It is demonstrated that the econometric problem of estimating hedonic demand parameters is not a standard identification problem caused by demand-supply interaction, as has been assumed. Estimation ...methods based on this assumption lead to biased results. The hedonic estimation problem is, instead, brought about by the endogeneity of both prices and quantities when households face a nonlinear budget constraint. An instrumental variables solution to this problem is proposed using instruments that exogenously shift the budget constraint. Previously offered instruments do not do so. The practical problem for empirical hedonic research is finding instruments whose exogeneity can be supported with some plausibility.
A growing body of evidence indicates that liquidity constraints could affect a substantial proportion of U. S. consumers, but little is known about why these constraints might exist. An important, ...but little-explored, issue is the relationship between inter vivos intergenerational transfers and liquidity constraints. These transfers can ease borrowing constraints. Empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity-constrained consumers. In particular, the distinction between current and permanent incomes of potential recipients is a key aspect of private-transfer behavior. The findings have important implications for our understanding of consumer behavior.
The paper presents a general theoretical framework for the analysis of integrated life-cycle models of consumption and family labor supply under uncertainty. Profit functions are used to represent ...intertemporally additive preferences and to yield convenient characterizations of "constant marginal utility of wealth" or "Frisch" demand functions. Conditions on preferences derived that allow additive fixed-effect specifications for the Frisch demands. Data from the British Family Expenditure Surveys from 1970-77 are used to derive panel-like information on male labor supply and consumption for several age cohorts over time. These data reproduce standard life-cycle patterns of hours and wages, but more detailed analysis shows that the theory is incapable of offering a satisfactory common explanation of the behavior of hours and wages over both the business cycle and the life cycle. Similarly, although the theory can explain the life-cycle behavior of hours and consumption separately, the same model cannot explain both, essentially because of a failure in symmetry.
We use longitudinal data from the Panel Study of Income Dynamics to assess the economic consequences of divorce and separation for the women and men involved. In contrast to previous studies focusing ...exclusively on those who remain unmarried, our approach integrates the probability of remarriage into the analysis and produces a much less dramatic picture of change in economic status than analyses not incorporating remarriage. However, we also find evidence of selection bias in the subgroup of women who remarry, suggesting that currently unmarried women might not improve their economic status through remarriage as much as women who have remarried.
Intertemporal Substitution in Macroeconomics Mankiw, N. Gregory; Rotemberg, Julio J.; Summers, Lawrence H.
The Quarterly journal of economics,
02/1985, Volume:
100, Issue:
1
Journal Article
Peer reviewed
Open access
Modern neoclassical business cycle theories posit that the observed fluctuations in consumption and employment correspond to decisions of an optimizing representative individual. We estimate three ...first-order conditions that represent three tradeoffs faced by such an optimizing individual. He can trade off present for future consumption, present for future leisure, and present consumption for present leisure. The aggregate U. S. data lend no support to this model. The overidentifying restrictions are rejected, and the estimated utility function is often convex. Even when it is concave, the estimates imply that either consumption or leisure is an inferior good.
This paper examines the impact of Social Security on national saving and individual welfare in the presence of realistic capital market imperfections--market failure in the private provision of ...annuities and restrictions on borrowing against anticipated future wages. The introduction of Social Security increases lifetime welfare and reduces national saving if borrowing restrictions are absent. However, the increase in individual welfare is reduced, and in some cases eliminated, when borrowing constraints are taken into consideration. The substantial difference suggests the importance of reexamining the proportional payroll tax finance of Social Security.
We present an analysis of equilibrium in markets with asymmetrically informed consumers. Some consumers know both price and quality of all sellers, whereas others know neither but may search among ...sellers. The equilibrium correlation between price and quality generally increases with the level of information in the market and can be negative when this level is sufficiently small. A meta-analysis of the available empirical studies strongly supports the model's predictions.
The effects of government spending financed by current-period taxation depend on private-sector perceptions. If the benefits of government spending are ignored, private-sector consumption will ...decrease in accordance with the reduction in permanent disposable income. The work of Bailey (1962, 1971) and Barro (1974) is used to develop an alternative approach to modeling private sector consumption and saving behavior, based on rational evaluation of the consequences of government fiscal policy. Tests are undertaken to distinguish between the consolidated and standard approaches. In the standard approach, perceptions of the private sector are not fully rational with respect to current and future consequences of government fiscal policy. The alternative model is based on a rational consolidation of the public and private sectors. The results from augmented specifications were empirically indistinguishable from those obtained under the consolidated approach.
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