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Abstract
Cognitive decline may lead older Americans to make poor financial decisions. Preventing poor decisions may require timely transfer of financial control to a reliable agent.
Cognitive decline, however, can develop unnoticed, creating the possibility of suboptimal timing of the transfer of control.
This paper presents survey-based evidence that wealthholders regard suboptimal timing of the transfer of control, in particular delay due to unnoticed cognitive decline, as a substantial risk to financial well-being.
This paper provides a theoretical framework to model such a lack of awareness and the resulting welfare loss.
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Abstract
We study how innovation and technology diffusion interact to endogenously determine the shape of the productivity distribution and generate aggregate growth.
We model firms that choose to innovate, adopt technology, or produce with their existing technology.
Costly adoption creates a spread between the best and worst technologies concurrently used to produce similar goods.
The balance of adoption and innovation determines the shape of the distribution; innovation stretches the distribution, while adoption compresses it.
On the balanced growth path, the aggregate growth rate equals the maximum growth rate of innovators.
While innovation drives long-run growth, changes in the adoption environment can influence growth by affecting innovation incentives, either directly, through licensing of excludable technologies, or indirectly, via the option value of adoption.
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Abstract
We study how opening to trade affects economic growth in a model where heterogeneous firms can adopt new technologies already in use by other firms in their home country.
We characterize the growth rate using a summary statistic of the profit distribution—the mean-min ratio.
Opening to trade increases the profit spread through increased export opportunities and foreign competition, induces more rapid technology adoption, and generates faster growth.
Quantitatively, these forces produce large welfare gains from trade by increasing an inefficiently low rate of technology adoption and economic growth.
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Abstract
Data is nonrival: a person's location history, medical records, and driving data can be used by any number of firms simultaneously.
Nonrivalry leads to increasing returns and implies an important role for market structure and property rights.
Who should own data? What restrictions should apply to the use of data? We show that in equilibrium, firms may not adequately respect the privacy of consumers.
But nonrivalry leads to other consequences that are less obvious. Because of nonrivalry, there may be large social gains to data being used broadly across firms, even in the presence of privacy considerations.
Fearing creative destruction, firms may choose to hoard data they own, leading to the inefficient use of nonrival data.
Instead, giving the data property rights to consumers can generate allocations that are close to optimal.
Consumers balance their concerns for privacy against the economic gains that come from selling data to all interested parties.
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Abstract
Older wealthholders spend down assets much more slowly than predicted by classic life-cycle models.
This paper introduces health-dependent utility into a model with incomplete markets in which preferences for
bequests, expenditures when in need of long-term care (LTC), and ordinary consumption combine with health and longevity uncertainty to explain saving behavior.
To sharply identify motives, it develops strategic survey questions (SSQs) that elicit stated preferences.
The model is estimated using these SSQs and wealth data from the Vanguard Research Initiative.
The desire to self-insure against long-term-care risk explains a substantial fraction of the wealthholding of many older Americans.
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Abstract
Older Americans, even those who are long retired, have strong willingness to work, especially in jobs with flexible schedules. For many, labor force participation near or after normal retirement age is limited more by a lack of acceptable job opportunities or low expectations about finding them than by unwillingness to work longer. This paper establishes these findings using an approach to identification based on strategic survey questions (SSQs), purpose-designed to complement behavioral data. These findings suggest that demand-side factors are important in explaining late-in-life labor market behavior and need to be considered in designing policies aimed at promoting working longer.
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Abstract
There exists an extensive literature estimating idiosyncratic labor income processes. While a wide
variety of models are estimated, GMM estimators are almost always used. We examine the validity
of using likelihood based estimation in this context by comparing the small sample properties of a
Bayesian estimator to those of GMM. Our baseline studies estimators of a commonly used simple
earnings process. We extend our analysis to more complex environments, allowing for real world
phenomena such as time varying and heterogeneous parameters, missing data, unbalanced panels,
and non-normal errors. The Bayesian estimators are demonstrated to have favorable bias and efficiency properties.
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Abstract
The least productive agents in an economy can be vital in generating
growth by spurring technology diffusion. We develop an analytically
tractable model in which growth is created as a positive externality
from risk taking by firms at the bottom of the productivity distribution
imitating more productive firms. Heterogeneous firms choose
to produce or pay a cost and search within the economy to upgrade
their technology. Sustained growth comes from the feedback between
the endogenously determined distribution of productivity, as evolved
from past search decisions, and an optimal, forward-looking search
policy. The growth rate depends on characteristics of the productivity
distribution, with a thicker-tailed distribution leading to more growth.
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Abstract
Will fast growing emerging economies sustain rapid growth rates until they "catchup"
to the technology frontier? Are there incentives for some developed countries to free-ride
off of innovators and optimally "fall-back" relative to the frontier? This paper models agents
growing as a result of investments in innovation and imitation. Imitation facilitates technology
diffusion, with the productivity of imitation modeled by a catch-up function that
increases with distance to the frontier. The resulting equilibrium is an endogenous segmentation
between innovators and imitators, where imitating agents optimally choose to "catch-up"
or "fall-back" to a productivity ratio below the frontier.
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Abstract
Using data on repurchase agreements by primary securities dealers, we show that three
classes of securities (Treasury securities, securities issued by government-sponsored agencies,
and mortgage-backed securities) can be formally ranked in terms of their collateral
values in the general collateral (GC) market. We then show that GC repurchase agreement
(repo) spreads across asset classes display jumps and significant temporal variation, especially
at times of predictable liquidity needs, consistent with the "safe haven" properties of
Treasury securities: These jumps are driven almost entirely by the behavior of the GC repo
rates of Treasury securities. Estimating the "collateral rents" earned by owners of these securities,
we find such rents to be sizable for Treasury securities and nearly zero for agency
and mortgage-backed securities. Finally, we link collateral values to asset prices in a simple
no-arbitrage framework and show that variations in collateral values explain a significant
fraction of changes in short-term yield spreads but not those of longer-term spreads.
Our results point to securities' role as collateral as a promising direction of research
to improve understanding of the pricing of money market securities and their spreads.