TIME‐INCONSISTENCY AND WELFARE PROGRAM PARTICIPATION: EVIDENCE FROM THE NLSY*

We empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time‐inconsistent preferences. Using panel data on the choices of single women with children from the National Longitudinal Surveys (NLSY) 1979, we provide estimates of the degree of time‐inconsistency, and of its influence on the welfare take‐up decision. With these estimates, we conduct counterfactual experiments to quantify a measure of the utility loss stemming from the inability to commit to future decisions, and the potential gains from commitment mechanisms such as welfare time limits and work requirements.     

TURNPIKE PROPERTIES OF A MONEY‐IN‐THE‐UTILITY‐FUNCTION MODEL*

This study establishes the global stability of a long‐run stationary state in a money‐in‐the‐utility‐function model. The major finding is that the constant money supply rule results in a stable allocation and price system if consumers discount their future utilities sufficiently weakly. Nominal and real interest rates will be in the neighbourhood of the inverse of the consumers’ discount factor β^‐1.     

A CLASS OF PERFORMANCE‐BASED SUBSIDY RULES*

We consider a benchmark static incentive scheme, i.e. a per unit subsidy, that induces a monopoly to produce a target output level. We show that the same output level can be achieved by a continuum of dynamic subsidy rules based on a performance indicator. The rules require only local information. The present value of the subsidies paid is smaller than the amount paid under the static subsidy. Each of the dynamic subsidy rules results at each moment in a lower per unit subsidy than the static subsidy. The subsidy rate depends on a state variable that reflects the monopolist's performance history.     

A MODEL OF SELF‐FULFILLING FINANCIAL CRISES*

This paper combines the structural weakness and the self‐fulfilling panic view to explain the cause of the East Asian crises. In this model economy, the diversification strategies induce conglomerate firms to overinvest. They accumulate losses due to their unprofitable sectors and then compensate by obtaining bank loans. Domestic banks, which borrow from foreign banks, lend money as long as the total amount of accumulated loans remains within the firms’ collateral value. The model shows that if the debt to collateral value ratio belongs to a certain range a self‐fulfilling crisis can occur due to the self‐fulfilling expectations of foreign investors.     

SOME OBSERVATIONS ON THE HIGH‐FREQUENCY VERSIONS OF A STANDARD NEW‐KEYNESIAN MODEL

In a small‐scale New‐Keynesian model with a hybrid Phillips curve and IS equation, the paper is concerned with an arbitrary frequency of the agents’ synchronized decision making. It investigates the validity of a fundamental methodological precept according to which no substantive prediction or explanation of a well‐defined macroeconomic period model should depend on the real time length of the period. While this principle is basically satisfied as the period goes to zero, the impulse – response functions of the high‐frequency versions can qualitatively as well as quantitatively be fairly dissimilar from their quarterly counterpart. The result proves to be robust under variations of the degree of price stickiness. The main conclusion is that DSGE modelling may be more sensitive to its choice of the agents’ decision interval.     

MID‐DAY MEAL PROGRAM AND INCIDENCE OF CHILD LABOUR IN A DEVELOPING ECONOMY

The present paper purports to examine the consequence of a mid‐day meal program and/or cash stipend scheme on the incidence of child labour in a developing economy using a three‐sector general equilibrium model. It has been found that the policy may be counterproductive as it lowers both the initial incomes of the working families and the return on education. Direct cash payments to the working families instead of a mid‐day meal program are likely to be effective in eradicating the problem of child labour.     

FIXED‐WAGES,WAGE DIFFERENTIALS AND WORKER HETEROGENEITIES

We study incentive‐compatible labour contracts in the case where individual productivity, preference for leisure and time preference rate are unobservable by the principal in a two‐period model. We first reduce this three‐dimensional problem to a standard one‐dimensional screening problem. Features of second‐best labour contracts provide a rationale for both fixed‐wages and wage differentials.     

DYNAMIC CONTRACTS WITH WORKER MOBILITY VIA DIRECTED ON‐THE‐JOB SEARCH

This article proposes a model with dynamic incentive contracts and on‐the‐job search in a frictional labor market. The optimal long‐term contract exhibits an increasing wage–tenure profile. With increasing wages, worker effort also increases with tenure. These two features imply that the probabilities of both voluntary and involuntary job separation decrease with both job tenure and the duration of employment. Given these results, workers experience differing labor market transitions—between employment, unemployment, and across different employers—and the equilibrium generates endogenous heterogeneity among ex ante homogeneous workers.     

CROSS‐HEDGING OF EXCHANGE RATE RISKS: A NOTE*

This note studies the optimal production and hedging decisions of a competitive international firm that exports to two foreign countries. The firm faces multiple sources of exchange rate uncertainty. Cross‐hedging is plausible in that one of the two foreign countries has a currency forward market. We show that the firm's optimal forward position is an over‐hedge, a full‐hedge or an under‐hedge, depending on whether the two random exchange rates are strongly positively correlated, uncorrelated or negatively correlated, respectively.     

A COMPARISON OF CONDITIONAL AND UNCONDITIONAL APPROACHES IN VALUE‐AT‐RISK ESTIMATION*

In this paper, we attempt to find the most important factor causing the differences in the performance of Value‐at‐Risk (VaR) estimation by comparing the performances of conditional and unconditional approaches. For each approach, we use various methods and models with different degrees of flexibility in their distributions including S_U‐normal distribution, which is one of the most flexible distribution functions. Our empirical results underscore the importance of the flexibility‐of‐distribution function in VaR estimation models. Even though it seems to be unclear which approach is better between conditional and unconditional approaches, it seems to be clear that the more flexible distribution we use, the better the performance, regardless of which approach we use.     

AN ANALYSIS OF DURATION ON THE DISABILITY SUPPORT PENSION PROGRAM*

The paper examines the factors that determine the duration on the Disability Support Pension (DSP) program using administrative data. We estimate two models based on two competing assumptions: the first model takes the standard assumption in duration models that all recipients will eventually leave the program. The second one takes into account the possibility that there may be some recipients who will never recover from their disabilities and hence not leave the program. Both models indicate that female recipients, recipients who enter DSP at a very young or very old age, recipients with a partner on income support, and recipients who transfer from unemployment benefits have the potential of a longer DSP duration.