deep habits price rigidities and the consumption response to government spending this paper inspects the deep habits mechanism originally used by ravn schmitt grohe and uribe 2006 to generate the positive comovement of public and private consumption observed in many var studies in their set up the price elasticity of demand is pro cyclical and it is optimal for the firm to lower the mark up while expanding production after the fiscal shock raising the demand for labor and the real wage consequently agents substitute consumption for leisure and overcome the negative wealth effect of the fiscal expansion here we show that increasing price stickiness reduces the impact of the fiscal shock on the real wage and hinders the rise of consumption if the degree of price stickiness is high enough consumption is crowded out this is in contrast to the role of price rigidities in the standard new keynesian model where they weaken the crowding out of consumption

linear quadratic approximation external habit and targeting rules abstract we examine the linear quadratic approximation of nonlinear dynamic stochastic optimization problems a discrete time version of magill 1977a a local analysis of n sector capital accumulation under uncertainty journal of economic theory 15 2 211 219 is generalized to models with forward looking variables paying special attention to second order conditions this is the large distortions case in the literature we apply the approach to monetary policy in a dsge model with external habit in consumption we then develop a condition for target implementability a concept related to targeting rules finally we extend the approach to a comparison between cooperative and non cooperative equilibria in a two country model and show that the small distortions approximation is inappropriate for this exercise

control techniques and upward flow of information in franchising in distant markets conceptualization and preliminary evidence abstract information exchange between franchisees and franchisors is viewed as instrumental for the attainment of both firm specific and systemic goals within franchise systems our study investigates the issue of control and control techniques employed by franchisors to monitor the performance of their franchisees in distant markers with special focus on the role of information exchange a major assumption underlies our work even though in the language of agency theory franchise contracts attempt to align the incentives of the principal i e franchisor and the agent i e franchisee such alignment is not easy to achieve due to basic conflicts in the parties respective goals for instance while franchisees are primarily interested in achieving short term profits franchisors are more concerned about strengthening the brand equity of their systems a perfect upward flow of information i e from franchisees to franchisors therefore is not necessarily guaranteed this paper introduces and empirically evaluates four hypotheses relating franchisees willingness to provide information to their respective franchisors first it is suggested that franchisees willingness to provide information to their franchisors will be positively related to the incidence of repeat purchases since incentives to free ride are expected to be low at such units in repeat customer industries hence franchisees will have little incentive to hide information second it is argued that the greater the age of relationship between the focal franchisee and franchisor the more secure both parties are likely to feel about the projection of this relationship into the future consequently a positive relationship between the age of the franchise relationship and franchisees willingness to provide information to franchisors is proposed next we suggest that the level of competition faced by franchisees is positively related to franchisees willingness to provide information to their franchisors the latter effect is expected for two reasons foremost such franchisees are likely to see the availability of authentic market information as a necessary tool for their franchisors if franchisors are to provide them with accurate localized advice for combating competitive forces second from an agency theory perspective franchisees have an incentive to conceal information about the external environmental factors only if such information serves to explain franchisees business success in terms of forces other than their effort this would not occur in a competitive environment setting finally multi unit franchisees are hypothesized to more willingly provide information to their franchisors than their single unit counterparts given their lower incentives to free ride and the higher level of security felt in their relationships with their franchisors the empirical verification of our contentions was carried out in two stages first we studied in depth the case of lebanon to develop the initial descriptive materials second and based on the first step we surveyed u s based franchisors with franchisees in the middle east and africa to assess our hypotheses results show that while the extent of competition faced by franchisees was found to be an incentive to provide information to franchisors the age of the relationship emerged as a disincentive to sharing information with the franchisors

complements versus substitutes and trends in fertility choice in dynastic models demographers emphasize decreased mortality and economic development as the main contributors generating the demographic transition contrary to previous findings we show that simple dynastic models a la barro becker can reproduce observed changes in fertility in response to decreased mortality and increased productivity growth if the intertemporal elasticity of substitution is low enough we show that this is largely due to number and welfare of children being substitutes in the utility of parents in this case we find that with an ies of one third model predictions of changes in fertility amount to two thirds of those observed in u s data since 1800 between 1800 and 2000 fertility choice in the united states underwent a dramatic transition depending on estimates it fell from about six children per woman to around two children per woman this demographic transition from a state of high fertility and high mortality to low fertility and low mortality has been documented by demographers and historians in the united states and in every other developed country in the world over this same period natural rates of population growth net of immigration also fell but less substantially demographers have not reached a consensus on the root causes of this transformation but list several changes as likely main contributors these include reductions in infant and child mortality rates imrs and cmrs and the process of industrialization and economic development the work in demography and history on this topic has largely been limited to empirical studies with almost no choice based modeling of the type seen in economics even there issues of the timing of changes

buyer seller negotiations around the pacific rim differences in fundamental exchange processes the determinants of buyer seller negotiations in four cultures are investigated in a laboratory simulation one hundred thirty eight american 54 chinese 42 japanese and 38 korean business people participated in a two person buyer seller intracultural negotiation simulation in negotiations between americans the use of more problem solving bargaining strategies positively influenced negotiation outcomes in negotiations between chinese more competitive strategies led to better results in japanese and korean negotiations buyers achieved higher economic rewards than sellers in all four cultures bargainers were more satisfied with negotiation outcomes when partners were rated more attractive

chronic disease burden and the interaction of education fertility and growth abstract this study considers the eradication of hookworm disease from the american south circa 1910 as a test of the quantity quality q q framework of fertility eradication was principally a shock to the price of quality because of three factors hookworm i depresses the return to human capital investment ii had a very low case fatality rate and iii had negligible prevalence among adults consistent with the q q model we find a significant decline in fertility associated with eradication

agency theory and franchising some empirical results this article provides an empirical assessment of various agency theoretic explanations for franchising including risk sharing one sided moral hazard and two sided moral hazard the empirical models use proxies for factors such as risk moral hazard and franchisors need for capital to explain both franchisors decisions about the terms of their contracts royalty rates and up front franchise fees and the extent to which they use franchising in this article i exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the united states in 1986 the data are most consistent with a model based on two sided moral hazard the empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts finally contrary to the predictions of several theoretical models i find that royalty rates and franchise fees are not negatively related

control modes in international service operations the propensity to franchise what determines a service firm s organizational choice between equity based control and franchising this question which has elicited some theoretical answers and a few empirical tests in a domestic setting has never been addressed in an international context before this study explains the mode of control chosen in terms of a theoretical framework which borrows from agency theory and transaction cost analysis the propensity to franchise internationally was found to be directly related to i monitoring costs associated with geographical and cultural distance between the principal franchisor and its foreign agents franchisees ii the principal s international experience and iii the degree of host countries contextual uncertainty but inversely related to the service firm level of brand name asset specificity

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

the problem of population and growth a review of the literature from malthus to contemporary models of endogenous population and endogenous growth abstract this paper deals with the evolution of the literature on the problem of population and growth from the classical period to the recent literature on endogenous growth and development the problem concerns two distinct issues 1 how to explain the observed covariation of the levels and rates of growth of per capita income and population size over time and space and 2 how to improve the human condition represented by these variables through an accommodating social policy the evolution of the literature we survey is reflected by the progressive treatment of key variables as endogenous rather than exogenous to the growth process it is also reflected by a shift from the historical concern about population explosion and its implications for growth to the more recent concern about the association between growth and population implosion in many developed countries

endogenous childlessness and stages of development abstract although developing countries are characterized by high average fertility rates they are as concerned by childlessness as developed countries beyond natural sterility there are two main types of childlessness one driven by poverty and another by the high opportunity cost of child rearing we measure the importance of the components of childlessness with a structural model of fertility and marriage deep parameters are identified using census data from 36 developing countries as average education increases poverty driven childlessness first decreases to a minimum and then the opportunity driven part of childlessness increases we show that neglecting the endogenous response of marriage and childlessness may lead to a poor understanding of the impact that social progress such as universal primary education may have on completed fertility the same holds for family planning closing the gender pay gap and the eradication of child mortality

geography health and the pace of demo economic development abstract this paper investigates the impact of subsistence consumption and extrinsic and intrinsic causes of child mortality on fertility and child expenditure it offers a theory for why mankind multiplies at higher rates at geographically unfavorable tropical locations placed into a macroeconomic framework this behavior creates an indirect channel through which geography shapes economic performance it is explained why it are countries of low absolute latitude where we observe exceedingly slow if not stalled economic development and demographic transition

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

multi unit franchising growth and management issues abstract entrepreneurs in a number of retailing sectors have eschewed the creation of company owned chains and have embraced franchising as a preferred method for growing their businesses there have been two leading reasons proposed for this preference first that franchisees provide the financial capital necessary for expansion and second that franchisees manage the outlets better than company employees would if the unit were company owned interestingly although many entrepreneur franchisors confirm the relevance of the capital acquisition argument in their decision making theoretical analysis has discounted its importance instead researchers have focused on the incentives of employee store managers to misrepresent their ability and their effort as the dominant impetus behind franchising misrepresentation by employees as to ability and effort imposes costs and inefficiencies on the entrepreneur s chain arguing that franchising solves these problems by having the stores managed by persons with claims to the profits these researchers have by and large rejected the capital acquisition argument for franchising in favor of this incentive based rationale within this view multi unit franchising presents a curious anomaly multi unit franchising either through the incremental expansion by the franchisee one unit at a time or through the rights to open multiple units contained in an area development agreement creates a collection of mini chains within the franchise system these mini chains are operated by employee store managers of course they are employees of the franchisee but they are employees nonetheless and as franchise researchers have traditionally argued regarding the entrepreneur s employees they will have incentives to misrepresent their ability and effort moreover multi unit franchising is ubiquitous if multi unit franchising is at odds with the incentive rationale for franchising and it has a positive association with the growth of franchise systems it must be providing the entrepreneur with some other benefit in this study we argue that the benefit it provides is access to capital through a study of fast food franchise systems we demonstrate that the more a chain engages in multi unit franchising i e the greater the proportion of multi unit franchisees it has the faster it grows even faster than franchise systems generally moreover we show that the level of commitment franchisors feel toward continuing to franchise is negatively related to the average number of units per franchisee and negatively related to their ability to obtain financial capital elsewhere in other words although multi unit franchising helps an entrepreneur grow his or her business by providing increased access to capital store level incentive problems get increasingly troublesome as franchisees get more and more units it would appear therefore that capital acquisition is a relevant reason for engaging in franchising after all

a fiscal stimulus with deep habits and optimal monetary policy abstract a new keynesian model with deep habits and optimal monetary policy delivers a larger than 1 fiscal multiplier and consumption crowding in optimized taylor type rules dominate a conventional taylor rule consumption is crowded out if the taylor rule is suboptimal or if commitment is absent

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

the effects of child mortality changes on fertility choice and parental welfare empirical studies have overwhelmingly shown that a lower child mortality rate leads to lower fertility yet it has not been possible to satisfactorily analyze this relationship in even the simplest theoretical models this paper attempts to bridge this gap between theory and the empirical literature the paper also presents results on the effects of child mortality changes on parental welfare the analysis captures the dynamic stochastic feature of fertility choice subsumes other endogeneous choices e g the quality of the children and treats the number of children as a discrete variable this added realism is important for the analysis

income shocks contraceptive use and timing of fertility abstract this paper examines the relationship between income shocks and fertility decisions using panel data from tanzania we estimate the impact of agricultural shocks on pregnancies births and contraception use the likelihood of pregnancies and childbirth are significantly lower for households that experience a crop shock furthermore women have significantly higher contraception use after crop losses the increase in contraceptive use comes almost entirely from traditional contraceptive methods such as abstinence and the rhythm method we argue that these changes in behavior are the result of deliberate decisions of the households rather than the shocks effects on other factors that influence fertility such as women s health status the absence or migration of a spouse the dissolution of partnerships or the number of hours worked we also show that although traditional contraceptives have low overall efficacy households with a strong incentive to postpone fertility are very effective at using them

an empirical look at franchising as an organizational form franchise contracts are identified as a hybrid form of economic organization motives for the dominance of franchise arrangements are identified by examining the theoretical literature on franchising and related literatures on the theory of the firm firm growth managerial and employee selection a nd brand name capital empirical tests are performed on the incidence of franchise contracts across states for three industries in which f ranchising is prominent and data are readily available the results s uggest that both principal agent incentives and informational incenti ves favor the use of franchise arrangements copyright 1988 by the university of chicago

unemployment fiscal multipliers we estimate the effects of fiscal policy on the labor market in us data an increase in government spending of 1 percent of gdp generates output and unemployment multipliers respectively of about 1 2 percent at one year and 0 6 percentage points at the peak each percentage point increase in gdp produces an increase in employment of about 1 3 million jobs total hours employment and the job finding probability all rise whereas the separation rate falls a standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization extending the model to strengthen the complementarity in preferences to include unemployment benefits real wage rigidity and or debt financing with distortionary taxation only worsens the picture new keynesian features only marginally magnify the size of the multipliers when complementarity is coupled with price stickiness however the magnification effect can be large

altruism fertility and the value of children health policy evaluation and intergenerational welfare abstract this paper accounts for the value of children and future generations in the evaluation of health policies this is achieved through the incorporation of altruism and fertility in a value of life type of framework we are able to express adults willingness to pay for changes in child mortality and also to incorporate the welfare of future generations in the evaluation of current policies our model clarifies a series of puzzles from the literature on the value of life and on intergenerational welfare comparisons we show that by incorporating altruism and fertility into the analysis of the recent u s experience the estimated welfare gain of a young adult from reductions in mortality easily doubles

quantifying and sustaining welfare gains from monetary commitment abstract our objectives are to quantify the stabilization welfare gains from commitment to examine how commitment to an optimal rule can be sustained as an equilibrium to find a simple interest rate rule that approximates the optimal commitment one we utilize an empirical micro founded euro area dsge model a quadratic approximation of household utility as the welfare criterion employing a nominal interest rate lower bound in contrast to previous studies we find significant commitment stabilization gains of around a 0 4 0 5 equivalent permanent consumption increase and with higher price stickiness gains over 2 we find that a simple optimized commitment rule responding to inflation and the real wage mimics the optimal one

the choice of organizational form the case of franchising abstract we examine companies that franchise some units and centrally operate own others the agency problems confronting these two organizational forms are analyzed testable hypotheses are developed the empirical results support the notion that owning versus franchising reflects a trade off among agency related problems the cost of monitoring store managers appears to be especially important in the own franchise decision the level of repeat business and initial investment requirements per unit also appear to be important

population and the environment a parable of firewood and other tales the author analyzes the relationship between population and the environment with a focus on the role which environmental degradation and natural resources depletion may play in producing the population pressure which lies behind such degradation and depletion especially in developing countries the principal conclusion of this analysis is that the possibilities for a stable equilibrium between human population and its environment are quite limited i show that parental altruism toward their children can only make matters worse if socially unchecked by leading to an increase of the birthrate in every environmental state in comparison with that which would occur in its absence excerpt

income risk the tax benefit system and the demand for children because children represent an irreversible commitment parents might hedge against higher income risk by having fewer children we show that under plausible assumptions recent increases in income risk might have reduced prudent parents desired fertility responses to this via the tax benefit system are considered introducing an expected revenue neutral transfer cum child benefit system under proportional taxation which lets the government share the household s income risk increases desired fertility for parents who would choose to have small families in this system s absence pound for pound the targeted child benefit enhances fertility more than the lump sum transfer

a fiscal stimulus and jobless recovery we analyze the effects of a government spending expansion in a dynamic stochastic general equilibrium model with mortensen pissarides labor market frictions deep habits in private and public consumption investment adjustment costs a constant elasticity of substitution ces production function and adjustments in employment at both intensive and extensive margins the combination of deep habits and ces technology is crucial the presence of deep habits magnifies the responses of macroeconomic variables to a fiscal stimulus while an elasticity of substitution between capital and labor in the range of available estimates allows the model to produce a scenario compatible with the observed jobless recovery

gender bias investments in children and bequests the impacts of pure sex preference and differential earnings opportunities by gender on investments in children are modelled with altruism if bequest constraints do not bind human investments are privately efficient with the higher earning gender receiving more education education does not depend on parental wealth the gender differential in bequests is ambiguous however even in this case when bequest constraints bind education may depend on wealth and it is also possible for the gender with better earnings opportunities to get less education the model is tested with data from philippine villages where bequest constraints are generally nonbinding the schooling differential slightly favors daughters estimated bequest behavior however reflects pure sex preference in terms of our model copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

new keynesian versus old keynesian government spending multipliers renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy because of modelling uncertainty it is essential that policy evaluations be robust to alternative assumptions we find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust government spending multipliers in an alternative empirically estimated and widely cited new keynesian model are much smaller than in these old keynesian models the estimated stimulus is extremely small with gdp and employment effects only one sixth as large and with private sector employment impacts likely to be even smaller we investigate the sensitivity of our findings with regard to the response of monetary policy the zero bound on nominal interest rates and the inclusion of an empirically relevant degree of rule of thumb behaviour in the new keynesian model in addition we relate our findings using estimated structural macroeconomic models to the recent literature using reduced form regression techniques

child mortality child labour and economic development the paper presents a model where the interplay between fertility child labour and education can explain economic stagnation when parents live in an environment of high child mortality if in contrast child mortality is low the solution of the parental decision problem leads to perpetual economic growth the two long run states are connected by a path of demographic transition and economic take off along which the incidence of child labour disappears the paper also discusses alternative policies to escape from the low income equilibrium

fiscal policy and lending relationships this paper studies how fiscal policy affects loan market conditions in the us first it conducts a structural vector autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock while lending increases second it illustrates that these results are mimicked by a dynamic stochastic general equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships third it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock