public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

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

motor vehicle insurance rating with pseudo emissions coverage abstract there is general agreement amongst economists and ecologists that transportation is an important contributor to greenhouse gas emissions typical proposals to reduce the demand for transportation and consequently emissions focus on imposing a fuel tax or a direct fee on vehicles this paper outlines the method and advantages of treating the environmental risk as additional pseudo coverage rated under existing property and liability motor vehicle insurance systems

changes in the u s wage structure 1963 1987 application of quantile regression the 1980 s witnessed rapid changes in the structure of wages in the united states in this study recently developed techniques for quantile regression are applied to every march current population survey since 1964 and changes in the return to schooling and experience at different points of the wage distribution are examined the quantile regression technique parsimoniously describes the entire conditional wage distribution this conditional distribution is used to examine changes in within group wage inequality as measured by the difference between conditional quantiles two linear models are considered a simple one group model and a 16 group model the results suggest that the returns to schooling and experience differ across quantiles of the wage distribution but their patterns of change are similar significant differences in wage inequality are also found across the various skill groups the paper also presents a new imputation method for cps data

market structure and the efficiency of european insurance companies a stochastic frontier analysis abstract this paper is motivated by the progressive liberalisation of the european insurance market in recent years it uses stochastic frontier analysis to estimate flexible fourier cost functions for european insurance companies separate frontiers are estimated for life non life and composite companies we adopt a maximum likelihood approach to estimation in which the variance of both one sided and two sided error terms is modelled jointly with the frontiers this approach allows us to simultaneously control for the impact of heteroskedasticity on the estimation of scale economies as well as estimating the effect of firm size and market structure on x inefficiency the study draws on standard poor s eurothesys data set of financial reports for the period 1995 to 2001 this provides technical and non technical accounts at year end for life non life and composite insurance businesses in 14 major european countries our estimates suggest that over this period most european insurers were operating under conditions of decreasing costs increasing returns to scale and that company size and domestic market share were significant factors determining x inefficiency larger firms and those with high market shares tend to have higher levels of cost inefficiency

valuing amenity resources under uncertainty does the existence of fair contingent claims markets matter abstract alternative welfare measures are evaluated as measures of the value of change in access conditions for environmental resources and it is shown that traditional hicksian surplus estimates systematically underestimate benefits it is further argued that the existence of fair contingent claims markets is a peripheral consideration in benefit estimation that state dependent payments present no significant collection obstacles not already encountered in state independent payment schemes and that risk neutral social decision making requires state dependent benefit measures for situations involving individual risk these findings imply that future research should focus on developing theoretical bounds between the expected value of state dependent benefit measures and conventional measures and that contingent valuations techniques need to be extended to measure contingent payment possibilities for changes in uncertain access conditions to environmental resources

intergenerational correlations in labor market status a comparison of the united states and germany this paper uses data from the panel study of income dynamics and the german socioeconomic panel to calculate comparable measures of the intergenerational correlations of earnings hours and education in the us and germany the results indicate that there is remarkable similarity across the two countries in the correlations of earnings and of annual work hours of fathers and sons all of the correlations which involve women appear to be weaker in germany than the us perhaps due to the greater integration of women in the us into the labor market they find weak correlations in earnings and work hours for parent child pairs of different sexes in both countries they also find that intergenerational correlations in educational attainment are considerably stronger in the us authors

returns to education a further international update and implications this paper updates evidence on the returns to investment in education by adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60 the new cross country evidence confirms and reinforces earlier patterns namely that returns are highest for primary education the general curricula the education of women and countries with the lowest per capita income the findings have important implications for directing future investment in education which for efficiency and equity purposes should concentrate on these priority areas

under pressure how the business environment affects productivity and efficiency of european life insurance companies deregulation and widespread economic changes have fundamentally affected the business environment of european life insurance companies over the last decades we apply multi stage data envelopment analysis to identify the impact of the changing environment on productivity and efficiency of european life insurance companies considering a sample of 970 life insurance companies from 14 european countries we show that general economic capital market and insurance market conditions are important drivers of efficiency although we find no technical change in the european life insurance sector we nonetheless observe an efficiency increase in 2002 2013 that leads to an increase in total factor productivity these trends can be explained by more challenging business conditions in the 2000s our results emphasize the need to control for the business environment in cross country efficiency studies

education returns across quantiles of the wage function alternative explanations for returns to education by race in south america private wage returns to schooling in south africa in 1993 are twice as high for nonwhites as for whites and substantially higher at advanced levels of schooling for both races to explore how these returns might be expected to change as the proportion of africans with secondary and higher education increases quantile regressions for the wage function are estimated for african males and white males if the residuals based on a standard wage function specification are interpreted as omitted ability and it is assumed that ability increases decreases returns to schooling then we expect quantile returns to increase decrease at higher quantiles this is not observed for africans at the higher and secondary school level but is evident among whites at higher educational levels the opposite pattern of differential returns favoring the least able i e lowest deciles is reported for the lower tail of the educational distribution that is for africans at the level of primary school and for whites at secondary school authors

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

do birth order and family size matter for intergenerational income mobility evidence from sweden previous studies of intergenerational income mobility have not considered potential birth order or family size effects in the estimated income elasticity this article uses a large sample of individuals born between 1962 and 1964 income elasticities with respect to parents incomes are estimated for individuals with different birth order positions and family sizes results based on labour income and total income for sons and daughters are reported separately the elasticity tends to decrease with family size as well as with birth order for a given family size especially in the labour income analysis of fathers and sons

does money matter for intergenerational income transmission the intergenerational income elasticity iie is a crucial measure of income mobility in this article we develop a structural model to examine the channels through which this elasticity operates using data from the panel study of income dynamics we separately identify the human capital and the financial components the human capital component examines the transmission of human capital independent of financial investments whereas the financial component examines the impact of income that is uncorrelated with human capital that is exogenous income using a two stage framework we show that the iie operates through both channels moreover our estimates show that the financial component may have a larger effect than previously estimated plausibly attributing to 36 of intergenerational income transmission indeed this result holds even when the financial component is defined in an incredibly narrow manner this suggests that cash payments could promote intergenerational mobility

regulation and efficiency in european insurance markets european insurance markets regulation and efficiency with a series of directives completed in 1994 the european commission tried to open and harmonize national european insurance markets this has led to considerable deregulation in several countries this paper surveys pre 1994 regulation in germany and the uk and the commission s policy it argues that it is unlikely that the policy will have a significant impact on direct international competition between european insurance markets until there is standardization of insurance law however the tightly regulated markets will become more like the loosely regulated uk market the paper evaluates this outcome and concludes that the european commission s policy may thereby have improved the welfare of insurance buyers in the previously highly regulated countries such as germany the paper also uses efficiency frontier estimation to compare the dispersion of firm efficiencies in the german and british life insurance market the results support the hypothesis that tighter solvency regulation allows the survival of a larger proportion of higher cost firms ray rees and ekkehard kessner

snapshots versus movies empirical studies of the intergenerational inheritance of economic status should use observations on complete lifetime status profiles of parents and children to be consistent with underlying theory but they cannot only snapshots rather than movies on status are currently available in samples estimates of the degree of intergenerational inheritance may therefore be subject to lifecycle biases the paper investigates these in the context of a lifecycle earnings model and shows that these biases may be large that their direction varies and that correction methods suggested hitherto have questionable reliability until more complete data sets become available researchers should be more temperate in the conclusions they draw

cost benefit analysis under uncertainty reply robert mendelsohn and william strang raise a number of issues which require clarification their misrepresentations of my results in several cases are easily corrected the analytical flaws in their own arguments are more difficult turning first to the issue of misrepresentations they incorrectly assert that i recommended the use of the maximum expected value of alternative contingent payment schemes as the measure of project benefits even a cursory reading of my introduction reveals that option price which does not maximize the expected value of revenue is the appropriate measure of benefit in situations involving similar individuals collective risk and certain costs despite their claims to the contrary i have not suggested that option price is an underestimate of the true value of project benefits option price is precisely the true value of project benefits in this case contradicting themselves in their first footnote they assert that i recommend the use of option price for cases involving certain costs and collective risks thus ignoring the crucial role of similar preferences other examples could be mentioned but it is perhaps sufficient to suggest that any reader wishing to know what i actually said would do well to review my paper the appropriate measure of benefits is the subject of the third section of my paper no mention is made in this general argument of expected value calculations similar preferences certain costs or any of the other special cases that are considered in the fourth section of my paper these special cases are exactly that situations in which the general answer because of the special circumstances takes a relatively simple form it is of course crucial not to forget the special circumstances when considering these results although mendelsohn and strang do not mention the distinction between collective and individual risks save for a passing reference in their first footnote this issue is central to the consideration of the appropriate measure of project benefits while the general procedure developed in my third section is compatible with any joint distribution of individual states option price measures the benefit to similar individuals of a project involving a collective risk when cost is certain expected value calculations on the other hand are only appropriate in situations involving individual risks these issues were examined in detail in my fourth section in dealing with the special case involving individual risks i argued that the magnitude of aggregate payments would be equal to the sum of the expected values of the individual payments with virtual certainty this was hardly a profound observation but it led to the result that if contingent payments are to be collected in such circumstances one should consider those payments that have the largest expected value since all contingent payment schemes including that associated with expected surplus involve the same difficulties of adverse selection moral hazard and so forth mendelsohn and strang in expressing the view that for the government to collect more revenue than the sum generated by the expected value of surplus the government must provide an additional service p 1098 fail to recognize that collecting the wrong contingent payments those associated with the surplus point involve the same difficulties as collecting the right contingent payments those associated with the fair bet point this mistake is not eliminated by their argument that when fair insurance is available the individual s willingness to pay locus becomes linear the presence of such a market makes it possible for an individual to trade a given payment liability in the market for contingent claims for another professor of economics duke university durham nc 27706

cost benefit analysis under uncertainty comment decision makers performing cost benefit analysis must often deal with the problem of how to aggregate the benefits across states of nature accruing from an uncertain public investment project option price and the expected value of consumer s surplus are two potential measures of these aggregate benefits 2 the expected value of surplus has been proposed because it is readily measured and because risk pooling paul samuelson william vickrey 1964 and risk spreading kenneth arrow and robert lind 1970 tend to encourage risk neutral behavior option price has been favored on the vague notion that people would be willing to pay something extra above expected surplus to preserve the opportunity to purchase a good burton weisbrod 1964 as daniel graham cogently argues in this review 1981 however option price is but one of an infinite number of contingent payment schemes the literature has provided no justification for focusing upon it as an ideal measure of benefits under individual risk graham further argues that policymakers ought to adopt the compensating contingent payment plan which maximizes expected revenue this maximum payment plan by definition is never less and will often exceed any other contingent payment scheme consequently graham argues that both the expected value of surplus and option price are underestimates of the true value of project benefits our purpose in this comment is twofold first we show the role of project and nonproject insurance in a model of individual risk and second we argue that option price not the maximum payment plan is the optimal rule when no fair insurance is available in section ii we show that if fair insurance is available against all risks all contingent payment plans yield identical revenue a similar result holds if insurance is available for nonproject risks and the effect of the project to an individual is small the arrow lind model in section iii we explore the case where either the project has a large uninsurable effect on the individual or there is no insurance against even nonproject risks we argue that the very phenomena moral hazard adverse selection and complexity that eliminate the market for private insurance also prevent the government from making otherwise desirable contingent payments if contingent payments are too costly the government s only remaining choice is to collect payments that are constant across states which makes option price the relevant measure of benefits

uncertainty benefit cost analysis and the treatment of option value abstract this paper proposes a new conceptual framework for defining welfare measures under uncertainty the planned expenditure function this function describes the locus of expenditures on contingent claims that are required to realize a given level of expected utility to illustrate the convenience of the framework it is used to consider the definition of the option price the appropriate treatment of option value the valuation of risk changes and the definition of non use benefits under uncertainty

factors affecting the transmission of earnings across generations a quantile regression approach in this paper we estimate intergenerational earnings mobility models using quantile regressions quantile regression is a less restrictive estimation approach than more commonly used methods such as ordinary least squares and instrumental variables which only estimate the mean effects of intergenerational earnings correlation further we investigate the role of education as an intergenerational transmission mechanism for earnings we find that the intergenerational earnings correlation is greater at the bottom of the son s conditional earnings distribution than at the top and that controlling for son s education reduces the intergenerational earnings correlation we also find that education is relatively more valuable at the bottom of the conditional earnings distribution and thus tends to compress the distribution

requiem for option value as freeman 1984 accurately notes a lot of ink has been spilled over the concept of option value during the last two decades graham in his seminal 1981 article outlined the specific conditions under which option price is and more significantly is not an appropriate and relevant measure of value under demand uncertainty while graham s article demonstrates that option value is relevant only under restrictive assumptions regarding preferences and the nature of the uncertainty both the tone and contents of recent articles on the

intergenerational top income mobility in sweden capitalist dynasties in the land of equal opportunity this paper presents new evidence on intergenerational mobility at the top of the income and earnings distributions using a large dataset of matched father son pairs in sweden we find that intergenerational transmission is very strong at the top more so for income than for earnings at the extreme top top 0 1 income transmission is remarkable with an intergenerational elasticity of approximately 0 9 we also study potential transmission mechanisms and find that iq non cognitive skills and education of the sons are all unlikely channels in explaining the strong transmission within the top percentile increases in the income of the fathers if they are related at all are negatively associated with these variables wealth on the other hand has a significantly positive association our results suggest that sweden known for having relatively high intergenerational mobility in general is a society in which transmission remains strong at the very top of the distribution and wealth is the most likely channel

the choice of a welfare measure under uncertainty use of option price as a welfare measure when conducting a benefit cost analysis under uncertainty is appropriate only if the project under consideration will have no impact on the allocation of risk among individuals use of the willingness to pay locus as a benefit measure is appropriate only if the project will result in an efficient allocation of risk a more general welfare measure is proposed maximum agreeable payment that correctly measures the benefits and costs of any project