the trick is to live is the estate tax social security for the rich because estate tax liability usually depends on how long one lives it implicitly provides annuity income in the absence of annuity markets lump sum estate taxation may be used to achieve the first best solution for individuals with a sufficiently strong bequest motive calculations of the annuity embedded in the u s estate tax show that people with 10 million of assets may be effectively receiving more than 100 000 a year financed at actuarially fair rates by their tax payments according to my calibrations the insurance effect reduces the marginal cost of funds mcf for the estate tax by as much as 30 percent and the resulting mcf is within the range of estimates for the mcf for the income tax

longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

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

the effect of annuity insurance on savings and inequality this paper examines the amount of precautionary savings and wealth inequality arising from life span uncertainty by comparing saving behavior under perfect insurance arrangements with that arising under imperfect arrangements namely when longevity risk can be pooled only with members of one s own family the central findings of the paper are that 1 perfecting insurance arrangements can sharply lower savings in both intergenerationally altruistic and life cycle economies and that 2 in altruistic economies perfecting annuity insurance can greatly influence inequality indeed in the long run in our model switching from imperfect family insurance to perfect insurance can mean the difference between absolute inequality and absolute equality

saving wealth and the exchange bequest motive a model of exchange motivated bequests based upon childrens attentions to parents provided when the children are young adults is joined to a standard life cycle specification to examine the consequences for wealth and savings the results of general equilibrium simulations show contribution to be far below some recent estimates exchange motivated bequests produce offsets to life cycle savings that limit their ability to increase total savings epargnes richesse et le legs motive par la logique de l echange l auteur combine un mod0e de legs motive par la logique de l 6change les parents obtenant en echange l attention de leurs enfants quand ceux ci sont jeunes adultes et une specification standard du modele

the distribution of wealth measurement and models abstract analysts debating the consequences of a policy change for the wealth distribution may come to different conclusions because of different views about how the distribution should be defined and measured or about the processes determining the distribution the aim of this survey is to provide an analytical framework within which such conflicts may be assessed the first part of the paper discusses conceptual issues in the definition of wealth and compares methods of deriving estimates of wealth distribution the second and larger part of the paper surveys lifecycle and intergenerational models of the distribution of wealth including a discussion of the role played by inheritance the presentation is largely theoretical indeed one of the paper s conclusions is that empirical modelling of the wealth distribution is under developed at least for the purposes of addressing many topical policy issues

a life cycle consumption model with liquidity constraints theory and empirical results a structural consumption model incorporating endogenous liquidity constraints is fit to a cross section of 798 u s families liquidity constrained families are estimated to constitute 19 4 percent of the population sampled a group that accounts for 16 7 percent of consumption in the population sampled in sample simulations of the model suggest that a temporary tax has three to four times more impact on aggregate consumption than it would if liquidity constraints were not in effect copyright 1987 by the econometric society

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

consumer debt non payment and the borrowing constraint implications for consumer behavior abstract this paper examines whether the consumption behavior of a borrowing constrained household is affected by debt non payment from the household s intertemporal maximization problem we derive a two equation model consisting of augmented forms of the standard consumption euler equation and the static labor supply equation we estimate these equations by using nonlinear gmm and obtain estimates inter alia for the discount factor and the debt payment to income ratio the former is found to be much lower than the values often used in model calibrations in the literature showing a high degree of impatience of households the latter is close to the values reported in the consumer credit literature our results are found to be robust to a number of specification tests under different types of household preferences these results are also subjected to a comparative analysis with the results derived from the consumption euler equation under full debt repayment and no borrowing constraint

a dynamic model of redistribution inheritance and inequality comparing steady states of an overlapping generations economy gary s becker and nigel tomes 1979 and james b davies 1986 have noted that redistributive taxation can be disequalizing this paper solves for the full transition path of inequality after a redistributive tax increase the authors find in contrast to the steady state results that redistribution works in the first generation under quite general conditions even when fully anticipated by all previous generations further inequality is likely to fall for several generations before approaching its new steady state level from below

optimal strategies for general price quality decision models of new products with learning production costs abstract the question of product quality permeates every level of business and is becoming crucial for the survival of modern manufacturing firms in automotive and high tech industries in this paper we deal with the optimal price and quality policies for the introduction of a new product on the supply side the firm wants to determine the unit price and quality level over time given that unit cost declines along a learning curve and increases if quality is made greater on the demand side dynamic demand is related to price and quality as well as to cumulative sales which represent diffusion and saturation effects we will model this problem in a general framework that includes several previous results as special cases by applying the maximum principle we will derive the optimal price and quality policies and discover the interactions between these two major strategic marketing instruments and the diffusion process several fundamental theoretical results will be established for the model under certain specified conditions higher prices do imply higher quality and under other conditions the optimal price declines over time while the product quality improves to illustrate these results the theoretical results are applied to two specific cases the first one is a simple nonseparable demand growth function in price and quality the other is a separable demand function of price and quality

does redistribution reduce inequality the steady state effect on inequality of linear redistributive schemes based on the taxation of earnings inheritances or some combination of the two is examined dynasties that exhibit asexual reproduction and altruism are modeled earnings ability which may be correlated across generations is exogenous and drawn from a stationary distribution taxing inheritances increases inequality by reducing the intergenerational averaging of luck in an example paying out the tax revenue in uniform transfers typically does not reverse this result taxing lifetime wealth or income adds a lump sum tax on earnings making redistribution more successful however this success is sensitive to the relative size of mean earnings and inheritances

competition and substitutability in the swedish pharmaceuticals market substitution possibilities between brand name pharmaceuticals are analysed the analysis is based on data from three different markets the prescription drug market for beta blocking agents the over the counter market for purgatives and the hospital market for two pharmaceutical treatments for gastric ulcers the results indicate that there exist some substitution possibilities among the brand name drugs included in the study

constrained non concave utility maximization an application to life insurance contracts with guarantees abstract we study a problem of non concave utility maximization under a fair pricing constraint the framework finds many applications in for example the optimal design of managerial compensation or equity linked life insurance contracts deriving closed form solutions we observe that the fair pricing constraint will reduce the riskiness of the optimal strategies substantially in an extensive numerical section we analyze innovative retirement products that adapt the investment strategy of the premium pool according to the policyholder s preferences modeled as constant relative risk aversion crra such products are a response to the loss of attractiveness of traditional life insurance contracts with guarantees that are negatively affected by increasing solvency requirements for return guarantees and a general decrease in interest rate levels taking into account that retirement products are usually tax privileged we find that fairly priced guarantee contracts that follow this optimal investment strategy lead to a higher expected utility level than asset investments

life cycle asset accumulation and allocation in canada this paper documents the life cycle patterns of household portfolios in canada and investigates several hypotheses about asset accumulation and allocation inferences are drawn from the 1999 survey of financial security with some comparisons to earlier wealth surveys from 1977 and 1984 i find cross sectional evidence for asset decumulation at older ages when annuitized assets like pension wealth are included in the analysis i also find that the portfolio share of financial assets increases sharply with age while indicators of risk tolerance appear to decrease this is consistent with families desiring more liquid and less risky assets as they age jel classification d31 e21 g11 le cycle de vie de l accumulation et de l allocation des actifs au canada ce memoire documente le cycle de vie des portefeuilles des menages au canada et examine plusieurs hypotheses quant a l allocation et l accumulation des actifs on developpe certaines inferences a partir de l enquete sur la securite financiere de 1999 ainsi qu a partir des enquetes sur la richesse de 1977 et 1984 certains resultats pointent vers une decumulation des actifs avec l avancement de l ge quand on prend en compte dans l analyse les actifs annualises comme les rentes il semble aussi que la portion des debentures augmente dramatiquement avec l ge et que les indicateurs de tolerance de risque paraissent diminuer voila qui s arrime bien a un desir d avoir des actifs plus liquides et moins risques a mesure qu on vieillit

compensatory inter vivos gifts parents transfer motives are important for understanding e g macroeconomics income re distribution savings and public finance using data from six biennial waves of the health and retirement study 1992 2002 we estimate censored regression models with nested multilevel error components first we interpret our findings that inter vivos transfers from parents to children are gifts rather than temporary help to overcome liquidity constraints second inter vivos gifts are compensatory in the sense that lifetime poorer children will receive higher transfers than their lifetime richer siblings third inter vivos gifts do not however make up the entire difference in lifetime incomes copyright 2009 john wiley sons ltd

product and process innovation the implication of making comparisons between uniform pricing monopolist and second degree price discriminating monopolist the question of simultaneous product and process innovation price discrimination is crucial for technologically evolving industries in this paper we assume that there are two different kinds of

tax policy and consumer foresight a general equilibrium simulation study this paper presents a dynamic computational general equilibrium model in which expectations regarding future prices can be varied systematically the model is employed to evaluate how expectations influence the effect of long run tax policy changes under policies like a consumption tax that reduce rates of return over time individuals with perfect foresight save less than individuals with myopic beliefs this is because consumers with foresight are better able to anticipate the lower returns lower saving means that existing distortions due to capital taxes are not offset as much so that welfare gains are smaller under perfect foresight

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

disentangling spillover effects of antibiotic consumption a spatial panel approach literature on socioeconomic determinants of antibiotic consumption in the community is limited to few countries using cross sectional data this article analyses regional variations in outpatient antibiotics in italy using a balanced panel dataset covering the period 2000 to 2008 we specify an econometric model in which antibiotic consumption depends upon demographic and socioeconomic characteristics of the population the supply of health care services in the community and antibiotic copayments the model is estimated by means of ordinary least squares ols techniques with fixed effects fe the implications of consumption externalities across geographical areas are investigated by means of spatial lag and spatial error models slfe and sefe we find significant and positive income elasticity and negative effects of copayments antibiotic use is also affected by the age structure of the population and the supply of community health care finally we find evidence of spatial dependency in the use of antibiotics across regions this suggests that regional policies e g public campaigns aimed at increasing efficiency in antibiotic consumption and controlling bacterial resistance may be influenced by policy makers in neighbouring regions there will be scope for a strategic and coordinated view of regional policies towards the use of antibiotics

spatial patterns in local taxation tax mimicking or error mimicking this paper tests for mimicry in local tax setting by using a panel data set of the english non metropolitan districts in the 1980s when property tax rate variability across districts was highest the results confirm the presence of large and significant spatial interactions among districts even after allowing for district specific and time effects a district appears to be significantly affected by its neighbours policies a 10 increase in the local property tax rate of a district s neighbours leads to an increase of 4 5 in its own property tax rate on the other hand the absence of correlation in tax rates between lower tier district authorities and upper tier county authorities suggests that the spatial pattern in district tax rates is not simply driven by spatially auto correlated shocks

demand systems and the true subindex of the cost of living for pharmaceuticals this paper investigates the demand for prescription pharmaceuticals at the retail level we use complete demand systems to investigate elasticity for major classes of pharmaceuticals we estimate both a regular and an inverse demand system using a differential version of the rotterdam model we find that both systems yield negative and statistically significant own price elasticities the results indicate that pharmaceutical demand curves are not perfectly inelastic as some industry commentators suggest we use the results of the complete demand system and a variant of a formula developed by balk 1990 to derive a cost of living subindex for retail pharmaceuticals we find that retail pharmaceutical prices using our index rise faster than wholesale prices calculated either by the bls or by the methods developed by berndt et al 1993

inheritance and wealth inequality the case of the punjab abstract this study follows a wealth function approach to quantify the role of inheritance in wealth inequality in the region of punjab india using household data from the national sample survey 25th round the specification of the wealth function is fairly general it is used to test the hump shaped pattern of wealth age relationship and also to decompose the reported wealth holding of each sample household into inherited and accumulated components it is found that inheritance accounts for 53 38 and 24 13 percent of wealth inequality in the rural and urban sectors respectively some policy implications of our results are stated

saving behavior in retirement when life horizon is uncertain abstract we try to explain some recent empirical observations that retired people continue to save in retirement for several years a behavior which seems to contradict the life cycle hypothesis we show that such a behavior is consistent if individuals become more optimistic about their life probability distribution or if individuals become more risk averse as they age

the impact of the correlation between health expenditure and survival probability on the demand for insurance abstract this paper studies the effects of health shocks on the demand for health insurance and annuities along with precautionary saving in a dynamic life cycle model i argue that when the health shock can simultaneously increase health expenses and reduce longevity rational agents would neither fully insure their uncertain health expenses nor fully annuitize their wealth because the correlation between health expenses and longevity provides a self insurance channel for both uncertainties that is when the agent is hit by a health shock which simultaneously increases health expenses and reduces longevity she can use the resources originally saved for consumption in the reduced period of life to pay for the increased health expenses since the two uncertainties partially offset each other the precautionary saving generated in the model should be smaller than in a standard model without the correlation between health expenses and longevity in a quantitative life cycle model calibrated using the medical expenditure panel survey dataset i find that the health expenses are highly correlated with the survival probabilities and this correlation significantly reduces the demand for actuarially fair health insurance while its impact on the demand for annuities and precautionary saving is relatively small

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

bequest and wealth accumulation are some pieces of the puzzle missing the lively debate between laurence j kotlikoff and franco modigliani presented in the spring 1988 issue of this journal concerns an old question what is the main motivation for saving and therefore for the accumulation of wealth more specifically what are the respective contributions to aggregate wealth of 1 saving for retirement also known as hump saving 2 precautionary savings and unintended bequests due to uncertainty about the length of life and 3 planned bequests of course other wealth holding motives are possible but let us follow kotlikoff and modigliani in setting them aside for now if modigliani s life cycle hypothesis is to be viewed as a close to approximation of reality then the bulk of existing wealth should have resulted from some combination of hump and precautionary saving our comment on this dispute attempts to advance two issues first the controversy involves an enormous gap between empirical estimates of the share of inherited wealth in total accumulation even though the estimates are often based on the same data we hope to clarify why the estimates vary so widely second the kotlikoff modigliani dispute is presented as an american issue with little extension abroad we will present some results from other countries that bear on the controversy some of the estimates from kotlikofi s paper originated in a 1981 paper he wrote with lawrence summers which is why we sometimes refer to his position as the kotlikoff summers argument in this comment the problem of conceptualizing the contribution of bequest to aggregate savings can be summarized with a thought experiment assume all bequests were confiscated

process and product innovation by a multiproduct monopolist a dynamic approach abstract we adopt a dynamic approach to model the behaviour of a multiproduct monopolist investing in process innovation and either product differentiation or product proliferation or both irrespective of the number of activities appearing in the r d portfolio we prove that depending on initial conditions there may exists substitutability between process innovation and either form of product innovation along the optimal path towards the steady state while in the latter only complementarity emerges looking at the threefold investment plan we qualitatively characterise the ranking of r d activities in terms of the consumer reservation price and the extent of the spectrum of varieties

ricardian equivalence are the required assumptions defensible abstract ricardian equivalence re requires universal provision of bequests for purely altruistic reasons this paper argues that no defensible set of values for relevant parameters is consistent with this requirement hence observed bequests must at least partly reflect motives inconsistent with re

consumption during retirement the missing link in the life cycle this study presents the first evidence on the relation of consumption to lifetime wealth based on data from the 1973 and 1975 retirement history survey that have been linked to social security earnings records nearly 500 white married fully retired couples ages 62 69 form the basis of the analysis on average their consumption early in retirement exceeds by 14 percent the income that their financial pension and social security wealth can generate this implies that their saving both private and through social security is insufficient to sustain consumption throughout the rest of their lives additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement these two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate coupled with either a bequest motive or uncertainty about the length of life they also imply that even when combined with private pensions and savings social security in the united states today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired this abstract was borrowed from another version of this item

demand heterogeneity and technology evolution implications for product and process innovation the evolution of technology has been a central issue in the strategy and organizations literature however the focus of much of this work has been on what is essentially the supply side of technical change the evolution of firm capabilities we present a demand based view of technology evolution that is focused on the interaction between technology development and the demand environment in which the technology is ultimately evaluated we develop a formal computer simulation model that explicitly considers the influence of heterogeneity in market demand the presence of consumers with different needs and requirements on firms innovation choices the model is used to examine the dynamics of product and process innovation utterback and abernathy 1975 the analysis reveals that demand heterogeneity offers an alternative to supply side explanations of the technology life cycle further by considering the implications of decreasing marginal utility from performance improvements the model highlights the role of technologically satisfied consumers in shaping innovation incentives and suggests a rationale for a new stage in the technology life cycle characterized by increasing performance at a stable price the stage has not yet been treated formally in the literature but is widely observed most prominently in digital and information based technologies

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

time preference and life cycle consumption with endogenous survival we provide a structural theory of time preference and derive a functional form of intertemporal preferences by postulating that individuals make their life cycle consumption choices as if to maximize expected lifetime this yields a nontime separable expected utility representation where the inverse of the coefficient of intertemporal substitution exceeds the coefficient of relative risk aversion the rate of time preference depends on the inverse of expected remaining lifetime and the effect of age on the productivity of consumption in affecting health the preference formulation is applied in a standard intertemporal consumption model to illustrate the implied life cycle consumption choices

price discrimination and patent policy patent and antitrust policy are often presumed to be in conflict as an important example there is ongoing controversy about whether price discrimination by a patent holder is an illegal or socially undesirable exploitation of monopoly power in this article we show that no conflict exists in many price discrimination cases even ignoring the dynamic effects on incentives for innovation third degree price discrimination by patent holders can raise static social welfare in fact pareto improvements may well occur welfare gains occur because price discrimination allows patent holders to open new markets and to achieve economies of scale or learning further even in cases where discrimination incurs static welfare losses it may be efficient relative to other mechanisms such as length of patent life for rewarding innovators with profits

the role of intergenerational transfers and life cycle saving in the accumulation of wealth he purpose of this paper is to review what economists know at present about the following question how large a portion of the existing wealth is the result of a bequest motive that is of accumulation for the specific purpose of leaving bequests i will also endeavor to clarify why an answer to this question is of interest in the early keynesian period when the study of national saving first attracted wide interest relatively little attention was paid to what led people to save though it was generally understood that the main systematic reason was to leave bequests j m keynes in the famous chapter 9 of the general theory of employment interest and money 1936 had listed seven distinct motives for saving besides the leaving of bequests but five of these which include to increase one s future income or to insure one s independence and power implied that all or nearly all the accumulation would finally wind up as bequeathed wealth this in turn meant that most private wealth originated through bequests that is it either had been received through bequests or was destined to be bequeathed and indeed how else could society accumulate wealth however keynes 1936 p 107 also mentioned two further motives precaution that is to build up a reserve against unforeseen contingencies and foresight that is to provide for an anticipated future relation between the income and the needs of the individual or his family different from that which exists in the present as for example in relation to old age family education or the maintenance of dependents these motives in contrast to most of the previous ones have the

consumer preferences and product and process r d firms often conduct both product and process r d consumer preferences typically play a vital role in determining these r d choices the economics literature however has mostly ignored the interrelationship between the r d choices of firms and consumer preferences istudy product and process r d from the perspective of their relationship with consumer preferences in doing so i find a novel distinction between the two kinds of r d this distinction can explain several empirical observations regarding firms choices of the two and can also potentially enable us to better empirically identify the two

dependents and the demand for life insurance a breadwinner s demand for life insurance depends on the demographic structure of his or her household the author captures the relationship by extending menahem e yaari s life insurance framework to include the preferences of all household members explicitly in many households the insured is the husband and the beneficiaries are his wife and offspring their demand for insurance of the husband s life is derived from a life cycle model in which income is uncertain the results are intuitively appealing in that they describe the explicit calculation made by purchasers of life insurance empirical estimates based on observed life insurance ownership also are encouraging copyright 1989 by american economic association

the wealth age relation among the aged aged people face the problem of allocating over the rest of their lifetimes the wealth that they have accumulated during their working years this problem is fairly complex because they are uncertain about the dates of their death and because they may wish to use their wealth to finance general consumption or hold it to meet emergencies leave estates or maintain power or status whether skilled at dynamic programming or not aged people effectively do make these decisions what are the results some studies of the entire lifetime pattern of saving and wealth tend to support the simple life cycle model in which the aged use up their wealth to help finance consumption harold lydall for example found saving rates to increase and then decrease with age in the whole population and to be negative for the group aged 65 and over guarded support for the theory was found by franco modigliani and albert ando in britain and by dorothy projector in the united states more recently a f shorrocks examined the lifetime pattern of wealth holding in estate tax data for a single cohort and found the hump pattern that is characteristic of life cycle saving other evidence on wealth holding runs contrary to this however in a study of estate tax returns in washington d c james d smith found that wealth increased with age among the aged after controlling for other demographic variables examining national estate tax data john brittain found wealth to increase with age in the united states and a b atkinson and a j harrison reported the same pattern in england and wales in a sample of tiaa annuity recipients analyzed by james mulanaphy over half reported that their total savings had increased during retirement and another quarter reported that their savings had remained about the same in this paper i examine wealth holding patterns among aged married couples using survey data representing the entire aged population of the united states in 1968 the statistical analysis serves as a test of the hypothesis that emerges from life cycle theory and provides some further exploration into the economic behavior of the aged i find that the aged tend to increase their wealth over time

is it really good to annuitize although rational consumers without bequest motives are better off investing exclusively with annuitized instruments in partial equilibrium we demonstrate the welfare effect of annuitization is ambiguous in general equilibrium on account of pecuniary externalities absent institutional constraints like prices and budgets the optimal consumption rule would have marginal utility increase at the preferential discount rate in a rational competitive equilibrium where households fully annuitize the growth rate of marginal utility will be the discount rate minus the interest rate resulting in a consumption profile that is too flat accidental bequests transfer wealth from the old to the young steepening the consumption profile and yielding a better equilibrium if households are restricted to keynesian consumption functions the optimal irrational equilibrium with standard preferences can replicate observed consumption and macroeconomic behavior and the equilibrium without annuities delivers higher utility than the equilibrium with annuities whereas preceding papers have merely hypothesized that households might engage in socially optimal yet irrational behavior the failure of households to annuitize is a real world example of this policymakers should not take steps to encourage more annuitization by the public

how inheriting affects bequest plans we present and test the idea that bequest planning is linked with the experience of inheriting we consider a family tradition of bequeathing as a channel through which the intention to bequeath is moulded by and is positively correlated with the experience of inheriting using data from the survey on health ageing and retirement in europe share we find that the experience of inheriting enhances the intention to bequeath independently of the positive impact of wealth we also find that the expectation of inheriting has a positive impact on the intention to bequeath controlling for the expected increase in wealth on account of future inheritances

dynamic aspects of family transfers parents transfer a great deal to their adult children and we have rich theoretical models providing a framework for these transfers however both the models and existing empirical work typically examine behavior in the cross section to date we know little about the dynamic aspects of family transfers here i examine transfers over a span of 17 years and find substantial changes in recipiency over time and a strong negative correlation between transfers and transitory income i also find that events such as job loss and divorce are strong predictors of parental transfers and although rare are typically associated with larger transfers than income alone might predict finally transfers are distributed unequally across siblings and perhaps surprisingly the distribution of transfers becomes even more unequal when examined over an extended period of time than in any single year the evidence presented here thus suggests that dynamic analyses can provide insights into behavior that are impossible to obtain in a static context

why nations become wealthy the effects of adult longevity on saving we analyze steady state and out of steady state effects of the transition in adult longevity on the national saving rate using historical data and international panel data the rise in adult life expectancy has a large and statistically significant effect on aggregate saving the effects have been especially pronounced in east asia because its mortality transition was very rapid gains in life expectancy are much more important than declines in child dependency population aging may not lead to lower saving rates in the future if life expectancy and the duration of retirement continue to increase

on the contribution of economics to the evaluation and formation of social insurance policy if one had to choose a single policy that best characterizes the postwar behavior of governments it might well be their expansion of social insurance today s citizen of a typical developed country is insured through government programs against unemployment disability medical expenses impoverishment in youth and middle age through welfare systems impoverishment in old age through old age pensions loss of spousal support due to divorce through social security dependent benefits fluctuating earnings through progressive tax systems early death of a spouse via survivor s insurance and late death via annuity insurance the remarkable growth of social insurance has occurred against a backdrop of increased geographic mobility dramatic changes in demographics and at least in the united states a dissolution of the family the extent to which social insurance has been the cause of family decline and demographic change or its result is one of many complex questions that economics or any other social science is unlikely to ever fully answer economic analysis while not being able to discover the precise recipe leading to our social insurance institutions has at least been able to taste many of the key ingredients economics has and can provide real insight into a the need for social insurance programs b the appropriate size of such programs and c how social insurance programs affect the economy this paper seeks to illustrate each of these three kinds of economic contributions to the evaluation and formation of social insurance policy section i drawing on my 1987 article presents an efficiency argument for compulsory saving through a progressive social security system section ii drawing on my paper with avia spivak and laurence summers 1982 and on alan auerbach s and my 1987b paper illustrates an analysis of the appropriate size of social insurance programs examining in turn the questions of whether households save enough and buy enough life insurance or whether more government intervention in these matters is appropriate section iii drawing on my 1989 book illustrates how social insurance programs can affect the economy by discussing potential savings effects of health insurance particularly an asset tested medicaid scheme section iv concludes the paper with suggestions for future research and policy options as indicated the paper draws on my own and coauthored research and it provides only limited references for no better reason than easing my task and saving space in so doing i do not pretend to suggest that this is more than a very small subset of a huge volume of research sparked in the 1970s in large part by martin feldstein

retirement spending and biological age abstract we solve a lifecycle model in which the consumer s chronological age does not move in lockstep with calendar time instead biological age increases at a stochastic non linear rate in time like a broken clock that might occasionally move backwards in other words biological age could actually decline our paper is inspired by the growing body of medical literature that has identified biomarkers which indicate how people age at different rates this offers better estimates of expected remaining lifetime and future mortality rates it isn t farfetched to argue that in the not too distant future personal age will be more closely associated with biological vs calendar age thus after introducing our stochastic mortality model we derive optimal consumption rates in a classic yaari 1965 framework adjusted to our proper clock time in addition to the normative implications of having access to biological age our positive objective is to partially explain the cross sectional heterogeneity in retirement spending rates at any given chronological age in sum we argue that neither biological nor chronological age alone is a sufficient statistic for making economic decisions rather both ages are required to behave rationally

differential mortality and wealth accumulation the issue of asset accumulation and decumulation is central to the life cycle theory of consumer behavior and to many policy questions one of the main implications of the life cycle model is that assets are decumulated in the last part of life most empirical studies in this area use cross sectional data of estimate mean or median wealth age profiles the use of cross sections to estimate the age profile of assets is full of pitfalls for example if wealth and mortality are related in that poorer individuals die younger one overestimates the last part of the wealth age profile when using cross sectional data because means or other measures of location are taken over a population which becomes richer as it ages this paper examines the effect of differential mortality on cross sectional estimates of wealth age profiles our approach is to quantify the dependence of mortality rates on wealth and use these estimates to correct wealth age profiles for sample selection due to differential mortality we estimate mortality rates as a function of wealth and age for a sample of married couples drawn from the survey of income and program participation sipp our results show that accounting for differential mortality produces wealth profiles with significantly more dissaving among the elderly

the existence uniqueness and optimality of the terminal wealth depletion time in life cycle models of saving under uncertain lifetime and borrowing constraint abstract in life cycle models of saving under uncertain lifetime and borrowing constraint the consumer s wealth must be depleted before the maximum lifetime this paper investigates the existence uniqueness and optimality of the terminal wealth depletion time it is proved that the optimal terminal wealth depletion time if such exists must be unique if the equation that determines the optimal terminal wealth depletion has multiple solutions then the location of the optimal solution will depend on the configuration of the solutions an optimality test is developed to verify whether a candidate solution for the terminal wealth depletion time is indeed optimal the paper introduces a method new to economics the dubovitskii milyutin adjoint equation to analyze the properties of the optimal control problem

the impact of intergenerational transfers on household wealth inequality in japan and the united states our paper sheds light on the implications of intergenerational transfers for wealth inequality by examining whether or not individuals who receive intergenerational transfers from their parents are more likely to leave bequests to their children than those who do not using microdata for japan and the united states the estimation results show that the receipt of intergenerational transfers from parents and or parents in law increases the likelihood of individuals leaving bequests to their children in both japan and the united states which in turn is likely to contribute to the persistence or widening of wealth disparities however such a tendency is found to be stronger among less better off households in both countries and this may help alleviate the disequalising effect of intergenerational transfers on the distribution of wealth at least to some extent

capital income taxation in a two commodity life cycle model the role of factor intensity and asset capitalization effects this paper discusses the impact of changes in capital income taxation in a two commodity life cycle general equilibrium growth model in contrast to the solow swan one commodity framework which has been used in previous life cycle policy simulation summers 1981 auerbach et al 1983 auerbath and kotlikoff 1983 1987 we use a two commodity uzawa 1961 1963 type model consumption and capital goods are separately identitied with an endogenously determined relative price between them as a result both asset capitalization effects changes in the relative price of capital and consumption goods and factor intensity effects across sectors are captured calculations with the model suggest that both of these effects

the economic effects of social security toward a reconciliation of theory and measurement abstract in this paper we argue that actuarial valuation of social security benefit streams is theoretically inconsistent with the assumption of pure life cycle motives instead we show that the simple discounted value of future benefits ignoring the possibility of death is often a good approximation to the relevant concept of value this observation motivates a re examination of existing empirical evidence concerning the economic effects of social security we focus our attention on studies of distributional equity and personal saving behavior in both cases we argue that the use of simple rather than actuarial discounting of survival contingent income streams produces results that differ dramatically from previous findings specifically estimates based on actuarial valuation may overstate the importance of redistribution between and within generations and may understate the depressive effect of social security on personal wealth accumulation by a factor of three or more

intergenerational transfers and savings in recent years the role of intergenerational transfers in the process of wealth accumulation has been the subject of substantial empirical and theoretical analysis the key question stimulating this research is what is the main explanation for savings is it primarily accumulation for retirement as claimed by albert ando richard brumberg and franco modigliani in their celebrated life cycle model of savings is it primarily intentional accumulation for intergenerational transfers or is it primarily precautionary savings much of which may be bequeathed because of imperfections in annuity markets this paper examines a range of findings on the importance of intergenerational transfers the strong conclusion that emerges from this evidence is that intergenerational transfers play a very important if not a key role in aggregate wealth accumulation while intergenerational transfers figure very large in savings the precise motivation for such transfers is unclear intergenerational altruism might appear the most likely candidate but at least sane stylized facts such as the equal allocation of bequests among children are strongly at adds with the altruism model other explanations involving imperfect insurance arrangements or payments for child services do not appear capable of explaining the substantial amounts of transfers actually observed sorting cut the relative contributions of different models to intergenerational transfers and the precise role of intergenerational transfers in the process of wealth accumulation remains an intriguing and exciting enterprise this abstract was borrowed from another version of this item

the effect of social security on lifetime wealth accumulation and bequests this paper is an empirical study of the effects of social security on lifetime wealth accumulation and bequests using a sample of wisconsin males we have matched lifetime earnings records from income tax returns with their social security account records and their bequests obtained from probate court records since the cohort of males was born between 1890 and 1899 they represent a cohort that saw a great change in the size and coverage by occupation of the system hence there is substantial within cohort variation in social security wealth from which effects can be estimated for nearly 30 years the life cycle theory of savings has enjoyed an enormous amount of academic support in the no bequest variant individuals save with the sole intention of consuming their savings in later years the economy wide stock of capital can therefore be generated by this pattern without any reliance on bequests modigliani 1966 such a model will lead to rather strong predictions about the effect of a pay as you go public pension hereafter social security on private savings as feldstein 1974 points out social security should displace private savings as well as reduce macro saving since the programme is unfunded this result follows from the assumption that each household will consume all of its assets during its own lifetime some recent research however has been at odds with the no bequest variant of the life cycle model see kurz 1984 and included references darby 1979 claims that life cycle assets savings consumed later in the life cycle constitute only 13 29 per cent of total assets kotlikoff and summers 1981 report that the major share nearly 80 per cent of capital stock in the united states is due to intergenerational transfers 2 indeed these authors write life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers p 706 in addition recent empirical work suggests that people tend to accumulate or fail to significantly decumulate wealth wealth in old age a finding at odds with the strict life cycle model 3 given the potentially large role of bequests in the process of capital accumulation it is important to know how bequests are affected by the large public programme that social security has become even if social security depresses private savings among those near or at retirement if people bequeath it is conceivable that saving during retirement is augmented by the programme 4 aside from the issue of savings effects the response of people s bequests to their old age benefits might allow one to assess the target efficiency of the social security system since the original objective of the system was to ensure adequate levels of consumption among the elderly a finding that benefits

the effects of ageing and an environmental trust fund in an overlapping generations model on carbon emission reductions most currently employed integrated assessment models for climate change are of a dynastic nature they employ the ramsey rule linking the interest rate economic growth and the rate of pure time preference this paper argues that although a dynastic framework might be convenient for economic analysis it is restrictive and can be misleading overlapping generations models which do not employ the ramsey rule are more flexible and may give results different from those derived from dynastic models with the integrated assessment model alice 2 0 it is shown how various assumptions on demographic change and public institutions can affect the interest rate thereby influencing the efficient greenhouse gas emission reductions it is concluded that dynastic integrated assessment models are in many respects inappropriate for providing policy makers with quantitative figures about the costs of carbon dioxide emissions and their desirable reduction levels 2001 elsevier science b v all rights reserved

stock market wealth and consumer spending martha starr mccluer this article investigates the effects of stock market wealth on consumer spending traditional macroeconometric models estimate that a dollar s increase in stock wealth boosts consumption by three to seven cents with the substantial 1990s rise in stock prices the nature and magnitude of this wealth effect have been much debated after describing the issues and previous research i present new evidence from a well known consumer survey the results are broadly consistent with life cycle saving and a modest wealth effect most stockholders reported no appreciable effect of stock prices on their saving or spending but many mentioned retirement saving in explaining their behavior jel e21 e30 d12 i introduction the relationship between stock market wealth and consumer spending has been a subject of long standing interest traditional macroeconometric models estimate that a dollar s increase in household wealth boosts consumer spending by three to seven cents per year such an effect is consistent with predictions from a simple life cycle model in which consumers spend more over their lifetimes in response to higher wealth however the stock market is known to play a role as a passive predictor of information thus it is also possible that stock prices simply lead aggregate economic activity without any short run change in spending induced by changes in wealth understanding the response of spending to changes in wealth is important for determining how stock market fluctuations affect the macroeconomy the question also bears directly on theories of saving behavior and on the issue of retirement preparedness by today s workers the experience of the past few years provides an interesting opportunity to revisit this issue stock prices increased substantially in the 1990s with the standard poor s 500 more than doubling from 1994 to 1997 and rising another 44 through 1999 at the same time stock ownership broadened considerably mostly through mutual funds and retirement accounts so that a large number of households likely experienced wealth gains the increase in wealth might be expected to boost consumer spending and lower the saving rate and indeed these trends occurred however it is hard to separate the influence of the wealth effect from other factors that also would have promoted spending such as strong income growth and favorable labor market conditions this article presents some new evidence on the response of spending to changes in wealth the data come from the michigan survey research center src survey of consumers an ongoing nationally representative survey of u s households in interviews conducted between july and september 1997 households owning stock were asked special questions about their spending and saving the questions covered a number of factors that may influence the effect of wealth on spending including the value and form of stockholdings stock price expectations concerns about retirement and perceptions of income uncertainty in brief the results are broadly consistent with life cycle saving and a modest wealth effect the vast majority of stockholders reported no appreciable effect of stock prices on their spending or saving but many mentioned retirement saving in explaining their behavior the next section reviews previous research on the relationship between stock market wealth and consumer spending the third section describes the data from the michigan survey and the fourth presents the results a final section summarizes and concludes ii background and previous research to frame the discussion it is useful to review how an unexpected increase in wealth would affect consumption in a simple lifecycle model this model though restrictive in its assumptions provides valuable intuition about the propensity to consume unexpected stock gains consequences of refinements to the model are discussed below

a theory of time preference grant a taylor this article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption eventually falls as their mental and physical abilities eventually decline with age moreover contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age this article asserts that discounting increases over the life cycle this hypothesis is supported by data from the panel study of income dynamics as well as evidence from numerous previous studies jel d91 1 introduction despite the almost universal assumption of time preference in models of intertemporal choice an adequate explanation of why people discount the future has not been provided 1 olsen and bailey 1981 make a convincing case for positive time preference by contradiction i e without time preference models of intertemporal choice do not yield predictions consistent with observed behavior but they do not explain why individuals would rationally discount the future 2 three recent studies have attempted to provide the explanation rogers 1994 argues that societies that discount the future at a rate of about 2 will be the long run survivors in an evolutionary fitness situation 3 posner 1995 argues that discounting occurs because individuals have multiple selves that is people are weighting their present consumption far more heavily than their future consumption because the present self and the future self are in some meaningful sense separate persons 92 becker and mulligan 1997 argue that discounting occurs because of a rational defective recognition of future utilities 730 but as will be shown these three theories are inconsistent with empirical evidence on consumption over the life cycle in at least one important aspect this article constructs and empirically supports a new theory of time preference the hypothesis is that people do not have an intrinsic preference for present consumption relative to future consumption instead the instantaneous utility function also known as the felicity function is expected to vary with age just as people s physical and mental abilities vary with age in other words the ability to enjoy consumption eventually deteriorates over the life cycle along with other abilities this life cycle view of the expected utility function causes people to rationally devalue consumption in periods of low expected felicity that is discount future consumption perhaps this is what is meant by the cliche don t wait until you are too old to enjoy it moreover this causes individuals implicit discount rates to vary systematically with age 4 in fact this provides the testable implication of the theory the standard specification of intertemporal preferences holds the discount rate constant over th e life cycle 5 to be more precise in the early stage of the life cycle the capacity to enjoy consumption may be expected to rise hence a young individual s discount rate may be negative figure 1 illustrates this possibility with a hypothetical adult life cycle marginal felicity function for a given level of consumption u sub c c a c denotes consumption and a denotes age and its corresponding discount rate function rho a the vast majority of wealth is held by older people that is those in the declining stage of their abilities thus the preference for present consumption over future consumption appears to hold in the aggregate this view of intertemporal preferences may at first seem inconsistent with practically all dynamic analyses which are based on the notion of stationary utility on further consideration however the hypothesis is quite consistent with modern consumer theory since becker 1965 it has been widely accepted that households derive utility from commodities that are produced with market goods combined with household time and skills i

a dynamic analysis of investment in process and product innovation with learning by doing this paper investigates the optimal control problem of a monopolist s investments in process and product innovation under learning by doing in a dynamic setting we show that i there exists the saddle stable steady state under monopolist optimum and social optimum ii the learning rates of product and process innovation affect not only the monopolist s process or product innovation investments but also the complementarity substitutability relationship between product and process innovation iii the social incentive towards both product and process innovation is always larger than the private incentive characterizing the profit seeking monopolist these results are valuable complement and development to the results drawn from the standard product and process innovation model

capital accumulation and longevity abstract increased survival probability and expected lifespan is shown to increase capital intensity and welfare in an overlapping generations model with uncertain lifetimes in the presence of annuities market and production

policy watch death watch for the estate tax the idea of making death a taxable event infuriates some people winston churchill called estate taxes an attempt to tax dead people rather than the living steve forbes campaigned in favor of no taxation without respiration bruce bartlett 1997 points out that a key plank in the communist manifesto was the abolition of inheritance rights opponents deride the death tax as inefficient inequitable and complex violating every norm of good tax policy supporters counter that the criticisms are overstated or wrong and argue that a highly progressive tax that patches loopholes helps provide equality of opportunity breaks up concentrations of wealth and encourages charitable giving can t be all bad these debates raise a number of research questions for economists in policy circles the death watch for the u s estate and gift tax is on in 1999 in a vote split almost completely along partisan lines the republican majority in

product and process innovation with knowledge accumulation in monopoly a dynamic analysis abstract in this paper we investigate monopolist optimal investment levels using a dynamic model under knowledge accumulation we show that i investment decisions in product and process innovation are independent of each other ii under both the monopolist and the social optimum there exist the saddle stable steady state equilibria iii optimal investment levels in product and process innovation positive response to learning rate and knowledge accumulation rate inversely response to knowledge depreciation rate

the influence of ownership on the cost of bus service provision in switzerland an empirical illustration in deregulated transport markets a firm s ownership status and management system represent an important issue property right theory suggests that productivity and performance are higher in the private than in the public sector in switzerland providers of bus transportation are traditionally corporations though a large part of their equity shares are still held by the public sector federal government cantons municipalities this paper examines the potential impact of ownership on the cost of bus service provision for a sample of private public and mixed bus companies in switzerland the estimation of a translog cost model has been considered for 34 bus transit companies observed over 5 years 1991 1995 the results only partially confirm that if the private sector holds shares in the company s capital efficiency is enhanced in addition measures of economies of scale and density are derived and discussed within the actual public transport policy

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

income uncertainty and optimal redistribution 1 introduction redistribution policy under a utilitarian criterion aims to transfer dollars from one group in the population to another if the weighted utility gain to the recipients exceeds the utility cost to the donors under diminishing marginal utility of income part of any exogenous change in one group s income should be shared with the other group for example if taxpaying workers suffer a negative shock to their mean earnings then part of this utility shock should be spread to nonworkers in the form of lower transfer payments and vice versa for the case of a positive shock this article demonstrates the counterintuitive result that under reasonable preference representations a policymaker may respond optimally to a negative utility shock by redistributing income away from the harmed group thus exacerbating the group s utility loss in particular under risk aversion a mean preserving increase in the variance of income typically has an effect on well being analogous to a decrease in mean income 1 it may nevertheless be welfare enhancing to transfer income away from those suffering an increase in income uncertainty even though this policy compounds their welfare loss the main ideas can be demonstrated in a simple framework for illustration the analysis will focus on redistribution from taxpaying workers to nonworkers the central result is that a meanpreserving increase in earnings uncertainty among taxpayers can increase optimal transfer amounts to nonworkers increasing optimal income replacement rates even though the redistribution exacerbates the taxpayers utility loss from the increase in uncertainty 2 model footnote 1 many factors in the economy affect earnings uncertainty even conditional on being employed such as the form of compensation e

product differentiation process r d and the nature of market competition abstract we investigate the relationship between process and product rd ii bertrand firms have a stronger incentive for product rd and iii cooperation in product r d promotes both types of r d relative to competition whereas cooperation in both types of r d discourages r d relative to cooperation in just product r d

planned and unplanned bequests we distinguish between bequests that are planned as part of a lifetime optimization process and those that are the unplanned result of errors in forecasting the date of death given the initial endowment we expect a positive relation between the bequest and the planning horizon and a negative relation between unexpectedly long life and the bequest a unique data set on wealthy decedents and their parents provides measures of expected horizons based on parents longevity both predictions are confirmed and there is an especially large and significant positive relation between the bequest and the length of the planning horizon

determinants of out of pocket pharmaceutical expenditure and access to drugs in catalonia this article examines the determinants of the demand for pharmaceuticals in catalonia using the latest available official survey data having accounted for the individual differences in cost sharing among consumers as well as the influence of self medication the article builds a model of the household determinants of pharmaceutical expenditure and consumption the econometric application deals with the infrequency of purchases and the nondistinction between out of pocket spending and drug cost sharing our results suggest that income and the variables accounting for the effect of cost sharing were significantly associated with drug use but not drug expenditure furthermore gender health status and having health insurance appear to be significant predictors access to pharmacies increases both drug use and expenditure self medication also increases drug expenditure out of pocket these results are relevant for the entire spanish case where current reform proposals have recommended the introduction o

market power and second degree price discrimination in retail gasoline markets abstract empirical evidence of quality based second degree price discrimination is scarce the co existence of regular grade 10 ethanol blended gasoline e10 and regular grade non blended gasoline e0 in a major metropolitan city allows for second degree price discrimination to be examined while eliminating the issue of endogenous product differentiation because the two blends of gasoline are near perfect substitutes using a unique data set including daily price information for 402 retailers that sell only e0 gasoline only ethanol blended e10 gasoline or both blends simultaneously i find evidence that retailers use second degree price discrimination to segment the population between perceived lower and higher quality gasoline despite the fact that both blends can safely be used in nearly all vehicles additionally i uncover two elasticities of demand for gasoline and discuss the welfare effects of price changes and market segmentation

workers applications to social insurance programs when earnings and eligibility are uncertain a worker s decision whether to apply for public transfers may depend not only on his expected level of forgone labor earnings but also on his degree of uncertainty about such earnings this article provides theory and evidence about the effects of earnings and eligibility uncertainty on participation decisions the application rate to the social security disability insurance program is estimated to be about 15 higher than it would be in the absence of earnings risk as an application to tax policy optimal marginal wage tax rates may be higher than indicated in previous analyses involving wage uncertainty

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

the distribution of wealth with uncertain income it is well known that an uncertain income stream will induce individuals to save if they are forward looking in this paper we investigate the consequences of such saving on the distribution of wealth among households the inquiry is motivated by the fact that both the dispersion of the us wealth distribution and the variance of transitory income have increased in the recent past surprisingly we find that an increase in earnings uncertainty is more likely to decrease than increase the inequality in wealth holdings

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

a model of family fairness and its implications for debt neutrality a common finding in empirical analyses of bequests is that in most cases parents give equal amounts to each of their offspring this observation establishes that for reasons not captured in our model parents do not manipulate their children optimally equal bequests pose an equal or greater problem for the altruistic model which issues the clear prediction that bequests should be used to equate as closely as possible the utilities of various offspring bernheim shleifer and summers 1985 1071 72 the above quotation summarizes the problem this paper addresses available evidence suggests that a significant portion though by no means all of bequests is divided equally among the recipients this is inconsistent with existing economic models of bequests which predict that equal division should occur only by chance section i below summarizes the available evidence and contrasts it with the predictions of existing models section ii develops an alternative model section iii analyses its implications for debt neutrality and section iv concludes i patterns of bequests and inter vivos gifts transfers of resources to adult children can take the form of inter vivos gifts and or of bequests at death the literature suggests three main explanations for transfers altruism as in barro 1974 exchange as in bernheim shleifer and summers 1985 in which the parent buys services and uncertainty about the date of death which induces accidental bequests as in davies 1981 standard models of parent child interaction analyzed by cox 1987 yield the following predictions i the probability of a positive planned transfer as opposed to an accidental bequest is positively negatively related to the parent s child s income ii conditional on a positive transfer the latter s size is positively negatively related to the child s income in the exchange altruism model for parents with two or more children planned total transfers gifts plus bequests are therefore predicted to be unequally distributed among their children unless the latter have equal incomes the substantial amount of data in jencks 1972 indicate that the earning capacity of siblings is typically very far from equal the mean difference in earnings between brothers is around 90 percent of that for the population at large subsequent work by olneck 1977 produced an almost identical estimate 87 percent 1 to put this in context in jencks s data for 1968 the standard deviation of earnings is 5508 and the mean is 8440 noting that the mean difference is approximately 1 15 times the standard deviation see kendall stuart and ord 1987 67 68 the population mean difference was 6334 and that for brothers was 90 percent of this i e 5701 equal to 68 percent of the mean earnings level hence for pairs of brothers distributed uniformly around mean earnings the higher earner would on average have just over twice the earning capacity of the lower earner these data suggest that transfers should typically be unequally divided among siblings in the case of accidental bequests the parent can plan their distribution though not the absolute amount unfortunately representative data on total transfers bequests plus total accumulated gifts from the time the child reaches adulthood to the time the parent dies do not exist available data are limited to several samples of bequest patterns and to some separate samples of snapshots of inter vivos gifts over short periods of time the bequest data suggest that equal division among siblings is the modal but not universal pattern data in menchik 1980 for the united states and in royal commission 1977 chapter 8 for the u k indicate equal division in 50 percent or more of cases tomes s 1981 u s data suggest a smaller though still clearly more than random proportion but cox and rank 1992 306 note that tomes s data relied on self reporting of bequests by recipients

dynamic pricing product and process innovation abstract the question of simultaneous dynamic pricing product and process investment policies is crucial for manufacturing and high tech industries this paper models these policies in an optimal control setting on the supply side the firm sets prices product and process investment levels over time on the demand side current demand depends on price and quality under an additive separable demand function dynamic pricing increases with quality and cost therefore both product innovation and process innovation impact the pricing policy under a multiplicative separable demand function dynamic pricing policy follows the dynamic of production cost and is independent of the evolution of product quality thus process innovation is the main determinant of a firm s pricing policy over time and product innovation has no impact

efficiency equity and regulation an optimal pricing model of bell canada this paper examines the optimality of telecommunications prices charged to residential users within quebec and ontatio optimality is evaluated from the standpoint of both efficiency and equity the underlying optimization model incorporates equity considerations through the distribution of welfare across individuals the model is simulated using structural information obtained from a multi input multi output cost and demand model of bell canada the results suggest that historic telecommunications prices are consistent with socially optimal prices when equity considerations are heavily weighted they are not consistent with pure efficiency ramsey prices efficacite equite et reglementation un modele de tarification optimale pour bell canada ce memoire examine l optimalite des tarifs imposes aux consommateurs usagers des services de telecommunication en ontario et au quebec l optimalite est evaluee en tenant compte a la fois de l efficacite et de l equite le modele d optimisation sous jacent tient compte de l equite en examinant la distribution de bien etre entre individus les exercises de simulation utilisent des renseignements de nature structurelle obtenus du modele de demande et de couts de bell canada developpe pour plusieurs intrants et plusieurs extrants les resultats obtenus suggerent que les tarifs imposes pour les services de telecommunication sont conformes historiquement avec les niveaux qu on peut considerer comme socialement optimaux quand les considerations d equite recoivent un poids considerable ils ne sont pas conformes cependant avec ce que dicterait une tarification d efficacite pure a la ramsey

intergenerational transfers and the accumulation of wealth h t ouseholds acquire wealth from two sources they save out of income they have earned and they receive transfers from other people the first method of wealth accumulation goes under the name of life cycle saving in which people save during their working lives and dissave after retirement the second involves either an inter vivos transfer that is a transfer between living people or a bequest a transfer that occurs at the death of the donor while inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well being of one s descendents few empirical life cycle models reflect these concerns indeed a sharp debate has arisen over the ability of the simple life cycle model to explain observed wealth accumulation understanding the relative sizes of these sources of wealth accumulation affects a variety of issues for example the effects of government debt social insurance public transfer programs estate taxes and incentives for charitable giving depend to some extent on the magnitude and nature of private saving and transfers of wealth analyses of the inequality of wealth may depend on whether most of wealth is earned or received as transfers appropriate policies for encouraging private saving may look rather different depending on whether most saving is to be consumed later in life or passed along to the next generation finally evidence on transfer patterns relates to more fundamental

bequest motives a comparison of sweden and the united states this paper reviews four well known theoretical models of private bequest behavior notes their differing implications for public policy and discusses a way of empirically dis criminating among them then it implements the test with micro data from sweden lls and the u s psid the so called altruistic or dynastic model which among the four models has perhaps the most wide ranging implications for policy receives some support the sign pattern is as the model predicts while the magnitude is much smaller than the altruistic theory implies there is evidence of a potential complication due to a dependence of children s education on parents financial status in the case of the u s 2001 elsevier science b v all rights reserved

the effect of death tax on the labour supply of donors evidence from tra97 exploiting estate tax cuts from the taxpayer relief act of 1997 tra97 this paper estimates the effect of death tax on the labour supply of living potential donors to this end difference in dif