median voters or budget maximizers evidence from school expenditure referenda some readers may have found these results of greater interest were we able to confirm the directional hypotheses of the certainty setter model in addition to finding that spending is related to the reversion the much weaker prediction of the uncertainty model yet the failure of the certainty when base elections were optional their infrequent occurrence might be expected under either a median voter or a setter model for those districts that did hold base elections the observations appear consistent with a setter model but are either inexplicable by or inconsistent with a median voter model finally both a the relationship between the number of budget elections and the presence of base elections and b the outcome of mandatory base elections in 1978 provide a set of observations that are challenging to either model a similar challenge was posed by our investigation of budget elections when we called attention to the inadequacy of static full information models rather than resolving the question of the simple setter model against the simple median voter model our results indicate that both may be inappropriate and that endeavors dealing with complexities omitted here are warranted

governmental behavior in representative democracy a synthesis of the theoretical literature what is the impact of bureaucratic behaviors on tax rates what is preferable a bureaucrat or a partisan politician does a flypaper effect occur when lobby groups influence public policies this article tries to answer these questions by analyzing and comparing six different models of public choice 1 the median voter model 2 the leviathan model 3 the slack maximizing model 4 a general model of bureaucracy 5 the partisan politicians model and 6 a general model of lobbying among several results it is shown that the median voter s income and tax share almost always play a significant role in the design of the public good tax package even if the government does not explicitly try to maximize the median voter s utility the article also provides a synthesis of the positive analysis of the flypaper effect

micro estimates of public spending demand functions and tests of the tiebout and median voter hypotheses responses to questions given to a random sample of michigan households are used to estimate public spending demand functions while income and price elasticities are similar to those obtained from aggregate data positive income elasticities appear to arise because public services are distributed in a prorich manner a relatively small variance in spending demands among urban and suburban communities in metropolitan areas with substantial public service variety suggests that the tiebout mechanism works this interpretation is supported by the fact that actual spending conforms substantially to desired levels in urban areas but less so in rural areas with little public sector choice

the recovery theorem we can only estimate the distribution of stock returns but from option prices we observe the distribution of state prices state prices are the product of risk aversion the pricing kernel and the natural probability distribution the recovery theorem enables us to separate these to determine the market s forecast of returns and risk aversion from state prices alone among other things this allows us to recover the pricing kernel market risk premium and probability of a catastrophe and to construct model free tests of the efficient market hypothesis

bureaucracy and the divisibility of local public output further econometric evidence based on the theory of bureaucracy in contrast to the median voter model expenditure functions are estimated for various municipal services provided by some smsa cities various econometric measures and diagnostics are applied to the sample data to test for the incidence of multicollinearity heteroscedasticity and influential observations the test results indicate the absence of any econometric problems and the empirical results can be taken as statistically meaningful and to a large extent precise over the range of smsa cities included in the estimated model the presented econometric evidence points out that in these communities the municipal services are private in nature and there exist no economies of scale in the provision of these services although these services reveal no pure publicness or quasi publicness they are provided by local governments through a collective choice mechanism perhaps due to the inherent problems associated with their provision such as the cities lack of knowledge of individuals preferences and tastes and the anticipated potential free rider problem

recovering probability distributions from option prices this article derives underlying asset risk neutral probability distributions of european options on the s p 500 index nonparametric methods are used to choose probabilities that minimize an objective function subject to requiring that the probabilities are consistent with observed option and underlying asset prices alternative optimization specifications produce approximately the same implied distributions a new and fast optimization technique for estimating probability distributions based on maximizing the smoothness of the resulting distribution is proposed since the crash the risk neutral probability of a three four standard deviation decline in the index about 36 percent 46 percent over a year is about 10 100 times more likely than under the assumption of lognormality recently the increasing popularity of derivatives and some highly publicized failures to control risk have led to increased efforts to find reasonable methods to measure the sensitivity of large institutional derivatives portfolios to extreme events merely because such events are rare is not sufficient to ignore them since on the few occasions when they do occur significant amounts of money can change hands potentially wiping out profits accumulated over long prior periods a key assumption behind methods of estimation is the joint probability distribution of constituent underlying asset returns this has long been a concern of financial economists since probability assumptions are critical to much of their research during the last quarter century heretofore probability distributions of stock market returns have typically been estimated from historical time series unfortunately common hypotheses may not capture the probability of extreme events and the events of interest are rare or may not be present in the historical record even though they are clearly possible

group health insurance a hedonic price approach the authors examine the premium consequences of alternative health insurance provisions by estimating pricing regressions for group insurance with data on 9 019 fee for service plans offered by larger firms in the private sector they find that cost sharing at the point of purchase especially for hospital care significantly lowers fee for service premiums however some aspects of plan design that are often touted as cost reducing such as self insuring or offering employees the option to join a health maintenance organization are found to increase premiums coverage of alcoholism chemical dependency treatments inpatient mental health care and psychologists services which are mandated in many states are found to be expensive copyright 1990 by mit press

the municipal wage and employment effects of public infrastructure we empirically examine the relationship between public capital and municipal employment levels and changes using a sample of 48 large us cities during the 1970 80 period we find greater stocks of public capital are associated with a higher demand for and supply of municipal workers holding all other factors constant the effect of a 10 per cent greater level of per capita public capital stock is a 0 6 and 12 9 per cent higher demand for and supply of municipal workers in the short run reduced form estimates indicate a net positive effect on municipal employment but no net effect on municipal wages these findings are supported by a fixed effect model estimation

leverage effect volatility feedback and self exciting market disruptions equity index volatility variation and its interaction with the index return can come from three distinct channels first index volatility increases with the market s aggregate financial leverage second positive shocks to systematic risk increase the cost of capital and reduce the valuation of future cash flows generating a negative correlation between the index return and its volatility regardless of financial leverage finally large negative market disruptions show self exciting behaviors this article proposes a model that incorporates all three channels and examines their relative contribution to index option pricing and stock option pricing for different types of companies

changes in the male female wage gap 1976 85 this study uses detailed information on work experience tenure and on the job training collected in the 1976 and 1985 questionnaires of the panel study of income dynamics to account for changes in wage differentials between white men and white women over these nine years decompositions of changes in the wage gap are used to illustrate the contribution of individual factors between 1976 and 1985 the wage gap between white men and women narrowed by approximately 4 percent this study finds that nearly 50 percent of this reduction was due to average changes in job tenure and other work history variables over this period

a politico economic approach to intergovernmental lump sum grants this paper develops a positive approach to grant design when the central government and a lobby of local governments are the main agents it develops the hypothesis that the regressivity or progressivity of per capita grants regarding community size is ceteris paribus related to the structure of the lobbying activities of local governments and is independent of hypothetical economies or diseconomies of scale in the production of local public goods an encompassing lobby organisation using a one mayor one vote system of representation supports the regressivity of per capita grants while under proportional representation the lobby will support a design of per capita grants which is progressive towards community size an empirical analysis of lump sum grants in portugal supports the politico economic hypothesis and rejects the hypothesis that economies of scale is the main explanatory cause for the observed regressivity of per capita grants

generalized risk premia abstract this paper develops an optimal trading strategy explicitly linked to an agent s preferences and assessment of the distribution of asset returns the price of this strategy is a portfolio of implied moments and its expected excess returns naturally accommodate compensation for higher order moment risk variance risk and the equity premium approximate it to first order and it nests cross sectional asset pricing models such as the linear capital asset pricing model capm an empirical study in the us index market compares the investment behavior of an agent with recursive long run risk preferences to one who merely uses an identically independently distributed time series model and takes market prices as given the two agents exhibit very similar behavior during crises and can be distinguished mostly during calm periods

the effect of health insurance on married female labor supply we investigate the effects of employer provided health insurance on the labor supply of married women because health benefits commonly are restricted to full time workers wives who prefer to work short hours but have no alternate source of insurance may work long hours in order to acquire coverage for their families we use data from the april 1993 current population survey benefits supplement and we exploit variation in coverage under husbands health plans to estimate the magnitude of this effect our reduced form labor supply models indicate a strong negative effect of husbands health insurance on wives work hours particularly in families with children this effect persists when we replace husbands insurance coverage with husbands offered insurance and when we use a multinomial logit model that accounts for unobserved heterogeneity in family labor supply preferences

estimating the value of information we derive a general expression for the value of information to a price taking investor in a dynamic environment and provide a framework for its estimation we study the value of both private and public information and break it into its instrumental and psychic parts to illustrate we estimate and rank the values of leading macroeconomic indicators gdp employment etc using variations in option prices we find that consumer investors with conventional preference parameters would pay 3 to 5 bps of their wealth for a one time private peek into these indicators such signals provide substantial instrumental value but a minor psychic value received august 29 2016 editorial decision june 6 2018 by editor itay goldstein authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

gender differences in the valuation of employer provided health insurance i introduction based on the seminal compensating wage differential work of rosen 1986 a considerable number of empirical studies have analyzed the effect of employer provided health insurance on various forms of potential job lock such as decisions to retire to change jobs to participate in the labor market and the extent of participation full time part time and to move from receiving public assistance to the workforce 1 though employer provided health insurance is the most significant source of health insurance in the united states about 65 of all sources its effects on wages have not received due attention and the empirical validity of such effects has not been established as noted by currie and madrian 1999 estimates of the wage employer provided health insurance trade off in most studies exhibit a positive sign are statistically insignificant or both the most recent research has also generated diverse results simon 2001 investigated the trade off by concentrating on displaced workers she found a positive sign for the trade off and concluded that unobserved worker effects do not cause bias and that the more important cause of the bias reflects job and the job match that is jobs are either good or bad jobs with good jobs having higher pay and higher benefits at the same time kaestner and simon 2002 examined the labor market consequences of state mandated health insurance benefits and small group health insurance reforms during the late 1990s they found no evidence of a trade off between wages and health insurance costs and suggested the possibility that increased insurance costs were passed on to workers through higher employee contributions to premiums olson 2002 concentrated on a sample of married women and accounted for the endogeneity of choice between jobs with and without health insurance but did not account for insurance cost sharing such as out of pocket premiums health care need variables or job characteristics he found a trade off of about 20 the existing literature also indicates a gender differential with respect to health care utilization and expenditure manning and mullahy 2001 and employer provided health insurance premiums jensen and morrisey 1990 in addition there is a possibility of gender discrimination due to mandated health insurance provision gruber 1994 furthermore health insurance can create labor market distortions resulting in job locks rent for some workers and pay discrimination these factors may contribute to gender differentials in earnings health insurance trade off and raise the possibility that olson s finding may overestimate the trade off for the entire labor force this study makes three substantive contributions to the literature first we isolate the effect of job characteristics insurance cost sharing as measured by out of pocket premiums and health care need variables that confound the effect of employer provided health insurance on annual earnings we do this by using the 2001 medical expenditure panel survey meps data and its recently released supplementary files second by accounting for the endogeneity of choice between jobs with and without health insurance and by utilizing possession of family coverage policy as an alternative source to own employer provided insurance we expand olson s model to separate samples of married men and married women and investigate potential differentials in valuation cost of employer provided health insurance between the genders third we estimate the effect of employer provided health insurance on the size and composition of the gender earning differentials our results show that failure to control for heterogeneity as well as for endogeneity will understate the size and the statistical significance of the tradeoff a gender trade off differential exists of about 3 5 explaining about 3 of the gender earning differentials health insurance does not contribute to the unexplained portion of the gender earning gap

the term structure of currency carry trade risk premia we nd that average returns to currency carry trades decrease signicantly as the maturity of the foreign bonds increases because investment currencies tend to have small local bond term premia the downward term structure of carry trade risk premia is informative about the temporal nature of risks that investors face in currency markets we show that long maturity currency risk premia only depend on the domestic and foreign permanent components of the pricing kernels since transitory currency risk is automatically hedged by interest rate risk for long maturity bonds our

a recovery that we can trust deducing and testing the restrictions of the recovery theorem how reliable is the recovery theorem of ross 2015 we explore this question in the context of options on the 30 year treasury bond futures allowing us to deduce restrictions that link the physical and risk neutral return distributions our empirical results undermine the implications of the recovery theorem first we reject an implicit assumption of the recovery theorem that the martingale component of the stochastic discount factor is identical to unity second we consider the restrictions between the physical and risk neutral return moments when the recovery theorem holds and reject them in both forecasting regressions and generalized method of moments estimations received november 7 2016 editorial decision july 24 2017 by editor stijn van nieuwerburgh authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

gain loss and asset pricing we develop an approach to asset pricing in incomplete markets that bridges the gap between the two fundamental approaches in finance model based pricing and pricing by no arbitrage we strengthen the absence of arbtrage assumption by precluding investment opportunities whose attractiveness to a benchmark investor exceeds a specified threshold in our framework the attractiveness of an investment opportunity is measured by the gain loss ratio we show that a restriction on the maximum gain loss ratio is equivalent to a restriction on the ratio of the maximum to minimum values of the pricing kernel by limiting the maximum gainloss ratio we can restrict the admissible set of pricing kernels which in turn allows us to restrict the set of prices that can be assigned to assets we illustrate our methodology by computing price bounds for call options in a black scholes economy without intermediate trading when we vary the maximum permitted gainloss ratio these bounds can range from the exact prices implie

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

are governmental expenditures also sticky evidence from the operating expenditures of public schools abstractexisting research on cost stickiness focuses primarily on for profit companies this study investigates cost behaviour in the public sector a new setting that deserves more research attent

the incidence of mandated maternity benefits i consider the labor market effects of mandates which raise the costs of employing a demographically identifiable group the efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group specific wages i study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans raising the relative cost of insuring women of childbearing age i find substantial shifting of the costs of these mandates to the wages of the targeted group correspondingly i find little effect on total labor input for that group jel 118 j32 h51 in an era of tight fiscal budget constraints mandating employer provision of workplace benefits to employees is an attractive means for a government to finance its policy agenda consequently in recent years there has been a growth of interest in mandated benefits as a tool of social policy for example the centerpiece of president bill clinton s health care proposal is mandated employer provision of health insurance and more than 20 states have man

bureaucracy publicness and local government expenditures revisited comment the empirical literature on the publicness of local government services has observed no significant degree of publicness it is difficult to reconcile these findings with wyckoff s conclusion that bureaucrats prefer pure public goods wyckoff s solution is to suggest that bureaucracy has little effect on operating non capital expenditure decisions this solution however conflicts with the empirical findings of numerous local expenditure and wage studies based on bureau supply models but there is no need to consider this evidence because we have shown that wyckoff s cost assumptions imply that a median voter regime will also operate at a maximum attainable degree of publicness hence we must either reject wyckoff s assumptions or conclude that the nature of the services demanded from local government is such that the maximum attainable degree of publicness is close to no publicness at all in any case wyckoff s conclusions are not supported within the context of his own assumptions

employers discriminatory behavior and the estimation of wage discrimination this paper considers the linkage of empirical estimates of wage discrimination between two groups introduced by oaxaca 1973 to a theoretical model of employers discriminatory behavior it is shown that conditional on different assumptions about employers discriminatory tastes oaxaca s estimators of wage discrimination can be derived that the approach is more generally useful is demonstrated by deriving an alternative estimator of wage discrimination based on the assumption that within each type of labor e g unskilled skilled the utility function capturing employers discriminatory tastes is homogeneous of degree zero with respect to labor inputs from each of the two groups the estimators are compared empirically in an application to male female wage differentials

tails fears and risk premia we show that the compensation for rare events accounts for a large fraction of the average equity and variance risk premia exploiting the special structure of the jump tails and the pricing thereof we identify and estimate a new investor fears index the index reveals large time varying compensation for fears of disasters our empirical investigations involve new extreme value theory approximations and high frequency intraday data for estimating the expected jump tails under the statistical probability measure and short maturity out of the money options and new model free implied variation measures for estimating the corresponding risk neutral expectations

savage in the market we develop a behavioral axiomatic characterization of subjective expected utility seu under risk aversion given is an individual agent s behavior in the market assume a finite collection of asset purchases with corresponding prices we show that such behavior satisfies a revealed preference axiom if and only if there exists a seu model a subjective probability over states and a concave utility function over money that accounts for the given asset purchases

municipal residency laws and local public budgets prior research has shown that residency laws increase the productivity of municipal employees which tends to reduce per unit operating cost however this gain in efficiency appears to have been lost when one considers that public employee groups tend to be high demanders who have a greater tendency to vote in local elections and to support expenditure increases bennett and orzechowski 1983 our results tend to provide additional evidence to support the findings of previous studies that public employee groups tend to exert a disproportionate impact on local budgetary decisions

burden sharing in the nato alliance an empirical test of alternative views this paper undertakes an empirical test of two opposing views of interdependencies among members of military alliances the first view associated with olson and zeckhauser argues that the public good aspect of defense induces free riding behavior by smaller alliance members which imposes a disproportionate burden of supporting the alliance on the larger members a second view argues that nato defense activities produce a mix of outputs some of which are not purely public and some of which may be complementary across nations furthermore the nature of the weapons systems and their relative use by alliance members may induce substantial cooperation by allies the test proposed here analyzes the relationship between defense spending shares of nato members and their population and relative wealth shares a simple model is specified and tested using pooled time series cross sectional data the empirical results indicate more support for the cooperative view of ally relationships than the olson zeckhauser non cooperative model

the publicness of local public goods evidence from ontario municipalities recent studies of local public good provision report publicness parameter estimates of about one indicating private good characteristics this empirical investigation of a wider range of communities obtains parameter estimates of significantly less than one indicating a high degree of publicness exists in smaller municipalities and within the service areas of individual public facilities comprising the supply network in larger centres it is argued that the observed values of the publicness parameters have no normative significance as to the merits of public versus private provision la materialite publique d usage des biens publics locaux resultats d une etude de municipalites ontariennes les etudes recentes sur l approvisionnement de biens publics locaux indiquent des coefficients de materialite publique d usage autour de l unite c est a dire que les biens publics locaux ont de fortes caracteristiques semblables aux biens prives ce memoire presente les resultats d un enquete empirique d un large eventail de communaut6s locales et en arrive a des valeurs pour le coefficient de materialite publique d usage qui sont bien moins que l unite et qui donc indiquent un haut degre de materialite publique d usage dans les petites municipalites mais aussi dans les zones de service d infrastructures particulieres parc bibliotheque poste de pompier etc qui forment le reseau d approvisionnement de biens publics dans les grands centres les auteurs suggerent que les valeurs observees de ces coefficients de materialite publique d usage n ont aucune portee normative et donc ne sauraient arbitrer les merites relatifs d un approvisionnement prive ou public de certains biens

functional ross recovery theoretical results and empirical tests abstract recently ross 2015 showed that the real world probability distribution of a discrete markovian state variable can be recovered from observed option prices the so called recovery theorem follows from perron frobenius matrix theory when the pricing kernel is transition independent in this paper we generalize the recovery theorem to continuous state spaces using perron frobenius operator theory building on our theoretical results we devise a nonparametric approach to empirically estimate the recovered pricing kernel and probability density in closed form using s p 500 index options we analyze recovered pricing kernels empirically and find evidence that ross recovery is misspecified

municipal annexation and local monopoly power we have found that the fiscal power of a city can be increased by extension of its borders within a land area that is homogeneous with respect to earning opportunities even when numerous rival jurisdictions exist in the area we hypothesized that extending municipal boundaries will have a positive effect on discretionary outlays and on expenditures per capita the evidence presented supports these hypotheses furthermore municipal wages appear to be significantly increased in cities experiencing annexation growth therefore we would expect to find that municipal employees are more inclined to favor annexation than the rest of the electorate from a policy standpoint this study suggests that significant perverse effects on fiscal efficiency may follow adoption of legal reforms that facilitate the ability of municipalities to extend their borders or that restrict the formation of new municipalities

bureaucracy and the divisibility of local public output the empirical results of this paper are derived from a monopoly view of local government decisionmaking in contrast to the competitive view offered by earlier researchers that our results are similar to earlier findings lends additional support to the conclusion that local output is largely private in nature other than park and recreation services there appear to be no economies in consumption for local services nor any economies of density larger cities do not appear to be more efficient than smaller cities 10 of course this result holds only for the sample of cities used here and does not rule out scale economies for communities smaller than those in our sample i e below 25 000 population

labor market consequences of state health insurance regulation this study based mainly on the 1989 98 march current population surveys finds that state mandated health insurance benefits and small group health insurance reform had no statistically significant effects on labor market outcomes such as the quantity of work wages and whether an employee worked for a small or large firm the number and type of state mandated health insurance benefits were unrelated to weeks of work wages and the prevalence of private insurance coverage but positively associated with weekly work hours extensive small group health insurance reform was associated with a slight decline in the prevalence of private insurance coverage in small firms and this reform affected both full and part time employees less extensive reforms were not generally related to the prevalence of private insurance coverage overall the authors do not find strong evidence that insurance regulations affected labor market outcomes although they appear to cause a small decrease in private coverage

trends in the well being of american women 1970 1995 this paper examines the trends in the well being of american women over the last 25 years a time of significant changes in the relative economic status of women and in the labor market as a whole a broad range of indicators are considered to capture changes in women s well being in the family as well as in the labor market for virtually all age and education groups substantial evidence is obtained of rising gender equality in labor market outcomes notably labor force participation wages and occupational distributions broad evidence is also found of greater gender parity within married couple families as the housework time of husbands increased relative to wives and the relative wages of wives rose compared to their husbands however parallel to the recent evidence of the declining labor market position of lower skilled men there has been a similar deterioration in the economic status of less educated women especially high school dropouts their labor force participation rates and wages have risen at a much slower pace than those of more highly educated women while their incidence of single headship has increased much more rapidly these findings for less educated women serve to underscore the widening gap between more and less skilled americans of both sexes as well as to emphasize its broad dimensions

do workers accept lower wages in exchange for health benefits compensating wage theory predicts that workers receiving more generous fringe benefits are paid a lower wage than comparable workers who prefer fewer fringe benefits this study tests this prediction for employer provided health insurance by modeling the wages of married women employed full time in the labor market husband s union status husband s firm size and husband s health coverage through his job are used as instruments for his wife s own employer health insurance benefits the estimates suggest wives with own employer health insurance accept a wage about 20 lower than what they would have received working in a job without benefits

recovery of preferences from observed wealth in a single realization von neumann morgenstern preferences over terminal consumption can be inferred from wealth on a single sample path when markets are complete and returns follow a known law in a neoclassical investment problem in either a discrete time i i d binomial model or a continuous time diffusion model with a gaussian state variable numerical results suggest that useful information about preferences can be obtained from even a single noisy sample of monthly observations of a portfolio over 5 years article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

beyond arbitrage good deal asset price bounds in incomplete markets one often wants to value a risky payoff by reference to prices of other assets rather than by exploiting full fledged economic models however this approach breaks down if one cannot find a perfect replicating portfolio we impose weak economic restriction to derive usefully tight bounds on asset prices in this situation the bounds assume that investors would want to buy assets with high sharpe ratios good deals as well as pure arbitrage opportunities we show how to calculate the price bounds in one period multiperiod and continuous time contexts we show that the multiperiod problem can be solved recursively as a sequence of one period problems we calculate bounds in option pricing examples including infrequent trading and an option written on a nontraded event and we use the bounds to explore the economic significance of option pricing predictions we find that much variation in s p 500 index option prices over time and across strike prices fits within the bounds

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs