unequal vulnerability to climate change and the transmission of adverse effects through international trade in this paper we consider the unequal distribution of climate change damages in the world and we examine how the underlying costs can spread from a vulnerable to a non vulnerable country through international trade to focus on such indirect effects we treat this topic in a north south trade overlapping generations model in which the south is vulnerable to the damages entailed by global pollution while the north is not we show that the impact of climate change in the south can be a source of welfare loss for northern consumers in both the short and the long run in the long run an increase in the south s vulnerability can reduce the welfare in the north economy even in the case in which it improves its terms of trade in the short run the south s vulnerability can also represent a source of intergenerational inequity in the north therefore we emphasize the strong economic incentives for non vulnerable and a fortiori less vulnerable economies to reduce the climate change damages on more vulnerable countries

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

fiscal policy and growth in a small open economy with elastic labour supply endogenizing labour supply leads to fundamental changes in the equilibrium structure of the ak growth model of a small open economy the balanced growth equilibrium is described by two tradeoff loci relating the equilibrium growth rate to the fraction of time devoted to leisure the implications of endogenous labour supply for fiscal policy are addressed the effects of distortionary taxes and government expenditure on the equilibrium growth leisure employment tradeoff are analysed the responses contrast with both those of a closed economy having an elastic labour supply and an open economy with fixed labour supply optimal fiscal policy is also characterized jel classification f41 f43 politique fiscale et croissance dans une petite economie ouverte quand l offre de travail est elastique l endogeneisation de l offre de travail entraine des changements fondamentaux dans la structure d equilibre du modele de croissance du type ak d une petite economie ouverte l equilibre de croissance balancee est decrit par deux lieux de relations d equivalence reliant le taux de croissance d equilibre a la fraction du temps allouee au loisir on examine les implications de cette endogen6isation de l offre de travail pour la politique fiscale on analyse les effets de taxes distorsionnantes et des depenses gouvemementales sur la relation d 6equivalence entre taux de croissance et loisir et donc emploi on obtient des reactions differentes de celles qu on obtient en economie ferm6e quand l offre de travail est elastique et en economie ouverte quand l offre de travail est fixe on proc ede alors a la definition de la politique fiscale optimale

why not africa growth and welfare effects of secure property rights this paper presents the long run equilibrium and developmentdynamics in the neoclassical growth model and a simple modelof endogenous growth when property rights are absent theresults are compared to the outcome in a corresponding modelwith secure property rights the main findings are that thereexists a considerable gain in level and growth of consumptionfrom establishing secure property rights that economicperformance without property rights worsens with an increasingnumber of competing social groups and that the existence orabsence of property rights explains conditional convergence

poverty voracity and growth abstract this article investigates economic performance when enforceable property rights are missing and basic needs matter for consumption it suggests a new view of the so called voracity effect according to which windfall gains in productivity induce behavior that leads to lower economic growth taking into account that the rate of intertemporal substitution in consumption depends on the level of consumption it is shown that voracious behavior is situation specific it occurs when an economy is in decline and sufficiently close to stagnation

voracity vs scale effect in a growing economy without secure property rights abstract this paper extends the standard model of growth with insecure property rights by introducing variable labor supply and increasing returns to scale it is assumed that capital stock is jointly owned by multiple interest groups and that each group participates in production activities by supplying its labor force in this setting there are two opposing factors that affect growth over consumption in the absence of secure property rights and the scale effect due to the presence of increasing returns the growth performance of the economy thus depends on which factor dominates

intertemporal and intratemporal substitution and the speed of convergence in the neoclassical growth model abstract this paper re examines the speed of convergence in a one sector growth model under fairly general conditions with respect to both production and preferences we investigate the response of the rate of convergence to the intratemporal elasticity of substitution in production and to the intertemporal and intratemporal elasticities of substitution in consumption the speed of convergence is highly sensitive to the first two elasticities but not to the third which is reflected primarily in the agent s labor leisure choice small deviations in the elasticities from standard benchmark parameters can lead to significant variations in the rate of convergence encompassing the range of typical empirical estimates

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

new estimates of the elasticity of marginal utility for the uk this paper provides novel empirical evidence on the value of the elasticity of marginal utility eta for the united kingdom eta is a crucial component of the social discount rate sdr which determines the inter temporal trade offs that are acceptable to society using contemporaneous and historical data new estimates are obtained using four revealed preference techniques the equal sacrifice income tax approach the euler equation approach the frisch additive preferences approach and risk aversion in insurance markets a meta analysis indicates parameter homogeneity across approaches and a central estimate of 1 5 for eta the confidence interval excludes unity the value used in official guidance by the uk government the term structure of the sdr is then estimated the result is a short run sdr of 4 5 declining to 4 2 in the very long run this is higher and flatter than the uk official guidance the difference stems from incorrect calibration of social welfare and estimation of the diffusion of growth other things equal the results suggest that current uk guidance might need to be updated

habit persistence and the long run labor supply standard macroeconomic models possess the undesirable feature that people stop working in the long run assuming standard parameters the neoclassical model predicts that 2 of annual productivity growth leads to a 99 decline in the labor supply after 624 years yet this contradicts the fact that labor hours per capita are relatively stable even over a long period of time this paper shows how internal and external habit persistence each work to stabilize the long run labor supply independent of key parameter choices

consumption wealth and finite horizons tests of ricardian equivalence i introduction a continuing debate in macroeconomics concerns the ability of fiscal policy to affect aggregate demand in other words if the government reduces taxes and finances a given level of government spending by issuing new bonds does it generate an increase in aggregate demand the answer to this question depends on the degree to which consumers treat government debt as net wealth under the textbook model the tax cut would raise current disposable income and cause consumers to increase spending while this spending increase may be offset to some extent by the effects of higher interest rates the net effect would be an increase in aggregate demand in contrast under ricardian equivalence interest in which was rekindled by barro s 1974 seminal paper permanent income consumers who are connected to future generations by operative inter generational transfers would not consider the current tax cut and increase in disposable income as permanent they would recognize that the government s intertemporal budget constraint implies that for a given level of government spending a tax cut now implies a tax increase in the future under certain conditions one of which is the assumption of infinite planning horizons see sweeney 1988 for a discussion of the potential importance of this and other conditions imposed in barro s model the present value of the future tax increase implied by the current tax cut would exactly equal the present value of the concomitant increase in government debt as a result consumers will save their increased disposable income to cover their future taxes and the tax cut will not affect aggregate demand put differently consumers would not treat government bonds as net wealth although many empirical tests of the ricardian proposition have appeared in the literature see seater 1993 and the literature cited therein most have used somewhat ad hoc estimating equations that do not properly nest the ricardian hypothesis with a reasonable alternative hypothesis it was not until blanchard s 1985 elegant representation of the behavior of consumers with finite planning horizons that a clear path for empirical work was delineated blanchard s paper spawned a series of empirical papers designed to test ricardian equivalence within the framework of his model which does nest both the ricardian hypothesis and a non ricardian alternative in a widely cited paper evans 1988 was the first to derive the empirical implications of blanchard s model the model reduces the test of ricardian equivalence to a test of whether wealth affects current consumption after accounting for the effect of consumption in the previous period if it does then the model implies that consumers have finite planning horizons and treat government bonds as net wealth although evans s results cannot reject ricardian equivalence they do not resolve the controversy about the ricardian hypothesis other equally well grounded empirical studies e g graham and himarios 1991 and references therein find results that favor the finite horizon interpretation in the first part of the paper we re estimate evans s 1988 model using a better approximation of the market value of wealth contrary to evans s conclusions we find that ricardian equivalence should be rejected in favor of a non ricardian alternative hypothesis in which consumers have finite planning horizons 1 our results differ from evans s primarily because our wealth measure takes account of available information on the market value of corporate equity held by households our series is markedly more volatile than evans s as a result of the decidedly larger movements in the market relative to the book value of corporate assets in the second part of the paper we test whether the long run properties of the data are consistent with our regression results in contrast to earlier work by gali 1990 we find that they are

give and take how the funding of adaptation to climate change can improve the donor s terms of trade this paper discusses the interplay between international trade regional adaptation to climate change and financial transfers for funding adaptation it combines insights from a theoretical model of north to south transfers with the findings of a calibrated dynamic multi region multi sector computable general equilibrium model that takes into account the impacts of climate change and the adaptation to it assessing the effects of adaptation funding indicates that funding of adaptation in developing regions can be pareto improving not only will developing regions which do not own sufficient resources for adapting optimally profit from receiving adaptation funding terms of trade improvements in the high and middle income donor countries can dominate transfer costs and hence lead to a net welfare gain in almost any developed region except north america as such our consideration adds a new argument for financially supporting adaptation in the developing world besides the well known ones such as fairness and incentives for participation in a global climate treaty

fiscal policy elastic labor supply and endogenous growth abstract endogenizing labor supply leads to fundamental changes in the equilibrium structure of the ak growth model the balanced growth equilibrium can be described in terms of two tradeoff loci relating the equilibrium growth rate to the fraction of time devoted to leisure the implications of endogenous labor supply for fiscal policy are analyzed three issues are addressed first the effects of various distortionary tax changes and government expenditure changes on the equilibrium growth leisure employment tradeoff are analyzed second optimal fiscal policy is characterized finally the formal analysis is supplemented by numerical results focusing particularly on the quantitative welfare implications

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

exchanging goods and damages the role of trade on the distribution of climate change costs the impacts of climate change vary significantly across world regions whereas tropical and subtropical regions are expected to suffer severely from the effects of climate change the impacts in northern latitudes should remain relatively moderate however regions are not self sufficient and the costs of climate change can spread across regions through international trade i study the international spillover of climate impacts within a regionalised climate sensitive dynamic computable general equilibrium model of the world economy using data from a global climate model shows that the world regions face welfare losses between 0 6 and 2 1 due to climate change i also show that climate change affects terms of trade and sectoral competitiveness by means of a decomposition method the extent of spillover impacts through international trade can be identified spillover impacts significantly affect either positively or negatively the total costs of climate change for a region for regions with low exposure to climate change and high adaptive capacities spillover effects are responsible for a 1 6 of the total cost of climate change

aggregate consumption behaviour and liquidity constraints the canadian evidence this paper considers a general permanent income model in which a fraction of consumers in the economy is liquidity constrained consumption growth rate for these individuals is related to the growth rate of their income and the level of real interest rates the interest rate coefficient is predicted to be smaller in the presence of liquidity constraints empirically liquidity constraints are found to be important and the estimated intertemporal elasticity of substitution parameter is much larger than the one obtained by estimating the standard representative agent model lastly there is some evidence of structural changes over the sample period which are associated with the 1982 recession

policy effectiveness in spatial resource wars a two region model abstract we develop a spatial resource model in continuous time in which two agents strategically exploit a mobile resource in a two region setup to counteract the overexploitation of the resource the tragedy of commons that occurs when players are free to choose where to harvest the regulator can establish a series of spatially structured policies we compare the equilibria in the case of a common resource with those that emerge when the regulator either creates a natural reserve or assigns territorial user rights to the players we show that when technological and preference parameters dictate a low harvesting effort the policies are ineffective in promoting the conservation of the resource and in addition they lead to a lower payoff for at least one of the players conversely in a context of higher harvesting effort the intervention can help to safeguard the resource preventing extinction while also improving the welfare of both players

wealth varying intertemporal elasticities of substitution evidence from panel and aggregate data abstract this paper constructs and estimates a model of consumer preferences in which the intertemporal elasticity of substitution ies of consumption expenditure rises with the level of wealth the purpose of this paper is to measure the effect that systematic variation in the ies of poor and rich consumers has on the ies of aggregate consumption expenditure we find economically significant differences in the ies of poor and rich consumers in indian panel data on the consumption of individual households we also find economically significant differences in the ies measured in aggregate time series data for the u s and india

savings and nutrition at low incomes while many development theorists assume saving propensities vary among different groups there has been limited theoretical justification for this view this paper analyzes two complementary theories stressing the effect on saving of physiological consequences of poor nutrition at low incomes one influence is on the probability of survival another is on workers productivity either effect means that the average propensity to save can rise with income issues considered include annuities exogenous changes in survival and efficiency implications for the efficiency wage theory of unemployment and distinctions between wage and nonwage income implications of nutritional effects for econometric specification of saving functions are stressed

aid and trade this paper surveys the recent theoretical and empirical literature that explores the relations between aid and trade and asks about the complementarity or substitution effects at work we distinguish between the effects of aid on trade flows and on trade policies of the donor as well as the recipient countries special focus is given on trade facilitation or aid for trade

budget balance welfare and the growth rate dynamic scoring of the long run government budget this paper determines conditions under which a reduction in the role of government either through a tax cut alone or together with accompanying expenditure cuts will improve long run government fiscal balance for a ceteris paribus cut in the income tax rate to improve long run government balance the intertemporal elasticity of substitution must exceed unity a tax cut balanced by an expenditure cut is likely to improve the long run balance even if it does not improve the short run balance the relationship between improving the long run fiscal balance and economic welfare is also analyzed

the intertemporal elasticity of substitution in consumption in the united states and the united kingdom as robert e hall 1988 notes the magnitude of the intertemporal elasticity of substitution in consumption is one of the central questions of macroeconomics do higher expected real interest rates lead to deferred consumption the authors extend hall s methodology and model and compare results for the united sta tes and the united kingdom in both cases they directly estimate the mo ving average process that temporal aggregation might induce in the random disturbances and take account of consumers who do not follow the lif e cycle permanent income model of consumption copyright 1992 by mit press

social composition social conflict and economic development this article investigates how the existence of non cooperative social groups that appropriate resources either peacefully or through contest affects economic growth when property rights are unenforceable for symmetric groups it shows that economic growth is generated only in peaceful societies for the case of asymmetric groups rebel equilibria are investigated in which a large majority behaves peacefully although challenged by an aggressive minority the article explains how conflict intensity and the rate of economic growth depend on social fractionalisation general productivity of the economy power of social elites and the ease at which resources are appropriated

consumption innovation persistence and the excess smoothness debate based on studies using us data consumption is too smooth relative to the implications of the rational expectations permanent income hypothesis repih of consumption we examine this and a number of related methodologicalissues for the uk using maximum likelihood estimation mle of an autoregressive fractionally integrated moving average arfima model of the income process we conclude that an innovation to income has a persistent effect on consumption and that in contrast to the findings from us studies consumption is too volatile compared to the repih model further mle is substantially more efficient than the semi parametric method of estimating arfima models which has previously been used in this area

consumption retirement and social security evaluating the efficiency of reform that encourages longer careers abstract this paper proposes and analyzes a social security reform in which individuals no longer face the oasi payroll tax after say age 54 or a career of 34 years and their subsequent earnings have no bearing on their benefits we first estimate parameters of a life cycle model our specification includes non separable preferences and possible disability it predicts a consumption expenditure change at retirement we use the magnitude of the expenditure change together with households retirement age decisions to identify key structural parameters the estimated magnitude of the change in consumption expenditure depends importantly on the treatment of consumption by adult children of the household simulations indicate that the reform could increase retirement ages one year or more equivalent variations could average more than 4000 per household and income tax revenues per household could increase by more than 14 000

growth trends cyclical fluctuations and welfare with non expected utility preferences abstract using standard time separable discounted expected utility eu models lucas models of business cycles 1987 and others argue that growth trends have a crucial and cyclical fluctuations a trivial effect on individuals utility these conclusions are drastically altered if instead non eu preferences are assumed

variances of security price returns based on high low and closing prices in a recent paper garman and klass 1980 studied the problem of estimating capital asset price volatility parameters developing an idea first introduced by parkinson 1980 they argue that improved volatility measures can be obtained by taking into account the daily high low and opening prices in addition to the traditionally used closing prices this paper is concerned mainly with testing the empirical validity of different volatility estimators based on high low and closing prices

an analysis of commercial bank common stock returns 1802 97 this study creates analyses for the first time a continous index of returns on commercial bank common stocks listed in a specific market the index is constructed from a unique set of historical data and is calculated on both a weighted and unweighted basis first including and then excluding dividends a measure of volatility is calculated annually the results indicate that the dividend component of holding period returns is very important including dividends average returns were 6 0 for the century excluding dividends average returns were 0 1 excess returns were calculated using two different measures of a riskless rate of return cumulative excess returns for the first half of the nineteenth century were negative real returns were calculated and found to be generally positive over the century the volatility of returns was quite high during certain periods examining the effects of significant economic and political events on bank common stock returns we find that the war of 1812 the civil

is consumption too smooth the case of the united kingdom this study consider whether for the uk the restrictions of the rational expectations permanent income repi model of consumption are consistent with the data and whether consumption is too smooth given innovations in labour income some of the findings confirm those for the usa the repi restrictions are rejected however in marked contrast to the result of campbell and deaton 1989 little is found to support the view that consumption is too smooth indeed there is some support for the view that consumption is too volatile some insight is given as to how such results can arise

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

social fractionalization endogenous appropriation norms and economic development we investigate how social composition affects competitive and cooperative behaviour in a linear growth model without secure property rights if a society is homogeneous or highly fractionalized it is in the self interest of people to cooperate the first best allocation is enforced through trigger strategies and growth is independent from social structure if a society is polarized i e if it consists of a small number of groups the first best solution can turn out to be unenforceable and groups will follow an exploitative strategy in this case the rate of growth is monotonously decreasing in the degree of fractionalization

the speed of convergence and alternative government financing abstract in this paper we are concerned with the speed of convergence in the sidrauski monetary optimizing model sidrauski am econ rev 57 1967 534 in which the steady state capital stock is not influenced by a change in public spending the paper studies how different the speed of convergence to the steady state is affected by a change in government spending under the various ways of financing in exploring the transitional adjustment to the public policy shock it will be convenient to focus upon the degree of relative risk averse

financial liberalization and aggregate consumption the evidence from taiwan this paper considers the effect of financial liberalization on aggregate consumption with a special focus on taiwan which has sustained a high savings rate and a rapid rate of economic growth under financial dualism but has undertaken financial liberalization since the 1980s leading to an expansion of the formal financial sector the paper finds that because of an active informal financial sector consumers in taiwan are less credit constrained than in other developing countries however the expansion of the formal financial sector has contributed to some relaxation of consumer credit constraints and thereby changes in the income and interest elasticities of consumption it also has brought about a higher consumption growth rate offsetting at least partially the positive growth effect of financial liberalization which helps improve the efficiency in finanacial intermediation

precautionary saving of chinese and u s households we employ a model of precautionary saving to study why household saving rates are high in china and low in the united states the use of recursive preferences gives a convenient decomposition of saving into precautionary and nonprecautionary components over 80 of china s saving rate and nearly all u s saving arises from the precautionary motive the difference between u s and chinese household income growth rates is vastly more important than income risk for explaining the saving rates the key mechanism is that precautionary savers have target wealth to income ratios and rapid income growth necessitates high saving rates to maintain the ratio

world product and income international comparisons of real gross product the volume reports on the third phase of the united nations international comparison project icp the main results provide comparisons of real gross domestic product gdp per capita for thirty four countries in 1975 quantity and price comparisons are given also for personal consumption capital formation and public consumption and further subdivisions of final expenditures on gdp are estimated

consumption over the life cycle and over the business cycle the main aim of this paper is to assess the validity of the life cycle model of consumption in particular we address an issue that has recently received much attention especially in the macroeconomic literature that of excess sensitivity of consumption growth to income growth we do this using a time series of cross sections and a novel and flexible parameterization of preferences the former allows us to address aggregation issues directly while with the latter we can allow both the discount factor and the elasticity of intertemporal substitution eis to be affected by various observable variables and lifetime wealth the main findings can be summarized as follows i the excess sensitivity of consumption growth to labor income disappears when we control for demographic variables this is true both at life cycle and business cycle frequencies ii estimation of a flexible specification of preferences indicates that the elasticity of intertemporal substitution is a function of several variables including the level of consumption the eis increases with the level of consumption as expected iii the variables that change the eis are also important in explaining why we observe excess sensitivity over the business cycle iv we are able to reconcile our results with those reported both in the macro and micro literature v in our specification the elasticity of intertemporal substitution is not very well determined this result however should be taken with care as we have not made an effort to construct a preferred specification which would probably include additional controls for labor supply behavior the evidence presented shows that the life cycle model cannot be easily dismissed indeed we believe that the model does a good job at representing consumption behavior both over the life cycle and over the business cycle