a dynamic model of welfare reform a dynamic structural model of labor supply welfare participation and food stamp participation is estimated using the 1992 1993 and 1996 panels of the survey of income and program participation details of various policies including welfare time limits work requirements and earned income tax credit eitc are incorporated formally in the budget constraint policy simulations reveal that the economy accounts for half of the increase in the labor supply of female heads of family between 1992 and 1999 a time limit results in a larger efficiency gain than a work requirement or a direct reduction in welfare benefits a reform package can lead to both a reduction in the government expenditure and an improvement in utility the eitc expansion results in a substantial efficiency gain among individuals with the lowest expected wage these individuals are almost unaffected by the economic expansion but their income and utility increase significantly under the reform package

temptation and social security in a dynastic framework abstract we investigate welfare and aggregate implications of a pay as you go payg social security system in a dynastic framework in which individuals have self control problems the presence of self control problems induces individuals to save less because of their urge for temptation towards current consumption individuals efforts to balance between the short term urge for temptation and the long term commitment for consumption smoothing result in self control costs in this environment payg social security works as a self control cost reducing device in contrast the presence of altruism induces individuals to save more this in turn mitigates the adverse effects of self control problems and payg social security on savings but magnifies the self control costs we find that in our environment the adverse welfare effects of a payg system are further mitigated relative to the environments that incorporate altruism and self control issues separately however the level of mitigation is quite modest

female labour supply and marital status decisions a life cycle model this paper studies the interdependence between and the determinants of life cycle marital status and labour force participation decisions of women a dynamic utility maximization model is presented and estimated using longitudinal data on women from the panel study of income dynamics the mle method employed involves solving a dynamic programming problem further a minimum distance estimator is proposed which allows for the incorporation of wage data in a computationally simple way the estimates are used to predict changes in the life cycle patterns of employment marriage and divorce due to differences in education race the female s earnings and her potential husband s earnings the estimation results indicate that the utility gains to marriage are decreasing in the female s wage rate and increasing in her potential husband s earnings while the opposite is found for gains to working ignoring the endogeneity of marital status decisions is shown to lead to an underestimation of own and husband s wage effects on female labour supply

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

job search and hyperbolic discounting structural estimation and policy evaluation this paper estimates the structural parameters of a job search model with hyperbolic discounting and endogenous search effort it estimates quantitatively the degree of hyperbolic discounting and assesses its implications for the impact of various policy interventions aimed at reducing unemployment the model is estimated using data on unemployment spells and accepted wages from the national longitudinal survey of youth nlsy the likelihood function explicitly incorporates all the restrictions implied by the optimal dynamic programming solution to the model both observed and unobserved heterogeneity are accounted for the results point to a substantial degree of hyperbolic discounting especially for low and medium wage workers the structural estimates are also used to evaluate alternative policy interventions for the unemployed estimates based on a model with exponential discounting may lead to biased inference on the economic impact of policies jel c6 c73 d90 j64 j68

job search and impatience workers who are more impatient search less intensively and set lower reservation wages the effect of impatience on exit rates from unemployment is therefore unclear if agents have exponential time preferences the reservation wage effect dominates for sufficiently patient individuals so increases in impatience lead to higher exit rates the opposite is true for agents with hyperbolic time preferences using two large longitudinal data sets we find that impatience measures are negatively correlated with search effort and the unemployment exit rate and are orthogonal to reservation wages impatience substantially affects outcomes in the direction predicted by the hyperbolic model

what does export diversification do for growth an econometric analysis it is frequently suggested that export diversification contributes to an acceleration of growth in developing countries horizontal export diversification into completely new export sectors may generate positive externalities on the rest of the economy as export oriented sectors gain from dynamic learning activities due to contacts with foreign purchasers and exposure to international competition vertical diversification out of primary into manufactured exports is also associated with growth since primary export sectors generally do not exhibit strong spillovers yet there have been remarkably few empirical investigations into the link between export diversification and growth this paper attempts to examine the hypothesis that export diversification is linked to economic growth via externalities of learning by doing and learning by exporting fostered by competition in world markets the diversification led growth hypothesis is tested by estimating an augmented cobb douglas production function on the bas

carrot and stick how reemployment bonuses and benefit sanctions affect exit rates from welfare summary to increase the exit from welfare benefit recipients in the municipality of rotterdam were exposed to various financial incentives once their benefit spell exceeded one year welfare recipients were entitled to a re employment bonus if they found a job that lasted at least 6 months however they could also be punished for noncompliance with eligibility requirements and face a sanction i e a temporary reduction of their benefits we find that the financial sticks in the form of benefit sanctions were effective in stimulating the exit from welfare while the financial carrots in the form of re employment bonuses were not copyright 2011 john wiley sons ltd

paying not to go to the gym how do consumers choose from a menu of contracts we analyze a novel dataset from three u s health clubs with information on both the contractual choice and the day to day attendance decisions of 7 752 members over three years the observed consumer behavior is difficult to reconcile with standard preferences and beliefs first members who choose a contract with a flat monthly fee of over 70 attend on average 4 3 times per month they pay a price per expected visit of more than 17 even though they could pay 10 per visit using a 10 visit pass on average these users forgo savings of 600 during their membership second consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year this is surprising because monthly members pay higher fees for the option to cancel each month we also document cancellation delays and attendance expectations among other findings leading explanations for our findings are overconfidence about future self control or about future efficiency overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

welfare reform when recipients are forward looking in 1996 the aid to families with dependent children program was replaced with the temporary assistance for needy families tanf program this paper considers the effects of two specific components of tanf time limits and work requirements on employment marriage and welfare participation a discrete choice dynamic programming model is used and parameter estimates are obtained using data from the panel study of income dynamics policy simulations show that a five year lifetime time limit results in a 60 percent reduction in welfare use and that a substantial part of this reduction occurs because recipients are forward looking

does it pay for women to volunteer this article estimates the economic and noneconomic returns to volunteering for prime aged women estimates of a dcdp model indicate that an extra year of volunteer experience increases wage offers by 8 5 in future part time work and by 2 6 in future full time work on average working for free increases lifetime earnings by 16 7 the economic returns to volunteering are more important than the noneconomic returns in increasing lifetime utility the model also reveals an adverse selection mechanism into volunteering that helps explain why reduced form regressions of the returns to working for free will likely be downward biased

time inconsistency and welfare program participation evidence from the nlsy we empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time inconsistent preferences using panel data on the choices of single women with children from the nlsy 1979 we provide estimates of the degree of time inconsistency and of its influence on the welfare take up decision with these estimates we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements

implications of hyperbolic discounting for optimal pricing and scheduling of unpleasant services that generate future benefits people tend to lack the self control to undergo an unpleasant service that would generate future benefits this paper derives a tractable quasi hyperbolic discounting model of that behavioral tendency for a queueing system in which service time is short relative to the time horizon for its benefits planning in advance people may naively overestimate their self control this paper shows how customers lack of self control and naivete affect optimal pricing and scheduling the welfare maximizing usage fee and the revenue maximizing usage fee decrease with customers lack of self control charging for subscription in addition to or instead of per use increases revenue especially when subscribers are naive if the manager can charge for subscription or per use subscription is optimal for revenue maximization whereas usage based pricing is optimal for welfare maximization if customers are heterogeneous in their self control and naivete priority scheduling can dramatically increase welfare and revenu

time inconsistency and alcohol sales restrictions restrictions on alcohol sales hours or days are commonly used tools in order to reduce alcohol consumption however a forward looking consumer can buy in advance thereby mostly undo the impact of the restriction i study whether time inconsistent consumer preferences can provide a justification for restrictions on alcohol sales time i estimate a demand model which allows a fraction of consumers to be time inconsistent using scanner data of beer purchases and other shopping behavior according to the estimation results 20 of consumers are time inconsistent and they account for 64 of beer consumption i find that sunday sales restriction decreases weekend consumption by the same amount as a sales tax increase by 21 percentage points in terms of consumer welfare the sales restriction is preferable to the tax increase

the role of labor and marriage markets preference heterogeneity and the welfare system in the life cycle decisions of black hispanic and white women using data from the nlsy79 we structurally estimate a dynamic model of the life cycle decisions of young women the women make sequential joint decisions about school attendance work marriage fertility and welfare participation we use the model to perform counterfactual simulations designed to shed light on three questions 1 how much of observed minority majority differences in behavior can be attributed to differences in labor market opportunities marriage market opportunities and preference heterogeneity 2 how does the welfare system interact with these factors to augment those differences 3 how can new cohorts that grow up under the new welfare system temporary aid for needy families be expected to behave compared to older cohorts

pension design with a large informal labor market evidence from chile this article investigates the fiscal and welfare trade offs involved in designing a pension system when workers can avoid contributing by working informally using a life cycle model of labor supply and saving decisions i structurally estimate preferences and earnings opportunities in the formal and informal sectors using data on chilean households i find limited support for formal jobs rationing instead mandatory pension contributions significantly encourage informality policy experiments show that chile could lower minimum pension spending by 23 while guaranteeing the same income to retirees if the minimum pension s implicit tax rate was increased to 60

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

recursos naturales diversificacion y crecimiento regional en el peru based upon the export product space this paper shows the main features of the export product composition of peru and its regions with respect to export baskets these include a high con centration in few commodities a relatively low degree of similarity between products relatively high levels of productivity at the international level and enormous undiscovered or untapped export potential in addition this paper analyzes the hypothesis that the natural resource curse affects regional growth employment and export diversification subject to the limitations of the data and the heterogeneous panel methods employed estimation results indicate that the share of natural capital out of the total tangible wealth and natural capital per capita seems on average and in a relatively statistically robust way to spur growth primary employment and export concentration in a few products consequently the natural resource curse for the peruvian regions is not about growth but about low regional development since such resources do not have a significant impact on secondary and tertiary employment or on export product diversification

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

strotz meets allais diminishing impatience and the certainty effect abstract decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward this work argues that diminishing impatience originates from the distinction between the certain present and the risky future a simple functional representation of preferences exhibiting time inconsistency when the future is uncertain is derived experimental evidence which is inconsistent with other formulations that account for diminishing impatience supports the proposed approach the new theory uncovers a tight relation between diminishing impatience and well known behavioral regularities in choice under risk and uncertainty jel d12 d81

export diversification and international debt under terms of trade uncertainty abstract this paper proposes an intertemporal approach to export diversification in developing countries facing uncertain terms of trade by incorporating international debt by far the predominant source of ldc external financing today the model provides a richer and more realistic framework than static models with no financial markets or models emphasizing international trade in equities the approach is applied to a small developing country with a comparative advantage in a risky commodity to illustrate explicitly the relation between intertemporal substitution in consumption and diversification in production

exports growth and threshold effects in africa abstract the relationship between openness and growth remains a controversial issue in development economics with many studies focusing on the export growth relationship this paper examines whether the relationship between exports and growth found in large cross section studies also holds in the context of african economies the paper employs threshold regression techniques to examine whether african countries benefit more from exports when they reach a certain level of development or openness our results suggest that there is indeed a positive relationship between exports and growth in africa the threshold regression analysis also suggests that it is not necessary for a country to reach a certain level of development or to have an existing export base for this relationship to hold though it is found that the relationship is stronger for countries that experience higher rates of export growth

stages of diversification this paper studies the evolution of sectoral concentration in relation to the level of per capita income we show that various measures of sectoral concentration follow a u shaped pattern across a wide variety of data sources countries first diversify in the sense that economic activity is spread more equally across sectors but there exists relatively late in the development process a point at which they start specializing again we discuss this finding in light of existing theories of trade and growth which generally predict a monotonic relationship between income and diversification

export composition and the impact of exports on economic growth of developing economies abstract employing an augmented production function framework a number of studies have found that export growth exerts a positive impact on gdp growth in less developed countries ldcs even when capital and labor are controlled for using a similar framework but recognizing the possible heterogeneity of exports the present paper finds for the 1960 1980 period that while the primary export sector exhibits little or no effect on gdp growth in lcds there is a differential positive impact by the manufacturing export sector

export specialisation and local economic growth this paper aims to provide empirical evidence on whether export specialization or diversification is better for local economic growth using export data from 354 magisterial districts of south africa for 1996 and 2001 we estimate spatial growth regressions that include measures of the degree of export specialization and diversification overall exporting regions outperform other less or non exporting regions also we find that export specialisation rather than export diversification has been associated with local economic growth with specialization in mining and agriculture being especially beneficial our results support the view that specialization in a locality s area of comparative advantage is good for local economic development we also find that localities with higher initial levels of human capital and higher subsequent population growth performed better this is consistent with the belief that policies aimed at strengthening human capital and improving agglomeration economies will enhance local economic development

asymmetric adjustment costs in non linear labour demand models for the netherlands and u k manufacturing sectors the costs of hiring a worker generally differ in size from the firing costs this article investigates optimal labour demand schedules for production and nonproduction workers of firms that operate under uncertainty and face asymmetric costs of adjusting their workforce in the empirical part generalised methods of moments gmm estimates of the structural parameters of the euler conditions for production and nonproduction workers are presented together with specification and structural stability tests using time series data of the netherlands and uk manufacturing sectors we find that asymmetric adjustment costs play an important role in the explanation of unbalanced labour demand between upward and downward movements of the business cycle moreover hiring costs exceed firing costs of production workers whereas firing costs exceed hiring costs of nonproduction workers

dynamics of export specialization in the regions of the italian mezzogiorno persistence and change guerrieri p and iammarino s 2007 dynamics of export specialization in the regions of the italian mezzogiorno persistence and change regional studies 41 933 947 during the 1980s and 1990s the italian southern economy displayed signs of transformation in production and export structures accompanied by sharp geographical differentiation debate on these changes mainly spurred by growing international pressure has given rise to different views and expectations on the opportunities for endogenous growth on the italian periphery the aim of this paper is to contribute to this ongoing debate by looking at the evolution of sectoral export specialization patterns i e relative comparative advantage structures in the mezzogiorno regions in the period 1985 2000 focusing on inter provincial comparisons the analysis concentrates on the extent of persistence versus change in the evolution of provincial specialization patterns shedding light on the relationship between export structure and performance

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

equilibrium welfare and government policy with quasi geometric discounting abstract we consider a representative agent equilibrium model where the consumer has quasi geometric discounting and cannot commit to future actions we restrict attention to a parametric class for preferences and technology and solve for time consistent competitive equilibria globally and explicitly we then characterize the welfare properties of competitive equilibria and compare them to that of a planning problem the planner is a consumer representative who without commitment but in a time consistent way maximizes his or her present value utility subject to resource constraints the competitive equilibrium results in strictly higher welfare than the planning problem whenever the discounting is not geometric journal of economic literature classification numbers e21 e61 e91

social security reform with self control preferences abstract this paper analyzes a fully funded social security system under the assumption that agents face temptation issues agents are required to save through individually managed personal security accounts without and with mandatory annuitization when the analysis is restricted to crra preferences our results are congruent with the literature in indicating that the complete elimination of social security is among the reform scenarios that maximize welfare however when self control preferences are introduced and as the intensity of self control becomes progressively more severe the social security elimination scenario loses ground very rapidly in fact in the case of relatively severe temptation the elimination of social security becomes the least desirable alternative under the light of the above findings any reform proposal regarding the social security system should consider departures from standard preferences to preference specifications suitable for dealing with preference reversals

insurance self control and contract flexibility we study a competitive insurance market in which some consumers have too optimistic expectations regarding their future use of preventive measures when contracts are long term and inflexible such naive consumers would increase the costs of insurance for low risk consumers the competitive insurance market therefore offers flexible contracts that allow for switching between different tariffs sophisticated consumers choose a partial insurance tariff and remain low risks naive consumers choose the same tariff but later switch to full insurance and become high risks if there are sufficiently many naive consumers they pay a transfer to sophisticated consumers so that high risks subsidize low risks in contrast there are no such transfers when contracts are short term the model generates novel implications for the time frame of insurance contracts and insurance requirements

the limits of inference with theory a review of wolpin 2013 this essay reviews kenneth i wolpin s 2013 monograph the limits of inference without theory which arose from lectures he presented at the cowles foundation in 2010 in honor of tjalling koopmans while i readily agree with wolpin s basic premise that empirical work that eschews the role of economic theory faces unnecessary self imposed limits relative to empirical work that embraces and tries to test and improve economic theory it is important to be aware that the use of economic theory is not a panacea i point out that there are also serious limits to inference with theory 1 there may be no truly structural policy invariant parameters a key assumption underpinning the structural econometric approach that wolpin and the cowles foundation have championed 2 there is a curse of dimensionality that makes it very difficult for us to elucidate the detailed implications of economic theo ries which is necessary to empirically implement and test these theories 3 there is an identification problem that makes it impossible to decide between competing theories without imposing ad hoc auxiliary assumptions such as parametric functional form assumptions and 4 there is a problem of multiplicity and indeterminacy of equilibria that limits the predictive empirical content of many economic theories i conclude that though these are very challenging problems i agree with wolpin and the cowles foundation that economists have far more to gain by trying to incorporate economic theory into empirical work and test and improve our theories than by rejecting theory and presuming that all interesting economic issues can be answered by well designed controlled randomized experiments and assuming that difficult questions of causality and evaluation of alternative hypothetical policies can be resolved by simply allowing the data to speak for itself jel b41 c18

choice and procrastination author s o donoghue ted rabin matthew abstract recent models of procrastination due to self control problems assume that a procrastinator considers just one option and is unaware of her self control problems we develop a model where a person chooses from a menu of options and is partially aware of her self control problems this menu model replicates earlier results and generates new ones a person might forego completing an attractive option because she plans to complete a more attractive but never to be completed option hence providing a non procrastinator additional options can induce procrastination and a person may procrastinate worse pursuing important goals than unimportant ones

discounting financial literacy time preferences and participation in financial education programs many policymakers and economists argue that financial literacy is key to financial well being but why do many individuals remain financially illiterate despite the benefits of being financially informed this paper presents results from a field study linking individual decisions to acquire financial information to a normally unobservable characteristic time preferences we elicited time preferences using incentivized choice experiments for all individuals to whom a financial education program was offered our results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not the results can be interpreted as non participants discount the benefits of being financially literate more

on the compassion of time limited welfare programs supporters of recent welfare reforms argue that time limits and other eligibility restrictions serve recipients we present a simple model of agents with present biased preferences to investigate the theoretical validity of this claim we first identify four types of outcome that describe the behavior of a present biased agent in the absence of time limits we then show that the behavioral consequences of time limits are contingent on which outcome characterizes the agent s behavior in the absence of time limits we show that under some conditions the imposition of time limits may improve the wellbeing of welfare recipients evaluated both in terms of long run time consistent utility and the periodone self s utility this benefit of time limits may come either from allowing the welfare eligible to start working earlier than they otherwise would or contrary to the intent of the reforms from allowing them to postpone working d 2002 elsevier b v all rights reserved

ramsey meets laibson in the neoclassical growth model the neoclassical growth model is modified to include a variable rate of time preference with no commitment ability and log utility the equilibrium features a constant effective rate of time preference and is observationally equivalent to the standard model the extended framework yields testable linkages between the extent of commitment ability and the rates of saving and growth the model also has welfare implications including the optimal design of institutions that facilitate household commitments steady state results are obtained for general concave utility functions and some properties of the transitional dynamics are characterized for isoelastic utility

liquidity and valuation in an uncertain world abstract during the 2007 2009 financial crisis there was little or no trading in a variety of financial assets even though bid and ask prices existed for many of these assets we develop a model in which this illiquidity arises from uncertainty and we argue that this new form of illiquidity makes bid and ask prices unsuitable as metrics for establishing fair value for these assets we show how the extreme uncertainty that traders face can be characterized by incomplete preferences over portfolios and we use bewley s 2002 model of decision making under uncertainty to derive equilibrium quotes and the nonexistence of trading at these quotes we then suggest alternatives for valuing assets in illiquid markets

determining consumers discount rates with field studies abstract because utility profits state transitions and discount rates are confounded in dynamic models discount rates are typically fixed for the purpose of identification the authors propose a strategy of identifying discount rates the identification rests on imputing the utility profits using decisions made in a context in which the future is inconsequential the objective function is concave and the decision space is continuous they then use these utilities profits to identify discount rates in contexts in which dynamics become material the authors exemplify this strategy using a field study in which cell phone users transitioned from a linear to a three part tariff pricing plan they find that the estimated discount rate corresponds to a weekly discount factor 90 lower than the value typically assumed in empirical research 995 when using a standard 995 discount factor they find that the price coefficient is underestimated by 16 moreover the predicted intertemporal substitution pat

strategic ignorance as a self disciplining device we analyse the decision of an agent with time inconsistent preferences to consume a good that exerts an externality on future welfare the extent of the externality is initially unknown but may be learned via a costless sampling procedure we show that when the agent cannot commit to future consumption and learning decisions incomplete learning may occur on a markov perfect equilibrium path of the resulting intra personal game in such a case each agent s incarnation stops learning for some values of the posterior distribution of beliefs and acts under self restricted information this conduct is interpreted as strategic ignorance all equilibria featuring this property strictly pareto dominate the complete learning equilibrium for any posterior distribution of beliefs

can africa industrialize by processing primary commodities the case of mozambican cashew nuts abstract industrialization strategies based on vertical diversification into processing of primary commodities have long been appealing to low income countries the performance of such strategies is mixed an aggregate level literature is divided on the advisability of low income countries processing commodities for export especially for countries relatively poor in human capital while this general literature usefully illuminates the policy debate over processing cashew nuts in mozambique commodity and country specific factors reveal the weaknesses of conducting debate at too aggregated a level it may be that the most significant constraints on processing industrialization are political rather than purely technical or economic

exploiting naivete about self control in the credit market we develop a model of the credit market where competitive lenders oer long term contracts specifying a non linear schedule of possible repayment schedules to borrowers who may dier both in their taste for immediate gratication and their prior beliefs about that taste the equilibrium contract to a borrower with given beliefs is discontinuous it features an advantageous option involving fast repayment and a penalty for deviating and repaying later these predictions seem to resemble some salient features of many credit card and mortgage contracts for fully sophisticated borrowers the discontinuity acts as a commitment device and yields fast repayment but all other borrowers even those with an arbitrarily small amount of naivete end up delaying repayment despite the penalty and receive little benet from commitment furthermore because they believe they will repay early they underestimate the cost of credit and hence borrow too much non sophisticated borrowers cross subsidize sophisticated borrowers while sophisticated borrowers discipline rms by preventing very exploitative contracts we identify natural conditions under which the above results obtain even if

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance