housing choices and uncertainty the impact of stochastic events abstract in our model a household recognizes that family size is stochastic when making its tenure and housing consumption decisions it also recognizes that initial choices constrain later behavior because they affect the amount of savings simulations of the model show that housing consumption and the duration of stay in a residence are sensitive to whether the realization of the stochastic event is the expected value based on this observation we suggest that empirical housing studies should include both the expected and realized values of stochastic explanatory variables we find few behavioral responses to changes in the variance of an uncertain event even though increased uncertainty is passed through to after tax income and the user cost of owning a notable exception is that if a household knows that a change in an influential variable will occur but it does not know the direction of change it is more likely to rent initially

female labour supply and marital status decisions a life cycle model this paper studies the interdependence between and the determinants of life cycle marital status and labour force participation decisions of women a dynamic utility maximization model is presented and estimated using longitudinal data on women from the panel study of income dynamics the mle method employed involves solving a dynamic programming problem further a minimum distance estimator is proposed which allows for the incorporation of wage data in a computationally simple way the estimates are used to predict changes in the life cycle patterns of employment marriage and divorce due to differences in education race the female s earnings and her potential husband s earnings the estimation results indicate that the utility gains to marriage are decreasing in the female s wage rate and increasing in her potential husband s earnings while the opposite is found for gains to working ignoring the endogeneity of marital status decisions is shown to lead to an underestimation of own and husband s wage effects on female labour supply

health and work in the family evidence from spouses cancer diagnoses abstract using canadian administrative data from multiple sources we provide the first nationally representative estimates for the effect of spouses cancer diagnoses on individuals employment and earnings and on family income our identification strategy exploits unexpected health shocks and combines matching with individual fixed effects in a generalized difference in differences framework to control for observable and unobservable heterogeneity while the effect of spousal health shocks on labor supply is theoretically ambiguous we find strong evidence for a decline in employment and earnings of individuals whose spouses are diagnosed with cancer we interpret this result as individuals reducing their labor supply to provide care to their sick spouses and to enjoy joint leisure family income substantially declines after spouses cancer diagnoses suggesting that the financial consequences of such health shocks are considerable

a joint dynamic model of fertility and work of married women this article estimates a dynamic model of fertility and labor supply of married women drawn from the national longitudinal survey of young women 1968 91 it distinguishes part time and full time employment sectors which differ by pecuniary and nonpecuniary returns and transferability of human capital the model with unobserved heterogeneity in earning ability and preferences for children fits the data and produces reasonable forecasts of labor force participation in decisions the estimates unpack important features of the persistence in labor market decisions intertemporal substitution of leisure over the life cycle and the effect of work interruptions due to childbirth on lifetime utility

asset fixity and investment asymmetry in agriculture fixed asset theory implies that it is more difficult to dispose of capital specific to agricultural production than to add to the stock of specialized capital this theory is tested by determining whether transitions between states of disinvestment are as likely as transitions between states of investment of the twenty four annual capital stock series analyzed evidence of asymmetry between investment and disinvestment is strong in eight cases weak in four and insignificant in twelve there is considerable although mixed evidence of asymmetry for tractors farm and nonfarm and other specialized vehicles since world war ii and for agricultural machinery

production and investment decisions under sunk cost and temporal uncertainty building on glenn johnson s asset fixity theory this article introduces sunk cost and temporal uncertainty in jorgenson s neoclassical theory of investment under the assumption of risk neutrality we show sunk cost and temporal risk affect the implicit rental value of capital and investment and entry exit decisions results suggest there are important interactions between sunk cost and the effects of temporal uncertainty on production behavior

addiction and discounting abstract in 1988 becker and murphy becker g s murphy k m 1988 a theory of rational addiction journal of political economy 96 675 700 launched a theory in which they proposed that the perspective of rational decision making could be applied also to cases of addictive behaviour this paper discusses the theory s assumptions of interpersonal variation and stability in time preferences on the basis of estimates derived from three groups of people with different consumption levels of illegal intoxicants we find that active injectors of heroin and amphetamine have a higher discount rate than a group reporting that they have never used the substances of greater interest though not in accordance with becker and murphy s assumption of stability we also find that the discount rate among active and former users differs significantly these findings raise the question of whether a high time preference rate leads to addiction or whether the onset of an addiction itself alters people s inter temporal equilibrium

women s labor market reactions to family disruptions shadow price varies over time it is shown that the change in a woman s labor supply is related to the deviation of the husband s actual work hours from the expected amount the estimation indicates that the largest response to the loss of husband s income occurs with a divorce or separation smaller effects are noted for widowhood husband s unexpected unemployment or health change m x easuring reactions of a married woman s labor supply to shocks to her household presents a research problem that is best addressed in a dynamic framework but recent empirical research on this topic has been conducted in a static environment in this study a dynamic model which allows for uncertainty is developed and empirically implemented with the goal of measuring the labor force response of a woman to changes in her husband s contribution to household earnings the model suggests a simple form to quantify the size of an unexpected shock to the household this shock resulting from changes in her marital status a worsening of her husband s health or her husband becoming unemployed the basic behavioral assumption is that a woman forms expectations of her husband s likely contribution to household income based on their prior experiences and she then reacts to the particular circumstances encountered in a given year in an uncertain world shocks almost always occur where a shock is defined as the difference between

investment and abandonment behavior of rural households an empirical investigation this article uses models of irreversible investment under uncertainty to examine the investment and abandonment behavior of poor rural households it considers the decision of ugandan coffee farming households to invest in or abandon coffee trees the observed levels of investment and abandonment are found to be consistent with models of investment that allow for irreversibility uncertainty fixed costs and liquidity constraints the findings highlight the importance of addressing volatility irreversibility fixed costs and liquidity constraints in order to increase households responsiveness to changes in the fundamentals and to enable households to recover from shocks to their capital stock

an empirical analysis of alcohol addiction results from the monitoring the future panels in a panel of young adults we find that alcohol consumption is addictive in the sense that increases in past or future consumption cause current consumption to rise the positive and significant future consumption effect is consistent with the hypothesis of rational addiction the long run price elasticity is approximately 60 larger than the short run price elasticity and twice as large as the elasticity that ignores addiction thus a tax hike policy to curtail consumption or abuse may not have a favorable cost benefit ratio unless it is based on the long run price elasticity jel 110

economic factors affecting the increase in obesity in the united states differential response to price abstract a sharp increase in obesity during the last 15 years in the united states became one of the nation s main public health problems the theory of rational addiction seems to explain human behavior in food consumption leading to obesity reasonably well the interesting thing about our results is that the tax policy normally used to correct various distortions is to serve in this case as the preventive policy additional taxes on future prices of the addictive sweet foods contribute to lower sugar consumption and bmi at present time on the other hand increasing education level is usually considered a preventive type of policy in this case it leads to lowering the levels of the bmi in already overweight and obese population

productivity growth in u s agriculture under dynamic adjustment a dynamic measure of productivity growth adjusted for deviations from the long run equilibrium is established within an adjustment cost framework an empirical application to u s agriculture is presented which permits identifying the dynamic linkages between technical change and productivity growth in u s agriculture total factor productivity as dynamically measured grew at 1 50 per annum the combined effect of scale quality adjusted input growth and long run disequilibrium input use contributes only 3 44 of the growth while technical change dominates the growth of total factor productivity

labour force transitions among low wage married couples a simultaneous probability model interdependence in the labour force transitions of low income married couples is studied it utilizes a simultaneous probability model in which each person s job exit depends in part on the job transitions of their spouse estimates are based on data from the seattle denver income maintenance experiments the evidence appears to indicate that wives emulate the nonwork status of their husbands wives of exit prone husbands are themsleves more exit prone and less likely to enter employment evidence in favour of reverse dependence of husbands status on wives exits appears to be weak and imprecise

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

an adjustment cost rationalization of asset fixity theory this article integrates a classic concept in production economics g l johnson s asset fixity theory with the dynamic adjustment cost model until now the literature has considered these two to be incompatible by relaxing the smoothness assumption of the adjustment cost function at the origin the theory of costs of adjustment can provide a rigorous endogenization of asset fixity g l johnson and edwards results are then obtained when the linearity assumption of the adjustment cost function is imposed the work reported here also indicates that both smoothness at the origin and symmetry of adjustment cost function should be subject to empirical tests

investment under uncertainty and dynamic adjustment in the finnish pork industry bykyosti s pietola and robert j myersmay 1998paper prepared for a selected paper session at the annual meeting of the american agriculturaleconomics association salt lake city utah august 1998 this research was financed jointly byagricultural economics research institute in finland the academy of finland and the finnishcultural foundation we also knowledge the michigan agricultural experiment station for itssupport of this research authors are agricultural economist agricultural economics research institute helsinki finland and associate professor department of agricultural economics michigan state university eastlansing copyright 1998 by kyosti s pietola and robert j myers all rights reserved readers may makeverbatim copies of this document for non commercial purposes by any means provided that thiscopyright notice appears on all such copies

are alcohol tax hikes fully passed through to prices evidence from alaska on 1 october 2002 the state of alaska increased taxes on malt beverages from 0 35 per gallon to 1 07 per gallon increased taxes on wine from 0 85 per gallon to 2 50 per gallon and increased taxes on distilled spirits from 5 60 per gallon to 12 80 per gallon the net effect is that the tax on a standard serving rose from about 3 cents for beer 2 cents for wine and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage this paper uses primary data on alcoholic beverage prices in alaska to study a very basic question what was the impact of the tax hikes on prices an alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol related problems such as drunk driving the impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health economic theory and previous empirical studies mainly of taxes on goods other than alcoholic beverages do not provide very much guidance on what to expect following a tax hike it is an empirical question to answer the question i conducted telephone surveys just before and a year after the tax hike of on premise and off premise alcohol retail establishments across alaska

rational exuberance at the mall addiction to carrying a credit card balance the becker murphy model of rational addiction is tested with new zealand credit card debt data the results clearly favour the rational addiction model over the myopic backward looking model the estimated short run and long run price elasticities are 0 58 and 2 32 respectively and the estimated rate of time preference is 6 7 per quarter

dynamic adjustment in the u s dairy industry a dual model is used to examine the dynamic structure of the u s dairy industry properties implied by the theory of the competitive firm and independent adjustment of two quasi fixed inputs labor and herd size are tested and not rejected instantaneous adjustment however is soundly rejected for each quasi fixed input input adjustment to optimal levels is estimated to take about two years for labor and ten for cows quality adjustments of the labor and cow series do not fully embody the technological change that has occurred in this industry over the study period

presidential approval and macroeconomic conditions evidence from a nonlinear model abstractcontrary to previous empirical studies that find a linear link between economic conditions and presidential approval this study argues for and finds a nonlinear relationship a threshold regression is used to assess potential nonlinear relationships between macroeconomic variables and presidential popularity a quarterly data analysis for the 1960q1 2012q2 time period reveals that domestic factors prevail in shaping presidential approval most compelling is evidence of a threshold relationship involving economic conditions when unemployment is slightly over 7 its decline impacts significantly and favourably on presidential approval an effect that virtually disappears below the threshold value change in consumer sentiment affects presidential approval in a limited way while inflation shows no association at all these results combine to encourage further investigation of nonlinear processes in the nexus of economics and politics

female labor supply and divorce new evidence from ireland if participation in the labor market helps to secure women s outside options in the case of divorce separation an increase in the perceived risk of marital dissolution may accelerate the increase in female labor supply this simple prediction has been tested in the literature using time and or spatial variation in divorce legislation e g across us states leading to mixed results in this paper we suggest testing this hypothesis by exploiting a more radical policy change i e the legalization of divorce in ireland the right to divorce was introduced in 1996 followed by an acceleration of marriage breakdown rates we use this fundamental change in the irish society as a natural experiment we follow a difference in difference approach using families for whom the dissolution risk is small as a control group our results suggest that the legalization of divorce contributed to a significant increase in female labor supply mostly at the extensive margin results are not driven by selection and are robust to several specification checks including the introduction of household fixed effects and an improved match between control and treatment groups using propensity score reweighting

husband s health and wife s labor supply this paper examines the labor supply response of the wife to deterioration in the husband s health unlike past cross sectional studies responses over time are directly examined through the use of longitudinal data the empirical results suggest that the magnitude and direction of the response depend crucially on the attractiveness of transfers which the family may qualify for when the husband s health deteriorates when no transfers are available the wife increases her market work in order to replace the lost earnings of the husband however as transfers become more attractive the wife begins to reduce her labor supply enabling her to spend more time at home caring for her husband

smoothing consumption by smoothing income hours of work responses to idiosyncratic agricultural shocks in rural india while research has demonstrated that farm households in developing economies are able to protect consumption from idiosyncratic crop shocks little evidence shows how this is achieved this paper examines the extent to which labor markets allow households to shift labor from farm to off farm employment and the extent to which such a shift explains the observed lack of correlation between consumption and idiosyncratic crop shocks the empirical analysis uses a novel measure of the idiosyncratic crop income shock which utilizes information on start of season cropping choices to more accurately estimate household expectations of weather

asymmetric adjustment of dynamic factors at the firm level presents a study which addressed the deficiencies of previous studies the specification and estimation in the modeling of asymmetry and zero gross investment in the agricultural industry reference to previous studies on asymmetry information on the standard dual model results of the study

estimating investment rigidity within a threshold regression framework the case of u s hog production sector this article addresses the issues of investment disinvestment asymmetry and a possible existence of a sluggish regime in the demand for a quasi fixed input in the u s hog production sector adopting a new threshold estimation procedure quarterly data from 1970 through 2002 are used to estimate a regimedependent investment demand equation for a quasi fixed input taking sows as a proxy the results support the existence of three regimes over alternative specifications precluding the sluggish regime confirming the existence of asset fixity in hog production the results also highlight the importance of accounting for investment rigidity when estimating hog supply and variable input demands the importance of the u s swine industry is far reaching and can be highlighted by its economic contribution to different sectors along the supply chain involving hog producers pork processors and consumers according to the national pork producers council nppc 2002 the industry supported an estimated 800 000 domestic jobs in 2002 and generated more than 72 billion in total domestic economic activities furthermore the united stated is a leading pork exporter with its exports valued at 1 5 billion in 2002 of the 72 billion worth of domestic economic activities receipts from hog sales account for more than 11 billion per year the hog sector also contributes an additional 27 billion from the utilization of corn soybean and other inputs nppc the structure of the hog production sector has changed dramatically during the past decade with large hog operations becoming increasingly dominant between 1994 and 2004 the proportion of hog operations with more than 2 000 hogs has doubled from 38 to 79 of all hogs

testing asset fixity for u s agriculture two problems which have concerned agricultural economists since the great depression are low farm resource returns and agriculture s tendency to maintain high aggregate production in the face of declining real product prices the latter phenomenon referred to as irreversibility of supply has spawned a significant literature on approaches to estimating and testing irreversible supply curves houck tweeten and quance while there are numerous explanations of these problems it is widely accepted that both are at least partially due to some asset fixity within agriculture that is in the aggregate there are certain productive factors which are trapped in agriculture attempts to explain asset fixity are not new galbraith and black early argued that high fixed costs contribute to a lumpiness of important factors which makes their temporary reduction or reorganization so expensive as to be unprofitable in the short run later g l johnson hypothesized that productive assets are trapped in agriculture because of a divergence between acquisition costs and salvage value formal developments are in edwards hathaway and johnson and quance both explanations have been challenged d g johnson concluded that available empirical evidence did not support galbraith and black s high fixed cost hypothesis he argued instead that the data were consistent with inelastic supply of agricultural inputs johnson and pasour criticized inferring asset fixity from a divergence between acquisition costs and salvage values they argued that the appropriate concept for investigating resource allocation is that of the resource s opportunity cost although they criticized g l johnson s fixed asset theory they still concluded that asset fixity theory can contribute toward an understanding of why the supply function whether firm or industry is not reversible

a dynamic demand model for liquor the case for pooling this paper estimates a dynamic demand model for liquor in the united states using panel data from 43 states because of taste changes over time and between states in liquor consumption purely time series or cross sectional studies do not elicit reliable price elasticity estimates this study makes the case for pooling and shows how one can control for individual state effects and endogeneity of the regressors using estimators suited for a dynamic demand model our results indicate that the long run price elasticity is in the 0 7 range the findings also support strong habit persistence a small positive income elasticity and very weak evidence of bootlegging from adjoining states the magnitude of the long run price effect suggests that sin taxes can serve not only as an important income source but also as a significant deterrent effect copyright 1995 by mit press

labor supply and marital separation panel data are used to estimate the effect of marital separation on labor supply female labor supply increases substantially and male labor supply declines marginally lending support to the theory of specialization within the household the most interesting finding is that women began to increase their labor supply well before the actualsplit occurs suggesting either that shocks to labor supply change divorce probabilities or that women with a higher likelihood of divorcework more this argument is pursued by constructing and estimating a simultaneous model of labor supply and divorce risk copyright 1986 by american economic association

investment in u s agriculture resource adjustment problems in u s agriculture are motivated against the background of the farm problem the adjustment cost hypothesis is invoked to specify and estimate consistently a system of dynamic investment demand and output supply equations by utilizing recent advances in dynamic duality theory the investment demand equations assume the form of a multivariate flexible accelerator results indicate that labor capital services and land exhibited quasi fixity while intermediate materials were a variable factor this can be construed as a form of asset fixity within aggregate u s agriculture the univariate flexible accelerator hypothesis is rejected

taxation regulation and addiction a demand function for cigarettes based on time series evidence this work analyzes the effects of prices taxes income and anti smoking regulations on the consumption of cigarettes in california a 25 cent per pack state tax increase in 1989 enhances the usefulness of this exercise analysis is based on monthly time series data for 1980 through 1990 results show a price elasticity of demand for cigarettes in the short run of 0 3 to 0 5 at mean data values and 0 5 to 0 6 in the long run we find at least some support for two further hypotheses that antismoking regulations reduce cigarette consumption and that consumers behave consistently with the model of rational addiction

the demand for alcohol the differential response to price although several studies indicate that drinking is responsive to price little work has focused on whether prices have a differential effect on light moderate or heavy drinking this study examines the price responsiveness of the demand for alcohol whether heavy drinkers are less sensitive to price than light or moderate drinkers the study uses data on alcohol consumption on the 1983 national health interview survey the results indicate that both light and heavy drinkers are much less price elastic than moderate drinkers further we cannot reject the hypothesis that the very heaviest drinkers have perfectly price inelastic demands