precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

development fertility and childbearing age a unified growth theory during the last two centuries fertility has exhibited in industrialized economies two distinct trends the cohort total fertility rate follows a decreasing pattern while the cohort average age at motherhood exhibits a u shaped pattern this paper proposes a unified growth theory aimed at rationalizing those two demographic stylized facts we develop a three period olg model with two periods of fertility and show how a traditional economy where individuals do not invest in higher education and where income rises push towards advancing births can progressively converge towards a modern economy where individuals invest in higher education and where income rises encourage postponing births our findings are illustrated numerically by replicating the dynamics of the quantum and the tempo of births for swedish cohorts born between 1876 and 1966

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

uncertain altruism and the provision of long term care this paper studies the role of private and public long term care ltc insurance programs in a world in which family assistance is uncertain benefits are paid in case of disability but cannot be conditioned directly due to moral hazard problems on family aid under a topping up scheme when the probability of altruism is high there is no need for insurance at lower probabilities insurance is required thought not full insurance this can be provided either privately or publicly if insurance premiums are fair and publicly otherwise moreover the amount of ltc insurance varies negatively with the probability of altruism with an opting out scheme there will be three possible equilibria depending on the children s degree of altruism being low moderate or very high these imply full ltc insurance with no aid from children less than full insurance just enough to induce aid and full insurance with aid fair private insurance markets can support the first equilibrium but not the other two equilibria only a public opting out scheme can attain them by creating incentives for self targeting and ensuring that only dependent parents who are not helped by their children seek help from the government

tax incentives and fertility in canada quantum vs tempo effects using inter jurisdictional differences in the implementation of the family allowance program in canada in the mid 1970s this paper first shows that quebec families with two or more children prior to being exposed to the program responded quite strongly to the added incentives in the short run relative to women in other canadian provinces tracking down the cohorts across censuses we find that the same group of quebec families subsequently showed a decrease in fertility relative to the rest of canada leaving ultimate family size unaffected these results are consistent with the program having generated only a timing effect utilisant les differences entre juridictions dans la mise en uvre du programme d allocations familiales au canada au milieu des annees 70 ce memoire montre d abord que les familles quebecoises qui avaient deux enfants ou plus avant d etre exposees au programme ont repondu tres fortement aux incitations additionnelles a court terme en comparaison avec ce qui s est passe dans les autres provinces canadiennes en suivant les cohortes a travers les recensements on montre que ce meme groupe de familles du quebec a par la suite subi un declin de fecondite par rapport au reste du canada ce qui a eu pour effet de laisser la taille de la famille ultimement non affectee d une maniere relative ces resultats sont coherents avec la conclusion que le programme a seulement eu un effet sur le profil temporel de la fecondite

the career costs of children this paper analyzes the life cycle career costs associated with child rearing and decomposes their eects into unearned wages as women drop out of the labor market loss of human capital and selection into more child friendly occupations we estimate a dynamic life cycle model of fertility occupational choice and labor supply using detailed survey and administrative data for germany for numerous birth cohorts across dierent regions we use this model to analyze both the male female wage gap as it evolves from labor market entry onward and the eect of pro fertility policies we show that a substantial portion of the gender wage gap is explainable by realized and expected fertility and that the long run eect of policies encouraging fertility are considerably lower than the short run eects typically estimated in the literature

childbearing age family allowances and social security although the optimal policy under endogenous fertility has been widely studied the optimal public intervention under endogenous childbearing age has remained largely unexplored this paper examines the optimal family policy in a context where the number and the timing of births are chosen by individuals who differ as to how early fertility can weaken future earnings growth we analyze the design of a policy of family allowances and of public pensions in such a setting under distinct informational environments we show how endogenous childbearing ages affect the optimal policy through the redistribution across the earnings dimension and the internalization of fertility externalities it is also shown that contrary to common practice children benefits differentiated according to the age of parents can under some conditions be part of the optimal family policy

rising mortality and life expectancy differentials by lifetime earnings in the united states are mortality and life expectancy differences by socioeconomic groups increasing in the united states using a unique data set matching administrative and survey data this study explores trends in these differentials by lifetime earnings for the 1983 2003 period results indicate a consistent increase in mortality differentials across sex and age groups the study also finds a substantial increase in life expectancy differentials by lifetime earnings the top to bottom quintile premium increased 30 percent for men and almost doubled for women these results complement recent research to point to almost five decades of increasing differential mortality in the united states

a microeconomic analysis of the timing of births abstract the effects of personal characteristics wage rates and career structures on the time profile of childbearing among married couples are examined theoretically through an intertemporal microeconomic model of family decisions and empirically by an econometric analysis of british women s childbearing and work histories the effects of the mother s age on the quality of the child and the financial implications of interrupting the mother s career to care for a child are taken explicitly into account the demographic consequences of economic policies are also examined

a model of longevity fertility and growth abstract economic and demographic outcomes are determined jointly in a dynamic general equilibrium model of longevity fertility and growth reproductive agents in overlapping generations mature safely through two periods of life and face an endogenous probability of surviving for a third period given this probability each agent maximises her expected lifetime utility by choosing consumption and the number of children child bearing is costly in the sense that time must be spent on child rearing activities rather than on production or education the model produces multiple development regimes which yield different predictions about life expectancy fertility timing of births and educational investment depending on initial conditions these predictions accord strongly with the empirical evidence on demography and development

discrimination and the unemployment durations of white and black males in this study we develop a model to decompose the longer unemployment duration of blacks into discriminatory and non discriminatory components by extending becker s theory of discrimination to job search theory the discriminatory component is seen to be the result of two separate effects first a white treatment advantage shortens the unemployment duration of whites because they receive more frequent and higher wage offers than would prevail in the absence of discrimination for working alongside blacks second a black treatment disadvantage lengthens the jobless spell of blacks because blacks receive lower wage offers than would prevail without discrimination as discriminating employers extract quasi rents from their labour we estimate our model using date from the cps displaced workers survey the results show that 3 81 of the 4 58 weeks longer unemployment spell for blacks is due to discrimination with 3 11 weeks resulting from the white treatment advantage and 0 7 weeks emanating from the black

retirement wages and labor supply of the elderly a model of labor force participation market wages and labor supply of annual hours and weeks of work is estimated for married males and unmarried females in a sample from the retirement history survey 1969 75 matched with social security earnings records emphasis is placed on the effects of variables associated with retirement and old age and on the estimation of net age profiles purged of biases associated with specific years and cohorts and with the other included variables the effects of most of the usual variables appear to be consistent with the theory and with other empirical findings for both sexes in addition age itself has a strong net autonomous effect on each of the dependent variables due to biological societal or institutional factors

mortality fertility and persistent income inequality many developing countries are characterized by high and persistent inequality in the distribution of income while a growing body of literature emphasizes differential fertility as a channel through which income inequality persists this paper investigates differential child mortality differences in the incidence of child mortality among different income groups as a critical link in this regard we incorporate both endogenous child mortality and endogenous fertility in an overlapping generations model we demonstrate that differential child mortality and its interaction with differential fertility can generate an income inequality trap where high risk of child death prevents poor households from adequately investing in education empirical evidence based on cross country micro data support differential child mortality as an important channel for the transmission of inequality as predicted by the model from a policy perspective the results suggest that better access to child health care may be a more promising way to reduce income inequality than providing incentives to lower the family size of poor households

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

long term care and births timing due to the aging process the provision of long term care ltc to the dependent elderly has become a major challenge of our epoch but our societies are also characterized since the 1970s by a postponement of births which by raising the intergenerational age gap can affect the provision of ltc by children in order to examine the impact of those demographic trends on the optimal policy we develop a four period olg model where individuals who receive children s informal ltc at the old age must choose when being young how to allocate births along their life cycle it is shown that in line with empirical evidence early children provide more ltc to their elderly parents than do late children because they face a lower opportunity cost of providing ltc when comparing the laissez faire with the long run social optimum it appears that individuals have at the laissez faire too few early births and too many late births we then study in first best and second best settings how the social optimum can be decentralized by encouraging early births in such a way as to reduce the social burden of ltc provision

gender discrimination in the british labour market a reassessment survey wes the wes is the first british survey to collect detailed work histories and earnings data for a nationally representative sample of british women therefore for the first time estimates of discrimination based on real work experience data are presented a number of the earlier studies use data from the general household survey which does not collect actual work experience data they have been forced to use potential work experience or imputed experience in their wage equations this paper compares estimates based on potential or imputed experience with those based on actual experience using wes data our analysis finds that estimates of the parameters of a women s earnings function and a summary measure of gender discrimination using a measure of imputed experience differ little from those based on actual experience indeed our estimates of gender discrimination are very robust to estimation method and only slightly higher than miller s i987 estimate for i980 these estimates indicate that the oft quoted and influential study by zabalza and arrufat i 982 i 985 which pioneered the use of imputed experience severely underestimated the level of gender discrimination and exaggerated the impact

the fertility effect of dependent tax exemptions estimates for the united states the effect of the dependent tax exemption on the fertility rate in the united states is estimated the estimation is an improvement on previous work in that a non linear specification is used to better capture the shape of the demand for children it is found that the marginal effect of the dependent exemption decreases with the level of the exemption this suggests that although subsidies for childbearing will increase fertility it becomes increasingly difficult for countries to increase fertility through this type of scheme

market evidence of misperceived mortality risk we construct and implement a test of rational consumer behavior in a high stakes financial market in particular we test whether consumers make systematic mistakes in perceiving their mortality risks we implement this test using data from secondary life insurance markets where consumers with a life threatening illness sell their life insurance policies to firms in return for an up front payment we compare predictions from two models one with consumers who correctly perceive their mortality risk and one with consumers who are misguided about their life expectancy and find that our data are most consistent with the predictions made by the second model

human capital and the time profile of human fertility this is a 1st attempt at an explicitly intertemporal microeconomic theory of the distribution of births over a womans fertile period the main results are that 1 the optimal time profile will satisfy the hotelling rule for the depletion of a natural resource in the present case of the womens stock of human capital at marriage and 2 under certain simplifying assumptions women with high initial endowments of human capital will have all their children in the 1st part of married life and then return to full time employment while women with low initial endowments will spread childbearing more evenly over the fertile period it must also be pointed out that the characteristics of the optimal fertility profile might be different if utility depended directly on the profile itself e g if the quality of children increased with the interval between the pregnancies as assumed in the literature on birth spacing authors modified

long term care policy myopia and redistribution this paper examines whether myopia misperception of the old age dependency risk and private insurance market loading costs can justify public long term care ltc provision and or the subsidization of private insurance individuals differ in dependency risk productivity and degree of risk misperception the former two are positively correlated because of the longevity factor and social insurance tends to be regressive a first best solution requires subsidization of private insurance and or public provision of the appropriate level of ltc the support for these instruments is less strong in a second best setting as there may be a conflict between the correction for myopia and redistribution public ltc provision is never optimal when private insurance markets are fair irrespective of the proportion of myopic individuals and their degree of misperception under loading costs the solution may require a combination of private and public insurance or even rely solely on public provision

supply determinants of part time work of dutch married women the influence of taxes and social premiums labour supply is classified into five classes one for zero hours a week i e nonparticipation and four for 1 14 15 24 25 34 and more than 34 hours a week respectively this allows us to investigate whether changes in the taz and social premium system have different effects on the labour supply in different hours classes such an investigation has been carried out by applying a multinomial logit analysis in combination with a method introduced by hausman to allow the incorporatin of taxes and social premiums in the estimation of labour supply functions of dutch married women comparing the 1983 and 1985 tax and social premium systems the results of the analysis indicate that the introduction of the new system has had only a small discouraging effect on the labour supply of dutch married women

the rational nonpurchase of long term care insurance only a tiny fraction of the nonpoor population currently purchases private insurance coverage against long term care ltc costs studies generally attribute the failure to purchase private coverage to unawareness by potential purchasers of the benefits of coverage and a misperception that medicare currently covers long term care i explore alternative reasons for failure to purchase coverage by well informed expected utility maximizing risk averse individuals for whom ltc is associated with a large increase in mortality and for whom family members represent an alternative source of care there may be no demand for ltc insurance even if it is made available at actuarially fair premiums because the main consequence of coverage is to enhance the expected value of one s estate

the economic implications of disability insurance in canada the article empirically estimates the effects of disability pensions provided under the canada quebec pension plans on the labor force participation rates of males aged 45 64 years two data sets are used one consists of pooled cross section annual time series data by province for the years 1975 83 the other consists of observations as of 1985 on 651 males in the specified age group naive estimation results from both sets of data suggest a large negative effect of pension income in the case of the micro data this effect becomes small and statistically nonsignificant when more sophisticated estimation methods are used

an empirical examination of information barriers to trade in insurance this paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world life insurance we report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information we conjecture that sellers may know their costs of production better than consumers in this market as in those for most other products

education and fertility evidence from a natural experiment declining fertility is often attributed to the increased education of women it is difficult to establish a causal link because both fertility and education have changed secularly in this paper we study the connection between fertility and education using educational reform as an instrument to control for selection our results indicate that increasing education leads to postponement of first births away from teenage motherhood and towards women having their first birth in their 20s as well as for a smaller group up to the age of 35 40 we find no evidence however that more education results in more women remaining childless or having fewer children

the early retirement decision new empirical evidence on the influence of health many studies have examined the influence of health on retirement but there may be problems with the various health measures used a major criticism of the most frequently used variables is that they may reflect ex post rationalizations of retirement in this paper i examine a variety of health variables focusing directly on the health measurement issue as it relates to retirement research new measures of health are developed with individual self evaluations of health status unlike most previous findings the empirical results suggest that economic variables play a more important role than health in retirement decisions

profiles of fertility labour supply and wages of married women a complete life cycle model of all the major economic and demographic events in the postwar united states period the trends in fertility and female labour supply stand out as among the most dramatic fertility rates after their depression lows rose unexpectedly after world war ii far more than was anticipated as an adjustment to the war and continued to rise until the late 1950 s and early 1960 s when they again took an unexpected turn downward all the way to today s historical lows female labour force participation rates continuing their historical climb grew throughout the postwar period at an increasing pace by 4 percentage points during the 1950 s by 5 percentage points during the 1960 s and by 8 percentage points during the 1970 s these two trends are of course closely related for most married women have traditionally spent at least some minimal time out of the labour force while caring for their own children thus for example the slower growth rate of labour force participation rates in the 1950 s is probably connected with the higher fertility rates in that period in this paper a complete model of female labour supply and fertility choice is constructed and estimated the model is more complete than previous models in several respects first labour supply and fertility decisions are modelled as completely joint in the same sense as the consumption of two goods is joint second both are modelled as life cycle decisions that is as decisions regarding sequences of labour supply and fertility events rather than levels of the same hence the timing of both is important third the life cycle path of wage rates is made endogenous to the model given a wage function showing the effect of work experience on future wages the path of wages is determined automatically by the chosen path of labour supply which in turn is related to fertility decisions that require some period of non work econometrically the three profiles for labour supply fertility and wages are estimated with a full information maximum likelihood technique that solves several econometric problems such as the problem of heterogeneity of tastes the selectivity problem of missing wage rates for non workers and the problem of simultaneous equations bias the value of constructing a complete model is best seen by briefly reviewing past work in this area the modern literature in the area is based upon the work of becker

fertility and the tax benefit system a reconsideration of the theory of family taxation the author examines the simultaneous nature of the decision to have children the decision to spend money on them and the decision to seek employment it will be argued that the children income trade off emphasised by the present paper is more relevant to most family decisions than the income leisure trade off on which much of the policy debate has been centred in order to do that we shall bring together the recently developed economic theory of the family or new home economics with the microeconomic branch of the theory of public finance a model of family choice is developed the main message of the present paper is that if as the evidence suggests parents have some control over the number of children they put into the world then the effect of taxes and subsidies on the familys allocation of time and money will be generally weaker and in some respects the opposite of what it would be if the number of children were physiologically constrained or exogenously given another is that if parents derive utility from having children this has to be taken into account in any welfare calculation fertility may thus affect the design of optimal policy in two ways indirectly through its effect on market behaviour and directly through its effect on welfare excerpt

is it retirement or unemployment induced retirement and constrained labour supply among older workers this paper uses the 1986 labour market activity survey of statistics canada to examine the importance of labour demand for hours of work and labour force participation among older workers it tests a model of constrained labour supply against a nested unconstrained alternative and concludes that constraints on weeks of work are empirically significant for older workers a significant fraction of retirement decisions are also influenced by the belief that there are no jobs available

the effect of health on the labor force behavior of elderly men in canada this paper estimates a model of the labor force behavior of elderly males in canada paying explicit attention to the influence of health the authors construct a health index using data from the canada health survey we estimate an earnings equation for fullyear full time participants to obtain the potential earnings of each individual we then examine four labor force states using a hierarchical elimination by aspects heba model our results suggest that health is as important as potential earnings in determining the labor force behavior of men in canada

geography of the family we study the residential choice of siblings who are altruistic towards their parents the firstborn child s location choice influences the behavior of the second born child and can shift some of the burden of providing care for the parents from one child to the other these strategic considerations lead to an equilibrium location pattern with firstborn children locating further away from their parents than second born children we also analyze the location choices empirically using german data these data confirm our theoretical predictions jel h41 j10