habits costly investment and current account dynamics abstract we analyze the current account dynamics for a small country model with habit forming consumers and costly investment the model has several empirical and policy implications i it is consistent with stylized facts regarding the effects of productivity shocks and increases in fiscal spending and regarding the savings investment co movement ii the long run effect of a temporary shock on net foreign assets is often opposite to that of a permanent shock iii under strong habit persistence the welfare dynamics are sluggish so that a beneficial tax financed fiscal policy may have a harmful hangover effect on welfare

tobacco taxes and regressivity recent literature on tobacco taxation suggests that optimal tax rates should be very high but such high taxes raise concerns over regressivity most econometric estimates of elasticities by income group use historic price data that are low and the usefulness of such estimates is therefore questionable on account of the serious out of sample prediction problem to address that problem this paper estimates price elasticities for different socioeconomic groups using recent canadian survey data for a period during which prices rose to a level of about 7 per pack the results provide little reason to overturn the traditional concerns about regressivity

a statistical model for condorcet efficiency based on simulation under spatial model assumptions this essay evaluates six single winner multicandidate electoral systems with respect to their tendency to choose condorcet candidates to this end i calibrate a logistic multiple regression model from monte carlo simulations based on a multivariate normal spatial model in which i vary the number of candidates number of dimensions correlation structure and relative dispersion of candidates and voters i investigate additional spatial model variations by comparing further simulation results with predictions of the basic statistical model the results suggest that for many electoral systems condorcet efficiency would increase with perceptual uncertainty of candidates positions and would be low in a polarized society of the voting systems studied approval voting and the coombs systems appear least sensitive to variations in assumptions

agency relationships in family firms theory and evidence does owner management necessarily eliminate the agency costs of ownership drawing on agency literature and on the economic theory of the household we argue that private ownership and owner management expose privately held owner managed firms to agency threats ignored by jensen s and meckling s 1976 agency model private ownership and owner management not only reduce the effectiveness of external control mechanisms they also expose firms to a self control problem created by incentives that cause owners to take actions which harm themselves as well as those around them jensen 1994 p 43 thus shareholders have incentive to invest resources in curbing both managerialand owner opportunism we extend this thesis to the domain of the family firm after developing hypotheses which describe how family dynamics and specifically altruism exacerbate agency problems experienced by these privately held owner managed firms we use data obtained from a large scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory finally we discuss the implications of our theory for research on family and other types of privately held owner managed firms

spatial preferences and voter choices in the dutch electorate voters preferences for political parties and their choices can be modeled as a set of equations with three endogenous variables 1 the perceived distance between the voter s ideological position and that of a party 2 the utility that the voter assigns to a party and 3 behavior whether or not a voter votes for a given party spatial models of party competition imply that 1 the perceived ideological distance between a voter and a party is a function of the perceived spatial distances between the voter s most preferred point on each electorally relevant issue and the party s position the greater these distances the greater the perceived ideological distance 2 the utility assigned to each party is a function of this ideological distance as well as the issue distances and 3 the higher the assigned utility the higher the probability that a voter votes for a given party but the greater the ideological and issue distances the lower this probability these hypotheses are operationalized and t

is smoking inferior evidence from variation in the earned income tax credit in this paper we estimate the causal income elasticity of smoking participation cessation and cigarette demand conditional upon participation using an instrumental variables iv estimation strategy we find that smoking appears to be a normal good among low income adults higher instrumented income is associated with an increase in the number of cigarettes consumed and a decrease in smoking cessation the magnitude and direction of the changes in the income coefficients from our ols to iv estimates are consistent with the hypothesis that correlational estimates between income and smoking related outcomes are biased by unobservable characteristics that differentiate higher income smokers from lower income smokers

the structure of voter preferences the 1921 1925 1973 and 1975 northern irish parliamentary elections this article applies preference assumptions derived from the axioms of lexicographic utility to four of northern ireland s parliamentary elections the results are compared to those obtained from application of analogous spatial assumptions the principal findings are that rational choice based voting models are relevant to the northern irish electorate and that voters there display patterns of behavior consistent with both lexicographic and spatial preference assumptions

taxation or regulation looking for a good anti smoking policy abstract this paper investigates the relative ability of two anti smoking policies taxes and regulation in inducing reductions in cigarette consumption and in providing incentives to stop smoking or not to start to our results based on canadian data show that cigarette demand responds to taxes elasticity of 0 28 but not to regulation while the converse is true for the proportion of smokers in the population

mother s education and the intergenerational transmission of human capital evidence from college openings we examine the effect of maternal education on birth outcomes using vital statistics natality data from 1970 to 1999 we also assess the importance of four channels through which maternal education may improve birth outcomes use of prenatal care smoking marriage and fertility in an effort to account for the endogeneity of education attainment we use data about the availability of colleges in the womans country in her 17th year as an instrument for maternal education we find that higher maternal education improves infant health as measured by birth weight and gestational age it also increases the probability that a new mother is married reduces parity increases use of prenatal care and reduces smoking suggesting that may be important pathways for the ultimate effect on health our results add to the growing body of literature which suggests that estimates of the returns to education which focus only on increases in wages understate the total return

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

do minimum wage increases influence worker health this study investigates whether minimum wage increases impact worker health in the united states we consider self reported measures of general mental and physical health we use data on lesser skilled workers from the 1993 to 2014 behavioral risk factor surveillance survey among men we find no evidence that minimum wage increases improve health instead we find that such increases lead to worse health outcomes particularly among unemployed men we find both worsening general health and improved mental health following minimum wage increases among women these findings broaden our understanding of the full impacts of minimum wage increases on lesser skill workers jel i1 i11 i18

price knowledge in household demand for utility services a household s decision to acquire price knowledge is endogenous in the demand for utility services and may affect elasticities and consumption levels a simultaneous equation model with endogenous switching is developed to evaluate the effects of price knowledge and other sources of heterogeneity results indicate informed households were more responsive to average and marginal price signals informed households also use less water but this is due to heterogeneity rather than price knowledge controlling for heterogeneity price knowledge actually increases monthly water usage the implications of accounting for differences in price knowledge in utility demand modeling and demand management policy are discussed

rational exuberance at the mall addiction to carrying a credit card balance the becker murphy model of rational addiction is tested with new zealand credit card debt data the results clearly favour the rational addiction model over the myopic backward looking model the estimated short run and long run price elasticities are 0 58 and 2 32 respectively and the estimated rate of time preference is 6 7 per quarter

public debt and low interest rates this lecture focuses on the costs of public debt when safe interest rates are low i develop four main arguments first i show that the current us situation in which safe interest rates are expected to remain below growth rates for a long time is more the historical norm than the exception if the future is like the past this implies that debt rollovers that is the issuance of debt without a later increase in taxes may well be feasible put bluntly public debt may have no fiscal cost second even in the absence of fiscal costs public debt reduces capital accumulation and may therefore have welfare costs i show that welfare costs may be smaller than typically assumed the reason is that the safe rate is the risk adjusted rate of return to capital if it is lower than the growth rate it indicates that the risk adjusted rate of return to capital is in fact low the average risky rate however also plays a role i show how both the average risky rate and the average safe rate determine welfare outcomes third i look at the evidence on the average risky rate i e the average marginal product of capital while the measured rate of earnings has been and is still quite high the evidence from asset markets suggests that the marginal product of capital may be lower with the difference reflecting either mismeasurement of capital or rents this matters for debt the lower the marginal product the lower the welfare cost of debt fourth i discuss a number of arguments against high public debt and in particular the existence of multiple equilibria where investors believe debt to be risky and by requiring a risk premium increase the fiscal burden and make debt effectively more risky this is a very relevant argument but it does not have straightforward implications for the appropriate level of debt my purpose in the lecture is not to argue for more public debt especially in the current political environment it is to have a richer discussion of the costs of debt and of fiscal policy than is currently the case

motives for private transfers over the life cycle an analytical framework and evidence for peru abstract this paper tests for the motives for private income transfers we consider two motives altruism and exchange the question of private transfer motives is important because such motivation can influence the effects of public income transfers on the distribution of income using a household survey for peru we find that transfer amounts received increase with recipient pre transfer income which contradicts a key prediction of the strong form of the altruism hypothesis but is consistent with exchange we also find that capital market imperfections are likely to be an important cause of private transfers and that social security benefits crowd out the incidence of private transfers

identifying the causal effect of income on religiosity using the earned income tax credit abstract how do economic conditions income and the generosity of social insurance affect religious behavior this paper provides novel evidence for the united states using variation in earned income tax credit benefits across states over time and by number of children in the raw data income and religiosity have a trivial relationship in contrast the instrumental variables strategy shows that increases in income from the eitc are found to sizably reduce religious attendance among low income individuals among individuals who attend the results indicate that an additional 1000 in annual income is associated with a decrease of roughly 1 service per year as compared to an average of 16 services per year the effect arises mainly along the intensive margin decreasing devout behavior and increasing more marginal attendance but having little impact on whether an individual participates at all or on beliefs there are also minimal effects on the occurrence and amount of contributions to religious organizations the results extend our understanding of the determinants of religiosity the relationship between governmental income support and religious behavior and the social effects of the earned income tax credit

unemployment insurance and cigarette smoking abstract we provide evidence for the causal relationship between unemployment insurance ui and individuals smoking behavior using the 1995 2011 current population survey tobacco use supplement data our identification relies on the exploitation of the exogenous variations of the maximum ui weekly benefits across states and over years instead of focusing on all unemployed people we concentrate on those who are eligible for ui benefits we find that when the maximum ui weekly benefit level increases by 100 smoking cessation increases by approximately 2 9 percentage points among the ui eligible unemployed the results are robust to various model specifications we also explore the mechanism and find suggestive evidence that the increase in the maximum ui weekly benefit leads to a decrease in the probability of over work of the respective spouse moreover the unemployed who are less educated are more responsive to the increasing ui benefits

the effects of excise taxes and regulations on cigarette smoking abstract we estimate a generalized linear model to examine adult and teenage cigarette demand our analysis focuses on the extent to which exice taxes and regulations restricting smoking in public places affect cigarette consumption the adult results indicate that the price elasticity of demand is unstable over time ranging from 0 06 in 1970 to 0 23 in 1985 these estimates are lower than most found in previous studies the teenage price elasticity does not differ statistically from the estimates for adults additionally regulations restricting smoking in public places have a significant effect on both adult and teenage cigarette demand

the effects of government transfers on monthly cycles in drug abuse hospitalization and mortality this paper analyzes the monthly patterns of adverse outcomes due to the consumption of illegal drugs by recipients of government transfer payments we find evidence that certain subpopulations on government cash aid significantly increase their consumption of drugs when their checks arrive at the beginning of the month and as a result experience adverse events including hospitalization and death using data from california we find that the overall rate of drug related hospital admissions increases abruptly at the beginning of the month with admissions increasing 23 during the first five days of the month we find that this cycle is driven largely by recipients of supplemental security income ssi ssi recipients also experience an abrupt 22 increase in within hospital mortality after receiving their checks these findings suggest that full wallets adversely affect some aid recipients and that policymakers should explore alternate disbursement regimes such as a staggered disbursement schedule or in kind support that have the potential to reduce the rate of adverse events

illicit drug use and labour market achievement evidence from the uk this study using data from the british crime survey bcs examines the effect of drug use on occupational achievement it starts by attempting to overcome the identification problem that results from the limited set of drug use questions presented in the bcs taking this into account and allowing for the endogeneity of drug use in equations for unemployment and labour market outcomes that a mild positive association with soft drugs and occupational achievement is observed that diminishes with age this relationship holds for males but not for females in contrast it is also found that past use of hard drugs significantly increases the likelihood of current unemployment although it appears to be unrelated to occupational success conditional on achieving employment

unconventional economic policies and sentiment an international assessment this paper estimates using bayesian and global vars the spillover effects of unconventional fiscal and monetary policies implemented in the united states and in the eurozone during the last decade consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass through of economic policies to the real sector in times of crisis and zero lower bound interest rates in particular the signalling channel plays an important role in successful unconventional economic policies moreover if unconventional economic policies have an impact abroad the effects are similar to those measured in the domestic country region consequently coordination and transparency are a prerequisite for ensuring short term growth after a global financial crisis

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

the duration of the smoking habit i introduction most smokers smoke out of habit once the habit is ended many of smoking s most harmful effects decline rather quickly preventing and ending cigarette addiction is therefore the straightest path toward preventing the health damage done by cigarette smoking consequently the related questions of why people start smoking and why they quit are central to formulating and evaluating effective antismoking policies duration or hazard models are designed to measure the probability of transition between states and are thus ideal for investigating the structural determinants of the transition between addiction and non addiction nevertheless most previous work in the economics literature uses the aggregate smoking participation rate defined as the percentage of people who currently smoke or an individual s probability of participation rather than a hazard rate to measure the attractiveness of habitual smoking this paper models the hazard rates of both starting and quitting the cigarette smoking habit the starting hazard rate is the probability that an individual will start smoking in a given time period conditional on being a nonsmoker until then the quitting hazard rate is the probability of quitting smoking in a given time period conditional on being a smoker since the starting date both of these rates should rise and fall in response to changes in the attractiveness of smoking the two rates will respond differently to different stimuli since the starting hazard reflects the point of view of nonsmokers and the quitting hazard reflects the point of view of smokers hazard or duration models possess several advantages over smoking participation models most obviously smoking participation rates cannot directly distinguish between increased starting rates and decreased quitting rates but the hazard models can also in a participation rate model it is difficult to control for the effect of the duration of the habit whereas duration models are designed specifically to allow for and measure the dependence of the hazard rate on duration another advantage is that the participation rate at any one time will oversample the number of long term smokers relative to those who had a short term habit whereas a duration model is designed to avoid this source of bias one drawback however is that because of their inherent panel nature the data requirements of duration models are somewhat more difficult to satisfy as shall be seen the only previous work in the economics literature that estimates the hazard rate of starting smoking is douglas and hariharan 1994 my paper improves upon douglas and hariharan in at least three important ways first it estimates the hazard rate of quitting smoking as well as that of starting second it takes into account variation in state level regulation third its time varying covariate model allows hazard rates to respond dynamically to changes in cigarette price regulation and information variables the use of time varying covariates is important because it brings the empirical model into much closer accord with theory the decision whether or not to start or quit smoking is an ongoing decision made one day at a time on the basis of current information the hazard of starting is greatest when the cost of the habit appears lowest and its benefit appears highest this comparison of cost and benefit changes through time as price information income and life cycle variables change while douglas and hariharan 1994 used price information from the potential smoker s most vulnerable age on the theory that its marginal effect is greatest at that time the model used in this paper allows each individual s hazard rate to respond to changes in price and public information as they occur the leading theoretical model of the decision to smoke is the rational addiction model of becker and murphy 1988 which assumes that consumers of addictive goods begin smoking only after fully weighing the costs and benefits of the habit

alcoholism work and income this article reports on an empirical analysis of the relationships between alcoholism and income and working we show that the relationships between alcoholism and labor market success have important age or life cycle dimensions we present evidence that alcoholism may affect income more by restricting labor market participation than by affecting the wages of workers finally we demonstrate that the effects of alcoholism on earnings depend on the extent to which one controls for other covariates associated with alcoholism as such we suggest that there may be important indirect as well as direct effects of alcoholism on labor market success

property taxes and dynamic inefficiency a correction of a correction abstract according to homburg s 2014 comment on kim and lee 1997 a property tax cannot cause dynamic inefficiency in overlapping generations models with land unless the tax confiscates the entire land rent but then homburg claims land would be intrinsically worthless and the market for land would be closed the latter claim is invalid because as a store of value land can trade at a positive price even though its net return is negative

employment wages and alcohol consumption in russia 1 introductionconcerns regarding the relationship between alcohol consumption and labor market productivity are well grounded if problem drinking or alcoholism is considered a disease then it may have depressant effects on labor market productivity causing reductions in employment earnings and other labor market outcomes mullahy and sindelar 1993 1996 kenkel and ribar 1994 however there is a medical literature that documents a u shaped relationship between alcohol consumption and the risk of cardiovascular disease according to this literature moderate drinkers have a lower risk of cardiovascular disease than do either abstainers or heavy drinkers beaglehole and jackson 1992 doll et al 1994 consistent with this evidence several economists have found a positive association between moderate drinking and earnings berger and leigh 1988 french and zarkin 1995 heien 1996 hamilton and hamilton 1997 zarkin et al 1998 macdonald and shields 2001 this article investigates the impact of alcohol consumption on employment and wages in russia the primary contributions of the article are twofold first it enhances the economic literature on the relationship between alcohol consumption and labor market behavior by using data from a longitudinal survey the use of a longitudinal data set enables the estimation of a fixed effects model which helps avoid the potential bias caused by unobserved individual factors not captured in cross sectional models the use of a fixed effects model is an important extension to the literature because the data sets used in previous studies are cross sectional and usually lack adequate variables that could serve as identifying instruments to control for the endogeneity of alcohol consumption 1 furthermore the richness of the data set used in this article allows for the application of three alternative measures of alcohol consumption in the empirical analysis this is important because the relationship between alcohol consumption and labor market outcomes may be sensitive to the alcohol measure that is used the second notable contribution of this article is that it provides the first empirical evidence on the association between alcohol consumption and labor market outcomes in russia excessive alcohol consumption is a widespread problem in russia where per capita alcohol consumption is around 14 liters per year the world health organization who considers 8 liters to be a sign that a country has a critical consumption level for health problems quinn judge 1997 furthermore the dramatic fluctuations in mortality rates experienced in russia over the past 15 years have generated considerable attention to the potential effect of alcohol consumption on the overall health of the russian population it is important to investigate how labor market outcomes would be affected by alcohol consumption in a country which demonstrates such dramatic fluctuations in alcohol consumption and mortality consistent with the previous studies cross sectional results generally support the hypothesis of an inverse u shaped relationship between alcohol consumption and wages and employment results from the fixed effect models are found to be quite different from those of cross sectional models the positive effect of alcohol consumption on employment disappears for both males and females once the individual fixed effects are controlled for the results of the wage model lend support to a small and linear return to alcohol consumption but the effects are significant only at the 10 level the fixed effects estimates are smaller in magnitude and estimated with less precision compared with cross sectional estimates section 2 reviews the previous literature section 3 discusses the conceptual issues and empirical strategy section 4 introduces the data set section 5 provides a discussion of the results and sensitivity analyses section 6 concludes the article

on the existence of balanced growth equilibrium the authors characterize the class of dynamic models that allow for the most commonly used types of sustained economic growth balanced and asymptotically balanced they show that under a constant returns to scale technology asymptotically constant discount rate and asymptotically constant elasticity of marginal felicity are not only necessary but also sufficient conditions for the existence of a n asymptotically balanced growth equilibrium path the authors provide examples of recursive utility models that accept a n asymptotically balanced growth equilibrium and discuss their implications on cross country differences in growth rates as well as on savings behavior and wealth distribution copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs