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on Neuroeconomics |
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Issue of 2019‒09‒23
two papers chosen by |
| By: | Uta Bolt (University College London); Cormac O'Dea (Yale University); Eric French (University College London); Jamie Hentall MacCuish (University College London) |
| Abstract: | Parental investments in children can take one of three broad forms: (1) Time investments during childhood and adolescence that aid child development, and in particular cognitive ability (2) Educational investments that improve school quality and hence educational outcomes (3) Cash investments in the form of inter-vivos transfers and bequests. We develop a dynastic model of household decision making with intergenerational altruism that nests a child production function, incorporates all three of these types of investments, and allows us to quantify their relative importance and estimate the strength of intergenerational altruism. Using British cohort data that follows individuals from birth to retirement, we find that around 40\% of differences in average lifetime income by paternal education are explained by ability at age 7, around 40\% by subsequent divergence in ability and different educational outcomes, and around 20\% by inter-vivos transfers and bequests received so far. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1262&r=all |
| By: | Francesco D'Acunto (Boston College); Daniel Hoang (Karlsruhe Institute of Technology); Maritta Paloviita (Bank of Finland); Michael Weber (University of Chicago) |
| Abstract: | Intertemporal substitution is at the heart of modern macroeconomics and finance as well as economic policymaking, but a large fraction of a representative population of men -- those below the top of the distribution by cognitive abilities (IQ) -- do not change their consumption propensities with their inflation expectations. Low-IQ men are also less than half as sensitive to interest-rate changes when making borrowing decisions. Our microdata include unique administrative information on cognitive abilities, as well as economic expectations, consumption and borrowing plans, and total household debt from Finland. Heterogeneity in observables such as education, income, other expectations, and financial constraints do not drive these patterns. Costly information acquisition and the ability to form accurate forecasts are channels that cannot fully explain these results. Limited cognitive abilities could be human frictions in the transmission and effectiveness of fiscal and monetary policies that operate through household consumption and borrowing decisions. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:339&r=all |