Look for the next GCER Newsletter in June. Past Newsletters can be found here.
News Archive - Page 20
Jan 20, 2012
Professors Habyarimana and Jack
Jan 5, 2012
Two recent articles highlight research by GCER Fellow Luca Flabbi on wage inequality between men and women in the workplace.
A December article in Georgetown College News, and a January article in Georgetown University headline news discuss much of Flabbi's recent research on hiring practices, job and wage inequality, and the effects of job search and bargaining in the U.S. labor market.
Nov 29, 2011
Junior, the Risky Investment, Grandma, the Insurance Contract, and other bedtime stories as told by Gete and Porchia.
Children are sources of costs and benefits, both monetary and non-monetary. For these reasons economists have studied children as "assets" since the path-breaking work of Nobel Prize winner Gary Becker. However, GCER Faculty Fellow Pedro Gete and co-author Paolo Porchia claim in their recent paper "Fertility and Consumption when Having a Child is a Risky Investment" that the fertility literature is missing an important element: children are risky assets.
The risk comes from a variety of sources. A would-be parent cannot precisely forecast the cost of raising a child (presumably such costs would include opportunity cost of the parents' time and the effects on their career paths) or the benefits that a child will provide. A parent cannot predict, for example, how often her children will get sick, how much money and time it will cost to treat an illness, whether the child will need extra support at school or instead gets a full scholarship to go to Harvard, or whether her child becomes a successful actor who brings in millions of dollars to the family. Moreover, insure markets for many of the aforementioned contingencies, especially those related to the time costs for the parents, do not exist. As risky assets, children are at most partially insurable. Consequently, childbearing adds another source of risk to households.
Gete and Porchia study the consequences for fertility and consumption, taking into account that children are a source of risk that interacts with other risks borne by the parents. They develop a model in which the decision to have a child is comparable to the decision to exercise a financial option. In the model a household has an initial wealth and every period receives some stochastic income (assumed exogenous for simplicity). The household gets utility from consumption and can save at a risk free rate. Moreover, she can decide to have a child or to postpone the decision. If the household has a child then she is acquiring an irreversible, durable and non-tradable asset that gives her non-stochastic utility, but implies some stochastic exogenous costs. These uncertain costs can be correlated with income and are not insured by financial markets.
Gete and Porchia establish several new theoretical results: i) Higher cost volatility diminishes fertility and consumption. Intuitively, risk averse households are less willing to invest in riskier assets. Higher risk results in higher precautionary savings. ii) Risk aversion speeds up fertility and lowers consumption. This happens because a child is a safe source of utility (for example, parents know that they will enjoy playing with their children). This safe utility flow is an important characteristic of children when we think of them as an asset class. It pushes the household for early fertility to enjoy the children as an insurance mechanism against fluctuations in consumption. iii) Fertility is increasing in the correlation between income and child cost shocks. The household is reluctant to have children when positive cost shocks come together with bad income shocks (for example, households for whom child illnesses imply to reduce hours of work and this have negative consequences for the parents' careers). A pro-natalist government may encourage fertility by altering this correlation with policies of State-paid leaves when the child is ill, or by supporting childcare. iv) The sign of the correlation determines whether higher income volatility speeds up or delays fertility, although the effect decays with risk aversion. Households with volatile earnings will have more children if children hedge income shocks (for example, having a child increases the likelihood of receiving a subsidy when the parent is unemployed).
Finally, to motivate the empirical appeal of the theory, Gete and Porchia identify a variable that can serve as a proxy for child cost risk: the distance of the grandparents to the parents. They assume that households whose parents live close by face less uncertainty from the time costs shocks associated with raising a child. They show that this variable is a highly significant predictor of the likelihood of childbearing. The higher the distance to the parents the smaller the likelihood of childbearing. Distance is significant also when controlling for variables commonly associated with the fertility decision, such as income, wealth, income over wealth, age of the householder, race, religion and education. Hence, when financial markets do not insure the risks associated with child rearing, an available grandparent turns out to be excellent insurance contract.
Nov 8, 2011
GCER is pleased to announce that David Card, the Class of 1950 Professor of Economics at UC Berkeley, will present the 2012 Razin Policy Lecture at Georgetown University.
This year's Razin Lecture is entitled "Social Interactions" and takes place on Tuesday, April 17, 2012, at 4:00 pm in the BSB 490 Fisher Colloquium.
Professor Card was honored by the American Economic Association in 1995 with the John Bates Clark Medal. More he received the Frisch Medal in 2007 for the outstanding research paper (with D. Hyslop) published in Econometrica in 2005, and the IZA Prize in Labor Economics in 2006, from Germany's Institute for the Study of Labor, the leading award for labor economists.
David Card's research spans a wide range of issues and problems in labor economics. He research topics include the effect of minimum wage, the impacts of immigration, the consequences of racial segregation, and the effects policy changes on health insurance utilization and on health. Card's most recent work studies peer effects and inequality in the workplace.
Sep 10, 2011
The Georgetown Department of Economics and Center for Economic Research is very pleased to announce that John Rust will be joining the department in the Fall of 2012 as Professor and GCER Faculty Fellow. Rust will be moving over to Georgetown from the University of Maryland where he has resided as Professor of Economics since 2001.
Rust's research is internationally renowned, and spans both the technical frontier and the practical side of economics. He is best known for his research on the development of computationally tractable methods for solving and estimating models of dynamic decision making under uncertainty.In a series of widely acclaimed publications Rust demonstrated that these discrete dynamic programming models provide accurate predictions of actual human decision making in a variety of contexts. Along the way, he pioneered new algorithms for solving these problems, attracting the attention of leading computer scientists and mathematicians working in the field of computational complexity as well as the economists working in this field.
Rust has received numerous awards for his research. He was awarded an Alfred Sloan Fellowship in 1988 and a fellowship at the Hoover Institution in Stanford in 1991. He was elected as a Fellow of the Econometric Society in 1993 and became a fellow of the TIAA-CREF Institute (the largest retirement fund for college professors) in 2003. In 1997, Rust received the Ragnar Frisch Medal from The Econometric Society for his first empirical application of the method in the paper, "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher."
Rust has been on the editorial board of numerous journals including serving as an Associate Editor at Econometrica and co-editor of the Journal of Applied Econometrics. He has been a consultant to the U.S. Social Security Administration and a member of the Long Term Modeling Advisory Panel at the Congressional Budget Office. He has served as a member of the Economics Panel of the National Science Foundation and the Committee on National Statistics of the National Academy of Science, as a member of the Panel on Retirement Income Modeling, and served as an advisor to the Steering Committee that advised on the design of the Health and Retirement Survey (HRS).
Most recently Rust has served as a member of the Technical Advisory Panel to the Social Security Advisory Board, and a consultant to the Social Security Administration on long term policy modeling via a research contract between SSA and the Urban Institute.
Rust received his PhD from MIT in 1983, specializing in applied econometrics. He held previous faculty positions, first at the University of Wisconsin from 1983 to 1995, and then at Yale from 1996 to 2001. In all his faculty appointments, he has been Professor of Economics since 1990.