an evaluation of the life cycle effects of minimum pensions on retirement behavior in this paper we explore the effects of the minimum pension program on welfare and retirement in spain this is done with a stylized life cycle model which provides a convenient analytical characterization of optimal behavior we use data from the spanish social security to estimate the behavioral parameters of the model and then simulate the changes induced by the minimum pension in aggregate retirement patterns the impact is substantial there is a threefold increase in retirement at 60 the age of first entitlement with respect to the economy without minimum pensions and total early retirement before or at 60 is almost 50 larger copyright 2007 john wiley sons ltd

sustainable spending in a lower return world investors whether corporate pensions public pensions foundations endowments or individuals need to focus on sustainable spending which is key to effective strategic planning to assess sustainable spending planners must start with the three building blocks of return for most assets income growth and revaluation changes in the yield offered by that investment analysis based on these components of historical equity and bond returns shows that the long term investor cannot expect to receive in the future the commonly assumed 8 9 percent returns with stock yields below 2 percent and bond yields of 5 percent even a 5 percent spending rate may not be sustainable without future contributions from the investor

inflation and asset returns in a monetary economy postwar u s data are characterized by negative correlations between real equity returns and inflation and by positive correlations between real equity returns and money growth these patterns are closely matched quantitatively by an equilibrium monetary asset pricing model the model also implies negative correlations between expected asset returns and expected inflation and it predicts that the inflationasset return correlation will be more strongly negative when inflation is generated by fluctuations in real economic activity than when it is generated by monetary fluctuations the co movements of real asset returns inflation and money growth have been studied extensively over the past fifteen years table i displays some of the statistical properties of these series using quarterly u s data from 1959 to 1990 note first the significantly negative correlation between real equity returns and inflation note also the negative correlation between inflation and the ex post real return to nominally riskless bonds while this fact is not particularly surprising numerous studies conclude that the correlations between ex ante real asset returns and expected inflation are also negative 2 in contrast to these patterns the correlation between money growth and real equity returns is weakly positive in the data while the correlation between money growth and the real bond return is virtually zero initially these empirical patterns were viewed as anomalies negative correlations between inflation and ex post real stock returns contradict the traditional view that equities ought to act as an inflation hedge 3 negative correlations between expected inflation and ex ante real returns violate the

optimal incentive contracts under inequity aversion we analyze the classic moral hazard problem with the additional assumption that agents are inequity averse the presence of inequity aversion alters the structure of optimal contracts when the concern for equity becomes more important there is convergence towards linear sharing rules the sufficient statistics result is violated depending on the environment contracts may be either overdetermined i e include non informative performance measures or incomplete i e neglect informative performance measures finally our model delivers a simple rationale for team based incentives implying wage compression 2010 elsevier inc

making investment choices as simple as possible but not simpler target date funds tdfs for retirement also known as life cycle funds are being offered as a simple solution to the investment task of participants in self directed retirement plans a tdf is a fund of funds diversified across stocks bonds and cash with the feature that the proportion invested in stocks is automatically reduced as time passes empirical evidence suggests that a simple tdf strategy would be an improvement over the choices currently made by many uninformed plan participants this article explores a way to achieve even greater improvement for people who are very risk averse and have high exposure to market risk through their labor

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

optimal consumption portfolio choices and retirement planning abstract we examine consumption and investment decisions in a life cycle model with habit formation stochastic opportunity set stochastic wages and labor supply flexibility retirement is taken into account by specifying an age at which labor earnings stop but consumption spending continues explicit solutions are obtained for optimal consumption labor supply and the financing portfolio we examine the structure and determinants of the optimal portfolio we also study the effects of the retirement date and of habits on optimal decisions finally we conduct a preliminary analysis to assess the effects of a liquidity constraint on optimal consumption leisure choices

the relation between stock prices and inflationary expectations the international evidence this paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971 80 the fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world using interest rates as a proxy for expected inflation our data provide consistent support for the geske and roll model whose basic hypothesis is that stock price movements signal negative revisions in inflationary expectations finally a weak real interest rate effect was found for some of these countries

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

a sustainable spending rate without simulation financial commentators have called for more research on sustainable spending rates for individuals and endowments holding diversified portfolios we present a forward looking framework for analyzing spending rates and introduce a simple measure stochastic present value that parsimoniously meshes investment risk and return mortality estimates and spending rates without resorting to opaque monte carlo simulations applying it with reasonable estimates of future returns we find payout ratios should be lower than those many advisors recommend the proposed method helps analysts advise their clients how much they can consume from their savings whether they can retire early and how to allocate their assets

the interaction of explicit and implicit contracts a signaling approach abstract we analyze the interaction of explicit and implicit contracts in a model with selfish and fair principals fair principals are willing to honor implicit agreements selfish principals are not we investigate a separating equilibrium in which principals reveal their type through the contract offer to the agent explicit and implicit contracts are shown to be substitutes since the agent learns the principal s type a selfish principal must rely on explicit incentives a fair principal by contrast can effectively induce implicit incentives and does not need to use explicit incentives we also find a strategic complementarity between explicit and implicit incentives

piece rate contracts for other regarding workers when workers are paid with piece rates inequality arises naturally we consider workers who care about income comparisons and are either status seeking or inequality averse we identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise and also circumstances under which workers inequality attitudes lead firms to set lower piece rates than they would otherwise the key behavioral assumption for both of these results to hold when workers are identical is behindness aversion the property that changes in inequality matter more to the worker when he is behind than when he is ahead jel d01 j33 m52

common stochastic trends in european stock markets the objective of the paper is to investigate whether price indices of different european stock markets display a common long run trending behaviour using cointegration analysis we provide empirical evidence of common stochastic trends among five important european stock markets over the period 1975 1991

inequality aversion and externalities abstract we conduct a general analysis of the effects of inequality aversion on decisions by homogeneous players in static and dynamic games we distinguish between direct and indirect effects of inequality aversion direct effects are present when a player changes his action to affect disutility caused by inequality indirect effects occur when the own action is changed to affect other players actions we provide necessary and sufficient conditions for the occurrence of either effect moreover we examine the direction of the effects whereas indirect effects induce players to internalize externalities they impose on others direct effects act in the opposite direction

are stocks a good hedge against inflation evidence from emerging markets theory suggests that equities are a good hedge against inflation however most of the empirical evidence for industrialized economies suggests that the relationship between stock returns and inflation is negative one explanation is the negative correlation between inflation and real output growth this paper examines the relationship between inflation and stock returns for ten important emerging stock market esm markets namely chile mexico brazil argentina thailand s korea malaysia hong kong philippines and turkey during the 1990s to anticipate the results the relationship between stock returns and inflation for the whole sample period is positive and statistically significant for three of the sample esms while it is positive but statistically insignificant for a further three only for one esm is the relationship negative and statistically significant this result may be due to the role of money and the positive relationship between consumer prices and output

relative performance or team evaluation optimal contracts for other regarding agents this paper derives optimal incentive contracts for agents with other regarding preferences it offers a behavioral explanation for the empirically observed lack of relative performance evaluation we analyze a principal multi agent model and assume that agents are inequity averse or status seeking we show that team contracts can be optimal even if the agents performance measures are positively correlated such that relative performance evaluation would be optimal with purely self interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other regarding preferences furthermore optimal incentive contracts for other regarding agents can be low powered as compared to contracts for purely self interested agents

transparency inequity aversion and the dynamics of peer pressure in teams theory and evidence we provide an explanation for peer pressure in teams based on inequity aversion analyzing a two period model with two agents we find that the effect of inequity aversion strongly depends on the information structure when contributions are unobservable agents act as though they were purely selfish however when contributions are made transparent at an interim stage agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period this form of peer pressure reduces free riding and thus more efficient outcomes are attained the results are confirmed in a real effort experiment

spending retirement on planet vulcan the impact of longevity risk aversion on optimal withdrawal rates corrected july 2011 recommendations from the media and financial planners regarding retirement spending rates deviate considerably from utility maximization models this study argues that wealth managers should advocate dynamic spending in proportion to survival probabilities adjusted up for exogenous pension income and down for longevity risk aversion

the inflation hedging properties of turkish reits this study empirically tests the inflation hedging abilities of turkish reits in comparison to the indices of common stocks listed on the istanbul stock exchange ise over the period december 1999 to december 2004 two main factors motivate this study first compared to their counterparts in developed capital markets turkish reits have some important tax incentives as well as flexibility in managing their portfolios second the turkish economy provides a rare and good opportunity to test the hedging behaviour of real estate stocks in periods of both high and moderate inflation rates the empirical results show that turkish reits in general provide a better hedge against both actual and expected inflation than do the ise common stock indices dividing the entire sample period into the high and moderate inflation sub periods we find that the hedging ability of reits is better under high inflation than under moderate inflation

does budget deficit lower equity prices in usa abstract this paper investigates the relationship between budget deficits and stock prices incorporating the effects of inflation and the demographic structure the results show that while the proportion of population in their prime earning age has a positive effect both budget deficits and inflation have a negative impact on stock prices

the behaviour of the us consumer price index 1913 2003 a study of seasonality in the monthly us cpi this article analyses the seasonality in the monthly consumer price index cpi over the period january 1913 to december 2003 we examine three types of month effects if the mean of monthly cpi changes of the entire data set and of a given month were significantly different from zero if the mean of monthly cpi changes of a given month was different from the mean of the other months and if the variance of the monthly cpi changes for a given month was different from the variance of the other months the mean of monthly cpi changes for the entire data set 0 27 was found to be significantly greater than zero the means of monthly changes show a downward trend from september to december when the data are sliced into three sub periods we find an increasing trend in the means and medians of monthly changes but a decreasing trend in the sds of the monthly changes the mean of monthly cpi changes during the republican presidencies 0 15 was significantly lower than during the democratic presidencies 0

the existence uniqueness and optimality of the terminal wealth depletion time in life cycle models of saving under uncertain lifetime and borrowing constraint abstract in life cycle models of saving under uncertain lifetime and borrowing constraint the consumer s wealth must be depleted before the maximum lifetime this paper investigates the existence uniqueness and optimality of the terminal wealth depletion time it is proved that the optimal terminal wealth depletion time if such exists must be unique if the equation that determines the optimal terminal wealth depletion has multiple solutions then the location of the optimal solution will depend on the configuration of the solutions an optimality test is developed to verify whether a candidate solution for the terminal wealth depletion time is indeed optimal the paper introduces a method new to economics the dubovitskii milyutin adjoint equation to analyze the properties of the optimal control problem