ENVY, LEISURE, AND RESTRICTIONS ON WORKING HOURS

We present a simple model of capital accumulation where agents care about their consumption relative to the consumption of other members of society. This concern with "envy" captures the intuition behind the growing body of empirical evidence that places interpersonal comparisons as a key determinant of well-being. In this context we quantify the extent of the distortions and welfare costs associated with envy. Under conservative estimates of envy we find that the implied welfare losses are substantial. Our analysis explores the implications of alternative policy arrangements designed to minimize the effects of the consumption externality. Our results suggest that if the optimal tax policy is not politically feasible restrictions on working hours provide an alternative tool to induce a market outcome that resembles the efficient allocation achieved under a benevolent central planner.

IMPROVING THE EFFICIENCY AND ROBUSTNESS OF THE SMOOTHED MAXIMUM SCORE ESTIMATOR

The binary-response maximum score (MS) estimator is a robust estimator, which can accommodate heteroskedasticity of an unknown form; J. Horowitz (1992) defined a smoothed maximum score estimator SMS) and demonstrated that this improves the convergence rate for sufficiently smooth conditional error densities. In this paper we relax Horowitz’s smoothness assumptions of the model and extend his asymptotic results. We also derive a joint limiting distribution of estimators with different bandwidths and smoothing kernels. We construct an estimator that combines SMS estimators for different bandwidths and kernels to overcome the uncertainty over choice of bandwidth when the degree of smoothnes of error distribution is unknown. A Monte Carlo study demonstrates the gains in efficiency and robustness.

A QUANTITATIVE EXPLORATION OF THE GOLDEN AGE OF EUROPEAN GROWTH: STRUCTURAL CHANGE, PUBLIC INVESTMENT, THE MARSHALL PLAN AND INTRA-EUROPEAN TRADE

Western European income per capita more than tripled in the two and a half decades that followed World War II. The scholarship has identified several potential factors behind this outstanding growth episode, specifically; the large migrations from agriculture to manufacture that took place in post-war Europe, the contribution of the Marshall Plan combined with the public provision of infrastructure and the surge of intra-European trade. This paper can be viewed as an attempt to formalize and quantify the direct contribution of these factors to the outstanding growth of the European Golden Age. Our conclusions highlight their limitations to fully account for that growth experience.

GROWTH OUTSIDE THE STABLE PATH: LESSONS FROM THE EUROPEAN RECONSTRUCTION

This paper exploits a natural experiment, the large destruction of capital in continental Europe during World War II, to characterize the transitional dynamics of an economy that begins with a capital stock below its steady state level. We use these regularities as a benchmark to discriminate among competing growth specifications. A model that combines non-separabilities in preferences with a technology that restricts the degree of substitutability between inputs outperforms the widely used AK and Cobb-Douglas specifications with time-separable preferences. Our results suggest that policy evaluations based in growth models that overlook non-separabilities in preferences or impose strong restrictions on the technological structure might be grossly misleading.

Structural Change out of Agriculture: Labor Push versus Labor Pull

The process of economic development is characterized by substantial rural-urban migrations and a decreasing share of agriculture in output and employment. The literature highlights two main engines behind this process of structural change: (i) improvements in agricultural technology combined with the effect of Engel's law of demand push resources out of the agricultural sector (the "labor push" hypothesis), and (ii) improvements in industrial technology attract labor into this sector (the "labor pull" hypothesis). We present a simple model that features both channels and use it to explore their relative importance. We evaluate the U.S. time series since 1800 and a sample of 13 industrialized countries starting in the 19th century. Our results suggest that, on average, the "labor pull" channel dominates. This contrasts with popular modeling choices in the recent literature.growth, structural change

Relative Consumption and Resource Extraction

This paper presents a simple model of resource extraction where preferences are household's preferences depend on relative consumption levels. We identify two dimensions along which consumption externalities distort the efficient extraction of resources: (i) the static trade-off between consumption and effort, and (ii) the dynamic trade-off between current and future consumption. In general, households over-exploit the natural resource stocks, resulting in steady state stocks lower than the efficient stocks of resources that would be chosen by a benevolent central planner. We propose a tax mechanism to induce the first best outcome. On présente un modèle d’exploitation d’une ressource naturelle dans lequel les ménages accordent une importance à la consommation relative, soit la différence entre leur consommation et celle de leur groupe de référence. On identifie deux dimensions de distorsion. Premièrement, il y a la distorsion dans le choix du niveau d’effort. Deuxièmement, il y a la distorsion dans le choix entre la consommation présente et la consommation dans le futur. En général, les ménages ont tendance à exploiter les ressources naturelles de facon excessive. Par conséquent, les stocks de ressources à l’état stationnaire sont plus petits que ceux qu’aurait choisis un planificateur central. On propose une règle de taxation qui assure les résultats optimaux.relative consumption, relative income hypothesis, permanent income hypothesis, consommation relative, revenue relative, l’hypothèse de la revenue permanente.

A Quantitative Exploration of the Golden Age of European Growth

Income per capita in some Western European countries more than tripled in the two and a half decades that followed World War II. The literature has identified several factors behind this outstanding growth episode, specifically; structural change associated with large migrations from agriculture to nonagricultural sectors, the Marshall Plan combined with the public provision of infrastructure, the surge of intra-European trade, and the reconstruction process that followed the devastation of the war. This paper is an attempt to formalize and quantify the direct contribution of each one of these factors to growth during the European Golden Age. Our results highlight the importance of reconstruction growth and structural change, and point to the limited role of the Marshall Plan, and the late contribution of intra-European trade.Economic Growth, European Economic History 1913-, Computable General Equilibrium Models.

ENVY AND INEQUALITY

We present an overlapping generations economy populated by heterogeneous agents who care about their consumption relative to others and the bequest they leave to their offspring. In the presence of positional concerns individual saving and bequest rates vary across the income distribution. This dispersion in the rates of asset accumulation is the main channel for envy to impact the degree of intra-generational wealth inequality and its inter-generational transmission. Our results suggest that concerns for relative consumption might be an important explanatory factor for the surprisingly low levels of assets held by low-income households and the high concentration of bequests in the upper tail of the wealth distribution.

A MIXED BENTHAM-RAWLS CRITERION FOR INTERGENERATIONAL EQUITY: THEORY AND IMPLICATIONS

Ranking development programs using integrals of discounted utilities can yield drastic consequences that offend our sense of justice. New alternative social welfare criteria should be considered. A reaction to discounted utilitarianism is to moderate its effects by adding to the social welfare function a second term that takes seriously the welfare of the generations that live in the far distant future. Chichilnisky proposes a social welfare function that has two desirable properties: (i) non-dictatorship of the present, and (ii) non-dictatorship of the future. However, in many economic models, there exists no optimal path under the Chichilnisky criterion. We introduce a third desideratum: "non-dictatorship of the least advantaged," and propose a new welfare criterion that is morally compelling. It is a weighted average of two terms: (a) the sum of discounted utilities, and (b) the utility level of the least advantaged generation. We derive necessary conditions to characterize growth paths that satisfy our criterion, and show that in some models with familiar dynamic specifications, an optimal path exists and displays appealing characteristics.

A Permanent Income Version of the Relative Income Hypothesis

We propose an overlapping generations economy where households care about relative consumption, the difference between their consumption and the consumption of their reference group. An individual's consumption is driven by the comparison of his lifetime income and the lifetime income of his reference group; hence the paper offers a permanent income version of the Duesenberry's relative income hypothesis. Across households the saving ratio increases with income while aggregate saving is independent of the income distribution. Positional concerns lead agents to over-consume, over-work and under-save. We propose a simple tax schedule that induces the competitive economy to achieve the efficient allocation.relative consumption, relative income hypothesis, permanent income