assessing the fdic s premium and examination policies using soviet put options abstract the fdic s total liability for insuring a bank s deposits during a fixed period diminishes as the frequency of examinations increases since a marginally solvent bank can be closed while losses are small the paper develops a technique for pricing the insurance liability over a fixed period during which there are multiple examinations under current policy most banks are examined annually and reviewed every six months at which time the fees for insurance may be adjusted since the current schedule of fees allows only a narrow range and a few discrete levels the fdic typically retains some positive or negative residual liability in each six month period and for the entire year we show how to estimate this net liability the calculations of total and net liability are illustrated for a sample of large banks

the demand for energy cross country evidence using the florida model abstract income and own price elasticities of demand for energy for 51 countries in 1980 are presented based on pooled estimates from an 11 good demand system estimated with the florida model results indicate income elasticities of demand for energy are significantly larger than unitary for all countries and own price elasticities of demand for energy range between 0 8 and 1 0

bidimensional matching with heterogeneous preferences education and smoking in the marriage market we develop a frictionless matching model under transferable utility where individuals are characterized by a continuous trait and a binary attribute the model incorporates attributes for which there are heterogeneous preferences in the population regarding their desirability that is the impact of the traits cannot be summarized by a one dimensional attractiveness index we present a general resolution strategy based on optimal control theory and characterize the stable matching we then consider education and smoking status further specify the model by observing that there are more male than female smokers above each education level and derive additional predictions about equilibrium matching patterns and how individuals with different smoking habits marry down or marry up by education using the cps march and tobacco use supplements for the period 1996 to 2003 we find that the hypotheses based on our model predictions are borne out in the data

the demand for energy evidence from a cross country demand system abstract some new evidence on the income own price elasticities of demand for energy consumption by consumers is presented estimates are derived from a complete system of cross country demand equations with energy being one of the commodities considered

effects of family background on earnings and returns to schooling evidence from brazil we investigate whether omitted family background variables are responsible for high returns to schooling estimated in brazil returns to schooling fall by about one third when parental schooling is added to wage equations surprisingly the schooling of fathers in law has larger effects on wages than the schooling of fathers on the basis of a model of assortative mating we interpret this as evidence that parental characteristics represent unobservable worker attributes rather than nepotism in the labor market we conclude that the family background bias in returns to schooling is modest and need not imply returns to family connections

marriage meets the joneses relative income identity and marital status abstract this paper investigates the effect of relative income on marriage accounting flexibly for absolute income the ratio between a man s income and a local reference group median is a strong predictor of marital status but only for low income men relative income affects marriage even among those living with a partner a 10 percent higher reference group income is associated with a 2 percent reduction in marriage we propose an identity model to explain the results

bequest as a public good within marriage a note bequest to and marriage of children can lead to a pareto inefficient allocation the inefficiency or market failure arises because one family making a bequest to its own child ignores the contribution to the utility of the other family whose child enters the marriage this note shows that an assortative mating rule based on bequests can improve or even restore pareto efficiency when parents take account of the rule in deciding the amount of bequests to their own children

love and taxes and matching institutions we study a setting with search frictions in the marriage market and with incomplete contracting inside the family everyone prefers a partner that has high income and is a perfect emotional match but compromises must often be struck a high income earner may abstain from marrying a low income earner even though they would be a perfect match emotionally because the highincome earner may dislike the implicit income redistribution implied by the marriage redistributive income taxation may ease this problem income matching institutions that secure that people largely from the same income groups meet each other can substitute for redistribution so that optimal redistribution is reduced we also introduce a divorce option redistributive taxation is shown both to further and stabilize marriage

warrant valuation and exercise strategy abstract this paper demonstrates that warrant valuation and exercise strategy differ fundamentally from call option valuation simultaneous exercise of warrants is shown to be suboptimal and a monopolist owning all warrants can achieve a higher value unless warrants are perfectly divisible no satisfactory equilibrium exists for the valuation and exercise of widely held warrants the problems encountered appear to be quite general and stem from necessary assumptions about future corporate dividend policy and capital structure such assumptions are necessary for any model of corporate security valuation

warrant exercise and bond conversion in competitive markets abstract we develop a theory of warrants held by competitive warrantholders not constrained to exercise their warrants as one block the theory also applies to convertible bonds held by competitive bondholders not constrained to convert their bonds as one block we prove that the warrant bond price in each of the competitive equilibria is less than or equal to the price in an economy with the block constraint and for at least one competitive equilibrium the warrant bond price equals the warrant bond price in the block constrained economy we illustrate the paths of competitive warrant exercise and bond conversion and conclude that under realistic assumptions they can be long

why dowry payments declined with modernization in europe but are rising in india in contrast to most dowry oriented societies in which payments have declined with modernization those in india have undergone significant inflation over the last five decades this paper explains the difference between these two experiences by focusing on the role played by caste the theoretical model contrasts caste and non caste based societies in the former there exists an inherited component to status caste that is independent of wealth and in the latter wealth is the primary determinant of status modernization is assumed to involve two components increasing average wealth and increasing wealth dispersion within status or caste groups the paper shows that in caste based societies the increases in wealth dispersion that accompany modernization necessarily lead to increases in dowry payments whereas in non caste based societies increased dispersion has no real effect on dowry payments and increasing average wealth causes the payments to decline

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

gorman and musgrave are dual an antipodean theorem on public goods abstract this paper examines the conditions under which the allocation branch of the government can determine the optimum provision of public goods independently of the distribution of private goods we draw attention to the duality with the literature on aggregation over consumers private goods economies

what shapes player performance in soccer empirical findings from a panel analysis in this article we investigate the pay performance relationship of soccer players using individual data from eight seasons of the german soccer league bundesliga we find a nonlinear pay performance relationship indicating that salary does indeed affect individual performance the results further show that player performance is affected not only by absolute income level but also by relative income position an additional analysis of the performance impact of team effects provides evidence of a direct impact of team mate attributes on individual player performance

for love or money the impact of income taxes on marriage higher sometimes lower than their combined single income tax obligations in this paper we explore the impact of the federal individual income tax as well as other economic and demograplhic variables on the marriage decisionis of individuals using longitudinal data from the panel study on income dynamics for the period 1968 92 we estimate a discrete time hazard model of the time to first marriage we find that the probability of marriage is significantly affected by a range of economic and demographic variables importantly we find that an increase in total income taxes paid by married versus single women has a negative effect on the likelihood of marriage and that the change in the marginal tax rate is also a significant determinant of marriage in some cases in contrast the tax effects are rarely significant in determining marriage probabilities among men although there are some differential responses by race in general the impacts of the income tax variables even when statistically significant are small

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

pricing warrants an empirical study of the black scholes model and its alternatives this paper uses a sample of over 25 000 daily warrant prices to empirically investigate potential problems with the commonly used warrant pricing model proposed by black and scholes as an extension of their call option model one problem seems to be especially important the constant variance assumption of the dilution adjusted blackscholes model appears to cause biases in model prices for almost all warrants and over the entire sample period we show that more accurate price forecasts are obtained with a specific form of the constant elasticity of variance model since the derivation of the black scholes model financial economists have speculated on its usefulness for warrant valuation in their pathbreaking paper black and scholes 1973 claim that in many cases their model can be used as an approximation to give an estimate of the warrant value however black and scholes 1973 warn that

an empirical investigation of u s firms in reorganization the purpose of this paper is to understand the institutional features of chapter 11 from an empirical examination of thirty firms that have emerged from reorganization we find the recontracting framework of chapter 11 to be complex lengthy and costly violations of absolute priority in favor of stockholders are frequently encountered these deviations may result from the bargaining process of chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder oriented management to preserve firm value an example of such recontracting addresses myers underinvestment problem an investigation of the effects of chapter 11 on the pricing of risky debt is also provided the purpose of this paper is to understand the institutional features of chapter

male earnings marriageable men and nonmarital fertility evidence from the fracking boom we investigate whether an increase in the potential earnings of men leads to an increase in marriage and a reduction in nonmarital births by exploiting the positive economic shock associated with fracking in the 2000s a reduced form analysis reveals that in response to local area fracking production which increased wages and jobs for non college educated men both marital and nonmarital birth rates increase but marriage rates do not the pattern of results is consistent with positive income effects on births but no associated increase in marriage we contrast our findings to the appalachian coal boom experience of the 1970s and 1980s

the valuation effects of warrant extensions in this paper we examine the warrant price and stock price reactions to the announcement of warrant life extensions as predicted by option pricing theory warrant prices increase in response to an extension our principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns on average we interpret the evidence as supportive of an anticipation hypothesis in which the market perceives the decision to extend the warrants expiration date as a favorable indication for the stock price before the subsequent expiration

cohabitation marriage and divorce in a model of match quality the objective of this research is to further our understanding of how and why individuals enter and leave coresidential relationships we develop and estimate an economic model of nonmarital cohabitation marriage and divorce that is consistent with current data on the formation and dissolution of relationships jovanovic s journal of political economy 87 1979 972 90 theoretical matching model is extended to help explain household formation and dissolution behavior implications of the model reveal what factors influence the decision to start a relationship what form this relationship will take and the relative stability of the various types of unions the structural parameters of the model are estimated using longitudinal data from a sample of female high school seniors from the united states new numerical methods are developed to reduce computational costs associated with estimation the empirical results have interesting interpretations given the structural model they show that a significant cause of cohabitation is the need to learn about potential partners and to hedge against future bad shocks the estimated parameters are used to conduct several comparative dynamic experiments for example we show that policy experiments changing the cost of divorce have little effect on relationship choices

multi stage product development with exploration value enhancing preemptive and innovation options abstract we provide a real options framework for the analysis of product development that incorporates research and exploration actions product attribute value enhancing actions with uncertain outcome as well as preemption and innovation options we derive two stage analytic formulas and propose a general multi period solution using a numerical lattice approach our analysis reveals that exploration actions are more important when the project is out or at the money near zero npv and less important for high project values in a multi stage setting exploration actions are important even for in the money projects when follow on actions exist that can enhance the expected value of the project with path dependency early actions are more valuable since they enhance the impact or reduce the cost of subsequent actions preemptive controls affecting rare event jump frequency and innovations that introduce positive jumps are more valuable for firms with higher frequency of competitive threats involving low volatility

world product and income a review article kravis heston and summers provided comparable price and volume data for gross domestic product and its components for each of 34 countries varying in affluence from india and malawi to the united states the article discusses the data and the way in which they are generated and considers the use of these data for applied demand analysis

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

beauty vs earnings gender differences in earnings and priorities over spousal characteristics in a matching model abstract i develop a model of marriage matching where males and females care about two distinct characteristics of their spouse beauty and earnings each individual s beauty is exogenous but earnings depend on human capital investments made by each individual prior to entering the marriage market i show that even if males and females constitute ex ante identical populations with identical underlying preferences and equal access to human capital investment and labor market opportunities there can still exist an equilibrium where on average one gender invests more in human capital than the other and moreover members of one gender are more likely to prioritize beauty over earnings in a spouse while members of the other gender are more likely to prioritize a potential spouse s earnings over beauty

tipping and the dynamics of segregation schelling dynamic models of segregation journal of mathematical sociology 1 1971 143 186 showed that extreme segregation can arise from social interactions in white preferences once the minority share in a neighborhood exceeds a tipping point all the whites leave we use regression discontinuity methods and census tract data from 1970 through 2000 to test for discontinuities in the dynamics of neighborhood racial composition we find strong evidence that white population flows exhibit tipping like behavior in most cities with a distribution of tipping points ranging from 5 to 20 minority share tipping is prevalent both in the suburbs and near existing minority enclaves in contrast to white population flows there is little evidence of nonlinearities in rents or housing prices around the tipping point tipping points are higher in cities where whites have more tolerant racial attitudes

assortative mating and female labor supply this paper investigates married women s hours worked disaggregated by the husband s wage decile in the united states this pattern has changed from downward sloping to hump shaped we show that this development can be explained within a standard household model of labor supply when taking into account trends in assortative mating a quantitative analysis of our model shows that female wage growth and decreasing fertility are primarily responsible for the overall increase in wives hours since the 1970s the fact that the most pronounced increases are observed for wives married to high wage men is a result of trends in assortative mating

customs and incentives in contracts this article examines contractual practices that are often assumed customary in particular it examines discreteness in agricultural contracts and focuses on the distinction between the use of simple discrete fraction terms in cropshare contracts and the nearly continuous payment terms used in cash rent contracts we show that the pattern of shares is best explained as a response to moral hazard problems spread over large numbers of inputs a contracting model explains the pattern of shares the difference in flexibility with cash rent contracts and the lower bound on shares empirical analysis using micro data on over 3 000 contracts are used to test implications of the model a wide range of support is found for a model based on moral hazard and measurement costs copyright 2009 oxford university press

the relative performance of five alternative warrant pricing models five warrant pricing models are examined in this study a pair based on the black scholes model a pair based on the constant elasticity of variance cev modification and an extendible warrant model a la longstaff based on more than 20 000 warrant price observations the flexible exponent cev model generates the lowest average absolute pricing error in most of the warrants examined the dilution adjusted black scholes model however remains a reasonable economical alternative in many cases

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

marriage and divorce changes and their driving forces the family is not a static institution in recent decades marriage rates have fallen divorce rates have risen and the defining characteristics of marriage have changed the economic approach to the family seeks to explain these trends by reference to models that can also explain how and why families form gary becker s 1981 treatise on the family proposed a theory based on production complementarities in which husband and wife specialize in the market and domestic spheres respectively production complementarities also arise in the production and rearing of one s own children however production complementarities at least as initially described are decreasingly central to modern family life increased longevity and declining fertility mean that most of one s adult life is spent without one s own children in the household also the rise in marital formation at older ages including remarriage means that many families form with no intention of producing children moreover increases in female labor force participation suggest that household specialization has either declined or at least taken on a different meaning these changes have come about as what is produced in the home has been dramatically altered both by the emergence of labor saving technology in the home and by the development of service industries that allow much of what was once provided by specialized homemakers to be purchased in the market the availabil

the intergenerational transmission of risk and trust attitudes recent theories endogenize the attitude endowments of individuals assuming that they are shaped by the attitudes of parents and other role models this paper tests empirically for the relevance of three aspects of the attitude transmission process highlighted in this theoretical literature 1 transmission of attitudes from parents to children 2 an impact of prevailing attitudes in the local environment on child attitudes and 3 positive assortative mating of parents which enhances the ability of a parent to pass on his or her attitudes to the child we focus on two fundamentally important attitudes willingness to take risks and willingness to trust others we find empirical support for all three aspects providing an empirical underpinning for the literature an investigation of underlying mechanisms shows that socialization is important in the transmission process various parental characteristics and aspects of family structure are found to strengthen the socialization process with implications for modeling the socialization production function and for policies focused on affecting children s non cognitive skills the paper also provides evidence that the transmission of risk and trust attitudes affects a wide variety of child outcomes implying a potentially large total effect on children s economic situation

do alternative opportunities matter the role of female labor markets in the decline of teacher quality abstract this paper documents the widely perceived but little investigated notion that teachers today are less qualified than they once were evidence of a marked decline in the quality of young women going into teaching between 1960 and 1990 is presented using standardized test scores undergraduate institution selectivity and positive assortative mating characteristics as indicators of quality in contrast the quality of young women becoming professionals increased the roy model of self selection highlights how occupational differences in the returns to skill determine teacher quality estimates suggest the significance of increasing professional opportunities for women in affecting the decline in teacher quality

who holds the purse strings within the household the determinants of intra family decision making abstract we study the determinants of intra household decision making responsibility over economic and financial choices using a direct measure provided in the 1989 2010 bank of italy survey of household income and wealth we find that the probability that the wife is responsible for decisions increases as the wife s characteristics in terms of age education and income become closer or even higher than those of her husband s thus consistently with a bargaining approach decision making responsibility is associated with marriage heterogamy and not only along strictly economic dimensions however in support of an alternative household production approach we also find that the probability that the wife is responsible is lower when she is employed which suggests the presence of a specialization pattern assigning responsibility to the spouse with more available time our results are robust to additional controls and alternative samples

a direct test of the efficient marriage market hypothesis this paper takes gary becker s theory of marriage seriously in his seminal paper becker 1973 proposes an invisible hand theorem for the marriage market he argues that the competition for spouse leads men and women to be matched in such a way that maximizes the sum total of marital output applications of the economic approach to marriage are now commonplace becker et al 1977 study the effect of imperfect information on divorce benham 1974 scully 1979 and wong 1986 estimate the effect of wife s education on husband s earnings grossbard shechtman 1993 and rao 1993 focus on the effect of sex ratio on implicit or explicit bride prices or dowries the literature however has virtually ignored becker s hypothesis that marriage markets maximize total marital output i e that marriage markets are efficient mistakes are no doubt made in marriage decisions the marriage market is not a text book example of perfect competition because of elaborate social norms substantial search costs and room for bargaining and opportunistic behavior nevertheless we intend to push becker s efficient marriage market model at face value and directly confront it with data the hypothesis that the marriage market maximizes marital output provides a framework that allows estimating a model of spouse selection which recovers some of the parameters of the production function for marital output using the estimated parameters we can use programming techniques to find the optimal male female pairing that maximizes the sum of marital output the degree to which the actual pairing of husbands and wives corresponds to the optimal pairing provides a goodness of fit test of the efficient marriage market hypothesis our method is applied to census data in hong kong a model of spouse selection and other matching models differs from a discrete choice model e g mcfadden 1984 in two important ways first the choice of a spouse is mutual not only does each man choose a woman that yields him the highest net utility but each woman also picks a man that gives her the highest net utility second in a discrete choice model several individuals can choose the same alternative in marriage markets this is prohibited under monogamy thus new methods have to be developed to analyze choice in marriage markets although marital output and the shadow price of husbands and wives are not observable the theory of optimal matching allows us to write down the likelihood function for the observed choice of marital partners it turns out that this model of spouse selection reduces to a version of the tobit model under the assumption that error terms are independently and identically normal in multinomial logit models the interpretation of parameters is cumbersome especially when the number of alternatives is large in our model of spouse selection the estimated parameters are directly related to the production function of marital output the signs of these parameters can be used to address the issue of positive versus negative assortative mating the model can also be used to test marginal product pricing in the marriage market with the estimated production function from the model of spouse selection we can impute the marital output for all possible male female pairs using these imputed output figures the optimal pairing between men and women that maximizes the sum of marital output can be found using an algorithm that solves the assignment problem the degree to which this optimal pairing corresponds to the observed pairing then provides a natural way of assessing marriage market efficiency given the limited range of information contained in the census we find that our model of spouse selection fits the observed choices better than other models such as one based on ranking method following varian s 1990 proposal for goodness of fit tests for optimizing models we derive a measure of efficiency which is based on the distance between total imputed marital output under observed matching and that under optimal matching

are all the good men married uncovering the sources of the marital wage premium a longstanding and yet unsettled question in labor economics is does marriage cause men s wages to rise cross sectional wage studies consistently find that married men earn significantly higher wages than do men who are not currently married however it is well known that inferring causal relationships from crosssectional analysis is inappropriate because of the biases introduced by unobserved heterogeneity as a means of circumventing this problem this paper uses data on identical twins to control for unobserved heterogeneity our estimates suggest that marriage increases men s wages by as much as 27 and that little if any of the cross sectional relationship between marriage and wages is due to selection in addition we find little evidence that the marital wage premium is a consequence of household specialization

extending the sample size in cross country demand analysis abstract results from different phases of the international comparison project and from different sets of countries are compared and combined

family ties and labor markets in the united states and brazil we use comparable surveys from brazil and the united states to examine vertical and horizontal connections between families motivated by a model of assortative mating and intergenerational transmission of schooling and earnings we include the schooling of relatives in male wage equations we find that the effect offather in law s schooling is larger than the effect offather s schooling in brazil while the opposite is observed in the united states we interpret these effects as indicators of unobservable worker characteristics with differences in assortative mating and female labor market activity explaining the differences in the apparent effect of fathers and fathers in law in the two countries

relative income race and mortality abstract this paper examines the relationship between relative income and mortality our research is motivated by recent literature that posits that holding individual income fixed those whose income are low relative to the incomes of those in a reference group will have worse health we develop an empirical model in which an individual s health is a function of his or her own income and the incomes of those who live in the same geographical area we show how this individual level model can be estimated using semi aggregated data on the mortality rates of people categorized by age race gender and place of residence the model is estimated using mortality data from the 1980 and 1990 compressed mortality files merged with income data from the 1980 and 1990 5 public use samples of the us census we find no evidence that having relatively wealthy neighbors holding own income fixed is associated with higher mortality instead we find evidence that among some demographic and age groups in particular working aged black males having relatively wealthy neighbors is associated with lower mortality for example among younger aged 25 64 black men an increase in the income of others is estimated to have a beneficial effect on mortality that is 40 as large as an equivalent increase in own income

should we get married the effect of parents marriage on out of wedlock children i introduction while marriage remains the foundation of family life in the united states the traditional process of family formation specifically marriage before having children has been dwindling the proportion of american children born to unmarried parents has increased dramatically over the past three decades from 12 in 1970 to nearly one third of all births today siglerushton and mclanahan 2002 the decoupling of marriage and fertility behavior is particularly common among the low income less educated urban population mclanahan and sandefur 1994 unmarried parents often have fewer resources and their children tend to display inferior outcomes compared to those raised by two married parents 1 concerned with the rise in out of wedlock parenthood and its implications for the children involved policies in recent years have been geared toward promoting marriage among unmarried parents 2 however little is known about the potential benefits of marriage after childbirth couples who have children out of wedlock are known to be selectively different from those who marry before having children unmarried parents tend to be of lower socioeconomic standing face poorer prospects in the marriage market and have lower incentives for assortative mating brown 2004 garfinkel glei and mclanahan 2002 rosenzweig 1999 hence interpreting the outcome differences found in simple comparisons of children born to married versus unmarried parents as benefits of marriage can be misleading as these differences may largely reflect the more favorable characteristics of married parents this study examines whether marriage between the biological parents after childbearing benefits the children involved using data on a representative sample of children all born to unmarried couples drawn from the fragile families and child wellbeing study ffcws the ffcws is particularly well suited to address this question as it provides child assessment data and detailed marriage fertility and socioeconomic information on both biological parents for a large representative sample of children born outside of marriage we focus on the effect of marriage among parents who are romantically involved at childbirth on child cognitive ability measured at age 3 based on scores from the peabody picture vocabulary test ppvt a widely used interviewer administered measure of receptive hearing and verbal ability in addition effects of marriage on child health and behavioral outcomes are analyzed a significant fraction of children in our sample experience the marriage of their parents we analyze whether marriage after childbearing affects early developmental outcomes using an empirical strategy centering around a potential outcome framework similar to an experiment where the treatment marriage after childbirth is randomly assigned we draw on matching methods e g heckman ichimura and todd 1998 rosenbaum and rubin 1983 to identify the treatment effect exploiting the detailed information on the parents provided in the ffcws this approach addresses the selection into marriage by constructing an appropriate comparison group for children whose parents marry after childbirth we first estimate the probability of marriage among unwed parents with a newborn and then compare the outcomes of children whose parents share similar probabilities of marriage but differ only in whether their parents transitioned into marriage within 3 yr after their birth the present study also sheds light on the role of typically unobserved factors likely to be important determinants of selection into marriage including the father s attributes and the degree to which the parents have similar characteristics positive assortative matching while some studies have examined the determinants of marital union formation among the population of single mothers e g aassve 2003 relatively little is known about the factors influencing the transition into marriage and the role of similarities in traits between unmarried biological parents

spouse selection and earnings evidence of marital sorting michael a zimmer this article investigates economic bases for individuals selection of marriage partners its central focus is matching of spouse pairs based on unobservable components of hourly earnings using a data extract from the panel study of income dynamics we have observations of individuals wages before and immediately after marriage along with their spouses earnings after marriage we exploit the data to estimate the relation between spouses wage residuals the evidence supports positive marital matching on the basis of earnings the results are robust with respect to variations in the statistical framework of the model jel j12 i introduction the process by which marriages are formed has long attracted the attention of social scientists research has suggested that individuals choose spouses similar to themselves in physical and social traits such as height and ethnicity an area of interest in recent years has been the economic basis of spouse selection beginning with becker 1974 economists focused on earnings characteristics of spouses becker argued that since in most cultures males specialize in market production spouse selection matches high wage males with females who specialize in home production and rearing of families empirical research on becker s hypothesis has produced mixed results in several studies the strategy has been to estimate earnings regressions from samples of existing married couples and then obtain correlations between the ensuing earnings residuals of spouses the correlations are used as indexes of marital sorting in earnings after controlling for measured factors such as schooling age and work experience smith 1979 used census data to estimate residual correlations for black and white couples he obtained estimates of 0 035 for whites and 0 216 for blacks becker 1981 used the 1967 survey of economic opportunity to obtain partial correlations of 0 32 for whites and 0 24 for blacks zimmer 1996 examined earnings correlations among low income marriages although his evidence supports becker s hypothesis of negative assortative mating with respect to wages the results are not consistent across race groups lam 1988 provided an explanation of positive assortative mating with respect to wealth and wages be also established elasticities of spouses hours worked and demands for household goods with respect to wages that would produce positive assortative mating several recent studies have addressed the apparent earnings premium of married males relative to single males nakosteen and zimmer 1997 and cornwell and rupert 1997 argued that married men are observed to earn more than singles because high earning males possess unobserved traits that make them attractive prospects for marriage but here too the evidence is mixed korenmann and neumark 1991 suggested that married males earn more than singles because marriage tends to make them more productive thereby enhancing their earnings prospects these studies have not paid attention to assortative mating per se focusing instead on earnings of husbands in the single versus married state the purpose of this study is to return to the issue of spouse matching on the basis of earnings our empirical strategy based on several waves of data from the panel study of income dynamics psid differs from the articles first cited above by attempting to capture the earnings residual of one spouse prior to marriage and relating it to the residual of his partner in a period shortly after marriage in this manner we do not rely as heavily on the use of ongoing marriages as in the early studies the following section describes our statistical approach in more detail section iii describes the data and specification of the earnings models sections iv and v present results of estimation and section vi concludes the article our results provide broad support for the hypothesis of positive assortative mating with respect to earnings

why have divorce rates fallen the role of women s age at marriage american divorce rates rose from the 1950s to the 1970s peaked around 1980 and have fallen ever since the mean age at marriage also substantially increased after 1970 i explore the extent to which the rise in age at marriage can explain the decrease in divorce rates for cohorts marrying after 1980 using data from the survey of income and program participation 1979 national longitudinal survey of youth and national survey of family growth three different empirical approaches suggest that the increase in women s age at marriage is the main proximate cause of the fall in divorce rates

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

waiting for mr right rising inequality and declining marriage rates abstract this paper demonstrates that women search longer for their first or second husband in cities with higher male wage inequality and examines several alternative explanations a causal link is established by controlling for city fixed effects and city specific time trends and by using inequality in the woman s state of birth as a proxy for local male inequality increasing inequality explains about 25 of the marriage rate decline over the last few decades and this is not due to the endogenous moving or labor force decisions of women nor to the marital decisions of men in reaction to changes in their own wages

a regional analysis of food consumption in spain abstract working s model of the engel curve is applied to food and staple food expenditures with two years spanish provincial data the functional form of working s model is tested against two other specifications and cannot be rejected the estimation results are quite comparable with those obtained by other authors we also find that spain has experienced a substantial change in the pattern of food consumption during the 1970s

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

the perverse effects of high brideprices marriage payments are conventionally explained by economists as resulting from the operation of market forces characteristically this type of explanation rests on the assumption that the individuals concerned do not behave strategically when strategic behavior is posited parents are able to anticipate the perverse effects of high brideprices on their daughter s happiness and on the probability of break up of her marriage as a result brideprices may be set at levels lower than those justified by the brides relative scarcity in the marriage market using both quantitative and qualitative evidence such a strategic approach is tested on the basis of original data collected in the senegal river valley c 2007 elsevier ltd all rights reserved

positive assortative mating and spouses as complementary factors of production a theory of labour augmentation this article develops a model of intellectual labour augmentation to explain both the marriage wage premium and educational assortative mating we suggest that husbands and wives are complementary factors of production where a spouse s education and skills augment their partner s productivity and earnings potential we test this proposition using data from the 2000 us census of population and the 2003 current population survey our results indicate that for working couples the marriage premium for husbands and wives is directly related to the education level of their spouses suggesting that positive assortative mating may be attributable to the labour market effects of intellectual augmentation of married households

marriage markets and assortative mating with household public goods theoretical results and empirical implications this paper analyzes marriage market equilibria when the gains from marriage result from joint consumption of household public goods assuming transferable utility within marriage the paper proves that marriage markets will be characterized by positive assortative mating on wealth when spouses differ only in endowments and the gains to marriage result only from public goods when spouses differ in wages and household public goods are produced at home the results imply offsetting effects with public good economies creating an incentive for positive assortative mating on wages and gains from specialization creating an incentive for negative assortative mating on wages the results help explain the persistent lack of empirical support for becker s prediction of negative assortative mating on wages and have implications for empirical analysis of all joint living arrangement decisions

a test of the relative income hypothesis the original permanent income and life cycle models were constructed around the view that savings rates are independent of the level of long run income 19 since then it has been well documented using household data that savings rates rise with long run income to be consistent with the empirical evidence modigliani suggests modifying the life cycle hypothesis to include a bequest motive his hypothesis however is that the share of lifetime resources that a household plans to devote to bequests is an increasing function of its lifetime resources relative to others in the same age cohort 17 the share of resources devoted to bequests is made a function of the relative and not the absolute level of resources so as to be consistent with menchik and david s empirical study of the bequest function 16 but if saving for bequests is influenced by relative income why not other forms of saving a simple model in which all types of saving are influenced by relative income was proposed by duesenberry in 1949 4 his basic hypothesis was that households are concerned about community consumption standards and that this concern leads to savings rates being an increasing function of a household s position in the income distribution although a per se desire for status is seen by some economists as inconsistent with rational behavior it is clear that a relative advantage is often instrumental in achieving absolute goals 6 7 10 11 22 while several policy implications of the relative income hypothesis have come to light 2 6 it has rarely been analyzed empirically the purpose of this paper is to present a test of the relative income model the hypothesis is that if income rank is really the variable driving savings rates then it should be possible to hold the level of income constant and still see the average propensity to save aps moving with income rank section ii presents a simple model of the savings decision in which concern for relative standing in the current consumption hierarchy is integrated into a permanent income framework the model is then used to explore the issue of functional form section iii discusses the data the equation to be estimated and the regression results section iv presents a summary and concluding remarks

pricing options with extendible maturities analysis and applications many common types of financial contracts incorporate options with extendible maturities this paper derives closed form expressions for options that can be extended by the optionholder and presents a number of applications including the valuation of american options with stochastic dividends junk bonds and shared equity mortgages we also derive closed form expressions for writer extendible options and discuss the writer s economic incentives for extending an out of the money option we apply these results to show that corporate debtholders have a strong incentive to extend the maturity of defaulting debt if there are liquidation costs we model and solve the debtholders optimal extension problem and show that the possibility of an extension can induce shareholders in highly levered firms to accept negative npv projects many common types of financial contracts and contingent claims incorporate options with extendible maturities for example a growing number of firms in many cases firms involved in leveraged buyouts are issuing bonds with maturities that can be extended at the firm s option options on real estate often allow the optionholder to extend the expiration date by paying an additional fixed amount to the option writer corporate warrants frequently give the issuing firm the right to unilaterally extend the life of the warrants a right that is often exercised in general any financial contract that could involve a rescheduling of payments a renegotiation of terms an early call or exercise provision or some similar type of flexibility over the timing of cash flows could be viewed as including an option with an extendible maturity this paper derives valuation expressions for extendible options examines the analytical properties of these prices and presents a wide variety of applications and examples in this analysis we distinguish between options that can be extended by the optionholder and options that are extended by the option writer since they differ fundamentally in their pricing implications focusing on the

on the valuation of american call options on stocks with known dividends both the roll and the geske equations for the valuation of the american call option on a stock with known dividends are incorrectly specified this note presents the corrected valuation formula explains the misspecifications and provides a numerical example

independence of allocative efficiency from distribution in the theory of public goods when is the pareto optimal amount of public goods independent of income distribution subject to some regularity conditions the answer is when preferences of every individual i can be represented by a utility function of the form u x i y a y x i b i y where x i is i s consumption of private goods and y is the amount of public goods

gender identity and relative income within households band s income we argue that this pattern is best explained by gender identity norms which induce an aversion to a situation where the wife earns more than her husband we present evidence that this aversion also impacts marriage formation the wife s labor force participation the wife s income conditional on working marriage satisfaction likelihood of divorce and the division of home production within marriage markets when a randomly chosen woman becomes more likely to earn more than a randomly chosen man marriage rates decline in couples where the wife s potential income is likely to exceed the husband s the wife is less likely to be in the labor force and earns less than her potential if she does work in couples where the wife earns more than the husband the wife spends more time on household chores moreover those couples are less satisfied with their marriage and are more likely to divorce these patterns hold both cross sectionally and within couples over time

intergenerational income mobility among daughters new evidence on daughters intergenerational mobility in a framework that encompasses women not in the labor force using broader measures of economic status than just the women s own earnings is presented and the role of husbands earnings is highlighted a parallel analysis of sons mobility is performed intergenerational transmission of income status may be weaker for daughters than for sons but is still quite substantial assortative mating is an important element in the intergenerational transmission process

human capital and interethnic marriage decisions common explanations for the generally negative relationship between education and ethnic endogamy include 1 education makes immigrants and their children better able to adapt to native culture thereby eliminating the need for a same ethnicity spouse and 2 education raises the likelihood of leaving ethnic enclaves thereby decreasing the probability of meeting potential same ethnicity spouses this paper considers a third option the role of assortative matching on education if education distributions differ by ethnicity then spouse searchers may trade similarities in ethnicity for similarities in education when choosing spouses u s census data on second generation immigrants provide strong support for the assortative matching mechanism

intergenerational mobility and marital sorting we use data from the german socio economic panel and the british household panel survey to estimate the extent of intergenerational economic mobility in a framework that highlights the role played by assortative mating we find that assortative mating plays an important role on average about 40 50 of the covariance between parents and own permanent family income can be attributed to the person to whom one is married this effect is driven by strong spouse correlations in human capital which are larger in germany than britain 2006 the authors journal compilation royal economic society 2006

the compound option approach to american options on jump diffusions abstract we derive analytical valuation formulas for compound options when the underlying asset follows a jump diffusion process we then apply these results to value extendible options american call options on stocks that pay discrete dividends and american options on assets that pay continuous proportional dividends numerical results are provided

endowments and the allocation of schooling in the family and in the marriage market the twins experiment 03 we show how comparisons between the within twin correlations of human capital outcomes across identical and nonidentical twins can be used to identify the variability in the individual specific component of endowments and the responsiveness of schooling to individual specific endowments in the family and in the marriage market even when schooling is measured with error estimates from two twins samples indicate that 27 42 percent of the variance in log earnings obesity is due to variability in individual specific endowments allocations of schooling reinforce specific endowments and individual specific earnings endowments of men and their wives schooling are negatively associated

the american family and family economics abstract gary becker s path breaking treatise on the family 1981 subjected individuals decisions about sex marriage childbearing and childrearing to rational choice analysis the american family has changed radically in recent decades we survey these changes as well as the ongoing effort to understand partnering parenting and care of the elderly as results of maximizing choices made by individuals first we describe the recent changes in the american family the separation of sex marriage and childbearing fewer children and smaller households converging work and education patterns for men and women class divergence in partnering and parenting strategies and the replacement of family functions and home production by government programs and market transactions second we examine recent work in family economics that attempts to explain these changes third we point out some challenging areas for further analysis and highlight issues of commitment in two primary family relationships those b

marital matching and earnings evidence from the unmarried population in sweden social scientists have devoted substantial research to economic basis for matching of men and women in marriage a common feature of existing studies is their reliance on samples of married couples the principal shortcoming of spouse data is that spouses earnings correlations are contaminated by the partners behaviors and other events that occur after marriage and affect their earnings this study addresses that problem by exploiting a longitudinal data file from the swedish population by selecting a sample of married couples in a given year we retreat through the file to years before the marriage using data from the spouses single years we apply the correlation methodology to their earnings evidence from the model supports positive assortative mating

income inequality and early nonmarital childbearing using individual level data from the united states we empirically investigate the role of lower tail income inequality in determining rates of early nonmarital childbearing among low socioeconomic status ses women we present robust evidence that young low ses women are more likely to have a nonmarital birth when they live in places with larger lower tail income inequality all else held constant we calculate that differences in the level of inequality are able to explain a sizeable share of the geographic variation in teen fertility rates we propose a model of adolescent decision making that facilitates the interpretation of our results

the effect of male wage inequality on female age at first marriage a model in which women search for husbands characterized by their wages predicts increasing within group male wage inequality raises the expected value of continued marital search and so lowers female marriage propensities using 1970 1980 and 1990 census data i test this hypothesis within geographically racially and educationally defined marriage markets the estimates suggest rising male wage inequality accounted for 7 to 18 of the decline in the propensity to marry between 1970 and 1990 for white women and more educated black women growing wage inequality appears to have had little effect on the marriage behavior of less educated black women

the economics of fatherhood the growth of nonmarital fertility together with greatly increased divorce rates and an increased proportion of children living in femaleheaded households has provoked considerable alarm about the demise of the traditional family and concern about potentially harmful effects on the well being of women and children in this paper i briefly summarize recent attempts by myself and others to develop a coherent theoretical framework to integrate economic theories of fertility and marriage in order to better understand why the same men who play the breadwinner role within marriage may fail to support their children following a divorce or who despite the gains to marriage may prefer to father children out of wedlock rather than within marriage i argue that such behaviors of men can be understood within a framework that takes into account the selfinterests of both men and women as they interact within a given sexual or marital match and as they interact in a broader market for sexual and marriage partners at the level of a given match the theory provides hypotheses about the determinants of voluntary child support by fathers who are divorced from or have never married the mother it also suggests reasons why voluntary child support is likely to be inadequate and consequently provides some insight about the role of laws and administrative procedures designed to establish paternity determine the size of childsupport awards and enforce collection of awards at the level of the market under certain circumstances theory produces results similar to those emphasized by william wilson and katherine neckerman s 1987 theory of outof wedlock childbearing among the underclass

for richer for poorer assortative mating and savings preferences do couples share the same values the social sciences have mainly concentrated on comparing the socioeconomic characteristics of spouses but rarely consider their attitudes to risk and time in this paper we use conventional measurements and an original method of scoring we find that spouses are very similar in their savings preferences even when we control for the individual characteristics our results suggest that most of this relationship comes from marital sorting these conclusions are decisive in explaining the decision process within households and its implications for wealth inequalities between households since homogamy causes a divide in the population

world product and income international comparisons of real gross product the volume reports on the third phase of the united nations international comparison project icp the main results provide comparisons of real gross domestic product gdp per capita for thirty four countries in 1975 quantity and price comparisons are given also for personal consumption capital formation and public consumption and further subdivisions of final expenditures on gdp are estimated