the trick is to live is the estate tax social security for the rich because estate tax liability usually depends on how long one lives it implicitly provides annuity income in the absence of annuity markets lump sum estate taxation may be used to achieve the first best solution for individuals with a sufficiently strong bequest motive calculations of the annuity embedded in the u s estate tax show that people with 10 million of assets may be effectively receiving more than 100 000 a year financed at actuarially fair rates by their tax payments according to my calibrations the insurance effect reduces the marginal cost of funds mcf for the estate tax by as much as 30 percent and the resulting mcf is within the range of estimates for the mcf for the income tax

the economics of export performance requirements this paper analyzes the resource allocation and welfare effects of export performance requirements imposed on foreign investors it argues that a satisfactory analysis must consider the presence of tariff distortions and oligopolistic behavior in host country markets these create a second best environment in which an evaluation of the welfare effects of such requirements is no longer straightforward it is concluded that export requirements can improve home welfare by reducing payments to foreign capital reducing the output of commodities which are being overproduced and shifting profits toward domestically owned firms

why voluntary export restraints are voluntary the paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint ver upon an importing firm a ver set at the free trade level of imports is shown to raise the profits of all firms within the industry the result follows as the imposition of a ver upon a free trade nash price competition forces the domestic firm to become an industry price leader the ver raises industry prices by facilitating collusion and lowers consumer welfare pourquoi les restrictions volontaires d 1 exportation sont volontaires ce memoire presente une analyse des effets de l introduction de restrictions volontaires a l exportation rve sur une entreprise qui importe dans un monde en equilibre oligopolistique on montre que l introduction de rve approximant le niveau des importations en regime de libre echange devrait augmenter les profits de toutes les entreprises dans l industrie cela decoule du fait que l imposition de rve sur un univers de concurrence par les prix a la nash en regime de libre echange force l entreprise domestique a devenir le leader en prix l introduction de rve augmente le niveau des prix de l industrie en facilitant la collusion et de ce fait reduit le niveau de bien etre des consomrnateurs

quantitative restrictions and the welfare effects of capital inflows abstract this paper explores the welfare effects of capital inflows when some imports are subject to quantitative restrictions it is shown that in a heckscher ohlin model where all imports are restricted by quotas and some fraction of the initial domestic capital stock is foreign owned a capital inflow is welfare improving regardless of the ranking of sectoral factor intensities with sector specific capital stocks and both tariff ridden and quota restricted imports the consequences of direct foreign investment in any sector are uncertain and depend upon whether the two imports are compensated substitutes or complements as well as the characteristics of production

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

time inconsistent preferences and social security in this paper we examine the role of social security in an economy populated by overlapping generations of individuals with time inconsistent preferences who face mortality risk individual income risk and borrowing constraints we find that unfunded social security lowers the capital stock output and consumption for consumers with time consistent or time inconsistent preferences however it may raise or lower welfare depending on the strength of time inconsistency

voluntary export restraints and foreign investment abstract this paper develops a model in which both voluntary export restraints vers and foreign investment can be considered we investigate the welfare effect of additional foreign investment under vers it is demonstrated that if the commodity subject to vers is more intensive in capital in the importing country which is assumed to be a debtor country additional foreign investment into that country raises its welfare

the theory of domestic content protection and content preference this paper investigates the resource reallocation effected by content protection and content preference schemes under alternative assumptions regarding the definition of domestic content the number of intermediate goods and the market structure of the domestic intermediate good industry content protection is shown to be equivalent to a combination of more familiar commercial policies however the extent of application of these policies is determined endogenously by parameters of the production functions for intermediate and final goods a number of anomalous and undesirable outcomes that may result from content protection and content preference are discussed

liberalization quality and welfare removing the italian ver on japanese car exports the empirical evidence that evaluates ex post the effects of trade policy confirms the presumption well known in theory that quantitative barriers to trade have an impact on the average quality of exports yet in evaluating ex ante the effects of trade policy reform very few studies take into account the role of the induced change in quality the paper evaluates the effects of liberalization in the italian car market through a calibrated model where the choice of the quality of exports is made endogenous simulating the removal of the ver on japanese exports there are substantial gains from liberalization when only quantity effects are considered results change dramatically if quality effects are taken into account the downgrading in japanese exports entails a strong reduction in consumers gains

tariff jumping antidumping duties abstract this paper examines the tariff jumping response of all firm and product combinations subject to us antidumping investigations from 1980 to 1990 using a newly constructed database previous studies have focused only on japanese fdi responses to antidumping protection and found large tariff jumping responses in contrast this paper finds quite modest tariff jumping responses and the evidence suggests that tariff jumping is only a realistic option for multinational firms from industrialized countries this may partially explain developing countries concerns about addressing ad protection in the wto despite high tariff jumping responses there is no evidence of a japanese specific propensity to tariff jump holding other economic factors constant

selection effects in the united kingdom individual annuities market this paper explores adverse selection in the voluntary and compulsory individual annuity markets in the united kingdom two empirical regularities support standard models of adverse selection first annuitants are longer lived than non annuitants these mortality differences are more pronounced in the voluntary than in the compulsory annuity market we estimate that the amount of adverse selection in the compulsory market is about one half of that in the voluntary market second the pricing of different types of annuity products within each annuity market is consistent with individuals selecting products based in part on private information about their mortality prospects the aging of populations in many developed nations has generated substantial interest in the way households finance consumption in their retirement years annuities insurance products that provide a payment stream for as long as the insured individual is alive offer one way to spread an accumulated stock of resources over a retirement period of uncertain length theoretical research beginning with yaari 1965 suggests substantial utility gains from annuitisation in the presence of stochastic length of life public policy discussions have also generated substantial current interest in the operation of annuity markets the decline in long term interest rates in the united kingdom since the early 1990s has coincided with a decline in annuity payouts relative to annuity premia this has sparked a debate

selection in insurance markets theory and empirics in pictures government intervention in insurance markets is ubiquitous and the theoretical basis for such intervention based on classic work from the 1970s has been the problem of adverse selection over the last decade empirical work on selection in insurance markets has gained considerable momentum this research finds that adverse selection exists in some insurance markets but not in others and it has uncovered examples of markets that exhibit advantageous selection a phenomenon not considered by the original theory and one that has different consequences for equilibrium insurance allocation and optimal public policy than the classical case of adverse selection advantageous selection arises when the individuals who are willing to pay the most for insurance are those who are the most risk averse and so have the lowest expected cost indeed it is natural to think that in many instances individuals who value insurance more may also take action to lower their expected costs drive more carefully invest in preventive health care and so on researchers have taken steps toward estimating the welfare consequences of detected selection and of potential public policy interventions in this essay we present a graphical framework for analyzing both theoretical and empirical work on selection in insurance markets this graphical approach provides both a useful and intuitive depiction of the basic theory of selection and its implications for welfare and public policy as well as a lens through which one can understand the ideas and limitations of existing empirical work on this topic

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

compensatory inter vivos gifts parents transfer motives are important for understanding e g macroeconomics income re distribution savings and public finance using data from six biennial waves of the health and retirement study 1992 2002 we estimate censored regression models with nested multilevel error components first we interpret our findings that inter vivos transfers from parents to children are gifts rather than temporary help to overcome liquidity constraints second inter vivos gifts are compensatory in the sense that lifetime poorer children will receive higher transfers than their lifetime richer siblings third inter vivos gifts do not however make up the entire difference in lifetime incomes copyright 2009 john wiley sons ltd

bequest motives a comparison of sweden and the united states this paper reviews four well known theoretical models of private bequest behavior notes their differing implications for public policy and discusses a way of empirically dis criminating among them then it implements the test with micro data from sweden lls and the u s psid the so called altruistic or dynastic model which among the four models has perhaps the most wide ranging implications for policy receives some support the sign pattern is as the model predicts while the magnitude is much smaller than the altruistic theory implies there is evidence of a potential complication due to a dependence of children s education on parents financial status in the case of the u s 2001 elsevier science b v all rights reserved

a model of competition between unemployed and employed job searchers an application to the unemployment outflow rate in britain this paper proposes a model to explain the allocation of new jobs to workers the central innovation is the analysis of the competition for jobs between employed and unemployed job searchers it is argued that the endogeneity of the fraction of the employed engaging in search is a crucial determinant of the unemployment outflow rate the model is applied to the unemployment outflow rate in britain the model fits the data well and encompasses its main rival copyright 1993 by royal economic society

imperfect annuity markets unintended bequests and the optimal age structure of social security benefits the social security program now provides a constant real benefit throughout each retirees lifetime this paper examines whether total welfare would rise if benefits were lower in early retirement years when most individuals have some saving with which to finance consumption and higher in later years when the uncertainty of survival and the absence of actuarially fair private annuities makes the availability of social security benefits more important the analysis shows that there is a potentially important difference between the structure of benefits that would be preferred by the current population of workers and retirees and the structure of benefits that would maximize the steady state level of social welfare this difference reflects the role of unintended bequests the provision of higher benefits to older retirees reduces individually optimal savings and therefore the level of unintended bequests while those bequests may have no value to the retirees they are clearly of value to the young workers who will receive those bequests more generally the system of level benefits raises the steady state level of the capital stock and of total real income the present paper provides an explicit analysis of a case in which the current workers want benefits to increase with age while the social security system that maximizes steady state welfare would provide higher benefits to young retirees than to the very old this abstract was borrowed from another version of this item

the relationship between unemployment and vacancies in australia the paper addresses the existence of an equilibrium unemployment vacancies uv relationship in australia cointegration test results suggest that no bivariate long run uv relationship exists moreover this finding fails to support the basic model of labour job search however a modified beveridge curve is proposed where it is found that a number of trivariate equilibrium relationships exist between unemployment vacancies and one other variable the replacement ratio the proportion of long term unemployed or the real wage the existence of an equilibrium relationship in the multivariate framework is due to the endogenous modelling of the un employment flows which are assumed to be exogenous in the bivariate framework of the beveridge curve

foreign direct investment with unemployment and endogenous taxes and tariffs it is well known that high tariffs can induce foreign direct investment or tariff jumping this paper analyzes tariff jumping in the context of a host government which can set specific tariffs and taxes subject to the credibility constraint that the chosen levels be optimal once capital is irreversibly in place the foreign multinational is assumed to choose its location and level of investment strategically taking into account the induced tax and tariff levels in the presence of unemployment the optimal tariff exceeds the optimal tax for any given level of capital investment leading to foreign direct investment

the demand for enhanced annuities abstract this paper examines market reaction to the introduction of enhanced annuities in a market for deferred standard annuities the previous literature shows that individuals can try to avoid risk classification by contracting a standard annuity earlier in their life this paper offers a new perspective to the timing of the annuity purchase under the assumption that individuals already have an idea about their future risk type when young which becomes clearer over time it shows that enhanced annuities can crowd out earlier standard annuities completely if the individuals have incomplete knowledge of their future risk type however if individuals are sufficiently risk averse and there is a sufficiently high proportion of low risks in the population both products can remain in the market where lower risk types buy enhanced annuities while the higher risks stick to the early standard annuities the paper identifies the equilibrium candidate with both annuity types to be pareto superior and the unique equilibrium

the wealth age relation among the aged aged people face the problem of allocating over the rest of their lifetimes the wealth that they have accumulated during their working years this problem is fairly complex because they are uncertain about the dates of their death and because they may wish to use their wealth to finance general consumption or hold it to meet emergencies leave estates or maintain power or status whether skilled at dynamic programming or not aged people effectively do make these decisions what are the results some studies of the entire lifetime pattern of saving and wealth tend to support the simple life cycle model in which the aged use up their wealth to help finance consumption harold lydall for example found saving rates to increase and then decrease with age in the whole population and to be negative for the group aged 65 and over guarded support for the theory was found by franco modigliani and albert ando in britain and by dorothy projector in the united states more recently a f shorrocks examined the lifetime pattern of wealth holding in estate tax data for a single cohort and found the hump pattern that is characteristic of life cycle saving other evidence on wealth holding runs contrary to this however in a study of estate tax returns in washington d c james d smith found that wealth increased with age among the aged after controlling for other demographic variables examining national estate tax data john brittain found wealth to increase with age in the united states and a b atkinson and a j harrison reported the same pattern in england and wales in a sample of tiaa annuity recipients analyzed by james mulanaphy over half reported that their total savings had increased during retirement and another quarter reported that their savings had remained about the same in this paper i examine wealth holding patterns among aged married couples using survey data representing the entire aged population of the united states in 1968 the statistical analysis serves as a test of the hypothesis that emerges from life cycle theory and provides some further exploration into the economic behavior of the aged i find that the aged tend to increase their wealth over time

strategic trade policy when firms can invest abroad when are tariffs and quotas equivalent abstract this paper investigates the equivalence of tariffs and quotas when the market in question is imperfectly competitive and open to direct foreign investment the absence of a foreign supply response under a quota so critical to the analysis of the differential impact of tariffs and quotas under imperfect competition is called into question by the potential occurence of direct foreign investment the paper proves the equivalence of optimal tariffs and quotas when the markets are oligopolistic and open to direct foreign investment

domestic politics foreign interests and international trade policy reply this paper incorporates the foreign interest in the determination of a country s international trade policy into a model of political competition between candidates contesting elective office we envisage foreign and domestic producer interests as expressing political support for a candidate via campaign contributions and candidates as making trade policy pronouncements to maximize political support from producer interests tariffs are divisive but vers are consistent with conciliatory policy positions yielding mutual gain to foreign and domestic interests no candidate has an interest in formulating a trade policy position using a tariff if a ver is a policy option protection in the developed countries has in recent years often taken the form of bilaterally negotiated voluntary export restraints vers rather than the more traditional unilaterally imposed import restrictions the use of voluntary export restraints has been paralleled by interest in the theoretical literature the effects of vers have been compared with tariffs and quotas and vers have been examined in a political economy framework with a view to identifying the gainers and losers from this form of restric

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

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

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

ec members fighting about surplus vers fdi and japanese cars the distribution of consumer and producer surplus among ec members of three different trade regimes free trade a voluntary export restraint ver and a ver in conjunction with foreign direct inv

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

uncertainty resolution and the timing of annuity purchases abstract this paper considers the question of why the annuity market is thin a model is presented in which consumers have the option of purchasing annuities before discovering their survival probability they can then recontract the initial choice after the resolution of this form of uncertainty it is shown that consumers purchase insurance against their own survival probability type at a very young age and do not undertake further transactions this characterization is then used to analze the effects of introducing future income uncertainty and to investigate the trade off between old age insurance motive and portfilio flexibility

real wages and unemployment in australia this paper estimates a three equation model of the australian labor market for employment real wages and the participation rate it uses the model to study the role of incomes policies in containing real wage growth and the reasons behind the changes in unemployment since 1970 it finds that incomes policies have not been important in controlling real wages the rise in unemployment in the 1970s was due to the rise in tax rates and unemployment benefits and the changes in unemployment in the 1980s were connected with changes in investment and aggregate demand copyright 1991 by the london school of economics and political science

panel data analysis of the beveridge curve is there a macroeconomic relation between the rate of unemployment and the vacancy rate this study investigates whether the beveridge curve the relation between vacancy and unemployment rate is helpful for the quantification of structural unemployment since aggregate time series are too short to test detailed hypotheses about the beveridge curve the author assembles a panel of nine regions in west germany analyses of these data produce little support for a structural macroeconomic interpretation of the beveridge curve the observed shifts of the beveridge curve are too sudden to be explained by structural changes there is evidence for aggregation bias and variables associated with structural unemployment do not substitute for the explanatory power of dummy variables for the observed shifts while cyclical variables do so copyright 1991 by the london school of economics and political science

accounting for non annuitization why don t people buy annuities several explanations have been provided by the previous literature large fraction of preannuitized wealth in retirees portfolios adverse selection bequest motives and medical expense uncertainty this paper uses a quantitative model to assess the importance of these impediments to annuitization and also studies three newer explanations government safety net in terms of means tested transfers illiquidity of housing wealth and restrictions on minimum amount of investment in annuities this paper shows that quantitatively four explanations play a big role in reducing annuity demand preannuitized wealth minimum annuity purchase requirement illiquidity of housing wealth and bequest motives the annuity purchase involves big upfront investment especially if there is a minimum purchase restriction this is binding for many especially if housing is illiquid and part of wealth is preannuitized while bequest motives significantly reduce the overall annuity demand the model with a strong bequest motive cannot match the empirical fact that high income people have the highest demand for annuities

new protectionism and multinational companies abstract this paper examines the welfare effects of eliminating non tariff barriers ntbs when firms expand abroad via export or direct investment di two broad categories of ntbs are considered according to whether they discriminate only against the foreign exporter type i or also against the local subsidiary of the foreign owned firm type ii it is shown that the welfare impact of market integration depends upon its influence on firms international strategies and that such influence is a function of the type of measure removed the elimination of ntbs type i may lead to a fall in consumer surplus and a rise in producer surplus due to a shift from di to export instead when ntbs type ii are removed consumers are likely to gain more than suggested by traditional analysis as firms may shift from export to di these results are then applied to explain the welfare implications of the rise in intra eu di recorded during the late 1980s and early 1990s

what makes annuitization more appealing we conduct and analyze two large surveys of hypothetical annuitization choices we find that allowing individuals to annuitize a fraction of their wealth increases annuitization relative to a situation where annuitization is an all or nothing decision very few respondents choose declining real payout streams over flat or increasing real payout streams of equivalent expected present value highlighting the effects of inflation increases demand for cost of living adjustments frames that highlight flexibility control and investment significantly reduce annuitization a majority of respondents prefer to receive an extra bonus payment during one month of the year that is funded by slightly lower payments in the remaining months concerns about later life income spending flexibility and counterparty risk are the most important self reported motives that influence the annuitization decision

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

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

annuities and individual welfare advancing annuity demand theory we present suffcient conditions for the optimality of full annuitization under market completeness that are substantially less restrictive than those used by yaari 1965 we examine demand with market incompleteness finding that positive annuitization remains optimal widely but complete annuitization does not how uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk a new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases

economists views about parameters values and policies survey results in labor and public economics specialists in labor economics and public economics at 40 leading research universities provided opinions of policy proposals quantitative best estimates and 95 percent confidence intervals for economic parameters and answers to values questions regarding income redistribution efficiency versus equity and individual versus social responsibility their positions on policy are more closely related to their values than to their estimates of relevant economic parameters average best estimates of the economic parameters agree well with the relevant literature but individual best estimates are usually widely dispersed the individual 95 percent confidence intervals are much narrower than the substantial cross respondent variation in estimates would warrant

life cycle valuation of social security and pension wealth abstract the proper valuation of annuity wealth is important for many empirical studies of economic behavior and the distribution of wealth and well being this paper examines bernheim s argument that the value of social security benefit streams should be determined by simple discounting rather than by actuarial discounting when consumers behave according to life cycle principles in a model having a more realistic mortality structure than his we document the poor performance of both methods for a broad range of parameter values

endogenous protection foreign direct investment and protection building trade abstract we introduce the possibility of foreign direct investment fdi in a strategic oligopolistic setting with endogenous protection and find that a number of unique subgame perfect equilibria may arise including a new result we call protection building trade this phenomenon occurs in our model when foreign firms locating production in the home country try to increase protectionist pressures in the home country through increased exports to provide larger barriers against other foreign competitors in future periods we discuss how the foreign firm behavior surrounding significant u s protectionist actions including the vers on japanese automobiles may be consistent with protection building trade behavior

tariff jumping fdi and domestic firms profits studies of the welfare implications of trade policy often do not take account of the potential for tariff jumping fdi to mitigate positive gains to domestic producers we use event study methodology to examine the market effects for u s domestic firms that petitioned for antidumping ad relief as well as the effect of announcements of fdi by their foreign rivals in the u s market on these u s petitioning firms on average affirmative u s ad decisions are associated with 3 abnormal gains to a petitioning firm when there is no tariff jumping fdi but no abnormal gains if there is tariff jumping fdi the evidence for this mitigating effect is strongest when announcements of the intended tariff jumping fdi have already occurred before an ad decision takes place which happened in fair number of cases we also find evidence that the announcements of plant expansions and to some extent new plants have significantly larger negative effects on u s domestic firms profits than other types of fdi including acquisitions and joint ventures

an empirical examination of information barriers to trade in insurance this paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world life insurance we report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information we conjecture that sellers may know their costs of production better than consumers in this market as in those for most other products

analysis of perfonnance standards for direct foreign investments within the framework of a duopolistic model we investigate the impact of foreign investment standards on welfare output and employment minimum local content and export requirements reduce world output world welfare and the source country s welfare under certain conditions the decline in host country s consumer surplus resulting from diminished competition outweighs the shift of monopoly rent from the source country s firm to the host country s firm minimum content standards can increase host country s employment but only to a point marginal increases in the content requirement can actually reduce employment as the magnitude of foreign investment declines

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

how much does annuity demand react to a large price change in this paper we present new evidence for the effect of changes in annuity prices on the decision to annuitize we exploit an unprecedented change in policy in several swiss occupational pension plans there is an implied 8 percent reduction in the rate at which retirement capital is translated into an annuity and this represents a net present value loss of chf 18 500 around us 20 000 to estimate the impact of this change we use data from companies that changed their prices and from one large company that did not we find that the price change reduces the propensity to annuitize among affected individuals by 16 8 percentage points

the role of commitment in dynamic contracts evidence from life insurance we use data on life insurance contracts to study the properties of long term contracts in a world where buyers cannot commit to a contract the data are especially suited to test a theory of dynamic contracting since they include information on the entire proele of future premiums all the patterns in the data et the theoretical predictions of a model with symmetric learning and one sided com

portfolio choice in retirement health risk and the demand for annuities housing and risky assets in a life cycle model a retiree faces stochastic health depreciation and chooses consumption health expenditure and the allocation of wealth between bonds stocks and housing the model explains key facts about asset allocation and health expenditure across health status and age the portfolio share in stocks is low overall and is positively related to health especially for younger retirees the portfolio share in housing is negatively related to health for younger retirees and falls significantly in age finally out of pocket health expenditure as a share of income is negatively related to health and rises in age

social security uncertainty adjustments and the consumption decision this paper analyzes the consumption decision focusing on the degree of substitutability between fungible assets and prospective wealth and on the different risk adjustments associated with different types of prospective wealth the results reveal substantial differences among these risk adjustments and imply that a dollar of social security wealth substitutes for about three fifths of a dollar of fungible assets although implying that social security wealth reductions would have a positive and sizeable effect on private saving the results also suggest that such reductions could entail a substantial loss in consumer welfare copyright 1992 by the london school of economics and political science

tariffs quotas and voluntary export restraints with and without internationally mobile capital this paper presents a general framework for comparing the effects of tariffs quotas and vers voluntary export restraints both with and without international capital mobility expressions for the shadow price of foreign exchange and the shadow price of capital under each type of trade restriction are derived and it is shown that although international capital mobility raises the welfare cost of tariff protection it lowers the welfare cost of quantitative restrictions in most cases the effects of exogenous shocks in the presence of quotas are intermediate between those in the presence of tariffs and those in the presence of vers tarifs douaniers contingentements et restrictions volontaires d l exportation quand le capital est ou n est pas mobile internationalement l auteur presente un cadre general d analyse qu il utilise pour comparer les effets de tarifs douaniers de contingentements et de restrictions volontaires a l exportation dans des contextes ofu le capital est ou n est pas mobile internationalement l auteur derive le prix fictif du change etranger et le prix fictif du capital sous l un et l autre types de restrictions au commerce et montre que meme si la mobilite internationale du capital augmente le cofut en terme de bien etre de la protection tarifaire elle reduit le cofut en terme de bien etre des restrictions sur les quantites echangees dans tous les cas les effets de chocs exogenes quand des contingentements existent sont toujours dans la fourchette entre ceux qu on observe quand des tarifs douaniers existent et ceux qui prevalent quand des restrictions volontaires i l exportation existent

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

the flow into unemployment in britain this paper examines a largely neglected aspect of unemployment dynamics namely the flow into unemployment a model is set up relating this to the demand for labor and the quit rate the empirical results lend considerable support to the model a fall in planned employment growth or a fall in the quit rate both raise the inflow rate the implications of the results for unemployment vacancy analysis are discussed and the distinction made between symmetric and asymmetric shocks to the matching function copyright 1992 by royal economic society

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

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

a generalization of yaari s result on annuitization with optimal retirement abstract in this paper we generalize the following result of yaari 1965 on annuitization with an agent s optimal retirement it is optimal for individuals to annuitize all of their wealth in the absence of bequest motive we have other results that refine or extend the result of yaari 1965 full annuitization can be viewed as an american type option that allows an economic agent to exchange the value of labor income with the extra leisure that is brought about by annuitizing all of her wealth when the agent s wealth is above a certain wealth threshold annuitization is triggered otherwise it is not accordingly wealth plays a key role in controlling the distance to full annuitization

the political feasibility of pension reform options the case of switzerland this paper investigates the political feasibility of different hypothetical reform options of an unsustainable pay as you go public pension system in calibrating the model to the swiss economy we find that low internal rates of return and high distortions can reduce political support for an increase in earmarked taxes up to a point where a reduction in the size of the social security program receives a majority of votes our simulations show that the consideration of non social security taxes is crucial in welfare analysis this is especially true for countries in which the public pension system is explicitly or implicitly subsidized

proposals to restructure social security the 1995 report of the trustees of social security projected that the combined old age survivor s and disability insurance oasdi trust funds would run out in 2030 this report wasn t much news because the problem was slightly less severe than had been projected the year before the date receded by one year it also wasn t much news because everyone already knew that there was a problem and public confidence in the future of social security was already quite low indeed the fraction of people reporting themselves very or somewhat confident in social security is only around 40 percent this opinion should be taken with a grain of salt since the same surveys show that over 90 percent of the interviewees are expecting to receive social security benefits and commonly expect it as a major source of income reno and friedland forthcoming unlike the medicare problem the oasdi problem does not seem severe to me with prompt legislation we could easily muddle through putting together a package of revenue increases and benefit cuts that would restore actuarial balance for the 75 year horizon 1 in this paper i will not consider the relative merits of alternative packages but will discuss five proposals for basic changes in how social security functions changes that go beyond changing some of the parameters in 1 the country does not seem to have much taste for tax increases right now yet the polls asking about tax increases just for social security find the country solidly behind such increases in an ebri gallup poll 64 percent of respondents favor raising taxes now to lessen tax increases in the future while only 28 percent preferred no tax increase before 2010 a majority oppose 15 percent or strongly oppose 38 percent decreasing benefits by 10 20 percent for those born after 1960 in order to avoid a tax increase since it is always ambiguous how to interpret such a poll and we do not want government by opinion poll this should be viewed as a sampling of mood not as a policy recommendation

asymmetric information and learning evidence from the automobile insurance market this paper tests the predictions of adverse selection models using data from the automobile insurance market i find that in contrast to what recent research suggests the evidence is consistent w