supply side option value further discussion the literature on benefit cost analysis under uncertainty has devoted considerable attention to identifying conditions under which the sign of option value can be determined option value is the difference between an ex ante sure welfare measure based on expected utility functions known as option price and the expected value of welfare measures defined ex post for each state of nature previous investigations have shown that there is limited ability to specify analytically the sign of option value if uncertainty concerns the preferences of individuals then the sign of option value cannot be established without placing restrictions on preferences schmalansee 1972 anderson 1979 smith 1983 however bishop 1982 has demonstrated that if the uncertainty concerns the supply of the good in question with certain demand for the good then the sign of option value ov may be positive see also brookshire eubanks and randall 1983 since many valuation situations involve supply side risk bishop s discovery is of some rele

optimal social security in a dynastic model with investment externalities and endogenous fertility this paper studies optimal pay as you go social security with investment externalities positive bequests and endogenous fertility with an investment externality a competitive solution without social security suffers from under investment in capital and over reproduction of population we show the existence of time consistent optimal social security that improves welfare by reducing fertility and increasing capital intensity we also illustrate numerically that a small degree of this externality can justify the observed high ratios of social security spending to gdp

public pensions unemployment insurance and growth abstract we develop an overlapping generations model that highlights the interaction between an unfunded pension program and an unemployment insurance program in the presence of a labor market with union wage setting both programs are financed by earmarked proportional wage taxes levied on firms and their employees the equilibrium path entails endogenous growth and involuntary unemployment the presence of spillovers between pension programs and unemployment insurance programs has striking implications for growth policy efficiency issues and the transition to a fully funded pension system

understanding hurricane evacuation decisions under contingent scenarios a stated preference approach we conduct a stated preference analysis to understand the factors that individual households take into consideration to evacuate during hurricanes in designing the contingent scenarios for evacuation we randomly assign varying levels of hurricane characteristics wind speed lead time for landfall and the height of storm surge combined with different types of emergency management options voluntary versus mandatory evacuation order and a voucher with varying amounts to cover evacuation expenses findings indicate that individual households respond in a non linear fashion to the intensity of hurricanes when making evacuation decisions respondents are also more likely to evacuate when the storm surge reaches a certain threshold in terms of policy interventions mandatory evacuation orders are more effective to increase the likelihood of evacuation the potential intervention in the form of providing evacuation vouchers to assist households to cover their expenses e g for food water transportation and lodging also seems effective we discuss policy implications of our findings

a positive theory of social security based on reputation we construct a general equilibrium model in which a pay as you go social security system can be adopted and sustained as a political and economic equilibrium we alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness

long run effects of unfunded social security with earnings dependent benefits this paper examines the effects of unfunded social security with bequests fertility and human capital by considering a mix of earnings dependent and universal social security benefits we show that social security is more likely to promote growth by reducing fertility and increasing human capital investment if its benefits are more dependent on individuals own earnings through simulations we find that the differences in the effects of social security resulting from variations in the benefit formula can be too substantial to be ignored we also investigate the welfare effect in calibrated economies c 2003 elsevier b v all rights reserved

individual option prices for climate change mitigation abstract willingness to pay for climate change mitigation depends on people s perceptions about just how bad things will get if nothing is done individual subjective distributions for future climate conditions are combined with stated choices over alternative climate policies to estimate individual option prices the appropriate ex ante welfare measure in the face of uncertainty for climate change mitigation we find statistically significant sensitivity of estimated option prices to both expected future conditions and uncertainty about future conditions

the tax unit and household production under a progressive income tax conventional wisdom is that taxing individuals rather than households is preferred from an efficiency point of view the reason is that secondary workers whose labor supply elasticity is high will be taxed at a lower marginal rate than primary workers whose labor supply elasticity is low here we argue that once household production is taken into account things are more complicated since tax design should also not distort the input of family members time in household production factor input distortions as well as ramsey considerations thus need to enter the choice of the tax unit we provide a numerical example of an economy for which a move from an individual to a household basis in the income tax can be efficiency improving we then use a general equilibrium model parameterized using australian tax rates and data whose results clearly show that welfare gains can occur under changes from an individual to a household basis for an existing income tax our results th

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

supply uncertainty option price and indirect benefit estimation both the original and many of the subsequent explanations of the concept of option price have been motivated by an assumption of an uncertain supply of the commodity involved 1 consequently it is surprising to find that all of the definitions of option price compare two states of the world which each have known or certain supply conditions paying the option price does not eliminate supply uncertainty as it has been described rather it changes the individual s conditions of access to the good or service from a certainty of no access to a certainty of complete access risk enters the problem only because these analyses assume the individual does not know whether he or she will desire access at the time the payment must be made since the analysis is in terms of planned consumption the reason for this demand uncertainty is sometimes explained by the fact that the consumption must take place in the future when other factors influencing demand may have changed 2 bishop 1982 appears to have been the first to draw attention to this omission of supply uncertainty and proposed a framework without demand uncertainty to demonstrate that there are conditions when option value i e the difference between option price and the expected consumer surplus would be unambiguously positive 3 while there have been a number of theo

mortality decline and long run economic growth this paper examines the impacts of mortality decline on long run growth in a dynastic family two sector growth model with social security a rise in longevity has direct effects on fertility human capital investment and growth as well as indirect effects through increasing unfunded social security contributions both the direct and indirect effects depend on the relative strength of the tastes for the number and welfare of children and may have different signs the net effects of rising longevity on fertility tend to be negative but positive on human capital investment and growth c 2001 elsevier science s a all rights reserved

fiscal policy elastic labor supply and endogenous growth abstract endogenizing labor supply leads to fundamental changes in the equilibrium structure of the ak growth model the balanced growth equilibrium can be described in terms of two tradeoff loci relating the equilibrium growth rate to the fraction of time devoted to leisure the implications of endogenous labor supply for fiscal policy are analyzed three issues are addressed first the effects of various distortionary tax changes and government expenditure changes on the equilibrium growth leisure employment tradeoff are analyzed second optimal fiscal policy is characterized finally the formal analysis is supplemented by numerical results focusing particularly on the quantitative welfare implications

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

education social security and growth abstract we study the role of government s allocation of tax revenues between two outlays public investment in education a transfer to the young generation and social security benefits to the older generation in an overlapping generations economy with pay as you go social security and altruistically motivated transfers from parents to children we analyze how the allocation of the tax revenues between the two outlays affects growth and welfare in competitive equilibria a we obtain comparative dynamics results for nonstationary equilibria subject to a change in the allocation profile b for stationary equilibria we show that for a given allocation profile of the tax revenues educational subsidies can either increase the growth rate or decrease it depending on the parameters of the model preferences production function and the tax rate c if government seeks to allocate funds in a way that maximizes the growth rate we demonstrate that under some plausible conditions it is not optimal to maintain pay as you go social security however if parents preferences combine strong concern for their retirement with significant degree of altruism towards their children then pay as you go social security system does enhance growth and welfare

constraints on the desired hours of work of british men this paper investigates constraints on desired hours of work using information on hours preferences from the british household panel survey for 1991 over a third of male manual workers would prefer to work fewer hours at the prevailing wage than they do and we estimate that on average desired hours per week are 4 3 lower than actual hours we hypothesise that job insecurity and scarcity of alternative job opportunities enable employers to set hours constraints above employee preferences and find that the minimum hours constraints set by firms are an increasing function of the unemployment rate an individual faces

option value a conceptual overview the importance of nonuser benefits to the process of efficiently allocating natural environments was first emphasized by krutilla 15 a decade and a half ago one of the components of these nonuser benefits is option value originally introduced by weisbrod 23 as relevant for assets that might be difficult to reproduce option value has been the subject of considerable debate perhaps the simplest approach to explaining the meaning of option value is to use an example consider an individual who is uncertain whether he or she will consume the services of a particular asset in the future furthermore assume this individual is also uncertain whether the asset will be available in the future should he

social security and endogenous growth abstract this paper examines the effects of social security on the steady state growth of per capita income in an endogenous growth model in which agents care about their own consumption the number of children and the welfare of each child it shows that an unfunded program may simulate growth by reducing fertility and increasing the ratio of human capital investment per child to per family income when bequests are positive also it may cause faster growth than funded programs especially when receipts from funded programs are independent of contributions when voluntary saving is positive funded social security is neutral if receipts are linked to contributions and most likely depresses growth if receipts are independent of contributions

discreteness and the welfare cost of labor supply tax distortions we compare the welfare costs of tax distortions of labor supply in one andtwo memberhouseholddiscreteandcontinuouschoicelaborsupply leisurecon sumption models calibrated to the same aggregate uncompensated labor supplyelasticities in the discrete models taxes induce a large response from a subsetof the population whereas the majority of the population exhibits unchangedbehavior in contrast the majority of the population reacts to tax changes in con tinuous models discrete choice matters as the welfare costs of similar taxes varysigni cantly when individuals face discrete labor supply choices from when theychoose working hours continuously

endogenous fertility and optimal population size pareto optimality which is the standard criterion of efficiency in general equilibrium models takes population size as given and therefore cannot be directly applied to analyze the question of optimal population size the criterion then for optimal population size must be based on a more restrictive definition of optimality this paper extends peter diamonds 1965 golden golden rule growth model by assuming that individuals derive utility from their own consumptionand from their own children offspring are assumed to consume resources before reaching adulthood the authors show that the optimal steady state utility yields a higher population growth rate when it converges to the golden rule allocation they then demonstrate that a voluntary social security program in which the size of the transfer to a particular agent is directly tied to his own fertility leads the competitive allocation to be identical to the allocation corresponding to the maximum of the steady state utility of the representative individual

social security as trade among living generations we model u s social security that is legislated endogeneously by living generations specifically we consider the effects of social security on resource allocation and pareto optimality examining which generations gain from social security and whether some generations lose because saving and transfer decisions are made sequentially in the real world we use an infinite horizon overlapping generations framework in which life cycle saving and transfers to the old are determined by living agents we focus on the case in which agents are altruistic but place sufficiently greater weight on own comsumption than on the consumption of agents in other generations so that starting from a steady state without social security living agents would gain utility if consumption were shifted marginally to them from later generations excerpt

hours restrictions and labor supply the authors estimate a labor supply model that permits hours restrictions of a simple but general form each individual chooses from among a finite set of jobs drawn at random f rom a market distribution each offering a fixed quantity of hours the polar cases of no constraints on hours worked and exogenous hours ar e nested within the general case the authors results are consistent with a substantial amount of rationing in the work hours of a sample of low income men most of whom are working less than they would like copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the effects of hours constraints on labor supply estimates almost all labor supply models are estimated under the assumption that workers are free to choose their hours however theory casual empiricism and survey data suggest that many workers are not free to vary the hours within a job consequently labor supply estimates based on actual hours of work may be biased using canadian data on desired hours of work the authors find that using actual hours causes labor supply estimates to be biased upwards copyright 1991 by mit press