does education affect risk aversion evidence from the british education reform individual risk attitudes are frequently used to predict decisions regarding education however using risk attitudes as a control variable for decisions about education has been criticized because of the potential for reverse causality causality between risk aversion and education is unclear and disentangling the different directions it may run is difficult in this study we make the first attempt to investigate the causal effects of education on risk aversion by examining the british education reform of 1972 which increased the duration of compulsory schooling from age 15 to age 16 using regression discontinuity design we find that this additional year of schooling increases the level of risk aversion which is contrary to previous findings in the literature and we also find that this result is particularly strong for individuals with less education this positive causal effect of education on risk aversion might alleviate concerns regarding the endogeneity reverse causality issue when using risk aversion as an explanatory variable for decisions about education the sign would remain credible because the coefficients are underestimated

stabilization adjustment and the poor abstract this paper attempts to survey the recent literature on the impact of stabilization and adjustment programs upon the poor and to consider some of the key issues in the context of a particular equity oriented low income country tanzania after looking at some of the approaches of earlier studies this paper analyzes the effects of restructuring policies macroeconomic restraint and strategic policy change the author then reviews available evidence on the recent experience of tanzania with external shock efforts at stabilization and relations with the imf in conclusion the author argues that in order to better understand their impact on poverty we need more detailed analyses of specific countries experience with different kinds of macroeconomic imbalance and different short to medium term policy responses however he does indicate with some certainty that when equivalent external blows impact upon very low income countries there must be a presumption that other things being equal including the distribution of income the proportion of households and people pushed over the line into absolute poverty will be greater than in middle income countries the international community should provide external finance to aid these low income countries in limiting the negative impact on the poorest

phillips curves in developing countries the latin american case one of the more controversial subjects in macroeconomics during the last 2 decades has derived from the finding of phillips 1958 and subsequently numerous others of a stable empirical relationship between the rate of wage or price changes and the rate of unemployment or output growth the original contention has been increasingly challenged on the grounds that 1 its rationale is at best ambiguous 2 the relationship is unstable and 3 it is only a short run relationship nevertheless the significance of the subject has been preserved by its continued importance for policy by friedman s claim that the phillips curve relationship plays the important role of the missing equation distinguishing his own quantity theory of money oriented macro theory from the keynesian theory 2 and by the fact that recent more sophisticated empirical studies recognizing both supply and demand sides to output determination 3 tend to support it at least in the short run

rules for a lender of last resort an historical perspective abstract the federal reserve was established in 1913 to be a lender of last resort paul warburg its principal architect had in mind that a u s central bank would follow bagehot s strictures to lend freely at a penalty rate in the face of a scramble for high powered money yet the federal reserve act never spelled out how the fed was supposed to act as an llr this omission came to the fore in the great contraction 1929 to 1933 when the fed failed to prevent four banking panics which turned a serious recession into the great contraction reforms in the 1930s corrected some of the fed s failures but clamped down on financial activity for 40 years the financial crisis problem returned in the 1970s with financial liberalization the fed abandoned bagehot s strictures and adopted the too big to fail doctrine and creative ambiguity this policy shift contributed to moral hazard and created new threats to financial stability with the rise of the shadow banking system the subprime mortgage crisis prompted the fed to take unprecedented llr activities which have opened up a pandora s box of perils the fed has moved away from rules based policy in its llr function

agricultural performance and development strategy retrospect and prospect abstract the slow pace and inequitable pattern of past agricultural growth have been major factors in the continuing problems of poverty hunger and unemployment especially in the poorer regions of the third world past experience shows that agriculture has an important potential in economic development given appropriate structures and policies these historical lessons are of strategic significance for poor countries as they confront severe problems of adjustment this paper examines the main payoffs and obstacles to the pursuit of an agriculture led industrialization strategy together with proposals for appropriate policies that can support such a strategy

privatization in developing countries a review of the issues abstract the theory and early experience of privatization in developing countries are reviewed privatization has been spurred by widespread dissatisfaction with the performance of public enterprises and the need to cut government expenditures unless it is accompanied by liberalization measures privatization of public enterprises is unlikely to result in significant gains in economic efficiency the sequencing of privatization and liberalization reforms will often determine their impact on efficiency but the correct order of implementation is not clear political opposition to privatization is likely to be limited to the state bureaucracy which will often be able to mobilize in order to limit the impact of reforms early implementation experiences suggest technical difficulties are as constraining as political factors

too big to fail before the fed too big to fail is consistent with policies followed by private bank clearing houses during financial crises in the u s national banking era prior to the existence of the federal reserve system private bank clearing houses provided emergency lending to member banks during financial crises this behavior strongly suggests that too big to fail is not the problem causing modern crises rather it is a reasonable response to the threat posed to large banks by the vulnerability of short term debt to runs

the joint production of confidence endogenous regulation and nineteenth century commercial bank clearinghouses during the nineteenth century deposits increased relative to bank notes c ausing increased information asymmetry problems in banking this pape r describes how bank clearinghouses lowered these costs by monitoring bank activities and establishing mechanisms of managerial control i n effect regulating bank behavior such actions enforced the loca l one to one exchange rate between deposits and specie clearinghouse s increased regulation during financial panics creating and enforcin g a risk sharing device loan certificates for addressing panic rela ted information problems this paper concludes that the market s capacity to control bank managers depends on the banking product mix and more generally on information costs copyright 1987 by ohio state university press

in school work experience and the returns to schooling students often accumulate substantial work experience before leaving school because conventional earnings functions do not control for in school work experience their estimates of the return to schooling include the benefit of work experience gained along the way using data from the national longitudinal survey of youth i estimate wage models with and without controls for in school work experience the estimated schooling coefficients are 25 44 higher depending on how i control for ability bias when in school work experience is omitted than when it is included these findings indicate that conventional models significantly overstate the wage effects of school only

the impact of milton friedman on modern monetary economics setting the record straight on paul krugman s who was milton friedman abstract paul krugman s essay who was milton friedman seriously mischaracterizes friedman s economics and his legacy in this paper we provide a rejoinder to krugman on these issues in the course of setting the record straight we provide a self contained guide to milton friedman s impact on modern monetary economics and on today s central banks we also refute the conclusions that krugman draws about monetary policy from the experiences of the united states in the 1930s and of japan in the 1990s

the politics of liberalizing zambia s maize markets abstract this paper discusses the process of agricultural liberalization in zambia the central argument is that maize markets have been more quickly and fully liberalized than maize input markets because the perceived political risks of liberalizing input markets are greater than those of liberalizing maize markets and because economic interest groups benefited from maize liberalization while similar interests benefited from continued government interventions in input markets these finding imply that in order to understand the prospects for economic liberalization in new democracies we must disaggregate both civil society and markets

explaining economic liberalization in india state and society perspectives abstract the economic reforms of 1991 carried out by the indian government were remarkable given the prevailing attitude among researchers that such reforms would be impossible to implement this article discusses the possible explanations for the initiation and consolidation of the reform process contrary to the prevailing explanations that focus on the state elite or pressures from the international economy this paper argues that the impetus came from a new breed of indian entrepreneurs

how the market solves an assignment problem the matching of lawyers with legal claims in the market for lawyers observable data on promotion and turnover can be explained by reference to the idea that there is positive assortative mating of lawyers and legal claims there is a scale of resources effect under which it is optimal to assign larger claims to lawyers of higher quality in a law firm the institution of tenure performs a sorting function lawyers found to be of high quality are given tenured positions and the rest leave the value of legal claims handled by a firm determines its sorting problem which in turn determines its promotion ladder and turnover

urban household energy use in tanzania prices substitutes and poverty abstract this paper presents the findings of the tanzanian urban household energy survey undertaken as part of the tanzania urban energy project household energy use varies by income group according to local fuel availability considerable differences between the marginal costs of supplying fuels and market prices paid by consumers have led to major misallocations of resources when the results of this survey are compared to the results of the 1987 household energy survey a significant shift by households toward kerosene and electricity away from fuelwood charcoal and lpg is shown to have taken place these shifts toward modern fuels are consistent with the claims of the households in the 1990 survey and can largely be explained by fuel prices finally an assessment of the lifeline tariff and the kerosene cross subsidy demonstrate that the latter is a more effective method of ensuring the basic energy needs of the urban and rural poor

high interest rates a new conventional wisdom for development policy some conclusions from sri lankan experience abstract the paper is concerned with the general proposition that high interest rates paid to savers can contribute significantly to the long run development of ldcs as well as to stabilization of their economies in the short run by relating this general proposition to some simple theory about the behaviour of imperfect financial markets as well as to specific institutional circumstances in sri lanka it is demonstrated that there are important qualifications that have to be borne in mind in particular in the current institutional circumstances of sri lanka which are closely replicated in other ldcs the instinctive argument of the neoclassical economist that interest rates should reflect the scarcity price of capital is not a great deal of help to policy makers

the compatibility of market liberalization and local economic development strategies cook p and hulme d 1988 the compatibility of market liberalization and local economic development strategies reg studies 22 221 231 the last decade has witnessed a growing emphasis on economic liberalization this new orthodoxy has come at a time when there is an increasing atmosphere of disillusionment surrounding conventional approaches to regional policy calls have been made for the creation of a new regional paradigm of development from below but most proposals are inappropriate for the majority of third world nations as they assume that planning occurs within a socialist framework this paper outlines the concepts that underpin policies of macroeconomic liberalization and the local economic development approach and examines the compatability of these policies it is argued that the local economic development approach could provide the basis for a development from below regional policy that complements a market oriented macroeconomic philosophy the conclusion notes the lack of empirica

the political economy of stabilization commitment capacity and public response abstract political pressures are generally recognized as important in determining success or failure of economic stabilization and adjustment programs but there has been little comparative analysis of the politics of stabilization this study examines the factors affecting i political leaders commitment to stabilization measures often called political will ii governmental ability to implement stabilization measures and iii the responses of key interest groups and the public at large to those measures the study also discusses political implications of the design of programs and the attempted speed of stabilization and sketches the tactics available to governments to manage political risk including partial compensation persuasion diversion or obfuscation and containment of protest the discussion is based on case studies of stabilization efforts in five fairly poor small highly trade dependent countries ghana in the late 1960s and early 1970s and zambia kenya sri lanka and jamaica in the late 1970s and early 1980s a subsidiary theme within the broader discussion is the ways in which the political economy of stabilization may differ in such countries as compared to larger semi industrialized economies

the evolution of a free banking system the institutional features of models of unregulated monetary systems have often been arbitrarily and implausibly assumed this paper instead provides realistic grounding for important features by constructing a logical evolutionary account of free banking sophisticated and orderly arrangements are shown to emerge from competition and the pursuit of less costly methods of payment the emergence of standardized commodity money is followed by the development in turn of basic money transfer banking easily transferable bank liubilities and clearinghouses the features of an evolved free banking system differ from those assumed in recent models of competitive payments systems

implementing economic policy reforms policies and opportunities for donors abstract african countries trying to cope with crippling economic problems by liberalizing their economies are facing major problems in implementing the reforms international organizations are responding by offering technical assistance typically however the assistance is based on limited and technocratic models that overlook the fact that many of the reforms are unimplementable reforms are complex and uncertain they impose significant political costs their values are generally incompatible with the prevailing political philosophy they involve changing roles they alter power relations within the government and they are identified with outsiders the dominant approaches to implementation privatization training and enhanced control by central ministries underestimate the extent to which the reforms undermine traditional practices the study recommends a fourth approach to address these challenges it relies on designing reforms in collaboration with those who will be in charge of implementing them

sources of panics evidence from the weekly data abstract we use weekly data 1867 1933 to investigate the sources of banking and financial panics we find that while a panic s exact starting date is unpredictable one can identify environments conducive to panics a lack of liquidity in financial markets seems to be a key source results also reveal the effectiveness of the aldrich vreeland act inelastizing the money supply and shortening the panic of 1914 and suggest that the panic of 1933 may have been caused by a speculative attack on the gold backed us dollar via the banks as opposed to a run on the banks directly

stated and revealed heterogeneous risk preferences in educational choice abstract we develop a structural microeconometric model of educational choice with unobserved heterogeneity in risk aversion and estimate the model parameters using panel survey data we assess the credibility of the model by linking the estimated structural parameters of risk aversion to the self reported willingness to take risks which is directly elicited in the survey the risk aversion parameters revealed from educational choices decrease with the willingness to take risks stated by the survey respondents this indicates consistency between stated and revealed risk preferences we suggest that this method could be applied more generally to support or reject the joint validity of structural models and survey measures of preferences

do risk aversion and wages explain educational choices abstract we study a model in which a student s investment in education maximizes expected utility conditional on public and private information the model takes future wage risk into account and treats the direct and opportunity costs of education as additional sources of risk in particular the time needed to complete a degree is random the data show that time to degree is substantially dispersed conditional on the highest degree we find significant and substantial effects of expected returns on individual education choices the risk affecting education costs and in particular the randomness of time to degree also plays an important role in explaining enrollment in higher education we find precise estimates of the crra risk aversion parameter between 0 6 and 0 9 heterogeneity in risk attitudes is significant even in sub populations the sons of professionals bear more risk and are more risk averse than the rest of the sample yet they study more because of higher returns and markedly lower expected investment costs simulations show a strong impact of changes in the probability of grade retention on educational achievement

estimating a structural search model the transition from school to work this paper presents a finite horizon search model that is econometrically implemented using all of the restrictions impli ed by the theory following a sample of male high school graduates fr om the youth cohort of the national longitudinal surveys from graduat ion to employment search parameters are estimated reservation wages and offer probabilities are estimated to be quite low simulations a re performed of the impact of changing the parameters on the expected duration of unemployment copyright 1987 by the econometric society

competitive currencies legal restrictions and the origins of the fed some evidence from the panic of 1907 in the last several years economists have produced numerous studies examining both the theoretical operations and historical manifestations of unregulated banking systems recent examples of historical investigations are the studies by l white 47 who explores the scottish experience selgin 33 on china and timberlake 43 gorton 12 and mullineaux 20 all of whom examine the role of clearinghouses prior to the creation of the federal reserve system in the united states timberlake and gorton emphasize the role that currency substitutes played during banking panics of that era the present paper seeks to explore the issuing of currency substitutes during the fall of 1907 in greater detail in particular it seeks to explain precisely why currency substitutes were needed and how they became accepted and to examine the implications of the panic for both traditional and present arguments over the historical justifications for the fed

competitive banking bankers clubs and bank regulation this paper reexamines the view that banking regulation and central banking arose to counter market failures it investigates the factors that led bankers to form clubs and examines the regulations imposed by clubs on their members it suggests that such regulation is different from real world regulation and central banking and would be unlikely to arise spontaneously from free banking anyway it also suggests that this view is consistent with available evidence and compares it with the alternative views of gary gorton and donald j mullineaux 1987 and of charles a e goodhart copyright 1994 by ohio state university press

up or out rules in the market for lawyers we examine how up or out rules operate as a screening device in the market for lawyers using data on large new york law firms we show that firm growth is a slow and uncertain process because performance as an associate is not an especially informative signal about whether a lawyer will make a good partner and because the costs of mistaken promotion are relatively high a newly hired associate is unlikely to be a suitable partner and the screening process is relatively imprecise firm growth therefore contributes between 5 7 of the present value of profits of a law firm

the impact of student debt on education career and marriage choices of female lawyers abstract we develop and estimate a dynamic model to study the impact of student debt on education career and marriage market choices of young female lawyers our model accounts for several important institutional features of the labor market for lawyers including differences in the work hours across occupational tracks and learning about the prospects of promotion to partner some female students need to take on large amounts of student debt to finance their education and hence start their careers with large amounts of negative wealth the empirical findings suggest that student debt has negative effects on marriage prospects career prospects and investments in educational quality of female lawyers the analysis also provides new insights into the design of public policies that aim to increase public sector employment we show that it is possible to design conditional wage or debt service subsidy programs that significantly increase public sector career choices at reasonable costs

agricultural price policy in tanzania abstract this paper examines agricultural price policy implementation and its strategic impact in tanzania over the period 1969 1980 trends in producer prices and the rural urban terms of trade are analysed by constructing weighted price and income indices for major categories of crops marketed through official channels the results indicate a substantial deterioration of real prices and incomes from crop sales during the 1970s when taken in conjunction with a concomitant deterioration in the efficiency of agricultural marketing the analysis suggests that price policy has had a major adverse impact both on peasant living standards and on the economic performance of tanzania since the mid 1960s

liquidity risk bank networks and the value of joining the federal reserve system reducing systemic liquidity risk related to seasonal swings in loan demand was one reason for the founding of the federal reserve system existing evidence on the post federal reserve increase in the seasonal volatility of aggregate lending and the decrease in seasonal interest rate swings suggests that it succeeded in that mission nevertheless less than 8 percent of state chartered banks joined the federal reserve in its first decade some have speculated that nonmembers could avoid higher costs of the federal reserve s reserve requirements while still obtaining access indirectly to the federal reserve discount window through contacts with federal reserve members we find that individual bank attributes related to the extent of banks ability to mitigate seasonal loan demand variation predict banks decisions to join the federal reserve consistent with the notion that banks could obtain indirect access to the discount window through interbank transfers we find that a bank s position within the interbank network as a user or provider of liquidity predicts the timing of its entry into the federal reserve system and the effect of federal reserve membership on its lending behavior we also find that indirect access to the federal reserve was not as good as direct access federal reserve member banks saw a greater increase in lending than nonmember banks

does parents money matter abstract this paper asks whether parents income per se has a positive impact on children s abilities previous research has established that income is positively correlated across generations this does not prove that parents money matters however since income is presumably correlated with ability this paper estimates the impact of parents income by focusing on income variation due to factors union industry and job loss that arguably represent luck i find that changes in parents income due to luck have a negligible impact on children s human capital for most families although parents money does matter for families whose father has low education

money as meta rule buchanan s constitutional economics as a foundation for monetary stability this paper explores james buchanan s contributions to monetary economics and argues these contributions form the foundation of a robust monetary economics paradigm while often not recognized for his contributions to monetary economics buchanan s scholarship offers important insights for current debates especially the renewed interest in narrow banking in the wake of the financial crisis we argue that the post 2007 crisis milieu creates a unique opportunity to recognize as buchanan did the vital role that money plays in the market as the grammar of commerce that recognition makes the need for more fundamental reform of our monetary regimes at the constitutional level more apparent making buchanan s work on monetary constitutions more relevant than ever before we then discuss how adopting buchanan s monetary framework can improve both monetary scholarship and institutions

bank panics and the endogeneity of central banking abstract central banking is intimately related to liquidity provision to banks during times of crisis the lender of last resort function this activity arose endogenously in certain banking systems depositors lack full information about the value of bank assets so that during macroeconomic downturns they monitor their banks by withdrawing in a banking panic the likelihood of panics depends on the industrial organization of the banking system banking systems with well diversified big banks are less prone to inefficient bank runs because diversification alleviates the information asymmetry in addition big banks can self monitor through publicly observable branch closure systems of many small banks form incentive compatible bank coalitions to emulate the big banks during times of crisis such coalitions improve efficiency by monitoring member banks and issuing money that is a kind of deposit insurance a precursor of central banking

laissez faire monetary theorists in late nineteenth century america economists have recently begun to reconsider many forms of regulation of money and banks from what may be termed a laissez faire perspective some have questioned fundamentally the rationale for any government role this development raises an interesting question for historians of thought what intellectual support did the concept of a free market monetary system receive in the 19th century the heyday of classical liberalism and laissez faire thought this paper takes up the question by critically surveying american monetary writings from the last half of the 19th century 2 we find that the idea of a laissez faire monetary policy was never very popular in the united states though it did have proponents whose work was often insightful most of the relevant literature was written in response to consequences wrought by the monetary legislation of the civil war that legislation included not only the national bank acts 1863 4 but also an ancillary measure effective 1866 placing a prohibitive tax on state bank notes these laws forced banks of issue to become national banks and thus to buy federal bonds as collateral for their notes which had the intended effect of creating an extra demand for the federal government s wartime debt in addition congress authorized the issue of legal tender greenback currency by the treasury a frequent theme in the post bellum monetary literature was the alleged deficiency or inelasticity of the currency supply some the greenbackers and silverites wanted the government to increase its contributions to the money supply others especially toward the end of the century argued for the establishment of a centralized agency with special powers of note issue a handful of writers renewed the radical jacksonians campaign for laissez faire in money and banking 3 in their view the defects of existing arrangements could best be solved by deregulation of banking and by removal of the federal government from the business of supplying money

the central banking role of clearinghouse associations most of this clearinghouse currency was illegal but no one thought of prosecuting or interfering with its issuers as practically all of it bore the words payable only through the clearing house its holders could not demand payment for it in cash in plain language it was an inconvertible paper money issued without the sanction of law yet necessitated by conditions for which our banking laws did not provide when banks were being run upon and legal money had disappeared in hoards in default of any legal means of relief it worked effectively and doubtlessly prevented multitudes of bankruptcies which otherwise would have occurred andrew 1908b p 516

the worldwide change in the behavior of interest rates and prices in 1914 abstract this paper evaluates the role of the destruction of the gold standard and the founding of the federal reserve both of which occured in 1914 in contributing to observed changes in the behavior of interest rates and prices after 1914 the paper presents a model of policy coordination in which the introduction of the fed stabilizes interest rates even it the gold standard remains intact and it offers empirical evidence that the dismantling of the gold standard did not play a crucial role in precipitating the changes in interest rate behavior

bank regulation and monetary policy the depository institutions deregulation and monetary control act 1980 and the garn st germain depository institutions act 1982 are the two most significant pieces of bank legislation since the 193os their significance stems from the fact that they have sought to roll back a number of the regulations and restrictions imposed on bank activity and competition in the 1933 80 period among the important provisions of these acts are a gradual elimination of regulation q ceilings on time and savings deposits by march 1986 the amelioration of state imposed usury ceilings on loans the nationwide provision of interest bearing transaction type accounts negotiable order of withdrawal now and super now accounts permission for thritts to expand into bank like products such as commercial and industrial loans consumer loans and credit cards and the development of new types of savings accounts such as mmdas l in addition to legislative deregulation we have also witnessed homemade deregulation as banks have sought to exploit often with great success loopholes in the bank holding

bank runs in the free banking period free banks in the united states issued private banknotes without discretionary restriction of entry previous research suggests explanations for noteholders relatively large losses and the substantial number of banks that closed the authors examine these hypotheses and the hypothesis that contagious runs were important the evidence provides no support for the importance of wildcat banking due to par versus market valuation of bond reserves episodic but not general support for the importance of declining bond prices and support for contagion effects and contemporaries knowledge of them with little or no impact on the number of banks that closed copyright 1994 by ohio state university press

the federal reserve and panic prevention the roles of financial regulation and lender of last resort this paper surveys the role of the federal reserve within the financial regulatory system with particular attention to the interaction of the fed s role as both a supervisor and a lender of last resort the institutional design of the federal reserve system was aimed at preventing banking panics primarily due to the permanent presence of the discount window this new system was successful at preventing a panic in the early 1920s after which the fed began to discourage the use of the discount window and intentionally create stigma for window borrowing policies that contributed to the panics of the great depression the legislation of the new deal era centralized fed power in the board of governors and over the next 75 years the fed expanded its role as a supervisor of the largest banks nevertheless prior to the recent crisis the fed had large gaps in its authority as a supervisor and as lender of last resort with the latter role weakened further by stigma the fed was unable to prevent the recent crisis during which its lender of last resort function expanded significantly as the fed begins its second century there are still great challenges to fulfilling its original intention of panic prevention

parental and public transfers to young women and their children this paper presents estimates of how an increase in welfare benefits for the welfare eligible affects the provision of parental support in the form of both financial transfers and shared residence based on an overlapping generations framework incorporating game theoretic interactions among parents their adult children and the government the empirical results obtained from two longitudinal data sets indicate that the parents view a dollar of income earned by their daughters as equivalent to a dollar increase in welfare benefits however there exists only a small trade off between the generosity of government aid and the incidence of parental aid data are for the united states and are from the national longitudinal survey of young women for 1968 1984 and the national longitudinal survey of youth for 1979 1984 excerpt

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

a new test of borrowing constraints for education we discuss a simple model in which parents and children make investments in the children s education investments for other purposes and parents can transfer cash to their children we show that for an identifiable set of parent child pairs parents will rationally under invest in their child s education for these parent child pairs additional financial aid will increase educational attainment the model highlights an important feature of higher education finance the expected family contribution efc that is based on income assets and other factors the efc is neither legally guaranteed nor universally offered our model identifies the set of families that are disproportionately likely to not provide their full efc using a common proxy for financial aid we show in data from the health and retirement study that financial aid increases the educational attainment of children whose families are disproportionately likely to under invest in education financial aid has no effect on the educational attainment of children in other families the theory and empirical evidence identifies a set of children who face quantitatively important borrowing constraints for higher education

does leadership matter in the economic reform process liberalization and governance in sri lanka 1989 1993 abstract governance assumptions of the east asian miracle may not be a sufficient or a necessary condition for effective economic reform or for solid growth to emerge in other asian economies this paper argues that in sri lanka where the state is not strong where it is not well coordinated and is neither cohesive nor disciplined in organizational terms strong political leadership proved critical in the second wave of reform from 1989 1993 even if it was essentially illiberal in the process of implementation technical and political imperatives are seen to be interrelated and parts of a single reform package

on the political economy of stabilization abstract joan nelson 1984 includes sri lanka in the period 1977 1982 in a series of case studies of the factors affecting the political acceptability of stabilization and adjustment programs this is misleading because unlike the other countries dealt with sri lanka was not faced with an economic crisis when it accepted large multilateral loans under policy conditionality in fact the economic policies pursued in sri lanka after 1977 reflect the interests and political program of the domestic capitalist class the existence of such a class introduces dimensions to the analysis of the politics of adjustment not dealt with in nelson s framework

structural estimates of the intergenerational education correlation using a structural dynamic programming model we investigate the relative importance of family background variables and individual specific abilities in explaining cross sectional differences in schooling attainments and wages each type of ability is the sum of one component correlated with family background variables and a residual orthogonal component which is purely individual specific household background variables especially parents education account for 68 of the explained cross sectional variations in schooling attainments while ability correlated with background variables accounts for 17 and pure individual specific ability accounts for 15 interestingly individual differences in wages are mostly explained by pure individual specific abilities as they account for as much as 73 of the explained variations in wages family background variables account for only 19 while ability endowments correlated with family background account for 8 copyright 2003 john wiley sons ltd

political explanations of macroeconomic management a survey abstract this paper surveys eight overlapping types of political explanation for patterns of macroeconomic management in the third world 1 historical traditions 2 socio structural determinants 3 the self interest of politically powerful sectors 4 entrenched characteristics of the political system 5 formal properties of the political institutions 6 the influence of economic ideologies 7 vicious virtuous circles and 8 a residual category of conjunctural factors it then considers the scope and limitations of such explanations and reassesses the notion of political constraints on economic optimization

information systems in treaty regimes one of the most influential arguments in international relations is that international institutions influence states behavior by monitoring their compliance with treaties which in turn facilitates reciprocity empirically however many treaty organizations are not mandated to monitor compliance the article develops a parsimonious theoretical framework to address the empirical diversity of monitoring arrangements by mapping strategic environments onto monitoring arrangements it accounts for who detects noncompliance and who brings it to light in particular two factors the interest alignment between noncompliance victims and their states and the availability of noncompliance victims as low cost monitors largely shape the organizational forms of information systems this simple theory sheds light on a wide range of substantively important treaty regimes

governance structures and the durability of economic reforms evidence from inflation stabilizations abstract this paper investigates the relationship between a country s political economic and institutional environment and its ability to implement sustainable economic reform programs the policy issue on which the study focuses is inflation stabilization it consists principally of econometric estimations of the relationship between the success of stabilizations in a large sample of countries and several political and economic explanatory variables the hypotheses tested are drawn both from the recent macroeconomic literature on policy credibility and from political science the major findings include the following 1 a despite the conventional wisdom to the contrary political repression does not appear to be an effective means for implementing sustainable stabilization policies durable economic reforms and political freedoms appear to be complementary 2 b as has been previously argued theoretically and demonstrated empirically political instability is detrimental to policy reform 3 c the political will and popular consensus for stabilization policies are enhanced during a severe economic crisis 4 d there is weak evidence that intervention by the international monetary fund rather than supporting reform programs can undermine their credibility

job mobility and the market for lawyers this paper studies the life cycle career choices of law school graduates using unique data from the university of michigan law school the model assumes that these graduates act according to the optimal solution of a dynamic optimization problem in which they sequentially choose among five employment sectors the employment sectors are differentiated by pecuniary and nonpecuniary returns promotion and dismissal probabilities and the extent of transferability of human capital the estimation of the model reveals a self selection mechanism based on unobserved heterogeneity in abilities and expected future returns which plays a critical role in reproducing the sector specific nonmonotonic separation hazards observed in the data the underlying self selection mechanism also has implications for policy interventions in the market for lawyers such as loan forgiveness programs

free banking and information asymmetry a traditional argument against free banking is that it will collapse because of information externalities it is impossible for depositors to tell whether a high deposit rate offered by a bank is due to its high efficiency or risky lending strategy this paper shows that in a separating equilibrium a higher quality bank offers a lower deposit rate and holds a smaller proportion of risky loans than a lower quality bank to signal its underlying quality hence free banking is not inherently unstable the empirical results for the hong kong banking system during 1964 65 are consistent with the hypothesis of a separating equilibrium

more on the behavior of interest rates and the founding of the fed abstract the paper addresses the issue of the impact of the foundation of the federal reserve system in 1914 on the behavior of short term interest rates empirical evidence is presented showing that no change of regime can be detected in the process governing short term rates in the years straddling the foundation of the fed since the behavior of this process did change in the decade 1910 1920 the paper discusses some historical events and institutional changes in the new york money market that had an impact on the behavior of short term interest rates between 1908 and 1920

private production of scrip money in the isolated community this paper examines the appearance of one type of privately produced currency which had the generic label scrip this money appeared at widely different times and places in the united states between 1820 and 1940 in spite of federal laws prohibiting its issue the most sophistic ated and best developed example of scrip seems to have occurred in th e coal mining regions of appalachia especially in west virginia thi s experience and its implications for monetary behavior are examined here copyright 1987 by ohio state university press

the institutional environment for infrastructure investment the empirical evidence that links political institutions to economic outcomes has grown dramatically in recent years however virtually all of this analysis is undertaken using data from the past three decades this paper extends this empirical framework by performing a two century long historical analysis of the determinants of infrastructure investment in a panel of over 100 countries the results demonstrate that political environments that limit the feasibility of policy change are an important determinant of investment in infrastructure copyright 2002 oxford university press

payment system disruptions and the federal reserve following september 11 2001 abstract the monetary and payment system consequences of the september 11 2001 terrorist attacks and the federal reserve s response are reviewed interbank payment disruptions appear to be a central feature of many us banking crises and interbank payment disruptions seem likely to recur federal reserve credit extension following september 11 succeeded in massively increasing the supply of banks balances to satisfy the disruption induced increase in demand and thereby ameliorate the effects of the shock relatively benign banking conditions helped make fed credit policy manageable an interbank payment disruption that coincided with less favorable banking conditions could be more difficult to manage given current daylight credit policies paying interest on reserves would facilitate improvements in daylight credit policy

educational financing and lifetime earnings this paper formulates and estimates a dynamic programming model of optimal educational financing decisions the main purpose of the paper is to measure the effect of short term parental cash transfers received during school on educational borrowing and in school work decisions and on post graduation lifetime earnings the estimated parameters of the model imply that parental cash transfers do not significantly influence post graduation lifetime earnings long term factors such as family background and prior human capital investments are more important parental cash transfers do however significantly determine the decision to borrow or work during school and the level of lifetime consumption

after the decision implementing policy reforms in developing countries abstract implicit in many reform proposals is a model of the policy process that is roughly linear a proposed reform gets on the agenda for government action a decision is made on the proposal and the new policy or institutional arangement is implemented either successfully or unsuccessfully this article presents an alternative interactive model of implementation that focuses on the conflict and reactions that are evoked by efforts to bring about changed policy or institutional contexts for development and the resources that policy makers and managers are likely to require to sustain a reform in the face of such reactions central to the analysis is the assertion that characteristics of the reform being implemented will largely determine the kind of conflict it engenders where such reaction is likely to become manifest and what resources are needed for sustainability the analysis suggests a framework for the strategic management of reform initiatives

the role of the federal reserve as lender of last resort and the seasonal fluctuation of interest rates the federal reserve s role as a lender of last resort may explain why the seasonal fluctuation of interest rates appeared to decline around 1914 the creation of the fed reduced the seasonal fluctuation of both the probability of a bank receiving an emergency loan and the probability of a financial panic the seasonality of real interest rates could therefore have declined regardless of whether the fed conducted seasonal open market operations the evidence is consistent with the lender of last resort model copyright 1991 by ohio state university press

regulation with growth the political economy of palm oil in malaysia abstract the study of the palm oil industry in malaysia demonstrates that with a proper mix of public regulation and investment a state may achieve national control over an industry and promote the interests of poorer citizens while promoting overall growth and international competitiveness of the industry the introduction summarizes the literature on public interventions in agricultural markets section 2 describes the palm oil industry and its growth in malaysia sections 3 and 4 discuss policies in investment and in regulation and marketing respectively the conclusion further articulates the thesis

estimating the impact of immigrants on the host country social security system when return migration is an endogenous choice in this paper i examine the impact of immigrants on the social security system in germany when return migration is an endogenous choice for this purpose i develop a dynamic stochastic model of joint return migration and saving decisions that accounts for uncertainty in future employment and income and estimate this model using a longitudinal dataset on immigrants from five different source countries i find that immigrants make positive net contributions to both the pension and unemployment insurance systems in germany regardless of their country of origin and age at entry moreover the magnitudes of the net contributions are remarkable for certain groups return migration plays a critical role in generating these positive net contributions in a counterfactual i examine how much exogenous modeling of the return decision which has been the practice of the literature so far changes immigrants net contributions such a restriction causes a serious misestimation of net contributions i also examine the impact of a counterfactual policy experiment in which financial bonuses are provided conditional on return to certain unemployed immigrants such a policy turns out to be ineffective in a number of dimensions