bounding the labor supply responses to a randomized welfare experiment a revealed preference approach we study the impact of connecticut s jobs first jf welfare reform experiment on the labor supply decisions of a sample of welfare applicants and recipients although the experiment identies the distribution of choices made in the absence and presence of reform each woman s counterfactual choice is unknown we show that economic theory restricts the set of counterfactual choices compatible with each woman s actual choice we use these restrictions to develop bounds on the frequency of intensive and extensive margin responses to reform our results indicate that the jf experiment led some women to work and others to reduce their earnings

employer matching and 401 k saving evidence from the health and retirement study abstract employer matching of employee 401 k contributions is often touted as a powerful incentive to save for retirement and is a key component in pension plan design in the united states using detailed administrative contribution earnings and pension plan data from the health and retirement study this analysis formulates a life cycle consistent econometric specification of 401 k saving and estimates the determinants of saving accounting for non linearities in the household budget set induced by matching the participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k participation by 5 percentage points the parametric and semi parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k saving by 365 in 1991 dollars overall the analysis reveals that the 401 k saving response to matching is quite inelastic and hence matching is a rather poor policy instrument with which to raise retirement saving

choice proliferation simplicity seeking and asset allocation abstract in settings such as investing for retirement or choosing a drug plan individuals typically face a large number of options in this paper we analyze how the size of the choice set influences which alternative is selected we present both laboratory experiments and field data that suggest larger choice sets induce a stronger preference for simple easy to understand options the first experiment demonstrates that in seeming violation of the weak axiom of revealed preference subjects are more likely to select a given sure bet over non degenerate gambles when choosing from a set of 11 options than when choosing from a subset of 3 the second experiment clarifies that large choice sets induce a preference for simpler rather than less risky options lastly using records of more than 500 000 employees from 638 institutions we demonstrate that the presence of more funds in an individual s 401 k plan is associated with a greater allocation to money market and bond funds at the expense of equity funds

a note on price perception in water demand models a household s decision to acquire price knowledge is endogenous in the demand for utility services and may affect elasticities and consumption levels a simultaneous equation model with endogenous switching is developed to evaluate the effects of price

the link between pensions and retirement timing lessons from california teachers abstract i exploit a major unanticipated reform of the california teachers pension to provide quasi experimental evidence on the link between pension features and retirement timing using two large administrative data sets i conduct a reduced form analysis that leverages the nonlinearities in the return to work generated by the pension features and the reform induced shifts of these nonlinearities for identification the implied estimates of the elasticity of lifetime labor supply with respect to the return to work are centered around 0 04 in the medium run and are less than 0 1 in the long run

privately operated water utilities municipal price negotiation and estimation of residential water demand the case of france this paper addresses the issue of price negotiation between a municipality and a private water utility operator and its implications for residential water demand estimation we use appropriate econometric procedures to estimate a water demand equation on a panel of french municipalities we find evidence that negotiated water price depends on municipality s characteristics causing endogeneity of price in the demand equation the impact of average household income housing and system features such as metering is investigated both on municipal consumption and price estimated price and income elasticities are significant and close to previous household level studies

labor supply deadweight loss and tax reform act of 1986 a nonparametric evaluation using panel data abstract tax reform act of 1986 tra 1986 has provided an invaluable source of variation in tax rates to study the effects of tax reforms on labor supply in the us most existing studies exploiting variation generated by tra 1986 have used cross sectional variation in tax rates or assumed a linear labor supply function or have not couched their analysis in a nonlinear budget set framework this paper uses the drastic variation in the budget set induced by tra 1986 as a source of identification and combines two novel approaches to estimate behavioral effects of tax reforms i first use nonparametric estimation methods with nonlinear budget sets blomquist soren newey w 2002 nonparametric estimation with nonlinear budget sets econometrica 70 6 2455 2480 to estimate a labor supply function using waves of psid just before and after tra 1986 nonparametric method developed in hausman and newey hausman j whitney newey 1995 nonparametric measurement of exact consumer s surplus and deadweight loss econometrica 63 1145 76 is then applied to estimate the deadweight loss from tra 1986 the nonparametric estimate of the compensated wage elasticity is 0 22 i find that tra 1986 had a small but positive effect on labor supply of men of about 2 at the sample mean tra 1986 was associated with robust reduction in deadweight loss from the pre tra 1986 level and this reduction is positively correlated with income and wages

the econometrics of kinked budget constraints in the last several years a branch of applied econometrics has developed which is devoted to the development of techniques for the estimation of demand and other functions when the budget constraint is piecewise linear or kinky that is when the constraint consists of a number of segments joined together at kink points such constraints most frequently arise from government tax and transfer programs for example the federal income tax imposes a piecewise linear schedule by the use of constant marginal tax rates within brackets a problem analyzed by hausman 1981 the payroll tax in the social security system likewise generates a kinked schedule inasmuch as the marginal tax rate on earnings is zero above a certain earnings maximum federal and state transfer programs for the poor result in piecewise linear constraints because transfer benefits are taxed in the sense of a negative income tax as income rises and because that tax rate falls to zero at the kink point where an individual or family loses eligibility for the benefit altogether many government transfer programs impose additional nonlinearities by altering this tax rate by discrete amounts over the range of positive benefits as well but kinked constraints sometimes arise in nongovernment contexts a well known example being the block pricing schedule commonly set by utilities and volume discounting in general kinked budget constraints create two difficulties that have several interesting facets one difficulty is that changes in tax and transfer schedules can have unexpected effects that can be exactly the opposite in sign to those expected from economic theory examples of this phenomenon are given below the second difficulty that with which this paper is mostly concerned relates to the implications of kinked budget

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

child care and the labor supply of married women reduced form evidence this paper empirically analyzes family demands for market and nonmarket child care services and the impact of these demands on the work effort of married women the paperfirst develops a general model of child care and labor force participation the model predicts that higher wages increase the likelihood of labor force participation and that higher costs decrease the likelihood of child care utilization the paper then develops a threeequation reduced form econometric specification of the general model the equations in the specification are estimated simultaneously using 1985 data from the survey of income program participation the estimates reveal that the cost of market child care has a strong negative effect on the labor supply of married women

microeconometric analysis of residential water demand this paper develops a structural model for obtaining price elasticities and evaluating consumer s response to changes in nonlinear tariffs when only panel data on household consumption are available the model and the empirical strategy address problems implied by nonlinear tariffs existence of a fixed cost and use of limited data giving rise to a random effects model with a nonlinear individual effect results show that the estimated model does well at fitting data and demand is inelastic although elasticity varies by initial consumption block then i estimate welfare consequences of implementing several demand policies

the argentine stabilization plan of december 20th abstract in this paper an analytical model is developed to incorporate the essential characteristics of the stabilization plan implemented in argentina in january 1979 the model is based upon a set of simplifying assumptions that only approximate the complexity of the real world it is assumed that the expectations of inflation and the degree of excess demand or supply in the non traded goods market are the main intermediate determinants of the rate of inflation in that market the rate of change of prices of traded goods being determined by the external inflation together with the rate of devaluation treating thus the external rate of inflation as exogenous the only instrument available for influencing the rate of inflation in the long run is the rate of devaluation since the model assumes a fixed exchange rate regime the money supply is endogenous and hence unsuitable as an instrument of economic policy

a proposal for social pricing of water supply in cote d ivoire we consider the design of a nonlinear social tariff for residential water in cote d ivoire which is a case of a monopolistic private operator supplying a population of heterogeneous consumers the proposed optimal tariff includes an initial social block with a low unit price and higher consumption blocks with a monopoly pricing rule this optimal nonlinear tariff is calibrated using econometric estimates of a panel data residential water demand equation welfare changes associated with moving from the actual tariff to approximations of the optimal pricing system are computed under different tariff scenarios we find that gains in consumer welfare would outweigh losses in producer surplus in a majority of ivorian local communities

the joint choice of retirement age and postretirement hours of work in this paper we develop and estimate the first complete and internally consistent model of the effect of social security on the labor supply of the aged we develop a simple life cycle model that captures the effect of social security on the joint choice of the date of retirement and hours of work immediately after retirement we show that in the presence of social security the budget constraint relating these choices is highly complex and nonlinear and we develop a maximum likelihood procedure for the model that yields consistent parameter estimates our procedure avoids the selectivity biases present in prior studies that have ignored the nonlinearity of the constraint or have examined only self selected subsamples that exclude nonretirees our results show that social security has a significant though relatively small effect on the age of retirement and postretirement hours of work and that the effect of social security grows with advancing age

social security disability insurance applications awards and lifetime income flows this article provides new evidence about the impact of social security disability insurance on male labor force participation decisions based on estimates from a structural model of applications awards and state contingent lifetime income flows the lifetime framework makes it possible to consider long term opportunity costs associated with early labor force withdrawal and the disincentive to applications resulting from the statutory waiting period before benefits may be received estimation techniques account for the self selected nature of the pool of applicants when predicting the individual specific probability of acceptance and the opportunity costs of applying

economic incentives and political institutions spending and voting in school budget referenda abstract allocation of resources in the local public sector involves economic and political forces in many u s states the bulk of spending on public education is subject to referendum we link spending proposals to referendum outcomes our model makes use of voting data to shed light on the extent to which referenda constrain spending we use data from school budget referenda in 544 new york school districts for the 1975 1976 school year our econometric results and simulations based on them reveal considerable sensitivity of spending to the form of the state grants in aid structure as well as to the referendum requirement in addition large school districts appear to behave more like budget maximizers than do small districts where proposals appear more in line with median voter demands

housing demand and neighborhood choice with housing vouchers abstract this paper presents a new model of household choice of neighborhood and housing consumption and uses it to predict the effects of alternative housing voucher policies on the choices of voucher recipients and their levels of wellbeing the model is estimated using household level data from housing voucher recipients in pittsburgh aggregate data on unsubsidized households and a large dataset of neighborhood characteristics including crime rates school quality racial composition and housing prices using the estimated model this study predicts effects of a variety of interesting reforms of the housing voucher program namely a more generous voucher subsidy subsidy amounts that vary with census tract housing prices instead of metropolitan area prices subsidies that are proportional to the market rent of the specific units and a requirement that voucher recipients live in a census tract where the poverty rate is less than 30

currency substitution and the real exchange rate the utility maximization approach abstract this paper studies the currency substitution hypothesis with rational expectations in terms of a sidrauski type model where domestic and foreign money enter the utility function it shows that contrary to liviatan 1981 the approach does not necessarily contradict calvo and rodriguez 1977 furthermore the impact of monetary stabilization policy is fully characterized with flexible and pre fixed rates for an extension of dornbusch and mussa 1975 a brief analysis of the optimal quantity of money is also provided

a panel study of labour supply and taxes in denmark the labour supply of danish married couples is estimated on a longitudinal sample of about 3000 danish couples observed over the period 1980 86 the influence of the progressive tax system and the effect of the unemployment insurance system are evaluated the definition of unemployment in labour supply functions is discussed and two separate models are estimated where unemployment is considered either completely voluntary or completely involuntary the wage elasticity and the supply effects of tax reduction are estimated to be positive but numerically small for both men and women

measuring tax incidence an application to mortgage provision in the uk this paper derives measures of the average and marginal incidence of a tax or subsidy in imperfect competition in the context of the uk housing market we argue that one form of mortgage common in the uk but not elsewhere the endowment mortgage exists primarily because of the structure of taxation in the uk we estimate the determinants of the choice of the type of mortgage and the size of mortgage conditional on the choice using data from the building societies association on 43 000 individual mortgages taken out between 1985 and 1989 the estimated parameters are an input to the incidence measures results suggest that between 70 and 80 of the additional subsidy to endowment mortgages is captured by lenders rather than borrowers

a simulation based welfare loss calculation for labor taxes with piecewise linear budgets graduated income tax rates and transfer programs create piecewise linear budget constraints that consist of budget segments and kink points with any change in these tax rules each individual may switch between a kink point and a budget segment between two budget segments or between two kink points with errors in the estimated labor supply equation the new choice is uncertain and so the welfare effects of a tax change are uncertain we propose a simulation based method to compute expected welfare effects that is easy to implement and that fully accounts for uncertainties about choices around kink points our method also provides information about expected changes in working hours d 2003 elsevier b v all rights reserved

crawling peg inflation hedges and exchange rate dynamics this paper stresses the effects of currency substitution and speculation on inflation hedges on the relative price of home goods in the two sector general equilibrium portfolio balance model examining the overshooting hypothesis of exchange rates in association with the overshooting phenomenon of price of inflation hedges it has shown that exchange rate undershooting is plausible with the significant overshooting of the price of inflation hedges when domestic residents hold only domestic money and inflation hedges however the impact of currency substitution is strong enough to lead to exchange rate overshooting if the domestic residents have access to foreign currency

the econometrics of piecewise linear budget constraints a survey and exposition of the maximum likelihood method in this article maximum likelihood techniques for estimating consumer demand functions when budget constraints are piecewise linear are exposited and surveyed consumer demand functions are formally derived under such constraints and it is shown that the functions are themselves nonlinear as a result the econometric problems in estimating such functions are exposited and the importance of the stochastic specification is stressed in particular the specification of both unobserved heterogeneity of preferences and measurement error econometric issues in estimation and testing are discussed and the results of the studies that have been conducted to date are surveyed

the value of scarce water measuring the inefficiency of municipal regulations abstract rather than allowing urban water prices to reflect scarcity rents during periods of drought induced excess demand policy makers have mandated command and control approaches primarily rationing the use of water outdoors while such policies are ubiquitous and likely inefficient economists have not had access to sufficient data to estimate their economic impact using unique panel data on residential end uses of water in 11 north american cities we examine the welfare implications of urban water rationing in response to drought using estimates of expected marginal prices that vary both across and within markets we estimate price elasticities specific to indoor and outdoor water use our results suggest that current policies do target water uses that households themselves are most willing to forgo nevertheless we find that rationing outdoor water in cities has costly welfare implications primarily due to household heterogeneity in willingness to pay for scarce water we find that replacing rationing policies with a market clearing drought price would result in welfare gains of more than 29 of what households in the sample spend each year on water

female labor supply with a discontinuous nonconvex budget constraint incorporation of a part time full time wage differential this paper incorporates the well documented part time full time wage differential into an empirical labor supply model with both a heterogeneity and a random error term and estimates that model fo

willingness to pay for forest property rights and the value of increased property rights security this paper studies the willingness to pay wtp for forest property rights in viet nam we do so by asking respondents to estimate the value of two different forest property rights regimes where only the level of property security differs and all other forest plot characteristics are constant we use this information to identify the value of the property rights security our results reveal that a significant number of individuals are willing to pay for an additional area of forestland but that the amount offered appears to be inadequate to compensate sellers as very few land market transactions actually take place the results further indicate that income relates positively to wtp irrespective of forest property regime wealth age and ethnicity also have an impact on the amount households are willing to pay as expected there was a significant mark up on the more secure right econometric estimates of the difference between the wtp for secure and insecure property rights show that a higher level of female education and household age decrease the difference between the two wtp measures while the difference tends to increase as income improves this has important policy implications as it indicates that households tend to evaluate the property rights institutions differently

using shadow wages to estimate labor supply of agricultural households with few exceptions most studies of the labor demand and supply decisions of agricultural households in developing countries have relied on the empirical advantages of separability given the questionable nature of some of the assumptions sufficient for separability i apply a recent methodology that accounts for the simultaneity between the production and consumption decisions of a farm household using data from rural india direct estimates of the marginal productivities shadow wages of family male and female labor are derived from a cobb douglas agricultural production function the estimated shadow wages and income are then used as regressors in a structural model of labor supply

labor supply and taxation in france this paper provides sequential labor supply estimates for french married men and women under specifications analogous to those used by hausman to account for the effects of taxation upon the budget constraint results suggest that even though labor force participation follows the expected pattern work hours are quite rigid most of the variation in the latter being attributed to measurement errors the second part of the paper concentrates on the simultaneous estimation of male and female labor supply conditional maximum likelihood techniques are shown to permit the separate estimation of work hours for both spouses with an appropriate set of instruments aimed at correcting for the biases arising from simultaneity selectivity and the nonlinearity of the budget constraint although consistent the resulting estimates apparently contradict the usual rationality restrictions on family labor supply behavior and seem to confirm the lack of flexibility in work hours

the elasticity of intertemporal substitution new evidence from 401 k participation abstract using health and retirement study data and a structural econometric model we exploit variation in employer matching rates in 401 k plans to generate new estimates of the eis 0 74 in our richest specification with a 95 confidence interval of 0 37 1 21

the econometrics of nonlinear budget sets traditional empirical analysis of consumer demand has usually made the assumption of linear budget sets that is the consumer is assumed to purchase any desired quantity at a constant price subject to a budget constraint the major exception to this framework is the analysis of demand when some goods are rationed 2 in the rationed case the price is constant up to a quantity limit in contrast to the rationed case here i consider the situation where the price varies with the amount of the good purchased empirical situations with nonconstant prices come readily to mind and of course they have received much recent attention from theorists since mirrlees 44 paper on optimal nonlinear taxation the following examples are meant to give a partial listing of cases when nonlinear budget sets occur i electricity prices many electric utilities engage in declining block pricing that is the marginal price of successive kwh s of electricity decrease at a given number of points determined by total demand thus the budget set is piecewise linear houthakker 36 was the first to propose an approach to this problem taylor 51 analyzes the problem at length and hausman kinnucin and mcfadden 31 use an instrumental variables estimator to provide consistent estimates of the demand function

labor supply taxes and government spending a microeconometric analysis the effect of government spending on labor supply behavior is critical to predicting the balanced budget effect of income taxes and to estimating the marginal social cost of public funds yet its very existence not to mention direction and magnitude has not been empirically investigated this research estimates a labor supply function that incorporates income taxation and government spending using microeconomic data for men and women the empirical results suggest that public sector spending may have a significant effect on labor supply thereby leading to estimates of the marginal social cost of public funds that differ from those typically calculated

water demand under alternative price structures we estimate the price elasticity of water demand with household level data structurally modeling the piecewise linear budget constraints imposed by increasing block pricing we develop a mathematical expression for the unconditional price elasticity of demand under increasing block prices and compare conditional and unconditional elasticities analytically and empirically we test the hypothesis that price elasticity may depend on price structure beyond technical differences in elasticity concepts due to the possibility of endogenous utility price structure choice observed differences in elasticity across price structures may be due either to a behavioral response to price structure or to underlying heterogeneity among water utility service areas

income effects and physician labour supply evidence from the threshold system in ontario we examine a reform to the physician threshold system in ontario that provides a unique opportunity to assess the effect of fee changes on physician behaviour free from the biases that potentially affect simple time series or cross section inference we find that 1 the income effects of fee changes are small but significant 2 the income effect dominates the substitution effect only for a minority of services with relatively low prices and high volumes and 3 the cross effects of fee changes tend to be significant only for services with relatively high prices and low volumes une reforme du systeme des seuils de revenus au dela desquels les medecins sont penalises a fourni une occasion en or de mesurer l effet des changements de revenus sur le comportement du medecin en evitant les biais qui potentiellement vicient les resultats derives des series chronologiques ou des analyses transversales on decouvre que 1 les effets de revenus des changements de remuneration sont faibles mais significatifs 2 l effet de revenu domine l effet de substitution seulement pour un petit nombre de services a faible prix et fort volume et 3 les effets croises des changements de remuneration tendent aetre significatifs seulement pour les services dont le prix est relativement eleve et ou il y a faible volume

price sensitivity of demand for prescription drugs exploiting a regression kink design this paper investigates price sensitivity of demand for prescription drugs using drug purchase records for at 20 random sample of the danish population we identify price responsiveness by exploiting exogenous variation in prices caused by kinked reimbursement schemes and implement a regression kink design thus within a unifying framework we uncover price sensitivity for different subpopulations and types of drugs the results suggest low average price responsiveness with corresponding price elasticities ranging from 0 08 to 0 25 implying that demand is inelastic individuals with lower education and income are however more responsive to the price also essential drugs that prevent deterioration in health and prolong life have lower associated average price sensitivity

stabilization policies in developing countries what have we learned abstract the paper reviews the recent experience with stabilization programmes in latin america in the light of traditional and monetarist models of inflation and the exchange rate the traditional model links both inflation and payments problems to budget deficits the monetarist model too believes that inflation is caused by fiscal deficits but it takes a more optimistic view of stabilization full purchasing power parity and perfect capital mobility make stabilization just a question of the appropriate exchange rate policy and the proper rate of domestic credit creation the traditional view is substantially right as a long run model but it fails in the dynamics the monetarist model is as we know now fundamentally wrong as a short run description of the possibilities of inflation control there is need and room for a paradigm that places emphasis on the debt money mix in financing the budget on the stickiness of inflation rates and on the place of short run real exchange rate and real interest rate variations that these are key features of the transition phase is amply borne out by the devasting and unsuccessful experiences with monetarist stabilization in argentina chile and brazil

block rate versus uniform water pricing in agriculture an empirical analysis in this article we adapt burtless and hausman s 1978 methodology in order to estimate farmers demand for irrigation water under increasing block rate tariffs and empirically assess its effect on aggregate demand and inter farm allocation efficiency this methodology overcomes the technical challenges raised by increasing block rate pricing and accounts for both observed and unobserved technological heterogeneity among farmers employing micro panel data documenting irrigation levels and prices in 185 israeli agricultural communities in the period 1992 1997 we estimate water demand elasticity at 0 3 in the short run the effect of a price change on demand within a year of implementation and 0 46 in the long run we also find that in accordance with common belief switching from a single to a block price regime yields a 7 reduction in average water use while maintaining the same average price however based on our simulations we estimate that the switch to block prices will result in a loss of approximately 1 of agricultural output due to inter farm allocation inefficiencies

estimating water demand under increasing block tariffs using aggregate data and proportions of users per block forming a strategy for the management of a water resource requires reasonable knowledge of the effects that alterations in the control variables bring on water use such knowledge of the determinants influencing domestic water demand constitutes an essential ingredient of a pricing policy for domestic water supply special attention should be paid to the effects of the level shape and frequency of the tariff since these are the variables that can be altered by the policy maker

monetary expansion and real exchange rate dynamics this paper examines the effect of a change in the rate of monetary expansion on the dynamics of the real exchange rate under fully flexible domestic prices and a floating exchange rate the model is similar in structure to an ealier paper by calvo and rodriguez the main difference being that in our model consumers have an infinite planning horizon and long run perfect foresight one of the main findings is that an increase in the rate of monetary expansion has the impact effect of creating a real appreciation of the exchange rate and a deterioration of the balance of payments contrary to the results of calvo and rodriguez

tax credits labor supply and child care we explore the impact of the child care tax credit in the u s income tax system on the labor supply decisions of married women with young children by incorporating the cost of child care into a st

capital mobility and devaluation in an optimizing model with rational expectations this paper examines the effects of ex change rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future the economy studied is one in which the authorities allow free mobility of capital under a crawling peg exchange rate regime many industrializing economies have adopted a crawling peg as a means of reconciling disparate inflation rates at home and abroad and some recent efforts to use the rate of crawl as an instrument of anti inflation policy have attracted considerable interest see carlos diaz alejandro tools similar to those employed here have been applied by guillermo calvo forthcoming to study this type of exchange rate management under conditions of capital immobility this abstract was borrowed from another version of this item

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

the value of free water analyzing south africa s free basic water policy this paper analyzes south africa s free basic water policy under which households receive a free water allowance equal to the world health organization s recommended minimum of 6 kiloliters per month i structurally estimate residential water demand evaluate the welfare eects of free water and provide optimal price schedules derived from a social planner s problem i use a unique dataset of monthly metered billing data for 60 000 households for 2002 2008 from a particularly disadvantaged suburb of pretoria the dataset contains rich price variation across 18 dierent nonlinear tarischedules and includes a policy experiment which removed the free allowance i nd that without government subsidy the mean monthly consumption would decrease from 12 6 to 5 6 kiloliters which is below the clean water consumption recommended by the who however it is possible to reallocate the current subsidy to form an optimal tari without a free allowance which would increase welfare while leaving the water provider s revenue unchanged this optimal tariwould also reduce the number of households consuming below the who recommended level

estimating taxable income responses with elasticity heterogeneity abstract we explore elasticity heterogeneity in the estimation of the elasticity of taxable income eti and propose potentially valid instruments we show that previously used instruments are not valid and yield weighted averages of etis of different taxpayers plus a bias using the nber tax panel for 1979 1990 we find a weighted average eti of 0 57 when using all available variation in budget set changes provided by the tax reforms in the data our results also demonstrate that elasticity heterogeneity is an important explanation for the remarkable divergence of estimates in the previous literature

work incentives in the afdc system an analysis of the 1981 reforms the road to welfare reform increasingly appears to be one of the rockier paths the united states has traversed indeed by all outward appearances it is not even clear whether the current path runs uphill or downhill as far as work incentives in the welfare system are concerned economists of all political persuasions from milton friedman to james tobin have agreed that the uphill direction is that which leads to lower tax rates i e lower benefit reduction rates however as with free trade the near unanimity of opinion among economists has strangely only occasionally persuaded a majority of the nation s representatives to vote to go uphill the legislative history so illustrates from 1935 when the aid to families with dependent children afdc program was enacted to the 1967 social security amendments the tax rate in the program was 100 percent that is benefits were reduced by one dollar for every extra dollar earned with the 1967 amendments congress lowered the tax rate to 67 percent and in the heady atmosphere of the 1960 s it was expected that further progress in this direction would be made and that the tax rate would be lowered further indeed the family assistance plan subsequently proposed by president nixon would have lowered tax rates however the legislation passed the house but not the senate the ford administration considered welfare reform proposals internally but never proposed legislation while the carter administration proposed a massive welfare reform plan that met with no legislative success welfare reform was finally achieved in 1981 when the omnibus budget reconciliation act obra was enacted but obra increased the tax rate back to 100 percent the level prevailing prior to 1967 in retrospect it appears that 1967 marked the end not the beginning of legislative progress on work incentives in the welfare system in this paper i shall report the results of recent research that complicates the issue considerably by questioning whether lower tax rates do in fact provide work incentives the findings themselves seesaw not unlike the path of welfare reform itself first on a theoretical basis it appears that lower tax rates in a welfare program do not necessarily increase labor supply in the low income population as a whole contrary to the conventional wisdom in fact it also appears that members of the reagan administration were aware of this all along well in advance of the economics profession this theoretical ambiguity has fairly fundamental implications for the work incentive issue in welfare reform second nevertheless the empirical resolution of the ambiguity provided by existing econometric estimates in the labor supply literature and by estimates of the effect of afdc on labor supply indicates that a lower tax rate would indeed increase labor supply in the low income population as a whole and that a higher tax rate would decrease it thus the conventional wisdom is correct even though based upon an incorrect tdiscussants henry aaron the brookings institution and university of maryland harold watts columbia university edward gramlich university of michigan

a structural model of child care and the labor supply of married women this article empirically examines married women s labor supply and child care expenditures the article uses winter 1984 85 data from the survey of income and program participation to estimate a fu

nonparametric panel estimation of labor supply in this article we estimate structural labor supply with piecewise linear budgets and nonseparable endogenous unobserved heterogeneity we propose a two stage method to address the endogeneity iss

nonlinear pricing and the market for settling payments fedwire funds is a real time gross settlement system that uses a decreasing block pricing scheme to attract nonurgent payments a bank s optimal response to fedwire s pricing depends on its perceived benefits to settling nonurgent payments quickly if the urgency for immediate settlement is great enough a bank responds to marginal price otherwise it responds to average price we find banks respond to average price suggesting that fedwire s advantage over competing services of being able to provide immediate settlement is small moreover attempts to increase demand for fedwire services by lowering the cost of banks final block of payments may be ineffective if there is not a corresponding decrease in average cost

testing the behavior of rationally inattentive consumers in a residential water market abstract rationally inattentive consumers tend to apply simplified heuristics when making decisions we test the hypothesis of rational inattention in the context of residential water usage where water bills typically account for a small fraction of household expenditures and only attract casual attention we begin by rigorously testing whether or not residential water customers exhibit evidence of rational inattention we then propose a heuristic water demand model to explore the decision making of rationally inattentive consumers and validate the model by comparing the model with the discrete continuous choice model on attentive and fully informed decision makers in out of sample predictions