optimal unemployment insurance for older workers this paper studies the optimal unemployment insurance for older workers in a repeated principal agent model where the search intensity of risk averse workers the agents is not observed by the risk neutral insurance agency the principal when unemployment benefits are the only available tool the insurance agency is not able to induce older workers to search for a job this is because of the short time horizon of workers close to retirement we propose to introduce a pension tax dependent on the length of the unemployment spell we show that this device performs better than a wage tax after re employment first it makes jobs more attractive as they are free of tax second because re employment will be short lived a pension tax is a more powerful incentive than a wage tax and provides more substantial fiscal gains to the agency finally a pension tax allows those workers near retirement who still do not exercise job search to smooth their consumption during their unemployment spell as if they could borrow against their future pension

the economic effects of unemployment insurance in canada an empirical analysis of ui disentitlement this article provides an overview of the canadian unemployment insurance ui program including its evolution salient features relative size and knowledge about its labor market impacts understanding of these impacts is limited and we conclude that an event study approach is a promising way to further this knowledge we examine the effects of the 1976 ui disentitlement of the elderly on their labor force behavior and find evidence of significant adverse selection effects interactions with the public pension system suggest that poverty among the elderly could be best addressed through changes in programs other than ui

productivity gains from unemployment insurance this paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs and by encouraging rms to create those jobs we use a quantitative model to investigate whether this eect is comparable in magnitude to the standard moral hazard eects of unemployment insurance our model economy captures the behavior of the u s labor market for high school graduates quite well with unemployment insurance more generous than the current u s level unemployment would increase by a magnitude similar to the micro estimates but because the composition of jobs also changes total output and welfare would increase as well

demand for environmental goods evidence from voting patterns on california initiatives this article studies voting behavior on 16 environmental ballot propositions in california in order to characterize the demand for environmental goods the environment is found to be a normal good for people with mean incomes but some environmental goods are inferior for those with high incomes at least when supplied collectively an important price of environmental goods is reduced income in the construction farming forestry and manufacturing industries income and price can explain most of the variation in voting there is little need to introduce preference variables such as political ideology

is there a consensus among economists in the 1990 s in a 1976 survey kearl et al 1979 hereafter the 1976 survey concluded that the then widespread perception that there was little agreement among professional economists on matters of theory or policy was simply wrong however the most casual empiricism namely the continuing popularity of jokes about disagreements among economists suggests the perception of noneconomists has not changed much since the 1970 s what is the present state of consensus among economists this question is of interest because more than a decade has elapsed since the 1976 survey and during this time many issues confronting economists and the composition of the profession have changed 1 benjamin m friedman and lawrence h summers 1991 p ix for example have asserted that economic thinking in many subfields of the discipline now differs markedly from what it was in 1970 consensus among european economists has been examined by bruno s frey et al 1984 martin ricketts and edward shoesmith 1990 1992 focus exclusively on british economic opinion this paper provides the first general analysis of opinions of u s economists in more than a decade i the survey and questionnaire

opportunity and social mobility the fact that the children of rich parents have better economic prospects than the children of poor parents unequal opportunity is generally thought to be one of the weak points of modem capitalist societies the ability of the descendants of poor families to eventually become rich and the descendants of rich families to eventually become poor social mobility is commonly considered to be one of the strong points of these societies here i argue that both of these characteristics are in fact necessary implications of an efficient societal arrangement when incentives to work hard must be provided i argue this point using a generational version of the model of phelan and townsend 1991 an infinitely repeated general equilibrium economy with incentive constraints in my model each household s stochastic output is a function of its level of effort since effort is assumed to be costly and privately observed households can shirk higher than minimal effort levels must be induced by making a household s present or future consumption dependent on the household s observed output history a large literature considers models similar to this including green 1987 atkeson and lucas 1992 phelan 1994 1995 wang 1995 hopenhayn and nicolini 1997 khan and ravikumar 2002 the main difference between the economies in that literature and here is that here instead of a household consisting of a single infinitely lived individual a household consists of a sequence of altruistically linked individuals a familial dynasty each of whom lives for one period this difference affects the appropriate societal ranking of allocations when households consist of a single infinitely lived individual allocations can be ranked according to their implied distributions of ex ante lifetime utilities if one allocation delivers a distribution of ex ante utilities dominated by another allocation then the first allocation is inefficient however if a household consists of a sequence of altruistically linked individuals then the appropriate ranking of allocations is no longer obvious how those in the first generation rank allocations will in general differ from how their descendants rank allocations this paper addresses this conflict between generations by ranking allocations according to a rawlsian veil of ignorance criterion rawls 1971 that is here society seeks to maximize the expected dynastic utility utility including altruism toward descendants of an individual who does not know into which generation he will be born and the identity or output levels of his ancestors 1 i argue that this corresponds to a societal ranking which does

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

optimal unemployment insurance with human capital depreciation and duration dependence this paper studies the effect of human capital depreciation and duration dependence on the design of an optimal unemployment insurance ui scheme our results partially confirm those obtained in most previous studies benefits should decrease with unemployment duration the optimal program also generates two main novel features which are not present in stationary models first if human capital depreciates rapidly enough during unemployment ui transfers are bounded below by a minimal assistance level that arises endogenously in the efficient program second we study the optimality of imposing a history contingent wage tax after reemployment our numerical simulations based on the spanish and us economies show that the wage tax should decrease with the length of worker s previous unemployment spell and become a wage subsidy for long term unemployed workers as a by product of our study we develop a systematic approach suitable for studying recursively a wide range of dynamic moral hazard problems and other models with similar characteristics

unemployment insurance and the business cycle an equilibrium model is developed to study the interaction of the business cycle unemployment insurance and the labor market for young men in canada the model combines optimal job oer layo and recall decisions within a numerically solved and restricted bayesian nash equilibrium we consider the long run implications of changes made to unemployment insurance in canada during the 1990s the changes lead to equilibrium increases in average rates of unemployment layos and recalls eliminating ui lowers the equilibrium unemployment

duration dependent unemployment insurance payments and equilibrium unemployment this paper develops a model of equilibrium unemployment with duration dependent unemployment insurance ui payments as the government does not observe job offers there is a moral hazard problem because the option of receiving further ui payments raises the job seeker s value of remaining unemployment extending the duration of ui payments while reducing the level of payments to hold total generosity constant results in higher negotiated wages simulations suggest that a generosity neutral switch from a six month ui scheme to a one year scheme has small effects but a switch to an indefinite scheme has a large impact on wages and unemployment

optimal unemployment insurance in search equilibrium should unemployment benefits be paid indefinitely at a fixed rate or should the rate decline or increase over a worker s unemployment spell we examine these issues using an equilibrium model of search unemployment the model features worker firm bargaining over wages free entry of new jobs and endogenous search effort among the unemployed the main result is that an optimal insurance program implies a declining benefit sequence over the spell of unemployment numerical calibrations of the model suggest that there may be nontrivial welfare gains associated with switching from an optimal uniform benefit structure to an optimally differentiated system

the role of effort for self insurance and its consequences for the wealth distribution i explore the effect of effort as a mechanism to alleviate the idiosyncratic risk faced by individuals in the presence of incomplete markets i construct a dsge model where costly effort determines the probability of being employed the next period and a riskless asset can be used to smooth consumption i first show how effort and assets are inverse related and that a unique stationary equilibrium exists then in a calibrated version of the model to the us economy i show that in the stationary equilibrium a positively skewed wealth distribution arises which is closer to the observed data and has not been obtained by models without ex ante heterogeneity i then use the model to evaluate the effect of unemployment insurance on the wealth distribution

the cost of job loss this article identifies an equilibrium theory of wage formation and endogenous quit turnover in a labour market with on the job search where risk averse workers accumulate human capital through learning by doing and lose skills while unemployed optimal contracting implies the wage paid increases with experience and tenure indirect inference using german data determines the deep parameters of the model the estimated model not only reproduces the large and persistent fall in wages and earnings following job loss a new structural decomposition finds foregone human capital accumulation while unemployed is the worker s major cost of job loss

should unemployment insurance vary with the unemployment rate theory and evidence we study how the marginal welfare gain from increasing the unemployment insurance ui bene t level varies over the business cycle we do this by estimating how the moral hazard cost and the consumption smoothing bene t of ui vary with labor market conditions which we identify using variation in the interaction of ui bene t levels with the unemployment rate within u s states over time we nd that the moral hazard cost is procyclical greater when the unemployment rate is relatively low by contrast we do not nd evidence that the consumption smoothing bene t varies with the unemployment rate we use these empirical results to estimate the marginal welfare gain and we nd that it is modest on average but varies positively with the unemployment rate jel h5 j64 j65

the optimal timing of unemployment benefits theory and evidence from sweden this paper provides a simple yet robust framework to evaluate the time profile of benefits paid during an unemployment spell we derive sufficient statistics formulae capturing the marginal insurance value and incentive costs of unemployment benefits paid at different times during a spell our approach allows us to revisit separate arguments for inclining or declining profiles put forward in the theoretical literature and to identify welfare improving changes in the benefit profile that account for all relevant arguments jointly for the empirical implementation we use administrative data on unemployment linked to data on consumption income and wealth in sweden first we exploit duration dependent kinks in the replacement rate and find that if anything the moral hazard cost of benefits is larger when paid earlier in the spell second we find that the drop in consumption affecting the insurance value of benefits is large from the start of the spell but further increases throughout the spell in trading off insurance and incentives our analysis suggests that the at benefit profile in sweden has been too generous overall however both from the insurance and the incentives side we find no evidence to support the introduction of a declining tilt in the profile

distributional and regional economic impact of energy taxes in belgium we analyse the macroeconomic and distributional effects of increased oil excises in belgium by combining a regional computable general equilibrium cge model with a microsimulation framework that exploits the rich detail of household level data the link between the cge model and the microlevel is top down feeding changes in commodity prices factor returns and employment by sector into a microsimulation model the results suggest that policymakers face an equity efficiency trade off driven by the choice of revenue recycling options when the additional revenue is used to raise welfare transfers to households the reform is beneficial for lower income groups but output levels decrease in all regions however when the energy tax revenue is used to lower distortionary labour taxes the tax shift is slightly regressive in this case national gdp is hardly affected but regional production levels diverge the impact of the environmental tax reform on income distribution depends strongly on changes in factor prices and welfare payments whereas sector composition is an important determinant for regional impact variation

the joint design of unemployment insurance and employment protection a first pass unemployment insurance and employment protection are typically discussed and studied in isolation in this paper we argue that they are tightly linked and we focus on their joint optimal design in a simple model with risk averse workers risk neutral firms and random shocks to productivity we show that in the first best unemployment insurance comes with employment protection in the form of layoff taxes indeed optimality requires that layoff taxes be equal to unemployment benefits we then explore the implications of four broad categories of deviations from first best limits on insurance limits on layoff taxes ex post wage bargaining and ex ante heterogeneity of firms or workers we show how the design must be modified in each case finally we draw out the implications of our analysis for current policy debates and reform proposals from the financing of unemployment insurance to the respective roles of severance payments and unemployment benefits

an equilibrium model of health insurance provision and wage determination we investigate the effect of employer provided health insurance on job mobility rates and economic welfare using a search matching and bargaining framework in our model health insurance coverage decisions are made in a cooperative manner that recognizes the productivity effects of health insurance as well as its nonpecuniary value to the employee the resulting equilibrium is one in which not all employment matches are covered by health insurance wages at jobs providing health insurance are larger in a stochastic sense than those at jobs without health insurance and workers at jobs with health insurance are less likely to leave those jobs even after conditioning on the wage rate we estimate the model using the 1996 panel of the survey of income and program participation and find that the employer provided health insurance system does not lead to any serious inefficiencies in mobility decisions

unemployment insurance and capital accumulation abstract in this paper i examine a model economy with production search and unemployment insurance the introduction of capital into the economy of wang and williamson j monetary econom 49 7 2001 1337 generates the result that optimal replacement ratios are always zero the result arises from the decline in aggregate activity caused by unemployment insurance both capital and labor inputs to production fall when benefits rise unlike most of the literature i compute explicitly the cost of the transition path agents are made better off by switching to a steady state with no unemployment insurance but the welfare gain is approximately cut in half only the very poor and unemployed suffer welfare losses along the transition path i then briefly investigate the implications of negative replacement ratios

an empirical study of the determinants of green party voting i empirically study the determinants of individuals green voting behavior for this i make use of three datasets from germany a panel dataset and two cross sectional datasets the empirically strongest determinants are the voters attitude or distance to nuclear sites the level of schooling and net income i show that those voters with deviant attitudes or alternative world views are more likely to vote green a result of the fact that the green party has always had the position of a protest party i find little role for demographic variables like gender marital status or the number of children this is in contrast to the stated preference literature age plays a role for explaining voting behavior only insofar as it proxies for health

drowned by numbers stabilization properties of an eu wide unemployment insurance system the recent crisis has given rise to proposals for the creation of a european unemployment insurance system we simulate an eu wide mechanism under various scenarios varying methods of financing common or country specific contribution rates and triggers for pay outs all time or contingent clauses we analyse the impact of the system using different measures of stabilization under different fiscal multipliers a system operating during bad times periods where the increase in unemployment is large would reduce gdp growth variability but also growth correlation among member countries hence there is a trade off between stabilization and synchronization of national business cycles

optimal unemployment insurance in ge a robust calibration approach abstract a simple monte carlo calibration approach is implemented in a ge model with uninsurable employment risk to quantitatively study the optimal replacement rate of a public unemployment insurance ui scheme the optimal ui sampling distribution is found to be bimodal

structural empirical evaluation of job search monitoring to evaluate search effort monitoring of unemployed workers it is important to take account of post unemployment wages and job to job mobility we structurally estimate a model with search channels using a controlled trial in which monitoring is randomized the data include registers and survey data on search behavior we find that the opportunity to move to better paid jobs in employment reduces the extent to which monitoring induces substitution toward formal search channels in unemployment job mobility compensates for adverse long run effects of monitoring on wages we examine counterfactual policies against moral hazard like reemployment bonuses and changes of the benefits path

an adverse selection model of optimal unemployment insurance abstract we ask whether offering a menu of unemployment insurance contracts is welfare improving in a heterogeneous population we adopt a repeated moral hazard framework as in shavell and weiss 1979 supplemented by unobserved heterogeneity about agents job opportunities our main theoretical contribution is a quasi recursive formulation of our adverse selection problem including a geometric characterization of the state space our main economic result is that optimal contracts for bad searchers tend to be upward sloping due to an adverse selection effect this is in contrast to the well known optimal decreasing time profile of benefits in pure moral hazard environments that continue to be optimal for good searchers in our model

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

dynamic contracts with worker mobility via directed on the job search this article proposes a model with dynamic incentive contracts and on the job search in a frictional labor market the optimal long term contract exhibits an increasing wage tenure profile with increasing wages worker effort also increases with tenure these two features imply that the probabilities of both voluntary and involuntary job separation decrease with both job tenure and the duration of employment given these results workers experience differing labor market transitions between employment unemployment and across different employers and the equilibrium generates endogenous heterogeneity among ex ante homogeneous workers abstract from author

is there a threat effect of labour market programmes a study of almp in the danish ui system this article focuses on unemployed individuals reaction to compulsory labour market programmes prior to participation in denmark after having received ui benefits for a given period of time continued benefits are made conditional on participation in a labour market programme i estimate individuals reaction to compulsory programmes using legislative changes in the duration of benefits period as identification i find that compulsory programmes do indeed motivate individuals to find employment prior to participation the effect is large and is even comparable in size to the effect of benefits exhaustion found in studies of american ui systems

job search requirements effort provision and labor market outcomes abstract how effective are effort targets this paper provides novel evidence on the effects of job search requirements on effort provision and labor market outcomes based on large scale register data we estimate the returns to required job search effort instrumenting individual requirements with caseworker stringency identification is ensured by the conditional random assignment of job seekers to caseworkers we find that the duration of un and non employment both decrease by 3 if the requirement increases by one monthly application when instrumenting actual applications with caseworker stringency an additionally provided monthly application decreases the length of spells by 4 in line with theory we further find that the effect of required effort decreases in the individual s voluntary effort finally the requirement level causes small negative effects on job stability reducing the duration of re employment spells by 0 3 per required application we find a zero effect on re employment wages

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

short term contracts and long term agency relationships abstract long term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow we show that commitments are unnecessary and hence short term contracts are sufficient if 1 all public information can be used in contracting 2 the agent can acess a bank on equal terms with the principal 3 recontracting takes place with common knowledge about technology and preferences and 4 the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times

moral hazard optimal unemployment insurance and experience rating abstract this paper is concerned with evaluating alternative unemployment insurance ui schemes in a dynamic economy with moral hazard we consider changes in the size and duration of ui benefits and the effects of experience rating and use a dynamic contracting approach to determine a benchmark optimal allocation radical changes in the current ui system increase welfare but not by much a move to full experience rating has distributional effects but the aggregate effects are negligible

liquidity and insurance for the unemployed we study the optimal design of unemployment insurance for workers sampling job opportunities over time we focus on the optimal timing of benefits and the desirability of allowing workers to freely access a riskless asset when workers have constant absolute risk aversion preferences it is optimal to use a very simple policy a constant benefit during unemployment a constant tax during employment that does not depend on the duration of the spell and free access to savings using a riskless asset away from this benchmark for constant relative risk aversion preferences the welfare gains of more elaborate policies are minuscule our results highlight two largely distinct roles for policy toward the unemployed a ensuring workers have sufficient liquidity to smooth their consumption and b providing unemployment benefits that serve as insurance against the uncertain duration of unemployment spells

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

optimal unemployment insurance with heterogeneous agents the framework of a general equilibrium heterogeneous agent model is used to study the optimal design of an unemployment insurance ui scheme and preferences for unemployment policy reforms in a first step the optimal defined benefit and defined replacement ratio ui systems are obtained in simulations then the question whether switching to such an optimal system from the status quo would be approved by a majority of the population is explored finally the transitional dynamics following a policy change are analysed accounting for this transition has an important influence on the support for a policy change

the measurement of unemployment an empirical approach although the unemployment rate is one of the most widely cited and closely monitored economic statistics the definition and measurement of unemployment remain controversial an important issue is whether non employed persons who display a marginal attachment to the labor force for example those who are available for and desire work but are not searching for work should be classified as unemployed or non participants although this issue has been extensively debated it has never been tested empirically this paper carries out empirical tests of this and related hypotheses using a unique longitudinal data set from canada we find within the marginally attached a waiting group whose behavior indicates that they would be more appropriately classified as unemployed rather than out of the labor force the remainder of the marginally attached exhibit behavior between that of the unemployed and the balance of non participants suggesting that the desire for work among non searchers conveys substantial information about labor force attachment and future employment status our methods also apply to heterogeneity within the unemployed and we investigate behavioral variation linked to differences in job search methods and reasons for entry into unemployment although those using passive job search do exhibit behavior somewhat distinct from active searchers our results reject the practice of classifying passive job searchers as out of the labor force overall our results indicate that the non employed are very heterogeneous so that any single division into unemployment and out of the labor force is unlikely to fully capture the variety of degrees of labor force attachment this abstract was borrowed from another version of this item

the wealth of the unemployed many studies have investigated the adequacy of unemployment insurance ui benefits as a form of income replacement but few have looked at other resources with which the unemployed can finance their unemployment spells this paper focuses on one form of resources own wealth holdings the author finds that the median worker s financial assets can cover roughly two thirds of the income loss from an unemployment spell wealth holdings vary tremendously however and almost one third of workers are unable to replace even 10 of their income loss moreover predicted wealth holdings decline precipitously with realized unemployment durations both absolutely and especially relative to actual income loss this finding together with the finding that individuals who are eligible for more generous ui draw down their wealth more slowly than do others during unemployment spells suggests that ui benefit adequacy could be increased if the benefits were targeted to those with longer unemployment spells

voting on open space what explains the appearance and support of municipal level open space conservation referenda in the united states abstract numerous communities in the united states have been willing to use public funds to protect open space the amount of money allocated for open space protection by local and state governments exceeds the budget of the largest federal land protection program in the u s the conservation reserve program this paper analyzes what types of municipalities hold open space referenda and the level of support for these referenda factors that increased the probability of a municipality holding an open space referendum from 2000 to 2004 were large population low population density rapid growth of the surrounding area and highly educated and environmentally concerned residents increases in median household income up to 100 000 increased the likelihood of a vote but further increases in income beyond 100 000 decreased the likelihood for municipalities holding an open space referendum factors that increased support for passage of the referendum were rapid growth low unemployment rates highly educated residents and no new taxes given high levels of support for open space referenda 76 of municipal level referenda held from 2000 through 2004 passed the spatial pattern of locally managed open space will be largely determined by the factors that affect referenda appearance on a municipal ballot this conclusion suggests that locally managed conservation hotspots will cluster around fast growing affluent communities with highly educated residents such hotspots may or may not align with overall conservation priorities non governmental and environmental organizations should focus efforts on helping communities in locally managed conservation coldspots secure open space

getting it done dynamic incentives to complete a project a principal wants an agent to complete a project the agent undertakes unobservable effort which affects in each period the probability that the project is completed we characterize the contracts that the principal sets with and without commitment with full commitment the contract involves the agent s value and wage declining over time in order to give the agent incentives to exert effort the best sequentially rational equilibrium for the principal also involves the agent s wage declining over time while the worst sequentially rational equilibrium for the principal has a constant wage and is in fact the unique stationary equilibrium the best weakly renegotiation proof equilibrium for the principal is achieved by a constant wage that maximizes the principal s payoff conditional on wages being constant we compare these solutions to the efficient outcome

job separation in a non stationary search model a structural estimation to evaluate alternative unemployment insurance systems this paper considers a job search model in which the environment is not constant throughout the unemployment spell and where jobs do not last for ever in this situation reservation wages can be lower than they would be in a model without consideration of such separations but they can initially be higher precisely because of the non constant environment the model is estimated structurally by using spanish data for the period 1985 1996 the main finding is that after controlling for unobserved heterogeneity the unemployment hazard rate is almost flat during the first six months however after this duration the highly decreasing job offer arrival rate comes to be the only significant factor given that acceptance probabilities become equal to one the estimated parameters are used to evaluate different unemployment insurance designs we conclude that a non monotonic pattern in unemployment benefits joint with a tax paid by workers and based on unemployment duration makes this duration 13 2 lower than it currently is in spain copyright 2006 john wiley sons ltd

the environmental kuznets curve environmental protection policy and income distribution abstract the effect of economic growth on pollution emissions differs substantially among high income countries i address this issue by analyzing public environmental policy decisions individual heterogeneity relative income effect and the political framework in which policy decisions are taken determine the emergence of the downward sloping segment of the environmental kuznets curve ekc income inequality produces a gap between the country s ability to pay for environmental protection and a country s willingness to pay i test this result by using oecd data on public r d expenditure for environmental protection the conclusion is that contrary to the ek hypothesis moments of the income distribution function other than the mean may be important for the emergence of a virtuous path of sustainable growth in high income countries

asset based unemployment insurance this article studies a model of consumption savings and job search in which a borrowing constraint limits self insurance the government administers the unemployment insurance program that may condition on an individual s asset position but not on her efforts of finding a job to compensate for the impediments to self insurance benefit payments should optimally be set higher at lower wealth levels and peak for borrowing constrained individuals with zero liquid funds a quantitative exercise reveals that the u s unemployment insurance program is surprisingly close to optimal for the asset poor but far too generous for wealthier individuals

nonstationarity in job search theory generally structural job search models are taken to be stationary in this paper models are examined in which every exogenous variable can cause nonstationarity for instance because its value is dependent on unemployment duration a general differential equation that describes the evolution of the reservation wage over time is derived as an empirical illustration a nonstationary structural model is estimated that focuses on the consequences of a downward shift in the level of benefits it appears that the elasticity of duration with respect to the level of benefits after the shift is much larger than the elasticity with respect to the level before the shift this paper examines the movement of a job seeking individual s reservation wage over time in a general nonstationary job search model also results concerning comparative dynamics of the reservation wage and the distribution of the duration of unemployment are derived as an empirical illustration a nonstationary structural model is estimated the nonstationarity originates from the decrease in the level of benefits when unemployment duration equals two years from the results some detailed policy recommendations can be deduced as one is able to distinguish the effect of a change in the level of benefits in the first two years of unemployment from the effect of a change in the level after that period recently the use of job search models for the analysis of unemployment duration has become widespread the reduced form approach in empirical studies see e g lancaster 1979 in which only the hazard of the duration distribution is estimated is gradually being replaced by a more structural approach the latter way of modelling is characterized by the explicit use in empirical analysis of the reservation wage equation as stated by the theory e g yoon 1981 lancaster and chesher 1983 lynch 1983 narendranathan and nickell 1985 and van den berg 1988 use the complete theoretical framework of job search theory to make inferences about search behaviour however the structural models used in these studies are stationary this implies that variables like unemployment benefits or the rate of arrival of job offers are assumed to be constant over the spell of unemployment which is often at variance with reality what is more various reduced form empirical studies indicate a significant durationdependence of the re employment probability which is generally interpreted as evidence in favour of the presence of nonstationarity see e g blau and robins 1986 kooreman and ridder 1983 lancaster 1979 and narendranathan nickell and stern 1985 consequently there is a need to model reservation wage movements over time based on a nonstationary theoretical framework

earnings inequality and mobility in the united states evidence from social security data since 1937 this paper uses social security administration longitudinal earnings micro data since 1937 to analyze the evolution of inequality and mobility in the united states annual earnings inequality is u shaped decreasing sharply up to 1953 and increasing steadily afterward short term earnings mobility measures are stable over the full period except for a temporary surge during world war ii virtually all of the increase in the variance in annual log earnings since 1970 is due to increase in the variance of permanent earnings as opposed to transitory earnings mobility at the top of the earnings distribution is stable and has not mitigated the dramatic increase in annual earnings concentration since the 1970s long term mobility among all workers has increased since the 1950s but has slightly declined among men the decrease in the gender earnings gap and the resulting substantial increase in upward mobility over a lifetime for women are the driving force behind the increase in long term mobility among all workers

optimal unemployment insurance in a matching equilibrium this article considers optimal unemployment insurance ui in an equilibrium matching framework where wages are determined by strategic bargaining it compares the outcome with the standard nash bargaining approach which can be interpreted as union wage bargaining with an insider outsider distortion it also shows that a coordinated policy approach one that chooses job creation subsidies and ui optimally generates a much greater welfare gain than a policy that simply varies ui payments by duration

breakthroughs deadlines and self reported progress contracting for multistage projects we study the optimal incentive schemes for multistage projects staged financing pervasive in both venture capital and research grants arises as a feature of the optimal contract the nature of progress plays an important role when progress is tangible incentives are provided through a series of deadlines and a reward scheme that decreases over time early progress in one stage gives the agent more time and funding to complete the next one when progress is intangible unverifiable progress reports are used despite the fact that the information in the report has no social value the optimal contract involves a soft deadline wherein the principal guarantees funding up to a certain date if the agent reports progress at that date then the principal gives him a relatively short deadline to complete the project if not then a probationary phase begins in which the project is terminated at a constant rate until progress is reported we explore the implications for welfare and optimal project design

the relevance of attitudinal factors for the acceptance of energy policy measures a micro econometric analysis abstract this paper empirically examines the individual support of the german energy transition in total and especially of six single energy policy measures which are components of the energy transition our micro econometric analysis with binary and ordered probit models on the basis of data from a broad survey of citizens reveals the important role of several attitudinal factors with respect to our indicators for perceived personal costs of the energy transition the estimation results point to a weak evidence for economic self interest due to some negative correlations between expected energy price increases due to the energy transition and the support of single energy policy measures interestingly however the concern that the energy transition alone causes strong energy price increases is not shared by the majority of the respondents the estimation results also suggest that the support of several energy policy measures is strongly correlated with environmental values however the most important attitudinal factor is obviously political identification the econometric analysis suggests that an overall left green policy identification is positively correlated with the support of the energy transition in total and an identification with ecological policy is positively correlated with the acceptance of several single energy policy measures the econometric analysis especially supports the more sophisticated categorization of political orientation since for example a liberal conservative policy orientation is not significantly correlated with the support of the energy transition in total

optimal unemployment insurance with non separable preferences abstract in this paper we characterize the shape of optimal unemployment contracts when the preferences are non separable we show that the optimal contract generates an endogenous minimum replacement ratio

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

unemployment insurance design inducing moving and retraining evidence suggests that unemployed individuals can sometimes aect their job prospects by undertaking a costly action like deciding to move or retrain realistically such an opportunity only arises for some individuals and the iden tity of those may be unobservable ex ante the problem of characterizing con strained optimal unemployment insurance in this case has been neglected in previous literature we construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled the model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobserv able job search in particular we derive closed form solutions showing that when the moving retraining incentive constraint binds unemployment bene ts should increase over the unemployment spell with an initial period with low bene ts and an increase after this period has expired

optimum income taxation and layoff taxes this paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment it is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income the optimal layoff tax is equal to the social cost of job destruction which amounts to the sum of unemployment benefits that the state pays to unemployed workers and payroll taxes that the state does not get when workers are unemployed

integration of unemployment insurance with retirement insurance abstract this paper analyzes a social insurance system that integrates unemployment insurance with a pension program allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving search incentives while reducing the risks arising from unemployment this paper identifies the conditions under which integration improves welfare and the factors which determine the optimal degree of integration we show that when the duration of unemployment is very short compared to the period of employment or retirement the optimal system involves exclusive reliance on pension funded self insurance this system imposes a negligible risk burden for workers while avoiding attenuating search incentives we also argue that joint integration of several social insurance programs with a pension program through an individual account is desirable unless the risks are perfectly correlated with each other

what does it take to sell environmental policy an empirical analysis of referendum data we analyze the factors that influence the support for environmental policy proposals swiss referendum data show that proposals obtain more yes votes if they do not restrict consumption possibilities directly if they are endorsed by the largest business association if environmental preferences are strong and economic conditions are favorable at the time of the referendum also there are more pro environmental votes in cantons with higher population density on the other hand yes votes do not seem to depend on whether a proposal involves a tax or not

optimal unemployment insurance with monitoring and sanctions this article analyses the design of optimal unemployment insurance in a search equilibrium framework where search effort among the unemployed is not perfectly observable we examine to what extent the optimal policy involves monitoring of search effort and benefit sanctions if observed search is deemed insufficient we find that introducing monitoring and sanctions represents a welfare improvement for reasonable estimates of monitoring costs this conclusion holds both relative to a system featuring indefinite payments of benefits and a system with a time limit on unemployment benefit receipt

reference dependent job search evidence from hungary we propose a model of job search with reference dependent preferences with loss aversion relative to recent income the reference point in this model newly unemployed individuals search hard since consumption is below their reference point over time though they get used to lower income and thus reduce their search effort in anticipation of a benefit cut their search effort rises again then declines once they get accustomed to the lower postcut benefit level the model fits the typical pattern of exit from unemployment even with no unobserved heterogeneity to distinguish between this and other models we use a unique reform in the unemployment insurance ui benefit path in 2005 hungary switched from a single step ui system to a two step system with overall generosity unchanged the system generated increased hazard rates in anticipation of and especially following benefit cuts in ways the standard model has a hard time explaining we estimate a model with optimal consumption endogenous search effort and unobserved heterogeneity the reference dependent model fits the hazard rates substantially better than plausible versions of the standard model including habit formation our estimates indicate a slow adjusting reference point and substantial impatience likely reflecting present bias jel codes d03 j64 j65

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

on optimal unemployment compensation abstract the design of an optimal unemployment compensation scheme is analyzed using a dynamic principal agent relationship between a risk neutral planner the principal and risk averse workers the agents where the planner s inability to observe workers job search efforts creates a moral hazard problem to design an implementable scheme we require that each agent is guaranteed a minimum level of expected discounted utility regardless of his past history in contrast with previous studies we find that the optimal contract is quite close to actual unemployment compensation schemes both qualitatively and quantitatively

assessing the effects of reemployment bonuses on job search a regression discontinuity approach abstract this study examines the impacts of reemployment bonuses that is the incentive payments to unemployment insurance ui recipients who find a job within a specified period using korean data a sharp discontinuity in treatment assignment at age 55 identifies the effect of increased reemployment bonuses on unemployment duration and on subsequent job duration the results indicate that increases in the reemployment bonus boost the job finding hazards of ui claimants early in their unemployment spells during the bonus qualification period and significantly shorten the duration of ui spells by 0 16 to 0 42 months 0 68 to 1 82 weeks in addition employment stability is not significantly affected by an increased bonus which implies no negative influence of the bonus on subsequent job match quality the simulated estimates show that the increase in tax revenue and the decrease in ui benefit payment caused by the behavioral response of ui recipients are large enough to offset the increased cost of the reemployment bonus

equilibrium heterogeneous agent models as measurement tools some monte carlo evidence abstract this paper discusses a series of monte carlo experiments designed to evaluate the empirical properties of heterogeneous agent macroeconomic models in the presence of sampling variability the calibration procedure leads to the welfare analysis being conducted with the wrong parameters the ability of the calibrated model to correctly predict the long run welfare changes induced by a set of policy experiments is assessed the results show that for the policy reforms with sizable welfare effects i e more than 0 2 the model always predicts the right sign of the welfare effects however the welfare effects can be evaluated with the wrong sign when they are small and when the sample size is fairly limited quantitatively the maximum errors made in evaluating a policy change are very small for some reforms in the order of 0 02 percentage points but bigger for others in the order of 0 6 percentage points finally having access to better data in terms of larger samples does lead to substantial increases in the precision of the welfare effects estimates though the rate of convergence can be slow

explaining the appearance and success of open space referenda many communities in the united states have begun enacting policies to preserve open space often through local voter referenda new jersey sponsors such municipal action through the green acres program by providing funding and low interest loans to towns that choose to increase property taxes and spend the money raised on open space preservation for the purposes of conservation and or recreation this paper endeavors to understand which factors contribute to the appearance and success of these measures although previous literature has examined this issue this is the first study to account for spatial dependence spatial autocorrelation and to explore dynamic issues through survival analysis the traditional two stage model from the literature is extended by incorporating a bayesian spatial probit for the first stage and a maximum likelihood spatial error model in the second stage a cox proportional hazard model is used to examine the timing of referenda appearance spatial dependence is found in the second stage of the analysis indicating that future studies should account for its influence there is no strong evidence for spatial dependence or correlation in the first stage the survival model is found to be a useful complement to the traditional probit analysis of the first stage

teaching tools what s wrong here what s wrong here i introduction in the interest of enhancing the economic way of thinking many professors encourage students to read the wall street journal or other business periodicals a passive role while others following kelly 1983 use business periodicals in a more specific way in both instances the objective is to inspire students to correctly apply basic economic principles to real world problems in order to make economics relevant and interesting and to increase the retention level of a conventional one year economics course research by saunders 1980 pp 10 12 supports the importance of regular reading of business periodicals for achieving the goals the passive method of using business periodicals handing out wall street journal or business week sign up sheets and occasionally making periodic references to specific articles is time efficient for the busy professor but can be counterproductive unless the professor takes time to alert students to possible errors in economic reasoning that occur more frequently than is desirable in many business articles particularly articles applying supply and demand analysis most students will make the assumption that the economic analysis reported in the press is correct in those instances where journalists or experts apply improper economic reasoning in their reporting the article may serve the undesired outcome of reinforcing similar errors in thinking by students reading the article this confusion is further compounded when in the same article errors are reported in one segment while other arguments correctly apply economic concepts the purpose of this article is to aid professors in using business periodicals in principles courses by presenting examples of three errors in applying supply and demand analysis that are frequently made both by students and authors of business articles incorrect use of supply and demand analysis as evidenced in journalistic reports has several implications that can have adverse affects on students of professors who passively use business periodicals in introductory economics courses first the student who has been careful to learn the proper terminology and logic will feel uncomfortable and begin to question their own understanding when reading from someone professional who has applied the concept incorrectly second the student who at the time of reading does not fully appreciate the principle but is attempting to apply it will unfortunately learn from the incorrect presentation and thus the article will have a negative effect on the original teaching objective finally if the error made by the author is one made frequently by students it will become harder for the student to correctly learn economic principles since the student s erroneous reasoning has been verified by the journalist or the expert while it would be impossible for a professor to monitor even the wall street journal for all cases of misreporting during a semester the professor can make the students more sophisticated readers and hopefully avoid some of the above problems by presenting examples of typical errors of reasoning students may encounter in their outside reading the professor can maintain a file of articles that have come to his her attention or use available supplements that contain examples of journalistic errors applying economic reason some brief examples of typical errors that we have recently used effectively in our classes follow ii examples the first typical error involves the failure to carefully distinguish between changes in quantity demanded quantity supplied and changes in demand supply principles of economics texts carefully distinguish between changes in quantity demanded and changes in demand the terminology when consistently applied allows a reader to easily determine whether a change in buyer behavior has resulted from a change in product price or from a change in a non price determinant of demand

teaching tools on journalists use of macroeconomic concepts teaching tools on journalists use of macroeconomic concepts five macroeconomic concepts are presented which are prominent in the business sections of newspapers but which are not given equivalent prominence in macroeconomic textbooks these are the discouraged worker phenomenon the use of inventories in forecasting the effect of changes in the money supply on the bond market and the effects of inflation and nominal interest rates in the foreign exchange market these concepts are presented via news clips illustrating the way they typically appear in the press instructors are urged to place extra emphasis on these concepts i introduction it has become common for economics textbooks and instructors to use newspaper clippings to illustrate the application of economic concepts to the real world in addition to several readings books of newspaper articles a modest journal literature has appeared on this topic kelley 1983 advocates having students make up their own economics newspaper by cutting and pasting from regular news sources wood 1985 discusses many facets of the connection between news coverage of economic events and economic education drawing on his experience as a former reporter grunin and lindauer 1986 describe a course in economic journalism boynton and deissenberg 1987 extract a macroeconomic model implicit in newspaper commentary and cochran and brown 1989 warn instructors to be alert to journalists errors for example this literature tries in a variety of ways to address a common complaint expressed cogently by fels 1970 41 we neither try nor succeed in training students to use economic principles to evaluate critically what they read in the popular press this paper extends this literature in a new direction one of the many good reasons for supplementing economic instruction with newspaper clippings is to ensure that students can interpret and evaluate newspaper commentary on economic issues it is therefore important that economic concepts prominent in news articles be given adequate stress by instructors and in a way which illustrates how these concepts are used in newspapers in this paper i note five applications of macroeconomic concepts which play prominent roles in the financial pages of newspapers primarily because of their practical implications for the business world but which are not given an equally prominent treatment by textbooks since so many of our students will find themselves in the business world after graduation and so many more will retain contact with macroeconomics solely through newspaper commentary these five concepts seem worthy of extra emphasis by instructors a second point i wish to stress is that it is not enough to provide this extra emphasis within the context of the traditional textbook development of these macroeconomic concepts the traditional presentation must be supplemented with concrete examples illustrating how they are used in newspaper commentary with particular reference to their practical implications it is not unusual for journalists to write in a cryptic metaphor laden style that can disguise the macroeconomic concept being exploited and unlike textbooks explanations are seldom offered for this reason i present these five concepts accompanied by one or two sentence newspaper clips 1 illustrating the way they typically appear in the press most of the macroeconomic concepts playing prominent roles in newspaper commentary such as the multiplier monetary policy and the phillips curve play equally prominent roles in macroeconomics textbooks the five macroeconomic concepts discussed below were singled out because their textbook treatments are not commensurate with their importance in news reports and do not stress the potential roles these concepts can play in the interpretation of business world events

unemployed but optimistic optimal insurance design with biased beliefs biased perceptions of risks change the perceived value of insurance and the per ceived returns to avoiding these risks i show empirically that unemployed workers overestimate how quickly they will nd work but underestimate the return to their search eorts i analyze the consequences for the optimal design of unemployment insurance with biased beliefs contracts equalizing the marginal smoothing ben e t and the moral hazard cost of insurance are suboptimal social and private insurance diverge a paternalistic social planner corrects the moral hazard cost for the distortion in the insured s eort choice while private insurers focus on the perceived rather than the true smoothing bene ts when unemployed workers are optimistic privatizing unemployment insurance may result in ine ciently low or rapidly decreasing unemployment bene ts

teaching tools a public goods experiment for the classroom teaching tools a public goods experiment for the classroom george stigler wrote in the american economic review twenty seven years ago that the typical student in an introductory college economics course would memorize a few facts diagrams and policy recommendations and ten years later be as untutored in economics as the day he entered the class 1963 657 and later in the journal of economic education stigler argued that economics belongs in everyone s education once we have learned how to teach it 1970 80 as we enter the nineties academic economists continue groping for methods and techniques that will improve the way in which principles courses are taught the proliferation of commercially available materials in the form of textbooks workbooks software telecourses e g economics usa and transparencies provides evidence of the increasing interest and expenditure aimed at improving the teaching of economics however there exists at least one very promising teaching technique that continues to see relatively limited action in the typical economics classroom while experimental economic methods have become quite familiar to academic economists as a legitimate and powerful research tool their usefulness for the economics classroom has not yet been generally recognized 1 in this article i describe a simple yet powerful public goods experiment for use in microeconomics or public finance courses since it is likely that many instructors in economics are reluctant to use experimental methods without sufficient preparation 2 enough detail on experiment administration and suggested post experiment discussion is provided to assist even the novice experimenter with getting started instructors interested in additional information on experimental economics or experiments for the classroom should consult the references listed in the concluding section i experiment description 3 a theoretical concept that introductory students often find hard to understand is the vertical summation of individual demand curves to obtain the market demand for a public good the typical student also fails to fully appreciate how a free rider can cause underinvestment in public goods the experiment outlined below provides a simple yet powerful technique to teach not only the vertical addition and the free rider problems but also an ideal way to construct a prisoner s dilemma game and discuss the resulting underinvestment in the public good students are placed into n teams where a team may be as few as one person each team is endowed with t tokens and must choose in each of the decision making rounds whether to invest these tokens in the private account or the group account the private account will pay the team 0 30 per token invested each round the group account will earn for the entire society 0 50 per token invested each round from the group account each team will then receive 0 50 g sub i n where g sub i equals the total number of tokens invested in the group account in round i by all n teams note that regardless of how many tokens any single team places into the group account all n teams receive the same payout from the group account teams must invest all t tokens in each round and tokens cannot carry over from one round to the next finally earnings from previous rounds are not allowed to be reinvested in the future ii example experiment assume a representative class of sixty students 4 assume the instructor divides the class into twenty teams n 20 of three students each each team is endowed with t 25 tokens per round the teams read the instructions overhead transparency while the instructor distributes to each team i the team record sheet and ii the team decision ballots one for each round 5 for each round once all the team ballots have been submitted the instructor sums the tokens invested in the group account and reports this number and the dollar payout per team to the entire class

who votes for public environmental goods in california evidence from a spatial analysis of voting for environmental ballot measures abstract voting referenda provide direct evidence of the demand for public goods a number of previous studies have used referenda to analyze the support for public environmental goods these studies have used aggregate data from large jurisdictional units usually counties and summary income measures such as the mean or median and have usually found that higher income areas offer greater support for environmental propositions we examine environmental referenda voting in california using census block group data spatial dependence controls and detailed income distribution data we find that household income has a negative marginal effect on environmental referenda voting for most of the income range when using census block data in addition controls for spatial dependence significantly reduce the magnitude of most coefficients this suggests that ols estimates of referenda determinants are biased we also show that county level data may be subject to severe aggregation bias and might not be appropriate for referenda studies

an empirical examination of the sources of changes over time in the job finding rate using reservation wages and rejected wage offers we consider a structural dynamic job search model where nonstationarity originates from the change over time in the benefit level the job offer arrival rate and the wage offer distribution the model is estimated on the french sample of the echp taking advantage of direct observation of reservation wages rejected job offers and associated rejected wages we find that the offered wages deteriorate rapidly 13 8 over six months 19 2 over one year and 30 over two years and that changes in the wage offer distribution are the unique source of negative duration dependence in the hazard

adverse selection and moral hazard quantitative implications for unemployment insurance abstract a model of optimal unemployment insurance with adverse selection and moral hazard is constructed the model generates both qualitative and quantitative implications for the optimal provision of unemployment insurance qualitatively for some agents incentives in the optimal contract imply consumption increases over the duration of non employment calibrating the model to a stylized version of the u s economy quantitatively illustrates these theoretical predictions the optimal contract achieves a welfare gain of 1 94 relative to the current u s system an additional 0 87 of gains relative to a planner who ignores adverse selection and focuses only on moral hazard

moral hazard vs liquidity and optimal unemployment insurance this paper presents new evidence on why unemployment insurance ui benefits affect search behavior and develops a simple method of calculating the welfare gains from ui using this evidence i show that 60 percent of the increase in unemployment durations caused by ui benefits is due to a liquidity effect rather than distortions on marginal incentives to search moral hazard by combining two empirical strategies first i find that increases in benefits have much larger effects on durations for liquidity constrained households second lump sum severance payments increase durations substantially among constrained households i derive a formula for the optimal benefit level that depends only on the reduced form liquidity and moral hazard elasticities the formula implies that the optimal ui benefit level exceeds 50 percent of the wage the exact identification approach to welfare analysis proposed here yields robust optimal policy results because it does not require structural estimation of primitives

unemployment insurance in the presence of an informal sector we study the effect of ui bene ts in a typical developing country where the informal sector is sizeable and persistent in a partial equilibrium environment ruling out the macroeconomic consequences of ui benefits we characterize the stationary equilibrium of an economy where policyholders may be employed in the formal sector short run unemployed receiving ui benefits or long run unemployed without ui benefits we perform comparative static exercises to understand how ui benefits affect unemployed workers effort to secure a formal job and their labor supply in the informal sector our model reveals that an increase in ui benefits generates two opposing effects for the short run unemployed first since search efforts cannot be monitored it generates moral hazard behaviours that lower effort second it generates an income effect as it reduces the marginal cost of searching for a formal job and increases effort even though in general it is ambiguous which effect dominates we show that for short durations ui benefits increase unemployed worker s effort to secure a formal sector job and decreases informal sector work

voting on the environment price or ideology evidence from swiss referendums studies on preferences for environmental quality usually posit that price and income explain most of the observed choices however we argue that conceptions of social norms and the common good are equally important when analyzing environmental voting outcomes and are a significant component of the environmental demand we study aggregate results of three ballot proposals in switzerland put to vote in the year 2000 which foresaw different tax schemes on fossil energy all three bills were rejected by the electorate we are able to show that regions with producer interests car commuting habits and elderly population are less supportive of ecological tax reforms unlike higher education and leftist political affinity that work in favor of the bills though more importantly our results underline the importance of including variables pertaining to the notion of ideology both in terms of statistical fit and obtaining unbiased estimates for price and income determinants

taxation and redistribution of residual income inequality this paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market we study this problem in the context of a directed search model of the labor market populated by homogeneous workers and heterogeneous firms the optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax the positive unemployment benefit serves the purpose of lowering the search risk faced by workers the increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

a market clearing classroom experiment this paper describes a classroom experiment demonstrating the price mechanism and the clearing of markets in an endowment economy participants receive random endowments of two goods they may trade in order to maximize a given utility function a market clearing price is reached when no mutually beneficial trades are possible the outcome is truly endogenous with no reservation prices or willingness to trade imposed on the participants a problem set allows the participants to study the equilibrium outcome analytically the experiment can be used in intermediate micro and macroeconomic courses

teaching tools teaching methods in undergraduate economics i introduction in 1970 nobel laureate george stigler argued that economics belongs in everyone s education once we have learned how to teach it but because the logic of economics is not easy to learn or teach he concluded that economics is not yet ready to be made a part of the basic curriculum of all educated men p 80 we now have new models for teaching economics in fact as in other areas of economics we have competing models with new approaches being offered to supplement extensively if not replace entirely the lecture pedagogy used nearly exclusively by economists at the time stigler s comments were published yet in major commission and committee reports and daily conversations held in faculty lounges around the world alternatives to the lecture approach in which the teacher often serves as a preacher and students as passive receptacles into which great thoughts and wisdom are poured still appear to be either unknown or tacitly dismissed as unworkable in this journal for example mccloskey 1992 tells of an exchange between george stigler and milton friedman friedman argued that while individuals pursue their self interest they are often ignorant and require education to see that something they thought was in their personal or national interest was not e g tariffs and quotas stigler called friedman a preacher he argued that people find their own self interest with or without education and that no amount of preaching or lecturing about economics would change that self interest in the report of the commission on graduate education in economics by krueger et al 1991 considerable attention was given to bringing real world issues into the classroom but the commission s assumed instructional mode was still the lecture it is our impression that most ph d programs devote little or no attention to teaching or encouraging the development of expository skills we suspect the lack of emphasis on communication in most ph d programs reflects partly the scarcity of teaching time partly instructors lack of confidence in their ability to teach communications skills and partly a judgment that the appropriate style of professional communication is something students can figure out for themselves by watching their teachers p 1049 the report of the committee on college faculty by kasper et al 1991 representing the nation s premiere liberal arts colleges emphasized the need for breadth in content coverage in economists graduate training but did not even mention the need for breadth in instructional methods or training in those areas despite these intentional or unintentional slights in literature from the past twenty five years we found that many economists have spent a great deal of time developing and applying new teaching methods to actively engage students in the learning process in what follows we summarize those alternative approaches to make it easier for others to consider and access these articles on innovative instructional methods in economics ii classroom games simulations and laboratories although edward chamberlin and others working in the area of imperfect competition were developing artificial markets in the classroom as early as the 1940s joseph and saunders 1970 were perhaps the first economists to publish an extensive account on how to use such games to teach basic economic concepts the approach soon proved to be quite popular at least with the developers of these activities the national council on economic education then known as the joint council on economic education published the first edition of its guide to games and simulations for teaching economics in 1971 written by lewis and wentworth with references to some ninety different activities and publications in recent years commercially published games and simulations in economics have continued to appear often featuring mainframe econometric models or microcomputer programs written specifically as a classroom simulation

a general formula for the optimal level of social insurance in an influential paper baily 1978 showed that the optimal level of unemployment insurance ui in a stylized static model depends on only three parameters risk aversion the consumption smoothing benefit of ui and the elasticity of unemployment durations with respect to the benefit rate this paper examines the key economic assumptions under which these parameters determine the optimal level of social insurance i show that a baily type expression with an adjustment for precautionary saving motives holds in a general class of dynamic models subject to weak regularity conditions for example the simple reduced form formula derived here applies with arbitrary borrowing constraints durable consumption goods private insurance arrangements and search and leisure benefits of unemployment

payment vehicles for public goods evidence from california s proposition 21 proposition 21 on california s 2010 ballot concerned an annual surcharge on vehicles to support state parks proposition 21 failed leaving 25 of california state parks at risk of closure we analyze voting patterns which we show depend on the average gross price of the proposition political ideology environmental preferences the availability of substitutes and park salience we simulate counterfactual scenarios under which proposition 21 might have passed and use holdout samples to illustrate the predictive ability of our model heterogeneity across california makes our model potentially useful for predicting public sentiment for similar propositions even for jurisdictions without direct democracy

on the first order approach in principal agent models with hidden borrowing and lending we provide sufficient conditions for the validity of the first order approach for two period dynamic moral hazard problems where the agent can save and borrow secretly the first order approach is valid if the following conditions hold i the agent has non increasing absolute risk aversion utility niara ii the output technology has monotone likelihood ratios mlr and iii the distribution function of output is log convex in effort lcdf moreover under these three conditions the optimal contract is monotone in output we also investigate a few possibilities of relaxing these requirements