the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

evaluating program evaluations new evidence on commonly used nonexperimental methods in this paper we follow previous research by using experimental data to assess the two nonexperimental evaluation approaches our data are from a series of social experiments conducted in several states during the 1980s to evaluate programs aimed at helping welfare recipients find jobs we simulate the two nonexperimental approaches by creating comparison groups from the true control groups and by comparing the resultant nonexperimental estimates of program effects with experimentally derived estimates of program effects although experimental data are required to provide an assessment of the nonexperimental approaches they are not required to create the comparison groups in practice thus our results have direct implications for choosing a nonexperimental evaluation strategy when an experiment is not feasible the remainder of this paper is organized as follows section i describes the social experiments and the various comparison groups created for the analysis section ii discusses the methods used to generate and assess the nonexperimental estimates section iii presents the empirical results and section iv offers some conclusions excerpt

the changing relationship between aggregate price and output the british experience over the past two and a half decades great britain has exhibited the most noticeable increase in inflation variability among the ten major noncommunist industrialized countries in addition there has been an apparent worsening in the output inflation tradeoff this paper attempts to identify and empirically assess possible causes of the deterioration in the british output inflation tradeoff in the context of a new classical type model supply side shocks can cause an increase in the inflation rate and a decrease in real output and it is estimatedthat such shocks interacted with inflation variability to reduce real output roughly 3 3 percent between the period 1957 1968 and the period 1969 1980 also contributing to the deterioration in the output inflation tradeoff it is estimated that the decline in the natural rate of real output due to inflation variability as hypothesized by milton friedman amounted to about 2 3 to 2 5 percent between these two subperiods this abstract was borrowed from another version of this item

the effect of food stamps on labor supply a bivariate selection model abstract although there is a large literature on the effects of u s transfer programs on labor supply this is the first such study of the food stamp program we model the nonlinearity and nonconvexity of the budget constraint and use maximum likelihood methods to estimate hours of work functions for female heads of household the largest recipient group in the program we also model the joint response to afdc and food stamps and we account for the existence of a significant number of eligible households who do not participate in the programs a three equation bivariate selection model is estimated on a sample of eligible households with maximum likelihood

export industry policy and reputational comparative advantage abstract country of origin reputations are endogenized in this paper and it is shown that otherwise identical countries can be correctly perceived as differing in their percentage of high quality producers these self fulfilling reputations determine not only the average quality of a country s exports but also the type of products in which a country specializes hence the pattern of international trade can be determined by this reputational comparative advantage an inferior country of origin reputation leads to lower national welfare therefore several trade and industrial policies that can improve country of origin reputation are examined

household labor supply and welfare participation in sweden using a sample of swedish households we estimate a household labor supply model assuming that preferences for consumption and leisure can be described by a direct translog utility function the labor supply and welfare participation decisions are treated as a discrete choice problem and we assume that these choices follow a simple conditional logit rule in addition we allow unobserved individual specific effects to be correlated across alternatives we assume that these unobserved effects are drawn from a discrete distribution and the correlation across alternatives is modeled using factor loading techniques classification error in hours is allowed for by using a multiplicative measurement error specification the estimates from the structural model yield inelastic labor supply among husbands and positive wage elasticity for wives further the cross elasticities are close to zero

quantitative restrictions in the presence of cost based informational asymmetries this study introduces a cost based informational asymmetry into a two period model where a domestic incumbent firm s behavior in the first period affects the entry decision of a foreign firm in the second period the effects of import quota policy within this environment are examined and compared to the standard full information effects when quota quantities are set exogenously the standard effects of quota policy may be significantly altered depending on whether or not policy induces the domestic firm to signal cost structure for example higher quotas may discourage foreign entry because of the induced signaling effects of quota policy recognition that incomplete information is the rule rather than the exception when decisionmakers interact in an international setting has stimulated an emerging literature on the effects of trade policy in the presence of informational failures particularly germane to the present study are those papers that introduce an informational asymmetry into an international model of imperfect competition the majority of this literature examines the sensitivity of optimal strategic trade policy to information failures within a brander spencer 1985 model where the domestic and foreign firms compete for export sales to a third market and either the domestic or foreign government employs export subsidies collie and hviid 1993 qiu 1994 maggi 1995 brainard and martimort 1997 wright 1998 collie and hviid 1994 on the other hand allow for domestic consumption and consider optimal import policy in the presence of a foreign monopolist analysis that focuses on the positive effects of trade policy in the presence of informational failures is more limited one such example is a study by hartigan 1994 which considers the effects of antidumping duties to date however there has been no analysis of how and whether the introduction of an informational failure alters the effects of quantitative restrictions to trade the aim of the present study is to extend the existing literature by examining the effects of a quantitative restriction to trade in the presence of a cost based informational asymmetry within a standard two period entry model 2 during the initial time period a domestic firm supplies the home market and

collective labour supply taxes and intrahousehold allocation an empirical approach most empirical studies of the impact of labor income taxation on the labor supply behavior of households use a unitary modeling approach in this article we empirically analyze income taxation and

changes in male labor supply and wages in the 1980s both wages and labor supply of poorly educated men fell substantially relative to those of educated men some observers have interpreted this positive association between changes in w

source of monetary growth uncertainty and economic activity the time varying parameter model a large body of research suggests that uncertainty is an important factor affecting economic activity most earlier research however fails to consider the possibility that uncertainty may affect the value of new information and economic activity differently depending upon its source the author first examines the importance of these different sources for modeling u s monetary growth uncertainty he then empirically relates different sources of monetary growth uncertainty to economic activity measured by real gnp the results suggest that different sources of uncertainty have different impacts on economic activity the results tend to confirm predictions arising in the literature on irreversible investment and uncertainty copyright 1993 by mit press

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

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

labour supply in italy an empirical analysis of joint household decisions with taxes and quantity constraints this study applies an econometric framework which allows for complex non convex budget sets highly non linear labour supply curves and imperfect markets with institutional constraints a married couple s version of the model is estimated on italian microdata the empirical results show that male labour supply is rather inelastic while labour supply among females especially participation is considerably more elastic the elasticities depend strongly on household income the largest elasticities are found for females living in poor households the results of the tax simulations suggest that there are only modest labour supply responses from replacing the 1987 system by proportional taxes copyright 1999 john wiley sons ltd

hours restrictions and labor supply the authors estimate a labor supply model that permits hours restrictions of a simple but general form each individual chooses from among a finite set of jobs drawn at random f rom a market distribution each offering a fixed quantity of hours the polar cases of no constraints on hours worked and exogenous hours ar e nested within the general case the authors results are consistent with a substantial amount of rationing in the work hours of a sample of low income men most of whom are working less than they would like copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the welfare cost of means testing pensioner participation in income support we estimate parametric and semi parametric binary choice models of benefit take up by british pensioners and use a revealed preference argument to infer the cash equivalent value of disutility arising from stigma or complexity of the claims process these implicit costs turn out to be relatively small averaging about 3 4 per week across income support recipients using the foster greer thorbecke measure of poverty among pensioners we find that allowing for implicit claim costs incurred by benefit recipients raises the measured degree of poverty by not more than 13 copyright 2007 john wiley sons ltd

infant industry protection reconsidered the case of informational barriers to entry in industries with imperfect consumer information the lack of a reputation puts latecomers at a competitive disadvantage vis a vis established firms we consider whether the existence of such informational barriers to entry provides a valid reason for temporarily protecting infant producers of experience goods and services our model incorporates both moral hazard in an individual firm s choice of quality and adverse selection among potential entrants into the industry we find that infant industry protection often exacerbates the welfare loss associated with these market imperfections

the labour supply unemployment and participation of lone mothers in in work transfer programmes in work transfer schemes have recently been suggested as a device for encouraging labour force participation and reducing the severity of the disincentives associated with out of work income support schemes here we estimate a discrete choice labour supply model which allows for endogenous in work welfare programme participation we also allow for involuntary unemployment so as to distinguish between programme non participation and an inability to obtain work and thereby generate an eligibility to the programme

location costs product quality and implicit franchise contracts abstract in the literature on international trade only little attention has been given to informational asymmetries between firms and consumers with respect to product quality the few economic models that analyze the question of how asymmetric information about product quality might affect trade flows treat product quality as exogeneous in contrast our model takes product quality as an endogeneous variable i e firms can choose the quality they wish to produce in this case location costs can signal product quality under certain conditions and thereby affect international trade flows more specifically intra industry trade in vertically differentiated experience goods can be determined by information asymmetries about product quality

a life cycle consistent empirical model of family labour supply using cross section data this paper estimates a utility maximising model of the joint determination of male and female labour supplies using a sample of married couples from the u k family expenditure survey the emphasis is on the estimation of within period preferences that are consistent with intertemporal two stage budgeting under uncertainty however the approach we adopt provides an alternative method of estimating certain aspects of life cycle behaviour to the fixed effects constant approach of heckman and macurdy 1980 macurdy 1981 and browning deaton and irish 1985 moreover it relaxes some of the underlying restrictions that are implicit in these constant models under uncertainty

a structural model of multiple welfare program participation and labor supply work on estimating the labor supply effects of high marginal tax rates in welfare programs has been hindered by the difficulty of estimating the effects of participation in multiple welfare programs simultaneously the authors solve this problem by applying methods of simulation estimation to a model of labor supply and multiple program participation the results show asymmetric wage and tax rate effects with fairly large wage elasticities of labor supply but very inelastic responses to moderate changes in cumulative marginal tax rates implying that high welfare tax rates do not necessarily induce major reductions in work effort copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

business cycle turning points a new coincident index and tests of duration dependence based on a dynamic factor model with regime switching the synthesis of the dynamic factor model of stock and watson 1989 and the regime switching model of hamilton 1989 proposed by diebold and rudebusch 1996 potentially encompasses both features of the business cycle identified by burns and mitchell 1946 1 comovement among economic variables through the cycle and 2 nonlinearity in its evolution however maximum likelihood estimation has required approximation recent advances in multimove gibbs sampling methodology open the way to approximation free inference in such non gaussian nonlinear models this paper estimates the model for u s data and attempts to address three questions are both features of the business cycle empirically relevant might the implied new index of coincident indicators be a useful one in practice do the resulting estimates of regime switches show evidence of duration dependence the answers to all three would appear to be yes

tying in international trade evidence on countertrade this paper provides an empirical analysis of countertrade based on 230 transactions whose details were collected from trading houses and firms involved in countertrade section 2 describes the data base and states the stylised facts of countertrade that need to be explained section 3 gives a critical review of the most frequent explanations of countertrade and confronts them with the data in section 4 i examine whether evidence of the theoretical gains from tying trade flows can be found in the data the potential gains from tying considered in this section are those generated by restoring price flexibility in the presence of some market distortions and those generated by preventing contractual hazards associated with information asymmetry and ex post bilateral monopoly section 5 discusses the implications of the findings of the paper for trade policy and the gatt author

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

the value of medicaid interpreting results from the oregon health insurance experiment we develop frameworks for welfare analysis of medicaid and apply them to the oregon health insurance experiment across different approaches we estimate low income uninsured adults willingness to

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs

child care choices and children s cognitive achievement the case of single mothers we evaluate the effect of child care versus maternal time inputs on child cognitive development using single mothers from the nlsy79 to deal with nonrandom selection of children into child care we exploit the exogenous variation in welfare policy rules facing single mothers in particular the 1996 welfare reform and earlier state level policy changes generated substantial increases in their work child care use we construct a comprehensive set of welfare policy variables and use them as instruments to estimate child cognitive ability production functions in our baseline specification we estimate that a year of child care reduces child test scores by 2 1

simultaneously modeling the supply of weeks and hours of work among female household heads this paper explores the differential nature of labor supply decisions regarding weeks of work per year and hours of work per week among female household heads a model of labor supply that separates the weeks hours decision is presented and estimated allowing for simultaneity in the weeks hours decision as well as for the presence of either fixed costs or weeks and hours constraints the results indicate that not only are weeks and hours decisions separate from the labormarket participation decision but they are also quite different from each other although they appear to be simultaneously determined

evaluating the econometric evaluations of training programs with experimental data this paper takes the results of an employment and training program thatwas run as a field experiment in which the participants were randomlyassigned into a treatment or a control group and compares these results to the estimates that might have been produced by an econometrician who evaluated the program using the same econometric procedures that have been used in the program evaluation literature this comparison shows that many of these econometric procedures fail toreplicate the experimentally determined results and suggests that researchers should be aware of the potential for specification errorsin other nonexperimental evaluations copyright 1986 by american economic association

welfare benefits and the duration of welfare spells evidence from a natural experiment in canada abstract this paper uses a major reform of the welfare program implemented in the province of quebec canada in 1989 to analyze the impact of benefits on the length of welfare spells an important feature of this reform was the abolishment of discrimination based on age that applied to benefits as a result the monthly benefits of single individuals aged less than 30 increased from 173 to 425 1986 an increase of over 145 to assess the impact of the reform we estimate a series of semi parametric hazard models analogous to the regression approach to difference in differences estimation the estimated duration elasticities with respect to benefits for single men and women aged 22 29 are 0 25 and 0 28 respectively

incentives work getting teachers to come to school we use a randomized experiment and a structural model to test whether monitoring and financial incentives can reduce teacher absence and increase learning in india in treatment schools teachers attendance was monitored daily using cameras and their salaries were made a nonlinear function of attendance teacher absenteeism in the treatment group fell by 21 percentage points relative to the control group and the children s test scores increased by 0 17 standard deviations we estimate a structural dynamic labor supply model and find that teachers respond strongly to financial incentives our model is used to compute cost minimizing compensation policies jel i21 j31 j45 o15

trade and insurance with adverse selection this paper considers a small open economy with a safe sector and a risky sector the probability of success in the risky activity differs across individuals and is private information it is shown that policies that sustain informationally constrained pareto optima should not include tariffs a laissez faire competitive equilibrium if it exists is pareto optimal these results contrast with previous literature on the role of tariffs as insurance where private risk markets are assumed away in an ad hoc manner

structural estimation of family labor supply with taxes estimating a continuous hours model using a direct utility specification this paper proposes a new method for estimating family labor supply in the presence of taxes this method accounts for continuous hours choices measurement error unobserved heterogeneity in tastes for work the nonlinear form of the tax code and fixed costs of work in one comprehensive specification estimated on data from the 2001 psid the resulting elasticities for married males are consistent with those found elsewhere in the literature but female wage elasticities are substantially smaller than those found in most of the literature simulations of recent tax acts predict small effects on the labor supply of married couples

an up to date joint labor supply and child care choice model abstract norwegian parents of preschool children base their care choices on a completely different choice set from their predecessor now there is essentially only one type of nonparental care center based care and on the parental side fathers take a more pivotal role in early childhood care in the present paper we develop and estimate a joint labor supply and child care choice model that takes account of these new characteristics on the assumption that this model points to current and future modeling directions for several other economies too estimations suggest that the average wage elasticity for mothers is 0 25 0 30

optimal export policy in the presence of informational barriers to entry and imperfect competition abstract this paper examines government intervention to help exporters overcome informational barriers to entry into foreign markets foreign consumers know the quality of a local good but not that of the imported substitute an exporter who chooses high quality needs to signal this choice to foreign consumers via a high introductory price export policy affects both the signaling distortion and competition between exporter and incumbent the signaling distortion may call for an export subsidy competition for an export tax which policy is adopted in equilibrium depends on industry characteristics over time the export tax tends to rise as the signaling distortion disappears

structural models of family labor supply a discrete choice approach a static neoclassical structural model is presented explaining labor supply of both spouses in two adult households in the netherlands family preferences are described with a direct translog utility function with the husbands leisure the wifes leisure and family income as its arguments we assume that the choice set of each family is finite account is taken of the dutch tax and benefits system we allow for hours restrictions and random preferences and account for unobserved wages of nonworkers the models are estimated using smooth simulated maximum likelihood results based upon dutch cross section data from 1987 are illustrated by confidence intervals for elasticities and by several policy simulations excerpt

explaining and forecasting results of the self sufficiency project this paper studies the self sufficiency project ssp a controlled randomized experiment concerning welfare by estimating a model of endogenous skill accumulation multidimensional job opportunities and time varying opportunity costs of labour market time methods for estimating dynamic programming models with unobserved heterogeneity are extended to account for unexpected policy interventions and endogenous sample selection and initial conditions parameters are identified and consistently estimated by imposing optimal responses to the exact form of the ssp earnings supplement and the experimental program which induces exogenous variation between treatment groups and within groups as treatment progresses the estimated model tracks primary outcomes well in and out of sample except for underestimating trends in the sample of new welfare applicants predictions from counterfactual experiments run counter to non structural results reported elsewhere and they suggest that details of the ssp s design are critical for interpretation of results the separate ssp plus treatment may have longer lasting and more generalized impacts than the in sample impacts suggest copyright oxford university press

discovering the link between inflation rates and inflation uncertainty a new time series model is used to reassess the strength of the link between inflation uncertainty and the level of inflation in the united states the model provides several statistical measures that can be used to examine different aspects of uncertainty the main finding is that uncertainty about the long rather than short term prospects for inflation moved strongly with the rate of inflation since the early 1970s copyright 1991 by ohio state university press

sharing rule identification for general collective consumption models we propose a method to identify bounds i e set identi cation on the shar ing rule for a general collective household consumption model unlike the eects of distribution factors it is well known that the level of the sharing rule cannot be uniquely identi ed without strong assumptions on preferences across households of dierent compositions our new results show that though not point identi ed without these assumptions narrow bounds on the sharing rule can be obtained we get these bounds by applying revealed preference restrictions implied by the collective model to the household s continuous aggregate demand functions we obtain informative bounds even if nothing is known about whether each good is public private or assignable within the household though having such infor mation tightens the bounds we apply our method to us 1999 2009 psid data this application obtains tight sharing rule bounds that yield useful conclusions regarding the eects of income and wages on intrahousehold resource sharing and on the prevalence of individual as opposed to household level poverty

a theory based state dependent phillips curve and its estimation to explain the existing empirical irregularity about the slope of a phillips curve this article provides a model of imperfect competition to short that the slope of a phillips curve is shock dependent we empirically apply a state space markov switching model to examine the impact of inflation surprise on the unemployment gap resulting in the state dependent phillips curve fitting quite well our empirical evidence indicates that an unexpected monetary expansion does produce effects in reducing unemployment rates and that supply shocks should not be ignored in estimating the phillips curve because they dominate demand shocks in several nonoil shock periods jel c51 e24 e52 i introduction it is well known that a downward sloping short run phillips curve implies a trade off between the inflation rate and unemployment rate however empirical findings point out that the slope of the phillips curve depends on the selected sample periods 1 does any theoretical model explain the changes in the slope of a short run phillips curve as displayed in the data can we find empirical support for our model that implies a slope changeable phillips curve to answer these questions this article provides a theoretical model implying that the slope of the phillips curve is shock dependent we then apply a state space markov switching model to investigate the empirical support of the theoretical model although a stable negative short run phillips curve is crucial for producing inflation forecasts in policy making institutions there is no general consensus about the negative slope of the phillips curve in empirical literature 2 one of the explanations to the previous empirical irregularity as suggested by king and watson 1994 is that the relationship between unemployment and inflation is shock dependent which means that the slope of a phillips curve relies on the dominance of the demand or supply shocks therefore the conventional single equation regression based on the state independent framework is not appropriate apart from neglecting the state dependent characteristic of the phillips curve there are several other drawbacks for conventional empirical studies when investigating the phillips curve first many articles assume that forecast errors of inflation are homoscedastic which is challenged in the literature the homoscedastic assumption is debatable because several studies such as engle 1983 jansen 1989 evans 1991 and brunner and hess 1993 point out significant heteroscedasticity in the u s inflation rate arch or garch type models provide estimates of how the conditional variance of inflation varies over time within a given structure and therefore they ignore the possibility of structural changes caused by changing regimes a markov switching heteroscedasticity model is an alternative that allows regime changes in the variance structure instead of applying arch type models to estimate the time varying conditional variance of inflation within a given structure this article takes into account the influence of regime changes on inflation s variance we apply the state dependent conditional heteroscedasticity approach provided by brunner and hess 1993 and evans and wachtel 1993 to estimate the forecasting errors of inflation the second drawback is a constant natural rate assumption the unemployment gap is the difference between the unemployment rate and the natural rate conventional literature assumes a constant natural rate which is challenged theoretically and empirically as stated by gordon 1997 the existence of unionization unemployment insurance programs and labor force demographics leads to a highly persistent unemployment rate we therefore assume that the unobservable natural rate is time varying and behaves in accordance with the hysteresis of unemployment rates 3 recent empirical works of a regime switching approach on the phillips curve have focused on whether the relationship between inflation and unemployment rates is nonlinear as in ferri et al

trade policy with risky investment in quality consider a new export market in which firms can invest in quality but may fail to achieve quality quality of the export good then varies across firms having endogenous whether to invest and exogenous determined by nature aspects previous works suggest that the market outcome and socially optimal policy depend on whether quality is exogenous or endogenous it is shown that the previous differences are driven by the demand and cost parameterizations not by the endogeneity of quality previous works also suggest subsidies to raise welfare subsidies are found to lower welfare while a tax may raise welfare

unobserved component time series models with markov switching heteroscedasticity changes in regime and the link between inflation rates and inflation uncertainty in this article i first extend the standard unobserved component time series model to include hamilton s markov switching heteroscedasticity this will provide an alternative to the unobserved component model with autoregressive conditional heteroscedasticity as developed by harvey ruiz and sentana and by evans and wachtel i then apply a generalized version of the model to investigate the link between inflation and its uncertainty u s data gross national product deflator 1958 1 1990 4 i assume that inflation consists of a stochastic trend random walk component and a stationary autoregressive component following ball and cecchetti and a four state model of u s inflation rate is specified by incorporating regime shifts in both mean and variance structures i analyze the interaction of mean and variance over long and short horizons the empirical results show that inflation is costly because higher inflation is associated with higher long run uncertainty

bayesian learning in an infant industry model abstract most analyses of the infant industry argument assume that production early on benefits subsequent production in deterministic fashion this paper presents an alternative framework for evaluating the infant industry argument that focuses on imperfect information as a barrier to entry initial entrants provide information of social value by reducing uncertainty for potential followers about the suitability of local conditions in contrast to earlier work i show that factors that increase the informational barrier to entry may lower the optimal subsidy to the infant industry and that the standard test of the success of infant industry policy is not always valid 1997 elsevier science b v

an empirical analysis of the effects of joint decisions on food stamp program temporary assistance for needy families and labor force participation this study examines the interaction between food stamp program fsp and temporary assistance for needy families tanf program participation provides a model of joint decisions made by households on fsp tanf and labor force participation and explains why households choose different alternatives we use the first survey of program dynamics spd longitudinal data and the 1998 spd experimental data files the modeling component consists of estimating equations to predict the probability of particular choices made by households the households choose the alternative that gives the highest utility the results show that the program parameters do matter variations across states in payment standards benefit reduction rates and income disregards help to identify household choices

quantification of sanitary phytosanitary and technical barriers to trade for trade policy analysis this paper presents promising methodologies for modeling and quantifying non tariff barriers ntb to trade in the agricultural and food sectors we limit the analysis to sanitary phytosanitary and technical regulations that can have an impact on trade and to methods that provide some quantitative estimates of the impact of such barriers on market equilibrium trade flows economic efficiency and welfare given the heterogeneous nature of these regulations a unifying methodology does not exist quantification of the effects of such measures has focused on a particular product and has relied on methods that belong to different fields of the economic literature we provide a concise description and evaluation of the various methods available for a more comprehensive assessment of the impact of ntbs on trade and welfare we conclude by identifying promising areas for future applied research

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

anonymous market and group ties in international trade abstract history provides many examples of cohesive groups dispersed over several countries who exploit the ties between their members to gain entry into foreign markets the phenomenon is well established empirically and noteworthy because it suggests the importance of informational barriers in international transactions we present a simple model where output is produced through a joint venture and agents have complete information domestically but are unable to judge the quality of their match abroad a minority of individuals otherwise identical to all others can exploit complete information in international matches between group members if they so choose group ties increase aggregate trade and income but hurt the anonymous market because they deprive it disproportionately of the group s more productive members

rural urban welfare program and labor force participation nonmetro poor in the midwest participate more in the labor force and less in welfare programs than metro poor we formalize how household composition capital labor market conditions and state specific regulations define opportunity sets then estimate a bivariate binomial probit model of work and program participation choices an oaxaca decomposition analysis is conducted to compare differences in characteristics to differences in behavior in explaining the two groups choices we find no behavioral basis for the difference in labor market participation and while most of the lower midwestern nonmetro welfare program participation is due to demographics some is due to different life cycle behavior

aggregate economic activity and the variance of inflation another look abstract the time series of forecast errors and forecast variances estimated from engle s arch model are used to estimate the relationship between the volatility of inflation and key macroeconomic variables this is done using both a lucas supply framework and a granger causality framework the results of the latter in particular are strikingly different from previous work

the hamilton model with a general autoregressive component estimation and comparison with other models of economic time series abstract this paper generalizes the hamilton model to the important case in which the autoregressive component need not contain a unit root using u s quarterly real gnp data the model is estimated and the results are compared to those of hamilton some monte carlo evidence for the model is presented and its in sample forecasting performance is discussed and compared to the original hamilton model the arima model and the deterministic time trend model

assessing the impact of a school subsidy program in mexico using a social experiment to validate a dynamic behavioral model of child schooling and fertility this paper uses data from a randomized social experiment in mexico to estimate and validate a dynamic behavioral model of parental decisions about fertility and child schooling to evaluate the effects of the progresa school subsidy program and to perform a variety of counterfactual experiments of policy alternatives our method of validation estimates the model without using post program data and then compares the model s predictions about program impacts to the experimental impact estimates the results show that the model s predicted program impacts track the experimental results our analysis of counterfactual policies reveals an alternative subsidy schedule that would induce a greater impact on average school attainment at similar cost to the existing program

reputational comparative advantage and multinational enterprise 1 introduction when cultivating a new export market or attempting to expand its share of an existing market an exporter is likely to find that it has been preceded by its reputation minus a readily identifiable brand name quality reputation may solely reflect the country of origin for example when consumers are presented with a large amount of complex product information they may use the country of origin as a heuristic in forming product impressions without considering other product attributes 1 in this article i show that this heuristic decision making process can affect a firm s quality decision and can therefore become self fulfilling hence any bias that consumers have may be well founded however it is only correct because firms respond rationally to it colombia s garment industry provides an interesting example of a self fulfilling unfavorable quality reputation in international trade as described by morawetz 1981 a single colombian garment firm took a contract for 50 000 men s suits that was beyond its capability the poor quality result so tarnished the american importer s name that other high quality importers become wary of colombian sewn garments with the payoff to high quality production reduced colombian garment firms then concentrated on low quality markets and the newly found unfavorable reputation was justified in the model constructed here consumers see only a noisy signal of the product s quality at the time of purchase therefore their posterior beliefs are based on this noisy signal and the country of origin reputations as will be made clear higher quality firms benefit more from an increase in their country s reputation so that a better reputation generates an increase in the percentage of high quality firms in this way the reputation becomes self fulfilling and ex ante identical countries can be correctly perceived as differing in their percentage of high quality producers i next introduce an economy with two sectors one sector produces more complex goods where high quality is not easily verified and is more essential to the product s performance these may be technology intensive products or they may consist of the design and marketing of the goods produced in the other sector in particular high quality production costs and the consumer s value for high quality goods is greater in this sector i show that this sector becomes more profitable as the country of origin reputation increases hence if one country s equilibrium reputation is low and the other country s equilibrium reputation is high then the pattern of specialization and international trade can be determined solely by reputational comparative advantage 2 finally i show that reputational comparative advantage can overshadow a small technological comparative disadvantage in determining the pattern of international trade given this pattern of trade and specialization based on reputational comparative advantage a high reputation firm may expend resources to establish a multinational enterprise mne in the low reputation country for example many mne products require the differing specializations of both the high and low reputation countries although differing in motivation this result accords well with more traditional models of vertical mne 3 however this impetus for mne as well as its more traditional counterparts does not explain why the mne would choose foreign direct investment fdi over a less costly licensing arrangement 4 the quality uncertainty in this model along with the difference in equilibrium reputations allows us to address this question in particular appropriable reputational rents are generated by fdi when the high reputation parent firm procures and internalizes production with a low reputation host firm this fdi breaks the low reputation equilibrium of the host firm and generates reputational rents

evidence of the empirical relevance of the infant industry argument for the protection of brazilian ethanol production abstract the infant industry argument for protection of import competing industries has a long and almost entirely theoretical history in the literature in this paper the empirical evidence of infant industry dynamics in the brazilian ethanol industry is investigated in brazil ethanol has developed into a primary automotive fuel over the past 18 years this import substitute is attractive because it allows decreased dependence on international oil supplies while at the same time it addresses environmental concerns because it is a clean burning renewable fuel while ethanol was initially a high cost alternative to imported oil observed cost reductions have led to an increased belief that this industry may in fact warrant the subsidization it has received because of infant industry reasons the results of this study suggest that there is no empirical evidence of economies of scale and very little technical change there appears to be no empirical validity to the infant industry argument for subsidization of the brazilian ethanol industry

employment hours of work and the optimal taxation of low income families the optimal design of low income support is examined using a structural labour supply model the approach incorporates unobserved heterogeneity fixed costs of work childcare costs and the detailed non convexities of the tax and transfer system the analysis considers purely pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion we explore the gains from tagging and also examine the case for the use of hours contingent payments using the tax schedule for lone parents in the uk as our policy environment the results point to a reformed non linear tax schedule with tax credits only optimal for low earners the results also suggest a welfare improving role for tagging according to child age and for hours contingent payments although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities acknowledgements this study is part of the research program of the esrc centre for the microeconomic analysis of public policy at the ifs we thank stuart adam mike brewer roger gordon guy laroque ian preston emmanuel saez florian scheuer seminar participants at harvard mit jerusalem niesr sole and participants in the mirrlees review the editor and the referees for helpful comments we are alone responsible for all errors and interpretations

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

the role of r d subsidies when incomplete information is an entry barrier abstract this paper explores the role of r d subsidies in the presence of incomplete information we consider a market for experience goods where a firm s r d investment determines the quality of its product but where quality becomes observable to consumers only through experience with the product in this model externalities emerge in that individual firms cannot fully appropriate the benefits of their quality enhancing investment outlays we show that an r d subsidy can internalize this externality and characterize optimal infant industry intervention in this setting

viewpoint empirical evidence and tax policy design lessons from the mirrlees review this paper examines the role of evidence in drawing up the recommendations for tax reform in the mirrlees review the arguments are organised loosely under five related headings i key margins of adjustment ii measurement of effective tax rates iii the importance of information and complexity iv evidence on the size of responses v implications from theory for tax design although the mirrlees review focuses on all aspects of tax reform the focus is this paper is on the taxation of earnings with some examples drawn from the taxation of consumption and savings ce memoire examine le role des resultats dans la confection des recommandations pour la reforme fiscale dans l enquete mirrlees les arguments sont regroupes sous cinq rubriques i les importantes marges d ajustement ii la mesure des taux d imposition effective iii l importance de l information et de la complexite iv constat sur la taille des reponses et v les implications pour la theorie du design des politiques d imposition meme si l enquete mirrlees a examine tous les aspects de la reforme fiscale ce texte met l accent sur l impot sur les remunerations avec quelques exemples portant sur l impot sur la consommation et l epargne

price signals quality the case of perfectly inelastic demand abstract this paper considers the pricing decision by a seller who has private information about quality demand is perfectly inelastic rectangular for example there may be a single buyer who wants exactly one unit and whose valuation is known by the seller it is noted that contrary to widespread belief separating equilibria do exist in this model allowing some trade of high quality products even when the average quality is low moreover by slightly perturbing demand we can use standard equilibrium refinements to uniquely select the best separating equilibrium outcome since the chosen outcome has a very simple structure regardless of the number of quality levels this model could be a useful workhorse in applications

structural estimation of a model of school choices the boston mechanism vs its alternatives we model household choice of schools under the boston mechanism bm and develop a new method applicable to a broad class of mechanisms to fully solve the choice problem even if it is infeasible

industrial targeting experimentation and long run specialization abstract this paper emphasizes the experimental nature of industrial targeting policies under uncertainty in a small open economy a government promotes entry of new firms in selected industries and updates its beliefs about the country s comparative advantage in a bayesian way this selective targeting policy is analyzed in the framework of a special type of statistical decision problem known as the multi armed bandit the paper analyzes how the costs and benefits of learning about a country s comparative advantage depend on the characteristics of the targeted industries the framework suggests that even an optimally designed industrial targeting policy may eventually steer the country away from specializing according to its true comparative advantage

family structure and female labour supply in mexico city this paper investigates labour supply of the wives of the heads of households in mexico city with a focus on the impact of family structure a static neoclassical structural model is used we assume that each woman chooses her labour supply and corresponding income so that her utility is maximized conditional upon her husband s labour supply and earnings we use a direct translog specification and include family composition variables as taste shifters also taken into account are fixed costs of working nonlinear taxes unobserved preference variation prediction errors in wages of nonworkers and potential endogeneity of wages the models are estimated by smooth simulated maximum likelihood using data from mexico s urban employment survey drawn in 1992 we find income elasticities of labour supply of about 0 35 and wage elasticities of about 0 5 the latter is substantially overestimated if wage rate endogeneity is not taken into account the results are robust with respect to other specification choices we find that the impact of family structure variables on participation is different from that on hours worked so that their total effect is ambiguous

optimal export policy for a new product monopoly a new welfare enhancing role is identified for a policy of export subsidization in a new product industry an export subsidy policy promotes the rational perception that a high quality export can be provided at a relatively low price thus an export subsidy generates a first order benefit to welfare by enabling a high quality export to be sold at a less distorted high price the subsidy will also introduce

estimating labor supply responses and welfare participation using a natural experiment to validate a structural labor supply model in this paper we formulate and estimate an economic model of labor supply and welfare participation the model is estimated on data on single men from quebec drawn from the 1986 canadian census budget sets for each work welfare combination accounting for income taxes tax credits and welfare benefit rules are derived using a microsimulation model we validate our model by comparing reactions to a welfare reform that implied a dramatic increase in welfare benefits predicted by our model to those obtained by using a regression discontinuity approach the results show that our model is capable of recovering actual changes in labor supply and welfare participation we also show the advantage of having estimated a structural model by illustrating how labor supply and welfare participation change when benefit levels change

the signalling role of municipal currencies in local development the last decade has seen the burgeoning of several hundred local community currency institutions in cities across the world although residents of these communities claim that local currency promotes local development how it does so has hitherto been unexplored we argue that the introduction of a municipal currency may serve as a signal of demand for local goods where demand uncertainty deters firms from investing in more productive technologies such a signal improves the chances that technology choice will be optimal the introduction of a local currency therefore always improves ex ante efficiency and may lead to ex post efficiency with strictly higher levels of productivity and welfare

tariff policy and entry with cost based informational asymmetries i introduction how does the presence of incomplete information alter the usual effects of trade policy recognition that incomplete information characterizes most decision making processes that take place within an international setting has stimulated an emerging body of literature which addresses this question particularly germane to the present study are those papers which introduce an informational asymmetry into an international model of imperfect competition the majority of this literature examines the sensitivity of optimal strategic trade policies to information failures within a brander spencer 1985 model where the domestic and foreign firm compete for export sales to a third market and either the domestic or foreign government employs export subsidies examples include works by brainard and martimort 1997 collie and hviid 1993 maggi 1995 and qiu 1994 another study collie and hviid 1994 allows for domestic consumption and considers optimal import tariff policy in the presence of a foreign monopolist in general optimal trade policy in the presence of informational failures is found to differ from that under complete information the emphasis of the present study is not on the conduct of optimal trade policy but rather on how the introduction of an informational asymmetry alters the realized impact of trade policy on quantities and welfare 1 specifically we examine the effects of import tariff policy within a standard two period model of entry where the costs of the domestic firm are proprietary information the incumbent domestic firm recognizes the threat of a potential foreign rival entering exporting to the domestic market where the latter is uninformed of the cost structure of the domestic firm as is well known from the industrial organization literature the incumbent domestic firm may have an incentive to change its time period one behavior so as to signal information on costs to the foreign firm in an effort to deter entry see milgrom and roberts 1982 in specifying the degree of knowledge possessed by domestic policymakers we adopt the premise that informational deficiencies on the part of policymakers are likely to be quite acute in trade policy formation indeed as brander 1995 notes it is reasonable to suppose that governments are less informed on market conditions and firm characteristics than firms themselves in contrast to previous studies however we also assume that policymakers either cannot acquire information or if they are able to cannot respond by altering policy here the formation of trade policy does not reflect or incorporate full information and thus cannot provide signals to the other uninformed party the foreign firm moreover because policymakers cannot alter policy the foreign firm perceives the tariff rate as credibly fixed the inability to incorporate information into trade policy is especially relevant for situations where policymakers are subject to previously negotiated trade agreements here even should uninformed policymakers subsequently acquire information on domestic cost structure they will be unable to respond our emphasis on the realized effects of tariff policy reflects this information structure to conduct optimal policy government must hold complete information on markets and firm characteristics at the time policy is set as in collie and hviid 1993 1994 or be able to acquire it through signaling or a screening mechanism as in qiu 1994 and brainard and martimort 1997 2 when policymakers lack the ability to acquire or respond to such information optimal policy is not a consideration what is of interest to policymakers in this situation is the response of domestic output and imports to a given tariff rate at the outset of the game then there is a tariff rate set previously by domestic policymakers who were uninformed of domestic costs since the foreign firm cannot infer domestic cost structure by merely observing the tariff rate set by uninformed policymakers any signaling that takes place is on the part of the domestic firm

household unemployment and the labour supply of married women a recent reform to the uk unemployment insurance ui system has reduced the duration of entitlement from 12 to six months the ui and welfare systems interact in the uk in such a way that exhaustion of ut for married individuals has potentially large disincentive effects on the labour supply of spouses a model of labour supply is estimated for married women allowing for endogenous unemployment durations of husbands and wives we distinguish between transfer programme induced incentive effects correlation between labour supply and wages within couples complementarity between the leisure times of spouses and a discouraged worker effect

anticipated money inflation uncertainity and real economic activity this paper critically examines a number of maintained hypotheses that are necessarily being tested along with the basic notion derived from the rational expectations re formulation of lucas 1972 19 73 that only unanticipated money matters the trend stationary representation of secular real output of lucas and others is replaced by a difference stationary representation found by nelson and plosser 1980 to be consistent with u s historical data the impact of inflation uncertainty on real activity is considered attention is paid to possible mis measurement of agents ex ante anticipated money growth it is found that three alternative measures of anticipated money growth produce a stable impact on growth of output and employment contemporaneous and lagged values of unanticipated money growth have no significant additional explanatory power in the presence of any one of the three measures of anticipated money growth beyond this it is impossible to reject the hypothesis that the initial positive real impact of anticipated money is not temporary inflation uncertainty is found to act as a significant depressant of real economic activity in the presence of all tested combinations of anticipated and unanticipated money growth this abstract was borrowed from another version of this item

estimation with response error and nonresponse error in survey data originates from failure to contact the sample and from false answers to verifiable questions these errors may be systematic and associated with uncooperative or unreliable respondents zabel modeled attrition in the survey of income and program participation and found systematic demographic and design effects bollinger and david modeled response error and identified correlations to income per capita in this analysis we link missing interviews in a panel and response error through a trivariate probit analysis robustness of the correlation between attrition and response error is examined by comparing variants of the model the joint model of response error and attrition becomes the first stage of a pseudolikelihood estimate of a model of food stamp participation the model is significantly different from naive probit on the survey data

estimation of time varying price elasticity in 1970 1997 japanese raw milk supply by structural time series model the price elasticity of raw milk supply in japan is estimated over time by a structural time series model in state space form and the changes in elasticity are tested by the diagnosing test of de john and penzer in 1998 the supply function is modeled with a local linear trend and a strictly exogenous autoregressive distributed lag price the seasonality in the data is adjusted by a structural time series model in the 1970 1997 period there were major dairy policy changes in japan a production adjustment related penalties and two tier pricing hokkaido is the region that mainly provides the supply of raw milk for milk products while tofuken is the region that mainly produces drinking milk the estimated price elasticity in hokkaido became stable after imposition of the production adjustment on the other hand price elasticity in tofuken became stable after the inflation of the mid 1970s price elasticity is estimated to be more inelastic as well as more likely to converge in inelasticity in hokkaido than in tofuken we discuss the relationship between changes in dairy policy and changes in price elasticity