Income Smoothing and Self Control: The Case of Schoolteachers

Close to half the California school districts let teachers choose whether to receive their salaries ten monthly payments or in twelve. Fisherine intertemporal maximization implies that they should choose ten payments and earn interest on their savings for their summer. But about half choose twelve installments , even though when summed over a reasonable period the foregone interest is considerable. This can be explained by the cost of exercising self control and by Laibson’s model of hyperbolic discounting. A survey of teachers supports this interpretation.Self Control, Intertemporal Utility Maximization

Simple Inference on Functionals of Set-Identified Parameters Defined by Linear Moments

This paper considers uniformly valid (over a class of data generating processes) inference for linear functionals of partially identified parameters in cases where the identified set is defined by linear (in the parameter) moment inequalities. We propose a bootstrap procedure for constructing uniformly valid confidence sets for a linear functional of a partially identified parameter. The proposed method amounts to bootstrapping the value functions of a linear optimization problem, and subsumes subvector inference as a special case. In other words, this paper shows the conditions under which ``naively'' bootstrapping a linear program can be used to construct a confidence set with uniform correct coverage for a partially identified linear functional. Unlike other proposed subvector inference procedures, our procedure does not require the researcher to repeatedly invert a hypothesis test, and is extremely computationally efficient. In addition to the new procedure, the paper also discusses connections between the literature on optimization and the literature on subvector inference in partially identified models

Catastrophe Insurance, Capital Markets and Uninsurable Risks

This paper examines the causes of the failure of the private market for catastrophe insurance and examines some public solutions. Although the standard explanations of insurance market failure (adverse selection and moral hazard, large imprecise risks) are present, we argue that the primary explanation for the failure of this market lies in the inability of insurance companies to arrange for the level of capital necessary to settle a large loss. We examine four reasons for this: a) accounting provisions which preclude the setting up of reserves against losses anticipated but not yet incurred, b) the absence of tax incentives to reserve, c) management fear of loss of control associated with takeovers of companies with large stocks of free cash, and d) reluctance of regulators to raise the rates of firms with large holdings of cash. We examine new capital instruments (catastrophe options, contingency bonds) but find that these new instruments at present fail to provide adequate quantities of capital to meet a large loss. We then examine public schemes in California, Florida, and Hawaii, and argue that if the accounting, tax and regulatory advantages enjoyed by these schemes were made available to the private sector, private corporations would be likely to reenter this market. This paper was presented at the Financial Institutions Center's May 1996 conference on "

Pseudo-Goldstones from Supersymmetric Wilson Lines on 5D Orbifolds

We consider a U(1) gauge theory on the five dimensional orbifold $\mathcal{M}_4\times S^1/Z_2$, where $A_5$ has even $Z_2$ parity. This leads to a light pseudoscalar degree of freedom $W(x)$ in the effective 4D theory below the compactification scale arising from a gauge-invariant brane-to-brane Wilson line. As noted by Arkani-Hamed et al in the non-supersymmetric $S^1$ case the 5D bulk gauge-invariance of the underlying theory together with the non-local nature of the Wilson line field leads to the protection of the 4D theory of $W(x)$ from possible large global-symmetry violating quantum gravitational effects. We study the $S^1/Z_2$ theory in detail, in particular developing the supersymmetric generalization of this construction, involving a pseudoscalar Goldstone field (the `axion') and its scalar and fermion superpartners (`saxion' and `axino'). The global nature of $W(x)$ implies the absence of independent Kaluza-Klein excitations of its component fields. The non-derivative interactions of the (supersymmetric) Wilson line in the effective 4D theory arising from U(1) charged 5D fields $\Phi$ propagating between the boundary branes are studied. We show that, similar to the non-supersymmetric $S^1$ case, these interactions are suppressed by $\exp(-\pi R m_{\Phi})$ where $\pi R$ is the size of the extra dimension.Comment: LaTex, 16 page

Economic freedom and employment growth in U.S. states

The authors extend earlier models of economic growth and development by exploring the effect of economic freedom on U.S. state employment growth. They find that states with greater economic freedom—defined as the protection of private property and private markets operating with minimal government interference—experienced greater rates of employment growth. In addition, they find that less-restrictive state and national government labor market policies have the greatest impact on employment growth in U.S. states. Beyond labor market policies, state employment growth is influenced by state and local government policies, but not the policies of all levels of government, including the national government. Their results suggest that policymakers concerned with employment should seriously consider the degree to which their own labor market policies and those of the national government may be limiting economic growth and development in their respective states.Economic development ; Employment