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

fertility risk in the life cycle in this paper i study fertility decisions of women in the u s economy with special emphasis on the timing of births and abortions over the life cycle given the policy debate regarding abortion availability along with empirical evidence on its positive impact on women outcomes understanding the fertility process in a broad sense should help guide the discussion in this paper i present a life cycle model of consumption savings and fertility decisions in an environment with uninsurable income shocks and imperfect fertility control my model presents a unified framework in which opportunity costs of child rearing as well as technological restrictions in the form of contraception effectiveness have roles to understand lifetime fertility the model extends important earlier work on contraceptive decisions by women in the sense that it allows for stochastic fertility outcomes and is able to account for the interplay between asset accumulation and fertility decisions observed in the data

rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

an empirical analysis of life cycle fertility and female labor supply this paper examines us household fertility and female labor supply over the life cycle using data from the panel study of income dynamics the authors investigate how maternal time inputs and market expenditures on offspring as well as the benefits they yield their parents vary with ages of offspring and influence female labor supply and contraceptive behavior the econometric framework combines a female labor supply model and a contraceptive choice index function it also accounts for the fact that conceptions are not perfectly controllable events using longitudinal data on married couples the authors estimate these equations and test alternative specifications of the technologies governing child care the findings suggest that while parents cannot perfectly control conceptions variations in child care costs do affect life cycle spacing of births furthermore the results demonstrate the gains of modeling the linkages between female labor supply and fertility behavior at the household level authors modified

using a policy mix for pollution control a review of economic literature this article provides a review of economic studies analyzing the use of multiple policies a socalled policy mix to cope with single pollution problems to guide and structure the review an analytical framework is developed and applied the framework integrates transaction costs into the analysis of pollution problems and policies to overcome them moreover it understands a pollution externality not only as a market failure but more generally as the failure of private governance structures based on this insight two rationales for using a policy mix are identified first a policy mix may help to correct for multiple reinforcing failures of private governance structures such as pollution externalities and technological spillovers second a policy mix can be employed if the implementation of single first best policies brings about high transaction costs e g when marginal pollution damages are heterogeneous or polluters are unlikely to comply with the policy for each rationale the relevant literature is presented based on the review avenues for future research are identified

externality correcting taxes and regulation externality correcting taxes and regulation in much of the literature on externalities taxes and direct regulation have been considered as alternative policy instruments both instruments might be imperfect in practice reflecting informational deficiencies and other limitations we analyse the use of taxes and regulation in combination to control externalities arising from individual consumption behaviour we consider the cases either where taxes are imperfectly differentiated to reflect individual differences in externalities or where some consumption escapes taxation in both cases we characterize the optimal instrument mix and we show how changing the level of direct regulation alters the optimal externality tax

the gender gap fertility and growth changes in fertility have long been recognized as important correlates of economic growth with the relationship between the level of fertility and the level of income per capita being one of the strongest observable correlations in cross country data this paper examines the linkages between fertility and growth theory the structure of the model is presented in sections on production couples decision making system dynamics and steady state equilibria the first component of the model is that increases in capital per worker raise womens relative wages since capital is more complementary to womens labor input than to mens the second component is that increasing womens relative wages reduces fertility by raising the cost of children more than household income finally lower fertility raises the level of capital per worker a positive feedback loop generates demographic transition a rapid decline in fertility accompanied by accelerated output growth

family planning in a life cycle model with income risk several us states have recently restricted the access to abortions we study fertility intentions and how family planning and abortions are used as mechanisms to control fertility among couples facing income risk we formulate and estimate a life cycle consumption saving model with uninsurable income risk and imperfect contraceptive control that matches fertility behavior in the british household panel survey bhps well we use the estimated model to investigate how family planning and abortions are used to control fertility in our model our simulations suggest that income risk affects family planning and that abortion is used to control fertility due to the presence of income risk this indicates that the availability of abortions might play a role as an insurance mechanism

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

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

optimal aging and death understanding the preston curve does prosperity lead to greater longevity if so what is the strength of the income channel to address these questions we develop a life cycle model in which households are subject to physiological aging in modeling aging we draw on recent research in the elds of biology and medicine the speed of the aging process and thus the time of death are endogenously determined by optimal health investments a calibrated version of the model accounts well for the observed non linear cross country link between longevity and income also known as the preston curve

estimating intertemporal allocation parameters using synthetic residual estimation we present a novel structural estimation procedure for models of intertemporal allocation this is based on modelling expectations errors directly we refer to it as synthetic residual estimation sre the flexibility of sre allows us to account for measurement error in consumption and for heterogeneity in intertemporal allocation parameters an investigation of the small sample properties of the sre estimator indicates that it dominates generalized method of moments gmm estimation of both exact and approximate euler equations in the case when we have short panels and noisy consumption data we apply sre to two panels drawn from the panel study of income dynamics psid and estimate the joint distribution of the discount factor and the elasticity of intertemporal substitution we reject strongly homogeneity of the discount factor and the elasticity of intertemporal substitution we find that on average the more educated are more patient and less willing to substitute intertemporally than the less educated within education strata patience and willingness to substitute are positively correlated 2010 the review of economic studies limited

teen motherhood and abortion access it is argued that the net effect of any restriction of abortion access on birth rates is an empirical question this study examines the impact of access to abortion on county teenage birth rates birth rates are expected to decrease by 1 among white adolescents aged 15 19 years for a 25 mile increase in the distance to the nearest abortion provider particularly among in wedlock births data are obtained from 1973 88 national natality local area summary files for counties in the us and four other national sources data did not provide useful information on the empirical relationship between access and birth rate for densely populated urban areas cross sectional findings that had omitted variable bias indicate that an increase of 25 miles in distance to a provider was associated with an additional 1 4 births per 1000 white teenage women or a 3 increase in the average teen birth rate of 45 1000 white teenagers the findings from a county fixed effects model that controlled for omitted variable bias indicate that an increase of 25 miles was associated with a reduction in teen births of 0 5 1000 or about 1 of the mean birth rate both medicaid restrictions and parental consent laws were negative and significant and more negative in poor and more isolated counties the state year effects models did not change findings on distance and medicaid restriction effects the effects of changes in timing of laws suggests that laws followed preexisting trends changes in distance to provider were primarily in the first 2 years following the change out of wedlock births were unaffected by changes in distance to providers the out of wedlock teen birth rate increased with a complete ban on abortions fewer wanted births were associated with small restrictions findings imply that closing of clinics during 1977 88 had an impact on teen birth rates of under one tenth of 1 the 20 increase in teen births was unexplained

survey measures of risk aversion and prudence this paper utilizes a thought experiment conducted by the bank of italy to estimate absolute and relative risk aversion along with absolute and relative prudence for a broad cross section of italian households upper and lower bounds are calculated for each parameter and comparisons are made across socio demographic groups evidence is found of decreasing absolute risk aversion decreasing absolute prudence increasing relative risk aversion and increasing relative prudence

the career costs of children this paper analyzes the life cycle career costs associated with child rearing and decomposes their eects into unearned wages as women drop out of the labor market loss of human capital and selection into more child friendly occupations we estimate a dynamic life cycle model of fertility occupational choice and labor supply using detailed survey and administrative data for germany for numerous birth cohorts across dierent regions we use this model to analyze both the male female wage gap as it evolves from labor market entry onward and the eect of pro fertility policies we show that a substantial portion of the gender wage gap is explainable by realized and expected fertility and that the long run eect of policies encouraging fertility are considerably lower than the short run eects typically estimated in the literature

habit persistence and teen sex could increased access to contraception have unintended consequences for teen pregnancies we develop a dynamic discrete choice model of teen sex and pregnancy that incorporates habit persistence habit persistence has two sources here the first is a fixed cost of having sex which relates to a moral or psychological barrier that has been crossed the first time one has sex the second is a transition cost whereby once a particular relationship has progressed to sex it is difficult to move back we estimate significant habit persistence in teen sex implying that the long run effects of contraception policy may be different from their short run counterparts especially if the failure rate of contraception is sufficiently large programs that increase access to contraception are found to decrease teen pregnancies in the short run but increase them in the long run

bargaining and waiting until recently the final word on bargaining with full information had been rubinstein s 1982 seminal work which concluded that an agreement will be reached immediately and the first mover will have the advantageous share rubinstein s model was one of alternating offers made at fixed time intervals many variations of the model have emerged and until recently they mainly focus on asymmetric information with some having the uninformed agent making all the offers the conclusion from examining these variations is that the equilibrium is highly sensitive to the exact specification of the institutional structure in more recent work perry and reny 1990 perry and reny 1993 sakavics 1993 and nickerson sadanand and sadanand 1994 endogenize the structure of the bargaining by allowing the order and timing of play to be determined endogenously the first three papers endogenous structure models deal with the full information setting and the last is an asymmetric information model 2 in addition to the exogenously given minimum reaction time for responding to offers made by the other player the endogenous structure models introduce the important innovation of an exogenous waiting time a time between a player s offer and his next offer they also allow players to make simultaneous offers which sakovics later disallows the findings in this recent literature are rather startling i the waiting time has a profound impact the longer the time the greater the share the player can command 3 ii the consequence of simultaneous offers is multiple equilibria when the reaction time is zero a continuum of shares lying between the two unique rubinstein shares can result and additional continua of shares arise with delayed agreement when the reaction times are positive iii equilibrium paths are almost exclusively characterized by simultaneous offers in this paper we examine the question of simultaneous offers and reconcile the conflict between the infrequency of simultaneous offers in real life bargaining and their prevalence in the endogenous structure models we

negligible senescence an economic life cycle model for the future abstract we propose a model of aging and health deficit accumulation model with an infinite time horizon and a steady state of constant health the time of death is uncertain and endogenous to lifestyle and health behavior this setup can be conceptualized as a strive for immortality that is never reached we discuss adjustment dynamics and show that the new setup is particularly useful to understand aging of the oldest old i e of individuals for which morbidity and mortality have reached a plateau we then show how the existence of a steady state can be used to perform comparative dynamics exercises analytically as an illustration we investigate the effects of more expensive health investment and of advances in medical technology on optimal short run and long run health behavior

risk aversion and incentive effects new data without order effects holt and laury 2002 used a menu of ordered lottery choices to make inferences about risk aversion under various payment conditions the main results of that paper were a subjects are risk averse even for relatively small payments of less than 5 b risk aversion increases sharply with large increases in the scale of cash payoffs and c there is no significant effect from increasing the scale of hypothetical payment with a few exceptions noted in the paper all treatments began with a low payment choice followed by a choice with hypothetical payments that had been scaled up by 20 50 or 90 followed by a real cash decision with the same high payment scale 20 50 or 90 followed by a single final low 1 real payment choice those in the 90 treatment could earn amounts ranging from 9 00 to 346 50 in this task as glenn w harrison et al 2004 correctly note this design confounds order and treatment effects since the high real payment choice was always completed after the low real and high hypothetical payment tasks in a new experiment reported below we first seek to replicate harrison et al s finding that the order effect participating in a low payment choice before making a high payment choice magnifies the scale effect in a second treatment each subject completes the menu of lottery choices under just one payment condition 1 or 20 real or hypothetical thereby eliminating any order effects i new data

money burning and multiple equilibria in bargaining abstract this paper synthesizes recent work on delay and multiple equilibria in complete information rubinstein bargaining we identify a general principle money burning underlying prior results and develop a general model of the phenomena money burning is a threat by one player to destroy surplus which can serve to enhance that player s bargaining power if it is credible our results show that the uniqueness and efficiency properties of the subgame perfect equilibrium of rubinstein bargaining are vulnerable to players ability to burn money journal of economic literature classification number 026

simple solutions to the initial conditions problem in dynamic nonlinear panel data models with unobserved heterogeneity i study a simple widely applicable approach to handling the initial conditions problem in dynamic nonlinear unobserved effects models rather than attempting to obtain the joint distribution of all outcomes of the endogenous variables i propose finding the distribution conditional on the initial value and the observed history of strictly exogenous explanatory variables the approach is flexible and results in simple estimation strategies for at least three leading dynamic nonlinear models probit tobit and poisson regression i treat the general problem of estimating average partial effects and show that simple estimators exist for important special cases copyright 2005 john wiley sons ltd

fertility choice in a life cycle model with idiosyncratic uninsurable earnings risk abstract motivated by large shifts in uninsurable earnings risk over time this paper studies the link between delaying and reducing fertility on the one hand and earnings and fertility risks on the other when children are modeled as consumption commitments increases in earnings risk are associated with a reduction in family sizes and patterns of delayed childbearing since household ability to bear children declines with age the postponement of birth associated with the increased earnings risk drives down the number of birth per family further an access to in vitro fertilization ivf is shown to have only a limited offsetting effect

luxuries are easier to postpone a proof we show that marshallian income elasticities are proportional to frisch own price elasticities if all goods are additively separable this implies that luxuries are likely to be easier to postpone it also implies that preferences over consumption are unlikely to display a constant elasticity of substitution

the demographic transition and the sexual division of labor this paper presents a theory in which increases in female labor force participation and reductions in the gender wage gap are generated as part of a single process of demographic transition initially characterized by reductions in mortality and fertility the paper suggests a relationship between gains in life expectancy and changes in the role of women in society that has not been identified before in the literature mortality reductions affect the incentives of individuals to invest in human capital and to have children with implications for female labor force participation and the wage differential between men and women the paper also presents some empirical evidence to support the predictions of the theory

the baby boom and baby bust what caused the baby boom and can it be explained within the context of the secular decline in fertility that has occurred over the last 200 years the hypothesis is that a the secular decline in fertility is due to the relentless rise in real wages that increased the opportunity cost of having children b the baby boom is explained by an atypical burst of technological progress in the household sector that occurred in the middle of the last century this lowered the cost of having children a model is developed in an attempt to account quantitatively for both the baby boom and bust

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

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

contract renegotiation a simple framework and implications for organization theory this paper provides a unifying framework for studying renegotiation of contracts in the presence of asymmetric information we show that interim renegotiation does not constrain the set of contracts attainable with full commitment regardless of whether renegotiation offers are made by the informed or the uninformed agent ex post renegotiation however does constrain the set of attainable contracts these constraints depend on the identity of the agent making the renegotiation offer we then show how the theory of contract renegotiation can provide insights for organization theory specifically we show how decentralization of decision making can be an optimal response to the threat of ex post renegotiation finally we show that our framework can be used to analyse the trade off between internal and external markets

perfect equilibria in a model of bargaining with arbitration abstract we consider an alternating offer bargaining model in which the players may agree to call in an arbitrator in case of disagreement the main message of our study is that the mere presence of an arbitrator who can only become active with the consent of both parties in the background of negotiations may entirely drive their outcome we compare our results with those obtained in models with outside options journal of economic literature classification number c78

life insurance and household consumption abstract using life insurance holdings by age sex and marital status we infer how individuals value consumption in different demographic stages we estimate equivalence scales and bequest motives simultaneously within a fully specified model where agents face us demographics and save and purchase life insurance our findings indicate that individuals are very caring for dependents that economies of scale are large that children are very costly or yield very high marginal utility that wives with children produce lots of home goods and that females display habits from marriage while men do not these findings contrast sharply with standard equivalence scales

reputation in bargaining and durable goods monopoly this paper analyzes durable goods monopoly in an infinite horizon discrete time game we prove that as the time interval between successive offers approaches zero all seller payoffs between zero and static monopoly profits are supported by subgame perfect equilibria this reverses a well known conjecture of coase alternatively one can interpret the model as a sequential bargaining game with one sided incomplete information in which an uninformed seller makes all the offers our folk theorem for seller payoffs equally applies to the set of sequential equilibria of this bargaining game

optimal tax and public investment rules for congestion type of externalities optimal government policy is considered in a second best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account the theoretical results of the optimal tax literature are adapted using the concept of the net social pigouvian tax an illustrative age model uncovers the relative importance of its components the model demonstrates that the level of the externality tax does not depend strongly on distribution concerns as reoptimization of the other taxes ensures that the income distribution objective is reached the model also allows us to study the interaction between externality taxes and public abatement

abortion legalization and child living circumstances who is the marginal child weexaminethe impact ofincreased abortion availabilityon the averageliving standards of children through a selection effect would the marginal child whowas not born have grown up in different circumstances than the average child we use variation in the timing of abortion legalization across states to answer this question cohorts born after legalized abortion experienced a signiecant reduction in a number of adverse outcomes we end that the marginal child would have been 40 60 percent more likely to live in a single parent family to live in poverty to receive welfare and to die as an infant access to abortion is one of the most contentious public policy issues facing the united states today the period since the legalization of abortion under the roe v wade decision of 1973 has been marked by incessant debate over the appropriate government enancing and legal status of abortions meanwhile pregnancy resolution through abortion is a very common outcome in the united states roughly 25 percent of all pregnancies are aborted ventura et al 1995 as a result major changes in abortion access could have substantial effects on the birthrate indeed levine staiger kane and zimmerman end that the legalization of abortion in the early 1970s led to an 8 percent reduction in the birthrate 1

measuring the sensitivity of parameter estimates to estimation moments we propose a local measure of the relationship between parameter estimates and the moments of the data they depend on our measure can be computed at negligible cost even for complex structural models we argue that reporting this measure can increase the transparency of structural estimates making it easier for readers to predict the way violations of identifying assumptions would affect the results when the key assumptions are orthogonality between error terms and excluded instruments we show that our measure provides a natural extension of the omitted variables bias formula for nonlinear models we illustrate with applications to published articles in several fields of economics

air passenger duties as strategic tourism taxation abstract there has been a recent debate on the rationale and economic impacts of air passenger duties apds linked to puzzling empirical results on this topic we argue that an approach from strategic tourism taxation can improve our understanding of these results apd set by origin countries of tourists can be viewed as an instrument for extracting economic rents that would otherwise be retained by tourism destinations a theoretical model of strategic taxation between an origin and two destinations is developed to illustrate this idea we find that countries strategies may end up with winners and losers or with all parties facing welfare losses the game outcome depends on countries market shares of profits and the substitutability between tourism services provided by different destinations the findings suggest that the economic impacts of apds recently evaluated in the literature might be biased because of the omission of other countries potential tax reactions

more on marriage fertility and the distribution of income according to pareto 1896 the distribution of income depends on the nature of the people comprising a society on the organization of the latter and also in part on chance in the model developed here the nature of the people is captured by attitudes toward marriage divorce fertility and children singles search for mates in a marriage market married agents bargain about work and the quantity and quality of children they can divorce social policies such as child support requirements reflect the organization of the society finally chance is modeled by randomness in income marriage opportunities and marital bliss

the biodiversity bargaining problem we employ cooperative bargaining theory and nash s rational threats idea to cast light on the biodiversity bargaining problem the problem of global environmental negotiations is argued to be of the nature of a bargaining problem in which bargainers must agree on the distribution of cooperative surplus in order to move to the bargaining frontier we discuss the importance of both efficiency bargaining frontier and fairness recognition of characteristics of bargainers in the choice of the appropriate contract we show that the incremental cost contract used to resolve the biodiversity bargaining problem is of the form of an extreme point contract that fails to recognise the contributions of the south to the production of cooperative surplus a rational response to such a contract is the use of threats of biodiversity destruction contracts must evince both efficiency and fairness in order to represent lasting solutions

an estimable dynamic stochastic model of fertility and child mortality this paper develops a finite horizon dynamic stochastic model of discrete choice with respect to life cycle fertility within an environment where infant survival is uncertain the model yields implications for the number timing and spacing of children a tractable estimation method is developed for the linear constraint quadratic utility case that is intimately tied to the dynamic optimization problem and the method is applied to malaysian household data estimation is based on integrating the numerical solution of the dynamic programming model of behavior with a maximum likelihood procedure

watta satta bride exchange and women s welfare in rural pakistan in a setting where husbands wield considerable coercive power forms of marriage should adapt to protect the interests of women and their families the authors study the pervasive marriage custom of watta satta in rural pakistan a bride exchange between families coupled with a mutual threat of retaliation they show that watta satta may be a mechanism to coordinate the actions of two sets of in laws each of whom wish to restrain their sons in law but who only have the ability to restrain their sons the authors empirical results support this view the likelihood of marital inefficiency as measured by estrangement domestic abuse and wife s mental health is significantly lower in watta satta arrangements as compared with conventional marriages but only after properly accounting for selection

a letter to the editor on wage bargaining abstract the rubinstein perfect information alternating offers bargaining model is problematic when applied to wage negotiations a strike or any other industrial action is not an automatic consequence of a delay in reaching an agreement because production can continue normally also when negotiations take place this paper extends the rubinstein model to incorporate the choice of calling a strike and it is shown that in this model there is no longer a unique subgame perfect equilibrium and that strikes with a length in real time can occur in equilibrium

revisiting the effect of household size on consumption over the life cycle abstract although the link between household size and consumption has strong empirical support there is no consistent way in which demographics are dealt with in standard life cycle models we study the relationship between the predictions of the single agent model the standard in the literature versus a simple model extension the demographics model where deterministic changes in household size and composition affect optimal consumption decisions we show theoretically that the demographics model is conceptually preferable to the single agent model as it captures economic mechanisms ignored by the latter however our quantitative analysis demonstrates that differences in predictions for consumption are negligible across models when using standard calibration strategies this suggests that it is largely irrelevant which model specification is used

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

the gender gap in mortality how much is explained by behavior abstract in developed countries women are expected to live about 4 5 years longer than men in this paper we develop a novel approach to gauge the extent to which gender differences in longevity can be attributed to gender specific preferences and health behavior we set up a physiologically founded model of health deficit accumulation and calibrate it using recent insights from gerontology from fitting life cycle health expenditure and life expectancy we obtain estimates of the gender specific preference parameters we then perform the counterfactual experiment of endowing women with the preferences of men in our benchmark scenario this reduces the gender gap in life expectancy from 4 6 to 1 4 years when we add gender specific preferences for unhealthy consumption the model can motivate up to 89 percent of the gender gap our theory offers also an economic explanation for why the gender gap declines with rising income

the game of negotiations ordering issues and implementing agreements abstract we use a two issue bargaining model with asymmetric information to study agent choice of how to structure bargaining we uncover the settings in which different agenda structures are chosen in equilibrium how the order in which issues are bargained over matters and what impact the rules for implementing agreements have if agreements are implemented as they are reached easy issues are negotiated first and hard issues later if agreements are implemented only after all issues are settled then it is size that matters with large issues settled first all parties prefer the former rules of implementation to the latter

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

an analysis of out of wedlock childbearing in the united states this paper relates the erosion of the custom of shotgun marriage to the legalization of abortion and the increased availability of contraception to unmarried women in the united states the decline in shotgun marriage accounts for a significant fraction of the increase in out of wedlock first births several models illustrate the analogy between women who do not adopt either birth control or abortion and the hand loom weavers both victims of changing technology mechanisms causing female immiseration are modeled and historically described this technology shock hypothesis is an alternative to welfare and job shortage theories of the feminization of poverty excerpt

correcting externalities through taxes on subsidies to related goods abstract optimal corrective taxation is considered in the presence of externalities in cases where only related goods i e complements to or substitutes for externality creating goods can be taxed in the context of identical individuals and separable externalities taxing and subsidizing complements and substitutes to externalities are analyzed first the circumstances under which it is optimal to operate on one market only for a related good are examined second cases are identified where optimality requires taxes on substitutes for or subsidies to complements to a good which generates negative externalities

a non cooperative bargaining model with strategically timed offers abstract rubinstein s alternating offers bargaining model is enriched by allowing players to choose when and whether or not to make an offer time is continuous and players make offers whenever they wish it is assumed that upon making an offer players must wait a fixed amount of time before making another it is shown that if players can react arbitrarily quickly to their opponent s offers then all subgame perfect equilibrium outcomes are rubinstein like in particular efficient however if it takes time to react then some delay can be supported this potential delay becomes arbitrarily large as reaction times increase journal of economic literature classification numbers c78 c72

incomplete ownership rent dissipation and the return to related investments i introduction when ownership rights to a resource are costless to enforce trades occur and an equilibrium price emerges in such cases it is a price and a transfer of wealth from one agent to another that rations use of the resource absent ownership no price is charged and use is rationed by a transaction cost acquiring a barrel of oil or an acre foot of water from a shared reservoir is a transaction a resource in the common domain is transformed into property by the act of lifting it to the surface where ownership can be enforced the relevant transaction cost in this case is the cost of pumping in a fishery the relevant transaction cost is the cost of locating and capturing a portion of the unowned stock the marginal transaction cost limits each individual s use and accomplishes the necessary task of equating demand to the resource s supply users of the resource are in equilibrium when this marginal transaction cost equals the resource s marginal value the transaction cost also eliminates all or part of the rent the resource would earn if owned however and the size of this loss depends on the relationship between average transaction cost and the resource s marginal value this suggests that the amount of rent an unowned resource will yield in equilibrium after netting out relevant costs depends on the shape of the cost function for acquiring it if marginal cost is much greater than average cost as in cases where marginal cost is steeply rising the equilibrium rent will be relatively large 1 while the shape of the cost function depends on the nature of the resource it is not immutable for example it can be altered by imposing constraints on the inputs or the technology used it follows that users of a resource would benefit collectively if the technology or inputs used were constrained in a way that causes the marginal cost of obtaining it to rise steeply the optimal choice of such constraints is a well formulated second best policy problem this specification of the problem is incomplete however because the intensity of competition for the shared resource can also be changed by actions that affect it only indirectly an innovation or investment that lowers the individual s cost of acquiring it for example by reducing the price of an input used has this effect so does an action that raises the resource s marginal value product possibly by affecting the price or availability of a substitute such actions increase competition for the shared resource and raise the equilibrium cost of actions taken to acquire it in this sense the rent dissipation that is normally thought to characterize competition for shared resources can spread to related actions or investments both of these considerations are pursued in what follows second best policy toward a shared resource is examined by considering regulations that can control some but not all of the inputs needed to acquire it it is shown that the optimal input constraint and the fraction of potential rent such a policy can capture depend on two determinants the elasticity of substitution between and relative price of regulated and unregulated inputs it is also shown that competition for the shared resource can eliminate all or part of the return to related actions i e actions that result in a shift in the relevant private cost or benefit function the size of such losses depends in a simple way on the elasticities of relevant cost and benefit functions these additional losses can occur even in cases where direct competition causes complete rent dissipation as a result the loss that results from free access can exceed the rent the resource would earn in a complete markets equilibrium this phenomenon termed excess dissipation is illustrated with a number of examples investments that reduce the percolation of groundwater back into a common aquifer or expenditures to prevent fish from escaping from a net and returning to the natural population during the process of capture are shown to have this effect

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

income and consumption a micro semistructural analysis with pervasive heterogeneity we develop a model of consumption and income that allows for pervasive heterogeneity in the parameters of both processes introducing codependence between household income parameters and preference

spending on children direct survey evidence we present estimates of spending on children from a danish expenditure survey which asks respondents directly about allocations of expenditures to individual household members our main finding is that the average danish family allocates 44 of total assignable spending on non food non durables and services to children there is considerable variation across households more is spent on older children and expenditure on children is an increasing concave function of the number of equivalent children we find that households in which the mother has had a child by a previous partner spend 24 less on children than otherwise similar households

the timing of arbitration and sequential bargaining this paper links two literatures the paper adds to results on disagreement in per fect information bargaining games it is found that under certain conditions the possibility of third party intervention induces delay the paper is also the first attempt to model the arbitration process in a sequential bargaining framework it therefore adds to the theoretical arm of the industrial relations literature by permitting an explicit temporal setting for the chilling effect and alternative mechanisms for the timing of arbitration

rent seeking and surplus destruction in unanimity bargaining abstract in non cooperative bargaining games in the tradition of rubinstein the proposer s bargaining power stems from the prospect of a delay in case of disagreement since players are impatient this delay is costly for everyone we consider a unanimity bargaining game in which the proposer can strategically choose the length of this delay we assume that the size of the surplus depends endogenously on the chosen length of the prospective delay intuitively the proposer faces the following trade off the more he exploits his proposer power the smaller is the surplus that can be divided one interpretation is that aggressive bargaining tactics hurt the fruitful cooperation among players and thus the surplus we characterize stationary equilibrium strategies and payoffs and obtain sharp predictions on the extent of surplus destruction the size of the social loss and the surplus allocation

striking for a bargain between two completely informed agents this paper models the wage contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union must decide in each period whether or not to strike for the duration of that period we show that there exist subgame perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement although both parties are completely rational and fully informed this has implications for other inefficient phenomena such as tariff wars debt negotiations and wars in general we characterize the set of equilibria show that strikes can occur in real time and discuss extensions of the model such as lockouts and the possibility of multiple recontracting opportunities copyright 1991 by american economic association

regulating global biodiversity what is the problem we distinguish between local problems of biodiversity loss and global ones where international cooperation is required global biodiversity regulation involves choosing the optimal stopping rule regarding global land conversions in order to ensure that some areas of unconverted natural reserves remain to support the production sector that exists on converted lands the basic difficulty with implementing a solution to this global problem lies in the asymmetry in endowments between those states that have previously converted and those that have not we demonstrate that the fundamental problem of global biodiversity regulation is similar to the bargaining problem analysed by nash rubinstein and others there are benefits from global land conversion and there must be agreement on their distribution before the conversion process can be halted since the institutions addressing global biodiversity problems are either highly ineffectual benefit sharing agreements prior informed consent clauses or very extreme incremental cost contracts the biodiversity bargaining problem remains unresolved for this reason we anticipate that suboptimal conversions will continue to occur as a way of protesting the ineffective and unfair approaches employed in addressing this problem to date

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

consumption and labor supply with partial insurance an analytical framework we develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing closed form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption hours and wages we prove identification and demonstrate how labor supply data are informative about risk sharing the model estimated with us data over the period 1967 2006 implies that i 39 percent of permanent wage shocks pass through to consumption ii the share of wage risk insured increased until the early 1980s and iii preference heterogeneity is important in accounting for observed dispersion in consumption and hours jel e21 e23 e31 e52

bargaining with surplus destruction in a two player alternating offer bargaining model if one player can destroy the surplus to be allocated then the value to bargain for is endogenous except at the beginning even with complete information the model has perfect equilibria with delayed agreement and or surplus destruction the model therefore explains inefficiency and destruction that may appear irrational we characterize the set of equilibrium payoffs and its limiting be haviour as the time between offers vanishes real time delay remains possible even in the limit we also consider the case of surplus destruction that is exogenously limited by the

schooling information and nonmarket productivity contraceptive use and its effectiveness information from two u s fertility surveys on couples knowledge about and use of specific contraceptives are used to estimate the technology of human reproduction in order to examine the association between schooling and productivity in the household sector the results indicate that more schooled couples have a wider knowledge of contraceptive methods use more efficiently those contraceptive methods for which there is little information and large scope for misuse and are better able to mitigate the effects of their biological constraints fecundity on their fertility compared to less schooled couples excerpt

the political economy of money evolution and impact of monetarism in the federal reserve system for almost a generation a vigorous debate has been underway over the conduct of monetary policy the central questions in this controversy are widely known what are the appropriate goals of monetary policy what are the linkages between actions to influence the cost and availability of money and credit and the behavior of real output employment and prices what are the best means in terms of targets and central bank operating techniques to accomplish the objectives of monetary policy the divergent answers which economists of different intellectual persuasion give to these questions have generated a sharp schism in the body of monetary theory on the one side are the keynesian and postkeynesian economists who have stressed the efficacy of fiscal policy for the purpose of economic stabilization on the other side are the members of the monetarist school who assign great weight to the role of monetary policy the aim of this paper is to sketch the evolution of monetarist thought inside the federal reserve system in this appraisal i have viewed the evidence from the vantage point of a member of the federal reserve board and of the federal open market committee fomc i concluded that a particularly promising approach was to observe the fomc at work in those rare instances when it set out especially to make substantive revisions in the form of the directive through which it gives instructions to the manager of the system open market account soma in the last decade there have been at least four such effortsin the years 1961 1964 65 1966 and 1970 while the focus was on the proposed changes in the directive language it is clear from the record that the debates were actually over the objectives and conduct of monetary policy thus the directive revision episodes present a unique opportunity to observe the impact on fomc members of competing ideas about monetary management i have relied primarily on the public record available in the minutes of the fomc for the years 1936 1965 and on the fomc record of policy actions through the meeting of september 21 1971 the last one in the public domain at this writ member board of governors of the federal reserve system this paper is a condensation of a more comprehensive version presented at the 84th annual meeting of the american economic association copies of the original paper may be obtained from the board washington d c 20551 i am indebted to a number of persons in the federal reserve system for assistance in the preparation of the original paper foremost among those are several of my fellow board members especially governors j dewey daane sherman j maisel george w mitchell and j l robertson who responded readily to my numerous questions and shared with me some of their recollections regarding internal debates in the federal open market committee fomc and at the board on the appropriate techniques of monetary management of course they bear no responsibility for the use or interpretation i have made of the information provided several members of the board s staff identified in the original version also helped in the preparation of the paper again i must stress that the views expressed here are my own and should not be attributed to my colleagues either on the board or among its staff

a dynamic model of contraceptive choice of spanish couples in this paper we propose a simple dynamic stochastic model of sterilization and contraceptive use and we estimate its structural parameters using a sample of married couples from the 1995 spanish family and fertility survey the estimated structural model improves on previous studies in terms of its ability to rationalize observed behavior the large proportion of women contracepting at parity 0 is interpreted as evidence of precautionary contraceptive behavior allowing for simple forms of permanent unobserved heterogeneity across couples in their ability to conceive has important implications for estimates of utility and cost parameters our estimates of child valuation parameters imply that most spanish couples would have two children but significant deviations from this goal are brought about by imperfect and costly fertility control our simulations suggest that the introduction of sterilization has reduced fertility by an average of 0 2 children per couple and that the availability of more effective reversible contraceptive methods would reduce expected fertility by up to 0 4 children per couple

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

more power to the pill the impact of contraceptive freedom on women s life cycle labor supply the release of enovid in 1960 the first birth control pill afforded u s women unprecedented freedom to plan childbearing and their careers this paper uses plausibly exogenous variation in state consent laws to evaluate the causal impact of the pill on the timing of first births and extent and intensity of women s labor force participation the results suggest that legal access to the pill before age 21 significantly reduced the likelihood of a first birth before age 22 increased the number of women in the paid labor force and raised the number of annual hours worked

the role of negotiators in union firm bargaining differences between the objectives of union leaders and those of the rank and file have traditionally been thought the result of political processes or irrationality this paper shows that such differences will naturally arise as part of a rational bargaining strategy since delegation of authority to a negotiator permits the union members to achieve advantageous commitment this use of negotiators leads to revised interpretation of many popular theories of wage and employment determination such as the efficient bargain and the right to manage models and has implications for the interpretation of econometric modeling of union behavior

how prudent are consumers using data from the consumer expenditure survey this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive the coefficient of relative prudence the test yields a fairly precise estimate of a small precautionary motive in fact the estimate is too small to be consistent with widely accepted beliefs about risk aversion the presence of liquidity constrained households does not appear to explain this finding and there is some evidence that self selection of households into risky environments also cannot explain the results

strategic bargaining with destructive power abstract this note studies a two player alternating offers bargaining model in which one of the agents has the ability to damage permanently the pie bargained over beside the rubinsteinian bilateral monopoly outcome i show that it is possible to select a harming equilibrium in which the sequence of damages to the pie is endogenously determined

the permanent income hypothesis and the real interest rate some evidence from panel data abstract a test of the permanent income hypothesis in panel data is formulated taking into account both the time series and cross section variation in the rate of return the over identifying restrictions of the theory rejected

a presumptive pigovian tax complementing regulation to mimic an emissions fee if regulations are used to make cars and fuels cleaner should gasoline taxes be used to manage demand for trips that pollute anaysis of a well composed program for mexico city indicates that the emission reductions would cost 24 percent more if a tax on gasoline was not introduced a simple analytical framework is developed to analyze the use of abatement requirements to make cars cleaner and a gasoline tax to economize on the use of cars the two instruments should be combined to mimic the incentives that would have beeen provided by an emissions fee thus cleaner cars and fewer trips are analogous to competing suppliers of emission reductions the planner should buy from both so that marginal costs are equal applying that rule the marginal cost of emission reductions is simply the gasoline tax rate divided by emissions per liter

contract bargaining with symmetric information this paper reviews a recent literature that extends the rubinstein stahl bargaining model to the case of contract bargaining theoretical issues such as the appropriate game form existence and uniqueness of equilibria are discussed the paper finishes with a brief overview of some applications of the framework

perfect equilibria in a negotiation model rubinstein s alternating offers bargaining model is enriched by assuming that players payoffs in disagreement periods are determined by a normal form game it is shown that such a model can have multiple perfect equilibria including inefficient ones provided that players are sufficiently patient delay is possible even though there is perfect information and the players are fully rational the length of delay depends only on the payoff structure of the disagreement game and not on the discount factor not all feasible and individually rational payoffs of the disagreement game can be supported as average disagreement payoffs indeed some negotiation games have a unique perfect equilibrium with immediate agreement

strategic delay in bargaining this paper analyses a bargaining model with incomplete information in which the time between offers is an endogenous strategic variable we find equilibria involving a delay to agreement that is due to the use of strategic time delay by bargainers to signal their relative strength under some specifications of the parameters delay is present in the unique sequential equilibrium whose beliefs satisfy one intuitive restriction this delay does not vanish as the minimal time between offers becomes small

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