human capital investment in wealth constrained families with two sided altruism abstract it is well known that with one sided altruism a bequest constrained household will under invest in their child s human capital government transfers to such a household will unambiguously increase human capital investment we show with two sided altruism and an operative gift motive human capital investment will be efficient under a subgame perfect equilibrium but will remain inefficiently low under a nash equilibrium government transfers cease to affect investment under either equilibrium notion

indeterminacy intergenerational redistribution endogenous longevity and human capital accumulation abstract this paper sets up an olg economy with endogenous life expectancy to study how fiscal policy that redistributes between generations can open the door to sunspot equilibria agents invest independently in their own human capital produce and consume output and receive a pension upon retirement the model produces an expectations coordination problem that can explain significant differences in growth paths followed by otherwise identical countries in particular we show that our economy may be characterized by local indeterminacy of dynamic equilibria and hence feature fluctuations which are driven by extrinsic uncertainty

price stability vs output stability tales of federal reserve administrations abstract this study disentangles policy parameters from those describing private sector behavior by simultaneously estimating an empirical model for inflation and output along with a loss function for the last three federal reserve administrations three important results emerge first the federal reserve appears to put more emphasis on price stability than output stability when the entire sample is considered second and more importantly the loss function parameters exhibit structural break at the time paul volcker was appointed chairman the accommodative characteristics of monetary policy were replaced with a more active policy towards controlling inflation finally interest rate smoothing is found to be an important feature of the monetary policymaking process for all three administrations

economies of traffic density in the deregulated airline industry this article estimates a structural model of competition among hub and spoke airlines in order to measure the strength of economies of traffic density on individual route segments we find that economies of density were strong during the sample period fourth quarter 1985 stronger than previous estimates by douglas caves laurits christensen and michael tretheway derived from traditional cost function methods we also find that the airlines competitive behavior was far from collusive in the markets under study markets requiring a connection at a hub airport our structural model also provides plausible estimates of demand elasticities we use our estimates to provide a cost based rationale for the major changes in the structure of the industry following deregulation for example the increase in airport and industry wide concentration and the increase in competition at the city pair market level and to simulate the effects of a merger of airlines that share a hub

women s schooling home teaching and economic growth the hypothesis that increases in the schooling of women enhance the human capital of the next generation and thus make a unique contribution to economic growth is assessed on the basis of data describing green revolution india estimates are obtained that indicate that a component of the significant and positive relationship between maternal literacy and child schooling in the indian setting reflects the productivity effect of home teaching and that the existence of this effect combined with the increase in returns to schooling for men importantly underlies the expansion of female literary following the onset of the green revolution

assessing firm behavior in carve out markets evidence on the impact of carve out policy abstract airlines wanting to cooperatively set prices for their international air travel service must apply to the relevant authorities for antitrust immunity ati while cooperation may yield benefits it can also have anti competitive effects in markets where partners competed prior to receiving ati a carve out policy forbids ati partners from cooperating in markets policymakers believe will be most harmed by anti competitive effects we examine carve out policy applications to three ati partner pairings and find evidence more consistent with cooperative pricing in carve out markets in spite of the policy calling into question the effectiveness of the policy in achieving intended market outcomes

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

is increased public schooling really a policy for equality abstract empirical findings suggest different causes for higher educational attainment among children of high income earners either that poor parents are credit constrained or that parental human capital per se is important in the educational process my theoretical results show how these two diverging results can be brought together parental and public investments complement each other in the educational process because higher educated parents take advantage of increased productivity educational equality between rich and poor children is not necessarily promoted by further investments in public schooling moreover i show that educational investments in low skilled parents have spill over effects on their children and therefore have an unambiguously positive impact on equality

the family and the state the immaturity of children sometimes precludes efficient arrangements between children and parents or others responsible for child care the difficulty in establishing efficient relations within families provides the point of departure for our interpretation of the heavy state involvement in the family the authors believe that a surprising number of state interventions mimic the agreements that would occur if children were capable of arranging for their care many regulations of the family improve the efficiency of family activities these interventions include subsidies to education and training social security and other old age support subsidies to births laws that limit access to divorce and the sale of children and laws that require parents permission for early marriage and other choices of children families that leave bequests can force children to repay parents for investments in human capital by reducing bequests therefore these families do not underinvest in childrens human capital by contrast families that do not leave bequests often poorer families do underinvest in children the state may subsidize schools and other training facilities to raise investments in children by poorer families to efficient levels authors modified

inference in nonlinear econometric models with structural change this paper extends the classical test for structural change in linear regression models see chow 1960 to a wide variety of nonlinear models estimated by a variety of different procedures wald lagrange multiplier like and likelihood ratio like test statistics are introduced the results allow for heterogeneity and temporal dependence of the observations in the process of developing the above tests the paper also provides a compact presentation of general unifying results for estimation and testing in nonlinear parametric econometric models

uncertain altruism and investment in children the authors discuss the concept of parental uncertainty about their childrens altruism and the consequences for investment in childrens human capital in this paper we show that if parents are uncertain about their childrens altruism but are at least sure that they will receive some support from their children then the unique optimal investment is the efficient one uncertainty over the exact level of the retirement gift does not alter the conclusion of the perfect certainty case even when parents are risk averse alternatively parents may not know enough about their childrens altruism to feel completely confident that some gift will be forthcoming regardless of the size of their investment under this assumption we show that the optimal investment must be less than the efficient amount excerpt

revealed preference of the federal reserve using inverse control theory to interpret the policy equation of a vector autoregression how close is observed federal reserve policy to policy that would be optimal in the control theory sense the question is addressed by using an inverse control methodology federal reserve policy is characterized by a feedback equation for either changes in the interest rate or money stock optimal policy is characterized by solution of the ricatti equation parameters are estimated that characterize the relative importance to the federal reserve of stabilizing output inflation interest rates and money growth the period of study is 1947 through 1992 evidence is uncovered that policy is optimal within distinct regimes

intergenerational transfers within the family in this paper we present a stylized model of private transfers within the family under alternative assumptions as to the nature of relations between parents and children we then analyze the effectiveness of public education and social security to achieve efficiency when needed

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

tax avoidance and intra family transfers to what extent do people avoid taxes on intra family transfers be quests and gifts and how would integration unification of the dif ferent transfers taxes affect tax avoidance these issues are important for families and their welfare as well as for governments and their pos sibilities of raising revenue from transfer taxes in this paper we study the effects of transfer taxes on altruistic parents transfers to their chil dren using a theoretical model we find that altruistic parents do not necessarily tax minimize however in some cases when they do there is an infinitely large excess burden of a transfer tax we also find that integration of transfer taxes reduces tax avoidance all tax avoidance is eliminated with complete integration

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

fertility growth and public investments in children in this paper it is shown how subsidies for education and for the number of children affect economic growth fertility and welfare in an endogenous growth model with altruistic agents subsidizing education has not only a direct positive effect on growth but also an indirect positive effect on growth through reducing fertility after some finite periods future generations will gain in welfare in the education subsidy regime in contrast subsidizing the number of children increases fertility depresses growth and reduces all generations welfare

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

education social security and growth abstract we study the role of government s allocation of tax revenues between two outlays public investment in education a transfer to the young generation and social security benefits to the older generation in an overlapping generations economy with pay as you go social security and altruistically motivated transfers from parents to children we analyze how the allocation of the tax revenues between the two outlays affects growth and welfare in competitive equilibria a we obtain comparative dynamics results for nonstationary equilibria subject to a change in the allocation profile b for stationary equilibria we show that for a given allocation profile of the tax revenues educational subsidies can either increase the growth rate or decrease it depending on the parameters of the model preferences production function and the tax rate c if government seeks to allocate funds in a way that maximizes the growth rate we demonstrate that under some plausible conditions it is not optimal to maintain pay as you go social security however if parents preferences combine strong concern for their retirement with significant degree of altruism towards their children then pay as you go social security system does enhance growth and welfare

the strategic effects of batch processing we study a duopoly game in which firms commit to a batch technology before competing in sales quantities adopting a batch technology requires the quantity produced to equal an integer number of batches and allows sales to be less than production when larger batch sizes lower unit production costs as in the u s airline industry with its economies of density subgame perfect equilibrium sales quantities are unique and more competitive than the cournot equilibrium quantities of a one shot game with continuous total cost functions when larger batch sizes yield higher unit costs equilibrium production can exceed equilibrium sales

public education spending and private substitution in urban china abstract this paper documents robust evidence that increases in public spending on basic education are associated with significant reductions in household private tutoring spending in urban china this reduction comes primarily from the top and bottom income households suggesting multi dimensional demands for private tutoring it concentrates on households with an only boy and is larger for middle school than primary school children increases in public education spending are associated with significant reduction in school tuition which is homogeneous across households of different income levels changes in household spending on textbooks in response to more public education spending are modest but statistically insignificant

pre commitment and flexibility abstract this paper considers several related strategic duopoly settings in which uncertainty creates an option value from retaining flexibility by delaying investment or output decisions until after uncertainty is resolved this value of flexibility must be weighed against the strategic value of pre commitment yielding a trade off between flexibility and pre commitment we obtain a simple characterization of the timing of output decisions as a consequence of the degree of uncertainty particular attention is paid to the implications for entry deterrence by an incumbent firm and to the possible flexibility enhancing effects of investment in capital

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

eurosystem monetary targeting lessons from u s data abstract using a small empirical model of inflation output and money estimated on u s data we compare the relative performance of monetary targeting and inflation targeting the results show monetary targeting to be quite inefficient yielding both higher inflation and output variability this is true even with a nonstochastic money demand formulation our results are also robust to using a p model of inflation therefore in these popular frameworks there is no support for the prominent role given to money growth in the eurosystem s monetary policy strategy

public versus private investment and growth in a hierarchical education system abstract the paper studies the interaction between public and private spending in a two stage education framework k 12 and tertiary education and their effects on economic growth we find that an increase in the overall education public spending crowds out the total level of private contributions and increases the share of resources that households devote to k 12 education for a given public budget a higher share of k 12 public funding induces higher private education spending overall of which a larger share goes towards higher education the model broadly matches data on education finance in the oecd countries the calibrated parameter values suggest that at both stages public and private inputs are good yet imperfect substitutes with a higher degree of complementarity in basic education we show that the growth maximizing share of public spending devoted to k 12 should be high irrespective of the size of the public budget using the calibrated model to compare the structure of education funding in the eu and the us we find that to maximize growth high tax countries should use more of their public resources in tertiary education relative to low tax countries this suggests that us efforts to improve k 12 education and the reform of higher education in europe are consistent with the objective of increased economic growth