children s welfare exposure and subsequent development abstract we examine the extent to which children are exposed to the welfare system through their mother s receipt of benefits and its impact on several developmental outcomes using data from the matched mother child file from the national longitudinal survey of youth nlsy we find that children s welfare exposure is substantial by age 10 over one third of all children will have lived in a welfare household black non hispanic children face a much higher rate of exposure simple correlations suggest a strong negative relationship between maternal welfare receipt and children s outcomes in this paper we implement three alternative strategies instrumental variables sibling differences and child fixed effects models designed to identify whether this correlation can be attributed to the mother s welfare receipt directly or to other characteristics of mothers who receive welfare regardless of whether or not those characteristics are observable to the researcher based on the results of all three estimation strategies we find little evidence of any causal link between maternal welfare receipt and children s developmental outcomes

nash implementation a complete characterization the authors extend e maskin s results on nash implementation first they establish a condition that is both necessary and sufficient for nash implementability if there are three or more agents the case covered by maskin s sufficiency result second and more important they examine the two agent case for which there existed no general sufficiency results the two agent model is the leading case for applications to contracting and bargaining for this case too they establish a condition that is both necessary and sufficient the authors use their theorems to derive simpler sufficiency conditions that are applicable in a wide variety of economic environments copyright 1990 by the econometric society

intra household allocation of time and money across siblings abstract how work and consumption are allocated within the family has important consequences for the welfare of individual household members using data on time use and assignable goods for individual siblings across india peru ethiopia and vietnam aged 5 17 i show that there is substantial within sibling variation in leisure as well as consumption allocations i then test whether there is evidence for favoritism in the joint allocation of leisure and consumption toward a particular gender i find that boys with a younger sister have substantially more relative leisure compared to girls with a younger sister in all four countries consumption allocations are relatively higher for older siblings of mixed gender sibling pairs irrespective of the sex of the child i reject that favoritism in consumption equals favoritism in leisure in three of the four countries finally i show suggestive evidence on the role of reward and preferences for allocations of time and money in the household

whose opinion counts implementation by sortition abstract sortition is the process of selecting decision makers or senators by a lottery we introduce sortition in implementation theory by augmenting a mechanism with a kleroterion or lottery machine p that selects the senators an outcome is implemented after consulting only the opinions of the senators we call the corresponding notion of implementation as p implementation and provide necessary and sufficient conditions for p implementation our main result is that in economic environments every nash implementable social choice rule scr is also p implementable if p selects every quartet of players with positive probability and always selects at least three senators we apply this result to two kleroteria oligarchic democracy and random sampling in economic environments every nash implementable scr can be implemented by oligarchic democracy of three oligarchs in economic environments every nash implementable scr can be implemented by randomly selecting four senators

the effects of inflation news on high frequency stock returns previous research using daily returns finds conflicting evidence about the relationship between unanticipated inflation news and stock returns we explore the relationship by looking at the response in minutes and trades of size based stock portfolios to unexpected changes in the regularly scheduled producer price index and consumer price index announcements in particular we answer the following three questions 1 do stocks respond to inflation news 2 what is the speed and path of that response 3 is the response stable or does it vary with the economy the direction of the news or time

maskin s theorem with limited veto power abstract we weaken the no veto power condition of maskin maskin e 1999 nash equilibrium and welfare optimality rev econ stud 66 23 38 to limited veto power and prove that any monotonic social choice rule is nash implementable if it satisfies this weaker condition the result is obtained by using the canonical maskin mechanism without modification an immediate corollary is that the weak core is nash implementable in any coalitional game environment an example is given to show that the strong core need not be implementable even when it is monotonic

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

price formation and liquidity in the u s treasury market the response to public information the arrival of public information in the u s treasury market sets off a two stage adjustment process for prices trading volume and bid ask spreads in a brief first stage the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume demonstrating that price reactions to public information do not require trading the spread widens dramatically at announcement evidently driven by inventory control concerns in a prolonged second stage trading volume surges price volatility persists and spreads remain moderately wide as investors trade to reconcile residual differences in their private views how do financial markets form prices and provide liquidity when information arrives efforts to address this issue have led to an extensive microstructure literature on equity markets and to a lesser extent on the foreign exchange fx market relatively little work has focused on the u s treasury market however in spite of its importance in its own right and the advantages it offers as an alternative testing ground for microstructure hypotheses

on nash implementation of social choice correspondences abstract in this paper we extend danilov s conditions for nash implementation to weak preferences over an arbitrary set of alternatives we show that a certain condition of strong monotonicity is necessary for nash implementation if the domain of preferences is sufficiently large furthermore in any preference domain of weak orders it is also sufficient for nash implementation if there are at least three agents

incentives and implementation in marriage markets with externalities abstract we study the implementability of stable correspondences in marriage markets with externalities we prove that contrary to what happens in markets without externalities no stable revelation mechanism makes a dominant strategy for the agents on one side of the market to reveal their preferences however the stable correspondence is implementable in nash equilibrium

epsilon nash implementation this paper provides necessary and sufficient conditions for a social choice correspondence to be implementable via epsilon nash equilibrium when agents preferences can be represented by cardinal utilities our results also display robustness of maskin s seminal result on nash implementation

implementation via nash equilibria this paper is concerned with a problem of implementation of a given social choice correspondence the authors introduces an essential monotonicity condition and show that any implementable social choice correspondence satisfies this condition conversely in a case of three or more participants any essentially monotone social choice correspondence is implementable in a case of two participants the essential monotonicity condition must be completed by a requirement that the social choice correspondence is close to an individually rational correspondence copyright 1992 by the econometric society

reexamination of maskin s theorem on nash implementability abstract we reexamine maskin s theorem by proposing slight modifications on maskin s conditions of monotonicity and no veto power we show that any social choice correspondence scc that satisfies strict monotonicity strict no veto power and unanimity can be implemented in nash equilibria

stock prices and economic news this paper examines the daily response of stock prices to announcements about the money supply inflation real economic activity and the discountrate except for the discount rate survey data on market participants expectations of these announcements are used to identify the unexpected component of the announcements in order to test the efficient markets hypothesis that only the unexpected part of any announcement the surprise moves stock prices the empirical results support this hypothesis and indicate further that surprises related to monetary policy significantly affect stock prices there is only limited evidence of an impact from inflation surprises and no evidence of an impact from real activity surprises on the announcement days there is also only weak evidence of stock price responses to surprises beyond the announcement day this abstract was borrowed from another version of this item

cash welfare as a consumption smoothing mechanism for divorced mothers abstract while there has been considerable research on the disincentive effects of cash welfare under the aid to families with dependent children afdc program there is little evidence on the benefits of the program for single mothers and their children one potential benefit of this program is that it provides short run consumption insurance for women at the point that they become single mothers this is only true however to the extent that the program is not crowding out other sources of support such as own savings labor supply or transfers from others i assess the importance of this insurance mechanism by measuring the extent to which afdc smooths the consumption of women who transition to single motherhood through marital dissolution i use longitudinal data on family structure and consumption expenditures on food and housing from the panel study of income dynamics psid matched to information on the welfare benefits available in each state and year over the 1968 1985 period i find that raising potential benefits by one dollar raises the food and housing consumption of women who get divorced and their families by 28 cents this estimate implies that for each dollar of afdc received by this population their consumption of these categories of goods rises by up to 51 cents this is roughly the share of food and housing in the consumption bundle of divorced mothers and their families suggesting little crowdout of other sources of support

intraday futures market behaviour around major scheduled macroeconomic announcements australian evidence abstract this paper examines intraday futures market behaviour around major scheduled macroeconomic information announcements on the sydney futures exchange sfe prior literature analysing intraday price behaviour around announcements is extended to trading volume and quoted bid ask spreads the analysis of price volatility trading volume and quoted bid ask spreads indicates that the majority of adjustment to new information occurs rapidly within 240 seconds of the scheduled time for major announcements with some evidence of abnormal activity prior to announcements analysis of quoted bid ask spreads suggests that they significantly widen in the 20 seconds prior to announcements and remain significantly wider for 30 seconds following announcements the increase in quoted spreads is related to both expected and unexpected volatility implying that market participants increase quoted spreads around information announcements as a consequence of adverse selection costs

the short run dynamics of the price adjustment to new information we examine how prices in interest rate and foreign exchange futures markets adjust to the new information contained in scheduled macroeconomic news releases in the very short run using 10 second returns and tick by tick data we find that prices adjust in a series of numerous small but rapid price changes that begin within 10 seconds of the news release and are basically completed within 40 seconds of the release there is some evidence that prices overreact in the first 40 seconds but that this is corrected in the second or third minute after the release while volatility tends to be higher than normal just before the news release there is no evidence of information leakage in our analysis we correct for the biases created by bid ask spreads and tick by tick data

response of hourly stock prices and trading volume to economic news this paper examines hourly stock returns and trading volume response to announcements about the money supply consumer price index cpi producer price index industrial production and the unemployment rate the empirical results indicate that surprises in announcements about money supply and cpi are significantly associated with stock price changes the announcements of the other three variables do not affect stock prices significantly trading volume is not affected by any of the five economic variable announcements indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements the spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so copyright 1988 by the university of chicago

nash implementation of the nash bargaining solution using intuitive message spaces abstract we provide mechanisms for the nash implementation of the nash bargaining solution if the set of possible payoff allocations is unknown to the planner while the status quo is known agents report payoff regions compatible with the status quo we remark that message spaces can be further reduced

futures prices as risk adjusted forecasts of monetary policy many researchers have used federal funds futures rates as measures of financial markets expectations of future monetary policy however to the extent that federal funds futures reflect risk premia these measures require some adjustment in this paper we document that excess returns on federal funds futures have been positive on average and strongly countercyclical in particular excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business cycle indicators such as treasury yield spreads and corporate bond spreads excess returns on eurodollar futures display similar patterns we document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy we also show that risk premia matter for some futures based measures of monetary policy shocks used in the literature

coalition formation in games of fair division abstract i consider economies with a single indivisible good and money allowing agents to form coalitions i show that the set of equilibrium allocations in the manipulation game associated with any subcorrespondence of the no envy correspondence coincides with the set of envy free allocations for the true preference profile

have increases in federal reserve transparency improved private sector interest rate forecasts yes this paper shows that since the late 1980s u s financial markets and private sector forecasters have become 1 better able to forecast the federal funds rate at horizons out to several months 2 less surprised by federal reserve announcements 3 more certain of their interest rate forecasts ex ante as measured by interest rate options and 4 less diverse in the cross sectional variety of their interest rate forecasts we also present evidence that strongly suggests increases in federal reserve transparency played a role for example private sector forecasts of gdp and inflation have not experienced similar improvements over the same period indicating that the improvement in interest rate forecasts has been special

how markets process information news releases and volatility we examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets we find these announcements are responsible for most of the observed time of day and day of the week volatility patterns in these markets while the bulk of the price adjustment to a major announcement occurs within the first minute volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours nonetheless these subsequent price adjustments are basically independent of the first minute s return we identify those announcements with the greatest impact on these markets we examine the impact on interest rate and foreign exchange markets of scheduled macroeconomic news releases such as the employment report the consumer price index cpi and the producer price index ppi many market participants believe that such announcements have a major impact on financial markets indeed a small industry devoted to predicting the figures to be released in upcoming releases has evolved in recent years with the exception of the weekly money supply figures however the impact of such announcements on financial markets has received scant attention 1 this is doubly surprising given the considerable research interest in market volatility since these news releases are a potential source of much of this volatility consider for instance figure 1 as shown there prices in interest rate and foreign exchange futures markets are much more volatile between 8 30 and 8 35 a m eastern time et than during any other five minute trading period including

do exchange rates respond to day to day changes in monetary policy expectations when no monetary policy changes occur this paper addresses whether exchange rates respond to changes in expectations of future u s monetary policy when no actual monetary policy changes occur we employ data on federal funds futures contracts for extracting a measure of policy expectations control for the surprise element of macroeconomic news and policy developments and analyze more than 12 years of daily exchange rate data our findings show that continuous day to day changes in expectations of future monetary policy are associated in a highly significant and systematic way with day to day changes in exchange rates even when no actual monetary policy changes occur this suggests that monetary policy matters for daily exchange rate determination in more ways than merely through infrequent actual policy changes

nash implementation in exchange economies with single peaked preferences abstract in exchange economies with single peaked preferences we find that 1 several solutions satisfy theorem 1 of doghmi and ziad doghmi a ziad a 2008 this issue reexamination of maskin s theorem on nash implementability economics letters 2 strict monotonicity is equivalent to maskin monotonicity we examine also the implementation of the weak core in coalitional games

the determinants of future u s monetary policy high frequency evidence this paper examines the determinants of future u s monetary policy by studying the relationship between a predictor of the future direction of monetary policy and a pertinent information set specifically we investigate the impact of the surprise component of an array of macro economic announcements upon federal funds futures rates this investigation is conducted using high frequency intraday data in order to examine the exact timing of rate reactions to announcements in doing this we find that non farm payrolls and civilian unemployment announcements play a dominant role in determining future monetary policy moreover we document evidence that shows that the release of such information is rapidly incorporated into rates particularly when considering federal funds futures contracts traded via an electronic trading platform as opposed to an open auction trading platform

market set up in advance of federal reserve policy rate decisions textabstractthis paper considers the uncertainty associated with upcoming federal open market committee fomc announcements and the extent to which participants in the fed funds futures market prepare for such announcements before they actually occur we demonstrate that markets set up well in advance of known announcement days going back as far as six months prior to an fomc meeting as a result there is often less variation in fed funds futures prices in the period immediately preceding an fomc announcement despite greater volume of activity as the market has already incorpo rated anticipated signals we find that macro announcements and central bank officials speeches and congressional testimony are of comparable importance in addition while macro announcements have stronger effects when they are released during the fed s blackout period congressional testimony is more important when it coincides with days when important macro variables are released

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

efficient repeated implementation this paper examines repeated implementation of a social choice function scf with innitely lived agents whose preferences are determined randomly in each period an scf is repeated implementable in nash equilibrium if there exists a sequence of possibly history dependent mechanisms such that i its nash equilibrium set is non empty and ii every nash equilibrium outcome corresponds to the desired social choice at every possible history of past play and realizations of uncertainty we show with minor qualications that in the complete information environment an scf is repeated implementable in nash equilibrium if and only if it is ecient we also discuss several extensions of our analysis including constructions employing only nite mechanisms

anticipations of monetary policy in financial markets in recent years financial markets appear better able to anticipate federal open market committee fomc policy changes beginning in the late 1980s and early 1990s longer term interest rates and futures rates have tended to incorporate movements in the federal funds rate several months in advance in contrast to the largely contemporaneous response typically observed before that time after identifying these emerging trends the paper parses the enhanced predictability into a component that can be attributed to the autoregressive behavior of the funds rate and a nonautoregressive component the paper considers institutional developments in fomc policy making that may have contributed to each of these components including gradualism in adjusting the federal funds rate target and transparency regarding the setting of the target and future policy intentions

the intergenerational transfer of welfare dependency some statistical evidence does a mother s welfare receipt increase the future dependency of her children does the welfare system thus stimulate the dependency of future generations parameter estimates reported here suggest such intergenerational effects the sample comprises young girls and their mothers after control for observed and unobserved heterogeneity a mother s welfare participation is found to increase her daughter s later welfare dependency copyright 1992 by mit press

taking chances the effect that growing up on welfare has on the risky behavior of young people in this paper we analyze the effect that growing up in a family with a history of welfare receipt has on young people s engagement in a variety of social and health risks unique administrative data matched to survey data for 18 year olds and their mothers allow us to evaluate the effect of welfare receipt over the course of a young person s childhood much of the apparent link between family welfare history and risk taking disappears once we control for the effects of family structure mothers own risk taking and mothers investments in their children we find no evidence that growing up on welfare causes young people to engage in risky behavior

the fed and interest rates a high frequency identification we measure monetary policy shocks as changes in the fed funds target rate that surprise bond markets in daily data these shock series avoid the omitted variable time varying parameter and orthogonalization problem of monthly vars and do not impose the expectations hypothesis we find surprisingly large and persistent responses of bond yields to these shocks 10 year rates rise as much as 8 10 of a percent to a one percent target shock the usual view that monetary policy only temporarily raises long term rates and influences inflation would lead one to predict a negative long rate response this abstract was borrowed from another version of this item

monetary policy and market interest rates this thesis contains four chapters each of which examines different aspects of the uncertainty facing monetary policymakers monetary policy and market interest rates investigates how interest rates set on financial markets respond to policy actions taken by the monetary authorities the reaction of market rates is shown to depend crucially on market participants interpretation of the factors underlying the policy move these theoretical predictions find support in an empirical analysis of the u s financial markets predicting monetary policy using federal funds futures prices examines how prices of federal funds futures contracts can be used to predict policy moves by the federal reserve although the futures prices exhibit systematic variation across trading days and calendar months they are shown to be fairly successful in predicting the federal funds rate target that will prevailafter the next meeting of the federal open market committee from 1994 to 1998 monetary policy with uncertain parameters examines the effects of parameter uncertainty on the optimal monetary policy strategy under certain parameter configurations increasing uncertainty is shown to lead to more aggressive policy in contrast to the accepted wisdom should central banks be more aggressive examines why a certain class of monetary policy models leads to more aggressive policy prescriptions than what is observed in reality these counterfactual results are shown to be due to model restrictions rather than central banks being too cautious in their policy behavior an unrestricted model taking the dynamics of the economy and multiplicative parameter uncertainty into account leads to optimal policy prescriptions which are very close to observed federal reserve behavior

the impact of leniency and whistle blowing programs on cartels antitrust authorities have set up leniency programs for cartel members that denounce their collusive agreements these programs help prosecute participants and can thereby deter collusion we compare the impact of reduced fines and positive rewards and argue that rewarding individuals including firm employees can deter collusion in a more effective way we discuss possible adverse effects of whistle blowing programs on firms behavior and particularly on turnover incentives to innovate and cooperation we also explore explanations for the puzzling fact that managers keep incriminating evidence and argue reward programs actually provide additional incentives for keeping such evidence

daily changes in fed funds futures prices this paper explores the properties of daily changes in the prices for near term fed funds futures contracts the paper finds these contracts to be excellent predictors of the fed funds rate and shows that the claim of a nonzero term premium in the short horizon contracts is more sensitive to outliers than previous research appears to have recognized i find some statistically significant evidence of serial correlation in the daily changes but this accounts for only a tiny part of the 1 day movements and there is essentially zero predictability for horizons longer than 1 day settlement futures prices for each day appear to incorporate the information embodied in that day s term structure of longer horizon treasury securities previous employment growth makes a statistically significant contribution to predicting futures price changes though again this could only account for a tiny part of the daily variance the paper concludes that futures prices provide a very useful measure of the daily changes in the market s expectation of near term changes in fed policy

complexity and repeated implementation this paper examines the problem of repeatedly implementing an ecient social choice function when the agents preferences evolve randomly we show that the freedom to set dierent mechanisms at dierent histories can give the planner an additional leverage to deter undesirable behavior even if the mechanisms are restricted to be simple and nite specically we construct a history dependent sequence of simple mechanisms such that with minor qualications every pure subgame perfect equilibrium delivers the correct social choice at every history while every mixed equilibrium is strictly pareto dominated more importantly when faced with agents with a preference for less complex strategies at the margin the ecient social choice function can be repeatedly implemented in subgame perfect equilibrium in pure or mixed strategies our results demonstrate a positive role for complexity considerations in mechanism design

identifying vars based on high frequency futures data abstract using the prices of federal funds futures contracts we measure the impact of the surprise component of federal reserve policy decisions on the expected future trajectory of interest rates we show how this information can be used to identify the effects of a monetary policy shock in a standard var this alternative approach to identification is quite different and we argue more plausible than the conventional identifying restrictions we find that a usual recursive identification of the model is rejected as is any identification that insists on a monetary policy shock having an exactly zero effect on prices contemporaneously we nevertheless agree with the conclusion of much of the var literature that only a small fraction of the variance of output can be attributed to monetary policy shocks

welfare and child health the link between afdc participation and birth weight the stated goal of the aid for families with dependent children program is to improve the well being of children in poor families the program has come under considerable attack in recent years from critics who argue that participation in afdc is associated with maternal behaviors that are bad for children we investigate this question using birth weight as a measure of child health we find that participation in afdc during pregnancy is associated with delays in obtaining prenatal care smoking and drinking during pregnancy younger maternal age at the birth and ultimately with lower birth weights even when observable characteristics of the mother are controlled for however we show that when unobservable characteristics of the mother are controlled for there is actually a positive association between participation in afdc and the birth weights of children of white women from poor families we find no association between birth weight and maternal participation in afdc among black children

market based measures of monetary policy expectations a number of recent articles have used different financial market instruments to measure near term expectations of the federal funds rate and the high frequency changes in these instruments around federal open market committee announcements to measure monetary policy shocks this article evaluates the empirical success of a variety of financial market instruments in predicting the future path of monetary policy all of the instruments we consider provide forecasts that are clearly superior to those of standard time series models at all of the horizons considered among financial market instruments we find that federal funds futures dominate all the other securities in forecasting monetary policy at horizons out to six months for longer horizons the predictive power of many of the instruments we consider is very similar in addition we present evidence that monetary policy shocks computed using the current month federal funds futures contract are influenced by changes in the timing of policy actions tha

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

a new marked point process model for the federal funds rate target methodology and forecast evaluation abstract forecasts of key interest rates set by central banks are of paramount concern for investors and policy makers recently it has been shown that forecasts of the federal funds rate target the most anticipated indicator of the federal reserve bank s monetary policy stance can be improved considerably when its evolution is modeled as a marked point process mpp this is due to the fact that target changes occur in discrete time with discrete increments have an autoregressive nature and are usually in the same direction we propose a model which is able to account for these dynamic features of the data in particular we combine hamilton and jorda s 2002 a model for the federal funds rate target journal of political economy 110 5 1135 1167 autoregressive conditional hazard ach and russell and engle s 2005 a discrete state continuous time model of financial transactions prices and times the autoregressive conditional multinomial autoregressive conditional duration model journal of business and economic statistics 23 2 166 180 autoregressive conditional multinomial acm model the paper also puts forth a methodology to evaluate probability function forecasts of mpp models by improving goodness of fit and point forecasts of the target the ach acm qualifies as a sensible modeling framework furthermore our results show that mpp models deliver useful probability function forecasts at short and medium term horizons

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

afdc participation across generations william julius wilson s influential book the truly disadvantaged 1987 has sparked a vigorous debate about the existence and causes of an urban underclass while there is still no clear agreement about definitions the growing literature on the underclass focuses both on traits of the current generation and the traits of their parents if an underclass exists its current members are assumed to live in deteriorating inner cities to experience long spells of joblessness or welfare dependency and or to engage in illegal and antisocial activities furthermore these traits are assumed to be correlated across generations leading to a cycle of deprivation in this paper i focus on one such link across generations by examining the correlation in welfare participation of daughters and their parents i first present the state of knowledge about the extent to which children of parents who received aid to families with dependent children afdc are themselves more likely to participate in this welfare program second i discuss the remaining gaps in our understanding and give several contrasting altemative explanations for the observed correlation each with a different policy implication