A study used cross-sectional data to assess the proportion of credit-constrained households and their characteristics. The data were drawn from the 1983 Survey of Consumer Finances and provided ...information on individuals whose request for credit has been rejected by financial intermediaries. A model was developed in which consumers' and lenders' behavior jointly determines the probability that a consumer is rationed in the credit market. This probability was related to a set of observable variables and explained through a logit model. It was found that 19.0% of families were rationed in the credit market. They accounted for 12.7% of total income and 7.0% of wealth, and they were, on the average, younger than the rest of the population. The results show that the fraction of constrained consumers depends on the consumers' and lenders' behavior and that it is likely to vary in response to changes in current and future resources, demographic variables, and characteristics of financial intermediaries.
A significant proportion of migration in low-income countries, particularly in rural areas, is composed of moves by women for the purpose of marriage. We seek to explain these mobility patterns by ...examining marital arrangements among Indian households. In particular, we hypothesize that the marriage of daughters to locationally distant, dispersed yet kinship-related households is a manifestation of implicit interhousehold contractual arrangements aimed at mitigating income risks and facilitating consumption smoothing in an environment characterized by information costs and spatially covariant risks. Analysis of longitudinal South Indian village data lends support to the hypothesis. Marriage cum migration contributes significantly to a reduction in the variability of household food consumption. Farm households afflicted with more variable profits tend to engage in longer-distance marriage cum migration. The hypothesized and observed marriage cum migration patterns are in dissonance with standard models of marriage or migration that are concerned primarily with search costs and static income gains.
Implicit markets capture compensation for intraurban and interregional differences in amenities and yield differences in housing prices and wages. These pecuniary differences become preference-based ...weights in a quality of life index. Hedonic equations are estimated using micro data from the 1980 Census and assembled county-based amenity data on climatic, environmental, and urban conditions. Ranking of 253 urban counties reveals substantial variation within and among urban areas.
No one has derived closed-form solutions for consumption with stochastic labor income and constant relative risk aversion utility. A numerical technique is used here to give an accurate approximation ...to the solution. The resulting consumption function is often dramatically different than the certainty equivalence solution typically used, in which consumption is proportional to the sum of financial wealth and the present value of expected future income. The results help explain three important empirical consumption puzzles: excess sensitivity of consumption to transitory income, high growth of consumption in the presence of a low risk-free interest rate, and underspending of the elderly.
Self‐control, mental accounting, and framing are incorporated in a behavioral enrichment of the life‐cycle theory of saving called the Behavioral Life‐Cycle (BLC) hypothesis. The key assumption of ...the BLC theory is that households treat components of their wealth as nonfungible, even in the absence of credit rationing. Specifically, wealth is assumed to be divided into three mental accounts: current income, current assets, and future income. The temptation to spend is assumed to be greatest for current income and least for future income. Considerable empirical support for the BLC theory is presented, primarily drawn from published econometric studies.
This article reexamines the consistency of the permanent-income hypothesis with aggregate postwar U.S. data. The permanent-income hypothesis is nested within a more general model in which a fraction ...of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50%, indicating a substantial departure from the permanent-income hypothesis. Our results cannot be easily explained by time aggregation or small-sample bias, by changes in the real interest rate, or by nonseparabilities in the utility function of consumers.
This paper investigates empirically a model of aggregate consumption and leisure decisions in which utility from goods and leisure is nontime-separable. The nonseparability of preferences ...accommodates intertemporal substitution or complementarity of leisure and thereby affects the comovements in aggregate compensation and hours worked. These cross-relations are examined empirically using postwar monthly U. S. data on quantities, real wages, and the real return on the one-month Treasury bill. The estimated values of the parameters governing preferences differ significantly from the values assumed in several studies of real business models. Several possible explanations of these discrepancies are discussed.
The fact that most elderly U. S. individuals maintain a flat age-wealth profile, rather than buy individual life annuities, contradicts the standard life-cycle consumption model. Average expected ...yields on individual life annuities in the United States during 1968–1983 were lower by 4.21–6.13 percent, or 2.43–4.35 percent after allowing for adverse selection, than yields on plausible alternative investments. Simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive. At older ages the combination of such yield differentials and a bequest motive can do so. It is common experience that as we grow older and nearer to eternity we become more, not less, anxious about money Derek Brewer, Chaucer and His World, p. 213.
Why is Consumption So Smooth? Campbell, John; Deaton, Angus
Review of economic studies/The review of economic studies,
07/1989, Volume:
56, Issue:
3
Journal Article
Peer reviewed
Open access
For thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income. This paper considers the evidence for the contrary position, that permanent ...income is in fact less smooth than measured income, so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory. The paper argues that in postwar U.S. quarterly data, consumption is smooth because it responds with a lag to changes in income.
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