Climate change is considered as one of the major global challenges. Although countries past and future contributions to the accumulation of greenhouse gases in the atmosphere are different, all countries are affected, but not necessarily in the same way (e.g. rising sea levels). This is the reason why it is so hard to reach global agreements on this matter. We study this issue in a dynamic game-theoretical model (stochastic differential game) with multiple countries that are open economies, i.e. we allow for international trade between the countries. Our framework involves stochastic dynamics for CO2-emissions and economic output of the countries. Each country is represented by a recursive-preference functional. Despite its complexity, the model is tractable and we can quantify each country's decision on consumption, investment, carbon abatement and the social cost of carbon, explicitly. One key finding is that both the country-specific and global social cost of carbon are increasing in the trade volume. This result is robust to adding capital transfers between countries. Our numerical examples suggest that disregarding trade might lead to a significant underestimation of the SCC.
Whom Do Employers Want? The Role of Recent Employment and Unemployment Status and Age -- by Henry S. Farber, Chris M. Herbst, Dan Silverman, Till von Wachter
We use a resume audit study to better understand the role of employment and unemployment histories in affecting callbacks to job applications. We focus on how the effect of career history varies by age, partly in an attempt to reconcile disparate findings in prior studies. While we cannot reconcile earlier findings on the effect of unemployment duration, the findings solidify an emerging consensus on the role of age and employment on callback. First, among applicants across a broad age range, we find that applicants with 52 weeks of unemployment have a lower callback rate than do applicants with shorter unemployment spells. However, regardless of an applicant's age, there is no relationship between spell length and callback among applicants with shorter spells. Second, we find a hump-shaped relationship between age and callback, with both younger and older applicants having a lower probability of callback relative to prime-aged applicants. Finally, we find that those applicants who are employed at the time of application have a lower callback rate than do unemployed applicants, regardless of whether the interim job is of lower or comparable quality relative to the applied-for job. This may reflect a perception among employers that it is harder or more expensive to attract an applicant who is currently employed.
Long-run Trends in the Economic Activity of Older People in the UK -- by James Banks, Carl Emmerson, Gemma Tetlow
We document employment rates of older men and women in the UK over the last forty years. In both cases growth in employment since the mid 1990s has been stronger than for younger age groups. On average, older men are still less likely to be in work than they were in the mid 1970s although this is not true for those with low education. We highlight issues with using years of schooling as a measure of educational achievement for analysing labour market trends at older ages, not least because a large proportion of men who left school at young ages without any formal qualifications, have subsequently acquired some. Reforms - such as the abolition of the earnings test and rises in the female State Pension Age, have pushed up employment rates. But other factors - such as the shift from defined benefit to defined contribution pensions being offered by private sector employers and the growth in employment rates at younger ages among successive cohorts of women - are also important. We discuss the role of other cohort and economy-wide trends, highlighting that the proportion of older men and women employed in professional, managerial and technical occupations has been particularly strong.
Using U.S county level data on lead in air for 1978-1988 and lead in topsoil in the 2000s, this paper examines the impact of lead exposure on a critical human function with societal implications - fertility. To provide causal estimates of the effect of lead on fertility, we use two sets of instruments: i) the interaction of the timing of implementation of Clean Air Act regulations and the 1944 Interstate Highway System Plan for the panel data and ii) the 1944 Interstate Highway System Plan for the cross sectional data. We find that reductions in airborne lead between 1978 and 1988 increased fertility rates and that higher lead in topsoil decreased fertility rates in the 2000s. The latter finding is particularly concerning, because it suggests that lead may continue to impair fertility today, both in the United States and in other countries that have significant amounts of lead in topsoil.
Hysteresis and the Welfare Effect of Corrective Policies: Theory and Evidence from an Energy-Saving Program -- by Francisco Costa, Francois Gerard
A growing body of evidence documents that policies can affect household behaviors persistently, even if they are no longer in place. This paper studies the importance of such "hysteresis" - the failure of an effect to reverse itself as its underlying cause is reversed - for the welfare evaluation of corrective policies. First, we introduce hysteresis into the textbook framework used to derive canonical sufficient statistics formulas for the welfare effect of corrective policies. We then derive new formulas allowing for hysteresis. We show that, under certain conditions, the persistent effect of a short-run (i.e., temporary) policy becomes a new key statistic for evaluating the welfare effect of such a policy, and also of a long-run (i.e., permanent) version of a similar policy. Second, we estimate the persistent effect of a short-run policy, for which we argue that these conditions are met, in a policy-relevant context: residential electricity use in a developing country setting. We estimate that about half of the dramatic short-run reductions in residential electricity use induced by a 9-month-long policy that was imposed on millions of Brazilian households in 2001 persisted for at least 12 years after the policy ended. Finally, we combine our estimates with our framework to illustrate the implications that hysteresis can have for the welfare evaluation of corrective policies.
Early Social Security Claiming and Old-Age Poverty: Evidence from the Introduction of the Social Security Early Eligibility Age -- by Gary V. Engelhardt, Jonathan Gruber, Anil Kumar
Social Security faces a major financing shortfall. One policy option for addressing this shortfall would be to raise the earliest age at which individuals can claim their retirement benefits. A welfare analysis of such a policy change depends critically on how it affects living standards. This paper estimates the impact of the Social Security early entitlement age on later-life elderly living standards by tracing birth cohorts of men who had access to different potential claiming ages. The focus is on the Social Security Amendments of 1961, which introduced age 62 as the early entitlement age (EEA) for retired-worker benefits for men. Based on data from the Social Security Administration and March 1968-2001 Current Population Surveys, reductions in the EEA in the long-run lowered the average claiming age by 1.4 years, which lowered Social Security income for male-headed families in retirement by 1.5% at the mean, 3% at the median, and 4% at the 25th percentile of the Social Security income distribution. The increase in early claiming was associated with a decrease in total income, but only at the bottom of the income distribution. There was a large associated rise in elderly poverty and income inequality; the introduction of early claiming raised the elderly poverty rate by about one percentage point. Finally, for the 1885-1916 cohorts, the implied elasticity of poverty with respect to Social Security income for male-headed families is 1.6â. Overall, we find that the introduction of early claiming was associated with a reduction in income and an increase in the poverty rate in old age for male-headed households.
Parents' Beliefs About Their Children's Academic Ability: Implications for Educational Investments -- by Rebecca Dizon-Ross
Information about children's school performance appears to be readily available. Do frictions prevent parents, particularly poor parents, from acting on this information when making decisions? I conduct a field experiment in Malawi to test this. I find that parents' baseline beliefs about their children's academic performance are inaccurate. Providing parents with clear and digestible academic performance information causes them to update their beliefs and correspondingly adjust their investments: they increase the school enrollment of their higher-performing children, decrease the enrollment of their lower-performing children, and choose educational inputs that are more closely matched to their children's academic level. These effects demonstrate the presence of important frictions preventing the use of available information, with heterogeneity analysis suggesting the frictions are worse among the poor.
Trust in State and Non-State Actors: Evidence from Dispute Resolution in Pakistan -- by Daron Acemoglu, Ali Cheema, Asim I. Khwaja, James A. Robinson
Lack of trust in state institutions, often due to poor service provision, is a pervasive problem in many developing countries. If this increases reliance on non-state actors for crucial services, the resulting self-reinforcing cycle can further weaken the state. This paper examines whether such a cycle can be disrupted. We focus on dispute resolution in rural Punjab, Pakistan. We find that providing information about reduced delays in state courts leads to citizens reporting higher willingness to use state courts and to greater fund allocations to the state in two lab-in-the-field games designed to measure trust in state and non-state actors in a high-stakes setting. More interestingly, we find indirect effects on non-state actors. After receiving state positive information, respondents report lower likelihood of using non-state institutions and reduce funds allocated to them in field games. Furthermore, we find similar direct and indirect effects on a battery of questions concerning people's beliefs about these actors, including a decreased allegiance to the non-state actor. We rationalize these results with a model of motivated reasoning whereby reduced usage of non-state institutions makes people less likely to hold positive views about them. These results indicate that, despite substantial distrust of the state in Pakistan, credible new information can change beliefs and behavior. The feedback loop between state ineffectiveness and the legitimacy of non-state actors may be reversible.
Does the New Keynesian Model Have a Uniqueness Problem? -- by Lawrence Christiano, Martin S. Eichenbaum, Benjamin K. Johannsen
This paper addresses whether non-uniqueness of equilibrium is a substantive problem for the analysis of fiscal policy in New-Keynesian (NK) models at the zero lower bound (ZLB). There would be a substantive problem if there were no compelling way to select among different equilibria that give different answers to critical policy questions. We argue that learnability provides such a criterion. We study a fully non-linear NK model with Calvo pricing frictions. Our main finding is that the model we analyze has a unique E-stable rational expectations equilibrium at the ZLB. That equilibrium is also stable-under-learning and inherits all of the key properties of linearized NK models for fiscal policy.
While the ECB helped mitigate the euro crisis in the aftermath of Lehman, it has stretched its monetary mandate and moved into fiscal territory. This text describes and summarizes the crucial role played by the ECB in the intervention spiral resulting from its bid to manage the crisis. It also outlines ongoing competitiveness problems in southern Europe, discusses the so-called austerity policy of the Troika, comments on QE and presents two alternative paths for the future development of Europe.
Labor Force Participation of the Elderly in Japan -- by Takashi Oshio, Emiko Usui, Satoshi Shimizutani
Japan experienced increases in labor force participation (LFP) of the elderly in recent years, as have other advanced countries. In the present study, we overview the employment trend of the elderly in Japan, and examine what factors have contributed to its increase since the early 2000s. Improved health and longevity, increasing education levels, and a shift towards less physically demanding jobs have allowed the elderly to stay longer in the labor force. However, elderly employment rebound and its timing are more closely linked to changes in social security incentives, especially increases in the eligibility age for public pension benefits. More broadly, reduced generosity in social security programs since the mid-1980s has been a key driver of the long-term trend change in elderly employment. A series of social security reforms have helped utilize the elderly's potential work capacity, accumulated due to improving health conditions and other favorable factors for LFP in the elderly.
This paper investigates whether judge political affiliation contributes to racial and gender disparities in sentencing using data on over 500,000 federal defendants linked to sentencing judge. Exploiting random case assignment, we find that Republican-appointed judges sentence black defendants to 3.0 more months than similar non-blacks and female defendants to 2.0 fewer months than similar males compared to Democratic-appointed judges, 65 percent of the baseline racial sentence gap and 17 percent of the baseline gender sentence gap, respectively. These differences cannot be explained by other judge characteristics and grow substantially larger when judges are granted more discretion.