Intertemporal Framework Research Articles

Motives for pocket money allowance and family incentives

To explain motives underlying intergenerational transfers within the family, economists suggest three theoretical hypotheses: altruism, exchange and endogenous altruism due to preference shaping. In this paper we seek to identify family motives for private transfers in France, through the study of pocket money. Using a particularly rich survey carried out in 1992 about parental transfers to young children, our econometric analysis puts forward the heterogeneity of family motivations. The standard assumption according to which a single motive may be universally true is rejected by the data. At a disaggregated level, regular payments must be distinguished from irregular ones. The former fit in an intertemporal framework, the latter are nearer altruistic motives. But among them, buying of children's services and school rewards also exist.

Investment time horizon and asset allocation models

Summary statistics regarding the variables se-lected are provided in Table 1 below. As ex-pected, the volatility of the stock marketgreatly exceeds the one of the bond market andexhibits a much greater annualised mean per-formance. Without formally testing for nor-mality, it should be clear by looking at thedifference between mean and median that thenormal hypothesis will be rejected for stockreturns. One should nevertheless mention that,if normality appears as a key assumption in theuse of a standard and static Mean-Variancesetting, it is not required within the inter-temporal framework we are using. Volatility,for instance, can be function of time or even bestochastic.In order to take into account the investmenttime horizon in the optimisation procedure, wehave to determine the statistical dynamics ofthe risky assets and those of the state vari-ables. In a standard way for a model developedin continuous-time, we consider that the lattercan be described by joint ITO’s processes.Hence, to complete the definition of the model,we must specify the functional form of thedrifts and volatilities of these stochasticprocesses. We chose the following assump-tions: first, the drifts are of linear form in thestate variables. Second, the volatilities of thestate variables are proportional to their levels.

Social Optimal Growth, Integrated Environmental and Economic Accounting, and Evaluation of Ecosystem

Integrated Environmental and Economic Accounting (IEEA) advocated by United Nations (U. N.) isspreading over the world as a statistical concept that indicates a true welfare index of a country incorporating environmental burden on her economy. One may, however, find some ambiguous concepts in the guideline of the U.N. Thus estimation method and economic implication of IEEA should be further examined from the viewpoint of economic theory. Among others in this point, Mäler's study may particularly be worth pointed out. He considers a closed economy with natural resources in an intertemporal framework, and derives an IEEA taking account of the environmentalexternalities. The present article basically follows Mäler's formulation, but significantly differs from his study. That is, two kinds of species in an ecosystem are introduced as environmental stock resources. In the ecosystem, competitionbetween the different species is explicitly considered, indicating natural environmental fluctuation in the populations. Moreover, a new environmental evaluation and an ecosystem conservation strategy, which completely differ from the economic approach, are proposed for the ecological dynamics.

Pension funds saving individuation

This paper considers a pension insurance problem using an intertemporal framework. We assume a deterministic framework in order to obtain tractable and yet revealing results regarding the propensity to save for retirement. The essential conclusions of this paper include a condition for a single switch, that is, when the saver will decide the switching time, prior to retirement, to start saving. Because of the linear objective used in this paper, saving rates were found to be of the bang-bang type. In addition, we show that the tax effects are important. The richer the saver, the greater the tax advantages for pension savings.

Functional equations and population ethics

This paper illustrates the application of functional equations results in population ethics. In an intertemporal framework, we provide characterizations of several classes of variable-population social orderings that may depend on individual lengths of life in addition to lifetime utilities. The generalized associativity equation turns out to play a major role in proving the results of this paper and in mathematical approaches to population ethics in general.

Transitory and permanent disturbances and the current account: an empirical analysis in the intertemporal framework

The intertemporal models of current account determination demonstrate that in the analysis of the current account balance of a country, it is important to distinguish between transitory and permanent disturbances in income and relative prices. This paper attempts to decompose the observed data on income and real exchange rate into transitory and permanent components and then uses the decomposed series to test the empirical validity of the predictions of the intertemporal models. Evidence from the United States and Japan provide very limited support for the intertemporal models in terms of the effects of transitory and permanent changes in income on current account balance. For both US and Japan, the study finds that permanent changes in real exchange rate have significant effects on the current account balance. Statistical tests find no evidence of hysteresis in the trading relations of the two countries.

Tanzania's soil wealth

This paper adopts soil scientific models of soil productivity and degradation in Tanzania into an intertemporal optimisation framework. The farmers choose labour input, capital investment and fertiliser input to maximise soil wealth, i.e., the present value of soil rent. First we focus exclusively on soil mining, considering the nutrient stocks as determinants of land productivity. Next, we focus on soil erosion, and include rooting depth as determinant of land productivity. We compute the soil wealth under the assumption that the opportunity cost of labour is equal to current wages, or alternatively equal to zero. Our estimates suggest that the potential gains from change in agricultural management are considerable. Moreover, the shadow price on root depth and hence the returns to land conservation investments are highly sensitive to our labour market assumptions. We also find that the value of the eroded soil amounts to 12–17 per cent of the value of Hicksian income, and the savings required to maintain consumption amounts to 13–29 per cent of the contribution to GDP.

Labor market search and the dynamic effects of taxes and subsidies

This paper integrates the search model of unemployment into an intertemporal framework and examines the dynamic effects of a labor income tax, a capital income tax, an unemployment subsidy, a vacancy subsidy, and an investment tax credit. We also compute the marginal deadweight losses associated with these policies. The presence of unemployment reduces the relative welfare cost of capital income taxation to labor income taxation. With realistic parameter values, labor income taxation can even be more costly than capital income taxation. A vacancy subsidy is efficient, self-financed and shares many features with an investment tax credit. An unemployment subsidy is very inefficient. Alternative matching and wage determination schemes are analyzed.

International capital mobility in developing countries: theory and evidence

Despite the importance of international capital mobility in influencing the outcome of stabilization policies, there is little research on the issue in developing countries. This paper tests the degree of capital mobility in nine developing countries, using the intertemporal consumption-smoothing framework. We find considerable evidence to suggest that capital is sufficiently mobile in the countries under examination to facilitate consumption smoothing in the event of shocks to the national cash flow (national income net of private investment and government spending). Our findings also suggest that the impact of shocks to one or more components of the national cash flow on the current account is offset by dynamic responses of other components, such that the current account balance is preserved from drastic movements over time.

Depreciation and intergenerational altruism in the private provision of public goods

The static model of the private provision of public goods is refuted by empirical and experimental evidence which shows that contributions are above the levels predicted by the theory. The model is reconsidered here in an intertemporal framework that allows the formation of a stock of public good over time and admits intergenerational altruism into preferences. Both of these factors affect the level of private provision. An intertemporal version of the Samuelson rule is derived and it is shown that, for some parameter values, the provision level determined by this is matched by private provision. For other parameter values, it is shown how a system of taxation can achieve the optimum.

Birth-Date Dependent Population Ethics: Critical-Level Principles

This paper investigates birth-date dependent principles for social evaluation in an intertemporal framework in which population size may vary. We weaken the strong Pareto principle in order to allow individuals' birth dates to matter in establishing a social ordering. Using the axiomindependence of the utilities of the dead, we characterize population principles with a recursive structure. If the individual substitution principle and an individual intertemporal equivalence axiom are added, birth-date dependent generalizations of the critical-level generalized utilitarian principles result. Stationarity leads to the special case of geometric discounting.Journal of Economic LiteratureClassification Numbers: D63, D71.

Economic Development, Life-Cycle Consumption and Planning Hirizon

This article presents estimates of consumer planning horizons for countries at different levels of economic development. Within an intertemporal optimization framework a direct relationship is observed between the length of consumers' planning horizons and the level of economic development. In particular, consumption behavior in a sample of developed economies reflect longer planning horizons than in the sample of less developed economics. The average planning horizon for a group of less developed economies is about 7 months, while it is 1.6 and 3.8 years for middle and high income economies, respectively. [E21, O50]

The Intertemporal Consequences of Unauthorized Reproduction of Intellectual Property

In an intertemporal framework, the harm to firms from unauthorized reproduction of their products may be significantly greater than that predicted by most static models; copying by some consumers reduces the appropriable surplus from all consumers—including those consumers lacking any propensity to copy. Somewhat paradoxically, however, the commitment value of copies may also imply that profits are higher with copying than without copying. It is therefore suggested that firms may prefer differential copyright enforcement and that the commitment value of copies may offer a strategic explanation for free giveaways of abridged versions of intellectual property and vertical product differentiation more generally.

The acquisition of information in a dynamic market

This paper models the information acquisition process in an intertemporal rational expectations framework. It demonstrates that equilibria do not generally exist in intertemporal economies in which agents are assumed to know the state-contingent price path and the information acquisition process is endogenous. In addition, an example of a fully revealing equilibrium in which agents pay a strictly positive amount for information is provided. Finally, we also show that it is possible for an equilibrium to exist in which agents choose to purchase information even if all agents, including the agents who purchased the information, are made strictly worse off by the purchase.

Intertemporal Cournot and Walras Equilibrium

In an intertemporal general equilibrium framework, we compare a Cournot equilibrium to the Walras equilibrium. The Cournot agents trade and invest less than the Walras agents. This generates an ineffciency which does not vanish as the number of Cournot agents tends to infinity. A larger number of strategic Cournot agents implies that the amount of trade (relative to their aggregate consumption) increases (i.e., moving towards the Walrasian amount), but their investment (relative to the stock) decreases (i.e., moving away from the Walrasian amount).

Labor market search and capital accumulation: Some analytical results

Abstract This paper integrates labor market search into an intertemporal utility maximization framework and analytically solves for equilibrium dynamics. The integrated model improves upon a neoclassical model by generating the realistic hump-shaped response of output to a productivity shock and the counterclockwise dynamics of job vacancies and unemployment around the Beveridge curve. In contrast to a standard search model, our model endogenizes agents' reservation wage as the marginal rate of substitution between leisure and consumption, through which agents' intertemporal consumption decision directly affects the labor market behavior. As a result, even a permanent productivity shock generates non-monotonic dynamics in employment.

Willingness to pay and cost of illness for changes in health capital depreciation.

The paper investigates the relationship between the willingness to pay and the cost of illness approach with respect to the evaluation of economic burden due to adverse health effects. The basic intertemporal framework is provided by Grossman's pure investment model, while effects on individual morbidity are taken to be generated by marginal changes in the rate of health capital depreciation. More specifically, both the simple example of purely temporary changes and the more general case of persistent variations in health capital depreciation are discussed. The analysis generates two principal findings. First, for a class of identical individuals cost as measured by the cost of illness approach is demonstrated to provide a lower bound on the true welfare cost to the individual, i.e. cost as given by the willingness to pay approach. Moreover, the cost of illness is increasing in the size of the welfare loss. Second, if one takes into account the possible heterogeneity of individuals, a clear relationship between the cost values supplied by the two approaches no longer exists. As an example, the impact of variations in either financial wealth or health capital endowment is discussed. Thus, diversity in individual type turns out to blur the link between cost of illness and the true economic cost.

Leximin population ethics

This paper provides characterizations of the Critical-Level Leximin and Positional-Extension Leximin principles for social evaluation in an intertemporal framework. These rules generalize fixed-population Leximin and can compare social alternatives with different population sizes. The main axioms used in our characterizations are Hammond Equity together with Independence of the Utilities of the Dead (a plausible intertemporal consistency requirement) for the Critical-Level Leximin principles, and Positional Leximin Consistency (an axiom that allows non-constant critical levels) for the Positional-Extension Leximin principle. The performance of these principles is compared in the pure population problem and we argue that the Critical-Level Leximin principles are ethically more attractive than Positional-Extension Leximin.

Modeling Ecological Constraints on Tropical Forest Management: Spatial Interdependence, Irreversibility, and Uncertainty

This paper presents a stylized spatial–intertemporal model for the economic management of tropical forests, a model that reflects ecological constraints, especially spatial interactions across plots and the irreversibility of some uses. The explicit recognition of the varied uses of forested land, spatial interdependence, irreversibility, and uncertainty leads to optimal patterns that have different structures and, in general, more forested area than those recommended by traditional models. Two “flexible” land uses and one spatial interaction term contribute to the quasi-option value. The spatial–intertemporal framework permits examination of important issues such as sustainability, forest fragmentation, and land recovery dynamics.

Intertemporal Population Ethics: Critical-Level Utilitarian Principles

"This paper considers the problem of social evaluation in a model where population size, individual lifetime utilities, lengths of life, and birth dates vary across states. In an intertemporal framework, we investigate principles for social evaluation that allow history to matter to some extent. Using an axiom called independence of the utilities of the dead, we provide a characterization of critical-level generalized utilitarian rules. As a by-product of our analysis, we show that social discounting is ruled out in an intertemporal welfarist environment. A simple population-planning example is also discussed."