The impact of interest-rate subsidies on long-term household debt: Evidence from a large program

The responsiveness of long-term household debt to the interest rate is acrucial parameter for assessing the effectiveness of public policies aimedat promoting specific types of saving. This paper estimates the effect ofa reform of Credito Bonificado, a large program in Portugal that subsidizedmortgage interest rates, on long-term household debt. The reform establisheda ceiling in the price of the house that could be financed through theprogram, and provides plausibly exogenous variation in incentives. Usinga unique dataset of matched household survey data and administrative recordsof debt, we document a large decrease in the probability of signing a newloan after the removal of the subsidy.

Stabilization versus insurance: Welfare effects of procyclical taxation under incomplete markets

We construct and calibrate a general equilibrium business cycle model with unemployment and precautionary saving. We compute the cost of business cycles and locate the optimum in a set of simple cyclical fiscal policies. Our economy exhibits productivity shocks, giving firms an incentive to hire more when productivity is high. However, business cycles make workers' income riskier, both by increasing the unconditional probability of unusuallylong unemployment spells, and by making wages more variable, and therefore they decrease social welfare by around one-fourth or one-third of 1% of consumption. Optimal fiscal policy offsets the cycle, holding unemployment benefits constant but varying the tax rate procyclically to smooth hiring. By running a deficit of 4% to 5% of output in recessions, the government eliminates half the variation in the unemployment rate, most of the variation in workers'aggregate consumption, and most of the welfare cost of business cycles.

Deciding analytically or trusting your intuition? The advantadges and disadvantadges of analytic and intuitive thought

Recent research has highlighted the notion that people can make judgmentsand choices by means of two systems that are labeled here tacit(or intuitive) and deliberate (or analytic). Whereas most decisionstypically involve both systems, this chapter examines the conditions underwhich each system is liable to be more effective. This aims to illuminatethe age-old issue of whether and when people should trust intuition or analysis. To do this, a framework is presented to understand how thetacit and deliberate systems work in tandem. Distinctions are also madebetween the types of information typically used by both systems as wellas the characteristics of environments that facilitate or hinder accuratelearning by the tacit system. Next, several experiments that havecontrasted intuitive and analytic modes on the same tasks are reviewed.Together, the theoretical framework and experimental evidence leads tospecifying the trade-off that characterizes their relative effectiveness.Tacit system responses can be subject to biases. In making deliberate systemresponses, however, people might not be aware of the correct rule to dealwith the task they are facing and/or make errors in executing it. Whethertacit or deliberate responses are more valid in particular circumstancesrequires assessing this trade-off. In this, the probability of making errorsin deliberate thought is postulated to be a function of the analytical complexityof the task as perceived by the person. Thus the trade-off is one of bias (inimplicit responses) versus analytical complexity (when tasks are handled indeliberate mode). Finally, it is noted that whereas much attention has beenpaid in the past to helping people make decisions in deliberate mode, effortsshould also be directed toward improving ability to make decisions intacit mode since the effectiveness of decisions clearly depends on both. Thistherefore represents an important frontier for research.

Killing by lung cancer or by diabetes? The trade-off between smoking and obesity

As the prevalence of smoking has decreased to below 20%, health practitioners interest has shifted towards theprevalence of obesity, and reducing it is one of the major health challenges in decades to come. In this paper westudy the impact that the final product of the anti-smoking campaign, that is, smokers quitting the habit, had onaverage weight in the population. To these ends, we use data from the Behavioral Risk Factors Surveillance System,a large series of independent representative cross-sectional surveys. We construct a synthetic panel that allows us tocontrol for unobserved heterogeneity and we exploit the exogenous changes in taxes and regulations to instrumentthe endogenous decision to give up the habit of smoking. Our estimates, are very close to estimates issued in the 90sby the US Department of Health, and indicate that a 10% decrease in the incidence of smoking leads to an averageweight increase of 2.2 to 3 pounds, depending on choice of specification. In addition, we find evidence that the effectovershoots in the short run, although a significant part remains even after two years. However, when we split thesample between men and women, we only find a significant effect for men. Finally, the implicit elasticity of quittingsmoking to the probability of becoming obese is calculated at 0.58. This implies that the net benefit from reducingthe incidence of smoking by 1% is positive even though the cost to society is $0.6 billions.

Effects of uncertain lifetime and annuity insurance on capital accumulation and growth

This paper studies the effects of uncertain lifetime on capitalaccumulation and growth and also the sensitivity of thoseeffects to the existence of a perfect annuities market. Themodel is an overlapping generations model with uncertainlifetimes. The technology is convex and such that the marginalproduct of capital is bounded away from zero. A contribution ofthis paper is to show that the existence of accidental bequestsmay lead the economy to an equilibrium that exhibits asymptoticgrowth, which is impossible in an economy with a perfect annuitiesmarket or with certain lifetimes. This paper also shows that ifindividuals face a positive probability of surviving in everyperiod, they may be willing to save at any age. This effect ofuncertain lifetime on savings may also lead the economy to anequilibrium exhibiting asymptotic growth even if there exists aperfect annuities market.

The domain and interpretation of utility functions: An exploration

This paper proposes an exploration of the methodology of utilityfunctions that distinguishes interpretation from representation. Whilerepresentation univocally assigns numbers to the entities of the domainof utility functions, interpretation relates these entities withempirically observable objects of choice. This allows us to makeexplicit the standard interpretation of utility functions which assumesthat two objects have the same utility if and only if the individual isindifferent among them. We explore the underlying assumptions of suchan hypothesis and propose a non-standard interpretation according towhich objects of choice have a well-defined utility although individualsmay vary in the way they treat these objects in a specific context.We provide examples of such a methodological approach that may explainsome reversal of preferences and suggest possible mathematicalformulations for further research.

On the complexity of rationalizing behavior

We study the complexity of rationalizing choice behavior. We do so by analyzing two polar cases, and a number of intermediate ones. In our most structured case, that is where choice behavior is defined in universal choice domains and satisfies the "weak axiom of revealed preference," finding the complete preorder rationalizing choice behavior is a simple matter. In the polar case, where no restriction whatsoever is imposed, either on choice behavior or on choice domain, finding the complete preordersthat rationalize behavior turns out to be intractable. We show that the task of finding the rationalizing complete preorders is equivalent to a graph problem. This allows the search for existing algorithms in the graph theory literature, for the rationalization of choice.

Specialisation in Europe and asymmetric shocks: potential risks of EMU

Most optimistic views, based on Optimum Currency Areas (OCA) literature, have concluded that the probability of asymmetric shocks to occur at anational level will tend to diminish in the Economic and Monetary Union (EMU)as a result of the intensification of the integration process during the most recent years. Therefore, since Economic Geography Theories predict a higherspecialisation of regions, it is expected that asymmetric shocks will increase.Previous studies have examined to what extent asymmetric shocks have been relevant in the past using, mainly, static measures of asymmetries such as the correlation coefficients between series of shocks previously calculated from astructural VAR model (Bayoumi and Eichengreen, 1992).In this paper, we study the evolution of manufacturing specific asymmetries in Europe from a dynamic point of view (applying the modelproposed by Haldane and Hall, 1991) in order to obtain new evidence about potential risks of EMU.

Specialisation in Europe and asymmetric shocks: potential risks of EMU

Most optimistic views, based on Optimum Currency Areas (OCA) literature, have concluded that the probability of asymmetric shocks to occur at anational level will tend to diminish in the Economic and Monetary Union (EMU)as a result of the intensification of the integration process during the most recent years. Therefore, since Economic Geography Theories predict a higherspecialisation of regions, it is expected that asymmetric shocks will increase.Previous studies have examined to what extent asymmetric shocks have been relevant in the past using, mainly, static measures of asymmetries such as the correlation coefficients between series of shocks previously calculated from astructural VAR model (Bayoumi and Eichengreen, 1992).In this paper, we study the evolution of manufacturing specific asymmetries in Europe from a dynamic point of view (applying the modelproposed by Haldane and Hall, 1991) in order to obtain new evidence about potential risks of EMU.

Auction theory, sequential local service privatization, and the effects of geographical scale economies on effective competition

A sequential weakly efficient two-auction game with entry costs, interdependence between objects, two potential bidders and IPV assumption is presented here in order to give some theoretical predictions on the effects of geographical scale economies on local service privatization performance. It is shown that the first object seller takes profit of this interdependence. The interdependence externality rises effective competition for the first object, expressed as the probability of having more than one final bidder. Besides, if there is more than one final bidder in the first auction, seller extracts the entire bidder¿s expected future surplus differential between having won the first auction and having lost. Consequences for second object seller are less clear, reflecting the contradictory nature of the two main effects of object interdependence. On the one hand, first auction winner becomes ¿stronger¿, so that expected payments rise in a competitive environment. On the other hand, first auction loser becomes relatively ¿weaker¿, hence (probably) reducing effective competition for the second object. Additionally, some contributions to static auction theory with entry cost and asymmetric bidders are presented in the appendix

Willigness to pay for long-term care coverage: the role of private information and self-insurance

Both public and private insurance for long-term care is undeveloped in some European countries such as in Spain and empirical evidence is still limited. This paper aims at exmining the determinants of the demand for Long Term Care (LTC) coverage in Spain using contingent valuation techniques. Our findings indicate that only one-fifth of the population is willing to pay to assure coverage decisions are significantly affected by private information asymmetry and housing tenure in giving rise to self-insurance reduces the probability of insurance being hypothetically purchased.

Class of correlated random networks with hidden variables

We study a class of models of correlated random networks in which vertices are characterized by hidden variables controlling the establishment of edges between pairs of vertices. We find analytical expressions for the main topological properties of these models as a function of the distribution of hidden variables and the probability of connecting vertices. The expressions obtained are checked by means of numerical simulations in a particular example. The general model is extended to describe a practical algorithm to generate random networks with an a priori specified correlation structure. We also present an extension of the class, to map nonequilibrium growing networks to networks with hidden variables that represent the time at which each vertex was introduced in the system.

Predictors of death among patients who completed tuberculosis treatment: a population-based cohort study.

Background: Mortality among patients who complete tuberculosis (TB) treatment is still high among vulnerable populations. The objective of the study was to identify the probability of death and its predictive factors in a cohort of successfully treated TB patients. Methods: A population-based retrospective longitudinal study was performed in Barcelona, Spain. All patients who successfully completed TB treatment with culture-confirmation and available drug susceptibility testing between 1995 1997 were retrospectively followed-up until December 31, 2005 by the Barcelona TB Control Program. Socio-demographic, clinical, microbiological and treatment variables were examined. Mortality, TB Program and AIDS registries were reviewed. Kaplan-Meier and a Cox regression methods with time-dependent covariates were used for the survival analysis, calculating the hazard ratio (HR) with 95% confidence intervals (CI). Results: Among the 762 included patients, the median age was 36 years, 520 (68.2%) were male, 178 (23.4%) HIV-infected, and 208 (27.3%) were alcohol abusers. Of the 134 (17.6%) injecting drug users (IDU), 123 (91.8%) were HIV-infected. A total of 30 (3.9%) recurrences and 173 deaths (22.7%) occurred (mortality rate: 3.4/100 person-years of follow-up). The predictors of death were: age between 4160 years old (HR: 3.5; CI:2.15.7), age greater than 60 years (HR: 14.6; CI:8.924), alcohol abuse (HR: 1.7; CI:1.22.4) and HIV-infected IDU (HR: 7.9; CI:4.713.3). Conclusions: The mortality rate among TB patients who completed treatment is associated with vulnerable populations such as the elderly, alcohol abusers, and HIV-infected IDU. We therefore need to fight against poverty, and promote and develop interventions and social policies directed towards these populations to improve their survival.

Early use of TIPS in patients with cirrhosis and variceal bleeding.

Background Patients with cirrhosis in ChildPugh class C or those in class B who have persistent bleeding at endoscopy are at high risk for treatment failure and a poor prognosis, even if they have undergone rescue treatment with a transjugular intrahepatic porto - systemic shunt (TIPS). This study evaluated the earlier use of TIPS in such patients. Methods We randomly assigned, within 24 hours after admission, a total of 63 patients with cirrhosis and acute variceal bleeding who had been treated with vasoactive drugs plus endoscopic therapy to treatment with a polytetrafluoroethylene-covered stent within 72 hours after randomization (early-TIPS group, 32 patients) or continuation of vasoactive-drug therapy, followed after 3 to 5 days by treatment with propranolol or nadolol and long-term endoscopic band ligation (EBL), with insertion of a TIPS if needed as rescue therapy (pharmacotherapyEBL group, 31 patients). Results During a median follow-up of 16 months, rebleeding or failure to control bleeding occurred in 14 patients in the pharmacotherapyEBL group as compared with 1 patient in the early-TIPS group (P=0.001). The 1-year actuarial probability of remaining free of this composite end point was 50% in the pharmacotherapyEBL group versus 97% in the early-TIPS group (P<0.001). Sixteen patients died (12 in the pharmacotherapyEBL group and 4 in the early-TIPS group, P=0.01). The 1-year actuarial survival was 61% in the pharmacotherapyEBL group versus 86% in the early-TIPS group (P<0.001). Seven patients in the pharmacotherapyEBL group received TIPS as rescue therapy, but four died. The number of days in the intensive care unit and the percentage of time in the hospital during follow-up were significantly higher in the pharmacotherapyEBL group than in the early-TIPS group. No significant diferences were observed between the two treatment groups with respect to serious adverse events. Conclusions In these patients with cirrhosis who were hospitalized for acute variceal bleeding and at high risk for treatment failure, the early use of TIPS was associated with signif icant reductions in treatment failure and in mortality. (Current Controlled Trials number, ISRCTN58150114.)

Nadolol plus isosorbide mononitrate alone or associated with band ligation in the prevention of recurrent bleeding: A multicenter randomized controlled trial.

Background and aims: Previous clinical trials suggest that adding non-selective beta-blockers improves the efficacy of endoscopic band ligation (EBL) in the prevention of recurrent bleeding, but no study has evaluated whether EBL improves the efficacy of beta-blockers + isosorbide-5-mononitrate. The present study was aimed at evaluating this issue in a multicentre randomised controlled trial (RCT) and to correlate changes in hepatic venous pressure gradient (HVPG) during treatment with clinical outcomes. Methods: 158 patients with cirrhosis, admitted because of variceal bleeding, were randomised to receive nadolol+isosorbide-5-mononitrate alone (Drug: n=78) or combined with EBL (Drug+EBL; n=80). HVPG measurements were performed at randomisation and after 4¿6 weeks on medical therapy. Results: Median follow-up was 15 months. One-year probability of recurrent bleeding was similar in both groups (33% vs 26%: p=0.3). There were no significant differences in survival or need of rescue shunts. Overall adverse events or those requiring hospital admission were significantly more frequent in the Drug+EBL group. Recurrent bleeding was significantly more frequent in HVPG non-responders than in responders (HVPG reduction ¿20% or ¿12 mm Hg). Among non-responders recurrent bleeding was similar in patients treated with Drugs or Drugs+EBL. Conclusions: Adding EBL to pharmacological treatment did not reduce recurrent bleeding, the need for rescue therapy, or mortality, and was associated with more adverse events. Furthermore, associating EBL to drug therapy did not reduce the high rebleeding risk of HVPG non-responders.