Abstracts of Selected Recent NBER Working Papers

WP 15589
Hilary Hoynes, Marianne Page, Ann Huff Stevens
Is a WIC Start a Better Start? Evaluating WIC's Impact on Infant Health Using Program Introduction

The goal of federal food and nutrition programs in the United States is to improve the nutritional well-being and health of low income families. A large body of literature evaluates the extent to which the Supplemental Program for Women Infants and Children (WIC) has accomplished this goal, but most studies have been based on research designs that compare program participants to non-participants. If selection into these programs is non-random then such comparisons will lead to biased estimates of the program's true effects. In this study we use the rollout of the WIC program across counties to estimate the impact of the program on infant health. We find that the implementation of WIC lead to an increase in average birthweight and a decrease in the fraction of births that are classified as low birth-weight. We find no evidence that these estimates are driven by changes in fertility. Back-of-the-envelope calculations suggest that the initiation of WIC led to a ten percent increase in the birthweight of infants born to participating mothers.

WP 15607
Alan Gustman, Thomas Steinmeier
Integrating Retirement Models

This paper advances the specification and estimation of models of retirement and saving in two earner families. The complications in-troduced by the interaction of retirement decisions by husbands and wives have led researchers to adopt a number of simplifications to increase the feasibility of estimating family retirement models. Our model relaxes these restrictions. It includes the extended choice set created when each spouse makes an independent retirement decision. It also includes the full range of complexity found in dynam-ic-stochastic models of retirement decision making, so far analyzed only in the context of single earner households. Retirement outcomes include full retirement, partial retirement and full-time work. Reverse flows from states of lesser to greater work are also included. The preference structure incorporates heterogeneity in time preference, varying taste parameters for full-time and part-time work, and the possibility of changes in preferences after retirement. The opportunity set reflects the full range of nonlinearities created by pensions and Social Security. Financial returns are stochastic. Exogenous shocks such as layoffs are also included. Estimation is based on data from the Health and Retirement Study.

WP 15608
John Chalmers, Jonathan Reuter
How Do Retirees Value Life Annuities? Evidence from Public Employees

Oregon Public Employees Retirement System (PERS) retirees must choose between receiving all of their retirement benefits as life annuity payments and receiving lower life annuity payments coupled with a partial lump sum payout. For the median retiree, the expected present value of the incremental life annuity payments is 1.50 times the lump sum payout, and demand for lump sums is low. This pattern is consistent with value-maximizing decisions by retirees. However, when we exploit variation in the value of the incremental life annuity payments arising from how PERS calculates retirement benefits, we find robust evidence that demand for lump sum payouts is higher when the forgone life annuity payments are more valuable. We also find that demand for lump sum payouts is higher when the lump sum payout is "large," and when equity market returns over the prior 12 months are higher. Collectively, these findings suggest that retirees value incremental life annuity payments at less than their expected present value, either because they do not know how to accurately value life annuities or because they have strong demand for large lump sum payouts. In contrast, when we measure variation in the value of the incremental life annuity payments along a dimension that is easier for retirees to observe and interpret - poor health at retirement - we find evidence consistent with value-maximizing decision-making.

WP 15678
David Cutler, Fabian Lange, Ellen Meara, Seth Richards, Christopher Ruhm
Explaining the Rise in Educational Gradients in Mortality

The long-standing inverse relationship between education and mortality strengthened substantially later in the 20th century. This paper examines the reasons for this increase. We show that behavioral risk factors are not of primary importance. Smoking has declined more for the better educated, but not enough to explain the trend. Obesity has risen at similar rates across education groups, and control of blood pressure and cholesterol has increased fairly uniformly as well. Rather, our results show that the mortality returns to risk factors, and conditional on risk factors, the return to education, have grown over time.

WP 15682
Raimond Maurer, Olivia Mitchell, Ralph Rogalla
The Effect of Uncertain Labor Income and Social Security on Life-Cycle Portfolios

This paper examines how labor income volatility and social security benefits can influence lifecycle household portfolios. We examine how much the individual optimally saves and where, taking into account liquid financial wealth and annuities, and stocks as well as bonds. Higher labor income uncertainty and lower old-age benefits boost demand for stable income in retirement, but also when young. In addi-tion, a declining equity glide path with age is appropriate for the worker with low income uncertainty; for the high income risk worker, equity exposure rises until retirement. We also evaluate how differences in social security benefits can influence retirement risk management.

WP 15691
William Encinosa, Didem Bernard, Avi Dor
Does Prescription Drug Adherence Reduce Hospitalizations and Costs?

We estimate the impact of diabetic drug adherence on hospitalizations, ER visits, and hospital costs, using insurance claims from Mar-ketScan employer data. However, it is often difficult to measure the impact of drug adherence on hospitalizations since both adherence and hospitalizations may be correlated with unobservable patient severity. We control for such unobservables using propensity score methods and instrumental variables for adherence such as drug coinsurance levels and direct-to-consumer-advertising. We find a signif-icant bias due to unobservable severity in that patients with more severe health are more apt to comply with medications. Thus, the rela-tionship between adherence and hospitalization will be underestimated if one does not control for unobservable severity. Overall, we find that increasing diabetic drug adherence from 50% to 100% reduced the hospitalization rate by 23.3% (p=0.02) from 15% to 11.5%. ER visits are reduces by 46.2% (p=.04) from 17.3% to 9.3%. While such an increase in adherence increases diabetic drug spending by $776 a year per diabetic, the annual cost savings for averted hospitalizations are $886 per diabetic, a cost offset of $110 (p=0.02), or $1.14 per $1 spent on drugs.

WP 15737
Xin Xu, Robert Kaestner
The Business Cycle and Health Behaviors

In this paper, we take a structural approach to investigate the effects of wages and working hours on health behaviors of low-educated persons using variation in wages and hours caused by changes in economic activity. We find that increases in hours are associated with an increase in cigarette smoking, a reduction in physical activity, and fewer visits to physicians. More importantly, we find that most of the effects associated with changes in hours can be attributed to the changes in the extensive margin of employment. Increases in wages are associated with greater consumption of cigarettes.

WP 15744
Axel Boersch-Supan, Alexander Ludwig
Old Europe Ages: Reforms and Reform Backlashes

The extent of the demographic changes in Europe is dramatic and will deeply affect future labor, financial and goods markets. The ex-pected strain on public budgets and especially social security has already received prominent attention, but aging poses many other economic challenges that threaten growth and living standards if they remain unaddressed. This paper focuses on three large Continental European countries: France, Germany, and Italy. These countries have large pay-as-you-go pension systems and vulnerable labor markets. At the same time, they show remarkable resistance against pension and labor market reform. While there is no shortage of reform proposals to address population aging, most of those focused on pension and labor market reform, little is known about behavioral reactions to such reforms. This paper therefore sheds light on the potential benefits of pension and labor market reform for growth and living standards, taking into account behavioral reactions to specific reforms. Which behavioral reactions will strengthen, which will wea-ken reform policies? Can Old Europe maintain its standard of living even if behavioral reactions offset some of the current reform efforts?

WP 15781
Deliana Kostova, Hana Ross, Evan Blecher, Sara Markowitz
Prices and Cigarette Demand: Evidence from Youth Tobacco Use in Developing Countries

This paper estimates the impact of cigarette prices on youth smoking in lower-income countries using data from the Global Youth To-bacco Survey (GYTS). Country-level heterogeneity is addressed with fixed effects and by directly controlling for confounding environ-mental factors such as local anti-smoking sentiment, cigarette advertising, anti-smoking media messages, and compliance with youth access restrictions. We find that cigarette price is an important determinant of both smoking participation and conditional demand. The estimated price elasticity of participation is -0.63. The likelihood of participation decreases with anti-smoking sentiment and increases with exposure to cigarette advertising. The estimated price elasticity of conditional cigarette demand is approximately -1.2. Neither an-ti-smoking sentiment, cigarette advertising, nor access restrictions have an impact on the intensity of smoking among current smokers, but exposure to anti-smoking media may reduce the number of cigarettes smoked.

WP 15805
Stavros Pangeas
Optimal Retirement Benefit Guarantees

Retirement benefit guarantees can ensure a minimum standard of living in retirement. I propose a framework to discuss the design of such guarantees. The model features a standard life-cycle setting, in which individual agents' choices can have negative external effects on public finances, whenever their retirement consumption drops below a minimum level. Within this framework, I derive two alternative forms of intervention that can efficiently deliver a minimum standard of living to retirees. According to the first policy, agents use part of their accumulated assets to purchase a claim providing a fixed income stream for the duration of their life. According to the second policy, they purchase an appropriately structured portfolio insurance policy.



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