forest incomes and rural livelihoods in chiradzulu district malawi abstract this paper examines forest income among rural dwellers in one of malawi s most densely populated districts chiradzulu 160 households were interviewed in two sites only 20 km apart purposely selected on the basis of access to a forest reserve people are extremely poor with 97 having incomes of less than 1 usd day forest income constitutes around 15 of total income only non farm income 47 and agriculture 28 rank higher the poorest segment depends more on forest income than the least poor group but the medium income group exhibits the highest dependence fuelwood constitutes the major source of such income followed by fodder the incomes mainly support current consumption people with better access to the forest reserve have higher total income forest income and relative forest income as revealed through a gini coefficient analysis forest resources have an important income equalizing effect across rural households a particular group of resource poor farmers 8 1 of sample with little access to agricultural land and a high representation of female heads derives an average of 65 of their income from the forest an important policy lesson is that restricting people s access to forest resources can have substantial effects on household livelihoods and welfare and would serve to increase income inequalities in the area livelihood researchers should now recognize the substantial income from forest resources

benefit entitlement and unemployment duration the role of policy endogeneity abstract the potential duration of benefits is generally viewed as an important determinant of unemployment duration this paper evaluates a unique policy change that prolonged entitlement to regular unemployment benefits from 30 weeks to a maximum of 209 weeks for elderly individuals in certain regions of austria in the evaluation we explicitly account for the fact that the program was an endogenous policy response to deteriorating labor market conditions for older workers in certain regions and sectors the main results are i rebp reduced the transition rate to jobs by 17 ii accounting for endogenous policy adoption is important and quantitatively significant

stock market volatility and investment do only fundamentals matter the empirical evidence in the volatility literature suggests that movements in stock prices cannot be satisfactorily explained purely in terms of changes in fundamentals this paper shows how to obtain proxies for the fundamental and fad components of changes in stock prices and asks the question do only fundamentals matter for investment decisions we find that changes in investment are significantly associated with movements in both components of stock prices the point estimates suggest that changes in fundamentals have a greater effect than changes in non fundamentals the statistical significance of the difference between their coefficients depends upon the financing regime these conclusions are shown to be robust to modifications and extensions of the model

extended benefits and the duration of ui spells evidence from the new jersey extended benefit program abstract this paper examines the impact on the duration of unemployment insurance receipt of a politically motivated program that offered 13 weeks of extended benefits for 6 months in 1996 using state level data and individual administrative records from before during and after the program we find that it raised the fraction of claimants who exhausted their regular benefits by 1 3 percentage points had the program run long enough to affect claimants from the first day of their spell the fraction exhausting would have risen by 7 percentage points and the average recipient would have collected regular benefits for one extra week

nonstationarity in job search theory generally structural job search models are taken to be stationary in this paper models are examined in which every exogenous variable can cause nonstationarity for instance because its value is dependent on unemployment duration a general differential equation that describes the evolution of the reservation wage over time is derived as an empirical illustration a nonstationary structural model is estimated that focuses on the consequences of a downward shift in the level of benefits it appears that the elasticity of duration with respect to the level of benefits after the shift is much larger than the elasticity with respect to the level before the shift this paper examines the movement of a job seeking individual s reservation wage over time in a general nonstationary job search model also results concerning comparative dynamics of the reservation wage and the distribution of the duration of unemployment are derived as an empirical illustration a nonstationary structural model is estimated the nonstationarity originates from the decrease in the level of benefits when unemployment duration equals two years from the results some detailed policy recommendations can be deduced as one is able to distinguish the effect of a change in the level of benefits in the first two years of unemployment from the effect of a change in the level after that period recently the use of job search models for the analysis of unemployment duration has become widespread the reduced form approach in empirical studies see e g lancaster 1979 in which only the hazard of the duration distribution is estimated is gradually being replaced by a more structural approach the latter way of modelling is characterized by the explicit use in empirical analysis of the reservation wage equation as stated by the theory e g yoon 1981 lancaster and chesher 1983 lynch 1983 narendranathan and nickell 1985 and van den berg 1988 use the complete theoretical framework of job search theory to make inferences about search behaviour however the structural models used in these studies are stationary this implies that variables like unemployment benefits or the rate of arrival of job offers are assumed to be constant over the spell of unemployment which is often at variance with reality what is more various reduced form empirical studies indicate a significant durationdependence of the re employment probability which is generally interpreted as evidence in favour of the presence of nonstationarity see e g blau and robins 1986 kooreman and ridder 1983 lancaster 1979 and narendranathan nickell and stern 1985 consequently there is a need to model reservation wage movements over time based on a nonstationary theoretical framework

duration and risk of unemployment in argentina abstract after a decade of structural reforms unemployment rates have tripled in argentina this paper is concerned with the measurement of unemployment risk and its distribution we show the importance of considering re incidence in the measurement of unemployment risk and develop a methodology to do that our estimates for argentina show that though the typical unemployment spell is short once re incidence is taken into account unemployment risk is high has risen substantially in the last decade and is shared very unequally in the labor force this counters the established view that unemployment is a small risk short duration phenomenon which arises when re incidence is not considered

using asset prices to measure the cost of business cycles we measure the cost of consumption fluctuations using an approach that does not require the specification of preferences and instead uses asset prices we measure the marginal cost of consumption fluctuations the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of lifetime consumption we find that the gains from eliminating all consumption uncertainty are very large however for consumption fluctuations corresponding to business cycle frequencies we estimate the marginal cost to be between 0 08 percent and 0 49 percent of lifetime consumption

stabilizing non fundamental asset price movements under discretion and limited information abstract inflation output and interest rate stabilization are all potential central bank objectives we explore whether monetary policy should respond to asset price fluctuations when they are driven by irrational expectational shocks to the future returns to capital in our model an optimistic shock to future returns generates both an increase in equity prices and physical investment the increased investment is inefficient and thus a central bank optimally responds to this expectations shocks this induces a trade off between stabilizing nominal prices and non fundamental asset price movements we compare the optimal policy under different assumptions full versus limited information and commitment versus discretion if the central bank has limited information about whether an asset price movement has a fundamental or non fundamental origin then the central bank responds less aggressively to the non fundamental exuberance shocks than under full information without commitment a central bank responds more aggressively to non fundamental exuberance shocks

how do different entitlements to unemployment benefits affect the transitions from unemployment into employment abstract in portugal duration of benefits is exclusively age determined while replacement rates are essentially uniform we exploit differences in potential maximum duration of benefits for nearly matched pairs of individuals to determine the effects of benefit duration on job finding

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

higher order expectations in asset pricing we examine formally keynes idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs we call this the higher order wedge which depends on the difference between higher and first order expectations of future payoffs we analyze the determinants of this wedge and its impact on the equilibrium price in the context of a dynamic noisy rational expectations model we show that the wedge reduces asset price volatility and disconnects the price from the present value of future payoffs the impact of the higher order wedge on the equilibrium price can be quantitatively large

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

learning from private and public observations of othersʼ actions we study how a continuum of agents learn about disseminated information by observing others actions every period each agent observes a public and private noisy signal centered around the aggregate action taken by the population the public signal represents an endogenous aggregate variable such as a price or a quantity the private signal represents the information gathered through private communication and local interactions we identify conditions such that the average learning curve is s shaped learning is slow initially intensifies rapidly and finally converges slowly to the truth we show that increasing public information always slows down learning in the long run and under some conditions reduces welfare lastly optimal diffusion of information requires that agents strive to be different agents need to be rewarded for choosing actions away from the population average

market externalities of large unemployment insurance extension programs we provide evidence that unemployment insurance affects equilibrium conditions in the labor market which creates significant market externalities we provide a framework for identification of such equilibrium effects and implement it using the regional extension benefit program rebp in austria which extended the duration of ui benefits for a large group of eligible workers in selected regions of austria we show that non eligible workers in rebp regions have higher job finding rates lower unemployment durations and a lower risk of long term unemployment we discuss the implications of our results for optimal ui policy jel e24 j64 j65 r23

business cycle dynamics under rational inattention we develop a dynamic stochastic general equilibrium dsge model with rational inattention and compare its predictions to data households and decision makers in firms have limited attention and optimally allocate their attention rational inattention is the only source of slow adjustment the model matches the empirical impulse responses to monetary policy shocks and aggregate technology shocks at the same time profit losses and utility losses from inattention are very small furthermore it matters whether one uses this model or a conventional dsge model for policy analysis

the impact of the potential duration of unemployment benefits on the duration of unemployment abstract this paper examines the impact of the potential duration of unemployment insurance ui benefits on unemployment in the united states first we use a large sample of household heads to examine differences in the unemployment spell distributions of ui recipients and nonrecipients sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for ui recipients around the time of benefits exhaustion such increases are not apparent at similar points of spell duration for nonrecipients second our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of ui recipients by 0 16 to 0 20 weeks

the college to work transition during the 1990s evidence from sweden this article analyses the time it takes for swedish college graduates to start a full time job that lasts for 6 months or more the focus is on the transition over time during the period 1991 to 1999 this period covers both upturns and downturns of the business cycle providing a unique opportunity to consider the importance of the timing of graduation the results show that the risk of unemployment and the unemployment duration have varied considerably with the business cycle both within and between cohorts for example the field of education is of more importance for the outcomes during recessions further the relative risk of unemployment has decreased over time for individuals with the highest degree of education whereas the unemployment duration has increased indicating that the selection into unemployment for this group may have changed over time this is interesting not least in the light of the sharp expansion of the higher educational system during the study period

do benefit cuts boost job finding swedish evidence from the 1990s in june 1995 the swedish parliament decided to cut the replacement rate in unemployment insurance from 80 percent to 75 percent a change that took effect on january 1 1996 this paper examines h

a welfare criterion for models with distorted beliefs this paper proposes a welfare criterion for economies in which agents have heterogeneously distorted beliefs instead of taking a stand on whose belief is correct our criterion asserts an allocation to be belief neutral ine cient if it is ine cient under any convex combination of agents beliefs while this criterion gives an incomplete ranking of social allocations it can identify negative sum speculation in a broad range of prominent models with distorted beliefs

unemployment duration unemployment benefits and labor market programs in sweden abstract standard search theory as well as some empirical evidence suggest that an unemployed individual s probability of entering employment increases as he approaches the time when unemployment benefits are due to expire this pattern may not carry over to a country like sweden where labor market programs are targeted at the long term unemployed at risk of benefit exhaustion the paper examines transitions out of unemployment using data on unemployed individuals in sweden a semi parametric competing risks model for transitions to employment labor market programs and non participation is estimated there is some evidence that the exit rate from unemployment to employment increases as benefit exhaustion is approached

duration dependence versus unobserved heterogeneity in treatment effects swedish labor market training and the transition rate to employment summary the effect of a treatment on the hazard rate of a duration outcome may depend on the elapsed time since treatment in addition treatment effects may be heterogeneous across agents the former gives rise to duration dependence of the treatment effect whereas unobserved heterogeneity gives rise to spurious duration dependence of the observable hazard rate we develop a model allowing for duration dependence and unobserved heterogeneity in the treatment effect the model incorporates a timing of events model and allows for selectivity on unobservables we prove identification exploiting variation in the timing of treatment and outcome in the application we analyze the effects of the swedish vocational employment training program on the individual transition rate from unemployment to work we demonstrate the appropriateness of the approach by studying the enrollment process the data cover the population and include multiple unemployment spells for many individuals the results indicate a large significantly positive effect on exit to work shortly after exiting the program the effect at the individual level diminishes after some weeks when taking account of the time spent in the program the effect on the mean unemployment duration is small copyright 2012 john wiley sons ltd

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

does unemployment compensation affect unemployment duration abstract we use a flexible hazard rate model with unrestricted spell duration and calendar timeeffects to analyse a dataset including all norwegian unemployment spells during the1990 s the dataset provides a unique access to conditionally independent variation inunemployment compensation we find that a marginal increase in compensation re duces the escape rate from unemployment significantly irrespective of business cycleconditions and spell duration the escape rate rises sharply in the months just prior tobenefit exhaustion while men are more responsive than women with respect to mar ginal changes in compensation women are most responsive with respect to benefitexhaustion keywords unemployment spells business cycles unemployment compensation non parametric duration analysis jel classification c41 j64 the ragnar frisch centre for economic research oslo we wish to thank the re search council of norway for financial support and christian brinck harald goldstein costas meghir espen moen steinar strom rolf aaberge and three anonomyous referees for helpful comments cor respondence to knut roed the ragnar frisch centre for economic research gaustadalleen 21 0349oslo norway e mail knut roed frisch uio no

the swedish unemployment experience by international standards unemployment in sweden remained remarkably low throughout the 1970s and the 1980s in the early 1990s however the unemployment rate increased sharply and hit double digit levels the paper argues that the steep rise in unemployment was mainly the result of a series of adverse macroeconomic shocks partly self inflicted by bad policies and partly caused by unfavourable international developments the extremely contractionary monetary policy in 1992 appears to have had strong and long lasting effects on unemployment institutional factors do not appear as convincing explanations of the steep rise in unemployment in the early 1990s

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed

commercial collection of ntfps and households living in or near the forests case study in que con cuong and ma tuong duong nghe an vietnam abstract in vietnam ntfps has become an important source of cash income for local people living in or near the forests the commercial collection of these products could reduce both the number of species and population of a species in the forests in order to keep the balance between biodiversity and commercial collection of ntfps this paper evaluates the dependence of forest dwellers on ntfps and identifies the relation between household characteristics and cash income generated by ntfp collection as a result commercial collection of ntfps is negatively correlated to dependency ratio poverty level and distance to the provincial city and positively correlated with female labors of households moreover ntfps are proved to be very important in poor households or in those who lack rice or high rate of female labor the households who have higher dependency ratio benefit less from ntfps sold while those who lack rice for their own consumption or have a higher rate of female labor depend more on ntfps poor households are more dependent on ntfp collection than other groups finally the result of this study highly recommends that the government of vietnam be aware of gender balance distance to provincial city poverty level and dependency ratio when applying a policy related to ntfp conservation an appropriate incentive policy for woman and poor households might be a possible solution for less commercial collection of ntfps the poor households who have low dependency ratio or high female labor rate should be encouraged to participate in the forest management system to control the balance between commercial collection of ntfp and conservation

unemployment benefit duration and incentives in britain how robust is the evidence abstract recent years have seen considerable advances in the econometric treatment of micro data in models of unemployment duration this paper examines the evidence from such models concerning the effects of unemployment benefits on incentives to work in britain widely accepted results of a small but significant benefit effect are reproduced using a sample of 1 231 unemployed men however these results are only found when benefit receipt is assumed to follow a hypothetical pattern which is shown to be unrealistic and over generous when more realistic calculations of benefits are used no benefit effect is found the paper also argues that search theory is of little help in determining the choice between competing functional forms and explanatory variables results concerning benefits are shown to be sensitive to the latter

why do forecasters disagree lessons from the term structure of cross sectional dispersion abstract key sources of disagreement among economic forecasters are identified by using data on cross sectional dispersion in forecasters long and short run predictions of macroeconomic variables dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons moreover differences in views persist through time such differences in opinion cannot be explained by differences in information sets our results indicate they stem from heterogeneity in priors or models differences in opinion move countercyclically with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs

unemployment duration and competing risks evidence from sweden the determinants of unemployment duration are studied in the presence of multiple exits out of unemployment the results indicate that state aggregation may be a severe problem in empirical analysis of a labor market such as the one in sweden estimating a joint model for all transitions out of unemployment leads to biased estimates since different transitions are governed by different mechanisms the results also indicate positive duration dependence in both transitions to regular employment and transitions out of the labor force but no duration dependence in transitions to public labor market programs i introduction during the last decade we have witnessed a rapidly expanding literature on the determinants of unemployment duration the main motivation for this development is that a large share of the increasing unemployment rates in most western economies since the mid 1970s may be attributed to increased unemployment duration see e g the survey by lofgren and engstrom 1988 most empirical studies formulate an estimating equation for the determinants of the outflow from unemployment in terms of the hazard function which describes the conditional probability of leaving unemployment these studies are typically based on an explicit or implicit assumption that the only relevant transition out of unemployment is reemployment in this paper it is argued that such an assumption which amounts to assuming that all transitions from unemployment are governed by the same mechanism may lead to state aggregation bias we have no a priori reason to believe that e g increased education has the same effect on transitions from unemployment to employment as on transitions from

asset bubbles and the cost of economic fluctuations lucas 1987 2003 estimates that the cost of economic fluctuations is low a social planner would pay no more than 0 1 of permanent consumption to eliminate all future business cycle fluctuations the current paper extends lucas calculations by studying the costs of fluctuations arising from asset bubbles we estimate two classes of costs consumption volatility due to asset bubbles in a representative agent economy and consumption volatility that arises because households have heterogeneous exposure to the bubble assets we show that the magnitude of welfare costs is primarily driven by the existence of heterogeneity our benchmark calibration implies that the asset bubbles of the last decade generated a social welfare cost equal to a permanent 3 reduction in the level of national consumption if assets are held proportionately across the population these welfare costs fall by an order of magnitude our calculations are sensitive to the details of the calibration including the degree of balance sheet and trading heterogeneity the coefficient of relative risk aversion and the magnitude of the asset bubble our preferred specifications generate welfare costs ranging from 1 to 10 of permanent national consumption

market sentiment a tragedy of the commons we present a model in which investors decide whether or to what degree they want to allow their behavior to be influenced by market sentiment investors who choose to insulate their decisions from market sentiment earn higher expected returns but incur a small mental cost we show that if information is moderately dispersed across investors even a very small mental cost may result in a significant amount of sentiment in equilibrium individuals who choose to be swayed by sentiment increase uncertainty about the future and make it less costly for others to be swayed by sentiment as well

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

learning from the behavior of others conformity fads and informational cascades learning by observing the past decisions of others can help explain some otherwise puzzling phenomena about human behavior for example why do people tend to converge on similar behavior why is mass behavior prone to error and fads the authors argue that the theory of observational learning and particularly of informational cascades has much to offer economics business strategy political science and the study of criminal behavior

an evaluation of the swedish system of active labour market programmes in the 1990s we investigate the presence of short and long term effects from joining a swedish labor market program vis a vis more intense job search in open unemployment overall the impact of the program system is found to have been mixed joining a program has increased employment rates among participants a result robust to a misclassification problem in the data on the other hand it has also allowed participants to remain significantly longer on unemployment benefits and more generally in the unemployment system this being particularly the case for those entitled individuals entering a program around the time of their unemployment benefits exhaustion

what can survey forecasts tell us about information rigidities a lot we derive common and conflicting predictions from models in which agents face information constraints and then assess their validity using surveys of consumers firms central bankers and professional forecasters we document that mean forecasts fail to completely adjust on impact to shocks leading to statistically and economically significant deviations from the null of full information the dynamics of forecast errors after shocks are consistent with the predictions of models with information rigidities the conditional responses of forecast errors and disagreement among agents can also be used to differentiate between some of the most prominent models of information rigidities

benefit duration unemployment duration and job match quality a regression discontinuity approach summary we use a sharp discontinuity in the maximum duration of benefit entitlement to identify the effect of extended benefit duration on unemployment duration and post unemployment outcomes employment stability and re employment wages we address dynamic selection which may arise even under an initially random assignment to treatment estimating a bivariate discrete time hazard model jointly with a wage equation and correlated unobservables owing to the non stationarity of job search behavior we find heterogeneous effects of extended benefit duration on the re employment hazard and on job match quality our results suggest that the unemployed who find a job close to and after benefit exhaustion experience less stable employment patterns and receive lower re employment wages compared to their counterparts who receive extended benefits and exit unemployment in the same period these results are found to be significant for men but not for women copyright 2012 john wiley sons ltd

the economic importance of non timber forest products ntfps for livelihood maintenance of rural west african communities a case study from northern benin non timber forest products ntfps contribute significantly to a rural household s livelihood in the african semi arid tropics this study examines the income from ntfps and the dependency on these of different socio economic groups in northern benin using survey data from 230 households of two villages we firstly compared incomes of five different ethnic groups being differentiated by their traditional source of livelihood and regional provenance secondly we investigated disparities between three income groups on average income from ntfps accounted for 39 of total household income and had a strong equalizing effect on it however the economic relevance of ntfps differs between households poorer households are relatively more dependent on ntfps in order to fulfill basic needs than wealthier households however the latter extract more ntfps in quantitative terms and have significantly higher cash returns than poorer ones this is mainly due to a significant greater land holding moreover our study revealed that net income from ntfps reflects traditional sources of livelihoods of different ethnic groups in conclusion both conservation and development strategies should take into consideration the socio economic context of different beneficiaries of savanna woodland resources in order to apply appropriate measures to poverty reduction

the spike at benefit exhaustion leaving the unemployment system or starting a new job in this paper we review the literature on the spike in unemployment exit rates around benefit exhaustion and present new evidence based on administrative data for a large sample of job losers in austria we find that the way unemployment spells are measured has a large effect on the magnitude of the spike at exhaustion both in existing studies and in our austrian data spikes are typically much smaller when spell length is defined by the time to next job than when it is defined by the time spent on the unemployment system in austria the exit rate from registered unemployment rises by over 200 at the expiration of benefits while the hazard rate of re employment rises by only 20 the difference between the two measures arises because many individuals leave the unemployment register immediately after their benefits expire without returning to work the modest spike in re employment rates implies that most job seekers do not wait until their ui benefits are exhausted to return to work fewer than 1 of jobless spells have an ending date that is manipulated to coincide with the expiration of ui benefits this abstract was borrowed from another version of this item

trading frenzies and their impact on real investment we study a model in which a capital provider learns from the price of a firm s security in deciding how much capital to provide for new investment this feedback effect from the financial market to the investment decision gives rise to trading frenzies in which speculators all wish to trade like others generating large pressure on prices coordination among speculators is sometimes desirable for price informativeness and investment efficiency but speculators incentives push in the opposite direction so that they coordinate exactly when it is undesirable we analyze the effect of various market parameters on the likelihood of trading frenzies to arise

rare disasters asset prices and welfare costs a representative consumer model with epstein zin weil preferences and i i d shocks including rare disasters accords with observed equity premia and risk free rates if the coefficient of relative risk aversion equals 3 4 if the intertemporal elasticity of substitution exceeds one an increase in uncertainty lowers the price dividend ratio for equity and a rise in the expected growth rate raises this ratio calibrations indicate that society would willingly reduce gdp by around 20 percent each year to eliminate rare disasters the welfare cost from usual economic fluctuations is much smaller though still important corresponding to lowering gdp by about 1 5 percent each year

how changes in financial incentives affect the duration of unemployment this paper studies how changes in the two key parameters of unemployment insurance the benefit replacement rate rr and the potential benefit duration pbd affect the duration of unemployment to identify such an effect we exploit a policy change introduced in 1989 by the austrian government which affected various unemployed workers differently a first group experienced an increase in rr a second group experienced an extension of pbd a third group experienced both a higher rr and a longer pbd and a fourth group experienced no change in the policy parameters we find that unemployed workers react to the disincentives by an increase in unemployment duration and our empirical results are consistent with the predictions of job search theory we use our parameter estimates to split up the total costs to unemployment insurance funds into costs due to changes in the unemployment insurance system with unchanged behaviour and costs due to behavioural responses of unemployed workers our results indicate that costs due to behavioural responses are substantial

international capital flows abstract the surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice we develop the implications of portfolio choice for both gross and net international capital flows in the context of a simple two country dynamic stochastic general equilibrium dsge model we focus on the time variation in portfolio allocation following shocks and resulting capital flows endogenous time variation in expected returns and risk which are the key determinants of portfolio choice affect capital flows in often subtle ways the model is consistent with a broad range of empirical evidence an additional contribution of the paper is to overcome the technical difficulty of solving dsge models with portfolio choice by developing a broadly applicable solution method

robustly optimal monetary policy with near rational expectations the paper considers optimal monetary stabilization policy in a forward look ing model when the central bank recognizes that private sector expectations need not be precisely model consistent and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close enough to model consistency it is found that commitment continues to be important for optimal policy that the optimal long run inflation target is unaffected by the degree of potential distortion of beliefs and that optimal policy is even more history dependent than if rational expectations are assumed jel c62 d84 el 3 e31 e32 e52 an extensive literature has considered the optimal conduct of monetary policy under the assumption of rational or model consistent expectations this literature has found that it is quite important to take account of the effects of the systematic and hence predictable compo nent of monetary policy on expectations for example it is found quite generally that an optimal policy commitment differs from the policy that would be chosen through a sequential optimiza tion procedure with no advance commitment of future policy it is also found quite generally that optimal policy is history dependent a function of past conditions that no longer affect the degree to which it would be possible to achieve stabilization aims from the present time onward 1 both of these conclusions depend critically however on the idea that an advance commitment of future policy should change people s expectations at earlier dates this may lead to the fear that analyses that assume rational expectations re exaggerate the degree to which a policy authority can rely upon private sector expectations to be shaped by its policy commitments in precisely the way that it expects them to be what if the relation between what a central bank plans to do and what the public will expect to happen is not quite so predictable might both the case for advance commitment of policy and the case for history dependent policy be considerably weakened under a more skeptical view of the precision with which the public s expectations can be predicted one way of relaxing the assumption of rational expectations is to model agents as forecasting using an econometric model the coefficients of which they must estimate using data observed prior to some date sampling error will then result in forecasts that depart somewhat from pre cise consistency with the analyst s model 2 however selecting a monetary policy rule on the basis of its performance under a specific model of learning runs the risk of exaggerating the degree to which the policy analyst can predict and hence exploit the forecasting errors that result from a particular way of extrapolating from past observations one might even conclude

environmental externalities and immiserizing structural changes in an economy with heterogeneous agents the way in which natural and physical capital are accumulated distributed and harnessed underpins the functioning and sustainability of the productive system of each society as well as its social stratification significant changes in the interactions between natural and physical capital accumulation give rise to processes of structural change sc which affect not only sectoral composition of the productive system but also social equity and environmental quality we propose a taxonomy of different scs on the basis of distributive environmental and economic outcomes and we study a two sector model with environmental externalities to identify under which conditions each sc can occur our model shows how the type of sc is shaped by the link between agents heterogeneity in terms of productive asset endowment and their vulnerability to environmental degradation in particular we find that a sc associated with reduction in poverty and in environmental pressures can occur only if productivity of the physical capital intensive sector increases but its rate of environmental impact remains relatively lower than that of the natural capital intensive sector

assessing environmental dependence using asset and income measures evidence from nepal understanding rural environmental dependence in a rural population is an important factor in the framing of environmental policy with the dual aim of tackling poverty and conserving nature firstly this study compares the assessment of environmental dependence between poverty groupings based on income and asset measures using a composite asset index we were able to distinguish the asset poor from the asset non poor we then combined income data with the asset index enabling us to disentangle the stochastic and structural nature of poverty the distribution of poor and non poor households based on income measures was significantly different from that based on asset measures the income poor are substantially more dependent on environmental resources than the income non poor about 15 difference while strikingly minimal difference was observed in environmental dependence between the asset poor and non poor less than 2 difference the level of environmental dependence between the poor and non poor households differs with the choice of welfare measure and combining two of these measures to identify wealth groups provides policy makers with better insight on the variations in environmental dependence

household wealth status and natural resource use in the kat river valley south africa abstract much work has demonstrated the significant role and value of non timber forest products ntfps in the livelihoods of rural people in southern africa and elsewhere the findings provide a mean or composite picture averaged across the sample households within each community yet within any given community there is significant socio economic differentiation it is important to acknowledge such differentiation when considering policy and management interventions to support rural livelihoods and promote sustainable resource use this paper reports on a study in south africa the objective of which was to explore wealth related differences and similarities in the use and value of ntfps data on ntfp consumption purchase and sale were collected from households in three rural villages households were divided into three wealth classes and patterns of ntfps use between the classes examined there was no difference in the proportions of households in each wealth class using ntfps nor the total number of ntfps used per household yet there was some supporting evidence that poorer households derive greater benefits from ntfps than do wealthy or intermediate households one clear difference was that with increasing wealth households purchased significantly more ntfps and a greater proportion of wealthy households did so conversely a greater proportion of poor households were involved in the sale of one or more ntfps and they sold a greater number per household compared to wealthy and intermediate households detailed examination of use and value of four ntfps fuelwood wild fruits edible herbs and grass hand brushes revealed that in all instances the poorest households used more of the resource per capita than the other wealth classes this was not the case for comparisons based on the total household as the unit of analysis gross annual direct use value did not differ between the wealth classes for any of the four ntfps examined at the household level but on a per capita basis a significantly higher gross annual direct use value was evident within poorer households for fuelwood and edible herbs the significance of these differences is discussed

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

fluctuations in uncertainty this review article tries to answer four questions i what are the stylized facts about uncertainty over time ii why does uncertainty vary iii do fluctuations in uncertainty matter and iv did higher uncertainty worsen the great recession of 2007 2009 on the first question both macro and micro uncertainty appears to rise sharply in recessions on the second question the types of exogenous shocks like wars financial panics and oil price jumps that cause recessions appear to directly increase uncertainty and uncertainty also appears to endogenously rise further during recessions on the third question the evidence suggests uncertainty is damaging for short run investment and hiring but there is some evidence it may stimulate longer run innovation finally in terms of the great recession the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in gdp

sick of being unemployed interactions between unemployment and sickness insurance this paper examines the incentive effects of interactions between unemployment insurance ui and sickness insurance si two important components of sweden s social insurance system the main topic is how the sickness report rate among the unemployed is affected by i the limit of 300 workdays for ui benefits and ii the difference in maximum compensation between ui and si benefits results obtained by duration analysis suggest that sick reports increase as the ui benefit expiration date approaches there is also evidence of an incentive effect on the sick report rate because si offers higher compensation than ui

village economic opportunity forest dependence and rural livelihoods in east kalimantan indonesia summary the changing role of forests in people s livelihoods in frontier areas is important from the perspective of poverty alleviation and forest conservation this study explores the link between expanding economic opportunities forest dependence and welfare in 73 villages village economic options forest cover and land suitability for agriculture and forestry are determining factors of people s well being increased accessibility to markets and deforestation are strongly associated with economic diversity at the village level increased economic diversity larger areas of forests more intensive land use higher endowments of agricultural land and forest and higher village population are related to increased well being

in search of complementary assets the determinants of alliance formation of high tech start ups abstract why do new technology based firms ntbfs cooperate starting from teece s teece d j 1986 profiting from technological innovation implications for integration collaboration licensing and public policy research policy 15 285 305 conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence based tradition and in the social structure perspective we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm specific characteristics and the nature of the alliance in particular a distinction is made between exploitative commercial alliances and explorative technological alliances the econometric estimates based on a large sample of italian young high tech firms that are observed from 1994 to 2003 provide strong evidence supporting two key intuitions of teece s work first the combination of specialized complementary assets appears to be a key driver of the formation of exploitative commercial alliances by ntbfs more specifically patent holding affects positively the likelihood to establish commercial alliances but this propensity is found to rapidly decrease with firm size suggesting that as long as ntbfs become larger and possess specialized commercial assets their urge for commercial alliances diminishes second following the parallelism set forth by teece between search for alliance partners and access to external financing the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller ntbfs in this respect our results clearly support the view that sponsor institutions as public research organizations venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance

a theory of demand shocks this paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity agents are hit by heterogeneous productivity shocks they observe their own productivity and a noisy public signal regarding aggregate productivity the public signal gives rise to noise shocks which have the features of aggregate demand shocks they increase output employment and inflation in the short run and have no effects in the long run numerical examples suggest that the model can generate sizable equilibrium dsge models of the business cycle include a large number of shocks to technol ogy monetary policy preferences etc but typically do not include expectational shocks as independent drivers of short run fluctuations 1 this paper explores the idea of expectation driven cycles looking at a model where technology determines equilibrium output in the long run and consumers receive noisy signals about technology in the short run the presence of noisy signals produces expectational errors this paper studies the role of these expectational errors in gener ating volatility at business cycle frequencies the model is based on two ingredients first consumers take time to recognize permanent changes in aggregate fundamentals although they may have good information on the current state of the individual firm or sector where they operate they have only limited information regarding the long run determinants of aggregate activity second consumers have access to public information that is relevant to estimate long run productivity this includes news about technological innovations publicly released macroeconomic and sectoral statistics financial market prices and public statements by policy makers however these signals provide only a noisy forecast of the long run effects of technological innovations this opens the door to noise shocks which induce consumers to temporarily overestimate or underestimate the productive capacity of the economy

is environmental income reporting evasive in household surveys evidence from rural poor in laos abstract literature has consistently reiterated that the self employed non poor underreport their business income to tax authorities and in household surveys in this work we measure the extent to which poor households engaging in illegal environmental activities underreport income in laos we use a two year panel data and apply the engel curve to detect and estimate the reporting gap we further use a switching probit regression to identify the factors of income underreporting and its impact on income poverty outcomes results show that on an average rural households who earn at least a quarter of their income from the environment underreport by over 50 in household surveys resulting in overestimation of income poverty moreover we find that a perceived threat to food security drives rural poor to engage in illegal environmental extraction

the social cost of near rational investment abstract we show that the stock market may fail to aggregate information even if it appears to be efficient and that the resulting decrease in the information content of prices may drastically red

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

beauty contests and iterated expectations in asset markets in a financial market where traders are risk averse and short lived and prices are noisy asset prices today depend on the average expectation today of tomorrow s price thus iterating this relationship the date 1 price equals the date 1 average expectation of the date 2 average expectation of the date 3 price this will not in general equal the date 1 average expectation of the date 3 price we show how this failure of the law of iterated expectations for average belief can help understand the role of higher order beliefs in a fully rational asset pricing model and explain over reaction to noisy public information

how much would you pay to resolve long run risk abstract though risk aversion and the elasticity of intertemporal substitution have been the subjects of careful scrutiny the long run risks literature as well as the broader literature using recursive utility to address asset pricing puzzles has ignored the full implications of their parameter specifications recursive utility implies that the temporal resolution of risk matters and a quantitative assessment thereof should be part of the calibration process this paper gives a sense of the magnitudes of implied timing premia its objective is to inject temporal resolution of risk into the discussion of the quantitative properties of long run risks and related models jel d81 g11 g12

effects of manpower policies on duration dependence in re employment rates the example of sweden in contrast to the evidence from other countries swedish studies of the transition from unemployment to employment have consistently reported a non negative duration dependenice in the hazard this study examines the extent to which this results from large scale labour market programmes a limited duration of unemployment benefits or differences among available jobs the labour market programmes are here found to be the primary factor behiind the earlier swedish results the programmes thus pick up those with the worst employment prospects thereby postponing a decrease in the re employment probability among job searchers this in turn generates an on average constant duration dependence

country portfolios in open economy macro models this paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models the method is widely applicable simple to implement and gives analytical solutions for equilibrium portfolio positions in any combination or types of asset it can be used in models with any number of assets whether markets are complete or incomplete and can be applied to stochastic dynamic general equilibrium models of any dimension so long as the model is amenable to a solution using standard approximation methods we first illustrate the approach using a simple two asset endowment economy model and then show how the results extend to the case of any number of assets and general economic structure

forest reliance across poverty groups in tanzania an emerging body of knowledge has established that poorer households in forest adjacent communities in developing countries are generally more forest reliant higher forest income share while richer households tend to extract more and generate higher absolute forest income these studies commonly categorize households based on observed income in cross section data presenting a snap shot reflecting both inter household and inter annual income variation in this paper we introduce a new approach to categorize households based on a combination of the observed one year income and predicted income by an augmented asset approach applying this approach on household data from tanzania we find forest reliance to be high among structurally poor households low observed income and assets the highest forest reliance is found among the stochastically non poor households high income and low assets and this group also has the highest absolute forest income

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

the sensitivity of tests of the intertemporal allocation of consumption to near rational alternatives suppose a consumer sets consumption equal to income each period rather than following the optimal permanent income decision rule how much utility does he lose this paper finds that the answer is typically less than 10 cents 1 per quarter in environments specified by popular tests on aggregate data it includes calculations of the costs of excess sensitivity and excess smoothness to income and interest rate changes and the costs of ignoring information it concludes that the theory does not make predictions for aggregate tests that are robust to small costs such as information or transactions copyright 1989 by american economic association

unemployment duration competing and defective risks this paper examines the determinants of unemployment duration in a competing risks framework with two destination states inactivity and employment the innovation is the recognition of defective risks a polynomial hazard function is used to differentiate between two possible sources of infinite durations the first is produced by a random process of unlucky draws the second by workers rejecting a destination state the evidence favors the mover stayer model over the search model refinement of the former approach using a more flexible baseline hazard function produces a robust and more convincing explanation for positive and zero transition rates out of unemployment

the economics of tropical deforestation this paper provides a survey of first wave economic studies of tropical deforestation and land use these studies of tropical forest land conversion are generally at the cross country level we also conduct a synthesis cross country analysis of tropical agricultural land expansion the results show that agricultural development is the main factor determining land expansion but institutional factors have an important influence income effects tend to vary from region to region and do not always display an environmental kuznets curve relationship copyright 2001 by blackwell publishers ltd

household strategies and rural livelihood diversification this article reviews the recent literature on diversification as a livelihood strategy of rural households in developing countries with particular reference to sub saharan africa livelihood diversification is defined as the process by which rural families construct a diverse portfolio of activities and social support capabilities in order to survive and to improve their standards of living the determinants and effects of diversification in the areas of poverty income distribution farm output and gender are examined some policy inferences are summarised the conclusion is reached that removal of constraints to and expansion of opportunities for diversification are desirable policy objectives because they give individuals and households more capabilities to improve livelihood security and to raise living standards

empirical regularities in the poverty environment relationship of rural households evidence from zimbabwe abstract analysis of rural households and environmental resources is beset by inadequate data especially in africa using purpose collected panel data from zimbabwe we demonstrate seven empirical regularities in the rural poverty environment relationship most important environmental resources make a significant contribution to average rural incomes poorer households also depend heavily on these resources which contribute c 40 to their incomes richer households however use greater quantities of environmental resources in total finally considerable differentiation exists in the economic characteristics of environmental goods these results demonstrate the considerable economic significance of environmental resources to rural households surveys which ignore them miscalculate rural incomes and welfare

how shortening the potential duration of unemployment benefits affects the duration of unemployment evidence from a natural experiment in this article we investigate the disincentive effects of shortening the potential duration of unemployment insurance ui benefits we identify these disincentive effects by exploiting changes in slovenia s unemployment insurance system a natural experiment that involved substantial reductions in the potential duration of benefits for four groups of workers plus no change in benefits for another group which served as a natural control we find that the change had a positive effect on the exit rate from unemployment to new jobs and other options for unemployment spells of various lengths and for several categories of unemployed workers

solving an incomplete markets model with a large cross section of agents abstract this paper shows that perturbation methods can be applied to a dsge model with incomplete markets and a finite but arbitrarily large number of heterogeneous agents we develop a simple but general solution technique that handles many state and choice variables for each agent and thus has an extremely high dimensional state space the method is based on perturbations around a point at which the solution is known the novel idea is to exploit the symmetry of the problem to overcome the curse of dimensionality we use the analysis to demonstrate the impact of heterogeneity on macroeconomic quantities and the pricing of risk furthermore we set our technique apart from standard methods used in the literature

dormancy risk and expected profits of consumer loans abstract a bank that lends money to a household faces two types of risk frequently mentioned is the risk of default seldom referred to is the risk of an early redemption of the loan leading to dormancy in this paper we model the transition of consumer loans from an active to a dormant state to this end we use data on 4786 individuals who were granted credit by a swedish lending institution between september 1993 and august 1995 and estimate a semi parametric duration model we analyze the factors that determine the time to maturity on consumer loans and investigate the ability of the model to match the maturities observed in the data moreover we derive the distribution of conditional expected durations of loans and show how a loan application can be evaluated by calculating its expected profit