fiscal policy expectation traps and child labor i introduction child labor is widespread in the contemporary world in fact the international labor organization ilo estimates that 246 million of the world s children aged 5 17 or 16 are child laborers most living in developing countries 1 recently there has been renewed interest in this topic among economists which has led to a series of theoretical studies with the aim of better understanding the causes and consequences of child labor in order to help guide appropriate policy responses as in grootaert and kanbur 1995 basu 1999 and basu and tzannatos 2003 for useful literature surveys typically theoretical models designed to address the important policy issues surrounding child labor posit that a family s decision to send a child to the labor market is taken only as a last resort in order to escape the dire consequences of poverty for example basu and van 1998 baland and robinson 2000 show that this response on the part of the family may be stronger in a dynamic setting because contracts between children and adults are not self enforcing and capital markets are incomplete 2 in this case an adult decision maker may not only send their children to work to escape poverty in the present but do so to escape poverty in the future as well this decision will hinder a child s ability to accumulate human capital and can lead to persistent cycles of poverty and child labor across generations 3 we begin by showing that a benevolent government can address the incidence of child labor that results from the non enforceability of intergenerational contracts and incomplete capital markets through the appropriate use of fiscal policy and that this policy is pareto improving it is then shown that if society s confidence in their government is incomplete this lack of confidence can render the same fiscal policy ineffective in other words if households do not believe that the government will follow through on their policy promise then in fact it is quite possible that the government will not be able to follow through on their promise as a result of these beliefs 4 this self reinforcing nature of fiscal policy in the presence of uncertainty can leave a country in an expectations trap with a low level of human capital and child labor 5 to formally demonstrate this fiscal policy expectations trap hypothesis we employ a three period overlapping generations model in which child labor exists 6 this stylized setup will keep the dynamics manageable and allow us to highlight the effects of uncertainty also within this framework we introduce a missing intergenerational contracts market in conjunction with a human capital production function that exhibits a threshold with respect to parental human capital which gives rise to two locally stable steady states there is a good equilibrium where there is a relatively high level of parental human capital which results in a high level of income and no child labor and there is a bad equilibrium where there is a relatively low level of parental human capital which results in a low level of income and positive child labor this low income child labor equilibrium is the standard poverty trap scenario that typically exists in a deterministic economy with multiple equilibria it is then shown that a benevolent government can replicate the missing intergenerational contracts market with a pay as you go social security program thereby eliminating this component of child labor in an economy with perfect foresight in addition it is also shown that this policy is pareto improving in the sense that all generations are strictly better off under this policy except the initial old who are no worse off the dynamics of this social security program are intuitive if child labor is one possible mechanism adults can use to redistribute resources from their children then the government can reduce this incentive by announcing a social security program that will begin during the current adults old age an institutional intergenerational contract

poverty and conservation the new century s peasant question summary by issuing its millennium development goals the united nations has declared its intention to alleviate poverty and hunger at a global scale over the next decade but the perspectives and policies to achieve those goals have not addressed the failures of previous development efforts of this kind nor have the plans to meet the millennium development goals paid sufficient attention to the costs of rural development for wild nature this paper points up the absence of a new analytical framework for sustainability and an action program in favor of a poverty and conservation oriented rural development program to ensure that the benefits of multilateral development plans accrue to the truly poor and to the future of wild nature

optimal social security in a dynastic model with investment externalities and endogenous fertility this paper studies optimal pay as you go social security with investment externalities positive bequests and endogenous fertility with an investment externality a competitive solution without social security suffers from under investment in capital and over reproduction of population we show the existence of time consistent optimal social security that improves welfare by reducing fertility and increasing capital intensity we also illustrate numerically that a small degree of this externality can justify the observed high ratios of social security spending to gdp

a positive theory of social security based on reputation we construct a general equilibrium model in which a pay as you go social security system can be adopted and sustained as a political and economic equilibrium we alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness

nobel lecture the economic way of looking at behavior an important step in extending the traditional theory of individual rational choice to analyze social issues beyond those usually considered by economists is to incorporate into the theory a much richer class of attitudes preferences and calculations while this approach to behavior builds on an expanded theory of individual choice it is not mainly concerned with individuals it uses theory at the micro level as a powerful tool to derive implications at the group or macro level the lecture describes the approach and illustrates it with examples drawn from my past and current work

long run effects of unfunded social security with earnings dependent benefits this paper examines the effects of unfunded social security with bequests fertility and human capital by considering a mix of earnings dependent and universal social security benefits we show that social security is more likely to promote growth by reducing fertility and increasing human capital investment if its benefits are more dependent on individuals own earnings through simulations we find that the differences in the effects of social security resulting from variations in the benefit formula can be too substantial to be ignored we also investigate the welfare effect in calibrated economies c 2003 elsevier b v all rights reserved

uncertain altruism and investment in children the authors discuss the concept of parental uncertainty about their childrens altruism and the consequences for investment in childrens human capital in this paper we show that if parents are uncertain about their childrens altruism but are at least sure that they will receive some support from their children then the unique optimal investment is the efficient one uncertainty over the exact level of the retirement gift does not alter the conclusion of the perfect certainty case even when parents are risk averse alternatively parents may not know enough about their childrens altruism to feel completely confident that some gift will be forthcoming regardless of the size of their investment under this assumption we show that the optimal investment must be less than the efficient amount excerpt

foreign owned banks in the united states earning market share or buying it foreign owned u s banks have been chronically unprofitable for more than a decade the authors employ a profit efficiency model introduced by allen n berger diana hancock and david b humphrey 1993 modified to be less sensitive to variations in asset size to estimate the relative profit efficiency of 62 foreign owned and 240 u s owned banks between 1985 and 1990 their results indicate that foreign owned banks were significantly less profit efficient than were u s owned banks primarily due to foreign banks reliance on expensive purchased funds for foreign owned banks the results are consistent with a strategy of sacrificing profits in exchange for fast growth and increased market share during the 1980s copyright 1996 by ohio state university press

socially optimal social security and education subsidization in a dynastic model with human capital externalities fertility and endogenous growth abstract this paper considers socially optimal government policies in a dynastic family model with physical capital human capital endogenous fertility and positive spillovers from average human capital such spillovers reduce human capital investment but raise fertility from their social optimum we first characterize the social optimum with a non convex feasible set due to the quantity quality tradeoff concerning children we then show that social security and education subsidization together financed by labor income taxes can fully eliminate the efficiency losses of the spillovers and achieve the social optimum under plausible conditions however none of the policies can do so alone

cost efficiency and financial and geographical characteristics of banking sectors in the mena countries abstractwe utilize the translog stochastic frontier model to estimate the cost efficiency levels for conventional and islamic cooperation council gcc and non gcc banks in the middle east and north african mena countries the estimated cost efficiency averages around 77 for those mena banks but with slight changes in this score for the individual countries the results also show that the banks in the gcc countries are the most efficient in the region and the efficiency scores for the conventional and islamic banks are similar finally the recent financial crisis seems to have a slight impact on the observed efficiency scores of those banks

increasing longevity and social security reforms a legislative procedure approach abstract increasing longevity causes an upward trend in the dependency ratio in many countries this raises concerns about the financial sustainability of social security schemes and reform proposals and initiatives abound it is shown that a fundamental policy choice inevitably arises since a given social security system cannot be maintained by simply indexing pension ages to longevity the political reform process is analysed using the so called legislative procedure when longevity increases the retirement age is raised more than proportionally to the increase in longevity but the young also make larger transfers to the old

voting on pensions a survey abstract the paper presents a nonexhaustive survey of the literature designed to explain emergence size and political sustainability of pay as you go pension systems it proposes a simple framework of analysis a small open two overlapping generation economy model around which some variants are displayed dictatorship of the median voter is assumed the text is organized to answer the following questions i do political equilibria with payg pension schemes exist ii why do they emerge iii what are the conditions for the participation constraint of the pension game to be verified and finally iv what is the size of the pension system chosen by the median voter and how is this size influenced by an exogenous e g demographic shock

a study of bank efficiency taking into account risk preferences abstract i use the stochastic cost frontier approach to investigate efficiency of banks operating in the third federal reserve district accounting for the quality and riskiness of bank output in addition to the mean and mode of the conditional distribution of the one sided error term i calculate confidence intervals for the inefficiency measures based on the conditional distribution the results indicate that third district banks are operating at cost efficient output levels and product mixes but are not efficiently using their inputs the second part of the article relates the inefficiency measures to several correlates

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

dynamic efficiency in the gifts economy abstract in the standard analysis of overlapping generations economies with gifts from children to parents each generation takes the actions of other generations as given the resulting equilibrium is dynamically inefficient in reality however parents realize that children will respond to higher parental saving by reducing gifts for a broad class of gift economies this implicit tax on saving pushes the equilibrium to dynamic efficiency this result reestablishes the potential relevance of the gift model to the us economy renders moot an important part of the ricardian equivalence debate and provides a motivation for a type of social security system

public pensions choices for the future abstract the purpose of this paper is to analyze to what extent pay as you go government mandated pensions can provide adequate retirement income to future generations this question is particularly relevant at times when the financial viability of public pensions is threatened by demographic aging and possibly declining productivity and when more importantly there is little consensus as to why those programs exist as they are that is mandatory public and unfunded the gist of our argument is that an aging population particularly if combined with declining productivity would jeopardize the financial and political viability of public pensions if individuals behavior doesn t adjust to this new reality and public authorities don t adopt the appropriate reforms as to mandatory retirement age payroll taxes and benefits structure among key individual decisions we focus on saving labor participation retirement education migration and fertility we consider how sensitive each of these is to changes in the environment and to changes in policy parameters then we turn to a number of issues unsolved either because of analytical complexity or because they arise from new realities

uncertain lifetime life protection and the value of life saving abstract the analytic innovation is treating life s end as uncertain and life expectancy as partly the product of individuals efforts to self protect against mortality and morbidity risks the demand for self protection is modeled in a stochastic life cycle framework under alternative insurance options the model helps explain the trend and systematic diversity in life expectancies across different population groups as well as the wide variability in reported value of life saving estimates the analysis yields a closed form solution for individuals value of life saving that is estimable empirically it reflects the impacts of specific personal characteristics and alternative insurance options on both life expectancy and its valuation

social security reform and investment in education is there scope for a pareto improvement we propose a pareto improving policy which reduces the overall wage tax burden in an economy with intergenerational trade in a fixed factor of production here labelled as land we analyse a second best environment in which the government cannot resort to non distortionary land taxes reducing the social security contribution rate encourages investment in human capital future efficiency gains accruing to complementary land are capitalized in its value the capital gains may compensate land owning pensioners for reduced benefits we also explain why the unfunded pension system may have lost its appeal even for pensioners after its introduction

malmquist indices of productivity growth during the deregulation of norwegian banking 1980 89 productivity growth during the deregulation of the norwegian banking industry is studied within the framework of data envelopment analysis which explicitly allows for multiple outputs introducing malmquist indices for productivity growth total growth can be decomposed into frontier growth and change in each bank s distance to the frontier both the total growth index and its components can be consistently chained over time we find productivity regress at the average bank prior to the deregulation but rapid growth when deregulation took place deregulation also led to less dispersion of productivity levels within the industry

efficiency enhancing signalling in the samaritan s dilemma suppose an altruistic person a is willing to transfer resources to a second person b if b comes upon hard times if b anticipates that a will act in this manner b will save too little from both agents point of view this is the samaritan s dilemma this paper shows that the undersaving result is mitigated if we relax the standard assumption of complete information because if a is uncertain about how big b s need for support is b will have an incentive to signal that he is in great need by saving more than he otherwise would have done

long run implications of social security taxation for growth and fertility this paper compares long run implications for growth and fertility of four types of taxation for social security with positive bequests a tax rise under lump sum taxation enhances growth but lowers fertility while other types of taxation do so under additional restrictions a tax rise under consumption taxation is less likely to stimulate growth and to reduce fertility than under payroll taxation arise in an interest income tax raises fertility reduces both savings and human capital investment and hence is harmful for growth the case with zero bequests is also discussed

social security the family and economic growth we show that a defined benefits payg social security system distorts key family based choices that affect economic growth we identify human capital as the engine of growth and the motivating forces linking the family s overlapping generations as mutually productive intergenerational transfers and or altruism the payg system is shown to affect adversely at least one of three determinants of the economy s growth path fertility savings and investment in human capital the specific effects may vary over different stages of economic development the growth rate is expected to fall in advanced economies our analysis indicates that the effect may be sizeable jel 915 111 850

identifying a sustained pathway to multidimensional poverty reduction evidence from two chinese provinces poor rural households in developing countries often endure many faceted burdens including monetary poverty nutrition deficiency and energy shortage due to reliance on limited local natural resourc

dynamic allocation in an altruistic overlapping generations economy abstract this paper is concerned with the issue does there exist a social security program which can be maintained period after period to address this issue the paper considers dynamic allocation in an altruistic overlapping generations economy the altruism is intergenerational nonpaternalistic and two sided it is assumed that generations coexisting in the same period agree on a social welfare function which evaluates the consumption of various generations and play a game against those living in different periods a perfect equilibrium of this game is shown to exist and its properties are examined journal of economic literature classification numbers c72 d62 h55

intergenerational trade longevity and economic growth we develop an overlapping generations model of endogenous growth in which human capital is the engine of growth and the generations are linked through material and emotional interdependencies within the family parents invest in their children to achieve both old age support care and emotional gratification and material support from children is determined through self enforcing implicit contracts we show that optimal intergenerational trade can then lead to maximization of growth opportunities our model produces a theory of the demographic transition linking longevity fertility and economic growth we also show that while population aging may raise the growth rate an increase in young age longevity is likely to produce a greater increase in the growth rate and a reduction in the fertility rate in a growth equilibrium these predictions and the model s implications concerning the behavior of private savings during the takeoff period appear consistent with empirical evidence

economies of diversification in the banking industry abstract this paper defines a new measure economies of diversification to examine the cost effect of product line expansion this measure is a special case of expansion path subadditivity and contains economies of scope as a special case a nonparametric frontier technique which isolates the effects of inefficiency and scale is used to measure economies of diversification applied to a set of 468 u s depository institutions operating in 1984 we find slight diseconomies of diversification diseconomies of diversification and inefficiency due to the overutilization of resources are found to be more important determinants of bank costs than is the failure to operate at optimal scale

technical scale and allocative efficiencies in u s banking an empirical investigation a nonparametric frontier approach is used to calculate the overall technical pure technical allocative and scale efficiencies for a sample of 322 independent banks the sample was drawn from the federal deposit insurance corporation tapes on the reports of condition and reports of income call reports for the year 1986 the results indicated a low level of overall efficiency the main source of inefficiency was technical in nature rather than allocative separate efficiency frontiers were constructed to test the effect of branching however the distributions of efficiency measures for branching and non branching banks were not found to be different

lessons for an aging society the political sustainability of social security systems what is the future of social systems in oecd countries in our view the answer belongs to the realm of politics we evaluate how political constraints shape the social security system in six countries france germany italy spain the uk and the us under population aging two main aspects of the aging process are relevant to the analysis first the increase in the dependency ratio the ratio of retirees of workers reduces the average profitability of the unfunded social security system thereby inducing the agents to reduce the size of the system by substituting their claims towards future pensions with more private savings second an aging electorate leads to larger systems since it increases the relevance of pension spending on the policy makers agenda the overall assessment from our simulations is that the political aspect dominates in all countries albeit with some differences spain the fastest aging country faces the largest increase in the social security contribution rate when labor market considerations are introduced the political effect still dominates but it is less sizeable country specific characteristics not accounted for in our simulations such as the degree of redistribution in the pension system and the existence of family ties in the society may also matter our simulations deliver a strong policy implication an increase in the effective retirement age always decreases the size of the system chosen by the voters while often increasing its generosity finally delegation of pension policy to the ec may reduce political accountability and hence help to reform the systems

health spending savings and fertility in a lifecycle dynastic model with longevity externalities we investigate health spending savings fertility and policy implications in a lifecycle dynastic model with longevity externalities in annuity returns we show that such externalities engender not only excessive health spending but also under saving and excessive fertility social security and health subsidization increase health spending and savings but reduce fertility from laissez faire levels a publicly funded universal health system under labour income taxation raises fertility taxing health spending or using social security and public health together can obtain socially optimal health spending savings longevity and fertility numerical results based on us observations suggest substantial variations among these cases especially in old age health spending

short run cost inefficiency of commercial banks a flexible stochastic frontier approach we adopt the intermediation approach and use a flexible stochastic frontier to examine the cost efficiency of united states commercial banks with total assets in excess of million we find an average overall inefficiency of just under 10 percent a level somewhat lower than found in previous work our analysis of intra industry variation concludes that inefficiency generally rises with bank size further banks that have branching networks either domestic or foreign have higher inefficiency on average but at the same time inefficiency falls as the number of offices in the branch network expands state level data on the ease of serviceing the market competition from savings institutions and the financial sophistication of depositors significantly affect bank inefficiency generally with the expected signs finally our findings suggest that regulatory changes that increase capital requirements may lead to increased bank efficiency in the short run copyright 1994 by ohio state university press

intergenerational altruism with future bias abstract we show that standard preferences of altruistic overlapping generations exhibit future bias which involves preference reversals associated with increasing impatience this underlies a conflict of interest between successive generations we explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time we argue that future bias creates incentives to legislate and sustain a pay as you go pension system which every government views as a self enforcing commitment mechanism to increase future old age transfers

the future of social security we analyze the effect of the projected demographic transition on the political support for social security and equilibrium outcomes embedding a probabilistic voting setup of electoral competition in the standard olg model with capital accumulation we find that intergenerational transfers arise in the absence of altruism commitment or trigger strategies closed form solutions predict population ageing to lead to higher social security tax rates a rising share of pensions in gdp but eventually lower social security benefits per retiree the response of equilibrium tax rates to demographic shocks reduces old age consumption risk calibrated to match features of the u s economy the model suggests that in response to the projected demographic transition social security tax rates will gradually increase to 16 other policies that distort labor supply will become less important labor supply therefore will rise in contrast with frequently voiced fears

efficiency in the savings and loan industry abstract the stochastic econometric cost frontier approach is modified to investigate efficiency in mutual and stock s ls using 1991 data on u s s ls this methodology allows both the cost frontier and error structures to differ between s ls of these two ownership forms a likelihood ratio test indicates that the data support this unrestricted model which implies efficient mutual and stock s ls use different production technologies various measures of inefficiency show that on average stock s ls are less efficient than mutual s ls the second part of the article relates the inefficiency measures to several correlates

social security and endogenous growth abstract this paper examines the effects of social security on the steady state growth of per capita income in an endogenous growth model in which agents care about their own consumption the number of children and the welfare of each child it shows that an unfunded program may simulate growth by reducing fertility and increasing the ratio of human capital investment per child to per family income when bequests are positive also it may cause faster growth than funded programs especially when receipts from funded programs are independent of contributions when voluntary saving is positive funded social security is neutral if receipts are linked to contributions and most likely depresses growth if receipts are independent of contributions

forward and backward intergenerational goods why is social security good for the environment this paper studies the ability of nonmarket institutions to invest optimally in forward intergenerational goods figs such as education and the environment when agents are selfish or exhibit paternalistic altruism we show that backward intergenerational goods bigs such as social security play a crucial role in sustaining investment in figs without them investment is inefficiently low but with them optimal investment is possible we also show that making the provision of bigs mandatory crowds out the voluntary provision of figs and that population aging can increase investment in figs

pay as you go public pensions with endogenous fertility abstract veall s 1986 model of public pensions is generalized to allow for endogenous fertility we show that gifts to the old which can be viewed as social security contributions are always positive in the steady state an optimal stationary allocation is sustainable if savings are zero and fertility is exogenous however the optimal allocation is in general not sustainable in particular if a government enforces a social security plan setting the pension level at the optimal gifts and individuals optimize under the pension constraint the resulting sustainable outcome is in general different from either the optimal or nash outcome

public pensions as optimal social contracts abstract a simple overlapping generations model is modified to allow for an externality experienced by the young from consumption by the elderly this sets up a game between generations in which one generation s strategy may be to save too little and rely on gifts from the young e g public assistance for retirement income social security can therefore be viewed as a pareto optimal contract to restore efficient intertemporal allocation a funded public pension plan corresponds to forced saving but is vulnerable in that the next young generation may stop contributing rely on its children for retirement assistance and meanwhile reap the consumption externality from the current elderly s social security benefits this suggests a forced giving or pay as you go type of compulsory pension plan such as exists in most nations which also has the advantage of aiding the initial old generation and therefore generating an immediate consumption externality for the initial young the approach can also be used to explain other aspects of existing social security

inequality democracy and the environment a cross national analysis abstract this paper joins the debate on the relationship between inequality and the environment departing from the past contributions which focused either on the theories of environmental behavior or on economic interests this paper develops arguments about political choice mechanisms that help explain the linkages between inequality and national policymaking related to the establishment of protected areas a cross national analysis of the interactions between inequality democracy and the legal designation of protected areas in a global sample of 137 countries shows that ceteris paribus the effects of inequality vary depending on the strength of democracy in relatively democratic countries inequality is associated with less land in protected areas whereas in relatively undemocratic countries the reverse is true the highly significant effects of inequality undermine the democratic dividend in the arena of nature conservation

antisocial security the puzzle of beggar thy children policies the u s social security program has irrevocably transferred substantial wealth from workers to their ostensibly altruistic parents after some alternative explanations for this paradox are addressed a formal model is developed to show that a majority of rational voters who care about their descendants can support the preservation of current benefits for themselves but accept the prospect of social security s future retrenchment incorporating elements of tabellini s 2000 positive theory of social security and benabou and ok s 2001 analysis of income mobility the model identifies specific forces affecting this time varying individual support for social security these forces are embodied in three hypotheses related to income mobility relative income level and age an ordered logit analysis of cumulative anes data supports these hypotheses

a general index of technical change this paper outlines a procedure for estimating a general index of technical change within the context of a quite general production technology specifically when panel data are available for firms in an industry time specific dummies can be combined in a nonlinear estimation procedure to yield a general index of technical change that may be both nonneutral and scale augmenting this approach offers numerous advantages over the traditional time trend representation of technical change for example the general index can serve as the basis for analysis of the determinants of technical change results for a sample of 30 electric utilities over the period 1951 78 show that the productivity decline of the 1970s can be attributed primarily to sulphur oxide restrictions and secularly declining capacity utilization due to rapidly increasing peak load demands

constraints in perfect foresight models the case of old age savings and public pensions abstract the solution of discrete time perfect foresight models with constrained state variables differs considerably from the solution of models without constraints in this paper this is worked out for a simple model of decision making on public pensions

social security as trade among living generations we model u s social security that is legislated endogeneously by living generations specifically we consider the effects of social security on resource allocation and pareto optimality examining which generations gain from social security and whether some generations lose because saving and transfer decisions are made sequentially in the real world we use an infinite horizon overlapping generations framework in which life cycle saving and transfers to the old are determined by living agents we focus on the case in which agents are altruistic but place sufficiently greater weight on own comsumption than on the consumption of agents in other generations so that starting from a steady state without social security living agents would gain utility if consumption were shifted marginally to them from later generations excerpt

government debt in an overlapping generations model with bequests and gifts in 1974 robert barro argued that if individuals in successive generations were linked by bequests changes in the stock of government debt or in social security programs would have no effect on the steady state capital stock barro assumed that individuals held static expectations and that the size of the population was constant martin feldstein 1974 1977 had concluded that social security would reduce the capital labor ratio in models that did not admit a bequest motive and in his 1976 comment on barro argued that the introduction of government debt or social security into a perfect foresight dynamic growth model with bequests would still reduce the capital labor ratio barro replied that feldstein s criticisms were invalid if the steady state capital labor ratio were smaller than the golden rule level but would be correct if the opposite were true barro did suggest however that the latter possibility with overaccumulation of capital might be ruled out in his model as it was in miguel sidrauski 1967 but he was unable to demonstrate that the required behavior would be consistent with utility maximization by finite lived individuals 1976 p 345 although recent work by willem buiter 1979 jeffrey carmichael 1979 1982 truman bewley 1981 a b and others has helped to elucidate the nature of overlapping generations models with bequests and gifts and the issues in the barro feldstein debate they remain far from clear the purpose of this paper is to shed a little more light on the subject in what follows i contend that some of the authors cited above either have specified the individual s optimization problem in an asymmetric way or have failed to impose necessary conditions for a sensible optimization problem or both there is a natural specification of the barro model 1 that emphasizes the similarity between this model and optimal growth models see for example david cass 1965 peter diamond 1973 here in steady state equilibrium the aftertax interest rate r must equal the rate at which individuals discount the utility of their heirs p r p has become known as the modified golden rule and a meaningful individual optimization problem requires that p exceed n the natural growth rate of the economy my results confirm barro s hunch about his model in a barro model r must exceed n much of the barro feldstein 1976 interchange which assumed that r could have any relation to n is wrong headed barro and feldstein reach different conclusions about the effects of government debt and social security because they assume different individual utility functions also my results contrast sharply with those of buiter and carmichael for example carmichael concluded that with intergenerational transfers from parents to children bequests r must exceed n but with transfers in the opposite direction n must exceed r 1982 pp 205 06 indeed i believe that the buiter carmichael representation of the barro model is logically faulty see section ii in section i i outline an overlapping generations model with gifts and bequests and derive its steady state properties in the next section i discuss the shortand long run effects of introducing government debt into the model and contrast my results with those

how islamic is islamic banking abstract islamic banks hold well over us 700 billion in assets and are growing at over 15 p a islamic banking and finance ibf involves wider ethical and moral issues than simply interest free transactions its advocates argue that these make it more economically efficient than conventional banking and promote greater economic equity and justice to what extent then do actual islamic banking practices live up to the ideal and how different are they from conventional banking a preliminary investigation shows that three decades after its introduction there remain substantial divergences between ibf s ideals and its practices and much of ibf still remains functionally indistinguishable from conventional banking this runs counter to claims by ibf advocates that it would rapidly differentiate itself from conventional banking however despite not providing an alternative to conventional banking and finance ibf does strengthen a distinctly islamic identity by providing the appropriate islamic terminology for de facto conventional financial transactions

a positive theory of social security in many countries social security accounts for a large fraction of the government budget why is this so given that at any point in time the number of recipients of social security benefits is smaller than the number of contributors in the overlapping generations model studied in this paper all individuals currently alive vote on social security in every period in equilibrium the size of social security is larger the greater is the proportion of elderly people in the population and the greater is the inequality of pre tax income within each generation both predictions of the theory are supported by the empirical evidence in cross country data

regulation capital vintage and technical change in the electric utility industry this paper presents estimates of the rate of technical change in the electric power industry over the period 1951 78 the estimated model directly incorporates the effects of rate of return regulation and uses both a time trend and a vintage index to represent disembodied and embodied technical change respectively the results indicate that disembodied technical change was the primary source of cost reduction during 1951 70 and that tighter regulation as represented by a one point reduction in the rate of return would have reduced the rate of technical change by an average of 1 2 during 1951 78 34 references 18 footnotes 3 tables

evaluating the performance of us credit unions credit unions are small cooperative not for profit institutions which distinguishes them from other financial intermediaries in this study we conduct a performance evaluation of credit unions the criteria respect the unique organizational and institutional features of credit unions without losing sight of the fact that they must compete with other financial intermediaries we use nonparametric nonstochastic techniques to measure performance and we use parametric stochastic techniques to attribute performance variation to features of credit unions and their operating environment our sample consists of two thirds of all active credit unions in 1990