learning by doing and ben porath life cycle predictions and policy implications abstract many government policies affect incentives to acquire human capital two workhorse models dominate the literature analyzing these policies learning by doing lbd and ben porath bp this paper makes two novel findings related to these models first lbd and bp generate different predictions for life cycle earnings growth bp predicts that the heterogeneity in earnings growth rates across workers should disappear over the life cycle because the workers stop investing as they age the lbd model cannot replicate this feature because workers accumulate human capital automatically throughout the life cycle second the same model features that generate different life cycle predictions between bp and lbd also generate different implications for policies that affect the payoff to human capital accumulation to illustrate this quantitatively i show that increasing marginal labor tax rates for top earners depresses human capital accumulation more under bp as a result the laffer curve for top marginal income tax rates is flatter and peaks 10 percentage points lower with bp versus lbd

contracting and vertical coordination in the united states pork industry coordination activities in the pork production industry are growing rapidly these range from the totally integrated system through ownership to that which bridges the input supply production processing and merchandising segments through various informal or formal forms of coordination for example some arrangements involve contract for production or delivery of products of a specified amount quality etc still others may involve agreements or linkages between independent participants in the industry all are aimed at improving the participants competitive positioned the industry over what it would be without the linkages industry development or adjustment is riot uniform across regions in the united states this manuscript documents those differences outlining some reasons for the differences additionally competitive relationships along with contract growth and a comparison of returns and risks of selected contracts are presented

intertemporal labor supply and human capital accumulation we solve and estimate a dynamic model that allows agents to optimally choose their labor hours and consumption and that allows for both human capital accumulation and savings estimation results and simulation exercises indicate that the intertemporal elasticity of substitution is much higher than the conventional estimates and the downward bias comes from the omission of the human capital accumulation effect the human capital accumulation effect renders the life cycle path of the shadow wage relatively flat even though wages increase with age hence a rather flat life cycle labor supply path can be reconciled with a high intertemporal elasticity of substitution

environmental regulation and location of industrialized agricultural production in europe this paper analyzes empirically the extent to which environmental regulation influences production location in the pig industry the analysis is based on a general empirical location model that captures interactions between region and sector characteristics in determining production location and data on pig production in 43 european regions we find that while environmental regulation may not have a measurable effect on the e u pig industry location per se it is a strong influence on the sectoral composition of the industry relatively highly polluting sectors of the pig industry are attracted to relatively lax jurisdictions which become pollution havens hot spots of hog waste

evolution of gender differences in post secondary human capital investments college majors although women in the united states now complete more college degrees than men the distribution of college majors among college graduates remains unequal with women about two thirds as likely as men to major in business or science we develop and estimate a dynamic overlapping generations model of human capital investments and labor supply we allow for specific college major choices instead of aggregating these choices to the education level results show that changes in skill prices higher schooling costs and gender specific changes in home value were each important to the long term trends abstract from author

sources of lifetime inequality is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime we answer this question within a model that features idiosyncratic shocks to human capital estimated directly from data as well as heterogeneity in ability to learn initial human capital and initial wealth we find that as of age 23 differences in initial conditions account for more of the variation in lifetime earnings lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime jel d31 d91 j24 j31 to what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the working lifetime among the individual differences established early in life which ones are the most important a convincing answer to these questions is of fundamental importance first and most simply an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions e g public education against those directed at shocks over the working lifetime e g unemployment insurance second a discussion of lifetime inequality cannot go too far before discussing which specific type of initial condition is the most critical for determining how one fares in life third a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics public finance and labor economics we view lifetime inequality through the lens of a risky human capital model agents differ in terms of three initial conditions initial human capital learning ability and financial wealth initial human capital can be viewed as controlling the intercept of an agent s mean earnings profile whereas learning ability acts to rotate

heterogeneity and government revenues higher taxes at the top abstract how effective is a more progressive tax scheme in raising revenues we answer this question in a life cycle economy with heterogeneity across households and endogenous labor supply our findings show that a tilt of the u s income tax schedule towards high earners leads to small increases in revenue maximal revenue in the long run is only 6 8 higher than in our benchmark about 0 8 of initial gdp while revenues from all sources increase by just about 0 6 our conclusions are that policy recommendations of this sort are misguided if the aim is to exclusively raise government revenue

taxation of human capital and wage inequality a cross country analysis wage inequality has been significantly higher in the united states than in continental european countries ceu since the 1970s moreover this inequality gap has further widened during this period as the us has experienced a large increase in wage inequality whereas the ceu has seen only modest changes this paper studies the role of labor income tax policies for understanding these facts we begin by documenting two new empirical facts that link these inequality differences to tax policies first we show that countries with more progressive labor income tax schedules have significantly lower before tax wage inequality at different points in time second progressivity is also negatively correlated with the rise in wage inequality during this period we then construct a life cycle model in which individuals decide each period whether to go to school work or be unemployed individuals can accumulate skills either in school or while working wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks progressive taxation compresses the after tax wage structure thereby distorting the incentives to accumulate human capital in turn reducing the cross sectional dispersion of before tax wages we find that these policies can account for half of the difference between the us and the ceu in overall wage inequality and 76 of the difference in inequality at the upper end log 90 50 differential when this economy experiences skill biased technological change progressivity also dampens the rise in wage dispersion over time the model explains 41 of the difference in the total rise in inequality and 58 of the difference at the upper end

an empirical investigation of the pollution haven effect with strategic environment and trade policy abstract using a new dataset on the stringency and enforcement of environmental policy this study is the first to find robust confirmation of a pollution haven effect in a cross country context by accounting for strategically determined environment trade and intellectual property right ipr policies a simple game theoretic approach to policy determination is described which suggests an identification strategy based on other country characteristics it is found that for the top 20th percentile of countries in terms of growth in u s multinational affiliate value added as much as 8 6 of that growth between 1999 and 2003 can be attributed to declining relative stringency and enforcement of environmental policy the results are robust to a number of identification tests weak iv tests and third country spatial effects further evidence is found that relatively footloose industries are more likely to be affected by environmental policy than more traditionally dirty industries and enforcement of environmental policies tends to be a more important deterrent than the stringency of the policy set

intergenerational discounting a new intuitive approach abstract this paper proposes a new intergenerational discounting approach for computing net benefits from the use of environmental resources the approach explicitly incorporates the perspectives of both the current and future generations as argued for by pigou pigou a c 1920 the economics of welfare 1952 4th edition london macmillan and ramsey ramsey f p 1928 a mathematical theory of saving econ j 38 543 559 and required by most national and international laws related to the use of these resources an equation for use in the calculation of net discounted benefits is developed which provides a middle position whereby both the reality of personal discounting and that of social discounting are included in a social welfare function

business cycle fluctuations and the life cycle how important is on the job skill accumulation abstract we study the effects of on the job skill accumulation on average hours worked by age and the volatility of hours over the life cycle in a calibrated general equilibrium model two forms of skill accumulation are considered learning by doing and on the job training in our economy with learning by doing individuals supply more labor early in the life cycle and less as they approach retirement than they do in an economy without this feature the impact of this feature on the volatility of hours over the life cycle depends on the value of the intertemporal elasticity of labor supply when individuals accumulate skills by on the job training there are only weak effects on both the steady state labor supply and its volatility over the life cycle

do environmental regulations influence the location behavior of french firms this paper investigates the impact of environmental regulations on the location choices made by firms for their industrial activities using a sample of newly appeared imports of french firms from foreign industrial subsidiaries a simple static model based on the production cost minimization is developed in order to control for heterogeneous factor costs within countries distinguishing skilled labor unskilled labor and capital environmental regulations are then shown to be neither statistically nor economically a significant determinant of the location behavior of french firms

consumption pollution tradeoffs in an environment vulnerable to pollution related catastrophic collapse abstract this paper considers the consequences of an avoidable risk of irreversible environmental catastrophe for society s optimal long run consumption pollution tradeoffs the risk is assumed to be a nondecreasing function of pollution concentration which evolves as a dynamic environmental renewal process the main objective of the paper is to derive qualitative insights regarding the effects of such risk on optimal management

the effects of domestic climate change measures on international competitiveness under the kyoto protocol industrialized countries called annex i countries have to reduce their combined emissions to 5 percent below 1990 levels in the first commitment period of 2008 12 efforts to reduce emissions to meet kyoto targets and beyond have raised issues of competitiveness in countries that are implementing these policies as well as fear of leakage of carbon intensive industries to non implementing countries this has also led to proposals for tariff or border tax adjustments to offset any adverse impact of capping carbon dioxide emissions this paper examines the implications of climate change policies such as carbon tax and energy efficiency standards on competitiveness across industries as well as issues related to leakage if any of carbon intensive industries to developing countries although competitiveness issues have been much debated in the context of carbon taxation policies the study finds no evidence that the energy intensive industries competitiveness is affected by carbon taxes in fact the analysis suggests that exports of most energy intensive industries increase when a carbon tax is imposed by the exporting countries or by both importing and exporting countries this finding gives credence to the initial assumption that recycling the taxes back to the energy intensive industries by means of subsidies and exemptions may be overcompensating for the disadvantage to those industries there is however no conclusive evidence that supports relocation leakage of carbon intensive industries to developing countries due to stringent climate change policies

life cycle labor supply with human capital accumulation a dynamic model of labor supply under uncertainty with endogenous human capital accumulation is developed and estimated using 1968 81 panel study of income dynamics male panel data given a learning by doing technology for human capital investment and a translog utility function structural parameters for preferences and technology are estimated from the orthogonality conditions implied by the euler equations assuming rational expectations the parameter estimates conform to economic theory simulations of the model suggest that the intertemporal labor supply elasticity with endogenous wages will rise over the lifecycle producing different policy implications than typical models with exogenous wages and constant intertemporal elasticities copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

accounting for global warming risks resource management under event uncertainty abstract optimal management of atmospheric pollution is discussed with a special emphasis on the uncertainty concerning the occurrence of undesirable events associated with the greenhouse effect the uncertainty considered here stems from our ignorance of the exact pollution level required to trigger the event rather than from the genuinely stochastic nature of the processes involved taking atmospheric pollution level as the state variable it is found that uncertainty implies the existence of an equilibrium interval within which the emission rate of the greenhouse gases should be kept equal to the natural removal rate of these gases processes initiated outside the equilibrium interval must converge monotonically to its nearest endpoint the determination of the interval requires no knowledge of the optimal policy in contrast ignoring event occurrence risk implies a single equilibrium level attracting the optimal process from any initial level

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

numerical analysis of non constant pure rate of time preference a model of climate policy abstract when current decisions affect welfare in the far distant future as with climate change the use of a declining pure rate of time preference prtp provides potentially important modeling flexibility the difficulty of analyzing models with non constant prtp limits their application we describe and provide software available online to implement an algorithm to numerically obtain a markov perfect equilibrium for an optimal control problem with non constant prtp we apply this software to a simplified version of the numerical climate change model used in the stern review for our calibration the policy recommendations are less sensitive to the prtp than widely believed

training and lifetime income this paper challenges the notion that on the job training investments are quantitatively important for workers welfare and argues that on the job training may not increase lifetime income by more than 1 percent i argue that it is very difficult to reconcile the slowdown in wage growth late in a worker s career with optimizing behavior unless the technology for learning on the job is such that it generates very low gains from training the analysis is based on a nonparametric methodology for estimating the learning technology from wage profiles the results are arrived at by comparing the lifetime income when the worker optimally invests in his human capital to the one where he does not make any investments jel e24 j24 j31

consumption savings decisions with quasi geometric discounting we study the consumption savings problem of an infinitely lived rational consumer who has time inconsistent preferences in the form of quasi geometric discounting the consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings there is no uncertainty a solution to the consumer s problem is a subgame perfect equilibrium of a dynamic game between the consumer s successive selves we show that this game has a continuum of equilibria in stationary markov strategies not only is the stationary point of the consumer s asset holdings indeterminate but each stationary point has a continuum of dynamic paths converging to it the savings policy rules underlying these dynamic paths are step functions

pigs in space modeling the spatial structure of hog production in traditional and nontraditional production regions we posit a spatially explicit county level model of the hog production sector and estimate how numerous firm specific locality specific and spatial agglomeration factors affect the location movement and intensity of hog production within 15 key hog production states spatial agglomeration urban encroachment input availability firm productivity local economy slaughter access and regulatory stringency variables affect the sample regions spatial organization analyses suggest that western states in the sample may shape hog production levels by wielding traditional business recruitment and retention tools e g tax rates environmental stringency while corn belt states may shape hog production via nontraditional tools e g land use controls few sectors have undergone more rapid change in scale structure and organization than the u s swine sector in the past two decades movement to large scale specialized production units reflects past trends in western cattle feeding and dairy enterprises while increasing vertical coordination resembles patterns adopted in the poultry sector several decades ago accompanying these changes in production has been a simultaneous change in the spatial organization of u s hog production industry analysts have forwarded several stylized facts of this spatial reorganization traditional corn belt states have lost in terms of national share of hog production to southeastern great plains and mountain states during the 1980s and 1990s drabenstott hurt as the firms offering swine production and marketing contracts attempt to locate large scale facilities where there are few people cheap land

tax policy and human capital formation missing from recent discussions of tax reform is any systematic analysis of the effects of various tax proposals on skill formation this gap in the literature in empirical public finance is due to the absence of any empirically based general equilibrium models with both human capital formation and physical capital formation that are consistent with observations on modern labor markets this paper is a progress report on our ongoing research on formulating and estimating dynamic general equilibrium models with endogenous heterogeneous human capital accumulation our model explains many features of rising wage inequality in the u s economy james heckman lance lochner and christopher taber 1998 in this paper we use our model to study the impacts on skill formation of proposals to switch from progressive taxes to flat income and consumption taxes for the sake of brevity we focus on steady states in this paper although we study both transitions and steady states in our research this abstract was borrowed from another version of this item

environmental regulation and industry location in europe this paper estimates the effect of environmental regulation on industry location and compares it with other determinants of location such as agricultural education and r d country characteristics the analysis is based on a general empirical trade model that captures the interaction between country and industry characteristics in determining industry location the johnson neyman technique is used to fully explicate the nature of the conditional interactions the model is applied to data on 16 manufacturing industries from 13 european countries the empirical results indicate that the pollution haven effect is present and that the relative strength of such an effect is of about the same magnitude as other determinants of industry location a significant negative effect on industry location is observed only at relatively high levels of industry pollution intensity

environmental regulation and the spatial structure of the u s dairy sector substantial public scrutiny about adverse environmental impacts of the dairy sector has resulted in increased environmental regulations a behavioral model of location and production is developed to examine the impacts of environmental regulations traditional location factors and agglomeration economies on the spatial structure and geographical location of dairy production the results show that counties in the states with more stringent environmental regulations tend to lose dairy inventories to those with less stringent policies there are substantially meaningful spatial patterns of dairy production current dairy production levels are positively correlated while changes in production levels are negatively correlated across counties

the case for a progressive tax from basic research to policy recommendations the fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking a large academic literature has developed models of optimal tax making a large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity in this theory to cast light on the problem of optimal tax progressivity in this paper we explore the path from basic research results in optimal tax theory to paper we explore the path from basic research results in optimal tax theory to formulating policy recommendations formulating policy recommendations models in optimal tax theory typically posit that the tax system should maximize a models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint taking into account social welfare function subject to a government budget constraint taking into account that individuals respond to taxes and transfers social welfare is larger when resources that individuals respond to taxes and transfers social welfare is larger when resources are more equally distributed but redistributive taxes and transfers can negatively are more equally distributed but redistributive taxes and transfers can negatively affect incentives to work save and earn income in the fi rst place this creates the clasaffect incentives to work save and earn income in the fi rst place this creates the classical trade off between equity and effi ciency which is at the core of the optimal income sical trade off between equity and effi ciency which is at the core of the optimal income tax problem in general optimal tax analyses maximize social welfare as a function of tax problem in general optimal tax analyses maximize social welfare as a function of individual utilities the sum of utilities in the utilitarian case the marginal weight for individual utilities the sum of utilities in the utilitarian case the marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds such welfare weights depend on of consumption expressed in terms of public funds such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income therefore optimal income tax theory is fi rst a normative more equality of income therefore optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c

does regulation of manure land application work against agglomeration economies theory and evidence from the french hog sector the well known increase in the geographical concentration of hog production suggests the presence of agglomeration economies related to spatial spillovers and inter dependencies among industries in this paper we examine whether the restrictions on land application of manure may weaken productivity gains arising from the agglomeration process we develop a model of production showing the ambiguous spatial effect of land availability and the restriction on the manure application rate indeed while the regulation of manure application triggers dispersion when manure is applied to land as a crop nutrient it also prompts farmer to adopt manure treatment that favors agglomeration of hog production estimations of a reduced form of the spatial model with a spatial hac procedure applied to data for french hog production for 1988 and 2000 confirm the ambiguous effect of land limitations induced by the restrictions on manure application it does not prevent spatial concentration of hog production and even boosts the role played by spatial spillovers in the agglomeration process

effects of size based environmental regulations evidence of regulatory avoidance united states environmental regulations often vary by operation size with larger facilities facing more regulatory stringency however such legislative structure may have unintended consequences if operations downsize slow their growth or enter at a smaller scale in order to avoid regulation in this study we use a regression discontinuity framework and exploit the size threshold of federal and state rules targeting large scale livestock operations to examine whether facilities adjust size to avoid regulation we find statistical evidence of avoidance primarily by operations entering at sizes just below the threshold united states environmental regulations often vary by operation size with facilities larger than some threshold facing more stringent requirements such size based rules may have unintendedeffectsifexistingoperationsdownsize to avoid mandates or if greater numbers of new operations enter below the threshold these unintended effects may have consequencesforpollutionabatementandeconomic efficiency in industries with scale economies size reductions may result in higher product prices and lower consumer welfare consequently understanding the role of regulations inindustrystructureisnecessaryforevaluating their economic and environmental benefits livestock production is an important economic activity having substantial environmental implications domestically the livestock and poultry industries produce over 100 billion in cash receipts 1 and supply 90 of

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

human capital and earnings distribution dynamics abstract earnings heterogeneity plays a crucial role in modern macroeconomics we document that mean earnings and measures of earnings dispersion and skewness all increase in us data over most of the working life cycle for a typical cohort as the cohort ages we show that i a human capital model can replicate these properties from the right distribution of initial human capital and learning ability ii differences in learning ability are essential to produce an increase in earnings dispersion over the life cycle and iii differences in learning ability account for the bulk of the variation in the present value of earnings across agents these findings emphasize the need to further understand the role and origins of initial conditions

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

time perspective and climate change policy the tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an inter generational time scale we study implications of hyperbolic discounting for climate change policy when the probability of a climate induced catastrophe depends on the stock of greenhouse gasses we characterize the set of markov perfect equilibria mpe of the inter generational game amongst a succession of policymakers each policymaker reflects her generation s preferences including its hyperbolic discounting for a binary action game we compare the mpe set to a restricted commitment benchmark we compare the associated constant equivalent discount rates and the willingness to pay to control climate change with assumptions and recommendations in the stern review on climate change ymy picture of the world is drawn in perspectivey i apply my perspective not merely to space but also to time ramsey