the effect of uncertainty on the demand for medical care health capital and wealth we analyze the effect of the uncertainty of the incidence of illness on the demand for medical care and on the accumulation of health capital and wealth over the retirement years we use a simplified version of a dynamic grossman household production model to characterize patterns of an individual s precautionary behavior elderly individuals respond to uncertainty by smoothing their expected utility over time by making specific patterns of purchases of medical care and consumption we examine these patterns for individuals with different degrees of risk aversion

competitive equilibrium in the credit market under asymmetric information abstract we study a competitive credit market equilibrium in which all agents are risk neutral and lenders a priori unaware of borrowers default probabilities admissible credit contracts are characterized by the credit granting probability the loan quantity the loan interest rate and the collateral required the principal result is that in equilibrium lower risk borrowers pay higher interest rates than higher risk borrowers moreover the lower risk borrowers get more credit in equilibrium than they would with full information no credit is rationed and collateral requirements are higher for the lower risk borrowers

innovation and growth supply and demand factors in the recent us expansion it is widely held that the social economic context of the us characterised by labour market flexibility and deregulation of product and capital markets lies at the basis of the innovative capacity displayed by the country s productive system in the 1990s thus accounting for the growth differential with europe starting from a different interpre tative model of innovation and growth the paper focuses on both supply institutional and technological and demand factors it is argued that when their interaction is taken into account there is no strong evidence that more deregulated labour and product markets are among the factors allowing for us growth in accordance with the view that there is no single road to innovation and growth this leaves room for the exploration and implementation of policies that might reconcile innovation and growth with safeguards such as those provided by europe s social institutions

correction note on the demand for health with uncertainty and insurance abstract this paper proves the non existence of an optimal solution under the liljas liljas b 1998 the demand for health with uncertainty and insurance j health econ 17 153 170 type of insurance the reason for the non existence is that the insurance induces the individual to increase his time input relative to medical expenditure in the household production of health investment hence it distorts the balance of inputs in the production of health investment moreover it also distorts the household production for consumption goods through time constraints therefore this paper proposes an alternative insurance that covers the time loss due to illness and has an optimal solution

social skills from mass higher education rethinking the company based initial training paradigm ulis is an essay in the literal sense that it is tentative i wantto argue in it that we need to rethink the relationship in the uk between education initial vocational training and the functioning of labour markets this is because the reality of dra matic recent and on going changes in post 16 education towards sharply increasingpost 16 stay ing on and university participation rates and in skills requirements of companies in the uk towards broad social and organizational skills bears little relation to the focus of labour market policy and of much academic debate on initial training particularly for 16and 17 year old school leavers the basic mistake in uk policy development has been a failure to understand that the uk does not have the underlying socio eco n mic institutions which both germany and japan have and which are needed for an effective system of company based initial training nor for that matter does the us and it is suggested here that we should look closely at america as an economy with similar underlying socio economic institu tions to our own if we are to understand recent changes in uk education and labour maiket pat te ns what the uk has to learn from the us is the

uncertainty and health care spending by the poor the health capital model revisited this short theoretical paper examines health care utilization by the poor in the context of grossman s 1972 health capital model earlier work has shown that uncertainty can reduce the attractiveness to the poor of health capital investments this paper demonstrates that uncertainty can also have precisely the opposite effect that is while there may be cases in which it is excessively risky for the poor to invest in their health there may also be cases in which the poor can ill afford the risks that arise from not making timely investments in their health

human development at risk economic growth with pollution induced health shocks risks to human health stemming from polluted air water and soil are substantial especially in the rapidly growing economies the present paper develops a theoretical framework to study an endogenously growing economy which is subject to pollution induced health shocks with the health status being an argument of the welfare function pollution arising as a negative externality from production adversely and randomly affects the regeneration ability of a human body leading to a decline in the overall health status of the population we include two types of uncertainty surrounding the health status continuous small scale fluctuations driven by the wiener process and large scale shocks or epidemics driven by the poisson process we derive closed form analytical solutions for the optimal abatement policy and the growth rate of consumption devoting a constant fraction of output to emissions abatement delivers the first best allocation this fraction is an increasing function of total factor productivity polluting intensity of production and damage intensity of both continuous and jump type shocks a higher frequency of jumps also calls for more vigorous abatement policies by contrast the optimal growth rate of the economy is decreasing in the frequency and intensity of shocks and in the polluting intensity of output the efficiency of abatement technology has in general an ambiguous bearing on both the growth rate and on the abatement share due to the opposing forces of the direct and indirect effects

a theory of health investment under competing mortality risks in this paper we present a theory of health investment when there are multiple causes of death we analyze the optimal investment rules and the comparative statics in particular we examine the conditions under which a cause specific intervention has a spillover effect by spillover effect we mean a price reduction in one cause specific health investment would increase all other investments we also study the strength of the spillover effect which is measured in terms of cross price elasticities we find that while a cause specific intervention might not be wasteful the spillover effect would not be large either

a model of the demand for longevity and the value of life extension we specify a demand function for longevity or quantity of life along with corresponding demand functions for indicators of quality of life and a value of health and life extension function we show that the demand for health must be derived in conjunction with that for longevity and the related consumption plan and that all choices depend on initial individual endowments and terminal conditions our comparative dynamics predictions indicate that optimal health and longevity are increasing functions of endowed wealth rather than necessarily current income that improvements in opportunities to produce health can accentuate the differences between endowed health and attained longevity levels and that the value individuals ascribe to their health may be increasing over a good portion of their life cycle we use this model to analyze observed empirical variations in levels and trends of life expectancy and in exposure to health risks across different population groups

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

synthetic or real the equilibrium effects of credit default swaps on bond markets we provide a model of nonredundant credit default swaps cdss building on the observation that cdss have lower trading costs than bonds cds introduction involves a trade off it crowds out existing demand for the bond but improves the bond allocation by allowing long term investors to become levered basis traders and absorb more of the bond supply we characterize conditions under which cds introduction raises bond prices the model predicts a negative cds bond basis as well as turnover and price impact patterns that are consistent with empirical evidence we also show that a ban on naked cdss can raise borrowing costs

repossession and the democratization of credit we exploit a 2004 credit reform in brazil that simplified the sale of repossessed cars used as collateral for auto loans we show that the reform expanded credit to riskier self employed borrowers who purchased newer more expensive cars the legal change has led to larger loans with lower spreads and longer maturities although the credit reform improved riskier borrowers access to credit it also led to increased incidences of delinquency and default our results shed light on the consequences of a credit reform and highlight the crucial role that collateral and repossession play in the liberalization and democratization of credit

is relationship lending special evidence from credit file data in germany the german financial market is often characterized as a bank based system with strong bank customer relationships the corresponding notion of a housebank is closely related to the theoretical idea of relationship lending it is the objective of this paper to provide a direct comparison between housebanks and normal banks as to their credit policy therefore we analyze a new data set representing a random sample of borrowers drawn from the credit portfolios of five leading german banks over a period of five years we use credit file data rather than industry survey data and thus focus the analysis on information that is directly related to actual credit decisions in particular we use bank internal borrower rating data to evaluate borrower quality and the bank s own assessment of its housebank status to control for information intensive relationships the major results of our study support the view that housebanks are able to establish a distinct behavioral pattern consistent with the idea of long term commitment we find that housebanks do provide liquidity insurance in situations of unexpected deterioration of borrower ratings with respect to loan pricing we find no evidence for intra or intertemporal price differentiation related to housebanking

the failure of training in britain analysis and prescription in the last decade education and training et reform has become a major issue in many of the world s industrial powers one theme which runs throughout these reform initiatives is the need to adapt et systems to the changing economic environment these changes include the increasing integration of world markets the shift in mass manufacturing towards newly developed nations and the rapid development of new technologies most notably information technologies education and training are seen to play a crucial role in restoring or maintaining international competitiveness both on the macro level by easing the transition of the workforce into new industries and at the micro level where firms producing high quality specialized goods and services require a well qualified workforce capable of rapid adjustment in the work process and continual product innovation this paper will highlight the need for policy makers and academics to take account of the two way nature of the relationship between et and the economy

creating self sustaining high skill ecosystems geographic clusters of high technology companies are an increasingly important source of wealth and job creation in the advanced industrial countries this article provides a framework for understanding the conditions that give rise to these self sustaining high skill ecosystems hses that is based on the cases of the highly successful biomedical and computer hardware and software firms clustered in northern and southern california the framework identifies four requirements that hses share in common with natural ecosystems a catalyst to trigger the start of their development ongoing nourishment a supportive host environment and a high degree of interdependence among the actors in the system the framework is then applied to the uk identifying those policy options that are necessary for gaining greater returns from the uk s strong research base

trading in derivatives when the underlying is scarce abstract regulatory restrictions and market frictions can constrain the aggregate quantity of long and short positions in a security when these constraints bind we refer to the security as scarce and its price becomes distorted relative to its value in a frictionless market we show that an otherwise redundant derivative can reduce the price distortion of the underlying security by relaxing its scarcity we also show that it is especially important to analyze the underlying and derivative markets jointly when evaluating the impact of regulation such as short sales bans and position limits in derivatives that restricts trade

economic development strategies and macro and micro level human resource policies the case of india s outsourcing industry this detailed case study of india s outsourcing industry illustrates the challenges in linking macro and micro human resource policies with an economic development strategy based on export oriented services the rapid expansion in the outsourcing of services to india has raised the possibility that this sector will be a key engine of india s economic growth based on extensive field research carried out over a four year period the authors of this study argue that four interrelated human resource policy challenges threaten the outsourcing industry s growth two macro problems current skill shortages and the inability of the country to produce higher levels of skills for the long term growth and sustainability of the industry and two micro problems very high levels of employee turnover and rapidly increasing employee costs the authors evaluate current policy responses and suggest options

asymmetric valuations and the role of collateral in loan agreements loan contracts with provision for collateral are of two general types in one the collateral may be an existing asset of the borrowing firm which is pledged to a lender in the event of default in this case collateral does not increase the assets that the borrower would lose if there is default since all the borrower s assets are attachable therefore the expected marginal cost to the borrower of providing an additional unit of collateral includes principally transactions costs associated with the collateral l this describes the usual type of commercial loan arrangement with the collateral being either equipment real estate accounts receivable or inventories in the other type of loan contract the collateral is an additional asset that is given up by the borrower if there is default that is in addition to the usual assets that are available to its lenders the borrower assigns as collateral to a creditor an asset that would normally not be legally attachable this arrangement is more common in small business loans that are secured by a personal asset e g a house of the entrepreneur likewise debt issued by a legally separate subsidiary may be secured by an asset of the parent firrn in these cases the expected marginal cost to the borrower the owner manager of the small firm or the parent corporation in the latter example of providing an additional unit of collateral

global policy developments towards industrial policy and skills skills for competitiveness and growth there is a rising interest in both skills policy and industrial policy in oecd countries following the economic downturn but how can skills policy best support industrial growth in the uk the coalition government is arguing for an industrial policy which is bottom up supporting networks of employers and helping to build productive local supply chains there is simultaneous investment in a more employer led skills policy in order to better tackle skills shortages and gaps but is an employer led skills policy the best way of boosting industrial growth in all uk regions are there potential market failures in employer led policies of which the public sector should be aware this article warns against taking an overly simplistic approach to skills development arguing that while skills policies should be flexible to the needs of employers there is still justification for investing in a broad educational curriculum at the local level further policy makers may need proactively to help employers to better use skills in some regions in order to boost productivity and growth

collateral and competitive equilibria with moral hazard and private information the authors examine equilibrium credit contracts and allocations under different competitivity specifications and explain the economic roles of collateral under these specifications both moral hazard and adverse selection are considered the principal message is that how a competitive equilibrium is conceptualized significantly affects the characterization of equilibrium credit contracts specifically some well known results in the rationing literature are shown to rest delicately on the adopted equilibrium concept two somewhat surprising results emerge first high quality borrowers with unlimited collateral may be priced out of the market despite the bank having idle deposits second high quality borrowers may put up more collateral this paper explores the allocational consequences of alternative credit market competitivity specifications and explains the different economic roles of collateral under these specifications we model banks that lend to borrowers financing projects with payoffs depending on a priori unknown borrower attributes and ex post unobservable borrower actions borrowers are assumed to have unconstrained access to collateral our analysis is based on two concepts of competitive equilibrium under both banks compete in the sense that they earn zero expected profits however under the first concept of equilibrium ti as in jaffee and russell 11 all rents accrue to borrowers whereas under the second concept t2 all rents accrue to depositors as in stiglitz and weiss 17 our research makes two main points first we demonstrate that the manner in which a competitive equilibrium is conceptualized importantly influences the characterization of equilibrium credit allocations specifically one of the findings is that the rationing equilibria of stiglitz and weiss 17 and others should be viewed as rather delicate things in that they are very sensitive to the competitivity specification used for instance

an assessment of the singapore skills development system does it constitute a viable model for other developing countries abstract in this paper we briefly describe the institutional background of singapore s successful national skills development model we devise a tentative framework to evaluate national level skills development efforts and we use it to assess the singapore model we argue that the model has the potential to move constantly toward higher skills equilibria we question however the long term sustainability of the model and whether it is transferable to other developing countries we conclude with some principles that other countries might use in organizing their own skills development systems

capital structure and debt structure using a novel dataset that records individual debt issues on the balance sheets of public firms we demonstrate that traditional capital structure studies that ignore debt heterogeneity miss substantial capital structure variation relative to high credit quality firms lowcredit quality firms are more likely to have a multi tiered capital structure consisting of both secured bank debt with tight covenants and subordinated non bank debt with loose covenants we discuss the extent to which these findings are consistent with existing theoretical models of debt structure in which firms simultaneously use multiple debt types to reduce incentive conflicts jel g32

credit default swaps in general equilibrium endogenous default and credit spread spillovers this paper shows that credit default swaps cds can affect the type of debt firms issue firms face a trade off between investment scale and the cost of capital measured by the credit spread small scale investment is safe fully collateralized but earns modest profits in all states large scale investment is risky requires a positive credit spread but yields high profits only in good states and default in bad states cds only affect risky credit spreads which in turn affects the opportunity cost of issuing collateralized safe debt covered naked cds lower raise credit spreads and raise lower the likelihood of issuing risky debt finally we show that cds generate credit spread and investment spillovers for non cds referenced firms

continuity and evolution in an old industrial region the labour market dynamics of the rise and fall of northern rock dawley s marshall n pike a pollard j and tomaney j continuity and evolution in an old industrial region the labour market dynamics of the rise and fall of northern rock regional studies the northern rock mortgage bank was a high profile casualty of the credit crunch in 2007 an evolutionary geographical political economy approach demonstrates that northern rock s growth and decline was shaped by its location in an old industrial region and echoes the historical position of the peripheral region in the spatial division of labour a longitudinal investigation focuses on the labour market dynamics of northern rock s rapid growth and decline on the north east of england the northern rock case highlights the enduring occupational structure of the region s labour market and shows how older industrial regions suffer from a process of occupational disadvantage that restricts their ability to adapt to economic change

non monotonic health behaviours implications for individual health related behaviour in a demand for health framework a number of behaviours influence health in a non monotonic way physical activity and alcohol consumption for instance may be beneficial to one s health in moderate but detrimental in large quantities we develop a demand for health framework that incorporates the feature of a physiologically optimal level an individual may still choose a physiologically non optimal level because of the trade off in his or her preferences for health versus other utility affecting commodities however any deviation above or below the physiologically optimal level will be punished with respect to health distinguishing between two individual types we study a the qualitative properties of optimal time paths of health capital and health related behaviour b the perturbations of the optimal time paths that result from changes in exogenous parameters and c steady state properties predictions of the model and the implications for empirical analysis are discussed at length some comments on potential future extensions conclude the paper

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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

consumption and investment demand when health evolves stochastically abstract the health capital model of grossman 1972 is extended to account for uncertainty in the rate at which a stock of health depreciates two general versions of the model are contemplated one with a fully functioning financial market and the other in its absence the comparative dynamics of the feedback form of the consumption and health investment demand functions are studied in these general settings where it is shown that the key to deriving refutable results is to determine how a parameter or state variable affects the expected lifetime marginal utilities of health and wealth to add further reach to the results a simplified stochastic control problem is explicitly solved yielding estimable structural feedback demand functions

leverage and default in binomial economies a complete characterization our paper provides a complete characterization of leverage and default in binomial economies with financial assets serving as collateral our binomial no default theorem states that any equilibrium is equivalent in real allocations and prices to another equilibrium in which there is no default thus actual default is irrelevant though the potential for default drives the equilibrium and limits borrowing this result is valid with arbitrary preferences and endowments contingent or noncontingent promises many assets and consumption goods production and multiple periods we also show that only no default equilibria would be selected if there were the slightest cost of using collateral or handling default our binomial leverage theorem shows that equilibrium loan to value ltv for noncontingent debt contracts is the ratio of the worst case return of the asset to the riskless gross rate of interest in binomial economies leverage is determined by down risk and not by volatility

employer investments in employee health implications for the family as health producer the model presented in this paper further extends the demand for health model in which the family is the producer of health investments to consider the case in which an employer has incentives for investing in the health of a family member the household and the employer are assumed to interact strategically in the production of health the general insight provided is that the conditions which determine the nature of the relationship between the employer and the employee for instance market conditions production technologies taxes and government regulation will also affect the allocation of health investments and health capital within the family

credit default swaps and the empty creditor problem the empty creditor problem arises when a debtholder has obtained insurance against default but otherwise retains control rights in and outside bankruptcy we analyze this problem from an ex ante and ex post perspective in a formal model of debt with limited commitment by comparing contracting outcomes with and without insurance through credit default swaps cds we show that cds and the empty creditors they give rise to have important ex ante commitment benefits by strengthening creditors bargaining power they raise the debtor s pledgeable income and help reduce the incidence of strategic default however we also show that lenders will over insure in equilibrium giving rise to an inefficiently high incidence of costly bankruptcy we discuss a number of remedies that have been proposed to overcome the inefficiency resulting from excess insurance jel g30 g32 g33 one of the most significant changes in the debtor creditor relationship in the

financial innovation and bank behavior evidence from credit markets this paper investigates whether and through which channel the active use of credit derivatives changes bank behavior in the credit market and how this channel was affected by the crisis of 2007 2009 our principal finding is that banks with larger gross positions in credit derivatives charge significantly lower corporate loan spreads while banks net positions are not consistently related to loan pricing we argue that this is consistent with banks passing on risk management benefits to corporate borrowers but not with alternative channels through which credit derivative use may affect loan pricing we also find that the magnitude of the risk management effect remained unchanged during the crisis period of 2007 2009 in addition banks with larger gross positions in credit derivatives cut their lending by less than other banks during the crisis and have consistently lower loan charge offs in sum our study is suggestive of significant risk management benefits from financial innovations that persist under adverse conditions that is when they matter most

the local low skills equilibrium moving from concept to policy utility it is more than three decades since the publication of finegold and soskice s 1988 influential article the failure of training in britain analysis and prescription this widely cited publicati

uncertainty inequalities in health and the demand for health abstract as it has become increasingly recognized that inequalities in health stem more from inequalities in wealth rather than from inequalities in access to medical care economists have begun to suggest that michael grossman s model of the demand for health may be a useful analytical framework for investigating the issue ironically the more popular of grossman s two sub models the pure investment model provides little by way of insights into the relationship between inequalities in wealth and inequalities in health in common with other pure investment models of human capital formation grossman s model predicts that an individual s health investment decisions at each stage in the lifecycle will be independent of his initial wealth this paper shows that if uncertainty is introduced into the model this result no longer holds it also shows that if individuals display decreasing absolute risk aversion wealthier individuals will invest more in health capital than individuals who start life with relatively small stocks of financial capital

a model of declining health and retirement the declining u s average retirement age has been difficult to reconcile with cross section evidence that poor health is a primary cause of early retirement this paper reconciles those observations by building a grossman type model of investment in health distinguished from its predecessor by a more formal treatment of initial conditions a discontinuous mid life increase in health investment retirement is shown in general to be part of the optimal investment strategy time series productivity increases are shown to lower the optimal retirement age while varying health endowments and depreciation rates are shown to be able to account for cross section retirement age variations

the public finance of healthy behavior lifestyle can often affect the likelihood an individual will have a future illness subsidies often mitigate the consequences of poor lifestyle choices in this paper we explore tax subsidy policies that lower the consequences of incurring ill health we find that a funding mechanism consistent with current us policy lowers the investment in healthy lifestyles by both the wealthy who pay taxes and the poor who receive subsidies we also explore alternative policy interventions such as investing in research to lessen the impact or probability of the disease

the family as producer of health an extended grossman model deriving a model where each family member is the producer of his own and other family members health shows that the family will not try to equalise marginal benefits and marginal costs of health capital for each family member they will rather invest in health until the rate of marginal consumption benefits equals the rate of marginal net effective costs of health capital the level of compensation in the social insurance system the effective price of care health related information and transfer payments will all affect the production possibility set and therefore the optimal level and distribution of family health

a factor analytic approach to bank condition abstract this paper explores a new approach to early warning systems for commercial banks factor analysis and logit estimation are used to measure the condition of individual institutions and to assign each of them a probability of being a problem bank the model employs widely used financial ratios and information taken from bank examinations the factors produced by the model for use in the logit estimation are very similar to the camel rating system used by bank examiners empirical results show that the combination of factor analysis and logit estimation is a promising method of evaluating bank condition

monetary policy in a financial crisis what are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis under what conditions will a cut stimulate output and employment and raise welfare under what conditions will a cut have the opposite effects we answer these questions in a general class of open economy models where a financial crisis is modeled as a time when collateral constraints are suddenly binding we find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy then a cut in the interest rate is most likely to result in a welfare reducing fall in output and employment when these frictions are absent a cut in the interest rate improves asset positions and promotes a welfare increasing economic expansion

the price concentration relationship in banking the commonly observed positive correlation between market concentration and profitability may be explained by noncompetitive pricing behavior as argued by the structure performance hypothesis or by the greater efficiency of firms with dominant market shares as argued by the efficient structure hypothesis by examining the price concentration relationship instead of the profit concentration relationship this paper tests the structure performance hypothesis in a manner that excludes the efficient structure hypothesis as an alternative explanation of the results the results strongly support the structure performance hypothesis and are robust with respect to model specification measurement of concentration and econometric technique copyright 1989 by mit press

demand for health a generalised grossman model the demand for health and medical care is analysed within a generalised grossman type health investment model its underlying assumptions are shown to differ from those employed earlier in a manner which avoids some of the criticisms levelled at grossman s model the comparative static predictions of the generalised model are examined and it is demonstrated that most previous health investment models are derivable from it also the present model is applicable to a new wider range of problems thus increasing the scope of economic explanations of health behaviour