

a reexamination of the strategic bequest motive this paper investigates the strength of the empirical evidence of the strategic bequest hypothesis proposed by bernheim shleifer and summers 1985 at issue is whether bequests are primarily motivated by a desire to influnce the behavior of potential beneficiaries alternatively bequests may be motivated by altruism or risk aversion in the presence of incomplete annuity and health insurnace markets e g tomes 1981 hurd 1989

do husbands and wives pool their resources further evidence this paper replicates results of an article showing that families with children increased expenditures on women s clothing relative to men s after implementation of a policy that shifted a child subsidy payment from the father to the mother these results were interpreted as evidence that families do not pool their income but allocate consumption based on income source however the current paper also finds an increase in relative spending on women s clothing among childless couples a sample the policy change did not impact alternative explanations are explored for observing these patterns but none can rule out either bargaining or income pooling

existence of stationary equilibrium in an incomplete market model with endogenous labor supply in this article i first study an income fluctuation problem with endogenous labor supply let be the agent s time discount factor and r 0 be the constant gross rate of return on assets for r 1 i show that the agent s wealth either approaches infinity almost surely or converges to a finite level almost surely for r

do husbands and wives pool their resources evidence from the united kingdom child benefit common preference models of family behavior imply income pooling a restriction on family demand functions such that only the sum of husband s income and wife s income affects the allocation of goods and time testing the pooling hypothesis is difficult because most family income sources are not exogenous to the allocations being analyzed in this paper we present an alternative test based on a natural experiment a policy change in the united kingdom that transferred a substantial child allowance to wives in the late 1970s using family expenditure survey data we find strong evidence that a shift toward greater expenditures on women s clothing and children s clothing relative to men s clothing coincided with this income redistribution

robust comparative statics in large dynamic economies we consider infinite horizon economies populated by a continuum of agents subject to idiosyncratic shocks this framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by bewley aiyagari and huggett models of entry exit and industry dynamics in the spirit of hopenhayn s work and dynamic models of occupational choice and search models as special cases robust and easy to apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the markov processes governing the law of motion of the idiosyncratic shocks

the effects of family characteristics on the return to education in this paper the authors examine the role of parental education in the human capital production function by estimating the effects of parental education on the education profile of wages the analysis uses sibling pairs from the panel study of income dynamics and the national longitudinal surveys of labor market experience of young men and young women the authors obtained mixed evidence on whether parental education raises the return to education copyright 1996 by mit press

universalism and the value of political power although legislatures typically use majority rule to allocate a budget in distributive legislation unanimous consent over the broad allocation of benefits is pervasive i develop a game theoretic model where members strategically interact in a universal coalition to determine allocations with noncooperative bargaining as a threat point for the breakdown of cooperation to quantify the effects of political power on the agreed upon allocation i structurally estimate the model using the bridge bill capital budget in 1992 i find that 16 73 of the budget would be allocated differently if allocations were determined only based on actual needs

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

accounting for the u s earnings and wealth inequality we show that a theory of earnings and wealth inequality based on the optimal choices of ex ante identical households that face uninsured idiosyncratic shocks to their endowments of efficiency labor units accounts for the u s earnings and wealth inequality almost exactly

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

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

bequest behavior and the effect of heirs earnings testing the altruistic model of bequests that parents transfer resources to children because of altruistic concern is a reasonable a priori assumption however economic theories of altruistic transfers have produced many counterintuitive conclusions and consequently much debate when applied to bequests these theories predict that inheritances will compensate for earnings differences between siblings as well as between parents and children this paper tests these implications using a new data set centered on federal estate tax returns little support can be found for an altruistic theory of bequests this finding has implications for macroeconomic policy government transfer programs and inequality copyright 1996 by american economic association

parental allocations to children new evidence on bequest differences among siblings new survey based data on siblings are used to assess potential roles of bequests in redistributing income among siblings as implied by prominent models the data are not focused on the upper tail of the wealth distribution and include both own and sib reports on own and sib s bequests enabling use of a measurement model results indicate that bequests are received by almost two thirds of children average bequests are significant fractions of annual earnings and there are significant differences between sibs schooling and earnings however there are not significant sib differences in bequests once measurement error is incorporated into the analysis

on the existence and uniqueness of stationary equilibrium in bewley economies with production abstract i prove existence of stationary recursive competitive equilibrium in bewley economies with production under specifications in which i the utility function is allowed to be unbounded and ii the underlying discrete idiosyncratic productivity process can take any form aside from mild restrictions some of the intermediate results provide theoretical basis for assumptions often made in the quantitative macroeconomics literature by providing an example i illustrate that the equilibrium is not necessarily unique even under typical specifications of the model and discuss the underlying reasons for multiplicity

how important is intra household risk sharing for savings and labor supply abstract while it is recognized that the family is a risk sharing institution little is known about the quantitative effects of this source of insurance on savings and labor supply in this paper we present a model where workers females and males are subject to idiosyncratic employment risk and where capital markets are incomplete a household is formed by a female and a male who decide on consumption savings and labor supplies in a calibrated version of our model we find that intra household risk sharing has its largest impact among wealth poor households while the wealth rich use mainly savings to smooth consumption across unemployment spells wealth poor households rely on spousal labor supply for instance for low wealth households average hours worked by wives of unemployed husbands are 8 higher than those worked by wives of employed husbands this response in wives hours makes up 9 of lost family income we also study consumption losses upon an unemployment spell precautionary savings and the crowding out effects of the public unemployment insurance program on the extent of risk sharing within the household

incomplete markets labor supply and capital accumulation we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks borrowing constraints and endogenous labor supply in the exogenous labor supply case e g aiyagari 1994 huggett 1997 the presence of limited insurance increases the demand for savings for precautionary reasons as a consequence capital and output are higher under incomplete markets we show that if labor hours are endogenous labor supply is likely to be lower under incomplete markets because those agents who experience a high shock to productivity are ex post richer and they work fewer hours in some cases this wealth effect can overcome the aggregate precautionary savings and give rise to lower savings and output under incomplete

estimates of the economic returns to schooling from a new sample of twins this paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling the data indicate that omitted ability variables do not bias the estimated return to schooling upward but that measurement error does bias it downward adjustment for measurement error indicates that an additional year of schooling increases wages by 12 to 16 percent a higher estimate of the economic returns to schooling than has been previously found copyright 1994 by american economic association

on the quantitative importance of market completeness abstract this paper quantitatively compares allocations in calibrated large overlapping generations growth models that only differ in their market structures for insuring against aggregate risk the findings are that the equilibrium behavior of aggregate variables is very similar across all market structures there are only minor differences the ratio of the volatility of aggregate consumption relative to that of investment is higher in complete market economies due partly to the higher volatility of consumption of older people it was also found that the risk premia in complete markets economies is basically zero therefore we can conclude that we can for the most part abstract from the issue of whether there exist markets for aggregate risk

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

parental and public transfers to young women and their children this paper presents estimates of how an increase in welfare benefits for the welfare eligible affects the provision of parental support in the form of both financial transfers and shared residence based on an overlapping generations framework incorporating game theoretic interactions among parents their adult children and the government the empirical results obtained from two longitudinal data sets indicate that the parents view a dollar of income earned by their daughters as equivalent to a dollar increase in welfare benefits however there exists only a small trade off between the generosity of government aid and the incidence of parental aid data are for the united states and are from the national longitudinal survey of young women for 1968 1984 and the national longitudinal survey of youth for 1979 1984 excerpt

parental wealth and adult children s welfare in marriage abstract many studies find that parental resources importantly determine children s human capital schooling returns and earnings the collective household approach suggests that in addition parental resources of marital partners may importantly affect resource distributions within marriage this paper presents empirical results consistent with this framework they suggest that parental wealth continues to play roles in augmenting welfare of children into adulthood beyond provision of human capital in early life cycle stages or direct financial aid during adulthood and that actual transfers from parents to adult children do not fully measure influences of parental wealth on behaviors and welfare of adult children

consumption liquidity constraints and asset accumulation in the presence of random income fluctuations recent empirical research flavin 1981 hagashi 1982 has rejected the certainty equivalent formulation of permanent income hypothesis hall 1978 these findings are often attributed to households inability to borrow completely against expected future labor income this paper is a theoretical investigation of optimal consumption behavior under risk aversion random income fluctuations and borrowing restrictions our principle objective is to establish the existence and to investigate the properties of the stationary probability distribution which characterizes the asymptotic behavior of consumption under these conditions this abstract was borrowed from another version of this item

patterns of intergenerational mobility in income and earnings this paper characterizes the patterns of intergenerational mobility in the united states using data for matched parent child pairs from the national longitudinal surveys in general what is found is far from the extremes of either perfect mobility or perfect immobility parents log income explains only about 9 percent to 11 percent of the variation in children s log incomes earnings exhibit more mobility than does total income and the difference is most striking for daughters the paper also identifies the influence of family background characteristics on mobility the addition of these background variables adds another 3 to 5 percent age points to the r2 in the intergenerational earnings and income regressions copyright 1992 by mit press

intra household resource allocation an inferential approach if household income is pooled and then allocated to maximize welfare then income under the control of mothers and fathers should have the same impact on demand with survey data on family health and nutrition in brazil the equality of parental income effects is rejected unearned income in the hands of a mother has a bigger effect on her family s health than income under the control of a father for child survival probabilities the effect is almost twenty times bigger the common preference or neoclassical model of the household is rejected if unearned income is measured with error and income is pooled then the ratio of maternal to paternal income effects should be the same equality of the ratios cannot be rejected there is also evidence for gender preference mothers prefer to devote resources to improving the nutritional status of their daughters fathers to sons

the family inheritance and the intergenerational transmission of inequality unequal inheritance of material wealth is commonly considered a major cause of inequality in consumption however theoretical models of the intergenerational transmission of inequality by becker blinder and ishikawa imply that unequal inheritance may either increase or reduce consumption inequality differences in inherited wealth resulting from unequal parental incomes increase inequality in recipients consumption however unequal bequests caused by differences among families in the endowed ability of children or the costs of producing human capital are equalizing empirical results confirm these predictions the inheritance received by children is inversely related to both children s income and parental education thus bequests are compensatory in that ceteris paribus low income children inherit more than their advantaged contemporaries

testing the neoclassical model of family labor supply and fertility the mcelroy horney nash bargaining model of family demand behavior relaxes the restriction that nonearned income of husband and wife has the identical effect on family labor supply and commodity demands this restriction of the neoclassical model offamily behavior is tested for the determination of husband and wife labor supply andfertility based on the 1981 socioeconomic survey of thailand the neoclassical restriction is rejected for female labor supply andfertility another unexplored limitation offamily demand studies due to the sample self selection of intact marriages is empirically treated through alternative estimation strategies in this case a more sharply focused theory of marital behavior is needed to identify family demand models

the empirical content of nash bargained household behavior in households whose allocation decisions can be represented as nash bargained household decisions extrahousehold environmental parameters eeps serve as pure shifters of the threat points the comparative statics of changes in demands due to changes in these eeps are given these are incorporated into a comprehensive statement of the empirical content of nash bargained household behavior including a nash generalization of barten s 1966 fundamental matrix equation of the theory of consumer demand estimation and data requirements are discussed along with nested testing of the following structure the neoclassical model is nested in the nash bargained model which in turn is nested in an unrestricted model of household demands emphasized throughout is the enriched menu of explanatory variables for demand analysis provided by the nash model as well as the model s ability to jointly analyze i household formation and ii intrahousehold allocation decisions

welfare and child health the link between afdc participation and birth weight the stated goal of the aid for families with dependent children program is to improve the well being of children in poor families the program has come under considerable attack in recent years from critics who argue that participation in afdc is associated with maternal behaviors that are bad for children we investigate this question using birth weight as a measure of child health we find that participation in afdc during pregnancy is associated with delays in obtaining prenatal care smoking and drinking during pregnancy younger maternal age at the birth and ultimately with lower birth weights even when observable characteristics of the mother are controlled for however we show that when unobservable characteristics of the mother are controlled for there is actually a positive association between participation in afdc and the birth weights of children of white women from poor families we find no association between birth weight and maternal participation in afdc among black children

family networks and school enrolment evidence from a randomized social experiment we present evidence on whether and how a household s behavior is influenced by the presence and characteristics of its extended family using data from the progresa program in mexico we exploit information on the paternal and maternal surnames of heads and spouses in conjunction with the spanish naming convention to identify the inter and intra generational family links of each household to others in the same village we then exploit the randomized research design of the progresa evaluation data to identify whether the treatment effects of progresa transfers on secondary school enrolment vary according to the characteristics of extended family we find progresa only raises secondary enrolment among households that are embedded in a family network eligible but isolated households do not respond the mechanism through which the extended family influences household schooling choices is the redistribution of resources within the family network from eligibles that receive de facto unconditional cash transfers from progresa towards eligibles on the margin of enrolling children into secondary school

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

aggregate precautionary savings when is the third derivative irrelevant abstract when are aggregate precautionary savings positive we address this question in the context of a general equilibrium model where infinitely lived agents receive idiosyncratic labor endowment shocks hold a risk free asset to smooth consumption and face a liquidity constraint we prove that 1 the steady state capital stock is always larger in any equilibrium with idiosyncratic shocks and a liquidity constraint than without idiosyncratic shocks i e aggregate precautionary savings are positive as long as consumers are risk averse and 2 aggregate precautionary savings occurs if and only if the liquidity constraint binds for some agents

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

the economics of consanguineous marriages the institution of consanguineous marriage a marriage contracted between close biological relatives has been a basic building block of many societies in different parts of the world this paper argues that the practice of consanguinity is closely related to the practice of dowry and that both arise in response to an agency problem between the families of a bride and a groom when marriage contracts are incomplete dowries transfer control rights to the party with the highest incentives to invest in a marriage when these transactions are costly however consanguinity can be a more appropriate response since it directly reduces the agency cost the paper s model predicts that dowry transfers are less likely to be observed in consanguineous unions it also emphasizes the effect of credit constraints on the relative prevalence of dowry payment and consanguinity an empirical analysis using data from bangladesh delivers robust results consistent with the predictions of the model

changes in the wage structure family income and children s education abstract we exploit the changes in the distribution of family income to estimate the effect of parental resources on college education our strategy exploits the fact that families at the bottom of the income distribution were much poorer in the 1990s than they were in the 1970s while the opposite is true for families in the top quartile of the distribution our estimates suggest large effects of family income on enrollments for example we find that a 10 percent increase in family income is associated with a 1 4 percent increase in the probability of attending a four year college

human capital risk in life cycle economies i study the effect of market incompleteness on the aggregate economy in a model where agents face idiosyncratic uninsurable human capital investment risk the environment is a general equilibrium lifecycle model with a version of a ben porath 1967 human capital accumulation technology modified to incorporate risk a cara normal specification keeps endogenous decisions independent of individual shock realizations i study stationary equilibria of calibrated cases in which idiosyncratic uninsurable risk arises from specialization risk and career risk specialization risk is such that both mean and variance of the return from training are increasing in the endogenous decision to invest in human capital in the case of career risk however only the mean return is increasing in the decision to invest in human capital with career risk only stationary equilibria resemble those studied by aiyagari 1994 and one concludes that the impact of uninsurable idiosyncratic risk is relatively small with a significant amount of specialization risk however stationary equilibria are severely distorted relative to a complete markets benchmark one aspect of this distortion is that human capital is only about 57 percent as large as its complete markets counterpart this suggests that the two types of risk have very different and quantitatively significant general equilibrium implications keywords human capital risk life cycle incom

welfare marital prospects and nonmarital childbearing the roles of the entitlements of the afdc program and marital prospects in the fertility and marriage choices of young women are assessed in the context of a model incorporating heritable endowment heterogeneity assortative mating concern for child quality and potential parental and public support alternatives estimates based on data describing the fertility and marital experience up to age 23 of the eight birth cohorts of women in the nlsy provide evidence that higher afdc benefit levels and lower marital prospects induce young women to choose to have a child outside of marriage

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research