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

dynamic procurement under uncertainty optimal design and implications for incomplete contracts we characterize the optimal dynamic contract for a long term basic service when an uncertain add on is required later on introducing firm risk aversion has two impacts profits for the basic service can be backloaded to induce cheaper information revelation for this service an income effect which reduces output distortions the firm must also bear some risk to induce information revelation for the add on this risk effect reduces the level of the add on but hardens information revelation for the basic service the interaction between these effects has important implications for the dynamics of distortions contract renegotiation and the value of incomplete contracts

optimal taxation merging micro and macro approaches efficient provision of social insurance and efficient redistributionofresourcesamongindividualsaresomeofthemostimportantandchallenging questions in macroeconomics and public finance a seminal contribution of mirrlees 1971 is the starting point for the modern approach to answering these questions a trade off between efficiency and insurance or equity is inherent to this approach and is a key determinant of the optimal policy in this paper we argue that the large body of research that follows mirrlees approach has been developing in two quite separate directions referred to in this paper as the micro and macro approaches we argue that merging the two directions

foreign direct investment and wage inequality evidence from china summary this study provides micro level evidence on the close link between foreign participation and wage inequality we investigate the wage premium and the wage spillover effect of foreign invested enterprises in the chinese manufacturing sector the results indicate a significant foreign premium in both wage and non wage compensation the presence of foreign and hong kong macao and taiwan hmt investment results in a significantly negative spillover in terms the wage level in domestic firms and discourages wage growth in such firms overall the evidence suggests that exposure to foreign investment increases inter enterprise wage inequality

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

a solvable continuous time dynamic principal agent model abstract i study the provision of incentives in a continuous time dynamic moral hazard model with hidden actions and hidden states i consider a principal agent model with linear production and exponential utility whose explicit solution allows me to show how allocations are distorted for incentive reasons and how access to hidden savings further alters allocations i solve the model by applying a stochastic maximum principle where the co state variables from the agent s optimization problem become state variables for the principal s problem of choosing an optimal contract i show that the main effect of moral hazard is a distortion on the effort margin with a smaller effect on the intertemporal consumption allocation access to hidden savings shuts down the intertemporal distortions and increases the effort distortion i also show how the optimal contracts can be implemented via a constant equity share a constant flow payment and a constant tax on savings

a recursive formulation for repeated agency with history dependence abstract we present general recursive methods to handle environments where privately observed variables are linked over time we show that incentive compatible contracts are implemented recursively with a threat keeping constraint in addition to the usual temporary incentive compatibility and promise keeping conditions journal of economic literature classification numbers d30 d31 d80 d82

the unequal geographic burden of federal taxation in the united states workers in cities offering above average wages cities with high productivity low quality of life or inefficient housing sectors pay 27 percent more in federal taxes than otherwise identical workers in cities offering below average wages according to simulation results taxes lower long run employment levels in high wage areas by 13 percent and land and housing prices by 21 and 5 percent causing locational inefficiencies costing 0 23 percent of income or 28 billion in 2008 employment is shifted from north to south and from urban to rural areas tax deductions index taxes partially to local cost of living improving locational efficiency

redistribution and social insurance we study optimal redistribution and insurance in a life cycle economy with private idiosyncratic shocks we characterize pareto optima show the forces determining optimal labor distortions and derive closed form expressions for their limiting behavior the labor distortions for high productivity shocks are determined by the labor elasticity and the higher moments of the shock process the labor distortions for low productivity shocks are determined by the autocorrelation of the shock process redistributive objectives and past distortions in a model calibrated using newly available estimates of idiosyncratic shocks the labor distortions are u shaped and the savings distortions generally increase in current earnings jel d82 d91 h21 h23 i38 j22 j24

pareto efficient income taxation with stochastic abilities abstract this paper studies pareto efficient income taxation in an economy with finitely lived individuals whose income generating abilities evolve according to a two state markov process the study yields three main results first when individuals are risk neutral in any period the only individuals whose earnings are distorted are those who currently are and have always been low ability in addition the degree to which these perpetual low ability types have their earnings distorted decreases over time converging to zero if the time horizon is long enough second the earnings distortions are continuous with respect to the degree of risk aversion at the risk neutral solution third pareto efficient income tax systems can be time consistent even when the degree of correlation in ability types is large the condition for time consistency suggests a novel theoretical reason why the classic equity efficiency trade off may be steeper in a dynamic environment than previously thought

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

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

replicative evidence on the demand for owner occupied and rental housing some important results in urban economic theory and policy analysis rest upon housing demand and its associated price and income elasticities the extent to which the affluent choose to live away from the city s center thus increasing their commuting time depends on the relative income elasticities of housing demand and valuation of leisure in a more policy oriented framework the relative efficacies of income as opposed to housing price subsidies for low income households depend on the relative values of income and price elasticities

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

repeated moral hazard with effort persistence abstract i study a problem of repeated moral hazard where the effect of effort is persistent over time each period s outcome distribution is a function of a geometrically distributed lag of past efforts i show that when the utility of the agent is linear in effort a simple rearrangement of terms in his lifetime utility translates this problem into a related standard repeated moral hazard the solutions for consumption in the two problems are observationally equivalent implying that the main properties of the optimal contract remain unchanged with persistence for illustration i present the computed solution of an example

credible monetary policy in an infinite horizon model recursive approaches abstract this paper develops recursive methods to study optimal and time consistent policy in dynamic models we analyze a version of calvo s 1978 monetary model and show that its time consistent outcomes can be completely characterized as the largest fixed point of either of two operators recursive application of these operators provides a computing algorithm which always converges to the set of time consistent outcomes finally we obtain valuable information about the nature of time consistent outcomes it is discovered in particular that all such outcomes are markovian the methods obtained are intuitive and should be useful for many applications journal of economic literatureclassification numbers e61 e52 c61

foreign investment and productive efficiency the case of mexico this paper examines whether the relative performance of firms within mexican manufacturing industries varies systematically with the presence of foreign subsidiaries it also analyzes how foreign entry influences the technological structure in host country industries the findings suggest that 1 foreign presence in an industry is positively correlated with structural efficiency and 2 foreign entry is related to structural changes only in the modern part of the industries the most important source of spillover efficiency is found to be in the competitive pressure induced by the foreign firms i introduction a widely held view among economists studying foreign investment is that one of the important contributions to the host country is likely to stem from external effects or spillovers the spillovers can be of different kinds the foreign firms may influence the productivity and growth of the domestically owned firm they may change the nature and evolution of concentration they may alter financing marketing and technological and managerial practices in the industries that they enter et cetera because of great methodological difficulties in investigating these effects empirically in addition to lack of data few empirical investigations appear in the literature three available econometric studies deal with the influence of foreign investment on the technical efficiency of host country firms one focuses on australia caves 1974 one on canada globerman 1979 and one on mexico blomstrom and persson 1983 all three find some support for the spillover benefit hypothesis but none of the studies analyzes the nature of spillover efficiency in depth the present paper is an attempt to identify through what mechanisms the spillover efficiency of foreign investment takes place by analyzing the effects of foreign investment on the productive efficiency of the industrial structure in mexico we will examine whether the relative performance of firms within an industry varies systematically with the presence of foreign subsidiaries we will also analyze the impact of foreign investment on structural change that is how foreign entry influences the technological structure in host country industries

multinational corporations economic and human rights impacts on developing countries a review and research agenda developing countries are attracting a significant portion of global foreign direct investments governments of such countries often compete fiercely for attracting multinational corporations mncs in the expectation of the advantages they will bring to their economies often prioritising economic goals over fundamental human rights for a long time economists have analysed the economic impacts of mncs while a parallel strand of work in political science business ethics and international law investigates the repercussions of mnc operations on human rights despite the significant relatedness and complementarities these two bodies of literature have so far poorly interacted this paper addresses this limitation and systematically analyses and integrates existing micro level empirical evidence on the economic and human rights impacts of mncs on developing countries it provides a critical analysis of what is known and highlights what we do not know about the factors that mediate the positive and or negative impacts of mnc operations on host developing countries based on a critical analysis of the literature it discusses avenues for future research in this field and sets the grounds for a new interdisciplinary research agenda on this subject

an econometric model of housing price permanent income tenure choice and housing demand abstract this paper addresses the determination of housing price permanent income tenure choice and housing demand full housing demand elasticities incorporate the interactive effects among the four stages of the model price and income have major effects in the tenure choice equation sociodemographic variables such as age have complex effects that may be lost in simpler forms of estimation

functional form sample selection and housing demand abstract this paper addresses issues of functional form and sample selection in estimating housing demand urban economic theory suggests that income and price elasticities be allowed to vary with reference incomes and housing prices a generalized box cox estimator rejects linear and log log forms semi log forms are accepted in some cases sample truncation leads to downward biases in permanent income regressions but to slightly upward biased income elasticities price elasticities are generally unchanged

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

fdi impact and spillover evidence from china s electronic and textile industries m ultinational corporations mncs may invest in a host country when they possess non tangible productive assets that cannot be easily licensed but can be transferred within the firm direct equity participation in the host country is therefore required for mncs to reap the rents from their nontangible productive assets which may include technological know how marketing and managing skills relationships with suppliers and customers and reputation if foreign direct investment fdi does effectively convey these assets we should expect fdi to boost the productivity of the host country firms that receive fdi a more complex issue is the indirect spillover effects of fdi to non fdi domestic firms to the extent that fdi may bring new products and technologies to the host country non fdi receiving domestic firms may also stand to benefit from fdi through personnel turnover demonstration effects and knowledge spillovers the presence of fdi in a certain industry however may exert adverse effect on domestic firms in that industry by enjoying better technologies and lower production costs firms with fdi may cut into the market share of domestic firms without fdi in a short run imperfectly competitive market structure the productivity of domestic firms may be reduced when sales fall so that fixed costs are spread over fewer units in the long run however the increased competition induced by the increased presence of fdi in domestic industries may force

dynamic managerial compensation a variational approach abstract we study the optimal dynamics of incentives for a manager whose ability to generate cash flows changes stochastically with time and is his private information we show that distortions aka wedges under optimal contracts may either increase or decrease over time in particular when the manager s risk aversion and ability persistence are small distortions decrease on average over time for sufficiently high degrees of risk aversion and ability persistence instead distortions increase on average with tenure our results follow from a novel variational approach that permits us to tackle directly the full program thus bypassing some of the difficulties of the first order approach encountered in the dynamic mechanism design literature

dynamic contracting with persistent shocks abstract in this paper we develop continuous time methods for solving dynamic principal agent problems in which the agent s privately observed productivity shocks are persistent over time we characterize the optimal contract as the solution to a system of ordinary differential equations and show that under this contract the agent s utility converges to its lower bound immiserization occurs unlike under risk neutrality the wedge between the marginal rate of transformation and a low productivity agent s marginal rate of substitution between consumption and leisure will not vanish permanently at her first high productivity report also the wedge increases with the duration of a low productivity report we apply the methods to numerically solve the mirrleesian dynamic taxation model and find that the wedge is significantly larger than that in the independently and identically distributed i i d shock case

persistent private information this paper studies the design of optimal contracts in dynamic environments where agents have private information that is persistent in particular i focus on a continuous time version of a benchmark insurance problem where a risk averse agent would like to borrow from a risk neutral lender to stabilize his utility the agent privately observes a persistent state variable typically either income or a taste shock and he makes reports to the principal i give verifiable sufficient conditions showing that incentive compatible contracts can be written recursively conditioning on the report and two additional state variables the agent s promised utility and promised marginal utility of the private state i then study two examples where the optimal contracts can be solved in closed form showing how persistence alters the nature of the contract unlike the previous discrete time models with independent and identically distributed i i d private information the agent s consumption under the contract may grow over time furthermore in my setting the efficiency losses due to private information increase with the persistence of the private information and the distortions vanish as i approximate an i i d environment

mutual productivity spillovers between foreign and local firms in china the existing literature treats advanced technology sourcing as the only cause of reverse productivity spillovers from local to foreign firms and implies that mutual spillovers between foreign and local firms can only happen in the developed world this paper argues that the diffusion of indigenous technology and local knowledge helps the productivity enhancement of multinationals so that there can be mutual spillovers even in a developing country the results from a large sample firm level econometric analysis and a comparative case study of seven companies in chinese manufacturing support this new argument as mutual spillovers are identified between local chinese firms and overseas chinese or oecd invested firms

optimal forestry contracts under asymmetry of information in this paper i analyze optimal royalty contracts in forestry when the harvesting firm has private information on the cost of harvesting this infinite horizon forest rotation model with asymmetry of information on the cost parameter results in a dynamic incentive problem depending on whether the costs are correlated over time or not the firm either receives rent or receives no rent associated with the continuation part of the rotation choice i characterize the optimal contract explicitly in both cases i also examine the loss in expected welfare surplus resulting from the use of a linear contract instead of the more general non linear contract

dynamic optimal taxation with private information we study dynamic optimal taxation in a class of economies with private information optimal allocations in these environments are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is similar to that in bewley 1986 agents supply labour and trade risk free claims to future consumption subject to a budget constraint and a debt limit optimal taxes are conditioned only on two observable characteristics an agent s accumulated stock of claims or wealth and her current labour income we show that optimal taxes are generally non linear and non separable in these variables and relate the structure of marginal wealth and income taxation to the properties of agent preferences this paper studies optimal taxation in a class of dynamic economies with private information we consider an environment in which agents preferences are defined over consumption and labour and each agent receives a privately observed sequence of i i d preference shocks incentivecompatibility constraints stemming from private information imply that socially optimal or constrained efficient allocations in this environment are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is identical to that in bewley 1986 huggett 1993 or aiyagari 1994 agents can trade current consumption for claims to future consumption subject to a budget constraint and a borrowing limit these claims have a non contingent pre tax return crucially taxes are conditioned upon only two observable characteristics of an agent current wealth given by the agent s accumulated stock of claims and current labour income they do not depend on any other aspect of an agent s past history most models of dynamic optimal taxation follow the ramsey approach in which the set of fiscal instruments available to the government is exogenously specified 1 linear labour and capital income taxes are typically included in this set while lump sum taxes are ruled out the exclusion of the latter is justified by appealing to incentive or administrative constraints but these are not explicitly modelled these exogenous restrictions on fiscal instruments represent frictions that the government seeks to ameliorate through its optimal choice of tax rates the approach we adopt in this paper builds on the optimal taxation literature initiated by mirrlees 1971 mirrlees assumes that agents receive privately observed shocks to their

optimal indirect and capital taxation we consider an environment in which agents skills are private information and follow arbitrary stochastic processes we prove that it is typically pareto optimal for an individual s marginal benefit of investing in capital to exceed his marginal cost of doing so this wedge is consistent with a positive tax on capital income we also prove that it is pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation this lack of a wedge is consistent with uniform taxation of consumption goods within a period

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

demographic effects in demand analysis estimation of the quadratic expenditure system using microdata the purpose of this paper is to estimate a complete theoretically plausible system of demand equations on microdata using the rich detail of these data to investigate the impact of demographic variables on demand behavior the system which we estimate is the quadratic expenditure system qes introduced by howe pollak and wales we evaluate four methods for incorporating demographic variables into the demand system three of these procedures imply parameter restrictions while the fourth does not tests on the restrictions imply that for our data unrestricted estimation yields significantly greater explanatory power

fiscal rules and discretion under persistent shocks this paper studies the optimal level of discretion in policymaking we consider a fiscal policy model where the government has time inconsistent preferences with a present bias toward public spending the government chooses a fiscal rule to trade off its desire to commit to not overspend against its desire to have flexibility to react to privately observed shocks to the value of spending we analyze the optimal fiscal rule when the shocks are persistent unlike under independent and identically distributed shocks we show that the ex ante optimal rule is not sequentially optimal as it provides dynamic incentives the ex ante optimal rule exhibits history dependence with high shocks leading to an erosion of future fiscal discipline compared to low shocks which lead to the reinstatement of discipline the implied policy distortions oscillate over time given a sequence of high shocks and can force the government to accumulate maximal debt and become immiserated in the long run

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

lifetime income and housing affordability in singapore most commonly used measures of housing affordability are essentially short run indicators that compare current income with house prices or housing costs despite the emphasis in the literature on t

optimal government policies in models with heterogeneous agents abstract in this paper we develop a new approach for finding optimal government policies in economies with heterogeneous agents using the calculus of variations we present three classes of equilibrium conditions from government s and individual agent s optimization problems 1 the first order conditions the government s lagrange euler equation and the individual agent s euler equation 2 the stationarity condition on the distribution function and 3 the aggregate market clearing conditions these conditions form a system of functional equations which we solve numerically the solution takes into account simultaneously the effect of the government policy on individual allocations the resulting optimal distribution of agents in the steady state and therefore equilibrium prices we illustrate the methodology on a ramsey problem with heterogeneous agents finding the optimal limiting tax on total income

theory and estimation in the economics of housing demand the main purpose of this paper is to review recent theoretical and empirical developments in the economics of housing demand in particular we ask what is known concerning the permanent income elasticity of housing demand vis a vis the current or measured income elasticity what is known concerning price elasticities what is the appropriate functional form for housing demand equations what is the role of demographic variables what is known concerning dynamic aspects of housing demand what appear to be the major sources of bias in existing estimates of demand equations

foreign direct investment inflows and the industrialization of african countries summary this paper examines the relationship between inward foreign direct investment fdi and the industrialization process in africa it uses panel data from 49 countries over the period of 1980 2009 the results indicate that fdi did not have a significant impact on the industrialization of these countries while other variables such as the size of the market the financial sector and international trade were important this study concludes that the role of fdi in the transformation agenda which is currently being discussed in africa should be carefully analyzed to maximize the impact of these capital inflows

does inflation affect real behavior the case of housing an important tradition in economics is to assume that demand depends upon relative prices and is homogenous of degree zero for the most part this has been interpreted as meaning inflation changes in the price level leaves demand unchanged recent work by a number of economists has challenged this position for the case of housing demand two arguments have been made that inflation acting in concert with existing institutions alters the quantity of housing demanded and the decision to rent or own a house the first argument states that inflation and the standard fixed payment mortgage combine to reduce the size of the mortgage loan a household can obtain for the purpose of buying a home this works to reduce the quantity of owner occupied housing demanded given the importance of mortgage finance to the demand for owner occupied housing the second argument focuses on the inflation adjusted after tax cost of owner occupied housing it simply states that an increase in the rate of anticipated inflation of the general price level reduces the after tax cost of housing thus increasing the demand for housing and the demand for homeownership there has been little empirical testing of these two arguments the purpose of this paper is to formulate and estimate a model which will give an indication of the quantitative significance of the two arguments a housing demand equation and a tenure choice equation own versus rent are estimated using a sample of about 6000 households from the 1975 annual housing survey 10 the estimates suggest that inflation dampens housing demand and homeownership opportunity for most households even though the inflation adjusted after tax cost of owner occupied housing declines as inflation heats up the paper consists of six sections including the introduction section two examines the ways inflation affects housing choices in more detail the third section contains the specification of the econometric model that forms the basis of the study section four is a discussion of econometric problems and the data used the results of the estimates are discussed in the fifth section the paper concludes with a presentation of the major conclusions and policy implications of the study

sequential equilibria in a ramsey tax model this paper presents a full characterization of the equilibrium value set of a ramsey tax model more generally it develops a dynamic programming method for a class of policy games between the government and a continuum of households by selectively incorporating euler conditions into a strategic dynamic programming framework we wed two technologies that are usually considered competing alternatives resulting in a substantial simplification of the problem

accounting for sources of fdi technology spillovers evidence from china using a set of panel data of 11 324 firms in china from 1996 to 1999 the paper finds that positive technology spillovers from fies to domestic firms occur through tangible assets rather than intangible assets through domestically consumed products rather than exported products through traditional products rather than new products and through fies employing unskilled workers rather than fies employing skilled workers fies are found to generate negative spillovers through exports and through employment of skilled workers

a joint model of tenure choice and demand for housing in the city of karachi the paper estimates a joint model of tenure choice and demand for housing for the city of karachi pakistan using a two stage estimation procedure permanent income and demographic variables are included in the analysis the study uses data collected at the household level in the city in 1987 88 results show that ownership rates are high in karachi ownership is more likely with increases in permanent income age household size and residence in the unauthorised areas permanent income transitory income age and education of the head significantly affect the consumption of housing both for renter and owner households results of the analysis and the estimated income elasticities of demand are comparable and consistent with those reported for other developing countries

optimal taxation in a habit formation economy abstract this paper studies habit formation in consumption preferences in a dynamic mirrlees economy we derive optimal labor and savings wedges based on a recursive approach we show that habit formation creates a motive for subsidizing labor supply and savings in particular habit formation invalidates the well known no distortion at the top result we demonstrate that the theoretical findings are quantitatively important in a parametrized life cycle model average labor and savings wedges fall by more than one third compared with the case of time separable preferences

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

optimal information disclosure in auctions and the handicap auction we analyze a situation where a monopolist is selling an indivisible good to risk neutral buyers who only have an estimate of their private valuations the seller can release without observing certain additional signals that affect the buyers valuations our main result is that in the expected revenue maximizing mechanism the seller makes available all the information that she can and her expected revenue is the same as it would be if she could observe the part of the information that is new to the buyers we also show that this mechanism can be implemented by what we call a handicap auction in interesting applications in the first round of this auction each buyer picks a price premium from a menu offered by the seller a smaller premium costs more then the seller releases the additional signals in the second round the buyers bid in a second price auction where the winner pays the sum of his premium and the second highest non negative bid in the case of a single buyer this mechanism simplifies to a menu of european call options