inflation indexation and wage dispersion abstract this study provides a theory of indexation to reconcile empirical findings that unanticipated inflation raises the dispersion of price changes among subaggregates while it lowers that of wage changes evidence on the relation between inflation and the dispersion of wage changes in israel is presented to buttress the arguments

information revelation and principal agent contracts in an environment in which effort is private information to the worker agreements between a risk neutral principal and a risk averse agent are likely to be risk sharing and information revealing mechanisms it is shown that principal agent contracts have significant implications for both compensation and employment rules in a simple work sharing model in general such contracts involve incomplete income insurance and involuntary or excessive underemployment this supports the view that models of worker specific information particularly with moral hazard provide a natural explanation of underemployment

the choice to cash out pension rights at job change or retirement abstract most pension plans allow a lump sum distribution upon job separation enabling a subsequent cash out in the 1992 2000 hrs 13 of entitlements were cashed out representing 5 3 of entitlement dollars among plans with a lump sum option 20 were cashed out cash outs can be rational and we broadly confirm hypotheses for cash out determinants but not that individuals with short expected longevity should wish to disproportionately cash out fears of adverse selection into the pool of pensioners with annuity income thus appear unfounded while we find only limited leakage it is concentrated among individuals vulnerable to poverty in old age

framing and retirement age the gap between willingness to accept and willingness to pay summaryin a large online experiment we relate the retirement timing decision to the disparity between the willingness to accept wta and the willingness to pay wtp in the wtp treatment participants indicate the maximum amount of monthly benefits they are willing to give up to retire early in the wta treatment the minimum increase of monthly payments to delay retirement is elicited our results reveal that the framing of the decision problem strongly influences participants reservation price for early retirement the wta for early retirement is more than twice as high as the corresponding wtp using actual values from the german social security system as market prices we demonstrate that the presentation in a wta frame can induce early retirement in this frame the implicit probability of retiring early increases by 30 percentage points we further show that the disparity between wta and wtp is correlated with loss aversion repeating the analysis with data from a representative household survey german save panel we find similar results

cash by any other name evidence on labelling from the uk winter fuel payment standard economic theory implies that the labelling of cash transfers or cash equivalents e g child benefits food stamps should have no effect on spending patterns the empirical literature to date does not contradict this proposition we study the uk winter fuel payment wfp a cash transfer to older households exploiting sharp eligibility criteria in a regression discontinuity design we find robust evidence of a behavioural effect of the labelling on average households spend 41 of the wfp on fuel if the payment was treated as cash we would expect households to spend approximately 3 of the payment on fuel

stock market returns and annuitization abstract i investigate the strong negative relation between recent stock returns and the annuitization of retirement savings using a novel data set with over 100 000 actual payout decisions after controlling for several standard explanations e g wealth effects i present evidence supporting naive beliefs and extrapolation from past returns the effect of recent returns on annuitization dramatically increases with age confirming that the elderly rely most heavily on recent information my results provide insights into how beliefs are formed in old age and have implications for the design of public policies seeking to promote annuitization

cognitive constraints on valuing annuities this paper documents consumers difficulty valuing life annuities using a purpose built experiment in the american life panel we show that the prices at which people are willing to buy annuities are substantially below the prices at which they are willing to sell them we also find that buy values are negatively correlated with sell values and that the sell buy valuation spread is negatively correlated with cognition this spread is larger for those with less education weaker numerical abilities and lower levels of financial literacy our evidence contributes to the emerging literature on heterogeneity in financial decision making abilities particularly regarding retirement payouts jel d14 d91 g11 h55

money and the dispersion of relative prices a price dispersion equation is tested with data from the german hyperinflation the equation is derived from a version of lucas s and barro s partial information localized market models in this extension different excess demand elasticities across commodities imply a testable dispersion equation in which the explanatory variable is the magnitude of the unperceived money growth in order to test this hypothesis a price dispersion series is constructed and a measure of the unperceived part of money growth is estimated the model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion

mental accounting effects of income tax shifting abstract this paper analyzes a 1992 decrease in u s federal income tax withholding that shifted the timing of income tax payments while leaving ultimate tax burdens unchanged consequently income typically received as a lump sum refund on filing a tax return was shifted into the previous year s monthly income this paper considers the impact of the withholding change in the context of mental accounting and finds a decrease in the probability that households contributed to a tax preferred retirement account additional robustness tests show that short term saving did not simultaneously increase and that the main findings are not driven by liquidity constraints

how individuals choose health insurance an experimental analysis an individual choosing a health insurance policy faces a complex decision environment where a large set of alternatives differ on a variety of dimensions there is uncertainty and the choice is repeated at least once a year we study decisions and decision strategies in a laboratory experiment where we create a controlled environment that closely mirrors this setting we use an electronic information board that allows to carefully monitor the individual s decision strategy the number of alternatives switching costs and the speed at which health deteriorates are varied across treatments we find that most subjects search is based more on attributes than on policies moreover we find that an increase in the number of alternatives increases decision making time makes subjects consider a lower fraction of the available information makes it more likely that subjects will switch and decreases the quality of their decisions the introduction of positive costs of switching makes people switch less often but improves the quality of their decisions finally if health deteriorates only gradually individuals tend to stick to their current policy too long

misselling through agents this paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents prospecting for customers and advis ing on the product s suitability for the specific needs of customers when structuring salesforce compensation firms trade off the expected losses from misselling unsuitable products with the agency costs of providing market ing incentives we characterize how the equilibrium amount of misselling and thus the scope of policy intervention depends on features of the agency problem including the internal organization of a firm s sales process the transparency of its commission structure and the steepness of its agents sales incentives jel m31 m37 m52 when purchasing unfamiliar products consumers often rely on information and advice pro vided by representatives of the seller this creates the possibility of misselling the question able practice of a salesperson selling a product that may not match a customer s specific needs 1 this problem is particularly severe in markets for technically complex products such as con sumer electronics auto repairs medical care and retail financial services including securities pensions insurance policies and mortgages an important feature of these markets is that the seller often deals with the customer through an agent rather than directly for example financial brokers typically recommend purchase of a specific product after inquiring about their customers particular circumstances and needs the possibility of abuse has led to regulation in some of these markets most notably for securities transactions the financial industry regulatory authority finra the major self regulatory organization for securities firms operating in the united states mandates that broker dealers make a reasonable effort to obtain information about the individual characteristics of their noninstitutional cus tomers and to ensure that their recommendations are suitable to customers financial situations

behavioral impediments to valuing annuities complexity and choice bracketing this paper examines two behavioral factors that diminish people s ability to value a lifetime income stream or annuity drawing on a randomized experiment with about 4 000 adults in a u s national

trading complex assets we perform an experimental study of complexity to assess its eect on trading behavior price volatility liquidity and trade eciency subjects were asked to deduce the value of a particular asset from information they were given about the composition and price of several portfolios following that subjects traded with each other anonymously in a well dened simple bargaining process portfolio composition ranged from requiring simple analysis to more complicated computation in order to deduce the value of the asset complexity altered subjects bidding strategies decreased liquidity increased price volatility and decreased trade eciency however in follow up experiments we show that uncertainty over private values does not lead to the same changes in trading behavior therefore while complexity induces estimation errors and higher uncertainty this is not what drives our results

psychological frictions and the incomplete take up of social benefits evidence from an irs field experiment we address the role of psychological frictions in the incomplete take up of eitc benefits with an irs field experiment we specifically assess the influence of program confusion informational complexity and stigma by evaluating response to experimental mailings distributed to 35 050 tax filers who failed to claim 26 million despite an initial notice while the mere receipt of the mailing simplification and the heightened salience of benefits led to substantial additional claiming attempts to reduce perceived costs of stigma application and audits did not the study and accompanying surveys suggests that low program awareness understanding and informational complexity contribute to the puzzle of low take up jel c93 d03 h24 m38

inflation and labor market adjustment the implications of downward nominal and ex ante real wage rigidity and of wage contracting for the dispersion of relative wage changes in the presence of price inflation are examined rigidity implies that unexpected inflation will raise the variability of relative wage changes contracting implies unexpected inflation reduces variability using data on manufacturing industries for 1955 81 and on private nonfarm industries for1965 81 these hypotheses are studied the dispersion in relative wage cnanges is reduced by greater price inflation most of the reduction is a response to unexpected inflation expected inflation has little impact on dispersion these findings hold for subperiods within the sample and are robust to different choices of measures of price expectations including those of the livingston survey the survey research center household data and arma forecasts they stand in striking contrast to the commonly accepted result that price inflation is associated with greater dispersion of relative price changes they suggest that inflation reduces the ability of relative wages to signal disequilibria among labor markets this abstract was borrowed from another version of this item

inflation and the dispersion of real wages the eects of inflation on real wage dispersion and welfare are studied in a cash in advance economy with a walrasian goods market but a labor market with search friction in which firms enjoy monopsony power in the labor market firms post wages and both the employed and the unemployed workers search among the posted wages in equilibrium a higher inflation rate reduces the dispersion in real wages this result is consistent with both the observed trends in wage dispersion and the inflation rate witnessed in the 1980 s and the 1990 s in the u s and the empirical literature linking reduced inflation to greater wage dispersion while higher inflation always lowers consumption output and employment the optimal inflation rate exceeds the friedman rule

valuing alternative work arrangements abstract we employ a discrete choice experiment in the employment process for a national call center to estimate the willingness to pay distribution for alternative work arrangements relative to tr

contracts without memory in multiperiod agency models abstract settings are considered in which optimal multiperiod contracts can have no memory i e where second period payments do not need to depend on first period outcomes if contracts have no memory a repeated agency game can be played myopically there are no gains to long term relationships conditions on preferences for a no memory contract are presented in an agency game with moral hazard on the act selection preference separability and domain additivity imply the existence of a no memory contract in a setting without moral hazard but with asymmetric information on the outcome domain additivity implies no memory

why don t people insure late life consumption a framing explanation of the under annuitization puzzle rational models of risk averse consumers have difficulty explaining limited annuity demand we posit that consumers evaluate annuity products using a narrow investment frame that focuses on risk and return rather than a consumption frame that considers the consequences for lifelong consumption under an investment frame annuities are quite unattractive exhibiting high risk without high returns survey evidence supports this hypothesis whereas 72 percent of respondents prefer a life annuity over a savings account when the choice is framed in terms of consumption only 21 percent of respondents prefer it when the choice is framed in terms of investment features

a new class of sufficient conditions for the first order approach to the principal agent problem abstract the first order approach can be shown to be valid if the agent s expected utility is pseudoconcave in effort we derive new conditions on the agent s utility function which insures that the expected utility is pseudoconcave there is a tradeoff of the stringency of the distribution function exhibited by the rogerson mirrlees conditions the mlrc and the cdfc for stringency of the utility function the new conditions are independent of the mlrc and or the cdfc and hence we cannot indicate which are more general

money and price dispersion in the united states this paper reports an empirical test of a price dispersion equation using data on the u s after world war ii the equation derived elsewhere from a version of the partial informationlocalized market models relates price dispersion to the magnitude of the aggregate shocks in order to test the model a price dispersion series is computed using annual wholesale price indexes and weights for the period 1948 76 the data on money shocks are the unanticipated money growth series estimated by barro the tests also include a measure of aggregate real disturbances from the theoretical point of view the results are negative they do not detect an effect of money shocks on price dispersion but support the predicted effect of real shocks

the welfare cost of perceived policy uncertainty evidence from social security policy uncertainty reduces individual welfare when individuals have limited opportunities to mitigate or insure against the resulting consumption fluctuations we field an original survey to measure the degree of perceived policy uncertainty in social security benefits and to estimate the impact of this uncertainty on individual welfare our central estimates show that on average individuals are willing to forgo 6 percent of the benefits they are supposed to get under current law to remove the policy uncertainty associated with their future social security benefits this translates to a risk premium from policy uncertainty equal to 10 percent of expected benefits

why reputation favors joint ventures over vertical and horizontal integration a simple model abstract this paper investigates the effect of reputation in a model where two parties make noncontractable contributions to an economic undertaking it is shown that the optimal allocation of ownership between the parties is more similar in a repeated than in a one shot version of the model this implies that unified ownership and reputation are substitutes low discount rates and repeated investment decisions thus favor subcontracting and joint venture arrangements of the type commonly observed in japanese industry while full integration is more likely to be optimal when reputational forces are weak

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

optimal annuitization with stochastic mortality and correlated medical costs the conventional wisdom since yaari 1965 is that households without a bequest motive should fully annuitize their investments numerous frictions do not break this sharp result we modify the yaari framework by allowing a household s mortality risk itself to be stochastic due to health shocks a lifetime annuity still helps to hedge longevity risk but the annuity s remaining present value is correlated with medical costs such as those for nursing home care thereby reducing annuity demand even without ad hoc liquidity constraints we find that most households should not hold a positive level of annuities and many should hold negative amounts jel d14 d82 g23 i12 j14 j26

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

wage dispersion and inflation we specify a model relating wage dispersion across 16 sectors of uk manufacturing to a rich array of sector specific and macroeconomic variables we find sectoral vacancy dispersion a trade union power proxy short run unemployment and inflation affect wage dispersion in particular we find a strong negative relation between wage dispersion and inflation surprises within a well specified model reinforcing similar findings for the us and israel

long term care utility and late in life saving older wealth holders spend down assets much more slowly than predicted by classic life cycle models this paper introduces health dependent utility into a model with incomplete markets in which pre

on the determination of nominal wage dispersion abstract this paper studies sectoral wage dispersion it is shown that in spain expected inflation reduces wage variability in a more complete specification however neither actual nor expected inflation affects variability which is significantly increased by fluctuations in unemployment and productivity

on the optimal taxation of capital income abstract we show that in models in which labor services are supplied jointly with human capital the chamley and judd result on zero capital income taxation in the limit extends to labor taxes as long as accumulation technologies are constant returns to scale moreover for a class of widely used preferences consumption taxes are zero in the limit as well however we show by the construction of two examples that these results no longer hold for certains types of restrictions on tax rates or if there are profits generated journal of economic literatureclassification numbers e62 h21

what makes annuitization more appealing we conduct and analyze two large surveys of hypothetical annuitization choices we find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an all or nothing decision very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value highlighting the effects of inflation increases demand for cost of living adjustments frames that highlight flexibility control and investment significantly reduce annuitization a majority of respondents prefer to receive an extra bonus payment during one month of the year that is funded by slightly lower payments in the remaining months concerns about later life income spending flexibility and counterparty risk are the most important self reported motives that influence the annuitization decision

who chooses annuities an experimental investigation of the role of gender framing and defaults research suggests that women are more risk averse and less financially literate than men as evidenced by their choice of less risky asset investments we contribute to the literature by focusing on the role of gender in an increasingly important financial decision facing individuals at retirement the choice between purchasing an annuity in this case a fixed immediate lifetime annuity or investing their savings on their own by using a controlled experiment we eliminate the role of adverse selection and unfair annu ity pricing and are able to focus specifically on gender we also explore the role of defaults and framing and whether women react differently to these features we find that women are more likely to choose the annuity and this is only partly explained by differences in risk aversion and financial literacy furthermore biases in a five minute presentation of information signifi cantly affect choices in ways that differ across men and women

annuities and individual welfare advancing annuity demand theory we present suffcient conditions for the optimality of full annuitization under market completeness that are substantially less restrictive than those used by yaari 1965 we examine demand with market incompleteness finding that positive annuitization remains optimal widely but complete annuitization does not how uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk a new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases

health cost risk a potential solution to the annuity puzzle we find that health cost risk lowers optimal annuity demand at retirement if medical expenses can be sizeable early in retirement full annuitisation at retirement is no longer optimal because agents do not have enough time to build a liquid wealth buffer furthermore large deviations from optimal annuitisation levels lead to small utility differences our results suggest that health cost risk can explain a large proportion of empirically observed annuity choices finally allowing additional annuitisation after retirement results in welfare gains of at most 2 5 when facing health cost risk and negligible gains without this risk

the labeling effect of a child benefit system child benefit systems exist in many countries while they show a lot of differences in terms of eligibility rules amounts involved and implementation tax deduction tax credit or direct benefit the common motivation for their existence is to increase children s welfare in the dutch child benefit system the case i focus on in this paperone of the parents usually the mother is entitled to an untaxed child benefit amount which only depends on the child s age and the number of children in the household thus child support does not depend on household income marital status or labor market status as a result child benefit is exogenous to the household given the presence of children this is in contrast with the situation in many other countries including germany france the united kingdom and the united states where government provided child support is partly means tested see jonathan bradshaw et al 1993 in the netherlands child benefit is generally a nonnegligible addition to the household income the median share of child benefit in the total net income of households with children is 8 percent on the national level expenditures on child benefits amount to 1 2 percent of gnp the use of the child benefit is completely at the discretion of the parent there are no legal requirements that a certain amount be spent on particular goods or services nor does the government provide any guidelines regarding expenditure on children a policy question that arises is to what extent children benefit from child benefits standard microeconomic demand theory allows no role for effects of the composition of income given the fungibility of income sources it is only the sum of income components that is relevant in explaining expenditure patterns thus within that framework the answer would be that the marginal propensity to consume child goods from one guilder of child benefits is no different than from one guilder of any other income source in the more general class of gametheoretic models of household behavior however the composition of household income will generally affect expenditure patterns see e g shelly j lundberg and robert a pollak 1993 and martin browning et al 1994 if fathers and mothers have different preferences and mothers have control over child benefits the effect of child benefits on expenditures will differ from the effect of other income sources lundberg et al 1997 provide empirical evidence showing that a transfer of control over child benefits from fathers to mothers in the united kingdom due to a change in legislation resulted in a significant increase in expenditures on child clothing daniela del boca and christopher j flinn 1994 have analyzed the effect of income composition on expenditure decisions of divorced mothers they find that the coefficients associated with child support and alimony income differ from those for other income in engel curves for expenditures on childspecific goods their results can be explained in terms of a noncooperative nash model in which the child support transfer decisions of the noncustodial father and the expenditure decisions of the mother are determined simultaneously in contrast to del boca and flinn s analysis in which child support is a decision variable the present paper focuses on the possible differential effect of government provided child support which is truly exogenous in this paper i analyze the effects of child benefits on expenditures by running regressions in which child benefit enters as a separate explanatory variable the enipirical analysis is based on a time series of 17 cross section consumer expenditure surveys in the netherlands covering the period 1978 through 1994 it is important to note that in a single cross section it department of economics university of groningen p o b 800 9700 av groningen the netherlands e mail p kooreman eco rug nl i am indebted to two anonymous referees for constructive comments helpful comments were also provided by rob alessie maarten allers chris bojke werner de bondt bert schoonbeek and tom wansbeek i thank vincent linderhof for organizing the data financial support was provided by the dutch organization for scientific research nwo homes project grant

incidental bequests and the choice to self insure late life risks despite facing significant uncertainty about their lifespans and health care costs most retirees do not buy annuities or long term care insurance in this paper i find that retirees saving and insurance choices are highly inconsistent with standard life cycle models in which people care only about their own consumption but match well models in which bequests are luxury goods bequest motives tend to reduce the value of insurance by reducing the opportunity cost of precautionary saving the results suggest that bequest motives significantly increase saving and significantly decrease purchases of long term care insurance and annuities

parallelism in information production moral hazard and relative performance evaluations we analyse how to design incentive schemes for agents producing information the agents may for example be divisional managers market researchers or consultants financial analysts corporate auditors research scientists or political pollsters we show that an agent should be compensated more for making a correct rather than an incorrect prediction and for agreeing rather than disagreeing with colleagues depending on the environment correctness should be compensated more or less than agreement also compensation should increase with the difficulties of making correct or conforming predictions one consequence of the result is that it may sometimes reduce a principal s total incentive costs to engage with more information producers performing parallel investigations because the possibility to make relative performance evaluations of the agents may substantially reduce the costs of motivating the agents in performing their duties as desired

borrowing from pui to pay pom multiple borrowing and over indebtedness in rural thailand summary rural financial markets have grown rapidly in asian emerging market economies thus contributing to economic development and the reduction of poverty at the same time however the level of indebtedness of rural households has increased making households more vulnerable to shocks one of the reasons for rising household debt is the ease of borrowing simultaneously from a growing number of lending institutions this paper addresses two major questions first does borrowing from multiple sources increase rural households risk of over indebtedness second do over indebted rural households refinance their outstanding loans through multiple borrowing running the risk of becoming trapped in a debt cycle employing a dynamic random effects bivariate probit model for a unique set of longitudinal household panel data from northeast thailand this study examines the bidirectional relationship between over indebtedness and multiple borrowing to determine to what extent rural households become trapped in debt cycles on the one hand the results indicate that households in northeast thailand take on multiple loans which further increases their risk of becoming over indebted on the other hand our model results do not confirm the widespread notion that over indebted rural households use multiple loans to refinance unpayable debts

the composition and drawdown of wealth in retirement as the baby boomers approach and enter their retirement years the accumulation phase of their life cycle is nearly over thus the focus of many researchers financial services firms and public policymakers concerned with retirement saving is shifting from the accumulation of resources while working to the drawdown of resources during retirement retired households are dependent on the annuitized income streams that they have built up during their working careers and on the wealth that they have accumulated in other forms the two most common annuitized income streams are social security benefits and the payments from defined benefit pension plans these payout streams provide income for life and thus provide some protection against falling into poverty if one lives an especially long life the three most common sources of accumulated wealth are equity in an owner occupied home financial assets such as bonds and stocks and financial assets held in a personal retirement account such as an individual retirement arrangement or a 401 k plan throughout our analysis we will define retirement age households as those headed by someone between the ages of 65 and 69 in 2008 just over 80 percent of these households had some equity in their home or another property while 52 percent had assets in personal retirement accounts a much higher fraction 87 percent had some financial assets outside their retirement accounts but for many households the amount of such assets was relatively modest only 45 percent had more than 20 000 in non retirement account financial assets the median financial asset holding for this group including holdings in personal retirement accounts is 52 000 in short many households have small enough amounts of accumulated wealth that they will depend heavily on the life contingent payout streams offered by social security and if they have one a defined benefit pension this paper presents evidence on the resources available to households as they enter retirement it draws heavily on data collected by the health and retirement study which we sometimes refer to as the hrs we calculate the potential additional annuity income that households could purchase given their holdings of non annuitized financial assets at the start of retirement even if households used all of their financial assets inside and outside personal retirement accounts to purchase a life annuity only 47 percent of households between the ages of 65 and 69 in 2008 could increase their life contingent income by more than 5 000 per year at the upper end of the wealth distribution however a substantial number of households could make large annuity purchases we also consider the role of housing equity in the portfolios of retirement age households and explore the extent to which households draw down housing equity and financial assets as they age we find that many households appear to treat housing equity and non annuitized financial assets as precautionary savings tending to draw them down only when they experience a shock such as the death of a spouse or a period of substantial medical outlays because home equity is often conserved until very late in life for many households it may provide some insurance against the risk of living longer than expected a brief conclusion summarizes our findings and indicates how they bear on a number of policy issues such as the role for annuity defaults in retirement saving plans

price controls and the variability of relative prices recent literature that explains relative price variability within a partial inforrnation multimarkets framework typically assumes that prices in all markets are deterrnined by market clearing 1 however in many countries a certain number of prices is either directly set by the government or regulated by it in israel for example the government is directly involved in setting the prices of some basic foodstuffs fuels electricity public transportation and a number of other items 2 adjustments in the prices of these goods are made at discrete intervals and are widely and instantaneously disseminated by the media as a result individuals in all markets have up to date inforrnation on that component of the general price level which is set by the government in terrns of the islands paradigm this means that the component of the general price level which is confused with relative price movements is smaller than the same component in an economy in which all prices are freely deterrnined by the market the purpose of this article is to explore the implications of this modified inforrnation structure for relative price variability within a partial inforrnation framework

the multiperiod principal agent problem in repeated principal agent models long term contracts can improve on short term contracts only if they commit either principal or agent to a payoff in some future circumstance lower than could be obtained from a short term contract negotiated if that circumstance occurs we show that efficient contracting under moral hazard alone does not require long term commitment from the principal provided a short term contract can punish the agent sufficiently in a sense made precise it requires no commitment from the agent either then linking payoffs in one period to outcomes in previous periods does not improve the tradeoff between incentives and risk sharing

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

the choice between an annuity and a lump sum results from swiss pension funds this paper uses unique micro data from swiss employer based pension plans to study the annuitization decision at retirement the administrative nature of our data though limited with respect to individual background characteristics allows us to analyze real choices over large retirement balances rather than subjectively reported intentions to annuitize we find a strong and robust impact of a utility based measure of the annuity s value computed within a life cycle framework on individual annuitization rates low accumulation of retirement assets is strongly associated with the choice of the lump sum presumably due to the availability of means tested social assistance the sponsor s default option in most cases the annuity is also found to be highly influential in the decision to annuitize