household saving in ldcs credit markets insurance and welfare some ways in which farmers in ldcs can protect their living standards against fluctuations in income are discussed after considering the theory of consumption under uncertainty when there is no or limited borrowing the case where some borrowing is allowed is also examined empirical evidence from some ldcs is used to look at i household borrowing and lending their importance and timing and their role in smoothing consumption and ii the life cycle behavior of consumption and income the results suggest that hump lifecycle saving is not likely to be a very important generator of wealth in ldcs and provide further evidence on the limited role of credit markets

rent controls and rental housing quality a note on the effects of new york city s old controls rent controls are used in many cities throughout the united states and many other countries there is a lengthy literature on the conceptual effects of rent controls this is not surprising given the size of housing in the u s asset base and the political importance attached to homeownership and quality housing it is surprising how little evidence there is on many of the supposed effects of rent controls the evidence on these impacts is relatively slim for a variety of reasons first the data needed to document some of the predicted impacts are not good for example it is difficult to measure effective maintenance inputs and it is costly to obtain any such data on a wide variety of buildings convincing ceteris paribus experiments are difficult to perform because there typically are many other factors for which it is hard to control additionally the negative theoretical implications appear to be so clear that many economists may not have felt much need to quantify the extent of the damage nevertheless there is some evidence on the influences of rent controls from studies estimating the price elasticity of the supply of structures economists have estimated the likely effect of rent controls on the supply of new structures in a city rydell et al lo and fallis and smith 3 have

regulated prices rent seeking and consumer surplus price controls lead to misallocation of goods and encourage rent seeking the misallocation effect alone ensures that a price control always reduces consumer surplus in an otherwise competitive market with convex demand if supply is more elastic than demand or with log convex demand e g constant elasticity even if supply is inelastic the same results apply whether rationed goods are allocated by costless lottery or whether costly rent seeking and or partial decontrol mitigates the inefficiency our analysis exploits the observation that in any market consumer surplus equals the area between the demand curve and the industry marginal revenue curve

out of control what can we learn from the end of massachusetts rent control abstract this paper uses the sudden end of rent control in massachusetts in 1995 to estimate the effects of rent control i examine boston msa data from the american housing survey years 1985 1998 to determine how rent control affected the quantity price and quality of rental housing my results suggest rent control had little effect on the construction of new housing but did encourage owners to shift units away from rental status and reduced rents substantially rent control also led to deterioration in the quality of rental units but these effects appear to have been concentrated in smaller items of physical damage i also examine specifications that allow rent control to affect rent levels both directly through controlled status and indirectly through spillover effects from nearby rent controlled units these estimates imply that rent control may have small effects on the price of the non controlled rental housing stock

are poor people credit constrained or myopic evidence from a south african panel credit constraints are an almost ubiquitous assumption in development economics yet direct evidence for credit constraints is limited and many observations consistent with credit constraints are equally compatible with myopic non forward looking consumption or precautionary saving using household panel data and a source of widely anticipated income in south africa this paper tests and rejects the standard consumption model with perfect capital markets then myopic consumption and precautionary saving are tested as alternative explanations for the observed jumps in expenditure the standard model with credit constraints cannot be rejected in favour of myopic consumption or precautionary saving

long term consequences of short term precipitation shocks evidence from brazilian migrant households we find that large short term precipitation shocks damage the long term income of households that have permanently migrated from rural to urban areas this outcome is consistent with the behavior of credit constrained rural households who are willing to accept lower long term income in urban areas following the depletion of their productive assets during an adverse shock our empirical evidence suggests that there may be a link between large precipitation shocks in rural areas and urban poverty further exploration is warranted on the mechanisms by which natural disasters cause these long term losses

bargaining and value we present and analyze a model of noncooperative bargaining among n participants applied to situations describable as games in coalitional form this leads to a unified solution theory for such games that has as special cases the shapley value in the transferable utility tu case the nash bargaining solution in the pure bargaining case and the recently introduced maschler owen consistent value in the general nontransferable utility ntu case moreover we show that any variation in a certain class of our bargaining procedure which generates the shapley value in the tu setup must yield the consistent value in the general ntu setup

informal insurance arrangements with limited commitment theory and evidence from village economies recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income thus rejecting the hypothesis of full risk pooling we attempt to explain these observations by adding limited commitment as an impediment to risk pooling we provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment and test the model using data from three indian villages we find that the model can fully explain the dynamic response of consumption to income but that it fails to explain the distribution of consumption across households

credit markets in northern nigeria credit as insurance in a rural economy this article addresses the issues of imcomplete markets and imperfect information in the context of credit markets in rural northern nigeria in much recent theoretical literature the problems of moral hazard and adverse selection are assumed to be decisive for the organization of agrarian institutions in contrast it is found that in the four villages surveyed credit transactions take advantage of the free flow of information within rural communities information asymmetries between borrower and lender are unimportant and their institutional consequences the use of collateral and interlinked contracts are absent credit transactions play a direct role in pooling risk between households through the use of contracts in which the repayment owed by the borrower depends on the realization of random production shocks by both the borrower and the lender

bargaining one dimensional social choices we analyze bargaining over the one dimension characteristic of a public good among n impatient players when decisions require q favorable votes q 2 stationary subgame perfect equilibrium strategies are characterized for all games with deterministic protocol we provide a monotonicity condition satisfied by all single peak strictly quasi concave and concave utilities that assures uniqueness for every q whenever player s utilities are symmetric around the peak without symmetry the monotonicity condition assures uniqueness for qualified majorities q n 2 provided that agents are sufficiently patient and utilities satisfy an additional regularity condition asymptotic uniqueness is assured for qualified majorities by imposing only the monotonicity condition

were nineteenth century industrial workers permanent income savers theories of household saving posit that households add to or draw down wealth to equalize the discounted present value of consumption over time this article examines the extent to which 19th century urban american industrial workers saved and dissaved to smooth consumption in response to unanticipated plausibly exogenous shocks to income information on the expected and unexpected number of days unemployed is used to construct estimates of transitory income the data are then used to estimate the marginal propensity to save from transitory income the results are broadly consistent with friedman s 1957 permanent income hypothesis in that the marginal propensity to consume from transitory income is about twice that of nontransitory income

a bargaining model of collective choice we present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional policy space in contrast to other bargaining models the status quo is not assumed to be bad and delay may be pareto efficient we prove existence of stationary equilibria the possibility of equilibrium delay depends on four factors risk aversion of the legislators the dimensionality of the policy space the voting rule and the possibility of transfers across districts if legislators are risk averse if there is more than one policy dimension and if voting is by majority rule for example then delay will almost never occur in one dimension delay is possible if and only if the status quo lies in the core of the voting rule and then it is the only possible outcome this core selection result yields a game theoretic foundation for the well known median voter theorem our comparative statics analysis yield two noteworthy insights i if the status quo is close to the core t hen equilibrium policy outcomes will also be close to the core a moderate status quo produces moderate policy outcomes and ii if legislators are patient then equilibrium proposals will be close to the core legislative patience leads to policy moderation

noncooperative foundations of bargaining power in committees and the shapley shubik index abstract in this paper we explore the noncooperative foundations of the bargaining power that a voting rule gives to each member of a committee that bargains in search of consensus over a set of feasible agreements under a voting rule assuming complete information we model a variety of bargaining protocols and investigate their stationary subgame perfect equilibria we show how the shapley shubik index and other power indices can be interpreted as measures of bargaining power that appear in this light as limit cases

the effects of rent control expansion on tenants landlords and inequality evidence from san francisco using a 1994 law change we exploit quasi experimental variation in the assignment of rent control in san francisco to study its impacts on tenants and landlords leveraging new data tracking individuals migration we find rent control limits renters mobility by 20 percent and lowers displacement from san francisco landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner occupants and redeveloping buildings thus while rent control prevents displacement of incumbent renters in the short run the lost rental housing supply likely drove up market rents in the long run ultimately undermining the goals of the law

the role of intergenerational transfers and life cycle saving in the accumulation of wealth he purpose of this paper is to review what economists know at present about the following question how large a portion of the existing wealth is the result of a bequest motive that is of accumulation for the specific purpose of leaving bequests i will also endeavor to clarify why an answer to this question is of interest in the early keynesian period when the study of national saving first attracted wide interest relatively little attention was paid to what led people to save though it was generally understood that the main systematic reason was to leave bequests j m keynes in the famous chapter 9 of the general theory of employment interest and money 1936 had listed seven distinct motives for saving besides the leaving of bequests but five of these which include to increase one s future income or to insure one s independence and power implied that all or nearly all the accumulation would finally wind up as bequeathed wealth this in turn meant that most private wealth originated through bequests that is it either had been received through bequests or was destined to be bequeathed and indeed how else could society accumulate wealth however keynes 1936 p 107 also mentioned two further motives precaution that is to build up a reserve against unforeseen contingencies and foresight that is to provide for an anticipated future relation between the income and the needs of the individual or his family different from that which exists in the present as for example in relation to old age family education or the maintenance of dependents these motives in contrast to most of the previous ones have the

the effect of rent control on housing quality change a longitudinal analysis it is widely believed that rent control leads to a decline in the quality of rental housing this study examines the effect of rent control on the quality of rental housing in new york city quality change is linked to the suppression of rent below market levels and other characteristics of the housing unit we develop a first order nonstationary heterogeneous markov model that allows for true state dependence observed heterogeneity nonparametric unobserved heterogeneity and a mover stayer structure the results offer some support for the belief that rent control leads to a deterioration in housing quality but suggest the need for additional investigation of this issue

do homeowners increase consumption after the last mortgage payment an alternative test of the permanent income hypothesis the maturity date of a mortgage loan marks the end of monthly mortgage payments for homeowners in the period after the last payment homeowners experience an increase in their disposable income our study interprets this event as an anticipated increase in income and tests whether households smooth consumption over the transition period as predicted by the rational expectation life cycle permanent income hypothesis we find households do not alter nondurable goods consumption in the period following the last mortgage payment instead they increase both financial savings and savings in durable goods such as house furnishings and entertainment equipment in the year of the last mortgage payment

rationing and rent dissipation in the presence of heterogeneous individuals this paper discusses the implications of rationing by waiting when consumers have different time costs and personal valuations the joint distribution function of time costs and personal valuations is used to characterize market equilibrium it is argued that under certain conditions an increase in the variance of time costs will reduce the dissipation of rent furthermore it is shown that introducing a secondary market for a rationed good does not necessarily improve welfare because total surplus under rationing by waiting depends more on the variance than on the level of time costs and personal valuations the model is also used to discuss other institutions that involve rent seeking activities such as the patent system and import quotas

budgetary rigour with stimulus in lean times policy advices from an agent based model abstract the 2008 financial crisis and the subsequent global recession triggered a wide spread economic and political debate on the proper policy combination to deal with the crisis and to prevent similar ones in the future probably the main dispute has been around the use of fiscal instruments in order to foster growth while keeping public debt under control the european union for instance endorsed austerity measures for fiscal consolidation but has been sharply criticized by several scholars this paper aims at contributing to the current debate by presenting the outcomes of a computational study performed with the eurace agent based model we set up an experiment with two base policy scenarios i e stability and growth pact and fiscal compact incrementally enriching them with complementary policies which relax fiscal rigidity and introduce quantitative easing results show that budgetary rigour performs well if and only if some mechanisms of fiscal relaxation and monetary accommodation are considered during bad times thus confirming in a richer and more realistic model setting the fundamental tenet of keynesian economics about the importance of sustaining aggregate demand during recessions

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

von neumann morgenstern stable sets discounting and nash bargaining we establish a link between von neumann morgenstern stable set and the nash solution in a general n player utility set the stable set solution is defined with respect to a dominance relation payoff vector u dominates v if one player prefers u even with one period delay we show that a stable set exists and if the utility set has a smooth surface any stable set converges to the nash bargaining solution when the length of the period goes to zero

shocks and agricultural investment decisions abstract this study explores the impact of weather shocks on the investment decisions of farmers we distinguish between the long term effect of exposure to weather shocks measured as past exposure to deviations in average rainfall levels and the effect of weather related shocks that have recently occurred we examine how households cope with shocks in the short term in terms of consumption smoothing and the depletion of liquid assets and whether over the longer term shock exposure impacts on household investment decisions and welfare our results show that households on average manage to smooth consumption in the face of recent shocks by depleting savings and borrowing over the longer term households that are exposed to shocks invest less in productive assets leading to lower consumption levels moreover the investment strategies of these households do not appear to pay off once additional shocks occur later on

the effect of liquidity constraints on consumption a cross sectional analysis this paper examines the effect of liquidity constraints on consumption expenditures using a single year cross section data set a reduced form equation for consumption is estimated on high saving households by the tobit procedure to account for the selectivity bias since high saving households are not likely to be liquidity constrained the estimated equation is an appropriate description of how desired consumption that would be forthcoming without liquidity constraints is related to the variables available in the cross section data when the reduced form equation is used to predict desired consumption the gap between desired consumption and measured consumption is most evident for young households

implications of endogenous group formation for efficient risk sharing the existing literature on sub game perfect risk sharing suffers from a basic inconsistency while a group of size n is able to coordinate on a risk sharing outcome it is assumed that deviating subgroups cannot i relax this assumption and characterise the optimal contract among all coalition proof history dependent contracts this alters the predictions of the standard dynamic limited commitment model i show that the consumption of constrained agents depends on both the history of shocks and its interaction with the current income of other constrained agents from this i derive a formal test for the presence of endogenous group formation under limited commitment

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

time for revisionism on rent control economists traditional hostility to rent contols is based on models that treat the housing market as perfectly competitive and on the experience with hard controls in new york city and many european countries following world war ii the current soft rent control systems in north america are varied and qualitatively different from earlier hard controls the theoretical case against them is weak particularly when the housing market is viewed as imperfectly competitive the empirical case against them is weak too economists should reconsider their blanket opposition to current rent control systems and evaluate them on a case by case basis

on the asymptotic uniqueness of bargaining equilibria abstract this note reexamines the connection between the asymmetric nash bargaining solution and the equilibria of strategic bargaining games a first example shows non convergence to the asymmetric nash bargaining solution a second example demonstrates the possibility of multiple limits

housing market spillovers evidence from the end of rent control in cambridge massachusetts we measure the capitalization of housing market externalities into residential housing values by studying the unanticipated elimination of stringent rent controls in cambridge massachusetts in 1995 pooling data on the universe of assessed values and transacted prices of cambridge residential properties between 1988 and 2005 we find that rent decontrol generated substantial robust price appreciation at decontrolled units and nearby never controlled units accounting for a quarter of the 7 8 billion in cambridge residential property appreciation during this period the majority of this contribution stems from induced appreciation of never controlled properties residential investment explains only a small fraction of the total

using weather variability to estimate the response of savings to transitory income in thailand this paper measures the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income time series information on regional rainfall is used to construct estimates of transitory income due to rainfall shocks the relationship between these measures of transitory income and savings indicates that farm households save a significantly higher fraction of transitory income than nontransitory income jel d91 016 the incomes of farm households in developing countries are notorious for being both low and uncertain policies that increase the incomes of farmers may well be different

on the simultaneity problem in the aid and growth debate this paper shows that foreign aid has a significant positive average effect on real per capita gross domestic product gdp growth if and only if the quantitatively large negative reverse causal effect of per capita gdp growth on foreign aid is adjusted for in the growth regression instrumental variables estimates show that a 1 percentage point increase in gdp per capita growth decreased foreign aid by over 4 adjusting for this quantitatively large negative reverse causal effect of economic growth on foreign aid shows that a 1 increase in foreign aid increased real per capita gdp growth by around 0 1 percentage points

the relative size of windfall income and the permanent income hypothesis a reconciliation is offered for the diverse test results on friedman s permanent income hypothesis a large data sample of those receiving windfall income in the bureau of labor statistics 1972 1973 consumer expenditure survey is divided according to the size of the windfall relative to estimated permanent income a pattern of a declining marginal propensity to consume windfall income as the relative size of the windfall increases is apparent these results support the permanent income hypothesis for relatively large windfalls

a simple test of friedman s permanent income hypothesis friedman s permanent income hypothesis pih predicts that the income elasticity of consumption should be higher for households for which a large fraction of the variation of their income is permanent than for households facing more transitory variations in income we test this prediction using modern household data from the us consumer expenditure survey the results offer some support for the pih

equity and efficiency aspects of rent control an empirical study of new york city modem rent controls arose during world war ii to deal with the war related influx into urban areas since then numerous cities have either considered adopted or eliminated rent controls the policy debate about the desirability of rent controls continues unabated and becomes particularly acute when high inflation rates drive up rents rapidly rent controls have both efficiency and distributional consequences the economics literature has produced theoretical insights about the inefficiencies created by rent controls this literature is frequently cited by opponents of rent controls who argue that the efficiency costs of rent controls are manifested in a decaying housing stock and altered mobility patterns proponents of rent control invariably argue that the distributional impacts of rent controls outweigh efficiency costs considering the large number of cities that have investigated or adopted rent controls relatively little empirical research documents either the efficiency or distributional effects of rent controls the most notable exceptions are the studies of new york city by de salvo 3 olsen 13 and roistacher 15 and the studies of los angeles by rydell et al 16 and fallis and smith 4 more recently linneman lo and marks 12 have further examined ramifications of rent controls in new york city and vancouver this paper fills some gaps in knowledge about the effects of rent controls we examine rent controls in new york city in 1968 using the new york city housing and vacancy survey 2 the paper extends the work of olsen 13 although there are important differences in both the questions addressed and methodology used this paper examines in detail the distributional consequences of rent controls for new york city residents both

uniqueness of stationary equilibria in a one dimensional model of bargaining abstract we prove uniqueness of stationary equilibria in a one dimensional model of bargaining with quadratic utilities for an arbitrary common discount factor for general concave utilities we prove existence and uniqueness of a minimal stationary equilibrium and of a maximal stationary equilibrium we provide an example of multiple stationary equilibria with concave nonquadratic utilities

saving in developing countries theory and review in the literature on economic development much of the interest in saving has been focused on the relation between saving and growth but saving is not only about accumulation it is about smoothing consumption in the face of volatile and unpredictable income and helping to ensure the living standards of poor people whose lives are difficult and uncertain this paper develops a model of households which cannot borrow but which accumulate assets as a buffer stock to protect consumption when incomes are low such households dissave as often as they save do not accumulate assets over the long term and have on average very small asset holdings but their consumption is markedly smoother than their income much of the evidence is as consistent with this view of saving as it is incosistent with standard views of smoothing over the life cycle and with explanations of the link between saving and growth in terms of life cycle saving behavior consumption smoothing is also a useful way of thinking about government policy where volatility in the world prices of taxed commodities can generate sharp fluctuations in government revenues as well as reallocations of revenue between the private and public sectors many important policy issues in developing countries hinge on issues of consumption and smoothing and research on these issues is currently likely to be more productive than work on the relation between saving and growth

unemployment risk and compensating differentials in new jersey manufacturing i introduction as with many questions that still engage modern economists adam smith observed and commented on the phenomenon of compensating wage differentials smith 1909 chap 10 observed that ceteris paribus wages were higher the more disagreeable and the greater the inconstancy of work smith argued that the wages a worker received while he is employed must not only maintain him while he is idle but make him some compensation for those anxious and desponding moments which the thought of so precarious a situation must sometimes occasion smith 1909 p 109 in well functioning labor markets without unemployment insurance employers will offer wage premia to compensate workers for accepting higher layoffrisks smith s fundamental insight is now so widely accepted that the typical undergraduate labor economics textbook such as that written by ehrenberg and smith 2000 provides a discussion of the subject placing it within formal models of utility maximization and discussing its empirical implications given that smith s hypothesis is now more than 200 years old we might expect to find a large body of empirical work bearing on it such is not the case only a few studies use historical data to test for a relationship between job disamenities and compensation and those few find weak evidence consistent with smith s hypothesis that unfettered nineteenth century labor markets provided some compensation for job risk and disagreeableness 1 similarly although the risk of involuntary idleness was a very real problem for workers in the late nineteenth century less than a handful of studies explicitly test whether workers especially manufacturing workers were compensated for accepting unemployment risk 2 the absence of tests of the hypothesis is due to perhaps two factors the lack of readily available data generated by unfettered labor markets and a general belief that manufacturing workers unlike agriculture and construction workers were not subject to repeated and predictable bouts of unemployment as noted by hatton and williamson 1991 but keyssar 1986 p 36 and atack et al 2002 find that in late nineteenth century manufacturing steady work was more the exception than the rule the latter study reports that at 40 of manufacturing establishments canvassed in the 1880 census workers often faced extended periods of idleness because the enterprise operated for only part of the year extracts of interviews with manufacturing workers in new jersey in the 1880s also reveal periods of extended and anticipated down time comparable to those experienced by workers in agriculture and construction a glass blower in millville new jersey reported that his place of employment typically shut down in july and august yet glass blowers actually made more money working ten months than they could if the factories were in operation during the whole year new jersey 1885 p 238 a silk worker in patterson described a pattern of slack work between october and march a period with mass layoffs between may and august and a rush of work between august and october recurring seasonal layoffs in manufacturing were also detailed by an iron worker and a printer in trenton a hatter in orange a carriage maker in hackettstown and an upholsterer in rahway anticipated unemployment occurred in manufacturing though it was not perhaps as common as in agriculture and construction our article contributes to this important literature by investigating the extent to which manufacturing workers in new jersey in the 1880s received compensating differentials for layoff risk we follow fishback and kantor 1992 in that we use quantitative data collected by a state labor bureau to determine if workers in different industries and of different skill levels were compensated for bouts of involuntary but anticipated unemployment the counterintuitive insight provided in this study is that unskilled workers received some compensation for anticipated layoff risk skilled workers did not

superior information income shocks and the permanent income hypothesis according to the permanent income hypothesis with quadratic preferences households save for a rainy day the transitory component of income innovations and consume entirely the permanent one the m

effects of transitory shocks to aggregate output on consumption in poor countries this paper provides instrumental variables estimates of the response of aggregate private consumption to transitory output shocks in poor countries to identify exogenous unanticipated idiosyncratic and transitory variations in national output we use year to year variations in rainfall as an instrumental variable in a panel of 39 sub saharan african countries during the period 1980 2009 our estimates yield a marginal propensity to consume out of transitory output of around 0 2 to explain this result we show using instrumental variables techniques that there is a significant negative effect of transitory output shocks on net current transfers and a significant positive and quantitatively large effect on the trade balance an important implication is that frictions to private financial flows do not necessarily imply large effects of transitory shocks to aggregate output on private consumption in poor countries