winners and losers in housing markets this paper is a quantitatively oriented theoretical study into the interaction between housing prices aggregate production and household behaviour over a lifetime we develop a life cycle model of a production economy in which land and capital are used to build residential and commercial structures we find that in an economy where the share of land in the value of structures is large housing prices react more to an exogenous change in expected productivity or the world interest rate causing large redistribution effects between net buyers and net sellers of houses changing the financing constraint however has limited effects on housing prices

learning your earning are labor income shocks really very persistent in this paper we examine the risk situation facing individuals in the labor market the current consensus in the literature is that the labor income process has a large random walk component we argue two points first the estimates of persistence from income data appear to be upward biased due to the omission of heterogeneity in income pro les across the population that would be implied for example by a human capital model with heterogeneity when we allow for dierences in pro les the estimated persistence falls from 0 99 to about 0 8 moreover the main evidence against pro le heterogeneity in the existing literature that the autocorrelations of income changes are small and typically negative is also replicated by the pro le heterogeneity model we estimate casting doubt on the previous interpretation of this evidence second we embed this process in a life cycle model to examine how it alters individuals consumption saving decision we assume that as seems plausible individuals do not know their pro les exactly at the beginning of life but learn in a bayesian way with successive income observations we nd that learning is very slow and aects consumption decision throughout the life cycle the model generates substantial rise in consumption inequality over the life cycle which matches empirical observations deaton and paxson 1994 moreover the shape of the age inequality pro le is non concave as in the data but unlike in a model with very persistent shocks finally the consumption pro les of college graduates are steeper than those of high school graduates in the model consistent with the data because they face a wider dispersion of and hence uncertainty about income growth rates overall this evidence indicates that income shocks may be signi cantly less persistent than what is currently assumed

consumer demand and the life cycle allocation of household expenditures the purpose of this paper is to estimate the parameters of household preferences that determine the allocation of goods within the period and over the life cycle using micro data in doing so the authors are able to identify important effects of demographics labor market status and other household characteristics on the intertemporal allocation of expenditure they test the validity of the life cycle model using excess sensitivity tests and find that controlling for demographics and labor market status variables can largely explain the excess sensitivity of consumption to anticipated changes in income

valuing lost home production of dual earner couples using a life cycle model in which women divide their time between home and market work we establish a link between retirement wealth and the value of forgone home production we use data from the health and retirement study to estimate the model s parameters and adjust the growth rate of gdp to reflect reductions in non market output we find that the value of forgone home production is modest about 25 percent of women s measured earnings

home equity in retirement retired homeowners dissave more slowly than renters which suggests that homeownership affects retirees saving decisions we investigate empirically and theoretically the life cycle patterns of homeownership housing and nonhousing assets in retirement using an estimated structural model of saving and housing decisions we find first that homeowners dissave slowly because they prefer to stay in their house as long as possible but cannot easily borrow against it second the 1996 2006 housing boom significantly increased homeowners assets these channels are quantitatively significant without considering homeownership retirees net worth would be 28 44 lower depending on age

bequests and informal long term care evidence from hrs exit interviews informal long term caregiving for frail elderly individuals by their children may induce parents to compensate their children for their help to test this hypothesis i use the exit interview from the health and retirement study hrs my results show that the decision to care for one s parents has a significant positive impact on the incidence and amount of bequests received in addition increasing the amount of care relative to one s siblings significantly increases the proportion of bequest within a family furthermore i find that the positive nexus of caregiving and bequest requires a written will as a contract between the parent and the helping child

getting the safe minimum standard to work in the real world a case study in moral pragmatism abstract there is growing endorsement of local stake holder conventions to resolve unusual environmental disputes the conventions are separate decision making bodies designed to by pass conventional institutions the hazards of a stake holder convention which is overly detached from conventional decision making leads to a discourse that never successfully confronts the value controversies which the stake holder convention is charged to resolve a case study uncovers obvious and robust strategic manipulations of stake holder conventions that intrude on value dialogue an appeal to the safe minimum standard rules of ciriacy wantrup updated to engage this question successfully corrects some of the more egregious stumbling blocks to good faith dialogue in local discourse the proposed constraints on the stake holder convention can be quite directive authoritative and bureaucratic yet the constraints are necessary to preserve good faith conduct within the dialogue

the un importance of chapter 7 wealth exemption levels this paper examines the effects of the chapter 7 wealth exemption level on welfare bankruptcy filings debt and on asset holdings i build a heterogeneous agent life cycle model which features uninsurable income and expense shocks moreover households can borrow and save simultaneously when a borrower defaults on her debt by filing for chapter 7 bankruptcy she can keep her assets up to the wealth exemption level wealth exemption levels are important for two reasons first they explain the extensive and intensive margin of the credit card debt puzzle around thirty percent of borrowers both in the model and in the data who borrow at high interest rates simultaneously save at low interest rates however these borrowers borrow and save only relatively small amounts a few thousand u s dollars second ignoring the exemption level biases results because it overstates the costs of defaulting the welfare gains from chapter 7 compared to the european system where debt is not discharged are twice as high when exemption levels are positive compared to when they are ignored at the same time wealth exemption levels are unimportant in the sense that they have an impact only at low exemption levels the effects of increases in the exemption level fade out very quickly there is no strong positive relationship between exemption levels which vary across u s states and default rates in the model this is in contrast to the previous literature but consistent with the data the reason is that those borrowers who might default do not own much wealth therefore only very few households are affected by increases in the exemption level

unsecured credit markets are not insurance markets abstract we study the extent to which unsecured credit markets have altered the transmission of increased income risk to consumption variability over the past several decades we find that unsecured credit markets pass through increased income risk to consumption irrespective of bankruptcy policy and the information possessed by lenders if risk sharing has indeed improved over this period the reasons do not therefore lie in the unsecured credit market

transfer behavior in the health and retirement study measurement and the redistribution of resources within the family recent work by a number of economists has opened a debate about the role played by intergenerational transfers using the new health and retirement study hrs we are better able to address the issues involved contrary to the current literature on bequests we do not find that parents give transfers equally to all children rather we find that in the case of inter vivos transfers respondents give greaterfinancial assistance to their less well off children than to their children with higher incomes financial transfers to elderly parents are also found to be negatively related to the potential recipient s income these results hold both for the incidence of transfers and for the amounts in addition we allow for unobserved differences across families by estimating fixed effect models and find our results to be robust to these specifications a comparison of the hrs transfer data to other survey data demonstrates that the hrs is potentially quite useful for research on transfer behavior

mandatory retirement and the consumption puzzle disentangling price and quantity declines this study investigates changes in household consumption at retirement based on a comprehensive diary based household survey from china we focus on disentangling price changes from quantity changes at retirement the mandatory retirement policy in china provides a quasi experimental setting for nonparametric identification of the true causal effects of fully anticipated retirement using a regression discontinuity design we find that food expenditure declines at retirement particularly among the less educated group we further show that this decline is driven by a reduction in prices rather than quantities these findings along with a documented increase in shopping time for food upon retirement among the less educated households are consistent with a time allocation model in which education enhances the value of leisure jel j26 c21

precautionary principle and robustness for a stock pollutant with multiplicative risk the interest shown by policy makers and economists in the precautionary principle indicates the importance of model uncertainty in global warming policy i show that through robust control policy makers can implement the precautionary principle to regulate a stock pollutant and i analyze its effect on expected steady state pollution taxes stocks and welfare the paper is broadly comprised of a theoretical part and an application to global warming policy i find that 1 an increase in either uncertainty about the model or risk about abatement cost increases expected steady state pollution taxes 2 a robust policy is preferred for any level of model uncertainty and this preference increases for either higher model uncertainty or higher multiplicative risk and 3 the effect on expected steady state pollution taxes and stock of introducing model uncertainty is relatively small for high levels of model uncertainty these results advocate using robust policies for a stock pollutant in the presence of model uncertainty

fertility choice in a life cycle model with idiosyncratic uninsurable earnings risk abstract motivated by large shifts in uninsurable earnings risk over time this paper studies the link between delaying and reducing fertility on the one hand and earnings and fertility risks on the other when children are modeled as consumption commitments increases in earnings risk are associated with a reduction in family sizes and patterns of delayed childbearing since household ability to bear children declines with age the postponement of birth associated with the increased earnings risk drives down the number of birth per family further an access to in vitro fertilization ivf is shown to have only a limited offsetting effect

the composition effect of consumption around retirement evidence from singapore abstract it is well established that consumption is hump shaped over an individual s lifecycle peaking in middle age and then declining in the years that follow prior research has documented that consumption declines at retirement which is inconsistent with the standard lifecycle model with consumption smoothing using a unique dataset with detailed administrative records of credit and debit card transactions we show the hump shaped lifecycle consumption pattern as documented in the literature additionally we show compositional changes in consumption expenditures across individuals in the years surrounding retirement confirming the results of aguiar and hurst 2005 2013

u s tax policy and health insurance demand can a regressive policy improve welfare abstract the u s tax policy on health insurance is regressive because it subsidizes only those offered group insurance through their employers who also tend to have a relatively high income moreover the subsidy takes the form of deductions from the progressive income tax system giving high income earners a larger subsidy to understand the effect of the policy we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance a complete removal of the subsidy may lead to a partial collapse of the group insurance market reduce the insurance coverage and deteriorate welfare there is however room for improving the coverage and welfare by extending a refundable credit to the individual insurance market

towards a micro founded theory of aggregate labour supply we build a heterogeneous agents life cycle model that captures a large number of salient features of individual male labour supply over the life cycle by education both along the intensive and extensive margins the model provides an aggregation theory of individual labour supply firmly grounded on individual level micro evidence and is used to study the aggregate labour supply responses to changes in the economic environment we find that the aggregate labour supply elasticity to a transitory wage shock is 1 75 with the extensive margin accounting for 62 of the response furthermore we find that the aggregate labour supply elasticity to a permanent compensated wage change is 0 44

expectations based reference dependent life cycle consumption this study incorporates a recent preference specification of expectations based loss aversion which has been applied broadly in microeconomics into a classic macro model to offer a unified explanation for three empirical observations about life cycle consumption first loss aversion explains excess smoothness and sensitivity that is the empirical observation that consumption responds to income shocks with a lag intuitively such lagged responses allow the agent to delay painful losses in consumption until his expectations have adjusted secondly the preferences generate a hump shaped consumption profile early in life consumption is low due to a first order precautionary savings motive however as uncertainty resolves over time this motive is dominated by time inconsistent overconsumption that eventually leads to declining consumption towards the end of life thirdly consumption drops at retirement prior to retirement the agent wants to overconsume his uncertain income before his expectations catch up post retirement however income is no longer uncertain and overconsumption is associated with a sure loss in future consumption as an empirical contribution i structurally estimate the preference parameters using life cycle consumption data my estimates match those obtained in experiments and other micro studies and generate the degree of excess smoothness observed in macro consumption data

the method of endogenous gridpoints with occasionally binding constraints among endogenous variables we show how the method of endogenous gridpoints can be extended to solve models with occasionally binding constraints among endogenous variables very efficiently we present the method for a consumer problem with occasionally binding collateral constraints and non separable utility in durable and non durable consumption this problem allows for a joint analysis of durable and non durable consumption in models with uninsurable income risk which is important to understand patterns of consumption saving and collateralized debt we illustrate the algorithm and its efficiency by calibrating the model to us data

consumption and demand during the recent economic downturn anec dotal reports in the press indicate that some demands are recession resistant beer while others are very procyclical e g wine this naturally causes economists to attempt to infer something about engel curves just as macroe conomists think differently about growth and business cycles so it seems should microe conomists think differently about how con sumption responds to growth and business cycles using quarterly national income and product account nipa data figure 1 depicts consumption and food expenditure growth mean percentage growth rates for food con sumption was 2 3 in the period 1948 1977 and 1 85 in the period 1978 2009 while the standard deviation of growth rates fell from 0 37 in the earlier period to 0 27 in the later pe riod consistent with engel s law the growth rate of food consumption has fallen over time in either total or per capita forms unsur prisingly the quarterly growth rate of medical consumption not shown is higher than food with a mean growth of 5 97 in the earlier period and reduced growth of 3 4 and de clining in the later period interestingly stan dard deviation d of medical growth rate has fallen substantially from 0 51 to 0 18 the mean growth of overall consumption expendi tures was 3 9 d 4 15 in the earlier period and 3 1 d 2 62 in the later period finally housing expenditure growth rates not shown halved from 5 04 in the early period to 2 51 in the latter period with very stable rates of growth d 0 15 however negative growth rates occur during recessions 2001 is an ex ception indeed food expenditures fell almost 15 in the recent quarter from the previous quarter which was also negative growth sim ilar patterns of negative growth rates during re cessions occur for the other two categories of consumption in the period 1978 2009 and for total consumption as expected consumption and consumption growth behave very differ ently in recessions the question is are the negative growth rates just due to a fall in cur rent income or do they reflect uncertainty if uncertainty is key then one must funda mentally think about model future expecta tions in order to understand measure current demand as simple as these basic engel curve consid erations are one of the liveliest debates in eco nomics centers on consumption in response to income for decades there has been the steady accumulation of evidence for and against a keynesian type view that people consume out of current income the contrary view is most commonly called the permanent income hypothesis or pih due to modigliani and brumberg 1954 friedman 1957 and oth ers generally forward looking intertemporal models of consumption and savings might be called the life cycle hypothesis with pih as a special case yet economists have not been particularly successful at amassing convincing evidence that is consistent with the life cycle model of behavior in all of its ramifications and many find models of conventionally ra tional economic agents wanting e g laibson 1998 the pih is that individuals consume out of an annuity derived from expected lifetime wealth this is particularly relevant when dis cussing the effects of countercyclical fiscal pol icy john taylor 2008 recently sided with the pih against the keynesian or neo keynesian view a second major issue is whether liquid ity constraints mitigate the forward looking life cycle predictions a third issue is how un certainty affects consumption and saving pre cautionary behavior much research has focused on the demand response to changes in total expenditure or even food expenditure allocations to particu lar foods engel curve notions of this research could be stated as dqt dc 1 n where c is real total consumption expenditures c j2 i piqi where qt and pt are the th quantity and real price respectively macroeconomics fellows address rulon d pope is professor of economics at brigham young university the author would like to thank daniel sullivan for assistance fellows address was presented at the 2008 aaea annual meet ing in milwaukee wi august 2009 invited addresses are not sub jected to the journal s standard refereeing process

moving back home insurance against labor market risk this paper demonstrates that the option to move in and out of the parental home is a valuable insurance channel against labor market risk which facilitates the pursuit of jobs with the potential for high earnings growth using monthly panel data i document an empirical relationship among coresidence individual labor market events and subsequent earnings growth i estimate the parameters of a dynamic game between youths and parents to show that the option to live at home can account for features of aggregate data for low skilled young workers small consumption responses to shocks high labor elasticities and low savings rates

endogenous debt constraints in a life cycle model with an application to social security this paper develops a simple life cycle model that embeds a theory of debt restrictions based on the existence of inalienable property rights a la kehoe and levine 1993 debt constrained asset markets review of economic studies 60 4 865 888 2001 liquidity constrained markets versus debt constrained markets econometrica 69 3 575 598 in our environment net debtors have the option of defaulting on unsecured debt at the cost of being subjected to wage garnishment and or having some or all of their future assets seized by creditors one advantage of our framework is that it encompasses two standard versions of the life cycle model one with perfect capital markets and one with a non negative net worth restriction we study the impact of a payroll financed social security system to illustrate the role of endogenous debt constraints and compare our results to a model with exogenous debt constraints whereas the aggregate effects are similar under both types of constraints the distributional consequences are found to be significantly different across debt regimes

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

assessing bankruptcy reform in a model with temptation and equilibrium default abstract a life cycle model with equilibrium default in which agents with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform the calibrated model indicates that the 2005 reform reduces bankruptcies as seen in the data and improves welfare as lower default premia allows better consumption smoothing a counterfactual reform of changing income garnishment rate is also investigated interesting contrasting welfare effects between two types of agents emerge agents with temptation prefer a lower garnishment rate as tighter borrowing constraint prevents them from over borrowing while those without prefer better consumption smoothing enabled by a higher garnishment rate

returns to skills and the college premium a substantial literature documents the evolution of the college premium in the u s labor market over the last 40 years or so there are at least three different interpretations of this fact i shifts in the relative supply of and demand for college versus high school labor ii shifts in the relative supply of and demand for skills in the college versus high school sector and iii composition effects we investigate how each of these components contributes to the dynamics of the college premium and find that all three play a role but the increase in the college premium is primarily driven by the first component we also find that during the 1980s the college premium for high school workers diverged from the college premium for college workers and a substantial fraction of the gap that opens up is primarily due to the increase in the returns to cognitive skills

the individual life cycle annuity market imperfections and economic growth we study the effects of an annuity market imperfection on individual agents life cycle decisions and on the macroeconomic growth rate in an overlapping generations model with single sector endogenous growth our model features both age dependent mortality and labour productivity we model imperfect annuities by introducing a load factor on the annuity rate faced by finitely lived agents our main finding is that annuity market imperfections decrease economic growth because less assets are necessary for consumption late in life in addition we find that both the quantitative and qualitative effects of annuity market imperfections are grossly overestimated in a partial equilibrium analysis because it disregards general equilibrium repercussions

temptation and self control some evidence and applications this paper studies the empirical relevance of temptation and self control using household level data from the consumer expenditure survey we construct an infinite horizon consumption savings model that allows but does not require temptation and self control in preferences in the presence of temptation a wealth consumption ratio in addition to consumption growth becomes a determinant of the asset pricing kernel and the importance of this additional pricing factor depends on the strength of temptation to identify the presence of temptation we exploit an implication of the theory that a more tempted individual should be more likely to hold commitment assets such as individual retirement account ira or 401 k accounts our estimation provides empirical support for temptation preferences based on our estimates we explore some quantitative implications of this class of preferences for capital accumulation in a neoclassical growth model and the welfare cost of the business cycle

life insurance and household consumption abstract using life insurance holdings by age sex and marital status we infer how individuals value consumption in different demographic stages we estimate equivalence scales and bequest motives simultaneously within a fully specified model where agents face us demographics and save and purchase life insurance our findings indicate that individuals are very caring for dependents that economies of scale are large that children are very costly or yield very high marginal utility that wives with children produce lots of home goods and that females display habits from marriage while men do not these findings contrast sharply with standard equivalence scales

incorporating distributional considerations in the safe minimum standard approach endangered species and local impacts abstract explicitly incorporating current distributional concerns into the safe minimum standard sms approach is the objective of this study the sms approach is a collective choice process that prescribes protecting a minimum level of a renewable natural resource unless the social costs of doing so are somehow excessive or intolerably high more complete implementation of an sms approach if it is to be a pragmatic policy tool requires that distributional considerations be included in determining whether the economic consequences of preservation actions are intolerable two case studies involving the us endangered species act are used to illustrate how distributional concerns might be incorporated into the sms approach

reverse mortgage loans a quantitative analysis reverse mortgage loans rmls allow older homeowners to borrow against housing wealth without moving despite rapid growth in this market only 1 9 of eligible homeowners had rmls in 2013 in this paper we analyze reverse mortgages in a calibrated life cycle model of retirement the average welfare gain from rmls is 252 per homeowner and 1 770 per rml borrower bequest motives uncertainty about health and expenses and loan costs account for low demand according to the model the great recession s impact differs across age income and wealth distributions with a threefold increase in rml demand for lowest income and oldest households

deconstructing life cycle expenditure we revisit two well known facts regarding life cycle expenditures the hump shaped profile of nondurable expenditures and the increase in cross household consumption inequality we document that the behavior of total nondurables masks surprising heterogeneity in the life cycle profile of individual consumption subcomponents we provide evidence that the categories driving life cycle consumption either are inputs into market work or are amenable to home production using a quantitative model we document that the disaggregated life cycle consumption profiles imply a level of uninsurable permanent income risk that is substantially lower than that implied by a model using a composite consumption good

intertemporal consumption durables and liquidity constraints a cohort analysis we provide a theoretical framework to analyse the response of life time maximizing consumers to intertemporal prices of non durable goods and durable goods when the borrowing limit depends on the market value of the stock of durables owned by the consumer we use pseudo panel data on purchases of non durables and durable goods cars and demographic characteristics from the uk family expenditure survey as well as estimates of the durable stock constructed using the uk national travel survey to estimate the equations derived in the first part of the paper we evaluate the shadow prices of these restrictions which were significantly positive for younger consumers in the mid seventies and immediately prior to the 1982 financial liberalisation

rising inequality changes in the distribution of income and consumption in the 1980s this paper examines changes in the distribution of income and consumption in the united states during the 1980s using data from the current population survey income and consumer expenditure survey consumption we reach three primary conclusions first changes in the distribution of consumption parallel changes in the distribution of income the lowest quintile of the consumption distribution received 0 9 percentage points less of total consumption in 1988 than in 1980 the corresponding decline for income was 0 6 percentage points second broad conclusions concerning recent changes in the consumption distribution are not very sensitive to the exact choice of a measure of family needs under a wide variety of alternative household equivalence scales there is a widening in the consumption distribution in the 1980s third the usc of consumption measures of well being in place of measures based on current money income docs change conclusions concerning the extent of poverty in the united stales using the official federal poverty thresholds we find that the overall consumption poverty rate was three percentage points below the income poverty rate in 1988 comparisons of the poverty rates of the elderly and the non elderly are substantially affected by the choice of poverty measure the consumption poverty rare for the elderly was only 60 percent of the rate for adults and one third of the rate for children in 1988 this abstract was borrowed from another version of this item

revisiting the effect of household size on consumption over the life cycle abstract although the link between household size and consumption has strong empirical support there is no consistent way in which demographics are dealt with in standard life cycle models we study the relationship between the predictions of the single agent model the standard in the literature versus a simple model extension the demographics model where deterministic changes in household size and composition affect optimal consumption decisions we show theoretically that the demographics model is conceptually preferable to the single agent model as it captures economic mechanisms ignored by the latter however our quantitative analysis demonstrates that differences in predictions for consumption are negligible across models when using standard calibration strategies this suggests that it is largely irrelevant which model specification is used

optimal timing of college subsidies enrollment graduation and the skill premium abstract the large increase in the skill premium has led many policy makers to propose increasing college subsidies as a strategy to increase college enrollment and reduce inequality existing analyses typically assume that there is no distinction between enrollment and graduation but in fact more than 50 of college enrollees do not graduate this highlights the need to explicitly model the decision to drop out in assessing the effect of subsidies i build a general equilibrium model of education choice that features an explicit dropout decision calibrate it to match key features of the us economy and use it to evaluate the impact of college subsidies on the supply of college educated labor i show that moving to a system in which subsidies are back loaded i e higher for juniors and seniors than for freshmen and sophomores will increase the supply of college educated labor even holding total subsides constant in fact this effect is larger than what would be accomplished by a uniform 50 increase in subsidies

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

yours mine and ours do divorce laws affect the intertemporal behavior of married couples divorce laws establish spouses individual property rights over household resources and determine when divorce is allowed this paper examines how such laws inuence the intertemporal behavior and the welfare of u s married couples i build a model of household choice about consumption labor supply and divorce under multiple divorce law regimes and i estimate it using exogenous variation in u s divorce laws from the 1970s to the 1990s couples responded to equal division of property and unilateral divorce by increasing tangible assets up to 19 which suggests the presence of a strong income eect for the primary earner and by reducing female employment by over 5 percentage points because the threat of divorce granted additional bargaining power to married woman the bargaining weight of women implied by these responses in the model corresponds to a third of the weight of men this indicates that equal division of assets beneted women when it was

life cycle preferences revisited an axiomatic construction for life cycle preferences accounting for the finiteness and the randomness of life duration is provided we emphasize the role of intertemporal correlation aversion and explain why multiplicative preferences provide an interesting alternative to additive preferences allowing risk aversion and intertemporal elasticity of substitution to be separated implications regarding the shape of the optimal consumption profiles are discussed

growth and saving among individuals and households the lifecycle theory of saving and consumption predicts that changes in an economy s rate of economic growth will affect its aggregate saving rate by changing the lifetime resources of younger people relative to older people however studies that track the saving behavior of cohorts of household heads over time as they age have yielded estimates of age saving profiles that are too flat for growth to have much effect on the aggregate saving rate one problem with the cohort approach is that multigenerational households are common in many counties and the age saving profiles of households may be quite different from the age saving profiles of individuals that make up households in this paper we propose a method for estimating individual age saving profiles using household data this method is applied to data from taiwan and thailand we find that the individual method yields results that are more favorable to the lifecycle model these results imply that changes in the rate of economic growth may in som

a news utility theory for inattention and delegation in portfolio choice recent evidence suggests that investors are inattentive to their portfolios and hire expensive portfolio managers this paper develops a life cycle portfolio choice model in which the investor experiences loss averse utility over news and can ignore his portfolio in such a model the investor prefers to ignore and not rebalance his portfolio most of the time because he dislikes bad news more than he likes good news such that expected news causes a first order decrease in utility consequently the investor has a first order willingness to pay a portfolio manager who rebalances actively on his behalf moreover the investor can diversify over time and his consumption aligns with predictions of mental accounting i structurally estimate the preference parameters by matching stock shares and stock market non participation over the life cycle my parameter estimates are in line with the literature generate reasonable intervals of inattention and simultaneously explain consumption and wealth accumulation over the life cycle here it matters that news utility preserves first order risk aversion even in the presence of stochastic labor income which also causes stock shares to rise in wealth

social security and old age unemployment risk with efficient wage bargaining i analyze a life cycle economy with old age productivity risk where wages employment and severance payments are set through efficient bargaining between risk averse unions and risk neutral firms allocations with limited union membership are second best inefficient as they generate too little labor supply in young age too much consumption before retirement too little employment of older workers early retirement and too little insurance against old age unemployment providing public transfers to early retirees disability benefits or early pensions might help to increase the degree of risk sharing at the cost of lower old age employment depending on whether absolute risk aversion is increasing or decreasing in consumption these policies might or might not produce efficiency gains at equilibrium

demographics and the natural interest rate in the euro area abstract we investigate the impact of demographics on the natural rate of interest nri in the euro area with a particular focus on the role played by economic openness migrations and pension system design to this end we construct a life cycle model and calibrate it to match the life cycle profiles from hfcs data we show that population aging contributes significantly to the decline in the nri explaining about two thirds of its secular decline between 1985 and 2030 openness to international capital flows has not been important in driving the ea real interest rate as aging in europe has been similar to that in the rest of the world so far of two possible pension reforms only an increase in the retirement age can revert the downward trend on the equilibrium interest rate while a fall in the replacement rate would make the decline in nri even deeper the demographic pressure on the eurozone nri can be alleviated by increased immigration but only to a small extent and with a substantial lag

consumption over the life cycle facts from consumer expenditure survey data this paper uses consumer expenditure survey data and a seminonparametric statistical model to estimate life cycle profiles of consumption controlling for demographics cohort and time effects we construct age profiles for total and nondurable consumption as well as expenditure patterns for consumer durables special emphasis is placed on the comparison of different approaches to control for changes in demo graphics over the life cycle we find significant humps over the life cycle for total nondurable and durable expenditures changes in household size account for roughly half of these humps bootstrap simulations suggest that our empirical estimates are tight in that standard errors are small

full insurance in the presence of aggregate uncertainty this paper tests implications of full consumption insurance the object is to determine how much mileage can be obtained from a model with complete markets with such features as private information or liquidity constraints omitted the implication exploited is that individual consumption responds to aggregate risk but not to idiosyncratic risk the test involves regressing the change in household consumption onto the change in aggregate consumption and other right hand side variables such as the change in household income and change in employment status all variables other than the change in aggregate consumption are predicted to be insignificant in explaining the change in household consumption with observations on consumption and income for 10 695 households from the consumer expenditure survey the results are mixed the results for one specification exponential utility are mostly consistent with full consumption insurance the results for the other specification power utility are not

towards a quantitative theory of automatic stabilizers the role of demographics employment volatility is larger for young and old workers than for the prime aged at the same time in countries with high tax rates the share of total hours supplied by young old workers is lower these two observations imply a negative correlation between government size and business cycle volatility this paper assesses in a heterogeneous agent olg model the quantitative importance of these two facts to account for the empirical relation between government size and macroeconomic stability

sustainability under uncertainty a deontological approach a deontological or kantian approach to intergenerational fairness suggests that sustainability criteria should be imposed as prior constraints on the maximization of social preferences concerning the distribution of welfare between present and future generations in particular it is plausible to assert that each successive generation holds a duty to ensure that the expected welfare of its offspring is no less than its own perceived well being this moral rule implies a bias against actions that generate present benefits but impose the risk of irreversible future losses if the preservation of options would allow for improved decisions as new information became available

species preservation versus development an experimental investigation under uncertainty the safe minimum standard sms is a decision rule to preserve renewable resources unless the social costs of doing so are intolerable while unpersuasive to many support for the sms has been advocated by some economists for settings involving irreversibility and a high degree of uncertainty the objective of this paper is to explore decision making involving species preservation versus development within an experimental laboratory setting and involving uncertainty the experimental design implements a number of prior game theoretic investigations of the sms bishop 1978 ready and bishop 1991 palmini 1999 involving insurance and lottery or combined games against nature the choices are between species preservation which possibly provides a cure for a disease or developing habitat leading to irreversible depletion econometric results from a random parameters logit model using responses from 117 participants across both u s and mexican university student samples and 9 treatment choices indicate that support for the sms varies across the type of game the imposed maximum regret condition concerning the relative magnitude of the costs of disease and net benefits of development a constructed measure of respondents risk aversion and other factors there is also strong evidence of unobservable heterogeneous preferences for preservation within our sample

the elasticity of intergenerational substitution parental altruism and fertility choice dynastic models common in macroeconomics use a single parameter to control the willingness of individuals to substitute consumption both intertemporally or across periods and intergenerationally or across parents and their children this article defines the concept of elasticity of intergenerational substitution egs and extends a standard dynastic model in order to disentangle the egs from the eis or elasticity of intertemporal substitution a calibrated version of the model lends strong support to the notion that the egs is significantly larger than one in contrast estimates of the eis suggests that it is at most one what disciplines the identification is the need to match empirically plausible fertility rates for the u s we illustrate the potential role of the egs in macroeconomics

why has house price dispersion gone up we calibrate a dynamic general equilibrium island model to investigate the 30 year increase in the level of house prices and their dispersion across u s metropolitan areas the model is based on two main assumptions households o w in and out metropolitan areas in response to local productivity shocks and the housing supply cannot adjust instantly because of technological and regulatory constraints the calibration reveals that the observed tightening of housing supply regulation cannot quantitatively account for the rise in the level and dispersion of house prices in equilibrium workers o w out of tightly regulated towards less regulated metropolitan areas undoing most of the price impact of local supply restrictions in contrast the observed increase in wage dispersion across metropolitan areas does create the observed increase in the level and dispersion of house prices workers o w towards exceptionally productive metropolitan areas and drive house prices up the calibration also suggests that the welfare eects of housing supply regulation are large when wages become more dispersed

accounting for the gender gap in college attainment i introduction one striking phenomenon in the u s labor market is the reversal of the gender gap in college attainment in 1980 57 of young men aged 25 34 compared with 46 of young women had some college education by age 34 by 1996 however female college attainment had reached 64 5 percentage points higher than that of the males in the same cohort in tact females overtook males in college attainment in 1987 and have led ever since a large body of empirical research emphasizes the role of the earnings premium as a key explanatory variable for the determination of education outcomes see e g becket 1967 mincer 1974 willis and rosen 1979 in addition an extensive literature shows that family background is an important determinant of the schooling decision see among others cameron and heckman 1998 2001 eckstein and wolpin 1999 ge 2008 kane 1994 recently several papers have argued empirically and theoretically that expected marriage is important in determining the schooling decision e g chiappori iyigun and weiss 2006 ge 2008 iyigun and walsh 2007 on the basis of this literature we construct a life cycle model that includes potential costs and benefits from the labor market and marriage market which determine individual college decisions in our model individuals with differing learning abilities first decide whether or not to enter college then they might get married and have children parents are altruistic and value their children s learning ability which increases with the parents education forward looking individuals take into account the impact of their own schooling on their children s learning ability other factors that affect an individual s decision on whether to pursue higher education include the expected direct labor market returns to college over one s lifetime the expected marriage market returns to college and the financial and effort costs of attending college these costs and benefits can differ by gender we calculate from panel study of income dynamics psid and current population survey cps parents education distributions the life cycle profiles of single marriage and divorce probabilities by education and the lifecycle profiles of earnings by education and marital status as exogenous inputs of the model we observe that the number of college educated parents increases over time in the marriage market a substantial increase of single probabilities and an increase of divorce probabilities has occurred for both genders regardless of college attainment status lifetime earnings by cohort are decreasing slowly for males of all marital statuses especially for married males lifetime earnings for married and divorced females are increasing gradually whereas those for single females are decreasing slightly to formally endogenize those changes is beyond the scope of our paper we instead focus on the mechanism in which under perfect foresight these changes affect education decisions we estimate the parameters of the model by matching data on college attainment by gender from the psid we present evidence on how well the model fits the data we then use the parameter estimates to simulate counterfactual experiments which break down the sources of changes in college attainment into the effects of changes in relative earnings changes in parental education and changes in the marriage market what accounts for the increase in college attainment over the past few decades we find that the increasing gap in earnings between college and high school graduates has important effects on the increase in college attainment for both genders when earnings are fixed at 1946 cohort levels attainment rates in 1996 drop by 15 5 and 14 2 percentage points for males and females respectively we also emphasize the importance of intergenerational persistence in schooling on the increase in college attainment for both genders

an estimate of the age distribution s effect on carbon dioxide emissions i introduction we exploit temporal and geographic demographic variation to estimate the relationship between a population s age distribution and carbon dioxide c o sub 2 emissions in a panel of 46 countries from 1990 to 2006 to reduce potential omitted variable bias we instrument for the age distribution with lagged birth rates and control for total population and total gross domestic product gdp a higher share of prime working age 35 49 individuals within a country leads to higher c o sub 2 emissions while younger and older populations have lower c o sub 2 emissions according to our results emissions of c o sub 2 account for about half of the radiative forcing from anthropogenic sources that are considered the primary contributors to global warming the intergovernmental panel on climate change 2007 predicts increases in average surface temperatures in the range of 1 1 6 4 degrees c 2 11 5 degrees f by the end of the century climate change has created the threat of substantial environmental damage with the possibility of catastrophic consequences for many throughout the world as a result both academics and policy makers are interested in c o sub 2 emissions the literature aimed at explaining c o sub 2 emissions usually focuses on the size and affluence of the population this approach can be traced back to the seminal work by ehrlich and holdren 1971 the biologist and physicist who argued that population size has a disproportionate impact on the environment the impact is generally assumed to depend upon technology leading to the well known ipat identity or kaya identity for c o sub 2 emissions i p x a x t where i is environmental impact p is population size a is affluence gdp per capita and t is a technology index more recent literature has focused on models of the technology index and how the index changes over time e g due to improvements in abatement technology the widely cited intergovernmental panel on climate change studies use several variations of the ipat model to produce regional emissions forecasts which are then aggregated to the global level structural studies by economists e g nordhaus 2009 have also attempted to forecast global c o sub 2 emissions using estimates of gdp from production functions and world population size although these studies have frequently used geographic density of the population as well as its size as explanatory variables and have allowed for nonlinearity in size most have ignored the age distribution within the population 1 a few papers have begun to address this potential oversight by explicitly including the age distribution in studies of c o sub 2 emissions dalton et al 2008 build a structural overlapping generations model to forecast u s c o sub 2 emissions 2 in their model simulations population aging has a big effect on future emissions our empirical findings support dalton et al 2008 but our approach is most closely related to cole and neumayer 2004 3 cole and neumayer 2004 also use a cross country panel to estimate the effect of demographic change on c o sub 2 emissions in an ipat type regression model while cole and neumayer 2004 include age group shares as controls the groups younger than 15 15 64 and 65 are too wide to capture the effect we posit and they do not instrument for the age distribution as we do cole and neumayer 2004 mainly focus on changes in total population whereas we are interested in the age distribution effect for a given population size our ordinary least square ols estimates indicate that a country s level of c o sub 2 emissions depends on its age distribution in addition to population size the regressions include total gdp and a full set of time and country dummies as controls we use the fraction of the population aged 35 49 or working share as the main explanatory variable changes in the working share across time not common to all countries and independent of gdp and total population provide the variation used to estimate the age distribution s effect

household economies of scale in consumption theory and evidence household economies of scale arising from the existence of househo ld public goods increasing returns in household production and or bulk discounts are incorporated into a utility theoretic model of household demands individuals are assumed to be identical and symmetrically treated within households economies of scale parameters for five goods are estimated using the quadratic expenditu re system and data from the u s consumer expenditure survey on expenditures by all adult households results suggest the existence o f significant economies of scale in the consumption of all of the included goods with economies being especially pronounced in the consumption of shelter copyright 1988 by the econometric society

a cohort analysis of saving behavior by u s households the aim of this paper is to shed some light in the decline in personal saving rates in the united states in the 1980s for a such a purpose the paper analyses the only u s data set containing information on consumption and income at the household level the consumer expenditure surveys cex from 1980 to 1991 because the cex is not a panel most of the analysis is conducted using average cohort techniques the paper identifies a typical age profile for saving rates such a profile is hump shaped and peaks around age 57 the paper also argues that such a profile was shifted down for the cohorts born between 1920 and 1939 relative to the younger and older cohorts considered these cohorts are the parents of the baby boom generation the paper also argues that these cohort effects can account for a non neglible proportion of the decline in aggregate saving because these cohorts were during the 1980s in the ages when saving rates are typically highest the result is robust to the consideration of several controls and holds for several definitions of consumption the only exception is when durable expenditure is considered as saving rather than consumption

uncertainty risk aversion and the game theoretic foundations of the safe minimum standard a reassessment abstract contrary to a widely held perception game theory can provide a consistent and rigorous economic justification for the safe minimum standard sms constraint on economic development s v ciriacy wantrup 1968 based the sms on the idea that risk aversion is an important public policy motive and richard bishop 1978 tried to theoretically justify this idea 20 years ago by applying the minimax decision rule to an insurance loss avoidance game theoretic model more recently richard ready and bishop 1991 distinguished two different games against nature and determined that the minimax rule implied opposite choices for preservation for development in the models and therefore game theory could not provide a consistent rationale for the sms ready and bishop s two games can be viewed as subgames of a more comprehensive dynamic game of society against nature the minimax decision rule yields contrary results because the two subgames embody different kinds of uncertainty further the minimax rule both ignores the social cost of wrong choices and violates milnor s bonus invariance axiom for game theoretic decision rules milnor j 1964 a minimax regret decision rule is preferred because it emphasizes risk aversion while explicitly incorporating the opportunity cost of making a wrong choice between preservation and development the rule gives rise to a consistent choice of preservation over both the insurance and lottery games and transfers the burden of argument from preservationists to developers on the other hand the sms constraint on development is contingent on the size of development benefits foregone and thus is not absolute and binding

empirical evidence on the trade impact of asynchronous regulatory approval of new gmo events abstract this paper focuses on the ex post empirical analysis of the trade impact of asynchronous regulatory approval of new genetically modified organism gmo events we contribute to the literature in three ways first we define indices to assess the extent of asynchronicity and the relative strictness of the gmo approval authorizations of 40 countries considering gmo regulatory developments between 2000 and 2012 regarding cotton maize and soybeans second we introduce indices that are country pair specific product specific and year specific in a gravity model to examine the trade impact of asynchronous regulatory approval across countries by grouping the countries according to the state of their national regulatory gmo frameworks we have an even more differentiated view on the trade impact of asynchronous approval that focuses not only on the existence of regulations but also on their restrictiveness the results from the gravity model show that asynchronous approval has negatively impacted trade flows of cotton maize and soybeans it is observed that both asynchronous approvals and the restrictiveness of importing countries regulations to address the importation of gmo products matter meaning those countries that have already adopted a comprehensive gmo regulatory framework and have policies to manage the importation of gmo crops tend to feel a higher negative impact on trade flows

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

the age specific burdens of short run fluctuations in government spending abstract we study the impact of government spending shocks on the distribution of income and wealth between cohorts and the associated welfare effects in a dynamic stochastic overlapping generations model with two types of households ricardian households and rule of thumb consumers we demonstrate that an unexpected increase in government spending decreases income and wealth inequality in contrast to the conventional wisdom that the financing of government expenditures by debt rather than taxes especially burdens young generations we find that debt financing also harms ricardian households during retirement the crucial element in our analysis is a wealth effect that results from the decline in the price of capital due to higher government debt

testing for educational credit constraints using heterogeneity in individual time preferences i develop a model in which individual time discount rates have a larger effect on human capital accumulation when credit constraints are binding impatient individuals obtain less schooling when borrowing constraints limit the ability to finance consumption during school using data from the nlsy79 i show that self reported measures of time preferences have a significantly higher effect on the college attendance decisions of blacks than those of whites and the decisions of low income youths than those of high income youths these results provide new evidence that members of disadvantaged groups obtain lower levels of schooling because they are credit constrained

house prices and risk sharing homeowners in the panel study of income dynamics are able to maintain a high level of consumption following job loss or disability in periods of rising local house prices while the consumption drop for homeowners who lose their job in times of lower house prices is substantial these results are consistent with homeowners being able to access wealth gains when housing appreciates as witnessed by their ability to smooth consumption more than renters a calibrated model of endogenous homeownership and consumption is able to reproduce the patterns in the data quite well and provides an interpretation of the empirical results

adjustment of consumers durables stocks evidence from automobile purchases this paper tests an optimal s s rule in household durable purchases and examines directly the resulting aggregate expenditure dynamics the observed decision rule responds to income uncertainty and growth as predicted by an s s model resulting from transactions costs tests against liquidity constraints find that about half the households purchase according to an optimal s s rule aggregating the s s rule over households produces a cross section distribution of durables holdings the empirical distribution is similar to that predicted theoretically as is its response to aggregate shocks furthermore simulations of aggregate expenditure based on the household distribution exhibit dynamics consistent with those observed in the 1980s

social security growth and welfare in overlapping generations economies with or without annuities we examine the impact of a stylized pay as you go paygo social security program in an economy of overlapping generations with equilibrium growth we adopt realistic mortality and other demographic assumptions and allow for the presence or absence of life annuities in all cases steady state economies with paygo social security programs grow more slowly than those without also we find that lifetime expected utilities are lower for existing and future households in steady state economies with social security we also report the effect of social security on the age profile of consumption and explore the effects of longer life expectancy compensating social security program changes and capital subsidies

housing over time and over the life cycle a structural estimation we estimate a structural model of optimal life cycle housing and nonhousing con sumption in the presence of labor income and house price uncertainties the model postulates constant elasticity of substitution between housing service and nonhousing consumption and explicitly incorporates a housing adjustment cost our estimationts the cross sectional and time series household wealth and housing proles from the panel study of income dynamics 1984 to 2005 reasonably well and suggests an intratemporal elasticity of substitution between housing and nonhousing consumption of 0 487 the low elasticity estimate is largely driven by moments conditional on state house prices and moments in the latter half of the sample period and is robust to different assumptions of housing adjustment cost we then conduct policy analyses in which we let house price and income take values as those observed between 2006 and 2011 we show that the responses depend importantly on the housing adjustment cost and the elasticity of sub stitution between housing and nonhousing consumption in particular compared with the benchmark the impact of the shocks on homeownership rates is reduced but the impact on nonhousing consumption is magnied when the house selling cost is sizable or when housing service and nonhousing consumption are highly substitutable

aggregate consumer behavior and household equivalence scales this article presents estimates of household equivalence scales broken down by demographic characteristics of u s households separate estimates are given by family size age of head region race and urban versus rural residence commodity specific scales are presented for five separate commodity groups energy food consumer goods capital services and other services the estimates are obtained from an econometric model of aggregate consumer behavior the parameters of this model are estimated by combining aggregate time series and individual cross section data

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