the price elasticity of demand for whole life insurance in this study a real price index is created for whole life insurance sold in the united states from 1953 to 1979 new purchases of whole life insurance are shown to be negatively related to changes in this cost index contrary to what has been widely accepted in the insurance literature but consistent with economic theory the existence of strong price elasticity of demand for whole life insurance does not ensure however that the insurance industry manifests a high degree of price competition for many years the insurance trade literature has been replete with assertions that life insurance consumers are insensitive to variations in price when making their insurance purchasing decisions while many of these assertions had their foundation in the lore of sales agents more recent allegations have been based upon the responses of life insurance consumers to surveys 29 30 and the demonstration of wide price disparities among various companies offering similar products the predominant view in the insurance industry stands in contrast to a large number of theoretical studies appearing in the economic literature in which insurance cost invariably appears as a principal determinant in the consumer demand function e g 12 17 35 however in economic time series and crosssectional statistical studies the price of insurance has never appeared as a determinant of demand to my knowledge indeed this finding holds true even for empirical studies joined with theoretical analyses in the same article the importance of price is given lip service but fails to have been statistically measured it is the purpose of this paper to provide an initial examination into the price sensitivity of consumer demand for whole life insurance the approach taken involves time series analysis based on annual aggregate data over a sample of life insurance companies the first section contains a brief review of some of the salient economic and insurance industry literature and a discussion of aspects of the problem to be investigated this section is followed by a disquisition on real price indices a cost index proposed elsewhere is modified and reestimated for the purpose of measuring the price elasticity of life insurance demand in the

testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

understanding heterogeneous preferences in random utility models a latent class approach a finite mixture approach toconditional logit models is developed in whichlatent classes are used to promoteunderstanding of systematic heterogeneity the model is applied to wilderness recreationin which a branded choice experiment involvingchoice of one park from a demand system wasadministered to a sample of recreationists the basis of membership in the classes orsegments in the sample involved attitudinalmeasures of motivations for taking a trip aswell as their stated preferences overwilderness park attributes the econometricanalysis suggested that four classes of peopleexist in the sample using the model toexamine welfare measures of some hypotheticalpolicy changes identified markedly differentwelfare effects than the standard singlesegment model and provided insight into thedifferential impact of alternative policies

unobserved variables and the elusive added worker effect consistent with recent empirical work this study finds no evidence of the added worker effect among married couples in the u s it is hypothesized that unobserved variables may be obscuring this added worker behavior this hypothesis is rejected the labor supply behavior of married women is influenced by the permanent and not the transitory nature of their spouses unemployment wives with frequently unemployed husbands have lower reservation wages yet apart from their measured human capital these same women face persistently lower wage rates and higher unemployment propensities in the labor market as a result married women with unemployed spouses are no more likely to be in the labor force and are actually less likely to be employed than observationally equivalent married women with employed spouses copyright 1991 by the london school of economics and political science

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

responses to changes in domestic water tariff structures a latent class analysis on household level data from granada spain a problem that affects the estimation of water demand functions is the presence of unobserved individual heterogeneity which means that a common demand function is unlikely to represent the behavior of all users we implement latent class models to estimate water demand functions for four groups of users who are classified according to their unobservable preferences this more flexible approach makes it possible to distinguish four different response patterns to changes in the drivers of water use including different price elasticities these results should be of particular interest to regulators who would like to tailor water demand management policy to heterogeneous users our analysis exploits household level panel data on residential water demand and consumers characteristics obtained by combining information from a survey of 1 465 domestic users in the city of granada and bimonthly price and consumption data supplied by this city s water supplier from the period 2009 2011

the added worker effect the term added worker effect usually refers to a temporary increase in the labor supply of married women whose husbands have become unemployed this paper presents a new approach to the empirical study of the added worker effect which emphasizes the role of employment uncertainty and credit constraints in generating short run participation and employment patterns the estimates are based on employment transition probabilities rather than static measures of labor supply and are used in a dynamic simulation of changes in the employment and participation rates of wives following an exogenous increase in unemployment among their husbands the results show a small but significant added worker effect at least for white families and suggest that the apparent disagreement among previous studies may stem from different approaches to measuring responses to a transitory event such as an unemployment spell

cyclical dynamics in idiosyncratic labor market risk is individual labor income more risky in recessions this is a difficult question to answer because existing panel data sets are so short to address this problem we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced variation in the cross sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930 even though our data do not begin until 1968 we implement this estimator using household level labor earnings data from the panel study of income dynamics we estimate that idiosyncratic risk is i highly persistent with an annual autocorrelation coefficient of 0 95 and ii strongly countercyclical with a conditional standard deviation that increases by 75 percent from 0 12 to 0 21 as the macroeconomy moves from peak to trough

the effects of monetary policy at different stages of economic development abstract the effects of monetary policy vary significantly across countries in particular recent empirical work finds evidence of a tobin effect in high income countries and a reverse tobin effect in less developed economies we present a neoclassical growth model where money is required for investment and consumption purposes in contrast to standard cash in advance models the reliance on cash is inversely related to the extent of capital formation in this setting we demonstrate that the effects of monetary policy depend on the level of development in particular inflation adversely affects capital formation at low levels of income because there is a high reliance on cash and a high cost of capital by comparison the financial system operates more efficiently in advanced countries consequently monetary policy generates a tobin effect

preference heterogeneity and insurance markets explaining a puzzle of insurance the textbook approach to insurance markets emphasizes the role of private information about risk in determining who purchases insurance in the classic adverse selection model of michael rothschild and joseph stiglitz 1976 individu als with higher expected claims buy more insur ance than those with lower expected claims who may be out of the market entirely this basic prediction of asymmetric information models of a positive correlation between insurance cov erage and accident occurrence has been shown to be robust to a variety of extensions to the stan

sources of lifetime inequality is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime we answer this question within a model that features idiosyncratic shocks to human capital estimated directly from data as well as heterogeneity in ability to learn initial human capital and initial wealth we find that as of age 23 differences in initial conditions account for more of the variation in lifetime earnings lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime jel d31 d91 j24 j31 to what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the working lifetime among the individual differences established early in life which ones are the most important a convincing answer to these questions is of fundamental importance first and most simply an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions e g public education against those directed at shocks over the working lifetime e g unemployment insurance second a discussion of lifetime inequality cannot go too far before discussing which specific type of initial condition is the most critical for determining how one fares in life third a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics public finance and labor economics we view lifetime inequality through the lens of a risky human capital model agents differ in terms of three initial conditions initial human capital learning ability and financial wealth initial human capital can be viewed as controlling the intercept of an agent s mean earnings profile whereas learning ability acts to rotate

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

the choice theory approach to market research this paper surveys economic choice theory stressing developments that permit use of data from psychometric and conjoint experiments to produce market demand forecasts alternatives to the widely used multinomial logit model are summarized and a new method for estimating multinomial probits is described an integration of choice models with attitudinal scaling and perceptual mapping within a latent variable system is described estimation of such systems under either random effects or fixed effects descriptions of heterogeneity across individuals is discussed issues in the use of choice models to describe responses from conjoint experiments are presented new regression diagnostic tests for the consistency of multinomial logit representations are discussed

a simple method of incorporating income effects into logit and nested logit models theory and application substantive income effects are incorporated in a logit or nested logit model by assuming that utility is a piece wise linear spline function of residual income specific income data are not require

a finite mixture logit model of recreational angling with serially correlated random utility this article examines two issues concerning the trip taking behavior of recreational anglers over the course of a season the first is whether the random component of trip utility is serially correlated across trip occasions the second is the heterogeneity of preferences among anglers recent research has examined heterogeneity among recreational trip takers using random parameters models in this article the population of anglers is instead cast as a collection of several subpopulations distinguished by angler preferences and the method of finite mixtures is used to identify these subpopulations copyright 2002 oxford university press

inflation output and welfare this paper studies the effects of anticipated inflation on aggregate output and welfare within a search theoretic framework we allow money holders to choose the intensities with which they search for trading partners so inflation affects the frequency of trade as well as the quantity of output produced in each trade we consider the standard pricing mechanism for search models i e ex post bargaining as well as a notion of competitive pricing if prices are bargained over the equilibrium is generically inefficient and an increase in inflation reduces buyers search intensities output and welfare if prices are posted and buyers can direct their search search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates the friedman rule achieves the first best allocation and inflation always reduces welfare even though it can have a positive effect on output for low inflation rates

u s inequality debt constraints or incomplete asset markets abstract to examine the role of debt constraints and incomplete asset markets lack of insurance markets in explaining u s inequality we run horse races between competing models for a widely used model we decompose inequality into its fundamental driving forces the underlying source of inequality in all models is uninsurable idiosyncratic risk both debt constraints and incomplete asset markets are needed to account for inequality but asset market incompleteness is the key friction it better accounts for the concentration and dispersion of wealth and is the most costly friction in terms of welfare tight debt constraints are important for explaining the lower tail of the wealth distribution

taxation of human capital and wage inequality a cross country analysis wage inequality has been significantly higher in the united states than in continental european countries ceu since the 1970s moreover this inequality gap has further widened during this period as the us has experienced a large increase in wage inequality whereas the ceu has seen only modest changes this paper studies the role of labor income tax policies for understanding these facts we begin by documenting two new empirical facts that link these inequality differences to tax policies first we show that countries with more progressive labor income tax schedules have significantly lower before tax wage inequality at different points in time second progressivity is also negatively correlated with the rise in wage inequality during this period we then construct a life cycle model in which individuals decide each period whether to go to school work or be unemployed individuals can accumulate skills either in school or while working wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks progressive taxation compresses the after tax wage structure thereby distorting the incentives to accumulate human capital in turn reducing the cross sectional dispersion of before tax wages we find that these policies can account for half of the difference between the us and the ceu in overall wage inequality and 76 of the difference in inequality at the upper end log 90 50 differential when this economy experiences skill biased technological change progressivity also dampens the rise in wage dispersion over time the model explains 41 of the difference in the total rise in inequality and 58 of the difference at the upper end

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

the mismatch between life insurance holdings and financial vulnerabilities evidence from the health and retirement study using data on older workers from the 1992 health and retirement survey along with an elaborate life cycle planning model the authors quantify the effect of each individual s death on the financial status of his or her survivors and the degree to which life insurance holdings moderate these consequences the average change in living standard that would result from a spouse s death is small both in absolute terms and relative to the decline that would occur without insurance however this average obscures a startling mismatch between insurance holdings and underlying vulnerabilities for many of the most vulnerable the amounts purchased are surprisingly small and for many of the least vulnerable the amounts are surprisingly large as a result uninsured vulnerabilities are quite widespread the magnitude of these vulnerabilities as well as the proclivity to address any given degree of vulnerability by purchasing life insurance vary systematically with individual and household characteristics

does unemployment insurance crowd out spousal labor supply previous research on unemployment insurance ui has emphasized the program s effect on individual search behavior this state contingent income may also reduce the labor supply of family members during the unemployment spell we investigate this question within the context of wives labor supply responses to their husbands unemployment spells we find strong crowdout of this form of family self insurance our estimates imply that for each dollar of ui receipt wives earn up to 73 cents less the reduction in spousal hours of work is over 40 as large as previous estimates of the effect of ui on search time of husbands

inflation and welfare a search approach this paper extends recent findings in the search theoretic literature on monetary exchange regarding the welfare costs of inflation we present first estimates of the welfare cost of inflation using the welfare triangle methodology of bailey 1958 and lucas 2000 we then derive a money demand function from the search theoretic model of lagos and wright 2005 and we estimate it from u s data over the period 1900 2000 we show that the welfare cost of inflation predicted by the model accords with the welfare triangle measure when pricing mechanisms are such that buyers appropriate the social marginal benefit of their real balances for other mechanisms welfare triangles underestimate the true welfare cost of inflation because of a rent sharing externality we also point out other inefficiencies associated with noncompetitive pricing which matter for estimating the cost of inflation we then illustrate how endogenous participation decisions can mitigate or exacerbate the cost of inflaion and we provide calibrated examples in which a deviation from the friedman rule is optimal finally we discuss distributional effects of inflation

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

who cares about environmental stigmas and does it matter a latent segmentation analysis of stated preferences for real estate this article uses latent segmentation analysis to estimate the benefits of contaminant cleanup in waukegan harbor illinois survey responses to attitudinal and perception questions provide significant information about the existence of distinct preference groups by comparison the predictive usefulness of demographic covariates is unclear the expected aggregate willingness to pay of waukegan homeowners for full cleanup is approximately equivalent to a 20 increase in the market value of homes the aggregate estimate is little affected by the identification of preference clusters

who is credit constrained in the u s economy an important assumption of the life cycle model of consumption is the postulate of perfect capital markets this hypothesis has recently been challenged by substantial empirical evidence hall and mishkin 1982 using the panel study of income dynamics estimate that 20 percent of united states families are liquidity constrained mariger 1986 derives a life cycle model with endogenous liquidity constraints and using a cross section estimates this fraction to be 19 4 percent hubbard and judd 1986 simulate a model with a constraint on net worth which shows that with reasonable assumptions about preferences 19 0 percent of united states consumers are liquidity constrained the emerging consensus points therefore to a fraction of approximately 20 percent of the population behaving in a manner that is inconsistent with the pure life cycle model in addition hayashi 1985 and zeldes 1989 investigate the correlation among consumption wealth and income for various population groups and infer that liquidity constraints are more important for younger families with low levels of wealth and saving the main limitation of these studies is that in their data sets constrained consumers are not observable and have to be identified via indirect evidence thus there is as yet little firm evidence about the characteristics of the consumers who are likely to be credit constrained this paper adopts an approach that differs from previous tests for liquidity constraints because it makes use of data where constrained consumers are observable and explicitly links their existence to credit market imperfections and personal characteristics the data drawn from the 1983 survey of consumer finances scf and described in section ii provide information on individuals whose request for credit has been rejected by financial intermediaries in section iii a model is developed in which consumers and lenders behavior jointly determines the probability that a consumer is rationed in the credit market this probability is then

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

reexamining the added worker effect i introduction the added worker effect refers to a wife entering the labor force when her employed husband becomes unemployed this labor supply response is a transitory method of intertemporally smoothing family income and consumption and is of interest to labor economists and to macroeconomists concerned with the labor force participation of married women over the business cycle the added worker effect is familiar in terms of the income and substitution framework of the labor supply model when family earnings fall as a result of the husband s unemployment the income effect influences the wife to increase her labor supply similarly the wife s reservation wage for market work falls when the husband s increased nonemployment time provides a substitute for her home production and she is more likely to join the labor force as an added worker the wife s reservation wage is also influenced by the degree of complementarity or substitutability of leisure time between the husband and the wife observing the net result of these three factors the existence and the magnitude of the added worker effect is an empirical question this paper expands on the conventional income and substitution explanations in order to emphasize how employment uncertainty and liquidity constraints influence the added worker effect in the context of a dynamic model of family labor supply an unanticipated unemployment spell by the husband and the resulting shift in the budget constraint will alter expectations of future unemployment probabilities which will cause the wife to revise her life cycle profile of current and future labor supplies the explanation of liquidity constraints as a cause of the added worker effect is discussed in much of the literature see mincer 1962 1966 killingsworth and heckman 1986 and rosen 1992 as stressed by lundberg 1985 anticipated unemployment should not produce an added worker effect unless credit constraints limit access to borrowing against future income explaining how the timing of labor supply could be affected by variations in family income mincer 1962 cites capital market imperfections as a reason why a transitory increase in labor force participation of the wife may well be an alternative to dissaving asset decumulation or increasing debt while the added worker effect is easily explained by theoretical models of family labor supply such as those sketched above or that presented by ashenfelter 1980 empirical work has failed to reach a consensus regarding its magnitude or even whether it exists 1 although heckman and macurdy 1982 and lundberg 1985 have shown that the added worker effect is small yet significant pencavel 1982 does not find an added worker effect once he controls for individual specific fixed effects and maloney 1987 1991 does not find any evidence of an added worker effect it is interesting to note the wide variety of data used in this literature heckman and macurdy use annual panel data lundberg uses monthly panel data constructed from quarterly interviews pencavel uses annual panel data constructed from quarterly interviews and maloney uses annual cross sectional data this paper is motivated both by the conflicting empirical work regarding whether or not the added worker effect exists and by the view that the added worker effect should be analyzed using panel data with a short recall period cross sectional microdata cannot adequately capture the intertemporal decisions of wives joining the labor force when their husbands become unemployed annual measures of labor supply are less than ideal for examining the added worker effect since short spells of unemployment by the husband in the preceding year are often forgotten see horvath 1982 and akerlof and yellen 1985 my purpose is to document the magnitude of the added worker effect using monthly longitudinal microdata from the current population survey cps

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

on the rate structure of the american life insurance market this article re examines the conclusion of previous studies that price dispersion is extreme in the american whole life insurance market we take an axiomatic approach to the problem of measuring price dispersion in the market for the multiparameter whole life contracts studying the distribution across contract offers of a price index which is uniquely determined by two conditions in contrast to the accepted wisdom we find that the derived measure of price dispersion is only 3 6 and that much of this dispersion can be accounted for by measurement error during the past twenty years there has been a growing empirical literature on pricing in the life insurance market the industry s apparent lack of price competition and its tremendous importance in the american economy2 have motivated a number of investigations of the distribution of market prices 1 2 3 8 10 the purpose of this paper is to reexamine the question that is central in these studies is price dispersion large in the american life insurance market the basic products of the industry are introduced below section ii of this paper briefly reviews the literature on the rate structure of this industry section iii presents a simple analysis which derives from a distribution of contracts across firms a measure of price dispersion estimates of the derived measure are given in section iv section v discusses some possible causes of price dispersion and estimates an upper bound to the extent of dispersion that cannot be attributed to measurement error or variation in costs across firms the concluding section summarizes and contrasts the results of this paper with the conventional wisdom

combining discrete and continuous representations of preference heterogeneity a latent class approach unobserved preference heterogeneity has been widely recognized as a critical issue not only for modelling choice behaviour but also for policy analysis this paper examines alternative approaches for incorporating heterogeneity in recreational demand we apply a hybrid model combining discrete and continuous heterogeneity representations of tastes to capture the defining features of both the latent class and the random parameter logit specifications this model allows for the joint estimation of discrete segments and within segment heterogeneity providing a richer interpretation of preference heterogeneity a database of recreational trips to forest sites in mallorca has been used to compare the empirical performance of this hybrid approach with common specifications such as the conditional logit the random parameter logit and the latent class model

stigmatized asset value is it temporary or long term stigma is a negative attribute of real estate acquired by environmental contamination and reflected in its value elliot jones 1996 using a model of neighborhood turnover with external economies we show that both temporary stigma and long term stigma are possible equilibrium outcomes after the discovery and cleanup of a hazardous waste site the existence and duration of stigma are examined using hedonic price techniques with data from housing sales prices in dallas county texas we find that results depend critically on distance from the hazardous waste site neighborhood turnover due to changes in the level of poverty also appears likely

a capital budgeting analysis of life insurance costs in the united states 1950 1979 a capital budgeting procedure is applied in developing a real price index for life insurance over three decades individual life policies of three types are analyzed the analysis reveals that although the cost of whole life insurance measured in nominal values has decreased over the past thirty years when properly measured in present value or constant dollar terms the cost has risen substantially term life insurance has been characterized by decreasing costs in both nominal and real terms the amounts of the cost variations attributable to improving survival rates changing policy terms varying discount rates and differing tax status are identified

consumption smoothing in island economies can public insurance reduce welfare abstract in this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment we show that this type of insurance can improve the wellbeing of private situations but it can also deteriorate it we also describe how different characteristics of the environment affect the role of public insurance using data on the mexican progresa program we document the impact that some government programs have in crowding out private transfers

social stigma and asset value recent attempts by economists to identify and quantify the effect of social stigma on asset value have often been stymied by confounding mechanisms i use the unique circumstances surrounding the 1999 columbine shooting to estimate the effect of social stigma on asset value using a difference in differences model with property fixed effects i find the immediate effect of stigma from the columbine shooting is 5 7 of a property s value after one year this implies a 13 million loss from property sales in the year 2000 alone the results are robust to numerous specifications and synthetic control placebo tests this suggests that social stigma plays a role in consumer preferences

a joint latent class model combining likert scale preference statements with choice data to harvest preference heterogeneity in addition to choice questions revealed and stated choices preference surveys typically include other questions that provide information about preferences preference statement data include questions on the importance of different attributes of a good or the extent of agreement with a particular statement the intent of this paper is to model and jointly estimate preference heterogeneity using stated preference choice data and preference statement data the starting point for this analysis is the belief that the individual has preferences and both his her choices and preference statements are manifestations of those preferences our modeling contribution is linking the choice data and preference statement data in a latent class framework estimation is straightforward using the e m algorithm even though our model has hundreds of preference parameters our estimates demonstrate that 1 within a preference class the importance anglers associate with different green bay site characteristics is in accordance with their responses to the preference statements 2 estimated across class utility parameters for fishing green bay are affected by the preference statement data 3 estimated across class preference statement response probabilities are affected by the inclusion of the choice data and 4 both data sets influence the number of classes and the probability of belonging to a class as a function of the individual s type

using angler characteristics and attitudinal data to identify environmental preference classes a latent class model a latent class model of environmental preference groups is developed and estimated with only the answers to a set of attitudinal questions economists do not typically use this type of data in estimation group membership is latent unobserved the intent is to identify and characterize heterogeneity in the preferences for environmental amenities in terms of a small number of preference groups the application is to preferences over the fishing characteristics of green bay anglers answered a number of attitudinal questions including the importance of boat fees species catch rates and fish consumption advisories on site choice the results suggest that green bay anglers separate into a small number of distinct classes with varying preferences and willingness to pay for a pcb free green bay the probability that an angler belongs to each class is estimated as function of observable characteristics of the individual estimation is with the expectation maximization e m algorithm a technique new to environmental economics that can be used to do maximum likelihood estimation with incomplete information as explained a latent class model estimated with attitudinal data can be melded with a latent class choice model

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

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

the efficiency of monetary exchange in search equilibrium search theoretic models of money emphasize monetary exchange as the outcome of economic environments characterized by bilateral trading frictions this paper analyzes the efficiency of monetary exchange in a search model of fiat money where individuals invest costly effort in the exchange process because the optimal effort each individual trader invests in exchange is based upon the private rather than social gains from trade decentralized monetary equilibria are shown to be inefficient relative to the social optimum however for an appropriate division of the gains from trade given to buyers and sellers it is possible to attain social efficiency the nature of these search externalities for monetary exchange and their implications for policy are evaluated and discussed copyright 1997 by ohio state university press

random coefficient models for stated preference surveys abstract this paper combines the use of random coefficient discrete choice models that allow for correlated errors in the form of unobserved preference heterogeneity with an investigation of the reliability and usefulness of rankings data for the data we examine we find significant unobserved preference heterogeneity in the rankings which violates the underlying assumptions of the rank ordered logit model further directly modeling unobserved preference heterogeneity results in significant improvement in the precision of the parameter estimates and in estimated willingness to pay wtp the reliability and usefulness of rankings data should be re examined with econometric models not subject to the independence of irrelevant alternatives iia

family transfers involving three generations most models of family transfers consider only two generations and focus on two motives altruism and exchange they also assume perfect substitution between inter vivos downward transfers and bequests based on french evidence we show that parent to child transfers belong to three distinct categories investment in child s education financial assistance wealth transmission and advocate a three generation framework thus transfer behavior of parents toward their children is strongly influenced by the behavior of their own parents there is also some evidence of the cox and stark demonstration effect parents help their own parents expecting to receive comparable support from their children such behavior can be regarded as indirect reciprocity the beneficiary does not give back to the initial giver but to a third person of another generation jel classification d10 d31 d63 d64

recreation demand models with taste differences over people we estimate random parameter logit models of anglers choice of fishing site the models generalize logit by allowing coefficients to vary randomly over anglers rather than being fixed the models do not exhibit the restrictive independence from irrelevant alternatives property of logit and can represent any substitution pattern estimation explicitly accounts for the fact that the variation in coefficients over anglers induces correlation in unobserved utility over trips by the same angler willingness to pay for improved fish stock and the value to anglers of specific sites are calculated from the models and compared with the estimates obtained from a standard logit model

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

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

employment constraints and the labor supply of married women a reexamination of the added worker effect little evidence is found to support the conventional notion of the added worker effect the husband s unemployment has no measurable impact on the wife s actual hours of work however the constraint on his ability to supply hours of work to the labor market and not simply his unemployment influences his wife s labor supply furthermore the observed hours of work of the wife may not accurately reflect her desired hours of work with these considerations the wife s labor supply is found to be positively associated with the unemployment and underemployment of her husband and this added worker effect is estimated to be quite substantial

corrigendum on a life cycle model of female labour supply in the empirical work in our article on the intertemporal substitution of leisure time for married women heckman and macurdy 1980 we inadvertently constrained the estimated intertemporal substitution elasticity to be too high since this parameter plays a prominent role in discussions of equilibrium models of the business cycle and since our empirical work has been cited in discussions on this topic e g hall 1980 we would like to present a corrected set of empirical results for our model the period t utility function adopted in this note is in the notation of our original paper equation 15

self enforcing wage contracts we examine long term wage contracts between a risk neutral firm and a risk averse worker when both can costlessly renege and buy or sell labour at a random spot market wage a self enforcing contract is one in which neither party ever has an incentive to renege in the optimum self enforcing contract wages are sticky they are less variable than spot market wages and positively serially correlated they are updated by a simple rule around each spot wage is a time invariant interval and the contract wage changes each period by the smallest amount necessary to bring it into the current interval