fringe benefits and small businesses evidence from the federal reserve board small business survey data from the 1993 national survey of small businesses nssbf is used to analyse the factors affecting the provision of pensions and health insurance by small businesses the race of the business owner is found to impact the provision of taxadvantaged fringe benefits even after accounting for a wide range of other economic and demographic variables it is not possible to determine why owner race impacts the provision of fringe benefits by small businesses but the significance of the race variable might reflect a lower level of marketing effort by financial service firms in minority dominated communities the owner education variable which is also significant in both the pension and health insurance models could also be a proxy for the availability of general information about the importance of fringe benefits with the exception of the sole proprietorship variable the demographic and economic variables appear to have similar effects on the provision of both pensions and health insurance by small busi

wages experience and seniority in this paper we study the sources of wage growth we identify the contribution to such growth of general sector specific and firm specific human capital our results are interpretable within the context of a model where the returns to human capital may be heterogeneous and where firms may offer different combinations of entry level wages and firm specific human capital development we allow for the possibility that wages are match specific and that workers move jobs as a result of identifying a better match to estimate the average returns to experience sector tenure and firm specific tenure within this context we develop an identification strategy which relies on the use of firm closures our data source is a new and unique administrative data set for germany that includes complete work histories as well as individual characteristics we find positive returns to experience and firm tenure for skilled workers the returns to experience for unskilled workers are small and insignificant after 2 years of experience their returns to sector tenure are also zero however their returns to firm tenure are substantial in this paper we study the growth of wages of young workers in germany knowing the extent and reasons for individual wage growth over the life cycle is important for a number of areas in economics just to mention two examples first it is a key element to understanding and designing active labour market programmes many such programmes offer temporary and often subsidized work opportunities examples are the new deal in the u k and the swedish programmes as well as a number of programmes in germany these programmes are based on the assumption that general skills are sufficiently enhanced while working so as to render the workers employable without a wage subsidy thus the success of these programmes depends on how skills improve on the job for the target population and whether this skill enhancement is transferable across jobs second it is a key to understanding the benefits and costs of job mobility this in turn matters for a number of policy issues including the design of pension policies relating for example to final salary schemes as a result of this widespread interest a large body of empirical research has focused on obtaining estimates for the returns of experience and seniority 1 our study uses a new and unique administrative data set with a number of features that are important for our analysis and allow us to avoid many problems encountered in earlier work in this field in our model wages grow due to learning by doing which may be heterogeneous across individuals moreover since firms offer different career profiles and because we allow for match specific effects on wages investments take the form of searching for the firm with the most desirable learning by doing characteristics career structure 2

when do firing taxes matter abstract firing taxes have real effects only if layoffs are subsidized relative to quits as it is pareto optimal to label a separation a quit whenever doing so maximizes joint wealth given the size of layoff subsidies in oecd countries firing taxes are an unlikely candidate to explain cross country differences in labour market performance

job displacement risk and severance pay abstract this paper is a quantitative equilibrium study of the insurance role of severance pay when workers face displacement risk and markets are incomplete a key feature of our model is that in line with an established empirical literature job displacement entails a persistent fall in earnings upon re employment due to the loss of tenure the model is solved numerically and calibrated to the us economy in contrast to previous studies that have analyzed severance payments in the absence of persistent earning losses we find that the welfare gains from the insurance against job displacement afforded by severance pay are sizable

the incidence and allocation effects of a tax on corporate distributions abstract to study the effects of double taxation first at the corporation level then at the shareholder level this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes contrary to the common view the tax is shown to have no subtitution effect and in particular no effect on the corporate choice between debt and equity via retained earnings finance the analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via dividend relief

strategic judgment proofing a liquidity constrained entrepreneur raises capital to finance a business activity that may harm bystanders the entrepreneur raises senior secured debt to shield assets from the tort victims in bankruptcy for a fixed level of borrowing senior debt creates better incentives for precaution taking than either junior debt or outside equity the entrepreneur s level of borrowing is however socially excessive giving tort victims priority over senior debtholders in bankruptcy prevents overleveraging but leads to suboptimal incentives lender liability exacerbates the incentive problem even further a limited seniority rule dominates these alternatives shareholder liability mandatory liability insurance and punitive damages are also discussed

capital tax reform and the real economy the effects of the 2003 dividend tax cut this paper tests whether the 2003 dividend tax cut one of the largest reforms ever to a us capital tax rate stimulated corporate investment and increased labor earnings using a quasi experimental design and us corporate tax returns from years 1996 2008 i estimate that the tax cut caused zero change in corporate investment and employee compensation economically the statistical precision challenges leading estimates of the cost of capital elasticity of investment or undermines models in which dividend tax reforms affect the cost of capital either way it may be difficult to implement an alternative dividend tax cut that has substantially larger near term effects jel c72 c78 c91

investments holdup and the form of market contracts the authors analyze incomplete contracts to induce efficient investment with exogenous switching costs fixed price contracts are efficient generate some rigidity in prices are renegotiated intermittently by possibly small amounts and when inflation is positive generate asymmetric responses to shocks all consistent with evidence on prices and wages with two sided specific investments efficiency requires prices to have sufficient escalator clauses to avoid renegotiation as observed in many long term contracts a third case with one sided specific investments can generate take or pay contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly

executive effort and selection of risky projects this article examines the incentives of executives to adopt risky projects the agency problem considered is that of motivating the executive to expend effort to generate information about the profitability of projects and to select the best project conditional upon the information that his effort generates we show that the executive and the principal will not always agree regarding which project is best we provide conditions under which this conflict of interest leads from the principal s perspective to either an underinvestment or an overinvestment in risky projects

how liable should a lender be the case of judgment proof firms and environmental risk comment recently u s environmental law has shown a tendency toward increased lender liability a model of a potentially judgment proof owner of a firm a lender and a potential victim is developed in which this policy can increase accident frequency and reduce efficiency full partial and zero lender liability rules and a minimum equity requirement are analyzed partial lender liability and an equivalent minimum equity requirement deliver the highest level of efficiency although the former can deliver a higher contribution by the lender to the victim than the latter policy and empirical implications are also discussed copyright 1995 by american economic association

employers provision of pensions and sick pay evidence from the 1990 workplace indistrial relations survey this paper examines the determinants of pension and sick pay provision using data on some 1100 private sector establishments with 25 or more employees it also compares the wages of employees eligible for a pension or for sick pay with the wages of those for whom no such provision was made using ordered probit techniques three levels of provision were examined with respect to each type of benefit no provision provision for white collar employees only and provision for all employees benefit provision was found to be associated with work place size and with the extent to which employment was white collar it was negatively associated with the level of part time working new establishments were slightly less likely to offer pensions than older ones but age had no impact on sick pay provision perhaps because it is less complex and costly than pension provision establishments which recognized trade unions were more likely to offer fringe benefits than those which did not however blue collar unions se

do wages rise with job seniority a reassessment the authors provide new estimates of the return to job seniority using a dataset similar to that employed in joseph altonji and robert shakotko do wages rise with job seniority review of economic studies 1987 and robert topel specific capital mobility and wages journal of political economy 1991 they consider the strengths and weaknesses of these studies treatment of economy wide trends their dating conventions for tenure and wages their handling of wage observations that might span multiple jobs and their estimation approaches re estimation points to an effect often years of tenure on the log wage equal to 11 which is above the preferred estimate of altonji and shakotko but far below that of topel changes in earnings distributions and in the employment relationship motivate the examination of more recent data perhaps surprisingly the return to tenure has probably increased over time

misselling through agents this paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents prospecting for customers and advis ing on the product s suitability for the specific needs of customers when structuring salesforce compensation firms trade off the expected losses from misselling unsuitable products with the agency costs of providing market ing incentives we characterize how the equilibrium amount of misselling and thus the scope of policy intervention depends on features of the agency problem including the internal organization of a firm s sales process the transparency of its commission structure and the steepness of its agents sales incentives jel m31 m37 m52 when purchasing unfamiliar products consumers often rely on information and advice pro vided by representatives of the seller this creates the possibility of misselling the question able practice of a salesperson selling a product that may not match a customer s specific needs 1 this problem is particularly severe in markets for technically complex products such as con sumer electronics auto repairs medical care and retail financial services including securities pensions insurance policies and mortgages an important feature of these markets is that the seller often deals with the customer through an agent rather than directly for example financial brokers typically recommend purchase of a specific product after inquiring about their customers particular circumstances and needs the possibility of abuse has led to regulation in some of these markets most notably for securities transactions the financial industry regulatory authority finra the major self regulatory organization for securities firms operating in the united states mandates that broker dealers make a reasonable effort to obtain information about the individual characteristics of their noninstitutional cus tomers and to ensure that their recommendations are suitable to customers financial situations

labor market matching with precautionary savings and aggregate fluctuations we analyze a bewley huggett aiyagari incomplete markets model with labor market frictions consumers are subject to idiosyncratic employment shocks against which they cannot insure directly the labor market has a diamond mortensen pissarides structure firms enter by posting vacancies and match with workers bilaterally with match probabilities given by an aggregate matching function wages are determined through nash bargaining we also consider aggregate productivity shocks and a complete set of contingent claims conditional on this risk we use the model to evaluate a tax financed unemployment insurance scheme higher insurance is beneficial for consumption smoothing but because it raises workers outside option value it discourages firm entry we find that the latter effect is more potent for welfare outcomes we tabulate the effects quantitatively for different kinds of consumers we also demonstrate that productivity changes in the model in steady state as well as stochastic ones generate rather limited unemployment effects unless workers are close to indifferent between working and not working thus recent findings are corroborated in our more general setting

changes in job instability and insecurity using monthly survey data this article provides evidence on changes in short term job instability and insecurity using the survey of income and program participation monthly measures from this data set are contrasted with annual measures from the survey of income and program participation and the panel study of income dynamics neither data set shows an increase in job turnover during the 1980s and 1990s we also examine indicators of increased insecurity these include the probability that a job ends involuntarily is followed by a spell of nonemployment or that the subsequent job has lower wages these indicators of insecurity also show no upward trend

well informed intermediaries in strategic communication this paper studies how a sender with private information can influence the decisionmaker through well informed intermediaries both the sender and the intermediary may be independently objective or biased with the objective type assumed to pass on the most accurate information while the biased type wanting to push a particular agenda but also to appear objective although using one s own information is a sign of objectivity the biased intermediary selectively incorporates the sender s information to push his agenda and his truth telling incentives always decrease in those of the biased sender s hence measures raising the sender s reputation cost worsen the intermediary s distortion and may make the decisionmaker strictly worse off in contrast the biased sender s and the intermediary s truth telling incentives are strategic complements if they report simultaneously

the welfare costs of worker displacement abstract recent work has documented the large persistent earnings losses associated with the displacement of high tenure workers in this paper we assess the welfare costs of this risk assuming that workers do not have access to insurance markets we find that the cost is substantial on the same order of magnitude as the cost associated with unemployment risk we also argue that long duration unemployment insurance is likely to exacerbate this cost and that government financed severance payments are a far more effective way of dealing with the displacement risk

earnings losses of displaced workers revisited recent literature reviews conclude that job displacement results in sustained earnings losses bruce c fallick 1996 lori g kletzer 1998 and that estimates of the size of those reductions vary with the type of data used in the analysis the industry within which displacement occurs and business cycle conditions the largest estimated losses were obtained using administrative data from pennsylvania during the 1970s and 1980s louis s jacobson robert j lalonde and daniel g sullivan 1993a the data covered a period of high unemployment in a heavily indus trialized state characterized by disproportionate job losses in manufacturing thus the ability to generalize those results to more favorable economic times and states with a greater reliance on service sector employment has been questioned to address these issues administrative data are used to similarly examine the impact of job displacement on earnings losses of workers in connecticut from 1993 to 2004 the work of jacobson lalonde and sullivan jls also provided important methodologi cal advancement by adapting analytical techniques developed for program evaluation james j heckman and v joseph hotz 1989 to the context of job displacement the same techniques fixed effects and time trend estimators as those used in the original jls publication are initially employed here then the methods are extended to include matching estimators developed since their publication both nearest neighbor estimators of average treatment on the treated att and differenced average treatment on the treated datt are adapted to the context of this study heckman hidehiko ichimura and petra todd 1997 heckman et al 1998 and rajeev h dehejia and sadek wahba 1999 2002 the results presented here for connecticut differ in some ways from those found in the work of jls using data from pennsylvania in the period immediately following job loss regardless of the technique employed earnings reductions for workers displaced through mass layoff range from 32 percent to 33 percent jls reported immediate losses of more than 40 percent six years later using the same estimators as jls earnings reductions in connecticut range from 13 percent to 15 percent they report sustained losses in pennsylvania of 25 percent the smaller long term impacts in connecticut demonstrate that under more ordinary economic times esti mated losses from administrative data lie within the range observed using other data sources this finding resolves a long standing conflict among the results of high quality studies that have used differing data sources to study earnings reductions following job loss 1 using two different matching estimators earnings losses six years after mass layoff are 12 percent the matching estimators compare those who experienced mass layoff to compari sons with the same ex ante probability of the event these smaller losses are consistent with the

job search bargaining and wage dynamics this article constructs and estimates a model of wage bargaining with on the job search to explore three different components of wages general human capital match specific capital and outside options as the workers find better job opportunities the current employer has to compete with outside firms to retain them this between firm competition results in wage growth even when productivity remains the same the model is estimated by a simulated minimum distance estimator and data from the 1979 national longitudinal study of youth the results indicate that the improved value of the outside option raises wages by 14 16 in the first 5 years

relative wage movements and the distribution of consumption we analyze how relative wage movements among birth cohorts and education groups affected the distribution of household consumption and economic welfare our empirical work draws on the best available cross sectional data sets to construct synthetic panel data on u s consumption labor supply and wages during the 1980s we find that low frequency movements in the cohort education structure of pretax hourly wages among men drove large changes in the distribution of household consumption the results constitute a spectacular failure of between group consumption insurance a failure not explained by existing theories of informationally constrained optimal consumption behavior a welfare analysis indicates that the cost of between group consumption variability is larger than the cost of aggregate consumption variability by two orders of magnitude

information management in incentive problems we extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he choose an unobservable level of cost reducing effort concer

job duration seniority and earnings an important stylized fact about labor markets is that workers with longer seniority with their current employer have higher earnings than other workers with the same total labor market experience this study shows that workers in longer jobs earn more throughout than workers in a series of shorter jobs and that the measured positive cross sectional return seniority is largely a statistical artifact due to the correlation of seniority with an omitted variable representing the quality of the worker the job or the worker employer match the implication is tha t earnings do not in fact rise very much with seniority copyright 1987 by american economic association

risk sharing between and within families this paper uses the panel study of income dynamics to test whether risk sharing is complete between or within american families the tests accommodate a wide variety in the configuration and availability of family data the test results reject inter as well as intra family full risk sharing even assuming that leisure is endogenous or that leisure and consumption are nonseparable

taxation and corporate payout policy this paper presents new evidence on how corporate payout policy responds to the differential between the tax burden on dividend income and that on accruing capital gains it describes the construction of weighted average marginal tax rate series for the period since 1929 and it suggests that the enactment of the job growth of taxpayer relief reconciliation act of 2003 should raise the after tax value of dividends relative to capital gains by more than five percentage points the impact of this change on payout depends on the elasticity of dividend payments with respect to the after tax value of dividend income relative to capital gains time series estimates suggest an elasticity of more than three and imply that the recent tax reform could ultimately increase dividends by almost twenty percent this abstract was borrowed from another version of this item

the organization and scope of agents regulating multiproduct industries abstract a mechanism design problem with two dimensional uncertainty is solved to derive the optimal policy for regulating a monopolist with private information about the marginal cost of producing two different goods the paper establishes that informational economies of scope or incentive complementarities arise when one firm produces both goods the regulator should weigh these economies against the benefits of relative performance incentives when choosing between integrated and decentralized organizations unless the marginal costs of the two products are sufficiently positively correlated the optimal ex ante policy gives control of both markets to a single firm journal of economic literature classification number s d82 l22 l51

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

competition through commissions and kickbacks in markets for retail financial products and health services consumers often rely on the advice of intermediaries to decide which specialized offering best fits their needs product providers in turn compete to influence the intermediaries advice through hidden kickbacks or disclosed commissions motivated by the controversial role of these widespread practices we formulate a model to analyze competition through commissions from a positive and normative standpoint the model highlights the role of commissions in making the advisor responsive to supply side incentives we characterize situations when commonly adopted policies such as mandatory disclosure and caps on commissions have unintended welfare consequences jel d21 d82 d83 g21 l15 l25

defined contribution plans defined benefit plans and the accumulation of retirement wealth abstract the private pension structure in the united states once dominated by defined benefit db plans is currently divided between defined contribution dc and db plans wealth accumulation in dc plans depends on a participant s contribution behavior and on financial market returns while accumulation in db plans is sensitive to a participant s labor market experience and to plan parameters this paper simulates the distribution of retirement wealth under representative db and dc plans it uses data from the health and retirement study hrs to explore how asset returns earnings histories and retirement plan characteristics contribute to the variation in retirement wealth outcomes we simulate dc plan accumulation by randomly assigning individuals a share of wages that they and their employer contribute to the plan we consider several possible asset allocation strategies with asset returns drawn from the historical return distribution our db plan simulations draw earnings histories from the hrs and randomly assign each individual a pension plan drawn from a sample of large private and public defined benefit plans the simulations yield distributions of both dc and db wealth at retirement average retirement wealth accruals under current dc plans exceed average accruals under private sector db plans although dc plans are also more likely to generate very low retirement wealth outcomes the comparison of current dc plans with more generous public sector db plans is less definitive because public sector db plans are more generous on average than their private sector db counterparts

self regulation and government oversight self regulation is a feature of a number of professions for example in the u s the government delegates aspects of financial market regulation to self regulatory organizations sros like the new york stock exchange and the national association of securities dealers we analyse one regulatory task of an sro enforcing antifraud rules so agents will not cheat customers specifically we model contracting enforcement as a two tier problem an sro chooses its enforcement policy the likelihood that an agent is investigated for fraud and a penalty schedule given an enforcement policy agents compete by offering contracts that maximize customers expected utility we assume that the sro s objective is to maximize the welfare of its members the agents we show that the sro chooses a more lax enforcement policy meaning less frequent investigations than what customers would choose a general conclusion is that control of the enforcement policy governing contracts confers substantial market power to a group of otherwise competitive agents we also investigate government oversight of the self regulatory process the threat of government enforcement leads to more enforcement by the sro just enough to pre empt any government enforcement copyright 2005 wiley blackwell

has job stability declined yet new evidence for the 1990 s we update the evidence on changes in job stability through the mid 1990s using recently released current population survey data for 1995 that parallel earlier job tenure supplements in the aggregate job stability declined modestly in the first half of the 1990s moreover the relatively small aggregate changes mask rather sharp declines in stability for workers with more than a few years of tenure nonetheless the data available to this point do not support the conclusion that the downward shift in job stability for more tenured workers and the more modest decline in aggregate job stability reflect long term trends

do wages rise with job seniority many previous studies have found a strong positive effect of job seniority tenure on wages this paper re examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage we use the variation of tenure over a given job match as the principal instrumental variable for tenure the variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation our main finding is that the partial effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career the strong cross section relationship between tenure and wages is due primarily to heterogeneity bias prior researchers see mincer and jovanovic 1981 bartel and borjas 1981 borjas 1981 cline 1979 and mellow 1981 and many others have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section time series of individuals in this paper we re evaluate the evidence concerning the partial effects on wages of job seniority tenure and total labour market experience the extent to which wages rise with tenure is important for several reasons first and foremost the wage tenure profile is a fundamental question about the structure of earnings over careers second the wage tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs and it is important for assessment of the losses suffered by displaced workers hamermesh 1984 third evidence that wages rise with job tenure has been used to explain the decline in quits with tenure since the wage growth on the current job lowers the probability that the worker will locate a superior alternative a growing theoretical literature surveyed in parsons 1984 has taken the evidence of a strong wage tenure profile at face value and sought to provide an explanation for the relationship the most prominent explanation is the theory of specific human capital oi 1962 becker 1962 mincer 1974 parsons 1972 kuratani 1973 and hashimoto 1980 in which the growth of wages with tenure holding experience constant is attributed to the worker s share of investments in firm specific skills more recently lazear 1981 has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk freeman 1977 and harris and holmstrom 1982 provide an explanation for wage growth based on an insurance motive salop and salop 1976 nickell 1976 and guasch and weiss 1982 present adverse selection models of wage growth in which firms use a wage tenure profile as a

limited liability and incentive contracting with multiple projects i examine a principal agent model with multiple projects where a risk neutral manager is protected by limited liability the analysis has several interesting implications i incentive problems are shown to be a natural source of economies of scope as combining multiple projects under the management of a single manager relaxes the limited liability constraint ii as a result managers may be overloaded with work and exert inefficiently high effort and iii the analysis has implications for the optimal allocation of projects to different managers copyright 2001 by the rand corporation

job security provisions and employment european countries have enacted various job security provisions over the last 30 years employers are required to pay workers on separation or to give advance notice of termination in anything less than a perfectly functioning market there are effects of the provisions on employment incumbents are more likely to retain their jobs but new workers are less likely to be hired an examination of the european data suggests that severance pay requirements reduce employment

taxation and the portfolio structure of spanish households using a sample of 5962 spanish households from the survey of household finances eff undertaken by the bank of spain this article describes the structure of their portfolio and estimates both a probit model and a tobit model to test how taxation affects respectively the decision to invest in each asset and the relative importance of each asset within the household portfolio the influence of taxation is measured using the average marginal personal income tax rate of the household the estimations performed show that the marginal tax rate is significant and displays the sign expected to explain both the holding of tax favourable assets and their weight in the household portfolio

understanding european unemployment with matching and search island models abstract to understand european and american unemployment during the last 60 years we use a search island model and four matching models with workers who have heterogeneous skills and entitlements to government benefits when there is higher turbulence in the sense of worse skill transition probabilities for workers who suffer involuntary layoffs high government mandated unemployment insurance ui and employment protection ep in europe increase unemployment rates and durations but when there is lower turbulence high european ep suppresses unemployment rates despite high european ui four matching models differ in how they assign unemployed workers to matching functions that affects how strongly unemployment responds to increases in turbulence heterogeneity among unemployed workers highlights the central role of adverse labor market externalities in matching models and reveals that the cost of posting vacancies is the lynchpin of a matching model

conflicts of interest information provision and competition in the financial services industry abstract in some markets sellers have better information than buyers over which products best serve a buyer s needs depending on the market structure this may lead to conflicts of interest in the provision of information by sellers this paper studies this issue in the market for financial services the analysis presents a new model of competition between banks where price competition influences the ensuing incentives for truthful information revelation we also compare conflicts of interest in two different firm structures specialized banking and one stop banking

the price of free advice what factors determine how well consumers make their actual choices with regard to financial products this article empirically evaluates two different choices consumers make when buying deferred annuities one choice concerns the type of insurance policy the other concerns the choice of insurance provider for both choices we will analyse what factors explain the quality of the choice made in particular we will investigate the role of financial advice in the decision making process by combining dutch consumer survey data and data on quotations by dutch life insurance companies we obtain the following results first respondents who buy their policy directly from an insurer attain a significantly better match between their risk preferences and the type of policy chosen than respondents who purchase their policy through an insurance broker second respondents who buy their policy through an insurance broker obtain a significantly lower payout than respondents who purchased their policy directly from

interfirm mobility wages and the returns to seniority and experience in the united states in this paper we expand on the seminal work of altonji and shakotko 1987 and topel 1991 and reinvestigate the returns to seniority in the united states we begin with the same wage equation as in previous studies we extend the model of hyslop 1999 and explicitly model the participation employment and inter firm mobility decisions which in turn define the individual s experience and seniority we introduce into the wage equation a summary of the workers entire career path the three equation system is estimated simultaneously using data from the panel study of income dynamics psid we find that for each of the three education groups studied the returns to seniority are larger than those previously found in the literature

optimal life cycle unemployment insurance we argue that us welfare would rise if unemployment insurance were to be increased for young workers and decreased for old this is because young workers have little means to smooth consumption during unemployment and want jobs to accumulate high return human capital so unemployment insurance is highly valuable to them while the induced moral hazard problem is mild we consider a life cycle model with unemployment risk and endogenous search eort that we calibrate to match us labor market institutions we nd that allowing unemployment replacement rates and other government transfers to decline with age yields sizeable welfare gains which amount to around two thirds of the gains attained under the constrained optimal scheme for unemployment insurance over the life cycle

consumption taxes and corporate investment consumers nominally pay the consumption tax but theoretical and empirical evidence is mixed on whether corporations partly shoulder this burden thereby affecting corporate investment using a quasi natural experiment we show that consumption taxes decrease investment firms facing more elastic demand decrease investment more strongly because they bear more of the consumption tax we corroborate the validity of our findings using 86 consumption tax changes in a cross country panel we document two mechanisms underlying the investment response reduced firms profitability and lower aggregate consumption importantly the magnitude of the investment response to consumption taxes is similar to that of corporate taxes received september 25 2017 editorial decision august 26 2018 by editor wei jiang authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

why do people invest in personal pension plans the aim of this article is to identify the variables affecting the decision to make contributions to personal pension plans and the amount of such contributions for this purpose we specify and estimate a tobit model for a sample based on the 1995 personal income taxpayers panel prepared by the institute of fiscal studies spanish ministry of economy and finance formed by 3041 taxpayers of whom 358 made contributions to pension plans our results suggest that individuals decide to invest in pension plans on complex grounds combining the wish to benefit from tax savings and to ensure they will receive supplementary income upon retirement

the decision to seek advice in the self directed retirement fund industry this article examines the influence of investor knowledge and the cognitive bias that arises from overconfidence on the advice seeking behaviour of investors managing their own retirement funds specifically we trace whether overestimating one s own technical and financial abilities can hinder the willingness to seek advice particularly when it would be in the investors best interest to do so we identify a subset of investors who are not knowledgeable and yet do not seek advice these investors exhibit overconfidence in their ability to manage a fund despite holding under diversified and less sophisticated portfolios relative to their peers given the global rise in investors choosing to manage their own retirement funds and the importance of seeking advice in this context there are direct policy implications from these results they suggest a need to identify and target investors who display overconfidence since they are most likely to be managing underperforming retirement investments in the longe

on the marginal source of investment funds abstract under the new view of dividend taxation developed by auerbach quarterly journal of economics 1979 93 433 446 bradford journal of public economics 1981 15 1 22 and king public policy and the corporation chapman hall london 1977 the marginal source of finance for new investment projects is retained earnings in this case the tax advantage of retaining earnings precisely offsets the double taxation of subsequent dividends taxes on dividends have no impact on the investment incentives of firms using retentions as a marginal source of funds and paying dividends with residual cash flows we show that the same invariance with respect to dividend taxes may hold under weaker conditions with respect to the source of funds if the use of funds follows the same pattern we find evidence that there is significant heterogeneity in our sample of us firms with some firms exhibiting dividend behavior consistent with this expanded version of the new view and others exhibiting behavior consistent with the traditional view that retained earnings are not an important marginal source of funds

temporary investment tax incentives theory with evidence from bonus depreciation even modest reductions in the after tax cost of capital purchases provide strong incentives for increased investment indeed for tax subsidies that are temporary and for capital goods that are very long lived the incentive to invest when the after tax price is temporarily low is essentially infinite firms that would have purchased new capital equipment in the future instead make their purchases during the period of the subsidy for tax increases the effects are the opposite firms that would have normally invested now delay until the tax rate returns to normal we present a model of the equilibrium effects of temporary investment tax incentives the model reveals a simple relationship between the shadow price of investment goods and the size of a temporary investment tax incentive specifically for sufficiently long lived capital goods goods with very low rates of economic depreciation and for sufficiently short lived investment tax subsidies the shadow value of capital should be nearly unchanged and thus the pre tax shadow price of capital goods should fully reflect the magnitude of the tax subsidy this result holds regardless of the elasticity of investment supply and regardless of the underlying demand for capital instead it relies only on the firm s ability to arbitrage predictable movements in the after tax price of long lived capital over time two conclusions immediately follow first observ ing price increases following a temporary tax incentive is not evidence that investment supply is relatively inelastic a temporary investment tax subsidy can substantially affect investment even if it bids up the price of investment sharply second because economic theory dictates that the shadow price of investment moves one for one with a temporary tax subsidy the elasticity of supply can be inferred from quantity data alone recent changes in us tax law allow us to use the model and its implications to estimate struc tural parameters that govern the supply of investment the 2002 and 2003 tax bills provided temporarily accelerated tax depreciation called bonus depreciation for certain types of qualified capital goods under the 2002 bill firms could immediately deduct 30 percent of investment purchases and then depreciate the remaining 70 percent under standard depreciation schedules

dividend and capital gains taxation under incomplete markets motivated by the jobs and growth tax relief reconciliation act jgtrra of 2003 the effects of capital income tax cuts are investigated in an economy with heterogeneous households and a representative mature firm dividend tax cuts contrary to capital gains tax cuts lead to a decrease in investment and capital this is because they increase the market value of existing capital and households require a higher return to hold this additional wealth in line with empirical evidence the model predicts substantial increases in dividends and stock prices overall the tax cuts lead to a welfare reduction equivalent to a consumption drop of 0 5

job displacement risk and the cost of business cycles this paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk that has a cyclical component using a simple general equilibrium model with incomplete markets this paper shows the following result for sufficiently high degree of risk aversion at least one cyclical variations in the long term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the second moments of the distribution of individual income changes are constant over the cycle thus the previous literature which has either disregarded long term earnings losses of displaced workers or dealt with them only indirectly using second moment analysis might have severely under estimated the welfare cost of business cycles in addition to the theoretical analysis this paper also conducts a quantitative study of the cost of business cycles using empirical evidence on the long term earnings losses of u s workers the quantitative analysis suggests that cyclical variations in job displacement risk generate sizable cost of business cycles

modelling choice and switching behaviour between scottish ski centres the paper identifies the need to model the skier s choice of centre and the basic ideas underlying discrete choice models and their estimation it then identifies data requirements and sources the final choice of specification and the estimated parameters of the resultant nested multinomial logit model the results indicate two quite distinct markets for day trippers snow cover cost and to a lesser extent the journey length were the critical factors for those staying overnight the key determinant in this market seems to be accommodation interestingly centres which for the day tripper are competitors become for the overnight customer complementary