Department of Economics
Working Papers

  SUNY at Albany Discussion Papers  
  You can search SUNY at Albany Economics Discussion Papers by author, title, keyword, JEL category, and abstract contents via IDEAS or EconPapers  
    | 2010-2006 | 2005-2001 | 2000 | | 1999 | 1998 |  
  2000 Discussion Papers  
  [00-01] Kenneth Beauchemin and Betty Daniel. "Precautionary Saving, the Current Account, and the International Distribution of Wealth"  
    Abstract: This paper studies the interaction between time preference heterogeneity and precautionary saving in generating both persistent current account imbalance and a stationary equilibrium distribution of wealth across countries. We use numerical techniques to present two sets of results. First, when differences in discount factors are permanent and income is stochastic, the relatively patient country runs a current account surplus in transition to a steady state equilibrium. The impatient agent's precautionary motive to save yields an equilibrium distribution of wealth with no mass on the borrowing constraint. Second, when the difference in discount factors is stochastic, but highly persistent, persistent current account imbalance becomes a feature of equilibrium. Again, the precautionary motive keeps the economy out of corners. Together, stochastic discount factors and the precautionary motive imply an international distribution of wealth roughly consistent with data.

Keywords: current account, uncertainty, precautionary saving.
JEL Classification: F32, D91, E21.
[00-02] John Bailey Jones. "The Dynamic Effects of Firm Level Borrowing Constraints"  
  Abstract: The purpose of this paper is to develop a detailed dynamic model of firm behavior in order to see whether financial constraints are important propagation mechanisms. In addition, I consider whether the environments of individual firms affect the way in which financial constraints operate at the aggregate level. To do this, I develop a model of a firm that faces finance constraints, fixed costs and persistent idiosyncratic shocks. I find that persistent shocks can drive firms with similar financial endowments to adopt radically different financial policies. At the aggregate level, I find that financial constraints can affect the volatility and persistence of output, but that the sizes and even the directions of these effects are sensitive to firms' environments.

JEL Classification: E32, E62.
[00-03] Kenneth Beauchemin. " W(h)ither Public Capital?"  
  Abstract: This paper maintains that the commonly used measure of the aggregate stock of public capital is conceptually divergent from the "true" public capital input in private production technologies. Consequently, the published measure has the potential to misrepresent the historic growth profile of the public capital input and the productivity of government purchases in general. As a test of this hypothesis, the identifying assumption of a standard stochastic growth model is combined with observations on output, consumption, labor hours and government purchases to deduce public capital paths that are mutually consistent with observed flows and economic theory. It is found that the inferred series grows more rapidly than the published series during the 1973-1993 period thereby providing evidence that government under-investment is not an important source of declines in U.S. productivity growth.

Keywords: Public capital; Productivity; Growth.
JEL Classification: E62, 040.
[00-04] Traci Mach. "Measuring the Impact of Family Caps on Childbearing Decisions"  
  Abstract: Since 1992, twenty-two states have enacted family cap provisions into their welfare policies in an attempt to decrease out-of-wedlock childbearing. Using matched data from the March CPS between 1989 and 1998, I construct measures of whether or not a woman is affected and the size of effective penalty. My results suggest that being affected by a family cap has reduced fertility among welfare recipients by 19.5 percent. Results further suggest that the size of the effective penalty is also important; a $50 increase in the effective penalty corresponds to a 23 percent decrease in births among welfare recipients.

JEL Classification: I38, J13.
[00-05] Traci Mach. "Determinants of AFDC Caseloads: How Have Exit and Take-Up Rates Been Affected by Welfare Reform?"  
  Abstract: This paper examines AFDC participation and exit decisions in response to the recent changes in the welfare program. Different reform policies are identified separately and allowed to have varying impacts on current and potential recipients. Making use of the extended panel provided by the NLSY79, a monthly competing risks hazard model of eligibility and participation is estimated. Results show that while recipients are responsive to some provisions, the provisions retard rather than hasten exit. However, potential recipients are deterred from taking up benefits by the presence of time limits.

JEL Classification: I38, J2
[00-06] Laurence Kranich (with Andres Perea and Hans Peters). "Dynamic Cooperative Games"  
  Abstract: The simplest and most common interpretation of a coalitional form game is that it pertains to a single interaction among the players. However, many if not most cooperative endeavors occur more than once or even repeatedly over time. In this paper we begin a systematic study of dynamic cooperative games. We argue that new tools are necessary to capture several important features of a dynamic analysis that are not adequately represented within the conventional (static) framework. These include the immutability of the sequence of play, the intertemporal evaluation of payoffs, intertemporal trading and/or borrowing or saving, and history dependent games and/or solutions. Here, we focus on the case in which a given set of players play a finite sequence of exogenously specified TU-games. We extend the notion of a cooperative solution to the intertemporal setting, and we discuss intertemporal extensions of the core and the Shapley value. We also discuss the role of intertemporal trade and borrowing/saving. The paper concludes with a blueprint for future work.

Keywords: Cooperative games, Dynamic games, Intertemporal solutions.
JEL Classification: C71, C73.
[00-07] Traci Mach. "The Welfare Magnate Debate Revisited in the Context of Welfare Reform"  
  Abstract: This paper re-examines the welfare magnet hypothesis in the context of welfare reform by redefining both migration and generosity. Due to the intrastate variation in program parameters, migration is defined at the county, rather than state level, and the typical definition of generosity is expanded to control for differences in time limits. Using data from the National Longitudinal Survey of Youth 1979 cohort (NLSY79), results indicate that time limits do play a significant role in cross-county migration decisions, although the effect is small and greatly diminished when the individual must travel at least 100 miles to avoid the time limit. Estimates also provide some evidence that benefit differentials also positively influence decisions.

JEL Classification: I38, J6
[00-08] Traci Mach (with Catalina Amuedo-Dorantes). "It's Not How Much You Spend, It's How You Spend It: Preventing Juvenile Crime And Delinquency Through Innovative School Programs"  
  Abstract: The 1999 State of the Union Address included a "call to action" to improve school quality and provide citizens with safe streets, schools and neighborhoods through initiatives such as decreasing student-teacher ratios, enhancing teacher quality and offering innovative and after-school programs. This paper examines the relative efficacy of these initiatives on delinquency and juvenile crime. Juvenile criminal and delinquent participation respond favorably to smaller student-teacher ratios, increased instructional expenditures per pupil, and, especially, the implementation of after-school programs. These findings illustrate the potential of after-school programs to keep students safe and learning and, thus, provide valuable insight into how to most efficiently distribute educational spending.

JEL Classification: J0
  1999 Discussion Papers  
[99-01] Michael Jerison (with David Jerison). "Measuring Consumer Inconsistency: Real Income, Revealed Preference and the Slutsky Matrix"  
  Abstract: If a smooth consumer demand function violates the strong axiom of revealed preference, then income and prices can follow a cycle and return to their starting values even though real income has always risen. We show how real income growth along the "worst" revealed preference cycle depends on the range of price variation and on violations of the Slutsky conditions. We use this result to justify a new index of local demand inconsistency. We also relate the result to proposed reforms of the consumer price index, and we provide a bound on the number of observations required to form a revealed preference cycle.  
[99-02] Laurence Kranich. "Measuring Opportunity Inequality with Monetary Transfers"  
  Abstract: In this paper I consider the problem of measuring opportunity inequality when monetary transfers are possible. First, I consider the case in which agents have homogeneous preferences, as in the previous literature, and I then propose an extension to the heterogeneous case. In both, I identify an appropriate egalitarian benchmark relative to which inequality can be measured, and I establish that this yields a theory of measurement analogous to that of income inequality. This overcomes a difficulty recently reported Ok (1997). Finally, I discuss the benchmark notion of equal shadow wealth as a new concept of fairness. The results of the paper are immediately applicable to the measurement of multidimensional economic inequality including economies with indivisible goods.

Keywords: Opportunities, Inequality, Measurement
JEL Classification: D63, D71
[99-03] John Bailey Jones. "Has Fiscal Policy Helped Stabilize the Postwar U.S. Economy?"  
  Abstract: In this paper, I consider whether postwar fiscal policy has helped stabilize the U.S. economy. I do this by adding fiscal policy feedback rules to the stochastic growth model. I estimate the feedback rules from postwar data with the generalized method of moments. These rules allow fiscal policies to respond to current and lagged output and labor hours. I use the estimated policy rules to see if postwar fiscal policy reduces output volatility and/or lengthens expansions and shortens recessions. I find that fiscal policy in general provides little stability on either count. I also find that the endogenous feedback rules, by themselves, are at best moderately stabilizing and are in some cases destabilizing.  
[99-04] Kwan Koo Yun. "Technological Comparative Advantage and Factor Prices Behavior With Trade"  
  Abstract: We introduce technological differences in a Heckscher-Ohlin model and study how the technology and endowment differences interact to determine the trade effects on factor prices. When the endowment effect is dominant in determining the autarky relative factor prices, the relative factor prices of trading countries adjust in converging directions with trade if and only if the capital rich country has a comparative advantage in the capital intensive sector. Adjustments in converging directions could be excessive. Relative factor prices tend to converge if the technological comparative advantage is small for given relative endowments or if the relative endowment difference is large for a given technological comparative advantage.  
[99-05] JoAnne Feeney (with Arye Hillman). "Privatization and The Political Economy of Strategic Trade Policy"  
  Abstract: This paper considers the interdependence between international financial markets, privatization, and strategic trade policies. We describe an economy where portfolio allocations are chosen by risk-averse agents who rationally forecast future trade policies. Assuming a government responsive to the policy preferences of voters, we show that ownership structure affects trade policy through the incentives for lobbying by private agents. Portfolios and trade policy are thus jointly determined in political-economic equilibrium. Privatization of state-owned industry exerts an important influence over the trade policies chosen by domestic and foreign governments by expanding the scope for individual diversification.  
[99-06] Kenneth Beauchemin. "Growth or Stagnation? The Role of Public Education"  
  Abstract: This paper presents a political-economic theory of growth and human capital accumulation. Age heterogeneity is put forth as the primary source of disagreement between individuals over various levels public education expenditures. An overlapping generations model with with two-period lived agents is constructed to capture the heterogeneity. With a growing population, the equilibrium quantity of public education reflects the preferences of youth and is therefore foward looking. As such, policy preferences are a function of intertemporal elasticities, utility discounting and population growth. Despite foward looking behavior, it is shown that sufficiently rapid population growth can trigger stagnation (zero growth) in the form of a corner solution to the public policy problem. The model therefore complements existing models that associate slow per capita output growth with high population growth.

Keywords: Economic Growth; Public Education; Political Economics
JEL Classification: O40; E62
[99-07] Michael Sattinger. "The Market for Access to Trading Partners, Brokers, and Price Determination"  
  Abstract: This paper furthers a research program in which the price at any point in time is determined by the market for access to trading partners. In this paper, the market is implemented by competitive brokers in a matching model of trade. If a certain condition holds, brokers can make profits by entering the market and offering a different ratio of buyers to sellers. Brokers are shown to set fees that eliminate congestion externalities. The fees constitute the price adjustment, generating dynamic price paths.  
  1998 Discussion Papers  
[98-01] Kausik Chaudhuri and Ning S.Zhu. "External Debt Sustainability: Theory and Applications to Heavily Indebted Poor Countries"  
  Abstract: We present a conceptual framework for analyzing external debt sustainability in heavily indebted poor countries with predominantly concessional debt owed to official creditors. In the absence of a secondary market for official debt, the paper argues for the dynamic present value of debt as a proxy for assessing the real value of debt with below-market interest rates. It also models the current institutional mechanism of debt relief for low-income countries in the form of rescheduling on concessional terms. The analytical approach combines a stock analysis of external debt with a flow analysis of balance of payments in a parsimonious forward-looking framework suitable for projection of alternative scenarios and sensitivity analysis of key policy variables. Illustrative applications in two country cases show how the theory can be applied for policy formulation.  
[98-02] Betty C. Daniel. "Intertemporal Choice and Currency Crises"  
  Abstract: Exchange rate crises, in the absence of sustained monetary-financed fiscal deficits, can be explained with the neoclassical model. The characteristics of a crisis depend on the source of the shock and the government's response to it. Careful attention to intertemporal budget constraints highlights the role of exchange rate changes in reallocating public and private wealth and restoring equilibrium.  
[98-03] Michael Jerison. "Dispersed Excess Demands, the Weak Axiom and Uniqueness of Equilibrium"  
  Abstract: This paper introduces an economically interpretable hypothesis that implies that mean excess demand satisfies the weak axiom and that competitive equilibrium is unique. The hypothesis requires, roughly, that the consumers' excess demand vectors spread apart on average as their wealth increases. The hypothesis is potentially testable using cross section data on consumer expenditures and endowments. It is satisfied in a robust class of economies, including those with suitable types of consumer heterogeneity. However, it implies stringent restrictions on the consumers' Engel curves if it is required to hold for every distribution of collinear consumer endowments.  
[98-04] Laurence Kranich. "Equalizing Opportunities through Public Education when Innate Abilities are Unobservable"  
  Abstract: This paper considers the problem of equalizing opportunities among agents who differ in both their tastes and innate productive abilities when these characteristics are unobservable. The government specifically wishes to offset the effects of differences in innate talents by affording public education to those with lesser skills. First, I consider the benchmark case involving complete information where I observe that it is possible to fully equalize opportunities as defined axiomatically by Bossert and Fleurbaey. However, in the incomplete information case, while it is possible to implement any input progressive education policy, it is not possible to afford equal opportunities. I conclude with an example demonstrating the alternative, social welfare function approach, which I argue is more suitable for second-best analysis.  
[98-05] Laurence Kranich. "Altruism and the Political Economy of Income Taxation"  
  Abstract: In this paper, I develop a positive model in which altruistic agents vote over quadratic (progressive) income tax schedules. The agents have heterogeneous preferences and productivities, and the model incorporates the incentive effects of taxation. The main result of the paper is that, under standard assumptions, there exists a self-confirming majority rule equilibrium in which the agents' labor supply decisions are optimal given the tax policy, and the tax policy is a majority rule equilibrium given the labor supply decisions. Thus, the agents' equilibrium labor supply decisions confirm voter expectations, but such expectations may be incorrect out of equilibrium. In contrast to most of the literature on voting and taxes, the model generates majority rule voting equilibria which involve progressive taxation, the norm in all industrialized countries.  
[98-06] Laurence Kranich. "Equal Opportunity and the Currency of Compensation"  
  Abstract: I provide three very simple examples to demonstrate the point that the result by Bossert and Fleurbaey concerning the general impossibility of achieving equal opportunities is largely due to their particular framework and is not necessarily robust to consideration of alternative means of compensating for innate differences.  
[98-07] Laurence Kranich. "Manipulation of the Walrasian Mechanism in Production Economies with Short-Selling"  
  Abstract: Hurwicz and Otani and Sicilian characterized the Nash equilibrium allocations of the Walrasian demand manipulation game in successively more general exchange environments. In this paper, we extend the analysis to production economies with short-selling. First, we generalize Hurwicz's and Otani and Sicilian's theorem that any allocation at which each agent's consumption bundle lies above her true offer curve can be supported in Nash equilibrium. We then show that for all finite economies the set of such allocations is large in that it contains an open subset of the feasible set.  
[98-08] Michael Sattinger. "A Queuing Model of Price Determination in a Competitive Market"  
  Abstract: This paper addresses the question of how prices change in a competitive market if all agents are price takers. A queuing model of price determination is developed in which buyers and sellers face trade-offs between price and expected wait times. Sellers set prices but are competitive in the sense that they are "value takers" and cannot affect the value of the combination of price and wait time. The queuing market yields realistic outcomes of price dispersion and moderate price response to demand shocks. Disequilibrium has limited consequences for a queuing market.