Endogeneity in nonparametric and semiparametric regression models

This paper considers the nonparametric and semiparametric methods for estimating regression models with continuous endogenous regressors. We list a number of different generalizations of the linear structural equation model, and discuss how two common estimation approaches for linear equations-the "instrumental variables" and "control function" approaches-may be extended to nonparametric generalizations of the linear model and to their semiparametric variants. We consider the identification and estimation of the "Average Structural Function" and argue that this is a parameter of central interest in the analysis of semiparametric and nonparametric models with endogenous regressors. We consider a particular semiparametric model, the binary response model with linear index function and nonparametric error distribution, and describes in detail how estimation of the parameters of interest can be constructed using the "control function" approach. This estimator is applied to estimating the relation of labor force participation to nonlabor income, viewed as an endogenous regressor.

Wealth inequality in the United States and Great Britain

In this paper we describe the household wealth distribution in the US and UK, and compare both wealth inequality and the form in which wealth is held. Unconditionally, there are large differences in financial wealth between the two countries at the top fifth of the wealth distribution. And even after controlling for age and income differences between the two countries, we show that the median US household accumulates more financial wealth than their UK counterpart. We explore a number of alternative reasons for these differences and reject some explanations as implausible. These include differential receipt of financial inheritances or desired bequests, and differential average rates of return to corporate equity or housing. While less certain, we also argue that the differences that are concentrated among the older well-to-do are not likely due to differences in income or employment risks, savings for college expenses, or changes in permanent income. Some of the observed differences are due to what we refer to as "initial conditions", in particular previously high rates of corporate equity ownership in the US and housing ownership among young British households. But since these differences existed even in the early 1980s, initial conditions only provide a partial explanation. One further possibility may be that due to forced and voluntary annuitization of retirement incomes, older British households face considerably less longevity risk. Looking more widely, however, we find wealth held in different forms across the two countries, in particular in housing, which to some extent offsets the differences we observe in financial wealth patterns. We therefore point out that it is important that comparative studies compare genuine economic phenomena (such as the ability to smooth consumption) rather than particular economic measurements (such as the level of wealth in any one particular form). We also argue that it is crucial that comparative exercises of this form acknowledge the importance of institutional differences across countries, and in this particular comparison the role of housing markets, annuity markets and stock markets appear crucial and all merit further more detailed research. On balance, we are encouraged by the degree to which a detailed investigation can point to potential explanations of observed wealth differences between the two countries, and such an investigation will also lead to a deeper understanding of the household wealth accumulation process more generally.

Housing Price Volatility and Downsizing in Later Life

In this paper, we modeled several types of housing transitions of the elderly in two countries -- Britain and the United States. One important form of these transitions involves downsizing of housing consumption, the importance of which among older households is still debated. This downsizing takes multiple forms, including reductions in the number of rooms per dwelling and the value of the home. There is also evidence that this downsizing is greater when house price volatility is greater and that American households try to escape housing price volatility by moving to places that are experience significantly less housing price volatility. Our comparative evidence in suggests that there is less evidence of downsizing in Britain. Our results indicate that housing consumption appears to decline with age in the US, even after controlling for the other demographic and work transitions associated with age that would normally produce such a decline. No such fall in housing consumption is found in Britain, largely because British households are much more likely to stay in their original residence.

Housing Mobility and Downsizing at Older Ages in Britain and the United States

This paper investigates the effects of housing price risk on housing choices over the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, the fact that most people will eventually own their home creates an insurance demand for housing assets early in life. Our contribution is to focus on the importance of home ownership and housing wealth as a hedge against future house price risk for individuals moving up the ladder – people living in places with higher housing price risk should own their first home at a younger age, should live in larger homes, and should be less likely to refinance. These predictions are tested and shown to hold using panel data from the United States and Great Britain.downsizing, migration

House Price Volatility and the Housing Ladder

This paper investigates the effects of housing price risk on housing choices over the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, the fact that most people will eventually own their home creates an insurance demand for housing assets early in life. Our contribution is to focus on the importance of home ownership and housing wealth as a hedge against future house price risk for individuals moving up the ladder – people living in places with higher housing price risk should own their first home at a younger age, should live in larger homes, and should be less likely to refinance. These predictions are tested and shown to hold using panel data from the United States and Great Britain.downsizing, migration

State pensions and the well-being of the elderly in the UK

This paper presents the trends seen over the last quarter of the 20th Century in various indicators of the well-being of the elderly alongside those seen for the young. Specifically we look at measures of both the level and distribution of income and expenditure, and self-reported measures of life satisfaction and health. We then exploit the substantial reforms to the UK pension system over this period to examine the impact of reforms to state pensions on these outcomes. We find that increases in the generosity of state pensions have led to increased incomes of the elderly and reductions in measures of both relative and absolute income poverty. We also find that increased state pensions have led to increased expenditure by the elderly. It is perhaps not surprising that in the UK the reforms to the generosity of state pensions have affected outcomes among the elderly (instead of being fully offset by individuals when they were younger) given that often very little (pre-retirement) notice was given, and that some of the reforms were of a substantial magnitude.