household choices and child development the growth in labor market participation among women with young children has raised concerns about the potential negative impact of the mother s absence from home on child outcomes recent data show that mother s time spent with children has declined in the last decade while the indicators of children s cognitive and noncognitive outcomes have worsened the objective of our research is to estimate a model of the cognitive development process of children nested within an otherwise standard model of household life cycle behavior the model generates endogenous dynamic interrelationships between the child quality and employment processes in the household which are found to be consistent with patterns observed in the data the estimated model is used to explore the eects of schooling subsidies and employment restrictions on household welfare and child development

the consumption response to predictable changes in discretionary income evidence from the repayment of vehicle loans abstract although the life cycle permanent income hypothesis is the primary framework for understanding household consumption and savings decisions only a few studies have used clearly identifiable income changes to test the basic predictions of the model the estimates produced using this empirical strategy have yet to lead to a consensus of beliefs since the results have both favored and rejected the model this paper contributes to this literature by examining the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan using data from the consumer expenditure survey the results show that a 10 increase in discretionary income due to a loan repayment leads to a 2 to 3 increase in nondurable consumption additional analysis suggests that these findings may be explained by the presence of borrowing constraints

the perceived returns to education and the demand for schooling economists emphasize the link between market returns to education and investments in schooling though many studies estimate these returns with earnings data it is the perceived returns that affect schooling decisions and these perceptions may be inaccurate using survey data for eighth grade boys in the dominican republic we find that the perceived returns to secondary school are extremely low despite high measured returns students at randomly selected schools given information on the higher measured returns completed on average 0 20 0 35 more years of school over the next four years than those who were not

on the choice of pricing policies ex ante commitment and prisoners dilemma abstract i study the endogenous formation of pricing policies posted uniform versus negotiated pricing by using a version of a two stage pricing game in a duopoly context the model explains the prevalence of uniform pricing in some markets countries and identifies a typical prisoners dilemma in these cases the sellers commitment to a pre announced price under uniform pricing mitigates the fear of buyers that they might be exploited once they start price negotiations while such buyers anticipation induces sellers to adopt uniform pricing in an attempt to capture more buyers it results in intensified competition with lower seller payoffs

a major in science initial beliefs and final outcomes for college major and dropout taking advantage of unique longitudinal data we provide the first characterization of what college students believe at the time of entrance about their final major relate these beliefs to actual major outcomes and provide an understanding of why students hold the initial beliefs about majors that they do the data collection and analysis are based directly on a conceptual model in which a student s final major is best viewed as the end result of a learning process we find that students enter school quite optimistic about obtaining a science degree but that relatively few students end up graduating with a science degree the substantial overoptimism about completing a degree in science can be attributed largely to students beginning school with misperceptions about their ability to perform well academically in science copyright 2014 oxford university press

price commitment in search markets abstract this paper studies the formation of pricing rules in search markets at a cost each seller can commit himself to a fixed price if he takes no actions to preclude haggling his sales price is determined through bilateral negotiations with the buyer the selection of pricing rules exhibits strategic complementarities that may give rise to multiple equilibria differences in trading practices across countries and cultures may thus be consistent with equilibrium behavior in bazaar markets where the buyer s cost of switching sellers is relatively low most of the trade is conducted via bargaining and prices are close to the perfectly competitive outcome

determinants of college major choice identification using an information experiment this article studies the determinants of college major choice using an experimentally generated panel of beliefs obtained by providing students with information on the true population distribution of various major specific characteristics students logically revise their beliefs in response to the information and their subjective beliefs about future major choice are associated with beliefs about their own earnings and ability we estimate a rich model of college major choice using the panel of beliefs data while expected earnings and perceived ability are a significant determinant of major choice heterogeneous tastes are the dominant factor in the choice of major analyses that ignore the correlation in tastes with earnings expectations inflate the role of earnings in college major choices we conclude by computing the welfare gains from the information experiment and find positive average welfare gains

is universal child care leveling the playing field abstract we assess the case for universal child care programs in the context of a norwegian reform which led to a large scale expansion of subsidized child care we use non linear difference in differences methods to estimate the quantile treatment effects of the reform we find that the effects of the child care expansion were positive in the lower and middle parts of the earnings distribution of exposed children as adults and negative in the uppermost part we complement this analysis with local linear regressions of the child care effects by family income we find that most of the gains in earnings associated with the universal child care program relate to children of low income parents whereas upper class children actually experience a loss in earnings in line with the differential effects by family income we estimate that the universal child care program substantially increased intergenerational income mobility to interpret the estimated heterogeneity in child care effects we examine the mediating role of educational attainment and cognitive test scores and show that our estimates are consistent with a simple model where parents make a tradeoff between current family consumption and investment in children taken together our findings could have important implications for the policy debate over universal child care programs suggesting that the benefits of providing subsidized child care to middle and upper class children are unlikely to exceed the costs our study also points to the importance of universal child care programs in explaining differences in earnings inequality and income mobility across countries and over time

estimating the production function for human capital results from a randomized controlled trial in colombia we examine the channels through which a randomized early childhood intervention in colombia led to significant gains in cognitive and socio emotional skills among a sample of disadvantaged children aged 12 to 24 months at baseline we estimate the determinants of material and time investments in these children and evaluate the impact of the treatment on such investments we then estimate the production functions for cognitive and socio emotional skills the effects of the program can be explained by increases in parental investments which have strong effects on outcomes and are complementary to both maternal skills and child s baseline skills

longer term effects of head start specially collected data on adults in the panel study of income dynamics are used to provide evidence on the longer term effects of head start an early intervention program for poor preschool age children whites who attended head start are relative to their siblings who did not significantly more likely to complete high school attend college and possibly have higher earnings in their early twenties african americans who participated in head start are less likely to have been booked or charged with a crime there is some evidence of positive spillovers from older head start children to their younger siblings language en

savings in times of demographic change lessons from the german experience pension reforms in many developed countries make individuals shoulder a bigger share of longevity and income risks the desired response is that individuals accumulate private assets for retirement whether this actually takes place is of paramount relevance for scientists and policy makers we take germany as an example twenty years of pension reform have transformed the monolithic german pension system into a multi pillar system formerly generous public pension benefits are gradually being reduced while substantial incentives are granted to occupational and private saving schemes has this transition worked out we survey the reform steps and household s reactions how did individuals adjust their labor market behavior how did private and occupational pension plans take off how do behavioral adjustments vary in the population most germans adapted to the new situation both actual and expected retirement decisions changedand the share of households without supplementary pensions decreased from 73 to 39 in little more than a decade this is a remarkable success nonetheless households with low education low income and less financial education did neither adjust their retirement behavior nor pick up supplementary pension plans and are thus likely to face difficulties in bridging the gap arising in future pension income

innis lecture universal early childhood interventions what is the evidence base universality is a hallmark of canadian social policy for very young children the evidence base for these policies is small non experimental and offers mixed results in contrast the evidence base for targeted early childhood interventions is largely experimental and offers strong guidance policy makers and advocates often cite the research on targeted programs in support of universal programs although this is problematic for a number of reasons universal programs require a better understanding of the developmental trajectories of more advantaged children evidence from the nlscy suggests there are some potentially important differences in the association of early and later childhood developmental outcomes by family economic resources l universalite est une caracteristique de la politique sociale canadienne pour la petite enfance les resultats sur lesquels on peut construire ces politiques sont minces et non experimentaux et pas toujours coherents d autre part les resultats pour les interventions ciblees sont largement experimentaux et fournissent des directions claires les definisseurs de politiques ainsi que leurs supporteurs citent souvent les resultats de recherches sur les programmes cibles pour articuler leur support pour des programmes universels meme si c est problematique pour diverses raisons les programmes universels reclament une meilleure comprehension des trajectoires de developpement des enfants plus avantages les resultats de l enquete longitudinale nationale sur les enfants et les jeunes suggerent qu il y a des differences potentiellement importantes dans le developpement des enfants de familles qui ont des ressources economiques differentes

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

auctions versus posted price selling two popular selling methods posted price selling and auctions are compared here in an independent private values model without auctioning costs auctioning is always optimal when auctioning is costly auctions are still preferable if the marginal revenue curve is sufficiently steep the global steepness of the marginal revenue curve is found to coincide with the dispersion around the mean for a number of standard distributions finally the prices of the monopoly seller and of the social optimum are compared copyright 1993 by american economic association

does education improve citizenship evidence from the united states and the united kingdom abstract many studies document an association between schooling and civic participation but none credibly investigate causal links we explore the effect of extra schooling induced through compulsory schooling laws on the likelihood of becoming politically involved in the united states and the united kingdom we find that educational attainment is related to several measures of political interest and involvement in both countries we find a strong and robust relationship between education and voting for the united states but not for the united kingdom our us results approach the uk findings when conditioning on registration possibly indicating that registration rules present a barrier to participation

the rate of return to the high scope perry preschool program abstract this paper estimates the rate of return to the highscope perry preschool program an early intervention program targeted toward disadvantaged african american youth estimates of the rate of return to the perry program are widely cited to support the claim of substantial economic benefits from preschool education programs previous studies of the rate of return to this program ignore the compromises that occurred in the randomization protocol they do not report standard errors the rates of return estimated in this paper account for these factors we conduct an extensive analysis of sensitivity to alternative plausible assumptions estimated annual social rates of return generally fall between 7 and 10 with most estimates substantially lower than those previously reported in the literature however returns are generally statistically significantly different from zero for both males and females and are above the historical return on equity estimated benefit to cost ratios support this conclusion

selling formats for search goods the paper offers a comparative analysis of different ways to sell products selling formats when buyers incur evaluation costs since these costs are sunk at the moment of trade buyers may refrain from incurring them for fear of later opportunism on the part of sellers it is found that the use of many common selling formats can be explained in terms of their ability to alleviate this problem specifically i explain price advertising seller colocation and bargaining the theory explains much of the divergence in retail trading institutions and leads to several testable predictions

incomplete information bargaining with outside opportunities we consider two kinds of outside opportunity that a seller of an indivisible good might have selling to a different buyer and consuming the good herself in both models the seller is uncertain about the buyer s valuation and becomes more pessimistic over time when the seller becomes sufficiently pessimistic she prefers the outside opportunity so she will not bargain indefinitely with the current buyer despite the resulting finite horizon nature of negotiations the link between the buyer s willingness to accept an offer and the seller s eagerness to go outside generates multiple equilibria

intertemporal consumption durables and liquidity constraints a cohort analysis we provide a theoretical framework to analyse the response of life time maximizing consumers to intertemporal prices of non durable goods and durable goods when the borrowing limit depends on the market value of the stock of durables owned by the consumer we use pseudo panel data on purchases of non durables and durable goods cars and demographic characteristics from the uk family expenditure survey as well as estimates of the durable stock constructed using the uk national travel survey to estimate the equations derived in the first part of the paper we evaluate the shadow prices of these restrictions which were significantly positive for younger consumers in the mid seventies and immediately prior to the 1982 financial liberalisation

intertemporal nonseparability or borrowing restrictions a disaggregate analysis using a u s consumption panel we propose a method to test for liquidity constraints which relies on using the within period marginal rate of substitution condition as a benchmark to evaluate the intertemporal euler equation if spot markets for nondurable goods exist but financial markets either do not exist or are imperfect we show how the comparison of first order conditions involving the relevant spot and intertemporal prices can be used to detect the imperfection we apply our methodology to a large sample of u s households drawn from twelve years of the consumer expenditure survey allowing for a general nonseparable preference structure our estimates of first order conditions do not indicate the presence of liquidity constraints with the possible exception of young households

parental beliefs about returns to educational investments the later the better in this paper we study parental beliefs about the returns to parental investments made during different periods of childhood using two independent samples we document that parents perceive the returns to different late investments to be higher than the returns to early investments and that they perceive investments in different time periods as substitutes rather than complements we show that parental beliefs about the returns to investments vary substantially across the population and that individual beliefs are predictive of actual investment decisions moreover we document that parental beliefs about the productivity of investments differ significantly across socioeconomic groups perceived returns to early parental investments are positively associated with household income thereby potentially contributing to the intergenerational persistence in earnings

estimating marginal returns to education this paper estimates marginal returns to college for individuals induced to enroll in college by different marginal policy changes the recent instrumental variables literature seeks to estimate this parameter but in general it does so only under strong assumptions that are tested and found wanting we show how to utilize economic theory and local instrumental variables estimators to estimate the effect of marginal policy changes our empirical analysis shows that returns are higher for individuals with values of unobservables that make them more likely to attend college we contrast our estimates with iv estimates of the return to schooling

price setting and competition in a simple duopoly model the paper studies a market in which there are two sellers and one buyer each agent wants to trade at most one unit of an indivisible commodity the sellers are uncertain whether the buyer is receiving offers from one or both of them at any given time this model induces competitive and monopolistic outcomes for particular parameter values but other things being equal as the buyer becomes very patient the equilibrium price converges to the competitive one

correlation consumption confusion or constraints why do poor children perform so poorly the economic and social mobility of a generation may be largely determined by the time it enters school given early developing and persistent gaps in child achievement by family income and the importance of adolescent skill levels for educational attainment and lifetime earnings after providing new evidence of important differences in early child investments by family income we study four leading mechanisms thought to explain these gaps an intergenerational correlation in ability a consumption value of investment information frictions and credit constraints in order to better determine which of these mechanisms inf uence family investments in children we evaluate the extent to which these mechanisms also explain other important stylized facts related to the marginal returns on investments and the effects of parental income on child investments and skills

does head start help hispanic children abstract poor educational attainment is a persistent problem among us hispanic children relative to non hispanics many of these children are immigrants and or come from households that use a minority language in the home this paper examines the effects of participation in a government sponsored preschool program called head start on these children we find that large and significant benefits accrue to head start children when we compare them to siblings who did not participate in the program on average head start closes at least 1 4 of the gap in test scores between hispanic children and non hispanic white children and 2 3 of the gap in the probability of grade repetition however we find that the benefits of head start are not evenly distributed across sub groups

intergenerational persistence of earnings the role of early and college education recent empirical evidence from the united states indicates a high degree of persistence in earnings across generations designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings we provide a quantitative model of intergenerational human capital transmission that focuses on three sources innate ability early education and college education we find that approximately one half of the intergenerational correlation in earnings is accounted for by parental investment in education in particular early education we show that these results have important implications for education policy

on the production of skills and the birth order effect first born children tend to outperform their younger siblings on measures such as cognitive exams wages educational attainment and employment using a framework similar to cunha and heckman 2008 and cunha heckman and schennach 2010 this paper finds that differences in parents investments across siblings can account for more than one half of the gap in cognitive skills among siblings the study s framework accommodates for endogeneity in parents investments measurement error missing observations and dynamic impacts of parental investments

life cycle schooling and dynamic selection bias models and evidence for five cohorts of american males this paper examines an empirical regularity found in many societies that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education we examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it we show that the implicit economic model assumes myopia the intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data we produce an alternative choice theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions

child cash benefits and family expenditures evidence from the national child benefit income may improve child outcomes through two mechanisms as a direct input into health and education or indirectly by reducing household financial stress we exploit policy induced changes in refundable tax benefit income in canada to study these two potential mechanisms our findings suggest that additional income may improve outcomes through both mechanisms some benefit income is spent on direct education inputs while some is spent on everyday items likely to improve the general conditions children face additionally some families reduce spending on risky behaviour items spending responses to benefit generosity appear to vary by income and by child age prestations pour enfants en especes et depenses des familles ce que revele la prestation nationale pour enfants le revenu permet d ameliorer le developpement d un enfant gr ce a deux mecanismes en contribuant directement a l education et a la sante et en reduisant indirectement les difficultes financieres au sein du foyer afin d etudier ces deux mecanismes nous nous appuyons sur les modifications politiques apportees au credit d impot remboursable de type prestation fiscale pour revenu de travail au canada nos resultats suggerent que par l entremise de ces deux mecanismes la situation peut s ameliorer gr ce a un revenu additionnel une partie de ces prestations est depensee directement pour l education tandis qu une autre est utilisee pour les biens quotidiens susceptibles d ameliorer les conditions de vie generales de l enfant de plus certaines familles reduisent les depenses d articles pouvant induire des comportements a risque les types de depenses lies aux prestations sociales semblent varier en fonction des revenus et de l ge des enfants

the effect of education on crime evidence from prison inmates arrests and self reports we estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling we begin by analyzing the effect of high school graduation on incarceration using census data instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites when estimating the impact of high school graduation only ols and iv estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration we clarify the relationship between ols and iv estimates and show that the weights placed on the impact of each schooling progression can explain differences in the estimates overall the estimates suggest that completing high school reduces the probability of incarceration by about 76 percentage points for whites and 3 4 percentage points for blacks we corroborate these findings using fbi data on arrests that distinguish among different types of crimes the biggest impacts of graduation are associated with murder assault and motor vehicle theft we also examine the effect of drop out on self reported crime in the nlsy and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime we estimate that the externality of education is about 14 26 of the private return to schooling suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction

does head start improve children s life chances evidence from a regression discontinuity design this paper exploits a new source of variation in head start funding to identify the program s effects on health and schooling in 1965 the office of economic opportunity oeo provided technical assistance to the 300 poorest counties to develop head start proposals the result was a large and lasting discontinuity in head start funding rates at the oeo cutoff for grant writing assistance we find evidence of a large drop at the oeo cutoff in mortality rates for children from causes that could be affected by head start as well as suggestive evidence for a positive effect on educational attainment i introduction head start was established in 1965 as part of the war on poverty to provide preschool health and other social services to poor children age three to five and their families and currently serves over 900 000 children each year at a cost of around 7 billion hhs 2006 this paper provides new evidence on the effects of the head start program on schooling and health by drawing on a new source of variation in program funding spe

the intergenerational effects of worker displacement this article uses variation induced by firm closures to explore the intergenerational effects of worker displacement using a canadian panel of administrative data that follows more than 39 000 father son pairs from 1978 to 1999 we find that children whose fathers were displaced have annual earnings about 9 lower than similar children whose fathers did not experience an employment shock they are also more likely to receive unemployment insurance and social assistance the estimates are driven by the experiences of children whose family income was at the bottom of the income distribution

early and late human capital investments borrowing constraints and the family we develop a dynastic human capital investment framework to study the importance of family borrowing constraints and uninsured labor market risk as well as the process of intergenerational ability

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

bargaining versus posted price selling abstract two popular selling methods bargaining and posted price selling are compared here in a dynamic model when bargaining costs no more than posted price selling we find that bargaining is always optimal when bargaining costs more however bargaining is still preferred if and only if the common cost for both selling methods is large enough we also find that an increase in the discount rate or the seller s bargaining power favors bargaining finally we find that if the distribution becomes more dispersed and the increase in a buyer s valuation is sufficiently large bargaining is more likely to be adopted

the impact of family income on child achievement evidence from the earned income tax credit using an instrumental variables strategy we estimate the causal effect of income on children s math and reading achievement our identification derives from the large nonlinear changes in the earned income tax credit the largest of these changes increased family income by as much as 20 percent or approximately 2 100 between 1993 and 1997 our baseline estimates imply that a 1 000 increase in income raises combined math and reading test scores by 6 percent of a standard deviation in the short run test gains are larger for children from disadvantaged families and robust to a variety of alternative specifications jel h24 h31 i21 i38 j13