occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

smallholder dairying under transactions costs in east africa abstract it is argued that dairying is vital to future viability of many small farms in east africa and that high transactions costs for dairy production and marketing limit participation by asset and information poor smallholders case studies from kenya and ethiopia illustrate the role of dairy cooperatives in reducing transactions costs analysis of the determinants of producer prices received by a sample of dairy producers near addis ababa suggests that different levels of access to infrastructure assets and information explain why they contemporaneously accept widely different producer prices for fluid milk

optimal capital income taxation with incomplete markets borrowing constraints and constant discounting for a wide class of infinitely lived agent models chamley has shown that the optimal capital income tax rate is zero in the long run lucas has argued that for the u s economy there is a significant welfare gain from switching to this policy this paper shows that for the bewley class of models with incomplete insurance markets and borrowing constraints the optimal tax rate on capital income is positive even in the long run therefore cutting the capital income tax to zero may well lead to welfare losses

the distributional implications of asymmetric income dynamics abstract income dynamics differ between groups of households defined by whether the head has university education or not and have changed asymmetrically in great britain since 2008 using a heterogeneous agent incomplete markets model we examine the quantitative implications of these differences for wealth inequality and for the distribution of conditional welfare losses within group wealth inequality is higher for the non university group and has increased since 2008 for both groups while between group inequality has also increased welfare losses are significantly higher for the non university educated since 2008 and are driven by both a greater fall in mean income and a larger rise in income risk non university educated households which had initial wealth below the median and net labour income in the lower quintiles suffered bigger losses social insurance policies beyond those currently in place can mitigate such welfare losses via tax and benefit redistributive mechanisms for the broad majority of households social insurance is valued more when it insures against the big adverse income shocks

an expository note on individual risk without aggregate uncertainty abstract in economies where agents bear some risk the analysis would often be facilitated by the assumption that the risks are i i d and disappear in the aggregate a formal appeal to the law of large numbers requires the consideration of a sequence of finite economies in an economy with a continuum of agents there are countable families of sets for which it is impossible for a law of large numbers to be valid with countably many agents and a finitely additive measure independence is compatible with the law of large numbers

bank liquidity and stability in an overlapping generations model in an infinitely repeated version of the diamond and dybvig 1983 model intergenerational transfers enable a bank to achieve interest rate smoothing and to provide depositors with liquidity insurance without diamond and dybvig s assumption of no side trades the bank is subject to runs that may result from either excessive withdrawals or the lack of new deposits the latter cause which cannot occur in diamond and dybvig s one generation model implies that suspension of convertibility may not prevent bank runs government intervention may be necessary to maintain bank stability article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

higher order expectations in asset pricing we examine formally keynes idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs we call this the higher order wedge which depends on the difference between higher and first order expectations of future payoffs we analyze the determinants of this wedge and its impact on the equilibrium price in the context of a dynamic noisy rational expectations model we show that the wedge reduces asset price volatility and disconnects the price from the present value of future payoffs the impact of the higher order wedge on the equilibrium price can be quantitatively large

membership in citizen groups we analyze the coordination problem of agents deciding to join a group that uses membership revenues to provide a discrete public good and excludable benefits the public good and the benefits are jointly produced so that benefits are valued only if the group succeeds in providing the public good with asymmetric information about the cost of provision the static membership game admits a unique equilibrium and we characterize the optimal membership fee we show that heterogeneity in valuations for the excludable benefits is always detrimental to the group however in a dynamic contest in which heterogeneity arises endogenously returning members receive additional seniority benefits at the expense of junior members we show that in the ex ante optimal contract offering seniority benefits is beneficial for the group despite the heterogeneity in valuations created

slow information diffusion and the inertial behavior of durable consumption this paper studies the aggregate dynamics of durable and nondurable consumption under slow information diffusion sid due to noisy observations and learning within the permanent income framework we show that sid can significantly improve the model s predictions on the joint behavior of income durable consumption and nondurable consumption at the aggregate level specifically we find that sid can significantly improve the model s predictions for i smoothness in durable and nondurable consumption ii autocorrelation of durable consumption and iii contemporaneous correlation between durable and nondurable consumption furthermore we discuss that incorporating a fixed cost into our sid model does a better job of reproducing the infrequent adjustments of durable consumption at the individual level and the slow adjustments at the aggregate level

large firm dynamics and the business cycle do large firm dynamics drive the business cycle we answer this question by developing a quantitative theory of aggregate fluctuations caused by firm level disturbances alone we show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle without appealing to aggregate shocks we offer an analytical characterization of the law of motion of the aggregate state in this class of models the firm size distribution and show that aggregate output and productivity dynamics display i persistence ii volatility and iii time varying second moments we explore the key role of moments of the firm size distribution and in particular the role of large firm dynamics in shaping aggregate fluctuations theoretically quantitatively and in the data

bayesian composite qualitative forecasting hog prices again a new method for forming composite qualitative forecasts is presented a set of qualitative forecasts is evaluated using auxiliary logit models to predict the probability of each forecast s correctness individual model forecasts are then combined on the basis of normalized values of these probabilities this method is demonstrated with three sets of forecasts on the direction of change in hog prices up or down the application shows that without any information on the manner in which the individual forecasts are generated this method can form a composite forecast that is superior according to a variety of metrics for evaluating qualitative forecasts

bank risk dynamics and distance to default we adapt structural models of default risk to take into account the special nature of bank assets the usual assumption of log normally distributed asset values is not appropriate for banks typical bank assets are risky debt claims which implies that they embed a short put option on the borrowers assets leading to a concave payoff this has important consequences for banks risk dynamics and distance to default estimation due to the payoff non linearity bank asset volatility rises following negative shocks to borrower asset values as a result standard structural models in which the asset volatility is assumed to be constant can severely understate banks default risk in good times when asset values are high bank equity payoffs resemble a mezzanine claim rather than a call option bank equity return volatility is therefore much more sensitive to big negative shocks to asset values than in standard structural models

a revised tobit procedure for mitigating bias in the presence of non zero censoring with an application to milk market participation in the ethiopian highlands fixed transactions costs that prohibit exchange engender bias in supply analysis due to censoring of the sample observations the associated bias in conventional regression procedures applied to censored data and the construction of robust methods for mitigating bias have been preoccupations of applied economists since tobin econometrica 26 1958 24 this literature assumes that the true point of censoring in the data is zero and when this is not the case imparts a bias to parameter estimates of the censored regression model we conjecture that this bias can be significant affirm this from experiments and suggest techniques for mitigating this bias using bayesian procedures the bias mitigating procedures are based on modifications of the key step that facilitates bayesian estimation of the censored regression model are easy to implement work well in both small and large samples and lead to significantly improved inference in the censored regression model these findings are important in light of the widespread use of the zero censored tobit regression and we investigate their consequences using data on milk market participation in the ethiopian highlands

productivity gains from unemployment insurance this paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs and by encouraging rms to create those jobs we use a quantitative model to investigate whether this eect is comparable in magnitude to the standard moral hazard eects of unemployment insurance our model economy captures the behavior of the u s labor market for high school graduates quite well with unemployment insurance more generous than the current u s level unemployment would increase by a magnitude similar to the micro estimates but because the composition of jobs also changes total output and welfare would increase as well

unique monetary equilibrium with inflation in a stationary bewley aiyagari model abstract we prove the existence and uniqueness of a stationary monetary equilibrium in a bewley aiyagari model with idiosyncratic shocks this is an exchange economy with an infinite horizon and one consumption good and with each agent facing idiosyncratic endowment shocks at each period the agents may trade their endowments for the only asset fiat money the government increases the money supply at a constant growth rate that induces inflation in a stationary monetary equilibrium we identify the necessary and sufficient condition for a stationary monetary equilibrium where money has a positive value and the aggregate real balance is constant over time to exist and when it exists we show that it is unique the argument for uniqueness is based on a new monotonicity result for the average optimal consumption

who buys and who sells options the role of options in an economy with background risk abstract in this paper we derive an equilibrium in which some investors buy call put options on the market portfolio while others sell them since investors are assumed to have similar risk averse preferences the demand for these contracts is not explained by differences in the shape of utility functions rather it is the degree to which agents face other non hedgeable background risks that determines their risk taking behavior in the model we show that investors with low or no background risk have a concave sharing rule i e they sell options on the market portfolio whereas investors with high background risk have a convex sharing rule and buy these options journal of economic literature classification numbers d52 d81 g11 g13

existence of stationary equilibrium in an incomplete market model with endogenous labor supply in this article i first study an income fluctuation problem with endogenous labor supply let be the agent s time discount factor and r 0 be the constant gross rate of return on assets for r 1 i show that the agent s wealth either approaches infinity almost surely or converges to a finite level almost surely for r

robust comparative statics in large dynamic economies we consider infinite horizon economies populated by a continuum of agents subject to idiosyncratic shocks this framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by bewley aiyagari and huggett models of entry exit and industry dynamics in the spirit of hopenhayn s work and dynamic models of occupational choice and search models as special cases robust and easy to apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the markov processes governing the law of motion of the idiosyncratic shocks

agroindustrialization through institutional innovation transaction costs cooperatives and milk market development in the east african highlands abstract some small holders are able to generate reliable and substantial income flows through small scale dairy production for the local market for others a set of unique transaction costs hinders participation cooperative selling institutions are potential catalysts for mitigating these costs stimulating entry into the market and promoting growth in rural communities trends in cooperative organization in east african dairy are evaluated empirical work focuses on alternative techniques for effecting participation among a representative sample of peri urban milk producers in the ethiopian highlands the variables considered are a modern production practice cross bred cow use a traditional production practice indigenous cow use three intellectual capital forming variables experience education and extension and the provision of infrastructure as measured by time to transport milk to market a tobit analysis of marketable surplus generates precise estimates of non participants distances to market and their reservation levels of the covariates measures of the inputs necessary to sustain and enhance the market policy implications focus on the availability of cross bred stock and the level of market infrastructure both of which have marked effects on participation the velocity of transactions in the local community and inevitably the social returns to agroindustrialization

factors explaining the diffusion of hybrid maize in latin america and the caribbean region if future demand for maize in latin america and the caribbean region lac is to be met from local sources domestic production must continue to increase because further expansion in the area planted to maize is precluded by the limited availability of arable land future increases in production will have to rely heavily on the spread of productivity enhancing hybrid technology until now the diffusion of hybrid maize in lac has been quite variable using data from 18 countries we investigate factors affecting the hybrid maize diffusion rate our findings validate conventional profitability based explanations of producer adoption behavior but they also confirm the importance of supply side factors thereby providing empirical support for the life cycle theory of seed industry development we conclude that if policy makers in lac are to accelerate the diffusion of hybrid maize they will have to ensure an environment in which it is not only profitable for producers to adopt improved germplasm but also profitable for the seed industry to produce and sell high quality seed

the optimum quantity of money in a stochastic economy individuals in a monetary economy face both economy wide and individualspecific risks friedman s 1969 assertion that the price level should fall at the rate of time preference must be modified when such risks are present bewley s 1983 conjecture that the modified deflation should proceed at a rate greater than the rate of time preference is demonstrated to be true in special cases but false in general moreover the indeterminacy of equilibrium bewley found is eliminated by the inclusion of a transactions demand for money

on the existence and uniqueness of stationary equilibrium in bewley economies with production abstract i prove existence of stationary recursive competitive equilibrium in bewley economies with production under specifications in which i the utility function is allowed to be unbounded and ii the underlying discrete idiosyncratic productivity process can take any form aside from mild restrictions some of the intermediate results provide theoretical basis for assumptions often made in the quantitative macroeconomics literature by providing an example i illustrate that the equilibrium is not necessarily unique even under typical specifications of the model and discuss the underlying reasons for multiplicity

a two step econometric estimation of covariates of side selling the case of coffee cooperatives in southwest ethiopia despite their apparent economic benefit to smallholder farmers cooperatives are vulnerable to the problem of side selling using cross sectional household data and cragg s regression model we ide

incomplete markets labor supply and capital accumulation we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks borrowing constraints and endogenous labor supply in the exogenous labor supply case e g aiyagari 1994 huggett 1997 the presence of limited insurance increases the demand for savings for precautionary reasons as a consequence capital and output are higher under incomplete markets we show that if labor hours are endogenous labor supply is likely to be lower under incomplete markets because those agents who experience a high shock to productivity are ex post richer and they work fewer hours in some cases this wealth effect can overcome the aggregate precautionary savings and give rise to lower savings and output under incomplete

on aggregation of information in competitive markets the dynamic case abstract this article examines in the spirit of hellwig 1980 how a dynamic competitive security market aggregates and communicates information between various market participants at every instant it employs a continuous time economy consisting of a large number of heterogeneous agents who are endowed with noisy private signals about the risky asset payoff of differing precision it yields a stationary rational expectations equilibrium in which at every instant the agents use information contained in the market prices without rendering their private information redundant it shows that the market price reflects only that part of private information which is common to many signals and thus extends hellwig s single period results to a multi period model

simulating risk contributions of credit portfolios the 2007 2009 financial turmoil highlighted the need for more active management of credit portfolios after measuring portfolio credit risk an important step toward active risk management is to measure risk contributions of individual obligors to the overall risk of the portfolio in practice value at risk is often used as a risk measure for credit portfolios and it can be decomposed into a sum of the risk contributions of individual obligors estimation of these risk contributions is computationally challenging mainly because they are expectations conditioned on a rare event in this paper we tackle this computational problem by developing a restricted importance sampling ris method for a class of conditional independence credit risk models where defaults of obligors are conditionally independent given an appropriately chosen random vector we propose fast estimators for risk contributions and their confidence intervals furthermore we study the incorporation of traditional importance sampling methods into the ris method to further improve its efficiency for the widely used gaussian copula model numerical examples show that the proposed method works well

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

markets market failures and development a central question in development economics is how can we account for differences in the levels of income and the rates of growth between the developed and less developed economies in the 1950s and 1960s there was a standard answer to this question the poor are just like the rich except they are poorer they have less human and nonhuman capital there was an immediate prescription for this diagnosis increase the resources of ldcs either by transferring capital to them either direct aid or education or by encouraging them to save more today these answers seem less convincing that they did two decades ago if the problem were primarily a shortage of physical capital the return to capital should be much higher in ldcs than in developed countries and the natural avarice of capitalists would lead to a flow of capital from the more developed to the less developed economies see howard pack 1984 and my 1988 paper if the problem were primarily a shortage of human capital then the educated in ldcs should receive a higher absolute as well as relative income than the educated in more developed economies how then can we account for high levels of unemployment among the educated and the migration of the educated from ldcs to more developed economies moreover the predictions of the standard neoclassical growth model of a convergence of growth rates in per capita income with permanent differences in per capita consumption being explained by differences in savings rates and reproduction rates do not seem to have been borne out these observations suggest that the ldcs differ from the developed countries in at least some other important respects and this view is corroborated by those studies which have looked at the productivity of similar plants operating in developed and less developed economies see pack 1984 1987 the difference can be attributed perhaps tautologically to differences in economic organization to how individuals factors of production interact and to the institutions which mediate those interactions among the most important of these institutions are markets it is by now well recognized that there are many instances of market failures in more developed economies see bruce greenwald and myself 1986 in some cases market failures may be ameliorated by nonmarket institutions if for instance capital markets do not function well perfectly if only because of costly and imperfect information nonmarket institutions internal capital markets within large conglomerates may develop market failure is more prevalent in ldcs and the nonmarket institutions that ameliorate its consequences are at least in many instances less successful in doing so the objective of this paper is to explore the causes and consequences of these market failures and the failure of private nonmarket solutions and to suggest possible roles for government intervention tdiscussants anne 0 krueger duke university stanley fischer world bank

f o b pricing versus uniform delivered pricing a welfare analysis in a stochastic environment abstract under imperfect information but otherwise competitive assumptions spatial market equilibria are examined for two pricing structures under f o b pricing buyers face a price that reflects exactly the transportation cost between sellers and themselves under uniform delivered pricing u d p the seller charges the same price to all buyers inclusive of delivery under both buyers know only of sellers from whom they received ads sent randomly by sellers it is found that u d p equilibria may exist when f o b equilibria do not but not conversely also f o b equilibria are not always welfare superior to u d p ones these equilibria are not robust a new firm often succeeds in penetrating a market using a different pricing structure

demographic structure and capital accumulation this paper develops an overlapping generations olg model to analyze the consequences of demographic structure changes induced by an exogenous shift in the birth rate we first show that a finite growth rate of the population that maximizes long run capital per capita exists then we examine the theoretical properties of this growth rate by showing that i it corresponds to the demographic structure such that the average ages of capital holders and workers are equal ii it is associated to an efficient steady state iii it increases with compulsory transfers from younger to older generations finally we explain why standard olg models do not exhibit such a growth rate

holdups and efficiency with search frictions a natural holdup problem arises in a market with search frictions firms have to make a range of investments before finding their employees and larger investments translate into higher wages in particular when wages are determined by ex post bargaining the equilibrium is always inefficient recognizing that capital intensive production relations have to pay higher wages firms reduce their investments this can only be prevented by removing all the bargaining power from the workers but this in turn depresses wages below their social product and creates excessive entry of firms in contrast to this benchmark we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers this efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers we show that the underlying reason for efficiency is not wage posting per se but the ability of workers to direct their search toward more capital intensive jobs

the demand for alcoholic beverages in spain the objective of this study is to analyze the main determinants of alcoholic beverages consumption at home data comes from the latest spanish household national survey which provides information on expenditure and quantities of different food products by household because households are interviewed only 1 week a large number of zeros have been recorded among the existing censured demand models the double hurdle dh model the purchase infrequency model and the tobit purchase infrequency model among others and after carrying out model selection tests the dh model has been finally estimated all expenditure elasticities are positive corresponding the highest value to spirits own price elasticities are negative and also in this case the spirits exhibit the highest value socio economic variables also play an important role in explaining consumer purchase and consumption decisions

a general equilibrium model of statistical discrimination we study a general equilibrium model with endogenous human capital formation in which ex ante identical groups may be treated asymmetrically in equilibrium the interaction between an informational externality and general equilibrium effects creates incentives for groups to specialize discrimination may arise even if the corresponding model with a single group has a unique equilibrium the dominant group gains from discrimination rationalizing why a majority may be reluctant to eliminate discrimination the model is also consistent with reverse discrimination as a remedy against discrimination since it may be necessary to decrease the welfare of the dominant group to achieve parity

importance sampling for integrated market and credit portfolio models a sophisticated approach for computing the total economic capital needed for various stochastically dependent risk types is the bottom up approach in this approach usually market and credit risks of financial instruments are modeled simultaneously as integrating market risk factors into standard credit portfolio models increases the computational burden of calculating risk measures it is analyzed to which extent importance sampling techniques previously developed either for pure market portfolio models or for pure credit portfolio models can be successfully applied to integrated market and credit portfolio models specific problems which arise in this context are discussed the effectiveness of these techniques is tested by numerical experiments for linear and non linear portfolios

precautionary wealth accumulation this paper provides theoretical foundations for when individual and aggregate wealth accumulation increase as earnings risk increases stated in terms of a simple picture the problem addressed in this paper is to find sufficient conditions such that the pattern in figure 1 holds figure 1 describes a situation in which an individual s expected wealth accumulation profile is weakly greater at each age over the life cycle whenever the individual faces one earnings process that is riskier than another earnings process other things equal two important open questions can be answered by finding sufficient conditions for the pattern in figure 1 to occur first there is the question of when theory predicts that households that face more earnings risk have more expected wealth accumulation at any point in the life cycle than households that face less earnings risk the development of such a theory would be helpful as there is a sizeable empirical literature related to this question which is surveyed by browning and lusardi 1996 second there is the question of when theory predicts that aggregate wealth accumulation increases as earnings risk increases much of the interest in the precautionary savings literature is based on the possibility that an important part of aggregate wealth is due to uninsured earnings risk this question can also be answered with figure 1 the idea is to treat the expected wealth profile of one individual as the realized average wealth profile of a large number of similarly situated individuals the law of large numbers justifies this when shocks are independent across individuals and thus earnings risk is idiosyncratic since aggregate wealth holding is a weighted sum of the average wealth holdings of individuals at different ages an upward shift of the expected wealth profile of all agents then implies that aggregate wealth holding increases with increases in earnings risk other things equal this paper provides the first general answer to when the pattern in figure 1 occurs in the context of a multi period model with independent earnings shocks the answer is given at two levels in terms of properties of the decision rule for savings i e the savings function and in terms of preferences a savings function maps an individual s current state e g current wealth and earnings and age into savings or wealth carried into the next model period given a specific earnings process since economists are familiar with the merits of sufficient conditions stated in terms of preferences i will try to motivate why sufficient conditions stated in terms of the savings function are interesting first they are widely applicable they apply to theories where savings decisions maximize a utility function or are given by a rule of thumb they also apply to models where there is wage risk and there are both consumption saving and labour leisure decisions second in so far as the savings function can be estimated it is useful for an empirical

fast simulation of multifactor portfolio credit risk this paper develops rare event simulation methods for the estimation of portfolio credit risk the risk of losses to a portfolio resulting from defaults of assets in the portfolio portfolio credit risk is measured through probabilities of large losses which are typically due to defaults of many obligors sources of credit risk to which a portfolio is exposed an essential element of a portfolio view of credit risk is a model of dependence between these sources of credit risk large losses occur rarely and are most likely to result from systematic risk factors that affect multiple obligors as a consequence estimating portfolio credit risk poses a challenge both because of the rare event property of large losses and the dependence between defaults to address this problem we develop an importance sampling technique within the widely used gaussian copula model of dependence we focus on difficulties arising in multifactor models that is models in which multiple factors may be common to multiple obligors resulting in complex dependence between defaults our importance sampling procedure shifts the mean of the common factor to increase the frequency of large losses in multifactor models different combinations of factor outcomes and defaults can produce large losses so our method combines multiple importance sampling distributions each associated with a shift in the mean of common factors we characterize optimal mean shifts finding these points is both a combinatorial problem and a convex optimization problem so we address computational aspects of this step as well we establish asymptotic optimality results for our method showing that unlike standard simulation it remains efficient as the event of interest becomes rarer subject classifications simulation efficiency variance reduction probability large deviations finance credit risk portfolio area of review simulation history received august 2005 revisions received january 2007 may 2007 accepted june 2007

affirmative action in a competitive economy abstract we consider a model of endogenous human capital formation with competitively determined wages discrimination is sustainable in equilibrium in the presence of two distinguishable but ex ante identical groups of workers an affirmative action policy consisting of a quota may fail in the sense that there still may be equilibria where groups are treated differently however the incentives to invest for agents in the discriminated group are improved by affirmative action if the initial equilibrium is the most discriminatory equilibrium in the model without the policy the welfare effects are ambiguous it is possible that the policy makes the intended beneficiaries worse off even if the starting point is the most discriminatory equilibrium the expected payoff may decrease for all agents in the target group

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

income distribution in the dynamic two factor trade model the issue of the effects of trade on personal income distribution has remained largely unexamined this paper describes an overlapping generations 2 x 2 model with a bequest motive and heterogeneous agents in order to examine the problem in this dynamic setting trade leads to both short run and long run reductions increases in inequality in labor capital abundant countries if the investment good is capital intensive if the consumption good is capital intensive the short run effects continue to hold but the long run effects are ambiguous copyright 1992 by the london school of economics and political science

robust comparative statics for non monotone shocks in large aggregative games a policy change that involves a redistribution of income or wealth is typically controversial affecting some people positively but others negatively in this paper we extend the robust comparative statics result for large aggregative games established by acemoglu and jensen 2010 49th ieee conference on decision and control 3133 3139 to possibly controversial policy changes in particular we show that both the smallest and the largest equilibrium values of an aggregate variable increase in response to a policy change to which individuals reactions may be mixed but the overall aggregate response is positive we provide sufficient conditions for such a policy change in terms of distributional changes in parameters

a selectivity model of household food marketing behavior in sub saharan africa the agricultural household s discrete decision of whether to participate in coarse grain markets is separated here from the continuous decision of how much to sell or buy conditional on participation failure to participate in markets results from high fixed transactions costs a selectivity model endogenously switches households into alternative market participation states correcting for bias caused by the exclusion of unobservable variables affecting both discrete and continuous decisions improved market information increases the probability of participation by sellers while access to cereals processing technology increases quantities transacted by both sellers and buyers conditional on participation

importance sampling for portfolio credit risk monte carlo simulation is widely used to measure the credit risk in portfolios of loans corporate bonds and other instruments subject to possible default the accurate measurement of credit risk is often a rare event simulation problem because default probabilities are low for highly rated obligors and because risk management is particularly concerned with rare but significant losses resulting from a large number of defaults this makes importance sampling is potentially attractive but the application of is is complicated by the mechanisms used to model dependence between obligors and capturing this dependence is essential to a portfolio view of credit risk this paper provides an is procedure for the widely used normal copula model of portfolio credit risk the procedure has two parts one applies is conditional on a set of common factors affecting multiple obligors the other applies is to the factors themselves the relative importance of the two parts of the procedure is determined by the strength of the dependence between obligors we provide both theoretical and numerical support for the method

modeling multiple adoption decisions in a joint framework a multinomial probit mnp model is applied to the modeling of adoption decisions by farmers facing multiple technologies which can be adopted in various combinations this model allows for full investigation of the interactions between decisions to adopt or not adopt several technologies estimation is carried out in a bayesian framework employing gibbs sampling to circumvent past difficulties encountered in maximum likelihood estimation of the mnp model the model is estimated for a sample of u s apple growers with four possible sustainable production technology bundles the results show that adoption decisions are most significantly influenced by off farm labor supply

rationalizable foresight dynamics abstract this paper proposes and studies the rationalizable foresight dynamics a normal form game is repeatedly played in a random matching fashion by a continuum of agents who make decisions at stochastic points in time a rationalizable foresight path is a feasible path of action distribution along which each agent takes an action that maximizes his expected discounted payoff against another path which is in turn a rationalizable foresight path we consider a set valued stability concept under this dynamics and compare it with the corresponding concept under the perfect foresight dynamics

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth