is tiger woods loss averse persistent bias in the face of experience competition and high stakes although experimental studies have documented systematic decision errors many leading scholars believe that experience competition and large stakes will reliably extinguish biases we test for the presence of a fundamental bias loss aversion in a high stakes context professional golfers performance on the pga tour golf provides a natural setting to test for loss aversion because golfers are rewarded for the total number of strokes they take during a tournament yet each individual hole has a salient reference point par we analyze over 2 5 million putts using precise laser measurements and find evidence that even the best golfers including tiger woods show evidence of loss aversion jel d03 d81 l83

entrepreneurship start up costs and employment abstract we study the effects of business start up costs on employment in a model with managers workers and matching we show that higher start up costs discourage entrepreneurs and increase the fraction of the population who become workers job creation suffers and employment settles at a lower level we illustrate with evidence from major oecd economies where large variations in start up costs are correlated with large variations in employment levels

geography industrial organization and agglomeration this paper makes two contributions to the empirical literature on agglomeration economies first the paper uses a unique and rich database in conjunction with mapping software to measure the geographic extent of agglomerative externalities previous papers have been forced to assume that agglomeration economies are club goods that operate at a metropolitan scale second the paper tests for the existence of organizational agglomeration economies of the kind studied qualitatively by saxenian 1994 this is a potentially important source of increasing returns that previous empirical work has not considered results indicate that localization economies attenuate rapidly and that industrial organization affects the benefits of agglomeration

competition and price variation when consumers are loss averse we modify the salop 1979 model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase consumers sensitivity to losses in money increases the price responsiveness of demand and hence the intensity of competition at higher relative to lower market prices reducing or eliminating price variation both within and between products when firms face common stochastic costs in any symmetric equilibrium the markup is strictly decreasing in cost even when firms face different cost distributions we identify conditions under which a focal price equilibrium where firms always charge the same focal price exists and conditions under which any equilibrium is focal

sorting and agglomeration economies in french economics departments abstract are agglomeration and peer effects at stake in academic research to tackle this question we study how departments characteristics affect the quantity and quality of academics publications in economics in france controlling for individual time varying characteristics and individual fixed effects department characteristics have an explanatory power at least equal to a quarter of that of individual characteristics and possibly as high as theirs the quantity and quality of an academic s publications in a field increase with the presence of other academics specialised in that field and with the share of the department s publications output in that field in contrast department size proximity to other large departments homogeneity in terms of publication performance presence of colleagues with connections abroad and composition in terms of positions and age matter for some publication measures but only if not controlling for individual fixed effects

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

strike activity worker militancy and productivity change in manufacturing 1961 1981 the author hypothesizes a two way causality between intracontractual strikes and productivity change in u s manufacturing on the one hand strikes during the term of a contract which are thought to reflect more broadly practiced shop floor militancy slow the pace of productivity growth and on the other hand periods of rapid productivity growth provoke increased intracontractual strike activity among other forms of shop floor protest the model is tested with quarterly data from 1961 through 1981 modified two stage least squares estimates support the hypothesis of two way causality a specific finding is that shop floor confrontation played a significant role in the slump in manufacturing productivity that began in the mid 1960s but not in the more precipitous productivity slowdown of the post 1973 years

chasing after good jobs do they exist and does it matter if they do most people believe that there are such things as good jobs jobs that a worker would consider herself lucky to get but for economists the existence of good jobs is debatable in this paper i provide a definition of a good job based on various theories of the labour market a job that involves a surplus captured partly by the worker i use that definition to guide an empirical investigation of the existence and importance of good jobs i conclude that good jobs do exist that the labour market does not just function according to a roy model with wage differentials reflecting only skill differentials compensating differentials or bond posting and that their impact on the overall wage structure is substantial finally i discuss the implications of the existence of good jobs for policy setting and for assessments of the justice of a society resume la chasse aux bons emplois est ce qu ils existent et est ce que cela importe qu ils existent la plupart des gens croient qu il y a telles choses que de bons emplois des emplois qu un travailleur se trouverait chanceux d avoir mais pour les economistes l existence de bons emplois est discutable dans ce texte l auteur propose une definition de bon emploi fondee sur diverses theories du marche du travail un emploi qui engendre un surplus capture en partie par le travailleur il utilise cette definition pour guider son enquete empirique sur l existence et l importance de bons emplois on conclut que les bons emplois existent que le marche du travail ne fonctionne pas seulement selon le modele de roy avec des differentiels de salaires qui refletent seulement les differentiels d habiletes les differentiels compensatoires ou le depot d une caution et que leur impact sur la structure globale des salaires est substantielle finalement l auteur discute les implications de l existence de bons emplois sur la definition de politiques et sur l evaluation du caractere juste d une societe

why do newer cities promise higher wages in russia abstract this paper documents the negative relationship between the age of cities and their average wages in russia and a number of post soviet countries to determine age related urban characteristics responsible for this relationship we develop a spatial equilibrium model as a framework to guide the interpretation of the regression estimates higher real wages in newer cities reflect both their disadvantages as places for living and their production advantages the latter are related to their production amenities higher shares of skilled workers and more available natural resources these advantages and disadvantages tend to disappear over time which gives rise to income convergence

does industrial composition matter for wages a test of search and bargaining theory does switching the composition of jobs between low paying and high paying industries have important effects on wages in other sectors in this paper we build on search and bargaining theory to clarify a key general equilibrium channel through which changes in industrial composition could have substantial effects on wages in all sectors in this class of models wage determination takes the form of a social interaction problem and we illustrate how the implied sectoral linkages can be empirically explored using u s census data we find that sector level wages interact as implied by the model and that the predicted general equilibrium effects are present and substantial we interpret our results as highlighting the relevance of search and bargaining theory for understanding the determination of wages and we argue that the results provide support for the view that industrial composition is important for understanding wage outcomes

expectations based reference dependent life cycle consumption this study incorporates a recent preference specification of expectations based loss aversion which has been applied broadly in microeconomics into a classic macro model to offer a unified explanation for three empirical observations about life cycle consumption first loss aversion explains excess smoothness and sensitivity that is the empirical observation that consumption responds to income shocks with a lag intuitively such lagged responses allow the agent to delay painful losses in consumption until his expectations have adjusted secondly the preferences generate a hump shaped consumption profile early in life consumption is low due to a first order precautionary savings motive however as uncertainty resolves over time this motive is dominated by time inconsistent overconsumption that eventually leads to declining consumption towards the end of life thirdly consumption drops at retirement prior to retirement the agent wants to overconsume his uncertain income before his expectations catch up post retirement however income is no longer uncertain and overconsumption is associated with a sure loss in future consumption as an empirical contribution i structurally estimate the preference parameters using life cycle consumption data my estimates match those obtained in experiments and other micro studies and generate the degree of excess smoothness observed in macro consumption data

urban growth and transportation we estimate the effects of interstate highways on the growth of u s cities between 1983 and 2003 we find that a 10 increase in a city s initial stock of highways causes about a 1 5 increase in its employment over this 20 year period to estimate a structural model of urban growth and transportation we rely on an instrumental variables estimation that uses a 1947 plan of the interstate highway system an 1898 map of railroads and maps of the early explorations of the u s as instruments for 1983 highways we investigate the role of interstate highways in the growth of u s cities our investigation is in three parts in the first we develop a simple structural model describing the joint evolution of highways and employment in cities in the second we develop an instrumental variables strategy that allows us to identify key parameters of our structural model we are also able to provide out of sample evidence for the validity of our estimates and for the central assumptions of our model in the third we use our estimates to assess counterfactual transportation policies we find that a 10 increase in a city s stock of interstate highways causes about a 1 5 increase in its employment over 20 years and that an additional kilometre of highway allocated to a city at random is associated with a larger increase in employment or population than is a road assigned to a city by the prevailing political process our results also suggest that too many new highways were built between 1983 and 2003 these findings are important for three reasons first transportation generally and infrastruc ture in particular are large segments of the economy the median u s household devotes about 18 of its income to road transportation while all levels of government together spend another 200 billion dollars annually overall the value of capital stock associated with road transporta tion in the u s tops 5 trillion dollars united states bureau of transportation statistics 2007 2010 given the magnitude of transportation expenditures it is important that the impact of these expenditures on economic growth be carefully evaluated and not assessed on the basis of the claims of advocacy groups our analysis provides a basis for assessing whether these resources are well allocated our results also provide useful guidance to policy makers charged with planning cities since changes in a city s transportation infrastructure cause changes to the city s employment new transportation infrastructure causes complementary changes in the demand for public utilities and schools our results provide a basis for estimating the magnitude of such changes finally this research is important to furthering our understanding of how cities operate and grow transportation costs are among the most fundamental quantities in theoretical models

unemployment and the inter regional mobility of labour the relationship between unemployment and interregional labor migration in the united kingdom is explored using data from the labour force survey for 1984 and 1977 the authors conclude that the experience of unemployment increases the likelihood of migration and that households in areas of high unemployment are more likely to move they also find that during periods of higher overall unemployment migration propensities are reduced annotation

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

why is consumption so smooth for thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income this paper considers the evidence for the contrary position that permanent income is in fact less smooth than measured income so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory the paper argues that in postwar u s quarterly data consumption is smooth because it responds with a lag to changes in income

short term planning and the life cycle consumption puzzle abstract we develop a new life cycle consumption model where the individual has a short planning horizon standard life cycle consumers with perfect foresight and hand to mouth consumers are both special limiting cases of our model where the length of the planning horizon is set to the entire lifetime and zero respectively we derive an analytical solution to the time inconsistent short term planning problem which reveals the inner workings of the model and facilitates its use in other settings we also show that the short term planning mechanism is powerful enough to generate a consumption hump with the right size and location

reference dependent consumption plans we develop a rational dynamic model in which people are loss averse over changes in beliefs about present and future consumption because changes in wealth are news about future consumption preferences over money are reference dependent if news resonates more when about imminent consump tion than when about future consumption a decision maker might to generate pleasant surprises overconsume early relative to the optimal committed plan increase immediate consumption following surprise wealth increases and delay decreasing consumption following surprise losses since higher wealth mitigates the effect of bad news people exhibit an unambiguous first order precautionary savings motive

why does consumption fall at retirement evidence from germany abstract analyzing the consumption behavior over retirement in germany this paper finds a negative correlation between income replacement and the increase in home production related activities this might reconcile the observed drop in consumption at retirement with the predictions of the standard life cycle model however since individuals with fairly stable income over retirement also increase home production this increase cannot be entirely attributed to a substitution effect

mobility and the return to education testing a roy model with multiple markets self selected migration presents one potential explanation for why observed returns to a college education in local labor markets vary widely even though u s workers are highly mobile to assess the impact of self selection on estimated returns this paper first develops a roy model of mobility and earnings where workers choose in which of the 50 states plus the district of columbia to live and work available estimation methods are either infeasible for a selection model with so many alternatives or place potentially severe restrictions on earnings and the selection process this paper develops an alternative econometric methodology that combines lee s 1983 parametric maximum order statistic approach to reduce the dimensionality of the error terms with more recent work on semiparametric estimation of selection models e g ahn and powell 1993 the resulting semiparametric correction is easy to implement and can be adapted to a variety of other polychotomous choice problems the empirical work which uses 1990 u s census data confirms the role of comparative advantage in mobility decisions the results suggest that self selection of higher educated individuals to states with higher returns to education generally leads to upward biases in ols estimates of the returns to education in state specific labor markets while the estimated returns to a college education are significantly biased correcting for the bias does not narrow the range of returns across states consistent with the finding that the corrected return to a college education differs across the u s the relative state to state migration flows of college versus high school educated individuals respond strongly to differences in the return to education and amenities across states

the retirement consumption puzzle evidence from a regression discontinuity approach in this paper we investigate the size of the consumption drop at retirement in italy we use micro data on food and total non durable household spending covering the period 1993 2004 and evaluate the change in consumption that accompanies retirement by exploiting the exogenous variability in pension eligibility to correct for the endogenous nature of the retirement decision we take a regression discontinuity design approach and make the identifying assumption that consumption would be the same around the threshold for pension eligibility if individuals would not retire we check in our data that a non negligible fraction of individuals retire as soon as they become eligible and estimate at 9 8 the part of the non durable consumption drop that is associated with retirement induced by eligibility we show that such fall is not driven by liquidity problems for the less well off in the population and can be accounted for by drops in goods that are work related expenses or leisure substitutes however we also show that retirement induces a significant drop in the number of grown children living with their parents and this can account for most of the retirement consumption drop

searching for the effect of immigration on the labor market we compare two approaches to analyzing the effects of immigration on the labor market and find that the estimated effect of immigration on u s native labor outcomes depends critically on the empirical experiment used area analyses contrast the level or change in immigration by area with the level or change in the outcomes of non immigrant workers factor proportions analyses treat immigrants as a source of increased national supply of workers of the relevant skill the different effects of immigration on native outcomes in the area and factor proportions methodologies appear to result from the diluting effect of native migration flows across regions and failure to take adequate account of other regional labor market conditions in area comparisons excerpt

uncertain demand consumer loss aversion and flat rate tariffs we consider a model of firm pricing and consumer choice where consumers are loss averse and uncertain about their future demand possibly consumers in our model prefer a flat rate to a measured tariff even though this choice does not minimize their expected billing amount a behavior in line with ample empirical evidence we solve for the profit maximizing two part tariff which is a flat rate if a marginal costs are not too high b loss aversion is intense and c there are strong variations in demand moreover we analyze the optimal nonlinear tariff this tariff has a large flat part when a flat rate is optimal among the class of two part tariffs

the determinants and welfare implications of us workers diverging location choices by skill 1980 2000 abstract from 1980 to 2000 the rise in the us college high school graduate wage gap coincided with increased geographic sorting as college graduates concentrated in high wage high rent cities this paper estimates a structural spatial equilibrium model to determine causes and welfare consequences of this increased skill sorting while local labor demand changes fundamentally caused the increased skill sorting it was further fueled by endogenous increases in amenities within higher skill cities changes in cities wages rents and endogenous amenities increased inequality between high school and college graduates by more than suggested by the increase in the college wage gap alone jel d31 i26 j24 j31 j61 r23

risk sharing in private information models with asset accumulation explaining the excess smoothness of consumption we study testable implications for the dynamics of consumption and income of models in which first best allocations are not achieved because of a moral hazard problem with hidden saving we show that in this environment agents typically achieve more insurance than that obtained under self insurance with a single asset consumption allocations exhibit excess smoothness as found and defined by campbell and deaton 1989 we argue that excess smoothness in this context is equivalent to a violation of the intertemporal budget constraint considered in a bewley economy with a single asset we also show parameterizations of our model in which we can obtain a closed form solution for the efficient insurance contract and where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem we present tests of excess smoothness applied to u k microdata and constructed using techniques proposed by hansen roberds and sargent 1991 to test the intertemporal budget constraint our theoretical model leads us to interpret them as tests of the market structure faced by economic agents we also construct a test based on the dynamics of the cross sectional variances of consumption and income that is in a precise sense complementary to that based on hansen roberds and sargent 1991 and that allows us to estimate the same structural parameter the results we report are consistent with the implications of the model and are internally coherent

spatial equilibrium with unemployment and wage bargaining theory and estimation abstract in this paper we present a spatial equilibrium model where search frictions hinder the immediate reallocation of workers both within and across local labor markets because of the frictions firms and workers find themselves in bilateral monopoly positions when determining wages although workers are not at each instant perfectly mobile across cities in the baseline model we assume that workers flows are sufficient to equate expected utility across markets we use the model to explore the joint determination of wages unemployment house prices and city size or migration a key role of the model is to clarify conditions under which this type of spatial equilibrium setup can be estimated we then use u s data over the period 1970 2007 to explore the fit and quantitative properties of the model our main goal is to highlight forces that influence spatial equilibria at 10 year intervals

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

is there a retirement consumption puzzle evidence using subjective retirement expectations abstract previous research finds a systematic decrease in consumption at retirement a finding that is inconsistent with the life cycle permanent income hypothesis if retirement is an expected event in this paper we use workers subjective beliefs about their retirement dates as an instrument for retirement after demonstrating that subjective retirement expectations are strong predictors of subsequent retirement decisions we still find a consumption decline at retirement for workers who retire when expected however our estimates of this consumption fall are about a third less than those found when we instead rely on the instrumental variables strategy used in prior studies

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement