In this paper an extension of the well-known binomial approach to option pricing is presented. The classical question is: What is the price of an option on the risky asset? The traditional answer is obtained with the help of a replicating portfolio by ruling out arbitrage. Instead a two-person game from the Nash equilibrium of which the option price can be derived is formulated. Consequently both the underlying asset’s price at expiration and the price of the option on this asset are endogenously determined. The option price derived this way turns out, however, to be identical to the classical no-arbitrage option price of the binomial model if the expiration-date prices of the underlying asset and the corresponding risk-neutral probability are properly adjusted according to the Nash equilibrium data of the game.
Labor informality and poverty are at high levels in Latin America. In developing countries, poverty and the labor market are related not through unemployment but through employment. The purpose of this paper is to analyze the link between labor informality and poverty in Colombia. To do so, earnings gaps associated with labor informality are estimated; then, the effect of formalization on poverty is calculated, as the influence of changes in labor informality on Colombia’s poverty reduction from 2002 to 2013. The findings show that the earnings gap between formal and informal workers is 37–44%, and if informality were eliminated, poverty would decrease by approximately 40%. However, even though informality has great potential to reduce poverty, its actual effect on Colombia’s poverty reduction in the years analyzed was low.
Despite the bulk of international migrants being youth, little is known about the factors driving young people’s migration behavior at the global level. Using the individual-level survey data from Gallup World Poll across 139 countries over the period 2010–2016, this study contributes to the literature by exploring a wide range of factors potentially shaping young people’s (aged 15–34) desire, and a more concrete plan, to migrate abroad permanently. Results show that factors, such as holding post-secondary education, being unemployed, and working part-time involuntary, are increasing the desire of youth to migrate abroad as well as the probability that they turn this aspiration into a more concrete plan over the following year. Similarly, having negative expectations about the economic outlook, the number of available job opportunities, and the prospects for upward career mobility are found to increase the propensity to migrate abroad, both among unemployed and employed youth. Results also show that material deprivation may represent a significant push factor behind youth migration, although budgetary constraints may prevent youth from transforming their migration desires into actual plans in low-income countries. Moreover, findings suggest that contextual factors, such as discontent with local amenities and national governments, increase the desire of youth to migrate abroad, but they have little or no influence on the probability that these dreams are turned into more concrete plans. Finally, this study shows that while youth’s and adults’ migration propensities are often driven by the same motives, the influence of education and labor market-related factors on migration intentions is considerably stronger among youth than adults.
Governments perform national, labor-intensive censuses on a regular schedule. Censuses represent many of the largest peacetime expansions and contractions in federal hiring. The predetermined occurrence and scale of the census offers an economic experiment in the effects of temporary government hiring. This paper describes the construction of a data series on census hiring in the United States since 1950 and also collects available data on census employment in England and Wales, Canada, Korea, and Japan. Regressing total employment changes on census hiring yields coefficients extremely close to 1, indicating that there is no spillover from census hiring to the rest of the economy. Using census hiring and occurrence as instruments for government hiring in the US, Canada, and Korea, I estimate the effect of federal hiring on overall employment. Different samples yield varying jobs multipliers, with point estimates varying from -0.01 to 1.48. Including Korean and Canadian data yields lower multipliers, while including pre-1990 US data yields higher multipliers. In no specification can I reject the hypothesis that the job multiplier equals 1. In all specifications, standard errors are large enough that I can reject neither Keynesian nor crowd-out effects.
The possible nonlinearity of the income elasticity of child labor has been at the center of the debate regarding both its causes and the policy instruments to address it. We contribute to this debate providing theoretical and empirical novel results. From a theoretical point of view, for any given transfer size, there is a critical level of household income below which an increase in income has no impact on child labor and education. We estimate the causal impact of an increase in income on child labor and education exploiting the random allocation of the Child Grant Programme, an unconditional cash transfer (CT), in Lesotho. We show that the poorest households do not increase investment in children’s human capital, while relatively less poor households reduce child labor and increase education. In policy terms, the results indicate that CTs might not be always effective to support the investment in children’s human capital of the poorest households. Beside the integration with other measures, making the amount of transfer depends of the level of deprivation of the household, might improve CT effectiveness.
This study is a comparative analysis of the effects of money and capital markets on the Ghanaian economy covering the period from 1991 to 2017 using the dynamic Auto Regressive Distributed Lag (ARDL) framework. Empirical results confirmed the existence of a unique and stable long-run relationship between the money market, capital market and economic growth. In respect of money market indicators, findings confirmed that monetary policy and treasury bills rate have had negative but significant impact on growth in the short- and long-run respectively. More so, total liquidity negatively and significantly influenced the Ghana-ian economy both in the short- and in the long run. Both market capitalisation and total value of stock traded, as proxies of capital market, had positive and significant effects on short-run growth, while both indicators as well as stock market turnover negatively and insignificantly a ected long-run growth. This means that capital market exerts a short-run impact on the country’s economy, while money market exerts both short- and long-run impacts. The lesson relearned is that the money market propels the Ghanaian economy better than the capital market.
This paper examines the causal relationship between nutrition intake, health status, education and economic growth within a six-variate VEC framework, forecast error variance decomposition and impulse response function techniques, covering the period from 1990 to 2013, using quarterly data in Nigeria. This paper includes control variables in order to eliminate variable omission bias, unlike most existing studies. The results suggest the presence of long-run, bicausal relationships between the candidate variables of the study. In addition, the short-run unidirectional causal relationships are found between main variables, including a causal relationship running from nutrition and fiscal policy to education, as well as a causal link running from education and economic growth to health status. These findings support the existing theories. The results based on the model and empirical data suggest that the government should allocate more resources to human development in order to enhance productivity and boost economic growth. Similarly, there is a need to design adequate mechanisms to ensure proper allocation of the limited resources and avoid their embezzlement by corrupt government officials.
International labor mobility is a key factor for a well-functioning labor market. Although educational attainment is known to affect regional labor mobility within a country, evidence of a relationship between schooling and international labor mobility is limited, particularly in developing countries. This study uses the across-cohort variation in the exposure to the 1988 free secondary education reform in the Philippines to examine the impact of years of education on the propensity of working abroad. The results suggest that free secondary education increased the years of education for men. Moreover, the additional years of education reduced the likelihood of working abroad by 3.2% points on average. However, an extra year of female education was not associated with the probability of working abroad. These results indicate that a program for improving access to secondary education may affect international labor mobility for men even after a few decades. It underscores the importance of considering the possible labor market consequences when designing the education reform in developing countries.