3 new working papers (and 2 slightly older ones)

This sabbatical year at UQAM (Montreal) has been most productive ;-)

Here are 3 working papers just recently out. Comments most welcome!

1.      “The dynamics of capital accumulation in the US: Simulations after Piketty”, with J. Roemer. TSE WP2015/568, CESifo WP2015/5329.

Abstract:

We calibrate a sequence of four nested models to study the dynamics of wealth accumulation. Individuals maximize a utility function whose arguments are consumption and investment. They desire to accumulate wealth for its own sake – this is not a life-cycle model. A competitive firm produces a single good from labor and capital; the rate of return to capital and the wage rate are market-clearing. The second model introduces political lobbying by the wealthy, whose purpose is to reduce the tax rate on capital income. The third model introduces differential rates of return to capitals of different sizes. The fourth model introduces inheritance and intergenerational mobility.

2.      “The political choice of social long term care transfers when family gives time and money”, with Marie-Louise Leroux. TSE WP2015/569, CESifo WP2015/5384

Abstract:

We develop a model where families consist of one parent and one child, with children differing in income and all agents having the same probability of becoming dependent when old. Young and old individuals vote over the size of a social long term care transfer program, which children complement with help in time or money to their dependent parent. Dependent parents have an intrinsic preference for help in time by family members. We first show that low (resp., high) income children provide help in time (resp. in money), whose amount is decreasing (resp. increasing) with the child’s income. The middle income class may give no family help at all, and its elderly members would be the main beneficiaries of the introduction of social LTC transfers. We then provide several reasons for the stylized fact that there are little social LTC transfers in most countries. First, social transfers are dominated by help in time by the family when the intrinsic preference of dependent parents for the latter is large enough. Second, when the probability of becoming dependent is lower than one third, the children of autonomous parents are numerous enough to oppose democratically the introduction of social LTC transfers. Third, even when none of the first two conditions is satisfied, the majority voting equilibrium may entail no social transfers, especially if the probability of becoming dependent when old is not far above one third. This equilibrium may be local (meaning that it would be defeated by the introduction of a sufficiently large social program). This local majority equilibrium may be empirically relevant whenever new programs have to be introduced at a low scale before being eventually ramped up.

3.   “On the Political Economy of University Admission Standards”, with Francisco Martinez-Mora. TSE WP2015/582, CESifo WP2015/5382

Abstract:

We study the political determination of the proportion of students attending university when access to higher education is rationed by admission tests. Parents differ in income and in the ability of their unique child. They vote over the minimum ability level required to attend public universities, which are tuition-free and financed by proportional income taxation. University graduates become high skilled, while the other children attend vocational school and become low skilled. Even though individual preferences are neither single-peaked nor single-crossing, we obtain a unique majority voting equilibrium, which can be either classical (with 50% of the population attending university) or "ends-against-the-middle", with less than 50% attending university (and parents of low and high ability children favoring a smaller university system). The majority chosen university size is smaller than the Pareto efficient level in an ends-against-the-middle equilibrium. Higher income inequality decreases the majority chosen size of the university. A larger positive correlation between parents'income and child's ability leads to a larger university populated by a larger fraction of rich students, in line with the so-called participation gap. Our results are robust to the introduction of private schooling alternatives, financed with fees.

And, finally, two working papers, out last fall, which I forgot to mention here previously

4.      “Adverse Selection vs Discrimination Risk with Genetic Testing. An Experimental Approach”, with D. Bardey and C. Mantilla. CESifo WP2014/5080.

Abstract:

We develop a theoretical analysis of two widely used regulations of genetic tests, disclosure duty and consent law, and we run several experiments in order to shed light on both the takeup rate of genetic testing and on the comparison of policyholders’ welfare under the two regulations. Disclosure Duty forces individuals to reveal their test results to their insurers, exposing them to the risk of having to pay a large premium in case they are discovered to have a high probability of developing a disease (a discrimination risk). Differently, Consent Law allows them to hide this detrimental information, creating asymmetric information and adverse selection. We obtain that the take-up rate of the genetic test is low under Disclosure Duty, larger and increasing with adverse selection under Consent Law. Also, the fraction of individuals who are prefer Disclosure Duty to Consent Law increases with the amount of adverse selection under the latter. These results are obtained for exogenous values of adverse selection under Consent Law, and the repeated interactions experiment devised has not resulted in convergence towards an equilibrium level of adverse selection.

5. “Politically Sustainable Probabilistic Minority Targeting” with E. Peluso. CESifo WP 2014/4915. Under revision for the Journal of Public Economics.

Abstract:

We show that a transfer targeting a minority of the population is sustained by majority voting, however small the minority targeted, when the probability to receive the transfer is decreasing and concave in income. We apply our framework to the French social housing program and obtain that empirically observed departures from these assumptions are small enough that a majority of French voters should support a positive size of this program. We also provide a sufficient condition on this probability function under which more targeting results in a lower equilibrium size of the transfer system.