Gender differences in self‐employment

This paper examines the factors that influence transitions into self‐employment, paying particular attention to gender differences. We find that: (i) men are more responsive to the wage differential between wage/salaried employment and self‐employment; (ii) liquidity constraints are more important for men; and (iii) the link between father's self‐employment status and the probability of self‐employment is stronger for men. Taken together, these results suggest that, for women, self‐employment is a closer substitute for part‐time work and labour‐market inactivity than it is for men. We attribute such differences to the different labour market opportunities and occupational strategies of women.     

Time variation in the cointegrating relationship between stock prices and economic activity

The present paper examines whether there exists a long‐run cointegrating relationship between a stock market index and output and interest rates. Moreover, estimation is conducted over the full sample and both a recursive and rolling sample to examine any time variation in the nature of the relationship. The results support evidence of a single cointegrating vector, where stock prices typically exhibit a positive relationship with industrial production and a negative relationship with interest rates. However, there is significant time variation and periods of time where contrary results are observed. As such any model of stock prices needs to account for such time variation     

Employment shifts, economic reform and the changes in public/private sector wages in Mexico: 1987–1997

Over the last decade, the public sector in Mexico experienced substantial fiscal reform, divestiture of public enterprises, and the elimination of many regulations affecting pay and employment. This study analyzes the changes in the public/private sector differences in wages during the 1987–1997 period. The results from analyzing microdata from the Encuesta Nacional de Empleo Urbano show that relative public sector wages increased from 1987 to 1997. Most of the relative wage increase in the public sector can be explained by increases in the price of skills and by changes in sorting across sectors. The results have important public policy implications since they suggest that public sector workers earn more and their wages have grown faster than those of their private sector counterparts. As such, policies contemplating public sector reform should take into account the effect of these measures on the inter-sectoral income distribution and the overall economic growth. First version received: April 2000/Final version received: December 2000     

Contract renegotiation in a continuous state space

Summary. When players are unable to write complete state contingent contracts it is shown, within the context of a non-cooperative contracting-renegotiation game, that the only subgame perfect equilibrium allocations are those that correspond to the set of first-best allocations. Players are able to implement this set of allocations by signing an initial contract that is subsequently renegotiated in all states of the world. The contracting-renegotiation problem is complicated in an interesting way by assuming that the state space is continuous. The issue of the existence of an initial contract, that is subsequently renegotiated to the set of first-best allocations, must be resolved. Unlike Aghion, Dewatripont and Rey [1994], the results here do not require nor depend upon the comonotonicity of the objective functions. Received: January 27, 1995; revised version July 1, 1996     

Testing separability of public consumption in household decisions

In this paper we propose a sequential strategy, based on the microeconomic approach of the demand theory, in order to test for separability between private and public consumption. The aim of the present work is to verify, using a conditional almost ideal demand system, whether the different components of public consumption exert conditioning effects on the allocative structure of private spending. The empirical estimation of the model and the separability tests are developed for both a demand system in five functional categories of private spending, and for a demand system in six categories, where the private expenditures on those goods and services which can also be offered by the public sector are enclosed in a single functional category. The results of the separability tests, obtained using UK data for the 1974–2000 period, show that public individual consumption plays an important role in modifying consumer choices, while public collective consumption does not affect private consumption behaviours. The relationships between the different components of private spending and public individual consumption are both of substitutability and complementarity; in particular, we find that public individual consumption and the corresponding private expenditures on ‘Health, education, recreation and social protection’ are complements.     

Sample attrition and labor force dynamics: Evidence from the Spanish labor force survey

In this paper we examine a number of issues that arise in investigating labor force dynamics using the Spanish Labor Force Survey (EPA). These issues are by no means specific to the Spanish case and apply to most European-style labor force surveys. Our main conclusions may be summarized as follows. First, survey nonresponse cannot be neglected. Second, the EPA tends to underestimate employment and participation of high-educated young people, and to overestimate those of the low-educated elderly. Finally, we find little evidence that attrition causes important selection biases in estimating quarterly transition probabilities.     

Tradeable permits,missing markets,and technology

This paper examines the effects of missing markets, heterogeneous pollutants, and the pollution technology of firms on the efficacy of transferable pollution permits. Under the assumption of perfect competition in all markets, we show that if firms can substitute among pollutants, then setting the optimal number of permits for only one pollutant will not, in general, lead to an efficient outcome. The degree of the inefficiency will depend on the information set available to the regulator and the substitutability among pollutants by firms. When establishing transferable pollution rights regulators should, therefore, consider the technology of firms. If firms discharge pollutants in the same fixed proportions, then the regulator need only set a market for one of the pollutants to ensure an efficient outcome. Where firms can substitute among pollutants, however, establishing a market for only one pollutant provides an incentive for firms to substitute to unregulated ones. This is an important policy issue as substitutability among pollutants within and across production processes may dampen the dynamic advantages of a tradeable permit policy.     

Price determination and dynamic adjustments: An inverse demand system approach to meat products in the United States

In this study the process of retail meat price determination is depicted in the form of an inverse demand system taking into consideration the dynamic adjustments present in monthly consumption data. The general dynamic framework identifies both long run and short run effects in a systematic manner and allows direct estimation of the long run price and scale flexibilities that are consistent with theory. The empirical application based on monthly U.S. meat products data provides reasonable and promising results.The authors are senior econometrician, Department of Risk Management, TRS, American Express Co., Phoenix, and assistant professor, Department of Applied Economics, University of Minnesota, St. Paul, respectively. The work was performed when the first author was an assistant research scientist at the Center for Agricultural and Rural Development, Department of Economics, Iowa State University, Ames. Journal Paper No. J-15784 of the Iowa Agriculture and Home Economics Experiment Station, Ames, Iowa. Project No. 3109.     

Stock prices,production and interest rates: Comparison of three European countries with the USA

This paper investigates the relationships between stock returns, changes in production, and changes in interest rates in three European countries: France, Germany, and the United Kingdom. The results obtained using annual data are much more conclusive than those obtained using quarterly data. Stock returns are affected by current changes in interest rates and by future changes in production. The dependence on changes in interest rates seems to be higher than on changes in production. Furthermore, the influence of future changes in production on stock returns diminishes substantially when contemporaneous changes in interest rates are taken into account. With reference to these points, the European markets behave in a similar fashion, but are in sharp contrast with the U.S. market.I am very grateful to Kay Davidson, Patric Hendershott and two anonymous referees for useful comments and suggestions. I am solely responsible for all remaining errors.     

Option pricing in the presence of natural boundaries and a quadratic diffusion term

This paper uses a probabilistic change-of-numeraire technique to compute closed-form prices of European options to exchange one asset against another when the relative price of the underlying assets follows a diffusion process with natural boundaries and a quadratic diffusion coefficient. The paper shows in particular how to interpret the option price formula in terms of exercise probabilities which are calculated under the martingale measures associated with two specific numeraire portfolios. An application to the pricing of bond options and certain interest rate derivatives illustrates the main results.