cake eating exhaustible resource extraction life cycle saving and non atomic games existence theorems for a class of optimal allocation problems abstract this paper investigates the problem concerning the existence of a solution to a diverse class of optimal allocation problems which include models of cake eating exhaustible resource extraction life cycle saving and non atomic games a new formulation that encompasses all these diverse models is provided examples of these models for which a solution does not exist and the causes of the non existence are studied two theorems are provided to tackle the existence problem under different conditions several analytical examples with a closed form solution are offered to illustrate the usefulness of the existence theorems

possibility of dying as a unified explanation of why we discount the future get weaker with age and display risk aversion i formulate a simple and parsimonious evolutionary model that shows that because most species face a possibility of dying because of external factors called extrinsic mortality in the biology literature it can simultaneously explain a why we discount the future b get weaker with age and c display risk aversion the paper suggests that testable restrictions across species across time or across genders among time preference aging and risk aversion could be analyzed in a simple framework jel a10 d90

optimal failure rates and penalty bonus policies in the offshore petroleum sector we characterize optimal time profiles of risk reducing expenditures and wreck probabilities for petroleum platforms the input to our analysis is the development of wreck cost direct and imputed particular attention is paid to the question of how private companies deviating from socially optimal standards may be induced to comply with such standards by means of a a time variant penalty b a no wreck bonus and c a time invariant penalty

a rank dependent utility model of uncertain lifetime abstract in a continuous time life cycle model of consumption with an uncertain lifetime we use a non parametric specification of rank dependent utility theory to characterize the preferences of the agent we prove that time consistency holds for a subclass of probability weighting function providing the foundation for a constant rate of time preference that interacts multiplicatively with the hazard rate instead of additively as in the yaari 1965 seminal model we calibrate both models to explain the hump in the life cycle consumption and show that the multiplicative model is more robust

defining the value of a statistical life reply abstract in general empirical estimates of the value of a statistical life vsl are biased however as pointed out by blomqvist 2001 a true blip in the hazard rate can be used to obtain an exact estimate of the vsl the question remains whether individuals and markets are able to value such short drops in the hazard rate

an evaluation of the life cycle effects of minimum pensions on retirement behavior in this paper we explore the effects of the minimum pension program on welfare and retirement in spain this is done with a stylized life cycle model which provides a convenient analytical characterization of optimal behavior we use data from the spanish social security to estimate the behavioral parameters of the model and then simulate the changes induced by the minimum pension in aggregate retirement patterns the impact is substantial there is a threefold increase in retirement at 60 the age of first entitlement with respect to the economy without minimum pensions and total early retirement before or at 60 is almost 50 larger copyright 2007 john wiley sons ltd

the global financial crisis explaining cross country differences in the output impact abstract what explains differences in the crisis impact across developing countries and emerging markets using cross country regressions to assess the factors driving the growth performance in 2009 compared to pre crisis forecasts for that year we find that a small set of variables explain a large share of the variation in the growth impact countries with more leveraged domestic financial systems stronger credit growth and more short term debt tended to suffer a larger effect on economic activity although the relative importance of these factors differs across country groups for emerging markets this financial channel trumps the trade channel for a broader set of developing countries however the trade channel seems to have mattered with more open countries affected more strongly and those exporting food commodities being less hard hit exchange rate flexibility helped in buffering the impact of the shock particularly for emerging markets there is also some evidence that countries with a stronger fiscal position prior to the crisis were impacted less severely we find little evidence for the importance of other policy variables

the relationship between international trade and capital flow a network perspective abstract the relationship between international trade and capital flow has been extensively discussed using bilateral data from 2001 to 2016 we construct international trade and capital flow networks defined as a weighted graph in which nodes are countries and edges represent trade and capital flow linkages centrality is employed as the main variable in this study to represent the importance of a country in the networks to gain further insight into the network characteristics we adopt a turning parameter centrality to combine both the original degree and strength measurements within the weighted network moreover we develop a new indicator called partner quality centrality to identify the quality of neighbors within the panel cointegration framework we argue that a positive long run equilibrium exists between the trade and capital flow networks as constructed in addition we employ a panel causality test to investigate the short run dynamics indicating that the international capital flow network has predictive power on the trade network from the short run perspective but not vice versa

measuring risk reduction benefits with discounted longevity there are many ways to assess the benefits and costs of risk reduction policies this paper shows that discounted longevity as a measure of benefits and the negative of net output as a measure of costs can be deduced from the shepard and zeckhauser utility maximization model

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

rates of time preference and valuations of the duration of life abstract this paper develops a multi period markov model of the lifetime choice of occupational fatality risks the empirical model analyzes the wage effects of job risks using the 1982 university of michigan panel study of income dynamics in conjunction with death statistics from the u s national traumatic occupational fatality survey evidence regarding workers intertemporal choices with respect to risks with long term implications is broadly consistent with rational behavior workers implicit real rate of time preference with respect to future life years equals approximately 11 percent this rate of time preference decreases with education

price and network dynamics in the european carbon market this paper presents an analysis of the european emission trading system as a transaction network it is shown that given the lack of a centralized market place industrial actors had to resort to local connections and financial intermediaries to participate in the market this gave rise to a hierarchical structure in the transaction network to empirically relate networks statistics to market outcomes a pls pm modeling technique is introduced it is shown that the asymmetries in the network induced market inefficiencies e g increased bid ask spread albeit the efficiency of the market has improved from the beginning of phase ii the asymmetry persists imposing unnecessary additional costs on agents and reducing the effectiveness of the market as a mitigation instrument

welfare analysis and intertemporal substitution abstract this paper explores the structure of welfare comparisons when direct utility is weakly separable over time the lifetime welfare effect of a reform is then the sum of atemporal hicksian variations and intertemporal variations reflecting intertemporal substitution these latter are shown to be of only second order importance in lifetime welfare comparisons approximations to the intertemporal variations when preferences are intertemporally additive are derived pointing to the welfare significance in this context of not only the intertemporal elasticity of substitution but also within period income effects numerical examples illustrate the analysis and suggest possible orders of magnitude

ageing health and health care the population in the developed world has experienced a significant increase in life expectancy over the last 50 years simultaneously while the onset of comorbidities has been deferred to older age groups health care expenditure has grown dramatically primarily owing to the advancement of medical technology and the expansion of individual income levels along with population ageing in the wake of increased longevity however the contribution of population ageing to health expenditure growth is subject to some theoretical and empirical scrutiny this paper takes the question of ageing and health and health care to the data to evaluate the net impact of ageing we focus on two main questions namely the welfare valuation of longevity improvements for various oecd countries along with the red herring hypothesis which suggests that population ageing has a small and almost negligible impact on health care expenditure our estimates lead us to suggest an average gain in longevity of 4 5 years since 1980 corresponding to about 13 5 per cent of lifetime income of a 20 year old in 2000 furthermore we confirm a weak red herring claim that is that population ageing accounts for only a 0 5 per cent annual growth rate of health care expenditure finally we find that the rise in longevity leads to a further demand for life prolonging medical care

the career costs of children this paper analyzes the life cycle career costs associated with child rearing and decomposes their eects into unearned wages as women drop out of the labor market loss of human capital and selection into more child friendly occupations we estimate a dynamic life cycle model of fertility occupational choice and labor supply using detailed survey and administrative data for germany for numerous birth cohorts across dierent regions we use this model to analyze both the male female wage gap as it evolves from labor market entry onward and the eect of pro fertility policies we show that a substantial portion of the gender wage gap is explainable by realized and expected fertility and that the long run eect of policies encouraging fertility are considerably lower than the short run eects typically estimated in the literature

public and private expenditures on health in a growth model abstract this paper introduces endogenous longevity into an otherwise standard overlapping generations model with capital in the model a young agent may increase the length of her old age by incurring investments in health such private health investments are assumed to be more productive if accompanied by complementary tax financed public health programs the presence of the public input in private longevity is shown to expose the economy to aggregate endogenous fluctuations and even chaos and such volatility is impossible in its absence the model is capable of generating dramatic reversals in life expectancy as has been observed in many countries

willingness to pay for car safety evidence from sweden this study estimates a marginal willingness to pay wtp function for a road mortality risk reduction observed marginal wtp from the swedish car market is used and found to be positively correlated with the baseline risk of the cars no statistically significant relationships between examined owner attributes e g wealth and background risk and marginal wtp are found when comparing the estimated monetary value of a non marginal risk reduction derived from the integral of the marginal wtp function with an estimate based on marginal wtp we find in line with expectations that the difference between the estimates is negligible for smaller risk reductions and small 4 10 also for relatively large risk reductions

optimal life insurance purchase and consumption investment under uncertain lifetime abstract in this paper we consider optimal insurance and consumption rules for a wage earner whose lifetime is random the wage earner is endowed with an initial wealth and he also receives an income continuously but this may be terminated by the wage earner s premature death we use dynamic programming to analyze this problem and derive the optimal insurance and consumption rules explicit solutions are found for the family of crra utilities and the demand for life insurance is studied by examining our solutions and doing numerical experiments

recognizing progeny in the value of life abstract this note generalizes the value of life to incorporate the preferences for descendants of a dynastically altruistic decision maker it derives the value of progeny and shows how it depends on the benthamite vs millian nature of dynastic altruism

can leading indicators assess country vulnerability evidence from the 2008 09 global financial crisis abstract we investigate whether leading indicators can help explain the cross country incidence of the 2008 09 financial crisis rather than looking for indicators with specific relevance to the recent crisis the selection of variables is driven by an extensive review of more than eighty papers from the previous literature on early warning indicators our motivation is to address suspicions that indicators found to be useful predictors in one round of crises are typically not useful to predict the next round the review suggests that central bank reserves and past movements in the real exchange rate were the two leading indicators that had proven the most useful in explaining crisis incidence across different countries and episodes in the past for the 2008 09 crisis we use six different variables to measure crisis incidence drops in gdp and industrial production currency depreciation stock market performance reserve losses and participation in an imf program we find that the level of reserves in 2007 appears as a consistent and statistically significant leading indicator of who got hit by the 2008 09 crisis in line with the conclusions of the pre 2008 literature in addition to reserves recent real appreciation is a statistically significant predictor of devaluation and of a measure of exchange market pressure during the current crisis we define the period of the global financial shock as running from late 2008 to early 2009 which probably explains why we find stronger results than earlier papers such as obstfeld et al 2009 2010 and rose and spiegel 2009a b 2010 2011 which use annual data

social security and retirement in uruguay abstractwe estimate a structural life cycle model for retirement behaviour using work history records of the main uruguayan pension programme the estimated coefficient of relative risk aversion is around 1 5 and the estimated discount rate is about 1 8 per cent per annum the marginal disutility of work increases with age and is larger for women than men and for private than public employees simulations show a very low impact of the 1995 pension reform on retirement ages many individuals in this population respond little to economic incentives and some individuals would advance rather than postpone retirement after the reform

post mortem examination of the international financial network abstract as the recent crisis has forcefully suggested understanding financial market interconnectedness is of a paramount importance to explain systemic risk stability and economic dynamics in this paper we address these issues along two related perspectives first we explore the statistical properties of the international financial network ifn defined as a weighted directed graph where nodes are countries and links represent debtor creditor relationships in equities and short long run debt we investigate whether the 2008 financial crisis has resulted in a significant change in the topological properties of the ifn our findings suggest that the crisis caused not only a reduction in the amount of securities traded but also induced changes in the topology of the network and in the time evolution of its statistical properties this has happened however without changing the disassortative core periphery structure of the ifn architecture second we perform an econometric study to examine the ability of network based measures to explain cross country differences in crisis intensity we investigate whether the conclusion of previous studies showing that international connectedness is not a relevant predictor of crisis intensity may be reversed once one explicitly accounts for the position of each country within the ifn we show that higher interconnectedness reduces the severity of the crisis as it allows adverse shocks to dissipate quicker however being central in the network may make countries that are not members of a rich club more vulnerable in times of crisis finally we find strong evidence of nonlinear effects once the high degree of heterogeneity that characterizes the ifn is taken into account

averting catastrophes the strange economics of scylla and charybdis faced with numerous potential catastrophes nuclear and bioterrorism mega viruses climate change and others which should society attempt to avert a policy to avert one catastrophe considered in isolation might be evaluated in cost benefit terms but because society faces multiple catastrophes simple cost benefit analysis fails even if the benefit of averting each one exceeds the cost we should not necessarily avert them all we explore the policy interdependence of catastrophic events and develop a rule for determining which catastrophes should be averted and which should not jel d61 q51 q54

the effect of increased longevity on capital accumulation one of the more startling demographic trends of the 1970 s has been the sharp rise in lifespan in the united states between 1970 and 1980 the life expectancy of 25year old men and women increased by at least two years while longevity has been steadily rising for many decades the recent spurt has hastened the trend the increase for both men and women in the 1970 s more than doubled the improvement of the 1960 s 1 the 1970 s were also characterized by a decline in labor force participation of older workers although rising income and increased disability payments may have explained some of the decline donald parsons 1980 it seems clear that expanding longevity has not been strongly associated with deferred retirement daniel hamermesh 1984 2 thus the retirement years have assumed greater importance in financial planning for the consumer as he or she retires earlier and lives longer the traditional life cycle model would predict greater savings rates as consumers increase accumulation of assets for their retirement consumption while young would drop and there might be an increase in labor supply as individuals substitute leisure while young for greater levels of life cycle consumption even under a social security system as long as the current generation s tax liabilities reflect their longer lifespan total savings private plus public should also rise 3 the predicted increase in savings is substantial a simple example using the modigliani ando brumberg life cycle model can illustrate the extent of the savings shift assume that earnings and consumption are constant over working years and lifespan respectively and that the interest rate is zero consumption is then a constant proportion k of earnings where k is the ratio of working years to one s lifespan if consumers made plans based on average lifespan the representative 25 year old would have saved 18 percent of earnings in 1970 1 40 49 when he plans to retire at age 65 and expects to live until age 74 in 1980 after a rise in life expectancy of two years the representative 25 year old would have increased savings to 21 percent of earnings or a net rise in the savings rate per worker of 17 percent that is this simple life cycle model implies that savings in the last decade should have risen other things held constant by approximately 17 percent or about 80 billion dollars per year the evidence from aggregate time series data appears to contradict the life cycle model s prediction of rising savings rates the net private savings rate in the united states declined from 7 8 percent of nnp in 1970 to 6 2 percent in 1980 while alan auerbach 1982 has suggested that some of the reported decline in savings may be caused by mismeasurement it seems clear that there has been no substantial rise in the savings rate there are numerous explanations for department of economics university of virginia charlottesville va 22901 i am grateful to maxim engers daniel hamermesh william r johnson laurence j kotlikoff john strauss and especially james davies and john r wolfe for helpful suggestions and comments life table data can be found in daniel hamermesh 1985 the life insurance fact book various years or in unpublished form from the national center for health statistics 2john wolfe 1983 provides an ingenious argument for why the social security benefit schedule has induced those with shorter life expectancies to retire early we might therefore expect some rise in the average retirement age as those expecting to live longer defer retirement until age 65 3if the social security taxes do not rise as expected lifespan increases perhaps because current tax proceeds are paid out as current benefits rather than retained in a trust fund young workers will save more to offset the lower expected benefits in the future 4in a two period model the percentage change in savings by the young is equal to the percentage change in aggregate savings

the impact of the correlation between health expenditure and survival probability on the demand for insurance abstract this paper studies the effects of health shocks on the demand for health insurance and annuities along with precautionary saving in a dynamic life cycle model i argue that when the health shock can simultaneously increase health expenses and reduce longevity rational agents would neither fully insure their uncertain health expenses nor fully annuitize their wealth because the correlation between health expenses and longevity provides a self insurance channel for both uncertainties that is when the agent is hit by a health shock which simultaneously increases health expenses and reduces longevity she can use the resources originally saved for consumption in the reduced period of life to pay for the increased health expenses since the two uncertainties partially offset each other the precautionary saving generated in the model should be smaller than in a standard model without the correlation between health expenses and longevity in a quantitative life cycle model calibrated using the medical expenditure panel survey dataset i find that the health expenses are highly correlated with the survival probabilities and this correlation significantly reduces the demand for actuarially fair health insurance while its impact on the demand for annuities and precautionary saving is relatively small

life cycle responses to health insurance status this paper studies the lifetime effects of exogenous changes in health insurance coverage e g medicare ppaca termination of employer provided plans on the dynamic optimal allocation consumption leisure health expenditures status health and wealth and welfare we solve simulate and structurally estimate a parsimonious life cycle model with endogenous exposure to morbidity and mortality risks and exogenous health insurance by varying coverage we identify the marginal effects of insurance when young and or when old on allocations statuses and welfare our results highlight positive effects of insurance on health wealth and welfare as well as mid life substitution away from healthy leisure in favor of more health expenses caused by peaking wages and accelerating health issues

intergenerational flows of time and goods consequences of slowing population growth it is feared that low fertility and older age distributions in the developed countries might cause lower life cycle consumption because of the increased pension and health cost burden the theoretical literature on intergenerational transfers has addressed this question but has considered only the consumption of market goods and has made no serious empirical attempt to measure the theoretical concepts necessary to assess the problem this paper develops a theoretical model of intergenerational transfers incorporating time use with the aid of time budget and consumer expenditure surveys empirical estimates of the age profiles of various types of time and goods consumption are presented and we conclude that 1 the net direction of intergenerational transfers is from younger to older ages 2 under the golden rule assumption these transfers largely constitute an externality to childbearing and 3 they are not large enough to offset the capital dilution effect that would result from higher fertility a

public goods and the value of product quality regulations the case of food safety abstract the paper examines preferences for product quality regulations our premise is that preferences for product quality regulations derive from preferences for both private and public goods the model is used to explain public attitudes toward a referendum measure to eliminate pesticide residues on food results from a survey of consumers are consistent with the conceptual model and show that preferences for public goods influence support for the product quality regulation the results help explain why consumption behavior is a poor predictor of political behavior and have implications for methods that use voting and market behavior to value public goods

comorbidities and the willingness to pay for health improvements we show that the willingness to pay for health improvements increases with the severity and probability of occurrence of comorbidities this result which is obtained under mild restrictions on the shape of the utility function has important implications for cost benefit studies applied to health care in particular it implies that the discrimination of the elderly believed to be implicit in cost benefit analysis is less of a problem than commonly thought

the insurance value of medical innovation abstract economists think of medical innovation as a valuable but risky good producing health benefits but increasing financial risk for consumers and healthcare payers this perspective overlooks how innovation can lower physical risks borne by healthy patients facing the prospect of future disease we present an alternative framework that accounts for all these sources of value and links them to the value of healthcare insurance we show that any innovation worth buying reduces overall risk and generates positive insurance value on its own we conduct a stylized numerical exercise to assess the potential empirical significance of our insights our calculations suggest that conventional methods meaningfully understate the value of historical health gains and disproportionately undervalue treatments for the most severe illnesses where physical risk to consumers is the costliest these calculations also suggest that the value of physical insurance from new technologies may exceed the financial spending risk that they pose

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

optimal choice of health and retirement in a life cycle model abstract we examine within a life cycle model the simultaneous choice of health care and retirement together with consumption health tends to have an impact on retirement through morbidity determining earnings and the disutility of work and through longevity determining the need to accumulate retirement wealth conversely the age of retirement drives the demand for health care through the value of survival and the value of morbidity reductions we characterise the optimal relationship between health expenditure and retirement and apply our model to analyse the effects of moral hazard in the annuity market while moral hazard always induces excessive health investments and an excessive duration of working life it also triggers an excessive level of consumption if the impact of health on the disutility of work is sufficiently large we examine a transfer scheme and mandatory retirement as policies towards curtailing moral hazard numerical analysis illustrates the role of moral hazard in shaping the life cycle allocation

your money or your life green growth policies and welfare in 2050 this paper proposes a simple index of economic progress that weighs in the monetary cost induced by climate change mitigation policies as well as the health benefits arising from the reduction in local air pollution the shadow price of pollution is calculated indirectly through its impact on life expectancy taking into account the health benefits of mitigation policies significantly reduces their monetary cost in china and india as well as in countries with large fossil based energy producing sectors australia canada and the united states

valuing future risks to life environmental policies that alter future mortality rates may affect both current and future generations this paper examines willingness to pay for future risk reductions from the perspective of the current generation the life cycle consumption saving model implies that an individual discounts future risks to himself at the consumption rate of interest if capital markets are perfect the consumption rate equals the market rate of interest otherwise the consumption rate exceeds the market rate and numerical results suggest that the implied discount factor may be substantial the overlapping generations model implies that a member of the current generation discounts the value of risks to future generations at the rate at which current consumption is substituted for a bequest

is it really good to annuitize although rational consumers without bequest motives are better off investing exclusively with annuitized instruments in partial equilibrium we demonstrate the welfare effect of annuitization is ambiguous in general equilibrium on account of pecuniary externalities absent institutional constraints like prices and budgets the optimal consumption rule would have marginal utility increase at the preferential discount rate in a rational competitive equilibrium where households fully annuitize the growth rate of marginal utility will be the discount rate minus the interest rate resulting in a consumption profile that is too flat accidental bequests transfer wealth from the old to the young steepening the consumption profile and yielding a better equilibrium if households are restricted to keynesian consumption functions the optimal irrational equilibrium with standard preferences can replicate observed consumption and macroeconomic behavior and the equilibrium without annuities delivers higher utility than the equilibrium with annuities whereas preceding papers have merely hypothesized that households might engage in socially optimal yet irrational behavior the failure of households to annuitize is a real world example of this policymakers should not take steps to encourage more annuitization by the public

micro level transmission of monetary policy shocks the trading book channel abstract we open the black box of the monetary policy transmission mechanism with a granular model that considers the balance sheet composition and network relationships of each economic agent though there are several well documented channels through which monetary policy operates we focus on the overlooked trading book channel which arises because of adjustments in the accounting value of trading book exposures on banks balance sheets that have to be marked to market when interest rates change variations in banks net worth due these adjustments are used as input to a network model that incorporates the financial and corporate sectors the framework permits us to determine the effects of interest rate changes on every bank and firm in the economy and any second round contagion effects in the short run we apply the model to a comprehensive database of brazilian banks and firms from 2015 to 2020 we find that interest rate shocks affect more strongly financial stability in periods of monetary policy tightening we also find notable asymmetric effects of positive and negative interest rate shocks in the brazilian economy with positive interest rate shocks affecting more financial stability finally our results also suggest a non linear relationship between interest rate changes and financial stability reinforcing the need to mitigate monetary policy shocks through interest rate smoothing and adequate communication and transparency to society

do the near elderly value mortality risks differently wage hedonic models are estimated with the health and retirement study to measure the risk wage tradeoffs value of statistical lives for older workers the analysis explicitly allows for multiple employment states including retirement using a multinomial selection model the results suggest that the oldest and most risk averse workers require significantly higher not lower compensation to accept increases in job related fatality risks

why nations become wealthy the effects of adult longevity on saving we analyze steady state and out of steady state effects of the transition in adult longevity on the national saving rate using historical data and international panel data the rise in adult life expectancy has a large and statistically significant effect on aggregate saving the effects have been especially pronounced in east asia because its mortality transition was very rapid gains in life expectancy are much more important than declines in child dependency population aging may not lead to lower saving rates in the future if life expectancy and the duration of retirement continue to increase

uncertain lifetime life protection and the value of life saving abstract the analytic innovation is treating life s end as uncertain and life expectancy as partly the product of individuals efforts to self protect against mortality and morbidity risks the demand for self protection is modeled in a stochastic life cycle framework under alternative insurance options the model helps explain the trend and systematic diversity in life expectancies across different population groups as well as the wide variability in reported value of life saving estimates the analysis yields a closed form solution for individuals value of life saving that is estimable empirically it reflects the impacts of specific personal characteristics and alternative insurance options on both life expectancy and its valuation

the economics of risks to life this study asks two questions 1 what is the net value to the representative individual over his life time of activities that alter age specific mortality risks 2 what is the cost to the representative individual of activities that take a life at random at a given age results derived from an economic demographic model with full age specific accounting have a strong actuarial flavor alterations in the mortality schedule caused say by a medical breakthrough should be assessed on the utility of expected additional life years production and reproduction less expected social costs of support loss of life at a specific age due to an accident say should be assessed on the opportunity costs of expected lost years of living lost production and reproduction less expected social support costs the results show that current methods in general leave out an important social transfer term that value of a life lost is highly age dependent and that the degree of diminishing returns to consumption is crucial in calculations of the economic cost of risks

risk and global economic architecture why full financial integration may be undesirable integration of global financial markets was supposed to lead to greater financial stability as risks were spread around the world the finan cial crisis has thrown doubt on this conclusion a failure in one part of the global economic system caused a global meltdown the recent crisis has shown that in the absence of appro priate government intervention privately profit able transactions may lead to systemic risk this paper provides a general analytic framework within which we can analyze the optimal degree and form of financial integration within this general framework full integration is not in general optimal indeed faced with a choice between two polar regimes full integration or autarky in the simplified model autarky may be superior

effects of physical distancing to control covid 19 on public health the economy and the environment physical distancing measures are important tools to control disease spread especially in the absence of treatments and vaccines while distancing measures can safeguard public health they also can profoundly impact the economy and may have important indirect effects on the environment the extent to which physical distancing measures should be applied therefore depends on the trade offs between their health benefits and their economic costs we develop an epidemiological economic model to examine the optimal duration and intensity of physical distancing measures aimed to control the spread of covid 19 in an application to the united states our model considers the trade off between the lives saved by physical distancing both directly from stemming the spread of the virus and indirectly from reductions in air pollution during the period of physical distancing and the short and long run economic costs that ensue from such measures we examine the effect of air pollution co benefits on the optimal physical distancing policy and conduct sensitivity analyses to gauge the influence of several key parameters and uncertain model assumptions using recent estimates of the association between airborne particulate matter and the virulence of covid 19 we find that accounting for air pollution co benefits can significantly increase the intensity and duration of the optimal physical distancing policy to conclude we broaden our discussion to consider the possibility of durable changes in peoples behavior that could alter local markets the global economy and our relationship to nature for years to come

the costs of using frisch demand functions that are additive in the marginal utility of expenditure abstract we outline the implicit restrictions involved in using frisch demand functions that are additive in the marginal utility of expenditure

longevity and life cycle savings we add health and longevity to a standard model of life cycle saving and show that under plausible assumptions increases in life expectancy lead to higher savings rates at every age even when retirement is endogenous in a stationary population these higher savings rates are offset by increased old age dependency but during the disequilibrium phase when longevity is rising the effect on aggregate savings rates can be substantial we find empirical support for this effect using a cross country panel of national savings rates

on the costs of food price fluctuations in low income countries abstract conventional welfare measures of the costs of food price fluctuations in low income countries are extended to allow for both economic growth and food security effects the analysis reveals that growth and food security effects may dominate more conventional welfare costs of food price fluctuations although estimating the empirical magnitude of the effects is hampered by the lack of consensus on the extent to which food price fluctuations actually reduce economic growth and food security even if the welfare costs of food price fluctuations are high there are many challenges to the design and successful implementation of price stabilization schemes

compensating wage differentials and the value of life abstract this paper examines the relationship between willingness to pay and compensating wage differential measures of the value of a statistical life it resolves some recently noted discrepancies between such measures

on consumer preferences and the willingness to pay for term life insurance abstract we run a choice based conjoint cbc analysis for term life insurance on a sample of 2017 german consumers using data from web based experiments individual level part worth profiles are estimated by means of a hierarchical bayes model drawing on the elicited preference structures we then compute relative attribute importances and different willingness to pay measures in addition we present comprehensive simulation results for a realistic competitive setting that allows us to assess product switching as well as market expansion effects on average brand critical illness cover and underwriting procedure turn out to be the most important nonprice product attributes hence if a policy comprises their favored specifications customers accept substantial markups in the monthly premium furthermore preferences vary considerably across the sample while some individuals are prepared to pay relatively high monthly premiums a large fraction exhibits no willingness to pay for term life insurance at all presumably due to the absence of a need for mortality risk coverage we also illustrate that utility driven product optimization is well suited to gain market shares avoid competitive price pressure and access additional profit potential finally based on estimated demand sensitivities and a set of cost assumptions it is shown that insurers require an in depth understanding of preferences to identify the profit maximizing price

liaisons dangereuses increasing connectivity risk sharing and systemic risk the recent financial crisis poses the challenge to understand how systemic risk arises endogenously and what architecture can make the financial system more resilient to global crises this paper shows that a financial network can be most resilient for intermediate levels of risk diversification and not when this is maximal as generally thought so far this finding holds in the presence of the financial accelerator i e when negative variations in the financial robustness of an agent tend to persist in time because they have adverse effects on the agent s subsequent performance through the reaction of the agent s counterparties 2012 elsevier b v all rights reserved

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

growth and welfare under endogenous lifetime we study the role of endogenous healthcare choices by households to extend their expected lifetimes on economic growth and welfare in a decentralized overlapping generations economy with the realistic feature that households savings are held in annuities we characterize healthcare spending in the decentralized market equilibrium and its effects on economic growth we then identify the moral hazard effect in healthcare investments when annuity rates are conditioned on average mortality and explain the conditions under which it will lead to over investment in healthcare moreover we specify the general equilibrium effects and macroeconomic repercussions associated with this moral hazard effect calibrating our model to oecd data we find that the moral hazard effect may be substantial and implies sizeable welfare losses of approximately 1 5 at a more general level our study suggests that welfare improvements from longevity increases may be quite lower than sometimes assumed when considered in planner economies

health and other asset holdings despite clear evidence of correlations between financial and medical statuses and decisions most models treat financial and health related choices separately this article bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption portfolio holdings health investment and health insurance we solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health related decisions is sensible and of the pathways through which wealth and health determine allocations welfare and other variables of interest such as expected longevity or the value of health furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model

the evolution of free trade networks abstract this paper considers the evolutionary dynamics of a free trade agreement fta network formation game among n countries we first explore the static model introduced by goyal and joshi 2006 and precisely characterize the set of pairwise stable fta networks then we develop a dynamic model under random perturbations and identify long run outcomes to remove prediction uncertainty inherited from static analysis the results show that both partial free trade and global free trade will result when there are only three countries however when more countries are involved only the complete fta network emerges

cross country experiences and policy implications from the global financial crisis the financial crisis of 2007 2008 is rooted in a number of factors some common to previous financial crises others new analysis of post crisis macroeconomic and financial sector performance for 58 advanced countries and emerging markets shows a differential impact of old and new factors factors common to other crises like asset price bubbles and current account deficits help to explain cross country differences in the severity of real economic impacts new factors such as increased financial integration and dependence on wholesale funding help to account for the amplification and global spread of the financial crisis our findings point to vulnerabilities to be monitored and areas of needed national and international reforms to reduce risk of future crises and cross border spillovers they also reinforce a sad state of knowledge much of how crises start and spread remains unknown stijn claessens giovanni dell ariccia deniz igan and luc laeven

altruism fertility and the value of children health policy evaluation and intergenerational welfare abstract this paper accounts for the value of children and future generations in the evaluation of health policies this is achieved through the incorporation of altruism and fertility in a value of life type of framework we are able to express adults willingness to pay for changes in child mortality and also to incorporate the welfare of future generations in the evaluation of current policies our model clarifies a series of puzzles from the literature on the value of life and on intergenerational welfare comparisons we show that by incorporating altruism and fertility into the analysis of the recent u s experience the estimated welfare gain of a young adult from reductions in mortality easily doubles

labor market estimates of the senior discount for the value of statistical life abstract this article develops the first measures of age industry job risks to examine the age variations in the value of statistical life because of the greater risk vulnerability of older workers they face flatter wage risk gradients than younger workers which we show to be the case empirically accounting for this heterogeneity in hedonic market equilibria leads to estimates of the value of statistical life age relationship that follows an inverted u shape the estimates of the value of statistical life range from 6 4 million for younger workers to a peak of 9 0 million for those aged 35 44 and then a decline to 3 8 million for those aged 55 62 the decline of the estimated value of statistical life with age is consistent with there being some senior discount in the clear skies initiative analysis

all λ separable demands and rationalizing utility functions abstract frisch demands depend on prices and a multiplier associated with the consumer s budget constraint the case in which demands are separable in has been the case of greatest empirical interest since latent variable methods can be adopted to control for consumer wealth when estimating demands subject only to standard modest regularity conditions we show that quantities demanded are separable if and only if the rationalizing utility function is additively separable in these quantities

health care expenditure in the last months of life in oecd countries a considerable share of health care expenditure hce is spent for the care of the terminally ill this paper derives the demand for hce in the last 2 years of life from a model that accounts for age mortality risk and wealth the empirical tests are based on data of deceased members of a major swiss sick fund the empirical evidence confirms most of the hypotheses derived from the model i e i hce increases with closeness to death ii for retired individuals hce decreases with age and iii low income individuals as compared to high income individuals incur lower hce in the last months of life

substance abuse treatment and mortality abstract drug overdose deaths which have more than doubled over the past decade represent a growing public health concern though substance abuse treatment may be effective in reducing drug abuse evidence for a causal effect of treatment on drug related mortality is lacking i analyze the effect of substance abuse treatment on mortality by exploiting county level variation in treatment facilities driven by facility openings and closings the estimates indicate that a 10 increase in facilities lowers a county s drug induced mortality rate by 2 the estimated effects persist across individual and county characteristics and further indicate that spillovers of treatment reduce other related causes of death

the value of life and the rise in health spending over the past half century americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result debate on health policy often focuses on limiting the growth of health spending we investigate an issue central to this debate is the growth of health spending a rational response to changing economic conditions notably the growth of income per person we develop a model based on standard economic assumptions and argue that this is indeed the case standard preferences of the kind used widely in economics to study consumption asset pricing and labor supply imply that health spending is a superior good with an income elasticity well above one as people get richer and consumption rises the marginal utility of consumption falls rapidly spending on health to extend life allows individuals to purchase additional periods of utility the marginal utility of life extension does not decline as a result the optimal composition of total spending shifts toward health and the health share grows along with income in projections based on the quantitative analysis of our model the optimal health share of spending seems likely to exceed 30 percent by the middle of the century

pricing and r d when consumption affects longevity we analyze goods for which the amount of consumption determines the duration of consumption focusing on health related consumption that affects longevity the characteristics of the demand for such goods lead to unique predictions about private pricing and investment in r d as well as the fiscal effects of public subsidies and taxes in particular we argue that there is an r d feedback for such goods when the market size expands through longevity induced population growth we also argue that as developed countries devote large shares of public spending to old age programs that may themselves affect longevity e g medicare and social security the nonstandard effects that these programs introduce may become increasingly important

survival versus consumption we develop an indirect method to estimate utility and willingness to pay wtp for reductions in the risk of death at various ages using a life cycle model of consumption we assume that an individual sets his consumption level each year so as to maximize his expected lifetime utility alternative assumptions about opportunities for borrowing and annuities characterize two polar types of societies in our robinson crusoe case an individual must be entirely self sufficient and annuities are not available in our perfect markets case an individual can borrow against future earnings and purchase actuarially fair annuities we show that under these assumptions wtp is the sum of livelihood discounted expected future earnings and consumer surplus to illustrate our methods we derive wtp for an average financially independent american man under plausible assumptions the model is calibrated to 1978 earnings e g 18 000 per year for men aged 45 54 with at least some income in the robinson crusoe case wtp increases from 500 000 at age 20 to a peak of 1 250 000 at age 40 and declines to 630 000 at age 60 in the perfect markets case age variations are less pronounced wtp is 1 050 000 at age 20 peaks at 1 070 000 at age 25 and declines to 600 000 at age 60 these results suggest that individuals value risks to their lives at several times the pro rata share of their future earnings

is full banking integration desirable abstract we analyze the links between banking integration and economic development for a sample of oecd countries we measure banking integration considering indicators that merge not only openness but also connectedness with other banking systems we plug these indicators into income regressions also controlling for other relevant variables considered by the literature in contrast to previous initiatives this second stage explicitly takes into account the differing levels of economic development of the countries in our sample since the benefits of enhanced banking integration might not be generalizable to this end we implement quantile regression also considering the presence of endogenous regressors results show that bank connectedness is more important for economic development than bank openness but the combined effect i e banking integration overall is positive and significant the quantile regression models used in the second stage show that the effects are stronger for the poorest economies

spending retirement on planet vulcan the impact of longevity risk aversion on optimal withdrawal rates corrected july 2011 recommendations from the media and financial planners regarding retirement spending rates deviate considerably from utility maximization models this study argues that wealth managers should advocate dynamic spending in proportion to survival probabilities adjusted up for exogenous pension income and down for longevity risk aversion

uncertain lifetime risk aversion and intertemporal substitution abstract this paper describes a simple utility function for dynamic choice problems under uncertain lifetime preferences are time consistent and similar to selden s ordinal certainty equivalent hypothesis for yaari s model of consumption savings decisions holding intertemporal substitution fixed the consumption growth rate is increasing decreasing in the mortality rate if risk aversion is lower higher than under expected utility preferences

financial networks contagion commitment and private sector bailouts i develop a model of financial networks in which linkages not only spread contagion but also induce private sector bailouts where liquid banks bail out illiquid banks because of the threat of contagion introducing this bailout possibility i show that linkages may be optimal ex ante because they allow banks to obtain some mutual insurance even though formal commitments are impossible however in some cases e g when liquidity is concentrated among a small group of banks the whole network may collapse i also characterize the optimal network size and apply the results to joint liability arrangements and payment systems linkages among agents in financial markets are a concern because of the risk of financial contagion that is the risk that a small shock to one agent will spread to other agents in a domino effect whether we should worry about these linkages is an open question the main goal of this paper is to show that a network in which agents are closely interlinked may be optimal both because of and despite the potential for contagion another goal is to characterize optimal networks that is whether and how agents should be linked to one another the basic intuition is as follows linkages present the threat of contagion to prevent collapse of the whole network agents who are lucky ex post may be willing to bail out those who are not in this way agents obtain the benefits of mutual insurance even though they cannot precommit to making payments

cross country causes and consequences of the crisis an update abstract we update rose and spiegel forthcoming rose and spiegel 2010 and search for simple quantitative models of macroeconomic and financial indicators of the great recession of 2008 09 we use a cross country approach and examine a number of potential causes that have been found to be successful indicators of crisis intensity by other scholars we check a number of different indicators of crisis intensity and a variety of different country samples while countries with higher income and looser credit market regulation seemed to suffer worse crises we find few clear reliable indicators in the pre crisis data of the incidence of the great recession countries with current account surpluses seemed better insulated from slowdowns

financial contagion on the international trade network we combine data on international trade linkages with a network approach to map the global trading system as an interdependent complex network this enables us to obtain indicators of how well connected a country is into the global trading system we use these network based measures of connectedness to explain stock market returns during recent episodes of financial crisis we find that a crisis is amplified if the epicenter country is better integrated into the trade network however target countries affected by such a shock are in turn better able to dissipate the impact if they are well integrated into the network a network approach can help explain why the mexican asian and russian financial crises were highly contagious while the crises that originated in venezuela and argentina did not have such a virulent effect we suggest that a network approach incorporating the cascading and diffusion of interdependent ripples when a shock hits a specific part of the global trade network provides us with an improved explanation of financial contagion jel f10 f36 f40 g15

willingness to pay and sensitivity to time framing a theoretical analysis and an application on car safety stated preference sp surveys attempt to obtain monetary values for non market goods that reflect individuals true preferences numerous empirical studies suggest that monetary values from sp studies are sensitive to survey design and so may not reflect respondents true preferences this study examines the effect of time framing on respondents willingness to pay wtp for car safety we explore how wtp per unit risk reduction depends on the time period over which respondents pay and face reduced risk in a theoretical model and by using data from a swedish contingent valuation survey our theoretical model predicts the effect to be nontrivial in many scenarios used in empirical applications in our empirical analysis we examine the sensitivity of wtp to an annual and a monthly scenario our theoretical model predicts the effect from the time framing to be negligible but the empirical estimates from the annual scenario are about 70 higher than estimates from the monthly scenario

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

the welfare value of fda s mercury in fish advisory a dynamic reanalysis assessing the welfare impact of consumer health advisories is a thorny task recently shimshack and ward 2010 studied how u s households responded to fda s 2001 mercury in fish advisory they found that the average at risk household reduced fish consumption by 21 resulting in a 17 reduction in mercury exposure at the cost of a 21 reduction in cardioprotective omega 3 fatty acids based on a static assessment of the health costs and benefits shimshack and ward concluded that the advisory policy resulted in an overall consumer welfare loss in this note we propose a dynamic assessment that links the long term cardiovascular health effects of the advisory to life cycle consumption we find that under reasonable assumptions the welfare loss might be much larger than suggested our analysis highlights the importance of accounting for dynamic effects when evaluating persistent changes in exposure to environmental health risks

your money or your life a prescriptive model for health safety and consumption decisions in this paper we develop a conceptual framework and model for valuing risks to an individual s health and life and to support decision making about investments in health quality of life and safety our treatment of health risks in the model builds on the popular quality adjusted life year qaly framework that balances health quality and length of life issues we extend this framework to consider financial concerns as well as health quality and length of life our model considers uncertainty in income and health and incorporates the decision maker s ability to adjust consumption over time in response to changes in expectations about health and income we use this model to study the optimal tradeoffs between financial gains or losses and improvements or reductions in health or longevity and apply it in two example medical decision problems

uncertain lifetime and intertemporal choice risk aversion as a rationale for time discounting this article makes explicit the links between preferences over lotteries on length of life and intertemporal choice it shows that the approach used by traditional life cycle models to account for uncertain survival corresponds to a strong assumption of risk neutrality with respect to length of life relaxing such an assumption leads us to develop a more general formulation of lifetime utility in which time discounting is directly related to preferences over length of life exponential and hyperbolic discounting are found to result in a first approximation from constant and hyperbolic risk aversion with respect to length of life

valuing environmental health effects an economic perspective this paper provides an overview of some of the issues involved in comparing benefit cost analysis and cost effectiveness analysis based on quality adjusted life years as alternative approaches to assessing environmental policies that affect human health it concludes that i although qalys have the advantage of reflecting policy impacts on both health status and longevity in a single scalar measure they are not consistent with utility theory unless individuals preferences satisfy some restrictive conditions ii they do not capture other important aspects of the valuation of changes in mortality and morbidity iii cost effectiveness analysis based on qalys as a measure of effectiveness omits non health related effects of environmental policy and iv it leaves unanswered the important question of what level of environmental regulation is appropriate

the existence uniqueness and optimality of the terminal wealth depletion time in life cycle models of saving under uncertain lifetime and borrowing constraint abstract in life cycle models of saving under uncertain lifetime and borrowing constraint the consumer s wealth must be depleted before the maximum lifetime this paper investigates the existence uniqueness and optimality of the terminal wealth depletion time it is proved that the optimal terminal wealth depletion time if such exists must be unique if the equation that determines the optimal terminal wealth depletion has multiple solutions then the location of the optimal solution will depend on the configuration of the solutions an optimality test is developed to verify whether a candidate solution for the terminal wealth depletion time is indeed optimal the paper introduces a method new to economics the dubovitskii milyutin adjoint equation to analyze the properties of the optimal control problem

is there a meaningful definition of the value of a statistical life a definition of the value of a statistical life is derived this definition has a meaningful interpretation in terms of the monetary value of expected present value utility if consumption is age independent in all other cases empirical estimates of the value of a statistical life are biased estimators of the monetary counterpart to expected present value utility