higher education subsidies and heterogeneity a dynamic analysis abstract in this paper we develop a simple dynamic general equilibrium framework to address the effects of increasing higher education subsidies in the us from their already substantial levels on inequality welfare and efficiency we focus on three policies the first is a tax and subsidy scheme that ensures that the parental decision to send a child to college is independent of income such a policy decreases the efficiency of the utilization of education resources while the welfare gain is minimal the second policy maximizes the fraction of college educated labor this results in a large drop in the above mentioned efficiency with little or no welfare gain the third is the provision of merit based aid to the poor as opposed to purely need based aid this policy can increase education efficiency with little decrease in welfare based on these experiments we conclude that the case for further increases in higher education subsidies might have been overstated

factor inputs and japanese manufacturing trade structure the japanese international trade structure in manufactured goods has been analyzed using cross section regression analysis in which labor capital human capital and energy are regressed on japanese net exports exports and imports with the world oecd and developing countries for 1967 and 1975 skill and wage differential measures have been utilized for the measuring of human capital contrary to the dualism found in earlier studies the estimated results show that in 1967 japan exported unskilled labor intensive goods with respect to the developing countries as well as the oecd countries in 1975 japan exported capital intensive goods to all regions and imported unskilled labor intensive goods from the world and the developing countries skilled labor intensive goods were imported from the oecd countries in both years drastic changes between 1967 and 1975 are noted japanese exports shifted from unskilled labor intensive goods to capital intensive goods while imports did the opposite this result conforms to the changes in unskilled labor and capital usage in japan and her major trading partners

determinants of the structure of u s foreign trade 1958 1976 abstract the heckscher ohlin model with three direct factor inputs is borne out for u s net exports of manufactures in annual cross section regressions for 1958 1976 the coefficient on unskilled labor became significantly more negative over the period and there is evidence that the negative sign on physical capital may reflect the inclusion of natural resource industries further analysis based upon 1960 and 1970 census years suggests the importance as well of skill and technological variables calculations of the total factor requirements of u s trade uphold the leontief paradox for 1958 but not for 1972

evidence on the relationship between housing and consumption in the united states a state level analysis we estimate the dynamic effects of u s housing market shocks on state level spending and home prices from a dynamic common factor model and identify housing demand and supply shocks using a sign restrictions approach while state level spending and house prices gradually respond positively and persistently to aggregate housing demand shocks there is significant variation across states in the magnitude of these responses cross state regressions of the estimated responses on an index of mortgage market development suggest that spending in states with greater opportunities for home equity borrowing is more sensitive to housing demand shocks than in states with fewer opportunities which is consistent with the prominence of a collateral channel over a wealth channel in explaining the link between housing and the overall economy

financial intermediary capital we propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households that is have a collateralization advantage intermediaries require capital as they have to finance the additional amount that they can lend out of their own net worth the net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity such as investment and financing the accumulation of net worth of intermediaries is slow relative to that of the corporate sector the model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch namely their severity their protractedness and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns the model captures the tentative and halting nature of recoveries from crises

efficient investment in children abstract many would say that children are society s most precious resource so how should we invest in them to gain insight into this question a dynamic general equilibrium model is developed where children differ by ability parents invest time and money in their offspring depending on their altruism this allows their children to grow up as more productive adults first the efficient allocation is characterized next this is compared with the outcome that arises when financial markets are incomplete the situation where child care markets are also lacking is then examined additionally the consequences of impure altruism are analyzed journal of economic literature classification numbers d1 d31 d58 i2

optimal security design how should new securities be designed traditional theories have little to say on this the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous this paper explicitly incorporates the transaction costs of issuing securities and develops a model where the instruments that are traded are chosen optimally and the economy s market structure is endogenous among other things it is shown that the firm s income stream should be split so that in every state all payoffs are allocated to the security held by the group that values them most this abstract was borrowed from another version of this item

the effects of state mandated financial education on college financing behaviors students entering college have limited financial experience while making complex borrowing decisions this paper examines a policy lever that may improve these decisions high school personal finance graduation requirements we use a difference in difference strategy to determine their effects on financial aid decisions of incoming freshmen at 4 year institutions our results suggest financial education shifts students from high cost to low cost financing the requirements increase aid applications and acceptance of federal loans while decreasing the likelihood of holding credit card balances students from less affluent family backgrounds reduce their likelihoods of working and borrowers from more affluent backgrounds reduce private loan amounts

personal bankruptcy and credit supply and demand this paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit while generous state level bankruptcy exemptions are probably viewed by most policy makers as benefiting less well off borrowers our results using data from the 1983 survey of consumer finances suggest that they increase the amount of credit held by high asset households and reduce the availability and amount of credit to low asset households conditioning on observable characteristics thus bankruptcy exemptions redistribute credit toward borrowers with high assets interest rates on automobile loans for low asset households also appear to be higher in high exemption states

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

optimal student loans and graduate tax under moral hazard and adverse selection we characterize the set of second best optimal menus of student loan contracts in a simple economy with risky labour market outcomes adverse selection moral hazard and risk aversion the model combines student loans with an elementary optimal income tax problem the second best optima provide incomplete insurance because of moral hazard they typically involve cross subsidies between students generically optimal loan repayments cannot be decomposed as the sum of an income tax depending only on earnings and a loan repayment depending only on education therefore optimal loan repayments must be income contingent or the income tax must comprise a graduate tax the interaction of adverse selection and moral hazard i e self selection

the determinants of spanish industrial exports to the european union this paper investigates the determinants of trends in spain s industrial exports to the other european union countries by using a sectoral panel data approach the results show that price elasticities of export demand differ widely among sectors they also provide support to the idea that non price factors have a significant influence on international competitiveness in particular they show that technological and advertising effort have a significant effect not only on the evolution of exports but also on price elasticity

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

the effect of liquid housing wealth on college enrollment this article uses short run housing wealth changes to identify the effect of housing wealth on college attendance i find that households used their housing wealth to finance postsecondary enrollment in the 2000s when housing wealth was most liquid each 10 000 in home equity raises college enrollment by 0 7 of a percentage point on average the effect is localized to lower resource families for whom a 10 000 increase in housing wealth increases enrollment by 5 7 percentage points these estimates imply that the recent housing bust could significantly negatively affect college enrollment through reduction in the housing wealth of families with college age children

credit access and college enrollment does access to credit explain the gap in schooling attainment between children from richer and poorer families i present new evidence on this important question based on the causal effects of two

the nature of credit constraints and human capital we develop a human capital model with borrowing constraints explicitly derived from government student loan gsl programs and private lending under limited commitment the model helps explain the persistent strong positive correlation between ability and schooling in the u s as well as the rising importance of family income for college attendance it also explains the increasing share of undergraduates borrowing the gsl maximum and the rise in student borrowing from private lenders our framework ofiers new insights regarding the interaction of government and private lending as well as the responsiveness of private credit to economic and policy changes

the impact of student debt on education career and marriage choices of female lawyers abstract we develop and estimate a dynamic model to study the impact of student debt on education career and marriage market choices of young female lawyers our model accounts for several important institutional features of the labor market for lawyers including differences in the work hours across occupational tracks and learning about the prospects of promotion to partner some female students need to take on large amounts of student debt to finance their education and hence start their careers with large amounts of negative wealth the empirical findings suggest that student debt has negative effects on marriage prospects career prospects and investments in educational quality of female lawyers the analysis also provides new insights into the design of public policies that aim to increase public sector employment we show that it is possible to design conditional wage or debt service subsidy programs that significantly increase public sector career choices at reasonable costs

human capital risk contract enforcement and the macroeconomy we use data from the survey of consumer finance and survey of income program participation to show that young households with children are under insured against the risk that an adult member of the household dies we develop a tractable macroeconomic model with human capital risk age dependent returns to human capital investment and endogenous borrowing constraints due to the limited pledgeability of human capital limited contract enforcement we show analytically that consistent with the life insurance data in equilibrium young households are borrowing constrained and under insured against human capital risk a calibrated version of the model can quantitatively account for the life cycle variation of life insurance holdings financial wealth earnings and consumption inequality observed in the us data our analysis implies that a reform that makes consumer bankruptcy more costly like the bankruptcy abuse prevention and consumer protection act of 2005 leads to a substantial increase in the volume of both credit and insurance

international business cycles with endogenous incomplete markets backus kehoe and kydland 1992 baxter and crucini 1995 and stockman and tesar 1995 find two major discrepancies between standard international business cycle models with complete markets and the data in the models cross country correlations are much higher for consumption than for output while in the data the opposite is true and cross country correlations of employment and investment are negative while in the data they are positive this paper introduces a friction into a standard model that helps resolve these anomalies the friction is that international loans are imperfectly enforceable any country can renege on its debts and suffer the consequences for future borrowing to solve for equilibrium in this economy with endogenous incomplete markets the methods of marcet and marimon 1999 are extended incorporating the friction helps resolve the anomalies more than does exogenously restricting the assets that can be traded

when financial aid is scarce the challenge of allocating college aid where it is needed most abstract inequality in college completion by income is a persistent problem often addressed through financial aid to lower income students prior research has found mixed effects of financial aid but research designs have not identified effects for the poorest students who may benefit the most this study exploits an eligibility cutoff induced by first come first served allocation of funds in the state of wisconsin the analysis focuses on two year technical colleges where there was a large funding shortage affecting students at all income levels i find positive effects of grant aid in reducing dropout and supporting degree completion with larger positive effects for the poorest students

the effect of liquidity constraints on consumption a cross sectional analysis this paper examines the effect of liquidity constraints on consumption expenditures using a single year cross section data set a reduced form equation for consumption is estimated on high saving households by the tobit procedure to account for the selectivity bias since high saving households are not likely to be liquidity constrained the estimated equation is an appropriate description of how desired consumption that would be forthcoming without liquidity constraints is related to the variables available in the cross section data when the reduced form equation is used to predict desired consumption the gap between desired consumption and measured consumption is most evident for young households

accounting for the changing role of family income in determining college entry in this paper i analyze the determinants of college enrolment and the changes in these determinants over time i propose a quantitative life cycle model with college enrolment altruistic parents provide financial support to their children using counterfactual experiments i find that 24 percent of all households are financially constrained in their college decision constraints become more severe over time i show that my model is consistent with a narrow college enrolment gap between students from rich and poor families as previously reported in the empirical literature the estimation of enrolment gaps is a popular reduced form approach for measuring the fraction of constrained households my results suggest that these reduced form estimates are misleading and that a structural model of parental transfers is needed to correctly identify constrained households further i show that parental transfers are an important driver behind the changing role of family income as a determinant of college entry a fact that is well documented for the us economy

international coordination of fiscal policy in limiting economies we examine the limiting behavior of cooperative and noncooperative fiscal policies as countries market power goes to zero we show that these policies converge if countries raise revenues through lump sum taxation however if there are unremovable domestic distortions such as distorting taxes there can be gains to coordination even when a single country s policy cannot affect world prices these results differ from the received wisdom in the optimal tariff literature the key distinction is that contrary to the tariff literature the spending decisions of governments are explicitly modeled

the economics of financing higher education different arguments exist pro and contra tax financed subsidies in higher education it has been argued that private incentives to study are sufficiently high while the financing of those subsidies can be deemed regressive as they are co financed by relatively poorer non students alternatively several arguments have been put forward why higher tax financed subsidies are desirable such as externalities and credit constraints this study scrutinizes these different arguments and discusses the implications for the different ways in which higher education can be financed calculations of private returns across the oecd confirm that private incentives to invest in higher education are high however economic theory poses that it is the marginal social return that must guide policy which will reflect both equity and efficiency considerations we assess the potential regressivity of higher education subsidies using different perspectives and assess the different efficiency arguments for government intervention in higher education tax financed subsidies turn out to be regressive in most cases but depending on the perspective and the country under examination discussion of the efficiency arguments is focused on those that are most relevant in light of the empirical evidence and their relevance for the different financing modes externalities uninsurable risk credit constraints and misprediction we conclude that to deal with the more credible failures in higher education tax financed subsidies are blunt instruments for a large share of the countries under consideration shifting towards income contingent loans or graduate taxes appears more appropriate when taking into account both efficiency and equity considerations

optimal pricing mechanisms with unknown demand the standard profit maximizing multi unit auction intersects the submitted demand curve with a preset reservation supply curve which is determined using the distribution from which the buyers valuations are drawn however when this distribution is unknown a preset supply curve cannot maximize monopoly profits the optimal pricing mechanism in this situation sets a price to each buyer on the basis of the demand distribution inferred statistically from other buyers bids the resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity and convergence can be substantially faster than with sequential price experimentation

skill biased technical change and the cost of higher education we document the growth in higher education costs and tuition over the past 50 years to explain these trends we develop a general equilibrium model with skill and sector biased technical change finding the model s parameters through a combination of estimation and calibration we show that it can explain the rise in college costs between 1961 and 2009 along with the increase in college attainment and the change in the relative earnings of college graduates the model predicts that if college costs had ceased to grow after 1961 enrollment in 2010 would have been 3 6 higher

life cycle schooling and dynamic selection bias models and evidence for five cohorts of american males this paper examines an empirical regularity found in many societies that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education we examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it we show that the implicit economic model assumes myopia the intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data we produce an alternative choice theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions

import share under international oligopoly with differentiated products japanese imports in u s manufacturing this paper seeks to identify the determinants of the japanese impor t share in the u s market from the assumptions of international oligopoly and internationally differentiated products a theoretical model is developed where import share is considered as a cournot nash equilibrium the relative position of the reaction functions is determined by the previous commitments of both domestic and foreign firms on advertising r d and tangible investment as well as by artificial and natural trade barriers using a sample of twenty four three digit import competing u s industries matched to japanese industries the empirical analysis provides evidence supporting the model s predictions that the relative strategic expenditures and market structures of both partners explain the japanese import share in u s markets copyright 1988 by mit press

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

default risk and private student loans implications for higher education policies abstract in recent years the proportion of students facing a binding constraint on government student loans has grown this has led to substantially increased use of private loans as a supplementary source of finance for households higher education investment a critical aspect of the private market for student loans is that loan terms must reflect students risk of default college investment will therefore differ from a world in which government student loans whose terms are not sensitive to credit risk are expanded to no longer bind moreover beyond simply crowding out private lending expansions of the government student loan program will feed back into default risk on private loans the goal of this paper is to provide a quantitative assessment of the likely effects of the private market for student loans on college enrollment we build a model of college investment that reflects uninsured idiosyncratic risk and a well defined life cycle that is consistent with observed borrowing and default behavior across family income and college preparedness we find that higher government borrowing limits increase college investment but lead to more default in the private market for student loans while tuition subsides increase college investment and reduce default rates in the private market consequently higher limits on government student loans have small negative welfare effects while tuition subsidies increase aggregate welfare

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

competing at home to win abroad evidence from japanese industry the study explores the influence of domestic competition on international trade performance using data from a broad sample of japanese industries domestic rivalry is measured directly using market share instability rather than employing structural variables such as seller concentration we find robust evidence that domestic rivalry has a positive and significant relationship with trade performance measured by world export share particularly when r d intensity reveals opportunities for dynamic improvement and innovation conversely trade protection reduces export performance these findings support the view that local competition not monopoly collusion or a sheltered home market pressures dynamic improvement that leads to international competitiveness

knowledge flows in the global innovation system do u s firms share more scientific knowledge than their japanese rivals in this paper i test the common assumption that japanese firms strive to appropriate knowledge from the global scientific community while sharing little in return i found no support for this conventional perspective in the flat panel display industry u s firms shared no more knowledge with their global scientific community than japanese firms similarly japanese firms appropriated no more knowledge from the global community than their u s counterparts

student loans do college students borrow too much or not enough total student loan debt rose to over 800 billion in june 2010 overtaking total credit card debt outstanding for the first time by the time this article sees print the continually updated student loan debt clock will show an accumulated total of roughly 1 trillion borrowing to finance educational expenditures has been increasing more than quadrupling in real dollars since the early 1990s the sheer magnitude of these figures has led to increased public commentary on the level of student borrowing the authors move the discussion of student loans away from anecdote by establishing a framework for considering the use of student loans in the optimal financing of collegiate investments from a financial perspective enrolling in college is equivalent to signing up for a lottery with large expected gains indeed the figures presented here suggest that college is on average a better investment today than it was a generation ago but it is also a lottery with significant probabilities of both larger positive and smaller or even negative returns the authors look to available albeit limited evidence to assess which types of students are likely to be borrowing too much or too little

market structure and u s trade flows abstract using samples of input output table detailed industries we test the impact of various elements of market structure on u s trade flows at the industry level holding factor proportions constant industry demand characteristics and the extent of scale economies have significant impacts on trade flows labor intensity at the industry level has the effects on trade flows which are predicted by the factor proportions theory capital intensity increases both import and export flows this result together with certain others suggests the importance of trade among industrialized countries in producer goods

science and technology in united states foreign trade economists generally believe that modern science technology such as the presence of scientists and engineers or research and development is a central factor in the comparative advantage of advanced industrial nations however most discussion of this topic rests on cross industry regressions which leamer and bowen i981 do not provide a valid indication of factor abundance so the overall role of science still remains to be established in addition much remains to be known about the role of different facets of science and innovation in the process of generating comparative advantage there are two fundamentally different ways of understanding technological differences between countries one point of view adopted in the standard neoclassical theory of international trade assumes all countries are on the same production function under these circumstances relative factor abundance determines the factor services which a country exports or imports within this perspective one can make progress towards an understanding of the role of science and technology in international trade by dividing science into many highly specific narrowly defined input factors calculations can then determine the relative abundance of those inputs associated with science technology versus other input factors in a given country or the relative abundance of different elements within the broad area of overall science technology quite another procedure assumes there are substantial differences in the production possibilities faced by different countries for example krugman i979 recently argued that advantages in innovation and lags in the diffusion of knowledge are the basic influences which permit incomes to be higher in the industrialised world than in developing nations this view illustrates the potential economic significance of innovation in advanced countries since the generation of new technologies in industrialised countries and their diffusion to the rest of the world then essentially determines world income distribution and world economic development however empirical implementation of the diffusion viewpoint requires data for many countries which greatly limits the number of facets of technology which can be considered since the present paper is centrally concerned with the effect which a wide variety of technological elements has on international trade we choose to select a framework within which the ample data available on different aspects of technology in the united states can be utilised the first view of technological

approximation in mechanism design this paper considers three challenge areas for mechanism design and describes the role approximation plays in resolving them challenge 1 optimal mechanisms are finely tuned to precise details of the distribution on agent preferences challenge 2 in environments with multi dimensional agent preferences economic analysis has failed to provide general characterizations optimal mechanisms challenge 3 optimal mechanisms are parameterized by unrealistic knowledge of the distribution of agents private preferences this paper surveys positive resolutions to these challenges with emphasis on basic techniques and their relevance to theory and practice

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

r d rivalry industrial policy and u s japanese trade the authors examine how the strategic aspect of japanese research and development expenditures and industrial policies affected u s japanese bilateral trade during the late 1970s and investigate which component of r d expenditures on process innovation product quality improvements new products and new technology or technology transfer proved to be most effective they find that while japanese r d expenditures have generally promoted japan s trade advantage certain components of r d have proved more effective than other the depreciation subsidy and special status with the ministry of international trade and industry is positively related to the japanese trade performance while legal cartelization status has not had any apparent effect copyright 1988 by mit press

optimal lending contracts and firm dynamics we develop a general model of lending in the presence of endogenous borrowing constraints borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced in the model the dynamics of debt are closely linked with the dynamics of borrowing constraints in fact borrowing constraints must satisfy a dynamic consistency requirement the value of outstanding debt restricts current access to short term capital but is itself determined by future access to credit this dynamic consistency is not guaranteed in models of exogenous borrowing constraints where the ability to raise short term capital is limited by some prespecified function of debt we characterize the optimal default free contract which minimizes borrowing constraints at all histories and derive implications for firm growth survival leverage and debt maturity the model is qualitatively consistent with stylized facts on the growth and survival of firms comparative statics with respect to technology and default constraints are derived borrowing constraints are an important determinant of firm growth and survival 1 such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs such as those required to survive a recession this paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics in our model debt is constrained by the firm s limited liability and option to default a lending contract specifies an initial loan size future financing and a repayment schedule the choice of these variables in turn determines future growth the firm s future borrowing capacity and its ability and willingness to repay hence borrowing constraints and firm dynamics are jointly determined we study this dynamic design problem our model builds on thomas and worral s 1994 model of foreign direct investment at time zero a risk neutral borrower firm or entrepreneur has a project which requires a fixed initial set up cost every period the project yields revenues that increase with the amount of 1 there is considerable evidence suggesting that financing constraints are important determinants of firm dynamics gertler and gilchrist 1994 argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms perez quiros and timmermann 2000 show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia evans and jovanovic 1989 show that the liquidity constraints are essential in the decision to become an entrepreneur fazzari hubbard and petersen 1988 among others view financial constraints as an explanation for the dynamic behaviour of aggregate investment and cabral and mata 1996 are able to fit reasonably well the size distribution of portuguese manufacturing firms by estimating a simple model of financing constraints for surveys see hubbard 1998 and stein 2003

a nearly optimal auction for an uninformed seller abstract this paper describes a nearly optimal auction mechanism that does not require previous knowledge of the distribution of values of potential buyers the mechanism we propose builds on the new literature on the elicitation of information from experts we extend the latter to the case where the secret information shared by the experts potential buyers in our model can be used against them if it becomes public knowledge

the rising college premium in the eighties return to college or return to unobserved ability the changes in the distribution of earnings during the 1980s have been studied extensively the two most striking characteristics of the decade are a a large increase in the college high school wage gap and b a substantial rise in the variance of wage residuals while this second phenomenon is typically implicitly attributed to an increase in the demand for unobserved skill most work in this area fails to acknowledge that this same increase in demand for unobserved skill could drive the evolution of the measured college premium in its simplest form if higher ability individuals are more likely to attend college then the increase in the college wage premium may be due to a increase in the relative demand for high ability workers rather than an increase in the demand for skills accumulated in college this paper develops and estimates a dynamic programming selection model in order to investigate the plausibility of this explanation the results are highly suggestive that an increase in the demand for unobserved ability could play a major role in the growing college premium the changes in the distribution of earnings during the 1980s have been studied extensively the two most striking characteristics of the decade are a a large increase in the college high school wage gap and b a substantial rise in the variance of wage residuals while this second phenomenon is typically implicitly attributed to an increase in the demand for unobserved skill most work in this area fails to acknowledge that this same increase in demand for unobserved skill could drive the evolution of the measured college premium in its simplest form if higher ability individuals are more likely to attend college then the increase in the college wage premium may be due to an increase in the relative demand for high ability workers rather than an increase in the demand for skills accumulated in college this paper develops and estimates a dynamic programming selection model in order to investigate the plausibility of this explanation the results are highly suggestive that an increase in the demand for unobserved ability could play a major role in the growing college premium there are at least two reasons to be interested in this topic first for policy makers intent on helping the american workforce adjust to the changing wage structure this distinction is crucial if the value added of attending college truly rises they may consider policies aimed at subsidizing the skills learned in college however if it results from an increase in the payoff to other types of skills then policies focused on skill acquisition earlier in life would be more appropriate second it will also aid in understanding the

mismatch in human capital accumulation this article studies the allocation of heterogeneous agents to levels of educational attainment the goal is to understand the magnitudes and sources of mismatch in this assignment both in theory and in the data the article presents evidence of substantial mismatch between ability and educational attainment across 21 oecd countries with a main focus on germany italy japan and the united states model parameters are estimated using a simulated method of moments approach the main empirical finding is that measured mismatch arises largely from noise in test scores and does not reflect borrowing constraints taste shocks play a minor role in explaining mismatch

early and late human capital investments borrowing constraints and the family we develop a dynastic human capital investment framework to study the importance of family borrowing constraints and uninsured labor market risk as well as the process of intergenerational ability

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

modeling an immigration shock abstract in this paper we model an overlapping generation economy affected by an unexpected immigration shock and determine how households may insure themselves against immigration risk we use the model to study the impact of immigration on i the welfare of different generations ii the distribution of income among factors of production and iii the optimal design of the intergenerational welfare state in particular we construct a system of public education and public pensions that mimics the efficient complete market allocation we also consider the impact of immigration shocks in a small open economy in this case our model suggests that the external capital flow can act as a substitute for the missing private insurance markets our analysis delivers a set of predictions that we find useful for understanding certain aspects of the spanish experience between 1996 and 2008

the effect of credit constraints on the college drop out decision a direct approach using a new panel study a serious difficulty in determining the importance of credit constraints in education arises because standard data sources do not provide a direct way of identifying which students are credit constrained this paper differentiates itself from previous work by taking a direct approach made possible by unique longitudinal data from the berea panel study the results from our study of berea college students suggest that while credit constraints likely play an important role in the drop out decisions of some students the large majority of attrition of students from low income families should be primarily attributed to reasons other than credit constraints jel i21 i22

life cycle earnings education premiums and internal rates of return using norwegian population panel data with nearly career long earnings histories we provide a detailed picture of the causal relationship between schooling and earnings over the life cycle to address selection bias we apply three commonly used identification strategies we find that additional schooling gives higher lifetime earnings and a steeper age earnings profile in line with predictions from human capital theory our preferred estimates imply an internal rate of return of around 11 suggesting that it was highly profitable to acquire additional schooling our analysis reveals that mincer regressions dramatically understate the returns to schooling because key assumptions are violated

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

switching regression estimates of the intergenerational persistence of consumption i introduction since the seminal work of friedman 1957 and modigliani and brumberg 1954 the fact that life cycle consumption is much smoother than income has been established as one of the cornerstones in macroeconomics economic agents are able to optimize on their life cycle consumption via the means of saving and borrowing similarly family dynasties may be able to optimize on their lifetime consumption across generations through the channel of intergenerational transfers however despite strong evidence of the massive intergenerational asset transfers kotlikoff and summers 1981 few studies except perhaps mulligan 1997 1999 and waldkirch ng and cox 2004 1 have explored the intergenerational dynamics of consumption by contrast there is a large body of estimates on intergenerational relationships in income or earnings for the united states and for other countries around the world 2 investigating the intergenerational consumption relationship would complement our knowledge of the relationship of intergenerational income or earnings consumption is a more direct measure of economic well being than income furthermore understanding the intergenerational effects of parental financial transfers on consumption would be helpful for sensible public policy design if parents are transferring resources in various forms including financial transfers in an optimal manner to promote their offspring s overall well being then government transfer programs that target disadvantageous individuals at specific life stages through specific channels e g education financial aids or food stamp programs may replace or crowd out parental inputs without achieving the same optimal effects on the overall well being of these individuals broadly our study is linked to the question of how to interpret parental financial transfers to their adult children 3 financial transfers from parents can occur in the form of inter vivos i e between living persons gifts 4 or bequests 5 6 the literature has debated on whether post education financial transfers are driven by parental altruism or by an exchange arrangement in return for services delivered or expected to be delivered from adult children previous studies have found evidence that inter vivos transfers are consistent with both motives cox 1987 1990 7 yet bequest transfers consistent with neither tomes 1981 wilhelm 1996 mcgarry 1999 showed that an altruistic parent makes inter vivos transfers to ease his child s liquidity constraints therefore strongly related to her current income and arranges bequest transfers in response to the child s permanent income therefore only partially related to her current income our study is more closely linked to the view that treats bequest receipt as a signal of access to credit markets for human capital investments becker and tomes 1986 argued that altruistic parents leave financial bequests to children only after they have made efficient human capital investments in their children under imperfect credit markets there are credit constrained parents who cannot self finance these investments without forgoing own consumption that has an opportunity cost higher than the market interest rate this results in a lower consumption transmission from parents to children in constrained families besides signaling access to credit markets financial transfers including bequests enable a parent to guard his her offspring against any relative downward trending of consumption that arises from relative downward trending of lifetime income thus contribute to a higher degree of persistence in consumption from this perspective the total welfare cost of credit constraints goes beyond what is revealed by education achievement or lifetime income and the benefit of being born in a richer family is not limited to being able to afford elite education this study tests the connection between credit constraint and intergenerational consumption persistence using bequest receipt as the signal of constraint status for the parental households

debt constrained asset markets we develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature if an agent defaults on a contract he can be excluded from future contingent claims markets trading and can have his assets seized he cannot be excluded from spot markets trading however and he has some private endowments that cannot be seized all information is publicly held and common knowledge and there is a complete set of contingent claims markets since there is complete information an agent cannot enter into a contract in which he would have an incentive to default in some state in general there is only partial insurance variations in consumption may be imperfectly correlated across agents interest rates may be lower than they would be without constraints and equilibria may be pareto ranked