human capital investment in wealth constrained families with two sided altruism abstract it is well known that with one sided altruism a bequest constrained household will under invest in their child s human capital government transfers to such a household will unambiguously increase human capital investment we show with two sided altruism and an operative gift motive human capital investment will be efficient under a subgame perfect equilibrium but will remain inefficiently low under a nash equilibrium government transfers cease to affect investment under either equilibrium notion

the new great debate about unionism and collective bargaining in u s state and local governments recently some state and local governments in the united states have sharply reduced or eliminated public employee unionism and bargaining rights in the belief that their fiscal adversity stems mainly from overcompensation of public employees caused by collective bargaining the authors examine public private sector pay and benefit relationships the effects of unions on public employee pay the effectiveness of employment dispute resolution procedures and the ability of public sector labor and management to combat fiscal adversity they provide new evidence showing that on balance public employees are undercompensated relative to their private sector counterparts the effects of unions on compensation are smaller in the public than in the private sector and public sector dispute resolution procedures and joint labor management initiatives to reform work function reasonably well

altruism and time consistency the economics of fait accompli this paper analyzes the strategic and intertemporal interaction between two economic agents who have overlapping concerns such as altruistic concerns for each other s welfare the agents may be two individuals a social bureau and a client or two units in an organization we show how the presence of such common concerns may lead to socially inefficient outcomes in which one economic agent free rides on the other s concern we also briefly how this inefficiency and free riding in the context of interaction between individuals might be mitigated by compulsory social security systems as another example we interpret the inefficiency in terms of kornai s soft budget constraints within organizations

price instability and commodity futures markets abstract the inability of individual developing nations to provide widescale commodity price support and the continual renegotiation of international commodity agreements have engendered a search for alternative mechanisms to reduce price volatility for soft commodities one possibility is the use of futures markets this paper takes four commodities cocoa coffee sugar and wheat and analyzes the efficiency of associated futures markets in terms of price discovery and risk reduction in essence all four markets exhibit efficiency and therefore provide in theory a viable policy alternative for developing economies

on the accuracy of the mean variance approximation for futures markets abstract simple approximate fomulae for the volume and gains from futures trading are derived using the mean variance model the errors involved are exactly quantified and shown to be negligible for the futures price and welfare gains though potentially larger for volumes

is increased public schooling really a policy for equality abstract empirical findings suggest different causes for higher educational attainment among children of high income earners either that poor parents are credit constrained or that parental human capital per se is important in the educational process my theoretical results show how these two diverging results can be brought together parental and public investments complement each other in the educational process because higher educated parents take advantage of increased productivity educational equality between rich and poor children is not necessarily promoted by further investments in public schooling moreover i show that educational investments in low skilled parents have spill over effects on their children and therefore have an unambiguously positive impact on equality

the spirit of capitalism and savings behavior abstract this paper presents a capitalist spirit model of savings by including wealth in the intertemporal utility function while this model includes the life cycle model and bequest model as two special cases it sheds light on why wealth holding has tended to increase with age why decumulation of wealth after retirement has not happened and why households with and without children have not shown significant differences in their savings behavior the capitalist spirit approach is especially useful for understanding savings by the rich and savings across countries and over time jel e21 b10

regional pay the public private sector pay differential abstractregional pay the public private sector pay differential regional studies this paper extends the debate on making public sector wages more responsive to those in the private sector the way in which the public private sector wage differential is calculated dramatically alters conclusions and far from there being substantial regional disparity in wages offered to public sector workers any differences are predominantly concentrated in london and the south east where public sector workers are significantly disadvantaged relative to private sector workers this has implications for staff recruitment and retention such findings question the need for regional market facing pay but highlight the necessity to revisit the london weighting offered to public sector workers

stabilising commodity earnings when there is uncertainty about the price and production distributions most of the literature on risk reduction associated with price and production uncertainties has been concerned with the welfare justification for and welfare consequences of market stabilisation this article deals with the important problem of how to stabilise earnings in a market where prices are volatile and production is uncertain once the welfare case for doing so had been accepted based on a sample of four representative commodity markets the study found significant scope for stabilising earnings by hedging or by price stabilisation

uncertain altruism and investment in children the authors discuss the concept of parental uncertainty about their childrens altruism and the consequences for investment in childrens human capital in this paper we show that if parents are uncertain about their childrens altruism but are at least sure that they will receive some support from their children then the unique optimal investment is the efficient one uncertainty over the exact level of the retirement gift does not alter the conclusion of the perfect certainty case even when parents are risk averse alternatively parents may not know enough about their childrens altruism to feel completely confident that some gift will be forthcoming regardless of the size of their investment under this assumption we show that the optimal investment must be less than the efficient amount excerpt

forward contracts or international buffer stocks a study of their relative efficiencies in stabilising commodity export earnings the commodities debate of the last decade has not been very successful in creating new international agreements but it has led to many advances in the economic theory of stabilisation the early work such as that of massell i969 assumes that complete stabilisation of price is the objective and uses the marshallian measures of surplus to suggest that producers would gain and consumers would lose from price stability the later work such as that of newbery and stiglitz i98i assumes that complete stabilisation of prices is neither feasible nor desirable they show that a reduction in the dispersion of prices is likely to leave producers with lower average earnings while having little significant impact on consumers the question from the producers view point is whether the risk benefits are sufficient to offset this loss of earnings an alternative to collective action by producers would be for each of them individually to make forward contracts this strategy will tend to stabilise earnings mainly to the extent that the contract price fluctuates less from year to year than the actual or spot price since forward prices are likely to be lower than eventual spot prices such forward contracting also leads to lower average earnings

public service employment and the public private wage differential in british regions successive forms of regional policy in the uk have sought to support the maintenance and creation of public sector employment opportunities in relatively disadvantaged regions nationally negotiated public sector pay rates mean that the private public pay gap is likely to be wider in lower demand regions this will be reinforced by the relative absence of private sector employment crowding out in such higher unemployment regions this paper investigates the association between private and public sector service employment using panel data for british regions and estimates regional public private wage differentials using british household panel survey data for 1991 to 1996 across britain private sector employment growth is weakly positively associated with higher public service employment growth but the association is stronger in scotland and the north of england the pattern of regional wage differentials found is consistent with lower crowding out in higher unemployment regions this suggests that reg

commodity price stabilization the massell model and multiplicative disturbances the debate on the distribution of the welfare gains from commodity price stabilization originated with waugh 1944 who argued that consumers benefit from price variability and will be worse off if the commodity price is stabilized at its mean value waugh assumed a stationary linear demand function and a shifting linear supply function both with additive disturbances oi 1961 proved the symmetric proposition for producers using the same framework but with the variability entirely on the demand side the synthesis was made by massell 1969 who showed that in the general case the distribution of welfare benefits from stabilization depends on the relative magnitudes of the supply and demand variances this method of analysis was recognized to be deficient in two respects first welfare is measured by the evaluation of consumers and producers surplus and therefore takes no account of the risk reduction benefits from price stabilization newbery and stiglitz 1981 gilbert 1985a 1985b the second deficiency which we address in this note is that the waugh oi massell model restrictively assumes linearity and additivity of disturbances the additivity assumption is particularly implausible in the context of primary commodity production where disturbances frequently due to weather conditions will generally affect output in proportion to expected output the multiplicative analogue of the waughoi massell model was analyzed by turnovsky 1976 and the literature is surveyed in turnovsky 1978 turnovsky 1976 concluded that the distributional conclusions are highly sensitive to the form of stochastic disturbances assumed p 134 in the multiplicative model consumers always gain from stabilization while whether or not producers gain depends only on the demand elasticity the relative magnitudes of the supply and demand variances are irrelevant to the distribution of these welfare changes in this note we show that the welfare changes in the multiplicative model discussed by turnovsky

consumption during retirement the missing link in the life cycle this study presents the first evidence on the relation of consumption to lifetime wealth based on data from the 1973 and 1975 retirement history survey that have been linked to social security earnings records nearly 500 white married fully retired couples ages 62 69 form the basis of the analysis on average their consumption early in retirement exceeds by 14 percent the income that their financial pension and social security wealth can generate this implies that their saving both private and through social security is insufficient to sustain consumption throughout the rest of their lives additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement these two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate coupled with either a bequest motive or uncertainty about the length of life they also imply that even when combined with private pensions and savings social security in the united states today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired this abstract was borrowed from another version of this item

relocation of public sector workers evaluating a place based policy this paper investigates the local labor market impact of a uk relocation initiative the 2004 lyons review the review resulted in the dispersal of about 25 000 civil service jobs out of london and the south east towards other uk destinations this study aims to detect whether the inflow of public sector jobs crowded out private sector activity or stimulated the local provision of jobs in the private sector focusing on short term effects i find that the relocation initiative raised private sector employment in receiving areas and changed the sectoral distribution of local employment towards services i also find evidence of displacement i e a tendency for private businesses to locate closer to a relocation site moving out of areas at 1 2km and 2 3km distances into areas at 0 1km distance these agglomeration effects appear highly localized the largest policy impact is found in areas that received the relocated jobs with spillover effects reducing sharply over distance

hedging price risks of farmers by commodity boards a simulation applied to the indian natural rubber market abstract this paper investigates a hypothetical hedging scheme in a domestic commodity market under which a commodity board offers a forward contract to domestic producers and local traders and covers its commitments on an international futures exchange it is aimed to quantify welfare gains to agents in the market and costs and benefits of the board empirically the empirical work is based on the indian natural rubber market and the tokyo commodity exchange tocom for the period 1990 95 the hedging scheme is shown to increase welfare substantially particularly welfare of growers the costs of such a facility for the commodity board basis risk are negligible if the forward price offered on the domestic market is a small fraction below the international futures price the board can prevent losses at only slightly lower welfare gains

black white wealth inequality is inheritance the reason i introduction on average black americans have less wealth than white americans previous studies of wealth reveal that blacks hold on average between 10 and 25 of the wealth held by whites as reported in terrell 1971 smith 1975 sobol 1979 blau and graham 1990 and wolff 1992 a number of possible explanations for this gap have been suggested particularly differences in income and various socio economic characteristics between black and white households however the average difference in black white household income is much less than the difference in black white household wealth wolff 1992 reports that black household income averaged 63 of white household income in 1989 a ratio which had persisted over the previous twenty years consequently there must be additional factors which explain the greater racial wealth differential recently economists such as blau and graham 1990 and wolff 1992 have surmised that differences in intergenerational transfers might account for much of the unexplained racial difference in wealth we document the large difference in wealth between blacks and whites and then attempt to account for this difference paying particular attention to the effect of inherited wealth a number of investigators have speculated on the possible importance of inheritances in explaining racial differences in wealth in a comment on smith s 1975 analysis of black white wealth differentials vito natrella 1975 noted that smith only explained 25 of the wealth differential through differences in economic variables natrella conjectured that the really significant determinants not included in smith s analysis were prior income inherited wealth and the propensity to save p 370 wolff 1992 suggested that differences in intergenerational transfers provide a plausible explanation of the black white wealth gap but provided no supporting evidence in a recent article blau and graham 1990 attempted to explain racial differences in wealth at the household level as a result of differences in household income location and demographic factors however they found that three quarters of the racial difference in wealth remained unexplained they speculated that racial differences in inheritance and other intergenerational transfers most likely play an important part p 338 in explaining the remaining black white differences in wealth if true this explanation would have important policy implications e g higher rates of inheritance taxation could reduce wealth differences between races ii data in this paper we attempt to empirically verify the hypothesized importance of inheritances in explaining the differences in black and white household wealth our empirical analysis makes use of two data sets which report both household wealth and household inheritances the 1976 national longitudinal surveys of mature men nls76 and the 1989 survey of consumer finances scf89 the nls76 sample was chosen to be representative of the u s male population aged 45 to 59 years old in 1966 with an oversampling of black households our analysis focuses on the sample of 2 019 respondents who survived through 1976 and reported all variables required for our analysis 1 more information about the nls76 can be obtained from the center for human resource research 1992 the scf89 sample was chosen to provide a comprehensive picture of the financial situation of all u s households in 1989 the scf89 oversampled high income households we make use of the complete sample encompassing the multiple imputation procedure employed by researchers at the board of governors of the federal reserve system more information about these data can be obtained in kennickell and shack marquez 1992 since both data sets employ oversampling of particular population segments all sample statistics reported in this paper are sample weighted in the nls76 respondents were asked to report whether they or their spouse had received any girl inheritance or prize such as a lottery or award greater than 1 000

why do smaller firms pay less this paper uses data from the national longitudinal survey of young men and the current population survey for 1983 to examine the relationships among wages firm size and plant size we reach three key findings first plant size has little independent effect on wages once we have controlled for firm size for firms with fewer than 1 000 employees second we find evidence of sorting on observed and unobserved ability characteristics across firm sizes better educated and more stable workers are in larger firms third results from a first difference estimator indicate that about 60 percent of the wage size effect is due to unobserved heterogeneity when all firms are considered and about 100 percent when firms with 25 or more employees are considered

intergenerational mobility new evidence from consumption data the intergenerational persistence of consumption describes the extent to which children inherit the living standards of their parents evidence on this parameter is scarce due to limited data on the joint consumption of parents and children this paper identifies parents who participated in the danish expenditure survey links them to their children through population wide danish registries and estimates the intergenerational elasticity of consumption in denmark the results suggest that consistent with intergenerational consumption smoothing the persistence of consumption across generations is higher than the persistence of earnings and income

the effect of social security on lifetime wealth accumulation and bequests this paper is an empirical study of the effects of social security on lifetime wealth accumulation and bequests using a sample of wisconsin males we have matched lifetime earnings records from income tax returns with their social security account records and their bequests obtained from probate court records since the cohort of males was born between 1890 and 1899 they represent a cohort that saw a great change in the size and coverage by occupation of the system hence there is substantial within cohort variation in social security wealth from which effects can be estimated for nearly 30 years the life cycle theory of savings has enjoyed an enormous amount of academic support in the no bequest variant individuals save with the sole intention of consuming their savings in later years the economy wide stock of capital can therefore be generated by this pattern without any reliance on bequests modigliani 1966 such a model will lead to rather strong predictions about the effect of a pay as you go public pension hereafter social security on private savings as feldstein 1974 points out social security should displace private savings as well as reduce macro saving since the programme is unfunded this result follows from the assumption that each household will consume all of its assets during its own lifetime some recent research however has been at odds with the no bequest variant of the life cycle model see kurz 1984 and included references darby 1979 claims that life cycle assets savings consumed later in the life cycle constitute only 13 29 per cent of total assets kotlikoff and summers 1981 report that the major share nearly 80 per cent of capital stock in the united states is due to intergenerational transfers 2 indeed these authors write life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers p 706 in addition recent empirical work suggests that people tend to accumulate or fail to significantly decumulate wealth wealth in old age a finding at odds with the strict life cycle model 3 given the potentially large role of bequests in the process of capital accumulation it is important to know how bequests are affected by the large public programme that social security has become even if social security depresses private savings among those near or at retirement if people bequeath it is conceivable that saving during retirement is augmented by the programme 4 aside from the issue of savings effects the response of people s bequests to their old age benefits might allow one to assess the target efficiency of the social security system since the original objective of the system was to ensure adequate levels of consumption among the elderly a finding that benefits

futures trading and the welfare evaluation of commodity price stabilisation it is notorious that commodity prices are volatile and there is a substantial literature on the wisdom of complete or partial elimination of this volatility the modern academic literature starts from waugh i944 who argued that consumers benefit from price volatility since they can take advantage of low prices by increasing consumption and oi i96i who argued the parallel proposition for producers massell i969 noting that waugh had assumed supply side disturbances whilst oi had assumed demand side disturbances provided an integrated model in the same spirit samuelson i972 showed that notwithstanding the contributions of waugh and oi it will not be beneficial within a standard competitive market clearing model to destabilise prices the literature is surveyed in turnovsky i978 this raises the question of whether stabilisation can be justified in the context of a competitive free market in which private agents make optimal stockholding decisions wright and williams i982 a number of authors see for example johnson i967 ch 5 have suggested that the fundamental theorem of welfare economics rules out such intervention standard arguments that would qualify this conclusion are superior governmental access to capital markets or information and the assertion that stabilisation may result in a favourable redistribution of income newbery and stiglitz i98i have stressed the rather more powerful argument that application of the fundamental theorem of welfare economics in an uncertain and explicitly intertemporal context requires the existence of a complete set of forward and contingent contracts markets futures or forward markets do exist for delivery of many important primary commodities at near dates but this is far from sufficient to satisfy the prerequisites of the theorem since agents will use those markets which do exist as substitutes for those that are absent since for example moral hazard considerations prevent widespread trading of crop insurance contracts farmers are obliged to obtain insurance against poor crops through the imperfect substitute of hedging on futures markets the limited range of futures and contingent claims markets invalidates the argument that intervention can never be justified in welfare terms but at the same time this only establishes the possibility of a justification for intervention a specific case must be made for each market futures trading allows market transactors to fix their prices in advance of delivery for example a farmer may completely hedge by selling his entire

welfare implications of commodity price stabilization under export restrictions abstract this article analyzes in a two country framework the welfare implications of domestic and international price stabilization under alternative fixed value export restriction devices designed to exercise market power ad valorem export tax quota and fixed price to exporter the effects of domestic price stabilization on welfare and its distribution between countries and between groups within a country are shown to differ from those under continuous optimal adjustments the distribution of gains and losses from both domestic and international price stabilization generally depends on the source of instability but results may differ according to the instrument used to restrict export

a reexamination of the federal private wage differential in the united states the federal private wage differential is reexamined with recent data using specifications similar to those used in three previous studies i find that the federal private wage differential has narrowed since the 1974 79 period analyzed in those studies in addition i discover that wage differentials based on specifications used in the literature are biased upward because the previous studies did not control for detailed occupational and locational characteristics of workers corrected point estimates of the wage gap are much smaller than previous estimates in the literature differences in the gap across demographic groups occupations and locations are also discussed

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

family economics and macro behavior in this 1987 presidential address to the american economic association the author explores the contributions of the field of family economics to macroeconomic analysis the focus is on family behavior as an active endogenous factor that both affects and is affected by the evolution of the economy much of the time is spent on long term economic growth although i also discuss short and long cycles in economic activity and the interaction between overlapping generations through social security transmission of inequality and in other ways many conclusions in these and presumably other macro areas change radically when family choices get the attention they deserve excerpt

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

savings of the elderly and desired bequests cross section data often show that the wealth of the elderly increases with age even at advanced ages these and other results suggest that the life cycle hypothesis of consumption should be augmented to include a bequest motive for saving in this paper the author proposes a model of bequests and a test for a bequ est motive using panel data he finds that over a ten year period the elderly in the data set dissaved in contradiction to most cross section results the test offers no support for a bequest motive copyright 1987 by american economic association

does income inequality raise aggregate saving this paper reviews analytically and empirically the links between income distribution and aggregate saving consumption theory brings out a number of direct channels through which income inequality can affect overall household saving positively in most cases however recent political economy theory points toward indirect negative effects of inequality through firm investment and public saving on aggregate saving on theoretical grounds the sign of the saving inequality link is therefore ambiguous this paper presents new empirical evidence on the relationship between income distribution and aggregate saving based on a new and improved income distribution database for both industrial and developing countries the empirical results using alternative inequality and saving measures and various econometric specifications on both cross section and panel data provide no support for the notion that income inequality has any systematic effect on aggregate saving these findings are consistent with the theoretical ambiguity q 2000 elsevier science b v all rights reserved

spatially rebalancing the uk economy towards a new policy model martin r pike a tyler p and gardiner b spatially rebalancing the uk economy towards a new policy model regional studies the current uk government has announced its intention to rebalance the national economy spatially to create a northern powerhouse to rival that in london and the south east this imbalance is in fact a longstanding problem that 90 years of regional policy has not resolved this paper argues that the entrenched nature of the uk s spatial imbalance derives in part from the centralized nature of the national political economy and that only a bold and radical change in that political economy based on a devolution and decentralization of or economic financial and political power is called for

the economic role of commodity storage one of the earliest and most successful exainples of economic policy is the oftquoted biblical account of joseph s interpretation of the pharoah s dream joseph foretold that seven years of abundant harvests would precede seven years of drought and recommended that the pharoah accumulate grain during the good years since that time the central role of storage in stabilising the economy in the face of exogenous disturbances has been obvious but our understanding of the nature of that role has not greatly advanced without divine assistance in forecasting stochastic production the storage decision is considerably more complex than the one joseph faced and the role of storage quite different in fact several commonly held impressions about the role of storage of commodities such as grains are incorrect rather than stabilising production storage actually accentuates its variability rather than causing a mean price preserving decrease or a mean output preserving decrease in the dispersion of price storage generally causes a more complex modification of the distribution of price rather than being most effective at eliminating short falls in consumption storage actually is more effective at eliminating the incidence of exceedingly high consumption in this paper we explore the role of storage in a model where production is stochastic and both production and storage are performed by competitive profitmaximisers who form rational expectations about the returns to their activities we derive the subtle but very important interactions among production price expectations and storage which simpler models cannot capture finally we make a comparative statics assessment of the distributional implications of storage these results while confirming the importance of the specification of the demand function and the supply elasticity identified in recent analytical studies e g wright i979 and newbery and stiglitz i979 are surprisingly favourable to consumers considering the asymmetric nature of the effects of storage on consumption and price storage is simply a productive activity one that transfers a commodity from one period to the next like other forms of production it is costly the total cost of storing an amount st from period t to period t i is as of period t i

uncertainty price stabilization and welfare foreign price instability can significantly affect the welfare of an open economy relying heavily on foreign trade for instance japan is vulnerable to oil price increases because 99 percent of its oil is imported similarly grain producers of many countries have advocated price stabilization and received protection from the risk of low foreign prices primary exporters are also concerned about foreign price instability because it contributes to export earnings instability recently itagaki 4 and beladi and samanta 1 investigated the issue of optimal tariff when international trade is subject to price instability their analyses suggest that trade restrictions can improve the welfare of an open economy when international trade is carried out under price uncertainty although the literature on price stabilization policies for a closed economy is extensive the implications of stabilization policies on an open economy facing foreign price instability have received little attention this paper investigates whether a domestic price stabilization policy can improve the welfare of an open economy facing foreign price instability the welfare effects of price stabilization on a closed economy were investigated by waugh 12 oi 8 massell 6 and newbery and stiglitz 7 1 among the contributions in this field gilbert s 3 work on the consequences of international price stabilization for an open economy represents an important advance over models using aggregate social surplus using approximations of welfare gains gilbert suggested that a risk averse country would benefit if the world price of a commodity were stabilized at the pre stabilization mean by an international intervention authority since a small country is a price taker it cannot neutralize price instability originating in the world market what is the optimal policy for a small open economy facing foreign price instability despite its well known optimality free trade is rarely practiced in small countries as evidenced by the common agricultural policy of the european economic community eec

de stabilizing speculation on futures markets an alternative view point abstract this paper offers a new interpretation for possible destabilizing effects of opening futures markets in our model adapted from stein 1987 speculation on futures markets reduces the likelihood of occurrence of a rational expectations equilibrium although the equilibrium price is less volatile after the futures market is opened which is usually viewed as a stabilizing effect traders may find it more difficult or even impossible to coordinate their expectations in order to implement this equilibrium

savings and wealth in models with altruistic bequests during recent years much attention has been given to the role of bequests in explaining various aspects of economic behavior for example authors have studied the impact of bequests on physical wealth accumulation laurence kotlikoff and lawrence summers 1981 the interest elasticity of savings owen evans 1983 tax reform laurence seidman 1984 and the distribution of wealth alan blinder 1976a more recently economists have begun to distinguish between human and physical bequests gary becker and nigel tomes 1986 acknowledging the presence of bequest in human form is important in analyzing each of the issues mentioned above outlays on children affect the shape of the family s labor supply and expenditure profiles upon which the level of aggregate savings crucially depends if these outlays are interest sensitive substitutes for physical bequests they will also influence the interest elasticity of savings in the area of tax reform the neutrality of the consumption tax depends on the ability of the government to identify human capital bequests from general consumption raymond batina 1987 if this is not possible the portfolio choice of investment in human versus physical capital may be distorted at the margin finally the unequal transmission of wealth across generations may be explained by the lack of physical bequests and the inefficiently low levels of human bequests made by wealthconstrained households becker and tomes 1986 to distinguish clearly the behavior of constrained households from unconstrained households who make sizeable physical bequests both types of bequests must be recognized this paper introduces a model that makes explicit examination of these issues possible it extends lord s 1989 multiperiod model of life cycle savings and adult human capital investment by adding altruistically motivated human and physical bequests 2 the model is calibrated using microeconomic data on earnings time and goods expenditures on children s human capital and physical bequests we then use the model to examine the contribution of bequests to wealth accumulation and the level of savings this topic is the source of an important but yet unresolved debate between franco modigliani 1988 and kotlikoff 1988 kotlikoff maintains that u s wealth accumulation is primarily the consequence of bequests as opposed to life cycle savings for retirement one type of evidence cited by kotlikoff comes from simulation results demonstrating the failure of realistically calibrated life cycle models to generate sufficiently high saving rates and wealth income ratios alan auerbach and kotlikoff 1987 we show however that if a pure life cycle

policy options for stabilizing earnings in a speculative market a structural analysis abstract this paper examines the impact of price stabilization or price supports and different forms of supply controls on the earnings distribution in a speculative commodity market both strategies lead to a conflict in which greater earnings stability has to be brought with lower average earnings neither on its own can help reduce the probability of periods with loss earnings or large disturbances but it is shown how combinations of these two strategies may be used to gain stability while reducing those probabilities and maintaining the earnings level

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

altruism deficit policies and the wealth of future generations i introduction there is now a substantial body of evidence suggesting that altruistic financial bequests are zero for the vast majority of households 1 other studies seem to indicate that the financial bequests which are made are not likely to be altruistically motivated 2 while this evidence against the importance of altruistic financial bequests seems reasonably convincing it is by no means clear that the importance of altruism per se has been dismissed 3 for example the results reported in altonji hayashi and kotlikoff 1992 tables 14 17 indicate that extended family resources while not perfectly linked to own resources are important for explaining own consumption the authors do not reject the notion that substantial altruistically motivated transfers occur in the u s rather they suggest the altruistically motivated transfers which are made take the form of less than fully efficient human capital transfers to children if most altruistic transfers do take place via educational expenditures how does this affect the ricardian equivalence theorem robert barro 1974 1989 argues the presence of any altruistic transfer is sufficient to guarantee that intergenerational transfers caused by government policy are neutral other forms of intergenerational transfers such as inter vivos gifts to children support of children s education and so on can work in a similar manner therefore the ricardian results will hold even if many persons leave little in the way of formal bequests 1989 41 4 an alternative view however is expressed by allan drazen 1978 he argues if parents possess an insufficient mix of wealth and altruism intergenerational transfers could be exhausted before the efficient level of human capital investment is achieved if explicit or implicit loans between parents and children are not possible then the government may be able to improve welfare by generating intergenerational transfers from children to parents 5 a cut in the parents tax burden and an equal present value increase in the tax on the next generation is equivalent to a government enforced loan at the going market interest rate since educational expenditures are inefficiently low the return on human capital investment exceeds the loan rate therefore parents could put an amount less than the tax cut into their children s education and still leave the children with enough additional income to pay for the future tax increase thus a deficit policy serves to expand the consumption possibility set of the family viewed in this way drazen 1978 514 footnote 7 imagines an argument for a pareto optimal level of public debt issue 6 a third possibility was identified by nerlove razin and sadka 1988 who conduct the most explicit analysis of government transfers in an economy with altruistic but financial bequest constrained households they also find a transfer or implicit loan to parents from their children will make the parents unambiguously better off however they were the first to point out that a deficit policy may lower the welfare of the children although they fail to explain why thus even in the presence of altruistic transfers from parents to children the effect of deficits on the consumption of future generations is far from clear in this paper we wish to clarify the effect of intergenerational transfers on bequest constrained families the next section intuitively explains why a government loan or deficit policy generates an ambiguous effect on the children s consumption even though altruistic parents are fully capable of making both generations better off after the loan we also identify the key structural determinants of the change in the children s wealth due to the loan in section iii we extend the simple model of section ii to a more quantitatively realistic multi period life cycle simulation model of a bequest constrained household the simulation model is then used in section iv to examine how a government intergenerational transfer affects the consumption of each generation under various settings of the key structural determinants identified in section ii

saving determinants in colombia 1925 1994 abstract this paper analyzes the determinants of saving in colombia using the framework of an intertemporal model national saving partially responds to temporary changes in output according to the permanent income hypothesis higher government expenditures in relation to their permanent level are associated with lower national saving refuting the existence of ricardian equivalence the paper tests other common hypotheses in regard to saving behavior in particular we find that changes in national savings and changes in investment are perfectly correlated and that savings cause growth in the granger sense the results also indicate that increases in urbanization and age dependency have had a significantly negative effect on private saving in colombia finally we find that much of the recent reduction in private savings can be accounted by the effects of higher taxation