Siu Fai Leung

Migration, Family, and Risk Diversification

This paper proposes a formal model of migration in which workers are heterogeneous and markets are stochastically correlated. We derive and characterize the optimal migration pattern of a family. It is shown to depend on differences in expected earnings, costs of migration, income risks, and more importantly market correlations. We show that migration can take place even when migrants earn less abroad and, more surprisingly, when earnings in the foreign country are riskier for every member of the family. Moreover, it may well be an optimal arrangement to have only dependents migrate, thus rationalizing the recent dependent-oriented migration flows from places like Hong Kong and Taiwan. We also provide some evidence in support of our theory.

Dynamic Deterrence Theory

Economic theories of deterrence have primarily been built on static models. A common and serious shortcoming of the existing dynamic deterrence models is the assumption of a two-period structure that ignores recidivism. The aims of this paper are to formulate and solve a general dynamic deterrence model that incorporates recidivistic behavior, to explore its implications, and to derive some testable predictions. The analysis shows how the value and the intensity, engaging in illegal activity change over time, highlights the weaknesses of two-period deterrence models and compares the deterrent effectiveness of increasing the likelihood of punishment versus the severity of punishment. Finally, the recidivistic model provides a structural foundation for the widely used stochastic-process models of crime in operations research and criminology. Copyright 1995 by The London School of Economics and Political Science.

A Stochastic Dynamic Analysis of Parental Sex Preferences and Fertility

This paper formulates a stochastic dynamic model of fertility to evaluate the assumptions that underlie the widely used econometric tests for parental sex preferences. Unlike previous work on dynamic models of fertility, several tractable and testable predictions are established. It is shown rigorously that conventional econometric tests using fertility data are valid tests for sex preferences; however, they cannot separate son preference from daughter preference. The only definite conclusion that one can draw from fertility data is whether there are sex preferences. These results call into question the validity of conventional econometric tests for son preference.

Collinearity and Two-Step Estimation of Sample Selection Models: Problems, Origins, and Remedies

This paper investigates the origins of the collinearity problems encounteredin the two-step estimation method for sample selection models. The analysisreveals several critical misconceptions and deficiencies in the literature.Remedies to the collinearity problems are proposed and evaluated. Monte Carloexperiments as well as an empirical example based on Mrozs (1987) data areused to illustrate the practical relevance and importance of the analysis.

On tests for sex preferences

This paper presents a critical evaluation of three widely used tests for sex preferences: sex ratio, parity progression ratio and ordinary least squares regression of birth interval. We show that under some appropriate conditions, the sex ratio is a valid test for sex preferences. The methods of parity progression ratio and OLS regression of birth interval fail to deal with right censoring and time varying covariates, which reduce the power of the tests. We suggest the use of hazard estimation to test for sex preferences. We demonstrate the differences among the tests by analyzing the retrospective fertility histories of the Chinese and the Malays in Malaysia. We find that unlike the two conventional methods, the hazard estimation gives clear and strong evidence of sex preferences among the Chinese in Malaysia.

How to Make the Fine Fit the Corporate Crime? An Analysis of Static and Dynamic Optimal Punishment Theories

Abstract This paper investigates dynamic optimal punishment theory. Previous studies of optimal punishment theory have all been confined to a static setup. The most celebrated result in the literature is Beckers (1968) optimal punishment theory, which states that the optimal fine should be a multiple of the social cost of the crime. I show that this result is no longer valid in a dynamic environment. The implications of the dynamic model of optimal punishment are found to be strikingly different from those of the static model.

An economic analysis of the age-crime profile

Abstract The age-crime profile is one of the most established and prominent empirical regularities in social science. This paper formulates an economic dynamic model of illegal behavior to explain the age-crime profile. The model offers a new interpretation of the age-crime profile that is entirely different from the prevailing one in the literature. The implications of the model are testable and are consistent with the empirical evidence examined in the paper. The analysis shows that intertemporal criminal decisions can be modeled as a dynamic consumption-investment problem.

The existence, uniqueness, and optimality of the terminal wealth depletion time in life-cycle models of saving under uncertain lifetime and borrowing constraint

Abstract In life-cycle models of saving under uncertain lifetime and borrowing constraint, the consumers wealth must be depleted before the maximum lifetime. This paper investigates the existence, uniqueness, and optimality of the terminal wealth depletion time. It is proved that the optimal terminal wealth depletion time, if such exists, must be unique. If the equation that determines the optimal terminal wealth depletion has multiple solutions, then the location of the optimal solution will depend on the configuration of the solutions. An optimality test is developed to verify whether a candidate solution for the terminal wealth depletion time is indeed optimal. The paper introduces a method new to economics, the Dubovitskii–Milyutin adjoint equation, to analyze the properties of the optimal control problem.

Will Sex Selection Reduce Fertility

This paper investigates both theoretically and numerically the impact of sex selection on fertility. A static quantity-quality model of fertility is employed to compare fertility choices in two regimes: one in which parents cannot choose the gender of children and another in which parents can fully choose the gender of children. The static theory shows that whether sex selection reduces fertility depends on the second and third derivatives of the utility function and the child expenditure function. A numerical dynamic analysis is also presented. Using empirical dynamic models of fertility and Monte Carlo integration technique, the simulation shows that sex selection on the firstborn child among the Chinese in Malaysia could reduce fertility by about 3%.

Transversality condition and optimality in a class of infinite horizon continuous time economic models

Abstract This paper analyzes a class of widely used infinite horizon continuous time economic models first formulated by Kamien and Schwartz. It is shown that the method of solution for this class of models offered in the literature is unwarranted because it assumes that the transversality condition is a necessary optimality condition. Further investigations reveal that the existing results in the literature do not offer a satisfactory justification for the necessity of the transversality condition. This paper provides an entirely different approach to solve the problem.