proper risk aversion on introduit et on etudie une condition comportementale significative sur les fonctions d utilite pour les richesses qui signifie qu une loterie indesirable ne peut jamais etre rendue desirable par la presence d une loterie indesirable independante

standard risk aversion this paper introduces the concept of standard risk aversion a von neumann morgenstern utility function has standard risk aversion if any risk makes a small reduction in wealth more painful in the sense of an increased reduction in expected utility also makes any undesirable independent risk more painful it is shown that given monotonicity and concavity the combination of decreasing absolute risk aversion and decreasing absolute prudence is necessary and sufficient for standard risk aversion standard risk aversion is shown to imply not only pratt and zeckhauser s proper risk aversion individually undesirable independent risks always being jointly undesirable but also that being forced to face an undesirable risk reduces the optimal investment in a risky security with and independent return similar results are established for the effect of broad class of increases in one risk on the desirability of or optimal investment in a second independent risk

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

micro data heterogeneity and the evaluation of public policy nobel lecture this paper summarizes the contributions of microeconometrics to economic knowledge four main themes are developed 1 microeconometricians developed new tools to respond to econometric problems raised by the analysis of the new sources of micro data produced after the second world war 2 microeconometrics improved on aggregate time series methods by building models that linked economic models for individuals to data on individual behavior 3 an important empirical regularity detected by the field is the diversity and heterogeneity of behavior this heterogeneity has profound consequences for economic theory and for econometric practice 4 microeconometrics has contributed substantially to the scientific evaluation of public policy

medical expenditure risk and household portfolio choice medical expenses are an increasingly important contributor to household financial risk we examine the effect of medical expenditure risk on the willingness of medicare beneficiaries to hold risky assets using a discrete factor maximum likelihood method to address the endogeneity of insurance choices we find that having a moderately protective medigap or employer supplemental policy increases risky asset holding by 7 1 percentage points relative to those without supplemental coverage while participation in a highly protective medicare hmo increases risky asset holding by 13 0 percentage points our results highlight an important link between the availability of health insurance and financial behavior

a further look at household portfolio choice and health status abstract this paper investigates the effect of changes in health status on household financial wealth and financial portfolio choice it is shown that the impact of health events on household financial and non financial wealth is asymmetric a diagnosis of a new disease leads to a larger decrease in financial wealth than in non financial wealth moreover we find that the puzzle pertaining to the relationship between health status and portfolio choice discussed in the extant literature generally disappears after controlling for differences in the amount of financial assets held by healthy and sick people the results suggest that the effect of changes in health status on household financial portfolios is indirect a health shock significantly reduces household total financial wealth in turn leading households to restructure the composition of their financial assets

how important is precautionary saving we estimate how much of the wealth of a sample of psid respondents is held because some households face more income uncertainty than others we begin by solving a theoretical model of saving which we use to develop appropriate measures of uncertainty we then regress measures of wealth on our measures of uncertainty and find evidence that households engage in precautionary saving finally we simulate the wealth distribution that our empirical results imply would prevail if all households had the same uncertainty as the lowest uncertainty group we find that between 39 and 46 percent of wealth in our sample is attributable to the extra uncertainty that some consumers face compared to the lowest uncertainty group

on the distribution and dynamics of health care costs using data from the health and retirement survey and the assets and health dynamics of the oldest old survey we estimate the stochastic process that determines both the distribution and dynamics of health care costs we find that the data generating process for log health costs is well represented as the sum of a white noise process and a highly persistent ar 1 process we also find that the innovations to this process can be modelled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs simulating this model we find that in any given year 0 1 of households receive a health cost shock with a present value of at least 125 000 copyright 2004 john wiley sons ltd

demand for health insurance and precautionary motives for savings among the elderly abstract this paper examines whether or not the elderly have precautionary motives for savings against uncertain and potentially large medical costs i analyze the relationship between purchases of actuarially unfair health insurance and the individual s ability to self insure in order to create a complete model of this behavior the government programs of medicare and medicaid are also incorporated into the analysis the major results from this paper are that individuals do tend to behave in a manner that is consistent with precautionary behavior and that even among those who do not hold private insurance most act in a manner consistent with their being over insured by medicare

poverty reduction during 1990 2013 did millennium development goals adoption and state capacity matter abstract while poverty reduction remains central in the post 2015 agenda its determinants remain debated in the literature especially the role of structural conditions related to governance this paper provides an assessment of two key dimensions the global adoption of mdgs and state capacity we do so by studying whether they facilitated convergence in income poverty measures using cross section and panel methods with data on 89 developing economies for the period 1990 2013 we find that poverty headcount and gap measures tended to decrease faster in countries with initially higher income poverty such convergence accelerated after 2000 suggesting that mdgs adoption was instrumental to poverty reduction however this still leaves unexplained substantial variation in poverty reduction performance across countries such variation is explained by state capacity countries with greater ability to administer their territories in 1990 experienced faster income poverty reduction and were more likely to have achieved the mdg target this result is insensitive to robust regression methods and to a large set of controls initial level of income dependence on natural resources education and health inputs dependence on foreign aid ethnic fractionalization regional effects and a set of governance variables as good governance and effective institutions are included in the sustainable development goals this result provides empirical justification for this move suggesting that more effective states could be crucial to sustain the development progress achieved so far

measuring the effect of subsidized training programs on movements in and out of employment despite over two decades of u s experience in operating large scale subsidized training programs for low income and unemployed workers the effects of these programs are still highly controversial the controversy arises from the difficulty of specifying the model of participant outcomes in the absence of training that is necessary in any nonexperimental program evaluation in this paper we suggest that some of these difficulties may be overcome by focusing on a very simple measure of outcomes namely the probability of employment we present a variety of estimates of the effect of training on the probability of employment for the 1976 cohort of adult male participants in the comprehensive employment and training act ceta program our methods range from a simple comparison of pre and post training employment probabilities between trainees and nonparticipants to a fully specified first order markov model of employment probabilities with individual heterogeneity there is consistent evidence across methods that ceta participation increased the probability of employment in the three years after training by from 2 to 5 percentage points classroom training programs appear to have had significantly larger effects than on the job programs although the estimated effects of both kinds of programs are positive we also find that movements in and out of employment for trainees and nonparticipants are reasonably well described by a first order process conditional on individual heterogeneity in the context of this model ceta participation appears to have increased both the probability of moving into employment and the probability of continuing employment

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

precautionary motives and portfolio decisions theory predicts that under certain restrictions on preferences prudent consumers will allocate relatively more funds to riskless assets when there is uninsurable background risk this paper analyzes empirically the relevance of precautionary motives for the structure of household wealth to this end a new and rich data source from the netherlands is exploited the question of primary concern is what impact if any does the presence of income uncertainty have on the structure of dutch households portfolios we employ various semi parametric estimators both for cross sections and for panel data to assess the response of households portfolios to uninsurable background risk we find some but not unanimous support for the view that portfolios become less risky as income uncertainty increases

a note on price behavior in urban pakistan this article examines the price behavior of consumer goods in the strategically vital country of pakistan results show that prices converge both temporally and spatially a wage adjusted consumer price index shows that pakistani cities have converging costs of living finally a novel measure of cointegration ranks the most and least economically integrated cities divergence does not occur along provincial linguistic or ethnic boundaries

borrowing constraints and portfolio choice this paper examines how borrowing ceilings in the personal loan market affect the portfolio choice of consumers most papers on borrowing constraints do not address the question of portfolio choice it is typically assumed that all assets can be liquidated to finance consumption in the case of an income shortfall in this case borrowing ceilings will never bind until consumers have run their assets down to zero and borrowed up to their limits however it may be more realistic to assume that consumers have a choice of allocating wealth between short term liquid assets e g cash that can be used for current consumption purposes and longer term illiquid assets e g housing equity cds that cannot be used for current consumption purposes but may be used as collateral for loans the central question of this paper is whether the presence of borrowing ceilings in the personal loan market will induce individuals to hold a larger share of their assets in liquid form this question is addressed within the context of two types of borrowing ceilings first it is assumed that borrowing ceilings are exogenous in that they are unaffected by the individual s portfolio choice this assumption is similar to that made in many papers on borrowing constraints 2 the presence of exogenous borrowing ceilings will unambiguously lead to more liquid portfolios individuals who know that there is a limit to the amount that can be borrowed will hold a larger share of their wealth in liquid form since by doing so the probability of becoming credit constrained in the future is reduced the case of exogenous borrowing ceilings is contrasted with the case in which borrowing ceilings are due to interest rate ceilings in

income risk borrowing constraints and portfolio choice economic theory suggests that uninsurable income risk and the expectation of future borrowing constraints can reduce the share of risky assets in a household s portfolio if the utility function exhibits decreasing absolute risk aversion and decreasing prudence an individual will reduce his exposure to rate of return risks when confronted with other independent risks if there are transaction costs the expectation of future borrowing constraints should induce individuals to keep a lower proportion of their wealth in the form of illiquid and risky assets the authors find support for these propositions in a cross section of italian households copyright 1996 by american economic association

health and other asset holdings despite clear evidence of correlations between financial and medical statuses and decisions most models treat financial and health related choices separately this article bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption portfolio holdings health investment and health insurance we solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health related decisions is sensible and of the pathways through which wealth and health determine allocations welfare and other variables of interest such as expected longevity or the value of health furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model

on the release of information by governments causes and consequences abstract the release of economic and social data by a government provides many benefits to its citizens on a number of different levels information has value in itself for example to facilitate a more efficient allocation of resources but it could also perhaps be seen as a signal of the degree of political and institutional transparency in order to evaluate the potential association between the release of information and the institutional and economic circumstances across countries a new index is developed that has extensive coverage across countries 175 and time 1960 2000 and is based on the quantity of reported socio economic data contained in the world development indicators and the international finance statistics databases using a series of granger causality regressions the release of information by governments is shown to have a significant positive effect on the quality of the bureaucracy in the short run and in the longer term a significant effect on investment and financial sector development in terms of reverse causality the evidence shows that the degree of constraints on the executive branch of government and education both have a positive effect on the quantity of data released by governments

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

attitudes towards large income risk in welfare states an international comparison using survey data and the instrument developed by barsky et al we estimate the distribution of attitudes towards income risk in a country where many employment and health related risks are generously covered by a tax financed social insurance system norway in 2006 under a constant relative risk aversion assumption the sample average for the coefficient of relative risk aversion is 3 8 with standard deviation 2 3 this number is then contrasted to that for five other oecd countries where risk attitudes have been measured using the same instrument and also prior to the financial crisis chile france italy the netherlands and the usa when we relate this distribution for stated relative risk aversion to that for generosity of social insurance and the risks related to employment and health expenditure a picture emerges suggesting that more extensive welfare states induce higher risk tolerance for foreground risks a relationship that is in line with the theory on risk vulnerability

reasonable expectations and the first millennium development goal how much can aid achieve summary using a calibrated neoclassical growth model we address three questions i how much growth should aid flows have produced in sub saharan africa over the last three decades ii how much aid would be needed to attain the first millennium development goal mdg 1 of cutting poverty in half by 2015 iii taking proposed aid flows as given how much would structural characteristics such as domestic savings rates and productivity have to change in order to reach the mdg 1 our analysis indicates that past and future expectations for aid in fostering growth and poverty reduction have been too high

estimating health demand for an aging population a flexible and robust bayesian joint model in this paper we analyse two frequently used measures of the demand for health care namely hospital visits and out of pocket health care expenditure which have been analysed separately in the existing literature given that these two measures of healthcare demand are highly likely to be closely correlated we propose a framework to jointly model hospital visits and out of pocket medical expenditure furthermore the joint framework allows for the presence of non linear effects of covariates using splines to capture the effects of aging on healthcare demand sample heterogeneity is modelled robustly with the random effects following dirichlet process priors with explicit cross part correlation the findings of our empirical analysis of the u s health and retirement survey indicate that the demand for healthcare varies with age and gender and exhibits significant cross part correlation that provides a rich understanding of how aging affects health care demand which is of particular policy relevance in the context of an aging population

the empirical importance of precautionary saving one of the basic motives for saving is the accumulation of wealth to ensure future welfare both introspection and extant research on consumption insurance find that people face substantial risks that they do not fairly pool a simple decomposition that characterizes the importance of precautionary saving in the us economy is presented this decomposition is used as an organizing framework to present four main findings 1 the concavity of the consumption policy rule 2 the importance of precautionary saving for life cycle saving and wealth accumulation 3 the contribution of changes in risk to fluctuations in aggregate consumption and 4 the significant impact of incomplete markets on aggregate fluctuations in calibrated general equilibrium models the study is concluded with directions for future research