public provision of private goods as a redistributive device in an optimum income tax model public provision of a private good can alleviate the informational problems that restrict redistribution through the tax transfer system when the identity of high and low skill persons is hidden a pareto improvement may be achieved by publicly providin

equality of opportunity and optimal cash and in kind policies abstract this paper examines the argument for public provision of certain private goods like education and health based on equality of opportunity by studying the utility possibility frontier of a society in which there is a concern for the distribution of these goods a given quality of education or health services can be consumed for free in the public sector but people can opt out and purchase their desired quality levels in the private sector some of the conclusions are i a pure cash transfer is optimal when the utility redistribution is either sufficiently small or large ii if and only if both the equality of opportunity concern and the utility redistribution are large enough can an in kind program which attracts the whole population be justified iii even when everybody chooses the in kind program it may be optimal to perform some additional utility redistribution by increasing the size of such program

social security liquidity constraints and pre retirement consumption one of the primary goals of the social security retirement program is the maintenance of consumption in old age in the past decade since the pioneering paper by feldstein 13 studies have examined the impact of the system on consumption over the entire life cycle and not just in old age empirical work has tested the impact on consumption of the individual wealth transfers accompanying the introduction of a pay as you go social security system extending this discussion of the impact of social security on pre retirement consumption hubbard 21 has shown in the context of lifetime uncertainty that even an actuarially fair fully funded social security system can raise lifetime consumption hence previous partial equilibrium estimates of the impact of social security on consumption drawn solely from consideration of the intergenerational wealth transfer at the introduction of the system are underestimates of the potential effect 2 an important assumption in the approaches cited above is that of perfect capital markets i e that individuals can borrow against prospective gains from participating in the social security system such an assumption is at variance with actual limitations on borrowing e g upward sloping interest rate schedules collateral requirements and quantity restrictions hayashi 18 found that approximately twenty percent of all consumption in the u s is accounted for by liquidity constrained consumers 3 flavin 16 found that the estimate of the marginal propensity to consume is affected dramatically by the inclusion of proxies for liquidity constraints suggesting that liquidity constraints are an important part of the observed excess sensitivity of consumption to current income since its inception in 1935 old age and survivors insurance oasi provided

bequests gifts and social security this paper analyses the very long run or stationary state impact of an unfunded social security system we use an overlapping generations model framework a key feature is that while parents care about their children and can leave non negative bequests to them children also care about their parents and can make non negative gifts to them we show that the possibility of negative net bequests may make social security less harmful to private wealth accumulation than would otherwise be the case a subsidiary finding is that risk loving behaviour may emerge for some households due to the nature of intergenerational transfers within family lines

social security and aggregate capital accumulation revisited dynamic simultaneous estimates in a wealth generation model this paper re examines feldstein s 1974 1982 results of the effect of social security on private capital accumulation in the context of a simultaneous equation model of capital accumulation the model incorporates dynamic feedback effects in capital accumulation and is estimated by fiml to incorporate theoretical restrictions that are tested against the data it is then simulated as a full dynamic model to analyze the long run effect of ssw on private capital accumulation the simulated effects are in the same direction as found by feldstein but are considerably weaker

in kind transfers self selection and optimal tax policy abstract this paper examines the role of public provision of goods as a redistributive mechanism when tax policies are designed optimally on the basis of the information available to the government we characterize pareto efficient allocations that are attainable through the tax policy and derive the conditions under which public provision will enhance welfare above the maximum that can be achieved through a mix of a general income tax and commodity taxes price subsidies first when there are two produced goods we prove that public provision is always pareto improving the improvement is achieved through changing individuals actual consumption levels second with no restrictions on the number of goods we derive a sufficient condition for public provision to be pareto improving this is achieved by weakening self selection constraints so that welfare improving tax changes are made possible suitable examples include provision of day care basic health care and rights to a minimum old age pension

option value of gasification technology within an emissions trading scheme investment analysis is mostly implemented with discounted cash flow dcf methods such as the net present value npv the problem in a typical application of these methods is the limited ability to value real options management s ability to adapt to changing market conditions or to revise decisions this paper presents a simulation model in which the investment is regarded as a single firm problem in an operating environment with multiple exogenous and stochastic prices the simulation model is used to explore the impact of emissions trading and in particular the european union emissions trading scheme eu ets on investments in integrated gasification combined cycle igcc plants two real case studies are presented modifications of an existing condensing power plant and a new combined heat and power plant the benefit of the selected approach is that it can take into account the value of multiple simultaneous real options better than a standard dcf analysis the results show that a straightforward application of dcf analysis can lead to biased results in competitive energy markets within an emissions trading scheme where a number of uncertainties potentially combined with several real options can make quantitative investment appraisals very complex

interdependency of personal savings and labour force participation of the elderly and social security wealth a time series analysis using japanese annual time series data covering the period 1950 1982 our study shows that social security wealth during this period depressed personal savings as a result there was a reduction of approximately 79000 yen of wealth per capitain real terms from 1960 to 1980 however the declining labour force participation of elderly males brought about for example by earlier retirement stimulated personal savings by an estimated 13000 yen over the same period the results indicate that the benefit effect tends to outweigh the retirement effect furthermore this study has identified a negative interdependency between the level of personal savings and the retirement behaviour of elderly males a typical male worker saves more before retirement if that individual expects to stay a shorter time in the labour market retirement behaviour is less responsive to a change in personal savings behaviour than vice versa

the political economy of publicly provided private goods abstract this paper integrates two different approaches to the analysis of public provision of private goods education health care day care etc while normative public economics has established an efficiency case for such provision the commonly held political economy view has been that it is an economically inefficient phenomenon generated by the political process we establish a political economy framework which in general yields an efficient choice of distributional policy it follows that the central mechanism studied in the normative theory is equally relevant to voting models of decisions on public provision it is shown that under plausible information constraints economically efficient public provision of private goods will be part of politically rational decisions the result is established both within a median voter process and a representative democracy of political parties

new tests of the life cycle and tax discounting hypotheses abstract we first test a version of the permanent income consumption function recently suggested by barro the results support the theory except that consumption expenditures show sensitivity to transitory income next we use the consumption model to test the tax discounting hypothesis which is strongly supported this support for tax discounting disagrees with results from some earlier studies using more traditional specifications of the consumption function however we show that when certain obviously inadequate estimation procedures are corrected the traditional models also support tax discounting this uniform support for tax discounting suggests that the sensitivity of consumption to transitory income is not due to liquidity constraints

choosing a place to live and a workplace espanolen este trabajo se estudia como la politica fiscal y los costos de transporte determinan la distribucion geografica de los trabajadores y las familias se utiliza un modelo simple de dos regiones con costos de transporte bienes publicos locales e infraestructura local se presenta una breve revision de literatura relacionada que estudia otros factores determinantes de la localizacion de los agentes se argumenta que las cuestiones estudiadas juegan un rol importante en la distribucion geografica de la actividad economica en el area urbana del gran buenos aires englishwe study how fiscal policies and commuting costs determine the geographical distribution of workers and households in an economy we characterize equilibrium outcomes in a simple two region model with commuting costs local public goods and local infrastructure we also provide a short survey of the related economic literature that discusses other important factors driving the localization decisions of agents finally we argue that the issues raise in this paper play a significant role in the geographic distribution of economic activity in the greater buenos aires urban area of argentina

why voters may prefer congested public clubs governmental facilities for such services as education health and transportation are often small of poor quality and overcrowded even when the costs are spread among all taxpayers we also find that governments may subsidize private facilities providing the same services or may charge admission fees at public facilities we explain these phenomena with a model which considers two types of people rich and poor a majority consisting of poor people may purposely build small and low quality facilities to discourage use by the rich thereby lowering taxes for the same reason the poor may benefit from an admission fee at public clubs or even from a subsidy to private clubs they do not use

capital accumulation and the characteristics of private intergenerational transfers many recent studies of the process of family accumulation in general and household response to social security in particular have revealed growing dissatisfaction with the life cycle theory of saving see for example barro 1978 kotlikoff 1979 darby 1979 kotlikoff and summers 1981 kurz 1981 blinder gordon and wise 1981 david and menchik 1982 leimer and lesnoy 1982 an alternative to the life cycle hypothesis is expressed by defining the preference of each family over its own consumption as well as the welfare of the generations that follow thus each family consists of an infinite chain of generations who have interdependent preferences and for this reason we shall call it the inter generational hypothesis it was recently used by barro 1974 1978 to attack the conclusions of the life cycle hypothesis our purpose in this paper is to start the long road of studying the structure of the private inter generational transfer system with the aim of providing additional tests of the two competing hypotheses

on the substitutability between private consumer expenditure and government spending in canada the purpose of this paper is twofold first to examine whether there is any substitutability between private consumer expendit ure and government spending in canada second to test the ricardian equivalence principle both hypotheses are nested within the life cyc le rational expectations model the results indicate that the joint h ypothesis of rational expectations and ricardian equivalence can not be rejected by the data moreover they suggest that government spend ing substitutes poorly for private consumer expenditure these result s imply that temporary increases in government spending will result i n an expansion of real output

income distribution and price controls targeting a social safety net during economic transition abstract during the ongoing post communist economic transitions the relative well being of many people is changing rapidly and governments are not well positioned to accurately measure individual living standards under such circumstances continued price controls over basic consumer goods within the state sector and the associated queuing can form a serviceable device for targeting poor people for subsidies with a fixed price state sector and free price parallel markets rich people might choose to avoid queues and shop in the free markets while poor people would prefer to pay low nominal prices and queue in the state sector the targeting of subsidies through queues therefore can be accomplished even if the government has no information concerning individual income or living standards when the alternative to price controls is a poorly targeted explicit social safety net the resource cost of queues might be more than offset by an improvement in the targeting of subsidies

a political economy theory of partial decentralization we revisit the classic problem of tax competition in the context of federal nations and derive a positive theory of partial decentralization a capital poor median voter chooses to use redistributive capital taxes to provide public goods the expectation of high capital taxes however results in a small capital stock which lowers returns to redistribution the median voter therefore wants to commit to a lower level of capital taxes she does so by setting a partial degree of decentralization in the constitution the equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results we show that the degree of decentralization is nonmonotonic in inequality increasing in the redistributive efficiency of public good provision and decreasing in capital productivity when public goods are heterogeneous in their capacity to transfer funds all voters agree that goods with high redistributive capacity should be decentralized

transfers in cash and in kind theory meets the data we review theoretical explanations for in kind transfers in light of the limited empirical evidence after reviewing the traditional paternalistic arguments we consider explanations based on imperfect information and self targeting we then discuss the large literature on in kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the samaritan s dilemma pecuniary effects credit constraints asymmetric information amongst agents and political economy considerations our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in kind transfer programs but that some of the other arguments may apply to specific cases political economy considerations must also be part of the story

topping up or opting out the optimal design of public provision schemes there is extensive public provision of private goods in all developed countries the public provision scheme is often designed so that individuals can opt out but not top up supplement the publicly provided quantity quality using an optimal income ta

pay as you go social security and the distribution of altruistic transfers this paper studies the impact of an unfunded social security system on the distribution of altruistic transfers in a framework where savings are due to both life cycle and random altruistic motivations we show that the effect of social security on the distribution of these transfers depends crucially on the strength of the bequest motive in explaining savings behaviour we measure this strength by the expected weight that individuals attach to the utility of future generations on the one hand if the bequest motive is strong then an increase in the social security tax raises the bequests left by altruistic parents on the other hand when the importance of altruism in motivating savings is sufficiently low the increase in the social security tax could result in a reduction of the bequests left by altruistic parents under some conditions on the attitude of individuals toward risk and on the relative returns associated with private saving and social security some implications concerning the transitional effects of introducing an unfunded social security scheme are also discussed

assistance to poor households when income is not observed targeted in kind and in cash transfers abstract policymakers frequently design self targeting programs or target poor areas to assist poor families when income is not observed self targeting schemes take advantage of differences in participation costs in assistance programs across households geographic targeting assumes that transfers are solely determined by the region of residence to receive the benefits households not initially present in the targeted areas must relocate away from their original place of residence and live with the poor which entails a cost that can also be interpreted as a participation cost in the assistance program the paper shows that a combination of in kind and in cash transfers tied to the consumption of a publicly provided private good targeted to the poor becomes very useful when non poor households have different participation costs by distinguishing users and non users of public facilities additional in cash transfers can be directed to the poor more effectively the paper demonstrates that the publicly provided good ends up being undersupplied and the distortion becomes less important as participation costs rise more importantly it shows that this kind of redistributive program dominates a pure in cash scheme

new evidence on the ricardian equivalence theorem a multicointegration approach this paper derives major theoretical constructs which underlie richardian equivalence and using multicointegration methodology empirically tests whether they bear out results indicate that government spending and revenues are cointegrated however the cointegrating scalar is less than one therefore in order for government to obey its intertemporal budget constraint debt and government revenue must be multicointegrated they are not additional evidence indicates that saving and debt may be weakly cointegrated the findings suggest that failure of richardian equivalence may be due to public rather than private sector failure

a simple model for merit good arguments abstract in this paper we examine a way of representing merit goods by allowing governments to apply a specific form of correction to consumers preferences the model builds upon an approach to the analysis of taste and quality change due to fisher and shell we look at the first best allocation of resources where this is done we also consider second best policies in which the government must charge the same price to all consumers of the merit good and when optimal lump sum transfers are not available

the effect of subsidies in kind on the choice of a college abstract it is possible that government subsidies to higher education disbursed in kind can produce the anomalous result of reducing the consumption of the good being subsidized in this paper i employ individual and college data to estimate the effect of such subsidies on students choices of college quality empirical estimates from a switching regression model with correction for the joint decisions to apply to college and choose the public or private sector are presented predictions from the model suggest that students choose a substantially lower quality public college than they would have chosen in the private sector

assistance to the poor in a federal system abstract this paper explores the roles of different levels of government in assisting the poor using a model incorporating utility interdependence the paper first presents some theoretical results indicating how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support it then provides a survey of the empirical work on migration of the poor along with a brief historical discussion of the experience under the english poor laws the concluding section turns to normative issues and contends that mobility of the poor is a basic source of inefficiency in wholly decentralized systems of support this inefficiency along with certain other equity considerations establishes a role for the central government in assistance to the poor

investment planning in electricity production under co2 price uncertainty the electricity markets have undergone significant changes during the last years on the one hand the market deregulation has increased significantly the uncertainty on future electricity prices on the other hand the kyoto protocol and the establishment of emission restrictions as well as the development of emission trading systems has added another expense stream for conventional fuel electricity producers and a potential income stream for renewable electricity producers the emission allowance prices are another source of uncertainty for electricity producers the scope of this work is to investigate the effect that various scenarios for emission allowance price evolution may have on the orders for new electricity generation technologies and therefore on the future electricity generation mix of greece the renewable energy generation targets are taken into consideration as a constraint of the system and the learning rates of the various technologies are included in the calculations the national electricity generation system is modelled for long term analysis and an optimisation method is applied in order to come up with the optimal generating mix that minimises electricity generation cost while satisfying the national emissions reduction targets and incorporating the uncertainty of emission allowance prices in addition an investigation is made to identify if a point should be expected when renewable energy will be more profitable than conventional fuel electricity generation the work is interesting for investment planning in the electricity market as it may provide directions on which technologies are most probable to dominate the market in the future and therefore are of interest to be included in the future power portfolios of related investors

social security and private saving new time series evidence in an important article in the journal of political economy martin feldstein 1974 estimated that the introduction of the social security system had reduced personal saving by 50 percent with serious consequences for capital formation and output his conclusion was based on a consumer expenditure function estimated with u s time series data and incorporating a social security wealth variable of his construction this paper presents new evidence that casts considerable doubt on feldstein s conclusion first the social security wealth variable used by feldstein was seriously flawed as a result of a computer programming error simply correcting this error substantially changes the estimated effect of social security on saving second the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable assumptions that are not demonstrably preferable and are in some cases inferior to alternative assumptions these assumptions relate first to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and second to estimates of the number of workers dependent wives and surviving

the meaning of failed replications a review and proposal the welcome rise of replication tests in economics has not been accompanied by a consensus standard for determining what constitutes a replication a discrepant replication in current usage of the term can signal anything from an unremarkable disagreement over methods to scientific incompetence or misconduct this paper proposes a standard for classifying one study as a replication of some other study it is a standard that places the burden of proof on a study to demonstrate that it should have obtained identical results to the original a conservative standard that is already used implicitly by many researchers it contrasts this standard with decades of unsuccessful attempts to harmonize terminology and argues that many prominent results described as replication tests should not be described as such adopting a conservative standard like this one can improve incentives for researchers encouraging more and better replication tests

viewpoint replication in economics this examination of the role and potential for replication in economics points out the paucity of both pure replication checking on others published papers using their data and scientific replication using data representing different populations in one s own work or in a comment several controversies in empirical economics are used to illustrate how and how not to behave when replicating others work the incentives for replication are examined and proposals aimed at journal editors and authors are advanced that might stimulate an activity that most economists applaud but few perform

aggregate consumption function and public social security the first time series study for a developing country turkey this article is the first attempt in the literature to investigate the effects of public social security on aggregate consumption in a time series setting for a developing country turkey that has one of the most generous social security systems in the organization for economic cooperation and development oecd region in order to quantify the social security variable this article uses the social security wealth ssw series calculated for turkey in a separate study this study indicates that ssw is the largest part of the household wealth in turkey and therefore should not be ignored in the aggregate consumption studies the results show that its effect on consumption is positive and robust

social security and private saving a reconsideration of the assumptions whether social security discourages private saving has been the focus of an ongoing debate since feldstein s 1974 paper on that paper he assumes that people expect after retirement social security benefits to increase at an annual real rate of 2 in this paper using a wide sample of cross section data we estimate people expected real rate of growth of after retirement social security benefits the estimates range between 0 63 and 0 76 depending on the specification used the obtained estimates are far different from the 2 imposed ad hoc by feldstein these estimates will presumably imply lower values of the social security wealth variable this casts a serious doubt on the strong depressing effect of social security on private saving

welfare and comparative statics implications of fair social security a steady state analysis abstract this paper examines the steady state welfare and comparative statics implications of fair social security in an overlapping generations model with uncertain lifetime the model is designed to capture the effects of lifetime uncertainty extending over the individual s entire lifespan the effects of intentional and unintentional bequests and the effects of the earning profile he shows that the welfare effects depend on the size of the benefits and the structure of the social security tax in particular even fair social security may have negative welfare implications if the underlying tax structure is ill designed some comparative statics implications are analyzed

a head to head comparison of augmented wealth in germany and the united states we examine the composition of augmented household wealth i e the sum of net worth and pension wealth in the united states and germany pension wealth makes up a considerable portion of household wealth of about 48 percent in the united states and 61 percent in germany when pension wealth is included in household wealth the gini coefficient falls from 0 889 to 0 700 in the united states and from 0 755 to 0 508 in germany if the wealth shares in germany were the same as in the united states this would lead to a 12 6 percent increase in the gini coefficient in the augmented wealth distribution in germany

the economic implications of public disability insurance in the united states a review of previous analyses of labor supply effects of social security disability insurance di concludes that estimates of labor supply effects and net social costs are upward biased because they ignore interactions between di and other insurances a model of optimal insurance postinjury accommodations and labor supply shows that reduction in labor supply and increase in consumption when disabled do not necessarily imply moral hazard optimal postinjury accommodations vary inversely with firm size the americans with disabilities act will reduce wages and labor supply of healthy workers particularly in small firms effects on labor supply of the disabled are ambiguous

a real options evaluation model for the diffusion prospects of new renewable power generation technologies this study presents a policy planning model that integrates learning curve information on renewable power generation technologies into a dynamic programming formulation featuring real options analysis the model recursively evaluates a set of investment alternatives on a year by year basis thereby taking into account that the flexibility to delay an irreversible investment expenditure can profoundly affect the diffusion prospects of renewable power generation technologies price uncertainty is introduced through stochastic processes for the average wholesale price of electricity and for input fuel prices demand for electricity is assumed to be increasingly price sensitive as the electricity market deregulation proceeds reflecting new options of consumers to react to electricity price changes such as time of use pricing unbundled electricity services and choice of supplier the empirical analysis is based on data for the turkish electricity supply industry apart from general implications for policy making it provides some interesting insights about the impact of uncertainty and technical change on the diffusion of various emerging renewable energy technologies

targeting transfers through restrictions on recipients our objective is to design transfer programs that maximize some social welfare function following the optimal income tax formulation we assume that a random process endows individuals with characteristics that influence welfare such as ability to earn income medical condition or unmonitorable income the goal is to maximize the utility of a randomly chosen individual other individualistic social welfare functions would lead to equivalent results if the random characteristics were observable a first best outcome could be achieved by making them the basis for lump sum transfers in practice however we can observe only indicators of these characteristics such as earnings medical expenditures or consumption patterns the challenge for policy is to design an efficient second best transfer program based on indicators in this paper we argue that 1 an optimal transfer program in general must sacrifice productive efficiency to target efficiency this is done by imposing restrictions on the choices made by intended beneficiaries 2 a program that incorporates restrictions such as means tested in kind transfers commodity specific taxes and subsidies and even ordeals i e the imposition of deadweight costs to qualify for a transfer will perform better than programs that rely solely on income taxes and cash transfers

do consumers respond to future income shocks evidence from social security reform in taiwan abstract a prediction of the basic permanent income hypothesis life cycle model is that an unexpected increase in future income produces an immediate increase in current consumption this paper tests that prediction using data from taiwan the 1985 labor standards law granted all employees in covered industries a windfall retirement severance benefit my results indicate that consumption did not increase immediately for those who were granted the windfall relative to those who received no windfall moreover consumption for those receiving a greater windfall did not increase relative to those who were granted less

switching outputs in a bioenergy cogeneration project a real options approach abstract environmental concerns have stimulated the search for economically feasible renewable energy projects one such alternative is the use of biomass for energy generation which has increasingly been the focus of interest traditional valuation methods on the other hand fail to capture the value of the embedded options that exist in many of these projects which may lead to non optimal investment decisions in this article we analyze the feasibility of installing a cogeneration unit in an industrial plant in brazil in order to extract value from biomass residue currently discarded which can be used for thermal and electric energy generation the cogeneration unit also allows the firm the flexibility to optimally choose between an increase in production or the generation of surplus energy for sale in the short term market once additional investment in interconnection to the grid is made we model the uncertainty over future energy prices as a mean reverting process with jumps and seasonality and the embedded flexibility as a bundle of european options under the real options approach the results indicate that the investment in the cogeneration plant is warranted and that the option to switch outputs adds significant value to the project which suggests that biomass residue may be a sustainable energy alternative in this case

government debt government spending and private sector behavior a current period tax reduction financed by issuing government debt shifts the timing of tax collection from the current period to the future if the future taxes implied by government debt are not fully perceived and discounted by the private sector there will be a net wealth effect that increases private sector consumption thus reducing capital accumulation and growth if on the other hand the implied future taxes are perceived and discounted by the private sector the current period tax reduction will be used to increase private saving to pay for the future taxes and government debt will be absorbed without any real effects on the economy the effects of government spending financed by current period taxation also depend upon private sector perceptions 2 if the benefits of government spending are ignored private sector consumption will decrease in accordance with the reduction in permanent disposable income to the extent that government spending is on consumption type goods that are perceived as substitutes for privately provided consumption goods there will be a relatively greater reduction in private sector consumption to the extent that government spending is on investment type goods yielding future goods and services that are perceived as substitutes for future privately provided consumption goods there will be a relatively smaller reduction in private sector consumption the standard approach to modeling private sector consumption saving behavior involves a rather asymmetric set of assumptions as to how the private sector perceives the various elements of government fiscal policy 3 current period taxes are assumed to be fully perceived but current period government spending is implicitly assumed to be completely ignored by the private sector in considering permanent personal disposable income the private sector is assumed to be forward looking in its assessment of income and taxation the stock of government debt is nevertheless included as part of the stock of private wealth the implicit assumption associate professor of economics graduate school of business university of chicago 1101 east 58th street chicago il 60637 i thank eugene fama levis kochin michael mussa paul evans and an anonymous referee for helpful comments i am particularly grateful to daniel benjamin for contributing many hours of discussion and laura lahaye who was a research assistant and valuable adviser on earlier drafts the theoretical debate on the burden of the debt has been long standing gerald o driscoll 1977 documents ricardo s nineteenth century position robert barro 1974 reopened the debate by introducing the fundamental issue of intergenerational transfers also discussed in merton miller and charles upton 1974 the empirical side of the debate was initiated by levis kochin s 1974 attempt to test for the effects of deficits on consumption and by martin feldstein s 1974 attempt to test for the effects of social security wealth on consumption other empirical contributions include jess yawitz and laurence meyer 1976 myself 1978 and j earnest tanner 1978 1979 with respect to the effects of government deficits and debt and barro 1978 michael darby 1979 and dean leimer and selig lesnoy 1982 with respect to social security wealth see also interesting recent papers by john seater 1982 who generates detailed tests of the effects of deficits and debt on consumption charles plosser 1982 who explores the effects of government spending and debt shocks on interest rates and feldstein 1982 who attempts tests similar to some in this paper see fn 29 2martin bailey s 1962 1971 development of the effects of government spending on private consumption and aggregate economic activity is the seminal contribution paul david and john scadding 1974 extend bailey s ideas and provide some supporting empirical evidence more recently willem buiter 1977 and myself 1978 developed models based on bailey s earlier work barro 1981 has an interesting paper on related issues see also david aschauer 1982 3the standard approach incorporates fiscal policy through the concept of personal disposable income and by including the stock of government debt as part of personal wealth see for example the empirical specification of albert ando and franco modigliani 1963 which has been the basis of most empirical consumption studies since and feldstein 1974 for one of the more influential papers based on the ando modigliani specification

effects of social security on personal saving abstract to fill a gap in literature we formulate and estimate a simultaneous equation model to separately measure the substitution and retirement effects of social security on personal saving taking explicit account of the influence of pension saving

the labor force participation of older workers this study examines the decision to participate in the labor force made by persons over 54 years of age through the use of a set of pooled time series cross section observations from the current population survey over the years 1974 80 the analysis emphasizes the effect of two factors on this decision cohort crowding and supplemental security income ssi the empirical results reveal that pressures arising from the relative growth in the youth population led to increased labor market activity by older women that retirement incentives in the form of ssi and social security had a negative effect on female as well as male labor force behavior though the effects were considerably stronger for men and that the differential between men s and women s participation rates was largely a result of the female response to marital status and retirement incentives

the effects of social security in a life cycle family labor supply simulation model abstract we simulate a number of social security provisions in an overlapping generations model of family labor supply the program causes both men and women to shift labor toward the beginning of the life cycle increases the family s ratio of retirement consumption to consumption when young and lowers both wage rates but does not substantially alter the male female wage ratio the wealth effects of the program appear to dominate the incentive effects our exhaustive sensitivity analysis reveals that our results are robust to changes in several key labor supply parameters the intertemporal male and female own wage elasticities and the cross wage elasticity

pensions and household wealth accumulation abstract economists have long suggested that higher private pension benefits crowd out other sources of household wealth accumulation we exploit detailed information on pensions and lifetime earnings for older workers in the 1992 wave of the health and retirement study and employ an instrumental variable iv identification strategy to estimate crowd out the iv estimates suggest statistically significant crowd out each dollar of pension wealth is associated with a 53 67 cent decline in nonpension wealth with less precision we use an instrumental variable quantile regression estimator and find that most of the effect is concentrated in the upper quantiles of the wealth distribution

testing among models of intrahousehold resource allocation households are the locus for much economic decision making households function as producers investors in human and physical capital managers of risk and as consumers many resources are allocated within households and the effects of many policies depend on the dynamics of household decision making for example household decisions about allocating food among individual household members may determine who benefits from programs to improve health nutrition or welfare in many microeconomic studies the household is treated as an individual for analytical purposes in other words it is assumed that a household acts as a single entity with a single set of preferences recently however a number of economists have recognized that households are sites of conflict as well as cooperation and have begun to use new classes of models to explain how resources are allocated among household members this literature has especially improved our understanding of households in which income is not completely pooled in such a setting standard household models may offer misleading conclusions about the effects of policies on individual household members i this paper goes beyond recent surveys of intrahousehold issue by explicitly examining the assumptions predictions and empirical implications of different intrahousehold models in particular it analyzes empirical tests that distinguish among competing models by clarifying the similarities and differences among alternative models this paper also clarifies what has actually been demonstrated and what has not been demonstrated by previous empirical studies in so doing the paper points to specific topics in need of further research this paper is organized as follows section 2 analyzes the assumptions and predictions of each of the five main classes of intrahousehold resource allocation models section 3 describes empirical tests of these assumptions along with an analysis of empirical work that has been generated sections 4 and 5 discuss the questions that remain unanswered and directions for future research

altruism the samaritan s dilemma and government transfer policy this paper shows that altruism provides an efficiency rationale for public provision of insurance to the poor the framework is one in which there are rich altruists and risk averse poor who face some possibility of loss the government represents the rich and makes transfers on their behalf with unconditional transfers the poor may forgo insurance and rely on private charity to bail them out in the event of loss this reliance on private charity has adverse efficiency effects these may be avoided if the government makes in kind transfers of insurance copyright 1995 by american economic association

should social security benefits be means tested social security retirement benefits distort the saving decisions of workers who are rational enough to save for their future since the implicit rate of return in an unfunded social security program is less than the marginal product of capital the resulting decline in saving causes a welfare loss the present paper examines the conditions under which the welfare loss could be reduced by replacing the current universal social security program with a means tested program that pays benefits only to those individuals with little or no other retirement income or assets every society must solve the problem of supporting those individuals who become too old to work but have not made adequate provision for their own old age by saving when they were young at the present time the major industrial countries of the world have responded to this problem by creating social security programs that tax the working population and use the proceeds to provide a universal benefit to all retirees regardless of their financial condition this universal provision of social security benefits distorts the saving decisions of those workers who are rational enough to plan for the future since the implicit rate of return that taxpayers get on their this research is part of the nber study of the government budget and the private economy a more complete version of this paper with some numerical calculations is available as nber working paper no 1775 feldstein 1985b i am grateful to gilbert metcalf for assistance with the calculations presented in this paper and for helpful discussions for a discussion of the effect of promised retirement benefits on the savings of employees see feldstein 1974 1982 barro 1974 1978 has discussed an interesting

time dependent opportunities in energy business a comparative study of locally available renewable and conventional fuels this work investigates and compares energy related private business strategies potentially interesting for investors willing to exploit either local biomass sources or strategic conventional fuels two distinct fuels and related power production technologies are compared as a case study in terms of economic efficiency the biomass of cotton stalks and the natural gas the carbon capture and storage option are also investigated for power plants based on both fuel types the model used in this study investigates important economic aspects using a real options method instead of traditional discounted cash flow techniques as it might handle in a more effective way the problems arising from the stochastic nature of significant cash flow contributors evolution like electricity fuel and co2 allowance prices the capital costs have also a functional relationship with time thus providing an additional reason for implementing real options as well as the learning curves technique the methodology as well as the results presented in this work may lead to interesting conclusions and affect potential private investment strategies and future decision making this study indicates that both technologies lead to positive investment yields with the natural gas being more profitable for the case study examined while the carbon capture and storage does not seem to be cost efficient with the current co2 allowance prices furthermore low interest rates might encourage potential investors to wait before actualising their business plans while higher interest rates favor immediate investment decisions

majority rule and the public provision of a private good this paper extends the literature on the socialization of commodities by developing a model of voting over the public provision of a private good health care

social security uncertainty adjustments and the consumption decision this paper analyzes the consumption decision focusing on the degree of substitutability between fungible assets and prospective wealth and on the different risk adjustments associated with different types of prospective wealth the results reveal substantial differences among these risk adjustments and imply that a dollar of social security wealth substitutes for about three fifths of a dollar of fungible assets although implying that social security wealth reductions would have a positive and sizeable effect on private saving the results also suggest that such reductions could entail a substantial loss in consumer welfare copyright 1992 by the london school of economics and political science

social security trust fund flows and the welfare costs of rent seeking the current study provides estimates from a parks regression using panel data that suggest that the welfare costs due to rent seeking efforts by interest groups to obtain social security trust fund flows ranged from approximately 132 million per twoyear federal election cycle from 1985 1994 to a theoretical expectation of 66 billion all in real terms these welfare costs are in addition to any other social costs that may be present including the reduced levels of national saving that social security may induce

public provision of private goods government may provide a good that can if legally permitted be supplemented by private purchases policy is determined by majority rule under standard assumptions on preferences a majority voting equilibrium exists a regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision combined public and private expenditure on the good is higher under this dual provision regime than under either of the alternatives under some preference configurations the median income voter is pivotal under others a voter with income below the median is pivotal

social security preretirement labor supply and saving a confirmation and a critique in an earlier article in thejournal of political economy burkhauser and turner 1978 we used time series data to test the net empirical importance of the substitution and wealth effects of social security on the market work of prime age men we found that hours worked per week would have fallen by 2 3 hours without the present social security system a recent paper by leimer and lesnoy this issue has shown that the feldstein 1974 social security wealth variable which we used in our regressions was calculated incorrectly in the light of this finding we have reestimated our original regressions using the leimer lesnoy corrected social security wealth variables our primary regression in table 1 col 1 which uses the entire sample period confirms our original results again we find that the work week is 2 3 hours higher than it would have been in the absence of social security a result empirically significant by conventional standards leimer and lesnoy have made an important contribution to research on social security by correcting a calculation error our empirical results however raise a fundamental question not discussed in our original paper which requires a reexamination of the empirical methodology found in feldstein 1974 leimer and lesnoy this issue and other papers the facile assumption that the effect of social security on saving can be directly determined from a consumer expenditure function we show leads to an overstatement of social security s negative effect on saving

ex post welfare economics and the theory of merit goods in recent years a number of papers have questioned the extension of the main theorems of welfare economics to a world of uncertainty stemming from the work of arrow 1953 and debreu 1959 the arrow debreu extension is based on the idea that consumer preferences may be defined on state contingent commodities as a special but important case these preferences may be represented by von neumann morgenstern utilities with this interpretation of the commodity space the main theorems of weltare economics remain valid in a world of uncertainty a competitive equilibrium is a pareto optimum a pareto optimum can be sustained as a competitive equilibrium and the diagnosis of the causes of market failure remains as before there are several reasons why one may feel uneasy about this construction a good deal of attention has been paid to the assumption of universality of markets necessary to establish the connection between equilibrium and optimum on a deeper level perhaps are the doubts that one may have about the criterion of welfare or efficiency first should social welfare be a function of individuals expected utilities or should the appropriate concept be that of expected welfare second if probability beliefs are not identical across individuals whose probabilities if any should be used for welfare evaluation in the next section we review some concepts and results in the recent literature on ex post welfare economics and in section ii it is argued that this literature can provide the foundations for a more satisfactory theory of merit goods a concept originally introduced by musgrave 1959 this idea is applied in section iii to a model with a complete set of markets in the arrow debreu sense and in sections iv and v to an incomplete markets model which provides the most natural framework for the study of merit goods various remarks on further aspects of the problem are collected in the concluding section of the paper

replication in empirical economics the journal of money credit and banking project this paper examines the role of replication in empirical economic research it presents the findings of a two year study that collected programs and data from authors and attempted to replicate their published results the research provides new and important information about the extent and causes of failures to replicate published results in economics the findings suggest that inadvertent errors in published empirical articles are a commonplace rather than a rare occurence copyright 1986 by american economic association

real option valuation in renewable energy literature research focus trends and design abstract in light of intensive development of the renewable energy re sector a growing number of academic papers address the complexity of re investment planning and valuation to take account of the high risk profile and irreversibility of re investments researchers have resorted to sophisticated real options ro approaches that enable flexibility to be incorporated into project design in the face of an uncertain environment the variety of different frameworks and models adopted as well as a lack of aggregated analysis of the field suggest a need for a critical review of ro methodology and design in re assessment this study describes the research focus trends and design found in contemporary academic literature devoted to re valuation with a ro approach particular attention is given to ro in project and policy design the results give a comprehensive picture of existing research on the topic thus providing researchers with a solid foundation for further study and indications of directions for future development furthermore the findings provide policymakers and project planners with valuable insights into key aspects of re project and policy design

bequest motives social security and economic growth junxi zhang this article conducts a systematic analysis of four bequest motives in a simple model of endogenous growth it analyzes how bequest motives affect fertility savings growth and the effects of pay as you go social security it is found that altruistic and exchange motives give equivalent outcomes if the discount factors are set the same the outcome under the joy of giving motive may involve a higher bequest ratio higher saving and better growth rates than that under altruism if bequests are accidental the equilibrium values will depend on the probability of survival moreover the results provide testable implications on bequest motives jel d1 d9 h55 j1 i introduction although the importance of bequests in aggregate savings has been established by kotlikoff and summers 1981 who reported that 80 of u s household wealth is inherited wealth what bequest motives lead to inheritance remains an unsolved problem yet it is well known that bequest motives have important implications for the behavior of financial markets the macroeconomic impacts of fiscal policies and the intergenerational transmission of inequality in the distribution of wealth at least four hypotheses for the existence of bequests have been discussed in the literature 1 bequests may arise from intergenerational altruism that is parents obtain utility from their heirs utility as well as from their own consumption barro 1974 2 the prospect of bequests is used by parents to induce children to behave as desired by parents bernheim et al 1985 3 bequests may arise from the joy of giving that is parents leave bequests simply because they obtain utility directly from the bequest yaari 1964 1 and 4 bequests may be the unintentional by product of precautionary savings and a stochastic date of death in the absence of an annuity market abel 1985 following barro 1974 and becker 1974 the altruistic bequest motive has been used most frequently however the enormous empirical work using micro data has not led to conclusive evidence on the one hand bernheim et al 1985 cox 1987 and cox and rank 1992 show that bequests are more consistent with exchange than altruism altonji et al 1992 1997 also show that altruism is decisively rejected moreover wilhelm 1996 finds little support for an altruistic theory of bequests on the other hand a recent reexamination of the exchange motive by perozek 1998 shows that the finding of bernheim et al is not robust laitner and juster 1996 find some evidence of altruistic bequests therefore a definite conclusion on bequest motives seems far from over indeed though altruism has not been supported by most of those empirical studies it remains a plausible hypothesis and continues to be used frequently see e g coate 1995 and davies and zhang 1995 abel 1985 argues theoretically that although the simple life cycle model without bequest motives is an inadequate description of the savi ng behavior in the united states as found in kotlikoff and summers 1981 accidental bequests by selfish consumers can account for a sizable fraction of aggregate wealth however little formal empirical work has been done to test whether bequests are accidental or arise from joy of giving given the lack of consensus on bequest motives it is interesting to conduct a systematic theoretical analysis of different bequest motives in a particular context becker et al 1990 and caballe 1995 assume altruism in their models of economic growth wiedmer s 1996 analysis of social security and growth does not consider bequests except ihori 1994 there seems to be no analysis of other bequest motives in the context of economic growth the purpose of this article is to analyze how different bequest motives affect fertility savings and economic growth the article will also examine how the effects of pay as you go social security depend on bequest motives

emissions trading and investment decisions in the power sector a case study in finland abstract organizations which consider investment in or divestment of power production licences capacity within the european community are exposed to the impacts of the european union emission allowance trading scheme eu ets in this paper the consequences of the eu ets on investment decisions are explored in a country specific setting in finland first we review the general mechanisms through which the eu ets influences size timing and cashflows of an investment next we discuss the projected changes in finnish power producers investment environment and examine the financial impacts due to the eu ets on a case investment decision a hypothetical condensing power plant 250 mwe the standard discounted cash flow dcf analysis is extended to take into account the value of two real options the option to wait and the option to alter operating scale in a quantitative investment appraisal the impact of emissions trading not only depends on the expected level of allowance prices but also on their volatility and correlation with electricity and fuel prices the case study shows that the uncertainty regarding the allocation of emission allowances is critical in a quantitative investment appraisal of fossil fuel fired power plants

insurance design in the presence of safety nets abstract safety net assistance and insurance exist to manage risk and improve welfare this shared goal may lead to crowding out in a new approach this paper analyzes the interaction of assistance with two dimensions of insurance design level of coverage and types of risks covered in a society of risk averse vulnerable individuals and risk neutral assistance providers pareto improvements in welfare are achieved through incompleteness in the types of risks covered the results imply that safety nets promote demand for and the emergence of incomplete insurance these results have a wide application to insurance markets where safety nets are available including health care disaster aid and social welfare

modeling technology adoption as an irreversible investment under uncertainty the case of the turkish electricity supply industry this paper studies energy conversion technology adoption in the electricity supply sector from the perspective of irreversible investments under uncertainty and with a particular interest in environmental sustainability we develop a dynamic technology adoption model that is firmly rooted in economic theory and that takes important determinants of optimal investment in available technologies e g life cycle capital and operation cost explicitly into account uncertainty is introduced for the demand for peak load capacity unit generation costs and for the average electricity price we test the model empirically by applying it to data for the turkish power supply industry the model guided optimal investment schedule based on net present value considerations exhibits significant deviations from the actual investment outcome we find that the increased adoption of natural gas fired power generation technologies in turkey in recent years while contributing to environmental sustainability has had doubtful merits from an investor s perspective