PARC Working Paper Series
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PublicationWhat Determines Adult Cognitive Skills? Impacts of Pre-Schooling, Schooling and Post-Schooling Experiences in Guatemala(2006-04-01) Behrman, Jere R; Hoddinott, John; Maluccio, John A; Soler-Hampejsek, Erica; Behrman, Emily L; Martorell, Reynaldo; Ramirez-Zea, Manuel; Stein, Aryeh DMost investigations of the importance of and the determinants of adult cognitive skills assume that (a) they are produced primarily by schooling and (b) schooling is statistically predetermined. But these assumptions may lead to misleading inferences about impacts of schooling and of pre-schooling and post-schooling experiences on adult cognitive skills. This study uses an unusually rich longitudinal data set collected over 35 years in Guatemala to investigate production functions for adult (i) reading-comprehension and (ii) non-verbal cognitive skills as dependent on behaviorally-determined pre-schooling, schooling and post-schooling experiences. Major results are: (1) Schooling has significant and substantial impact on adult reading comprehension (but not on adult non-verbal cognitive skills) —but estimates of this impact are biased upwards substantially if there is not control for behavioral determinants of schooling in the presence of persistent unobserved factors such as genetic endowments and/or if family background factors that appear to be correlated with genetic endowments are included among the first-stage instruments. (2) Both pre-schooling and post-schooling experiences have substantial significant impacts on one or both of the adult cognitive skill measures that tend to be underestimated if these pre- and post-schooling experiences are treated as statistically predetermined—in contrast to the upward bias for schooling, which suggests that the underlying physical and job-related components of genetic endowments are negatively correlated with those for cognitive skills. (3) The failure in most studies to incorporate pre- and post-schooling experiences in the analysis of adult cognitive skills or outcomes affected by adult skills is likely to lead to misleading over-emphasis on schooling relative to these pre-and post-schooling experiences. (4) Gender differences in the coefficients of the adult cognitive skills production functions are not significant, suggesting that most of the fairly substantial differences in adult cognitive skills favoring males on average originate from gender differences in completed grades of schooling and in experience in skilled jobs favoring males. These four sets of findings are of substantial interest in themselves. But they also have important implications for broader literatures, pointing to limitations in the cross-country growth literature of using schooling of adults to represent human capital, supporting hypotheses about the importance of childhood nutrition and work complexity in explaining the “Flynn effect” of substantial increases in measured cognitive skills over time, and questioning the interpretation of studies that report productivity impacts of cognitive skills without controlling for the endogeneity of such skills. PublicationEffects of Age Misreporting on Mortality Estimates at Older Ages(1997-09-01) Preston, Samuel H.; Elo, Irma T.; Stewart, QuincyThis study examines how age misreporting typically affects estimates of mortality at older ages. We investigate the effects of three patterns of age misreporting & age overstatement, age understatement, and symmetric age misreporting & on mortality estimates at ages 40 and above. We consider five methods to estimate mortality: conventional estimates derived from vital statistics and censuses; longitudinal studies where age is identified at baseline; variable-r procedures based on age distributions of the population; variable-r procedures based on age distributions of deaths; and extinct generation methods. For each of the age misreporting patterns and each of the methods of mortality estimation, we find that age misstatement biases mortality estimates downwards at the oldest ages. PublicationFinancial Literacy, Schooling, and Wealth Accumulation(2010-09-28) Behrman, Jere R; Mitchell, Olivia S; Soo, Cindy; Bravo, DavidFinancial literacy and schooling attainment have been linked to household wealth accumulation. Yet prior findings may be biased due to noisy measures of financial literacy and schooling, as well as unobserved factors such as ability, intelligence, and motivation that could enhance financial literacy and schooling but also directly affect wealth accumulation. Here we use a new household dataset and an instrumental variables approach to isolate the causal effects of financial literacy and schooling on wealth accumulation. While financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models, our approach reveals even stronger and larger effects of financial literacy on wealth. It also indicates no significant positive effects of schooling attainment conditional on financial literacy in a linear specification, but positive effects when interacted with financial literacy. Estimated impacts are substantial enough to suggest that investments in financial literacy could have large positive payoffs. PublicationThe Dynamics of Lifecycle Investing in 401(k) Plans(2008-08-01) Mitchell, Olivia S; Mottola, Gary; Utkus, Stephen; Yamaguchi, TakeshiThe introduction of lifecycle funds into 401(k) plans offers a rich environment in which to assess workers’ portfolio allocation decisions. Consistent with behavioral models, employer design decisions strongly influence lifecycle adoption behavior while fundamentally altering portfolio characteristics, both in the cross-section and longitudinally. Yet there are also elements of rational choice by new employees, as well as choice constrained by information costs among workers with low literacy characteristics. We conclude that recent legislation encouraging riskier 401(k) portfolios will modify investment patterns, with the rate of change varying according to whether behavioral or rational elements dominate in a given setting. PublicationRegret, Pride, and the Disposition Effect(2006-07-01) Muermann, Alexander; Volkman, Jacqueline MWe develop a dynamic portfolio choice model which incorporates anticipated regret and pride in individual's preferences and show that those preferences can cause investors to sell winning stocks and hold on to losing stocks; that is, anticipating regret and pride can help explain the disposition effect. Publication1994-95 Advisory Council on Social Security Technical Panel on Assumptions and Methods Final Report(1996) Young, Howard; Allen, Barry; Crimmins, Eileen; Cutler, David; Holmer, Martin; Manunovich, Diane; Myers, Robert; Preston, Samuel H.; Steuerle, Eugene; Sze, Michael; Utgoff, Kathleen; Wiltse, Larry; Wolfe, BarbaraThe Panel's major conclusions are: The "intermediate" projection of the Trustees Report for the Old-Age. Survivors. and Disability Insurance (OASDI) program provide a reasonable evaluation of the financial status. Although the Panel suggests that modifications be considered in various specific assumptions, the overall effect of those suggestions would not significantly change the financial status evaluation. There should be evolutionary implementation of procedures to indicate more adequately the uncertainties involved in the projections. Even though such uncertainties are unavoidable, stochastic analysis should be used to examine more explicitly the probabilities of alternative projections. It is emphasized that there should be an extended period during which the new procedures would supplement, rather than replace, the current methods of considering high-cost and low-cost projections and individual assumption sensitivity analysis. Evaluation of the long-range financial status should put less emphasis on the "75-year actuarial balance" and the "test of long-range close actuarial balance." Prior to enactment of legislation reforming the program, primary emphasis should be on the projected date the Trust Fund Ratio would fall below 100 percent; when definitive legislative revisions are adopted, subsequent long-range evaluation should compare up-dated projections with the intended results of the legislation. There should be a substantial expansion of SSA's resources and its interaction with experts in related areas: increased recognition should be given to the interrelationships between OASDI and many public and private programs as well as other aspects of the economy. Social Security Administration (SSA) staff does high quality work, but is relatively small and works with inadequate resources. In addition to internal expansion, there should be greater use of outside consultants and contractual research; periodic comprehensive review by technical panels should be supplemented by ongoing arrangements for advice on specific matters. PublicationUsing Successive Censuses to Reconstruct the African-American Population, 1930-1990(1996-12-01) Preston, Samuel H.; Elo, Irma T.; Gale, LynnThe Census Bureau's program to estimate the completeness of decennial census counts for age, sex, and race groups relies principally upon what it terms "demographic analysis." The essence of this approach is to introduce extraneous information on the number of births, deaths, and migrations, derived from non-census sources, to estimate the true size of each birth cohort at the time of a census (Robinson et al., 1993; Himes and Clogg, 1992). Comparison of this alternative estimate to the census count provides an estimate of the degree of under - or over-enumeration in the census, often termed the census undercount. Acceptance of the estimated undercount implies that the census itself is irrelevant to estimating the true size of the population; whatever deficiencies it contained would be accurately and completely revealed by comparison to the estimate based on demographic analysis. PublicationThe Chilean Pension Reform Turns 25: Lessons from the Social Protection Survey(2006-07-01) de Mesa, Alberto Arenas; Bravo, David; Behrman, Jere R; Mitchell, Olivia S; Todd, PetraIn 1980, Chile dramatically reformed its retirement system, replacing what was an old insolvent PAYGO program with a new structure that relies heavily on funded defined contribution individual accounts. In addition, eligibility and benefit requirements were standardized, and a safety net for old-age poverty was strengthened. Twenty-five years after this reform, the Chilean model is being re-assessed, in terms of coverage, contribution, investment, and retirement benefit outcomes. This paper introduces a recently-developed longitudinal survey of individual respondents in Chile, the Social Protection Survey (or Encuesta de Previsión Social, EPS), and illustrates some uses of this survey for microeconomic analysis of key aspects of the Chilean system. PublicationHidden Regret and Advantageous Selection in Insurance Markets(2007-01-01) Huang, Rachel J; Muermann, Alexander; Tzeng, Larry YWe examine insurance markets in which there are two types of customers: those who regret suboptimal decisions and those who don't. In this setting, we characterize the equilibria under hidden information about the type of customers and hidden action. We show that both pooling and separating equilibria can exist. Furthermore, there exist separating equilibria that predict a positive correlation between the amount of insurance coverage and risk type, as in the standard economic models of adverse selection, but there also exist separating equilibria that predict a negative correlation between the amount of insurance coverage and risk type, i.e. advantageous selection. Since optimal choice of regretful customers depends on foregone alternatives, any equilibrium includes a contract which is not purchased. PublicationConsistency of Age Reporting By Cause of Death Among Elderly African-American Decedents(1996-07-18) Hussey, Jon M.; Elo, Irma T.Because age is associated with many biological and social phenomena, accurate age data are critical for researchers exploring the societal impact of population aging and for policy makers deciding how to best allocate resources to this burgeoning group. Of particular importance is the quality of age data for the rapidly expanding elderly population. Past research has shown the quality of these data to be questionable for the U.S. elderly population, particularly for African-Americans (Hambright 1969; Kestenbaum 1992; National Center for Health Statistics [NC HS] 1968; Rosenwaike 1979; Rosenwaike and Logue 1983). A recent study comparing 1987 death certificates from Massachusetts and Texas with matched Social Security/Medicare files, for example, found exact age agreement in the two data sources for 94.6% of non-Hispanic whites aged 65 and over but only for 72. 6% of African Americans (Kestenbaum 1992: Table 4). Age agreement deteriorated more rapidly with advancing age among blacks than among whites; for those aged 85 and over, exact age agreement was found for 91.7% of non-Hispanic whites compared with only 63.2% of African Americans.