household choices and child development the growth in labor market participation among women with young children has raised concerns about the potential negative impact of the mother s absence from home on child outcomes recent data show that mother s time spent with children has declined in the last decade while the indicators of children s cognitive and noncognitive outcomes have worsened the objective of our research is to estimate a model of the cognitive development process of children nested within an otherwise standard model of household life cycle behavior the model generates endogenous dynamic interrelationships between the child quality and employment processes in the household which are found to be consistent with patterns observed in the data the estimated model is used to explore the eects of schooling subsidies and employment restrictions on household welfare and child development

efficient egalitarian equivalence and the core of an economy with public projects abstract we prove the existence of efficient egalitarian equivalent allocations in an economy with a finite number of private goods and one abstract public project that can be executed by certain coalitions of economic agents efficient egalitarian equivalent allocations however may not be in the core

a positive theory of social security based on reputation we construct a general equilibrium model in which a pay as you go social security system can be adopted and sustained as a political and economic equilibrium we alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness

intergenerational altruism dynastic equilibria and social welfare are three central findings first under relatively weak conditions welfare optima cannot be implemented as dynastic equilibria with positive levels of transfers second intergenerational altruism ordinarily renders the objectives of social planners dynamically inconsistent thereby making implementation of welfare optima problematic third if a planner successfully resolves dynamic inconsistency by committing himself to respect the preferences of deceased generations and if there are a sufficient number of prior generations then in a specific set of cases dynastic equilibria are approximately welfare optimal

a median voter model of social security this paper presents a theoretical median voter analysis of the determination of the level of social security the framework for the analysis is a continuous time overlapping generations model with nonaltruistic households facing borrowing constraints in the capital market a majority voting equilibrium is shown to exist in which the median voter is liquidity constrained the desired level of social security for each voter is a declining function of the preexisting level of social security as a consequence in a sequence of votes on social security beginning with a zero level the program initially overshoots its steady state value copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

intergenerational redistribution with short lived governments we study the politics of intergenerational redistribution in an overlapping generations model with short lived governments the successive governments who care about the welfare of the currently living generations and possibly about campaign contributions are unable to pre commit the future course of redistributive taxation in a stationary politico economic equilibrium the intergenerational transfer in each period depends on the current value of the state variable and all expectations about future political outcomes are fulfilled we find that there exist multiple stationary equilibria in many political settings steady state welfare is often lower than it would be in the absence of redistributive politics

a theory of intergenerational altruism modeling intergenerational altruism is crucial to evaluate the long term consequences of current decisions and requires a set of principles guiding such altruism we axiomatically develop a theory of pure direct altruism altruism is pure if it concerns the total utility rather than the mere consumption utility of future generations and direct if it directly incorporates the utility of all future generations our axioms deliver a new class of altruistic forward looking preferences whose weight put on the consumption of a future generation generally depends on the consumption of other generations the only preferences lacking this dependence correspond to the quasi hyperbolic discounting model which our theory characterizes our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences

does increasing women s schooling raise the schooling of the next generation the positive cross sectional relationship between the schooling of mothers and their children is substantially biased upward due to correlations between schooling and heritable ability as well as assortative mating an increase in the schooling of women would not have beneficial effects in terms of the schooling of children increased maternal schooling leads to reduced home time for mothers anticipating the consequences of investing in women s schooling requires attention to the role that schooling plays in the marriage market as well as to opportunities in the labor market for women

ability parental valuation of education and the high school dropout decision we use a large rich canadian micro level dataset to examine the channels through which family socio economic status and unobservable characteristics aect children s decisions to drop out of high school first we document the strength of observable socio economic factors our data suggest that teenage boys with two parents who are themselves high school dropouts have a 16 chance of dropping out compared to a dropout rate of less than 1 for boys whose parents both have a university degree we examine the channels through which this socio economic gradient arises using an extended version of the factor model set out in carneiro hansen and heckman 2003 specically we consider the impact of cognitive and non cognitive ability and the value that parents place on education our results support three main conclusions first cognitive ability at age 15 has a substantial impact on dropping out second parental valuation of education has an impact of approximately the same size as cognitive ability eects for medium and low ability teenagers a low ability teenager has a probability of dropping out of approximately 03 if his parents place a high value on education but 36 if their education valuation is low third parental education has no direct eect on dropping out once we control for ability and parental valuation of education our results point to the importance of whatever determines ability at age 15 including potentially early childhood interventions and of parental valuation of education during the teenage years we also make a small methodological contribution by extending the standard factor based estimator to allow a non linear relationship between the factors and a covariate of interest we show that allowing for non linearities has a substantial impact on estimated eects

the intergenerational effects of compulsory schooling this article attempts to improve our understanding of the causal processes that contribute to intergenerational immobility by exploiting historical changes in compulsory schooling laws that affected the educational attainment of parents without affecting their innate abilities or endowments we examine the influence of parental compulsory schooling on children s grade for age using the 1960 1970 and 1980 u s censuses our estimates indicate that a 1 year increase in the education of either parent reduces the probability that a child repeats a grade by between 2 and 4 percentage points

large indivisibles an analysis with respect to price equilibrium and fairness an exchange economy is considered in which there are a finite number of individuals the same number of indivisibles and a fixed amount of a divisible good each individual consumes exactly one of the indivisibles and a certain quantity of the divisible good the existence of prices corresponding to pareto efficient allocations is proved it is also shown that this economy possesses fair allocations income fair allocations coalition fair allocations and pareto efficient egalitarian equivalent allocations in this study the effect of including large indivisibles in an exchange economy will be analyzed the analysis will be carried out with respect to the existence of price equilibrium and with respect to the existence of different forms of fairness the economy consists of a finite number of individuals the same number of indivisibles and a fixed amount of a divisible good it is assumed that each individual consumes exactly one of the indivisibles and some quantity of the divisible good we may interpret the indivisibles as being professions or houses the relationship between price equilibrium and a pareto efficient allocation is well known and proved in a number of cases under different assumptions about preferences and commodities for a standard economy see e g debreu 5 in case of nonconvexities which may also describe a certain type of indivisibility we may have an exact relationship in economies with a continuum of individuals see e g hildenbrand 11 but otherwise an approximate relationship obtains the degree of approximation depends on the degree of nonconvexities in preferences and not on the number of individuals see e g arrow and hahn 1 we will prove the existence of prices characterizing a pareto efficient allocation in a case where the indivisibles play an essential role and where approximate results would be too approximate the indivisibles may be considered large for the individual compared to his total consumption the theory of fairness has developed considerably during the seventies different kinds of concepts of fairness have been introduced and analyzed see daniel 41 foley 81 pazner and schmeidler 121 and schmeidler and vind 141 among others normally these authors have considered models with divisible goods or an infinite number of individuals for exchange economies the existence of fair allocations an envy free and pareto efficient allocation has been proved in

economic growth with intergenerational altruism in this paper we study the properties of equilibria in an aggregative growth model with intergenerational altruism in this model each generation is active for a single period at the beginning of this period it receives an endowment of a single homogeneous good which is the output from a bequest investment made by the previous generation it divides the endowment between consumption and investment the return from this investment constitutes the endowment of the next generation each generation derives utility from its own consumption and that of its immediate successor however since altruism is limited in the sense that no generation cares about later successors the interests of distinct agents come into conflict models of this type have been used to analyze a number of issues concerning intergenerational altruism one line of research pursued by arrow 1973 and dasgupta 1974a elucidates the implications of rawls principle of just savings others beginning with phelps and pollak 1968 have addressed the question of how an altruistic growth economy might actually evolve over time topics of subsequent investigation have included the efficiency and optimality of equilibrium programs and the implications of intergenerational altruism for the distribution of wealth unfortunately the positive features of equilibrium programs have received little attention from previous authors aside from a few comments by kohlberg 1976 virtually nothing is known about the asymptotic behaviour of capital stocks in these models in particular will the long run capital stock which arises from intergenerational conflict be higher or lower than the turnpike associated with the solution to the optimal planning problem on a priori grounds the answer is not clear agents who take only a limited interest in the future will tend to bequeath less than those who are far sighted however since each generation views its children s bequest as pure waste it must bequeath a larger sum to obtain the same consumption value in this paper we obtain steady state results for equilibrium capital stocks completely analogous to the well known optimal planning results by comparing steady states we

aggregation of heterogeneous time preferences we examine an economy whose consumers have different discount factors for utility possibly not exponential we characterize the properties of efficient allocations of resources and of the shadow prices that would decentralize such allocations we show in particular that the representative agent has a decreasing discount rate when as is usually posited all of a group s members have a constant discount rate and decreasing absolute risk aversion preferences we also identify conditions that lead the representative agent to have a rate of impatience that decreases with gross domestic product per capita

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

are there increasing returns to the intergenerational production of human capital information on ability and achievement test scores of sibling children many of whom had mothers who continued their schooling between births is used to test the hypothesis that maternal schooling augments the production of children s human capital that there are increasing returns to human capital estimates from models that take into account heterogeneity in maternal endowments could not reject this hypothesis and suggest benefits to postponed childbearing in particular they suggest that postponement of the initiation of childbearing by two years among women who are tenth graders would result in a 5 percent increase in their children s achievement test scores

strotz meets allais diminishing impatience and the certainty effect abstract decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward this work argues that diminishing impatience originates from the distinction between the certain present and the risky future a simple functional representation of preferences exhibiting time inconsistency when the future is uncertain is derived experimental evidence which is inconsistent with other formulations that account for diminishing impatience supports the proposed approach the new theory uncovers a tight relation between diminishing impatience and well known behavioral regularities in choice under risk and uncertainty jel d12 d81

why the apple doesn t fall far understanding intergenerational transmission of human capital parents with higher education levels have children with higher education levels however is this because parental education actually changes the outcomes of children suggesting an important spillover of education policies or is it merely that more able individuals who have higher education also have more able children this paper proposes to answer this question with a unique dataset from norway using the reform of the education system that was implemented in different municipalities at different times in the 1960s as an instrument for parental education we find little evidence of a causal relationship between parents education and children s education despite significant ols relationships we find 2sls estimates that are consistently lower than the ols estimates with the only statistically significant effect being a positive relationship between mother s education and son s education these findings suggest that the high correlations between parents and children s education are due primarily to family characteristics and inherited ability and not education spillovers

the social discount rate what discount rate should be applied to social investments it is standard to use the market interest rate thereby respecting private preferences we show that application of this revealed preference criterion rests on faith not on logic it is justified only if preferences over all choices including past choices are time invariant the conditions for this to be true are stringent under more reasonable conditions policy makers should be more patient than private citizens whose choices define the most short sighted pareto optimum

the pure theory of public goods efficiency decentralization and the core the authors extend the findings of mas colell on valuation equilibria and the relationship of cost share equilibria with the core they allow for any finite number of private goods and a set of public projects without any structure the authors show the two welfare theorems for valuation equilibrium the inclusion of the set of cost share equilibria in the core and the nonequivalence of these two sets for an economy with a finite number of agents copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

nonpaternalistic intergenerational altruism abstract the paper develops a concept of equilibrium behaviour and establishes its existence in a model of nonpaternalistic intergenerational altruism each generation derives utility from its own consumption and the utilities of its successors equilibrium capital stocks are time monotone and therefore converge to a steady state finally when each generation s utility depends on that of at least two successors equilibria may be inefficient this is shown by an example where feasible programs exist providing greater consumption compared to the equilibrium path for every generation

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

equilibrium welfare and government policy with quasi geometric discounting abstract we consider a representative agent equilibrium model where the consumer has quasi geometric discounting and cannot commit to future actions we restrict attention to a parametric class for preferences and technology and solve for time consistent competitive equilibria globally and explicitly we then characterize the welfare properties of competitive equilibria and compare them to that of a planning problem the planner is a consumer representative who without commitment but in a time consistent way maximizes his or her present value utility subject to resource constraints the competitive equilibrium results in strictly higher welfare than the planning problem whenever the discounting is not geometric journal of economic literature classification numbers e21 e61 e91

equity as a prerequisite for stability of cooperation on global public good provision analysing cooperative provision of a global public good such as climate protection we explore the relationship between equitable burden sharing on the one hand and core stability on the other to assess the size of the burden which a public good contribution entails for a country we make use of a specific measure based on moulin econometrica 55 963 977 1987 in particular we show that a pareto optimal allocation which is not in the core can always be blocked by a group of countries with the highest moulin sacrifices in this sense it is the overburdening and thus unfair treatment of some countries that provides the reason for core instability by contrast a pareto optimal allocation is in the core if the public good contributions are fairly equally distributed according to their moulin sacrifices the potential implications of our theoretical analysis for global climate policy are also discussed

intergenerational altruism with future bias abstract we show that standard preferences of altruistic overlapping generations exhibit future bias which involves preference reversals associated with increasing impatience this underlies a conflict of interest between successive generations we explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time we argue that future bias creates incentives to legislate and sustain a pay as you go pension system which every government views as a self enforcing commitment mechanism to increase future old age transfers

present bias and collective dynamic choice in the lab we study collective decisions by time discounting individuals choosing a common consumption stream we show that with any heterogeneity in time preferences utilitarian aggregation necessitates a present bias in lab experiments three quarters of social planners exhibited present biases and less than two percent were time consistent roughly a third of subjects acted as if they were pure utilitarians and the rest chose as if they also had varying degrees of distributional concerns

barriers to investment in polarized societies i present a tractable dynamic model of political economy where disagreements about the composition of public spending result in implementation of short sighted policies the relative price of investment to consumption is excessively large in equilibrium due to over taxation investment rates are too low which slows down growth along the transition in the long run this results in output consumption and welfare being inefficiently low the larger is the degree of polarization the greater is the inefficiency political stability mitigates the effects of polarization by making the incumbent internalize the dynamic inefficiencies introduced by the choice of growth retarding policies

fiscal rules and discretion under persistent shocks this paper studies the optimal level of discretion in policymaking we consider a fiscal policy model where the government has time inconsistent preferences with a present bias toward public spending the government chooses a fiscal rule to trade off its desire to commit to not overspend against its desire to have flexibility to react to privately observed shocks to the value of spending we analyze the optimal fiscal rule when the shocks are persistent unlike under independent and identically distributed shocks we show that the ex ante optimal rule is not sequentially optimal as it provides dynamic incentives the ex ante optimal rule exhibits history dependence with high shocks leading to an erosion of future fiscal discipline compared to low shocks which lead to the reinstatement of discipline the implied policy distortions oscillate over time given a sequence of high shocks and can force the government to accumulate maximal debt and become immiserated in the long run

how should the distant future be discounted when discount rates are uncertain abstract the so called weitzman gollier puzzle is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results the puzzle is resolved when agents optimize their consumption plans the long run discount rate declines over time toward its lowest possible value

public pensions as optimal social contracts abstract a simple overlapping generations model is modified to allow for an externality experienced by the young from consumption by the elderly this sets up a game between generations in which one generation s strategy may be to save too little and rely on gifts from the young e g public assistance for retirement income social security can therefore be viewed as a pareto optimal contract to restore efficient intertemporal allocation a funded public pension plan corresponds to forced saving but is vulnerable in that the next young generation may stop contributing rely on its children for retirement assistance and meanwhile reap the consumption externality from the current elderly s social security benefits this suggests a forced giving or pay as you go type of compulsory pension plan such as exists in most nations which also has the advantage of aiding the initial old generation and therefore generating an immediate consumption externality for the initial young the approach can also be used to explain other aspects of existing social security

egalitarian equivalent cost sharing of a public good in an economy with one public and one private good egalitarian equivalent cost sharing consists of finding the highest public good level x such that consuming x for free yields a feasible utility distribution the corresponding feasible allocation typically unique called egalitarian equivalent is in the core of the economy conversely any cost sharing method satisfying pareto optimality cost monotonicity nobody suffers a utility loss if the production technology improves upon ceteris paribus and individual rationality no single agent coalition objects or no private transfers no agent receives a positive amount of private good must select an egalitarian equivalent allocation in every economy copyright 1987 by the econometric society

ramsey meets laibson in the neoclassical growth model the neoclassical growth model is modified to include a variable rate of time preference with no commitment ability and log utility the equilibrium features a constant effective rate of time preference and is observationally equivalent to the standard model the extended framework yields testable linkages between the extent of commitment ability and the rates of saving and growth the model also has welfare implications including the optimal design of institutions that facilitate household commitments steady state results are obtained for general concave utility functions and some properties of the transitional dynamics are characterized for isoelastic utility

fiscal policy in an endogenous growth model in a neoclassical growth model it is possible to make a case for public debt because a balanced growth path may be dynamically inefficient this paper shows that this possibility no longer holds in an endogenous growth model with constant external returns to capital it is shown that an increase in public debt reduces the growth rate so there always exists a future generation that will be harmed and that a reduction in public debt although it increases the growth rate cannot be pareto improving one current generation must be harmed

social security as trade among living generations we model u s social security that is legislated endogeneously by living generations specifically we consider the effects of social security on resource allocation and pareto optimality examining which generations gain from social security and whether some generations lose because saving and transfer decisions are made sequentially in the real world we use an infinite horizon overlapping generations framework in which life cycle saving and transfers to the old are determined by living agents we focus on the case in which agents are altruistic but place sufficiently greater weight on own comsumption than on the consumption of agents in other generations so that starting from a steady state without social security living agents would gain utility if consumption were shifted marginally to them from later generations excerpt

government debt in an overlapping generations model with bequests and gifts in 1974 robert barro argued that if individuals in successive generations were linked by bequests changes in the stock of government debt or in social security programs would have no effect on the steady state capital stock barro assumed that individuals held static expectations and that the size of the population was constant martin feldstein 1974 1977 had concluded that social security would reduce the capital labor ratio in models that did not admit a bequest motive and in his 1976 comment on barro argued that the introduction of government debt or social security into a perfect foresight dynamic growth model with bequests would still reduce the capital labor ratio barro replied that feldstein s criticisms were invalid if the steady state capital labor ratio were smaller than the golden rule level but would be correct if the opposite were true barro did suggest however that the latter possibility with overaccumulation of capital might be ruled out in his model as it was in miguel sidrauski 1967 but he was unable to demonstrate that the required behavior would be consistent with utility maximization by finite lived individuals 1976 p 345 although recent work by willem buiter 1979 jeffrey carmichael 1979 1982 truman bewley 1981 a b and others has helped to elucidate the nature of overlapping generations models with bequests and gifts and the issues in the barro feldstein debate they remain far from clear the purpose of this paper is to shed a little more light on the subject in what follows i contend that some of the authors cited above either have specified the individual s optimization problem in an asymmetric way or have failed to impose necessary conditions for a sensible optimization problem or both there is a natural specification of the barro model 1 that emphasizes the similarity between this model and optimal growth models see for example david cass 1965 peter diamond 1973 here in steady state equilibrium the aftertax interest rate r must equal the rate at which individuals discount the utility of their heirs p r p has become known as the modified golden rule and a meaningful individual optimization problem requires that p exceed n the natural growth rate of the economy my results confirm barro s hunch about his model in a barro model r must exceed n much of the barro feldstein 1976 interchange which assumed that r could have any relation to n is wrong headed barro and feldstein reach different conclusions about the effects of government debt and social security because they assume different individual utility functions also my results contrast sharply with those of buiter and carmichael for example carmichael concluded that with intergenerational transfers from parents to children bequests r must exceed n but with transfers in the opposite direction n must exceed r 1982 pp 205 06 indeed i believe that the buiter carmichael representation of the barro model is logically faulty see section ii in section i i outline an overlapping generations model with gifts and bequests and derive its steady state properties in the next section i discuss the shortand long run effects of introducing government debt into the model and contrast my results with those

time consistency stationarity and time invariance a sequence of experiments documents static and dynamic preference reversals between sooner smaller and later larger rewards when the sooner reward could be immediate the theoretically motivated design permits separate identification of time consistent stationary a ndtime invariant choices at least half of the subjects are time consistent but only three quarters of them exhibit stationary choices about half of subjects with time inconsistent choices have stationary preferences these results chal lenge the view that present bias preferences are the main source of time inconsistent choices the past twenty years have seen a surge of interest in time inconsistent preferences mostly this has been motivated by psychological experiments and introspection that have suggested the existence of present bias a decision maker prefers smaller immediate reward to a larger delayed reward but when she is asked about her preferences between these two alternatives when both are equally shifted into the future her preferences are reversed although there is no inconsistency per se in her answers this behavior has been taken to suggest that when the decision maker will be asked to update her choices in the future she will generally deviate from her ex ante plans our goal in the present study is to perform a dynamic preference reversal experiment as such one is required to extend the standard framework of pref erences over temporal payments to a dated collection of such preferences this extension allows us to formally define three distinct properties stationarity im plies that ranking of temporal payments depends only on the time distance and payment distance between the alternatives time invariance assumes that the decision maker evaluates each temporal payment relative to the evaluation pe

a positive theory of social security in many countries social security accounts for a large fraction of the government budget why is this so given that at any point in time the number of recipients of social security benefits is smaller than the number of contributors in the overlapping generations model studied in this paper all individuals currently alive vote on social security in every period in equilibrium the size of social security is larger the greater is the proportion of elderly people in the population and the greater is the inequality of pre tax income within each generation both predictions of the theory are supported by the empirical evidence in cross country data