models for referendum data the structure of discrete choice models for contingent valuation abstract in 1979 bishop and heberlein introduced an appealing variant of the contingent valuation method which required only yes or no responses hanemann developed a utility theoretic interpretation of the yes no responses which has helped popularize the approach recently cameron has offered another interpretation also utility theoretic which she argues is more general than the hanemann random utility model this paper compares the deterministic models suggested by hanemann and cameron showing them to be dual to each other it shows that correct specification of either function must exclude endogenous variables such as quantity demanded it also demonstrates that using utility theoretic models allows one to compare travel cost models and contigent valuation models on the basis of their implied behavior not on the unobservable surplus or variation measure

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

on data a case study of the evolution of income inequality across time and across countries this paper takes income distribution as a case study of the role of data in economics after describing the transformation which has taken place with regard to the availability of data on income inequality it discusses how the comparability of these estimates is brought into question by differences in methodology that cannot be eliminated by simple adjustments recent analyses of the relationships between income inequality and growth or globalisation are shown to be based on time series plagued by discontinuities which can seriously affect regression results the paper concludes by calling for greater attention to data quality in applied economics

economics coursework and long term behavior and experiences of college graduates in labor markets and personal finance i introduction if economics is a unique way of thinking as many economists like to claim some level of coursework in economics may provide enough specific knowledge and skills to lead students to make different choices in their adult roles as consumers workers and voters citizens of course the same could be claimed for training in business and other areas even though or perhaps because it could be argued that most content and training in business courses is more applied and pragmatic than what is presented in economics courses some empirical evidence though not really a great deal suggests that training in economics and business is associated with different adult behaviors and outcomes for example golec 1996 finds that mutual funds perform better if mutual fund managers have an mba and chevalier and ellison 1999 also report a positive correlation between mutual fund performance and the educational background of mutual fund managers black sanders and taylor 2003 found that economics majors earn almost 20 more than graduates in other social science majors and about 10 more than those who major in business administration in fields with large numbers of graduates they find that only engineering majors earn more than economics majors similarly hecker 1995 reported that males majoring in economics had median earnings 3 higher than all majors for the age cohort of 25 34 and 53 more than average for the cohort aged 35 44 craft and baker 2003 find that lawyers with an undergraduate major in economics earn 13 more than otherwise comparable lawyers with other undergraduate majors and economics is the only major with a statistically significant effect on earnings 1 hamermesh and donald 2008 however find that higher earnings by economics majors are partly due to economics majors working more hours than others the relationship between financial literacy knowledge and adult behavior and outcomes in financial markets has been addressed in several recent studies many sponsored by federal reserve banks hilgert hogarth and beverly 2003 and braunstein and welch 2002 find that knowledge about credit saving and investment is significantly related to recommended financial practices in cash flow management credit management saving and investment unfortunately there is also evidence of widespread financial illiteracy in u s households and particularly among elderly women see lusardi and mitchell 2007 2008 employee education programs have been found to affect workers savings retirement and investment behaviors bayer bernheim and scholz 2009 bernheim and garret 2003 state mandates for precollege education in personal finance appear to succeed in at least exposing students to more information and sources on financial education and students from states with such mandates report higher levels of savings and net worth as adults bernheim garrett and maki 2001 tennyson and nguyen 2001 much less research exists linking college coursework or majoring in economics to personal finance outcomes 2 but christiansen joensen and rangvid 2008 find that those trained in economics in college courses or employee education programs are more likely to invest in stocks than those who receive training in other areas guiso and jappelli 2005 report that among college graduates having a degree in economics is positively associated with knowledge about financial assets chert and volpe 1998 107 concluded that business majors had better knowledge about personal financial literacy than other students but that in general college students were not knowledgeable about personal finance 3 in this paper we use a large and unique data set to investigate the relationships between taking college coursework in economics or majoring in economics with long term labor market and personal finance behaviors and outcomes our information on long term behaviors and outcomes is drawn from a detailed questionnaire we mailed in january 2003 to over 25 000 graduates who attended four public universities in 1976 1986 or 1996

financial market efficiency the decomposition of anticipated versus unanticipated money growth and further tests of the relation between money and real output note probably the most controversial empirical findings in macroeconomics in the last decade stem from robert barro s investigations into the relative effects of unanticipated versus anticipated money growth on unemployment and real output these studies generally proceed by decomposing observed money growth into what is defined to be its anticipated and unanticipated components and then test the restriction that only the unanticipated money measure has important effects for unemployment and real output in black box reduced form real side equations that include determinants of the natural rates of unemployment and real output as additional explanatory variables l the results of these tests for the annual postwar u s data generally cannot reject the hypothesis that only unanticipated money growth is important for the determination of aggregate real activity 2 anticipated money growth is found to be neutral for unemployment and real output these results are important because they give empirical support to the assertion that the apparent nonneutrality of observed money growth does not provide any firm basis for the efficacy of a systematic countercyclical monetary policy it should be clear that a crucial problem in testing for the neutrality nonneutrality of anticipated unanticipated money growth lies in developing an appropriate decomposition of observed money growth into its anticipated and unanticipated parts small 13 mishkin 8 and weintraub 14 among others have

the response of short term interest rates to weekly money announcements each friday at 4 10 p m est the federal reserve announces its estimate of the narrowly defined money stock for the statement week ending nine days previously these money announcements have become one of the main events in financial markcts if for no other reason than the fact that significant movements in interest rates have been associated with large unanticipated changes in the money stock moreover since the late 1970s interest rate fluctuations in response to money stock announcements have dramatically increased over the 1l 2 hour intervals spanning the weekly announcements for example the variance of the change in the threemonth treasury bill yield in the three years since october 1979 is more than thirty times larger than that of the previous two year period l two factors may account for a large portion of the increased volatility of shortterm interest rates first on october 6 1979 the federal reserve adopted a reserve aggregate approach to monetary control replacing a procedure that emphasized stability of short term yields second despite the greater emphasis placed on monetary control the variance of weekly announced changes in the money stock has risen by about 70 percent since late 1979 in turn if greater volatility of announced changes makes future changes more difficult to predict the volatility of unanticipated weekly changes in money would have also increased 2 thus if financial markets are efficient and if weekly money announcements contain relevant information larger unanticipated changes in money may have caused larger fluctuations in interest rates

willingness to pay for gains and losses in visibility and health two different willingness to pay responses are compared willingness to pay to avoid loss of air quality and willingness to pay to obtain gains in air quality contingent valuation data were used to estimate bid functions for these two types of responses for visibility and health comparison of the estimated models indicates that in addition to magnitude differences gains and losses for visibility and health are affected differently by health status risk perceptions and other risk related variables results for the loss measure are more reliable in terms of variability of response and econometric modeling

social security and private saving new time series evidence in an important article in the journal of political economy martin feldstein 1974 estimated that the introduction of the social security system had reduced personal saving by 50 percent with serious consequences for capital formation and output his conclusion was based on a consumer expenditure function estimated with u s time series data and incorporating a social security wealth variable of his construction this paper presents new evidence that casts considerable doubt on feldstein s conclusion first the social security wealth variable used by feldstein was seriously flawed as a result of a computer programming error simply correcting this error substantially changes the estimated effect of social security on saving second the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable assumptions that are not demonstrably preferable and are in some cases inferior to alternative assumptions these assumptions relate first to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and second to estimates of the number of workers dependent wives and surviving

can the reserves approach to monetary control really work on october 6 1979 the board of governors bog of the federal reserve system announced that the federal open market committee fomc was abandoning its historical preoccupation with an interest rate approach to monetary control in favor of a reserve aggregate approach 1 underlying this new approach is the fact that at time t any money stock concept m is the product of a money multiplier m and a reserve aggregate r that is

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

some lasting effects of undergraduate economics on retirement planning this study investigated the likely effects of undergraduate economics on whether a college graduate has opened a retirement account four years after graduation economic education is measured by the number of economics credit hours or whether a college graduate had majored in economics additional control variables for the logit analyses include occupation differences employment record and some demographics completing an undergraduate course in economics is significantly associated with having a retirement account and economics majors are more likely than some other majors to have a retirement account the analysis uses college transcript data from the baccalaureate and beyond study nces ed gov surveys b b

valuing public goods a comparison of survey and hedonic approaches although the theory of public goods has progressed rapidly since paul samuelson s seminal article the empirical measurement of the value of demand for public goods only recently has received increased attention perhaps the best known and most widely accepted empirical approach has been the use of hedonic prices wherein for example it is assumed that either wages or housing values reflect spatial variation in public good characteristics of different communities this indirect approach based on theoretical work of charles tiebout kelvin lancaster sherwin rosen and others has proven quite successful among public goods or bads which have been valued using the hedonic approach are climate i hoch air pollution robert anderson and thomas crocker d harrison and d rubinfeld social infrastructure r cummings et al and other community characteristics such as noise level j nelson and ethnic composition ann schnare an alternative approach is to directly ask households or individuals to state their willingness to pay for public goods using survey techniques despite arguments that strategic bias will invalidate survey results there exists the need for an alternative to the hedonic approach as an example consider the case of a remote and unique scenic vista valuable to recreators which is threatened by air pollution from a proposed coal fired plant a typical situation in the western united states although it is possible in principle to impute the value of clean air and visibility from the relative decline in local visitation which might follow construction of a power plant information on the value of visibility at the site is needed prior to construction for socially optimal decision making on plant location and pollution control equipment the hedonic approach is unavailable both because the scarcity of local population as opposed to recreators makes use of wage or property value data impossible and because scenic vistas may themselves be unique for these reasons a randall et al first applied survey methods for valuing visibility and other environmental effects of large coal fired power plants in the four corners region of new mexico since this initial application the survey approach has been widely used to value environmental commodities where market data for hedonic analysis is difficult to acquire see for example brookshire ives and schulze rowe et al brookshire et al other early attempts to value public goods using the survey approach include r davis peter bohm and j hammack and g brown although results of using the survey approach for estimating the value of public goods appear to be internally consistent replicable and consistent with demand theory see schulze et al little work on external validation has been reported thus the purpose of this paper is to report on an experiment designed to validate the survey approach by direct comparison to a hedonic property value study the los angeles metropolitan area was chosen for the experiment because of the well defined air pollution problem and be assistant professor university of wyoming assistant professor university of missouri rolla associate professor university of wyoming and professor university of wyoming respectively the research reported here was funded under a grant methods development for assessing air pollution control benefits from the u s environmental protection agency we would like to give special thanks to alan carlin and shelby gerking for their helpful suggestions and contributions additional helpful comments were received from a myrick freeman iii john tschirhart and james murdoch all conclusions are of course our sole responsibility

federal reserve policy interest rate volatility and the u s capital raising mechanism the object of this paper is to examine in detail on the basis of the experience of the u s financial markets under the federal reserve system s new monetary policy procedures announced on october 6 1979 one potentially important effect on the nonfinancial economy due to the resulting increase in interest rate volatility in particular the possibility that increased volatility has impaired the market mechanism for raising long term business capital interest rate volatility has been a controversial issue in central bank policymaking for a long time the ultimate objectives that central banks pursue almost always refer to nonfinancial aspects of economic activity and well being like price stability and economic growth in carrying out policies designed to further these objectives however central banks typically operate exclusively in the financial markets their actions therefore affect interest rates directly and visibly whether to use this influence on interest rates to smooth out short run fluctuations or alternatively to implement actions focused solely on other objectives and hence leave interest rates to vary freely with the pulse of market pressures is the central question in the united states the evolution of the federal reserve system s monetary policy procedures during the last decade including in particular the changes an

a general model of starting point bias in double bounded dichotomous contingent valuation surveys abstract this paper develops a general model that addresses the starting point bias in the dichotomous choice evaluation data by incorporating both the anchoring effect and yea saying bias the model is applied to a contingent valuation study that evaluated the health benefits of air quality improvement in three major metropolitan areas in taiwan the empirical evidence shows a strong anchoring effect but an insignificant yea saying bias the results show a serious understated willingness to pay if the biases in anchoring and yea saying are not controlled

willingness to pay and willingness to accept how much can they differ comment i agree with the point made by edoh y amiran and daniel a hagen 2003 that there can be a substantial or even infinite divergence between the wta and wtp for a public good even where there is a nonzero elasticity of substitution between market goods and the public good provided that the indifference curves are asymptotically bounded with respect to market goods in the manner they describe this is an important point they are also correct to point out that the elasticity of substitution is a local concept whereas their asymptotic boundedness condition applies also for discrete changes my 1991 paper used a local analysis because it was following the structure of the analysis in robert d willig 1976 and alan randall and john r stoll 1980 i wanted to show that while randall and stoll appeared to extend willig s local result on wta versus wtp from price changes to changes in the quantity of a public good the relevant elasticity was in fact different and involved the substitution elasticity as well as the income elasticity i view these points by amiran and hagen as not two separate results but essentially the same result their asymptotic boundedness condition generalizes my zero elasticity of substitution condition to discrete changes the asymptotic boundedness condition can be expressed as follows assuming a bivariate utility function u x q and given a reference point x q associated with a reference utility level u u x q there exists some q q such that for all q q there exists no x such that u x q u in other words no amount of x can substitute for the reduction in public good from q to q q in the case of a zero elasticity of substitution q q but as amiran and hagen show in their theorem 1 this is unnecessarily restrictive when dealing with a discrete reduction in q furthermore their theorem 2 can be viewed as a special case of their theorem 1 in which q 0 which makes q an essential commodity it is well known in consumer theory that the wta to avoid the loss of an essential market good is infinite their theorem 2 extends this result to the case of an essential nonmarket good but as their theorem 1 shows essentialness is not necessary for an infinite wta the boundedness condition is the key and this implies a fundamental lack of substitutability between money market goods and the public good

the impact of information on environmental commodity valuation decisions a conceptual model is developed which provides insight into how information affects willingness to pay for environmental commodities a refutable hypothesis of the effects of a specific information type on the magnitude of willingness to pay for an environmental commodity is developed this hypothesis is tested using a contingent valuation method experiment results indicate that information affects willingness to pay in a theoretically plausible manner the results support the contention that information is important for accurate environmental commodity consumer valuations

option value a conceptual overview the importance of nonuser benefits to the process of efficiently allocating natural environments was first emphasized by krutilla 15 a decade and a half ago one of the components of these nonuser benefits is option value originally introduced by weisbrod 23 as relevant for assets that might be difficult to reproduce option value has been the subject of considerable debate perhaps the simplest approach to explaining the meaning of option value is to use an example consider an individual who is uncertain whether he or she will consume the services of a particular asset in the future furthermore assume this individual is also uncertain whether the asset will be available in the future should he

valuing the multidimensional impacts of environmental policy theory and methods a theoretically consistent framework is developed for valuing the multidimensional impacts of environmental policy conventional benefit estimates are shown to be biased because of the presence of substitution and complementarity effects in valuing policy impacts procedures are developed for implementing a valid framework consistent with theory empirical results indicate significant substitution effects in valuing environmental conditions across different geographic regions

monetary and public debt shocks tests and efficient estimates in an article in the jmcb barro 1 defined a form of intertemporal efficiency for the behavior of marginal tax rates and expected tax rates given certain additional conditions on government expenditures barro s definition of efficiency implied that particular relationships and time paths would characterize federal deficits in that paper two of the seven predicted relationships were tested 1 the sign of the relationship between the deficit and the ratio of output to its trend value and 2 the effect of anticipated inflation on the deficit those tests were performed under the joint assumptions of the rational expectations hypothesis reh and predictable policy irrelevance or structural neutrality sn with regard to both monetary and debt policies in this paper barro s tests of the efficiency hypothesis are reexamined within a wider context by means of the statistically efficient full information maximum likelihood fiml method 4 6 1 specifically by allowing the imposition of cross equation and within equation parameter constraints the fiml method makes it possible to a directly test the reh and sn propositions jointly and separately

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

economic valuation by the method of paired comparison with emphasis on evaluation of the transitivity axiom the paired comparison pc method is used to investigate reliability transitiv ity and decision time for binary choices among goods and sums of money the pc method reveals inconsistent choices and yields individual prefer ence order over the set of items being compared the data reported support the transitivity as sumption and demonstrate high reliability for individual preference order the paper also discusses using the pc method to obtain conser vative median and mean estimates of willingness to accept compensation for public and private goods the pc method may prove useful for valu ing public goods and warrants further study jel 426

replication in empirical economics the journal of money credit and banking project this paper examines the role of replication in empirical economic research it presents the findings of a two year study that collected programs and data from authors and attempted to replicate their published results the research provides new and important information about the extent and causes of failures to replicate published results in economics the findings suggest that inadvertent errors in published empirical articles are a commonplace rather than a rare occurence copyright 1986 by american economic association