A long tradition in the development literature has been to associate the aggregate savings rate with the dependency ratio, the ratio of dependent children to adults. In this paper I formalize the relationship by developing a life-cycle model in which offspring are assets from the viewpoint of their parents. The model is used to help explain the increase in nineteenth-century U.S. savings rates. I find that between 1830 and 1900 about one-quarter of the 6-percentage-point rise in the savings rate can be attributed to a decline in the dependency rate.

Oliver D. Hart, Grayham E. Mizon; 50th Anniversary of the Review of Economic Studies, The Review of Economic Studies, Volume 50, Issue 4, 1 October 1983, P

The Review of Economic Studies has instituted a new series of lectures to be given annually by a "younger" British economist at the Association of University Teachers of Economics Meetings. The choice of lecturer is determined by a panel whose members are currently Professors Hahn, Mirrlees and Nobay. This paper is a revised version of the first lecture in the series. It was presented at the AUTE Meeting held at the University of Surrey in April 1982, and was refereed in the usual way.—MAK.

R ISK transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity (Working (1962), Evans (1978, p. 80), and Silber (1981)). Risk transfer refers to hedgers using futures contracts to shift price risk to others. Price discovery refers to the use of futures prices for pricing cash market transactions (Working (1948), Wiese (1978, p. 87), and Lake (1978, p. 161)). The significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities. This paper examines the characteristics of price movements in cash (or spot) markets and futures markets for storable commodities. Section II presents an analytical model of simultaneous price dynamics which suggests that, over short intervals of time, the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract. Greater elasticity fosters more highly correlated price changes, and thereby facilitates the risk transfer function. The elasticity of supply of arbitrage services is constrained by, among other things, storage and transaction costs. Thus, futures contracts will not, in general, provide perfect risk transfer facilities over short time horizons. The essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices (Hoffman (1932, pp. 258259)). The model in section II provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery. In section III we develop a model based on section II which is appropriate for estimating the lead-lag relationship between cash prices and futures prices. Section IV presents empirical estimates of the parameters of the model for seven different storable commodities: wheat, corn, oats, frozen orange juice concentrates, copper, gold, and silver. The cost of arbitrage between cash and futures differs across these commodities. For this reason we are not surprised to find inter-commodity differences in the correlation of short-run price changes and in the substitutability of futures contracts for cash market positions. With respect to the price discovery function of futures markets, we find that while futures markets dominate cash markets, cash prices do not merely echo futures prices; there are reverse information flows from cash markets to futures markets as well.

Interregional differences in average wages and earnings have been observed particularly in the North and South of the United States ever since the mid-1800s. That observation has motivated several empirical attempts to determine the source of those differentials, measured both in nominal and real terms, and to explain why they have been maintained over time. The general conclusion reached by the overwhelming majority of these studies is that the labor market has not eliminated these wage differentials even in the face of substantial interregional migration. This result has at least two alternative interpretations. First, it would appear to contradict the theory of compensating differences as applied to the labor market (Thaler and Rosen, 1975), which stresses that under the assumptions of perfect information, free geographic and intersectoral labor mobility, and homogeneous consumer tastes, the nominal wage rates of workers who have similar human capital characteristics, live and work in similar environments and experience similar living costs, are driven to equality. Second, this result may only reflect an aggregation error. In other words, there may be several types of labor that are each paid different equilibrium wage rates and comprise different percentages of the workforce in each region. Even if the real wage paid to each class of workers is interregionally invariant, a situation that instead would support the theory of compensating differences, failure to distinguish accurately between labor types could produce the illusion of a wage differential. This paper considers the two alternative interpretations given above as to why interregional wage differentials might exist. Hedonic real wage equations are estimated for four regions of the United States using observations on individual household heads drawn from the 1976 Panel Study in Income Dynamics (PSID). This sample is of interest because the 1976 PSID data contain unusually detailed measures of education, work experience and occupation, as well as information on workplace and job characteristics. Thus, a more complete specification of the wage equation is permitted and the possibility of aggregation error is reduced, particularly in comparison with other interregional wage differential studies. Several of these studies, for example, have been based on aggregate data from the Census of Manufactures (Fuchs and Perlman, 1960; Gallaway, 1963; Scully, 1969; and Coelho and Ghali, 1971) which provide no direct measurements on the human capital of workers. The remainder of the discussion is organized into three sections. Section II specifies the wage equation and describes the PSID data. Section III, then, reports empirical results which are consistent with the findings, based on aggregate data, of Bellante (1979) and Coelho and Ghali (1971) in that they support the theory of compensating differences. More specifically, for full-time workers, the rewards to attributes relevant in determining real wages apparently are interregionally invariant. However, because this result conflicts with most previous research on interregional wage differentials based on aggregate data and virtually all such research based on microdata (Welch, 1966; Hanoch, 1967; Hanushek, 1973, 1981; Hirsch, 1978; and Sahling and Smith, 1983), a number of empirical comparisons are made between the present study and the approaches taken by other investigators. Conclusions and implications are drawn out in section IV.

Quarterly earnings, Predictive ability, Time-series, Goodness-of-fit

This paper considers the short run adjustment of money holdings towards their desired levels. A rationale for short run money holdings is given, which allows for uncertainty in cash flows, and it is shown how the adjustment to desired money balances will occur following a change in some of the economic variables. The model generates a particular form for the short run demand for money function, which is shown to be econometrically superior to the standard ad hoc formulation. The chief theoretical novelty is the derivation of the appropriate transient probability density of money holdings.