a critical evaluation of rate of return analysis since the development of the concept of human capital schultz i 96 i becker i964 analysis of rates of return has been a standard means of assessing education the conventional way of measuring the return to education is to take a snap shot view of the earnings of people with differing educational experiences it is then possible to calculate the average income earned at different stages of a working life the rate of return to education can then be calculated as the internal discount rate which equates the discounted increment to average earnings to the costs involved in obtaining education both private and social rates of return can be calculated provision of education is often subsidised so that the private cost is lower than the social cost and this will tend to raise the private return above the social return taxation of the private benefit of education offsets this at least partly however ziderman i 973 records that in developed countries private returns normally exceed social returns this pattern is confirmed by psacharopoulos i985 in many cases it is not possible to calculate a full rate of return but one can look at the incremental effect of schooling on earning power thus denison i 967 suggests that in the united states each year of education raises earning power by an average of around 5 6 with the effect tending to rise with the duration of education card and kruger i992 identify effects of similar magnitude it need not be the case that education goes on raising earning power overeducation is clearly possible rudd i990 suggests that in the social sciences education beyond degree level is very damaging to earnings prospects tarsh i992 questions aspects of rudd s study but agrees that higher education graduates do suffer some pay disadvantage rate of return calculations can form the basis for policy decisions in principle social returns to investment in human capital could be compared with those on physical capital so as to give a basis for the allocation of resources between the two types of investment estimates of social rates of return to different types of education could also be used to guide expenditure decisions between these different types however there are many possibly offsetting biases entering into the calculations of rates of return and it is perhaps concern with these that has

rates of return to human capital a test using el salvador data most of the empirical work on human capital has been confined to conditions in developed countries this is probably due to difficulties in obtaining data for other countries it would be interesting to see how robust the theory and its associated models are in conditions regarded as typical for developing countries this will be considered here using a large data set describing the el salvador labor market two questions will be examined namely a how well does the earnings function of the human capital theory explain earnings distribution in el salvador and b does the return to training called experience here approximate the return to school as is often assumed in human capital research the latter issue is of course related to the notion of overtaking the point in the experience profile when the flat earnings stream is intersected from below by the earnings stream affected by postschool investments

entrepreneurial human capital and the long run survival of firms in india abstract this paper analyses the characteristics of entrepreneurs that contribute to firms survival in less developed countries ldcs the study which relies on data collected in a 1971 survey of entrepreneurs in south india and a follow up survey of surviving firms in 1993 finds that entrepreneurial human capital greatly influences firm survival the results indicate that firms founded by older entrepreneurs in higher castes are most likely to survive but that increased education of the founding entrepreneur reduces survival these results provide evidence that opportunities of entrepreneurs outside the firm ignored in most theories are important in firm survival

a decomposition analysis of the trend in uk income inequality post war britain has experienced a number of dramatic demographic and social changes that have undoubtedly influenced the distribution of income there has been a rise in the number of pensioners whose incomes are relatively low a considerable increase in the number of young and old households living on their own and a remarkable expansion in the proportion of working wives the potential importance of these structural changes suggests that their impact on the income distribution needs to be examined systematically before any attempt can be made to interpret the observed trend in overall income inequality adequately the method usually adopted for this purpose attempts to create a comparable time series of distributions based on the structural characteristics pertaining in one particular year for example if we wished to investigate the effect of shifts in the age structure of the population this approach would disaggregate the distribution in one year tl and estimate what the distribution would have been like if the age structure had been the same as that observed in some other year to on the assumption that other distributional characteristics such as ageincome differentials and inequality within age groups remain invariant to this demographic change the comparison between the actual distribution at t1 and the constructed distribution at t1 with to s age structure is taken to indicate the impact of changes in the age structure over the period concerned this comparison can be presented in terms of quantile shares summary measures of inequality or the entire lorenz curves this approach known as shift share analysis or standardising the inequality series see semple i975 love and wolfson i976 dinwiddy and reed i977 royal commission i977 rowley and henderson i978 macleod and horner i980 is perfectly adequate for simple and straightforward structural changes when several changes are occurring simultaneously however it becomes difficult to identify the contribution of the individual factors and to assess their relative importance to the overall trend in inequality furthermore the combined impact of several structural influences will not in general sum up to the inequality change requiring explanation the purpose of this paper is to propose an alternative method of analysing

if we knew ability how would we tax individuals abstract the suggestion to tax people on earnings capacity instead of earnings has been around for a long time and is attractive in terms of economic efficiency in this paper we reflect on the feasibility of such a system and give an exploratory empirical implementation we apply the leyden welfare function of income a survey based measure of an individual s welfare associated with income to derive implications for ability taxation under the assumption that iq and schooling reflect earnings capacity we derive the tax functions using different criteria to distribute the utility loss due to taxation

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

effects of family background on earnings and returns to schooling evidence from brazil we investigate whether omitted family background variables are responsible for high returns to schooling estimated in brazil returns to schooling fall by about one third when parental schooling is added to wage equations surprisingly the schooling of fathers in law has larger effects on wages than the schooling of fathers on the basis of a model of assortative mating we interpret this as evidence that parental characteristics represent unobservable worker attributes rather than nepotism in the labor market we conclude that the family background bias in returns to schooling is modest and need not imply returns to family connections

regime switching cointegration tests for the asian stock index futures evidence for msci taiwan nikkei 225 hong kong hang seng and sgx straits times indices this study applies a cointegration system that considers regime shifts in order to study the long run relationship between the stock index and stock index futures markets the msci taiwan nikkei 225 hong kong hang seng and singapore exchange sgx straits times indices are examined the empirical evidence shows that the cointegration system with regime shifts performs better than the usual cointegration system without considering regime shifts

school supply constraints and children s educational outcomes in rural ghana abstract studies of school attainment often fail to acknowledge the possibility that prices for all schooling levels affect the decision to attend any one schooling level in developing countries the assumption that schooling costs are constant throughout the education cycle is manifestly untrue this paper concentrates on the empirical implications of introducing schooling costs that increase with schooling level the results suggest that the cost of advanced levels of education influences decisions at the primary school level the relative magnitude of the cross price elasticities suggests that cross price effects should not be ignored when designing educational user fees

a two country model of stochastic output with changes in regime abstract this paper evaluates the transmission of business cycles between countries and presents evidence that world wide shocks dominate any transmission of business cycles i examine industrial production and look at the relationships of the united states with canada germany and the united kingdom in the process i present a specialized markov switching time series model and evaluate it relative to other more familiar stochastic models i show that for the data sets considered markov switching models have much better goodness of fit but larger forecast variance relative to arma or var models

strategic responses a survey experiment on opposition to pension reforms the responses given in opinion polls on future policy reforms reflect both subjective expectations and preferences we disentangle these factors using data from a controlled survey experiment conducted in germany at the time of the experiment an increased retirement age had been proposed as part of a pension reform thus the survey respondents faced an incentive to give biased responses by understating their expected work ability at the age of retirement they could make the increase of the retirement age a less attractive policy option we find evidence for such strategic response behavior and this strategic bias appears to be stronger in former communist east germany

a bivariate markov regime switching garch approach to estimate time varying minimum variance hedge ratios this article develops a new bivariate markov regime switching bekk generalized autoregressive conditional heteroscedasticity garch rs bekk garch model the model is a state dependent bivariate bekk garch model and an extension of gray s univariate generalized regime switching grs model to the bivariate case to solve the path dependency problem inherent in the bivariate regime switching bekk garch model we propose a recombining method for the covariance term in the conditional variance covariance matrix the model is applied to estimate time varying minimum variance hedge ratios for corn and nickel spot and futures prices out of sample point estimates of hedging portfolio variance show that compared to the state independent bekk garch model the rs bekk garch model improves out of sample hedging effectiveness for both corn and nickel data we perform white s 2000 data snooping reality check to test for predictive superiority of rs bekk garch over the benchmark model and find that the difference

why have urban poverty and income inequality increased so much argentina 1991 2001 abstract this article analyzes the trends in income inequality and poverty among argentine households during the nineties we assess the effect of changes in labor force participation unemployment educational levels and returns to individual characteristics on income inequality and poverty by using a microsimulation approach we found that unemployment accounts for a large part of the increase in income inequality and poverty experienced in the past decade changes in labor force participation had an equalizing effect over the whole period while changes in the returns to workers sociodemographic characteristics could be associated with a small increase in income inequality with respect to poverty unemployment affected negatively the proportion of households below the poverty line amplified the poverty gap and increased the severity of poverty in contrast changes in labor force participation are associated with a reduction in the poverty rate

earnings functions for the self employed comment abstract the standard human capital earnings model is applied to data from a 1975 socioeconomic survey conducted in tehran iran results show that the returns to schooling for the self employed not including street vendors canvassers and newsvendors are statistically equivalent to those of wage and salary workers thus in contradiction to conclusions drawn from a study by chiswick 1976 the high rates of return to schooling found in many studies of less developed countries do not appear to be the result of the systematic exclusion of the self employed from the estimating samples in other words when wage and salary workers are compared with the self employed in similar occupations their earnings profiles are similar

estimation and testing in models containing both jumps and conditional heteroscedasticity in this article we develop a test for the hypothesis that a series observed in discrete time is generated by a diffusion process this test is based on an overidentifying relation between variance and kurtosis parameters that holds for generalized autoregressive conditional heteroscedastic diffusions the proposed test is not specific to a particular data frequency and clearly indicates the presence of jumps in dollar exchange rates to assess the size and intensity of the jumps we estimate a model containing both jumps and conditional heteroscedasticity

a comparative analysis of independent director appointments on stock price behaviour an empirical investigation based on the markov regime switching model in 2002 the taiwanese government regulated that new companies should appoint independent directors for good corporate governance the purpose of this article is to compare appointing independent directors motivation of structural changes in stock behaviour the empirical results showed that the companies with mandatory or voluntary independent director appointments significantly reduced both stock returns and risks over 2000 2006

option valuation and hedging strategies with jumps in the volatility of asset returns we develop a model in which the volatility of risky assets is subject to random and discontinuous shifts over time we derive prices of claims contingent on such assets and analyze options based trading strategies to hedge against the risk of jumps in the return volatility unsystematic and systematic events such as takeovers major changes in business plans or shifts in economic policy regimes may drastically alter firms risk profiles our model captures the effect of such events on options markets lumpy arrival of information has long been recognized as a phenomenon of considerable importance in financial markets following merton 1976 1 much of the literature on contingent claims valuation under discontinuous information arrival has studied the case where jumps occur in asset values in this article we model the discontinuous resolution of uncertainty in a new way we allow for the volatility of an asset s return to change randomly and discretely we then derive and analyze valuation equations for claims contingent on such an asset we also show how certain traded options together with the underlying stock and a riskless bond can be used to insure against jumps in the volatility of an asset s returns stock price movements in our model fluctuate randomly between low and high volatility regimes discontinuous changes in the volatility of stock prices may be a result of significant changes in a firm s operating and financial structure its competitive environment or its corporate plan reorganizations caused by takeovers and mergers may also occasion such volatility shifts changes in uncertainty in our model could also be systematic and a result of aggregate supply shocks or shifts in economic policies and political regimes our model can also be interpreted as a model of a market where from time to time firms face the release of an important piece of information that may affect their stock prices significantly the market participants may be aware

meeting the millennium development goals in brazil can microeconomic simulations help the authors investigate whether micro simulation techniques can shed light on the types of policies that should be adopted by countries wishing to meet their millennium development goals they compare two families of micro simulations the first family of micro simulations decomposes required poverty changes into a change in the mean and a reduction in inequality although it highlights the importance of inequality reduction it appears to be too general to be of much use for policymaking the second family of micro simulations is based on a richer model of behavior in the labor markets it points to the importance of combining different policy options such as educational expansion and targeted conditional redistribution schemes to ensure that the poorest people in society are successfully reached but the absence of market equilibria in these statistical models as well as the strong stability assumptions which are implicit in their use argue for extreme caution in their interpretation

returns to education a further international update and implications this paper updates evidence on the returns to investment in education by adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60 the new cross country evidence confirms and reinforces earlier patterns namely that returns are highest for primary education the general curricula the education of women and countries with the lowest per capita income the findings have important implications for directing future investment in education which for efficiency and equity purposes should concentrate on these priority areas

designing social security a portfolio choice approach public social security systems may provide diversification of risks to individuals life time income capturing that a pay as you go program paygo may be considered as a quasiasset we study the optimal size of the social security program as well as the optimal split between a funded part and a paygo part by means of a theoretical portfolio choice approach a low yielding paygo system can benefit individuals if it contributes to hedge other risks to their lifetime resources moreover a funded part of the social security system can be justified by potential imperfections to the individuals free access to the stock market numerical calculations for sweden norway the us and the uk demonstrate that the optimal size of paygo part of the pension program varies considerably in response to differences in projected growth rates and the correlation between stock returns and growth our calculations suggest that a paygo program has an important role in the three former countries but not in the u k

an optimal stochastic control framework for determining the cost of hedging of variable annuities abstract an implicit partial differential equation pde method is used to determine the cost of hedging for a guaranteed lifelong withdrawal benefit glwb variable annuity contract in the basic setting the underlying risky asset is assumed to evolve according to geometric brownian motion but this is generalised to the case of a markov regime switching process a similarity transformation is used to reduce a pricing problem with k regimes to the solution of k coupled one dimensional pdes resulting in a considerable gain in computational efficiency the methodology developed is flexible in the sense that it can calculate the cost of hedging for a variety of different withdrawal strategies by investors cases considered here include both optimal withdrawal strategies i e strategies which generate the highest possible cost of hedging for the insurer and sub optimal withdrawal strategies in which the policy holder s decisions depend on the moneyness of the embedded options numerical results are presented which demonstrate the sensitivity of the cost of hedging given the withdrawal specification to various economic and contractual assumptions

distribucion salarial y educacion en lima metropolitana 1970 1984 this paper evaluates tbe effects of educational expansion on the wage distribution in metropolitan lima from 1970 to 19i34 the analysis is based on the dynamic decomposition of the second inequality measured proposed by theil the theil l and makes use of peruvian household surveys the main results suggest that such effects depend on the kind of educational expansion that takes place and that they not necessarily contribute to improve the distribution

regime switching analysis for the impacts of exchange rate volatility on corporate values a taiwanese case a second moment regime switching model with not only a switching intercept and a switching slope but also a switching error variance is applied to examine the impacts of exchange rate volatility erv on corporate values cv for the 10 industries investigated in taiwan two different regimes categorized as strong impact and weak impact are identified the dominant power varies from one industry to another the wald statistics for the null of equality are ambiguous which show that if the markov switching ms model is plausible then the erv might not be one major factor but another factor that could switch the cv of taiwan s industries for the model s volatility influence the data of 8 out of 10 industries are shown to fit a two state model when the volatility is stimulated a two state first order ms model is appropriate for the goodness of fit analysis at the 10 significant level

intergenerational earnings mobility inequality and growth abstract we examine a model in which per capita income inequality intergenerational mobility and returns to education are all determined endogenously individuals earn wages depending on their ability which is a random variable they purchase an education with transfers received from their parents and are subject to liquidity constraints in the model multiple steady state equilibria are possible countries with identical tastes and technologies can reach differing rates of mobility inequality and per capita income equilibria with higher levels of output also have lower inequality higher mobility and more efficient distribution of education

global growth ageing and inequality across and within generations the world s leading economies both developed and developing are engaged in an ever changing economic symbiosis that is governed in large part by demographics and technological change but also by pension healthcare and other fiscal policies this interconnected economic evolution what economists call general equilibrium growth holds important implications for inequality across and within generations this paper presents such a general equilibrium model it features six goods five regions three skill groups and 91 overlapping generations each making life cycle consumption and labour supply decisions the model pays special attention to the evolution of the chinese and indian economies thanks to their rapid technological advance and vast populations these nations will play an ever more dominant role in determining the world s supplies of capital and labour particularly unskilled labour the good news for the developed world is that china and india will supply it with major amounts of capital over time thanks to their high saving rates the bad news is that these economies are also likely to bring much more unskilled relative to skilled labour into the market which will over time dramatically reduce the relative wages of unskilled workers in the us europe and japan this relative increase in the world supply of unskilled workers reflects in large part the simple fact that china and india are gradually bringing each of their skill groups up to western standards but have relatively more unskilled labour in their work forces copyright 2010 oxford university press

wage functions and occupational selection in a rural less developed country setting economists are just beginning to develop empirical knowledge about the basic relationships that determine the distribution of incomes and allocation of resources in the poor rural regions of the world understanding interactions between agriculture and the rest of the economy is particularly important in this context this paper empirically investigates the allocation of human resources between farm work and other jobs and the compensation received by individuals for their work in agriculture and elsewhere specifically two related tasks are undertaken in this paper 1 the estimation of wage functions and 2 the estimation of functions determining the allocation of time among occupations there have been a series of papers which estimate the earnings function using data from poor countries for examples see blaug 1974 chiswick 1977 and valdes 1971 however this study focuses not on total earnings but on the wage rates a person may earn in labor market work because the wage rate is the relevant price of time for many allocative decisions for example in dividing the work year between self employed farming and work as an employee off the farm a key price is the potential wage rate the person can earn in the labor market for discussion and evidence on this issue see sumner 1978 recently a few studies have appeared which illustrate the importance of understanding potential wage variations across individuals in less developed countries rosenzweig 1978 uses wage estimates from aggregate indian data in a model determining the impact of land reform bardhan 1979 develops wage functions from a sample survey in rural india as a step in estimating labor supply for rural households kusnic and davanzo 1980 use wage functions to impute potential incomes and to measure the full income distribution these previous studies illustrate the importance of understanding the determinants of market wages the present paper develops wage functions in more detail focusing especially on industrial differentials in many rural areas employment opportunities may be usefully categorized into 1 self employment mainly on small farms 2 work for wages on large farms and 3 work for wages in non farm industries the combination of selfemployment and work as an employee is also important in many rural areas in both rich and poor countries this paper examines the impact of personal characteristics on the choice to participate in work for wages and on the choice of industry these estimates also form a basis for studying industrial wage differentials tentative estimates of the dependence of participation on expected wages are also presented below the empirical analysis in this paper is based on a 1974 sample of five villages in central guatemala see corona 1978 and stein 1978 one village petapa is larger richer and more urban than the others it lies south of guatemala city within commuting distance of the capital the other villages are outside the capital city region the population sampled is almost exclusively ladino spanish culture as opposed to indian data are available on the earnings hours of work industry age schooling literacy and village of 1 005 male heads of households approximately one third of the sample work as both self employed farmers and hired workers and most of these men work on fincas large plantations another quarter of the sample work as self employed farmers and do no work for wages the suburban village has mostly nonagricultural workers whereas the four other villages have predominantly farmers and farm employees in received for publication june 21 1979 revision accepted for publication december 31 1980 north carolina state university research on this paper began while i was a rockefeller foundation supported post doctoral fellow in the labor and population group of the economics department of the rand corporation and continued at north carolina state university supported by the agricultural research service at rand robert newman served as my research assistant and at n c state james cochell provided able assistance i have benefited from the comments of colleagues at both institutions and from members of the labor economics workshop at the university of north carolina at chapel hill i also thank two anonymous referees for useful suggestions this is paper number 6558 of the journal series of the north carolina agricultural research service raleigh n c

regime switching in stochastic models of commodity prices an application to an optimal tree harvesting problem abstract this paper investigates whether a regime switching model of stochastic lumber prices is better for the analysis of optimal harvesting problems in forestry than a more traditional single regime model prices of lumber derivatives are used to calibrate a regime switching model with each of two regimes characterized by a different mean reverting process a single regime mean reverting process is also calibrated the value of a representative stand of trees and optimal harvesting prices are determined by specifying a hamilton jacobi bellman variational inequality which is solved for both pricing models using a implicit finite difference approach the regime switching model is found to more closely match the behavior of futures prices than the single regime model in addition analysis of a tree harvesting problem indicates significant differences in terms of land value and optimal harvest thresholds between the regime switching and single regime models

gary becker s contributions to economics from his first published work gary becker has consistently strived to extend the domain of economic analysis his interest is in social science broadly defined and he is convinced that economic theory in its established neoclassical form provides the best set of tools for analysing social science questions when he finds an interesting problem on the borderland of what is conventionally thought of as economics and that is where he is looking for his problems he is not worried that he is trespassing on the traditional grounds of sociologists political scientists lawyers anthropologists or biologists on the contrary he clearly delights in showing how economic theory can be brought to bear on such problems he is of course not alone in trying to extend the borders of economics many other scholars have contributed to the movement which some have characterized as economic imperialism becker is one of the most outstanding of the imperialists this review of his work is organized in accordance with the main topics on which becker has worked chronologically his work on the economics of discrimination which grew out of his doctoral dissertation comes first next in order come his fundamental contributions to human capital theory he was also one of the founders of the so called new theory of consumption which is no longer so new and he has made important contributions to the economic study of crime and punishment and to the economics of political decision making some of his most original work is in the economics of the family where he provides economic explanations of such questions as marriage divorce and procreation after the topic by topic review of becker s contributions i will try to provide a more general evaluation of his work and to characterize it more fully in terms of research traditions and methodological attitudes

educational expansion and the kuznets effect the objective in this note is to show the change in wage dispersion in response to increases in the relative supply of educated workers in two low income countries we also measure the relative contributions to that change of its two components the effect of the educational expansion on the educational composition of the labor force holding the educational structure of wages constant and the resultant compression of that structure holding composition constant the paper s analysis is based on three precisely comparable surveys of wage employees conducted in tanzania in 1971 and 1980 and in kenya in 1980

wage dynamics and inequality in the brazilian formal labor market abstract this paper investigates the decrease in wage inequality among working age men in the brazilian formal labor market by decomposing it into its permanent and transitory components the permanent component refers to workers productivity characteristics such as education and abilities whereas the transitory component relates to noise caused by economic instability we use data from the annual reports of social information rais from 1994 to 2016 covering periods of both economic instability and stability our proposed model includes year and cohort specific effects in both components and we use minimum distance methods to estimate our parameters of interest overall we observe a downward trend in wage inequality levels for most cohorts during the entire period however different sources are associated with this decrease in different sub periods this decline can be attributed to reductions in the transitory component from 1994 to 2005 related to the economic stabilization process and in the permanent component from 2010 to 2016 moreover our results suggest that the permanent component has an important role in explaining the wage inequality level in brazil especially considering older cohorts even though its share in terms of total variance has decreased over the 2010s finally we show that age and education are accountable for a great share of permanent inequality with this percentage being even greater for younger cohorts although their relative importance also decreased over the years

on pricing and hedging options in regime switching models with feedback effect abstract we study the pricing and hedging of european style derivative securities in a markov regime switching model with a feedback effect depending on the economic condition we adopt a pricing kernel which prices both financial and economic risks explicitly in a dynamically incomplete market and we provide an equilibrium analysis a martingale representation for a european style index option s price is established based on the price kernel the martingale representation is then used to construct the local risk minimizing strategy explicitly and to characterize the corresponding pricing measure

a markov model of heteroskedasticity risk and learning in the stock market abstract we examine a variety of models in which the variance of a portfolio s excess return depends on a state variable generated by a first order markov process a model in which the state is known to economic agents is estimated it suggests that the mean excess return moves inversely with the level of risk we then estimate a model in which agents are uncertain of the state the estimates indicate that agents are consistently surprised by high variance periods so there is a negative correlation between movements in volatility and in excess returns

changes in the returns to education in costa rica abstract i document patterns in the returns to education in costa rica from 1976 to 1992 the most important change during this period was that from the late 1970s to the mid 1980s the return to education fell by about one fourth i construct demand and supply indices within a fixed manpower requirements framework to estimate demand and supply shifts i find a significantly positive relationship between measures of demand for education and a significantly negative relationship between measures of supply for education these findings suggest that calculations based on the returns to education such as the returns to social investments in education must take into account future changes in the returns to education as supply and demand conditions develop

incentives allocation and labour market reforms during transition the case of urban china 1986 1990 has the reform process in china resulted in the introduction of incentives directed at a more efficient allocation of resources using data on individual earnings in urban liaoning province for the period 1986 1990 and a wage equation approach we address this issue in the context of labour market reforms focusing specifically on returns to education our results indicate that failure to address the issue of endogenous selection of more able individuals into state owned enterprises soes can severely bias returns downwards unlike in soes returns in collective owned enterprises coes increased the latter having been allowed to grow out of the plan more quickly and subject to more competition in factor and product markets we conclude that decentralization without competition is unlikely to result in the introduction of an efficient incentive mechanism the more administratively determined regular wages are one avenue for increased returns we find evidence of differentiated bonuses in coes but

the performance of alternative valuation models in the otc currency options market abstract we compare option valuation models based on regime switching garch and jump diffusion processes to a standard smile model in which black and scholes 1973 implied volatilities are allowed to vary across strike prices the regime switching garch and jump diffusion models provide significant improvement over a fixed smile model in fitting gbp and jpy option prices both in sample and out of sample the jump diffusion model achieves the tightest fit a time varying smile model however provides hedging performance that is comparable to the other models for the gbp options this result suggests that standard option valuation techniques may provide a reasonable basis for trading and hedging strategies

asymmetries in the union wage premium in ghana the article uses a matched employer employee data set for ghana and adopts a quantile regression approach that allows the effects of unionization to vary across the conditional wage distribution it is shown that if there are intrafirm differences in unionization there does appear to be a premium among poorer paid workers in the formal sector although this cannot be given a causal interpretation it suggests important issues about how unions may affect one part of the labor market

model free hedge ratios and scale invariant models a price process is scale invariant if and only if the returns distribution is independent of the price measurement scale we show that most stochastic processes used for pricing options on financial assets have this property and that many models not previously recognised as scale invariant are indeed so we also prove that price hedge ratios for a wide class of contingent claims under a wide class of pricing models are model free in particular previous results on model free price hedge ratios of vanilla options based on scale invariant models are extended to any contingent claim with homogeneous pay off including complex path dependent options however model free hedge ratios only have the minimum variance property in scale invariant stochastic volatility models when price volatility correlation is zero in other stochastic volatility models and in scale invariant local volatility models model free hedge ratios are not minimum variance ratios and our empirical results demonstrate that they are less efficient than minimum variance hedge ratios

the impact of school quality on earnings and educational returns evidence from a low income country abstract the expansion of education has been widely adopted as a key element in the development strategies of low income countries while there is substantial evidence on the benefits of greater educational attainment for subsequent labor market earnings empirical evidence on the role played by school quality is scarce this paper combines household survey data with unique data on school quality from honduras to study the importance of school quality as a determinant of earnings our objective measures of school quality capture teacher training school infrastructure and school crowding the results display strong positive effects of school quality on earnings and on educational returns these effects persist across a variety of model specifications

demographic change and bank profitability empirical evidence from german savings banks most european economies will experience significant demographic changes in the decades ahead due to low birth rates populations are shrinking and ageing at the same time this paper explores the impact of demographic change on the banking industry a unique data set which contains detailed information on almost 2 5 million accounts in 11 german savings banks allows us estimating the socio demographic determinants of retail profitability using a simulation model we are able to predict the development of bank profitability due to demographic shifts up to 2025 one of the main findings is that the effects of population ageing will partially offset the impact of shrinking customer bases while the decline in the size of the population reduces the customer base ageing per se increases profitability as older customers typically generate higher profits for their banks

declining inequality in schooling in brazil and its effects on inequality in earnings abstract household survey data demonstrate that brazilian males born between 1925 and 1963 experienced steady increases in mean schooling and significant declines in schooling inequality the variance in years of schooling increased for cohorts born up until 1950 with steady declines for more recent cohorts decomposition of a standard human capital earnings equation indicates that trends in schooling tended to reduce earnings inequality from 1976 to 1985 due to reductions in both the variance of schooling and in returns to schooling these improvements were more than offset however by increases in other sources of inequality although the net increase in earnings inequality from 1976 to 1985 is disturbing the reduction in schooling inequality represents a fundamental improvement in the determinants of earnings inequality in brazil that will have beneficial effects for decades

poverty and the political economy of public education spending evidence from brazil a large body of literature has emphasized the elite capture of democratic institutions as the explanation for the low levels of spending on public education in many low income democracies this paper provides an alternative to that longstanding hypothesis motivated by new cross country facts and evidence from brazilian municipalities we hypothesize that many democratic developing countries might invest less in public education spending because poor decisive voters prefer the government to allocate resources elsewhere one possible explanation is that low income voters could instead favor redistributive programs that increase their incomes in the short run such as cash transfers to test for this possibility we design and implement an experimental survey and an incentivized choice experiment in brazil the findings from both interventions support our hypothesis

option values under stochastic volatility theory and empirical estimates abstract this paper numerically solves the call option valuation problem given a fairly general continuous stochastic process for return volatility statistical estimators for volatility process parameters are derived and parameter estimates are calculated for several individual stocks and indices the resulting estimated option values do not differ dramatically from black scholes values in most cases although there is some evidence that for longer maturity index options black scholes overvalues out of the money calls in relation to in the money calls

pension reform during the demographic transition the aim of this paper is to quantify the welfare effects of some currently discussed pension reform proposals in germany the analysis is based on an extended overlapping generations model which accounts for intra generational heterogeneity rising life expectancy and declining fertility given a baseline path of the economy under the existing unfunded pension system the model calculates the macroeconomic impact as well as the distributional and efficiency effects of various pension reform measures aimed at reducing the level of the future unfunded pension system simulations reveal that pension reforms cannot be evaluated solely in terms of inter and intra generational equity substantial efficiency gains or losses might arise if the linkage between contributions and benefits is improved or weakened

heterogeneity in returns to schooling econometric evidence from ethiopia this paper investigates whether returns to schooling in ethiopia vary across the wage distribution of individuals to do so it adopts an instrumental variables quantile regression framework that allows for both endogeneity of schooling resulting from unmeasured ability and possible heterogeneity in the impact of schooling the empirical estimates indicate that education contributes more to the earnings of individuals at a lower end of the income distribution

aging pension reform and capital flows a multi country simulation model we present a quantitative analysis of the effects of population aging and pension reform on international capital markets first demographic change alters the time path of aggregate savings within each country second this process may be amplified when a pension reform shifts old age provision towards more pre funding third while the patterns of population aging are similar in most countries timing and initial conditions differ substantially hence to the extent that capital is internationally mobile population aging will induce capital flows between countries all three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply in order to quantify these effects we develop a computational general equilibrium model we feed this multi country overlapping generations model with detailed long term demographic projections for seven world regions our simulations indicate that capital flows from fast aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings we also conclude that closed economy models of pension reform miss quantitatively important effects of international capital mobility this version 25 august 2004

patterns and sources of changing wage inequality in chile and costa rica during structural adjustment abstract during their respective periods of structural adjustment inequality increased more rapidly in chile than in costa rica using a new technique which measures the effects of changes in the quantities and prices of individual dimension of human capital on overall wage inequality we identify changes in wage premiums associated with more education as an important cause of the different inequality outcomes we present evidence that the different education price effects were due to different rates of growth in the demand for more educated workers furthermore inequality increased in chile despite a large equalizing education quantity effect

taiwan s financial holding companies an empirical investigation based on markov regime switching model though the financial holding company act in taiwan permits banks securities firms and insurance companies to affiliate identifying the influence on taiwan s financial holding companies hasn t been discussed rigorously yet this paper presents a formal methodology using two state markov regime switching approach to allow for the uncertainty event date of financial holding companies stock return and risk this study serves as one of the first studies that adopt a markov regime switching model to estimate financial holding companies stock behaviour the evidence shows that 12 of 13 financial holding companies have regime switching and one has no regime switching in taiwan therefore the stock behaviours of taiwan s financial holding companies follow two regimes and the traditional linear model cannot be descriptive however the levels of 12 financial holding companies risk are significantly low of state 1 and stock returns are indifferent between two states hence there are diversification benefits

option arbitrage and strategy with large price changes abstract arbitrage pricing theorems are derived for options on stocks with jumps as a well as local movements the resulting valuation formulas depend on observable variables only closed form valuation expressions are obtained in the case of large positive and negative jumps these results translate into a simple algebra for characterizing the risk of arbitrage and investment portfolios a continuous time formulation of the infinite variance hypothesis leads to isomorphic pricing expressions

risks and rewards gary becker s contributions to economics gary becker is one of the most original and influential economists of our age his originality lies in extending the frontiers of economics and broadening the range of important social science problems that are amenable to economic analysis he has gone against the grain of establishment thinking in the economics profession invariably choosing to work on problems that were considered beyond the boundaries of modem economics yet this work made close contact with many of the great economists of the past and many of the concepts he invented and developed are now widely if not routinely used in modem economics several of the approaches to problems he pioneered have evolved into fields and specialities in their own right that becker has had an immense intellectual impact and influence in the economics profession is supported empirically by the voluminous citations to his work over the years and in other ways obviously citation counts have well known difficulties and cannot prove anything by themselves but if used in conjunction with more fundamental evidence they do have the virtue of being quantifiable marshall medoff s 1989 1 recent citation study is one of the best available because citations are weighted by the importance of the journals in which articles appear among non nobel prize economists working in u s universities under 65 years of age becker ranks first in total citations over the 1971 85 period to which medoff s study refers and he is first by a very wide margin though the study is limited to economists in the united states it is clear that becker would rank at or very close to the top of any worldwide list furthermore becker s work is virtually all substantive economic analysis hardly any of it is devoted to the development of methodological tools or to surveys both of which gamer citations more easily and many concepts

risk sharing and efficiency implications of progressive pension arrangements the present paper aims to quantify the welfare effects of progressive pension arrangements in germany starting from a purely contribution related benefit system we introduce basic allowances for contributions and a flat benefit fraction since our overlapping generations model takes into account variable labor supply borrowing constraints as well as stochastic income risk we can compare the labor supply the liquidity and the insurance effects of the policy reform our simulations indicate that for a realistic parameter combination an increase in pension progressivity would yield an aggregate efficiency gain of more than 2 percent of resources however such a reform would not be implemented because it would not find political support of the currently living generations

education experience and earnings in the labor market of a developing economy the case of urban khartoum abstract this paper examines the relevance of the human capital approach to explaining the variance in workers productivity and earnings in the labor market or urban khartoum the analysis produces two principal findings first the rate of return to education in sudan is relatively low compared with the rate of return in other developing countries perhaps a reflection of poor quality of education in the sudan second while returns to primary education are lower than average returns to college education are higher this creates an interesting paradox because the sudan educates a higher percentage of children at the secondary and tertiary levels than most sub saharan african countries the most likely explanation is that the emigration of skilled manpower to other arab states combined with an influx of unskilled labor into khartoum has created a situation where skilled manpower is relatively scarce the paper also examines the temporal relationship between education and the labor market and identifies how sudan s rapid expansion of the education system has led to the filtering down of the educational qualifications and job competition a process that may well stimulate dynamic growth throughout the economy

wage inequality and the distribution of education abstract this paper analyzes the relationship between education and wage inequality in metropolitan brazil the study is based on data from ten brazilian annual household surveys pnads which are available for the period 1976 1986 the universe of analysis is limited to occupied prime age males the inequality measure used was theil s second measure which is analytically convenient for a study of the determinants of inequality it is shown that there exist sharp differences in wage inequality across metropolitan areas to identify whether these large regional differences in inequality are directly associated with differences in educational levels or with differences in the steepness of the wage education profiles some simulations are conducted the results indicate that regional differences in the distribution of education are not able to explain much of the regional differences in wage inequality as a matter of fact the differences in wage inequality were shown to be intrinsically associated with differences in the steepness of the wage education profiles

general equilibrium pricing of options on the market portfolio with discontinuous returns when the price process for a long lived asset is of a mixed jump diffusion type pricing of options on that asset by arbitrage is not possible if trading is allowed only in the underlaying asset and a risk less bond using a general equilibrium framework we derive and analyze option prices when the underlying asset is the market portfolio with discontinuous returns the premium for the risk of jumps and the diffusion risks forms a significant part of the prices of the options in this economy an attempted replication of call and put options by the black scholes type of trading strategies may require substantial infusion of funds when jumps occur we study the cost and risk implications of such dynamic hedging plans article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

schooling and earnings distributions with endogenous labour force participation marital status and family size this paper investigates the impact of various schooling investment strategies on family and per capita earnings within a framework that integrates effects on earnings family size marital status and labour force participation data are from a 1977 1978 survey of urban nicaraguan women aged 15 45 excerpt

wage structure as implicit insurance on human capital in developed versus underdeveloped countries abstract this paper explores the role of wage structure as implicit insurance on human capital it illustrates how smaller wage differentials in the developed world can be welfare enhancing by acting as implicit insurance while larger wage differentials in underdeveloped countries make investments in human capital riskier in other words with smaller wage differentials the students in a developed country are insured against poor educational outcomes through the existence of well paid alternative employments which are not present in the economy of a less developed country this result arises as multiple equilibria in a general equilibrium model when there are no insurance markets for human capital

credit constraints and human capital accumulation in the open economy abstract this paper analyzes the implications of capital market imperfections for understanding the causes and consequences of international trade credit constraints in financing education and exogenous income distribution affect patterns of comparative advantage and are crucial in determining the impact of international trade unlike the standard results in the trade literature in the model here trade liberalization in a skill scarce country leads to higher investments in human capital

education earnings and the canadian g i bill canadian second world war veterans benefited from an extensive educational pro gram similar to the u s g i bill because of differences in military enlistment rates how ever a much lower fraction of quebec men were eligible for these benefits than men from other provinces building on this fact we analyse inter cohort patterns of education and earnings for english speaking men from ontario using french speaking men from quebec as a control group we find that the instrumental variables estimates of the return to school ing are typically as big or bigger than the corresponding ols estimates jel classification j24 i21

a quantitative framework for assessing public investment in tourism an application to haiti abstract this study develops a linked regional computable general equilibrium and micro simulation rcge ms model to assess the regional economy wide and poverty impacts of a us 36 million investment in tourism in the south of haiti the first social accounting matrix for haiti with a base year of 2012 2013 was constructed to calibrate the model this research addresses three key gaps identified in the tourism impact assessment literature first a destination specific tourism demand and value chain analysis was used to calibrate the shocks implemented in the model second the rcge ms approach moves beyond the representative household configuration to enable more robust analysis of tourism investment impacts on poverty and income inequality third results of this modeling were used to inform a social cost benefit analysis to provide greater transparency in the evaluation of trade offs between investment alternatives results of this analysis showed a positive impact on sectoral activity especially for the hotel and restaurant sector 182 1 in 2040 and a 2 0 increase in gross regional product by 2040 the south s exports fell 4 7 below baseline and imports were 6 1 higher due to the inflow of foreign exchange the appreciation of the regional real exchange rate increased demand for most goods and services and limited regional productive capacity the rate of unemployment fell from 26 to 23 the investment helped lift some of the region s poorest out of poverty reducing the poverty headcount by 1 6 percentage points driving this result was an increase in employment wages and non labor income the linked rcge ms approach proves to be a powerful tool for assessing how tourism investments affect regional economic activity and revealing the mechanisms through which tourism can contribute to increased employment opportunities and poverty reduction

distribution and growth cross country evidence an endogenous growth model is presented to examine the determinants of economic growth and income distribution and their relationship three major findings from a cross country analysis of 45 countries are 1 a higher level of educational attainment of the labour force has an equalizing effect on income distribution while the larger the dispersion of schooling among the labour force the greater the income inequality 2 human capital investment as well as physical capital investment are significant factors contributing to economic growth and 3 income inequality has a negative effect on economic growth supporting the existence of a complementary relationship between equity and growth

education and changes in brazilian wage inequality 1976 2001 in countries with high levels of inequality progress in education has often been placed high in the list of policy proposals designed to change the unequal state of affairs this study uses brazilian annual data to chart the trends in wage inequality and a decomposition procedure to ascertain how wage distribution was affected by advances in education that doubled the median schooling level of prime age men during the sample period the results show that while falling returns to education were an equalizing factor across the wage distribution changes in the educational composition of the work force exerted a disequalizing influence that was strongest at the top of the distribution the net result was a fall in wage dispersion that was not as dramatic as might have been hoped

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded