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Abstract:
The worldwide problem with pay-as-you-go (PAYG) social security systems isn`t just financial. This study indicates that these systems may have exerted adverse effects on key demographic factors, private savings, and long-term growth rates. Through a comprehensive endogenous-growth model where human capital is the engine of growth, family choices affect human capital formation, and family formation itself is a choice variable, we show that social security taxes and benefits can create adverse incentive effects on family formation and subsequent household choices, and that these effects cannot be fully neutralized by counteracting intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years (1960-92). We find that PAYG tax measures account for a sizeable part of the downward trends in family formation and fertility worldwide, and for a slowdown in the rates of savings and economic growth, especially in OECD countries.

Abstract:
We trace the impact of pay-as-you-go (PAYG) social security taxes on demographic and economic trends through an endogenous-growth model where human capital is the engine of growth, family choices affect its formation in children, and family formation itself is a choice variable. We show that family formation and subsequent decisions by married and single households concerning children and savings are generally adversely affected by the PAYG system. We implement the model using panel data from 57 countries over 32 years (1960-1992). We find that PAYG taxes retard savings and economic growth, and account for a sizeable portion of the downward trends in family formation and fertility around the world.

social security, family formation, family choices, economic growth, demographic trend

Abstract:
Leamer and McManus applied Extreme Bound Analysis (EBA) in an empirical study of the deterrent effects of capital punishment and other penalties. Their analysis has questioned the validity of the deterrence hypothesis. The thrust of our paper is twofold: first, by applying EBA to well-known econometric models of demand, production, and human-capital investment, our analysis exposes and illustrates the inherent flaws of EBA as a method of deriving valid inferences about model specification. Second, since the analysis shows Leamer and McManus's inferences about deterrence to be based on a flawed methodology, we offer an alternative, theorybased sensitivity analysis of estimated deterrent effects using similar data. Our analysis supports the deterrence hypothesis. More generally, it emphasizes the indispensable role of theory in guiding sensitivity analyses of model specification.

Abstract:
Leamer presents a scathing critique of classical sensitivity analysis concerning regression specification. The argument is that the classical approach lacks a systematic way to determine what explanatory variables truly belong in the regression when there is uncertainty about proper model specification. The remedy offered is Extreme Bound Analysis (EBA). Leamer illustrates the merits of EBA by applying it to a study of the deterrent effect of capital punishment.

EBA aims to determine the sensitivity of estimated effects of one or more "focus" variables of primary interest in a regression equation to the inclusion of additional regressors. It purports to solve the problem by allowing a researcher to partition a set of explanatory variables into "important" and "doubtful" subsets. Only the former is included in the regression with no restrictions. Linear combinations of "doubtful" variables' coefficients, in contrast, are constrained to match the researcher's prior beliefs -- generally zero. EBA produces the largest and smallest estimated coefficients of the focus variables (which themselves could be dubbed either doubtful or important), based on these restrictions. If the computed extreme bounds are too wide, or span zero, the effects of the focus variables are declared too "fragile" to warrant credibility.

Leamer's application of EBA to capital punishment is based on a study of murder rates across US states in 1950 conducted by McManus, and later published by him as a separate paper. Both authors argue that EBA casts serious doubt on the validity of the deterrence hypothesis, at least as it pertains to capital punishment. They conclude that the evidence on deterrence is essentially a product of the researcher's prior beliefs. "Bleeding hearts" could legitimately infer the absence of deterrence, while believers in "eye-for-an-eye" would reject as effective any penalty other than death. "Rational economists" are no more correct in inferring that offenders respond to incentives than are some criminologists who view crime merely as a product of social and environmental ills.

If true, this amounts to an impressive testimony about both the power of EBA and the validity of the economic approach to crime. We suppose that partly for this reason Leamer has titled his paper (supra note 1) grandiloquently "Let's take the con out of econometrics". In this paper we suggest that the best way to keep the con out of econometrics is to keep economics in it. In section 1 we examine the merits of EBA as a replacement for the classical approach. We find the promised remedy worse than the problem it is alleged to cure. The main methodological shortcomings of EBA have already been pointed out by McAleer, Pagan, and Volker [MPV]. Apparently, however, the latter's critique has escaped many economists, perhaps because it has not been backed up by convincing empirical evidence.

In section 2 we use three data sets concerning consumption, production, and human capital investment to show how EBA, as applied by Leamer and McManus [LMC], would find basic economic theory to be fragile. It could dismiss laws of demand, production, and investment as a "con job", however, not because of any faults in the theory, but because of the inherent flaws of EBA itself. These flaws are also shown to be responsible for LMC's premature inferences about the validity of the deterrence hypothesis.

Since LMC's analysis of deterrence is shown to be based on a faulty methodology, we feel an obligation not just to correct the impression their work has left about the strength of the underlying economic model, but also to offer an alternative sensitivity analysis using classical techniques. In section 3 we use similar cross-state data on the incidence of murder as well as other related crimes from both 1940 and 1950 to address a number of potential biases in estimates of supply-of-offenses functions in light of the underlying theory. We focus on 1940 and 1950 not just because LMC used 1950 data, but also because these are the most recent years in which a majority of states in the US still applied capital punishment at considerable annual frequencies.

Our analysis does not necessarily settle the issue. We do show, however, that LMC's analysis does not raise legitimate doubts about empirical results supporting deterrence, let alone prove that these results are just a product of researchers' prior beliefs. More generally, our work indicates that EBA's basic defect is that it does not put any weight on theory as the critical guideline for conducting sensitivity analysis. Indeed, when we conduct a theory-based sensitivity analysis using our cross-state data, we find additional support for the deterrence hypothesis.

Abstract:
No abstract available.

Abstract:
The debate over the legitimacy or propriety of the death penalty may be almost as old as the death penalty itself and, in the view of the increasing trend towards its complete abolition, perhaps as outdated. Not surprisingly, and as is generally recognized by contemporary writers on this topic, the philosophical and moral arguments for or against the death penalty have remained remarkably unchanged since the beginning of the debate. One outstanding issue has become, however, the subject of increased investigation, especially in recent years, due to its objective nature and the dominant role it has played in shaping the analytical and practical case against the death penalty. That issue is the deterrent effect of capital punishment, a reexamination of which, in both theory and practice, is the object of the paper.

Institutional subscribers to the NBER working paper series, and resident of developing countries may download this paper without additional charge at www.nber.org

Abstract:
There appears to be significant diversity in the incidence of bureaucratic corruption across countries at different stages of economic development and under different political and economic regimes. Little theoretical or empirical analysis has been offered, however, on the link between corruption, government, and growth. The paper attempts to fill the void through equilibrium models of endogenous growth. Balanced growth is derived as a balancing act between accumulating human capital, which engenders growth, and accumulating political capital, which mainly assures bureaucratic power. The analysis focuses on the interplay between investment in these two types of capital and its implications for long-term growth under alternative political regimes. Some propositions are tested and confirmed empirically.

Abstract:
The article develops a theory of demand for insurance that emphasizes the interaction between market insurance, self-insurance, and self- rotection. The effects of changes in prices, income, and other variables on the demand for these alternative forms of insurance are analyzed using the state preference approach to behavior under uncertainty. Market insurance and self-insurance are shown to be substitutes, but market insurance and self-protection can be complements. The analysis challenges the notion that moral hazard is an inevitable consequence of market insurance, by showing that under certain conditions the latter may lead to a reduction in the probabilities of hazardous events.

Abstract:
Investigation of the deterrent effect of capital punishment has implications far beyond the propriety of execution as punishment since it concerns the general question of offenders' responsiveness to incentives. This study challenges popular allegations by earlier researchers denying the deterrence hypothesis. The empirical analysis based on crosssectional data from the U.S. corroborates my earlier analysis of the time series. Findings indicate a substantial deterrent effect of punishment on murder and related violent crimes and support the economic and econometric models used in investigations of other crimes. Distinctions between classes ofexecuting and nonexecuting states are also examined in light of theory and evidence.

Abstract:
Conventional finance models treat risky-asset prices as "fully (information) revealing." Less work exists on how prices become information revealing. Our answer focuses on the micro foundations of information acquisition and the role of human capital in "asset management." We derive testable propositions on how education and the opportunity cost of asset management affect risky-asset demand, portfolio returns, asset-price volatility, and equity premiums. Using micro-level data, we find that education raises the portfolio share of risky assets and overall portfolio returns, whereas wage rates exert opposite effects. We find that the rate of return to education in generating nonwage income is nontrivial.

Abstract:
Risky-asset prices are conventionally modeled as "fully (information-) revealing". Much less work has been done on how prices get to reveal information. Following the "noisy-prices", rational-expectations approach, our answer focuses on the micro-foundations of information acquisition and the role of human capital in asset, or risk, management. We derive testable propositions on how education and other determinants of asset management affect its intensity, risky-asset demand, and portfolio returns. We derive related insights concerning determinants of the level and volatility of asset prices and equity premiums. Using micro-level data on portfolio choices, we find that education raises both the portfolio share of risky assets and overall portfolio returns, while a measure of the opportunity cost of asset management has the opposite effects. Our results indicate a non-trivial return to education in generating non-wage income. They suggest that educational attainments directly affect the distribution of income as well as earnings.

Abstract:
Using an endogenous-growth, overlapping-generations framework in which human capital is the engine of growth, we trace the dynamic evolution of income and fertility distributions and their interdependencies over three endogenous phases of economic development. In our model, heterogeneous families determine fertility and children's human capital, and generations are linked via parental altruism and social interactions. We derive and test discriminating propositions concerning the dynamic behavior of inequalities in fertility, educational attainments, and three endogenous income inequality measures - family-income inequality, income-group inequality, and the Gini coefficient. In this context, we also reexamine the Kuznets hypothesis concerning the relation between income growth and inequality.

Human Capital, Fertility Inequalities, income inequality, Economic Development

Abstract:
Using an endogenous-growth, overlapping-generations framework where human capital is the engine of growth, we trace the dynamic evolution of income and fertility distributions and their interdependencies over three endogenous phases of economic development. In our model, heterogeneous families determine fertility and childrens human capital, and generations are linked via parental altruism and social interactions. We derive and test discriminating propositions concerning the dynamic behavior of inequalities in fertility, educational attainments, and three endogenous income inequality measures -- family-income inequality, income-group inequality, and the Gini coefficient. In this context, we also reexamine the "Kuznets hypothesis" concerning the relation between income growth and inequality.

Abstract:
To what extent can life protection account for observed diversities in age-specific life expectancies across individuals and over time? We provide answers via calibrated simulations of a life-cycle model where life's end is stochastic, and age-specific mortality hazards are ndogenous outcomes of life protection, set jointly with life insurance and annuities. Our model links mortality hazards and values of life saving (VLS) as "dual variables", and offers new insights about the measurement of VLS. Life protection is estimated to account for non-trivial portions of observed levels and inequalities in life expectancies and empirical estimates of VLS by age and education, and over time.

endogenous mortality, uncertainty, human capital, stochastic optimization, calibrated simulations,

Abstract:
Little attempt has been made so far to quantify the extent to which individual willingness to spend on life protection may account for the observed trends and diversities in age-specific life expectancies across individuals and over time. We address these issues via calibrated simulations of a dynamic, life-cycle model of life protection in which life's end is a stochastic event, age-specific mortality risks are endogenous variables, and spending on life protection is set jointly with related insurance options: life insurance as well as annuities. A unique feature of our model is that it links age-specific mortality risks and implicit private values-of-life-saving (VLS) as 'dual variables', and estimates them jointly. It also offers new insights about the concept and measurement of VLS. Life protection is estimated to have a non-negligible impact on age-specific life expectancies. It can account for significant portions of observed inequalities in life expectancies across population groups and over time, as well as for a wide range of empirical estimates of VLS produced via the conventional 'willingness to pay' approach.

Abstract:
A theory of participation in illegitimate activities is developed and tested against data on variations in index crimes across states in the United States. Theorems and behavioral implications are derived using the state preference approach to behavior under uncertainty. The investigation deals directly with the interaction between offense and defense: crime and collective law enforcement. It indicates the existence of a deterrent effect of law-enforcement activity on all crimes and a strong positive correlation between income inequality and crimes against property. The empirical results also provide some tentative estimates of the effectiveness of law enforcement in reducing crime and the resulting social losses.

Abstract:
Crime is a subject of intense emotions, conflicting ideologies. However, economists have generally explained it as a reflection of individual choice and equilibrating market forces. Two major themes of the literature are outlined: the evolution of a 'market model' to explain the diversity of crime across time and space, and the debate about the usefulness of 'positive' versus 'negative' incentives. Systematic analyses generally indicate that crime is affected on the margin by both positive and negative incentives; there are serious limitations to the effectiveness of incapacitation and rehabilitation; and optimal enforcement strategies involve trade-offs between narrow efficiency and equity considerations.

crime, deterrence, law and economics, justice, human resources

Abstract:
This paper deals with the evolution of the literature on the problem of population and growth from the classical period to the recent literature on endogenous growth and development. The 'problem' concerns two distinct issues: 1. how to explain the observed covariation of the levels and rates of growth of per capita income and population size over time and space, and 2. how to improve the human condition represented by these variables through an accommodating social policy. The evolution of the literature we survey is reflected by the progressive treatment of key variables as endogenous, rather than exogenous to the growth process. It is also reflected by a shift from the historical concern about population explosion, and its implications for growth, to the more recent concern about the association between growth and population implosion in many developed countries.

Economic growth & development, Population, Fertility, Longevity, Human Capital

Abstract:
The worldwide problem with pay-as-you-go, defined-benefits social security systems is not just financial. Through a dynamic, overlapping-generations model where forming a family and bearing and educating children are choice variables, we show that social security taxes and benefits generate incentives to reduce both family formation and fertility, and that these effects cannot be fully neutralized by counteracting inter-temporal or intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years. We find that PAYG tax measures account for a non-trivial part of the downward trends in family formation and fertility worldwide, especially in OECD countries.

Social security, Family, Human capital, Marriage, Divorce, Fertility, Saving, Growth, Public pension

Abstract:
We develop an overlapping-generations model of endogenous growth in which human capital is the engine of growth and the generations are linked through material and emotional interdependencies within the family. Parents invest in their children to achieve both old-age support (care) and emotional gratification, and material support from children is determined through self-enforcing implicit contracts. We show that optimal intergenerational trade can then lead to maximization of growth opportunities. Our model produces a theory of the demographic transition linking longevity, fertility, and economic growth. We also show that while population aging may raise the growth rate, an increase in young- ge longevity is likely to produce a greater increase in the growth rate and a reduction in the fertility rate in a growth equilibrium. These predictions and the model's implications concerning the behavior of private savings during the takeoff period appear consistent with empirical evidence.

Abstract:
The analytic innovation is treating life's end as uncertain, and life expectancy as partly the product of individuals' efforts to self-protect against mortality and morbidity risks. The demand for self-protection is modeled in a stochastic, life-cycle framework under alternative insurance options. The model helps explain the trend and systematic diversity in life expectancies across different population groups, as well as the wide variability in reported "value of life saving" estimates. The analysis yields a closed-form solution for individuals' value of life saving that is estimable empirically. It reflects the impacts of specific personal characteristics and alternative insurance options on both life expectancy and its valuation.

Life protection; Mortality; Value of life saving

Abstract:
No abstract available.

Abstract:
We specify a demand function for longevity, or quantity of life, along with corresponding demand functions for indicators of quality of life and a value-of-health and life extension function. We show that the demand for health must be derived in conjunction with that for longevity and the related consumption plan, and that all choices depend on initial individual endowments and terminal conditions. Our comparative dynamics predictions indicate that optimal health and longevity are increasing functions of endowed wealth rather than, necessarily, current income; that improvements in opportunities to produce health can accentuate the differences between endowed health and attained longevity levels; and that the value individuals ascribe to their health may be increasing over a good portion of their life cycle. We use this model to analyze observed empirical variations in levels and trends of life expectancy and in exposure to health risks across different population groups.

Abstract:
We focus on the effect of state versus private ownership on the rates of firm-specific productivity growth and cost decline by developing a model of endogenous, firm-specific productivity growth and testing its implications against panel data on 23 international airlines of varying levels of state ownership over the period 1973-83. Our model and empirical results show that state ownership can lower the long-run annual rate of productivity growth or cost decline, but not necessarily their levels in the short run. Observed level differences in productive efficiency across private and state-owned firms may thus be a function of the age distribution of the firms being compared. These results appear to be independent of whether the firms operate under apparently more or less competitive or regulated markets and whether they differ in production scales. The analysis offers new insights concerning the recent trend oward privatizing state-owned enterprises that has been observed in many countries.

Abstract:
No abstract available.

Abstract:
In this paper we solve the stochastic portfolios-consumption control problem under the assumption that individuals follow precommitment strategies over finite intervals of time. This precommitment approach is an alternative to Merton's (1969) continuous-time stochastic dynamic control problem which assumes instantaneous feedback and costless revisions of choices all along the time path. Our solution to the problem is contrasted with that of Merton and several other contributions to the subject. We show that under precommitment individuals will tend to hold portfolios that are a function of their expected risk and return parameters, but are independent of their wealth levels and risk preferences. We also show that the intertemporal consumption growth path would be a relatively smooth function of the risk-free rate of return, time preference, and the coefficient of relative risk aversion, and independent of the portfolio's risk parameters. The latter would influence only the initial consumption level. We derive a number of empirical implications of our analysis for both portfolio holding and consumption patterns.

Consumption, Risk, Stochastic

Abstract:
The 19th century economist Thomas Robert Malthus hypothesized that the long-run supply of labor is completely elastic at a fixed wage-income evel because population growth tends to outstrip real output growth. Dynamic equilibrium with constant income and population is achieved through equilibrating adjustments in "positive checks" (mortality, starvation) and "preventive checks" (marriage, fertility). Developing economies since the Industrial Revolution, and more recently especially Asian economies, have experienced steady income growth accompanied by sharply falling fertility and mortality rates.We develop a dynamic model of endogenous fertility, longevity, and human capital formation within a Malthusian framework that allows for diminishing returns to labor but also for the role of human capital as an engine of growth. Our model accounts for economic stagnation with high fertility and mortality and constant population and income, as predicted by Malthus, but also for takeoffs to a growth regime and a demographic transition toward low fertility and mortality rates, and a persistent growth in per-capita income.

Malthus, Human Capital, Fertility, Mortality, Population growth, Demographic transition

Abstract:
The 19th century economist, Thomas Robert Malthus, hypothesized that the long-run supply of labor is completely elastic at a fixed wage-income level because population growth tends to outstrip real output growth. Dynamic equilibrium with constant income and population is achieved through equilibrating adjustments in "positive checks" (mortality, starvation) and "preventive checks" (marriage, fertility). Developing economies since the Industrial Revolution, and more recently especially Asian economies, have experienced steady income growth accompanied by sharply falling fertility and mortality rates. We develop a dynamic model of endogenous fertility, longevity, and human capital formation within a Malthusian framework that allows for diminishing returns to labor but also for the role of human capital as an engine of growth. Our model accounts for economic stagnation with high fertility and mortality and constant population and income, as predicted by Malthus, but also for takeoffs to a growth regime and a demographic transition toward low fertility and mortality rates, and a persistent growth in per-capita income.

Abstract:
No abstract available.

Abstract:
No abstract available.

Law Economics, Rules and Discretion, Judge-Made Rule

Abstract:
No abstract available

Abstract:
No abstract available.

Abstract:
This paper offers a thesis as to why the US overtook the UK and other European countries in the 20th century in both aggregate and per-capita GDP, as a case study of recent models of endogenous growth where human capital is the "engine of growth". The conjecture is that the ascendancy of the US as an economic superpower owes in large measure to its relatively faster human capital formation. Whether the thesis has legs to stand on is assessed through stylized facts indicating that the US led other OECD countries in schooling attainments per adult population over the 20 century, especially at the secondary and tertiary levels. While human capital is viewed as the direct facilitator of growth, the underlying factors driving the US ascendancy are linked to the superior returns the political-economic system in the US has so far offered individual human capital attainments, both home-produced and imported.

Abstract:
The debate concerning the effects of payas-you-go (PAYG), defined-benefits, social security systems on the real economy has focused on private savings (Robert J. Barro, 1978; Martin Feldstein, 1997). We expand the inquiry to neglected effects on economic growth and underlying family choices. Our inquiry is based on Ehrlich and Francis T. Lui's (1998) model of the relationships among social security, the family, and endogenous growth.

Abstract:
No abstract is available for this item.

Human Capital

Abstract:
The paper entertains the proposition that individuals' time performs a productive role in generating nonwage income through the management of nonhuman capital assets. The asset management hypothesis is used to develop a life cycle model of consumptive and productive decisions. The model allows for variations in gross rates of return both across persons at a point in time and for any one person over his life cycle. The behavioral implications developed show that differences across consumption units in their time allocations and in their borrowing, saving, and asset holding decisions may be the result of differences in opportunities rather than "tastes."

Abstract:
This paper reexamines the issues of compliance with and enforcement of the minimum wage law recently addressed in this Journal by Ashenfelter and Smith and by Grenier. Pursuing a more rigorous methodology we are able to add new general conclusions, and correct and reconcile some previous conflicting conclusions concerning the role of the disparity between the minimum and free market wages, the level and elasticity of labor demand, and the magnitude of deterring monetary sanctions on the noncompliance decision. Our formulation also addresses the law evasion (reduced wages) as well as the law avoidance (modified employment) aspects of the noncompliance decision, which previous formulations have ignored.

Abstract:
No abstract available.

Abstract:
No abstract available.

Abstract:
By extending Ehrlich and Becker's analysis of the demand for insurance we derive several new propositions concerning the demand for self-insurance, self-protection, and market insurance under alternative market conditions. A key behavioural prediction is that if the price of market insurance were responsive to self-protection, then the latter would induce a substitution away from self-insurance and towards market insurance, regardless of the fairness of insurance terms, as long as the utility function exhibits constant or decreasing absolute risk aversion. We compare two of our results to earlier results recently published in this journal by Boyer and Dionne.

Abstract:
The central thesis of this paper is that the management of portfolios incorporating a variety of investment assets does require the use of time and other scarce resources in searching for, collecting, interpreting, and applying relevant information. Accordingly, the returns on these assets would depend, in part, on managerial efforts and abilities and other related inputs. The plan of the paper is as follows. A life cycle model of consumption and productive saving without borrowing is developed in Section I. Borrowing is introduced into the model and its relationship to productive saving is explored in Section II. In Section III we attempt to elucidate the model's implications concerning capital accumulation paths and life cycle variations in resource allocations to productive activities. Implications regarding the determinants of the propensity to save are derived in Section IV and then briefly examined in light of some earlier theoretical and empirical findings.

Institutional subscribers to the NBER working paper series, and resident of developing countries may download this paper without additional charge at www.nber.org

Abstract:
There is growing concern about a decline in the total fertility rate worldwide, but nowhere is the concern greater than in OECD countries, some of which already face the prospect of population decline as well. While the trend is largely the result of structural economic and social changes, our paper indicates that it is partly influenced by the scale of the defined-benefits, pay-as-you-go (PAYG) social security systems operating in most countries. Through a dynamic, overlapping-generations model where the generations are linked by parental altruism, we show analytically that social security tax and benefit rates generate incentives for individuals to reduce not just the fertility rate within families, but also the incentive to form families, which we capture empirically by the fraction of adults married. We conduct calibrated simulations as well as regression analyses that measure the quantitative importance of social security tax rates in lowering both net marriage and total fertility rates. Our results show that the impact of social security on these variables has been non-trivial. Our calibrated simulations also enable us to study the effects of changes in the structure of social security on family formation and fertility.