individual risk in an investment based social security system this paper examines the risk aspects of an investment based defined contribution social security plan we focus on the risk after the plan is fully phased in individuals deposit a fraction of wages to a personal retirement account pra invest these funds in a 60 40 equity debt mix and in a similarly invested annuity at age 67 the value of the assets follows a random walk with mean and variance of a 60 40 equity debt portfolio over the period 1946 95 a mean log return of 5 5 percent net of administrative costs of 0 4 percent and a standard deviation of 12 5 percent we study he stochastic distributions of this process by doing 10 000 simulations of the 80 year experience of the cohort that reached age 21 in 1998 the resulting annuities are compared to the future defined benefits specified in current law the benchmark benefits with no uncertainty a 5 5 percent log return would permit the benchmark benefits to be purchased with pra deposits of 3 1 percent of payroll only one sixth of the pay as you go tax needed for the benchmark benefits saving a higher share of wages provides a cushion that protects the individual from the risk of an unacceptably low level of benefits for example pra deposits of 6 percent of wages reduces the probability that the benefits are less than the benchmark to 0 17 and the probability that they are less than 61 percent of the benchmark to 0 05 pra deposits of 9 percent of wages half of the tax rate required in a pay as you go system would substantially reduce these risks this pure investment based plan is an extreme case the investment risk can be reduced further by using a mixed system that combines pay as you go and investment based components or that makes intergenerational transfers conditional on the performance of stock and bond prices this abstract was borrowed from another version of this item

hedonic indices and housing programme benefits the availability of reliable measures of housing programme benefits is important for decisions that planners make about appropriate housing policies this paper advocates the use of hedonic price estimation techniques for the direct measurement of housing programme benefits in developing countries without restrictive characterisations of housing demand a market weighted economic welfare index is used to measure the housing benefits the benefits are the difference between estimated hedonic price equations before and after the implementation of a programme summed across all households and then multiplied by the cash equivalent of a unit of hedonic value the cash value of a unit of hedonic value is determined by dividing the observed aggregate market value of houses in an analysis sample by the estimated aggregate hedonic value for that sample measuring housing programme benefits from direct market valuation of programme induced changes in housing attributes does not imply that such programmes are necess

inventories stock outs and production smoothing if stock outs are ignored and if demand shocks are additive then optimal behaviour requires that the marginal cost of production mc be equated with the expected marginal revenue of increasing expected sales by one unit emr however with more general demand shocks and still ignoring stock outs the excess of mc over emr has the same sign as the covariance of the slope of the demand curve and the marginal valuation of inventory the equality of emr and mc is also broken by taking account of stock outs even if demand shocks are additive if there is a production lag then taking account of stock outs implies that optimal behaviour will be characterized by production smoothing even if the cost of production is linear two alternative definitions of production smoothing are presented and optimal behaviour in the presence of stock outs displays each type of smoothing it is a well known proposition that a firm producing a storable good under conditions of increasing marginal cost will tend to smooth the time profile of its production relative to the time profile of its sales the incentive to smooth production arises from the fact that the cost function is a convex function of the level of production for a given average level of production average costs can be reduced by reducing the variation in production of course if the cost function is linear in the level of production then this incentive to smooth production disappears however we will demonstrate in this paper that if the possibility of stock outs is explicitly incorporated into the firm s dynamic optimization problem i e if we impose a non negativity constraint on inventories and if there is a lag in production then optimal behaviour can be characterized by production smoothing even if the cost function is linear

idiosyncratic risk aggregate risk and the welfare effects of social security we ask whether a pay as you go financed social security system is welfare improving in an economy with idiosyncratic productivity and aggregate business cycle risk we show analytically that the whole welfare benefit from joint insurance against both risks is greater than the sum of benefits from insurance against the isolated risk components one reason is the convexity of the welfare gain in total risk the other reason is a direct risk interaction which amplifies the utility losses from consumption risk we proceed with a quantitative evaluation of social security s welfare effects we find that introducing an unconditional minimum pension leads to substantial welfare gains in expectation even net of the welfare losses from crowding out about 60 of the welfare gains would be missing when simply summing up the isolated benefits

inventory and price behaviour the point of this paper is that inventory adjustment attenuates downward pressure on price when realized demand is low because firms accumulate inventory hold overs speculating that demand will be stronger in the succeeding period when realized demand is high the firm draws down its inventories until a stock out occurs and price rises to clear the market

a model of inventory and layoff behaviour under uncertainty this paper develops a model of firm behavior under uncertainty designed to study the interac tion of inventories and layoffs the model is a blend of a buffer sto ck model of inventory behavior and an implicit contract model of layo ffs the model creates a distinction between inventory biased and lay off biased firms each of which exhibits inherently different pattern s of response of inventories and temporary layoffs to demand shocks in addition the model implies that the inventory layoff interaction tends to strengthen weaken the response of price and the work force to changes in anticipated demand real interest rates copyright 1988 by royal economic society

funded pensions and intergenerational and international risk sharing in general equilibrium we explore intergenerational and international risk sharing in a general equilibrium multiple country model with two tier pensions systems the exact design of the pension system is key for the way in which risks are shared over generations the laissez faire market solution fails to provide an optimal allocation because the young cannot share in the financial risks however the existence of wage indexed bonds combined with a pension system with a fully funded second tier that pays defined wage indexed benefits can reproduce the first best if wage indexed bonds are not available mimicking the first best is not possible except under special circumstances we also explore whether national pension funds want to deviate from the first best by increasing domestic equity holdings with wage indexed bonds this incentive is absent while there is indeed such an incentive when wage indexed bonds do not exist

input and output inventories abstract this paper presents a new stage of fabrication inventory model with delivery usage and stocks of input materials that distinguishes between gross production and value added it extends the linear quadratic model of output inventories by adding the joint determination of input inventories empirically input inventories are more important than output inventories maximum likelihood estimation of the decision rules yields correctly signed and significant parameter estimates using data for nondurable and durable goods industries but the overidentifying restrictions of the model are rejected the value added specification dominates because adjustment costs on materials usage are critical to fitting the data

the demand for residence site characteristics the analysis of residential site choice is the primary concern in urban economics research on this problem is deficient in that rigorous theoretical models concentrate almost exclusively on access to the central business district cbd in this decision process while empirical models have been specified in a manner that is inconsistent with standard demand theory although these models possess the power of simplicity they are unable to explain the non monotonic location patterns which characterize urban areas without resorting to ad hoc theorizing this article develops and tests a model which is consistent with demand theory and is also capable of explaining non monotonic location patterns the hedonic rent function is seen as an intermediate step in the analysis of location which allows one to construct the complete data matrix necessary for the estimation of a set of demand functions for location specific traits the analytical importance of the functional form of this hedonic function is briefly noted finally the empirical analysis notes the importance of children in determining residential preferences with special attention being directed to the endogeneity of children with respect to the process of residential choice the traditional location model is generally tested by regressing some transformation of the annual rental payments or alternatively property value r on access or lack of access to the city center acc a vector of other locational traits z income i and a race variable mc

a note on the econometric use of constant dollar inventory series abstract one dollar of finished goods inventories does not represent the same amount of physical goods as one dollar of sales when department of commerce constant dollar series are used this can cause seriously biased regression estimates

production sales and the change in inventories an identity that doesn t add up we examine two measures of monthly manufacturing production the first is the index of industrial production the second is constructed from the accounting identity that output equals sales plus the change in inventories we show that the means variances and serial correlation coefficients of the log growth rates differ substantially between the two series and the cross correlations are in most cases less than 0 4 a model of classical measurement error indicates that in 15 of 20 two digit industries measurement error accounts for over 35 of the variation in the monthly growth rates of seasonally adjusted industrial production

seasonality aggregation and the testing of the production smoothing hypothesis one of the leading hypotheses concerning the dynamics of production over time is the production smoothing hypothesis given a planning horizon which spans a number of production periods the firm need not produce in each period an amount equal to expected sales rather resorting to inventory accumulation and liquidation the firm may follow a production plan temporally smoother than the path of demand if firms faced with convex cost functions chose to smooth the rate of output in order to minimize costs one would expect to observe that the rate of output would vary less than the rate of sales with variations in inventory stocks absorbing some of the fluctuations in sales recently work on the testing of the production smoothing hypothesis has cast doubt on its empirical validity the evidence presented by alan blinder seems to indicate that the variance of production exceeds that of sales in seven out of eight two digit retail industries 1981 and in eighteen out of twenty two digit manufacturing industries 1983 and 1986 the purpose of this paper then is to examine the validity of such tests when seasonally adjusted aggregated data are used the evidence presented show that the relative size of the variances of the seasonally adjusted production and sales does not provide valid tests of the production smoothing hypothesis in addition aggregating over firms where the seasonal patterns differ may also distort tests of production smoothing blinder realized that the use of seasonally adjusted data may not provide an adequate test of the hypothesis stating had they been available i would have preferred to use data that were not seasonally adjusted since the production smoothing model presumably applies to seasonal fluctuations in sales however such data are not available 1983 fn 19 in this paper i focus on the cement industry because the unadjusted disaggregated data are available for the direct testing of the conjecture that aggregate seasonally adjusted data mask production smoothing phenomenon aggregate monthly data on five other industries will also be examined

price smoothing and inventory this paper explains the phenomenon of price rigidity or price smoothing as the outcome of the optimal inventory policy of a multi period profit maximizing firm under demand and output uncertainties price smoothing may be manifested in two forms first price changes may be moderated with respect to those implied by the demand function and second the firm may choose to restrict price fluctuations by establishing upper and or lower bounds on prices we show that the extent of the asymmetry in price smoothing depends on the relationship between the inventory holding cost and the backlog penalty cost our model accommodates a wide range

measurement problems in quantifying the distributional effects of subsidy programs abstract use of estimated compensating or equivalent variation benefit measures to analyze the distributional effects of subsidy programs can lead to biased results the vast majority of previous studies have used average elasticity parameters to calculate individual compensating or equivalent variations this can lead to measurement errors which are systematically related to program targeting criteria and result in biased distributional impacts being identified from analysis of cross sectional estimated program benefits the seriousness of this problem is illustrated in a case study with simulated data the results suggest that much greater effort and care are warranted in ascertaining the robustness of estimates of the cross sectional variation in the benefits of many subsidy programs

the interrelationship between price and output decisions and investment decisions microfoundations and aggregate implications abstract this paper develops a model of firm behavior in which both price and output decisions and investment decisions are made the model permits an analysis of the dynamics of inventory and capital accumulation on price and output behavior there are two main results 1 short run price and output levels will differ from long run levels as desired stocks of inventory and capital diverge from actual levels 2 the size of the elasticities of price and output to changes in demand and cost variables depends on the speed with which gaps between desired and actual stocks are closed through investment

inventory changes and the closing of macroeconometric models inventory changes can help econometric models to balance the supply and the demand side and to endogenize utilization variables without resorting to an arbitrary potential output level both results stem from formu lating inventory augmented production functions in which inventory changes act as a stationary ecm between value added and inputs on one side and value added and nal sales on the other this happens because factors or prices may adjust too slowly to productivity and sales shocks the empirical imple mentation refers to the italian treasury econometric model item in which inventory changes are obtained as a residual from endogenous value added and spending components

aggregate inventory behavior in large european economies abstract inventory fluctuations are known to be an important propagation mechanism for u s business cycles this paper compares the significance of inventory fluctuations in the u s with four other major industrial economies in europe a general model of aggregate inventory demand is specified which seeks to encompass the models presented in recent studies of inventory behavior this model is estimated for the large european economies united kingdom west germany france and italy the preferred models that result from this analysis are compared with the empirical evidence for the u s

a portfolio approach to the optimal mix of funded and unfunded pensions abstractin this paper we address the optimal funding of pensions by means of portfolio choice approach considering the unfunded paygo pension system as a quasi asset with hedging and diversif

interrelated demands for buffer stocks and productive inputs estimates for two digit manufacturing industries empirical estimates of interrelated factor demand equations for inventories labor inputs capital stocks and unfilled orders in selected two digit industries are provided this framework is more comprehensive than previous research as it disaggregates inventories by stage of fabrication accounts for production to stock and production to order and disaggregates capital and labor inputs all estimated decision rules display stock adjustment effects but there are asymmetries in the parameter estimates that are puzzling there is evidence that factor input prices have a role in explaining stock levels but own factor price effects are largely absent evidence is uncovered that stocks are sensitive to expectations errors attached to output demand copyright 1990 by mit press

designing social security a portfolio choice approach public social security systems may provide diversification of risks to individuals life time income capturing that a pay as you go program paygo may be considered as a quasiasset we study the optimal size of the social security program as well as the optimal split between a funded part and a paygo part by means of a theoretical portfolio choice approach a low yielding paygo system can benefit individuals if it contributes to hedge other risks to their lifetime resources moreover a funded part of the social security system can be justified by potential imperfections to the individuals free access to the stock market numerical calculations for sweden norway the us and the uk demonstrate that the optimal size of paygo part of the pension program varies considerably in response to differences in projected growth rates and the correlation between stock returns and growth our calculations suggest that a paygo program has an important role in the three former countries but not in the u k

the missing piece in policy analysis social security reform this lecture discusses the economic losses that result from an unfunded social security retirement system and the potential gain from shifting to a funded system the social security payroll tax distorts labor supply and the form in which compensation is paid although each individual s benefits are linked to that individual s previous payroll tax payments the low equilibrium rate of return inherent in an unfunded system implies a net payroll tax that causes distortions the resulting deadweight loss is 1 of each year s gdp in perpetuity an amount equal to 20 of payroll tax revenue and a 50 increase in deadweight loss of the personal income tax also there is the loss of investment income resulting from forcing employees to accept the low implicit return of an unfunded program rather than the much higher return paid on private saving or in a funded social security program the present value of the annual losses from using an unfunded system exceeds the benefit to those who received windfall transfers when the program began and when it expanded shifting to a funded program cannot reverse the crowding out of capital that has already occurred recognizing the existing unfunded obligation only makes that piece of the national debt explicit but shifting to a funded program limits crowding out of capital formation to the amount that already occurred future increases in annual saving that result from economic growth are able to earn the higher rate of return on real capital the present value of these gains is equivalent to a perpetuity of more than 2 of gdp a year the combi nation of improved labor market incentives and higher real return on saving has a net present value gain of more than 15 trillion an amount equivalent to three percent of each future year s gdp forever this abstract was borrowed from another version of this item

intergenerational risk sharing abstract in this paper we examine government debt and tax transfer policies that can be improve the allocation of risk between generations markets cannot allocate risk efficiently between two generations whenever the two generations are not both alive prior to the occurence of a stochastic event this implies that government policies transferring risk between generations have the potential to create first order welfare improvements our model provides a non keynesian justification for the debt finance of wars and recessions as well as an added rationale for social security type tax transfer schemes which aid unlucky generations e g the depression generation at the expense of luckier generations

a rational expectations equilibrium model of inventories of finished goods and employment abstract a critical roadblock to modeling inventories of finished goods has been the claim that the production and inventory decisions of a perfectly competitive firm are determined independently of each other a basic goal of this study is to specify fundamental preferences of economic agents technologies constraints and market structures that are in a rough way capable of generating patterns of serial correlations and cross correlations between inventories and employment of factors of production that are consistent with those observed in the data the claim is made that the time series for inventories output and employment can in principle be interpreted as emerging from a well specified dynamic stochastic competitive equilibrium in which economic agents are assumed to form rational expectations about variables not included in their information sets inventories and employment will not be related in a direct way if and only if the price elasticity of demand for output is equal to infinity

benefits and consumption effects of public housing programs in belgium some aggregate results in this paper we estimate some aggregate consumption effects and the benefits of public housing programs in belgium on the basis of a small sample of individual households specifying a stone geary utility function defined on housing and other goods we develop estimates of all required inputs to calculate hick s equivalent variation we further analyze changes in consumption patterns as well as the distribution of benefits over the sample our results provide the first information on the effects of public housing in belgium derived from micro data

pensions and intergenerational risk sharing in general equilibrium we investigate intergenerational risk sharing in two pillar pension systems with a pay as you go pillar and a funded pillar the funded pension pillar can be either defined contribution or defined benefit only a defined benefit scheme with an appropriate investment policy establishes optimal intergenerational risk sharing we show how the pension system affects capital markets in general and the equity premium in particular

joint production quasi fixed factors of production and investment in finished goods inventories inventory investment has long been an important area of inquiry for empirical work in macroeconomics this is due in large measure to the fact that inventory investment is a major source of fluctuations in aggregate output empirical work on inventories however has been dominated by the use of simple univariate flexible accelerators 1 the major objective of this paper is to propose and test a multivariate flexible accelerator model for inventory investment the model is tested with data on finished goods inventories from the manufacturing sector of the u s economy there are two reasons for undertaking such a task first at a theoretical level a univariate flexible accelerator model asserts that investment in say finished goods inventories is proportional to the gap between the desired and actual stocks of finished goods such a model presumes that decisions by firms on finished goods inventories are made independently of decisions on other stocks but theory suggests that when firms make simultaneous decisions on a variety of stocks which includes not only finished goods but also goods in process inventories the size of the work force etc decisions on finished goods will interact with decisions on

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

the variability of aggregate demand with s s inventory policies this paper develops a general theory of the aggregate implications of s s inventory policies it is shown that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales overall the s s theory contradicts the widely held notion that retail inventories act as a buffer protecting manufacturers from fluctuating sales in 1951 arrow harris and marschak 3 introduced the s s form of inventory policy the policies are designed for retailers of finished goods who face economies of scale when placing orders with their suppliers to pursue an s s inventory policy the retailer establishes a lower stock point s and an upper stock point s no order is placed until inventories fall to s or below whereupon they are restored to the maximum of s a general proof of the optimality of these s s inventory policies was provided by scarf 13 at the microeconomic level the model has been extensively investigated formulae are available to compute optimal policies e g ehrhardt 6 and these policies are xidely used in industry e g schwartz ed 14 in addition the model has been extended to increasingly complex demand environments e g karlin and fabens 11 in contrast little is known about the macroeconomic implications of s s policies several recent papers have begun to correct this deficiency akerlof has suggested that pursuit of constant threshold money holding policies of the s s variety might be responsible for the observed low short run income elasticity of the demand for money akerlof 1 and akerlof and milbourne 2 in the operations research literature ehrhardt schultz and wagner 7 analyzed the demand environment of a wholesaler supplying several retailers they required that the distinct retailers have independent sales ruling out the analysis of common factors in sales finally simulation results of blinder 4 suggested a role for the s s model in understanding retail sector inventories however the theoretical difficulties with the model remained unresolved blinder commented if firms have a technology that makes the s s rule optimal aggregation across firms is inherently difficult indeed it is precisely this difficulty which has prevented the s s model from being used in empirical work to date blinder 4 p 459 in this paper we present a general theory of the aggregate implications of s s policies our central finding is that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales this result holds even in the presence of common factors in retail sales in addition a close connection

voluntary participation and intergenerational risk sharing in a funded pension system we explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary typically the willingness of the young to participate depends on their belief about the future young s willingness to do so we characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty we find that mandatory participation is often necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing

disequilibrium dynamics with inventories and anticipatory price setting this paper studies the sequence of short run quantity constrained equilibria of a model with a single storable output labor and money the durability of output gives rise to inventory fluctuations which influence the course of the equilibria attained one special feature of interest is the assumption that prices are not at the level which would equilibrate all markets if there were no stochastic shocks to the economy with prices frozen at this level the nature of the realized shocks determines the type of disequilibrium realized and the unintended component of inventory change the analysis concentrates on two questions what is the statistical nature of the process governing the real wage output employment and inventories and is it possible to test this model against the alternative hypothesis that prices are continually flexible even after the shocks have disturbed the system we find that although these theories are similar in their qualitative structure tests can be developed we also show how the frequencies of different types of quantity constrained equilibria vary with the stochastic specification this may shed some insight on why it is commonly believed that some types of disequilibrium phenomena have not been observed this abstract was borrowed from another version of this item

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

inventory fluctuations in a disequilibrium macro model as fig i shows this pattern continues to hold with remarkable fidelity over the postwar period as well notice that stock levels tend to peak during recessions shaded areas and to trough shortly after recessions while the stock sales ratio tends to peak during the latter part of recessions and to trough during expansions given the huge role played by stocks in business fluctuations 1 it is surprising that so little theoretical attention is directed toward improving our understanding of the timing of stock and stock sales ratio movements 2 the purpose of this paper is to offer a theoretical model which is consistent with the observed cyclical behaviour of stocks and the stock sales ratio the present model has firms forming sales expectations and then producing enough output if possible to cover the expected sales and to maintain a given stock expected sales ratio trade takes place out of equilibrium and inaccurate sales expectations or capacity constraints give rise to involuntary stock changes we find that stock holding may or may not be destabilising if stocks are not destabilising the familiar keynesian multiplier will obtain though the path of output after a shock will differ from the keynesian path if stocks are destabilising the system is found to enter a cycle with stocks and output ultimately rising and falling in a pattern much like that observed in actual cycles

the resurgence of inventory research what have we learned abstract recent empirical and theoretical research on business inventories is surveyed and critically evaluated while most inventory research has had macroeconomic motivations we focus on its microtheoretic basis and on potential conflicts between theory and evidence the paper asks two principal questions first how can inventories which are allegedly used by firms to stabilize production nonetheless be a destabilizing factor at the macroeconomic level second why if firms are following the production smoothing model is production more variable than sales in many industries we suggest that the so called s s model may help answer both questions

a rational economic model of paygo tax rates abstract we argue that paygo rates are determined by a representative agent and a benevolent government jointly maximizing the expected life time utility of the agent the distributions of labor and capital income are calculated from national data on real gdp real wages and the real return to capital since 1950 with uniform risk aversion predicted rates explain 83 of the variance of observed rates the globalization of capital markets would lead to convergence of paygo rates our results are immune to crises like 2008

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

the mainspring of economic growth lecture to the memory of alfred nobel april 27 1973 this abstract was borrowed from another version of this item

inventories and the volatility of production a stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales this paper presents a model of production decisions with demand uncertainty that incorporates no nnegativity constraints on inventories even with no productivity shocks optimal behavior by the firm is consistent with this stylized fact either if demand exhibits positive serial correlation or if the firm can backlog excess demand the reason is that a demand shock affects both the actual inventory level given unchanged production and the desired level production must replenish the stock and adjust to the new desired level copyright 1987 by american economic association

propagation and smoothing of shocks in alternative social security systems abstract even with well developed capital markets there is no private market mechanism for trading between current and future generations this generates a potential role for public old age pension systems to spread economic and demographic shocks among different generations this paper evaluates how different systems smooth and propagate shocks to productivity fertility mortality and migration in a realistic olg model we use reductions in the variance of wealth equivalents to measure performance starting with the existing u s system as a unifying framework in which we vary how much taxes and benefits adjust and which we then compare to the existing german and swedish systems we find that system design and shock type are key factors the german system and the benefit adjustment only u s system best smooth productivity shocks which are by far the most important shocks overall the german system performs best while the swedish system which includes a buffer stock to relax annual budget constraints performs rather poorly focusing on the u s system reliance solely on tax adjustment fares best for mortality and migration shocks while equal reliance on tax and benefit adjustments is best for fertility shocks

political intergenerational risk sharing abstract in a stochastic two period olg model featuring an aggregate shock to the economy ex ante optimality requires intergenerational risk sharing we compare the level of intergenerational risk sharing chosen by a benevolent government and by an office seeking politician in our political system the transfer of resources across generations is determined as a markov equilibrium of a probabilistic voting game low realized returns on the risky asset induce politicians to compensate the old through a payg system this political system typically generates an intergenerational risk sharing scheme that is i larger ii more persistent and iii less responsive to the realization of the shock than the social optimum this is because the current politician anticipates her transfers to the elderly to be compensated by future politicians through offsetting transfers and hence overspends

production smoothing evidence from physical product data we reconsider the paradox that the variance of production often exceeds the variance of shipments a result that casts doubt on the production smoothing model of inventory behavior most studies of production smoothing have analyzed two digit sic dollar value data from commerce department surveys in contrast this paper examines disaggregated physical product data and finds that production is smoother than shipments in about two thirds of the 38 industry or product groupings considered however doubts about the model persist most notably euler equation estimates of the model s cost parameters are usually imprecise and often do not have the signs postulated by production smoothing models

the optimal mix between funded and unfunded pension systems when people care about relative consumption the paper studies the optimal portfolio mix between funded and unfunded pension systems when people care about relative consumption in pay as you go systems with fixed contribution rates pensions are tied to wages this lowers the uncertainty of individuals future relative position thereby increasing the attractiveness of unfunded systems the paper shows analytically that the optimal share of funding decreases with the importance of relative standing a calibrated version of the model suggests that the concern for relative standing has also a quantitatively important impact on the optimal share of funding for reasonable assumptions it is typically around 20

the sources of fluctuations in aggregate inventories and gnp a simple real linear quadratic inventory model is used to determine how cost and demand shocks interacted to cause fluctuations in aggregate inventories and gnp in the united states 1947 1986 cost shocks appear to be the predominant source of fluctuations in inventories and are largely though not exclusively responsible for the fact that gnp is more variable than final sales cost and demand shocks are of roughly equal importance for gnp these estimates however are imprecise with different but plausible values for a certain target inventory sales ratio cost shocks are less important than demand shocks for gnp fluctuations

intergenerational risk sharing and endogenous labour supply within funded pension schemes funded defined benefit pensions add to welfare on account of providing intergenerational risk sharing but lower it on account of inducing labour supply distortions we show that a properly designed funded defined benefit pension scheme involves a welfare improvement even if contributions are distortionary and even if individuals face potentially correlated wage and equity risks numerical calculations indicate that diversification gains from risk sharing are large compared to the losses related to labour supply distortions this result withstands a number of extensions like the introduction of a short sale constraint for individuals or the inclusion of a labour income tax

social security taxation and intergenerational risk sharing the life cycle hypothesis has become the dominant mode used to analyze the effects of a social security system on private saving the labor leisure choice and social welfare as both barro and samuelson indicate a fully funded social security program in a world of certainty would drive out an equivalent amount of private saving if the interest rate is r the effects of a payment of a dollar into the social security pool while young would just offset the effects of receiving 1 r dollars as a transfer when retired papers by diamond hi and samuelson among others have examined the effects of non fully funded social security schemes in a growing economy a non fully funded program can be used to alter the private sector s saving rate and hence the capital labor ratio social security then can be used as a policy tool for achieving the or some variant of the golden rule growth path this abstract was borrowed from another version of this item

long term trends in inventory investment in traditional market and post socialist economies abstract inventories form a small but important part of national wealth and constitute the most volatile component of gdp their moves are important indicators of the dynamics of the economy both at the micro and macro level in this paper the authors venture to explain long term macroeconomic inventory investment trends from new perspectives we compiled a data set of 24 oecd countries for the 1970 2011 time period and addressed three sets of questions how can inventory investment be characterised in the sample countries and what are the general tendencies does the analysis on the substantially larger data set compared to those in our previous studies verify earlier results regarding the declining global trend in inventory investment and the convergence of inventory features in different countries a quarter of a century ago a substantial change in the economic systems of certain oecd countries took place the transition of central eastern european countries from planned to market economies the difference in inventory behaviour in the two sets of countries was obtrusive before the transition the changes following the transition reveal very important consequences of systemic changes are there substantial connections between fundamental country characteristics and inventory behaviour can regression and correlation analysis reveal some decisive relationship between certain macroeconomic indicators and inventories our analysis resulted in mostly positive or at least meaningful answers to the above questions and opened up a broad field for further research

nonlinear budget constraints and consumer demand an application to public programs for residential housing abstract this study presents a methodology for exploiting the nonlinear hedonic nature of housing prices to estimate the compensated demands of households for particular housing attributes the methodology is employed to provide hicksian benefit measures of a particular housing subsidy program typical of those undertaken recently in developing countries

pension reform during the demographic transition the aim of this paper is to quantify the welfare effects of some currently discussed pension reform proposals in germany the analysis is based on an extended overlapping generations model which accounts for intra generational heterogeneity rising life expectancy and declining fertility given a baseline path of the economy under the existing unfunded pension system the model calculates the macroeconomic impact as well as the distributional and efficiency effects of various pension reform measures aimed at reducing the level of the future unfunded pension system simulations reveal that pension reforms cannot be evaluated solely in terms of inter and intra generational equity substantial efficiency gains or losses might arise if the linkage between contributions and benefits is improved or weakened

reforming social security assessing the effects of alternative funding strategies population ageing implies that the large pay as you go social security programmes implemented in many oecd economies will run into severe financial problems by means of a numerical overlapping generations model this paper investigates the intergenerational welfare effects of a transition to funded security programmes such programmes imply permanent increases in the welfare of the young and unborn generations it is demonstrated that the size of the welfare gains varies significantly between alternative funding strategies a nonindividualized funding strategy characterized by increased government asset accumulation triggers considerable welfare gains through increased asset returns in the future even larger welfare gains may be realized by an individual funding strategy characterized by increased asset accumulation accompanied by an adoption of actuarial supplementary pensions i e actuarial supplementary pensions combined with a fixed minimum pension which reduces future tax distortions drastically

intergenerational risk sharing pensions and endogenous labour supply in general equilibrium we show that a two tier pension system with a pay as you go first tier and a fully funded defined wage indexed second tier can provide for optimal intergenerational risk sharing without distorting the labour supply thereby achieving the first best other arrangements with a fully funded second tier fail to achieve the first best

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

the production smoothing model is alive and well abstract monthly data in physical units for seven industries are used to examine the production smoothing hypothesis the results strongly support this hypothesis significant effects of expected future sales on current production are found for four industries and the estimated decision equations for all seven industries imply production smoothing behavior the previous negative results appear to be due to the use of data biased against the hypothesis the shipments and inventory data of the department of commerce the paper also shows that sensible results can be obtained from estimating approximations to decision equations as opposed to estimating euler equations

risk sharing and efficiency implications of progressive pension arrangements the present paper aims to quantify the welfare effects of progressive pension arrangements in germany starting from a purely contribution related benefit system we introduce basic allowances for contributions and a flat benefit fraction since our overlapping generations model takes into account variable labor supply borrowing constraints as well as stochastic income risk we can compare the labor supply the liquidity and the insurance effects of the policy reform our simulations indicate that for a realistic parameter combination an increase in pension progressivity would yield an aggregate efficiency gain of more than 2 percent of resources however such a reform would not be implemented because it would not find political support of the currently living generations

inventory investment and sectoral characteristics in some oecd countries this paper discusses the effects of sectoral structure on the long run macroeconomic inventory behaviour of national economies data on 15 oecd countries are included in the analysis which is based on correlation and cluster analysis methodologies the study is part of a long term research project exploring factors influencing the inventory behaviour of national economies first we introduce some basic characteristics of macroeconomic inventory formation in the 15 oecd countries we argue that our previous results on the existence of specific characteristic features of macroeconomic inventory investment are justified hence it makes sense to study the factors influencing these features we then examine the contribution of various sectors to the production of in the countries involved and the relationship between sectoral structure and inventory intensity annual inventory change gross value added we find that the high share of agriculture and manufacturing increases inventory intensity that the increasing share of services has a negative effect and that the role of construction and trade is not obvious the relatively low stability of the statistical results warns us to be cautious with our judgements further case by case analysis would be required to obtain more solid results

savings for retirement under liquidity constraints a note pension systems often entail some compulsory saving over which individuals have some degree of choice in terms of the pension plan in which to invest we analyse whether the choice between alternative plans is affected by the presence of liquidity constraints during working life and we prove that the analytical conditions that determine the choice between different plans are the same in the constrained and unconstrained case

a portfolio approach to the optimal funding of pensions abstract fully funded pension systems are advocated for their higher rate of return but this return is typically risky using a simple mean variance model we find that mixed funded unfunded systems are desirable in this setting because they enable risk diversification

stock market wealth and consumption this paper explores the link between changes in the aggregate value of corporate stock and changes in consumer spending it presents data on the distribution of corporate stock ownership based on the 1998 survey of consumer finances it also uses time series evidence on the comovement of stock market wealth and various categories of consumer spending to calibrate the wealth effect it concludes that in the year after a change in stock market values consumer spending is likely to rise by between one and two cents for each dollar increase in the value of corporate stock

the effects of investing social security funds in the stock market when fixed costs prevent some households from holding stocks with fixed costs of participating in the stock market consumers with high income will participate in the stock market but consumers with lower income will not participate if a fully funded defined contribution social security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita consumers who save but do not participate in the stock market will increase their consumption thereby reducing saving and capital accumulation calibration of a general equilibrium model indicates that this policy could reduce the aggregate capital stock substantially by about 50 cents per capita