the demand for housing in sweden equilibrium choice of tenure and type of dwelling abstract most studies of housing demand and tenure choice only identify two modes of tenure owner occupied one family houses and rental apartments furthermore they are typically based on a cross section across all households in this study we use recent swedish data to overcome these weaknesses we identify owner occupied apartments coop shares as a third mode of tenure and show that this should be treated separately we also use information about the household s own assessment of its probability of moving during the next year we demonstrate that it makes a large difference if likely movers are eliminated from the sample

does adding up of economic capital for market and credit risk amount to conservative risk assessment there is a tradition in the banking industry of dividing risk into market risk and credit risk both categories are treated independently in the calculation of risk capital but many financial positions depend simultaneously on both market risk and credit risk factors in this case an approximation of the portfolio value function separating value changes into a pure market risk plus pure credit risk component can result not only in an overestimation but also in an underestimation of risk we discuss this compounding effect in the context of foreign currency loans and argue that a separate calculation of economic capital for market risk and for credit risk may significantly underestimate true risk

permanent income hedonic prices and demand for housing new evidence abstract housing demand is examined by looking quite specifically at the income and price variables based on individual household data permanent and transitory incomes are computed through instrumental variables related to human and nonhuman wealth a price is constructed by spatially varying hedonic techniques separation of measured income into permanent and transitory components substantially improves the predictive power of the housing demand estimation and leads to demand elasticities of 1 and 1 with respect to permanent income and price the permanent income elasticity is roughly twice the measured income elasticity

an empirical investigation of alternative approaches to estimating the equilibrium demand for housing two approaches to estimating the desired or equilibrium housing demand parameters have been utilized in recent literature one approach commonly referred to as the conventional model assumes that households continuously consume their temporal equilibrium housing services where a temporal equilibrium is defined with respect to the household s current economic and demographic characteristics based upon this assumption conventional demand studies have employed random samples which include a majority of households that have not recently moved see lee and kong 6 or carliner 2 a problem with this approach is its failure to recognize moving costs households must pay to alter their housing service consumption the existence of moving costs suggests that households may not respond rapidly to changes in their desired consumption of housing but instead remain in their dwelling unit until the cost incurred from consuming the non equilibrium level of services exceeds the cost of relocating if so demand samples employed in conventional studies may include a significant number of disequilibrium observations this causes two problems first there exist measurement errors in independent variables that have changed since the household was last in equilibrium second the true equilibrium effect of an independent variable may be incorrectly estimated due to its correlation with either the occurrence of disequilibrium or the length of the housing adjustment lag the second approach to estimating the equilibrium parameters attempts to minimize these problems by restricting the sample to households that have recently moved see hanushek and quigley 3 or aaron l

household formation housing prices and public policy impacts abstract this paper specifies and estimates a model of housing demand that explicitly includes the decision of individuals to form independent households parameter estimates reveal a considerable response of headship rates not only to income but also to housing prices analysis of housing policies ignoring the endogeneity of household formation is thus potentially biased the model is employed to evaluate the effects of a housing voucher program simulated responses indicate that such a program creates a substantial additional demand for housing due to its positive impact on the propensity of young and elderly persons to live independently

intraurban residential mobility the role of transactions costs market imperfections and household disequilibrium abstract this paper presents a model of household residential search and mobility that focuses on microeconomic elements of household behavior and incorporates housing market features the model is cast explicitly in terms of a rigorous model of housing demand allowing the benefits from moving to be measured as the compensating income variation of the potential change in consumption the empirical results indicate that large changes in economic variables such as income and prices produce only small potential gains from moving and that a major factor in the moving decision is the magnitude of search and moving costs

can agents be better off with pay caps a popular way to discipline the managers of companies or banks that got into trouble during the recent financial crisis has been to impose caps on managers pay using a small extension of the standard principal agent model we argue that pay caps might serve the opposite purpose because the agent might be better off with a pay cap specifically we show that given a fixed effort level to be implemented the agent s expected utility can be decreasing in an upper bound for the agent s reward the effect of pay caps on the general structure of optimal incentive contracts is also characterized while an improvement of contracting information always helps the principal it might increase or decrease the marginal cost of imposing pay caps

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

nonlinearly weighted convex risk measure and its application abstract we propose a new class of risk measures which satisfy convexity and monotonicity two well accepted axioms a reasonable and realistic risk measure should satisfy through a nonlinear weight function the new measure can flexibly reflect the investor s degree of risk aversion and can control the fat tail phenomenon of the loss distribution a realistic portfolio selection model with typical market frictions taken into account is established based on the new measure real data from the chinese stock markets and american stock markets are used for empirical comparison of the new risk measure with the expected shortfall risk measure the in sample and out of sample empirical results show that the new risk measure and the corresponding portfolio selection model can not only reflect the investor s risk averse attitude and the impact of different trading constraints but can find robust optimal portfolios which are superior to the corresponding optimal portfolios obtained under the expected shortfall risk measure

life cycle and housing adjustment as explanations of residential mobility the paper develops a typology of reasons for residential mobility and systematises the many survey analyses of reasons for moving the relative importance of life cycle and housing adjustment mecha

comparative analysis of the social demographic and economic factors that influenced housing choices in spain in 1990 and 2000 the housing market is an important sector in the economy of any country residential demand also referred to as housing consumption depends on many demographic and social characteristics of the country s population and is also related to economic factors the aim of the present paper was to evaluate the joint effects of economic demographic and social factors on household behaviour with respect to housing choices in addition an attempt was made to determine the impact of recent economic and structural changes in spanish society in 1990 and 2000 on residential demand it was found that the consequences of these structural changes will have medium and long term effects on housing demand and that the current economic situation has significantly affected the short term changes in this demand

the role of collateral in credit markets with imperfect information abstract the paper analyzes the structure of credit market equilibrium under imperfect information collateralization and credit rationing are compared as alternative means to cope with problems of adverse selection and moral hazard it is shown that lenders may use collateral as a self selection and incentive mechanism rationing occurs only if the borrowers collaterizable wealth is too small to allow perfect sorting or to create sufficiently strong incentives whenever there is rationing in an equilibrium some borrowers are charged the maximum amount of collateral

taxation of capital gains on owner occupied homes the paper compares taxation on realization with taxation on accrual in the context of owner occupied housing it considers a model where the utility a household derives from housing relative to other consumption varies over the life cycle as there are sizeable transaction costs housing consumption will not even in the absence of taxes be adjusted continuously but at discrete intervals the focus of the paper is on tax effects on the length of these intervals the following results are shown u taxing true economic appreciation at the same rate as imputed rental income and other capital income will lead to a shortening of the intervals if the capital gains are taxed on accrual an increase in this tax rate holding other rates constant will lead to a shortening of the intervals if the capital gains are taxed only as they are realized an increase in this tax rate holding other rates constant may either lead to a lengthening or a shortening of the holding period shortening is more likely if transaction costs are large whereas lengthening will occur if the rate of price increase is high

neighborhood externality risk and the homeownership status of properties in contrast to corporate and institutional investors single owner occupiers cannot adequately diversify housing investment risk consequently homeownership should be relatively less likely in places with higher housing investment risk using the american housing survey it is documented that neighborhood externality risk a major component of housing investment risk substantially reduces the probability that a housing unit is owner occupied even when controlling for housing type and numerous location and household specific characteristics the effects are quantitatively meaningful and change in change estimates suggest that the effects are causal

moving and housing expenditure transaction costs and disequilibrium abstract this paper specifies and estimates a model of rental housing expenditure that explicitly incorporates moving transaction costs parameter estimates reveal low income elasticities and substantial moving costs which vary considerably among families the model is employed to evaluate the effects of proposed subsidy schemes simulated responses indicate that high moving costs deter many families from adjusting current rental expenditure to higher levels in response to subsidies an additional dollar of unconstrained subsidy payment will on average increase rental expenditures by only 2 7 cents schemes with minimum rent requirements are also quite ineffective and involve substantial deadweight loss comparisons of the model predictions with estimated program effects based on experimental data are also included

the impact of transaction costs and the expected length of stay on homeownership abstract economic theory suggests that an increase in the expected length of stay in a dwelling increases the probability of a household choosing to own a house rather than rent this hypothesis is derived from recognition that there are substantial transaction costs associated with homeownership and increased expected time in the home reduces the annualized transaction cost using a military data set we confirm that expected length of stay in a dwelling and the transaction costs of selling are very important to the ownership decision our best estimate of the transaction costs of selling a home are the sum of 3 of house value and 4 of household earnings

do banks overstate their value at risk abstract this paper is the first empirical study of banks risk management systems based on non anonymous daily value at risk var and profit and loss data using actual data from the six largest canadian commercial banks we uncover evidence that banks exhibit a systematic excess of conservatism in their var estimates the data used in this paper have been extracted from the banks annual reports using an innovative matlab based data extraction method out of the 7354 trading days analyzed in this study there are only two exceptions i e days when the actual loss exceeds the disclosed var whereas the expected number of exceptions with a 99 var is 74 for each sample bank we extract from historical vars a risk overstatement coefficient ranging between 19 and 79 we attribute var overstatement to several factors including extreme cautiousness and underestimation of diversification effects when aggregating vars across business lines and or risk categories we also discuss the economic and social cost of reporting inflated vars

the level and quality of value at risk disclosure by commercial banks in this paper we study both the level of value at risk var disclosure and the accuracy of the disclosed var figures for a sample of us and international commercial banks to measure the level of var disclosures we develop a var disclosure index that captures many different facets of market risk disclosure using panel data over the period 1996 2005 we find an overall upward trend in the quantity of information released to the public we also find that historical simulation is by far the most popular var method we assess the accuracy of var figures by studying the number of var exceedances and whether actual daily vars contain information about the volatility of subsequent trading revenues unlike the level of var disclosure the quality of var disclosure shows no sign of improvement over time we find that var computed using historical simulation contains very little information about future volatility

rent control and misallocation rent control is still an important type of government regulation of housing markets in many countries and numerous researchers have studied its implications for allocation welfare and investments in housing the present paper aims to improve our understanding of the effect of second generation rent control when it is applied only to one sector of the rental market it is diagrammatically shown that the welfare effects are very different between a universal and a limited application of rent control studying the danish case of second generation rent control lower rents are found in controlled sectors and a minor increase of the rent in the uncontrolled sector using the area of living space in the dwelling as a measure for housing consumption evidence is also produced of both overallocation and underallocation of housing in the rent controlled sectors as envisaged by economic theory

housing and urban location decisions in spain an econometric analysis with unobserved heterogeneity this paper examines the simultaneous individual choices in spain as regards housing tenure choice and demand and urban location decisions taking into account certain unobserved heterogeneity exhibited by individuals a multinomial mixed logit model is proposed to portray household decisions considering four different options homeownership according to the type of urbanisation of the neighbourhood high level urban property medium inferior level urban property and rural property and renting finally housing demand is estimated controlling for sample selection the results confirm that both housing tenure and urban location in addition to the unobserved heterogeneity of individuals in this context could modify appreciably housing demand estimates for both owners and renters

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

the baby boom housing and loanable funds this paper examines baby boom effects in a simple three period overlapping generations model in which equilibrium must be maintained in the housing market as well as in the loanable funds market all agents must buy a house financed by an adjustable rate mortgage in the first period expectations regarding the path of interest rates and the price of housing play a crucial role in determining effects of the population bulge under static expectations the rate of interest falls sharply at the appearance of the baby boom while the price of housing increases behavior in the market for loanable funds explains this surprising result when rational expectations are assumed however the rate of interest rises prior to and during the appearance of the baby boom and the price of housing increases as well welfare and long term effects in the two scenarios do not differ markedly

diversification and value at risk a pervasive and puzzling feature of banks value at risk var is its abnormally high level which leads to excessive regulatory capital a possible explanation for the tendency of commercial banks to overstate their var is that they incompletely account for the diversification effect among broad risk categories e g equity interest rate commodity credit spread and foreign exchange by underestimating the diversification effect bank s proprietary var models produce overly prudent market risk assessments in this paper we examine empirically the validity of this hypothesis using actual var data from major us commercial banks in contrast to the var diversification hypothesis we find that us banks show no sign of systematic underestimation of the diversification effect in particular diversification effects used by banks is very close to and quite often larger than our empirical diversification estimates a direct implication of this finding is that individual vars for each broad risk category just like aggregate vars are biased risk assessments

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

dynamic aspects of consumer decisions in housing markets abstract in this study we estimate a model of the joint tenure length of stay and consumption level choices of families in the housing market this is the first attempt we know of to do this type of estimation the data pertain to a single residence spell per household from the panel study of income dynamics wealthier and better educated families were found to be more mobile in terms of housing consumption after accounting for tenure choice and controlling for planned length of stay renters and owners were found to have similar demand function relationships in terms of the impacts of socioeconomic variables this confirms the notion that renters and owners are not differentiated by housing choice but simply in life cycle circumstances as to when it is optimal to own or rent

the income elasticity of demand for single family owner occupied housing an empirical reconciliation abstract past studies estimate the permanent income elasticity of demand for single family owner occupied housing to range from 0 14 to 1 5 a range much too broad to be of any use for solving policy questions data from the panel study of income dynamics are used herein to test the sensitivity of this income elasticity to several factors the results suggest that differences in sample population with respect to duration of housing tenure explain a large portion of the variation in the estimates of this elasticity the paper concludes that for short run applications the probable value of this elasticity is approximately 0 70 and for long run applications the probable value of this elasticity might best be taken as approximately 1 00

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

the economics of labor coercion the majority of labor transactions throughout much of history and a significant fraction of such transactions in many developing countries today are coercive in the sense that force or the threat of force plays a central role in convincing workers to accept employment or its terms we propose a tractable principal agent model of coercion based on the idea that coercive activities by employers or guns affect the participation constraint of workers we show that coercion and effort are complements so that coercion increases effort but coercion always reduces utilitarian social welfare better outside options for workers reduce coercion because of the complementarity between coercion and effort workers with a better outside option exert lower effort in equilibrium and thus are coerced less greater demand for labor increases coercion because it increases equilibrium effort we investigate the interaction between outside options market prices and other economic variables by embedding the coercive principal agent relationship in a general equilibrium setup and studying when and how labor scarcity encourages coercion general market equilibrium interactions working through the price of output lead to a positive relationship between labor scarcity and coercion along the lines of ideas suggested by domar while interactions those working through the outside option lead to a negative relationship similar to ideas advanced in neo malthusian historical analyses of the decline of feudalism in net a decline in available labor increases coercion in general equilibrium if and only if its direct partial equilibrium effect is to increase the price of output by more than it increases outside options our model also suggests that markets in slaves make slaves worse off conditional on enslavement and that coercion is more viable in industries that do not require relationship specific investment by workers

why were workers whipped pain in a principal agent model one reason a person hurts another is to get that person to do something this paper uses a model to show that threatening pain can be rational and that pain is inflicted upon people who are poor in the sense of having bad alternatives the model corrects a confusion in previous models of slavery gives an explanation of why child and not adult laborers were beaten during the industrial revolution and prompts a discussion of the dangers of rational choice modeling copyright 1990 by royal economic society

the copula garch model of conditional dependencies an international stock market application abstract modeling the dependency between stock market returns is a difficult task when returns follow a complicated dynamics when returns are non normal it is often simply impossible to specify the multivariate distribution relating two or more return series in this context we propose a new methodology based on copula functions which consists in estimating first the univariate distributions and then the joining distribution in such a context the dependency parameter can easily be rendered conditional and time varying we apply this methodology to the daily returns of four major stock markets our results suggest that conditional dependency depends on past realizations for european market pairs only for these markets dependency is found to be more widely affected when returns move in the same direction than when they move in opposite directions modeling the dynamics of the dependency parameter also suggests that dependency is higher and more persistent between european stock markets

the demand for housing in britain and population ageing microeconometric evidence the paper estimates a household s demand function for housing using household data esti mates of the price and current income elasticities are robust at about 0 4 and 0 5 respec tively independent of price and income effects there is a strong age pattern to household demand in conjunction with the age profile of household formation this pattern implies that changes in the age distribution of the population have important effects on aggregate housing demand although economic growth dominates in determining its rate of growth during the 1980s there was a dramatic boom in british house prices followed by large declines in the early 1990s while financial deregulation and rapid growth in real incomes for people in non manual occupations contributed to the rise in housing demand and prices changes in the population s age distribu tion also played a role ermisch 1990 in particular the number of people in the prime ages for first house purchase increased as a consequence of the baby boom of the 1960s the fall in birth rates during the 1970s and continued low fertility during the 1980s entail smaller numbers in these prime ages and an ageing of the population more generally what effect will these changes in the age distribution of the population in britain have on housing demand and house prices it may be possible to use aggregate data to answer this question e g in fair and dominguez 1991 but as recently stressed by stoker 1993 the most informative assessments of such distributional effects on demand come from studying individual level cross section or panel data a recent study in this vein by mankiw and weil 1989 of the us housing market experience has attracted a great deal of attention because it suggests that house prices are going to fall dramatically in the coming years because of the ageing of the population while their study estimates an age pattern of housing demand from micro data they admit it is a biased estimate and their conclusions concerning the impact of age distribution on house prices are based on a simple aggregate time series equation which omits income and other housing demand and sup ply shifters this paper takes a microeconometric approach it estimates a demand func tion for housing in britain and then examines the implications of prospective changes in the age distribution for housing demand an important by product in estimating the demand function is an estimate of the price elasticity of housing demand despite the importance of this parameter in assessing the impact of policy changes estimates of it for britain are few and existing ones are questionable because of the absence of appropriate data for its estimation

moving costs and housing demand abstract several recent housing demand studies use samples of recent movers based on the presumption that only such households are on their demand curves we find contrary to this presumption that the absolute values of the residuals from a standard housing demand equation fall with duration in the present dwelling this shows that the correlation pattern between housing and the explanatory variables at the moving date does not correspond to the average pattern over a typical housing spell we interpret this as evidence of forward looking behavior and show how it may be handled in econometric work with cross section samples

an evaluation of bank measures for market risk before during and after the financial crisis abstract we study the performance and behavior of value at risk measures used by a number of large u s banks before during and after the financial crisis alternative benchmark var measures including garch based measures are estimated directly from the banks trading revenues to explain the bank var performance results while overly conservative in both the pre crisis and post crisis periods bank var exceedances were excessive and clustered in the crisis period this contrasted with mostly unbiased benchmark hs and garch vars in the pre crisis and post crisis periods and vastly superior garch based var performance in the crisis period with lower exceedance rates and no exceedance clustering our results document the bank vars very slow adjustment to changing market conditions and their systematic bias in all studied periods our results indicate that bank vars could be improved by the use of models with time varying volatility and built on banks knowledge of their current positions

housing demand and disequilibrium abstract researchers have recently begun relying heavily on samples of recent movers to estimate housing demand parameters estimates from mover equilibrium and disequilibrium samples are compared to determine whether significant differences exist the results suggest that income elasticities are not affected by the sample distinctions but demographic effects vary across the different subsamples

performance standards and incentive pay in agency contracts when the presence of limited liability restricts a principal from imposing monetary fines on an agent in case of poor performance the principal might use other kinds of punishment threats to deter the agent from shirking we show that under the optimal contract in this case the principal sets a performance standard and punishes the agent if the standard is not met but rewards the agent on a profit sharing basis if the standard is significantly exceeded the optimal choice of performance standards for such contracts is discussed it is shown that punishment threats although inefficient often help the principal to discipline the agent jel classification d82

the pernicious effects of contaminated data in risk management banks hold capital to guard against unexpected surges in losses and long freezes in financial markets the minimum level of capital is set by banking regulators as a function of the banks own estimates of their risk exposures as a result a great challenge for both banks and regulators is to validate internal risk models we show that a large fraction of us and international banks uses contaminated data when testing their models in particular most banks validate their market risk model using profit and loss p l data that include fees and commissions and intraday trading revenues this practice is inconsistent with the definition of the employed market risk measure using both bank data and simulations we find that data contamination has dramatic implications for model validation and can lead to the acceptance of misspecified risk models moreover our estimates suggest that the use of contaminated data can significantly reduce market risk induced regulatory capital

prices parents and young people s household formation an economic theory of young people s decision to live apart from parents is presented and used to structure econometric analyses of the processes of leaving the parental home and returning to it which employ data from the british household panel survey for the first half of the 1990s the econometric estimates support the predictions of the theory in particular tighter housing markets as indicated by higher regional relative house prices significantly retard home leaving especially the formation of partnerships and encourage returns to the parental home young people with larger current income are more likely to leave but less likely to return to the parental home

efficiency wages and equilibrium wages i introduction economists have long sought to explain unemployment in ways consistent with individual agents optimizing behavior a recent although controversial model in this vein is the efficiency wage paradigm which focuses on the difficulty of monitoring worker performance when production is organized in teams to discourage nonperformance by employees firms monitor their workers and dismiss those who are caught shirking a firm may further discourage nonfeasance by paying its workers higher wages than they could earn elsewhere then workers caught shirking not only become unemployed but forfeit the rents associated with their jobs 1 in this scenario in order to maintain the incentives not to shirk firms will not cut wages even though equally qualified unemployed workers are willing to work for less the result is disequilibrium in the labor market and possibly involuntary unemployment 2 a series of theoretical studies have demonstrated the conditions under which efficiency wages may occur standard references include eaton and white 1982 1983 shapiro and stiglitz 1984 foster and wan 1984 bowles 1985 and calvo 1985 yellen 1984 reviews the early literature while katz 1986 stiglitz 1987 and carmichael 1990 discuss more recent work but as carmichael emphasizes in his review few papers have actually attempted to test the predictions of the efficiency wage models most of the existing empirical investigations examine the importance of industrial wage differentials krueger and summers 1987 1988 dickens and katz 1987 and murphy and topel 1987a find that there are substantial unexplained industrial wage differentials which bulow and summers 1986 and krueger and summers 1987 1988 attribute to efficiency wages however the magnitude as well as the interpretation of these industrial wage differentials is disputed see carmichael 1990 leonard 1987 and murphy and topel 1987a 1987b for differing views this paper extends the efficiency wage model in a straightforward way to address two questions will the labor market clear if firms can only imperfectly monitor worker effort and do industrial wage differentials provide a test for the importance of efficiency wages we offer two modifications to traditional efficiency wage models first we recognize that there may be an explicit cost to being fired for instance dismissed workers may find it more difficult to find future employment because of poor references from their previous employer they may incur high psychic costs as a result of being fired or they may have to suffer large search costs in locating another job second we let the firm choose the performance standard 3 it seems only natural that a firm wanting more effort from its employees would hold its workers to a more rigorous performance standard just as a firm seeking a higher quality labor force may require more schooling of its applicants while the firm must compensate the worker for the extra effort necessary to meet the higher performance standard payment of efficiency wages could be avoided following the efficiency wage literature we make the strong assumption that all implicit or explicit bonding mechanisms are prohibitively costly to implement our model of the worker s and firm s behavior is specified in section ii the model includes as special cases a market paying equilibrium wages one paying non market clearing efficiency wages and a dual labor market that is a combination of the two we demonstrate that the firm need not pay efficiency wages even in the presence of the agency problem the use of the performance standard gives the firm another instrument other than the wage to control worker effort and welfare there are limits to how high the performance standard will be adjusted however before the firm will offer an efficiency wage we present the details of these arguments in section iii

moving and improving strategies for attaining housing equilibrium the concept of equilibrium consumption is central to much housing market analysis yet analysts must contend with the likelihood that many housing consumers are not at an exact equilibrium level of

does investment risk affect the housing decisions of families i introduction the purpose of this article is to investigate the effect of heightened price volatility in housing markets on homeownership and housing demand the literature on housing markets has recognized that buying a home involves consumption and investment motives as in ranney 1981 henderson and ioannides 1983 and fu 1995 purchasing a home requires a concentrated investment in housing stock that for most families is not easily diversified caplin et al 1997 indeed in 1995 the typical american household had most of its gross assets in real estate and held no corporate equity and only households in the top 10 of the wealth distribution held portfolios that were diversified tracy et al 1999 in 1998 despite strong stock market gains home equity was a dominant investment for most households although roughly two thirds owned their homes less than half of all households held stock of those households owning both stocks and homes 60 had more wealth in home equity than in stocks di 2001 nominal house prices in u s cities have generally risen over time with some cities experiencing periods of steep house price appreciation however homeowners in many cities have been exposed to considerable downside risk according to repeat sales price indexes published by the federal home loan mortgage corporation freddie mac significant one year declines in home prices are not uncommon for example nominal declines of 15 5 and 9 occurred in san antonio in 1985 denver in 1987 and boston in 1990 respectively sustained house price declines have occurred in texas california and the eastern states for example in the long beach los angeles metropolitan area the nominal price of single family homes declined 22 from 1990 to 1996 1 furthermore there is evidence that losses at the time of sale are surprisingly common 2 what is not clearly understood is the extent to which families are responsive to such house price risk the investment literature has demonstrated that risk averse households prefer to hold less risk at a given expected rate of return when house prices are uncertain homeownership and demand relationships depend on the distribution of the random price variable 3 fu 1991 characterizes the price distribution by its first and second moments and shows that the likelihood of homeownersbip and the demand for owner occupied housing are increasing in the expected rate of house price appreciation and decreasing in house price volatility these results do not hold however for liquidity constrained households when households cannot borrow against the expected future gains of housing investment for current consumption the theoretical effects on housing choices of the expected rate of return and house price uncertainty are ambiguous fu 1995 thus the effect of price volatility on housing choices remains to be determined empirically the empirical research on housing markets includes a number of micro level econometric studies on the determinants of homeownership and housing demand these studies provide a framework for the present study and have shown that a household s after tax relative cost of homeownership permanent and transitory income and family composition are important in explaining housing decisions e g see rosen 1979 dynarski and sheffrin 1985 henderson and ioannides 1987 1989 in addition homeownership is negatively impacted by income uncertainty haurin 1991 and by an inability to generate savings for a down payment as in henderson and ioannides 1987 linneman and wachter 1989 haurin et al 1994 and gyourko et al 1999 nevertheless despite the importance of owner occupied housing in the portfolios of homeowners surprisingly little empirical work exists on the housing choices of families in the presence of house price uncertainty rosen et al 1984 provide some empirical evidence on the question of housing choices and risk

a residence time model of housing markets abstract this paper estimates a semi markov model of housing markets in which families move from one home to another spend a random amount of time in each home and choose whether to own or to rent at each move limiting conditions of the semi markov process are used to characterize the steady state frequency of owner occupied housing and to simulate the impact of changes in housing tax policy this approach differs markedly from previous studies of housing tax policy which focus on the entire population as opposed to the movers and ignore the effect of household residence times see king 1980 rosen 1979 white and white 1977 or laidler 1969 residence times further influence the analysis by affecting the relative cost of owning to renting in the tenure choice model homeowners pay legal and realtor fees at the time they move out of their homes which renters do not have to pay the discounted value of these fees declines with length of stay and provides a structural explanation of why families with longer residence times have a greater propensity to own results from the empirical analysis suggest that the semi markov model closely predicts conditions in the united states and provide important insights into the effects of housing tax policy residence times are also found to influence household tenure choice through their impact on the discounted legal and realtor fees paid by homeowners

imperfect capital markets and the monetarist black box liquidity constraints inflation and the asymmetric effects of interest rate policy in this paper we examine the effects of unanticipated changes in interest rates on consumers expenditure in a model in which capital markets are imperfect we show that where constraints exist on the amounts individuals can borrow individuals may rationally choose to borrow up to the limits of such constraints over part of their lifetimes such liquidity constrained individuals in general have a higher marginal propensity to consume out of changes in current income than is the case with liquidity unconstrained individuals changes in interest rates which have the effect of redistributing income between liquidity constrained monetary debtors and liquidity unconstrained creditors will thus have a net effect on aggregate consumption we further show that this effect operates asymmetrically in the sense that an increase in interest rates will have a larger net impact than a fall formally we examine the impact of a change in the interest rate which we assume exogenous on the behaviour of an individual consumer the analysis is thus independent of the source of the interest rate shock 2 but we believe an important application of the model concerns the transmission mechanism through which monetary policy operates in this paper we do not consider the relationship between the supply of money and interest rates but simnply follow standard economic theory in assuming that monetary policy operates through the impact of interest rates on expenditure it is the mechanism linking interest rate changes to expenditure that has proved hard to identify and it is in this respect that our analysis may be relevant in suggesting a process through which interest rates can affect expenditure which appears to have been neglected hitherto the model provides a possible channel of transmission of monetary policy different from those usually considered 3 in so doing the model may offer some insight into the transmission processes within the monetarist black box and indeed suggests that the efficacy of monetary policy may in part depend on the existence of capital market imperfections

the economic determinants of young people s household formation the paper derives predictions about the impact of the price of housing young adults income and parental income on the probability that a young adult in the united kingdom lives apart from his her parents it shows that the predicted effect of the price of housing is intimately related to the price elasticity of housing demand it uses longitudinal data on a cohort of britons born in 1958 surveyed in the national child development study to estimate dynamic models of first departure from the parental home and particularly to estimate the impact of housing price on the timing and destination of first departure excerpt

demographic change and the housing market evidence from a comparison of scotland and england this paper examines the impact of demographic change on the housing market more specifically a difference in differences methodology is used to explore the effect of population decline and population ageing on house prices in scotland and england wales the analysis suggests that population decline and population ageing put downward pressure on prices therefore the long run trend of rising real house prices can not be assumed to continue into the future particularly in scotland

the euro and european financial market dependence a time varying copula model is used to investigate the impact of the introduction of the euro on the dependence between 17 european stock markets during the period 1994 2003 the model is implemented with a gjr garch ma t model for the marginal distributions and the gaussian copula for the joint distribution which allows capturing time varying non linear relationships the results show that within the euro area market dependence increased after the introduction of the common currency only for large equity markets such as in france germany italy the netherlands and spain structural break tests indicate that the increase in financial market dependence started around the beginning of 1998 when euro membership was determined and the relevant information was announced the uk and sweden but not other european countries outside the euro area are found to exhibit an increase in equity market co movement which is consistent with the interpretation that these countries may be expected to join the euro in the future

repeated insurance contracts and moral hazard abstract an attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims we argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard

residential mobility and the housing market in a two sector neoclassical growth model the impact of residential mobility and competitive housing markets on long run growth is examined using a two sector general equilibrium overlapping generations model in continuous time there is an infinity of agents with finite lives who adjust their housing consumption by moving which is costly we explore the model s steady state properties first with a free housing market then under rent control when the market clears through restrictions on the frequency of moves rent controls do not just reduce welfare they may increase the steadystate capital labor ratio

estimating equilibrium housing demand for stayers abstract this study models demand by owner occupied housing stayers most consumers do not move routinely in response to small changes in income or housing price so the own rent and move stay decisions are modeled as multiperiod optimization in the presence of transaction costs the empirical section uses the american housing survey to provide a panel of household stayers for a metropolitan area results indicate that income and value rent measures in different years have separable and significant impacts on housing demand estimated conditional income elasticities are between 0 40 and 0 45