unanticipated aggregate disturbances and tests of the life cycle consumption model several recent studies have used data on food consumption from the panel study of income dynamics psid to test t he rational expectations life cycle hypothesis against the alternative of prevalent liquidity constraints these tests invoke the rational expectations restriction that income forecast errors are independent of lagged information this restriction however applies only in a time series context it is possible that unanticipated macroeconomic disturbances cause forecast errors to be correlated with lagged information in a cross section of families the authors present evidence of such a correlation in the psid data show that this correlation biases previous tests of the life cycle model toward rejection and derive a proper test of the life cycle model using pa nel data copyright 1993 by mit press

another look at the spending response to the 2001 income tax rebates this article revisits the spending response to the 2001 us tax rebates by focussing on two key aspects of how tax policy researchers use the consumer expenditure survey cex these two attributes which are often overlooked are as follows the measures used for consumption and the outlier criteria applied to the data first i reproduce the results in johnson et al 2006 which using the cex concluded that households immediately spent 20 40 of their rebates on nondurable consumption goods then i show how making two changes both of which are relied upon in the literature affects their results these adjustments reduce the estimated magnitude of the rebate s impact by as much as 100

variations in farm consumption and their relationship to income an empirical investigation of illinois farm households empirical tests of household consumption have yielded mixed results regarding the validity of the life cycle permanent income lcpi hypothesis a significant problem with such studies is the diffi

the debt payment to income ratio as an indicator of borrowing constraints evidence from two household surveys liquidity constraints have been proposed as an important explanation for deviations from the rational expectations permanent income hypothesis this paper introduces to the liquidity constraint literature the ratio of a household s debt payments to its disposable personal income the debt service ratio dsr we find that a household with a high dsr is significantly more likely to be turned down for credit than other households also the consumption growth of likely constrained households identified using the dsr along with the liquid asset to income ratio is significantly more sensitive to past income than that of other households confirming the dsr s value in identifying constrained households

uncertainty in the theory of renewable resource markets the natural growth rate of most renewable resource stocks is in part stochastic this paper examines the implications of such ecological uncertainty for competitive equilibrium in a market with property rights we show that stochastic fluctuations add a risk premium to the rate of return required to keep a unit of stock in situ and we examine the effects of fluctuations on resource rent examples are used to show that extraction can increase decrease or be left unchanged as the variance of the fluctuations increases depending on the extent of market self correction regulatory implications are also discussed renewable resource economics has traditionally been concerned with the study of dynamically optimal harvesting policies given a deterministic function for the natural growth of the resource stock issues have included the existence and characteristics of steady state equilibria for the optimally managed resource the need for and design of regulatory policies to prevent over exploitation and conditions under which as a social optimum or otherwise the resource will be exploited to extinction 1 much of this work has been based on the assumption of a fixed and exogenous price for the harvested resource typically resulting in bang bang solutions for the harvesting policy however some recent papers make price endogenous and thereby describe how the extraction rate and the rate of return and asset value of the resource behave in a competitive market with property rights 2

consumer response to the reagan tax cuts abstract this paper uses micro data from the consumer expenditure survey to estimate the response of household consumption to the second and third phases of the reagan tax cuts since these phases were pre announced they allow for an unusually clean test of the canonical life cycle permanent income model consumption is found to be excessively sensitive to the tax cuts counter to the model liquidity constraints and other standard explanations do not appear to explain this excess sensitivity the consumption response is larger than previously estimated for tax refunds and more concentrated in nondurables these differences have important implications for the structure of tax changes in particular for choosing between varying withholding rates versus varying lumpy final tax payments and refunds

common property resources storage facilities and ownership structures a cournot model of the oil market during the last decade economists have tried hard to convince meadows and his followers that market forces do not tend to exhaust our natural resources too rapidly as compared with the requirements of an intertemporal pareto optimum it is well known now that under well defined property rights and correct price expectations a competitive extraction industry brings about a pareto optimal depletion path and it has been shown that oligopolistic and monopolistic market structures may even produce a bias towards conservation 1 it is still an unresolved issue however which extraction path will result if property rights are imperfectly defined following the pioneering work of gordon 1954 there has been a large body of literature demonstrating that in the extreme case of free entry and myopic profit maximization there are strong reasons for excessive extraction 2 but this literature hardly yields reliable conclusions for the perhaps more realistic case where firms derive their behaviour from intertemporal optimization and where there is a common ownership but limited access to the resource the basic intuition behind the common pool problem is that the individual agent chooses an extraction policy other than the one he would choose under well defined property rights since he is afraid that part of the resource he leaves underground will be extracted and sold by others 3 despite the simplicity of this intuition there does not seem to be any publication that analyses it within an intertemporal equilibrium model with rational and far sighted agents this is the motivation for the present approach the approach studies the common pool problem in the context of an oligopolistic world market for oil it posits a given number of identical firms extracting oil from holdings between some of which there is mutual seepage the firms sell the extracted oil in the same market or they store it in privately owned seepage proof tanks each firm derives its behaviour from intertemporal optimization under perfect foresight of the time paths of the model variables but cournotesque conjectures about the reactions of its competitors except for the assumption of storage facilities this specification is closely related to models previously studied by khalatbari 1977 and kemp and long 1980 essay 10 4 the two models are very similar but they yield strikingly different conclusions while kemp and long find that the extraction path chosen by the firms is pareto optimal i e that the price of the resource rises at a rate given by the market rate of interest khalatbari contends that there is over extraction kemp and long convincingly demonstrate that khalatbari s model suffers from an inconsistency in the way the individual firm expects its rivals to respond to its own actions and they argue that this inconsistency is the reason for the divergence in results thus the casual reader gets the

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

testing the response of consumption to income changes with noisy panel data this paper tests the rational expectations lifecycle model of consumption against i a keynesian model and ii the rational expectations lifecycle model with imperfect capital markets the tests are based upon the relative responsiveness of consumption to income changes that can be predicted from past information and income changes that cannot he predicted the tests allow for measurement error in income the results reject the keynesian model and generally support the lifecycle model but the results are not sufficiently precise to rule out the possibility that some households are liquidity constrained measurement error has a strong influence on the relationship between consumption and income

capital accumulation games of infinite duration abstract consider a market in which firms accumulate capital according to the nerlove arrow capital accumulation equation each player chooses a path of investment and thus an induced path of capital to maximize his total discounted profits which depend on his own capital and the capital stocks of his rivals existence is proved for such a nonzero sum infinite horizon differential game and conditions under which the game converges to a particular stationary point regardless of the initial conditions are shown thus the game possesses the property of conditional global asymptotic stability

tax reform and automatic stabilization an income tax provides implicit insurance by dampening the variability of disposable income and consumption using an empirical framework derived from the consumption insurance literature and data from the panel study of income dynamics we examine the effect of federal income tax reforms of the 1980 s on automatic stabilization of consumption overall erta and tra86 reduced consumption stability by about 50 percent recently increased eitc generosity restored or enhanced consumption insurance the welfare cost of moving to the post tra86 system is sizable for relatively risk averse households facing large income risk but is much more modest for the typical household jel h21

testing the cross section implications of friedman s permanent income hypothesis abstract we use modern household data and econometric methods to conduct some of the original tests of the permanent income hypothesis pih suggested and used by friedman 1957 a theory of the consumption function princeton university press princeton the data and methods are superior to those available to friedman allowing us to refine friedman s tests and perform tests he could not do the results provide overall though not universal support for pih

open loop and feedback models of dynamic oligopoly abstract a simple method of estimating the degree of oligopoly power in dynamic markets using either open loop or feedback subgame perfect strategies is developed new theoretical results are presented for families of oligopoly models differences between discrete time and continuoustime models and open loop and feedback models are demonstrated the effects of increasing the number of firms or adjustment costs are examined

oligopoly equilibria in nonrenewable resource markets abstract most nash cournot oligopoly models of nonrenewable resources apply open loop equilibrium concepts and are based on physical resource depletion this paper studies feedback equilibria and economic depletion assuming affine quadratic functional forms the existence uniqueness and explicit solutions for the equilibria are derived for duopoly and n player oligopoly with multiple resource stocks for the cases of nonquadratic criteria we develop a numeric solution scheme for the nash feedback equilibrium this scheme is an application of a discrete time discrete state controlled markov chain approximation method originally developed for solving deterministic and stochastic dynamic optimization problems in our nash cournot equilibrium the degree of concentration in supply declines over time whereas the previous models with physical depletion and open loop equilibrium concepts predict that a nash cournot resource market will develop in the direction of monopoly supply

using subjective income expectations to test for excess sensitivity of consumption to predicted income growth abstract we test for precautionary saving and excess sensitivity of consumption to predicted income growth using a 1989 1993 panel survey of italian households that has measures of subjective income and inflation expectations these expectations provide a powerful instrument for predicting income growth the empirical specification controls for predictable changes in labor supply and allows a fairly general specification for the stochastic structure of the forecast error we find that consumption growth is positively correlated with the expected variance of income and uncorrelated with predicted income growth overall the results support the precautionary saving model

do actions speak louder than words household expectations of inflation based on micro consumption data survey data on household expectations of inflation are routinely used in economic analysis yet it is not clear how accurately households are able to articulate their expectations in survey interviews we propose an alternative approach to recovering households expectations of inflation from their consumption expenditures we show that these expectations measures have predictive power for consumer price index cpi inflation they are better predictors of cpi inflation than household survey responses and more highly correlated with professional inflation forecasts except for highly educated consumers consistent with the view that more educated consumers are better able to articulate their expectations we also document that households inflation expectations respond to inflation news as measured by the unpredictable component of inflation predictions in the survey of professional forecasters the response to inflation news tends to increase with households level of education consistent with the existence of constraints on household s ability to process this information

fiscal policy and economic recovery the case of the 1936 veterans bonus conventional wisdom has it that in the 1930s scal policy did not work because it was not tried this paper shows that scal policy though inadvertent was tried in 1936 and a variety of evidence suggests that it worked a decit nanced veterans bonus provided 3 2 million world war i veterans with cash and bond payments totaling 2 percent of gdp the typical veteran received a payment equal to annual per capita personal income this paper uses time series and cross sectional data to identify the eects of the bonus i exploit four sources of quantitative evidence a detailed household consumption survey cross state and cross city regressions aggregate time series and a previously unused american legion survey of veterans the evidence paints a consistent picture in which veterans quickly spent the majority of their bonus spending was concentrated on cars and housing in particular narrative accounts support these quantitative results a simple calculation suggests that the bonus added 2 5 to 3 percentage points to 1936 gdp growth

saving behavior and wealth accumulation in a pure lifecycle model with income uncertainty several models of economic behavior currently compete for an explanation of individual wealth accumulation and savings patterns in this paper we focus in particular upon the role of income uncertainty and the role played by a retirement period during which time expected earnings are zero we nd that income uncertainty can alter savings patterns over the lifecycle signi cantly with the greatest in uence on the wealth of young individuals however its in uence on the aggregate stock of wealth is less than earlier theoretical work indicates 2001 elsevier science b v all rights reserved jel classixcation e21 e25 e60

testing for liquidity constraints in euler equations with complementary data sources previous tests for liquidity constraints using consumption euler equations have frequently split the sample on the basis of wealth arguing that low wealth consumers are more likely to be constrained we propose alternative tests using different and more direct information on borrowing constraints obtained from the 1983 survey of consumer finances in a first stage we estimate probabilities of being constrained which are then utilized in a second sample the panel study of income dynamics to estimate switching regression models of the euler equation our estimates indicate stronger excess sensitivity associated with the possibility of liquidity constraints than the sample splitting approach

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

transaction costs and consumption abstract the rational expectations permanent income hypothesis re pih fails to explain several well documented features of consumption behavior first the estimated marginal propensity to consume mpc for unanticipated transitory income shocks is often much higher than what the theory warrants second the estimated mpc is typically much bigger for small shocks of this type than for large shocks third consumption is often smoothed against large anticipated future income changes but not always against small changes this paper argues that these findings can be reconciled within a re pih model that includes a cash in advance constraint and an assumption that the agent is required to pay a fixed transaction cost to transfer wealth between cash and assets key results of the paper include first the agent follows an s s rule with respect to cash holdings when he makes wealth transfer decisions second the mpc within the no transfer band is higher than that out of the band and can be as high as exactly equal to one and third the agent smoothes consumption in response to news of large future income changes but not necessarily to small ones

sensitivity of tests of the pih to alternative consumption proxies abstract this note compares tests of the permanent income hypothesis when alternative proxies for consumption are utilized while the results appear to be sensitive to the proxy of consumption j tests show no significant difference between the alternative models

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

female labour supply and on the job search an empirical model estimated using complementary data sets we develop an empirical model of labour supply that is consistent with on the job search and which is identified and estimated by combining two data sets the u k family expenditure survey which contains information on income and expenditure and the u k labour force survey which has data on hours and job search behaviour we provide statistical evidence on the compatibility of the two samples for the purposes of estimating our model we find that search has a direct negative effect on hours of work and we establish a strong positive effect of wages on hours

the special problems of small countries abstract the paper describes the characteristics of small economies and discusses the advantages and disadvantages arising from these characteristics it is shown that small economies by their very nature tend to be less diversified and to have relatively high foreign trade risks in spite of these drawbacks a number of small economies have achieved high rates of economic growth some reasons given to explain this success are the relatively small size of the agricultural sector concentration on labor intensive exports and sociological and psychological factors such as the ability to respond in a flexible manner to changes the paper ends with a discussion on whether the drawbacks of small size can be overcome by economic integration it is argued that the experience in this regard is disappointing

does the choice of consumption measure matter an application to the permanent income hypothesis abstract food consumption in the panel study of income dynamics is used as a proxy for total consumption in many applications in economics including tests of the permanent income hypothesis tests of separability between consumption and leisure and tests of intergenerational altruism food however explains only a small fraction of the variation in total consumption i propose a measure of composite consumption based on predicted wealth and compare it both to food consumption and to skinner s 1987 measure of predicted consumption in a test of the permanent income hypothesis using a log linear intertemporal consumption function i find that food does not reject the permanent income hypothesis but both skinner s predicted consumption and the composite measure proposed here to reject the hypothesis

rules of thumb versus dynamic programming this paper studies decision making with rules of thumb in the context of dynamic decision problems and compares it to dynamic programming a rule is a fixed mapping from a subset of states into actions rules are compared by averaging over past experiences this can lead to favoring rules which are only applicable in good states correcting this good state bias requires solving the dynamic program we provide a generalframework and characterize the asymptotic properties we apply it to provide a candidate explanation for the sensitivity of consumption to transitory income jel eoo c63 c61 e21

wealth inequality and asset pricing in an arrow debreu exchange economy with identical agents except for their initial endowment we examine how wealth inequality affects the equilibrium level of the equity premium and the risk free rate we first show that wealth inequality raises the equity premium if and only if the inverse of absolute risk aversion is concave in wealth we then show that the equilibrium risk free rate is reduced by wealth inequality if the inverse of the coefficient of absolute prudence is concave we also prove that the combination of a small uninsurable background risk with wealth inequality biases asset pricing towards a larger equity premium and a smaller risk free rate the model of the representative consumer a la lucas 1978 failed to explain observed security prices more specifically as first stated by mehra and prescott 1985 the model predicts an equity premium that is too low and a risk free rate that is too high given the observed low variability of consumption growth a recent strand of the literature with papers by constantinides and duffie 1996 heaton and lucas 1996 and krusell and smith 1997 for example explores whether incomplete asset markets and heterogeneity among consumers can explain these puzzles constantinides and duffie 1996 in particular conclude that it is at least in principle possible to generate larger equity premia when such ingredients are introduced the aim of this paper is not to provide another explanation of the puzzles but rather to better understand the relationship between asset prices the heterogeneity of consumers wealth and the market incompleteness when markets are complete heterogeneous consumers are able to equalize their marginal rates of substitution across states and across time as shown by constantinides 1982 this implies that the equilibrium of the heterogeneous consumer economy can be duplicated by the equilibrium in a lucas economy with a representative agent this means that taking account of the heterogeneity in the population alone cannot explain why the representative agent model is rejected hansen and singleton 1982 this does not mean however that the distribution of wealth in the population for example has no effect on asset prices in general in order to understand this consider the departure from an egalitarian distribution of wealth by introducing a mean preserving transfer of endowment under decreasing absolute risk aversion poorer agents will be more risk averse whereas wealthier people will be less risk averse there is no reason a priori for that the group s attitude towards risk be unaffected by this transfer we first show that if absolute risk tolerance i e the inverse of the arrow pratt coefficient of absolute risk aversion is concave then the risk aversion of the agent with the mean wealth will be smaller than the risk aversion of the representative agent thus if an outside observer overlooks wealth inequality he consequently underestimates the aversion to risk of society this leads to

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

a micro econometric analysis of determinants of unsustainable consumption in the netherlands recently much attention has been given to the notion of sustainable consumption whereas environmental economics traditionally has focused environmental policy analysis on producers this new notion broadens the perspective to include environmental policies aimed at directly influencing consumer decisions regarding buying using and recycling products this could suggest policies that link not only to price incentives but also and especially to persuasive instruments such as education and information provision these policies might take into account certain characteristics of households such as lifestyle and family size this article presents a first econometric analysis of consumption in the context of environmental sustainability relationships between different types of household expenditures and a range of household characteristics are assessed based on a large micro data set of households for the netherlands use is made of various demand models and econometric techniques to adequately address theoretical and technical issues involved the article ends with a discussion of the implications of the results for environmental policy directed at stimulating sustainable consumption

do homeowners increase consumption after the last mortgage payment an alternative test of the permanent income hypothesis the maturity date of a mortgage loan marks the end of monthly mortgage payments for homeowners in the period after the last payment homeowners experience an increase in their disposable income our study interprets this event as an anticipated increase in income and tests whether households smooth consumption over the transition period as predicted by the rational expectation life cycle permanent income hypothesis we find households do not alter nondurable goods consumption in the period following the last mortgage payment instead they increase both financial savings and savings in durable goods such as house furnishings and entertainment equipment in the year of the last mortgage payment

consumer spending during unemployment positive and normative implications using de identified bank account data we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance ui benefits we use the high frequency response to a predictable income decline as a new test to distinguish between alternative consumption models the sensitivity of spending to income we document is inconsistent with rational models of liquidity constrained households but is consistent with behavioral models with present biased or myopic households depressed spending after exhaustion also implies that the consumption smoothing gains from extending ui benefits are four times larger than from raising ui benefit levels

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

expectations heterogeneous forecast errors and consumption micro evidence from the michigan consumer sentiment surveys the household data underlying the michigan index of consumer sentiment are used to test the rationality of consumer expectations and their usefulness in forecasting expenditure the results can be interpreted as characterizing the shocks that hit different types of households over time expectations are found to be biased and inefficient at least ex post people underestimated the disinflation of the early 1980s and the severity of recent business cycles people s forecast errors are also systematically correlated with their demographic characteristics in part because of time varying group level shocks further sentiment helps forecast consumption growth some of this rejection of the permanent income hypothesis is due to the systematic demographic components in forecast errors

excess sensitivity of high income consumers using new transaction data i find considerable deviations from consumption smoothing in response to large regular predetermined and salient payments from the alaska permanent fund on average the marginal propensity to consume mpc is 25 for nondurables and services within one quarter of the payments the mpc is heterogeneous monotonically increasing with income and the average is largely driven by high income households with substantial amounts of liquid assets who have mpcs above 50 the account level data and the properties of the payments rule out most previous explanations of excess sensitivity including buffer stock models and rational inattention how big are these mistakes using a sufficient statistics approach i show that the welfare loss from excess sensitivity depends on the mpc and the relative payment size as a fraction of income since the lump sum payments do not depend on income the two statistics are negatively correlated such that the welfare losses are similar across households and small less than 0 1 of wealth despite the large mpcs

common pool equities an arbitrage based non cooperative solution to the common pool resource problem abstract it is proposed that a new type of property right termed a common pool equity can solve the common pool resource problem this equity may be presented to any firm that extracts from the resource for a share in profits it is shown that a profit arbitrage condition ensures that the market and socially efficient solutions correspond whenever market power is absent the cost externalities are fully internalized

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

heterogeneous consumers and fiscal policy shocks this paper studies empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that are allowed to di er depending on their individual characteristics we use data from the consumption expenditure survey cex to estimate individual level impulse responses as well as multipliers for government spending the main empirical finding of this paper is that unexpected fiscal shocks have substantially different effects on consumers depending on their income and age levels in particular the wealthiest individuals tend to behave according to the predictions of standard rbc models whereas the poorest individuals tend to behave according to standard is lm non ricardian models most likely due to credit constraints furthermore government spending policy shocks tend to decrease consumption inequality forthcoming in journal of money credit and banking

the importance of business owners in assessing the size of precautionary savings abstract not properly accounting for differences between business owners and nonbusiness owners in studies of household wealth can lead to erroneous conclusions about the significance of different saving motives using data from the panel study of income dynamics from the 1980s and 1990s we show that within samples of both business owners and non business owners the amount of precautionary savings with respect to labor income risk is modest and accounts for less than 10 of total household wealth previous large estimates of the size of precautionary balances resulted from pooling these two groups together such pooling is inappropriate given that business owners face higher labor risk and accumulate more wealth than non business owners for reasons unrelated to precautionary motives

inefficiency of credible strategies in oligopolistic resource markets with uncertainty abstract the implications of different information patterns for firms in oligopolistic resource markets are considered the traditional open loop nash equilibrium with static information sets is one of many possible nash equilibria and is not suitable for stochastic environments when shocks to resource growth are serially uncorrelated there are no gains from conditioning the harvest on past stock levels and the feedback or credible nash equilibrium is the appropriate nash equilibrium concept this credible equilibrium assumes that firms have knowledge of current stocks of reserves which typically leads to more rapid extraction of the resource and possibly extinction since the open loop nash equilibrium is efficient when demand is iso elastic and extraction costs are zero it is clear that an increase in information can be detrimental to firms in the industry

fiscal policy and the current account are microstates different this article examines the empirical link between fiscal policy and the current account focusing on microstates defined as countries with a population of less than 2 million between 1970 and 2009 this article employs panel regression and panel vector autoregression pvar on 155 countries of which 42 are microstates panel regression results show that a percentage point improvement in the fiscal balance improves the current account balance by 0 4 percentage points of gross domestic product gdp the real effective exchange rate has no significant impact on the current account in microstates but the coefficient is significant in the global sample pvar results show that an increase in government consumption results in real exchange appreciation but the effect on the current account after an initial deterioration dies out quicker in microstates than in the global sample the result implies that fiscal policy has little effect on the current account in microstates beyond its direct impact on imports overa

small country size and returns to scale in manufacturing abstract this paper tests the hypothesis that small country size is associated with constraints relating to economies of scale in manufacturing the study adopts a production function approach utilizing data from 43 differently sized countries the results confirming the hypothesis lend empirical support to the presumption that small countries face serious disadvantages in terms of production cost per unit in their manufacturing sectors suggesting that such countries are as a result seriously disadvantaged in terms of international competitiveness in manufacturing trade

an open access fishery with rational expectations explain the evolution of the fish stock and the boat fleet as well as determine their equilibrium levels 2 while the changes in the fish stock are described by a biological rule entry and exit from the fishing industry are determined by how expectations are formed we examine a general model in which entry and exit are proportional to the present value of expected profits and compare two special cases of adaptive myopic expectations and rational expectations although both expectations mechanisms lead to the same equilibrium values they lead to different adjustment paths where expectations solely depend on current values myopic expectations it is well known that boats enter the fishery only when the fish stock is greater than its steady state stock 3 with rational expectations however boats may enter when the fish stock is much lower than its steady state value provided the boat fleet is sufficiently small this difference in adjustment is observable and in principle leads to an obvious test on how agents form expectations section 2 develops a general dynamic model for studying fisheries in section 3 we show that the model standardly used in the literature is equivalent to a myopic adaptive expectations model a rational expectations model is analyzed in section 4 the standard and rational expectations models are compared in section 5 section 6 illustrates this comparison using a simulation based on a schaefer model of the pacific halibut fishery section 7 presents the conclusions

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

the state and industrial strategy abstract the debate about the role of the state in promoting industrial growth in developing economies is reviewed we begin with the ideas of the early development economists of the 1950s and 1960s then take up two waves of neoclassical criticism respectively emphasizing the primacy of the market and the lack of autonomy and competence of the developmentalist state and sketch the elements of a countercritique the fact that all successfully developing economies apply industrial strategies incorporating institutional change is emphasized and boundary conditions and lessons from experience which delimit sensible strategic choices are pointed out

wealth shocks unemployment shocks and consumption in the wake of the great recession we use data from the 2009 internet survey of the health and retirement study to examine the consumption impact of wealth shocks and unemployment during the great recession in the us we find that many households experienced large capital losses in housing and in their financial portfolios and that a non trivial fraction of respondents have lost their job as a consequence of these shocks many households reduced substantially their expenditures we estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3 3 percentage points respectively in addition those who became unemployed reduced spending by 10 percent we also distinguish the effect of perceived transitory and permanent wealth shocks splitting the sample between households who think that the stock market is likely to recover in a year s time and those who don t in line with the predictions of standard models of intertemporal choice we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks

efficiency inducing tax for a common property oligopoly the author characterizes the markov perfect tax that induces a common property oligopoly to extract efficiently a nonrenewable resource for linear and isoelastic demand he provides closed form expressions of the unique specific tax industry profits may be higher or lower in the oligopoly with the tax relative to the competitive equilibrium with property rights for linear or isoelastic demand there exists no feasible open loop tax that induces efficient extraction in this case the policymaker gains no advantage from being able to make binding commitments copyright 1992 by royal economic society

high cost credit and consumption smoothing in this paper i show that high cost credit helps households smooth consumption following periods of temporary financial distress after experiencing distress that is extreme weather events i find that access to high cost payday lending mitigates declines in overall spending and nondurable goods spending generally the results are particularly concentrated among households with a higher propensity to use payday credit or that have limited alternatives lower income households households with less than a college degree and households with low levels of saving these results highlight the consumption smoothing role that high cost credit plays for households with limited access to other types of credit

a microeconometric comparison of household behavior between countries this article reviews the methodological issues associated with estimating and testing competitive markets with panel data and applies it to an important new arena international economics we investigate differences in housing consumption and male labor supply across households in germany and the united states with data from the german socio economic panel and the panel study of income dynamics observations are treated as equilibrium outcomes generated by a set of competitive markets that accommodate varying degrees of integration after controlling for differences in the sample populations and aggregate shocks we find that the estimated structural parameters are surprisingly similar across these two countries

paycheque receipt and the timing of consumption this article examines the consumption response to monthly paycheque receipt since the amount and arrival date of paycheques are known in advance the receipt of a paycheque does not coincide with the receipt of new information under the basic rational expectations life cycle permanent income hypothesis household consumption should not respond to paycheque arrival using data from the uk s family expenditure survey this article finds that household consumption is excessively sensitive to paycheque receipt the results cannot be explained by any underlying monthly expenditure fluctuations common to all households the presence of liquidity constraints as measured by wealth and age can account for the excess sensitivity results

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

credit card debt and consumption evidence from household level data this research investigates the relationship between credit card debt and consumption using household level data this is a departure from the previous studies which have used aggregate measures of consumption and general debt such as the debt service ratio or total revolving credit we use a detailed monthly survey of credit card use to impute credit card debt to respondents from the consumer expenditure survey sample in contrast to some earlier studies using aggregate data we find a negative relationship between debt and consumption growth our work shows that a 1000 increase in credit card debt results in a decrease in quarterly consumption growth of almost 2 investigations are also made into effects of debt within different age categories and into the impact of expected income growth on the debt consumption relationship

competitive versus efficient extraction of a common property resource the groundwater case abstract in this paper socially optimal and private extraction of a common property aquifer are compared open loop equilibrium and feedback equilibrium in linear strategies have been computed to characterize private extraction the use of these two equilibrium concepts allows us to distinguish between cost and strategic externalities as long as the open loop solution captures only the cost externality and the feedback solution captures both the results show that strategic behaviour increases the overexploitation of the aquifer compared to the open loop solution however if the groundwater storage capacity is large the difference between the socially optimal and private extraction the latter characterized by a feedback equilibrium is negligible

combining census and survey data to trace the spatial dimensions of poverty poverty maps provide information on the spatial distribution of living standards they are an important tool for policymakers who rely on them to allocate transfers and inform policy design poverty maps art also an important tool for researchers who use them to investigate the relationship between distribution within a country and growth or other economic environmental or social outcomes a major impediment to the development of poverty maps has been that needed data on income or consumption typically are available only from relatively small surveys census data have the required sample size but generally do not have the required information this article uses the case of ecuador to demonstrate how sample survey data can be combined with census data to yield predicted poverty rates for the population covered by the census these poverty rates are found to be precisely measured even at fairly disaggregated levels however beyond a certain level of spatial disaggregation standard errors rise rapidly

further evidence of excess sensitivity of consumption nonseparability among goods and heterogeneity across households the standard theoretical framework for analysing households intertemporal decisions is the life cycle permanent income model among its implications testing the model allows to analyse the response of consumption to fiscal policy however the empirical literature with microdata has yielded mixed results this article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households for that purpose we test a rational expectations permanent income model with household data drawn from the spanish family expenditure survey this survey contains detailed information on total expenditure and the income presents large exogenous quarterly changes due to an institutional feature the article shows that assuming separability among commodities biases the test against the model when separability is not imposed we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not for those

household choices in equilibrium this paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply it exploits a simple factor structure rationalized by two assumptions that household allocations are pareto optimal and that the labor market is competitive the paper estimates household preferences and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns most of the estimates are roughly comparable to those found in previous work no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected copyright 1990 by the econometric society

permanent income current income and consumption evidence from two panel data sets in this article i estimate euler equations that is the first order conditions of the consumers maximization problem using data from two data sets consumption data are taken from the consumer expenditure survey income data are taken from the panel study of income dynamics because the data for the estimation come from two samples i use a generalization of the instrumental variables estimator the two sample instrumental variables estimator i find evidence that consumption is excessively sensitive to predictable income growth the estimates of the coefficient of excess sensitivity for three consumption measures range from 2 to 5

the short run macroeconomic impact of foreign aid to small states an agnostic time series analysis abstract this paper investigates the short run macroeconomic impact of aid in small developing countries sdcs by using a vector auto regression var model to study the impact of aid on net import absorption and domestic demand spending we focus on average country effects within two country sub groups and find substantial differences between aid dependent sdcs and other sdcs that are more dependent on natural resources tourism or financial services in aid dependent sdcs aid absorption more or less equals spending although only half of the aid flow is absorbed and spent in the non aid dependent group aid does not seem to be absorbed or spent in any systematic fashion

appropriation of common access natural resources through exploration the relevance of the open loop concept in this paper the open loop equilibrium is rehabilitated as a sensible concept for analyzing common property situations in a model of natur al resource exploration in which the sole motivation to explore prior to extraction arises from a strategic incentive to preempt competito rs a consistency rule to the exploration game is applied under which the commonality of reserves is preserved even if strategies are open loop under this rule the so often claimed efficiency of the common property open loop equilibrium is lost copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

dynamic oligopoly with capacity adjustment costs abstract the literature on strategic investment emphasized the case of completely irreversible investment this paper considers an oligopoly model in which investment is reversible and capacity is subject to adjustment costs an n player linear quadratic differential game is analyzed existence and characterization results for perfect equilibrium feedback strategies are provided feedback strategies provide incentives for each player to invest strategically so as to preempt subsequent expansion by rivals a larger set of perfect equilibria is constructed by using memory dependent trigger strategies equilibria of this type are shown to support joint value maximization for some initial states and asymmetric steady states

estimating the economic return to schooling on the basis of panel data this paper is concerned with estimating the economic return to schooling of men in the netherlands an iv approach is adopted to estimate a panel data model with random individual effects the fact that older individuals have relatively less schooling than younger individuals is exploited to construct instruments and gnp per worker at the time an individual turned 16 is included to control for birth cohort effects the estimated return to schooling is about 15 ignoring the endogeneity of schooling results in a lower return to schooling ignoring birth cohort effects results in a lower return to work experience

college tuition and household savings and consumption abstract despite the high cost of college there has been little study of the adequacy of household savings and other resources available to fund college to gauge their adequacy this paper examines households standard of living as they pay for college using the consumer expenditure survey the main finding is that households appear to do a relatively good job smoothing their consumption into the academic year despite large expenses this is consistent with the life cycle theory of saving and consumption there is some evidence of a delayed decline in consumption and of a decline for households with children first beginning college but the magnitudes of these declines are rather small

new evidence on excess sensitivity of household consumption the monthly salaries and allowances of korean government employees are known in advance but vary greatly throughout the year using a korean monthly panel data set the present study examines how nondurable consumption expenditures in households headed by government employees respond to predictable income changes the study finds a moderate excess sensitivity in consumption that can be attributed to about 9 of the households further analysis shows that these 9 of the households have lower committed expenditures and are likely inattentive consumers

oligopoly extraction of a common property natural resource the importance of the period of commitment in dynamic games the theory of noncooperative dynamic games has provided an extremely powerful framework for studying many of the classic questions in industrial organization for example questions about resource extraction advertising research and development investment in new capacity and barriers to entry where interactions over time among few firms are involved however an important methodological issue arises when economic competition over time is modeled as a dynamic game the issue is the appropriate formulation of the players strategy spaces

some consequences of giantism the case of india the consequences of giantism on india are discussed in terms of management of the economic system decentralization and markets human resource dimensions such as personnel training and the international sphere of trade governance and foreign aid the indian case supports the notion that population size leads to large economies which are cumbersome and function with hierarchical systems and that size handicaps effective functioning managers have limited horizontal reach or span of control over subordinates there are more virtical chains of command the population ends of delivery systems are larger than in smaller countries additional layering in the hierarchy is not trivial addition it impedes operational communications hence operations themselves adding a 10th or 11th bureaucratic level in moving from a country of 8 million to 800 million is not an arithmetic increase in but an exponential increase in distortions delays and misunderstandings the coping mechanisms available are to speed up management decision making by delegation of political and administrative decision making downward hierarchically and sideways sometimes labor saving devices such as self adjusting servomechanisms generate socially acceptable decisions without continuing day to day intervention by officials pluralism and policy experimentation in general may be encouraged growth and productive efficiency can be enhanced by greater reliance on well framed markets to lead the ordering of economic decisions internal competition must not supercede the importance of export trade which supports the imports of technology and goods there is an association of poverty with a low propensity for trading an advantage of large numbers is the enormous pool of talent from which to draw the top leaders the training of elites and professional cadres is facilitated the quality of training is a function of the size of the centers and their programs a critical mass of professionals is easily reached and brain drain is not a problem such as in bangladesh big countries have diminished representation in multilateral councils and bilateral development assistance is apportioned with less per capita aid to larger countries regional development banks have more agreeable arrangements

aggressive oil extraction and precautionary saving coping with volatility the effects of stochastic oil demand on optimal oil extraction paths and tax spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic without prudence optimal oil extraction is governed by the hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle volatile oil demand brings forward oil extraction and induces a bigger government surplus with prudence the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward especially if it has substantial monopoly power on the oil market gives high priority to the public spending target is very prudent and future oil demand has high variance uncertain economic prospects induce even higher precautionary saving and if non oil revenue shocks and oil revenue shocks are positively correlated even more aggressive oil extraction in contrast prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving but less so if uncertainty about reserves and oil demand are positively correlated

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth

optimality and consistency in a differential game with non renewable resources abstract imperfect competition amongst buyers for a non renewable resource is modeled as a stackelberg differential game the buyers may act as a cartel or behave non cooperatively in setting tariffs which the sellers take as given the buyer s optimal policy is not consistent when extraction costs depend on the stock level both optimal and consistent unit and ad valorem tariff s are analyzed when a buyers cartel uses a consistent tariff the sellers may prefer to behave as perfect competitors or a monopolist depending on the functional form of demand and cost non cooperative buyers who are constrained to act consistently are unable to extract any rent from competitive sellers