New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2005‒04‒24
five papers chosen by

  1. Intertemporal Substitution and Hyperbolic Discounting By Petra M. Geraats
  2. Non-Constant Discounting in Continuous Time By Larry Karp
  3. Government Policy Effects on Urban and Rural Income Inequality By Ximing Wu; Jeffrey Perloff; Amos Golan
  4. China's Income Distribution over Time: Reasons for Rising Inequality By Ximing Wu; Jeffrey Perloff
  5. Culture: An Empirical Investigation of Beliefs, Work, and Fertility By Raquel Fernandez; Alessandra Fogli

  1. By: Petra M. Geraats
    Abstract: Evidence from behavioural experiments suggests that intertemporal preferences reflect a hyperbolic discount function. This paper shows that in contrast to exponential discounting, the elasticity of intertemporal substitution for hyperbolic consumers depends on the persistence of the change in the intertemporal relative price. In particular, lasting changes in the real interest rate are likely to generate a smaller degree of intertemporal substitution in consumption than temporary changes. This result holds for both sophisticated and naive hyperbolic consumers. It provides a novel testable implication of hyperbolic discounting and a new perspective on intertemporal substitution.
    Keywords: Intertemporal substitution, consumption, quasi-hyberbolic discounting
    JEL: D91 E21
    Date: 2005–04
  2. By: Larry Karp (University of California, Berkeley and Giannini Foundation)
    Abstract: This note derives the dynamic programming equation (DPE) to a differentiable Markov Perfect equilibrium in a problem with non-constant discounting and general functional forms. We begin with a discrete stage model and take the limit as the length of the stage goes to 0 to obtain the DPE corresponding to the continuous time problem. We characterize the multiplicity of equilibria under non-constant discounting and discuss the relation between a given equilibrium of that model and the unique equilibrium of a related problem with constant discounting. We calculate the bounds of the set of candidate steady states and we Pareto rank the equilibria.
    Keywords: hyperbolic discounting, time consistency, Markov equilibria, non-uniqueness, observational equivalence, Pareto efficiency,
    Date: 2004–01–05
  3. By: Ximing Wu (University of Guelph); Jeffrey Perloff (University of California, Berkeley, and Giannini Foundation); Amos Golan (American University)
    Keywords: income distribution, inequality, public policy, welfare,
    Date: 2004–02–01
  4. By: Ximing Wu (University of Guelph); Jeffrey Perloff (University of California, Berkeley, and Giannini Foundation)
    Abstract: We use a new method to estimate China's income distributions using publicly available interval summary statistics from China's largest national household survey. We examine rural, urban, and overall income distributions for each year from 1985-2001. By estimating the entire distributions, we can show how the distributions change directly as well as examine trends in traditional welfare indices such as the Gini. We find that inequality has increased substantially in both rural and urban areas. Using an inter-temporal decomposition of aggregate inequality, we determine that increases in inequality within the rural and urban sectors and the growing gap in rural and urban incomes have been equally responsible for the growth in overall inequality over the last two decades. However, the rural-urban income gap has played an increasingly important role in recent years. In contrast, only the growth of inequality within rural and urban areas is responsible for the increase in inequality in the United States, where the overall inequality is close to that of China. We also show that urban consumption inequality (which may be a better indicator of economic well-being than income inequality) rose considerably.
    Keywords: economic development, income distribution,
    Date: 2004–02–01
  5. By: Raquel Fernandez; Alessandra Fogli
    Abstract: We study the effect of culture on important economic outcomes by using the 1970 Census to examine the work and fertility behavior of women 30-40 years old, born in the U.S., but whose parents were born elsewhere. We use past female labor force participation and total fertility rates from the country of ancestry as our cultural proxies. These variables should capture, in addition to past economic and institutional conditions, the beliefs commonly held about the role of women in society, i.e. culture. Given the different time and place, only the beliefs embodied in the cultural proxies should be potentially relevant to women's behavior in the US in 1970. We show that these cultural proxies have positive and significant explanatory power for individual work and fertility outcomes, even after controlling for possible indirect effects of culture (e.g., education and spousal characteristics). We examine alternative hypotheses for these positive correlations and show that neither unobserved human capital nor networks are likely to be responsible. We also show that the effect of these cultural proxies is amplified the greater is the tendency for ethnic groups to cluster in the same neighborhoods.
    JEL: J13 J21 Z10
    Date: 2005–04

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