grain transport and rural credit in mozambique solving the space time problem this paper shows how credit market failures can lead to large welfare losses in grain markets by inducing increased transport for seasonal storage in locations with low credit costs the burden of these welfare losses falls primarily on rural households these conclusions are obtained from a spatial temporal model solved using a mixed complementarity formulation that easily handles interest rate differentials across space efforts to address credit market failures and to improve the efficiency of rural storage should be given priority as opposed to the creation of large formal sector grain collection centers

transfer behavior in the health and retirement study measurement and the redistribution of resources within the family recent work by a number of economists has opened a debate about the role played by intergenerational transfers using the new health and retirement study hrs we are better able to address the issues involved contrary to the current literature on bequests we do not find that parents give transfers equally to all children rather we find that in the case of inter vivos transfers respondents give greaterfinancial assistance to their less well off children than to their children with higher incomes financial transfers to elderly parents are also found to be negatively related to the potential recipient s income these results hold both for the incidence of transfers and for the amounts in addition we allow for unobserved differences across families by estimating fixed effect models and find our results to be robust to these specifications a comparison of the hrs transfer data to other survey data demonstrates that the hrs is potentially quite useful for research on transfer behavior

intergenerational transfers and liquidity constraints a growing body of evidence indicates that liquidity constraints could affect a substantial proportion of u s consumers but little is known about why these constraints might exist an important but little explored issue is the relationship between inter vivos intergenerational transfers and liquidity constraints these transfers can ease borrowing constraints empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity constrained consumers in particular the distinction between current and permanent incomes of potential recipients is a key aspect of private transfer behavior the findings have important implications for our understanding of consumer behavior

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

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

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

the timing and division of parental transfers to children abstract we find parents divide various assets differently among children inter vivos transfers cash gifts and co residence are made preferentially to poorer children in contrast transfers made at death insurance benefits and wills are awarded to children irrespective of income differences

optimal grain pricing and storage policy in controlled agricultural economies application to zimbabwe abstract maize pricing and storage policies of zimbabwe s grain marketing board are compared to those that would be optimal under certain objective function risk and risk aversion assumptions optimal producer prices and storage levels are found to be interdependent and to respond to prices at other levels of the marketing chain the ideal maize reserve stock increases with uncertainty over import transportation costs a factor to consider in light of the threat of south african sanctions but at a reasonable risk aversion level optimal reserves still are much lower than those presently held by the board

the efficiency of competitive equilibria in insurance markets with asymmetric information abstract this paper addresses the relationship between competitive equilibria and efficient allocations in an insurance market with asymmetric information using the definition of second best efficiency proposed by harris and townsend 1981 for environments characterized by informational assmmetry the efficiency properties of several proposed market equilibria are examined we find an analogue to the first optimality theorem a miyazaki wilson equilibrium always results in a second best allocation

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

the liability insurance market t his paper offers an overview of the u s liability insurance market and the link between its performance and developments in tort law over the last few decades the dominant feature of the insurance market has been the intermittent periods of rapidly rising premiums and cutbacks on the availability of coverage the insurance cycle appears to be increasing in amplitude and since the 1960s has been concentrated increasingly in liability lines an episode of rising premiums in the late 1960s was followed by a six year period of declining and eventually negative growth rates in total liability insurance premiums over the 1975 1977 period the annual growth rate jumped to 30 percent then followed another period of declining real premiums until premiums nearly tripled in 1984 1986 accompanied by cancellations of policies and massive withdrawal of insurers from some lines this crisis had an economic impact beyond the insurance market leading to the withdrawal of many goods and services from u s markets in mid 1987 the market began to turn again with premiums falling by as much as 40 percent for some commercial policies since then aggregate revenue from premiums has been relatively stable the liability insurance market is intertwined with the tort system in addition to providing incentives to avoid accidents the tort system allocates the risks of accident costs in providing compensation for accident victims the modern expansion of liability in tort law as described by priest in this issue represents a shift in the burden of supplying insurance from first party insurance markets to liability or third party insurance markets clearly this shift will

panterritorial versus regional pricing for maize in zimbabwe abstract this paper presents a spatial equilibrium model of zimbabwe s maize market designed to compare the current system of panterritorial prices with the pareto optimal pattern of regional price variation that would occur in a competitive market the model shows that under baseline 1988 conditions competitive pricing would raise aggregate welfare by about us 14 million annually about 4 of producer plus consumer surplus while improving income distribution by favoring the majority of smallholder farmers in southern deficit areas and urban consumers in northern surplus areas thus the model suggests that liberalization could improve both efficiency and equity administered regional prices in a controlled market could yield some of these gains to the extent that production and processing were brought closer to consumers

the family as an incomplete annuities market families can self insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers interfamily transfers need have nothing to do with altruistic feelings they may simply reflect risk sharing behavior of completely selfish family members although family annuity markets are incomplete even small families can substitute by more than 70 percent for perfect market annuities given adverse selection and transaction costs family risk pooling may be preferred to public market annuities in the absence of public annuities these risk sharing arrangements provide powerful incentives for marriage and family formation

inter vivos transfers and intended bequests abstract empirical work on intergenerational transfers has focused on distinguishing between altruistic and exchange motivated behavior however these two models are unable to explain the strong tendency for inter vivos transfers to be negatively related to the income of the recipient while bequests bear no relationship to income this paper presents a new framework for analyzing transfers from parents to children that is more consistent with observed behavior than are the altruistic and exchange models alone in particular the model developed here predicts differing behavior with respect to inter vivos transfers and bequests due to liquidity constraints and uncertainty about the recipient s permanent income the empirical work uses data from the health and retirement study and the asset and health dynamics study the patterns observed in these data are consistent with earlier findings that inter vivos transfers go disproportionately to less well off children while bequests are divided equally across children further the results support the predictions of the model in that differences in inter vivos transfers arise from differences in current income while differences in bequests result when indicators of the children s permanent incomes differ

the valuation of multiple claim insurance contracts this paper provides a closed form solution for the value of a multiple claim insurance contract that is subject to a deductible amount and or an upper limit on claims the solution is a time integral of european option prices the model provides three important insights first systematic risk in insurance policies is altered in the presence of deductibles and maximum indemnity levels second idiosyncratic risk affects policy valuation and the required rates of return on underwriting portfolios finally contrary to traditional actuarial intuition changes in the risk free interest rate may either increase or reduce policy values

poverty and inequality under income and price dispersions many policies simultaneously affect the distribution of prices and incomes in the economy moreover a bias may occur when there is a stochastic relationship between prices and incomes and this relationship is being ignored it is therefore important to dispose of an analytical framework for welfare analysis that could account for changes in this joint distribution how can the joint influences of price and income distributions on poverty and inequality indicators be analysed we offer a method to deal with this problem by using parametric formulae of poverty and inequality measures we propose statistical indicators for the levels variabilities and a statistical link of price indices and nominal living standards these indicators are consistent with an approximation of the problem based on a bivariate lognormal distribution of price indices and nominal living standards our analysis provides hints about the social welfare impact of economic shocks or policies affecting levels variabilities and correlation of prices and incomes intuitive insights are obtained while using arithmetic means and variances instead does not lead to illuminating results the role of price and income variabilities for poverty and inequality is more complex than generally expected with the possibility of several variation regimes empirical investigation of these statistics would guide social policies

new evidence on altruism a study of tiaa cref retirees this paper investigates the role in household wealth accumulation of saving for bequests it employs data from a 1988 survey of tiaa cref annuitants designed to measure pension and other net worth as well as lifetime earnings about half of the households in the data plan to leave estates and the authors find that their behavior conforms with theoretical altruistic models for the same families the amount of wealth that the authors attribute to estate building is large nevertheless altruism towards one s children does not seem to be the major explanation of saving in the overall sample copyright 1996 by american economic association

food marketing and pricing policy in eastern and southern africa a survey abstract this article surveys the empirical record of grain marketing and pricing policy in eastern and southern africa over 1930 1995 the paper addresses five key issues with major implications for food policy throughout africa a why the anticipated supply response to market liberalization has not yet occurred b why the common assumption of state taxation of farmers to support a cheap food policy does not apply in most of the countries in the region c why the temporary successes of the state led approach to stimulating smallholder grain production were unsustainable d why the elimination of government food subsidies associated with market reform has not adversely affected consumers and e why the fiscal cost of the marketing systems at least initially worsened rather than improved after the reforms were implemented in most countries the key future challenges for marketing policy are how to develop coordinated and financially sustainable input finance and commodity marketing systems for raising productivity growth in smallholder agriculture while overcoming inherited agricultural dualism and how to mitigate the effects of food price instability in a cost effective manner

the stochastic analysis of competitive unemployment insurance premiums abstract in this paper we investigate the fair pricing of unemployment insurance policies in a stochastic environment this will depend on the idiosyncratic risks confronting individual workers and on the risks facing the risk class as a whole using an arbitrage pricing argument we show that idiosyncratic risks can be diversified away leaving only market risk to be priced

intergenerational transfers and capital market imperfections evidence from a cross section of italian households abstract we investigate whether a system of family finance exists and to what extent it is able to offset capital market imperfections a simple model of intergenerational transfers implies that the probability of a liquidity constrained consumer receiving a transfer is negatively correlated with his current endowment and positively correlated with his future resources we test this proposition using a recent survey of italian households in which both transfer recipients and liquidity constrained households are readily observable the results indicate that private transfers help to ease borrowing constraints however a substantial number of liquidity constrained households remain after transfers have been made

tax avoidance and intra family transfers to what extent do people avoid taxes on intra family transfers be quests and gifts and how would integration unification of the dif ferent transfers taxes affect tax avoidance these issues are important for families and their welfare as well as for governments and their pos sibilities of raising revenue from transfer taxes in this paper we study the effects of transfer taxes on altruistic parents transfers to their chil dren using a theoretical model we find that altruistic parents do not necessarily tax minimize however in some cases when they do there is an infinitely large excess burden of a transfer tax we also find that integration of transfer taxes reduces tax avoidance all tax avoidance is eliminated with complete integration

transportation state marketing and the taxation of the agricultural hinterland in raising revenues governments of poor countries affect farm gate prices for export crops because agriculture is dispersed interventions have spatial effects leading to an integrated analysis of taxation marketing and transportation policies to be used singly or together include land export and transportation taxes subsidies and variants of state marketing in which only government procures crops an export tax and a transport subsidy may be optimal with state marketing important aspects of buying depots are numbers locations spatial pattern of prices paid and movement of output toward or away from the ultimate market these policies also affect transport investment strategies

price regulation in property liability insurance a contingent claims approach a discrete time option pricing model is used to derive the fair rate of return for the property liability insurance firm the rationale for the use of this model is that the financial claims of shareholders policyholders and tax authorities can be modeled as european options written on the income generated by the insurer s asset portfolio this portfolio consists mostly of traded financial assets and is therefore relatively easy to value by setting the value of the shareholders option equal to the initial surplus an implicit solution for the fair insurance price may be derived unlike previous insurance regulatory models this approach addresses the ruin probability of the insurer as well as nonlinear tax effects

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

sibling rivalry and strategic parental transfers this paper develops a noncooperative nash model in which two siblings compete for their parents financial transfers treating sibling rivalry as a rent seeking contest and using a tullock skaperdas contest success function we derive the conditions under which more financial resources are transferred to the sibling with lower earnings we find that parental transfers are compensatory and that the family as an institution serves as an income equalizer within a sequential game framework we characterize the endogeneity of parental transfers and link it to parents income altruism and children s supply of merit goods e g parent child companionship or child services we show that merit goods are subject to a moral hazard problem from the parents perspective

explaining the wealth holdings of different cohorts productivity growth and social security in this paper we explore the reasons why different generations accumulate different amounts of wealth we use basic economic theory to propose two indicators of the economic conditions under which households accumulate wealth the first one represents productivity differences across cohorts the aggregate level of gross national product per capita around the time the head of the household entered the labor market the second measure summarizes the changes in social security during the head of household s working life using panel data from the dutch socio economic panel we show that productivity growth can explain all the cohort effects present in income data while productivity growth and the generosity of social security can explain all the cohort effects present in household net worth we also find a limited offset of social security on wealth holdings

adverse selection private information and lowballing in insurance markets recent contributions to the adverse selection literature have focused on a multiperiod competitive environment in this setting a clean distinction arises between the predictions of competing models cooper and hayes extend the model of rothschild and stiglitz to multiple periods the result is a self selecting equilibrium characterized by price highballing or systematically overcharging new business kunreuther and pauly suggest that information asymmetries between competing insurance firms render such price quantity policies infeasible their model results in a pooling equilibrium that is characterized by price lowballing or systematically undercharging new business our evidence is consistent with the kunreuther and pauly model and reveals the persistence of adverse selection in the automobile insurance market copyright 1990 by the university of chicago

tax management and investment strategies of property liability insurers abstract the tax reform act tra of 1986 reduced the incentives for institutional investors to participate in the tax exempt bond market this paper develops a model of profit maximization incorporating the tra provisions applicable to property liability pl insurers the theory predicts that pl insurers will use underwriting losses to shelter taxable investment income and invest the balance of their portfolios in tax favored securities our empirical evidence reveals that insurers continued to invest in tax exempts following the tra suggesting that implicit tax rates are low enough to attract insurers into the long term tax exempt market however insurers reduced the proportions of income derived from tax exempt interest and dividends following the tra

intergenerational support and the life cycle incomes of young men and their parents human capital investments coresidence and intergenerational financial transfers this article examines the resource allocations of parents in the form of both shared residence with and financial transfers to their young adult sons based on an overlapping generations model incorporating a game between parents and adult children estimates of the determinants of such transfers are obtained from the kinship linked cohorts of the national longitudinal surveys the estimates suggest that both types of parental assistance are as important as governmental transfers in supporting young men and are responsive to the current and anticipated earnings of their offspring suggesting that young men cannot adequately smooth their consumption without parental help

wage differentials across firms an application of multilevel modelling multilevel modelling techniques are applied to a dataset that matches firms and workers to pinpoint and explain contrasts among company wage policies results indicate that wage differences across firms are statistically significant affecting every parameter of the pay policy returns to schooling tenure experience the penalty imposed on newly hired workers and on women gross labour productivity average schooling in the firm firm size and economic sector are relevant forces shaping the contrast between employers pay policies copyright 2000 john wiley sons ltd

the cost of equality unequal bequests and tax avoidance abstract for altruistic parents desiring to bequeath their wealth to their children estate taxes can be costly in utility terms the most straightforward way to reduce the tax burden is through inter vivos transfers taking full advantage of potential tax free giving often requires that parents differentiate between children in the amounts transferred this unequal giving contrasts sharply with the presumed desire to make equal bequests this paper examines the extent to which wealthy parents take advantage of tax free giving and whether the desire to spend down an estate is sufficient to induce unequal giving i find that while wealthy parents do appear to make early bequests they rarely do so to the extent permitted by law and thus forego a substantial amount of tax savings

evidence on youth employment earnings and parental transfers in the national longitudinal survey of youth 1997 the employment behavior of youths under age 16 has been neglected in the literature this paper uses data from the new national longitudinal survey of youth 1997 nlsy97 to examine the employment and earning behavior of youths aged 12 16 as well as the cash transfers received from their parents nearly half the youths 47 percent earned income in 1996 as youths age the amount of money they control increases as earnings grow faster than allowances results also suggest that a negative relationship exists both between youth employment and parental allowances and between earnings and parental allowances for youths aged 14 16

rate of return regulation with price flexibility rate of return regulation is the standard technique used to try to correct for the allocative inefficiencies arising from granting monopolies to firms in industries exhibiting economies of scale the idea behind current practice is that regulators should set an output price such that the firm s profits will provide investors with a fair expected rate of return on invested capital while there has been considerable debate on the appropriate rate of return the modern view as originally expressed by myers 1972 is that the fair rate should be equal to that expected by investors in other firms with equivalent risk this paper considers a change in rate of return regulation that will dominate standard price setting rather than fixing the price that the regulated firm must charge the regulator should grant the firm the option to charge any price less than or equal to a ceiling price hereafter called the price flexibility option if the regulated firm has this flexibility both the consumers and the firm are at least as well off this option to raise and lower prices within a range specified by the regulator will increase the ex ante value of the this paper considers a change in rate of return regulation that will dominate standard price setting rather than fixing the price that the regulated firm must charge the regulator should allow the firm to charge any price less than or equal to a ceiling price we demonstrate the advantages of our proposal and develop a methodology for determining fair regulatory ceilings the methodology explicitly takes account of the effect of regulation on financial risk and we develop a technique for measuring the importance of this effect finally an example is introduced to demonstrate our techniques and to show the potential quantitative importance of the analysis the authors thank alan marcus michael salinger anjan thakor and two anonymous referees for helpful comments it is with great sadness that we report that beth hayes was killed while riding her bicycle shortly after the completion of this paper 1 for a discussion of this debate see brennan and schwartz 1982 p 508

bequests as signals an explanation for the equal division puzzle in the united states more than two thirds of decedents with multichild families divide their estates exactly equally among their children in contrast gifts given before death are usually unequal these findings challenge the validity of existing theories regarding the determination of intergenerational transfers in this paper we develop a theory that accounts for this puzzle based on the notion that the division of bequests provides a signal about a parent s altruistic preferences the theory can also explain the norm of unigeniture which prevails in other societies

an analysis of the impact of sample attrition on the second generation of respondents in the michigan panel study of income dynamics only a few studies have tried to estimate the trend in the elasticity of children s economic status with respect to parents economic status and these studies produce conflicting results in an attempt to reconcile these findings we use the panel study

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

numerical valuation of high dimensional multivariate european securities we consider the problem of pricing a contingent claim whose payoff depends on several sources of uncertainty using classical assumptions from the arbitrage pricing theory the theoretical price can be computed as the discounted expected value of future cash flows under the modified risk neutral information process although analytical solutions have been developed elsewhere for a few particular option pricing problems computing the arbitrage prices of securities under several sources of uncertainty is still an open problem in many instances in this paper we present efficient numerical techniques based upon monte carlo simulation for pricing european contingent claims depending on an arbitrary number of risk sources we introduce in particular the method of quadratic resampling qr a new powerful error reduction technique for monte carlo simulation quadratic resampling can be efficiently combined with classical variance reduction methods such as importance sampling our numerical experiments show th

the determination of fair profits for the property liability insurance firm although the property liability insurance industry has been subject to price regulation for many years surprisingly little research has been directed at producing valuation models of a property liability insurance firm although property liability price regulation has historically involved setting minimum prices to reduce the risk of insolvency some commissions have begun to move toward setting prices more in the spirit of public utility regulation 1 if in an effort to promote efficiency the working objective of such regulation requires the determination of prices that would prevail under competition then regulation must be founded on some model of the costs of regulated firms under competition with free entry prices just cover all economic costs including the opportunity costs of investment by suppliers of capital and a valuation model is required to explain how the market value of the firm and therefore the cost of capital reacts to changes in the prices it charges our objective in this chapter is to provide such a framework

post mortem reputation compensatory gifts and equal bequests suppose that gifts are private information only known to donor and donee while bequests are public also suppose that parents care about the reputation that their bequest behavior will give them and that reputation deteriorates with the difference in amounts inherited then the optimal choice of altruistic parents is compensatory gifts and equal bequests this is also what data show

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

the family inheritance and the intergenerational transmission of inequality unequal inheritance of material wealth is commonly considered a major cause of inequality in consumption however theoretical models of the intergenerational transmission of inequality by becker blinder and ishikawa imply that unequal inheritance may either increase or reduce consumption inequality differences in inherited wealth resulting from unequal parental incomes increase inequality in recipients consumption however unequal bequests caused by differences among families in the endowed ability of children or the costs of producing human capital are equalizing empirical results confirm these predictions the inheritance received by children is inversely related to both children s income and parental education thus bequests are compensatory in that ceteris paribus low income children inherit more than their advantaged contemporaries

the equilibrium valuation of risky discrete cash flows in continuous time this paper values a contingent claim to discrete stochastic cash flows generated by a poisson arrival process with a randomly varying intensity parameter in the most general case both the size and the arrival intensity of cash flows may correlate wih state variables in a continuous time economy assuming the conditions of an intertemporal capital aset pricing model solutions for the value of the contingent claim can be found using various techniques the paper suggests immediate applications to the valuation of insurance contracts the decision to build a firm with unknown future investment opportunities and the pricing of mortgage backed securities

wealth effects of regulatory reform abstract this paper investigates the effect of california s proposition 103 on the market value of publicly traded property and liability insurance companies the passage of this referendum on november 8 1988 moved california from a market oriented to a heavily regulated insurance pricing system during the period surrounding the election the average stock price of insurance companies doing business in california declined by 6 91 the decline is positively related to the proportion of a firm s premiums affected by the referendum and the proportion generated in other states where insurance regulation is likely to change and negatively related to the firm s profitability

parental altruism and inter vivos transfers theory and evidence this paper uses psid data on the extended family to test whether inter vivos transfers from parents to children are motivated by altruism specifically the paper tests whether an increase by one dollar in the income of parents actively making transfers to a child coupled with a one dollar reduction in that child s income results in the parents increasing their transfer to the child by one dollar this restriction on parental and child transfer income derivatives is derived for the standard altruism model augmented to include uncertainty and liquidity constraints these additional elements pin down the timing of inter vivos transfers the method used to estimate income transfer derivatives takes into account unobserved heterogeneity across families in the degree of altruism the findings strongly reject the altruism hypothesis redistributing one dollar from a recipient child to donor parents leads to less than a 13 cent increase in the parents transfer to the child far less than the one dollar increas

the effect of social entitlement programs on private transfers new evidence of crowding out working paper 2010 15 september 2010 abstract this paper exploits a natural policy experiment to directly identify the crowding out effects of public transfers on the incidence and level of private transfers the introduction of a large social security program in taiwan is used to estimate the effect of an exogenous increase in government transfer payments to the elderly on the private transfer behavior of their adult children using an instrumental variables strategy that accounts for the endogeneity of receiving public transfers the empirical results show strong evidence of crowding out on the extensive margin the probability of providing a positive transfer and weaker evidence of crowding out on the intensive margin the amount of the transfer conditional on it being positive jel classification h53 h55 h31 key words private transfers crowding out 1 introduction determining the impact of public transfer programs on private transfer behavior is a key issue from both a research and policy perspective if public transfers largely crowd out private transfers then the welfare impact of social redistributive programs will be smaller than perceived economic theory is ambiguous in its predictions about crowding out the altruism model developed in the seminal papers of barro 1974 and becker 1974 predicts essentially complete crowding out the model focuses on transfers from parents to children but can be applied equally well to transfers from adult children to their elderly parents in the model the child s utility is included in an altruistic parent s utility function which gives the parent an incentive to support the child the core of the altruism model is the prediction of redistribution neutrality which posits that the parents will adjust their transfer behavior in response to changes in the child s income for example an increase in the child s income due to welfare subsidies from the government will lower the amount of parental transfers if ricardian equivalence holds and the government subsidy is financed by a tax on the parents income then the parents will reduce their transfer exactly by the tax amount implying complete crowding out in contrast to the altruism model the exchange model of bernheim et al 1985 and cox 1987 argues that a child s services to the parents such as contacts and visits are at least in part financially motivated as the child expects monetary compensation in this model the amount of transfers could be a positive or negative function of the child s income as the child s income increases the opportunity cost of services increases and thus the amount of expected compensation for the services increases in such a setting the relationship between the child s income and the amount of parental transfers is not clear it could be positive if the parents demand for services is inelastic as they would need to increase transfer payments to the child in order to receive the same level of services if this were the case government subsidies would increase the amount of private transfers received and thus there would be no crowding effect on the other hand if the demand for services is highly elastic then parents demand would fall along with monetary compensation which would lead to crowding out 1 as a result of the ambiguous effect of crowding out predicted by theory a relatively large empirical literature has focused on the estimation of both the sign and magnitude of the crowding out effect of public transfer programs however due to data limitations most empirical studies have not been able to directly measure the crowding out effect of public redistribution programs most studies in this literature have attempted to indirectly measure the impact of such programs on beneficiaries by studying the response of private transfers to changes in the recipient s level of income the results from these papers however are not consistent

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

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

interest rates and insurance price cycles abstract property liability insurance prices and profits appear to move in a six year cycle the common explanation for the cycle amongst many industry analysts is that the insurance market is inherently unstable and that prices fail to converge on clearing levels our explanation is different we identify spot equilibrium prices using the capital asset pricing model but informational regulatory and contractual lags preclude instantaneous adjustment we therefore model the temporal movement of prices using a partial adjustment model in which actors form rational expectations the actual movement of insurance prices does seem to track closely those estimated by the partial adjustment model the cycle may be better viewed as a series of converging responses to changing spot prices

a model for the determination of fair premiums on lease cancellation insurance policies lease cancellation insurance protects the lessor against early termination of a cancellable operating lease this paper presents a contingent claims model for determining the fair premium for this type of insurance policy comparative statics are considered and some numerical examples are presented to illustrate the model among other things the insurance premium is sensitive to the expected rate of economic depreciation of the leased asset and to the leased asset s systematic and nonsystematic risk

fair insurance guaranty premia in the presence of risk based capital regulations stochastic interest rate and catastrophe risk abstract a multiperiod model is developed to measure the costs posed to the guaranty fund in a setting that incorporates risk based capital regulations interest rate risk and the possibility of catastrophic losses the guaranty contract is modeled as a put option on the asset of the insurance company with a stochastic strike price and an uncertain maturity the impacts of the key factors of this model are examined numerically and shown to make material differences in the costs to the guaranty fund

shocks stocks and socks smoothing consumption over a temporary income loss we investigate how households in temporarily straitened circumstances due to an unemploy ment spell cut back on expenditures and how they spend marginal dollars of unemployment insurance ui benefit our theoretical and empirical analyses emphasize the importance of allowing for the fact that households buy durable as well as non durable goods the theoretical analysis shows that in the short run households can cut back significantly on total expenditures without a significant fall in welfare if they concentrate their budget reductions on durables we then present an empirical analysis based on a canadian survey of workers who experienced a job separation exploiting changes in the unemployment insurance system over our sample period we show that cuts in ui benefits lead to reductions in total expenditure with a stronger impact on clothing than on food expenditures our empirical strategy allows that these expenditures may be non separable from employment status the effects we find are particularly strong for households with no liquid assets before the spell started these qualitative findings are in precise agreement with the theoretical predictions jel d11 d12 d91 j65 2009 by the european economic association

why parents play favorites explanations for unequal bequests economists have invested a great deal of effort in trying to understand the motivation for family transfers yet recent empirical work testing the seemingly appealing models of altruism and exchange has led to decidedly mixed results a major stumbling block has been the lack of adequate data we take a fresh look at the issue using responses to an innovative survey question that directly asks mother about the planned division of their estates we find that both altruism and exchange are frequently offered as explanations of behavior and are of nearly equal importance furthermore the explanations are consistent with observable characteristics of the mother lending support to the validity of the question we also find that among step or adopted families genetic ties play an important role because motivating factors appear to differ across families the lack of a consensus among previous researchers about motives ought not to be surprising

is the extended family altruistically linked direct tests using micro data this paper uses panel study of income dynamics data on parents and their adult children to test the standard altruism model this model predicts that within the extended family the distribution of consumption is independent of the distribution of resources the authors findings strongly reject this prediction copyright 1992 by american economic association