why is the market for long term care insurance so small abstract long term care represents one of the largest uninsured financial risks facing the elderly in the united states we present evidence of supply side market failures in the private long term care insurance market in particular the typical policy purchased exhibits premiums marked up substantially above expected benefits it also provides very limited coverage relative to the total expenditure risk however we present additional evidence suggesting that the existence of supply side market failures is unlikely by itself to be sufficient to explain the very small size of the private long term care insurance market in particular we find enormous gender differences in pricing that do not translate into differences in coverage and we show that more comprehensive policies are widely available if seldom purchased at similar loads to purchased policies this suggests that factors limiting demand for insurance are also likely to be important in this market our evidence also sheds light on the likely nature of these demand side factors

testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

measuring the financial sophistication of households many households invest in ways that are hard to reconcile with standard financial theory and that have been labelled as investment mistakes campbell 2006 calvet campbell and sodini henceforth ccs 2007 there is increasing interest among household finance research ers in the concept of financial sophistication defined as the ability of a household to avoid making such mistakes a growing empirical lit erature documents a cross sectional correlation between household characteristics and invest ment mistakes richer better educated house holds tend to be better diversified marshall blume and irwin friend 1975 ccs 2007 william goetzmann and alok kumar 2008 annette vissing jorgensen 2003 display less inertia julie agnew pierluigi balduzzi and annika sunden 2003 yannis bilias dimitris georgarakos and michael haliassos 2008 campbell 2006 ccs 2009 vissing jorgensen 2002 and have a weaker disposition to hold losing and sell winning stocks ccs 2009 ravi dhar and ning zhu 2006 than other house holds one feature of these earlier papers is that mistakes are investigated one at a time often

are ghettos good or bad spatial separation of racial and ethnic groups may theoretically have positive or negative effects on the economic performance of those groups we examine the effects of segregation on outcomes for blacks in schooling employment and single parenthood we find that blacks in more segregated areas have significantly worse outcomes than blacks in less segregated areas we control for the endogeneity of location choice using instruments based on political factors topographical features and residence before adulthood a one standard deviation decrease in segregation would eliminate one third of the black white differences in most of our outcomes

correlations of brothers earnings and intergenerational transmission correlations between parent and child earnings reflect intergenerational mobility and more broadly correlations between siblings earnings reflect shared community and family background these earnings relationships capture important aspects of relations in socioeconomic status more generally we estimate intergenerational transmission and sibling correlations of life cycle earnings jointly within a unified framework that nests previous models using data on the danish population of father first son second son triads we find that intergenerational effects account for on average 72 percent of sibling correlations this share is higher than all previous studies because we allow for heterogeneous intergenerational transmission between families sibling correlations exhibit a u shape over the working life consistent with differences in human capital investments between families

measuring the impacts of teachers ii teacher value added and student outcomes in adulthood abstract are teachers impacts on students test scores value added a good measure of their quality this question has sparked debate partly because of a lack of evidence on whether high value ad

how deep is the annuity market participation puzzle using microeconomic data for the united kingdom we analyze the empirical determinants of voluntary annuity market demand we find that annuity market participation increases with financial wealth life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses we then show that these empirically motivated determinants of annuity market participation have the same quantitatively important effects in a life cycle model of annuity and life insurance demand saving and portfolio choice moreover reasonable preference parameters predict annuity demand levels comparable to the data for stockholders a strong bequest motive can simultaneously generate balanced portfolios and low annuity demand

inequality fairness and social capital we study the impact of unjust inequality on social trust and trustworthiness and its separate effect on the economically successful and the unsuccessful in a controlled economic experiment we find evidence for a negative effect of unfair economic inequality on social interactions probing the boundaries of this effect we document that this erosion of social capital critically depends on the context if a well off person is not directly responsible for the outcome of the worse off person then we observe no negative effects on trust and trustworthiness in the aggregate moreover our data do not support the view that higher status or wealth leads to an erosion of pro social attitudes the successful are always more generous groups of unsuccessful persons are least efficient and least generous in the trust game

cohort mortality risk or adverse selection in annuity markets abstract we show that tests for adverse selection in annuity markets using prices are not identified within the uk annuity market different annuity products create the potential for a rothschild stiglitz separating equilibrium as different risk types could choose different annuities empirical analyses using the money s worth suggest that prices are indeed consistent with this explanation however we show that this pattern of annuity prices would also result from the actions of regulated annuity providers who must reserve against cohort mortality risk annuity products that might attract different consumer risk types also have different risks for the provider

selection effects in the united kingdom individual annuities market this paper explores adverse selection in the voluntary and compulsory individual annuity markets in the united kingdom two empirical regularities support standard models of adverse selection first annuitants are longer lived than non annuitants these mortality differences are more pronounced in the voluntary than in the compulsory annuity market we estimate that the amount of adverse selection in the compulsory market is about one half of that in the voluntary market second the pricing of different types of annuity products within each annuity market is consistent with individuals selecting products based in part on private information about their mortality prospects the aging of populations in many developed nations has generated substantial interest in the way households finance consumption in their retirement years annuities insurance products that provide a payment stream for as long as the insured individual is alive offer one way to spread an accumulated stock of resources over a retirement period of uncertain length theoretical research beginning with yaari 1965 suggests substantial utility gains from annuitisation in the presence of stochastic length of life public policy discussions have also generated substantial current interest in the operation of annuity markets the decline in long term interest rates in the united kingdom since the early 1990s has coincided with a decline in annuity payouts relative to annuity premia this has sparked a debate

selection in insurance markets theory and empirics in pictures government intervention in insurance markets is ubiquitous and the theoretical basis for such intervention based on classic work from the 1970s has been the problem of adverse selection over the last decade empirical work on selection in insurance markets has gained considerable momentum this research finds that adverse selection exists in some insurance markets but not in others and it has uncovered examples of markets that exhibit advantageous selection a phenomenon not considered by the original theory and one that has different consequences for equilibrium insurance allocation and optimal public policy than the classical case of adverse selection advantageous selection arises when the individuals who are willing to pay the most for insurance are those who are the most risk averse and so have the lowest expected cost indeed it is natural to think that in many instances individuals who value insurance more may also take action to lower their expected costs drive more carefully invest in preventive health care and so on researchers have taken steps toward estimating the welfare consequences of detected selection and of potential public policy interventions in this essay we present a graphical framework for analyzing both theoretical and empirical work on selection in insurance markets this graphical approach provides both a useful and intuitive depiction of the basic theory of selection and its implications for welfare and public policy as well as a lens through which one can understand the ideas and limitations of existing empirical work on this topic

expectations life expectancy and economic behavior this study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival people do extrapolate past improvements in longevity when they determine their subjective horizons and they are fully aware of levels of and movements within todays life tables the subjective distribution has greater variance than its actuarial counterpart and the subjective variance decreases with age the implications of these findings for optimal social security for the construction of annuities for the analysis of savings behavior and for evaluating lifetime earnings are discussed the data were collected in the united states from a sample of 411 white male economists and a sample of 363 white males in a midwestern smsa excerpt

moving to opportunity in boston early results of a randomized mobility experiment this paper examines the short run impacts of a change in residential neighborhood on the well being of low income families using evidence from a program in which eligibility for a housing voucher was determined by random lottery we examine the experiences of households at the boston site of moving to opportunity mto a demonstration program in five cities families in high poverty public housing projects applied to mto and were assigned by lottery to one of three groups experimental offered mobility counseling and a section 8 subsidy valid only in a census tract with a poverty rate of less than 10 percent section 8 comparison offered a geographically unrestricted section 8 subsidy or control offered no new assistance but continued to be eligible for public housing our quantitative analyses of program impacts uses data on 540 families from a baseline survey at program enrollment a follow up survey administered l to 3 5 years after random assignment and state administrative data on earnings and welfare receipt 48 percent of the experimental group and 62 percent of the section 8 comparison group moved through the mto program one to three years after program entry families in both treatment groups were more likely to be residing in neighborhoods with low poverty rates and high education levels than were families in the control group however while members of the experimental group were much more likely to be residing in suburban communities than were those in the section 8 group the lower program take up rate among the experimental group resulted in more families remaining in the most distressed communities households in both treatment groups experienced improvements in multiple measures of well being relative to the control group including increased safety improved health among household heads and fewer behavior problems among boys experimental group children were also less likely to be a victim of a personal crime to be injured or to experience an asthma attack there are no significant impacts of either mto treatment on the employment earnings or welfare receipt of household heads in the first three years after random assignment

the long run consequences of living in a poor neighborhood author s oreopoulos philip abstract many social scientists presume that the quality of the neigborhood to which children are exposed affects a variety of long run social outcomes i examine the effect on the long run labor market outcomes of adults who were assigned when young to substantially different public housing projects in toronto administrative data are matched to public housing addresses to track children from the program for over 15 years the main finding is that neighborhood quality plays little role in determining a youth s adult earnings education attainment or welfare participation but does affect exposure to crime while living in contrasting housing projects cannot explain large variances in labor market outcomes family differences as measured by sibling outcome correlations account for up to 30 percent of the total variance in the data

household debt and social interactions can concern with relative standing which has been shown to influence consumption and labor supply also increase borrowing and the likelihood of financial distress we find that perceived peer income contributes to debt and the likelihood of financial distress among those who consider themselves poorer than their peers we use unique responses describing perceived peer characteristics from a dutch population wide survey to handle two major challenges of uncovering social interaction effects on borrowing 1 debts unlike conspicuous consumption are often hidden from peers and 1 location is missing in anonymized data we employ several approaches to uncover exogenous rather than correlated effects

on price increasing entry it is shown that the effect of the number of sellers on price can be related to a concept of elasticity which links consumers brand loyalty to the quantity sold by each firm a class of inverse demand functions for differentiated goods which lends itself to the analysis of the conditions of price increasing entry is formulated the effects of entry on price are decomposed into a competitive and a displacement effect copyright 1987 by the review of economic studies limited

institutions and financial development evidence from international migrants in the united states abstract we investigate the impact of institutions on financial development by analyzing the financial behavior of immigrants in the united states we find that immigrants from countries with institutions that more effectively protect private property are more likely to own stock in the united states the effect of home country institutions is persistent and absorbed early in life the impact of institutions is amplified for immigrants who live in metropolitan areas with many other immigrants from the same country these findings are robust to alternative measures of institutional effectiveness and to various methods of controlling for unobserved individual characteristics including specifications with country fixed effects

redistribution by insurance market regulation analyzing a ban on gender based retirement annuities we illustrate how equilibrium screening models can be used to evaluate the economic consequences of insurance market regulation we calibrate and solve a model of the united kingdom s compulsory annuity market and examine the impact of gender based pricing restrictions we find that the endogenous adjustment of annuity contract menus in response to such restrictions can undo up to half of the redistribution from men to women that would occur with exogenous social security like annuity contracts our findings indicate the importance of endogenous contract responses and illustrate the feasibility of employing theoretical insurance market equilibrium models for quantitative policy analysis

people s opium religion and economic attitudes since max weber there has been an active debate on the impact of religion on people s economic attitudes much of the existing evidence however is based on cross country studies in which this impact is confounded by differences in other institutional factors we use the worldvalues surveys to id entify the relationship between intensity of religious beliefs and economic attitudes controlling for country fixed effects we study several economic attitudes towardcooperation the government working women legal rules thriftiness andthe market economy we also distinguish across religious denominations differentiating on whether a religion is dominant in a country we find that on average religious beliefs are associated with good economic attitudes where good is defined as conducive to higher per capita income andgrowth yet religious people tendto be more racist andless favorable with respect to working women these effects differ across religious denominations overall we find that christian religions are more positively associatedwith attitudes conducive to economic growth r 2003 elsevier science b v all rights reserved jel classification a1 e0 n4 z1

long term neighborhood effects on low income families evidence from moving to opportunity abstract we examine long term neighborhood effects on low income families using data from the moving to opportunity mto randomized housing mobility experiment this experiment offered to some public housing families but not to others the chance to move to less disadvantaged neighborhoods we show that ten to 15 years after baseline mto i improves adult physical and mental health ii has no detectable effect on economic outcomes or youth schooling or physical health and iii has mixed results by gender on other youth outcomes with girls doing better on some measures and boys doing worse despite the somewhat mixed pattern of impacts on traditional behavioral outcomes mto moves substantially improve adult subjective well being

equilibrium with product differentiation tive consumer formulations is used to examine the properties of single and multiple price equilibria conditions under which decreases in the intensity of consumer preferences reduce price are given it is shown that with certain types of demand curves entry can eliminate price cost markups even given product differentiation if competition is localized it is demonstrated that entry does not affect the markup finally the effect of spurious product differentiation on price is examined

the individual life cycle annuity market imperfections and economic growth we study the effects of an annuity market imperfection on individual agents life cycle decisions and on the macroeconomic growth rate in an overlapping generations model with single sector endogenous growth our model features both age dependent mortality and labour productivity we model imperfect annuities by introducing a load factor on the annuity rate faced by finitely lived agents our main finding is that annuity market imperfections decrease economic growth because less assets are necessary for consumption late in life in addition we find that both the quantitative and qualitative effects of annuity market imperfections are grossly overestimated in a partial equilibrium analysis because it disregards general equilibrium repercussions

are there cultural effects on saving some cross sectional evidence why are there such large differences in saving rates across countries conventional economic analyses have not been successful in explaining international saving differences so economists have sometimes suggested that national saving differences may be explained by cultural differences this paper tests the hypothesis that cultural factors influence saving by comparing saving patterns of immigrants to canada from different cultures using data from the canadian survey of family expenditures we find no evidence of cultural effects on saving

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

life expectancy heterogeneity and the political support for collective annuities individuals differing in productivity and life expectancy vote over the size and type of a collective annuity its type is represented by the fraction of the contributive bismarckian component based on the worker s past earnings as opposed to the non contributive beveridgean part based on average contribution the equilibrium collective annuity is either a large mostly bismarckian program a smaller pure beveridgean one in accordance with empirical evidence or nil a larger correlation between longevity and productivity or a larger average life expectancy both make the equilibrium collective annuity program more beveridgean although at the expense of its size

teachers pay for performance in the long run the dynamic pattern of treatment effects on students educational and labour market outcomes in adulthood this paper examines the dynamic effects of a teachers pay for performance experiment on long term outcomes at adulthood the program led to a gradual increase in university education of the treated high school students reaching an increase of 0 25 years of schooling by age 28 30 the effects on employment and earnings were initially negative coinciding with a higher rate of enrollment in university but became positive and significant with time these gains are largely mediated by the positive effect of the program on several high school outcomes including quantitative and qualitative gains in the high stakes matriculation exams

trade firm size and product variety under monopolistic competition monopolistic competition is used to examine rationalization behavior in response to market integration a particular second order condition on demand functions for differentiated products must be satisfied to generate an increase in firm size with an associated decline in equilibrium price when market size increases for identical products the firm size increase is guaranteed the number of firms increases less than it does in proportion to market size for identical products but may increase more than in proportion to market size for differentiated products the latter results implies that market integration need not lead to exit of firms

financial literacy and consumer credit portfolios we use survey data from a sample of uk households to analyse the relation ship between financialliteracy and consumer credit portfolios we show that individ uals who borrow on consumer credit exhibit worse financial literacy than those who do not borrowers with poor financialliteracy hold higher shares of high cost credit such as home collected credit mail order catalogue debt and payday loans than those with higher literacy we also show that individuals with poor financialliteracy are more likely to lack confidence when interpreting credit terms and to exhibit confusion over financialconcepts they are also less likely to engage in behaviour which might help them to improve their awareness of the credit market

social interaction and stock market participation we propose that stock market participation is influenced by social interaction in our model any given social investor finds the market more attractive when more of his peers participate we test this theory using data from the health and retirement study and find that social households those who interact with their neighbors or attend church are substantially more likely to invest in the market than non social households controlling for wealth race education and risk tolerance moreover consistent with a peer effects story the impact of sociability is stronger in states where stock market participation rates are higher

adverse selection in the annuity market and the role for social security i study the role of social security in providing insurance when there is adverse selection in the annuity market i calculate welfare gain from mandatory annuitization in the social security system relative to a laissez faire benchmark using a model in which individuals have private information about their mortality i estimate large heterogeneity in mortality using the health and retirement study despite that i find small welfare gain from mandatory annuitization social security has a large effect on annuity prices because it crowds out demand by high mortality individuals welfare gain would have been significantly larger in the absence of this effect

adverse selection in annuity markets evidence from the british life annuity act of 1808 abstract we study adverse selection using data from an 1808 act of british parliament that effectively opened a market for life annuities our analysis indicates significant selection effects the evidence for adverse selection is strongest for a sub sample of annuitants whose annuities were purchased by profit seeking speculators a sub sample in which advantageous selection resulting from multi dimensional heterogeneity is unlikely to have been significant these results support the view that adverse selection can be masked by advantageous selection in empirical studies of standard insurance markets

fertility restrictions and life cycle outcomes evidence from the one child policy in china this study considers the experience of china s one child policy to examine how fertility restrictions affect economic and social outcomes over a lifetime using variations in these penalties across

differential mortality and wealth accumulation the issue of asset accumulation and decumulation is central to the life cycle theory of consumer behavior and to many policy questions one of the main implications of the life cycle model is that assets are decumulated in the last part of life most empirical studies in this area use cross sectional data of estimate mean or median wealth age profiles the use of cross sections to estimate the age profile of assets is full of pitfalls for example if wealth and mortality are related in that poorer individuals die younger one overestimates the last part of the wealth age profile when using cross sectional data because means or other measures of location are taken over a population which becomes richer as it ages this paper examines the effect of differential mortality on cross sectional estimates of wealth age profiles our approach is to quantify the dependence of mortality rates on wealth and use these estimates to correct wealth age profiles for sample selection due to differential mortality we estimate mortality rates as a function of wealth and age for a sample of married couples drawn from the survey of income and program participation sipp our results show that accounting for differential mortality produces wealth profiles with significantly more dissaving among the elderly

preference heterogeneity and selection in private health insurance the case of australia a basic prediction of theoretical models of insurance is that if consumers have private information about their risk of suffering a loss there will be a positive correlation between risk and the level of insurance coverage we test this prediction in the context of the market for private health insurance in australia despite a universal public system that provides comprehensive coverage for inpatient and outpatient care roughly half of the adult population also carries private health insurance the main benefit of which is more timely access to elective hospital treatment like several studies on different types of insurance in other countries we find no support for the positive correlation hypothesis because strict underwriting regulations create strong information asymmetries this result suggests the importance of multi dimensional private information additional analyses suggest that the advantageous selection observed in this market is driven by the effect of risk aversion the ability to make complex financial decisions and income

dynamic behaviour in large markets for differentiated products an important question is how well competitive models approximate models of large finite economies for a class of differentiated products models static nash equilibria if they exist always converge to competition as the number of firms increases dynamic nash equilibria need not so converge easily checked conditions for convergence to competition do however exist

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

uncertainty resolution and the timing of annuity purchases abstract this paper considers the question of why the annuity market is thin a model is presented in which consumers have the option of purchasing annuities before discovering their survival probability they can then recontract the initial choice after the resolution of this form of uncertainty it is shown that consumers purchase insurance against their own survival probability type at a very young age and do not undertake further transactions this characterization is then used to analze the effects of introducing future income uncertainty and to investigate the trade off between old age insurance motive and portfilio flexibility

endogenous information adverse selection and prevention implications for genetic testing policy we examine public policy toward the use of genetic information by insurers individuals engage in unobservable primary prevention and have access to different prevention technologies thus insurance markets are affected by moral hazard and adverse selection individuals can choose to take a genetic test to acquire information about their prevention technology information has positive decision making value that is individuals may adjust their behavior based on the result of the test however testing also exposes individuals to uncertainty over the available insurance contract so called classification risk which lowers the value of information in our analysis we distinguish between four different policy regimes determine the value of information under each regime and associated equilibrium outcomes on the insurance market we show that the policy regimes can be pareto ranked with a duty to disclose being the preferred regime and an information ban the least preferred one

private information and insurance rejections across a wide set of nongroup insurance markets applicants are rejected based on observable often high risk characteristics this paper argues that private information held by the potential applicant pool explains rejections i formulate this argument by developing and testing a model in which agents may have private information about their risk i first derive a new no trade result that theoretically explains how private information could cause rejections i then develop a new empirical methodology to test whether this no trade condition can explain rejections the methodology uses subjective probability elicitations as noisy measures of agents beliefs i apply this approach to three nongroup markets long term care disability and life insurance consistent with the predictions of the theory in all three settings i find significant amounts of private information held by those who would be rejected i find generally more private information for those who would be rejected relative to those who can purchase insurance and i show it is enough private information to explain a complete absence of trade for those who would be rejected the results suggest that private information prevents the existence of large segments of these three major insurance markets publication abstract

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

moral hazard and selection among the poor evidence from a randomized experiment not only does economic theory predict high risk individuals to be more likely to purchase insurance but insurance coverage is also thought to crowd out precautionary activities in spite of stark theoretical predictions there is conflicting empirical evidence on adverse selection and evidence on ex ante moral hazard is very scarce using data from the seguro popular experiment in mexico this paper documents patterns of selection on observables into health insurance as well as the existence of non negligible ex ante moral hazard more specifically the findings indicate that i agents in poor self assessed health prior to the intervention have all else equal a higher propensity to take up insurance and ii insurance coverage reduces the demand for self protection in the form of preventive care curiously however individuals do not sort based on objective measures of their health

baby boomer retirement security the roles of planning financial literacy and housing wealth abstract we compare wealth holdings across two cohorts of the health and retirement study the early baby boomers in 2004 and individuals in the same age group in 1992 levels and patterns of total net worth have changed relatively little over time though boomers rely more on housing equity than their predecessors most important planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non planners instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth

location matters historical racial segregation and intergenerational mobility abstract this paper explores historical patterns of racial segregation and its relationship with the observed spatial variation in contemporaneous economic mobility established in chetty et al 2014 we combined data from the equality of opportunity project with a novel measure of racial segregation developed in logan and parman forthcoming and find that past racial segregation explains a significant portion of the spatial variation in intergenerational mobility these findings are consistent with models showing that persistent institutional factors may drive long term outcomes across areas racial segregation and the environment that fosters it may diminish upward economic mobility by reducing access to networks labor and capital markets and political institutions if so then reducing the impact of these persistent processes may be key to mitigating current day gaps in wealth income and overall well being

the effects of exposure to better neighborhoods on children new evidence from the moving to opportunity experiment the moving to opportunity mto experiment offered randomly selected families housing vouchers to move from high poverty housing projects to lower poverty neighborhoods we analyze mto s impacts on children s long term outcomes using tax data we find that moving to a lower poverty neighborhood when young before age 13 increases college attendance and earnings and reduces single parenthood rates moving as an adolescent has slightly negative impacts perhaps because of disruption effects the decline in the gains from moving with the age when children move suggests that the duration of exposure to better environments during childhood is an important determinant of children s long term outcomes jel i31 i38 j13 r23 r38

how does your kindergarten classroom affect your earnings evidence from project star in project star 11 571 students in tennessee and their teachers were randomly assigned to classrooms within their schools from kindergarten to third grade this article evaluates the long term impacts of star by linking the experimental data to administrative records we first demonstrate that kindergarten test scores are highly correlated with outcomes such as earnings at age 27 college attendance home ownership and retirement savings we then document four sets of experimental impacts first students in small classes are significantly more likely to attend college and exhibit improvements on other outcomes class size does not have a significant effect on earnings at age 27 but this effect is imprecisely estimated second students who had a more experienced teacher in kindergarten have higher earnings third an analysis of variance reveals significant classroom effects on earnings students who were randomly assigned to higher quality classrooms in grades k 3 as measured by classmates end of class test scores have higher earnings college attendance rates and other outcomes finally the effects of class quality fade out on test scores in later grades but gains in noncognitive measures persist

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

capital accumulation and uncertain lifetimes with adverse selection this paper examines the implications of adverse selection in the private annuity market for the pricing of private annuities and the consequent effects on constrption and bequest behavior with privately known heterogeneous mortality probabilities adverse selection causes the rate of return on private annuities to be less than the actuarially fair rate based on population average mortality however a fully funded social security system with compulsory participation can offer an implied rate of return equal to the actuarially fair rate based on population average mortality thus since social security offers a higher rate of return than private annuities consumers cannot completely offset the effects of social security by transacting in the private annuity market using an overlapping generations model with uncertain lifetimes we demonstrate that the introduction of actuarially fair social security reduces the steady state rate of return on annuities and raises the steady state levels of average bequests and average consumption of the young the steady state national capital stock rises or falls according to the strength of the bequest motive this abstract was borrowed from another version of this item

non exclusive competition in the market for lemons in order to check the impact of the exclusivity regime on equilibrium allocations we set up a simple akerlof like model in which buyers may use arbitrary taris under exclusivity we obtain the zero profit separating riley rothschilds stiglitz allocation under non exclusivity there is also a unique equilibrium allocation that involves a unique price as in akerlof 1970 these results can be applied to insurance in the dual model in yaari 1987 and have consequences for empirical tests of the existence of asymmetric information

intergenerational correlation and social interactions in education we propose a dynastic model where individuals are born into an educated or uneducated environment that they inherit from their parents we study the impact of social interactions on the correlation in parent child educational status independently of any parent child interaction when the level of social interactions is decided by a social planner we show that the correlation in education status between generations decreases very fast as social interactions increase in turn when the level of social interactions is decided by the individuals themselves we show that the intergenerational correlation still decreases although less rapidly than with exogenous social interactions

ethnic enclaves and the economic success of immigrants evidence from a natural experiment recent immigrants tend to locate in ethnic enclaves within metropolitan areas the economic consequence of living in such enclaves is still an unresolved issue we use an immigrant policy initiative in sweden when government authorities distributed refugee immigrants across locales in a way that may be considered exogenous this policy initiative provides a unique natural experiment which allows us to estimate the causal effect on labor market outcomes of living in enclaves we find substantive evidence of sorting across locations when sorting is taken into account living in enclaves improves labor market outcomes for instance the earnings gain associated with a standard deviation increase in ethnic concentration is in the order of four to five percent

health spending savings and fertility in a lifecycle dynastic model with longevity externalities we investigate health spending savings fertility and policy implications in a lifecycle dynastic model with longevity externalities in annuity returns we show that such externalities engender not only excessive health spending but also under saving and excessive fertility social security and health subsidization increase health spending and savings but reduce fertility from laissez faire levels a publicly funded universal health system under labour income taxation raises fertility taxing health spending or using social security and public health together can obtain socially optimal health spending savings longevity and fertility numerical results based on us observations suggest substantial variations among these cases especially in old age health spending

health cost risk a potential solution to the annuity puzzle we find that health cost risk lowers optimal annuity demand at retirement if medical expenses can be sizeable early in retirement full annuitisation at retirement is no longer optimal because agents do not have enough time to build a liquid wealth buffer furthermore large deviations from optimal annuitisation levels lead to small utility differences our results suggest that health cost risk can explain a large proportion of empirically observed annuity choices finally allowing additional annuitisation after retirement results in welfare gains of at most 2 5 when facing health cost risk and negligible gains without this risk

optimal financial knowledge and wealth inequality we show that financial knowledge is a key determinant of wealth inequality in a stochastic life cycle model with endogenous financial knowledge accumulation where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance moreover because of how the us social insurance system works better educated individuals have most to gain from investing in financial knowledge our parsimonious specification generates substantial wealth inequality relative to a one asset saving model and one in which returns on wealth depend on portfolio composition alone we estimate that 30 40 percent of retirement wealth inequality is accounted for by financial knowledge

participation and investment decisions in a retirement plan the influence of colleagues choices abstract this paper investigates whether peer effects play an important role in retirement savings decisions we use individual data from employees of a large university to study whether individual decisions to enroll in a tax deferred account plan sponsored by the university and the choice of the mutual fund vendor for people who choose to enroll are affected by the decisions of other employees in the same department to overcome the identification problems we divide the departments into sub groups along gender status age and tenure lines and we instrument the average participation of each peer group by the salary or tenure structure in this group our results suggest that peer effects may be an important determinant of savings decisions

the impact of housing assistance on child outcomes evidence from a randomized housing lottery one long standing motivation for low income housing programs is the possibility that housing affordability and housing conditions generate externalities including on children s behavior and long term life outcomes we take advantage of a randomized housing voucher lottery in chicago in 1997 to examine the longterm impact of housing assistance on a wide variety of child outcomes including schooling health and criminal involvement in contrast to most prior work focusing on families in public housing we focus on families living in unsubsidized private housing at baseline for whom voucher receipt generates large changes in both housing and nonhousing consumption we find that the receipt of housing assistance has little if any impact on neighborhood or school quality or on a wide

an empirical examination of information barriers to trade in insurance this paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world life insurance we report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information we conjecture that sellers may know their costs of production better than consumers in this market as in those for most other products

peer effects in welfare dependence quasi experimental evidence this paper examines peer effects in welfare use among refugees we exploit a swedish refugee placement policy which generated exogenous variation in peer group composition our analysis distinguishes between the quantity of contacts the number of individuals of the same ethnicity and the quality of contacts welfare use among members of the ethnic group long term welfare dependence increases if the individual is placed in a welfare dependent community the number of contacts is either irrelevant or negatively related to welfare receipt not controlling for residential self selection yields the opposite conclusion the results are very similar across household types and in different parts of the predicted earnings distribution

testing for asymmetric information in the viager market a viager real estate transaction consists in selling a property in return for a down payment and a rent life annuity that the buyer has to pay until the seller dies this paper tests for the presence of asymmetric information in this market thanks to a no arbitrage condition buyers must be indierent between purchasing on the standard and viager market we identify the type of the seller as a sum of weighted death probabilities by comparing these sums with analogously defined national level sums we can check whether viager sellers have the same survival distribution as individuals in the population we then develop a model for a viager sale and derive testable predictions under symmetric and asymmetric information our test for asymmetric information consists in regressing the contract parameters down payment and rent on the inferred type of the seller and comparing the estimates with the predicted outcomes notarial data are used on transactions in paris between 1992 and 2001 we test and accept that our no arbitrage condition is empirically satisfied we find that sellers do not have the same survival distributions as comparable persons in the population and hence they have information about their death probabilities the hypothesis that information is symmetrically distributed between buyers and sellers is accepted this highlights that the information about the seller s survival prospects is no longer private when the contract is signed

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

life expectancy and claiming behavior in a flexible pension system we study the relationship between early claiming of pensions and incentives in the highly flexible norwegian public pension system measuring incentives to claim based on an estimated model for expected longevity despite a strong correlation between incentives and claiming decisions the additional costs to public budgets arising from this selection turn out to be modest based on analyses exploiting only variation in expected pensions generated by variation in parental longevities and only claiming of pensions not in conjunction with retirement we conclude that part of the selection is active some individuals claim pensions early because they gain from doing so this article is protected by copyright all rights reserved

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

how much does annuity demand react to a large price change in this paper we present new evidence for the effect of changes in annuity prices on the decision to annuitize we exploit an unprecedented change in policy in several swiss occupational pension plans there is an implied 8 percent reduction in the rate at which retirement capital is translated into an annuity and this represents a net present value loss of chf 18 500 around us 20 000 to estimate the impact of this change we use data from companies that changed their prices and from one large company that did not we find that the price change reduces the propensity to annuitize among affected individuals by 16 8 percentage points

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

behavioral economics and public policy a pragmatic perspective the debate about behavioral economics the incorporation of insights from psychology into economics is often framed as a question about the foundational assumptions of economic models this paper presents a more pragmatic perspective on behavioral economics that focuses on its value for improving empirical predictions and policy decisions i discuss three ways in which behavioral economics can contribute to public policy by oering new policy tools improving predictions about the eects

neighborhood effects on crime for female and male youth evidence from a randomized housing voucher experiment the moving to opportunity mto demonstration assigned housing vouchers via random lottery to public housing residents in five cities we use the exogenous variation in residential locations generated by mto to estimate neighborhood effects on youth crime and delinquency the offer to relocate to lower poverty areas reduces arrests among female youth for violent and property crimes relative to a control group for males the offer to relocate reduces arrests for violent crime at least in the short run but increases problem behaviors and property crime arrests the gender difference in treatment effects seems to reflect differences in how male and female youths from disadvantaged backgrounds adapt and respond to similar new neighborhood environments

the balance between defined benefit defined contribution and state provision we examine the possible consequences of the increasing shift from defined benefit to defined contribution arrangements for private pensions whilst much analysis has focused on the possible distribution of investment and job tenure risk we point out the additional role for issues relating to adverse selection and to retirement incentives these issues are illustrated using empirical evidence from the united kingdom where the fact that private pensions are an alternative as opposed to a supplement to earnings related state pension provision makes the effects particularly salient jel i38 j32 d91

financial literacy externalities this paper uses unique administrative data and a quasi field experiment of exogenous allocation to apartments in sweden to estimate medium and longer run effects on financial behavior from exposure to financially literate neighbors it contributes evidence of causal impact of financial literacy and points to a social multiplier of effective programs to enhance it exposure promotes saving in private retirement accounts and stockholding especially when neighbors have economics or business education but only for educated or male headed households findings point to relevant knowledge transfer through social interactions rather than to labor market or other channels linked to local economic conditions

the choice between an annuity and a lump sum results from swiss pension funds this paper uses unique micro data from swiss employer based pension plans to study the annuitization decision at retirement the administrative nature of our data though limited with respect to individual background characteristics allows us to analyze real choices over large retirement balances rather than subjectively reported intentions to annuitize we find a strong and robust impact of a utility based measure of the annuity s value computed within a life cycle framework on individual annuitization rates low accumulation of retirement assets is strongly associated with the choice of the lump sum presumably due to the availability of means tested social assistance the sponsor s default option in most cases the annuity is also found to be highly influential in the decision to annuitize

new evidence on the money s worth of individual annuities this paper presents new information on the expected present discounted value of payouts on individual life annuities the annuity we examine is the single premium immediate life annuity an insurance product that pays out a nominal level sum as long as the covered person lives in exchange for an initial lump sum premium this annuity offers protection against the risk of someone outliving his saving given uncertainty about longevity for reasonable estimates of behavioral parameters we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption we also find that the expected present discounted value of payouts relative to the initial cost of the annuity has increased over the last decade these findings bear on the policy debate regarding the role of individual choice and self reliance in retirement planning this abstract was borrowed from another version of this item

achieving escape velocity neighborhood and school interventions to reduce persistent inequality abstract this paper reviews the evidence on the efficacy of neighborhood and school interventions in improving the long run outcomes of children growing up in poor families we focus on studies exploiting exogenous sources of variation in neighborhoods and schools and which examine at least medium term outcomes higher quality neighborhoods improve family safety adult subjective well being and health and girls mental health but they have no detectable impact on youth human capital labor market outcomes or risky behaviors in contrast higher quality schools can improve children s academic achievement and can have longer term positive impacts of increasing educational attainment and earnings and reducing incarceration and teen pregnancy

investment in financial literacy and saving decisions abstract we present an intertemporal consumption model of investment in financial literacy consumers benefit from such investment because financial literacy allows them to increase the returns on wealth since literacy depreciates over time and has a cost in terms of current consumption the model delivers an optimal investment in literacy furthermore literacy and wealth are determined jointly and are positively correlated over the life cycle the model drives our empirical approach to the analysis of the effect of financial literacy on wealth and saving and indicates that the stock of financial literacy early in life is a valid instrument in the regression of wealth on financial literacy using microeconomic and aggregate data we find strong support for the model s predictions