consumption and children abstract consumption by couples rises sharply in the beginning and falls later in life the causes of the early rise are hotly contested among the suggestions are rule of thumb behavior demographics liquidity constraints the precautionary motive and nonseparabilities between consumption and labor supply we develop two tests of the extreme hypothesis that only changes in family structure matter we estimate effects of the numbers and ages of children on consumption these estimates allow us to rationalize all of the increase in consumption without recourse to any of the causal mechanisms our estimates can be interpreted either as giving upper bounds on the effects of children or as evidence that the other causes are not important

fiddling with value violins as an investment i introduction in this article we analyze the prices of violins using two different datasets one dataset includes 337 observations on repeat sales of the same violins at auction and at dealer sales starting in the mid nineteenth century and the other dataset includes over 2 500 observations on sales of individual violins at auction since 1980 the purpose of this article is to give some indication as to whether violins are a viable alternative investment that might be part of a diversified portfolio and to determine if some types of violins have had higher returns than other types of violins despite the growing discussion of alternative investments in the economics and finance literature the growing number of wealthy individuals funds and syndicates that invest in violins and the interest in violins as a collateralizable asset the only previous study of violin prices published in an academic journal was a study by ross and zondervan 1989 of repeat sales of 17 stradivaris this dearth of academic analysis is most likely due to the difficulty in gathering information on the sale prices of violins compared to real estate and even art the market for high end violins is thin and many violins are sold through dealers rather than auctions resulting in difficulty gathering the data to preview our results overall real returns for the dataset on repeat sales for the period 1850 2009 have been approximately 3 5 real returns to the overall portfolio of individual sales at auction since 1980 have also been about 3 3 not including transaction commissions the price path has been stable with a slightly negative correlation to stocks and bonds the overall returns mask differences in returns between different types of violins it is believed that better violins are sold through dealers rather than through auction houses indeed the real return on dealer sales for 1850 2008 was 4 32 and the real return to violins sold at auction for the same period was 2 86 since 1980 modern italian instruments sold at auction have increased steadily in price relative to old italian instruments sold at auction this article proceeds as follows the violin market is discussed in section ii and in section iii we discuss the data and our estimation methodology in section iv we present our regression results and in section v we interpret our regressions we conclude in section vi ii the market for violins a how the market works fiddles the term used by dealers and collectors to refer to even the finest violins are sold through both auction houses and dealers and also directly from one musician or collector to another the main sellers and buyers of these instruments other than dealers are musicians collectors often foundations and investors individual musicians have used various schemes to purchase a good instrument including borrowing from banks that specialize in loaning funds against musical instruments and assembling syndicates to raise money most collectors both private and institutional loan out their instruments to talented musicians the musician typically pays all insurance and maintenance costs but not a rental fee insurance costs range from about 0 5 to about 2 of the value of an instrument there are also buyers who are interested in purchasing violins primarily as an investment as part of a diversified portfolio these instruments are then also loaned out to musicians who pay insurance and maintenance violins are sold through both auction houses and dealers the relative size of the various markets is very difficult to gauge through conversations with dealers and analyzing our auction data we speculate that auction sales make up between 10 and 20 of the market one advantage of transacting through a dealer is that it is easier to borrow and try out the instrument though auction houses also accommodate a small number of potential buyers in this manner

commodity price shocks and civil conflict evidence from colombia how do income shocks aect armed con ict theory suggests two op posite eects if labor is used to appropriate resources violently higher wages may lower con ict by reducing labor supplied to appropriation this is the opportunity cost eect alternatively a rise in contestable income may increase violence by raising gains from appropriation this is the rapacity eect our paper exploits exogenous price shocks in inter national commodity markets and a rich dataset on civil war in colombia to assess how dierent income shocks aect con ict we examine changes in the price of agricultural goods which are labor intensive and natural resources which are capital intensive we focus on coee and oil the two largest exports we nd that a sharp fall in coee prices in the 1990s increased violence dierentially in regions growing more coee by lower ing wages and the opportunity cost of joining armed groups in contrast a rise in oil prices increased violence dierentially in the oil region by in creasing municipal revenue siphoned through rapacity this pattern holds in several other agricultural and natural resource sectors providing robust evidence that price shocks aect con ict in opposite directions depending on the factor intensity of the commodity

sps and tbt agreements and international agricultural trade retaliation or cooperation in this article we investigate whether the brazilian notifications to the tbt and sps agreements are characterized as retaliation or as cooperation in international agricultural trade in the period 1996 2008 a generalized method of moments gmm model is used to estimate game models of bilateral trade between brazil and its major partners united states european union and japan from the viewpoint of strategic games the results suggest that the brazilian notifications are forms of retaliation against the united states and regarding the european union the best result for brazil was conciliation on the other hand if the results are interpreted as equilibria of bargaining games they suggest that brazil has great bargaining power in trade with the united states and that cooperation characterized agricultural trade between brazil and the european union in the period analyzed in the case of agricultural trade between brazil and japan only japan has characteristics of a country with significant bargaining power

a random walk through mayfair art as a luxury good and evidence from dynamic models abstract the movement of international art prices in conjunction with other asset prices is preliminary to our understanding whether art is a luxury good it is well known that there are linkages between art market prices and equity prices however less is known about the structure of dependence between these variables and the influence of gold prices and sentiment we analyse art prices at the outset using granger causality and error correction models ecm to capture the long term dynamics between art prices equity markets gold prices and investor sentiment the dataset we use is unique and covers british art prices from 1895 to the present initial results do not give a complete picture of price movements or a fitting description of wealth effects to rectify this we look at short term dynamics in the art market we assume a regime switching model to describe the movement of prices using a threshold variable that drives prices into possibly locally explosive regimes these results indicate a dynamic wealth effect in that high low stock prices lead to subsequent increases decreases in art prices however this approach means that elasticities are now stochastic and we redefine what a luxury good is this is further explored by directly calculating elasticities from our model and its variants to analyse properties of art as a luxury good our threshold approach gives deeper insight into the impact of different market conditions than conventional ecm and cointegration modelling

risk sharing by households within and across regions and industries abstract cochrane 1991 journal of political economy 99 957 976 and mace 1991 journal of political economy 99 928 956 test if risk sharing across households is complete in the sense that household consumption moves one for one with aggregate consumption in their studies the source of income risk is idiosyncratic and agents can share risk across the entire economy using a sample of households from the panel study on income dynamics psid we explore whether households share the risk associated with their industries and regions across households in other regions and industries we find that a large fraction of risk faced by households is not shared across regions and industries

unemployment risk and precautionary wealth evidence from households balance sheets this paper examines precautionary behavior by relating job loss risk to household net worth we use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty instrumentation and incorporating theoretical restrictions we do not find precautionary variation in the wealth holdings of households with low permanent income but do find precautionary effects for moderate and higher income households when the dependent variable is total net worth these findings are robust to several alternative specifications but we do not find precautionary responses in subaggregates of wealth that exclude home equity

subjective expectations and income processes in rural india this paper uses unique primary data on directly elicited individual subjective expectations to analyse and characterize the process that generates the income of poor rural indian households we validate and use responses to subjective expectations questions and a parametric assumption to fit a household specific probability distribution for future income combining computed moments from this distribution with data for actual current income we specify and estimate a dynamic model of household income we find that our households face a very persistent income process our paper is one of the first that uses subjective expectations data to model income processes

expected and realized income changes evidence from the dutch socio economic panel abstract income expectations play a central role in household decision making in the life cycle model for example consumption and savings decisions reflect expectations of future income in empirical applications where direct information on expectations is not available it is usually assumed that expectations are rational and reflected by observed future realizations in this paper we analyze direct subjective information on expected changes of household income in one panel wave of dutch families first we describe these data and investigate how the expectations can be explained by among other variables income changes in the past second we combine these data with information on realized income changes in the next panel wave and analyze the differences between expected and realized changes we find that on average households underestimate their future income changes significantly in particular this holds for those families whose income has fallen in the past

networking off madison avenue known for the key role that networking plays in the operation of agencies where interviews suggest that informal networking among close neighbors is critical to many agencies success networking involves the exchange of ideas and while there is no market place for these ideas exchanges may be more deliberate rather than just marshall s 1890 mysteries of the air type of information spillovers this paper examines the effect on productivity of having more near advertising agency neighborhoods and hence better opportunities for meetings and exchange within manhattan we will show that there is extremely rapid spatial decay in the benefits of having more near neighbors even in the close quarters of southern manhattan a finding that is new to the empirical literature and indicates our understanding of scale externalities is still very limited the finding indicates that having a high density of commercial establishments is important in enhancing local productivity an issue in lucas and rossi hansberg 2002 where within business district spatial decay of spillovers plays a key role we will argue also that in manhattan advertising agencies trade off the higher rent costs of being in bigger clusters nearer centers of action against the lower rent costs of operating on the fringes away from high concentrations of other agencies introducing the idea of trade offs immediately suggests heterogeneity is involved we will show that higher quality agencies are the ones willing to pay more rent to locate in greater size clusters specifically because they benefit more from networking while all 1 the research in this paper was conducted while the authors were census bureau research associates at the boston research data center research results and conclusions expressed are those of the authors and do not necessarily indicate concurrence by the census bureau the paper has been screened to ensure that no confidential data are revealed we acknowledge helpful comments from andrew foster on aspects of the paper and from participants in seminars at brown university lse and the university of toronto

central bank transparency and cross border banking abstract we analyze the effect of central bank transparency on cross border bank activities based on a panel gravity model for cross border bank claims for 21 home and 47 destination countries from 1998 to 2010 we find strong empirical evidence that a rise in central bank transparency in the destination country on average increases cross border claims using interaction models we find that the positive effect of central bank transparency on cross border claims is only significant if the central bank is politically independent and operates in a stable economic environment central bank transparency and credibility are thus considered complements by banks investing abroad

agrifood supply chain private sector standards and farmers health evidence from kenya this article evaluates the impact of adoption of european union eu private sector standards on farmers health in rural kenya the study utilizes cross sectional farm household level data collected in 2006 from a randomly selected sample of 439 small scale export farmers we estimate the casual impact by utilizing a two stage poisson regression model two stage standard treatment effect model as well as by regression based on propensity score to assess the robustness of the results using these techniques we demonstrate that the pesticide ascribed incidence of acute illness symptoms and the associated cost of illness significantly decrease with the adoption of standards ceteris paribus farmers who adopt standards experience 70 lesser incidence of acute illness and spent about 50 60 less on restoring their health than nonadopters although standards can potentially prevent resource poor smallholders from maintaining their position in lucrative export markets they can also result in positive changes in the health of those farmers who do adopt them as shown by these results this implies that if adopted on a large scale standards may reduce production externalities corroborating the view that they may serve as a catalyst to transform production systems in developing countries

the assessment household saving issues in theory and policy in this assessment we discuss the issues raised by the papers in this issue of the oxford review of economic policy in the context of economic models of household consumption and saving we also provide a discussion of what we consider to be some important areas in the current debate surrounding theories and evidence regarding saving behaviour we highlight the differences that arise from considering partial as opposed to general equilibrium models and in looking at developed as opposed to developing countries we also discuss current policy issues relating both to the adequacy of household saving and to the distribution of saving across households or across asset types as well as the need for more microdata on saving and asset holding

how urban segregation distorts chinese migrants consumption summary this paper provides a new explanation for china s low consumption to gdp ratio by highlighting the constraints of the household registration system hukou on china s household consumption our baseline results show that the consumption of migrants is 16 20 lower than that of local urban residents we further find evidence suggesting that caused by hukou restrictions migrants save more for precautionary purposes have lower expectation of permanent income and consume much less durable goods because of high mobility moreover we have found no evidence that the consumption heterogeneity can be explained by migration effects culture or other forms of household heterogeneity as both the number and income level of migrants are rising quickly the constraining effects of hukou on household consumption is increasing 2014 elsevier ltd all rights reserved

the price elasticity of demand for pharmaceuticals amongst high income older australians a natural experiment most high income older australians became eligible for a pharmaceutical concession through a 1999 policy change i exploit this natural experiment to estimate their price elasticity of demand for pharmaceuticals the preferred model is a nonlinear instrumental variable iv regression estimated on nationally representative repeated cross sectional survey data using the generalized method of moments gmm no significant evidence is found for endogenous take up and so cross sectional estimates are also considered taking all of the results into account the headline estimate is 0 1 implying that quantity demanded is not highly responsive to price

precautionary saving over the business cycle we study the macroeconomic implications of time varying precautionary savings within a general equilibrium model with borrowing constraints aggregate shocks and uninsurable idiosyncratic unemployment risk our framework generates limited cross sectional household heterogeneity as an equilibrium outcome thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way the time series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand to mouth and representative agent models and it is comparable to that produced by the krusell and smith 1998 model

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

an analytical approximate solution to the problem of precautionary savings abstract this paper considers the problem of precautionary savings for an expected utility specification with finite horizon the exact solution is known for only a few cases numerical methods have limited applications because of bellman s curse of dimensionality this paper derives a simple analytical approximate solution for a general specification of the felicity function which is linear in the variance of the innovations on human wealth numerically the approximation is very accurate for realistic values of the parameters of the problem

unemployment insurance and precautionary saving abstract models of precautionary saving imply that households will hold more assets when faced with greater income uncertainty however previous empirical studies of income uncertainty have produced somewhat mixed support for the precautionary saving hypothesis in this paper we note that differences in the state contingent income stream available to workers through the unemployment insurance ui program provides an excellent source of variation for testing the presence of a precautionary savings motive simulations of a stochastic life cycle model suggest that a ui system similar to the type currently in place in the u s can lead to a significant reduction in the assets accumulated by a median worker moreover there is considerable variation in the ui benefit schedules for workers living in different states in the u s which provides an exogenous source of variation for empirically testing the precautionary saving hypothesis we carry out this test using data on expected ui benefit replacement rates and financial assets held by households in the survey of income and program participation our empirical results are consistent with the predictions of the model and suggest that reducing the ui benefit replacement rate by 50 percent would increase gross financial asset holdings by 14 percent or 241 for the average worker we also find empirical evidence that this crowd out effect of ui on household saving is stronger for those facing higher unemployment risk and weaker for older workers both of which are implications from our precautionary saving model

real time macroeconomic monitoring real activity inflation and interactions the authors sketch a framework for monitoring macroeconomic activity in real time and push it in new directions in particular they focus not only on real activity which has received most attention to date but also on inflation and its interaction with real activity as for the recent recession the authors find that 1 it likely ended around july 2009 2 its most extreme aspects concern a real activity decline that was unusually long but less unusually deep and an inflation decline that was unusually deep but brief and 3 its real activity and inflation interactions were strongly positive consistent with an adverse demand shock this abstract was borrowed from another version of this item

behavioral responses to risk in rural china does risk perpetuate poverty in a credit constrained economy jalan and ravallion study portfolio and other behavioral responses to measured risk using household panel data for rural china one quarter of wealth is held in unproductive liquid forms but only a small share of this appears to be a precaution against income risk the authors estimate that eliminating income risk would reduce the share of wealth held in liquid form by less than 1 percentage point moreover that effect is confined largely to middle income groups high income households do not it seems need to hold unproductive cautionary wealth and the poor probably cannot afford to do so the authors find no evidence that income risk discourages schooling but risk does inhibit the out migration of labor generally the results provide only limited support for the idea that uninsured risks promote unproductive portfolio behavior in this setting there is such an effect but it is small in magnitude and cannot be deemed an important cause of poverty

households saving in china china in recent years the world s largest and fastest growing economy also has national saving rates that are among the highest in the world this article considers a variety of statistical issues that cloud the measurement of aggregate and household saving in china it also provides new empirical evidence on the importance of intertemporal considerations in explaining the variation in household saving across china s provinces given china s size and its high saving rates it is not surprising that in recent year s considerable theoretical and empirical effort has been devoted to understanding its saving behavior this research can be divided into two broad strands the first emphasizes the relevance for china of traditional equilibrium theories of saving ranging from simple keynesian consumption saving functions to variants of the life cycle and permanent income hypotheses the second argues that equilibrium theories of saving are unlikely to be relevant in an economy in transition from plan to market instead disequilibrium factors especially shortages and rationing in goods and credit markets explain china s saving experience more broadly china s saving rate remains unusually high relative to international experience even after controlling for some of the determinants of saving

art as a wartime investment conspicuous consumption and discretion the financial underperformance of art as an investment is well documented in contrast to studies conducted on peace time periods this paper shows that the art market in occupied france during wwii significantly outperformed all alternative investments bonds equities as well as currencies exchanged on the black market other than gold this suggests that art may be a good hedge against low probability disasters the paper further demonstrates that motives to purchase art consumption and investment vary over time in his theoretical model mandel 2009 attributes art s low return to the utility derived from conspicuous consumption in occupied france during wwii conspicuous consumption was impossible for artworks deemed degenerate by the nazis the price evolution of degenerate versus non degenerate artworks confirms the importance of conspicuous consumption in artworks pricing eventually the paper defines the concept of discretion the ability to store a large amount of value in small and easily transportable goods during wartime illegal activities and the risk of being forced to flee the country increased the interest for discreet assets as shown by the better performance of small and thus discreet artworks in comparison to large ones

precautionary behavior migrant networks and household consumption decisions an empirical analysis using household panel data from rural china abstract we develop a test of precautionary behavior in the consumption decisions of rural agricultural households among surveyed households facing a median level of consumption risk 10 of savings can be attributed to a precautionary motive and this increases to 15 for households with consumption per capita below the poverty line we next use distant lags of local rainfall shocks uncorrelated with current consumption growth to identify the size of migrant networks outside the village and then present evidence that both poor and nonpoor households engage in less precautionary saving as the size of the village migrant network increases

income risk and farm consumption behavior abstract using panel data from illinois grain farmers a direct test of the relationship between income risk and farm consumption behavior is conducted the estimation results indicate that income risk significantly affects farm consumption and the results are robust using alternative risk measures this finding casts doubt on the relevance of the conventional life cycle permanent income hypothesis which implies that risk has no effect on consumption

modeling usage of medical care services the medical expenditure panel survey data 1996 2000 we explore the determinants of usage of six different types of health care services using the medical expenditure panel survey meps data years 1996 2000 we apply a number of models for univariate count data including semiparametric semi nonparametric and finite mixture models we find that the complexity of the model that is required to fit the data well depends upon the way in which the data is pooled across sexes and over time and upon the characteristics of the usage measure pooling across time and sexes is almost always favoured but when more heterogeneous data is pooled it is often the case that a more complex statistical model is required

environmental innovation and environmental performance abstract by estimating a simultaneous panel data model of environmental innovation and toxic air pollution this paper identifies bi directional causal links between the two we study a panel of 127 manufacturing industries over the period 1989 2004 pollutant emissions are an implicit measure of policy stringency and environmental patent counts are used to measure environmental innovation after accounting for the joint endogeneity we find that environmental innovation is an important driver of reductions in us toxic emissions conversely we find that tightened pollution targets induce environmental innovation however our estimates indicate that the environmental policy multiplier the proportionate contribution of induced innovation to long run emission reduction is small

explaining differences in the domestic savings ratio across countries a panel data study this article seeks to analyse the major determinants of differences in the domestic savings ratio between countries using panel data for 62 countries over the period 1967 95 a basic distinction is made between the determinants of the capacity to save and the willingness to save the capacity to save depends primarily on the level of per capita income but non linearly and the growth of income the life cycle hypothesis and the empirics strongly support these hypotheses the willingness to save is assumed to depend on financial variables such as the rate of interest the level of financial deepening and inflation we find no support for a positive interest rate effect but strong support for the level of financial deepening measured by the ratio of quasi liquid liabilities to gdp inflation exerts a mild positive effect on saving but soon turns negative total saving may also depend on tax effort but a surprisingly strong negative relation is found between the ratio of tax revenue to gdp and the domestic savings ratio

balancing incentives in the compensation contracts of nonprofit hospital ceos abstract given the considerable insight into corporate governance achieved through studies of executive compensation in proprietary firms it is surprising that executive contracting in nonprofit organizations remains largely unexplored in this paper we use the multitask principal agent model of holmstrom and milgrom the journal of law economics and organization 7 1991 suppl 24 to argue that nonprofit hospitals represent an optimal response to information asymmetries between managers and boards for a board with multidimensional objectives the agency problem is getting top executives to distribute their efforts across all dimensions of the hospital s mission the nonprofit form is preferred because the absence of high powered incentives such as share ownership reduces executives incentives to place undue emphasis on improving financial performance at the expense of important but less observable tasks using newly available compensation data we test the model by comparing the conditional distributions of earnings for industrial and nonprofit hospital ceos in ontario our best estimates are that ceos in publicly traded firms earn twice as much on average as those in similarly sized nonprofit hospitals but bear roughly eight times the income variance estimates of the associated degree of risk aversion are well within conventional bounds and are consistent with the trade off between insurance and incentives predicted by the theory

inequality and crime this paper considers the relationship between inequality and crime using data from urban counties the behavior of property and violent crime are quite different inequality has no effect on property crime but a strong and robust impact on violent crime with an elasticity above 0 5 by contrast poverty and police activity have significant effects on property crime but little on violent crime property crime is well explained by the economic theory of crime while violent crime is better explained by strain and social disorganization theories

are there cultural effects on saving some cross sectional evidence why are there such large differences in saving rates across countries conventional economic analyses have not been successful in explaining international saving differences so economists have sometimes suggested that national saving differences may be explained by cultural differences this paper tests the hypothesis that cultural factors influence saving by comparing saving patterns of immigrants to canada from different cultures using data from the canadian survey of family expenditures we find no evidence of cultural effects on saving

reconsidering hedonic art price indexes art price indexes typically rely on heavily biased samples for several reasons a refined hedonic index is developed which explicitly addresses such concerns an empirical illustration is then provided for symbolist paintings appearing at auctions between 1990 and 2001

a theory of the consumption function with and without liquidity constraints fifteen years ago milton friedman s 1957 treatise a theory of the consumption function seemed badly dated dynamic optimization theory had not been employed much in economics when friedman wrote and utility theory was still comparatively primitive so his statement of the permanent income hypothesis never actually specified a formal mathematical model of behavior derived explicitly from utility maximization instead friedman relied at crucial points on intuition and verbal descriptions of behavior although these descriptions sounded plausible when other economists subsequently found multiperiod maximizing models that could be solved explicitly the implications of those models differed sharply from friedman s intuitive description of his model furthermore empirical tests in the 1970s and 1980s often rejected these rigorous versions of the permanent income hypothesis in favor of an alternative hypothesis that many households simply spent all of their current income today with the benefit of a further round of mathematical and computational advances friedman s 1957 original analysis looks more prescient than primitive it turns out that when there is meaningful uncertainty in future labor income the optimal behavior of moderately impatient consumers is much better described by friedman s original statement of the permanent income hypothesis than by the later explicit maximizing versions furthermore in a remarkable irony much of the empirical evidence that rejected the permanent income hypothesis as specified in tests of the 1970s and 1980s is actually consistent both with friedman s original description of the model and with the new version with serious uncertainty there are four key differences between the explicit maximizing models

geppml general equilibrium analysis with ppml we develop a simple procedure for general equilibrium comparative static analysis of gravity models non linear solvers are replaced by constrained regressions using theoretical properties of the poisson pseudo maximum likelihood estimator our geppml procedure can readily be implemented in any software capable of estimating constrained poisson models the procedure accommodates calibrated as well as estimated trade costs while using the estimation power of structural gravity to generate ge comparative statics using geppml we quantify the effects of a hypothetical removal of all international borders while preserving the impact of geography on trade we find that trade liberalisation has reaped at most half the potential world gains from trade in 2002 manufacturing a complementary counterfactual experiment simulates the removal of the border between canada and us thus contributing to the famous border puzzle literature in a multicountry setting

agricultural production and children s diets evidence from rural ethiopia we study the relationship between pre school children s food consumption and household agricultural production using a large household survey from rural ethiopia we find that increasing household production diversity leads to considerable improvements in children s dietary diversity however we also document how this nonseparability of consumption and production does not hold for households that have access to food markets these findings imply that nutrition sensitive agricultural interventions that push for market integration are likely to be more effective in reducing under nutrition than those promoting production diversity

moral hazard and the demand for health services a matching estimator approach we estimate the impact of extra health insurance coverage beyond a national health system on the demand for several health services traditionally the literature has tried to deal with the endogeneity of the private extra insurance decision by finding instrumental variables since a priori instrumental variables are hard to find we take a different approach we focus on the most common health insurance plan in portugal adse which is given to all civil servants and their dependents we argue that this insurance is exogenous i e not correlated with the beneficiaries health status this identifying assumption allows us to estimate the impact of having adse coverage on the demand for three different health services using a matching estimator technique the health services used are number of visits number of blood and urine tests and the probability of visiting a dentist results show large positive effects of adse coverage for number of visits and tests among the young 18 30 years old but only the latter is statistically significantly different from zero the effects represent 21 8 and 30 of the average number of visits and tests for the young on the contrary we find no evidence of moral hazard on the probability of visiting a dentist

international capital flows external assets and output volatility abstract cross sectional evidence for 119 developing emerging and developed countries shows over the last three decades that countries with an on average higher volatility of output growth experience more procyclical capital outflows over the business cycle than those countries with the same growth rate but a more stable output path this stylized pattern shows up in addition to the recently established fact that countries with higher macroeconomic uncertainty tend to accumulate higher external asset positions to explain this finding we present an open economy real business cycle model with stochastic growth rates in which higher uncertainty of the expected income stream increases the precautionary savings of households we show that the combination of income risk and the precautionary savings motive leads to both more procyclical capital outflows in the shorter run and a higher long run external asset position

art as an investment the market for modern prints repeat sales of modern prints at auction are used to estimate a semiannual index of prices for the period 1977 92 as in other studies of art as an investment prints do not compare favorably to traditional financial assets there is substantial noise in auction prices but little or no support for the proposition that some artists command higher prices in certain countries or that masterpieces outperform the market one puzzle is the continuing tendency for prices realized at certain auction houses to exceed those realized at others notably at sotheby s relative to christie s in new york copyright 1993 by american economic association

risk pooling precautionary saving and consumption growth in this paper we model the evolution of income risk and consumption growth we decompose the time series innovation of the income process into its common and cohort specific components from these we compute conditional variances which are used as separate risk terms in a consumption growth equation using a long series of british household data we exploit the time series variation to identify precautionary saving effects and find strong evidence of their importance specifically after allowing for demographic and labour market status there is an independent role for income risk in explaining consumption growth rather than the component that is common across cohorts however it is the cohort specific element that is important in determining changes in consumption growth this result points to a failure of between cohort insurance mechanisms

on the trade impact of nominal exchange rate volatility what is the effect of nominal exchange rate variability on trade i argue that the methods conventionally used to answer this perennial question are plagued by a variety of sources of systematic bias i propose a novel approach that simultaneously addresses all of these biases and present new estimates from a broad sample of countries from 1970 to 1997 the estimates indicate that nominal exchange rate variability has no significant impact on trade flows

cultural effects and savings evidence from immigrants to the united arab emirates this study attempts to investigate the effects of cultural origin on the saving behaviour of immigrants in the united arab emirates uae using household survey data covering 3206 households savings rates are found to be remarkably different across households from different countries regions immigrants from developing countries appear to be uniform in terms of average household size age education and occupation however immigrants from pakistan and india are found to have higher average savings rates than those from arab countries although they have relatively lower incomes this suggests strong cultural effects on savings a proposition that is generally supported by the econometric findings of this research

consumer uncertainty and purchase decision reversals theory and evidence this research examines how prepurchase information that reduces consumer uncertainty about a product or service can affect consumer decisions to reverse an initial product purchase or service enrollment decision one belief commonly held by retailers is that provision of greater amounts of information before the purchase reduces decision reversals we provide theory and evidence showing conditions under which uncertainty reducing information provided before the purchase decision can actually increase the number of decision reversals predictions generated from an analytical model of consumer behavior incorporating behavioral theory of reference dependence are complemented by empirical evidence from both a controlled behavioral experiment and econometric analysis of archival data combined the theory and evidence suggest that managers should be aware that their information provision decisions taken to reduce decision reversals may actually increase them data as supplemental material are available at http dx doi org 10 1287 mksc 2015 0906

incomplete markets labor supply and capital accumulation we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks borrowing constraints and endogenous labor supply in the exogenous labor supply case e g aiyagari 1994 huggett 1997 the presence of limited insurance increases the demand for savings for precautionary reasons as a consequence capital and output are higher under incomplete markets we show that if labor hours are endogenous labor supply is likely to be lower under incomplete markets because those agents who experience a high shock to productivity are ex post richer and they work fewer hours in some cases this wealth effect can overcome the aggregate precautionary savings and give rise to lower savings and output under incomplete

volatility of price indices for heterogenous goods with applications to the fine art market price indices for heterogeneous goods such as real estate or fine art constitute crucial information for institutional or private investors considering alternative investment decisions in times of financial markets turmoil classical meanvariance analysis of alternative investments has been hampered by the lack of a systematic treatment of volatility in these markets in this paper we propose a hedonic regression framework which explicitly defines an underlying stochastic process for the price index allowing to treat the volatility parameter as the object of interest the model can be estimated using maximum likelihood in combination with the kalman filter we derive theoretical properties of the volatility estimator and show that it outperforms the standard estimator we show that extensions to allow for time varying volatility are straightforward using a local likelihood approach in an application to a large data set of international blue chip artists we show that volatility of the art market although generally lower than that of financial markets has risen after the financial crisis of 2008 09 but sharply decreased during the recent debt crisis

social security national policies with international implications social security policies within individual countries are determined independently by national governments but the resulting outcome is inefficient compared with what would result from the international co ordination of policies this is because national social security policies produce international externalities via their effects on world interest rates an illustrative example suggests that the gains from co ordination are potentially significant virtually all countries operate social security or redistributive policies each chooses policies independently and to my knowledge no one either in a policymaking context or in the large literature on international policy co ordination has suggested that such decisions would benefit from international coordination 1 however a simple argument suggests that independent national social security policies are inefficient more specifically in the long run national governments make policy decisions which are too egalitarian this holds provided that social security lowers national saving in this case each national government faces a trade off between income redistribution and national saving and can be assumed to locate at the nationally optimal point on this trade off taking as given the world interest rate the latter is clearly not independent of the combined effect of all countries policies however if all countries expand social security the resulting fall in world saving will raise the world interest rate with adverse consequences for each national economy each country rationally ignores its own small contribution to the global outcome if this international externality were internalised by co ordination countries would relocate on the trade off between income redistribution and national saving demonstrating the existence of an externality says nothing about its quantitative significance i address this with an example which focuses on pay as you go payg retirement pensions in an economy with a mixture of forward looking and myopic individuals the pensions prevent destitution among retired myopes and thus effectively redistribute life time welfare but they also lower saving because of payg financing for all parameter values considered international co ordination of pensions policy decisions generates welfare gains which are larger for many parameter values substantially larger than recent estimates of the welfare gains from either the entire elimination of all cyclical fluctuations or the reduction of inflation and nominal interest rates from suboptimally high to optimal levels hence the issues addressed in the paper are quantitatively significant when judged against other frequently advocated i am grateful to two anonymous referees for helpful comments on earlier versions they are not responsible for the present version

impacts of trade and the environment on clustered multilateral environmental agreements many countries align their environmental policy and environmental regulation by way of multilateral environmental agreements meas previous work in economics provided insights in the economic and political determinants of meas at large this paper distinguishes meas by the main issues covered and classifies them in five clusters biodiversity atmosphere land chemicals and hazardous wastes and seas then the role of environmental economic and political factors and of dynamic and cross cluster effects is studied at the level of mea clusters two findings stand out from this empirical analysis first economic size and multilateral trade liberalisation of countries are found to be the most important drivers of mea participation across all clusters second adjustment costs turn out to deter and in particular cross cluster spillovers turn out to stimulate mea participation across countries and clusters

short term planning and the life cycle consumption puzzle abstract we develop a new life cycle consumption model where the individual has a short planning horizon standard life cycle consumers with perfect foresight and hand to mouth consumers are both special limiting cases of our model where the length of the planning horizon is set to the entire lifetime and zero respectively we derive an analytical solution to the time inconsistent short term planning problem which reveals the inner workings of the model and facilitates its use in other settings we also show that the short term planning mechanism is powerful enough to generate a consumption hump with the right size and location

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

optimal consumption and the timing of the resolution of uncertainty abstract as is well known consumers want to accumulate precautionary savings in the face of income risks when their marginal utility is convex prudence in this paper we explore the effect of the timing of the resolution of income uncertainty on savings an agent faces uncertainty about his income at date t 2 what is the effect of being informed that the uncertainty will be resolved at date t 1 on the consumption at date t we show that the effect is positive if and only if marginal utility is convex prudence when either the risk free rate is equal to the rate of pure preference for the present or when the utility function is hara the intuition is that an early resolution of uncertainty allows for time diversifying the risk it therefore plays a role similar to a reduction of the income risk whose effect on savings is negative under prudence

are tax subsidies for private medical insurance self financing evidence from a microsimulation model this paper develops an empirical strategy to estimate whether subsidies to private medical insurance are self financing in countries where public and private insurance coexist and the latter covers the same treatments as the former we construct a simulation routine based on a micro econometric discrete choice model that allows us to evaluate the impact of premium changes on the utilization of outpatient and inpatient health care services as an application we estimate the budgetary effects of scrapping a subsidy from the purchase of individual private policies using micro data from catalonia our results suggest that the subsidy is not self financing this result is driven by the fact that private medical insurance holders make concurrent use of public and private services and by the price inelasticity of the demand for private policies

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

reforming health care evidence from quantile regressions for counts i consider the problem of estimating the effect of a health care reform on the frequency of individual doctor visits when the reform effect is potentially different in different parts of the outcome distribution quantile regression is a powerful method for studying such heterogeneous treatment effects only recently has this method been extended to situations where the dependent variable is a non negative integer count an analysis of a 1997 health care reform in germany shows that lower quantiles such as the first quartile fell by substantially larger amounts than what would have been predicted based on poisson or negative binomial models

endogeneity in count data models an application to demand for health care the generalized method of moments gmm estimation technique is discussed for count data models with endogenous regressors count data models can be specified with additive or multiplicative errors and it is shown that in general a set of instruments is not orthogonal to both error types simultaneous equations with a dependent count variable often do not have a reduced form which is a simple function of the instruments however a simultaneous model with a count and a binary variable can only be logically consistent when the system is triangular utilizing data from the british health and lifestyle survey 1991 1992 the gmm estimator is used in the estimation of a model explaining the number of visits to doctors with a self reported binary health index as a possible endogenous regressor if this regressor is truly endogenous one expects the pseudo likelihood estimate of its coefficient to be biased upwards indeed for the additive model the estimated coefficient of the binary health index decreases in value when the possible endogeneity of this regressor is taken into account further indication of endogeneity is given by the fact that the overidentifying restrictions are rejected in the multiplicative model but not in the additive model finally a model that includes predicted latent health instead of the binary health index is estimated in stages

does trade creation by social and business networks hold in services recent literature on the border effect has shown that the intensity of trade in goods is positively correlated with the migration stocks between any pair of countries regions the number of references for business networks is more limited but they are also related with a reduction on information costs in this article we investigate whether such a relation holds also for spanish domestic trade flows in consumer services to this end we use a gravity model rooted in the dixit stiglitz krugman theoretical framework and a unique data set on interregional trade flows for some of the main tourism service sectors namely accommodations and restaurants our industry specific analysis finds a large positive effect for restaurants but a more limited effect for accommodations forces driving the demand in each sector explain this result and suggest the idea that although social networks can act as a substitute of firms in some sectors at the same time they can enhance trade flows in other sectors we perform the

buying beauty on prices and returns in the art market this paper investigates the price determinants and investment performance of art we apply a hedonic regression analysis to a new data set of more than one million auction transactions of paintings and works on paper based on the resulting price index we conclude that art has appreciated in value by a moderate 3 97 per year in real u s dollar terms between 1957 and 2007 this is a performance similar to that of corporate bonds at much higher risk a repeat sales regression on a subset of the data demonstrates the robustness of our index next quantile regressions document larger average price appreciations and higher volatilities in more expensive price brackets we also find variation in historical returns across mediums and movements finally we show that measures of high income consumer confidence and art market sentiment predict art price trends this paper was accepted by wei xiong finance

the neoclassical growth model with heterogeneous quasi geometric consumers this paper investigates how the assumption of quasi geometric hyperbolic discounting affects the distributional implications of the standard one sector neoclassical growth model with infinitely lived heterogeneous agents the agents are subject to idiosyncratic shocks and face borrowing constraints we confine attention to an interior markov recursive equilibrium the consequence of quasi geometric discounting is that the effective discount factor of an agent is not a constant but an endogenous variable which depends on the agent s current state we show both analytically and by simulation that this new feature can significantly affect the distributional implications of the neoclassical growth model

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

the price of wine abstract using historical price records for bordeaux premiers crus we examine the impact of aging on wine prices and the long term investment performance of fine wine in line with the predictions of an illustrative model young maturing wines from high quality vintages provide the highest financial returns past maturity famous ch teaus deliver growing non pecuniary benefits to their owners using an arithmetic repeat sales regression over 1900 2012 we estimate a real financial return to wine investment net of storage costs of 4 1 which exceeds bonds art and stamps returns to wine and equities are positively correlated finally we find evidence of in sample return predictability

permanent income current income and consumption evidence from two panel data sets in this article i estimate euler equations that is the first order conditions of the consumers maximization problem using data from two data sets consumption data are taken from the consumer expenditure survey income data are taken from the panel study of income dynamics because the data for the estimation come from two samples i use a generalization of the instrumental variables estimator the two sample instrumental variables estimator i find evidence that consumption is excessively sensitive to predictable income growth the estimates of the coefficient of excess sensitivity for three consumption measures range from 2 to 5

cultural determinants of household saving behavior relying on the epidemiological approach we show that culture is a significant driver of household saving behavior second generation immigrants from countries that put strong emphasis on thrift or wealth accumulation tend to save more in germany we confirm these results in data from the uk by linking parents to their children we show that these two cultural components affect the saving behavior of both first generation immigrants and their children and also provide suggestive evidence that long term orientation is related to saving behavior through the intergenerational transmission of language

testing for prudence and skewness seeking numerous theoretical predictions such as precautionary saving or preventive behavior have been derived for prudent decision makers further prudence can be characterized as downside risk aversion and plays a key role in preference for skewness we use a simple experimental method to test for prudence and skewness preference in the laboratory and compare the two to this end we introduce a novel graphical representation of compound lotteries that is easily accessible to subjects and test it for robustness using a factorial design prudence is observed on the aggregate and individual level we find that prudence does not boil down to skewness seeking we further provide some theoretical explanations for this result this paper was accepted by peter wakker decision analysis

estimation of a hedonic price equation for bordeaux wine does quality matter in this paper the hedonic price technique is applied to bordeaux wine in the hedonic price function we include not only the objective characteristics appearing on the label of the bottle but also the sensory characteristics of the wine our data come from an experimental study in which juries have evaluated and graded a sample of bordeaux wines the estimation of the hedonic price equation shows that the market price is essentially determined by the objective characteristics the estimation of a jury grade equation shows that quality unlike the market price is essentially determined by the sensory characteristics

precautionary savings of agents with heterogeneous risk aversion this article focuses on the estimation of the importance of the precautionary motive in the wealth accumulation decision we use the micro data set of the de nederlandsche bank dnb household survey dhs centerdata tilburg university a dutch household survey containing information on wealth a subjective measure of income uncertainty and subjective qualitative measures of risk aversion we find that only a small share of wealth is accumulated for the precautionary motive by the dutch households this share of wealth is constant across assets with different degrees of liquidity the economic downturn of the period 2008 to 2010 seems to affect risk attitudes and precautionary saving our findings also suggest that the more risk averse individuals are those who hold less savings

do voluntary pollution reduction programs vprs spur or deter environmental innovation evidence from 33 50 abstract we study whether a government sponsored voluntary pollution reduction program vpr promotes or deters the development of new environmental technologies that yield future emission reduction benefits using a panel of 127 u s manufacturing industries defined by 3 digit sic classifications over the 1989 2004 period we estimate impacts of industry level participation in the 33 50 program a vpr initiated by government regulators in 1991 on industry level rates of environmental patenting we find that higher rates of 33 50 program participation are associated with significant reductions in the number of successful environmental patent applications five to nine years after the program ended

a nonparametric vs latent class model of general practitioner utilization evidence from canada abstract predicting health care utilization is the foundation of many health economics analyses such as calculating risk adjustment capitation payments or measuring equity in health care utilization the most common econometric models of physician utilization are parametric count data models since the most common metric of physician utilization is the number of physician visits this paper makes two distinct contributions to the literature analyzing gp utilization i it is the first to use a nonparametric kernel conditional density estimator to model gp utilization and compare the predicted utilization with that from a latent class negative binomial model and ii it uses panel data to control for the potential endogeneity between self reported health status and the number of gp visits the goodness of fit results show the kernel conditional density estimator provides a better fit to the observed distribution of gp visits than the latent class negative binomial model there are some meaningful differences in how the predicted conditional mean number of gp visits changes with a change in an individual s characteristics called the incremental effect ie between the kernel conditional density estimator and the latent class negative binomial model the most notable differences are observed in the right tail of the distribution where the ies from the latent class negative binomial model are up to 190 times the magnitude of the ies from the kernel conditional density estimator