energy market liberalization and renewable energy policies in oecd countries abstract this paper investigates the effect of energy liberalization compared to other drivers on policies that support renewable energy in a long panel of oecd countries we estimate this effect by accounting for the endogeneity of liberalization related to joint decisions within a country s energy strategy using regulation in other industries as instruments we find that energy liberalization increases public support for renewable energy the effect of liberalization is the second largest after the effect of per capita income and is mostly driven by reductions in entry barriers while the effect of privatization is unclear this finding suggests that a reduction in the monopolistic power of state owned utilities has a positive effect on renewable energy policies when various types of actors are ensured access to the grid instead of it being provided to only a few large private firms

bequests gifts and social security this paper analyses the very long run or stationary state impact of an unfunded social security system we use an overlapping generations model framework a key feature is that while parents care about their children and can leave non negative bequests to them children also care about their parents and can make non negative gifts to them we show that the possibility of negative net bequests may make social security less harmful to private wealth accumulation than would otherwise be the case a subsidiary finding is that risk loving behaviour may emerge for some households due to the nature of intergenerational transfers within family lines

the market for used capital endogenous irreversibility and reallocation over the business cycle capital reallocation is strongly procyclical in the data but in standard business cycle models with heterogeneous firms it is countercyclical in this paper i argue that endogenizing the price of used capital solves this puzzle first i show empirically that for several sectors the price of used investment goods relative to new is procyclical second i build an equilibrium model of endogenous partial irreversibility with heterogeneous firms facing aggregate and idiosyncratic productivity shocks used investment goods are imperfect substitutes for new investment because of firm level capital specificity and this creates a downward sloping demand for used capital that shifts in response to aggregate shocks the model generates a procyclical resale price and procyclical reallocation in a recession when the price of used capital is low both static and dynamic real options effects induce unproductive firms to sell fewer assets to more productive firms this generates an amplification mechanism for measured aggregate tfp finally the model shows that endogenous irreversibility smooths aggregate investment and generates a countercyclical cross sectional dispersion of returns from capital consistent with the empirical evidence

computational suite of models with heterogeneous agents incomplete markets and aggregate uncertainty this paper describes the first model considered in the computational suite project that compares different numerical algorithms it is an incomplete markets economy with a continuum of agents and an inequality borrowing constraint

framing effects in public goods prospect theory and experimental evidence this paper studies both theoretically and experimentally frame effects in the context of a public good game in which players have to make a costly contribution either i to achieve or ii not to lose a non excludable monetary prize our protocol leads to public good provision not deterioration only if a certain contribution level is achieved since both frames differ with respect to the reference point we use prospect theory to derive testable predictions in particular prospect theory predicts more contribution in the second frame our evidence suggests that a subjects behavior is highly sensitive to frames and b the theoretical prediction is confirmed except when the threshold is low we also estimate the parameters which better suit our experimental evidence partly confirming previous results in the literature

the distributional implications of asymmetric income dynamics abstract income dynamics differ between groups of households defined by whether the head has university education or not and have changed asymmetrically in great britain since 2008 using a heterogeneous agent incomplete markets model we examine the quantitative implications of these differences for wealth inequality and for the distribution of conditional welfare losses within group wealth inequality is higher for the non university group and has increased since 2008 for both groups while between group inequality has also increased welfare losses are significantly higher for the non university educated since 2008 and are driven by both a greater fall in mean income and a larger rise in income risk non university educated households which had initial wealth below the median and net labour income in the lower quintiles suffered bigger losses social insurance policies beyond those currently in place can mitigate such welfare losses via tax and benefit redistributive mechanisms for the broad majority of households social insurance is valued more when it insures against the big adverse income shocks

on the curvature of the reporting function from objective reality to subjective feelings i suggest the idea of a reporting function r from reality to feelings the happiness literature claims we have demonstrated diminishing marginal utility of income i show not and that knowing r s curvature is crucial a quasi experiment on heights is studied

altruism and risk sharing in networks we provide the first analysis of the risk sharing implications of altruism networks agents are embedded in a fixed network and care about each other we study whether altruistic transfers help smooth consumption and how this depends on the shape of the network we identify two benchmarks where altruism networks generate efficient insurance for any shock when the network of perfect altruism is strongly connected and for any small shock when the network of transfers is weakly connected we show that the extent of informal insurance depends on the average path length of the altruism network and that small shocks are partially insured by endogenous risk sharing communities we uncover complex structural effects under iid incomes central agents tend to be better insured the consumption correlation between two agents is positive and tends to decrease with network distance and a new link can decrease or increase the consumption variance of indirect neighbors overall we show that altruism in networks has a first order impact on risk and generates specific patterns of consumption smoothing

robust policymaking in the face of sudden stops abstract this paper considers tax policies to deal with sudden stops declines in aggregate activity that are magnified by a binding collateral constraint that occasionally occur in emerging market economies households and or the government are assumed to face model uncertainty and desire robustness against alternative models welfare gains from optimal taxation are small if the government trusts its model of household expectations whether those expectations are altered by model uncertainty or not in contrast welfare losses are large if the government is uncertain about the household s probability model

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

subjective and objective measures of governmental regulations in oecd nations abstract since government regulations may have an important impact on the macroeconomic performance of market economies it is necessary to devise quantitative indicators of the regulatory regime which raises some difficult methodological issues after reviewing some of these problems we compare the results of several recent quantitative studies of regulation in oecd nations some based on an extensive review and quantification of laws and regulations others based on observational data of those familiar with these regulations despite their very different methodologies and coverage of particular types of governmental regulation the results of the three studies are significantly correlated which suggests that they all capture the same underlying reality

risk sharing networks and insurance against illness most risk sharing tests on developing country data are conducted at the level of the village generally the full risk sharing hypothesis is rejected this paper uses detailed data on all insurance networks within a village in tanzania networks are not clustered but largely overlapping we test whether full risk sharing occurs within these networks while village level full insurance cannot be rejected for food consumption we find evidence consistent with at least partial insurance of non food consumption via networks

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

redistributive shocks and productivity shocks abstract a productivity innovation reduces labor share at impact making it countercyclical it subsequently produces a long lasting increase that peaks five years later at a level larger in absolute terms than the initial drop before slowly returning to average i e labor share overshoots we estimate a bivariate shock process to the production function that under competition in factor markets accounts for this overshooting we pose this process in an otherwise standard real business cycle economy and we find that the contribution of productivity innovations to the variance of hours is 1 of that in the standard rbc model

is everything neutral in his well known analysis of the national debt robert barro introduced the notion of a dynastic family this notion has since become a standard research tool particularly in the areas of public finance and macroeconomics in this paper we critique the assumptions on which the dynastic model is predicated and argue that this framework is not a suitable abstraction in contexts in which the objective is to analyze the effects of public policies we reach this conclusion by formally considering a world in which each generation consists of a large number of distinct individuals as opposed to one representative individual we point out that family linkages form complex networks in which each individual may belong to many dynastic groupings the resulting proliferation of linkages between families gives rise to a host of neutrality results including the irrelevance of all public redistributions distortionary taxes and prices since these results are not at all descriptive of the real world we conclude

informal insurance arrangements with limited commitment theory and evidence from village economies recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income thus rejecting the hypothesis of full risk pooling we attempt to explain these observations by adding limited commitment as an impediment to risk pooling we provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment and test the model using data from three indian villages we find that the model can fully explain the dynamic response of consumption to income but that it fails to explain the distribution of consumption across households

rent sharing and workers bargaining power an empirical cross country cross industry panel analysis this paper studies how rents are shared between capital and labour using industry level panel data for 19 oecd countries over the 1988 2007 period the first step is an explanation of the rent creation process we provide evidence of a significant impact of regulation on value added prices at the industry level relative to the value added price for the overall economy rent in the second step we dissect the value added sharing process running ols and iv estimations our results confirm the blanchard giavazzi 2003 prediction the impact of rents on the capital share depends on workers bargaining power this article is protected by copyright all rights reserved

formal and informal risk sharing in ldcs theory and empirical evidence in village economies limited commitment models have been proposed as theoretical alternatives to the complete markets hypothesis and have been shown to be empirically relevant yet village institutions might be able to enforce some contracts we construct a theoretical model which shows how households can insure through both formal and informal contracts when some verifiable production takes place in an environment of incomplete markets this theoretical setting nests the case of complete markets when all risks can be insured by formal contracts because all states of nature would be verifiable and the case where only informal agreements are available agreements specifying informal transfers that needs to be self enforceable we derive two equations of interest the income equation which is partially determined by the formal contract and an euler type equation where consumption growth is affected by lagged consumption instead of being a martingale using semi parametric specifications we derive testable restrictions of our model we estimate both equations using data of village economies in pakistan empirical results are consistent with the model the estimation and allows to show that the incentive constraints due to selfenforcement bind and that formal contracts are used to reduce the probability of binding the constraint

courts the lex mundi project in cooperation with lex mundi member law firms in 109 countries we measure and describe the exact procedures used by litigants and courts to evict a tenant for non payment of rent and to collect a bounced check we use these data to construct an index of procedural formalism of dispute resolution for each country we find that such formalism is systematically greater in civil than in common law countries moreover procedural formalism is associated with higher expected duration of judicial proceedings more corruption less consistency less honesty less fairness in judicial decisions and inferior access to justice these results suggest that legal transplantation may have led to an inefficiently high level of procedural formalism particularly in developing countries

altruism within the family reconsidered do nice guys finish last this paper criticizes the view that altruism either increases the benefits of group interactions or improves the allocation of resources within families the authors identify a variety of circumstances in which members of a group would prefer to interact with less altruistic individuals and in which the efficiency of resource allocation is inversely related to the prevailing degree of altruism reasons that altruism might be a counter productive social force include 1 it can alter the social utility possibility frontier in surprising and sometimes unfortunate ways 2 it can entail exploitability causing family members to behave in ways that leave all parties worse off 3 altruists may take inefficient actions to preempt exploitation and 4 family members may establish efficient resource allocation by punishing selfish behavior a rise in the level of altruism may lead to the exclusion of certain punishment strategies on the grounds of credibility 1 general positive result is that sufficiently high levels of altruism almost always lead to efficient resource allocation one should not necessarily expect to find strong altruistic linkages between spouses nor should altruism necessarily contributed to marital stability in addition to the connections between this work and the literature on family behavior this analysis has broader implications concerning the role of altruism in society and the evolution of social conscience

expectations learning and business cycle fluctuations this paper explores an alternative theory based on learning dynamics in the con text of an otherwise standard stochastic growth model we consider an environment in which households and firms have an incomplete model of the macroeconomy knowing only their own objectives constraints and beliefs agents are optimizing have a completely specified belief system but do not know the equilibrium map ping between primitive disturbances the aggregate state of the economy and mar ket clearing prices by extrapolating from historical patterns in observed data they approximate this mapping to forecast variables that are exogenous to their decision problems such as the rental rate of capital and the real wage this belief structure has the property that beliefs affect the true data generating process of the economy which in turn affects belief formation the economy is therefore self referential shifts in beliefs about future returns to labor and capital affect current market clear ing prices which in turn can reinforce beliefs in this environment current prices can become less informative about future economic conditions generating fluctuations in real activity this kind of mechanism driving business cycle fluctuations is found in early writ ings on macroeconomic dynamics for example alfred c pigou 1927 on page 122 writes

temporary migration and endogenous risk sharing in village india when people can self insure via migration they may have less need for informal risk sharing at the same time informal insurance may reduce the need to migrate to understand the joint determinat

the formation of risk sharing networks this paper examines the formation of risk sharing networks in the rural philippines we find that geographic proximity possibly correlated with kinship is a major determinant of mutual insurance links among villagers age and wealth differences also play an important role in contrast income correlation and differences in occupation are not determinants of network links reported network links have a strong effect on subsequent gifts and loans gifts between network partners are found to respond to shocks and to differences in health status from this we conclude that intra village mutual insurance links are largely determined by social and geographical proximity and are only weakly the result of purposeful diversification of income risk the paper also makes a methodological contribution to the estimation of dyadic models

the power of forward guidance revisited in recent years central banks have increasingly turned to forward guidance as a central tool of monetary policy especially as interest rates around the world have hit the zero lower bound standard monetary models imply that far future forward guidance is extremely powerful promises about far future interest rates have huge effects on current economic outcomes and these effects grow with the horizon of the forward guidance we show that the power of forward guidance is highly sensitive to the assumption of complete markets if agents face uninsurable income risk and borrowing constraints a precautionary savings effect tempers their responses to changes in future interest rates as a consequence forward guidance has substantially less power to stimulate the economy in addition we show that the business cycle dynamics of our incomplete markets model differ substantially from its complete market counterpart this contrasts with the well known results of krusell and smith 1998 we present approximate representations that can easily be incorporated into standard business cycle models

expectations and the stability problem for optimal monetary policies eine auf den fundamentaldaten beruhende regelbindung der geldpolitik ohne selbstverpflichtung die bei vollkommen rationalen erwartungen der privaten akteure optimal ware ist instabil wenn diese akteure de facto den ublichen regeln des adaptiven lernens folgen dieses problem lasst sich dadurch beheben dass die erwartungen privater akteure berucksichtigt und in geeigneter weise in die optimale geldpolitik einbezogen werden diese eindeutige schlusfolgerung gilt auch dann wenn sich der geldpolitische entscheidungstrager und die privaten akteure in einem simultanen lernprozess befinden unsere ergebnisse zeigen wie wichtig es ist die geldpolitik angemessen zu gestalten und dabei nicht nur die fundamentaldaten sondern auch direkt die beobachteten erwartungen privater haushalte und unternehmen zu berucksichtigen

rent creation and rent sharing new measures and impacts on total factor productivity this analysis proposes new measures of rent creation and rent sharing and assesses their impact on productivity on cross country industry panel data we find first that 1 anticompetitive product market regulations positively affect rent creation and 2 employment protection legislation boosts hourly wages particularly for low skill workers however we find no significant impact of this employment legislation on rent sharing as the hourly wage increases are offset by a negative impact on hours worked second using regulation indicators as instruments we find that rent creation and rent sharing both have a substantial negative impact on total factor productivity jel e22 e24 o30 l50 o43 o47 c23

inequality leverage and crises the paper studies how high leverage and crises can arise as a result of changes in the income distribution empirically the periods 1920 1929 and 1983 2007 both exhibited a large increase in the income share of the rich a large increase in leverage for the remainder and an eventual financial and real crisis the paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes a financial crisis can reduce leverage if it is very large and not accompanied by a real contraction but restoration of the lower income group s bargaining power is more effective

computational accuracy and distributional analysis in models with incomplete markets and aggregate uncertainty abstract this paper shows that grid based numerical solutions to models with incomplete markets and aggregate uncertainty are sensitive to the number and placement of grid points in the aggregate asset holdings direction higher moments of the cross sectional distribution of asset holdings can be particularly affected which is important for welfare analysis the paper recommends using grids that have few grid points for aggregate assets overall but are denser around the mean of the ergodic distribution of individual asset holdings the fact that the accuracy of the approximation to decision functions can be much improved this way is captured by den haan s 2010 dynamic euler equation test but not by the traditionally used r 2 statistic

replicator dynamics in a cobweb model with rationally heterogeneous expectations abstract this paper extends the adaptively rational equilibrium dynamics of brock and hommes brock w a hommes c h 1997 a rational route to randomness econometrica 65 1059 1160 by introducing a generalized version of the replicator dynamic the replicator equilibrium dynamics red couples the price dynamics of a cobweb model with predictor selection governed by an evolutionary replicator dynamic we show that the red supports the conclusion of sethi and franke sethi r franke r 1995 behavioural heterogeneity under evolutionary pressure macroeconomic implications of costly optimisation the economic journal 105 583 600 that costly rational beliefs persist though unlike them these results obtain in the deterministic case numerical evidence shows that complex dynamics exist as in brock and hommes even though no weight is placed on strictly dominated predictors in an red steady state

adaptive learning and distributional dynamics in an incomplete markets model abstract recent research shows that several dsge models provide a closer fit to the data under adaptive learning this paper extends this research by introducing adaptive learning in the model of krusell and smith 1998 with uninsurable idiosyncratic risks and aggregate uncertainty a first contribution of this paper establishes that the equilibrium of this framework is stable under least squares learning the second contribution consists of showing that bounded rationality enhances the ability of this model to match the distribution of income in the us learning increases significantly the gini coefficients because of the opposite effects on consumption of the capital rich and of the capital poor agent the third contribution is an empirical exercise that shows that learning can account for increases in the income gini coefficient of up to 25 in a period of 28 years overall these findings suggest that adaptive learning has important distributional repercussions in this class of models

household search and the aggregate labor market we develop a theoretical model with labour market frictions incomplete financial markets and with households which have two members households face unemployment risks but their members adjust their labour supplies to insure against unemployment we use the model to explain the cyclical properties of aggregate employment and participation as in the u s data the model predicts that the participation rate the fraction of individuals that want jobs is not strongly correlated with aggregate economic activity this property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions when we assume bachelor households or households with infinitely many members complete markets in the two member household model and in the data primary earners are always in the labour force secondary earners have a mildly countercyclical participation rate and a mildly procyclical employment rate their behaviour insures the household against unemployment risks

intrinsic heterogeneity in expectation formation we introduce the concept of misspecification equilibrium to dynamic macroeconomics agents choose between a list of misspecified econometric models and base their selection on relative forecast performance a misspecification equilibrium is a stochastic process in which agents forecast optimally given their choices with forecast model parameters and predictor proportions endogenously determined under appropriate conditions the misspecification equilibrium will exhibit intrinsic heterogeneity in which all predictors are used at all times even in the neoclassical limit in which only the most successful predictors are used this equilibrium is attainable under least squares learning and dynamic predictor selection based on average profits

learning about monetary policy rules abstract we study macroeconomic systems with forward looking private sector agents and a monetary authority that is trying to control the economy through the use of a linear policy feedback rule we use stability under recursive learning a la evans and honkapohja learning and expectations in macroeconomics princeton university press princeton new jersey 2001 as a criterion for evaluating monetary policy rules in this context we find that considering learning can alter the evaluation of alternative policy rules

solving the incomplete markets model with aggregate uncertainty using the krusell smith algorithm and non stochastic simulations abstract this article describes the approach to computing the version of the stochastic growth model with idiosyncratic and aggregate risk that relies on collapsing the aggregate state space down to a small number of moments used to forecast future prices one innovation relative to most of the literature is the use of a non stochastic simulation routine

on the heterogeneous welfare gains and losses from trade how are the gains and losses from trade distributed across individuals within a country first we document that tradable goods constitute a larger fraction of expenditures for poor households second we build a trade model with nonhomothetic preferences to generate the documented relationship between tradable expenditure shares income and wealth and uninsurable earnings risk to generate heterogeneity in income and wealth third we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution in a numerical exercise we permanently reduce trade costs so as to generate a rise in import share of gdp commensurate with that seen in the data from 2001 to 2014 we find that households in the lowest wealth decile experience welfare gains over the transition measured by permanent consumption equivalents that are 67 percent larger than those in the highest wealth decile

the energy efficient transformation of eu business enterprises adapting policies to contextual factors abstract business contexts differ in their ability to foster the energy efficient transformation eet of enterprises accordingly energy efficiency policies have to be adapted to different situations the present paper analyzes the relationships between the eet of european union eu business end users and three contextual factors i e high energy prices stringency of regulations and society s alertness toward environment conservation enterprises from 9 eu member states have been grouped according to country industry and size the final sample includes 256 enterprise classes and the model controls for the innovation propensity and energy intensity of each enterprise class our results show that regulatory stringency is the most impactful contextual factor while the environmental alertness of society does not have a significant effect concerns over energy costs have not been found to drive eet per se but more energy intensive enterprise classes are more likely to react to high energy prices we discuss the implications of our results for the eu governments that are currently monitoring and refining the transposition of the 2012 energy efficiency directive

when can changes in expectations cause business cycle fluctuations in neo classical settings abstract it is often argued that changes in expectation are an important driving force of the business cycle however it is well known that changes in expectations cannot generate positive co movement between consumption investment and employment in the most standard neo classical business cycle models this gives rise to the question of whether changes in expectation can cause business cycle fluctuations in any neo classical setting or whether such a phenomenon is inherently related to market imperfections this paper offers a systematic exploration of this issue our finding is that expectation driven business cycle fluctuations can arise in neo classical models when one allows for a sufficiently rich description of the production technology however such a structure is rarely allowed or explored in macro models in particular we identify a multi sector setting and a setting with a costly distribution system in which expectation driven business cycles can arise

assessing the accuracy of the aggregate law of motion in models with heterogeneous agents this paper shows that the r2 and the standard error have fatal flaws and are inadequate accuracy tests using data from a krusell smith economy i show that approximations for the law of motion of aggregate capital for which the true standard deviation of aggregate capital is up to 14 119 higher than the implied value and which are thus clearly inaccurate can have an r2 as high as 0 9999 0 99 key in generating a more powerful test is that predictions of the aggregate law of motion are not updated with the aggregated simulated individual data

information heterogeneity and market incompleteness information is market consistent if agents only use market prices to infer the underlying states of the economy this paper applies this concept to a stochastic growth model with incomplete markets and heterogeneous agents the economy with market consistent information can never replicate the full information equilibrium and there are substantial differences in impulse responses to aggregate productivity shocks these results are robust to the introduction of a noisy public signal and aggregate financial markets we argue that the principle of market consistent information should be applied to any model with incomplete markets

risk sharing across communities this paper studies cross community risk sharing there is now a large body of theoretical and empirical work on informal insurance where people mitigate risk by sharing income a consistent empirical finding is that risk sharing is not complete within villages often the observed sets of individuals 2 one reason researchers suspect is that risk sharing does not take place at the village level but between individuals and families 3 we build a theoretical model where risksharing takes place between pairs of agents there are idiosyncratic shocks to individual income and community level shocks we consider how the opportunity for cross community links affects the shape and efficiency of risk sharing arrangements we find that when links across villages form there can be less risk sharing within a village welfare is higher for those directly or indirectly connected across villages but lower for those with no path connecting them to the other village overall welfare can be higher thus empirical findings that insurance within a village is not complete is not necessarily evidence of an inefficient pattern of risk sharing relations rather the finding is consistent with risk sharing patterns that involve cross community relations and such patterns may yield higher aggregate welfare despite incomplete insurance within a village this paper makes two contributions first it demonstrates the importance of a network analysis by examining pairwise incentives to form relations and the resulting pattern we can see new risk sharing outcomes second with this network model we show how informal risk sharing across communities has both aggregate and distributional effects to study network outcomes we posit a simple two stage model first we provide a benchmark model for risk sharing for a given network then working backwards we consider incentives to form risk sharing links 4 to illustrate consider a rural population and ask how people might link

effectiveness of regulatory interventions on firm behavior a randomized field experiment with e commerce firms economic regulators use various instruments to stimulate smes to change their behavior but limited evidence exists on the effectiveness of such interventions we analyze the effectiveness of three ways of providing e commerce firms guidance about the legal rules on information disclosure the initial non compliance is considerable in two interventions firm specific guidance is given by post mail and by e mail respectively in another intervention guidance on industry level is given by means of dedicated publications and presentations in all cases the guidance was given on behalf of the regulatory authority the effectiveness of the firm specific guidance is measured through a randomized field experiment while for the industry guidance a panel analysis is conducted we find that sending the firms a letter by post mail slightly improved firm compliance but overall the various forms of guidance appear to be ineffective although information related interventions are commonly used in practice such regulatory interventions can fail to influence the behavior of smes

risk sharing with limited commitment and preference heterogeneity structural estimation and testing in order to analyze the role of limited commitment and preference heterogeneity in explaining the consumption allocation i propose a theoretical and empirical framework to estimate and evaluate a risk sharing model where insurance transfers have to be self enforcing and the coefficient of relative risk aversion may depend on observable household characteristics i compare this model to benchmark models with full commitment and or without preference heterogeneity using data from three indian villages i find that the limited commitment model with heterogeneous preferences outperforms the benchmark models in a statistical sense and in terms of i explaining the dynamic response of consumption to idiosyncratic income shocks ii accounting for the variation of consumption unexplained by household and time effects and iii capturing the variation of inequality across time and villages and predicting changes in inequality i also use the estimated models to predict the effects of a counterfactual tax and transfer policy on the consumption allocation the limited commitment model with preference heterogeneity predicts larger benefits to the poor than its homogeneous counterpart

unemployment fears and deflationary spirals the interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features in isolation dampen them during recessions fears of unemployment stir up precautionary sentiments which induces agents to save more the additional savings may be used as investments in both a productive asset equity and an unproductive asset money but even a small rise in money demand has important consequences the desire to hold money puts deflationary pressure on the economy which provided that nominal wages are sticky increases wage costs and reduces firm profits lower profits repress the desire to save in equity which increases the fear of unemployment and so on this is a powerful mechanism which causes the model to behave differently from both its complete markets version and a version with incomplete markets but without aggregate uncertainty in contrast to previous results in the literature agents uniformly prefer non trivial levels of unemployment insurance

comparison of solutions to the incomplete markets model with aggregate uncertainty abstract this paper compares numerical solutions to the model of krusell and smith 1998 income and wealth heterogeneity in the macroeconomy journal of political economy 106 867 896 generated by different algorithms the algorithms have very similar implications for the correlations between different variables larger differences are observed for i the unconditional means and standard deviations of individual variables ii the behavior of individual agents during particularly bad times iii the volatility of the per capita capital stock and iv the behavior of the higher order moments of the cross sectional distribution for example the two algorithms that differ the most from each other generate individual consumption series that have an average maximum difference of 1 63 11 4

the influence of regulations on innovation a quantitative assessment for oecd countries abstract regulatory framework conditions have been identified as important factors influencing the innovation activities of companies industries and whole economies however in the empirical literature the impacts of regulation have been assessed as rather ambivalent for innovation different types of regulations generate various impacts and even a single type of regulation can influence innovation in various ways depending on how the regulation is implemented the endogenous growth approach developed by carlin and soskice 2006 and empirically applied by crafts 2006 which determines endogenously the rate of technological progress and therefore innovation allows a conceptual analysis of the influence of different types of regulation on innovation in general the negative effect of compliance costs should be compared with the more dynamic effect of regulations generating additional incentives for innovative activities based on this approach we derive hypotheses on the impact of different specific regulations on innovation we differentiate between economic social and institutional regulations following the oecd taxonomy on regulations existing economic analyses are surveyed which are characterised by rather heterogeneous approaches data bases and results the paper aims to apply a comprehensive and comparative approach to investigate quantitatively the innovation impacts in 21 oecd countries using panel data for the period between 1998 and 2004 in summary the empirical results confirm the hypotheses derived from the conceptual theoretical framework determining technical progress and innovation endogenously and allowing a distinction between short term and long term effects consequently the theoretical approach is an appropriate starting point for the empirical analysis of the influence of different regulations on innovation

solving the incomplete markets model with aggregate uncertainty using explicit aggregation we propose a method to solve models with heterogeneous agents and aggregate uncertainty the law of motion describing aggregate behavior is obtained by explicitly aggregating the individual policy rule the algorithm is simpler and faster than existing algorithms that rely on parameterization of the cross sectional distribution and or a computationally intensive simulation step explicit aggregation establishes a link between the individual policy rule and the set of necessary aggregate state variables an insight that can be helpful in determining what state variables to include in other algorithms as well

solving the incomplete markets model with aggregate uncertainty using the krusell smith algorithm abstract this paper studies the properties of the solution to the heterogeneous agents model in den haan et al 2009 computational suite of models with heterogeneous agents incomplete markets and aggregate uncertainty journal of economic dynamics and control this issue to solve for the individual policy rules we use an euler equation method iterating on a grid of pre specified points to compute the aggregate law of motion we use the stochastic simulation approach of krusell and smith 1998 income and wealth heterogeneity in the macroeconomy journal of political economy 106 868 896 we also compare the stochastic and non stochastic simulation versions of the krusell smith algorithm and we find that the two versions are similar in terms of their speed and accuracy

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

do market regulations reduce investment evidence from european regions abstractdo market regulations reduce investment evidence from european regions regional studies this paper investigates the impact of market imperfections on non farm business sector investment in european regions for 1995 2007 using dynamic panel and generalized method of moments gmm methods for estimating a euler equation the results show that barriers to entrepreneurship and to trade and investment decrease the productivity of capital which has negative effects on european regions investment corruption leads to increased operational costs creates uncertainty and thereby deters investment greater labour market regulation also means higher labour costs hiring and firing regulation and employment protection and legislation indicators increase the productivity of capital which has positive effects on regional investment

social capital and social quilts network patterns of favor exchange we examine the informal exchange of favors in societies such that any two individuals interact too infrequently to sustain exchange but such that the social pressure of the possible loss of multiple relationships can sustain exchange patterns of exchange that are locally enforceable and renegotiation proof necessitate that all links are supported any two individuals exchanging favors have a common friend in symmetric settings such robust networks are social quilts tree like unions of completely connected subnetworks examining favor exchange networks in 75 villages in rural india we find high levels of support and identify characteristics that correlate with support

monetary policy indeterminacy and learning abstract forward looking monetary models with taylor type interest rate rules are known to generate indeterminacies with a potential dependence on extraneous sunspots for some structural and policy parameters we investigate the stability of these solutions under adaptive learning focusing on common factor or resonance frequency representations in which the observed sunspot has a suitable time series structure we consider specifications incorporating both lagged and expected inflation in the phillips curve and both expected and inertial elements in the policy rule we find that some policy rules can indeed lead to learnable sunspot solutions and we investigate the conditions under which this phenomenon arises

altruism in networks we provide the first analysis of altruism in networks agents are embedded in a fixed network and care about the well being of their network neighbors depending on incomes they may provide financial support to their poorer friends we study the nash equilibria of the resulting game of transfers we show that equilibria maximize a concave potential function we establish existence uniqueness of equilibrium consumption and generic uniqueness of equilibrium transfers we characterize the geometry of the network of transfers and highlight the key role played by transfer intermediaries we then study comparative statics a positive income shock to an individual benefits all for small changes in incomes agents in a component of the network of transfers act as if they were organized in an income pooling community a decrease in income inequality or expansion of the altruism network may increase consumption inequality

the regulation of labor author s botero juan djankov simeon la porta rafael lopez de silanes florencio shleifer andrei abstract we investigate the regulation of labor markets through employment collective relations and social security laws in 85 countries we find that the political power of the left is associated with more stringent labor regulations and more generous social security systems and that socialist french and scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries however the effects of legal origins are larger and explain more of the variation in regulations than those of politics heavier regulation of labor is associated with lower labor force participation and higher unemployment especially of the young these results are most naturally consistent with legal theories according to which countries have pervasive regulaory styles inherited from the transplantation of legal systems

heterogeneous effects of regulation on the efficiency of the electricity industry across european union countries abstract this paper focuses on the relationship between the stringency of regulation oecd indicators and total factor productivity tfp growth in the electricity sectors of 19 european union countries for the period 1994 2007 both the oecd regulatory indicator and the tfp growth index have been decomposed in order to bring to light a complex picture of interrelations in which the negative impact of the overall regulation on productivity is the result of opposite forces estimation results tell us that only the stringency of entry regulation significantly reduces technological change whereas vertical integration exhibits a negative and significant impact only on the catching up process pure efficiency change lastly we found an interesting result concerning the explanatory variables of the scale efficiency change in this case only public ownership matters in other terms high levels of public in the structure ownership of electric companies guarantee improvements in reaching the optimal scale of production these heterogeneous effects are also confirmed when we use a different measure of efficiency that is the distance of the actual from the optimal reserve margin

the timing of intergenerational transfers tax policy and aggregate savings the authors analyze an overlapping generations framework that accommodates two observations 1 the interest rate on consumption loans exceeds the rate of return to savings and 2 private intergenerational transfers primarily occur early in the life cycle assuming altruistically motivated transfers in at least some family lines and other plausible conditions the authors prove the invariance of capital s steady state marginal product to government debt government expenditures and the tax rates on labor and capital income the authors show that the tax treatment of household interest payments has powerful effects on capital intensity and aggregate savings in life cycle and especially altruistic linkage models copyright 1992 by american economic association

the neoclassical growth model with heterogeneous quasi geometric consumers this paper investigates how the assumption of quasi geometric hyperbolic discounting affects the distributional implications of the standard one sector neoclassical growth model with infinitely lived heterogeneous agents the agents are subject to idiosyncratic shocks and face borrowing constraints we confine attention to an interior markov recursive equilibrium the consequence of quasi geometric discounting is that the effective discount factor of an agent is not a constant but an endogenous variable which depends on the agent s current state we show both analytically and by simulation that this new feature can significantly affect the distributional implications of the neoclassical growth model

regulation and productivity performance the paper reviews theory and evidence on the ways in which regulation affects productivity outcomes in a context of endogenous growth it is argued that traditional measures of compliance costs miss the potentially most important impacts of regulation on productivity which occur through changes in incentives to invest and to innovate recent attempts to measure cross country variations in the strength of product market and employment regulation are considered and some weaknesses are highlighted nevertheless consistent with endogenous growth models there appears to he quite strong evidence that regulations which inhibit entry into product markets have an adverse effect on tfp growth in oecd countries although there are some discrepancies in the evidence on most measures the uk appears lightly regulated relative to france and germany and this may have contributed to a reduction in the recent past in the uk s tfp gap

solving heterogeneous agent models by projection and perturbation the paper proposes a numerical solution method for general equilibrium models with a continuum of heterogeneous agents that combines elements of projection and of perturbation methods the basic idea is to solve first for the stationary solution of the model without aggregate shocks but with fully specified idiosyncratic shocks afterwards one computes a first order perturbation of the solution in the aggregate shocks this approach allows to include a high dimensional representation of the cross sectional distribution in the state vector the method is applied to a model of household saving with uninsurable income risk and liquidity constraints techniques are discussed to reduce the dimension of the state space such that higher order perturbations are feasible

legal framework quality and success of different types of venture capital investments abstract drawing on an analysis of 8 270 companies from 41 countries i explore the relationship between success of venture capital investments and legal frameworks in the investment countries legal framework quality is related to success but the effect varies with the deal type first the significant and positive relationship between legal framework quality and success is more pronounced for domestic deals than for international deals further investigations suggest that international venture capitalists often exit their portfolio companies abroad particularly when these companies are located in countries with inefficient legal frameworks in addition the results lend support to the view that international venture capitalists have a greater experience and reputation second legal framework quality seems to be more important for success in syndicated than in standalone deals this finding supports the view that a sound legal framework may improve the benefit cost balance of syndication while an inefficient legal framework may tend to increase costs in syndicated deals

kinship incentives and evolution we analyze how family ties affect incentives with focus on the strategic interaction between two mutually altruistic siblings the siblings exert effort to produce output under uncertainty and they may transfer output to each other with equally altruistic siblings their equilibrium effort is non monotonic in the common degree of altruism and it depends on the harshness of the environment we define a notion of local evolutionary stability of degrees of sibling altruism and show that this degree is lower than the kinship relatedness factor numerical simulations show how family ties vary with the environment and how this a ects economic outcomes

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

consumption risk sharing in social networks we develop a model of informal risk sharing in social networks where relationships between individuals can be used as social collateral to enforce insurance payments we characterize incentive compatible risk sharing arrangements and obtain two results 1 the degree of informal insurance is governed by the expansiveness of the network measured by the number of connections that groups of agents have with the rest of the community relative to group size twodimensional networks where people have connections in multiple directions are su ciently expansive to allow very good risk sharing we show that social networks in peruvian villages satisfy this dimensionality property thus our model can explain townsend s 1994 puzzling observation that village communities often exhibit close to full insurance 2 in second best arrangements agents organize in endogenous risk sharing islands in the network where shocks are shared fully within but imperfectly across islands as a result network based risk sharing is local socially closer agents insure each other more

learning by doing short sightedness and indeterminacy this article introduces firm specific learning by doing into a real business cycle rbc model this assumption results in indeterminacy of the wage over a large portion of the parameter space when firms use sufficiently high discount factors and when newly employed labour is relatively unproductive when firms and households use the same discount factor the effects of indeterminacy are limited to adding volatility to the wage rate if these discount factors differ however then indeterminacy also destabilises newly employed labour and total hours this result helps to explain the high amount of volatility that newly employed labour exhibits in the us data

risk sharing and information in village economies arrangements for achieving efficient risk sharing vary depending on the information available to agents in the economy the usual euler equation restricts efficient allocations in an economy which obeys the permanent income hypothesis while efficient allocations in an economy with private information and long term contracts satisfy a symmetric restriction but not the euler equation full insurance arrangements are unique in that they satisfy both restrictions we look at an environment in which it seems likely that long term contracts play a role in mitigating the effects of private information three village economies in south india the evidence that consumption allocations satisfy the private information restriction is quite strong for households in two of the three villages the evidence for the third village suggests that while consumption for some households satisfies the private information restrictions other households consumption obey the permanent income hypothesis

are remittances insurance evidence from rainfall shocks in the philippines several facts motivate this study first life in developing countries is prone to many kinds of risk such as crop and income loss due to natural disasters weather insect infestations and fire and civil conflict second international migration and remittance flows are substantial and growing between 1965 and 2000 individuals living outside their country of birth grew from 2 2 to 2 9 percent of the world population totaling 175 million people in 2000 the remittances that these migrants send to their countries of origin are an important but poorly understood type of international financial flow this article examines a mechanism for coping with shocks ex post on which previous micro level studies have not focused remittances from family members overseas at the international level it is commonly posited that remittance flows from overseas buffer economic shocks in migrants home countries but there have been relatively few empirical tests of this claim with micro level household data related research on the role of domestic migration in pooling risk within extended families includes lucas and stark 1985 rosenzweig and stark 1989 and paulson 2000

the role of automatic stabilizers in the u s business cycle most countries have automatic rules in their tax and transfer systems that are partly intended to stabilize economic uctuations this paper measures how eective they are at lowering the volatility of u s economic activity we identify seven potential stabilizers in the data and include four theoretical channels through which they may operate in a business cycle model calibrated to the u s data the model is used to compare the volatility of output in the data with counterfactuals where some or all of the stabilizers are shut down our rst nding is that proportional taxes like sales property and corporate income taxes contribute little to stabilization our second

imperfect commitment altruism and the family evidence from transfer behavior in low income rural areas in this paper we examine empirically whether risk pooling is more advantageous among altruistic compared to selfish agents in a framework where individuals cannot make binding commitments in particular we incorporate altuism into a model of risk sharing under imperfect commitment and use simulation methods to establish tests of the roles of both altruism and commitment problems in determining the extent of insurance and the intertemporal movements in interhousehold transfers the tests are carried out using three panel data sets from two countries of rural south asia that provide detailed information on transfers and enable the measurement of income shocks the estimates provide strong support for the notion that imperfect commitment substantially constrains informal transfer arrangements whether kin based or not but also provide evidence that altruism plays an important role in ameliorating commitment constraints and thus in increasing the gains from income pooling

risk sharing and transactions costs evidence from kenya s mobile money revolution we explore the impact of reduced transaction costs on risk sharing by estimating the effects of a mobile money innovation on consumption in our panel sample adoption of the innovation increased from 43 to 70 percent we find that while shocks reduce consumption by 7 percent for nonusers the consumption of user households is unaffected the mechanisms underlying these consumption effects are increases in remittances received and the diversity of senders we report robustness checks supporting these results and use the four fold expansion of the mobile money agent network as a source of exogenous variation in access to the innovation jel e42 g22 o16 o17 z13 in developing countries informal networks provide an important means by which individuals and households share risk though the insurance they provide is often incomplete economists have proposed a number of reasons for this incompleteness including information asymmetries which manifest in problems of moral hazard and limited commitment both of which induce positive correlations between realized income and consumption in this article we emphasize a complementary source of incompleteness transaction costs literally the costs of transferring resources between individuals we test the impact of transaction costs on risk sharing by analyzing data from a large panel household survey that we designed and administered in kenya over a three year period to capture the expansion of mobile money this financial innovation has allowed individuals to transfer purchasing power by simple short messaging service sms technology and has dramatically reduced the cost of sending money across large distances mobile money is a recent innovation in developing economies one of the first and most successful examples to date is kenya s m pesa 1 in just four years after its