Working Paper #03-14
What is common to the following situations: incentivizing collective action in the presence of social preferences, monopoly pricing when consumers are loss averse, arms races when players are privately informed of their armament costs?
We present a simple formalism, called X-games, which unifies these situations as well as others, and use it to unify and extend the separate analyses that they received in the literature.
Jel Nos.: C72
Working Paper #04-14
One of the most striking changes in American society in the last forty years has been the decline and delay in marriage.
The fraction of young men and women who have never been married increased significantly between 1970 and 2000.
Idiosyncratic labor income volatility also increased over the same period.
This paper establishes a quantitatively important link between these two facts.
Specifically, if marriage involves consumption commitments, then a rise in income volatility results in a delay in marriage.
Marriage, however, also allows for diversification of income risk since earnings fluctuations between spouses need not be perfectly correlated.
We assess the hypothesis that rising income volatility contributed to the delay in marriage vis-?-vis other explanations in the literature, using an estimated equilibrium search model of the marriage market.
We find that the increase in volatility accounts for about 26 of the observed delay in marriage.
Thus, we find that the effects of consumption commitments due to increased income volatility outweigh the effects of the insurance gains provided by spouses.
Jel Nos.: E24, D13, J12
Working Paper #05-14
We study whether changes in prenatal sex selection across regions in India are associated with changes in girls’ nutritional status.
We exploit geographic variation in the incidence of prenatal sex selection and apply a triple difference approach comparing changes in the nutritional status of girls relative to boys across regions and over time.
We find a reduction in girls’ malnutrition in regions with an increasing incidence of prenatal sex selection.
Jel Nos.: J13, J16, I1, O12
Working Paper #06-14
In this paper we reexamine the commonly invoked argument that due to the existence of a negative correlation between earning ability and family size, the latter can be used as a `tagging` device, justifying subsidizing children (via provision of child allowances) to enhance egalitarian objectives.
Employing a benchmark setting where the quality-quantity paradigm holds, we show that the case for subsidizing children is far from being a forgone conclusion.
We demonstrate that the desirability of subsidizing children crucially hinges on whether benefits are means-tested or being accorded on a universal basis.
Jel Nos.: D6, H2, H5
Working Paper #07-14
The decisions of firms on investment and hiring play a crucial role in business cycle fluctuations.
This paper explores their dynamics in the presence of frictions. It does so within a unified framework, stressing their mutual dependence and placing the emphasis on their joint, forward-looking behavior.
Using estimation of aggregate, private sector U.S. data, it shows that the model with frictions is able to fit the data.
A key element is the interaction of hiring costs and investment costs, which is significant and negatively signed, implying complementarity between investment and hiring.
The estimated costs are of modest size only. Key findings are, inter alia: U.S. labor market developments, including the fall in unemployment and its subsequent rise in the Great Recession, can be accounted for by changes in job values (as well as in labor force growth rates); there is a substantial effect of the expected capital value on hiring; the cyclical behavior of hiring and investment is markedly different, with counter-cyclical hiring rates and job values; and future returns play a dominant role in determining these capital values and job values.
Jel Nos.: E22, E24, E32
Matthias Doepke, Moshe Hazan and Yishay D. Maoz
We argue that one major cause of the U.S. postwar baby boom was the rise in female labor supply during WorldWar II.
We develop a quantitative dynamic general equilibrium model with endogenous fertility and female labor force participation decisions.
We use the model to assess the impact of the war on female labor supply and fertility in the decades following the war. For the war generation of women, the high demand for female labor brought about by mobilization leads to an increase in labor supply that persists after the war.
As a result, younger women who reach adulthood in the 1950s face increased labor market competition, which impels them to exit the labor market and start having children earlier.
The effect is amplified by the rise in taxes necessary to pay down wartime government debt. In our calibrated model, the war generates a substantial baby boom followed by a baby bust.
Working Paper #09-14
Gabrielle Gayer, Itzhak Gilboa, Larry Samuelson, and David Schmeidler
Pareto efficiency is not as compelling when people hold different beliefs as it is under common beliefs or certainty.
Gilboa, Samuelson, and Schmeidler (2013) have suggested that the standard Pareto relation be weakened by imposing the additional constraint that, in order for one allocation to dominate another, there should exist a single hypothetical belief under which all agents prefer the former to the latter.
In the present work we propose an alternative definition whereby Pareto efficiency is supplemented by the requirement that according to each agent`s belief the former alternative is preferred to the latter for all other agents.
This paper analyzes and compares these and other definitions
Working Paper #10-14
Jacob Glazer and Ariel Rubinstein
We study a principal-agent model in which the agent is boundedly rational in his ability to understand the principal’s decision rule.
The principal wishes to elicit an agent’s true profile in order to determine whether or not to grant him a certain request.
The principal designs a questionnaire and commits himself to accepting certain responses.
In designing such a questionnaire, the principal takes into account the bounded rationality of the agent and wishes to reduce the success probability of a dishonest agent who is trying to game the system.
It is shown that the principal can construct a sufficiently complex questionnaire that will allow him to respond optimally to agents who tell the truth and at the same time to almost eliminate the probability that a dishonest agent will succeed in cheating.
Jel Nos.: D0
Working Paper #11-14
An Integrative Note
Working Paper #12-14
It is argued that, contrary to a rather prevalent view within economic theory, rationality does not imply Bayesianism.
The note begins by defining these terms and justifying the choice of these definitions, proceeds to survey the main justification for this prevalent view, and concludes by highlighting its weaknesses.
Working Paper #13-14
I implement a basic tool of financial markets—namely, a portfolio—into student loans.
In higher education funding, credit market loans (CMLs) lead to under-investment, while income-contingent loans (ICLs) produce over-investment.
This research introduces a ‘portfolio regime’ (PR), which allows students to combine CMLs and ICLs.
The model assumes that agents privately invest in higher education after receiving a noisy signal about their future incomes.
The article compares a PR with a ‘competition regime’ (CR), which allows students to choose one type of loan but prohibits a portfolio.
The key insight is that implementation of a PR may improve the efficiency of investment in higher education and social welfare.
Nevertheless, the PR does not maximize social welfare because of adverse selection into ICL programs.
Jel Nos.: I21; I22; I23; I24; I28; D31; H31