consumption and children abstract consumption by couples rises sharply in the beginning and falls later in life the causes of the early rise are hotly contested among the suggestions are rule of thumb behavior demographics liquidity constraints the precautionary motive and nonseparabilities between consumption and labor supply we develop two tests of the extreme hypothesis that only changes in family structure matter we estimate effects of the numbers and ages of children on consumption these estimates allow us to rationalize all of the increase in consumption without recourse to any of the causal mechanisms our estimates can be interpreted either as giving upper bounds on the effects of children or as evidence that the other causes are not important

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

portfolio choice and liquidity constraints we study the infinite horizon model of household portfolio choice under liquidity constraints and revisit the portfolio specialization puzzle we show why the puzzle is robust to several model variations and argue that positive correlation between earnings shocks and stock returns is unlikely to provide an empirically plausible resolution we find that relatively small fixed costs for stock market entry are sufficient to deter stockholding because for a plausible range of parameter values households can achieve desired consumption smoothing with small or zero holdings of stocks such costs could arise from informational considerations sign up fees and investor inertia

marriage and other risky assets a portfolio approach we study the joint impact of gender and marital status on financial decisions first we test the hypothesis that marriage represents in a portfolio framework a sort of safe asset and that this effect is stronger for women controlling for a number of observable characteristics we show that single women have a lower propensity to invest in risky assets than married females and males second we show that the differential behavior of single women evolves over time reflecting the increasing incidence of divorce and the expansion of female labor market participation in particular towards the end of our sample period we observe a reduction in the gap between women with different family status which can be attributed to the gradual erosion of the perception of marriage as a sort of safe asset our results therefore suggest that the differential behavior of single vs married women can be explained by the evolution of gender roles in society even after controlling for differential risk attitudes our empirical investigation is based on a dataset drawn from the 1989 2006 bank of italy survey of household income and wealth

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

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

structural estimation of stock market participation costs abstract this paper develops and estimates a dynamic model of stock market participation where consumers decisions regarding stock market participation are influenced by participation costs the practical significance of the participation costs is considered as being a channel through which financial education programs can affect consumers investment decisions using household data from the panel study of income dynamics i estimate the magnitude of the participation cost allowing for individual heterogeneity in it the results show the average stock market participation cost is about 4 6 of labor income however it varies substantially over consumers life the model successfully predicts the level of the observed participation rate and the increasing pattern of stock market participation over the consumers life cycle

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

a model of stochastic variety seeking in this paper we propose and test a stochastic model of consumer choice that incorporates attribute based variety seeking our stochastic variety seeking model svs has nested within it a fixed variety seeking model a zero order model of choice and a first order pure variety model we compare the svs model to alternative models under stochastic variety seeking we examine the nature of the variety sought and provide a test of the satiation hypothesis unlike fixed variety seeking models our model allows variety seeking to vary in intensity and consistency over individuals as well as over purchase occasions we show that the model is equivalent to a random utility model with the features that the attributes of brands relative to those of the brand previously bought influence choice and the extent of variety seeking is random over choice occasions for a given individual the model permits a closed form solution to the conditional switching probabilities parameterized by variety seeking parameters and dependent on brand attributes we apply our model to individual choice data obtained from a field study specifically designed for the purpose at hand

optimal portfolio choice for long horizon investors with nontradable labor income this paper examines how risky labor income and retirement affect optimal portfolio choice with idiosyncratic labor income risk the optimal allocation to stocks is unambiguously larger for employed investors than for retired investors consistent with the typical recommendations of investment advisors increasing idiosyncratic labor income risk raises investors willingness to save and reduces their stock portfolio allocation towards the level of retired investors positive correlation between labor income and stock returns has a further negative effect and can actually reduce stockholdings below the level of retired investors financial advisors typically recommend that their customers invest more in stocks than in safe assets when they are working and to shift their investments towards safe assets when they retire jagannathan and kocherlakota 1996 malkiel 1996 by contrast the standard academic models of portfolio choice merton 1969 1971 samuelson 1969 show that retirement is irrelevant for portfolio decisions if investment opportunities are constant and human capital is tradable in this case the fraction of wealth optimally invested in risky assets should be constant over the lifetime of an individual recent research building on the pioneering work by merton 1971 shows that time varying investment opportunities result in portfolio rules with an intertemporal hedging component whose magnitude depends on the investment horizon of the investor kim and omberg 1996 balduzzi and lynch 1997 brennan schwartz and lagnado 1997 brandt 1999 campbell and viceira 1999 2001 barberis 2000 with time variation in investment opportunities retirement and death play an instrumental role as events that exogenously fix the individual s investment horizon more importantly retirement also marks the time at which individuals stop working and thereafter must live off their lifetime savings and possibly transfers from this perspective retirement matters for portfolio choice

portfolio choice in the presence of background risk in this paper we focus on how the presence of background risks from sources such as labour and entrepreneurial income influences portfolio allocations this interaction is explored in a theoretical model that is calibrated using cross sectional data from a variety of sources the model is shown to be consistent with some but not all aspects of cross sectional observations of portfolio holdings the paper also provides a survey of the extensive theoretical and empirical literature on portfolio choice

institutions and agricultural productivity in sub saharan africa agricultural productivity in 41 sub saharan africa ssa countries from 1960 to 1999 is examined by estimating a semi nonparametric fourier production frontier over the four decades the estimated rate of productivity change was 0 83 per year although the average rate from 1985 99 was a strong 1 90 per year former uk colonies exhibited significantly higher productivity gains than others while liberia and countries that had been colonies of portugal or belgium exhibited net reductions in productivity we measure a significant reduction in productivity during political conflicts and wars and a significant increase in productivity among those countries with higher levels of political rights and civil liberties

wealth inequality and intergenerational links previous work has had difficulty generating household saving behaviour that makes the distribution of wealth much more concentrated than that of labour earnings and that makes the richest households hold onto large amounts of wealth even during very old age i construct a quantitative general equilibrium overlapping generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability i show that voluntary bequests can explain the emergence of large estates while accidental bequests alone cannot and that adding earnings persistence within families increases wealth concentration even more i also show that the introduction of a bequest motive generates lifetime savings profiles more consistent with the data

the impact of divorce laws on marriage specific capital this article considers how divorce law alters the incentives for couples to invest in their marriage focusing on the impact of unilateral divorce laws on investments in new marriages differences across states between 1970 and 1980 provide useful quasi experimental variation with which to consider incentives to invest in several types of marriagespecific capital spouse s education children household specialization and home ownership i find that adoption of unilateral divorce regardless of the prevailing property division laws reduces investment in all types of marriage specific capital considered except home ownership in contrast results for home ownership depend on the underlying property division laws

conceptual and functional form issues in estimating demand elasticities for food in estimating demand elasticities for food we must choose a functional form for the statistical model because this choice can have untoward consequences for the user king we seek a form which does not impose undue restrictions on the estimated demand elasticities statistically we seek a functional form which gives close approximations to the elasticities of interest in this connection gallant 1981 1982 points out that the key consideration is the method of approximation there are two taylor s series and fourier series methods the problem with taylor s theorem is that it applies only locally on a region of unspecified size this method can yield testable implications of the theory at the point of approximation but this point is in general unknown and may not even be in the range of the data caves and christensen white moreover the approximation error from taylor s series can be large for small departures from the unspecified point of expansion white in short there is nd guarantee that taylor s theorem will give close approximations at any point in the sample gallant 1981 thus there is no assurance that even the recently popularized locally flexible functional forms translog generalized leontief almost ideal demand system will give close approximations to the true demand system

decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets we construct two models of the behavior of consumers in an environment where there is uncertainty about brand attributes in our models both usage experience and advertising exposure give consumers noisy signals about brand attributes consumers use these signals to update their expectations of brand attributes in a bayesian manner the two models are 1 a dynamic model with immediate utility maximization and 2 a dynamic forward looking model in which consumers maximize the expected present value of utility over a planning horizon given this theoretical framework we derive from the bayesian learning framework how brand choice probabilities depend on past usage experience and advertising exposures we then form likelihood functions for the models and estimate them on nielsen scanner data for detergent we find that the functional forms for experience and advertising effects that we derive from the bayesian learning framework fit the data very well relative to flexible ad hoc functional forms such as exponential smoothing and also perform better at out of sample prediction another finding is that in the context of consumer learning of product attributes although the forward looking model fits the data statistically better at conventional significance levels both models produce similar parameter estimates and policy implications our estimates indicate that consumers are risk averse with respect to variation in brand attributes which discourages them from buying unfamiliar brands using the estimated behavioral models we perform various scenario evaluations to find how changes in marketing strategy affect brand choice both in the short and long run a key finding obtained from the policy experiments is that advertising intensity has only weak short run effects but a strong cumulative effect in the long run the substantive content of the paper is potentially of interest to academics in marketing economics and decision sciences as well as product managers marketing research managers and analysts interested in studying the effectiveness of marketing mix strategies our paper will be of particular interest to those interested in the long run effects of advertising note that our estimation strategy requires us to specify explicit behavioral models of consumer choice behavior derive the implied relationships among choice probabilities past purchases and marketing mix variables and then estimate the behavioral parameters of each model such an estimation strategy is referred to as structural estimation and econometric models that are based explicitly on the consumer s maximization problem and whose parameters are parameters of the consumers utility functions or of their constraints are referred to as structural models a key benefit of the structural approach is its potential usefulness for policy evaluation the parameters of structural models are invariant to policy that is they do not change due to a change in the policy in contrast the parameters of reduced form brand choice models are in general functions of marketing strategy variables e g consumer response to price may depend on pricing policy as a result the predictions of reduced form models for the outcomes of policy experiments may be unreliable because in making the prediction one must assume that the model parameters are unaffected by the policy change since the agents in our models choose among many alternative brands their choice probabilities take the form of higher order integrals we employ monte carlo methods to approximate these integrals and estimate our models using simulated maximum likelihood estimation of the dynamic forward looking model also requires that a dynamic programming problem be solved in order to form the likelihood function for this we use a new approximation method based on simulation and interpolation techniques these estimation techniques may be of interest to researchers and policy makers in many fields where dynamic choice among discrete alternatives is important such as marketing decision sciences labor and health economics and industrial organization

the saving behaviour of a two person household the facts that wives are typically younger than their husbands and that women typically live longer than men imply that wives may have more incentive to save for old age than do husbands a theoretical model of the determination of household saving and portfolio choice is introduced which takes into account differences in preferences for saving the most important result is that the level and the composition portfolio of saving and the time path of consumption are dependent on the distribution of income within the household women typically live longer than men and wives are typically younger than their husbands these two facts imply that preferences about saving for old age in married households with forward looking members may differ between husband and wife this paper presents a theoretical analysis of saving and portfolio behaviour if the members of the household have differ ent preferences over future consumption as compared to current consump tion the analysis stands in contrast to unitary models of household intertemporal allocation which assume that the household has a single utility function thus this paper is a contribution in a novel context to the burgeoning literature on intra household decision making the base case analysis is for a simple two person husband and wife1 two period model in which there is only one asset saving it is assumed that because of the two facts given at the start of the introductory paragraph the husband discounts the future more than the wife in section ii the implications of a non cooperative decision making process for the base case are derived see ulph 1988 for a non cooperative model of demand and

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

portfolio choices for homeowners abstract in this paper i show that introducing frictions associated with housing into standard life cycle models can partially resolve the portfolio choice puzzle i calibrate a model in which a representative household endogenously transits from renting to mortgage financed homeownership the household can later adjust housing status either voluntarily or because of a forced move by paying transaction costs it is shown that homeownership crowds out stock market participation risky owner occupied housing substitutes for stocks while bonds provide liquidity young and middle aged households regardless of whether they are currently homeowners hold much less stock than predicted by traditional models without housing

marriage squeeze marriage age and the household savings rate in china abstract recent influential papers claim that single men s saving competition for marriage intensified by an increase in the male to female ratio in the pre marital cohort explains 60 percent of the rise of china s aggregate household savings rate in this paper we analyze whether the marriage competition remains a first order effect on saving when another margin of adjustment to sex ratio imbalance men s postponement of marriage is considered we construct a theoretical and quantitative life cycle model with a frictionless marriage market where a single man s rank is determined by his wealth and age by calibration we find that with the option to postpone marriage the response of the aggregate savings rate to the rising sex ratio is dampened by 45 percent moreover the model generates an unusual downward sloping age savings rate profile with young households saving more than their middle aged counterparts as observed in the data

household investment decisions and offspring gender parental accounting numerous behavioural factors have been identified as having an impact on household stockholding decisions given there is both theoretical and empirical evidence to support the premise that offspring gender can influence specific types of parental preferences i test the theory that offspring gender has an effect on parental investment decision making i find that offspring gender does influence household stock market participation specifically i find that having only female offspring can significantly increase the probability of stockholding given stockholding can have large effects on household wealth levels and that family wealth levels affect intergenerational transfers this finding could have important implications for understanding distributional welfare issues

the effects of marital status and children on savings and portfolio choice this paper investigates the impact of demographic shocks on optimal decisions about saving life insurance and most centrally asset allocation we analyze these choices within the framework of a life cycle model that features exogenous changes in family composition heterogeneity in lifetime income and uninsurable fluctuations in earnings and medical costs our analysis indicates that marital status transitions and children can have important effects on optimal household decisions widowhood induces sharp reductions in the portfolio shares in stock and the impact is largest for women and individuals with children divorce causes men and women to reallocate their portfolios in different directions men choose much riskier allocations while women opt for safer ones children play a fundamental role in the optimal portfolio decisions men with children for example increase their shares in response to divorce by less than half as much as men without children comparing our simulation results with panel data evidence on stockholding from the psid and the hrs we conclude that changes in marital status and children matter empirically as well but not always in the ways that the model predicts

household demand for convenience and nonconvenience foods states the budget shares are generally more responsive to prices than to real total expenditure additionally the quantities demanded of convenience and nonconvenience foods are generally more sensitive to changes in income and own prices than to changes in cross prices with regard to demographic variates primary users of convenience foods are white households with employed household managers less than 35 years of age

household formation female labor supply and savings in this paper we aim to quantify the impact of changing family structures on labor supply and savings in western societies our dynamic general equilibrium model features both genders and it takes into account changes in marital status as a stochastic process the numerical results indicate that changes in household formation can partly explain the reallocation of male and female labor supply observed during the last decades in germany we also find a negative impact on capital accumulation and we show that a combination of higher marital risk and a narrowing gender wage gap can explain the changes in hours ratios between single and married men and women

divorce risk wages and working wives a quantitative life cycle analysis of female labour force participation this article develops a quantitative life cycle model to study the increase in married women s labour force participation lfp we calibrate the model to match key life cycle statistics for the 1935 cohort and use it to assess the changed environment faced by the 1955 cohort we find that a higher divorce probability and changes in wage structure are each able to explain a large proportion of the lfp increase higher divorce risk increases lfp not because the latter contributes to higher marital assets or greater labour market experience however instead it is the result of conflicting spousal preferences towards the adjustment of marital consumption in the face of increased divorce risk the dramatic increase in the second half of the twentieth century in married women s labour force participation lfp has given rise to a large and growing literature that explores the roles of the multiple forces that led to this evolution some explanations have emphasised technological change in the household greenwood et al 2005 or in medical contraceptive technology goldin and katz 2002 albanesi and olivetti 2009a b knowles 2007 other explanations have emphasised changes in the wage

modeling consumer demand for variety consumers are often observed to purchase more than one variety of a product on a given shopping trip the simultaneous demand for varieties is observed not only for packaged goods such as yogurt or soft drinks but in many other product categories such as movies music compact disks and apparel multinomial mn choice models cannot be applied to data exhibiting the simultaneous choice of more than one variety the random utility interpretation of either the mn logit or probit model uses a linear utility specification that cannot accommodate interior solutions with more than one variety alternative chosen to analyze data with multiple varieties chosen requires a nonstandard utility specification standard demand models in the economics literature exhibit only interior solutions we propose a demand model based on a translated additive utility structure the model nests the linear utility structure while allowing for the possibility of a mixture of corner and interior solutions where more than one but not all varieties are selected we use a random utility specification in which the unobservable portion of marginal utility follows a log normal distribution the distribution of quantity demanded the basis of the likelihood function is derived from these log normal random utility errors the likelihood function for this class of models with mixtures of corner and interior solutions is a mixed distribution with both a continuous density portion and probability mass points for the corners the probability mass points must be calculated by integrals of the log normal errors over rectangular regions we evaluate these high dimensional integrals using the ghk approximation we employ a bayesian hierarchical model allowing household specific utility parameters our utility specification related to the approach of wales and woodland 1983 who employ a translated quadratic utility function wales and woodland were only able to study at the most three varieties because there was no practical way to evaluate the utility function at that time in addition the quadratic utility specification is not a globally valid utility function making welfare computations and policy experiments questionable hendel 1999 and dube 1999 present an alternative approach in the utility function which is constructed by summing up over unobservable consumption occasions while only one variety is consumed on each occasion the marginal utilities of varieties change over the consumption occasions giving rise to a simultaneous purchase of multiple varieties our bayesian inference approach allows us to obtain individual household estimates of utility parameters household utility estimates are used to compute the value of each variety we compute a compensating value for the removal of each flavor that is we compute the monetary equivalent of the household s loss in utility from removal of a flavor these calculations show that households highly value popular flavors and would incur substantial utility losses from removal of these flavors from the yogurt assortment next we consider the implications of our model for retailer assortment and pricing policies given limited shelf space only a subset of the possible varieties can be displayed for purchase at any one time if consumers value variety then a retailer with lower variety must compensate the consumers in some way such as a lower price level we see this trade off between price and variety across different retailing formats discount or warehouse format retailers often have both lower variety and lower prices to measure this trade off we explore the utility loss from reduction in variety and find the reductions in price that will compensate for this utility loss these price reduction calculations must be based on a valid utility structure heterogeneity in tastes is critical in these utility computations and policy experiments we find that a relatively small fraction of households with extreme preferences dominate the compensating value computations that is some households are observed to purchase mostly or exclusively one variety these households must be heavily compensated for the removal of this variety from the assortment in some retailing contexts customization of the assortment is possible at the customer level we show that such customization virtually eliminates any utility loss from reduction in variety

limited stock market participation among renters and homeowners the stock market participation rate among homeowners is twice as high as among renters this paper builds a life cycle portfolio choice model with endogenous housing tenure choice a stylized form

demand for beef and chicken products separability and structural change several studies have indicated that the recent shift from beef to poultry in consumption is not entirely caused by changes in rela tive prices or income braschler chavas dahlgran hudson and vertin moschini and meilke frank thurman most studies of structural change have focused on red meat consumption only thurman has looked closely at the poultry market and no one has considered poultry products yet the mix of chicken products marketed changed dramat ically during the last twenty years and should have influenced aggregate meat demand the share of broiler slaughter marketed as whole birds declined from 74 in 1965 to 28 in 1985 while cut up parts and processed chick en products increased from 26 to 72 whole birds are inferior goods and cut up parts and processed chicken are normal goods haidacher et al the shift in chicken prod uct mix away from whole birds should have increased the preference for total chicken in this article two related questions are ad dressed first do consumers allocate expendi tures among meats by animal origin or by product type second does disaggregation of meat into products in a meat demand model give insight into the causes of structural

applying theil s multinomial extension of the linear logit model to meat expenditure data one of the chief drawbacks of the multinomial extension of the linear logit model is that after the standard linearization the parameters which are directly estimated have no obvious economic meaning this paper presents alternative transformations which facilitate interpretation in one linearization the estimated coefficients will be elasticities at a selected data point such as the mean in another form the coefficients will be slutsky parameters the latter version is chosen for an empirical analysis of the demand for meat in great britain a number of issues concerning the model s error structure and dynamic specification are discussed

portfolio choice and trading in a large 401 k plan we study nearly 7 000 retirement accounts during the april 1994 august 1998 period several interesting patterns emerge most asset allocations are extreme either 100 percent or zero percent in equities and there is inertia in asset allocations equity allocations are higher for males married investors and for investors with higher earnings and more seniority on the job equity allocations are lower for older investors there is very limited portfolio reshuffling in sharp contrast to discount brokerage accounts daily changes in equity allocations correlate only weakly with same day equity returns and do not correlate with future equity returns

life cycle asset allocation with annuity markets abstract this paper derives the optimal consumption and portfolio choice pattern over the life cycle for households facing uninsurable labor income risk ruin risk stochastic capital markets and uncertain lifetime our model posits a dynamic utility maximizer with crra and epstein zin preferences who has access to liquid stocks bonds and illiquid life annuities we show that a considerable fraction of wealth is gradually annuitized until retirement and beyond to skim the mortality credit the remaining liquid wealth is mainly invested in stocks to compensate for riskless investment in life annuities the model allows us to assess the economic importance of common explanations for the empirically low annuity demand by analyzing participations rates annuitization fractions and welfare effects

are americans saving optimally for retirement we solve each household s optimal saving decisions using a life cycle model that incorporates uncertain lifetimes uninsurable earnings and medical expenses progressive taxation government transfers and pension and social security benefits with optimal decision rules we compare household by household wealth predictions from the life cycle model using a nationally representative sample we find making use of household specific earnings histories that the model accounts for more than 80 percent of the 1992 cross sectional variation in wealth fewer than 20 percent of households have less wealth than their optimal targets and the wealth deficit of those who are undersaving is generally small

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

separability in farm household economics an experiment with linear programming abstract the assumption of separability between farm household production and consumption facilitates analysis but entails several important restrictions the implications of assuming separability are discussed here in relation to the modelling of a representative tongan farm household econometric estimation of household demand is coupled with a linear programming lp model of farm household production when analysing consumer demand separable farm household economics is undoubtedly preferable to ignoring the production consumption linkages entirely however the restrictions which must be imposed on the production side of the separable model are such that a realistic lp solution is unlikely to be obtained this is likely to be a major deterrent to adopting the separable approach for studies in which the main focus is on production rather than consumption

precautionary saving a review of the empirical literature standard macroeconomic models show that uncertainty plays a significant role in consumption and saving decisions under rather mild conditions namely the convexity of the marginal utility of consumption increased uncertainty generates a positive extra saving the so called precautionary saving although this hypothesis has been tested by a large number of authors both at macro and micro level the empirical results are not conclusive and the main conclusion than can be drawn is that there is neither consensus on the intensity of that motive for saving nor on the most appropriate measure of uncertainty this paper provides a comprehensive review of the empirical literature discussing the main controversial issues and the different approaches followed by the studies addressing empirically the test of precautionary saving

housing decision with divorce risk we build a realistically calibrated life cycle model of housing decisions under divorce risk as observed in the data our model predicts the recent increase in divorce rates leads to reduced homeownership rates the event of a divorce negatively affects homeownership and this effect is long lasting the risk of a divorce triggers a precautionary savings motive however this motive is weaker when individuals can invest in owner occupied homes because homeowners higher savings partially substitute for precautionary savings when young the larger asset accumulation due to divorce risk induced precautionary savings enables households to buy homes earlier whereas the presence of transaction costs leads to reduced homeownership for middle aged and older households when divorce risk goes up

homogeneity and supply supply functions in the ubiquitous gorman class are examined for their homogeneity properties homogeneity places surprisingly strong restrictions on functional forms these forms facilitate testing of aggregability given homogeneity or homogeneity given aggregability or testing both

the poultry market demand stability and industry structure the stability of the demand for poultry meat and specification issues in its estimation are explored the analysis concludes that the demand for poultry meat shifted out in the early 1970s at the same time the demand relationship between poultry and pork changed from substitution to independence a second conclusion is that poultry price is predetermined for demand in annual u s data while quantity is not a predetermined price suggests several market structures exogeneity tests are performed to distinguish among them the results are consistent with a competitive constant returns to scale industry facing elastic factor supplies

estimating multiple discrete choice models an application to computerization returns buyers in many markets face multiple discrete choices they can purchase multiple units as well as multiple brands at the same time this paper presents a multiple discrete choice model for the analysis of differentiated products demand users maximize profits by choosing the number of units of each brand they purchase i estimate the model using micro level data on the demand for personal computers i use the estimated demand structure to assess the welfare gains from computerization and technological innovation in peripherals the estimated return on investment in personal computers is 92 moreover a 10 increase in the performance to price ratio of microprocessors leads to a 2 2 gain in the estimated user surplus the personal computer pc market is of interest to industrial organization economists because of its size the continual technological change and above all because of the farreaching implications of pcs on the economy as a whole several distinct features make pc demand difficult to model pcs are a differentiated durable good in constant technological evolution moreover buyers make multiple discrete choices firms according to our data spread their purchases of pcs over different brands at the same time they buy pcs in blocks several units of each brand that they have chosen the aim of the paper is to present a model that captures these features and to use this model to estimate the welfare gains from computerization classical discrete choice models allow one choice among mutually exclusive alternatives in contrast the proposed framework allows users to demand multiple units and multiple brands the model can be applied to other cases of multiple discrete choices e g the composition of airline fleets car holdings per household the fields of the faculty in economics departments household cereals consumption or any other good consumed in more than one variety during a relevant time period although pervasive multiple discrete choice problems have received little attention because of their complexity a central issue regarding the pc market is the current controversy in the economics literature about the computerization puzzle this puzzle stems from the empirical finding that computerization has had no effect on firm productivity griliches and siegel 1991 and morrison and berndt 1990 contrary to those results hendel 1994 and lichtenberg 1995 using more disaggregate data than most previous studies report excess returns to computerization this indicates that data aggregation may have created the computerization puzzle in this paper i present a model consistent with the basic

on the choice offunctional forms in agricultural production analysis empirical results obtained by an analyst may depend on prior choice of functional form three alternative parametric specifications of the cost function are considered these are generalized leontief translog and normalized quadratic functions performance of these functional forms is evaluated by allen elasticities of substitution biases in technical change and some theory based hypotheses all three parametric specifications yielded mixed results together empirical results reinforce the need for model specification searches

a dynamic analysis of market structure based on panel data internal market structure analysis infers brand positions in an attribute space from preference and choice data given a market in which consumers have heterogeneous tastes for attributes previous market structure models have adopted a static framework e g elrod 1988 chintagunta 1994 elrod and keane 1995 furthermore they assumed that consumer perceptions of brand attributes do not vary across consumers yet these approaches may render inaccurate representations of market structure if there is state dependence in consumer choice behavior this paper attempts to incorporate consumer choice dynamics into market structure models by specifying the source of choice dynamics explicitly in particular the process by which past purchases affect current choices is modeled in a framework which captures both consumer habit persistence and variety seeking behavior more specifically consumer preferences for brand attributes are modeled to depend on the attributes of brands bought on the previous purchase occasion furthermore the modeling approach adopted incorporates heterogeneity in both consumer preferences and perceptions of brand attributes the audience of this paper includes practitioners and academics interested in understanding consumer choice processes and inferring market structure from consumer choice data the proposed models are estimated on nielsen scanner panel data for margarine peanut butter yogurt and liquid detergent using simulated maximum likelihood techniques the empirical results suggest that accounting for choice dynamics improves both in sample and out of sample fit the results indicate that the average consumer is habit persistent in all the product categories studied this result is consistent with the findings of kannan and sanchez 1994 who conducted an aggregate analysis of consumer variety seeking behavior across product categories however the results obtained in this paper suggest that consumers are heterogeneous with respect to the processes by which past purchases affect current purchases these results provide strong evidence for habit persistence and variety seeking in brand attributes to be the behavioral source of consumer choice dynamics in food categories thus consumer tastes utility weights seem to be affected by the attributes of the brands consumed in the past given the empirical result that a large proportion of consumers are habit persistent this suggests that tastes are reinforced by the brand attributes consumed in the past the empirical results also show that not accounting for state dependence in market structure models for panel data may produce misleading results that is depending on consumer behavior patterns models that do not account for state dependence may distort the true nature of competition among brands more specifically the results confirm the expectation that if there is habit persistence that is if consumer tastes are reinforced by attributes of brands consumed in the past models that do not capture this choice dynamics will overestimate the distance between similar brands furthermore the policy experiments conducted suggest that 1 static models overestimate the short run impact of a price cut on the sales of the brand on promotion 2 price cuts hurt the sales of the more similar brands more and 3 free samples affect relatively less similar brands the most finally this paper studies variety seeking and habit persistence across brands over purchase occasions however variety seeking behavior may also involve the purchase of a portfolio of brands or items at a purchase occasion consumers may buy multiple items knowing that prior to the next trip they may want to consume different items simanson 1990 walsh 1995 this type of behavior can be modeled within the context of dynamic expected utility maximization with forward looking consumers the development and estimation of market structure models that include forward looking consumers who maximize expected utility over a planning horizon incorporating their future tastes and needs and shopping for an inventory of brands remain an important future research issue

life cycle portfolio choice with liquid and illiquid financial assets abstract traditionally quantitative models that have studied households portfolio choices have focused exclusively on the different risk properties of alternative financial assets we introduce differences in liquidity across assets in the standard life cycle model of portfolio choice more precisely in our model stocks are subject to transaction costs as considered in recent macroliterature we show that when these costs are calibrated to match the observed infrequency of households trading the model is able to generate patterns of portfolio stock allocation over age and wealth that are constant or moderately increasing thus more in line with the existing empirical evidence

how family status and social security claiming options shape optimal life cycle portfolios we show how optimal household decisions regarding work retirement saving portfolio allocations and life insurance are shaped by the complex financial options embedded in u s social security rules and uncertain family transitions our life cycle model predicts sharp consumption drops on retirement an age 62 peak in claiming rates and earlier claiming by wives versus husbands and single women moreover life insurance is mainly purchased on men s lives our model which takes social security rules seriously generates wealth and retirement outcomes that are more consistent with the data in contrast to earlier and less realistic models

time is money rational life cycle inertia and the delegation of investment management abstract many households display inertia in investment management over their life cycles our calibrated dynamic life cycle portfolio choice model can account for such an apparently irrational outcome by incorporating the fact that investors must forgo acquiring job specific skills when they spend time managing their money and their efficiency in financial decision making varies with age resulting inertia patterns mesh well with findings from prior studies and our own empirical results from panel study of income dynamics psid data we also analyze how people optimally choose between actively managing their assets versus delegating the task to financial advisors delegation proves valuable to both the young and the old our calibrated model quantifies welfare gains from including investment time and money costs as well as delegation in a life cycle setting

wealth inequality and altruistic bequests this paper examines the role of bequests and inter vivos gifts in the u s economy considering their importance in determining i the economy s aggregate capital stock ii the distribution of private net worth and iii public policy outcomes and options it focuses on several recent calibrated simulations this abstract was borrowed from another version of this item

putting the pension back in 401 k retirement plans optimal versus default deferred longevity income annuities abstract the us treasury recently permitted deferred longevity income annuities to be included in pension plan menus as a default payout solution yet little research has investigated whether more people should convert some of the 18 trillion they hold in employer based defined contribution plans into lifelong income streams we investigate this innovation using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations our welfare analysis shows that defaulting a modest portion of retirees 401 k assets over a threshold is an attractive way to enhance retirement security enhancing welfare by up to 20 of retiree plan accruals

nature or nurture what determines investor behavior abstract using data on identical and fraternal twins complete financial portfolios we decompose the cross sectional variation in investor behavior we find that a genetic factor explains about one third of the variance in stock market participation and asset allocation family environment has an effect on the behavior of young individuals but this effect is not long lasting and disappears as an individual gains experience frequent contact among twins results in similar investment behavior beyond a genetic factor twins who grew up in different environments still display similar investment behavior our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs we attribute the genetic component of asset allocation the relative amount invested in equities and the portfolio volatility to genetic variation in risk preferences

the gender effect in risky asset holdings abstract we study the relation between gender and stock holdings in finland a particularly gender equal country we show that it is crucial to control for risk aversion using a measure of subjective risk taking rather than measures derived from abstract gambles controls related to financial knowledge and resources also explain the gender difference the residual effect of the male gender on the conditional equity share after all appropriate controls is 3 percentage points and statistically significant the effect on stock market participation on the other hand is close to zero or negative so men contribute more to the nonparticipation puzzle conditional on covariates the gender difference mainly works through women s higher risk aversion which we find extends to finance professionals and wealthy private banking customers

the effects of health wealth and wages on labour supply and retirement behaviour this paper estimates a life cycle model of labour supply retirement and savings behaviour in which future health status and wages are uncertain individuals face a fixed cost of work and cannot borrow against future labour pension or social security income the method of simulated moments is used to match the life cycle profiles of labour force participation hours worked and assets that are estimated from the data to those that are generated by the model the model establishes that the tax structure of the social security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65 removing the tax wedge embedded in the social security earnings test for individuals aged 65 and older would delay job exit by almost one year by contrast social security benefit levels health and borrowing constraints are less important determinants of job exit at older ages for example reducing social security benefits by 20 would cause workers to delay exit from the labour force by only three months

an empirical analysis of internal and external reference prices using scanner data single source yogurt data are used to examine whether both internal and external reference prices affect purchase decisions internal reference prices are memory resident prices based on actual fair or other price concepts external reference prices are observed stimuli such as regular prices that stores may display along with a sale price for comparability discrete choice models with variables representing the two types of reference prices are estimated and both types of variables are found to have significant effects on purchase probabilities this suggests that consumers may use multiple reference points in evaluating price in purchase decisions in addition a model using an indicator of a sale price discount explains purchase probabilities as well as one that models the actual discount which suggests that consumers may be reacting to the indication of savings rather than to the amount of the discount

electronic tickets smart cards and online prepayments when and how to advance sell advance selling occurs when sellers allow buyers to purchase at a time preceding consumption shugan and xie 2000 electronic tickets smart cards online prepayments and other technological advances make advance selling possible for many if not all service providers these technologies lower the cost of making complex transactions at a greater distance from the seller s site they also give sellers more control over advance selling by decreasing arbitrage as technology enhances the capability to advance sell more academic attention is vital this paper strives to exploit these technologies by developing advance selling strategies until recently advance selling research focused on the airline industry and specific characteristics of that industry these characteristics included the price insensitivity of late arrivals e g business travelers compared with early arrivals e g leisure travelers demand uncertainty across flights on the same day and capacity constraints recent findings by shugan and xie 2000 show that advance selling is a far more general marketing tool than previously thought it does not require these industry specific characteristics it only requires the existence of buyer uncertainty about future valuations moreover sellers without the ability to price discriminate can use advance selling to improve profits to the level of first degree price discrimination this finding is important because buyers are nearly always uncertain about their future valuations for most services e g the utility of next year s vacation or a future college education in this paper we take the next step from shugan and xie 2000 we show that advance selling profits do not come from buyer surplus but from more buyers being able to purchase we determine when and how to advance sell in a variety of situations including situations with limited capacity second period arrivals refunds buyer risk aversion exogenous credibility continuous preference distributions and premium pricing we determine when advance selling improves profits and when it does how to set advance prices we ask and answer seven questions first when should sellers advance sell second how much can advance selling improve profits compared with only spot selling third what factors impact the profitability of advance selling and how fourth should advance prices be higher or lower or the same as spot prices fifth how do capacity constraints impact advance selling strategies sixth should sellers limit the number of advance sales finally what is the possible impact of buyer risk aversion first we provide precise conditions when sellers should advance sell for example without capacity constraints we show that sellers should advance sell when marginal costs are sufficiently low to make it profitable to sell to buyers with low valuations and sufficiently high to convince buyers that the spot price will be higher than the advance price second we find that advance selling can almost double the profits from optimal spot selling to early arrivals we also show that advance selling has no impact on consumer surplus in markets with homogenous consumers and no capacity constraints therefore advance selling can increase social welfare because seller profits increase third we find that two very important factors impacting the profitability of advance selling are seller credibility and marginal costs buyers only advance buy when they expect an advantage from advance buying over spot buying without capacity constraints sellers must credibly convince buyers that the advance price is at a discount to the spot price we show that this condition is met under different circumstances for example large marginal costs can create credibility because buyers believe that these costs will lead to high spot prices fourth we find although optimal advance prices can be at a discount to the spot price that sometimes a premium is optimal premiums are optimal when capacity is large but limited and marginal costs are not too large buyers advance purchase at a premium to spot prices when capacity is limited and spot prices are low note that this is not a risk premium and risk aversion is not required no prior research has suggested this strategy because that research relies on the assumption that early arrivals are more price sensitive than later ones without that assumption premium advance pricing is sometimes optimal fifth we find that binding capacity constraints can impact the profitability of advance selling in opposite ways on one hand capacity constraints create seller credibility buyers believe that spot prices will be high when they know spot capacity is limited and perhaps more limited by advance sales on the other hand when capacity is limited the need to increase sales from discounted advance prices diminishes sixth consistent with desiraju and shugan 1999 we find that limiting advance sales can be profitable but only under restrictive conditions these conditions are 1 selling to all early arrivals would leave insufficient capacity in the spot period to sell to all second period arrivals with high valuations 2 the optimal spot price is high and 3 marginal costs are sufficiently small to make advance selling profitable finally we find that buyer risk aversion can sometimes increase the profitability of advance selling our findings provide precise guidelines for a large number of service providers that will have the technical capability to advance sell for those service providers advance selling provides a creative pricing strategy that can potentially provide substantial improvements in profits

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

understanding the effects of marriage and divorce on financial investments the role of background risk sharing we investigate how changes in marital status affect financial investments and how these effects vary with background risk we use detailed register based panel data and difference in differences estimators to benchmark common unobserved influences on financial investments women increase the fraction of wealth invested in stocks after marriage and decrease it after divorce whereas men show the opposite behavior households whose joint labor income risk is reduced more by marriage have a higher increase in their exposure to risky assets in marriage thus income risk sharing in the household is important for financial risk taking and investment responses to marital transitions jel g11 j12 j16 d14

portfolio choice in retirement health risk and the demand for annuities housing and risky assets in a life cycle model a retiree faces stochastic health depreciation and chooses consumption health expenditure and the allocation of wealth between bonds stocks and housing the model explains key facts about asset allocation and health expenditure across health status and age the portfolio share in stocks is low overall and is positively related to health especially for younger retirees the portfolio share in housing is negatively related to health for younger retirees and falls significantly in age finally out of pocket health expenditure as a share of income is negatively related to health and rises in age

economic analysis of social security survivors insurance this paper develops a heterogeneous agents model to analyze the effects of social security survivors insurance the model features a negative mortality income gradient asymmetric information of individual mortality rates and a warm glow bequest motive that varies by age and family structure the model matches lifecycle changes in life insurance coverage and generates advantageous selection in the insurance market for male agents reducing survivors benefits for dependent children generates welfare losses while reducing survivors benefits for aged spouses produces welfare gains the opposing welfare results are explained by differences in the timing of benefits and in the funding cost

families as shocks in this paper we show the quantitative importance of the process that determines changes in family composition to determine the main macroeconomic magnitudes we do so by modelling family type as a stochastic process that affects households in a way similar to shocks to earnings agents respond to these process by optimally choosing savings we show that the size of savings differs dramatically depending on the details of the stochastic process the model is quantitative its fundamental parameters are estimated using u s data

flexibility in consumer purchasing for uncertain future tastes consumers often simultaneously purchase multiple units in the same product category whether they are best off purchasing an assortment of alternatives or an equal number of one alternative is addressed in this paper models of an expected utility maximizing consumer are developed and it is shown that an assortment may have greater expected utility than an equal number of any one alternative the rationale is that the assortment allows the consumer to choose from inventory the alternative most appropriate for a consumption occasion using preference information not available at the purchase occasion it is also shown that when consuming alternatives from inventory the consumer may forego the alternative offering the most utility in the expectation that it will yield even more utility in the future

accounting for changes in tastes health concerns are thought by many to have shifted consumption away from red meats though econometric evidence is mixed testing for structural change is difficult especially when one time series is used for both estimating demand equations and testing their stability specification errors may suggest a shift where none has occurred using nonparametric demand analysis we find that meat consumption patterns in the united states and australia can be explained using only relative prices and expenditures only imposing particular functional forms can reverse the conclusion suggesting that specification errors in econometric demand studies can account for findings of taste changes

precautionary portfolio behavior from a life cycle perspective abstract the literature on household asset accumulation draws a sharp distinction between short run precautionary motives to buffer consumption from annual income shocks and long run life cycle considerations under income certainty however estimates of shock persistence imply considerable career uncertainty we study long run precautionary motives for life cycle wealth accumulation and portfolios allowing for uncertain returns incomes and lifespan we separate the effects of various factors on mean and median asset holdings including education risk aversion household heterogeneity bequests impatience variance and serial correlation of income shocks numerical solutions are compared with data from the 1992 survey of consumer finances

a model of balanced choice behavior in some product categories consumers appear to alternate among items in a consistent and purposeful though not entirely deterministic fashion such alternation occurs even in the absence of any apparent external influences on choice to explain such balanced choice behavior we present a model based upon the premise that past consumption influences the utility of items on subsequent choice occasions individuals may seek variety on certain product attributes and exhibit loyalty toward others the model specification yields a logit choice model which may be calibrated using consumption diary panel data at the individual or cross sectional level

the impact of investment behaviour for individual welfare the industrialized world has experienced a demographic shift that is straining public pension systems employer sponsored pension plans change from defined benefit to defined contribution more emphasis is put on individually managed retirement funds one concern with this movement is the potential negative effect on individual welfare if households investment behaviour is suboptimal using micro level us data we compare the optimal utility computed using a lifecycle model with the actual utility as reflected in empirical asset allocation choices average estimated welfare costs are below 3 of households endowment assets and human capital yet specific population groups experience higher welfare costs

structural change in the demand for meat economists have long thought that shocks in the economy sometimes lead to permanent changes in behavioral relationships hence supply or demand elasticities estimated from econometric models may change over time the source of such structural change may be technological adoption a shift in consumer preferences or an institutional change one way to handle this problem in linear models is to allow the parameters to change as the situation changes so that the model provides a local approximation of the behavioral relationship this approach is an attractive way to deal with structural change problems econometricians have extended the classical

capturing consumption flexibility in assortment choice from scanner panel data this study develops and estimates a model to empirically identify two behavioral effects namely consumption flexibility and state dependence that may underlie temporal and horizontal assortment choice using scanner panel data where consumption information is unavailable the proposed approach permits a consumer s consumption utility to be dependent on previous consumptions thus capturing state dependence both across purchase occasions and within horizontal assortments moreover consumers purchase and consumption decisions are modeled at two distinctive and sequentially related stages which allows for incorporating the effect of consumption flexibility the model is estimated on scanner panel data of yogurt purchase it is found that the two captured effects provide strong empirical support with face validity for the temporal and horizontal assortment choice patterns observed in the data the behavioral insights derived from estimating the proposed model can also be translated into significant managerial implications

multiple discreteness and product differentiation demand for carbonated soft drinks for several of the largest supermarket product categories such as carbonated soft drinks canned soups ready to eat cereals and cookies consumers regularly purchase assortments of products within the category consumers often purchase multiple products and multiple units of each alternative selected on a given trip this multiple discreteness violates the single unit purchase assumption of multinomial logit and probit models the misspecification of such demand models in categories exhibiting multiple discreteness would produce incorrect measures of consumer response to marketing mix variables in studying product strategy these models would lead to misleading managerial conclusions we use an alternative microeconomic model of demand for categories that exhibit the multiple discreteness problem recognizing the separation between the time of purchase and the time of consumption we model consumers purchasing bundles of goods in anticipation of a stream of consumption occasions before the next trip we apply the model to a panel of household purchases for carbonated soft drinks

consumption over the life cycle and over the business cycle the main aim of this paper is to assess the validity of the life cycle model of consumption in particular we address an issue that has recently received much attention especially in the macroeconomic literature that of excess sensitivity of consumption growth to income growth we do this using a time series of cross sections and a novel and flexible parameterization of preferences the former allows us to address aggregation issues directly while with the latter we can allow both the discount factor and the elasticity of intertemporal substitution eis to be affected by various observable variables and lifetime wealth the main findings can be summarized as follows i the excess sensitivity of consumption growth to labor income disappears when we control for demographic variables this is true both at life cycle and business cycle frequencies ii estimation of a flexible specification of preferences indicates that the elasticity of intertemporal substitution is a function of several variables including the level of consumption the eis increases with the level of consumption as expected iii the variables that change the eis are also important in explaining why we observe excess sensitivity over the business cycle iv we are able to reconcile our results with those reported both in the macro and micro literature v in our specification the elasticity of intertemporal substitution is not very well determined this result however should be taken with care as we have not made an effort to construct a preferred specification which would probably include additional controls for labor supply behavior the evidence presented shows that the life cycle model cannot be easily dismissed indeed we believe that the model does a good job at representing consumption behavior both over the life cycle and over the business cycle