longevity risk subjective survival expectations and individual saving behavior abstract we provide evidence of individuals awareness of longevity risk the uncertainty about future survival probabilities based on subjective survival expectations elicited in the survey of health ageing and retirement in europe share and matching data on longevity risk from the human mortality database we find a positive relationship between the forecast dispersion in subjective survival estimates and longevity risk which indicates that individuals are to some extent aware of longevity risk our analysis of savings behavior shows that the dispersion in survival estimates is primarily explained by individuals disagreeing on the survival probability and not by their true awareness of the underlying uncertainty individuals do not save more on average when faced with longevity risk although theory suggests they should

secular and cyclical responses of u s trade to income an evaluation of traditional models in the three decades since guy orcutt s 1950 classic paper evaluating empirical research on international trade flows most trade research has focused on the influence of prices in the decade since the benchmark study by houthakker and magee 1969 examination of the role of prices has accelerated although income is consistently the most significant explanatory variable in these studies it is typically introduced only as a background control variable rather than as a variable of central interest the few explicit studies of the link from income to trade either use proxies such as delivery lags and inventory ratios to investigate the dynamics of the link e g gregory 1971 and artus 1973 or decompose income into trend deviation from trend and in one instance change in deviation from trend in an attempt to separate the secular and business cycle components e g ball eaton and steuer 1966 khan and ross 1975 and dunlevy 1980 stephen magee 1975 pp 188 193 211 214 provides a persuasive rationale for at least the spirit of the second line of research arguing that trade flows respond differently to secular and business cycle income changes and that regression estimates with income in level form mix these effects time domain decomposition is now an established practice with the trend response identified with secular forces like comparative advantage hence could be positive or negative in either demand or supply the deviation from trend response with a business cycle keynesian mechanism hence is likely to be positive in demand and negative in supply and the change in deviation from trend response with a sneed of adjustment constraint hence is likely to be negative the most recent evidence bearing on these issues is provided by dunlevy 1980 who finds that the effect of the business cycle income proxy deviation fromtrend income on the supply of exports for the united states and the united kingdom is positive rather than negative evidence contradicting both theory and evidence in earlier capacity pressure studies in this paper we first evaluate traditional regression estimates of income elasticities of demand and supply for u s imports and exports from 1955 to 1979 then compare these estimates to cross spectral estimates of the secular and business cycle responses of trade to income the spectral technique is used because by definition the approach estimates separately the secular and business cycle links between trade and income if the response of trade to movements in income does differ over cycles regression estimates of income elasticities may reflect bias and instability due to cycle varying parameters regression elasticity estimates with income in trend and deviation from trend forms do provide separate estimates but the decomposition is useful only to the degree that the two variables are accurate proxies for secular and business cycle movements in income it should be emphasized that we are not using spectral analysis to detect lead lag properties since these are more directly obtained in the time domain and are relatively trivial for our sample the unique advantage of spectral analysis is that it isolates secular and business cycle components directly even when the time domain link is only contemporaneous the paper is organized as follows section ii presents and evaluates time domain estimates of standard demand and supply equations for u s imports and exports and presents caveats regarding interpretation of the trend and deviationfrom trend income variables section iii proreceived for publication march 4 1981 revision accepted for publication may 12 1982 university of oregon an earlier draft of this paper was presented at the fall 1980 north american meeting of the econometric society we acknowledge helpful comments from s y kwack john mutti and two anonymous referees we also thank john pippenger for supplying the spectral program specx68 and the university of oregon for a faculty research grant remaining errors are solely ours i application of spectral methods to investigate trade income links was first suggested by ball eaton and steuer 1966 p 503 they were unable to use the technique however because the data series available at that time were too short

marriage divorce and asymmetric information we use data on people s valuations of options outside marriage and beliefs about spouses options the data demonstrate that in some couples one spouse would be happier and the other spouse unhappier outside of some marriages suggesting that bargaining takes place and that spouses have private information we estimate a bargaining model with interdependent utility that quantifies the resulting inefficiencies our results show that people forgo some utility in order to make their spouses better off and in doing so offset much of the inefficiency generated by their imperfect knowledge thus we find evidence of asymmetric information and interdependent utility in marriage

how deep is the annuity market participation puzzle using microeconomic data for the united kingdom we analyze the empirical determinants of voluntary annuity market demand we find that annuity market participation increases with financial wealth life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses we then show that these empirically motivated determinants of annuity market participation have the same quantitatively important effects in a life cycle model of annuity and life insurance demand saving and portfolio choice moreover reasonable preference parameters predict annuity demand levels comparable to the data for stockholders a strong bequest motive can simultaneously generate balanced portfolios and low annuity demand

a further look at household portfolio choice and health status abstract this paper investigates the effect of changes in health status on household financial wealth and financial portfolio choice it is shown that the impact of health events on household financial and non financial wealth is asymmetric a diagnosis of a new disease leads to a larger decrease in financial wealth than in non financial wealth moreover we find that the puzzle pertaining to the relationship between health status and portfolio choice discussed in the extant literature generally disappears after controlling for differences in the amount of financial assets held by healthy and sick people the results suggest that the effect of changes in health status on household financial portfolios is indirect a health shock significantly reduces household total financial wealth in turn leading households to restructure the composition of their financial assets

how reliable are simple single equation specifications of import demand this paper examines nine models of aggregate import demand for each of five countries canada germany japan united kingdom and united states in an attempt to determine which of the frequently used single equation models of import demand are appropriate an appropriate model is defined as one which generates unbiased or at least consistent and efficient elasticity estimates while models without lagged adjustments and almon lag models perform rather poorly according to these criteria models including dynamic behavior through lagged values of the dependent variable are frequently accepted results are reported regarding functional form measures of variables and structural shift economists have devoted considerable attention to the estimation of aggregate import demand elasticities because of their importance in trade theory the simplest procedure for estimating these elasticities which is consistent with economic theory is to assume that the elasticity of supply of imports is infinitely elastic and to estimate

aging and strategic learning the impact of spousal incentives on financial literacy women tend to be less financially literate than men consistent with a division of labor where husbands manage finances however women tend to outlive their husbands i find that older women acquire financial literacy as they approach widowhood 80 percent would catch up with their husbands by the expected onset of widowhood these gains are not attributable to husbands cognitive decline as captured by cognition tests the results are consistent with a model in which the division of labor collapses when a spouse dies women have incentives to delay acquiring financial human capital but also to begin learning before widowhood

real and monetary determinants of real exchange rate behavior theory and evidence from developing countries abstract this paper develops a dynamic model of real exchange rate rer behavior in developing countries a three goods economy exportables importables and non tradables is considered residents of this country hold domestic and foreign assets and there is a dual exchange rate regime there is a government that consumes importables and non tradables a distinction is made between equilibrium and disequilibrium movements of the rer the determinants of real exchange rate misalignment are studied with emphasis placed on the role of devaluations and balance of payments crises the implications of the model are tested using data for 12 developing countries the results obtained are generally favorable for the model the issue of rer stationarity is also analyzed

is the housing market blind to religion a perceived substitutability approach to homophily and social integration housing markets are unlikely to be impervious to the preferences and prejudices associated with urban segregation for example two neighbourhoods with very different religious attributes are unlikely to be perceived as close substitutes by homebuyers that have a strong preference for neighbours of a particular religion this paper offers a new framework for the conception and measurement of social integration defined in terms of perceived homophily homophily is the tendency for links to form between similar nodes in a network and we can think of perceived homophily as the tendency for any pair of neighbourhoods to be considered by the housing market to be close substitutes textbook economic theory suggests that we should expect the degree of perceived substitutability to affect cross price elasticities these can be measured empirically to reveal discontinuities in the network of perceived substitutability of different housing locations applying homophily coefficients to substitutability measures allows us to estimate perceived religious homophily between neighbourhoods the approach can be applied to any city or region that has geocoded house transactions and socio demographic data we illustrate the method using data on glasgow and find strong evidence of religious homophily this suggests an underlying lack of social integration cohesion and implies that the glaswegian housing market is by no means blind to religion

thanatology and economics the behavioral economics of death death is an integral part of life yet the economic modeling of death is perfunctory with most of the controversy focused on whether people s planning horizon ends with their own life or extends beyond that in contrast one might expect that of all aspects of life decisions that require facing up to one s own mortality engender unique fears and psychological reactions 1 that we are forwardlooking and can anticipate death distinguishes human beings from other species sigmund freud s student otto rank 1941 argued that mortality anxiety was the fundamental human fear and he attributed the genesis of man s religious impulses and the source of humanity s construction of meaning and order to the awareness of one s personal finitude rank s ideas were revived and popularized in ernest becker s 1973 book the denial of death the idea that many people live in denial of their own mortality is common in literature and philosophy perhaps best summarized in the words of the 17th century french epigrammist francois la rochefoucauld one cannot look directly at either the sun or death many central issues in economics such as the intertemporal pattern of consumption are at stake if people systematically deviate from the predictions of standard models with regard to decisions concerning their own death assessing whether this is true requires enriching the models of how people behave in the face of death and testing them against observed patterns of behavior

socio economic status health and lifestyle abstract the role of lifestyle in mediating the relationship between socio economic characteristics and health has been discussed extensively in the epidemiological and economic literatures previous analyses have not considered a formal framework incorporating unobservable heterogeneity in this paper we develop a simple economic model in which health is determined partially by lifestyle which depends on preferences budget and time constraints and unobservable characteristics we estimate a recursive empirical specification consisting of a health production function and reduced forms for the lifestyle equations using maximum simulated likelihood msl for a multivariate probit mvp model with discrete indicators of lifestyle choices and self assessed health sah on british panel data from the 1984 and 1991 health and lifestyle survey hals we find that sleeping well exercising and not smoking in 1984 have dramatic positive effects on the probability of reporting excellent or good sah in 1991 and that these effects are much larger having accounted for endogeneity the failure of epidemiological analyses to account for unobserved heterogeneity can explain their low estimates of the relevance of lifestyle in the socio economic status health relationship indicators for prudent alcohol consumption and eating breakfast in 1984 are not found to be statistically significant determinants of sah in 1991

evaluation of the subjective probabilities of survival in the health and retirement study in the health and retirement study respondents were asked about the chances they would live to 75 or to 85 we analyze these responses to determine if they behave like probabilities of survival if their averages are close to average probabilities in the population and if they have correlations with other variables that are similar to correlations with actual mortality outcomes we find that generally they do behave like probabilities and that they do aggregate to population probabilities most remarkable however is that they covary with other variables in the same way actual outcomes vary with the variables for example respondents with higher socioeconomic status give higher probabilities of survival whereas respondents who smoke give lower probabilities we conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty

survival ambiguity and welfare abstract nearly all life cycle models adopt yaari s 1965 assumption that individuals know the survival probabilities that they face given that an individual s exact survival probabilities are likely unknown we explore the implications of relaxing this assumption if there is no annuity market then the welfare cost of survival ambiguity is large and regressive ambiguity neutral individuals would pay as much as 1 of total lifetime consumption for immediate resolution of ambiguity and the bottom income quintile is 4 times worse off than the top quintile alternatively with the availability of competitive annuity contracts survival ambiguity is welfare improving because it allows competitive insurance companies to pool risk across survival types even though social security and annuities share some properties social security does not help to hedge survival ambiguity

measuring subjective expectations in developing countries a critical review and new evidence the majority of economic decisions taken by individuals are forward looking and thus involve their expectations of future outcomes understanding the expectations that individuals have is thus of crucial importance to designing and evaluating policies in health education finance migration social protection and many other areas however the majority of developing country surveys are static in nature and do not contain information on the subjective expectations of individuals possible reasons given for not collecting this information include fears that poor illiterate individuals do not understand probability concepts that it takes far too much time to ask such questions or that the answers add little value this paper provides a critical review and new analysis of subjective expectations data from developing countries and refutes each of these concerns the authors find that people in developing countries can generally understand and answer probabilistic questions such questions are not prohibitive in time to ask and the expectations are useful predictors of future behavior and economic decisions the paper discusses the different methods being tried for eliciting such information the key methodological issues involved and the open research questions the available evidence suggests that collecting expectations data is both feasible and valuable suggesting that it should be incorporated into more developing country surveys

housing submarkets and the lattice of substitution this paper aims to stimulate interest in the early micro economic conceptualisation of housing submarkets proposed by rapkin and grigsby which defined market areas in terms of dwelling substitutability three key questions need to be addressed if a return to the rapkin grigsby approach is to be achievable and worthwhile first what are the practical benefits the paper highlights a range of potential research applications that would benefit from the substitutability approach secondly in what way are existing approaches likely to be inadequate for demarcating substitutability based submarkets four criteria are proposed for assessing submarket estimation methods which existing approaches fail to satisfy thirdly what are the prospects for developing a substitutability metric that will make the rapkin grigsby definition empirically feasible a new measure is proposed based on the cross price elasticity of price cpep which is illustrated using data for glasgow scotland

optimal portfolio choice for long horizon investors with nontradable labor income this paper examines how risky labor income and retirement affect optimal portfolio choice with idiosyncratic labor income risk the optimal allocation to stocks is unambiguously larger for employed investors than for retired investors consistent with the typical recommendations of investment advisors increasing idiosyncratic labor income risk raises investors willingness to save and reduces their stock portfolio allocation towards the level of retired investors positive correlation between labor income and stock returns has a further negative effect and can actually reduce stockholdings below the level of retired investors financial advisors typically recommend that their customers invest more in stocks than in safe assets when they are working and to shift their investments towards safe assets when they retire jagannathan and kocherlakota 1996 malkiel 1996 by contrast the standard academic models of portfolio choice merton 1969 1971 samuelson 1969 show that retirement is irrelevant for portfolio decisions if investment opportunities are constant and human capital is tradable in this case the fraction of wealth optimally invested in risky assets should be constant over the lifetime of an individual recent research building on the pioneering work by merton 1971 shows that time varying investment opportunities result in portfolio rules with an intertemporal hedging component whose magnitude depends on the investment horizon of the investor kim and omberg 1996 balduzzi and lynch 1997 brennan schwartz and lagnado 1997 brandt 1999 campbell and viceira 1999 2001 barberis 2000 with time variation in investment opportunities retirement and death play an instrumental role as events that exogenously fix the individual s investment horizon more importantly retirement also marks the time at which individuals stop working and thereafter must live off their lifetime savings and possibly transfers from this perspective retirement matters for portfolio choice

inter vivos transfers and bequests in three oecd countries reforms reducing the generosity of pensions have distributional effects on future generations if individuals care about their descendants welfare but only affect elderly individuals if bequests are the unintentional result of precautionary savings and safety net programmes such as unemployment insurance may displace sources of private help such as that provided by living parents to their children in need this paper provides comparable measures of how expected bequests and transfers vary with cumulated parental earnings in the united states west germany and the united kingdom the strength of bequest motives is empirically very weak in the available data private inter vivos transfers which appear to depend on the recipients economic situation are partly crowded out by public unemployment insurance programmes together involuntary bequests and intentional inter vivos transfers appear to be an important channel of intergenerational inequality transmission and strengthen substantially the relationship between an individual s and his parents economic status ernesto villanueva

quantitative restrictions and indian imports abstract many governments in ldcs tend 3o rely heavily on import control for achieving adjustments in the balance of payments the empirical analysis of imports of these countries has failed to address the issue of quantitative restrictions satisfactorily in this paper a set of disaggregated import demand equations are specified which attempt to capture the government s decision regarding quota restrictions the model postulates that the overall level of imports is determined by expected foreign exchange availability while the composition of imports once the level has been decided is based on political and economic priorities and on relative prices

expectations life expectancy and economic behavior this study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival people do extrapolate past improvements in longevity when they determine their subjective horizons and they are fully aware of levels of and movements within todays life tables the subjective distribution has greater variance than its actuarial counterpart and the subjective variance decreases with age the implications of these findings for optimal social security for the construction of annuities for the analysis of savings behavior and for evaluating lifetime earnings are discussed the data were collected in the united states from a sample of 411 white male economists and a sample of 363 white males in a midwestern smsa excerpt

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

dutch disease government policy and import demand in nigeria the effects of sectoral changes and government policies on import demand in nigeria are examined in the context of the oil shocks of the 1970s and 1980s a two equation model is estimated to determine real import demand and the real exchange rate the results show that import demand increased significantly in response to the boom induced squeeze on the agricultural sector furthermore by inducing and sustaining real exchange rate overvaluation expansionary government policies contributed to higher import demand even after the collapse in oil prices

optimal portfolio choice under loss aversion this paper analyzes the optimal investment strategy for loss averse investors assuming a complete market and general ito processes for the asset prices the loss averse investor follows a partial portfolio insurance strategy when the investor s planning horizon is short less than 5 years he or she considerably reduces the initial portfolio weight of stocks compared to an investor with smooth power utility the empirical section of the paper estimates the level of loss aversion implied by historical u s stock market data using a representative agent model we find that loss aversion and risk aversion cannot be disentangled empirically

the effect of inheritance receipt on retirement abstract this paper provides new evidence on how wealth shocks influence retirement behavior economic theory generally posits that leisure is a normal good yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply we use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement especially when the inheritance is unexpected this evidence has important implications for how public policies such as pension or tax reform may influence retirement behavior through the wealth effect

what is the price of prevention new evidence from a field experiment how does increasing access to treatment affect the demand for preventive testing in this paper we present results from a field experiment in nigeria in which we offered cervical cancer screening to women at randomly chosen prices to test our hypothesis we also offered women a lottery where the payoff was a subsidy towards the cost of cervical cancer treatment conditional upon a diagnosis of cervical cancer we find that women randomly selected to receive the conditional cancer treatment subsidy were about 4 percentage points more likely to take up screening than those in the control group we also show that reducing the price of screening by 10 cents increased take up by about 1 percentage point these results offer compelling evidence that the optimal set of subsidies to increase take up of preventive testing in developing countries must include subsidies towards treatment costs in addition to price subsidies

the role of intergenerational transfers and life cycle saving in the accumulation of wealth he purpose of this paper is to review what economists know at present about the following question how large a portion of the existing wealth is the result of a bequest motive that is of accumulation for the specific purpose of leaving bequests i will also endeavor to clarify why an answer to this question is of interest in the early keynesian period when the study of national saving first attracted wide interest relatively little attention was paid to what led people to save though it was generally understood that the main systematic reason was to leave bequests j m keynes in the famous chapter 9 of the general theory of employment interest and money 1936 had listed seven distinct motives for saving besides the leaving of bequests but five of these which include to increase one s future income or to insure one s independence and power implied that all or nearly all the accumulation would finally wind up as bequeathed wealth this in turn meant that most private wealth originated through bequests that is it either had been received through bequests or was destined to be bequeathed and indeed how else could society accumulate wealth however keynes 1936 p 107 also mentioned two further motives precaution that is to build up a reserve against unforeseen contingencies and foresight that is to provide for an anticipated future relation between the income and the needs of the individual or his family different from that which exists in the present as for example in relation to old age family education or the maintenance of dependents these motives in contrast to most of the previous ones have the

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

the dutch disease in a developing country oil reserves in cameroon abstract noting that most of the literature on the dutch disease refers to developed countries this paper looks at the impact of an oil boom on a developing country when certain features of developing countries particularly the imperfect substitutability between domestic and imported goods are incorporated one of the standard dutch disease results can be reversed not all the traded goods sectors will contract a simulation with a computable general equilibrium model of cameroon reveals that the agricultural sector is most likely to be hurt whereas some of the manufacturing sectors will benefit this suggests possible areas for government intervention should it be warranted and may explain the differential performance between the agricultural and industrial sectors of oil exporting countries in the post 1973 period

cohort and target age effects on subjective survival probabilities implications for models of the retirement phase abstract subjective survival scaling factors are often estimated from one observation of life expectancy and treated as constant to any target age using new survey data on subjective survival probabilities we estimate a model incorporating cohort and target age varying beliefs in scaling factors both cohort age and target age matter respondents are pessimistic about overall life expectancy but optimistic about survival at advanced ages and older respondents are more optimistic than younger we propose a new theoretical model incorporating cohort and target age varying beliefs and illustrate their effects on the perceived value of annuities and on retirement phase consumption plans

shifting fortunes the political economy of financial liberalization in nigeria abstract on the recommendation of the world bank nigeria began to liberalize its financial sector in 1986 contrary to the prediction of financial repression theory savings and investment decline in the wake of banking deregulation by 1995 the nigerian financial system was in a state of collapse the paper locates the main failure of nigeria s financial deregulation in the political and institutional setting of reform the institutional mechanisms needed to supervise and regulate banking under the new system were absent while private sector banking capacities were weak moreover financial liberalization was quickly captured by a clientalist state as a means of reallocating rents to strategic constituents an additional precipitating factor was macroeconomic instability the paper points to the importance of incorporating political and institutional variables into any model of financial reform or transformation

adverse selection in the annuity market and the role for social security i study the role of social security in providing insurance when there is adverse selection in the annuity market i calculate welfare gain from mandatory annuitization in the social security system relative to a laissez faire benchmark using a model in which individuals have private information about their mortality i estimate large heterogeneity in mortality using the health and retirement study despite that i find small welfare gain from mandatory annuitization social security has a large effect on annuity prices because it crowds out demand by high mortality individuals welfare gain would have been significantly larger in the absence of this effect

subjective life horizon and portfolio choice abstract using data from a u s household survey we examine the empirical relation between subjective life horizon i e the self reported expectation of remaining life span and portfolio choice we find that equity portfolio shares are higher for investors with longer horizons controlling for gender specific age effects socio economic characteristics health and optimism our result is robust to accounting for the endogeneity of equity market participation or instrumenting subjective life horizon with parental survival finally we show that the effect of a shortening horizon on portfolio allocation is stronger for households without bequest motives

retirement spending and biological age abstract we solve a lifecycle model in which the consumer s chronological age does not move in lockstep with calendar time instead biological age increases at a stochastic non linear rate in time like a broken clock that might occasionally move backwards in other words biological age could actually decline our paper is inspired by the growing body of medical literature that has identified biomarkers which indicate how people age at different rates this offers better estimates of expected remaining lifetime and future mortality rates it isn t farfetched to argue that in the not too distant future personal age will be more closely associated with biological vs calendar age thus after introducing our stochastic mortality model we derive optimal consumption rates in a classic yaari 1965 framework adjusted to our proper clock time in addition to the normative implications of having access to biological age our positive objective is to partially explain the cross sectional heterogeneity in retirement spending rates at any given chronological age in sum we argue that neither biological nor chronological age alone is a sufficient statistic for making economic decisions rather both ages are required to behave rationally

a measure of segregation based on social interactions we develop an index of segregation based on two premises 1 a measure of segregation should disaggregate to the level of individuals and 2 an individual is more segregated the more segregated are the agents with whom she interacts we present an index that satisfies 1 and 2 and that is based on agents social interactions the extent to which blacks interact with blacks whites with whites etc we use the index to measure school and residential segregation using detailed data on friendship networks we calculate levels of within school racial segregation in a sample of u s schools we also calculate residential segregation across major u s cities using block level data from the 2000 u s census

measuring consumer uncertainty about future inflation we introduce a survey based measure of uncertainty about future inflation asking consumers for density forecasts across inflation outcomes consumers are willing and able to express uncertainty showing high response rates and response patterns that are reliably related to qualitative measures of uncertainty heterogeneity in expressed uncertainty is associated with demographic characteristics and financial literacy and measures of central tendency derived from density forecasts are strongly correlated with point forecasts furthermore expressed uncertainty is positively related to point forecast levels and to larger revisions in point forecasts over time copyright 2011 john wiley sons ltd

do retirement dreams come true the effect of unanticipated events on retirement plans analyzing data from the retirement history study the authors find that the retirement plans of male workers aged 58 63 in 1969 were significantly affected by unanticipated events over the next decade specifically unanticipated increases in social security wealth induced retirement earlier than originally planned as did deterioration in personal health whereas the recession of the 1970s tended to delay retirement this evidence that policy changes do affect retirement behavior in systematic ways provides support for the decision by congress to defer until the turn of the century the application of several important provisions of the 1983 amendments to the social security act

corruption perceptions vs corruption reality abstract this paper examines the accuracy of corruption perceptions by comparing indonesian villagers reported perceptions about corruption in a road building project in their village with a more objective measure of missing expenditures in the project i find that villagers reported perceptions do contain real information and that villagers are sophisticated enough to distinguish between corruption in a particular road project and general corruption in the village the magnitude of the reported information however is small in part because officials hide corruption where it is hardest for villagers to detect i also find that there are biases in reported perceptions the findings illustrate the limitations of relying solely on corruption perceptions whether in designing anti corruption policies or in conducting empirical research on corruption

dutch disease economics and oil syndrome an empirical study abstract this paper integrates the existing dutch disease models of an oil boom into a reduced form three sector model and estimates it for five developing oil exporting countries having significant agricultural and manufacturing sectors time series annual data for the period 1966 1986 are used for algeria ecuador indonesia nigeria and venezuela their output composition is altered by an increase in their oil revenues the spending effect and in the world price of manufactured goods relative to agricultural products the world price effect both effects expand the manufacturing sectors of these countries and contract their agricultural sectors the spending effect expands their nontraded sectors whereas the world price effect may expand or contract them the opposite results are implied for the oil collapse of the 1980s

real exchange rate behavior and economic performance in ldcs in recent years policy discussions have included increasing references to real exchange rate rer stability and correct exchange rate alignment as crucial conditions to improve economic performance in less developed countries ldcs 1 evidence from latin american asian and african countries is often quoted to support the view that the link between rer behavior and economic performance is strong it is argued that while unstable rers inhibited export growth in some of latin america their stability was fundamental in promoting east asian expansion in many african countries on the other hand persistently misaligned local currencies harmed the development of agriculture reducing domestic food supply 2 but in spite of its importance no empirical work has been attempted either to test the relationship between rer behavior and performance indicators at a broad multicountry level or to investigate the sources of rer variability and misalignment in ldcs the theoretical literature on rer determinants has been recently surveyed by sebastian edwards 3 he distinguishes between equilibrium and disequilibrium rers and between external and domestic rer determinants although domestic policies are often said to account for significant rer variations empirical work has only concentrated on the effect of nominal devaluations4 or speculative crises arising from expansionary monetary policies in a system of fixed ex

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

savings of the elderly and desired bequests cross section data often show that the wealth of the elderly increases with age even at advanced ages these and other results suggest that the life cycle hypothesis of consumption should be augmented to include a bequest motive for saving in this paper the author proposes a model of bequests and a test for a bequ est motive using panel data he finds that over a ten year period the elderly in the data set dissaved in contradiction to most cross section results the test offers no support for a bequest motive copyright 1987 by american economic 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

does price affect the demand for information about new health technologies evidence from a field experiment in nigeria we study how prices influence the demand for information about a new preventative health technology we conducted a field experiment in nigeria where women were offered the opportunity to get screened for cervical cancer at baseline 2 3 of women had no knowledge of cervical cancer screening field staff made house calls to give women information about the test and also distributed vouchers that randomly varied the price of screening at the point of service we find an inverse u shaped relationship between prices and the demand for information going from zero to a small positive price increased the demand for information about the test but increasing the price further by 100 resulted in a net decrease in the demand for information we argue that these results have interesting implications for the debate about the pricing of new health technologies in developing countries

health status and health dynamics in an empirical model of expected longevity expected longevity is an important factor influencing older individuals decisions such as consumption savings purchase of life insurance and annuities claiming of social security benefits and labor supply it has also been shown to be a good predictor of actual longevity which in turn is highly correlated with health status a relatively new literature on health investments under uncertainty which builds upon the seminal work by grossman grossman m 1972 on the concept of health capital and demand for health journal of political economy 80 223 255 has directly linked longevity with characteristics behaviors and decisions by utility maximizing agents our empirical model can be understood within that theoretical framework as estimating a production function of longevity using longitudinal data from the health and retirement study we directly incorporate health dynamics in explaining the variation in expected longevities and compare two alternative measures of health dynamics the self reported health change and the computed health change based on self reports of health status in 38 of the reports in our sample computed health changes are inconsistent with the direct report on health changes over time and another 15 of the sample can suffer from information losses if computed changes are used to assess changes in actual health these potentially serious problems raise doubts regarding the use and interpretation of the computed health changes and even the lagged measures of self reported health as controls for health dynamics in a variety of empirical settings our empirical results controlling for both subjective and objective measures of health status and unobserved heterogeneity in reporting suggest that self reported health changes are a preferred measure of health dynamics

the importance of bequests and life cycle saving in capital accumulation a new answer as the workhorse of consumption and saving research for the past four decades the life cycle model has proved flexible and useful for examining a variety of questions in a classic paper albert ando and franco modigliani 1963 p 56 stated a key assumption of the basic model t he individual neither expects to receive nor desires to leave any inheritance although the authors contended that the absence of a bequest motive was not critical to the heart of their results the assumption set off a long standing battle over the relative importance of different motives for saving in an influential study laurence kotlikoff and laurence summers 1981 estimated that a large fraction of the u s capital stock was attributable to intergenerational transfers modigliani and his collaborators vigorously disagreed and based on their own empirical work claimed that life cycle saving was the primary source of capital accumulation modigliani 1988 subsequent work has failed to reach a consensus since this debate began an important advance in the consumption literature has been the incorporation of uncertainty in life cycle models see e g r glenn hubbard et al 1995 we argue that allowing for uncertainty resolves the controversy over the importance of life cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished a dollar saved today simultaneously serves both a precautionary life cycle function guarding against future contingencies such as health shocks or other emergencies and a bequest function because in the likely event that the dollar is not absorbed by these contingencies it will be available to bequeath to children or other worthy causes under this view households have a bequest motive but bequests are given i e the motive is operative in only some states of the world wealth is something like traveler s checks you take them along on vacation just in case but odds are they will remain uncashed and available for sundry goods after the journey is complete we first demonstrate the result using a simple model and then argue that this approach reconciles the apparent importance of bequests with households declared focus on life cycle saving finally we consider implications of our analysis

subjective mortality expectations and consumption and saving behaviours among the elderly life expectancy is an important factor that individuals have to take into account for saving and consumption choices the life cycle model of consumption and saving behaviour predicts that consumption growth should decrease with higher mortality rates the aim of this study is to test this hypothesis based on data about subjective longevity expectations from the health and retirement study merged with detailed consumption data from two waves of the consumption and activities mail survey this study finds that an increase in subjective mortality by 1 corresponds to an annual decrease in consumption of non durable goods of around 1 8 l esperance de vie est un facteur important dont les personnes doivent tenir compte dans leurs choix de consommation et d epargne le modele de comportement de consommation et d epargne au cours du cycle de vie predit que la croissance de la consommation devrait decroitre a mesure que le taux de mortalite augmente cette etude met au test cette hypothese a l aide de donnees sur l esperance de vie subjective tirees des resultats d une etude sur la sante et la retraite arrimes aux resultats de deux vagues d enquetes postales sur la consommation et les activites qui ont produit des donnees detaillees sur la consommation cette etude montre qu un accroissement de un pour cent dans l anticipation subjective de mortalite correspond a un declin d a peu pres 1 8 dans la consommation annuelle de biens non durables

oil exports real exchange rate appreciation and demand for imports in nigeria the recession in the oil market since 1981 has drastically reduced the foreign exchange earnings of nigeria as a result the country has faced a severe problem of adjustment to reduced export earnings at a time when payments on its 20 billion external debt have increased in designing a policy to restore balance of payments equilibrium nigeria like many other less developed countries in its position faces two important questions first to what extent the rate of growth of the economy would have to be lowered in order to bring equilibrium to the balance of payments and second to what extent real devaluation is likely to help in the process since nigeria faces a given price for its exports 95 of which is oil and production of oil does not use many domestic resources export revenues in terms of foreign currency are in effect exogenous and therefore the weight of adjustment must fall on imports the search for answers to the above questions thus leads directly to the investigation of the size of income and price elasticities of demand for imports this article presents estimates of an import demand function for nigeria based on annual data for 1963 82 the main finding of the article is that demand for imports is elastic with respect to price but inelastic with respect to income this implies that contrary to expectations the phenomenal rise in nigerian imports in the 1970s may have been a result of real appreciation rather than increase in oil revenues between 1972 and 1981 nigerian imports in constant dollars increased by a factor of five an average annual increase of 33 but during the same period non oil gdp in constant prices increased by only 5 7 per year and gross domestic income gdy total gdp adjusted for improvements in the terms of trade increased by 8 7 per year as a result the ratio of imports to gdy increased from 6 in 1972 to 18 in 1981 in contrast the decline in

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

life expectancy and claiming behavior in a flexible pension system we study the relationship between early claiming of pensions and incentives in the highly flexible norwegian public pension system measuring incentives to claim based on an estimated model for expected longevity despite a strong correlation between incentives and claiming decisions the additional costs to public budgets arising from this selection turn out to be modest based on analyses exploiting only variation in expected pensions generated by variation in parental longevities and only claiming of pensions not in conjunction with retirement we conclude that part of the selection is active some individuals claim pensions early because they gain from doing so this article is protected by copyright all rights reserved

nigeria during and after the oil boom a policy comparison with indonesia nigeria and indonesia provide an interesting contrast with regard to performance and policy during and after the oil boom roughly a decade after the first oil shock nigeria is faced with several economic problems including a serious decline in its agricultural sector and a deteriorating external debt situation while some decline in the nonoil traded goods sector reflects efficient adjustment to the oil boom policy with regard to public expenditure exchange rates pricing and the trade regime could exacerbate such decline and impede readjustment as the boom subsides the links between oil prices deficits inflation and real exchange rate appreciation are analyzed and nigerian and indonesian fiscal and exchange rate and agricultural and foreign borrowing strategies are compared it is concluded that with the exception of cuts in the deficit since 1984 nigerian policy following the boom has not been conducive to adjustment to the current period of low oil prices and high real interest rates corrective measures and policy options are discussed

terms of trade shocks and structural adjustment in a small open economy abstract a three sector three factor general equilibrium model of dutch disease is developed providing yet another explanation for the expansion of the manufacturing sector in most of the oil exporting countries and the concurrent decline in their agricultural sectors in the 1970s the sectoral structure of the oil exporting small open economy is altered by an increase in its national income the spending effect and in the world price of manufactured goods relative to agricultural products the world price effect while both effects undermine the agricultural sector the world price effect may offset the negative impact of the spending effect on the manufacturing sector resulting in its expansion the short run analysis is of the standard jones specific factors model in the long run the capital rental and the price of the non traded good are determined by world prices and the transfer argument for the dutch disease real appreciation the rise in the relative price of the non traded good due to higher income completely disappears also demand effects alter non traded and manufacturing output but have no impact on the agricultural sector the world price effect is the sole cause of the decline in the agricultural sector in the long run

the life insurance market asymmetric information revisited abstract this paper finds evidence for the presence of asymmetric information in the life insurance market a conclusion contrasting with the existing literature in particular we find a significant and positive correlation between the decision to purchase life insurance and subsequent mortality conditional on risk classification individuals who died within a 12 year time window after a base year were 19 more likely to have taken up life insurance in that base year than were those who survived the time window moreover as might be expected when individuals have residual private information we find that the earlier an individual died the more likely she was to have initially bought insurance the primary factor driving the difference between our and the prior literature s findings is that we focus on a sample of potential new buyers rather than on the entire cross section to address the sample selection problem induced by potential mortality differences between those with and those without coverage

why do retired workers claim their social security benefits so early a potential explanation based on the cumulative prospect theory abstractsocial security provides longevity insurance for older americans according to expected utility theory models rational households who are not liquidity constrained should delay claiming th

retirement expectations pension reforms and their impact on private wealth accumulation abstract we estimate the effect of pension reforms on households expectations of retirement outcomes and private wealth accumulation decisions exploiting a decade of intense italian pension reforms as a source of exogenous variation in expected pension wealth the survey of household income and wealth a large random sample of the italian population elicits expectations of the age at which workers expect to retire and of the ratio of pension benefits to pre retirement income between 1989 and 2002 we find that workers have revised expectations in the direction suggested by the reform and that there is substantial offset between private wealth and perceived pension wealth particularly by workers that are better informed about their pension wealth

annuitization and asset allocation this paper examines the optimal annuitization investment and consumption strategies of a utility maximizing retiree facing a stochastic time of death under a variety of institutional restrictions we focus on the impact of aging on the optimal purchase of life annuities which form the basis of most defined benefit pension plans due to adverse selection acquiring a lifetime payout annuity is an irreversible transaction that creates an incentive to delay under the institutional all or nothing arrangement where annuitization must take place at one distinct point in time i e retirement we derive the optimal age at which to annuitize and develop a metric to capture the loss from annuitizing prematurely in contrast under an open market structure where individuals can annuitize any fraction of their wealth at anytime we locate a general optimal annuity purchasing policy in this case we find that an individual will initially annuitize a lump sum and then buy annuities to keep wealth to one side of a separating ray in wealth annuity space we believe our paper is the first to integrate life annuity products into the portfolio choice literature while taking into account realistic institutional restrictions which are unique to the market for mortality contingent claims

on the use of expectations data in estimating structural dynamic choice models despite the importance of expectations in models of decision behavior under uncertainty few empirical economists have made use of subjective expectations data in estimating such models assuming that expectations about future behavior accurately portray optimal future behavior conditional on current information it is shown that such data can provide similar information about the decision process as can data on current or retrospective behavior the value of self reported choice expectations is illustrated by using information on respondents expected future occupation in the estimation of a structural dynamic model of teacher career decisions under uncertainty

longevity risk retirement savings and financial innovation abstract over the last couple of decades unprecedented increases in life expectancy have raised important concerns for retirement savings we solve a life cycle model with longevity risk which can be hedged through endogenous saving and retirement decisions we investigate the benefits of financial assets designed to hedge the shocks to survival probabilities when longevity risk is calibrated to match forward looking projections those benefits are substantial this lends support to the idea that such hedging should be pursued by defined benefit pension plans on behalf of their beneficiaries finally we draw implications for optimal security design

the effects of subjective survival on retirement and social security claiming according to the life cycle model mortality risk will influence both retirement and the desire to annuitize wealth we estimate the effect of subjective survival probabilities on retirement and on the claiming of social security benefits because delayed claiming is equivalent to the purchase of additional social security annuities we find that those with very low subjective probabilities of survival retire earlier and claim earlier than those with higher subjective probabilities but the effects are not large the great majority of workers claim as soon as they are eligible copyright 2004 john wiley sons ltd

stock market crash and expectations of american households this paper utilizes data on subjective probabilities to study the impact of the stock market crash of 2008 on households expectations about the returns on the stock market index we use data from the health and retirement study that was fielded in february 2008 through february 2009 the effect of the crash is identified from the date of the interview which is shown to be exogenous to previous stock market expectations we estimate the effect of the crash on the population average of expected returns the population average of the uncertainty about returns subjective standard deviation and the cross sectional heterogeneity in expected returns disagreement we show estimates from simple reduced form regressions on probability answers as well as from a more structural model that focuses on the parameters of interest and separates survey noise from relevant heterogeneity we find a temporary increase in the population average of expectations and uncertainty right after the crash the effect on cross sectional heterogeneity is more significant and longer lasting which implies substantial long term increase in disagreement the increase in disagreement is larger among the stockholders the more informed and those with higher cognitive capacity and disagreement co moves with trading volume and volatility in the market

crash and wait the impact of the great recession on the retirement plans of older americans this study uses data from pre and post crash surveys from the cognitive economics study to examine the impact of recent stock and labor market wealth losses on the planned retirement ages of older americans regression estimates imply that the average wealth loss between july 2008 and may june 2009 is associated with an increase in planned retirement age of approximately 2 5 months furthermore pessimism about future stock market returns is found to amplify the impact of wealth losses on retirement timing