Nursing home choice,family bargaining,and optimal policy in a Hotelling economy

We develop a model of family bargaining to study the impact of the distribution of bargaining power within the family on the choice of nursing homes by families, and on the locations and prices chosen by nursing homes in a Hotelling economy. In the baseline (static) model, where the dependent parent cares only about the location of the nursing home, the markup of nursing homes is increasing in the bargaining power of the dependent parent, and nursing homes are located at the extreme periphery. We compare the laissez‐faire with the social optimum (which involves more central locations of nursing homes), and examine its decentralization in first‐best and second‐best settings. We explore the robustness of our results to introducing a bequest motive in a dynamic overlapping generations model, which allows us to study the joint dynamics of wealth accumulation and nursing home prices. If the bequest motive is strong, the markup is decreasing in the bargaining power of the dependent. However, wealth accumulation, by reducing interest rates, raises markup rates and nursing homes prices.     

Differential mortality and social security

Abstract This paper studies the normative problem of redistribution between individuals who differ in their lifespans. We discuss aspects related to the objective function and argue that aversion to multiperiod inequality should be taken into account. Then, we study the properties of the social optimum both with full information and with asymmetric information. We highlight the role of aversion to multiperiod inequality and show that it has substantial consequences on the design of Social Security schemes. In particular, we show that for a low (resp. high) aversion to multiperiod inequality, a negative (resp. positive) implicit tax rate on continued activity is desirable.     

Endogenous differential mortality,non-contractible effort and non-linear taxation

This paper studies a problem of non-linear taxation when individuals have different longevities resulting from a non-monetary effort (like exercising). We first present the laissez-faire and the first best. Like Becker and Philipson (J. Polit. Econ. 106(3):551–573, 1998), we find that the laissez-faire level of effort is too high compared with the first best, because individuals do not internalize the impact of survival on the return of their savings. We also claim that because of its non-monetary form, effort is not contractible. That is why we modify our framework and assume, for the rest of the paper, that effort is determined by the individual while the social planner only allocates consumptions. It turns out that, under full information, a tax on the return of annuitized savings is desirable for both types. This tax is higher for the low-survival individual. Under asymmetric information, the low-survival individual still faces a tax while the high-survival individual might now face a positive or negative tax on annuities. Interestingly, our results depend on the value of life.     

FAIR RETIREMENT UNDER RISKY LIFETIME*

A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime and compare the laissez‐faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare, allowing for a compensation for unequal life expectancies, and (2) the maximin on realized lifetime welfare, allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption profiles as well as raising the retirement age. This result is robust to the introduction of unequal life expectancies and unequal productivities.     

Macroeconomic forecast accuracy in a data‐rich environment

The performance of six classes of models in forecasting different types of economic series is evaluated in an extensive pseudo out‐of‐sample exercise. One of these forecasting models, regularized data‐rich model averaging (RDRMA), is new in the literature. The findings can be summarized in four points. First, RDRMA is difficult to beat in general and generates the best forecasts for real variables. This performance is attributed to the combination of regularization and model averaging, and it confirms that a smart handling of large data sets can lead to substantial improvements over univariate approaches. Second, the ARMA(1,1) model emerges as the best to forecast inflation changes in the short run, while RDRMA dominates at longer horizons. Third, the returns on the S&P 500 index are predictable by RDRMA at short horizons. Finally, the forecast accuracy and the optimal structure of the forecasting equations are quite unstable over time.     

Optimal tax policy and expected longevity: a mean and variance utility approach

This paper studies the normative problem of redistribution between agents who can influence their survival probability through private health spending, but who differ in their attitude towards the risks involved in the lotteries of life to be chosen. For that purpose, a two-period model is developed, where agents’ preferences on lotteries of life can be represented by a mean and variance utility function allowing, unlike the expected utility form, some sensitivity to what Allais (Econometrica 21(4), 503–546, 1953) calls the ‘dispersion of psychological values’. It is shown that if agents ignore the impact of health spending on the return of their savings, the decentralization of the first-best utilitarian optimum requires intergroup lump sum transfers and group-specific positive taxes on health spending. Under asymmetric information, a differentiated taxation across agents is still required, but subsidizing health spending may be optimal as a way to solve the incentive problem.     

Choosing and sharing

Implementing a project, like a nationwide nuclear waste disposal, which benefits all involved agents but brings major costs only to the host is often problematic. In practice, revelation issues and redistributional concerns are significant obstacles to achieving stable agreements. We address these issues by proposing the first mechanism to select the efficient site (the host with the lowest cost) while simultaneously allowing for the implementation of any individually rational division of the whole hosting cost. The subgame perfect Nash equilibria of our simple mechanism are efficient, budget-balanced and individually rational. Moreover, the truthful equilibrium is immune to coalitional deviations.     

Other determinental conditions for concavity and quasi-concavity

In the case of twice differentiable functions, the most usual tests of concavity and quasi- concavity are those concerning the monotonicity (with respect to l) property of the signs of the lth principal minors or the lth principal bordered minors of the hessian matrix. These tests are irreducible one with the other. However, we show that the symmetry of the procedures and the relationship between principal and principal bordered minors provides the possibility of a bridge between them and then an appreciable reduction of computation. Such a bridge is offered by the Sylvester identity. Then, new determinental criteria of concavity and quasi-concavity follow.