the rotten kid theorem meets the samaritan s dilemma a familiar result in the economic theory of the family is becker s rotten kid theorem this theorem states that altruism by a family member will lead other selfish members to act efficiently from the family viewpoint we extend becker s one period model to two periods and show that parental altruism can result in an inefficiency known in other contexts as the samaritan s dilemma implications of this for transfer arrangements within the family and for the ricardian equivalence theorem are drawn

equality of opportunity and optimal cash and in kind policies abstract this paper examines the argument for public provision of certain private goods like education and health based on equality of opportunity by studying the utility possibility frontier of a society in which there is a concern for the distribution of these goods a given quality of education or health services can be consumed for free in the public sector but people can opt out and purchase their desired quality levels in the private sector some of the conclusions are i a pure cash transfer is optimal when the utility redistribution is either sufficiently small or large ii if and only if both the equality of opportunity concern and the utility redistribution are large enough can an in kind program which attracts the whole population be justified iii even when everybody chooses the in kind program it may be optimal to perform some additional utility redistribution by increasing the size of such program

fiscal policy interventions at the zero lower bound we build on a new keynesian dynamic stochastic general equilibrium dsge model to explore the macroeconomic consequences of fiscal expansionary shocks during the economic crisis of 2008 in the eurozone in this setting we find that the big four eurozone economies france germany italy and spain can effectively escape from their liquidity trap through fiscal policy interventions caused by government purchases we estimate the government spending multiplier to be above 1 8 when this policy is associated with a long term commitment to keeping the nominal interest rate at the zero lower bound as suggested by krugman 1998 notably the short term deficit effect on the budget balance can be offset five years after the implementation of a large spending program we also show that alternative policies with tax cuts that expand the supply do not appear to have the same power in the short run moreover we provide novel empirical evidence that a large government debt renders a government spending policy ineffective

optimal fiscal and monetary policy with occasionally binding zero bound constraints abstract this paper studies optimal fiscal and monetary policy when the nominal interest rate is subject to the zero lower bound zlb constraint in a stochastic new keynesian economy in the baseline model calibrated to match key features of the u s economy it is optimal for the government to increase its spending when at the zlb in the stochastic environment by about 60 percent more than it would in the deterministic environment the presence of uncertainty creates a unique time consistency problem if the steady state is inefficient although access to government spending policy increases welfare in the face of a large deflationary shock it decreases welfare during normal times as the government reduces the nominal interest rate less aggressively before reaching the zlb

rational irrationality and the microfoundations of political failure models of inefficient political failure have been criticized forimplicitly assuming the irrationality of voters wittman 1989 1995 1999 coate and morris 1995 building on caplan s 1999a 1999b model of rational irrationality the current papermaintains that the assumption of voter irrationality is boththeoretically and empirically plausible it then examinesmicrofoundational criticisms of four classes of political failuremodels rent seeking pork barrel politics bureaucracy andeconomic reform in each of the four cases incorporating simpleforms of privately costless irrationality makes it possibleto clearly derive the models standard conclusions moreover itfollows that efforts to mitigate political failures will besocially suboptimal as most of the literature implicitlyassumes it is a mistake to discount the empirical evidence forthese models on theoretical grounds

the political economy of publicly provided private goods abstract this paper integrates two different approaches to the analysis of public provision of private goods education health care day care etc while normative public economics has established an efficiency case for such provision the commonly held political economy view has been that it is an economically inefficient phenomenon generated by the political process we establish a political economy framework which in general yields an efficient choice of distributional policy it follows that the central mechanism studied in the normative theory is equally relevant to voting models of decisions on public provision it is shown that under plausible information constraints economically efficient public provision of private goods will be part of politically rational decisions the result is established both within a median voter process and a representative democracy of political parties

an economic rationale for public education the value of commitment abstract this paper offers an explanation for the widespread phenomenon of uniform public schooling which is viewed here as a way for the government to precommit itself to restraints on future income redistribution such precommitment is likely to enhance accumulation of human capital to bolster economic growth and under certain circumstances to constitute a preferred choice for a majority of voters

altruism and risk sharing in networks we provide the first analysis of the risk sharing implications of altruism networks agents are embedded in a fixed network and care about each other we study whether altruistic transfers help smooth consumption and how this depends on the shape of the network we identify two benchmarks where altruism networks generate efficient insurance for any shock when the network of perfect altruism is strongly connected and for any small shock when the network of transfers is weakly connected we show that the extent of informal insurance depends on the average path length of the altruism network and that small shocks are partially insured by endogenous risk sharing communities we uncover complex structural effects under iid incomes central agents tend to be better insured the consumption correlation between two agents is positive and tends to decrease with network distance and a new link can decrease or increase the consumption variance of indirect neighbors overall we show that altruism in networks has a first order impact on risk and generates specific patterns of consumption smoothing

the family and the state the immaturity of children sometimes precludes efficient arrangements between children and parents or others responsible for child care the difficulty in establishing efficient relations within families provides the point of departure for our interpretation of the heavy state involvement in the family the authors believe that a surprising number of state interventions mimic the agreements that would occur if children were capable of arranging for their care many regulations of the family improve the efficiency of family activities these interventions include subsidies to education and training social security and other old age support subsidies to births laws that limit access to divorce and the sale of children and laws that require parents permission for early marriage and other choices of children families that leave bequests can force children to repay parents for investments in human capital by reducing bequests therefore these families do not underinvest in childrens human capital by contrast families that do not leave bequests often poorer families do underinvest in children the state may subsidize schools and other training facilities to raise investments in children by poorer families to efficient levels authors modified

intergenerational transfers and liquidity constraints a growing body of evidence indicates that liquidity constraints could affect a substantial proportion of u s consumers but little is known about why these constraints might exist an important but little explored issue is the relationship between inter vivos intergenerational transfers and liquidity constraints these transfers can ease borrowing constraints empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity constrained consumers in particular the distinction between current and permanent incomes of potential recipients is a key aspect of private transfer behavior the findings have important implications for our understanding of consumer behavior

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

transfers in cash and in kind theory meets the data we review theoretical explanations for in kind transfers in light of the limited empirical evidence after reviewing the traditional paternalistic arguments we consider explanations based on imperfect information and self targeting we then discuss the large literature on in kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the samaritan s dilemma pecuniary effects credit constraints asymmetric information amongst agents and political economy considerations our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in kind transfer programs but that some of the other arguments may apply to specific cases political economy considerations must also be part of the story

discretionary monetary policy and the zero lower bound on nominal interest rates abstract ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in new keynesian models a stochastic forward looking model with an occasionally binding lower bound calibrated to the u s economy suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy the fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound the welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the phillips curve these results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment

pecuniary redistribution through in kind programs abstract the pecuniary effects of cash and in kind programs differ a program that builds housing for the poor for example is likely to result in a lower price of existing low income housing than would an equally costly cash transfer program low income renters in general would benefit landlords would lose this paper argues that these pecuniary effects provide a previously unstudied rationale for the use of in kind programs specifically in a world in which the government has limited ability to target taxation the pecuniary effects of in kind programs may be used to transfer rents from one group in society to another the pros and cons of using in kind programs in this way are identified and examples from the real world are discussed

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

altruism within the family reconsidered do nice guys finish last this paper criticizes the view that altruism either increases the benefits of group interactions or improves the allocation of resources within families the authors identify a variety of circumstances in which members of a group would prefer to interact with less altruistic individuals and in which the efficiency of resource allocation is inversely related to the prevailing degree of altruism reasons that altruism might be a counter productive social force include 1 it can alter the social utility possibility frontier in surprising and sometimes unfortunate ways 2 it can entail exploitability causing family members to behave in ways that leave all parties worse off 3 altruists may take inefficient actions to preempt exploitation and 4 family members may establish efficient resource allocation by punishing selfish behavior a rise in the level of altruism may lead to the exclusion of certain punishment strategies on the grounds of credibility 1 general positive result is that sufficiently high levels of altruism almost always lead to efficient resource allocation one should not necessarily expect to find strong altruistic linkages between spouses nor should altruism necessarily contributed to marital stability in addition to the connections between this work and the literature on family behavior this analysis has broader implications concerning the role of altruism in society and the evolution of social conscience

tied transfers and paternalistic preferences why do parents make inter vivos transfers to their children and leave them postmortem bequests 1 gary becker s notions of altruism 1981 ch 8 by which he means that children s utilities are arguments of their parents utility function provides one explanation denoting the children s utility functions by u ci where ci denotes consumption by child i the preferences of parents with two children can be represented by a utility function of the form w cp u1 c1 u2 c2 where cp is the parents own consumption 2 in the altruistic model parents sole motive for intergenerational transfers is to increase their children s utility in other models however parents may have nonaltruistic as well as altruistic motives for transferring resources to their children the literature on economic development emphasizes old age support as a motive for fertility and to a lesser degree as a motive for providing children with human capital as part of an explicit or implicit intergenerational contract when human capital formation is the primary focus of the analysis as in discussions of education and earnings it is useful to decompose inter vivos transfers into human capital formation and other inter vivos transfers such a decomposition can mislead in discussing intergenerational transfers however because it obscures the fact that the provision of human capital by parents constitutes an intergenerational transfer laurence kotlikoff and avia spivak 1981 analyze another old age support model one in which the family operates as an incomplete annuities market in their model children make regular transfers to their aging parents and the share that each child contributes to the parents determines his or her share of the parental estate although the prospect of old age support may be an important motive for downstream intergenerational transfers i e from parents to children in some societies in the united states today upstream transfers appear too small and too uncertain to make this motive credible to explain downstream transfers in the united states today economists have investigated other models in which parents have selfish as well as selfless motives for example b douglas bernheim andrei shleifer and lawrence summers propose a model in which parents use the prospect of bequests to exact services from their children we envision a testator who though altruistic is also affected by actions taken individually by a number of potential beneficiaries he may e g enjoy receiving attention from his children 1985 p 1046 bernheim et al assume that such actions increase parents utility and decrease children s utilities in their model the children s utility functions become u1 ai ci where ai denotes services the ith child provides the parents and the parents utility function becomes w cp al a2 ul al c1 u2 a2 ca to measure these services bernheim et al use frequency of contact i e visits plus telephone calls between parents and children this approach expands the concept of child services to include those provided by adult children who live outside the parents household in an attempt to explain bequests and inter vivos transfers child services originally appeared in discussions of fertility and the allocation of resources to young children living with their parents and thus tends to evoke the joys of young parenthood university of pennsylvania philadelphia pa 19104 and university of washington i am grateful to the national science foundation and the national institutes of health for financial support to gary becker samuel preston david stapleton and paul taubman for helpful comments and to judith farnbach for editonal assistance 1 even if bequests are unplanned as some versions of the life cycle savings model assume inter vivos transfers must be intentional 21 ignore the possible dependence of the children s utility on their own children s utility etc because it is not relevant to the issues discussed in this paper

a theory of impact philanthropy this article develops a new model of altruism called impact philanthropy an impact philanthropist is someone who wants to personally make a difference while that motive is straightforward its logical implications are significantly different from other models of philanthropy for example the contributions of other donors can reduce an impact philanthropist s charitable fulfillment as a result cooperation among impact philanthropists can reduce aggregate giving in addition impact philanthropy can lead to a codependent relationship between givers and receivers in which both benefit from the other finally the model suggests a conflict between charitable organizations and its donors concerning the allocation of charitable gifts in particular a charitable organization prefers to spread a donor s contribution across many goods whereas a donor prefers to target his or her contribution at a specific good d 2003 elsevier b v all rights reserved

do private income transfers increase labor market risk abstract in a two stage model of private income transfers with a labor market we find that the aggregate effect of such transfers induces labor market responses to the increase in moral hazard thereby increasing the volatility of wages and lowering welfare the equilibrium level of transfers exceeds the socially optimum level

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

does more cash in conditional cash transfer programs always lead to larger impacts on school attendance abstract there is considerable evidence that conditional cash transfer cct programs can have large impacts on school enrollment including in very poor countries however little is known about what features of program design account for the observed outcomes in this paper we analyze the impact of a program in cambodia that made payments of varying magnitude to otherwise comparable households the identification is based on a sharp regression discontinuity design we find that a modest cash transfer equivalent to approximately 2 of the consumption of the median recipient household had a substantial impact on school attendance approximately 25 percentage points a somewhat larger transfer did not raise attendance rates above this level

long term environmental problems and strategic intergenerational transfers the impacts of long lived stock pollutants and the measures supposed to address them link current and future generations altruism towards successor generations is a prerequisite for resolving the resulting intergenerational equity issues preference asymmetry and imperfect altruism introduce strategic conflicts between generations here a current generation decides on a combination of abatement and whether to provide an imperfect backstop the future generation decides whether to use the backstop or not we identify three outcomes 1 technology denial in which the current generation deliberately rejects the imperfect backstop to avoid misuse by the future generation 2 underabatement in which the current generation provides the backstop but reduces abatement activities and 3 overabatement in which the current generation provides the backstop but increases abatement activities the outcome depends non trivially on the assessment of collateral damages of the future generation uncertainty over future preferences renders technology denial more likely corresponding author bergheimer str 20 69115 heidelberg germany goeschl eco uni heidelberg de

new keynesian dynamics in a low interest rate environment recent research has found that the dynamic properties of the new keynesian model are unorthodox when the nominal interest rate is zero improvements in technology and reductions in the labor tax rate lower economic activity and the size of the government purchase output multiplier is very large this paper provides evidence that these results are not empirically relevant we show that a prototypical new keynesian model fit to japanese data exhibits orthodox dynamics during japan s episode with zero interest rates we then demonstrate that this specification is more consistent with outcomes in japan than alternative specifications that have unorthodox properties

optimal monetary policy under commitment with a zero bound on nominal interest rates we determine optimal monetary policy under commitment in a forwardlooking new keynesian model when nominal interest rates are bounded below by zero the lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear a calibration to the u s economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached while the empirical magnitude of u s mark up shocks seems too small to entail zero nominal interest rates shocks affecting the natural real interest rate plausibly lead to a binding lower bound under optimal policy however this occurs quite infrequently and does not imply positive average inflation rates in equilibrium interestingly the presence of binding real rate shocks alters the policy response to non binding markup shocks

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

estimating the frequency of price re optimization in calvo style models abstract this paper assesses the empirical performance calvo style models of price re optimization we first show that versions of these models in which firms update non re optimized prices to lagged inflation account well for the statistical behavior of post war u s inflation rates we then investigate whether these models imply plausible degrees of inertia in price setting behavior by firms they do but only if we depart from two standard auxiliary assumptions monopolistically competitive firms face a constant elasticity of demand and capital is homogeneous and can be instantaneously reallocated after a shock we develop a version of the model in which these assumptions are relaxed and show that it is consistent with the view that firms re optimize prices on average once every two quarters

government debt redistributive fiscal policies and the interaction between borrowing constraints and intergenerational altrusim abstract we show how borrowing constraints intergenerational altruism and their interaction shape the aggregate savings response to government debt and fiscal policies that redistribute resources between living generations we also characterize the conditions under which borrowing constraints bind and the altruistic transfer motive operates in terms of the strength of the altruism motive the shape of the lifetime productivity profile the willingness to substitute consumption intertemporally and other factors finally we characterize the dynamic response of aggregate savings to nonneutral government debt policies in economies with binding borrowing constraints

samaritan versus rotten kid another look abstract we set up a two stage game with sequential moves by one altruist and n selfish agents the samaritan s dilemma rotten kid theorem states that the altruist can only reach her first best when the selfish agents move after before the altruist we find that in general the altruist can reach her first best when she moves first if and only if a selfish agent s action marginally affects only his own payoff the altruist can reach her first best when she moves last if and only if a selfish agent cannot manipulate the price of his own payoff

in search of welfare improving gifts gift giving is thought to decrease welfare recipients are sometimes stuck with gifts they would not have purchased because the giver does not perfectly know the recipient s preferences and in kind gifts cannot be costlessly refunded such gifts are welfare reducing compared to giving cash if in addition recipients possess full information as to which stores carry their desired goods and the ability to reach these stores costlessly we replace these two latter assumptions with the more realistic assumptions of uncertainty about the location of goods and search costs in contrast to existing economic models gifts in our model enhance expected welfare moreover gift giving cannot be replaced by a profit maximizing trader nor the introduction of nearby specialty stores carrying gift goods we use our model to explain a number of stylized facts about gift giving the organization of retail trade and in kind government transfers 2008 elsevier b v all rights reserved

targeting transfers through restrictions on recipients our objective is to design transfer programs that maximize some social welfare function following the optimal income tax formulation we assume that a random process endows individuals with characteristics that influence welfare such as ability to earn income medical condition or unmonitorable income the goal is to maximize the utility of a randomly chosen individual other individualistic social welfare functions would lead to equivalent results if the random characteristics were observable a first best outcome could be achieved by making them the basis for lump sum transfers in practice however we can observe only indicators of these characteristics such as earnings medical expenditures or consumption patterns the challenge for policy is to design an efficient second best transfer program based on indicators in this paper we argue that 1 an optimal transfer program in general must sacrifice productive efficiency to target efficiency this is done by imposing restrictions on the choices made by intended beneficiaries 2 a program that incorporates restrictions such as means tested in kind transfers commodity specific taxes and subsidies and even ordeals i e the imposition of deadweight costs to qualify for a transfer will perform better than programs that rely solely on income taxes and cash transfers

in kind versus cash transfers in the presence of distortionary taxes in kind transfers can pareto dominate cash transfers as a means of income redistribution if in kind transfers and leisure are hicks substitutes and leisure is a normal good the result holds when redistributive instruments also include a linear income tax the paper proves that if the poor receive more in kind transfers and the rich less than what they would choose for themselves then compared to cash transfers there will be a higher labor supply by the poor a lower labor supply by the rich and higher levels of aggregate pre tax income and tax revenues

the time varying volatility of macroeconomic fluctuations we investigate the sources of the important shifts in the volatility of us mac roeconomic variables in the postwar period to this end we propose the esti mation of dsge models allowing for time variation in the volatility of the structural innovations we apply our estimation strategy to a large scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades jel c51 e32

the role of altruism in economic interaction abstract this paper considers environments in which the population consists of a mix of altruists and egoists and asks under what situations do altruists have a disproportionately large effect on equilibrium and under what situations is it the egoists we begin by presenting a general framework for answering this question we then apply the framework to the analysis of three economic environments 1 the classic problem referred to as the prisoner s dilemma 2 a world where agents decide whether or not to pollute the environment and 3 a world where agents decide whether or not to donate blood

the fiscal state dependent effects of capital income tax cuts abstract using the post wwii data of u s federal corporate income tax changes within a smooth transition var this paper finds that the output effect of capital income tax cuts is government debt dependent it is less expansionary when debt is high than when it is low to explore the mechanisms that can drive this fiscal state dependent tax effect the paper uses a dsge model with regime switching fiscal policy and finds that a capital income tax cut is stimulative to the extent that it is unlikely to result in a future fiscal adjustment as government debt increases to a sufficiently high level the probability of future fiscal adjustments starts rising and the expansionary effects of a capital income tax cut can diminish substantially whether the expected adjustments are through a policy reversal or a consumption tax increase also a capital income tax cut need not always have large revenue feedback effects as suggested in the literature

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

a new test of borrowing constraints for education we discuss a simple model in which parents and children make investments in the children s education investments for other purposes and parents can transfer cash to their children we show that for an identifiable set of parent child pairs parents will rationally under invest in their child s education for these parent child pairs additional financial aid will increase educational attainment the model highlights an important feature of higher education finance the expected family contribution efc that is based on income assets and other factors the efc is neither legally guaranteed nor universally offered our model identifies the set of families that are disproportionately likely to not provide their full efc using a common proxy for financial aid we show in data from the health and retirement study that financial aid increases the educational attainment of children whose families are disproportionately likely to under invest in education financial aid has no effect on the educational attainment of children in other families the theory and empirical evidence identifies a set of children who face quantitatively important borrowing constraints for higher education

altruism in networks we provide the first analysis of altruism in networks agents are embedded in a fixed network and care about the well being of their network neighbors depending on incomes they may provide financial support to their poorer friends we study the nash equilibria of the resulting game of transfers we show that equilibria maximize a concave potential function we establish existence uniqueness of equilibrium consumption and generic uniqueness of equilibrium transfers we characterize the geometry of the network of transfers and highlight the key role played by transfer intermediaries we then study comparative statics a positive income shock to an individual benefits all for small changes in incomes agents in a component of the network of transfers act as if they were organized in an income pooling community a decrease in income inequality or expansion of the altruism network may increase consumption inequality

altruism the samaritan s dilemma and government transfer policy this paper shows that altruism provides an efficiency rationale for public provision of insurance to the poor the framework is one in which there are rich altruists and risk averse poor who face some possibility of loss the government represents the rich and makes transfers on their behalf with unconditional transfers the poor may forgo insurance and rely on private charity to bail them out in the event of loss this reliance on private charity has adverse efficiency effects these may be avoided if the government makes in kind transfers of insurance copyright 1995 by american economic association

the negative income tax and the evolution of u s welfare policy the negative income tax proposed by milton friedman represents one of the fundamental ideas of modern welfare policy however the academic literature has raised two difficulties with it one challenging its purported work incentives and the other suggesting the possible superiority of work requirements in addition work requirement approaches have gained ground in actual u s welfare policy over the last 30 years and the number of different programs has proliferated another development counter to the negative income tax on the other hand the earned income tax credit has produced a negative income tax like program on a vast scale

donor policy rules and aid effectiveness abstract the present paper examines the macroeconomic impact of aid by introducing endogenous aid allocations into a neoclassical growth framework on this basis it is shown that donor policies can have important implications for the trajectory of recipients gdp per capita depending on specific donor policy choices aid disbursements may lead to faster transitional growth stagnation or cyclical growth moreover the analysis also suggests that donor policies may be part of the reason why foreign aid is not found to be uniformly effective in raising long run productivity across recipients

nonlinear adventures at the zero lower bound abstract in this paper we argue for the importance of explicitly considering nonlinearities in analyzing the behavior of the new keynesian model with a zero lower bound zlb of the nominal interest rate to show this we report how the decision rules and the equilibrium dynamics of the model are substantially affected by the nonlinear features brought about by the zlb we also illustrate a tension between the length of a spell at the zlb and the drop in consumption there

does the samaritan s dilemma matter evidence from u s agriculture the samaritan s dilemma posits a downside to charity recipients may rely on free aid instead of their own efforts anecdotally the expectation of free assistance is thought to be important for decisions about insurance and risky behavior in numerous settings but reliable empirical evidence is scarce we estimate whether the samaritan s dilemma exists in u s agriculture where both private crop insurance and frequent federal disaster assistance are present we find that bailout expectations are qualitatively and quantitatively important for the insurance decision furthermore aid expectations reduce both expenditure on farm inputs and subsequent crop revenue jel d72 h84 q18

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

on the demand for grandchildren tied transfers and the demonstration effect it is argued that parents provide help with housing downpayments in order to encourage the production of grandchildren and that such a subsidization emanates from the bdemonstration effect q a child s propensity to furnish parents with attention and care can be conditioned by parental example parents who desire such transfers in the future have an incentive to make transfers to their own parents in order to instill appropriate preferences in their children this generates a derived demand for grandchildren since potential grandparents will be treated better by their adult children if the latter have their own children to whom to demonstrate the appropriate behavior empirical work indicates behavior consistent with subsidization of the production of grandchildren and the demonstration effect

directed giving evidence from an inter household transfer experiment abstract we investigate the determinants of giving in a lab in the field experiment with large stakes study participants in urban mozambique play dictator games where their counterpart is the closest person to them outside their household when given the option dictators do a large fraction of giving in kind in the form of goods rather than cash in addition they share more in total when they have the option of giving in kind compared to giving that can only be in cash qualitative post experiment responses suggest that this effect is driven by a desire to control how recipients use gifted resources standard economic determinants such as the rate of return to giving and the size of the endowment also affect giving but the effects of even large changes in these determinants are significantly smaller than the effect of the in kind option our results support theories of giving where the utility of givers depends on the composition not just the level of gift recipient expenditures and givers thus seek control over transferred resources

intergenerational effects of welfare reform on educational attainment abstractthis paper estimates the impact of the fundamental welfare reforms of the 1990s on the educational attainment of children in low income families using administrative records and individual survey data spanning the early 1990s to the mid 2000s we find large positive effects of welfare reform income gaps in school enrollment and dropout rates narrow by more than 20 percent unlike the significant and growing relative gains in the years following state welfare reforms we find no evidence of relative gains for low income adolescents in the years preceding the reforms these findings are robust under alternative definitions of the treatment and control groups and after controlling for contemporaneous economic and policy changes

the perils of nominal targets a monetary authority can be committed to pursuing an inflation price level or nominal gdp target yet systematically fail to achieve the prescribed goal constrained by the zero lower bound on the policy rate the monetary authority is unable to implement its objectives when private sector expectations stray far enough from the target low inflation expectations become self fulfilling resulting in an additional markov equilibrium in which the monetary authority falls short of the nominal target average output is below its efficient level and the policy rate is typically low introducing a stabilization goal for long term nominal rates can implement a unique markov equilibrium without fully compromising stabilization policy

evaluating q as an alternative to the rate of return in measuring profitability the ratio of a firm s market value to its replace ment cost q is often used to measure firms profitability the use of q is increasin g in large part because of the growing realization that errors in evaluating firms capital assets may cause errors in estimates of the accounting rate of return r the same objection however applies t o q this paper reports the results of monte carlo experiments designed to determine whether q is superior to r errors in both q and r are large and potentially serious but do not render either measure useless copyright 1988 by mit press

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

why poor countries rely mostly on redistribution in kind abstract we present a model in which the crucial distinction between rich and poor countries is that governments in rich countries have access to a more productive tax collection technology than governments in poor countries since the tax collection technology in poor countries is poor the quality of the public service is low therefore many households at the top of the income distribution opt out of the public service the median voter takes this into consideration and allocates a larger share of the public budget to redistribution in kind public service than to redistribution in cash

repeated interaction and the public provision of private goods the literature suggests that governments can use in kind transfers to design efficient and targeted redistribution schemes if individual incomes are not directly observable we investigate the extent to which the self selection property of in kind transfers carries through if redistributive transfers are made repeatedly in a two period setting the government may gain information about the individuals incomes in the first period and exploit this information for making targeted transfers in the second period this however also triggers changes in the individuals behavior if the government can commit to its future policy the least cost policy may involve randomization between cash and in kind transfers without commitment the dynamic setting works against the government s interest it may no longer be able to use in kind transfers to generate information about the individuals types jel classification h42 h2

when the u s catches a cold canada sneezes a lower bound tale told by deep learning abstract the canadian economy was not initially hit by the 2007 2009 great recession but ended up having a prolonged episode of the effective lower bound elb on nominal interest rates to investigate the canadian the elb experience we build a baby totem model a scaled down version of the terms of trade economic model totem of the bank of canada our model includes 49 nonlinear equations and 21 state variables to solve such a high dimensional model we develop a projection deep learning algorithm a combination of unsupervised and supervised deep machine learning techniques our findings are as follows the canadian elb episode was contaminated from abroad via large foreign demand shocks prolonged elb episodes are easy to generate with foreign shocks unlike with domestic shocks nonlinearities associated with the elb constraint have virtually no impact on the canadian economy but other nonlinearities do in particular the degree of uncertainty and specific closing condition used to induce the model s stationarity

is rotemberg pricing justified by macro data abstract structural models used to study monetary policy often include sticky prices calvo pricing is more common but rotemberg pricing has become popular due to its computational advantage to determine whether the data supports that change we estimate a nonlinear new keynesian model with a zero lower bound zlb constraint and each type of sticky prices the models produce similar parameter estimates and the filtered shocks are nearly identical when the fed was not constrained but the rotemberg model has a higher marginal data density and it endogenously generates more volatility at the zlb which helps explain data from 2008 2011

cost minimizing welfare programs abstract we study opportunities for lowering the cost of welfare programs by exploiting heterogeneity in the unobservable tastes of welfare recipients relying on the inability of cash based programs to achieve self selection we provide circumstances in which it is optimal to provide payments in kind our model differs from other self selection models because we allow the recipients the opportunity to trade the subsequent to the receipt of their welfare packages the presence of unreported cash among the recipient population is considered

should day care be subsidized in the presence of distortionary taxes on labor can subsidies on childcare flnanced by a further increase in taxes raise welfare by encouraging women with small children to work we approach this question in two difierent ways first we consider a set of stylized models where we prove analytically that under some conditions the ramsey optimal policy consists in making childcare expenses tax deductible then we construct a calibrated stochastic dynamic life cycle model of household decision making designed to capture some facts about labor supply in germany we flnd that the welfare gains associated with subsidizing childcare are considerable and that the maximum gains are realized when childcare is subsidized to an even greater extent than what tax deductibility implies

nonlinear income taxation and matching grants in a federation with decentralized in kind transfers we extend to a fiscal federalism setting the literature on redistributive in kind transfers in the presence of nonlinear income taxation local governments have a cost advantage motivating decentralization of the in kind transfer the cost structure varies across regions and the central government cannot observe which region is which we show that decentralized in kind transfers can in this setting be an even more important instrument for relaxing self selection constraints thus helping redistribution than in single government models we characterize the optimal marginal tax rates and matching grants the grants have a very different structure than the one derived in earlier studies