risk sharing by households within and across regions and industries abstract cochrane 1991 journal of political economy 99 957 976 and mace 1991 journal of political economy 99 928 956 test if risk sharing across households is complete in the sense that household consumption moves one for one with aggregate consumption in their studies the source of income risk is idiosyncratic and agents can share risk across the entire economy using a sample of households from the panel study on income dynamics psid we explore whether households share the risk associated with their industries and regions across households in other regions and industries we find that a large fraction of risk faced by households is not shared across regions and industries

structural estimation of stock market participation costs abstract this paper develops and estimates a dynamic model of stock market participation where consumers decisions regarding stock market participation are influenced by participation costs the practical significance of the participation costs is considered as being a channel through which financial education programs can affect consumers investment decisions using household data from the panel study of income dynamics i estimate the magnitude of the participation cost allowing for individual heterogeneity in it the results show the average stock market participation cost is about 4 6 of labor income however it varies substantially over consumers life the model successfully predicts the level of the observed participation rate and the increasing pattern of stock market participation over the consumers life cycle

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

the determination of spot and futures prices with storable commodities this paper analyzes the effects of futures trading in a market for a storable commodity in which producers and speculators are assumed to be risk averse and specifications of the aggregate supply and inventory demand functions are derived from explicit optimization a critical aspect is how the parameters of these functions change with the introduction of the future market as it is through these induced parameter changes that the futures market exerts its influence on the spot price the effects of the futures market on both the long run average spot price and its variance are analyzed while we are unable to draw any definitive conclusions on this issue we find that in all cases considered the futures market stabilizes the spot price as well as lowering its long run mean for many years now the question of the effects of futures trading on the stability of spot prices has been extensively debated this topic has been discussed at various levels for example farmers and agricultural interest groups have claimed that futures trading destabilizes spot prices thereby imposing welfare losses on the economy in the united states congress has decided that futures trading can cause price destabilization and has subjected futures trading to the regulation of the commodity futures trading commission at a more analytical level economists have been investigating the issue both empirically and more recently theoretically as well

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

manipulation of the commodity futures market delivery process an analysis of the futures market delivery end game specifies necessary and sufficient conditions for long and short traders to manipulate futures prices at contract expiration the empirical and welfare implications of manipulation are derived as well manipulation is most likely to occur in markets where economic frictions such as transportation and transactions costs make it inefficient to return excessive deliveries to their original owners these consumption distortions induce price changes that favor manipulators manipulation may also occur in markets where such costs are unimportant but the necessary conditions for the manipulation of a frictionless market are very restrictive copyright 1993 by university of chicago press

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

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

on testing for full insurance using consumer expenditure survey data in a recent issue of this journal mace 1991 presented empirical evidence in support of the hypothesis that u s households engage in full risk sharing the data used were taken from the u s consumer expenditure survey cex for the years 1980 84 full insurance implies that household level consumption should be perfectly correlated with aggregate consumption but uncorrelated with householdlevel changes in income mace s surprising result was that at least for one functional specification household level income changes whether measured directly by changes in reported income or proxied by employment change dummies seemed to have no statistically significant effect on consumption this comment demonstrates that this result was due to measurement error in key variables

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

testing agency theory with entrepreneur effort and wealth we develop a principal agent model in an entrepreneurial setting and test the model s predictions using unique data on entrepreneurial effort and wealth in privately held firms accounting for unobserved firm heterogeneity using instrumental variables techniques we find that entrepreneurial ownership shares increase with outside wealth and decrease with firm risk effort increases with ownership and effort increases firm performance the magnitude of the effects in the cross section of firms suggests that agency costs may help explain why entrepreneurs concentrate large fractions of their wealth in firm equity

measuring consumption smoothing in cex data this paper proposes and implements a new method of measuring the degree of consumption smoothing using data from the consumer expenditure survey the structure of this survey is such that estimators previously used in the literature are inconsistent simply because income is measured annually and consumption is measured quarterly we impose an ar 1 structure on the income process to obtain a proxy for quarterly income through a projection on annual income by construction this proxy gives rise to a measurement error which is orthogonal to the proxy itself as opposed to the unobserved regressor leading to a consistent estimator we contrast our estimates with the output of two estimators used in the literature we show that while the flrst ols estimator tends to overstate the degree of risk sharing the second iv estimator grossly understates it

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

household choices in equilibrium this paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply it exploits a simple factor structure rationalized by two assumptions that household allocations are pareto optimal and that the labor market is competitive the paper estimates household preferences and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns most of the estimates are roughly comparable to those found in previous work no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected copyright 1990 by the econometric society

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

investor sophistication and capital income inequality abstract capital income inequality is large and growing fast accounting for a significant portion of total income inequality we study its growth in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness the model implies capital income inequality that grows with aggregate information technology investors differentially adjust both the size and the composition of their portfolios as unsophisticated investors retrench from trading risky securities and shift their portfolios to safer assets technological progress also reduces aggregate returns and increases the volume of transactions features that are consistent with recent u s data

decreasing relative risk aversion and tests of risk sharing the relative risk aversion rra coefficient of a household whose consumption is close to the subsistence level may be very high for example if consumption is exactly at the subsistence level the household may not be willing to bear any risk if this is the case then the rra coefficient must be a decreasing function of wealth for poor households therefore we should allow the possibility of decreasing rra drra in testing the full risk sharing hypothesis however existing tests in the empirical literature are derived using preferences that exhibit either increasing or constant rra even when they are applied to data containing low income households we therefore use a hyperbolic absolute risk aversion hara utility which implies increasing constant and decreasing rra as special cases to test full risk sharing hypothesis using the international food policy research institute ifpri and the international crops research institute of the semi arid tropics icrisat household level data sets we find evidence in support of the drra hypothesis along with evidence favoring full risk sharing hypothesis at the village level and evidence against the hypothesis at the inter village level when rra is restricted to be constant we replicate the previous results in the literature reject the full risk sharing hypothesis at both levels our tests however reject this restriction and favor drra in almost all cases these results suggest that it is important to allow for drra in testing the full risk sharing hypothesis when data containing low income households are investigated this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this this abstract was borrowed from another version of this item

endogenous partial insurance and inequality in this paper we propose a model of endogenous partial insurance and we investigate its implications for macroeconomic outcomes such as wealth inequality asset accumulation interest rate and consumption smoothing to this end we include participation costs to state contingent asset markets into an otherwise standard aiyagari 1994 model we highlight the resulting nonmonotonic relationship between wealth and insurance market participation when insurance is costly poor households remain uninsured middle class households participate in the insurance market whereas rich households decide to self insure by only purchasing risk free assets after theoretically characterizing the endogenous partial insurance equilibrium we quantify its effect emphasizing the roles of a participation channel and an interest rate channel

do stockholders share risk more effectively than nonstockholders abstract this paper analyzes the extent of risk sharing among stockholders and nonstockholders to evaluate the empirical importance of market incompleteness it is essential to determine whether idiosyncratic shocks are important for the wealthy who have access to better insurance opportunities but also face different risks than the average household we study a model where each period households decide whether to participate in the stock market by paying a fixed cost due to this endogenous entry decision the testable implications of perfect risk sharing take the form of a sample selection model which we estimate using a semiparametric gmm estimator proposed by kyriazidou 2001 using data from psid we strongly reject perfect risk sharing among stockholders but perhaps surprisingly do not find evidence against it among nonstockholders this result appears to be robust to several extensions this finding suggests further focus on risk factors that primarily affect the wealthy such as entrepreneu

new forms of organisation and r d internationalisation among the world s 100 largest food and beverages multinationals this paper explores the strategic internationalisation of research and development r d activities of the world s 100 largest food and beverages f b multinationals mnes in 1996 and 2000 with a sample of nearly 8000 affiliates for each period we develop a global innovation strategy gis structure where we analyse the r d internationalisation process of f b mnes we argue that in a fully developed gis model the sourcing of creative inputs does not come exclusively from a central r d laboratory but other overseas r d laboratories or technological affiliates can also undertake genuine knowledge creation activity from capitalising on the scientific heterogeneity fostered in individual host countries as well as distinctive demand conditions our results indicate the increasing importance of overseas technological affiliates in the application of a gis in the leading f b mnes which determine the degree of their technological internationalisation two variants of technological affiliates reflect two broad knowledge related activities i e adaptation and genuine forms of knowledge creation

the effect of futures markets and corners on storage and spot price variability when a futures market is introduced the volume of storage should become more sensitive to changes in the return to storage the increase in storage sensitivity means that storage will absorb a larger proportion of demand and supply shocks than it did previously reducing spot price volatility data from the chicago board of trade support the hypotheses of increased storage sensitivity and reduced spot price volatility the effect of futures on spot price volatility is sensitive to the competitive structure of the futures market futures market manipulation causes spot price variance to increase despite manipulation the development of the wheat futures market caused the coefficient of variation of spot price to decline significantly

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