capital income taxation and welfare in a small open economy abstract the paper studies the effects of various capital income tax policies in a small open economy households are infinitely lived and possess endogenous time preferences investment by firms is subject to adjustment costs it is shown that welfare paradoxes may exist in that increases in tax instruments may improve welfare

measuring the efficiency of energy intensive industries across european countries abstract this study evaluates the energy efficiency trends of five energy intensive industries in 23 european union eu countries over the period 2000 2009 in particular the performance of the construction electricity manufacturing mining and quarrying and transport sectors is examined the analysis is based on data envelopment analysis dea combined with the malmquist productivity index mpi which allows for distinctions between efficiency and technology changes over time at the second stage of the analysis cross classified multilevel modelling is applied to analyse the main drivers behind efficiency performance using a number of sector and country characteristics based on dea results an overall improvement in efficiency is observed in all sectors over the period the decomposition of the mpi indicates that technology change is primarily responsible for the improvements achieved in most sectors the results obtained by the cross classified model show among other things that the high electricity prices energy taxes and market share of the largest generator in the electricity market have a negative effect on industrial energy efficiency

have regulatory reforms improved the efficiency levels of the japanese electricity distribution sector a cost metafrontier based analysis abstract in order to identify the kinds of impacts that japanese regulatory reforms in the electric power industry have had on the efficiency levels of the electrical distribution sector the present study assembles a dataset which spans both pre and post regulation periods further to make the estimated efficiency scores from the two sub periods comparable the study applies metafrontier frameworks proposed by o donnell et al 2008 and huang et al 2014 to the cost function in the longitudinal setting estimates from both methods show that the average efficiency score of the electrical distribution sector during the whole sample period is relatively low further findings also demonstrate that the efficiency levels after the regulatory reforms are lower than those before the regulatory reforms to this surprising and unexpected phenomenon we argue that cross subsidization may be one reason for this kind of changing pattern in efficiency levels in order to deal with the relatively low efficiency problem we also suggest that japanese regulators should introduce more incentive based regulatory tools to replace the current rate of return regulation

optimal growth with many consumers abstract a method is described for constructing all pareto optimal allocations for a dynamic economy with many heterogeneous consumers under certainty in which both the technology and consumer preferences are recursive but preferences need not be additively separable over time optimal perfect foresight competitive equilibrium allocations are obtained through the study of a dynamic program for an economy with one consumption good sufficient conditions are given for the existence of a unique interior stationary distribution of consumption and wealth for a two person exchange economy sufficient conditions are given for the global asymptotic stability of the unique interior stationary point

delivering energy efficiency and carbon reduction schemes in england lessons from green deal pioneer places against a background of growing international and national carbon reduction legislation the uk government introduced the green deal to deliver a significant increase in housing energy efficiency and reduction in carbon emissions this paper reflects on one english local authority s experience delivering a programme intended to foster local interest in the green deal drawing on social surveys and pre and post green deal intervention interviews with five demonstrator homes households that applied to receive a green deal package fully funded by the scheme providing a test bed for the green deal recruitment and installation process this paper shows that awareness and understanding of the green deal scheme is low there is opposition to the cost of finance offered but a strong interest in improving household warmth and for funding improvements through payments added to the electricity bill demonstrator home residents perceived green deals had improved the warmth and quality of their home but saving money was the primary motivator for their involvement not increasing warmth whilst green deal has not delivered the level of success that was hoped much can be learned from the scheme to improve future energy efficiency schemes that will be necessary to deliver emission reduction commitments

unobserved heterogeneity in stochastic cost frontier models this paper applies a number of stochastic cost frontier models to a panel data set and compares their ability to distinguish unobserved heterogeneity from inefficiency variation among firms the main focus is on greene s 2005 panel data model that incorporates firm specific effects in a stochastic frontier framework in cases where the unobserved heterogeneity is correlated with explanatory variables while the random effects estimators can be biased the fixed effects model may overestimate inefficiency in line with mundlak a simple method is proposed to include such correlations in random effects specification the sample includes 36 swiss nursing homes operating from 1993 to 2001 the results suggest that the proposed specification can avoid the inconsistency problem while keeping the inefficiency estimates unaffected

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

scale economies and optimal size in the swiss gas distribution sector this paper studies the cost structure of swiss gas distribution utilities several econometric models are applied to a panel of 26 companies over 1996 2000 our main objective is to estimate the optimal size and scale economies of the industry and to study their possible variation with respect to network characteristics the results indicate the presence of unexploited scale economies however very large companies in the sample and companies with a disproportionate mixture of output and density present an exception furthermore the estimated optimal size for majority of companies in the sample has shown a value far greater than the actual size suggesting remarkable efficiency gains by reorganization of the industry the results also highlight the effect of customer density on optimal size networks with higher density or greater complexity have a lower optimal size

an equilibrium model of wealth distribution i present an explicitly solved equilibrium model for the distribution of wealth and income in an incomplete markets economy i flrst propose a self insurance model with an inter temporally dependent preference uzawa 1968 lucas and stokey 1984 and obstfeld 1990 i then derive an analytical consumption rule which captures stochastic precautionary saving motive and generates stationary wealth accumulation finally i provide a complete characterization for the equilibrium cross sectional distribution of wealth and income in closed form by developing a recursive formulation for the moments of the distribution of wealth and income using this recursive formulation i show that income persistence and the degree of wealth mean reversion are the main determinants of wealth income correlation and relative dispersions of wealth to income such as skewness and kurtosis ratios between wealth and income

inflation and growth impatience and a qualitative equivalence this paper studies the role of an endogenous time preference on the relationship between inflation and growth in the long run in both the money in utility function miuf and transactions costs tc models we establish a qualitative equivalence between the two models in a setup without a labor leisure tradeoff when the time preference is decreasing or increasing in consumption and real balances both the miuf and tc models are qualitatively equivalent in terms of predicting a negative or positive relationship between inflation and growth in a steady state both a decreasing and an increasing time preference in consumption are consistent with the arguments found within the literature while a decreasing time preference in real balances corroborates with empirical evidence there is no evidence in support of an increasing time preference in real balances

technical change and efficiency measures the post privatisation in the gas distribution sector in argentina abstract in this paper we use a stochastic frontier approach to analyse the technical change in the post privatisation period in the gas distribution sector in argentina we found that there is both a catching up effect and a shift in the frontier which shows that the sector as a whole improved its efficiency in the reviewed period moreover this phenomenon holds not only for the average but also for every firm in the sample

indeterminacy in a dynamic small open economy abstract we show that even under socially constant returns to scale indeterminacy i e continuum of dynamic general equilibrium paths converging to a common steady state can arise in a dynamic small open economy with production externalities and endogenous time preferences in which production is incompletely specialized

risk aversion intertemporal substitution and the term structure of interest rates an equilibrium model of the term structure of interest rates is derived from a representative agent framework with recursive utility preferences a key ingredient is a time varying subjective discount factor which is linked to the short term rate of interest the proposed model incorporates a vector autoregression description of macroeconomic dynamics and links them to those of the term structure so that nominal bond yields are affine functions of observable state variables the model is estimated and compared to both a restricted expected utility version of the model and a reduced form no arbitrage model we find that all three models can fit the term structure equally well but that only the unrestricted non expected utility model can empirically account for the tent shaped pattern and magnitude of coefficients from predictive regressions of excess bond returns on forward rates documented by cochrane and piazzesi 2005 bond risk premia american economic review 95 138 160 the unrestricted equilibrium model fits the term structure and captures the important features of bond risk premiums with economically plausible values for the structural preference parameters

persistent inequality an explanation based on limited parental altruism abstract this paper proposes an alternative theory for the observed persistence in income inequality across households a theory based on limited parental altruism we argue that the degree of parental altruism is limited by the economic status of the parent a poor parent not only has less ability but also has less willingness to invest in children s human capital formation this generates a non linearity in such investment expenditures as a result initial income differences may perpetuate over time even with convex technology and convex preferences in this context we also compare the efficacy of the public vis a vis the private education system from the perspective of long run growth

high exchange rate volatility and low pass through abstract two specifications of an open economy model are shown to generate high exchange rate volatility and low exchange rate pass through erpt in the model price discrimination causes erpt to be incomplete in both the short and the long run in the short run a small amount of nominal rigidities is enough to reduce erpt sharply still exchange rate depreciation worsens the terms of trade consistent with the evidence possible biases from omitted variables and measurement error in the erpt empirical literature due to data limitations are investigated using model generated time series estimates of erpt coefficients can be quite different from true parameters and are sensitive to the shocks driving the economies estimates can nonetheless detect key structural features of the models

aggregate spending and the terms of trade is there a laursen metzler effect this paper investigates the spending and current account effects of terms of trade shifts in a model where households maximize utility over an infinite planning period in the framework developed here an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated permanent worsening in its terms of trade the paper s model thus provides a setting in which the current account deficit predicted by laursen and metzier harberger and others fails to materialize

efficiency and performance in gas distribution evidence from brazil this article analyses the current state of the gas distribution industry in brazil by identifying the main factors that determine its efficiency in order to test the performance of the industry we have calculated the firms technical efficiency during the period 2001 2009 we analyse whether some economic and technological factors as consumer density load factor or regulation among others have affected the performance of this industry we show that companies serving markets with different customer characteristics diversification have reached higher levels of efficiency and evolved faster moreover the private ownership and price cap regulation are more efficient in relation to public ownership and cost of service regulation these findings are important to support the improvement of the regulation of gas distribution in the brazilian states

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

time preference and life cycle consumption with endogenous survival we provide a structural theory of time preference and derive a functional form of intertemporal preferences by postulating that individuals make their life cycle consumption choices as if to maximize expected lifetime this yields a nontime separable expected utility representation where the inverse of the coefficient of intertemporal substitution exceeds the coefficient of relative risk aversion the rate of time preference depends on the inverse of expected remaining lifetime and the effect of age on the productivity of consumption in affecting health the preference formulation is applied in a standard intertemporal consumption model to illustrate the implied life cycle consumption choices

on the rate of time preference under recursive preferences abstract the boehm bawerkian and the fisherian approaches lead to identical measurements on both the strong and the weak rates of time preference since they are generally path dependent when goods are multiple conditions assuring their path independence are identified

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

redistributive taxation in a small open economy this paper studies the effects of redistributing the tax burden across households on the current account the set up is a dynamic small open economy with infinitely lived households that have perfect foresight it is shown that the different speeds at which households adjust consumption levels to their long run values may cause nonmonotonic transient paths

a simple dynamic general equilibrium model abstract we analyse a single sector economy with h 1 infinitely lived agents that operate in a continuous time framework utility functions are recursive but not additive both efficient and perfect foresight competitive equilibrium allocations are considered the existence and stability of such allocations are investigated locally i e in a neighbourhood of steady state allocations the model is shown to be useful for explaining the distribution of wealth and consumption across agents and for analysing the way in which wealth redistribution can affect the dynamics of aggregate economic variables

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

a theory of infrastructure led development abstract this paper proposes a theory of long run development based on public infrastructure as the engine of growth the government in addition to investing in infrastructure spends on health services which in turn raise labor productivity and lower the rate of time preference infrastructure affects the production of both commodities and health services as a result of network effects the degree of efficiency of infrastructure is nonlinearly related to the stock of public capital itself provided that governance is adequate enough to ensure a sufficient degree of efficiency of public investment an increase in the share of spending on infrastructure financed by a cut in unproductive expenditure or foreign grants may facilitate the shift from a low growth equilibrium characterized by low productivity and low savings to a high growth steady state

are combination gas and electric utilities multiproduct natural monopolies gas and electric services are provided in some locations by a single firm in others by two firms the loss of competition inherent in single firm provision can be justified by the presence of both economies of scope and product specific economies of scale for each output in multiproduct production the estimation of a multiproduct hybrid translog cost function shows no evidence of such economies at the mean combination utility output vector copyright 1987 by mit press

impatience and long run growth abstract this contribution is concerned with the possibility of a perpetual growth path at increasing rates in a nonconvex optimal growth model with endogenous discounting sufficient conditions for the existence of this path can be established when the economy is populated by agents whose impatience does not increase too much along the course of a consumption path in the opposite case the dynamical system is asymptotically described by a steady state however this steady state position need not be uniquely defined saddlepoint equilibria and locally oscillating unstable equilibria may alternate in spite of increasingly impatient agents along the growth process it remains optimal for a government to subsidize the competitive economy under a razor edge assumption on impatience a growing planning solution may coexist with a stationary competitive solution

real asset returns inflation and activity in a small open cash in advance economy abstract the effects of inflation are worked out for a small open economy with cash in advance cia constraints on bond purchases if all transactions are subject to cia constraints an increase in the inflation rate will reduce savings bringing about a current account deficit while the capital stock will be unaffected if investment is not subject to cia constraints an increase in the inflation rate will encourage investment and reduce savings bringing about a current account deficit numerical evaluation of the model gives rise to falls in real interest rates that are in line with recent empirical findings

the harberger laursen metzler effect under capital market imperfections abstract this paper re examines the effects of a permanent terms of trade change on a dynamic small open economy facing an imperfect world capital market as studied in obstfeld 1982 aggregate spending and the terms of trade is there a laursen metzler effect quarterly journal of economics 97 251 270 which assumes that the economy faces a downward sloping bond curve the novelty of the present paper is that a saddle path stable steady state comes into existence under the assumption that households subjective discount rate is a decreasing function of instantaneous utility the harberger laursen metzler hlm effect is shown to hold unambiguously i e an unanticipated permanent terms of trade deterioration leads to an increase in aggregate expenditure and a current account deficit this result is in stark contrast to those obtained in obstfeld 1982 aggregate spending and the terms of trade is there a laursen metzler effect quarterly journal of economics 97 251 270 and many other studies in the literature

the global stability of efficient intertemporal allocations this paper describes a continuous time model of an economy with finitely many infinitely lived consumers and a finite number of capital goods two objectives are achieved first recursive nonadditive utility functionals are formulated and analyzed second these preference functionals are applied to analyze the nature of efficient allocations in a dynamic economy two classes of global turnpike propositions are proven which provide the basis for a model of the long run distribution of wealth these propositions also provide new perspective regarding existing stability literature based on additive utilities copyright 1987 by the econometric society

elastic capital supply and the effects of fiscal policy i introduction perfectly elastic or perfectly inelastic supply or demand curves have much to recommend them equilibrium analysis which would otherwise be fraught with ambiguity yields forth sharp predictions when one assumes either demand or supply are either perfectly elastic or inelastic nonetheless this is not the way we typically teach equilibrium analysis nor in most circumstances perform it neoclassical macroeconomics is an exception to this rule specifically capital accumulation models in which a representative agent maximizes the standard additively separable fixed discount factor utility function to which class most equilibrium business cycle models based on the neoclassical growth model belong imply a long run supply curve for capital which is perfectly elastic at the agent s fixed rate of time preference this property of what we will refer to as the standard model is and has been well known and well criticized even by users of the standard model 1 but the question of exactly where and when this assumption ceases to be innocuous i e for what sorts of experiments it is or isn t a harmless simplification has been given surprisingly short shrift 2 in this paper we explore the implications for the equilibrium analysis of the effects of changes in government purchases of relaxing this assumption in particular we explore the implications of replacing the fixed discount factor beta in the standard utility specification summation of beta sup t u c sub t l sub t where t 0 to infinity where c sub t and l sub t denote consumption and leisure at date t with an endogenous discount factor beta c sub t l sub t in this way discounting of future utility is allowed to depend on the agent s enjoyment of current consumption and leisure the lifetime utility function that results from this modification is of the sort first formulated by uzawa 1968 and epstein and hynes 1983 the latter of these in particular demonstrated through a series of examples the extent to which models with endogenous discount factors can differ substantially from their fixed discount factor counterparts while these earlier papers were primarily concerned with developing theoretical results our analysis will be primarily quantitative the possibility that the rate of time preference varies across individuals and over time or equivalently that the rate at which the future is discounted responds to the current and previous decisions of individuals is more than a theoretical curiosum to start with there is a substantial body of evidence that rates of time preference differ across individuals people are not equally patient much of this evidence is summarized in table 1 of becker and mulligan 1997 at the aggregate level they point to the fact that rich countries have grown slightly faster than poor countries over the past 30 years as suggesting that the residents of rich countries may have lower rates of time preference than residents of poor countries differences between the united states and japan in the age consumption profile are also consistent with differences in the rate of time preference between the united states and japan and the fact that income is associated with consumption growth suggests that the rich may be more patient than the poor detailed micro evidence on differences in rates of time preference across households is also presented by lawrance 1991 she finds that the rates of time preference of poor consumers are three to five percentage points higher than those of rich consumers using panel data for the united states from the psid ogaki and atkeson 1997 estimate a model in which time preference is allowed to vary across rich and poor households using household level panel data from india furthermore there is evidence that rates of time preference vary not just across individuals at a point in time but also over time

the rate of time preference and dynamic economic analysis strong restrictions on the structure of preferences are a central feature in the received theory of intertemporal allocation in fact most of the modern literature concerned with capital theoretic problems represents preferences by a functional in which an additive utility function is discounted by a constant rate of time preference this specification is attractive because it is analytically tractable in dynamic models and it clearly delineates how tastes and opportunities interact to determine an economy s household s paths of consumption and capital formation however its rigid structure constancy of time preference severely limits the conclusions and explanatory power of the corresponding models this paper considers a class of utility functionals in continuous time which have the appealing feature that the rate of time preference depends systematically on an index of aggregate future consumption the more flexible structure embodied in these functionals leads to important generalizations and

marshallian recursive preferences and growth abstract although alfred marshall adhered to the classical doctrine of impatience he thought that the act of saving might itself confer utility we model this by making the discount factor a function of savings in addition to providing an intuitive rationale for increasing marginal impatience marshallian time preference has interesting implications for macroeconomics marshallian preferences lower interest rates by stimulating savings paradoxically it is possible for a tax cut to lower interest rates in a marshallian economy in a growth model with marshallian consumers a permanent increase in government expenditures causes super crowding out of consumption and reduces the steady state capital stock

decreasing and increasing marginal impatience and the terms of trade in an interdependent world economy abstract using a two good two country model we examine macroeconomic adjustment by allowing for decreasing and increasing marginal impatience dmi and imi in the reference case where both countries have imi a negative output shock in one country lowers the interest rate and both countries welfare levels in steady state whereas when either one country has dmi the negative income shock raises the interest rate thereby benefiting the imi country and harming the dmi one in steady state in a country either with imi or dmi the harberger laursen metzler effect takes place if negative welfare supporting effects dominate positive income compensating effects

money time preference and external balance in monetary economies international differences in rates of time preference do not in general lead to long run trade imbalances in sharp contrast with butter s 119811 results on non monetary overlapping generation economies this claim is documented within the context of a simple two country framework in which new immortal families enter each economy over time with the two countries differing only in their subjective discount rates even if consumers are more impatient at home than abroad trade is balanced in the long run in the presence of valued fiat currencies in constant supply and the current account is indeterminate this abstract was borrowed from another version of this item

optimal growth with decreasing marginal impatience abstract this paper analyses the long run dynamics of a continuous time infinite horizon optimal growth model with identical households where the households rate of time preference is endogenously determined however unlike the existing literature we assume that households have decreasing marginal impatience i e the instantaneous discount rate is negatively related to the current consumption with this assumption we analyse the stability and uniqueness of the long run equilibrium we show that contrary to the general belief a negative relationship between the instantaneous discount rate and the household s current consumption does not necessarily result in instability of the dynamic system however even a stable system may be characterized by multiple equilibria so that the initial condition becomes important in determining the long run behaviour of the economy we derive a set of sufficient conditions for stability and uniqueness in this context

an analysis of cost efficiency in swiss multi utilities this study presents an empirical analysis of the cost efficiency of a sample of swiss multi utilities operating in the distribution of electricity natural gas and water the multi utilities that operate in different sectors are characterized by a strong unobserved heterogeneity therefore the measurement of their performance poses an important challenge for the regulators the purpose of this paper is to study the potential advantages of recently developed panel data stochastic frontier models in the measurement of the level of efficiency for multi utility companies these models are estimated for a sample of 34 multi output utilities operating from 1997 to 2005 the alternative models are compared regarding the cost function slopes and inefficiency estimates for the inefficiency estimates the correlation between different models and the effect of econometric specification have been analyzed the results suggest that the inefficiency estimates are substantially lower when the unobserved firm specific effects are taken into account

asymptotic behavior and optimal properties of a consumption investment model with variable time preference abstract this paper analyzes the convergence properties and the determination of an optimal consumption path in the consumption investment model of uzawa 1968 sufficient conditions for the existence and uniqueness of the optimal path are presented components of the utility functional are recovered when the optimal path is piecewise affine the model is applied to the determination of the interest rate and income distribution under time preference differentials

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

cost efficiency of electric grid utilities in china a comparison of estimates from sfa mle sfa bayes and stoned cnls with the purpose of estimating the range of cost efficiency levels of the power grid sector in china we assembled a data set including 23 provincial power grid companies spanning from 2005 to 2009 and conducted an empirical study based on the sfa mle sfa bayes and stoned cnls methodologies empirical results show that the average values of efficiency from different models vary from 0 85 to 0 92 depending especially on the assumptions underlying inefficiency content further results demonstrate that there is exogenous technical progress during the sample period and per capita gdp of the province is negatively related to the costs of the electric grid company located in the corresponding province we hope this empirical study will contribute to the debate on an efficiency based regulation scheme which was introduced to the chinese electric grid sector on a pilot base in 2014

time preference and capital asset pricing models abstract results of the theory of individual optimal consumption investment choice under uncertainty are extended to a class of intertemporally dependent preferences for consumption streams these results are then used to show that with intertemporally dependent preferences which are more realistic than the separable time additive preference structure merton s 1973 multi beta intertemporal capital asset pricing model is still valid but it can no longer be collapsed to breeden s 1979 single consumption beta model

myopia and addictive behaviour we present a theory of addictive behaviour which can account for addicts apparent disregard for the future consequences of their current actions the discounting of future utility is increasing in past consumption indicating increasingly myopic behaviour as consumption increases the intertemporal complementarity generated by the endogenous discounting produces multiple steady states which can account for the simultaneous existence of myopic addicts and non myopic non addicts within a time consiste nt expected utility framework the theory also accounts for the probabilistic incidence of addiction and successful rehabilitation and the possibility of recurrence

a theory of time preference grant a taylor this article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption eventually falls as their mental and physical abilities eventually decline with age moreover contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age this article asserts that discounting increases over the life cycle this hypothesis is supported by data from the panel study of income dynamics as well as evidence from numerous previous studies jel d91 1 introduction despite the almost universal assumption of time preference in models of intertemporal choice an adequate explanation of why people discount the future has not been provided 1 olsen and bailey 1981 make a convincing case for positive time preference by contradiction i e without time preference models of intertemporal choice do not yield predictions consistent with observed behavior but they do not explain why individuals would rationally discount the future 2 three recent studies have attempted to provide the explanation rogers 1994 argues that societies that discount the future at a rate of about 2 will be the long run survivors in an evolutionary fitness situation 3 posner 1995 argues that discounting occurs because individuals have multiple selves that is people are weighting their present consumption far more heavily than their future consumption because the present self and the future self are in some meaningful sense separate persons 92 becker and mulligan 1997 argue that discounting occurs because of a rational defective recognition of future utilities 730 but as will be shown these three theories are inconsistent with empirical evidence on consumption over the life cycle in at least one important aspect this article constructs and empirically supports a new theory of time preference the hypothesis is that people do not have an intrinsic preference for present consumption relative to future consumption instead the instantaneous utility function also known as the felicity function is expected to vary with age just as people s physical and mental abilities vary with age in other words the ability to enjoy consumption eventually deteriorates over the life cycle along with other abilities this life cycle view of the expected utility function causes people to rationally devalue consumption in periods of low expected felicity that is discount future consumption perhaps this is what is meant by the cliche don t wait until you are too old to enjoy it moreover this causes individuals implicit discount rates to vary systematically with age 4 in fact this provides the testable implication of the theory the standard specification of intertemporal preferences holds the discount rate constant over th e life cycle 5 to be more precise in the early stage of the life cycle the capacity to enjoy consumption may be expected to rise hence a young individual s discount rate may be negative figure 1 illustrates this possibility with a hypothetical adult life cycle marginal felicity function for a given level of consumption u sub c c a c denotes consumption and a denotes age and its corresponding discount rate function rho a the vast majority of wealth is held by older people that is those in the declining stage of their abilities thus the preference for present consumption over future consumption appears to hold in the aggregate this view of intertemporal preferences may at first seem inconsistent with practically all dynamic analyses which are based on the notion of stationary utility on further consideration however the hypothesis is quite consistent with modern consumer theory since becker 1965 it has been widely accepted that households derive utility from commodities that are produced with market goods combined with household time and skills i

effects of government spending on the current account with endogenous time preference this paper extends a previous model to set up a small open economy with perfect capital mobility and examines the effects of an unanticipated permanent rise in public spending on the optimal rates of private consumption and the current account the novelty of the paper is consideration of the relationship between private and public consumption in the household s utility function as well as endogenous rates of time preference it is found that the key factor determining the adjustment patterns of private consumption and the current account is the marginal utility of private consumption and of public spending which results from endogenous recursive preferences

intertemporal dependence impatience and dynamics abstract this paper develops simple geometric methods for analyzing consumer behavior under recursive but intertemporally dependent tastes since the preferences studied need not be time additive they allow the marginal utility of consumption on a given date to vary with consumption on other dates intertemporal dependence is induced by the presence of a variable individual rate of time preference the optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in many respects to the responses implied by the standard constant time preference model intuitive explanations of the first order conditions describing optimal paths are provided

observed and unobserved heterogeneity in stochastic frontier models an application to the electricity distribution industry in this study we combine different possibilities to model firm level heterogeneity in stochastic frontier analysis we show that both observed and unobserved heterogeneities cause serious biases in inefficiency results modelling observed and unobserved heterogeneities treat individual firms in different ways and even though the expected mean inefficiency scores in both cases diminish the firm level efficiency rank orders turn out to be very different the best fit with the data is obtained by modelling unobserved heterogeneity through randomizing frontier parameters and at the same time explicitly modelling the observed heterogeneity into the inefficiency distribution these results are obtained by using data from finnish electricity distribution utilities and the results are relevant in relation to electricity distribution pricing and regulation

adjustment costs in investment time preferences and the current account abstract this paper studies the effects of supply and demand shocks on the optimal investment and savings decisions of economic agents in a small open economy the two building blocks of the setup are adjustment costs in investment and a recursive time preference structure it is shown that the model can mimic certain stylized facts

estimation of cost effectiveness of the finnish electricity distribution utilities abstract this paper examines the cost effectiveness of finnish electricity distribution utilities we estimate several panel data stochastic frontier specifications using both cobb douglas and translog model specifications the conventional models are extended in order to model observed heterogeneity explicitly in the cost frontier models the true fixed effects model has been used as a representative of the models which account for unobserved heterogeneity and extended conventional random effect models have been used in analysing the impact of observed heterogeneity a comparison between the conventional random effects model and models where heterogeneity component is entered either into the mean or into the variance of the inefficiency term shows that relative efficiency scores diminish when heterogeneity is added to the analysis the true fixed effects model on the other hand gives clearly smaller inefficiency scores than random effects models in the paper we also show that the relative inefficiency scores and rankings are not sensitive to the cost function specification our analysis points out the importance of the efficient use of the existing distribution network the economies of scale results suggest that firms could reduce their operating costs by using networks more efficiently according to our results average size firms which have high load factors are the most efficient ones all firms have unused capacities so that they can improve cost effectiveness rather by increasing the average distributed volumes than by mergers

habit formation adjustment costs and international transmission of fiscal policy abstract the paper studies the effects of fiscal policy in an integrated world economy the setup is one with habit forming endogenous rates of time preference and adjustment costs in investment most of the predictions of the model are in line with the recent empirical literature on fiscal policy for instance in response to a balanced fiscal expansion we obtain positive long run output multipliers long run increases in employment short and medium run increases in wages and decreases in investment our results suggest that short run government spending multipliers are smaller than tax multipliers most importantly we show that the model can generate positive short and medium run consumption responses to a positive fiscal shock this is relevant as negative consumption responses are considered to be one of the main challenges facing neo classical models of fiscal policy

impatience and equilibrium indeterminacy abstract this paper extends the neoclassical one sector optimal growth model by postulating that individual agents time preference impatience depends on the economy wide average consumption and average income which are social factors taken as external by individual agents the paper shows that with the socially determined individual time preference local equilibrium indeterminacy can arise moreover local indeterminacy can also be associated with global indeterminacy in many cases the results hold in models with bounded and unbounded growth

hyperbolic discounting and endogenous growth this paper provides the closed form solution for the standard model of endogenous growth when consumers have present biased preferences and make time inconsistent savings plans which they revise continuously it is shown that long run growth is not necessarily lower under present biased preferences in fact a strong equivalence result holds if hyperbolic discounting provides the same present value of a constant infinite income stream as standard exponential discounting then the equilibrium rate of economic growth is also the same under both discounting methods in this sense present bias preferences are harmless for economic growth

cost efficiency in the swiss gas distribution sector this paper studies the cost structure of gas distribution utilities in switzerland three stochastic frontier models are applied to a panel of 26 companies operating from 1996 to 2000 efficiency is assumed to be constant over time the analysis highlights the importance of output characteristics such as customer density and network size the results suggest that the utilities could slightly reduce their operating costs by improving efficiency there is no evidence of significant unexploited scale economies however our analysis indicates that the estimates of scale economies could be sensitive to the assumptions regarding the variation of output with output characteristics

debt and distortionary taxation in a simple perfect foresight model abstract we examine the real effects of a temporary substitution of debt for distortionary income taxation we find that such a policy may reduce consumption increase investment and reduce interest rates these results arise even though we examine the same model used by barro where temporary substitution of debt for lump sum taxes was shown to have no real effects we show that these anti keynesian effects on consumption are as significant as various pro keynesian effects such as finite lives hence the impact of debt is an empirical issue and ricardian neutrality appears to be a reasonable benchmark

the measurement and sources of technical inefficiency in the indonesian weaving industry production function models are estimated with a time series of cross section data on indonesian weaving establishments the sources of technical inefficiency are investigated three firm attributes are identified as being potentially related to firm efhciency tbey are firm ownership age and size the importance of these attributes as sources of inefficiency in the indonesian weaving industry is investigated and the implications of the find ings discussed

the permanent income hypothesis and consumption durability analysis based on japanese panel data the permanent income hypothesis with durability of commodities is tested on a panel of about 2 000 japanese households for several commodity groups under static expectations about real interest rates and for some class of utility functions consumption which is a distributed lag function of current and past expenditure follows a martingale main empirical results are i the durability of commodities usually classified as services is substantial ii the hypothesis applies to about 85 percent of the population consisting of wage earners and iii income changes explain only a small fraction of the movements in expenditure

economic efficiency and frontier techniques abstract most of the literature related to the measurement of economic efficiency has based its analysis either on parametric or on non parametric frontier methods the choice of estimation method has been an issue of debate with some researchers preferring the parametric and others the non parametric approach the aim of this paper is to provide a critical and detailed review of both core frontier methods in our opinion no approach is strictly preferable to any other moreover a careful consideration of their main advantages and disadvantages of the data set utilized and of the intrinsic characteristics of the framework under analysis will help us in the correct implementation of these techniques recent developments in frontier techniques and economic efficiency measurement such as bayesian techniques bootstrapping duality theory and the analysis of sampling asymptotic properties are also considered in this paper

international lending and borrowing in a stochastic stationary equilibrium this paper develops a simple general equilibrium model of international borrowing and lending in which national products are subject to random fluctuations international capital flows arise from the efforts of risk averse households in different countries to self insure against random income fluctuations by accumulating foreign claims that can be used to finance a less variable profile of consumption relative to national income in the absence of aggregate uncertainty a stationary rational expectations equilibrium is shown to exist despite the fact that rates of time preference differ among countries a number of results many of which enrich those in the existing literature are obtained copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

productivity growth and incentive regulation in austria s gas distribution abstract the projected rate of productivity growth is the critical determinant of the price cap in incentive regulation however the regulatory authorities generally lack sophisticated industry tfp studies to set an optimal cap we thus estimate productivity growth in the austrian gas distribution sector in a translog cost function framework a key feature is our unique panel database on costs and outputs of regulated utilities for the period 2002 2013 covering six years prior and during incentive regulation as introduced in 2008 we find a modest tfp growth rate in the early sample years followed by a decline to zero or even slightly negative rates in recent years we also find a significant potential for returns to scale which is left unexploited indicating that utilities could significantly save on costs by merging as essential investments have already been undertaken in the past opportunities for technological progress seem to be limited in recent years