Initial Endowments Research Articles

Health at Birth, Parental Investments, and Academic Outcomes

This paper explores the relationship among health at birth, academic outcomes, and the potential role of parental investments using administrative panel data from Chile. Using detailed data on parental investments, we find that investments are compensatory regarding initial health, but not across twins. Twins fixed effects models estimate a persistent effect of birth weight on academic achievement, while ordinary least squares and siblings fixed effects models find this relationship to decline over time. We view these findings in the context of a model of human capital accumulation where parental investments respond to initial endowments and spill over to siblings.

Land markets and the distribution of land in northwestern Tanzania

Land market transactions can have potentially divergent effects on the distribution of land. While they may lead to a concentration of land in the hands of a wealthy minority, the market can also serve as an alternative avenue of land access for those with a limited inheritance. This paper explores the distributional implications of land sales and rental markets in northwestern Tanzania. Using household-level data collected in 2014, we find that households use the land market (particularly the sales market) to adjust their farm size to compensate for a small inheritance, while households with a larger initial endowment are more likely to dispose of land, including through the market. Our results suggest that the local land market, characterized by widespread participation, ultimately increases the equitability of land distribution.

Parental preferences and allocations of investments in children's learning and health within families

Empirical evidence suggests that parental preferences may be important in determining investment allocations among their children. However, there is mixed or no evidence on a number of important related questions. Do parents invest more in better-endowed children, thus reinforcing differentials among their children? Or do they invest more in less-endowed children to compensate for their smaller endowments and reduce inequalities among their children? Does higher maternal education affect the preferences underlying parental decisions in investing among their children? What difference might such intrafamilial investments among children make? And what is the nature of these considerations in the very different context of developing countries?This paper gives new empirical evidence related to these questions. We examine how parental investments affecting child education and health respond to initial endowment differences between twins within families, as represented by birth weight differences, and how parental preference tradeoffs and therefore parental investment strategies vary between families with different maternal education. Using the separable earnings-transfers model (Behrman et al., 1982), we first illustrate that preference differences may make a considerable difference in the ratios of health and learning differentials between siblings – up to 30% in the simulations that we provide. Using a sample of 2000 twins, collected in the 2012 wave of the Early Childhood Longitudinal Survey for Chile, we find that preferences are not at the extreme of pure compensatory investments to offset endowment inequalities among siblings nor at the extreme of pure reinforcement to favor the better-endowed child with no concern about inequality. Instead, they are neutral, so that parental investments do not change the inequality among children due to endowment differentials. We also find that there are not significant preference differences between families with low- and high-educated mothers. Our estimates are consistent with previous empirical evidence that finds that parents do not invest differentially within twins.

Estimation of grouped, time-varying convergence in economic growth

Classical growth convergence regressions fail to account for various sources of heterogeneity and nonlinearity. Recent contributions advocating nonlinear dynamic factor models remedy these problems by identifying group-specific convergence paths. Similar to statistical clustering methods, those results are sensitive to choices made in the clustering/grouping mechanism. Classical models also do not allow for a time-varying influence of initial endowment on growth. A novel application of a nonparametric regression framework to time-varying, grouped heterogeneity and nonlinearity in growth convergence is proposed. The approach rests upon group-specific transition paths derived from a nonlinear dynamic factor model. Its fully nonparametric nature avoids problems of neglected nonlinearity while alleviating the problem of underspecification of growth convergence regressions. The proposed procedure is backed by an economic rationale for leapfrogging and falling-back of countries due to the time-varying heterogeneity of number, size, and composition of convergence groups. The approach is illustrated by using a current Penn World Table data set. An important aspect of the illustration is empirical evidence for leapfrogging and falling-back of countries, as nonlinearities and heterogeneity in convergence regressions vary over time.

Is rentier capitalism that bad? Rent, efficiency and inequality dynamics

The current economic context shows a tendency to inequality and rather weak growth. Rent-seeking behavior is often blamed for that. The purpose of this paper is to analyze the consequences, on the accumulation trajectory, of the existence of a rent levied by the rich on the poor. The model is inspired by the articles Stiglitz 1969, Schilcht 1975 and Bourguignon 1981. In particular, convex saving is used. We seek to see to what extent the introduction of a rent may call into question the Pareto-superiority of inequality proved by Bourguignon 1981 or alter the risk of decline highlighted in Mabrouk 2016. Within the limits of the assumptions of the model and of the numerical simulations carried out, we arrive at interesting and rather unexpected observations. Namely, a moderate rent levied by the rich on the poor may not only allow a Pareto-improvement of the economy and prevent the risk of decline, but also, it may unlock the economy from under-accumulation trap even if initial capital endowment is insufficient. The disadvantages of such a rent for the poor are felt only if the economy approaches or exceeds the golden rule where the net marginal productivity of capital is zero.

Time to share the load: gender differences in household responsibilities and business profitability

This paper uses data from 2408 micro and small businesses in Ecuador to study business profit differentials by gender. The results point to unpaid work—time devoted to household chores, child care, and care for the elderly—as the largest single factor explaining 33% of the difference in profits observed between male- and female-run businesses. When comparing male and female business owners with similar business and personal characteristics, the difference in business profits disappears. The results point to initial endowments, rather than returns on those endowments, as the reason why female-run businesses are less profitable. Also, they indicate that male and female entrepreneurs are equally effective as managers provided they have access to the same resources, including time.

Value-added in higher education: ordinary least squares and quantile regression for a Colombian case

Colombia applies two mandatory National State tests every year. The first, known as Saber 11, is applied to students who finish the high school cycle, whereas the second, called Saber Pro, is applied to students who finish the higher education cycle. The result obtained by a student on the Saber 11 exam along with his/her gender, and socioeconomic stratum are our independent variables while the Saber Pro outcome is our dependent variable.We compare the results of two statistical models for the Saber Pro exam. The first model, multi-lineal regression or ordinary least squares (OLS), produces an overall well fitted result but is highly inaccurate for some students. The second model, quantile regression (QR), weight the population according to their quantile groups. OLS minimizes the errors for the students whose Saber Pro result is close to the mean (a process known as estimation in the mean) while QR can estimate in the -quantile for every . We show that QR is more accurate than OLS and reveal the unknown behavior of the socioeconomic stratum, the gender, and the initial academic endowments (estimated by the Saber 11 exam) for each quantile group.

Medium and Long Run Implications of Financial Integration Without Financial Development

We show that, in a two-country model where the two economies differ in their level of financial market development and initial capital endowment, financial integration has sizeable transitory as well as permanent effects. We confirm that, consistent with the Lucas paradox, financial integration in the medium term can reduce capital accumulation and increase savings in the financially less developed country, characterized by domestic capital market distortions, due to a higher risk premium in production activities. In the long run, however, integration produces higher levels of capital than in the autarky steady state. The opposite happens to the financially advanced economy, where integration initially boosts consumption and leads to a lower saving rate, and in the long run causes a reduction in capital compared with the autarky steady state. Two forces drive these results: precautionary saving and the propensity to move resources from risky capital to safe assets until the risk-adjusted return on capital equalizes the risk-free interest rate; assuming a constant relative risk aversion (CRRA) utility function, these forces are both decreasing in wealth.

Existence of a competitive equilibrium when all goods are indivisible

This paper investigates an economy where all consumption goods are indivisible at the individual level, but perfectly divisible at the overall level of the economy. In order to facilitate trading of goods, we introduce a perfectly divisible parameter that does not enter into consumer preferences — fiat money. When consumption goods are indivisible, a Walras equilibrium does not necessarily exist. We introduce the rationing equilibrium concept and prove its existence. Unlike the standard Arrow–Debreu model, fiat money can always have a strictly positive price at the rationing equilibrium. In our set up, if the initial endowment of fiat money is dispersed, then a rationing equilibrium is a Walras equilibrium. This result implies the existence of a dividend equilibrium or a Walras equilibrium with slack.

Measuring (in a time of crisis) the impact of broadband connections on economic growth: an OECD panel analysis

ABSTRACTTechnological innovation has always been considered a major stimulus for economic growth. High-speed internet access via broadband infrastructure has undergone rapid development since the end of the 1990s, thanks to the deployment of both fixed and mobile technologies. The present study investigates the impact of fixed broadband diffusion as a technological determinant of economic growth on the basis of a panel of 23 OECD countries over 15 years (1996–2010). The time horizon chosen is suitable for verification of the causal effect on growth of the transition from traditional copper to partially fibre networks. Through implementation of a dynamic panel by using the generalized method of moments (GMM) combined with an instrumental variable (IV) two-stage approach, we found a positive correlation between broadband diffusion and economic growth, even after controlling for countries initial endowment of information and communication technologies (ICT) and for the years of economic crisis. Our main finding provides evidence, through a continuous time interpretation of our estimations, of a quantitatively relevant relationship between broadband diffusion and economic dynamics in the short, medium and long runs. Our findings may be useful to policy makers in that they permit forecasting of the benefits of further transition from broadband to ultra-wide broadband networks.

Spatial Modeling in The Coastal Area of East Java Province

The existence of gaps that occur between regions, shows that it is a reasonable process considering that each region has different initial endowment factors. The first step that can be done to controll disparity is know what is the benchmark of the gap. The revenue growth indicator is one of benchmark for measuring regional disparities. The regional output is represented by the gross domestic regional income per capita. Concerning the phenomenon of regional disparity, East Java Province is concentrated in the north-south part, especially in coastal areas is an early indication of the gap. This is what prompted the analysis of predictor factors affecting the disparity in East Java Coastal Areas through a spatial modeling approach. Spatial modeling is done on the consideration that there are different local characteristics or potentials in each regency / city. Factors Economic growth, social factors, and physical development factors are the main factors in this study will be described in derived variables to obtain a clear picture of the influence of each factor to the disparity that occurred in the Coastal Region of East Java Province.

Limited Income Mobility: Empirical Evidence from Korea

Using the Korea Labor and Income Panel Study from 1998 to 2010, we measure income mobility and determinants of income ranks and mobility. Empirical outcomes reveal that income mobility is quite limited for both the poorest and the richest income households. Moreover, a macro economic shock had heterogeneous impacts on each income group and the low-income class was highly vulnerable to it. Given the long-lasting impacts of early stage factors and initial endowment on income, this paper calls for policies to support citizens suffering from illness, family breakdown, poor initial conditions, and aging.

The Trust Broker Game: A Three-Player Trust Game with Probabilistic Returns and Information Asymmetry

This paper experimentally investigates and trustworthiness in a repeated and sequential three-player game with probabilistic returns and information asymmetry. It adds to the existing literature by combining experimental features from recent work in the game. We use random variations in the multiplier value, a third player without an initial endowment, undisclosed termination rules, and variations in information availability related to transactions. Our framework is novel in that the game continues even if the first player transfers no amount to the second player. Using participants from India, the results are broadly consistent with past evidence on the game. All players are more trusting when information of their transfers and earnings are made available to other players. The third player (termed the trust broker) transfers a larger amount when information on transfers is disclosed to other players. We find that information availability leads to a significant increase in the broker’s reciprocity, as defined by the amount that is returned to Player 2. Social desirability, cultural contexts, and learning effects are discussed in terms of scope for future research.

Skewness-adjusted social preferences: Experimental evidence on the relation between inequality, elite behavior, and economic efficiency

In this paper, we model social preferences as a function of the skewness of the distribution of initial endowments. Skewness is a measure of the asymmetry of the distribution of endowments around the mean. We argue that skewness reflects the social distance between ‘elite’ players with high initial endowments and other players with lower endowments, better than variance and concentration measures like the Gini-coefficient. We hypothesize that elite players become more selfish with increasing skewness and therefore contribute less to a public good in the framework of a one-shot non-linear public good game. The results of an experimental test, in which we systematically vary the distribution of endowments between treatments, confirm that the model is able to correctly explain the observed pattern of contribution behavior. We find that cooperation and efficiency are lowest with right-skewed distribution of endowments. Our paper therefore improves the understanding of the behavioral link between inequality and efficiency.

Strategy-proof school choice mechanisms with minimum quotas and initial endowments

We consider a school choice program where minimum quotas are imposed for each school, i.e., a school must be assigned at least a certain number of students to operate. We require that the obtained matching must respect the initial endowments, i.e., each student must be assigned to a school that is at least as good as her initial endowment school. Although minimum quotas are relevant in school choice programs and strategy-proofness is important to many policymakers, few existing mechanisms simultaneously achieve both. One difficulty is that no strategy-proof mechanism exists that is both efficient and fair under the presence of minimum quotas. Furthermore, existing mechanisms require that all students consider all schools acceptable to obtain a feasible matching that respects minimum quotas. This assumption is unrealistic in a school choice program.We consider the environment where a student considers her initial endowment school acceptable and the initial endowments satisfy all the minimum quotas. We develop two strategy-proof mechanisms. One mechanism, which we call the Top Trading Cycles among Representatives with Supplementary Seats (TTCR-SS), is based on the Top Trading Cycles (TTC) mechanism and is significantly extended to handle the supplementary seats of schools while respecting minimum quotas. TTCR-SS is Pareto efficient. The other mechanism, which we call Priority List-based Deferred Acceptance with Minimum Quotas (PLDA-MQ), is based on the Deferred Acceptance (DA) mechanism. PLDA-MQ is fair, satisfies a concept called Priority List-based (PL-) stability, and obtains the student-optimal matching within all PL-stable matchings. Our simulation results show that our new mechanisms are significantly better than simple extensions of the existing mechanisms.

Fair bilateral pricing under funding costs and exogenous collateralization

AbstractBielecki and Rutkowski introduced and studied a generic nonlinear market model, which includes several risky assets, multiple funding accounts, and margin accounts. In this paper, we examine the pricing and hedging of contract from the perspective of both the hedger and the counterparty with arbitrary initial endowments. We derive inequalities for unilateral prices and we study the range of fair bilateral prices. We also examine the positive homogeneity and monotonicity of unilateral prices with respect to the initial endowments. Our study hinges on results from Nie and Rutkowski for backward stochastic differential equations (BSDEs) driven by continuous martingales, but we also derive the pricing partial differential equations (PDEs) for path‐independent contingent claims of a European style in a Markovian framework.

Dissaving of the Past via Reverse Mortgages

We build a simple two-period general equilibrium model with incomplete markets which incorporates reverse market mortgages without appealing to the complicated framework required by the infinite horizon models. Two types of agents are considered: elderly agents and investors. The former are owners of physical assets (for instance housing) who will want to sell them to investors. For that end the elderly agents, who are assumed to not have any bequest motive, issue claims against physical assets they own. One of the claims issued will be interpreted as reverse mortgage (loan for seniors) and the other one as a call option written on the value of housing equity. By assuming that both the elderly agents and the investors are price takers, and by applying the generalized game approach, we show that the equilibrium in this economy always exists, providing the usual conditions on utilities and initial endowments are satisfied. We end with a remark on efficiency of the quilibrium.

Medium and Long Term Implications of Financial Integration Without Financial Development

We show that, in a two-country model where the two economies differ in their level of financial market development and initial capital endowment, financial integration has sizeable transitory as well as permanent effects. We confirm that, consistent with the Lucas paradox, financial integration in the medium term can reduce capital accumulation and increase savings in the financially less developed country, characterized by domestic capital market distortions, due to a higher risk premium in production activities. In the long run, however, integration produces higher levels of capital than in the autarky steady state. The opposite happens to the financially advanced economy, where integration initially boosts consumption and leads to a lower saving rate, and in the long run causes a reduction in capital compared with the autarky steady state. Two forces drive these results: precautionary saving and the propensity to move resources from risky capital to safe assets until the risk-adjusted return on capital equalizes the risk-free interest rate; assuming a constant relative risk aversion (CRRA) utility function, these forces are both decreasing in wealth.

Student Aid, Academic Achievement, and Labor Market Behavior

How does financial aid design affect student behavior and achievement? We first estimate the impact of a study-aid reform that caused students to work more and accumulate less debt. To quantify mechanisms and perform counterfactuals, we estimate a dynamic model of college enrollment, work, and loan take-up decisions. We find that grants have stronger effects on student behavior, student debt, and human capital when alternative income and borrowing opportunities are costlier. Loan repayment conditions affect dropout rates 3-4 times more when grants are 5% of aid compared to 50%. Individuals with lower endowments find income-contingent loans more beneficial and their human capital is more sensitive to aid policies. Financial aid design can close the initial endowment gap in dropout rates, but it only reduces the gap in 4-year college degrees by 12% as most of the marginal graduates attain shorter degree programs with low labor market return.

The Role of Liquidity in Electricity Markets

Starting from the premise that hedging pressure is based on limited market efficiency I provide an analogy that electricity markets over years behave like intraday stock or FX markets during the liquidation of a block trade. In this endeavour I relate the returns of some liquidity exploitation strategies with the degree of liquidity metrics by utilising the characteristic initial endowments of market participants in electricity markets. In a second step I introduce a simple stochastic model that is able to capture a variety of stylized facts of asset returns (first order price impact, Samuelson Effect, negative prices) over the whole life span of the contract and that circumvents typical information modeling pitfalls for non-storable commodities. This argument is based on modeling 'market impact' as an additional asset with a known terminal value and is justified by an enlargement of filtration argument.