you can t save alone commitment in rotating savings and credit associations in kenya abstract this article examines one reason why individuals develop and maintain local level financial savings organizations known as rotating savings and credit organizations or roscas economic theories suggest that individuals form roscas to finance the purchase of a lumpy durable good in response to intrahousehold conflict over savings or to provide themselves with insurance the article proposes an additional hypothesis for rosca participation saving requires discipline and some roscas may be formed to provide a collective mechanism for commitment in the presence of time inconsistent preferences data from 70 roscas located in western kenya indicate that the commitment hypothesis is plausible and broadly consistent with the design and patterns of participation in these roscas as many rosca participants put it you can t save alone

efficiency in the nfl betting market modifying and consolidating research methods modifying and consolidating previous research methods to generate more reliable estimates some fairly weak evidence is found of inefficiency in the nfl betting market resulting from a bias favouring home underdog against away favourite teams in contrast to previous research no evidence is found that momentum strategies generate significant returns in this market

testing for non linearity in an artificial financial market a recurrence quantification approach abstract in this paper earlier work on testing for non linear dynamics on realizations from an artificial financial market is extended in two ways on the one hand hinich s bispectral test and white s neural network test are computed on the other hand a recently developed methodology to test for hidden structures in data inherited from physics is successfully applied on the realizations of the artificial market results among alternative tests are compared

the late season bias explaining the nfl s home underdog effect this article examines price efficiency and out of sample predictability in the nfl point spread betting market our main contribution to the existing literature is the identification of a persistent increase in bias magnitude during the final few weeks of each season we demonstrate that this anomaly causes the much documented home underdog effect we also offer evidence that the limits of arbitrage have enabled this phenomenon to persist for decades finally we use several regression models to confirm our univariate analysis and show that these models can be used to implement profitable betting strategies the predictive models presented differ from those in the prior literature by taking into account both short term and aggregate biases

information and efficiency goal arrival in soccer betting an efficient market incorporates news into prices immediately and fully tests for efficiency in financial markets have been undermined by information leakage we test for efficiency in sports betting markets real world markets where news breaks remarkably cleanly applying a novel identification to high frequency data we investigate the reaction of prices to goals scored on the cusp of half time this strategy allows us to separate the market s response to major news a goal from its reaction to the continual flow of minor game time news on our evidence prices update swiftly and fully

rotating savings and credit associations credit markets and efficiency this paper examines the allocative performance of rotating savings and credit associations roscas a financial institution which is observed world wide we develop a model in which individuals save for an indivisible good and study roscas which distribute funds using random allocation and bidding the allocations achieved by the two types of rosca are compared with that achieved by a credit market and with efficient allocations more generally we find that neither type of rosca is efficient and that individuals are better off with a credit market than a bidding rosca nonetheless a random rosca may sometimes yield a higher level of ex ante expected utility to prospective participants than would a credit market i introduction rotating savings and credit associations roscas are a widely observed institution for financial intermediation they are found all over the world particularly in developing countries and have heretofore received scant attention from economists this paper and its companion piece besley coate and loury 1993 constitute a first attempt to analyse their economic role and performance roscas come in two main forms the first type allocates funds randomly in a random rosca members commit to putting a fixed sum of money into a pot for each period of the rosca s life lots are drawn and the pot is randomly allocated to one of the members in the next period the process repeats itself with each previous winner excluded from the draw the process continues until each rosca member has received the pot once at this point the rosca is either disbanded or begins over again individuals may also form a bidding rosca in which the pot is allocated via a bidding procedure the individual who

do informal risk sharing networks crowd out public voluntary health insurance evidence from vietnam many governments in low income countries have promoted voluntary health insurance schemes in recent years with the principal aim of improving access to services amongst those working in the informal economy few attempts to understand demand for such schemes exist particularly in light of the importance of informal social security arrangements for many households a model of demand for health insurance is developed reflecting this context and estimated using data from vietnam the results show that informal financial networks may crowd out government promoted health insurance implications for theory and policy are discussed

the profitability of wagering on nfl games a reappraisal of previously suggested strategies for betting on football games using results of the period 1975 1981 casts considerable doubt on the profitability of relying on the past history of games for guidance in placing bets

the economics of roscas and intrahousehold resource allocation this paper investigates individual motives to participate in rotating savings and credit associations roscas detailed evidence from roscas in a kenyan slum nairobi suggests that most roscas are predominantly composed of women particularly those living in a couple and earning an independent income to explain this phenomenon we propose an argument based on conflictual interactions within the household participation in a rosca is a strategy a wife employs to protect her savings against claims by her husband for immediate consumption the empirical implications of the model are then tested using the data collected in kenya

testing for non linear structure in an artificial financial market abstract we present a stochastic simulation model of a prototype financial market our market is populated by both noise traders and fundamentalist speculators the dynamics covers switches in the prevailing mood among noise traders optimistic or pessimistic as well as switches of agents between the noise trader and fundamentalist group in response to observed differences in profits the particular behavioral variant adopted by an agent also determines his decision to enter on the long or short side of the market short run imbalances between demand and supply lead to price adjustments by a market maker or auctioneer in the usual walrasian manner our interest in this paper is in exploring the behavior of the model when testing for the presence of chaos or non linearity in the simulated data as it turns out attempts to determine the fractal dimension of the underlying process give unsatisfactory results in that we experience a lack of convergence of the estimate explicit tests for non linearity and dependence the bds and kaplan tests also give very unstable results in that both acceptance and strong rejection of iidness can be found in different realizations of our model all in all this behavior is very similar to experience collected with empirical data and our results may point towards an explanation of why robustness of inference in this area is low however when testing for dependence in second moments and estimating garch models the results appear much more robust and the chosen garch specification closely resembles the typical outcome of empirical studies

testing for efficiency in lotto markets state sponsored lotto games because they are pari mutuel and because jackpots with no winner are rolled over into the next drawing present an excellent opportunity to test for market efficiency using data from massachusetts kentucky and ohio we investigate bettors responses and test for weak form efficiency lotto bets do not have positive net expected returns thus weak form efficiency exists to evaluate strong form efficiency we utilize the concept of a rational expectations equilibrium we find that in general lotto bettors decisions to play generate a level of sales that conform to their original forecasts of expected value

informal microfinance institutions and development led tourism entrepreneurship this paper explores how informal microfinance institutions imfis support development led tourism entrepreneurship through providing microcredit and development opportunities to small tourism firms stfs as well as undertaking communitarian projects and outreach activities that promote the business activities of stfs drawing on resilience and social capital as central concepts the paper argues that the form of collective action found in imfis can be examined to understand their impact on development led tourism entrepreneurship using cameroon as a case study important policy challenges in destinations where regulatory constrains cause many stfs to become dependent on imfis as opposed to formal regulated financial institutions in development led tourism are highlighted

market reaction to public information the atypical case of the boston celtics abstract the publicly traded boston celtics limited partnership shares provide a unique means of studying the impact of information on equity prices the results of the celtics basketball games significantly affect partnership share returns trading volume and volatility controlling for the expectedvalue of the signal using betting market point spreads has little effect on these relations investors respond asymmetrically to wins and losses and playoff games have a larger impact on returns than regular season games opening prices do not fully reflect game results consistent with previous findings that significant volatility is caused by traders acting on private information

shadow economies at times of banking crises empirics and theory this paper investigates the response of the shadow economy to banking crises our empirical analysis based on a large sample of countries suggests that the informal sector is a powerful buffer which expands at times of banking crises and absorbs a large proportion of the fall in official output to rationalise our evidence we build a dynamic stochastic general equilibrium model which accounts for financial and labour market frictions and for nominal rigidities in line with the empirical literature on the shadow economy we assume that in the informal sector access to external finance is limited and the production technology is relatively more labour intensive following a banking shock in the official sector the model predicts a large negative transmission to the unofficial economy that substantially dampens the overall effect of the shock

enforcement in informal saving groups abstract informal groups cannot rely on external enforcement to insure that members abide by their obligations it is generally assumed that these problems are solved by social sanctions and reputational effects the present paper focuses on roscas one of the most commonly found informal financial institutions in the developing world we first show that in the absence of an external social sanctioning mechanism roscas are never sustainable even if the defecting member is excluded from all future roscas we then argue that the organizational structure of the rosca itself can be designed so as to address enforcement issues the implications of our analysis are consistent with first hand evidence from rosca groups in a kenyan slum

roscas as financial agreements to cope with self control problems abstract we consider a model in which people with limited self control can sign binding financial agreements among themselves thereby forming coalitions we show that these financial agreements may help them to alleviate their self control problems we then demonstrate that there exists a stable structure of coalitions in which people form rotating savings and credit associations roscas we therefore provide a behavioral rationale for one of the most prevalent and puzzling financial institutions in developing countries finally we derive and discuss some empirical predictions

roscas in urban ethiopia are the characteristics of the institutions more important than those of members abstract using household data from urban ethiopia we provide an empirical test of the economic theory of rotating savings and credit associations roscas and identify the impact of roscas and member characteristics on participation and volume of saving unlike other studies we account for the endogeneity of all rosca variables muslims individuals who live in richer households the self employed private sector employees and households with large numbers of women are more likely to join roscas a robust finding is that the savings are significantly affected by the characteristics of the members but not that of the informal saving institution some policy implications are discussed

nonmarket institutions for credit and risk sharing in low income countries the design credit and risk institutions in low income countries provides one of the most exciting testing grounds for theories of contracting with imperfect information and limited enforcement this paper reviews some of the recent literature with a special focus on nonmarket institutions that cope with risk and provide credit this literature attempts to bring together insights from economic theory especially information economics contract theory and mechanism design theory however it is also applied being motivated by the circumstance of the poor countries that their authors have visited and studied

energy sector pricing on the role of neglected nonlinearity modern economies have been subjected to a number of shocks during the past several years such as the burst of the internet bubble terrorist attacks corporate scandals the war in iraq the uncertainty about energy prices and the recent subprime mortgage crisis in particular during the last few years the energy shock has caused concerns for potential stagflation for both the united states and numerous other countries we perform numerous univariate tests for non linearity and chaotic structure using price data from the energy sector to resolve whether the sector s fundamentals or exogenous shocks drive these prices

efficient market adjustment of odds prices to reflect track biases biases that reflect the economic worth of uncertain contingent claims occur in many financial markets parimutuel betting at racetracks is one such market with ample data to investigate such biases the total wagering market is about 10 billion per year in north america the configuration of racetracks leads to an advantage for horses breaking from post positions near the rail especially for tracks with small circumferences can the bettor make profits with knowledge of this bias to investigate we utilize data from 3 345 races involving over 300 million in wagers from 1982 1983 and 1984 on win and exotic bets at exhibition park in vancouver where this bias should be strong the results indicate that the bias exists but the prices adjust to fully negate the potential gains from the bias

social security and private saving new time series evidence in an important article in the journal of political economy martin feldstein 1974 estimated that the introduction of the social security system had reduced personal saving by 50 percent with serious consequences for capital formation and output his conclusion was based on a consumer expenditure function estimated with u s time series data and incorporating a social security wealth variable of his construction this paper presents new evidence that casts considerable doubt on feldstein s conclusion first the social security wealth variable used by feldstein was seriously flawed as a result of a computer programming error simply correcting this error substantially changes the estimated effect of social security on saving second the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable assumptions that are not demonstrably preferable and are in some cases inferior to alternative assumptions these assumptions relate first to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and second to estimates of the number of workers dependent wives and surviving

the role of informal finance in household capital accumulation evidence from taiwan economies that experience rapid growth also experience major changes in their consumption patterns particularly for consumer durables this paper studies the diffusion of durables in taiwan between 1977 and 1991 we focus on the link between household accumulation of durables and participation in informal financial institutions while growth in per capita income in taiwan had been great many households still reply on traditional forms of finance we test the idea that rotating savings and credit associations which are found worldwide exist to lower the cost of saving for durables our analysis finds evidence of that link

financial constraints and occupational choice in thai villages abstract financial constraints and entrepreneurship are key factors affecting economic performance in developing countries i formulate and solve a model of occupational choice with moral hazard under three alternative financial market environments savings only borrowing and lending with default and moral hazard constrained insurance i use computationally efficient techniques based on mechanism design genetic algorithms and maximum likelihood to estimate and statistically test these models of financial constraints using occupational choice data from thai villages i find evidence that the saving only regime is rejected in favor of regimes allowing for borrowing and or insurance especially in higher wealth data stratifications a direct test between the borrowing and insurance regimes reveals that neither can be rejected in favor of the other allowing ex ante lotteries over wealth improves the explanatory power of the model i also find evidence for differences in the best fitting regimes by region wealth and access to formal credit

re examining the betting market on major league baseball games is there a reverse favourite longshot bias a recent study of the fixed odds betting market on baseball games while finding that the betting market is generally efficient also found evidence of an underbetting on underdog teams this article examines the evidence for this new anomaly it corrects woodland and woodland s estimates of the commission subjective win probabilities and test statistics the efficiency null hypothesis cannot be rejected for all of their tests when revised test statistics are calculated for their sample period however like them it was found that slight underdogs are underbet it is also shown that their bias is not simply a bias involving favourites and underdogs whether underdogs are playing at home or away also seems to matter in their sample period as well a positive relationship between returns and subjective probabilities was found for underdogs and favourites a relationship suggestive of a favourite longshot bias rather than its reverse it is concluded that there is insufficient evidence to claim that this

efficiency and profitability in exotic bets the efficiency and profitability of exotic racetrack bets such as exactas and daily doubles are examined efficiency is understood to mean that above average returns cannot be made in the long run once risk is appropriately controlled for the markets in question are found not to be efficient the inefficiencies however are insufficient to permit simple strategies to show a consistent profit some evidence of smart money exists in that holders of inside information may bet on exactas rather than equivalent standard bets in order to avoid signaling their actions to the betting public copyright 1987 by the review of economic studies limited

the role of surprise understanding overreaction and underreaction to unanticipated events using in play soccer betting market abstract previous research in finance has found evidences of both overreaction and underreaction to unanticipated events but has yet to explain why investors overreact to certain events while underreacting to others in this paper we hypothesize that while market participants generally underreact to new events due to conservatism the extent of underreaction is moderated by surprise thus causing market participants to overreact to events that are highly surprising we test our hypothesis using data from an in play soccer betting market where new events goals are clearly and exogenously defined and the degree of surprise can be directly quantified goals scored by underdogs are more surprising we provide both statistical and economic evidences in support of our hypothesis

the effect of social security on labor supply a cohort analysis of the notch generation this article uses aggregate birth year calendar year level data derived from the current population survey cps to estimate the effect of social security wealth on the labor supply of older men in the 1970s and 1980s the analysis focuses on measuring the impact of the 1977 amendments to the social security act which created a substantial unanticipated reduction in social security wealth for individuals born after 1916 this differential in benefits has become known as the benefit notch results indicate that labor supply continued to decline for the notch babies who received lower social security benefits than earlier cohorts

the degree of inefficiency in the football betting market statistical tests abstract this paper tests the hypothesis that the football betting market is efficient our statistical tests are stronger than those in previous studies and we examine both nfl and college data over a sample period of fifteen years our statistical tests detect two specific biases in the nfl market and an unspecified bias in the college market we examine the year to year consistency and magnitudes of the biases and find that the nfl bias against home teams has been nearly eliminated while the bias against underdogs has increased profitable exploitation of the biases depends upon transaction costs

efficiency of the market for racetrack betting many racetrack bettors have systems since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature fundamental strategies utilize past data available from racing forms special sources etc to handicap races the investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take technical systems require less information and only utilize current betting data they attempt to find inefficiencies in the market and bet on such overlays when they have positive expected value previous studies and our data confirm that for win bets these inefficiencies which exist for underbet favorites and overbet longshots are not sufficiently great to result in positive profits this paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple the system was tested on data from santa anita and exhibition park using exact and approximate solutions that make the system operational at the track given the limited time available for placing bets and found to produce substantial positive profits a model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies

the economic effects of social security toward a reconciliation of theory and measurement abstract in this paper we argue that actuarial valuation of social security benefit streams is theoretically inconsistent with the assumption of pure life cycle motives instead we show that the simple discounted value of future benefits ignoring the possibility of death is often a good approximation to the relevant concept of value this observation motivates a re examination of existing empirical evidence concerning the economic effects of social security we focus our attention on studies of distributional equity and personal saving behavior in both cases we argue that the use of simple rather than actuarial discounting of survival contingent income streams produces results that differ dramatically from previous findings specifically estimates based on actuarial valuation may overstate the importance of redistribution between and within generations and may understate the depressive effect of social security on personal wealth accumulation by a factor of three or more

do consumers respond to future income shocks evidence from social security reform in taiwan abstract a prediction of the basic permanent income hypothesis life cycle model is that an unexpected increase in future income produces an immediate increase in current consumption this paper tests that prediction using data from taiwan the 1985 labor standards law granted all employees in covered industries a windfall retirement severance benefit my results indicate that consumption did not increase immediately for those who were granted the windfall relative to those who received no windfall moreover consumption for those receiving a greater windfall did not increase relative to those who were granted less

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

informal capital sources and household investment evidence from taiwan abstract the purpose of this paper is to investigate the importance of informal financial channels in capital accumulation by household investors the focus is on the link between borrowing from informal financial institutions and households investment in capital stock the empirical evidence is drawn from micro data from taiwan for the period 1977 1992 during this period taiwan emerged rapidly as an industrialized economy despite of its relatively underdeveloped formal financial sector the data show that informal financial channels were heavily relied on by small business entrepreneurs in taiwan it is found that informal financial institutions as a source of funds are important for small investors capital accumulation

the economics of rotating savings and credit associations supported by the center for energy policy studies m i t and the japanese corporate associates program at the kennedy school of government

social security benefits consumption expenditure and the life cycle hypothesis this paper examines the impact of changes in social security benefits on aggregate consumption expenditure under the null hypothesis there should be no contemporaneous effect at the monthly frequency because increases in benefits have always been announced at least 6 weeks prior to payment the paper develops overwhelming evidence contrary to the null that benefits have affected aggregate spending the results have strong implications for several important issues including ricardian equivalence government policy irrelevance and the excess sensitivity of consumption to changes in income

finance and growth for microenterprises evidence from rural china using a survey dataset of chinese rural households we find that access to external finance is positively associated with the decision to become entrepreneur and the initial investment for microenterprises also we find that use of informal finance especially financing from friends and family is positively associated with sales growth of microenterprises with employees but not of self employed we do not find any significant relationship between the use of formal finance and firm growth our findings underline the importance of finance for entrepreneurship and microenterprise growth and the role of informal finance in the absence of efficient formal financial institutions

the financial repression liberalization debate taking stock looking for a synthesis financial repression and liberalization became the object of fierce debates between academics and policy makers since the early 1970s as of the late 1980s financial liberalization became also part of the structural adjustment programs sponsored by the international monetary fund and the world bank however the literature on financial repression and liberalization remains controversial on its theoretical conclusions and policy implications given its importance for both the theory and policy of economic development and growth this paper looks for a possible synthesis after reviewing the theoretical contributions and empirical studies under the headings of the mckinnon shaw and new structuralists models the survey concludes that a new synthesis might be found in the post keynesian attempt to take an institutional perspective within a globalised financial and economic environment

point spreads versus odds why do bookies use the point spread device for wagering on football games when odds betting on the winner is also feasible one possibility is that point spread betting is more fun than odds betting the existence of point spreads however does not logically entail this more fun explanation given simple specifications of beliefs and betting behavior and given that point spreads and odds are equally thrilling it is demonstrated that the point spread game can exist as the game produced by a profit maximizing bookie the disparate beliefs which create the demand for some form of betting market can also explain the particular betting game produced by the bookie

can an islamic model of housing finance cooperative elevate the economic status of the underprivileged abstract a formal home loan is onerous to subprime borrowers in efficient markets this can deter home ownership for financially strapped individuals leading to a market failure this paper proposes a special form of cooperative mortgage financing practiced in oman to overcome this market failure we integrate the literature of mortgage design with that of informal savings schemes i e roscas ascras to illustrate that this mode of financing dissipates credit risk better than the

yes one day international cricket in play trading strategies can be profitable abstract in this study we employ a monte carlo simulation technique for estimating the conditional probability of victory at any stage in the first or second innings of a one day international odi cricket match this model is then used to test market efficiency in the betfair in play market for large sample of odi matches we find strong evidence of overreaction in the first innings a trading strategy of betting on the batting team after the fall of a wicket produces a significant profit of 20 we also find some evidence of underreaction in the second innings although it is less economically and statistically significant than the first innings overreaction we also implement trades when the discrepancy between the probability of victory implied by current market odds differs substantially from the odds estimated by our monte carlo simulation model we document a number of trading strategies that yield large statistically significant positive returns in both the first and second innings

racetrack betting and informed behavior abstract horse racing data permit interesting tests of attitudes toward risk the present paper studies a new sample of racetrack results from atlantic city new jersey the questions examined are 1 are the market odds the best data for predicting the order of finish 2 do horses go off at odds that reflect their true probability of winning 3 is there any evidence that late bettors have better information than early bettors it is found that market odds predict the order of finish well but that favorites are good bets and long shots are poor ones the data suggest that there does exist an informed class of bettors and that bettors are on the whole neither risk neutral nor risk averse

testing effeciency in gambling markets a comment in a recent article in this journal even and noble point out that the regression based test for unbiasedness in point spread betting markets is not valid test when the mean and median of the market s forecast errors are different in the case where skewness is present even and noble propose a likelihood ratio statistic to test for market efficiency in this comment three concerns are explored i whether distributions of market forecast errors in these markets are consistently and significantly skewed ii whether the test proposed by even and noble suffers from the same problem of low power as do other statistical tests in these markets iii whether the even and noble test statistic is actually a new test or simply the equivalent of very simple well known statistical test

rotating savings and credit associations when participants are risk averse we model rotating savings and credit associations roscas among risk averse participants who experience privately observed income shocks a random rosca is not advantageous whereas a bidding rosca is if temporal risk aversion is less pronounced than static risk aversion the payoff scheme of a bidding rosca facilitates risk sharing in the presence of information asymmetries the risk sharing performance of a simple arrangement where a group of homogenous individuals runs several bidding roscas simultaneously is as good as that of a linear risk sharing contract and is more enforceable because it carries a fixed rather than a variable contribution

the anatomy of an informal financial market rosca participation in taiwan abstract little is known about informal financial markets in developing countries this paper analyzes participation in rotating savings and credit associations using a national household survey from taiwan we find that participation is highest among high income households there is some evidence that income stability may play a role as well life cycle differences suggest a role in funding durables purchases our evidence indicates that roscas may be an alternative savings device to the formal financial sector

financial liberalization and aggregate consumption the evidence from taiwan this paper considers the effect of financial liberalization on aggregate consumption with a special focus on taiwan which has sustained a high savings rate and a rapid rate of economic growth under financial dualism but has undertaken financial liberalization since the 1980s leading to an expansion of the formal financial sector the paper finds that because of an active informal financial sector consumers in taiwan are less credit constrained than in other developing countries however the expansion of the formal financial sector has contributed to some relaxation of consumer credit constraints and thereby changes in the income and interest elasticities of consumption it also has brought about a higher consumption growth rate offsetting at least partially the positive growth effect of financial liberalization which helps improve the efficiency in finanacial intermediation

the impact of formal financial inclusion on informal financial intermediation and cash preference evidence from africa this paper examines the effect of formal financial intermediation inclusion on informal financial intermediation and the use of cash for economic activities using data from the global findex 201

are workers permanently scarred by job displacements this paper investigates whether workers suffer lasting scars following job displacements using david t ellwood s 1982 terminology scars represent persistent effects whereas blemishes are transitory adjustments which dissipate over time more precisely dislocated individuals are defined as scarred if they continue to earn less or to be unemployed more than their nondisplaced counterparts even after the conclusion of a several year adjustment period

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