Download or read book On the Welfare Costs of Consumption Uncertainty written by Robert J. Barro and published by . This book was released on 2006 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Satisfactory calculations of the welfare cost of aggregate consumption uncertainty require a framework that replicates major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with rare but large disasters is such a framework. In a baseline simulation, the welfare cost of disaster risk is large -- society would be willing to lower real GDP by about 20% each year to eliminate all disaster risk, including wars. In contrast, the welfare cost from usual economic fluctuations is much smaller, though still important -- corresponding to lowering GDP by around 1.5% each year"--National Bureau of Economic Research web site.
Download or read book Consumption Smoothing and the Welfare Cost of Uncertainty written by Yonas Alem and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Welfare Cost of Perceived Policy Uncertainty written by Erzo F. P. Luttmer and published by . This book was released on 2015 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Policy uncertainty can reduce individual welfare when individuals have limited opportunities to mitigate or insure against consumption fluctuations induced by the policy uncertainty. For this reason, policy uncertainty surrounding future Social Security benefits may have important welfare costs. We field an original survey to measure the degree of policy uncertainty in Social Security and to estimate the impact of this uncertainty on individual welfare. On average, our survey respondents expect to receive only about 60 percent of the benefits they are supposed to get under current law. We document the wide variation around the expectation for most respondents and the heterogeneity in the perceived distributions of future benefits across respondents. This uncertainty has real costs. Our central estimates show that on average individuals would be willing to forego around 6 percent of the benefits they are supposed to get under current law to remove the policy uncertainty associated with their future benefits. This translates to a risk premium from policy uncertainty equal to 10 percent of expected benefits.
Download or read book Consumption Smoothing and the Welfare Cost of Uncertainty written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Term Structure of the Welfare Cost of Uncertainty written by Pierlauro Lopez and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: The marginal cost of aggregate fluctuations has a term structure that is a simple transformation of the term structures of equity and interest rates. I extract evidence from index option markets to infer a downward-sloping, volatile and procyclical term structure of welfare costs. On average, the gains from greater macroeconomic stability are large, especially in the short run. I estimate that at the margin the elimination of one-year ahead consumption risk is worth around 12 percentage points of additional growth; this number compares to a marginal cost of lifetime uncertainty of 2-3 percentage points. Over time, the term structure of welfare costs varies substantially, predictably and with a volatility that decreases with maturity. These empirical properties of the term structure of welfare costs cannot be easily captured by today's leading dynamic equilibrium models and therefore represent a puzzling piece of evidence with potentially important welfare implications.
Download or read book Investment in New Activities and the Welfare Cost of Uncertainty written by and published by . This book was released on 1995 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Welfare Costs of Parameter Uncertainty when the Variance is Unknown written by Michael Sampson and published by . This book was released on 1995 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Cost of Uncertainty about the Timing of Social Security Reform written by Frank Natale Caliendo and published by . This book was released on 2015 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model to study optimal decision making in the face of uncertainty about the timing and structure of a future event. The model is used to study optimal decision making and welfare when individuals face uncertainty about when and how Social Security will be reformed. When individuals save optimally for retirement, the welfare cost of uncertainty about the timing and structure of reform is just a few basis points of total lifetime consumption. In contrast, the cost of reform uncertainty can be greater than 1% of total lifetime consumption for individuals who do not save.
Download or read book The Welfare Cost of Retirement Uncertainty written by Frank N. Caliendo and published by . This book was released on 2016 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Uncertainty about the timing of retirement is a major financial risk with implications for decision making and welfare over the life cycle. Our conservative estimates of the standard deviation of the difference between retirement expectations and actual retirement dates range from 4.28 to 6.92 years. This uncertainty implies large fluctuations in total wage income. We find that individuals would give up 2.6%-5.7% of total lifetime consumption to fully insure this risk and 1.9%-4.0% of lifetime consumption simply to know their actual retirement date at age 23. Uncertainty about the date of retirement helps to explain consumption spending near retirement and precautionary saving behavior. While social insurance programs could be designed to hedge this risk, current programs in the U.S. (OASI and SSDI) provide very little timing insurance
Download or read book The Welfare Costs of Parameter Uncertainty when the Variance is Known written by Concordia University. Department of Economics and published by . This book was released on 1995 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Investment in new activities and the welfare cost of uncertainty written by Joshua Aizenman and published by . This book was released on 1995 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book New Activities the Welfare Cost of Uncertainty and Investment Policies written by Joshua Aizenman and published by . This book was released on 2008 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the effect of policy uncertainty on the formation of new activities in Romer's (1994) type of an economy, where productivity of labor increases with the number of capital goods. Adding a new capital good requires a capital specific set-up cost, invested prior to using the capital good. Agents are disappointment averse, putting greater utility weight on downside risk [as modeled by Gul (1991)]. Policy uncertainty is induced by the Disappointment aversion implies that investment, labor and capitalists' income drop at a rate proportional to the standard deviation of the tax rate. Hence, policy uncertainty induces first-order adverse effects, whereas policy uncertainty leads to second-order effects when consumers maximize the conventional expected utility. The adverse effects of policy uncertainty can be partially overcome by a proper investment policy. The paper interprets the tax concessions granted to multinationals as a commitment device that helps overcoming the adverse implications of policy uncertainty.
Download or read book The Welfare Cost of Uncertainty in Policy Outcomes written by Edward Schlee and published by . This book was released on 2016 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper proposes a simple index of the welfare significance of uncertainty in the public goods resulting as policy outcomes. Our measure is the ex ante compensation an individual would require to accept an uncertain level of service compared to receiving the expected value of the distribution of possible values for that service. Our compensation measure is a function of the coefficient of relative risk aversion, the variance in the measure of environmental service associated with policy and relevant for the individual, and a set of conventional parameters that describe the properties of nonmarket benefit measures under conditions of certainty. We would expect that the inverse virtual price elasticity of the for the environmental service and the square of the coefficient of relative variation are the primary factors influencing the size of our compensation index
Download or read book Rare Disasters Asset Prices and Welfare Costs written by Robert J. Barro and published by . This book was released on 2007 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: A representative-consumer model with Epstein-Zin-Weil preferences and i.i.d. shocks, including rare disasters, accords with key asset-pricing observations. If the coefficient of relative risk aversion equals 3-4, the model accords with observed equity premia and risk-free real interest rates. If the intertemporal elasticity of substitution is greater than one, an increase in uncertainty lowers the price-dividend ratio for equity, whereas a rise in the expected growth rate raises this ratio. In a model with endogenous saving, more uncertainty lowers the saving ratio (because substitution effects dominate). The match with major features of asset pricing suggests that the model is a reasonable candidate for assessing the welfare cost of aggregate consumption uncertainty. In the baseline simulation, the welfare cost of disaster risk is large -- society would be willing to lower real GDP by as much as 20% each year to eliminate the small chance of major economic collapses. The welfare cost from usual economic fluctuations is much smaller, though still important, corresponding to lowering GDP by around 1.5% each year.
Download or read book Using Asset Prices to Measure the Cost of Business Cycles written by Fernando Alvarez and published by . This book was released on 2000 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a method to measure the welfare cost of economic fluctuations that does not require full specification of consumer preferences and instead uses asset prices. The method is based on the marginal cost of consumption fluctuations, the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of consumption. We show that this measure is an upper bound for the benefit of reducing all consumption fluctuations. We also clarify the link between the cost of consumption uncertainty, the equity premium, and the slope of the real term structure. To measure the marginal cost of fluctuations, we fit a variety of pricing kernels that reproduce key asset pricing statistics. We find that consumers would be willing to pay a very high price for a reduction in overall consumption uncertainty. However, for consumption fluctuations corresponding to business cycle frequencies, we estimate the marginal cost to be about 0.55% of lifetime consumption based on the period 1889-1997 and about 0.30% based on 1954-97.
Download or read book The Rate and Direction of Inventive Activity written by National Bureau of Economic Research and published by Princeton University Press. This book was released on 2015-12-08 with total page 647 pages. Available in PDF, EPUB and Kindle. Book excerpt: The papers here range from description and analysis of how our political economy allocates its inventive effort, to studies of the decision making process in specific industrial laboratories. Originally published in 1962. The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.
Download or read book Robustness written by Lars Peter Hansen and published by Princeton University Press. This book was released on 2016-06-28 with total page 453 pages. Available in PDF, EPUB and Kindle. Book excerpt: The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted? Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics. Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.
