learning your earning are labor income shocks really very persistent in this paper we examine the risk situation facing individuals in the labor market the current consensus in the literature is that the labor income process has a large random walk component we argue two points first the estimates of persistence from income data appear to be upward biased due to the omission of heterogeneity in income pro les across the population that would be implied for example by a human capital model with heterogeneity when we allow for dierences in pro les the estimated persistence falls from 0 99 to about 0 8 moreover the main evidence against pro le heterogeneity in the existing literature that the autocorrelations of income changes are small and typically negative is also replicated by the pro le heterogeneity model we estimate casting doubt on the previous interpretation of this evidence second we embed this process in a life cycle model to examine how it alters individuals consumption saving decision we assume that as seems plausible individuals do not know their pro les exactly at the beginning of life but learn in a bayesian way with successive income observations we nd that learning is very slow and aects consumption decision throughout the life cycle the model generates substantial rise in consumption inequality over the life cycle which matches empirical observations deaton and paxson 1994 moreover the shape of the age inequality pro le is non concave as in the data but unlike in a model with very persistent shocks finally the consumption pro les of college graduates are steeper than those of high school graduates in the model consistent with the data because they face a wider dispersion of and hence uncertainty about income growth rates overall this evidence indicates that income shocks may be signi cantly less persistent than what is currently assumed

growth in horticultural trade japan s market for developing countries abstract this paper explores possibilities and oppurtunities of expansion of horticultural exports from developing countries through an investigation on a rapidly growing market japan as an example among major promising markets in this paper six horticultural commodities are selected to analyze emphasizing on exports from developing countries observations on japan s horticultural imports make us presume that consumers differentiate products by place of production therefore import behavior is considered in a two stage budgeting procedure the second stage demands for imports from different sources are specified in an almost ideal demand system aids model and estimated statistically as well as the first stage import demand equations the estimated second stage aids equations show that the magnitude of own price coefficients varies with the source of imports and so does that of expenditure coefficients therefore the characteristics of import demand on a commodity basis which are captured by the estimates of the first stage import demand equations are not equally transmitted to the demand for imports by source in each commodity the estimated coefficients of the first stage import demand and the second stage aids equations were combined to obtain the total effects of price and income changes on imports by source the calculated own price elasticities are greater than one in absolute value in ten of the 15 cases and so are the calculated income elasticities in twelve cases the large elasticities promise suppliers that they benefit from japan s income growth and that they increase their earnings if they can reduce the price by lowering their costs however factors in non price competition also play import roles in the import growth in this paper the importance of sales promotions by exporters and preshipment inspections was indicated in the cases of mangoes and cut flowers other factors such as market structure and public infrastructure for post harvest activities were also discussed

a cost function analysis of import demand for nigeria the article uses a translog cost function to examine the substitution relations among capital labour and imports the results show that capital has a substitute relation with domestic labour and import however labour and import have complementary relationship the implication of this finding is that liberalization policies if pursued vigorously could impart positively on the demand for labour in addition it suggests that economic growth could be enhanced through trade liberalization

the one sector growth model with idiosyncratic shocks steady states and dynamics abstract this paper investigates the one sector growth model where agents receive idiosyncratic labor endowment shocks and face a borrowing constraint it is shown that any steady state capital stock lies strictly above the steady state in the model without idiosyncratic shocks in addition the capital stock increases monotonically when it is sufficiently far below a steady state however near a steady state there can be non monotonic economic dynamics

a multiple criteria decision making approach to manure management systems in the netherlands the intensification of livestock operations in the last few decades has resulted in an increased social concern over the environmental impacts of livestock operations and thus making appropriate manure management decisions increasingly important a socially acceptable manure management system that simultaneously achieves the pressing environmental objectives while balancing the socio economic welfare of farmers and society at large is needed manure management decisions involve a number of decision makers with different and conflicting views of what is acceptable in the context of sustainable development this paper developed a decision making tool based on a multiple criteria decision making mcdm approach to address the manure management problems in the netherlands this paper has demonstrated the application of compromise programming and goal programming to evaluate key trade offs between socio economic benefits and environmental sustainability of manure management systems while taking decision makers conflicting views of the different criteria into account the proposed methodology is a useful tool in assisting decision makers and policy makers in designing policies that enhance the introduction of economically socially and environmentally sustainable manure management systems

estimating a cointegrating demand system abstract the set of variables in a time series demand model in the form of the almost ideal demand system are found to be i 1 with the demand equations forming a cointegrating system the parameters of the cointegrating equations are estimated and tested using a triangular error correction procedure the null hypothesis of homogeneity with respect to prices and nominal income in the system cannot be rejected

unsecured credit markets are not insurance markets abstract we study the extent to which unsecured credit markets have altered the transmission of increased income risk to consumption variability over the past several decades we find that unsecured credit markets pass through increased income risk to consumption irrespective of bankruptcy policy and the information possessed by lenders if risk sharing has indeed improved over this period the reasons do not therefore lie in the unsecured credit market

international trade in a differentiated good trade elasticities in the world rice market in many previous rice trade models the commodity has been regarded as a homogeneous product however homogeneity is not an appropriate assumption given the various types of rice that are traded and consumed parameters estimated from these models therefore do not reflect the real world market for rice and hence may mislead decision makers who use the results for policy evaluation purposes this study uses an armington approach to model the world rice trade as a differential good market and to derive trade elasticity parameters

has consumption inequality mirrored income inequality we revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality we do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the consumer expenditure survey our estimation exploits the relative expenditure of high and low income households on luxuries versus necessities this double differencing corrects for measurement error that can vary over time by good and income we find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures jel d31 d63 e21

how important are idiosyncratic shocks evidence from labor supply the notion that individuals face idiosyncratic labor market uncertainty is a common one government programs such as unemployment insurance and social security are motivated by such an idea economic theory ranging from labor supply to savings behavior to asset pricing often presupposes that such risks are important a number of papers however have questioned this orthodoxy sumru altug and robert a miller 1990 for instance are unable to reject a set of factor structure restrictions implied by complete markets john h cochrane 1991 and barbara j mace 1991 find evidence of consumption insurance although not against all types of risks robert m townsend 1994 documents evidence of risk sharing in indian villages michael p keane and kenneth i wolpin 1997 argue that 90 percent of the labor market uncertainty faced by a group of males is resolved by age 16 other studies have suggested the opposite papers by joseph g altonji et al 1991 orazio attanasio and steven j davis 1996 and attanasio and guglielmo weber 1992 as well as some evidence in cochrane 1991 and mace 1991 suggest that risk sharing is far from complete in particular for low frequency shocks angus deaton and christina paxson 1994 show that inequality in labor earnings total income and consumption increases with age they suggest that this is difficult to reconcile with standard models of complete consumption insurance in storesletten et al 2000 we ask similar questions using a general equilibrium life cycle model we conclude that increasing inequality with age consumption inequality in particular is difficult to explain in the absence of uninsured idiosyncratic shocks received throughout the working years we argue that between 40 percent and 50 percent of an individual s lifetime uncertainty remains unresolved prior to entering the workforce this paper further examines the implications of increasing inequality with age we begin by asking if a very different model one which features full risk sharing can account for the data the idea which deaton and paxson 1994 attribute to steven davis is that increasing income and consumption inequality can arise in a perfect insurance setting if i dispersion in labor productivity increases with age and ii preferences are nonseparable between leisure and consumption if this is true an efficient allocation may feature increasing consumption dispersion because higher productivity workers will supply relatively more labor and be compensated with more consumption we develop a specific model and find that for plausible parameter values this is exactly what happens what also happens however is that such an allocation features increasing inequality in hours worked using data from the panel study on income dynamics psid we show that inequality in hours worked is roughly constant across age this casts doubt on the full risksharing model and strengthens the argument in favor of uninsurable idiosyncratic risk the remainder of our paper provides a more general discussion of the evidence on inequality and age and how this suggests an important role for idiosyncratic labor market shocks

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

evaluating prior beliefs in a demand system the case of meat demand in canada an almost ideal demand system for meats is estimated using canadian data a bayesian approach is used to impose inequality restrictions on substitution elasticities via monte carlo integration and importance sampling in order to conform with prior beliefs about curvature and monotonicity restrictions and substitution relationships results are more consistent with the concavity and monotonicity restrictions from demand theory than with the added restriction that all meats are substitutes

the life cycle and the business cycle of wage risk cross country comparisons abstract we provide evidence on life cycle and business cycle fluctuations in the dispersion of household level wage innovations comparing the us the uk and germany first we find that household characteristics explain about 25 of the dispersion in wages within an age group in all three countries second the cross sectional variance of wages is almost linearly increasing in household age in all three countries but with increments being smaller in the european data third wage risk is procyclical in germany while it is countercyclical in the us and acyclical in the uk

the surprising power of age dependent taxes this paper provides a new empirically driven application of the dynamic mirrleesian framework by studying a feasible and potentially powerful tax reform age dependent labour income taxation i show analytically how age dependence improves policy on both the intratemporal and intertemporal margins i use detailed numerical simulations calibrated with data from the u s panel study of income dynamics to generate robust policy implications age dependence 1 lowers marginal taxes on average and especially on high income young workers and 2 lowers average taxes on all young workers relative to older workers when private saving and borrowing are restricted finally i calculate and characterize the welfare gains from age dependence despite its simplicity age dependence generates a welfare gain equal to between 0 6 and 1 5 of aggregate annual consumption and it captures more than 60 of the gain from reform to the dynamic optimal policy the gains are due to substantial increases in both efficiency and equity when age dependence is restricted to be pareto improving the welfare gain is nearly as large

how well does the u s social insurance system provide social insurance we analyze the insurance provided by the u s social security and income tax system within a model in which agents receive idiosyncratic wage rate shocks that are privately observed we consider two reforms a piecemeal reform that optimally chooses the social security benefit function and a radical reform that eliminates the entire social insurance system and replaces it with an optimal tax on lifetime earnings the radical reform outperforms the piecemeal reform and achieves nearly all of the maximum possible welfare gain when wages differ permanently over the lifetime when wage shocks match properties in u s data the piecemeal reform outperforms the radical reform

european community enlargement and world trade in fruits and vegetables world trade models for the product classes fresh fruits dried fruits processed fruits fresh vegetables and processed vegetables are estimated and used to project the impact on export prices and trade patterns likely to arise after the european economic community enlargement with greece portugal and spain the results indicate that current world trends in import demands and export supplies if continued and in the absence of enlargement will cause marked declines of export prices for four of the above product categories except dried fruits the enlargement will not significantly modify these price projections but it will divert a significant part of european community imports of these products to the three new member countries on 1 january 1981 greece became the tenth country to join the european community ec spain and portugal have also applied for full ec membership and negotiations are underway with an anticipated date of both spanish and portuguese accession of 1986 agriculture has loomed large in the enlargement negotiations with spain greece and portugal sgp given that the national product in these three countries depends much more on agriculture than in the average country of the former ec nine within agriculture

insurance and taxation over the life cycle we consider a dynamic mirrlees economy in a life cycle context and study the optimal insurance arrangement individual productivity evolves as a markov process and is private information we use a first order approach in discrete and continuous time and obtain novel theoretical and numerical results our main contribution is a formula describing the dynamics for the labour income tax rate when productivity is an ar 1 our formula resembles an ar 1 with a trend where i the auto regressive coefficient equals that of productivity ii the trend term equals the covariance productivity with consumption growth divided by the frisch elasticity of labour and iii the innovations in the tax rate are the negative of consumption growth the last property implies a form of short run regressivity our simulations illustrate these results and deliver some novel insights the average labour tax rises from 0 to 37 over 40 years whereas the average tax on savings falls from 12 to 0 at retirement we compare the second best solution to simple history independent tax systems calibrated to mimic these average tax rates we find that age dependent taxes capture a sizable fraction of the welfare gains in this way our theoretical results provide insights into simple tax systems copyright 2013 oxford university press

segmented trends and non stationary time series since the influential work of charles r nelson and charles plosser 1982 many empirical studies have concluded that macroeconomic time series are difference stationary this paper proposes the segmented trend model as an alternative in which the series is the sum of a nonstationary trend and a stationary cycle and where the trend shows infrequent shifts the paper proposes tests between the difference stationary and segmented trends models and applies these to the data of nelson and plosser in general the results indicate that prices are difference stationary but quantities follow segmented trend processes copyright 1989 by royal economic society

violence instability and trade evidence from kenya s cut flower sector summary we examine the implications of the violence and instability following the 2007 kenyan elections and how it affected cut flower trade between kenya and the eu using the rotterdam demand model we find that the post election violence had a negative impact on eu imports from kenya equivalent to 33 million which is significant given the importance of flowers to kenya s economy results show that even a short period of violence can have an effect on trade since instability in an exporting country causes importers to source from other countries perceived as less risky persisting even when order is restored

efficient allocations in dynamic private information economies with persistent shocks a first order approach this article studies efficient allocations in a dynamic private information economy with a continuum of idiosyncratic shocks that are persistent i develop a first order approach for this environment and show that the problem has a simple recursive structure that relies on only a small number of state variables making the problem tractable i find sufficient conditions that guarantee that the first order approach is valid to illustrate the first order approach i numerically compute the efficient allocations in a mirrleesean economy with productivity shocks that follow a random walk and verify the validity of the first order approach i show that persistent shocks create a new trade off where the social planner decreases the informational rent of the agent today at the cost of providing higher insurance in the future copyright 2013 oxford university press

two views of inequality over the life cycle data on the life cycle profiles of inequality in wages earnings hours worked and consumption contain precious information for answering questions about the ability of households to insure labor market risk and about the sources of this risk this paper demonstrates that the choice of whether to control for cohort effects or for time effects has a drastic impact on the estimated age profiles for inequality and thus on the answers to those questions it also shows that time effects are required to account of the observed trends in inequality in 30 years of u s data whereas there is no evidence that cohort effects have been important jel c13 d31 d91 j22 j31

multicriteria analysis for agricultural resource management a critical survey and future perspectives abstract this paper reviews multicriteria analysis applied to agricultural resource management the applications utilize either methods for selecting multiattribute discrete alternatives including multiattribute utility theory or methods for solving multiobjective planning problems including goal programming our main purpose is to classify and evaluate the criteria attributes objectives used for modeling agricultural systems and to identify the difficulties for practitioners in applying the methodology the fields of study in agricultural decisions requiring further investigation are also discussed

the permanent income hypothesis estimation and testing by instrumental variables the permanent income hypothesis with rational expectation is restated estimated and tested by an instrumental variables technique on the postwar u s aggregate time series data the hypothesis is accepted on a consumption series which includes service flows from consumer durables if the consumption series is the one in the national income and product accounts the hypothesis is decisively rejected an explanation is suggested to reconcile the conflicting test results

capital taxation quantitative explorations of the inverse euler equation economies with private information provide a rationale for capital taxation in this paper we ask what the welfare gains from following this prescription are we develop a method to answer this question in standard general equilibrium models with idiosyncratic uncertainty and incomplete markets we find that general equilibrium forces are important and greatly reduce the welfare gains once these effects are taken into account the gains are relatively small in our benchmark calibration these results do not imply that dynamic aspects of social insurance design are unimportant but they do suggest that capital taxation may play a modest role

dynamic fertilizer nutrient demands for corn a cointegrated and error correcting system past studies of the demand for fertilizer have typically been based on static models which assume that adjustments toward equilibrium are instantaneous this article builds on past studies by developing a dynamic model of nutrient demands of corn unit root and cointegration tests demonstrate that fertilizer demands of corn are dynamic therefore statistically correct estimates can be obtained using a dynamic model a set of error correction models for nitrogen phosphate and potash use in corn production are estimated results provide strong statistical evidence that nutrient demands of corn are price inelastic both in the short and the long run

a multiple criteria decision making framework for regional aquaculture development abstract aquaculture development is considered as a viable source for providing high quality cheap protein particularly for developing countries where protein shortage already exists however complexities in such development planning can be difficult without the aid of modern decision aids such as multiple criteria decision making mcdm models mcdm models are already in use in the business and manufacturing sectors however their use in agriculture is limited and their use in aquaculture is almost nonexistent this paper presents a mcdm framework for the planning of regional aquaculture development the mcdm model seeks a desirable allocation of resources and activity levels that strikes an acceptable balance among the various development goals under consideration subject to resource constraints market constraints and pollution constraints to accommodate different decision situations three different mcdm solution techniques are implemented namely multiple objective programming mop compromise programming cp and weighted goal programming wgp the applicability of the framework is demonstrated through applying it to a case study from northern egypt where aquaculture is a viable industry for supplying cheap and good quality protein balancing the foreign exchange deficits and creating employment opportunities

deconstructing life cycle expenditure we revisit two well known facts regarding life cycle expenditures the hump shaped profile of nondurable expenditures and the increase in cross household consumption inequality we document that the behavior of total nondurables masks surprising heterogeneity in the life cycle profile of individual consumption subcomponents we provide evidence that the categories driving life cycle consumption either are inputs into market work or are amenable to home production using a quantitative model we document that the disaggregated life cycle consumption profiles imply a level of uninsurable permanent income risk that is substantially lower than that implied by a model using a composite consumption good

the demand for cigarettes in japan a two stage budgeting procedure was used to estimate demand elasticities for cigarettes in japan cigarettes were disaggregated into japanese u s and rest of world testing for habit effects was performed at both stages results indicated that habit effects occur for total expenditures on cigarettes but not between types

testing dynamic specification for import demand models the case of cotton error correction models impose few prior restrictions on dynamic model specification and allow the data to determine model structure despite this obvious advantage few applications have adopted the error correction model to explain trade flows an error correction model of cotton import demand is estimated for france japan and hongkong a variety of tests are applied to determine the dynamic structure of the model it is found that the most general models are those that best fit the data for cotton import demand long run elasticities from these general models are significantly different than elasticities derived from a comparable static model

incomplete markets labor supply and capital accumulation we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks borrowing constraints and endogenous labor supply in the exogenous labor supply case e g aiyagari 1994 huggett 1997 the presence of limited insurance increases the demand for savings for precautionary reasons as a consequence capital and output are higher under incomplete markets we show that if labor hours are endogenous labor supply is likely to be lower under incomplete markets because those agents who experience a high shock to productivity are ex post richer and they work fewer hours in some cases this wealth effect can overcome the aggregate precautionary savings and give rise to lower savings and output under incomplete

modeling the pattern of structural change in u s meat demand the hypothesis of structural change in u s meat demand is tested in a four meat almost ideal demand system with parameters following a gradual switching regression model the results support the notion that structural change partly explains the observed u s meat consumption patterns structural change is biased against beef neutral for pork in favor of chicken and fish and it does not affect estimated elasticities the estimated path of structural change implies a rapid transition to a new regime in the mid 1970s although a smooth path cannot be ruled out

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

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

incomplete markets and volatility abstract this paper shows that the precautionary motive combined with asset incompleteness is a major source of volatility and indeterminacy in financial markets price fluctuations originate from agents efforts to insure themselves through time by borrowing and lending instead of shifting income across states of nature by trading risky assets a high interest rate at a future date reduces the potential for future consumption smoothing via borrowing which leads to a strong precautionary motive and a low interest rate in the current period the negative feedback between future and current rates generates fluctuations this logic is developed in spec a cara normal exchange economy with many periods and endogenous interest rates when there is an intermediate level of market incompleteness and sufficient investor impatience fluctuations in the real interest rate can be large even though the aggregate endowment is constant spec has a unique equilibrium under a finite horizon on the other hand with a finite number of infinitely lived agents there exists a robust continuum of equilibria that are neither bubbles nor sunspots journal of economic literature classification numbers c61 d52 d58 g11 g12

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

price transmission analysis a flexible methodological approach applied to european pork and lamb markets the study of spatial price relationships helps to explain market performance and their degree of integration applying only one method of analysis may not be flexible enough to account for the complex interactions of prices in separated markets this paper complements usual cointegration tests with a description of dynamic features and patterns of causality among price series the method proposed is applied to study spatial pork and lamb prices relationships within the eu in the period 1988 1995 the results indicate that european markets for both commodities are integrated not only in the long run but in the short run as well although the price transmission process is more efficient in the porkmeat industry

the macroeconomic implications of rising wage inequality in the united states in recent decades american workers have faced a rising college premium a narrowing gender gap and increasing wage volatility this paper explores the quantitative and welfare implications of these changes the framework is an incomplete markets life cycle model in which individuals choose education intrafamily time allocation and savings given the observed history of the u s wage structure the model replicates key trends in cross sectional inequality in hours worked earnings and consumption recent cohorts enjoy welfare gains on average as higher relative wages for college graduates and for women translate into higher educational attainment and a more even division of labor within the household

use of multicriteria decision analysis methods for energy planning problems most decision making requires the consideration of several conflicting objectives the term multiple criteria decision analysis mcda describes various methods developed for aiding decision makers in reaching better decisions energy planning problems are complex problems with multiple decision makers and multiple criteria therefore these problems are quite suited to the use of mcda a multitude of mcda methods exists these methods can be divided in three main groups value measurement models goal aspiration and reference level models and outranking models methods from all of these groups have been applied to energy planning problems particularly in the evaluation of alternative electricity supply strategies each of the methods has its advantages and drawbacks however we cannot conclude that one method generally is better suited than the others for energy planning problems a good alternative might be to apply more than one method either in combination to make use of the strengths of both methods or in parallel to get a broader decision basis for the decision maker until now studies of mcda in energy planning have most often considered energy networks with only one energy carrier more advanced energy systems with multiple energy carriers have been neglected even though this field ought to be suitable for use of mcda due to its high complexity many decision makers and many conflicting criteria

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 semiflexible almost ideal demand system abstract the concept of a semiflexible functional form is applied to the almost ideal ai demand system this yields a demand model that is more parsimonious than standard ones while preserving a degree of flexibility that satisfies the curvature property of concavity of the underlying expenditure function at least locally and that preserves the desirable properties of the ai model aggregation across consumers and nonlinearity of the engel curves the model is illustrated with an application to a relatively large demand system emphasizing food consumption

consumption and labor supply with partial insurance an analytical framework we develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing closed form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption hours and wages we prove identification and demonstrate how labor supply data are informative about risk sharing the model estimated with us data over the period 1967 2006 implies that i 39 percent of permanent wage shocks pass through to consumption ii the share of wage risk insured increased until the early 1980s and iii preference heterogeneity is important in accounting for observed dispersion in consumption and hours jel e21 e23 e31 e52

life cycle effects in small business finance this paper studies the life cycle profiles of small firms cost and use of credit using a panel of finnish firms the choice of method matters for the conclusions drawn about the relationship between firm age and financing costs the cross sectional age profiles of financing costs are hump shaped and consistent with hold up theories whereas methods that control for cohort fixed effects demonstrate that the financing costs decrease monotonically as the firms mature the life cycle profiles of the use of credit also indicate that firms are more dependent on financial intermediaries in the early periods of their lives furthermore the cohorts born during recessions pay higher financing costs and use smaller amounts of bank loans even after their creditworthiness is controlled for the recession cohort effect appears to be more related to the experience of starting up the firm in the recession than to the ceos growing up in a recession during their early adulthood

labor income dynamics and the insurance from taxes transfers and the family article i nfo what do labor income dynamics look like over the life cycle what is the relative importance of persistent shocks transitoryshocksandheterogeneousprofiles to what extent dotaxes transfers and thefamilyattenuate these various factors in the evolution of life cycle inequality in this paper we use rich norwegian population panel data to answer these important questions we let individuals with different education levels have a sepa rate income process and within each skill group we allow for non stationarity in age and time heterogeneous experience profiles and shocksof varying persistence we findthattheincomeprocesses differ systematically by age skill level and their interaction to accurately describe labor income dynamics over the life cycle it is neces sary toallow for heterogeneity by education levelsand account for non stationarity inage and time our findings suggest that the redistributive nature of the norwegian tax transfer system plays a key role in attenuating the magnitude and persistence of income shocks especially among the low skilled by comparison spouse s income matters less for the dynamics of inequality over the life cycle

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

forecasting with the almost ideal demand system evidence from some alternative dynamic specifications the almost ideal demand system is used as a representation of long run demands in discrete time and continuous time error correction models to produce forecasts of budget shares beyond the sample period the estimated models are subjected to a battery of tests and an analysis of the forecasts indicates that continuous time adjustment mechanisms based around fully modified estimates of the long run preference parameters provide a remarkably accurate method of forecasting budget shares

a linear goal programming model for developing economies with an illustration from the agricultural sector in egypt in this study we formulate a multi regional single time period linear goal programming model for agricultural planning in a developing economy in addition to specifying different levels of input and output for each activity we describe explicit crop interdependencies which account for rotational requirements constraints are developed for land labor water machinery fertilizer and capital resources economic aspects are addressed through the use of different production functions and the incorporation of several objectives this last point marks a departure from conventional models which stress maximization of economic welfare defined as efficiency through maximum social product without consideration for income distribution the emphasis on income distribution is reflected in our model in delineation of regional employment goals in addition foreign exchange expenditures and regional demand satisfaction goals reflect the importance of limiting foreign trade deficit and providing basic nutrition fo

testing for homogeneity in demand systems when the regressors are nonstationary an implication of optimizing theory is that demand functions are homogeneous of degree zero in prices and nominal income evidence based on estimations of demand systems has repeatedly found this restriction to be rejected by the data however the hypothesis is often formulated in terms of regressors that are non stationary this paper re examines the evidence for homogeneity in light of recent developments in time series econometrics with special emphasis on the treatment of trends we find the demand system to be stochastically but not deterministically cointegrated using techniques developed for estimating cointegrating vectors in the presence of deterministic trends we re estimate the demand system and find that homogeneity holds in many cases

income risk macroeconomic and demographic change and economic inequality in japan abstract using an olg model with heterogeneous households we investigate the relationship among income risk macroeconomic and demographic changes and economic inequality between 1980 and 2000 in japan by decomposing the primary factors in earnings and consumption inequality into macroeconomic variables and the demographic variable we find that our model replicates the evolution of economic inequality in japan by performing counterfactual simulations we demonstrate that two factors changes in time varying macroeconomic factors and the unexpected decline in the total factor productivity growth rate played important roles in the increase in earnings and consumption inequality in the 1990s

testing restrictions in a flexible dynamic demand system an application to consumers expenditure in canada traditionally restrictions on systems of demand equations have been tested using static models whilst being estimated with time series data this paper develops a vector time series model of expenditure shares in the context of a singular dynamic demand system the model allows for non symmetric and non homogeneous short run behaviour the homogeneity and symmetry restrictions are only examined in the long run structure results based on canadian time series data are presented and reject the current practise of static modelling while restrictions suggested by economic theory are not rejected when imposed on the long run structure

non stationarity and the import demand for virgin olive oil in the european union the aim of this study is to analyse the importation of virgin olive oil to european union countries paying special attention to the spanish export contribution the method used is based on the estimation of an imports demand system the novelty of the paper lies not in the modelling approach but in the explicit consideration of the univariate characteristics of series that is included in the analysis since prices are non stationary cointegration among them has been tested results indicate that they are cointegrated and that homogeneity holds as a result relative prices are included in the imports demand system structural change is also considered so as to account for the entrance of both spain and greece into the eu during the period studied results demonstrate the leadership of spain within the eu virgin olive oil market as well as the increasing competitiveness of greek oil

a gradual switching regression model with autocorrelated errors abstract in this note we set up the gradual switching regression model with autocorrelated errors and show the maximum likelihood estimation procedure as an empirical example we examine structural change in the energy demand in japan at the first oil crisis

consumption and risk sharing over the life cycle a striking feature of u s data on income and consumption is that inequality increases with age this paper asks if individual specific earnings risk can provide a coherent explanation we find that it can we construct an overlapping generations general equilibrium model in which households face uninsurable earnings shocks over the course of their lifetimes earnings inequality is exogenous and is calibrated to match data from the u s panel study on income dynamics consumption inequality is endogenous and matches well data from the u s consumer expenditure survey the total risk households face is decomposed into that realized before entering the labor market and that realized throughout the working years in welfare terms the latter is found to be more important than the former

is there a return risk link in education abstract using results for 16 countries the positive relationship between return to education and the risk involved in this investment is studied it seems that most of the countries fit the pattern well higher risk higher return and the tradeoff is rather large

whither armington trade models the armington trade model distinguishes commodities by country of origin and import demand is determined in a separable two step procedure this framework has been applied to numerous international agricultural markets with the objective of modeling import demand in addition computable general equilibrium cge models commonly employ the armington formulation in the trade linkage equations the purpose of this paper is to test the armington assumptions of homotheticity and separability with data from the international cotton and wheat markets both parametric and nonparametric tests were performed and the empirical results reject the armington assumptions this has important implications for international trade modeling and cge modeling

life cycle economies and aggregate fluctuations do the implications for business cycle issues change when we switch from studying infinitely lived representative agent models to more sophisticated demographic structures with finitely lived agents this article addresses that question by using a large overlapping generations model that is calibrated to u s demographic properties microeconomic evidence and national income and product accounts the finding is that the answers obtained are basically the same for the two kinds of models the article also explores the relative volatility of hours across age groups an issue that cannot be addressed by using the infinitely lived representative agent abstraction

which workers get insurance within the firm abstract industry level time series data suggest that low skilled workers get less insurance within the firm than high skilled workers in particular wages respond relatively more to productivity shocks in low skilled industries than high skilled industries our theory is that low skilled workers get relatively less insurance from their firms because they have relatively lower displacement costs under limited commitment lower displacement costs make the workers outside options more attractive and hence decrease the amount of risk sharing sustainable within the firm evidence on average displacement costs by industry support the theory s predictions

idiosyncratic production risk growth and the business cycle we introduce a neoclassical growth economy with idiosyncratic production risk and incomplete markets each agent is an entrepreneur operating her own technology with her own capital stock the general equilibrium is characterized by a closed form recursion in the cara normal case incomplete markets introduce a risk premium on private equity which reduces the demand for investment as compared to complete markets the steady state can thus have both a lower capital stock due to investment risk and a lower interest rate due to precautionary savings furthermore the anticipation of high real interest rates in the future feeds back into high risk premia and low investment in the present thus slowing down convergence to the steady state our results highlight the importance of private risk premia for capital accumulation and business cycles

default insurance and debt over the life cycle abstract the widespread use of debt and default suggests that unsecured credit markets play an important role in consumption smoothing in this paper i address two previously unanswered questions first how does policy towards debt default affect the evolution of consumption and net worth over the life cycle second how does debt default policy interact with social insurance over the life cycle the findings are as follows first us default policy appears lax in the sense that it creates severe credit constraints especially for the young second eliminating default will lower consumption inequality among the young but will increase it among the old third social insurance alters default risk and in turn loan pricing and therefore matters for purely intertemporal smoothing

human capital risk in life cycle economies i study the effect of market incompleteness on the aggregate economy in a model where agents face idiosyncratic uninsurable human capital investment risk the environment is a general equilibrium lifecycle model with a version of a ben porath 1967 human capital accumulation technology modified to incorporate risk a cara normal specification keeps endogenous decisions independent of individual shock realizations i study stationary equilibria of calibrated cases in which idiosyncratic uninsurable risk arises from specialization risk and career risk specialization risk is such that both mean and variance of the return from training are increasing in the endogenous decision to invest in human capital in the case of career risk however only the mean return is increasing in the decision to invest in human capital with career risk only stationary equilibria resemble those studied by aiyagari 1994 and one concludes that the impact of uninsurable idiosyncratic risk is relatively small with a significant amount of specialization risk however stationary equilibria are severely distorted relative to a complete markets benchmark one aspect of this distortion is that human capital is only about 57 percent as large as its complete markets counterpart this suggests that the two types of risk have very different and quantitatively significant general equilibrium implications keywords human capital risk life cycle incom

heterogeneous life cycle profiles income risk and consumption inequality was the increase in income inequality in the us due to permanent shocks or merely to an increase in the variance of transitory shocks the implications for consumption and welfare depend crucially on the answer to this question we use consumer expenditure survey cex repeated cross section data on consumption and income to decompose idiosyncratic changes in income into predictable life cycle changes transitory and permanent shocks and estimate the contribution of each to total inequality our model fits the joint evolution of consumption and income inequality well and delivers two main results first we find that permanent changes in income explain all of the increase in inequality in the 1980s and 1990s second we reconcile this finding with the fact that consumption inequality did not increase much over this period our results support the view that many permanent changes in income are predictable for consumers even if they look unpredictable to the econometrician consistent with models of heterogeneous income profiles

should pensions be progressive abstract the present paper quantitatively characterizes the consequences of rising pension progressivity in an overlapping generations model with idiosyncratic income disability and longevity risk as well as endogenous labor supply at the intensive and extensive margin focusing on the german pension system which is purely earnings related we increase the degree of progressivity and compute the optimal mix between flat and earnings related pensions we find that a flat rate pension share of roughly 30 maximizes aggregate economic efficiency since improved insurance provision dominates higher labor supply distortions disability risk significantly increases the optimal progressivity level while endogenous retirement has important macroeconomic implications since our results are robust for a wide range of parameter specifications they indicate that at least in germany a move towards more redistribution within the pension system is efficient

the price of experience we identify a key role of factor supply driven by demographic changes in shaping several empirical regularities that are a focus of active research in macro and labor economics in particular demographic changes alone can account for the large movements of the return to experience over the last four decades for the differential dynamics of the age premium across education groups emphasized by katz and murphy 1992 for the differential dynamics of the college premium across age groups emphasized by card and lemieux 2001 and for the changes in cross sectional and cohort based life cycle profiles emphasized by kambourov and manovskii 2005 jel d91 e24 i23 j11 j24 j31