exchange rate policy union wage index and credibility abstract optimal exchange rate regimes for small open economies with economy wide wage setting and privately optimal wage indexation schemes are analysed a fully discretionary exchange rate regime a managed float offers flexibility while a credible fixed exchange rate regime offers price stability due to the time inconsistency problem optimal wage indexation under a managed float may imply complete indexation of wages to prices a managed float is shown to be unambiguously superior to a binding fixed exchange rate regime if wage setters value price stability as high as the policy maker does

education and invention abstract modern growth theory puts invention on the center stage inventions are created by individuals raising the question of whether we can increase the number of inventors to answer this question we study the causal effect of msc engineering education on invention using data on u s patents finnish inventors and the distance to the nearest technical university as an instrument we find a positive effect of engineering education on the propensity to patent and a negative ols bias our counterfactual calculation suggests that establishing three new technical universities resulted in a 20 increase in the number of uspto patents by finnish inventors

early tracking and the misfortune of being young recent research suggests that the relative age of a student within a grade has a causal effect on educational achievement and that this effect fades with the duration of schooling in this study we estimate the causal relative age effect on track choice in austria a country where students are first tracked in grade 5 at the age of 10 years and again in grade 9 we find a strong positive relative age effect on track choice in grades 5 8 the age effect persists beyond grade 8 for students from less favorable socioeconomic backgrounds and students in urban areas

the output inflation tradeoff and central bank reform evidence from new zealand the 1989 reserve bank of new zealand act provides a natural experiment in which the effects of institutional change on economic relationships can be studied the act set price stability as the single objective of monetary policy and gave the bank great independence reforms of this nature may lead to a greater short run output inflation tradeoff by altering optimal stabilisation policy and wage indexation allowing for environments where learning about the new regime is assumed to be rapid as well as slow we find that a large rise in the new zealand tradeoff has occurre d since implementation of the act

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

monetary uncertainty strategic wage setting and equilibrium employment abstract an important recent strand of literature has shown that if wages are set strategically by inflation averse non atomistic unions then equilibrium employment is sensitive to the monetary regime this note demonstrates that such sensitivity need not reflect a direct aversion to inflation by unions but instead may result from union concerns for employment objectives in circumstances in which the variance and mean value of inflation are positively related

decomposing intergenerational income elasticity the gender differentiated contribution of capital transmission in rural philippines summary using longitudinal data from rural philippines we decompose intergenerational income elasticity ige into five distinct pathways intergenerational transmissions of health education land and spouse education capital plus residual correlation in productivity intergenerational human capital transmissions from mothers are stronger than those from fathers maternal education is the parental capital most strongly associated with ige while naive ige estimates are indistinguishable for sons and daughters the pathways that generate these results differ strikingly for sons ige is entirely explained by parent to child capital transmission by contrast strong income correlation exists between daughters and parents even after controlling for parent and child capital endowments

competition between private and public schools vouchers and peer group effects a theoretical and computational model with tax financed tuition free public schools and competitive tuition financed private schools is developed students differ by ability and income achievement depends on own ability and on peers abilities equilibrium has a strict hierarchy of school qualities and two dimensional student sorting with stratification by ability and income in private schools high ability low income students receive tuition discounts while low ability high income students pay tuition premia tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high ability students relative to low ability students

centralized wage setting and monetary policy in a reputational equilibrium this paper analyzes a repeated game between the central bank and a centralized trade union the central bank would be better off if it could commit to a noninflationary strategy when this commitment is not enforceable a noninflationary equilibrium can still be sustained by a reputational mechanism if the central bank has superior information about its own objective function the qualitative properties of this reputational equilibrium are shown to differ from the cases considered in the existing literature where the central bank was modeled as playing a game against competitive labor markets copyright 1988 by ohio state university press

market and public provision in the presence of human capital externalities for many goods and services such as health education legal services police protection the cost incurred by an individual supplier for providing quality is affected by the human capital of her colleagues the paper shows that this human capital externality is crucial to determine whether such goods and services should be privately or publicly provided public and private provisions give individuals different incentives to acquire human capital and the paper shows that either may be socially preferable depending on the nature of the human capital externality private provision of the final goods and services gives stronger incentives to human capital acquisition and may therefore be socially preferable if own human capital and one s colleagues human capital are substitutes and if suppliers with high human capital benefit more than suppliers with low human capital from their colleagues human capital but not excessively so

rich dad smart dad decomposing the intergenerational transmission of income we construct a simple model consistent with becker and tomes that decomposes the intergenerational income elasticity into the causal effect of financial resources the mechanistic transmission of human capital and the role that human capital plays in the determination of fathers permanent incomes we show how a particular set of instrumental variables could separately identify the money and human capital transmission effects using data from a 35 percent sample of swedish sons and their fathers we show that only a minority of the intergenerational income elasticity can be plausibly attributed to the causal effect of fathers financial resources

exchange rate policy wage formation and credibility abstract since the collapse of the bretton woods system some european countries have pursued discretionary exchange rate policies in order to maintain or enhance the international competitiveness of the traded goods sector these countries which typically feature centralized wage setting have also tended to experience high nominal wage increases the overall outcome may be described as a devaluation wage spiral this paper applies two models of repeated games to analyze the strategic interaction between an exchange rate setting policy maker and a wage setting trade union it is shown how a devaluation wage spiral may result from a conflict of interest over the real wage it is also shown how reputational forces may provide a way out of the devaluation wage spiral

central bank inflation contracts and strategic wage setting in a multiunion economy abstract a shared feature of models used to investigate the welfare enhancing potential of a central bank inflation contract is their stochastic nature central to the benefits conferred by such a contract is the presence of supply shocks in constructing a framework where wages are set strategically by a number of nonatomistic inflation averse unions this note identifies circumstances in which an inflation contract improves macroeconomic outcomes even in the absence of supply shocks

centralization fiscal federalism and private school attendance a cge model is used to analyze the impact of public school financing on private school attendance the common perception that public school finance centralization will necessarily lead to greater private school attendance is not correct in such a model even when that centralization involves an extreme equalization as in california furthermore if centralization is less dramatic as in most states declines in private school attendance are even more pronounced this weakens the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization

the effect of a specialized versus a general upper secondary school curriculum on students performance and inequality a difference in differences cross country analysis countries differ in their academic upper secondary school systems whereby some require their students to choose a specialization track from a set of areas typically natural sciences economic sci

does school tracking affect equality of opportunity new international evidence this paper investigates whether the interaction between family background and secondary school tracking affects human capital accumulation a widely shared view is that more tracking reinforces the role of parental privilege and thereby reduces equality of opportunities this may occur for several reasons including peer effects more talented students are gathered together teacher sorting better teachers prefer teaching better students differences in curricula academic oriented schools like the german gymnasium the french lycee the british grammar school or the italian liceo teach abilities that increase the probability of entering college and or differences in resource endowment compared to the current literature which focuses on early outcomes such as test scores at 13 and 15 years old we look at later outcomes including literacy dropout rates college enrolment employability and earnings while we do confirm the common view that school tracking reinforces the impact of family background when looking at educational attainment and labour market outcomes we do not confirm the same results when studying its impact on literacy and on the job training overall school tracking has an ambiguous effect in our sample of countries on the one hand and consistently with the previous literature tracking has a detrimental impact on educational attainment because it prevents some individuals from further progressing to the tertiary level of education the diversion effect on the other hand the curricula offered in vocational schools seem more effective in promoting further training and adult competences the specialization effect thereby reducing the impact of parental background on these two outcomes thus reducing the extent of student tracking either by raising the age of first selection or by reducing the number of tracks available may be appropriate for increasing intergenerational mobility in educational attainment but may increase social exclusion for people from disadvantaged backgrounds giorgio brunello and daniele checchi

sixty years after the magic carpet ride the long run effect of the early childhood environment on social and economic outcomes this paper estimates the effect of the early childhood environment on a large array of social and economic outcomes lasting almost 60 years to do this we exploit variation in the living conditions experienced by yemenite children after being airlifted to israel in 1949 we find that children who were placed in a more modern environment i e with better sanitary and infrastructure conditions were more likely to obtain higher education marry at an older age have fewer children and work at age 55 they were also more likely to be assimilated into israeli society to be less religious and have more worldly tastes in music and food however these effects are found mainly for women and not for men we also find an effect on the next generation children who lived in a better environment grew up to have children with more education

cultural transmission and discrimination workers can have good or bad work habits these traits are transmitted from one generation to the next through a learning and imitation process which depends on parents investment in the trait and the social environment where children live if a sufficiently high proportion of employers have taste based prejudices against minority workers we show that their prejudices are always self fulfilled in steady state and minority workers end up having on average worse work habits than majority workers this leads to a ghetto culture affirmative action can improve the welfare of minorities whereas integration can be beneficial to minority workers but detrimental to workers from the majority group

uncertainty and hyperbolic discounting we propose an evolutionary explanation for the pattern of intertemporal preference reversals often ascribed to hyperbolic discounting we take the view that preferences manifested for example in urges cravings and inclinations are the outcome of evolutionary forces and so will induce animals or humans to make survival maximizing choices in typical decision problems we show that if the typical problem involves payoffs whose realization times are uncertain then optimal preferences give rise to relatively patient behavior when the time horizon is long but induce a switch to impatience when the horizon grows short such reversals do not entail dynamic inconsistency in typical decision problems behavior there is optimal however if a decision maker is confronted with a choice for which the realization time uncertainty falls outside the evolutionary norm her preferences may well prompt her to behave inconsistently we argue that if such a choice problem recurs her evolutionarily endowed aability to learn will lead her to make self commitments against these urges this abstract was borrowed from another version of this item

assessing students equality of opportunity in oecd countries the role of national and school level policies abstractthis article analyses the relationship between equality of opportunity and the characteristics of the educational system jointly considering country and school level policies because school social environment represents a fundamental channel in shaping educational opportunities we consider all policies recorded in pisa 2012 dataset that affect the sorting of students to schools we show that including sorting policies enriches the explanation of the socio economic gradient that is the association between students performances and parental background with respect to previous studies including only country level features the negative impact of early tracking on equality of opportunity is overvalued without including other sorting policies while grouping students within school by ability increases the socio economic gradient and a greater students heterogeneity in the school reduces the gradient

aggregate demand shocks private signals and employment variability can better information be harmful abstract the consequences of private information concerning the realization of aggregate demand shocks are investigated in the context of a standard macroeconomic model it is found that an improvement in information quality can be damaging in the sense of amplifying employment fluctuations the source of this result is an externality arising from individual firm wage decisions which leads to a collective over reaction to private information

cross country differences in intergenerational earnings mobility international studies of the extent to which economic status is passed from one generation to the next are important for at least two reasons first each study of a particular country characterizes an important feature of that country s income inequality second comparisons of intergenerational mobility across countries may yield valuable clues about how income status is transmitted across generations and why the strength of that intergenerational transmission varies across countries the e rst section of this paper explains a benchmark measure of intergenerational mobility commonly used in u s studies the second section summarizes comparable empirical e ndings that have accumulated so far for countries other than the united states the third section sketches a theoretical framework for interpreting cross country differences in intergenerational mobility

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

the political economy of intergenerational income mobility the intergenerational elasticity of income is considered one of the best measures of the degree to which a society gives equal opportunity to its members while much research has been devoted to measuring this reduced form parameter less is known about its underlying structural determinants using a model with exogenous talent endowments endogenous parental investment in children and endogenous redistributive institutions we identify the structural parameters that govern the intergenerational elasticity of income the model clarifies how the interaction between private and collective decisions determines the equilibrium level of social mobility two societies with similar economic and biological fundamentals may have vastly different degrees of intergenerational mobility depending on their political institutions we offer empirical evidence in line with the predictions of the model we conclude that international comparisons of intergenerational elasticity of income are not particularly informative about fairness without taking into account differences in politico economic institutions jel e24 j62 j68 p16

school tracking and access to higher education among disadvantaged groups abstract when students are tracked into vocational and academic secondary schools access to higher education is usually restricted to those who complete an academic track postponing such tracking may increase university attendance among disadvantaged students if additional time in school enables them to catch up with their more privileged counterparts however if ability and expectations are fairly well set by an early age postponing tracking during adolescence may not have much effect this paper exploits an educational reform in romania to examine the impact of postponing tracking on the proportion of disadvantaged students graduating from university using a regression discontinuity rd design we show that although students from poor rural areas and with less educated parents were significantly more likely to finish an academic track and become eligible to apply for university after the reform this did not translate into an increase in university completion our findings indicate that simply postponing tracking without increasing the slots available in university is not sufficient to improve access to higher education for disadvantaged groups

better monetary control may decrease the distortion of stabilisation policy a comment higher uncertainty about the effects of policy instruments reduces a policymaker s inclination to actively engage in shaping economic policy if a credibility problem exists then this is beneficial however in the case where the policymaker has private information about an economic shock higher uncertainty is costly hence the policymaker faces a trade off when he decides on the degree of control of monetary instruments it is shown that the optimal degree of uncertainty about the effects of policy depends on the economic preferences of the policymaker and the magnitude of the variance of the shock which is private information

on the role of job assignment in a comparison of education systems abstract this paper re examines how differences in systems for financing education influence gdp by highlighting a neglected function of education policy it affects the magnitude of gains from job assignment when more productive jobs demand more skill privately financed education can increase productivity gains from matching between jobs and skill by increasing the availability of highly educated people this differs from the standard argument that publicly financed education increases the total amount of human capital by equalizing educational opportunities it is shown that if job opportunities have large variations in productivity education policy may face a serious efficiency equity trade off

uncertainty and the inflation bias of monetary policy abstract the dynamic inconsistency model predicts that monetary policy will produce a positive inflation rate the introduction of multiplicative uncertainty into the model suggests that this bias towards inflation will be lower the more uncertain the effects of monetary policy

why the apple doesn t fall far understanding intergenerational transmission of human capital parents with higher education levels have children with higher education levels however is this because parental education actually changes the outcomes of children suggesting an important spillover of education policies or is it merely that more able individuals who have higher education also have more able children this paper proposes to answer this question with a unique dataset from norway using the reform of the education system that was implemented in different municipalities at different times in the 1960s as an instrument for parental education we find little evidence of a causal relationship between parents education and children s education despite significant ols relationships we find 2sls estimates that are consistently lower than the ols estimates with the only statistically significant effect being a positive relationship between mother s education and son s education these findings suggest that the high correlations between parents and children s education are due primarily to family characteristics and inherited ability and not education spillovers

ability tracking school competition and the distribution of educational benefits abstract to study the effects of ability grouping on school competition we develop a theoretical and computational model of tracking in public and private schools we examine tracking s consequences for the allocation of students of differing abilities and income within and between public and private schools private schools tend to attract the most able and wealthiest students and rarely track in equilibrium public sector schools can maximize attendance by tracking students public schools retain a greater proportion of higher ability students by tracking but lose more wealthy lower ability students to the private sector consequently socioeconomic status is a predictor of track assignment in public schools for the entire population public sector tracking has small aggregate effects on achievement and welfare but results in significant redistribution from lower to higher ability students

mobility targeting and private school vouchers simulations are derived from a three district model of low middle and highincome school districts calibrated to new york data with housing stocks that vary within and across districts in this model it is demonstrated that school district targeted vouchers are similar in their impact to nontargeted vouchers but vastly different from vouchers targeted to low income households furthermore strong migration effects are shown to significantly improve the likely equity consequences of voucher programs jel 122 128 h73 persistent frustration with the perceived low quality of public education exacerbated by concerns over the inherently unequal levels of public school quality across school districts has caused policy makers courts and researchers to investigate modifications and alternatives to the current public school system one idea that has received increasing academic and public attention is that of private school vouchers with proponents arguing that the competitive pressures of voucher programs would cause improvements in the efficiency of the publicschool system while at the same time addressing equity concerns if vouchers can be targeted to low income households or low income school districts but aside from a few limited experiments in some u s cities our experience with vouchers in the united states remains virtually nonexistent this limits the amount of information researchers can derive from standard empirical analysis in that it forces them to rely on only current nonvoucher induced differences in competition despite important suggestive results such work may not anticipate all the impacts from a large scale policy such as the voucher policies currently under discussion at the same time theoretical models of school finance are also limited in that they often either focus on only one particular aspect of the general equilibrium school finance problem or they are too rich and complex to yield crisp predictions

the desegregating effect of school tracking this paper makes the following point detracking schools that is preventing them from allocating students to classes according to their ability may lead to an increase in income residential segregation it does so in a simple model where households care about the school peer group of their children if ability and income are positively correlated tracking implies that some high income households face the choice of either living in the areas where most of the other high income households live and having their child assigned to the low track or instead living in lower income neighbourhoods where their child would be in the high track under mild conditions tracking leads to an equilibrium with partial income desegregation where perfect income segregation would be the only stable outcome without tracking

family background and economic status in finland the importance of family background for economic outcomes is analyzed using a finnish data set the estimates for intergenerational and sibling correlations in earnings are comparatively low by estimating the magnitude of family influence conditional on parental earnings children with poor parents are found to have lower intergenerational elasticities while the sibling resemblance is higher children with rich parents have higher intergenerational elasticities and the sibling resemblance is also higher except for daughters the results also indicate that the largest share of the intergenerational correlation is transmitted through observed characteristics such as education and in particular occupation jel classification d1 d3 j6

cross country rankings in intergenerational mobility a comparison of approaches from economics and sociology this paper summarizes research on the relative level of intergenerational mobility whether classified by income education or social class the literatures on education and income mobility reveal a similar ranking with south america other developing nations southern european countries and france tending to have rather limited mobility although the nordic countries exhibit strong mobility estimates of mobility based on social class point to rather different patterns and we demonstrate that these differences are most likely generated by intergenerational earnings persistence within social classes the second part of the paper looks for explanations for the differences in earnings and education persistence and finds that mobility is negatively correlated with inequality and the return to education but positively correlated with a nation s education spending

on increasing risk inequality and poverty measures peacocks lyrebirds and exotic options we extend the rothschild and stiglitz 1970 notion of increasing risk to families of random variables and in this way link their approach to the concept of stochastic processes which are increasing in the convex order these processes have been introduced in seminal work by strassen 1965 doob 1968 and kellerer 1972 who showed that such processes have the same marginals as a martingale in fact we demonstrate that their results include the results of rothschild and stiglitz as a special case further we show that it makes sense to look at a larger class of processes which we refer to as lyrebirds we also show how these processes link up with the concept of second order stochastic dominance and are helpful in studying the dynamics of inequality and poverty measures further applications discussed include geometric and hyperbolic discounting exotic derivatives and real options

intergenerational persistence of earnings the role of early and college education recent empirical evidence from the united states indicates a high degree of persistence in earnings across generations designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings we provide a quantitative model of intergenerational human capital transmission that focuses on three sources innate ability early education and college education we find that approximately one half of the intergenerational correlation in earnings is accounted for by parental investment in education in particular early education we show that these results have important implications for education policy

family background and income during the rise of the welfare state brother correlations in income for swedish men born 1932 1968 we investigate if the association between family background and income in sweden has changed for men born between 1932 and 1968 our main finding is that the share of the variance in long run income that is attributable to family background the so called brother correlation in income has fallen by some 17 from 0 49 for the cohorts of brothers born in the early 1930s to below 0 32 for the cohorts born around 1950 from then on the correlations have inched back up to around 0 37 we report suggestive evidence that the decline is driven by changes in education

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

centralised wage setting inflation contracts and the optimal choice of central banker the paper examines the appropriate design of central banking institutions in an economy in which the nominal wage is set by an inflation averse monopoly union as a positive mark up over its market clearing value the analysis considers both the optimal choice of central banker and the potential role for a linear inflation contract the optimal set of arrangements is a central banker who attaches less significance to inflation than does society combined with an inflation contract where the value of the contract parameter is related to the union s degree of inflationaversion following the important contribution of rogoff 1985 the appointment of a conservative central banker has been widely accepted as a potential albeit partial solution to the time inconsistency problem associated with discretionary policy making in placing a greater weight on inflation than does the government and society as a whole in the setting of monetary policy the central bank s temptation to create inflation surprises is reduced this then leads to a lower inflation rate in equilibrium than would otherwise prevail whilst in rogoff s stochastic framework this reduction in the inflationary bias has to be weighed against an increase in output variability the appropriate choice of central banker ensures a net improvement in welfare an important feature of rogoff s model is the assumption of an atomistic labour market in which nominal wages embodied in single period contracts reflect interaction between agents who hold no market power such a representation of the labour market also characterises most subsequent extensions of rogoff s analysis e g lohmann 1992 and waller 1992 however a number of recent papers in considering the time inconsistency issue have employed the assumption of unionised wage setting assuming either an allencompassing monopoly union or alternatively a number of individual unions each of which has a non negligible impact on macroeconomic variables examples include agell and ysander 1993 bleaney 1996 cubitt 1992 1995 horn and persson 1988 hutchison and walsh 1998 and skott 1997 these contributions have examined the implications of the assumed labour market imperfection from a variety of perspectives but only those of bleaney and skott directly consider its consequences for the appropriate specification of central bank objectives in what follows we explore the significance of unionised wage setting for

tracking can be more equitable than mixing parents and policy makers often wonder whether and how the choice of a tracked or mixed educational system affects the equality of opportunity i answer this question by analyzing the influence of peers on future educational results i define an equal opportunity policy as one that maximizes the average lifetime income of the worst off type of individuals in society i e students from disadvantaged backgrounds i find that tracking maximizes average lifetime income if the opportunity cost of college attendance is sufficiently high

equity and efficiency in human capital investment the local connection a general model of community formation and human capital accumulation with social spillovers and decentralized school funding is used to analyse the causes of economic segregation and its consequences for equity and efficiency significant polarization arises from minor differences in endowments preferences or access to capital markets this makes income inequality more persistent across generations but the same need not be true for wealth equilibrium stratification tends to be excessive resulting in low aggregate surplus whether state equalization of school resources can remedy these problems hinges on how purchased social and family inputs interact in education and in mobility decisions

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

the case for a populist central banker abstract we present a general equilibrium optimizing model in which we study the joint effects of centralization of wage setting and central bank conservatism on economic performance several striking conclusions emerge in relatively centralized labor markets employment and output are decreasing and inflation is intially increasing and then decreasing in the degree of central bank conservatism a radical populist central banker who cares not at all about inflation alternatively who is not conservative maximizes social welfare economic performance is not u shaped in the degree of centralization of the labor market in contrast to conventional wisdom

multiplicative uncertainty in a model without inflationary bias abstract this paper shows that an increase in the degree of multiplicative uncertainty regarding the effectiveness of monetary policy will reduce social loss when policymaker s preferences are highly uncertain this result is still valid even when there is no distortion in the market

hyperbolic discounting and the standard model eliciting discount functions abstract experiments on static intertemporal choice find evidence of particularly extreme impatience toward immediate rewards while this is often taken as support for hyperbolic discounting it could also arise because the most likely participants in experiments may be those with the most immediate need for money we conduct a calibration exercise and find that the extreme impatience observed in experiments can be accommodated by a standard exponential discounting model with no discounting and expectation of a small increase in the base consumption level the calibration uses existing estimates of curvature of utility

the nonneutrality of monetary policy with large price or wage setters monetary rules matter for the equilibrium rate of employment when the number of price wage setters is small even when assuming rational expectations complete information central bank precommitment and absence of nominal rigidities if the central bank is nonaccommodating sufficiently large unions bargaining independently have an incentive to moderate sectoral money wages and thereby expected real wages the result is an increase in the real money supply and hence higher demand and employment this does not hold with accommodating monetary policy since unions wage decisions cannot then affect the real money supply a similar argument holds for large monopolistically competitive price setters

life cycle variations in the association between current and lifetime income replication and extension for sweden we apply haider and solon s generalized errors in variables model to swedish income tax data to produce estimates of the association between current and lifetime income our estimates demonstrate strong life cycle patterns this implies that the widespread use of current income as a proxy for lifetime income leads to inconsistent parameter estimates i e life cycle bias even when the proxy is used as the dependent variable estimates for comparable cohorts of swedish and american men demonstrate surprising similarities there are however significant gender and cohort differences in this association that lead to statistically significant and quantitatively meaningful differences in life cycle biases

disease control and inequality reduction evidence from a tuberculosis testing and vaccination campaign this article examines the economic impact of a tuberculosis control program launched in norway in 1948 in the 1940s norway had one of the highest tuberculosis infection rates in europe affecting about 85 of the inhabitants to lower the disease burden the norwegian government launched a large scale tuberculosis testing and vaccination campaign that substantially reduced tuberculosis infection rates among children we find that cohorts in school during and after the campaign in municipalities with high tuberculosis prevalence gained more in terms of education earnings longevity and height following this public health intervention furthermore the gains from the disease control program are not limited to the initially treated cohorts but also affect their children the results also suggest that individuals from a low socioeconomic background benefited more from the intervention and we present new evidence that a narrowing of the gap in childhood health can lead to a reduction in socioeconomic inequalities in adulthood

does the diversity of human capital increase gdp a comparison of education systems abstract this paper examines how different education systems affect gdp by influencing the diversity of human capital we construct an overlapping generation model in which agents are heterogeneous in income and innate ability and the final goods are produced with differentiated intermediate goods it is shown that under a realistic condition the diversity of human capital induced by income inequality always lowers the gdp of the next period while the diversity of human capital induced by heterogeneous ability can increase gdp if the produced intermediate goods are sufficiently substitutable and firms have a large span of control hence as public education equalizes education resources across households it mitigates the negative effect of income inequality on gdp while the effects of ability tracking crucially depend on the production structure of the economy

trade and divergence in education systems this article presents a theory on the endogenous choice of education policy and the two way causal relationship between trade and education systems a country s education system determines its talent distribution and comparative advantage the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage specifically the nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices and yet less than what is socially optimal for the world

the long run effects of reducing early school tracking abstract this paper studies the effects of a french detracking reform on individuals long run education and labor market outcomes the reform delayed the age at which students were separated into vocational and general education by two years from age 11 to 13 the assignment of students to different types of education at age 11 was instead replaced by ability grouping whereby students followed a common general education curriculum but were divided into different classrooms based on their academic achievement using a regression discontinuity design i find that the reform raised individuals level of education and increased their wages by 6 at ages 40 to 45 these effects are concentrated among men and individuals from low socioeconomic backgrounds however the reform solely benefited individuals whose parents were born in france as it did not significantly affect children of immigrants educational and labor market outcomes

asian and australian options a common perspective we show that australian options are equivalent to fixed or floating strike asian options and consequently that by studying asian options from the australian perspective and vice versa much can be gained one specific application of this australian approach leads to a natural dimension reduction for the pricing pde of asian options with or without stochastic volatility featuring time independent coefficients another application lies in the improvement of monte carlo schemes where the australian approach results in a path independent method we also show how the milevsky and posner 1998 result on the reciprocal approximation for asian options can be quickly obtained by using the connection to australian options further we present an analytical exact pricing formula for australian options and adapt a result of carr et al 2008 to show that the price of an australian call option is increasing in the volatility and by doing this answering a standing question by moreno and navas 2008

school tracking and intergenerational income mobility evidence from the finnish comprehensive school reform abstract this paper estimates the effect of a major education reform on intergenerational income mobility the finnish comprehensive school reform of 1972 1977 replaced the old two track school system with a uniform nine year comprehensive school and shifted the selection of students to vocational and academic tracks from age 11 to age 16 we estimate the effect of this reform on the intergenerational income elasticity using a representative sample of males born between 1960 and 1966 the identification strategy relies on a differences in differences approach and exploits the fact that the reform was implemented gradually across the country during a six year period the results indicate that the reform reduced the intergenerational income elasticity by 23 from the pre reform elasticity of 0 30 to post reform elasticity of 0 23

educational reform ability and family background in this paper we evaluate the impact of a major school reform that took place in the 1950s in sweden on educational attainment and earnings the reform which has many common elements with reforms in other european countries including the uk consisted of increasing compulsor schooling imposing a national curriculum and abolishing selection by ability into academic and non academic streams at the age of 12 comprehensive school reform our data combines survey data with administrative sources we find that the reform increased both the educational attainment and the earnings of children whose fathers had just compulsory education however the earnings of those with educated parents declined possibly because of a dilution of quality at the top end of the education levels the overall effect of the reform was however positive

on the measurement of poverty official statistics in the united states and the united kingdom show a rise in poverty between the 1970 s and the 1980 s but scepticism has been expressed with regard to these findings in particular the methods employed in the measurement of poverty have been the subject of criticism this paper re examines three basic issues in measuring poverty the choice of the poverty line the index of poverty and the relation between poverty and inequality one general theme running through the paper is that there is a diversity of judgments which enter the measurement of poverty and that it is necessary to recognize these explicitly in the procedures adopted there is likely to be disagreement about the choice of poverty line affecting both its level and its structure in this situation we may only be able to make comparisons and not to measure differences and the comparisons may lead only to a partial rather than a complete ordering the first section of the paper discusses the stochastic dominance conditions which allow such comparisons illustrating their application by reference to data for the united states the choice of poverty measure has been the subject of an extensive literature and a variety of measures have been proposed in the second section of the paper a different approach is suggested considering a class of measures satisfying certain general properties and seeking conditions under which all members of the class which includes many of those proposed give the same ranking those sceptical about measures of poverty often assert that poverty and inequality are being confounded the third section of the paper distinguishes four different viewpoints and relates them to theories of justice and views of social welfare

the intergenerational effects of parental higher education evidence from changes in university accessibility abstract we examine the causal relationship between the educational attainment of parents and that of their children using quasi experimental variation from changes in parents access to university generated by the geographical expansion of the finnish university system between the late 1950s and early 1970s our results suggest that for the children of parents affected by the changes in university accessibility there is a strong positive spillover effect of around 0 5 from parent s to child s attained years of education our analyses using alternative parental and child outcomes suggest that the effect of parental education is partly driven by assortative mating and may also be related to children s improved school performance

income fluctuation and asymmetric information an example of a repeated principal agent problem we examine a simple repeated principal agent model with discounting there are a risk averse borrower with an unobservable random income and a risk neutral lender the efficient contract is characterized it tends to the first best constant consumption contract as the discount factor tends to one and the time horizon extends to infinity if the time horizon is infinite and the contract is legally enforceable the borrower s utility becomes arbitrarily negative with probability one if the borrower has constant absolute risk aversion consumption is transferred between any two states at a constant interest rate which is less than the rate of time preference

stochastic dominance and expected utility while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics

peer group effects and educational attainment abstract given the aims of an educational system the relationship between educational inputs and educational outputs the educational production function a frequency distribution of students by ability and a fixed educational budget how should students and educational expenditures be allocated over classrooms the paper focuses on peer group effects which capture the influence of a student s classmates on his educational attainment and the determinants of whether streaming or mixing is preferable it should be noted that peer group effects arise in other contexts notably in the workplace thus the paper casts some light on the optimal composition of teams

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

central bank independence centralization of wage bargaining inflation and unemployment theory and some evidence abstract this paper proposes a conceptual framework to investigate the effects of central bank independence of the degree of centralization of wage bargaining and of the interaction between those institutional variables on real wages unemployment and inflation in a framework in which unions are averse to inflation this aversion moderates union s wage demands as they attempt to induce the central bank to inflate at a lower rate an increase in the degree of centralization of wage bargaining a decrease in the number of unions triggers two opposite effects on real wages unemployment and inflation it reduces the substitutability between the labor of different unions and therefore the degree of effective competition between them this reduced competition effect raises real wages unemployment and inflation but the decrease in the number of unions also strengthens the moderating effect of inflationary fears on the real wage demands of each union this strategic effect lowers real wages unemployment and inflation for sufficiently inflation averse unions the interaction between those two effects produces a calmfors driffill type relation between real wages and centralization the paper analyzes the effects of central bank independence on the position and the shape of this relation as well as on inflation and unemployment the paper features two mechanisms one of which is novel through which monetary institutions have real effects the model implies that if there is a single union social welfare is maximized when the central bank attaches a zero weight to inflation but when the number of unions is larger than one this result is no longer true in general empirical evaluation of some of the theoretical implications using data from 19 developed economies is for the most part supportive of those implications