uncertainty investment and industry evolution we study the effects of aggregate and idiosyncratic uncertainty on the entry of firms total investment and prices in a competitive industry with irreversible investment we first use standard dynamic programming methods to determine firms entry decisions and we describe the resulting industry equilibrium and its characteristics emphasizing the effects of different sources of uncertainty we then show how the conditional distribution of prices can be used as an alternative means of determining and understanding the behavior of firms and the resulting industry equilibrium finally we use four digit u s manufacturing data to examine some implications of the model

estimating the elasticity of intertemporal substitution using mortgage notches using a novel source of quasi experimental variation in interest rates we develop a new approach to estimating the elasticity of intertemporal substitution eis in the u k the mortgage interest rate features discrete jumps notches at thresholds for the loan to value ltv ratio these notches generate large bunching below the critical ltv thresholds and missing mass above them we develop a dynamic model that links these empirical moments to the underlying structural eis the average eis is small around 0 1 and quite homogeneous in the population this finding is robust to structural assumptions and can allow for uncertainty a wide range of risk preferences portfolio reallocation liquidity constraints present bias and optimization frictions our findings have implications for the numerous calibration studies that rely on larger values of the eis

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

a note on competitive investment under uncertainty uncertainty over future output prices or input costs can affect investment by a riskneutral firm in two opposing ways first it can increase the value of the marginal unit of capital which leads to more investment this only requires that the stream of future profits generated by the marginal unit be a convex function of the stochastic variable by jensen s inequality the expected present value of that stream is increased this result was demonstrated by richard hartman 1972 and later extended by andrew abel 1983 and others in their models constant returns to scale and the substitutability of capital with other factors ensure that the marginal profitability of capital is convex in output price and input costs even with fixed proportions however this convexity can result from the ability of the firm to vary output so that the marginal unit of capital need not be utilized at times when the output price is low or input costs are high if investment is irreversible and can be postponed a second effect of uncertainty is to create an opportunity cost of investing now rather than waiting for new information to arrive before committing resources this increases the full cost of investing in a marginal unit of capital which reduces investment 2 hence the net effect of uncertainty on irreversible investment depends on the size of this opportunity cost relative to the increase in the value of the marginal unit of capital the sign of the net effect is significant because of its possible policy implications pindyck 1988 and giuseppe bertola 1989 developed models in which a firm faces a downward sloping demand curve and found the net effect to be negative ricardo caballero 1991 has recently studied investment by an individual firm facing a stochastically shifting demand curve he shows that as returns to scale become constant and the elasticity of demand faced by the firm rises this opportunity cost of investing now rather than waiting approaches zero thus in the limit of constant returns and an infinitely elastic demand curve an increase in uncertainty tends to raise rather than decrease current investment even if that investment is irreversible it is important to stress that caballero s limiting result treats the firm in isolation and describes the effect of a meanpreserving increase in price uncertainty and not an increase in industry wide demand uncertainty this note shows that in a competitive market the key interactions between irreversibility and uncertainty occur at the industry level and can only be understood by making price and industry output endogenous 3 doing so restores the positive opportunity cost associated with irreversible investment in addition caballero s result is based on a model with convex adjustment costs an innovative aspect of the model is that these costs can be asymmetric thereby allowing for partial or complete irreversibility complete irreversibility corresponds to a cost of massachusetts institute of technology cambridge ma 02139 this work was supported by the national science foundation under grant no ses 8618502 and by mit s center for energy policy research my thanks to julio rotemberg and especially ricardo caballero for very helpful comments and discussions 1then the marginal profit of capital at each time t in the future is max o pt ct where ct is variable cost thus a unit of capital represents a set of all options on future production which are worth more the greater the variance of pt or ct 2for a detailed discussion of this point and a survey of the recent literature on irreversibility and its implications for investment and market evolution see pindyck 1991 3studies that make price endogenous include steven lippman and richard rumelt 1985 avinash dixit 1989 1991 and john leahy 1990

sources of stagnation in sub saharan africa abstract this paper investigates the sources of economic stagnation in sub saharan africa during the 1970s several policy variables are considered as well as a set of environmental variables which include climate violence export prices and other exogenous factors the paper uses statistical analysis in an attempt to identify the relative importance of the policy variables and the environmental variables taken as groups it also seeks to identify particular policy variables which seem to have been most significant in determining growth outcomes the technique employed for investigation is reduced form econometric estimation in a preliminary analysis the impact of the international trade environment on average economic performance in africa during the period since independence is investigated the results suggest an extremely close relationship between movements in export prices and average performance throughout the 20 year period a second econometric exercise investigates the joint impacts of environmental and policy variables on growth in a cross section of african states since 1970 the spirit of the approach is exploratory and a relatively large number of variables are constructed and tested through multivariate analysis a primary finding is that the environmental variables seem to have had more impact on growth as a group than the policy variables this finding must be qualified however by the continuing lack of some important policy variables agricultural price data have not yet become available in sufficient quantity for cross section analysis nor have several important human resource variables and indices of the use of resources in the public domain among the policy variables which have been used for the analysis those identified with retrenchment during periods of declining commodity prices seem most significant primary among these are the real effective exchange rate and some measures of effectiveness in foreign exchange reallocation during periods when imports must contract severely in the final section of the paper the cross section results are used for a counterfactual analysis of the growth experiences of individual african states measures of growth opportunity cost are constructed which suggest the degree to which errors in management and uncontrollable circumstances have held states below their potential growth paths the results suggest that some success stories may owe much to good luck while some failures may well be due less to bad management than to adverse circumstances

wealth taxation and wealth accumulation theory and evidence from denmark using administrative wealth records from denmark we study the effects of wealth taxes on wealth accumulation denmark used to impose one of the world s highest marginal tax rates on wealth but this tax was greatly reduced starting in 1989 and later abolished due to the specific design of the wealth tax the 1989 reform provides a compelling quasi experiment for understanding behavioral responses among the wealthiest segments of the population we find clear reduced form effects of wealth taxes in the short and medium run with larger effects on the very wealthy than on the moderately wealthy we develop a simple life cycle model with utility of residual wealth bequests allowing us to interpret the evidence in terms of structural primitives we calibrate the model to the quasi experimental moments and simulate the model forward to estimate the long run effect of wealth taxes on wealth accumulation our simulations show that the long run elasticity of taxable wealth with respect to the net of tax return is sizable at the top of the distribution

the welfare cost of lawlessness evidence from somali piracy in spite of general agreement that establishing the rule of law is central to properly functioning economies little is known about the cost of law and order breakdowns this paper studies a specific context of this by estimating the effect of somali piracy attacks on shipping costs using data on shipping contracts in the dry bulk market to estimate the effect of piracy we look at shipping routes whose shortest path exposes them to piracy and find that the increase in attacks in 2008 led to around an 8 to 12 increase in costs from this we calculate the welfare loss imposed by piracy we estimate that generating around 120 usd million of revenue for somali pirates led to a welfare loss in excess of 630 usd million making piracy an expensive way of making transfers

the stagnation of smallholder agriculture in malawi a decade of structural adjustment abstract malawi s efforts at structural adjustment have revolved around reforming the marketing and pricing of outputs and inputs in smallholder agriculture in practice the price oriented adjustment policies were not thorough enough and have led to disappointing results there is clearly a need to push for further reforms in pricing however structural adjustment in malawi will have to go beyond just getting prices right policies must also concentrate on structural and institutional weaknesses that constrain smallholder agriculture and contribute to widespread food insecurity and malnutrition

political commitment institutional capacity and tax policy reform in tanzania abstract the early literature on structural adjustment programs concentrated on the types of economic reforms required and more recent literature addresses the political and institutional dimensions of economic policy reform this paper presents a framework for analyzing the interaction between politics notably the political commitment to reform and institutions especially administrative capacity in implementing reform the framework is applied to tax reform and trade liberalization in tanzania a number of conclusions are drawn regarding the appropriate design and sequence of a reform program to increase the likelihood of effective implementation given the policy environment and political and institutional changes required

theoretical and empirical foundations of hipc debt sustainability targets this article traces the origins of hipc heavily indebted poor country debt sustainability targets these targets are interpreted as switching values below which countries are expected to avoid debt service problems but as such they do not take into account that countries encounter debt problems for a variety of reasons and at different levels of debt it is likely that the true switching value of the debt to export ratio of many hipcs lie below the present target regarding the fiscal window of the hipc initiative the lack of analytical basis for a 250 per cent target for the debt torevenue ratio is noted and the problems raised by the joint openness revenue condition are discussed the article concludes that the sustainability targets as presently applied are not well supported in analytical terms

microfinance and poverty a macro perspective we test the hypothesis that microfinance reduces poverty at the macro level using cross country and panel data which are constructed by the microfinance information exchange data on microfinance institutions mfis and the world bank data taking account of the endogeneity associated with mfis loans we show that a country with higher mfis gross loan portfolio per capita tends to have lower levels of poverty indices contrary to recent micro evidence our results suggest that microfinance significantly reduces poverty at macro level and thus reinforce the case for channeling funds from development finance institutions and governments of developing countries into mfis

how well do static indicators identify the chronically poor abstract we investigate how well the most widely used static welfare indicators perform in identifying the chronically poor we propose a normative measure of performance the cost of a given impact on chronic poverty when transfers are contingent upon a purely static indicator using longitudinal household data from rural india we find that current consumption is not always a better indicator of chronic poverty than current income both however perform much better than other common indicators such as food share and access to land

the welfare cost of means testing pensioner participation in income support we estimate parametric and semi parametric binary choice models of benefit take up by british pensioners and use a revealed preference argument to infer the cash equivalent value of disutility arising from stigma or complexity of the claims process these implicit costs turn out to be relatively small averaging about 3 4 per week across income support recipients using the foster greer thorbecke measure of poverty among pensioners we find that allowing for implicit claim costs incurred by benefit recipients raises the measured degree of poverty by not more than 13 copyright 2007 john wiley sons ltd

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

tax policy the interest elasticity of saving and capital accumulation numerical analysis of theoretical models increasing disillusionment with traditional empirical methods is having a major impact on research methodology which is increasingly turning to simulation analysis based on theoretical models and assumed parameter values in research on saving and wealth accumulation there have been several recent studies consisting of simulation of theoretical models based on the life cycle model a particular focus has been tax policy and capital formation which is the area of concentration of this paper the aim is to analyze in a theoretical simulation context the impact on saving and wealth of an increase in the after tax rate of return to saving generated by a cut in the tax rate on income from capital this paper suggests that such simulation analysis while instructive as to the behavior of the class of models examined and as to the critical channels of influence does not yield a theoretical presumption in favor of cutting taxes on income from capital as a means of stimulating capital formation the development of this literature derives in part from disillusionment with traditional empirical methods many such papers begin by listing a litany of the problems involved in the usual type of empirical analysis before proceeding to simulation of theoretical structures the implicit conclusion at times appears to be that because of the daunting problems of standard empirical methodology the results derived from it can be ignored and that empirical magnitudes can perhaps be discovered by deductive means the temptation to think of the precise numerical results derived from theoretical simulation as empirical can be rather strong it needs to be reemphasized that empirical magnitudes can only be determined by empirical studies in section i the theoretical structure of a zero bequest life cycle model2 is outlined and several numerical simulations of this model are presented these simulations highlight interesting and nontrivial interactions of theoretical parameters and also demonstrate the difficulty involved in attempts to develop robust aggregate implications from such a framework for instance it is argued that summers claim to have developed a prima facie theoretical case for a high interest elasticity of savings 1981a p 537 does not stand up to sensitivity analysis a small change in the assumed rate of pure time preference or in other parametric assumptions generate otherwise plausible cases in which the interest elasticity of aggregate saving is low the experiments conducted in section i are partial equilibrium in the sense that the interest rate is changed exogenously which changes savings and hence the capital stock but the feedback effect of the capital international monetary fund this paper derives from chs 2 and 3 of my doctoral dissertation completed during a research fellowship at the brookings institution financial support was received from brookings and the social science research council i am grateful to henry aaron barry bosworth maxim engers irwin friend laurence kotlikoff franco modigliani joseph pechman duncan ripley robert shiller patricia stack and my supervisor albert ando for comments and guidance on earlier drafts none of the above institutions or individuals is responsible for the views expressed or any remaining errors for example see james tobin and walter dolde betsy white lawrence summers 1978 1981a b g moore alan auerbach and laurence kotlikoff and auerbach kotlikoff and j skinner 2it is popular to establish a sharp dichotomy between life cycle models and bequest models this taxonomy ignores the frequent references to the potential significance of bequests in the writings of the originators of the life cycle hypothesis a distinction between zero bequest life cycle models and life cycle models incorporating bequests is more accurate in terms of doctrinal history see for example albert ando and franco modigliani and modigliani and richard brumberg

computable markov perfect industry dynamics we provide a general model of dynamic competition in an oligopolistic industry with investment entry andexit toensurethatthereexistsacomputationallytractablemarkov perfectequilibrium we introduce firm heterogeneity in the form of randomly drawn privately known scrap values and setup costs into the model our game of incomplete information always has an equilibrium in cutoff entry exit strategies in contrast the existence of an equilibrium in the ericson and pakes model of industry dynamics requires admissibility of mixed entry exit strategies contrary to the assertion in their article that existing algorithms cannot cope with in addition we provide a condition on the model s primitives that ensures that the equilibrium is in pure investment strategies building on this basic existence result we first show that a symmetric equilibrium exists under appropriate assumptions on the model s primitives second we show that as the distribution of the random scrap values setup costs becomes degenerate equilibria in cutoff entry exit strategies converge to equilibria in mixed entry exit strategies of the game of complete information

informal responses to crises of urban employment an investigation into the structure and relevance of small scale informal retailing in kaduna nigeria simon p b 1998 informal responses to crises of urban employment an investigation into the structure and relevance of small scale informal retailing in kaduna nigeria reg studies 32 547 557 micro enterprises in the informal sector of developing countries arguably possess potential and provide a niche in the employment generation process in the light of continuing economic decline this paper articulates the findings of a study that investigated the socio economic significance of small scale informal retailing in kaduna nigeria findings from this empirical study of informal retailing sustain the proposition that these activities can constitute a dependable source of urban employment income and livelihood the fullest extent of this relevance is however felt mostly by a relatively small category 20 of core informal enterprises in particular retailing practices evidence from this inquiry supports further a conclusion about the existence of a dual informal labour market external policy con

commodity trade and the carry trade a tale of two countries persistent interest rate differentials account for much of the currency carry trade profitability commodity currencies offer high interest rates on average while countries that export finished goods tend to have low interest rates we develop a general equilibrium model of international trade and currency pricing where countries have an advantage in producing either basic inputs or final goods in the model domestic production insulates commodity producing countries from global productivity shocks forcing final good producers to absorb them commodity currency exchange rates and risk premia increase with productivity differentials and trade frictions these predictions are strongly supported in the data this article is protected by copyright all rights reserved

house prices and consumption inequality i characterize how house price shocks affect consumption inequality using a life cycle model of housing and nonhousing consumption with incomplete markets i derive analytical expressions for the dynamics of inequalities and use these to analyze large house prices swings seen in the uk i show that movements in consumption inequality were large that they correspond with the theoretical predictions qualitatively and that the model explains a large fraction of the movements quantitatively i demonstrate the accuracy of this analysis using an extended model s full non linear solution finally accounting for house price shocks alters estimates of labour income risks using cross sectional data

the effects of a large discrete maize price increase on the distribution of household welfare and poverty in rural kenya1 this study estimates the effects of a large discrete maize price increase on the welfare of a sample of rural kenyan households the usual first order welfare approximation formula is extended to a second order formula that allows for supply and demand responses to the price change results show that many rural households are not affected greatly by the price change and there are about as many gainers as losers however these full sample results mask important differences across regions welfare gains generally take place in major production areas while losses are in areas where most households are net buyers of maize semiparametric methods are used to investigate the relationship between income and the size of the welfare effect and poverty dominance techniques are applied to study the impacts of the maize price increase on rural poverty

a framework for dynamic oligopoly in concentrated industries in this article we introduce a new computationally tractable framework for ericson and pakes style dynamic oligopoly models that overcomes the computational complexity involved in computing markov perfect equilibrium mpe first we define a new equilibrium concept that we call moment based markov equilibrium mme in which firms keep track of their own state the detailed state of dominant firms and few moments of the distribution of fringe firms states second we provide guidelines to use mme in applied work and illustrate with an application how it can endogenize the market structure in a dynamic industry model even with hundreds of firms third we develop a series of results that provide support for using mme as an approximation we present numerical experiments showing that mme approximates mpe for important classes of models then we introduce novel unilateral deviation error bounds that can be used to test the accuracy of mme as an approximation in large scale settings overall our new framework opens the door to study new issues in industry dynamics

demand fluctuations in the ready mix concrete industry i investigate the role of demand shocks in the ready mix concrete industry using census data on more than 15 000 plants i estimate a model of investment and entry in oligopolistic markets these estimates are used to simulate the effect of eliminating short term local demand changes a policy of smoothing the volatility of demand has a market expansion effect the model predicts a 39 increase in the number of plants in the industry since bigger markets have both more plants and larger plants a demand smoothing fiscal policy would increase the share of large plants by 20 finally the policy of smoothing demand reduces entry and exit by 25 but has no effect on the rate at which firms change their size

a theory of dynamic oligopoly iii cournot competition abstract we study the markov perfect equilibrium mpe of an alternating move infinite horizon duopoly model where the strategic variable is quantity we exhibit a pair of difference differential equations that when they exist differentiable mpe strategies satisfy for quadratic payoff functions we solve these equations in closed form and demonstrate that the mpe corresponding to the solution is the limit of the finite horizon equilibrium as the horizon tends to infinity we conclude with a discussion of adjustment costs and endogenization of the timing

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

explaining investment dynamics in u s manufacturing a generalized s s approach we are grateful to olivier blanchard whitney newey james stock an editor three anonymousreferees and seminar participants at brown cepr champoussin chicago columbia econometric society meetings caracas and tokyo efcc harvard impa lse nber princeton rochester site toronto u de chile and yale for their comments financial support to caballero from the national science and sloan foundations and to engel from fondecyt grant 195 510 and the mellon foundation grant 9608 is gratefully acknowledged 2since plants entry is excluded from their sample these statistics are likely to represent lowerbounds on the degree of lumpiness in plants investment patterns 3we use the word project to emphasize the fact that the actual implementation of a projectmay cover more than a year observation realistic time to build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature 4 see chirinko 1994 for a survey of the empirical investment literature

optimal non linear income taxation for the alleviation of income poverty there has been much discussion recently of structuring tax and transfer programs to ensure that resources go to the poor with minimal leaks to the nonpoor the poor have no incentive to earn income with 100 percent marginal tax rates but how high or low the marginal rate of taxation should be and how they should vary with income is a complex issue and opinions vary social security schemes that withdraw benefits represent an extremely high effective marginal tax rate other schemes call for relatively low marginal tax rates at the bottom of the income distribution which tax transfer schedule does most to reduce poverty the issue is one of optimal nonlinear income taxation the authors show that one of the key theoretical results of the welfarist literature is overturned if it is desirable for everybody to work the optimal marginal tax rate on the very poorest individuals is strictly negative they argue that the nonwelfarist perspective points toward lower marginal tax rates in the lower part of the income distribution than does the welfarist perspective but numerical simulations suggest that the effect is of limited quantitative significance using conventional functional forms and parameter values optimal marginal tax rates on the poor are in the 60 70 percent range

exchange rate fiscal and agricultural policies in africa does adjustment hurt the poor abstract trade exchange rate fiscal and agricultural sector policy reforms are the pillars of structural adjustment programs in africa results indicate that trade and exchange rate reforms are associated with a large decline in economic rents and a shift in relative prices that favor the rural and urban poor fiscal reforms have not brought about draconian belt tightening measures although the incidence of public spending particularly in the social sectors and in terms of public sector employment remains far from progressive reduction of export crop taxation contributes to higher incomes for the poor and domestic food crop liberalization has not led to increases in purchase prices of staple commodities for most low income households

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

the response of drug expenditure to nonlinear contract design evidence from medicare part d we study the demand response to non linear price schedules using data on insurance contracts and prescription drug purchases in medicare part d we exploit the kink in individuals budget set created by the famous donut hole where insurance becomes discontinuously much less generous on the margin to provide descriptive evidence of the drug purchase response to a price increase we then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non linear budget set we use the model for counterfactual analysis of the increase in spending from filling the donut hole as will be required by 2020 under the affordable care act in our baseline model which considers spending decisions within a single year we estimate that filling the donut hole will increase annual drug spending by about 150 or about 8 percent about one quarter of this spending increase reflects anticipatory behavior coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole we also present descriptive evidence of cross year substitution of spending by individuals who reach the kink which motivates a simple extension to our baseline model that allows in a highly stylized way for individuals to engage in such cross year substitution our estimates from this extension suggest that a large share of the 150 drug spending increase could be attributed to cross year substitution and the net increase could be as little as 45 per year

frictions in a competitive regulated market evidence from taxis this paper presents a dynamic equilibrium model of a taxi market the model is estimated using data from new york city yellow cabs two salient features by which most taxi markets deviate from the efficient market ideal are first matching frictions created by the need for both market sides to physically search for trading partners and second regulatory limitations to entry to assess the importance of these features we use the model to simulate the effect of changes in entry alternative matching technologies and different market density we use the geographical features of the matching process to back out unobserved demand through a matching simulation the matching function exhibits increasing returns to scale which is important to understand the impact of changes in this market and has welfare implications for instance although alternative dispatch platforms can be more efficient than street hailing platform competition is harmful because it reduces effective density

economic reform and food prices evidence from markets in ghana abstract this paper investigates trends in food prices in ghana during 1970 1993 regression results confirm that real wholesale prices of food have been declining since the 1970s price trends in the 1980s are characterized by a downward shift at the beginning of the postreform period and a subsequent continuing downward trend despite falling grain prices we find that agricultural wage rates failed to provide an adequate basis for subsistence particularly during periods of large seasonal price rises many farmers hold grain for both speculation and to smooth income this view is supported by evidence regarding seasonal price spreads that have been increasing since 1984 we find no support however for conclusions of trader manipulation of marketing margins during the adjustment period

the dynamics of market structure abstract in this paper changes in market concentration are modelled in terms of long run steady state levels and the adjustment towards them both the speed of adjustment and the long run levels of concentration are allowed to vary across industries non linear three stage least squares estimates for allowing for the endogeneity of profits and advertising for 184 u s industries 1963 1967 suggest that both the speed of adjustment and the levels of concentration in the long run are largely determined by minimum efficient scale

poverty and basic needs fulfilment in africa during structural change evidence from cote d ivoire abstract much attention is given in the literature to the evolution of social indicators during periods of structural adjustment and economic reform this paper argues that these processes are not distribution neutral from the point of view of basic needs fulfilment and that hence the focus should not be on aggregate indicators but on the distribution of beneficiaries of social services and changes in this distribution evidence is presented for cote d ivoire during the second half of the 1980s a period of intense structural change which shows that the poorest absorbed the bulk of the decline in basic needs fulfilment as a result of structural change this was the case for almost all aspects of basic needs and occurred regardless of the overall trend in the social indicators

seeking guidelines for poverty reduction in rural zambia abstract poverty profiles typically provide policy makers with information about the characteristics of the poor without giving guidance as to the types of programs best suited for reducing poverty a method is described in this paper for extending the typical poverty profile to analyze and quantify the constraints faced by poor smallholders in rural areas the method is applied to rural zambia where poverty is widespread and deep the extension provides timely information for the design of poverty reducing policies

do people respond to tax incentives an analysis of the italian reform of the deductibility of home mortgage interests abstract before 1992 mortgage interests in italy were fully tax deductible up to 3500 euro 7000 for two cosigners in 1992 1994 the government implemented a series of tax reforms whose ultimate effect was to eliminate the relation between the after tax mortgage rate and the marginal tax rate using data from the 1989 2002 survey of household income and wealth we test if the elimination of incentives has affected the sensitivity of the decision to borrow and the amount borrowed with respect to the marginal tax rate regression analysis and difference in differences estimates indicate that tax considerations have not affected the demand for mortgage debt neither at the extensive nor intensive margin these results are consistent with lack of financial information and credit rationing during the sample period

food subsidies and exchange rate distortions in mozambique abstract in response to acute food shortages in mozambique induced by civil war drought and policies that favoured state farms and restricted private trade the government introduced a food rationing system in the two largest cities maputo and beira the primary function was to assure an equitable distribution of the limited food available but it has evolved into an untargeted income support programme as the crisis that led to its inception has abated this article emphasizes the need to transform the subsidy which at present is financed implicitly through exchange rate distortions into an explicit and targeted subsidy this would be consistent with the long term objectives of mozambique s economic recovery programme in which liberalization of commodity markets and exchange rate realignment are key policy reforms

a dynamic analysis of the market for wide bodied commercial aircraft this paper uses an empirical dynamic oligopoly model of the commercial aircraft industry to analyse industry pricing industry performance and optimal industry policy a novel feature of the model with respect to the previous literature is that entry exit prices and quantities are endogenously determined in markov perfect equilibrium mpe we find that many unusual aspects of the aircraft data such as high concentration and persistent pricing below static marginal cost are explained by this model we also find that the unconstrained mpe is quite efficient from a social perspective providing only 10 less welfare on average than a social planner would obtain finally we provide simulation evidence that an anti trust policy in the form of a concentration restriction would be welfare reducing

changes in the living standards of the poor in sri lanka during a period of macroeconomic restructuring abstract beginning in 1977 sri lanka moved away from its welfare oriented economy characterized by extensive government intervention in controlling prices and expensive consumer subsidies toward a more market oriented outward looking liberalized economy investment increased due largely to dramatic increases in the inflow of foreign capital combined with greater deficit financing unemployment declined and the rate of growth of gdp increased the major increase in foreign assistance coupled with deficit spending enabled the government to undertake the ambitious infrastructure projects that stimulated demand however this policy change had deleterious consequences for the poor rapid inflation which resulted in a decline of real wages coupled with dramatic decreases in the value of the food stamp scheme brought about a decline in calorie consumption for lower expenditure groups in addition levels of malnutrition as measured by acute wasting were higher after the policy change

the effect of interest rates on home buying evidence from a shock to mortgage insurance premiums abstract regression discontinuity estimates indicate that home buying is highly responsive to interest rates in a large segment of the population a surprise 50 basis point cut in the effective interest rate for mortgages insured by the federal housing administration fha led to an immediate 14 percent increase in home buying among the fha reliant population we show that this large extensive margin effect arises from the rate cut helping borrowers overcome maximum debt payment to income dti thresholds we conclude that binding dti constraints are an important feature of the mortgage market that amplify the effect of interest rate shocks

human capital and economic development abstract this paper develops a general equilibrium model of fertility and human capital investment with young adult mortality because young adult mortality is negatively related to average young adult human capital human capital accumulation lowers mortality inducing demographic transition and industrial revolution data confirm that young adult mortality is related negatively to schooling and the rate of return to schooling and positively to fertility the data indicate a negative relationship between tfp growth and schooling accumulation the model fits the data on country populations per capita incomes human capital total fertility rates infant mortality life expectancy and conditional life expectancy

measuring intertemporal substitution the importance of method choices and selective reporting i examine 2 735 estimates of the elasticity of intertemporal substitution in consumption eis reported in 169 published studies the literature shows strong selective reporting researchers discard negative and insignicant estimates too often which pulls the mean estimate up by about 0 5 the reporting bias dwarfs the effects of methods with the exception of the choice between micro and macro data when i correct the mean for the bias for macro estimates i get zero even though the reported t statistics are on average two the corrected mean of micro estimates of the eis for asset holders is around 0 3 0 4 calibrations greater than 0 8 are inconsistent with the bulk of the empirical evidence jel e21 c83

bunching at the kink implications for spending responses to health insurance contracts abstract a large literature in empirical public finance relies on bunching to identify a behavioral response to non linear incentives and to translate this response into an economic object to be used counterfactually we conduct this type of analysis in the context of prescription drug insurance for the elderly in medicare part d where a kink in the individual s budget set generates substantial bunching in annual drug expenditure around the famous donut hole we show that different alternative economic models can match the basic bunching pattern but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts these findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest

life insurance and life settlement markets with overconfident policyholders abstract we analyze how the life settlement market the secondary market for life insurance may affect consumer welfare in a dynamic equilibrium model of life insurance with one sided commitment and overconfident policyholders in our model policyholders may lapse their life insurance policies when they lose their bequest motives however they are overconfident in the sense that they may underestimate the probability of losing their bequest motives we show that in the competitive equilibrium without life settlement overconfident consumers will buy life insurance contracts with too much reclassification risk insurance for later periods the life settlement market can impose a limit on the extent to which primary insurers can exploit overconfident consumers we show that the life settlement market may increase the equilibrium consumer welfare of overconfident consumers when they are sufficiently vulnerable in the sense that they have a sufficiently large intertemporal elasticity of substitution of consumption our result is robust to alternative specifications where i insurers cannot observe the subjective or objective probability that policyholders will lose their bequest motives ii insurers can include health contingent cash surrender values csvs in the life insurance contract and iii policyholders underestimate their future mortality risk

government and economic growth in the less developed countries an empirical study for 1960 1980 adam smith founded modern economics with a powerful argument that free markets are the best route to prosperity and economic growth his conclusion has been studied and debated by economists ever since including nobel prize winners friedman hayek kuznets lewis myrdal and schultz whatever economists have concluded since world war ii the majority of the less developed countries seem to have opted for extensive government regulation of the private sector and for a large public sector has the large government role slowed or accelerated the growth of ldcs obviously this is an important issue this study looks at government expenditure revenue raising and regulation greater emphasis is put on expenditure because 1 the revenue raised is presumably a function of the level of expenditure and 2 there are few internationally comparable measures of regulation there are virtually no empirical studies of the general impact of government on economic growth an extensive literature search turned up only three papers gemmell analyzed the impact of nonmarket sector growth on various measures of macroeconomic performance for 27 ldcs and developed countries for 1960 and 1970 he drew no general conclusions about the relation between the size of the nonmarket sector and economic growth marsden found a negative relation between tax gdp ratios and economic growth for a cross section of 20 ldcs and developed countries for the 1970 79 period 2 i found a negative relationship between the share of government consumption expenditure in gdp and the growth of per capita gdp for a cross section of 96 ldcs and developed countries over various time periods between 1961 and 1976 3 this paper extends the approach used in my 1983 article

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

consumption commitments and habit formation we analyze the implications of household level adjustment costs for the dynamics of aggregate consumption we show that an economy in which agents have consumption commitments is approximately equivalent to a habit formation model in which the habit stock is a weighted average of past consumption if idiosyncratic risk is large relative to aggregate risk consumption commitments can thus explain the empirical regularity that consumption is excessively sensitive and excessively smooth findings that are typically attributed to habit formation unlike habit formation and other theories but consistent with empirical evidence the consumption commitments model also predicts that excess sensitivity and smoothness vanish for large shocks these results suggest that behavior previously attributed to habit formation may be better explained by adjustment costs we develop additional testable predictions to further distinguish the commitment and habit models and show that the two models have different welfare implications

using notches to uncover optimization frictions and structural elasticities theory and evidence from pakistan we develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches discontinuities in the choice sets of agents introduced by tax and transfer policies notches create excess bunching on the low tax side and missing mass on the high tax side of a cutoff and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world by combining excess bunching observed response attenuated by frictions with missing mass in the dominated region frictions it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long run behavior we apply our framework to tax notches in pakistan using rich administrative data while observed bunching is large and sharp optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives the combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large but the underlying structural elasticity driving this response is nevertheless modest this highlights the inefficiency of notches by creating extremely strong price distortions they induce large behavioral responses even when structural elasticities are small

time to build and fluctuations in bulk shipping abstract this paper explores the nature of fluctuations in world bulk shipping by quantifying the impact of time to build and demand uncertainty on investment and prices we examine the impact of both construction lags and their lengthening in periods of high investment activity by constructing a dynamic model of ship entry and exit a rich dataset of secondhand ship sales allows for a new estimation strategy resale prices provide direct information on value functions and allow their nonparametric estimation we find that moving from time varying to constant to no time to build reduces prices while significantly increasing both the level and volatility of investment jel g31 l11 l62 l92

the impact of coffee certification on small scale producers livelihoods a case study from the jimma zone ethiopia what is the impact of product certification on small scale farmers livelihoods to what extent does the participation of ethiopian small scale coffee farmers in certified local cooperative structures improve their socioeconomic situation to answer these questions this article employs household data of 249 coffee farmers from six different cooperatives collected in the jimma zone of southwestern ethiopia in 2009 findings show that the certification of coffee cooperatives has in total a low impact on small scale coffee producers livelihoods mainly due to 1 low productivity 2 insignificant price premium and 3 poor access to credit and information from the cooperative differences in production and organizational capacities between the local cooperatives are mirrored in the extent of the certification benefits for the smallholders good cooperatives have reaped the benefits of certification whereas bad ones did not fare well in this regard the cooperative effect overlies the certification effect

evidence on the demand for mortgage debt by owner occupants abstract this paper explores the relationship between household mortgage debt burdens and housing consumption periodic income nonhousing wealth the income tax position of the household expected mobility and other micro level characteristics that proxy for household risk preferences and life cycle effects we use 1985 and 1989 american housing survey data to estimate mortgage debt level equations simultaneous with house value equations controlling for the contemporaneous nature of these two choices we find that larger debt levels are positively associated with greater value residences and with the level of household income numerous household level demographic characteristics are also systematically related to mortgage demand of particular interest are our findings that the use of mortgage debt is affected significantly by the rate of tax savings on mortgage interest deductions and by the expected mobility of the household

asset pricing with mean reversion the case of ships we develop a heterogeneous beliefs asset pricing model with microeconomic foundations that reproduces asset prices cash flows and trading activity in a real asset economy in contrast to the majority of financial markets behavioural models and in line with the nature of the shipping industry in this model agents extrapolate fundamentals formal estimation of the model indicates that an economy where a small fraction of agents significantly extrapolates fundamentals can explain the positive relation between earnings vessel prices and trading activity

the lucky few amidst economic decline distributional change in cote d ivoire as seen through panel data sets 1985 88 this article is an exploratory exercise in using panel data sets to investigate distributional change in cote d ivoire during the second half of the 1980s the panels made it possible to highlight and quantify mobility of the same households across poverty classes over time we found that there were a lucky few who improved their standard of living amid general decline detailed investigations revealed that the lucky few were fairly numerous and the probability of escaping poverty was quite high even for the very poorest these lucky few were widespread regionally although in some socio economic groupings the poor had higher chances of escaping poverty

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

detection and impact of industrial subsidies the case of world shipbuilding this paper provides a model based empirical strategy to i detect the presence and gauge the magnitude of government subsidies and ii quantify their impact on production reallocation across countries industry prices costs and consumer surplus i construct and estimate an industry model that allows for dynamic agents in both demand and supply and apply my strategy to world shipbuilding a classic target of industrial policy i nd strong evidence consistent with china having intervened and reducing shipyard costs by 15 20 corresponding to 5 billion us dollars between 2006 and 2012 the subsidies led to substantial reallocation of ship production across the world with japan in particular losing signi cant market share they also misaligned costs and production while leading to minor surplus gains for shippers

what has happened to the urban population in cote d ivoire since the 1980s an analysis of monetary poverty and deprivation over 15 years of household data abstract this article investigates the evolution of urban poverty in its various dimensions in cote d ivoire since the 1980s the robustness of the results is checked using dominance criteria an econometric analysis of poverty complements the analysis the study shows that the dynamic of poverty in terms of existence conditions can significantly differ from that of monetary poverty as was the case in the 1980s monetary poverty increased strongly in the 1990s in spite of a return to sustained growth following the devaluation of the cfa franc poverty in terms of existence conditions rose less before the adjustment and even decreased afterward

monetary policy when households have debt new evidence on the transmission mechanism in response to an unanticipated change in interest rates households with mortgage debt adjust their expenditure signicantly especially on durable goods renters react to a lesser extent and outright home owners do not react at all all housing tenure groups experience a signicant change in disposable income over and above the direct impact on mortgage repayments the response of house prices is sizable driving a signicant adjustment in loanto income ratios but little change in loan to value ratios a simple collateral constraint model augmented with durable goods and a renting decision generates predictions consistent with these novel empirical ndings and suggests that heterogeneity in housing debt positions plays an important role in the transmission of monetary policy

the impact of mortgage interest rate subsidies on household borrowing abstract the responsiveness of household borrowing to changes in the interest rate is a crucial parameter for assessing public policies aimed at promoting saving we estimate the effect on household borrowing of a reform of a program that subsidized interest rates on mortgages signed by medium and low income households the reform established a ceiling in the price of the house that could be financed with the program first we use triple difference estimators exploiting the fact that the reform should affect most the borrowing behavior of eligible individuals living in high price areas and estimate that the elasticity of the probability getting a loan to the interest rate lies between 2 8 and 1 3 second we document that after the reform the distribution of loan sizes became more concentrated at the discontinuity point of the budget constraint of eligible individuals both findings are consistent with a negative response of household borrowing to increases in interest rates

why have some indian states done better than others at reducing rural poverty the unevenness of the rise in rural living standards in the various states of india since the 1950s allowed the authors to study the causes of poverty they modeled the evolution of average consumption and various poverty measures using pooled state level data for 1957 91 they found that poverty was reduced by higher agricultural yields above trend growth in nonfarm output and lower inflation rates but these factors only partly explain relative success and failure in reducing poverty initial conditions also mattered states that started the period with better infrastructure and human resources with more intense irrigation greater literacy and lower infant mortality rates had significantly greater long term rates of consumption growth and poverty reduction by and large the same variables that promoted growth in average consumption also helped reduce poverty the effects on poverty measures were partly redistributive in nature after controlling for inflation the authors found that some of the factors that helped reduce absolute poverty also improved distribution and none of the factors that reduced absolute poverty had adverse impacts on distribution in other words there was no sign of tradeoffs between growth and pro poor distribution

poverty transition and persistence in ethiopia 1994 2004 summary this study analyzes the persistence of poverty in both rural and urban areas in ethiopia during 1994 2004 the key finding is that households move frequently in and out of poverty but the difficulty of exiting from poverty like the chance of avoiding slipping back increases with the time spent in that state and varies considerably between male and female headed households our results imply that it is important to design anti poverty policies both to hinder households from slipping into extreme poverty and to minimize the length of the poverty spell for households once they have fallen into it

one kind of freedom poverty dynamics in post apartheid south africa abstract a 1993 south african living standards survey documented the legacy of apartheid in the form high levels of inequality and human insecurity drawing on a 1998 re survey of households in the 1993 study this paper explores whether this legacy has been superseded or whether apartheid s end has been only one kind of freedom that has left households in a poverty trap from which they cannot escape after proposing a theoretically grounded dynamic poverty typology that distinguishes stochastic from structural poverty transitions the paper goes on to estimate that significant numbers of the south african poor are potentially trapped in a structural poverty trap and lack the means to escape poverty over time

the dynamics of welfare gains and losses an african case study this article uses panel survey data for cote d ivoire to investigate the determinants of welfare gains and losses of households over time a first difference model is estimated which takes account of initial conditions for urban areas it was found that human capital is not only a key explanatory factor for levels of welfare but also the most important endowment to explain welfare changes over time in rural areas physical capital especially land and farm equipment mattered most household size and composition and socioeconomic characteristics of the household also affected welfare changes policy implications are discussed

public expenditures in sub saharan africa during a period of economic reforms abstract public expenditure restraint is the most direct means of reducing balance of payments and budget deficits and is consequently a key aspect of macroeconomic adjustment programs the results of this study indicate a steady increase in total central government and social services spending during 1977 1989 in sub saharan africa the growth in population however contributed to an overall erosion in per capita expenditures while total government expenditures as a share of gdp have been stable during the past decade they have declined net of interest repayments which represent an increasingly large share of total spending an analysis of spending in the three years before and after donor financed adjustment programs began reveals no pattern of increase or decrease in real levels of total and social sector expenditures or in social sector spending as a share of the total expenditures elasticities of health and education spending with respect to gdp were found to be greater than unity in recent years indicating that as countries develop social spending will constitute a larger share of gdp

expenditure response to health insurance policies evidence from kinks in rural china abstract this paper utilizes administrative data to analyze expenditure responses to the health insurance policy in rural china and clear visual evidence of bunching is observed at the kink point a static response model with optimization frictions estimates that a complete elimination of the reimbursement would cause the total expenditure per visit to decrease by 34 5 and approximately one third of the studied population makes decisions with errors heterogeneous expenditure responses and optimization frictions are observed across demographic groups cost benefit and counterfactual analyses indicate that the current policy generates the greatest welfare gains

structural adjustment policies income distribution and poverty a review of the jamaican experience abstract although jamaica has had structural adjustment and standby loans from the world bank and the international monetary fund imf since 1977 the implementation of typical structural adjustment policies such as trade and financial liberalization privatization and labor market reform has for the most part occurred only since 1989 during 1989 1993 when the jamaican economy underwent the most drastic liberalization policies inequality and poverty declined although there were sharp jumps in both inequality and poverty in 1991 when financial liberalization occurred the overall decline in poverty is attributed to the strong performance of domestic agriculture and the increased inflow of remittances and seems unlikely to be sustained

investments of uncertain cost abstract this paper examines irreversible investment decisions when projects take time to complete and are subject to two types of cost uncertainty the first is technical uncertainty i e uncertainty over the physical difficulty of completing a project which is only resolved as the investment proceeds the second is input cost uncertainty i e uncertainty over the prices of construction inputs or over government regulations affecting construction costs which is external to the firm these two types of uncertainty have very different effects on the investment decision a simple investment rule is derived that maximizes firm value and is used to analyze the decision to start or continue building a nuclear power plant during the 1980s

measuring crisis risk using conditional copulas an empirical analysis of the 2008 shipping crisis the shipping crisis starting in 2008 was characterized by sharply decreasing freight rates and sharply increasing financing costs we analyze the dependence structure of these two risk factors employing a conditional copula model as conditioning factors we use the supply and demand of seaborne transportation we find that crisis risk strongly increased already about 1 year before the actual crisis outburst and that the shipping crisis was predominantly driven by an oversupply of transport capacity therefore market participants could have prevented or alleviated the consequences of the crisis by reducing the ordering and financing of new vessels

flexibility premium of emissions permits abstract investments in abatement technology are often characterised by irreversibility and significant implementation lags whereas emissions permits can be traded at any time as such abatement and emissions permit trading systems are hardly perfect substitutes we formally study the flexibility of emissions permits and propose a unified framework to rationalise the impact of both investment divestment lags and irreversibility in relation to the price of emissions permits using option pricing concepts we reformulate the technology adoption problem in terms of the technology s characteristics irreversibility and implementation lags and offer a conceptual quantification of the flexibility premium of emissions permits

time to build option value and investment decisions abstract investment decisions and outlays are often made sequentially for example the rate at which construction proceeds is usually flexible and can be adjusted with the arrival of new information traditional discounted cash flow methods which treat the pattern of investment as fixed ignore this flexibility and understate the value of the project this paper uses contingent claims analysis to derive optimal decision rules and to value such investments we determine the effects of time to build opportunity cost and uncertainty on the investment decision for reasonable parameter values we show how a simple npv rule can lead to gross errors

keeping it fresh strategic product redesigns and welfare abstract product redesigns happen across virtually all types of products yet there is little evidence on the market and welfare effects of redesigns we develop a model of redesign decisions in a dynamic oligopoly model and use it to analyze redesign activity in the u s automobile market we find automobile model redesigns are frequent despite an estimated average cost around 1 billion our estimates also suggest that redesigns lead to large increases in profits and welfare due to the strong preferences consumers have for redesigns we show that welfare would be improved if redesign competition were reduced allowing redesign activity to be more responsive to the planned obsolescence channel the net effect of these changes would reduce total redesigns by roughly 10 increasing total welfare by roughly 3 the high valuation that consumers put on newly designed models drives frequent redesigns and gives automobile manufacturers fairly substantial market power with a 2 to 1 ratio of firm profits to consumer surplus

an econometric model of the world market for dry cargo freight and shipping 1989 an econometric model of the world market for dry cargo freight and shipping applied economics vol 21 no 3 pp 339 356

capacity dynamics and endogenous asymmetries in firm size empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries we propose a dynamic model of capacity accumulation that is consistent with the observed facts the model highlights the mode of product market competition and the extent of investment reversibility as key determinants of the size distribution of firms in an industry in particular if firms compete in prices and the rate of depreciation is large then the industry moves toward an outcome with one dominant firm and one small firm industry dynamics in this case resemble a preemption race contrary to the usual intuition this preemption race becomes more brutal as investment becomes more reversible