consumer exploitation and notice periods firms often set long notice periods when consumers cancel a contract and sometimes do so even when the costs of changing or canceling the contract are small we investigate a model in which a firm offers a contract to consumers who may procrastinate canceling it due to naive present bias we show that the firm may set a long notice period to exploit naive consumers

distributional preferences in contingent valuation surveys abstract in an original extension of contingent valuation methodology cvm support for a proposed environmental regulation is examined under three alternative polluter pay specifications using a statewide random telephone sample of washington state s electorate one scenario asks respondents for their support absent any cv price and absent any information regarding what producers will pay a second scenario asks willingness to pay wtp providing only a cv price but no polluter pay information a third scenario asks respondents for their support giving both a cv price and a percentage of total costs producers will pay extending the cv methodology this percentage varies randomly between respondents absent any price or firm cost sharing information some respondents assume producers are absorbing the costs providing a cv price reverses this assumption and reduces support even after controlling for price when the cv price is given along with the percentage wtp increases the larger the percentage within each scenario support also varies according to whether the type of industry being regulated is small and competitive or monopolistic

evaluating willingness to contribute to a local public good application of contingent valuation to tsetse control in ethiopia abstract african animal trypanosomiasis constrains the production of milk meat and animal traction across much of sub saharan africa the tsetse transmitted disease is particularly important in ethiopia where at least six million cattle are exposed to the disease in 1990 a trypanosomiasis control programme that used baited targets to kill tsetse flies was initiated in a case study area in southwest ethiopia major reductions in the density of tsetse flies and the prevalence of trypanosomiasis in cattle achieved during the first year were spoiled by the theft of a large number of the targets it was postulated that part of the problem stemmed from a lack of local involvement a survey of household heads was conducted to assess the prospects for greater local involvement when asked what ought to be done to stop theft respondents indicated their willingness to become more active in guarding the targets and detecting thieves they also suggested roles for the research organization and local authorities when asked contingent valuation questions about the maximum amounts of money and or labour that they would be willing to contribute to the programme 59 volunteered both money and labour and only 3 volunteered neither money nor labour willingness to contribute money was related to the gender of the household head the number of cattle held by the household and the participation of the household in a monitoring exercise being conducted by the research organization willingness to contribute labour was related to employment status and the information available to the respondent about the programme we conclude that contingent valuation when integrated into a participatory research approach can generate practical results for evaluating the prospects for local participation in the provision of local public goods

an experiment on time preference and misprediction in unpleasant tasks we experimentally investigate the time inconsistent taste for immediate gratification and future preference misprediction across 7 weeks 100 participants choose the number of unpleasant transcription tasks given various wages to complete immediately and at different future dates participants preferred 10 12 fewer tasks in the present compared to any future date leading to an estimated of 0 83 comparing predictions with actual immediate work choices provides evidence against substantial sophistication with estimates implying that participants understand no more than 24 of their present bias finally we find evidence of projection bias participants wished to complete 4 12 fewer tasks when decisions were elicited right after completing tasks rather than before

valuation of non priced amenities provided by the biological resources within the monteverde cloud forest preserve costa rica abstract to quantify the economic benefits of the monteverde cloud forest preserve and to test the contingent valuation method in a third world setting a contingent valuation survey was designed with five experimental treatments these determined an overall expected value per visitor determined and compared two ways of eliciting value single versus annual lump sum payments and compared average values of costa rican versus non costa rican visitors visitors were willing to pay to prevent the preserve s conversion to agricultural uses monteverde s value as a cloud forest preserve appears much higher than any value it might have in agricultural use despite lower incomes costa rican visitors valued the preserve more highly than non costa rican visitors visitors may have differentiated only weakly between greatly differing bid amounts expected values derived from econometric analysis of the differing experimental treatments suggest that further methodological adaptation of the contingent valuation method may be required 1 when it is applied in third world settings and 2 when precision is critical in estimating wtps

employer matching and 401 k saving evidence from the health and retirement study abstract employer matching of employee 401 k contributions is often touted as a powerful incentive to save for retirement and is a key component in pension plan design in the united states using detailed administrative contribution earnings and pension plan data from the health and retirement study this analysis formulates a life cycle consistent econometric specification of 401 k saving and estimates the determinants of saving accounting for non linearities in the household budget set induced by matching the participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k participation by 5 percentage points the parametric and semi parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k saving by 365 in 1991 dollars overall the analysis reveals that the 401 k saving response to matching is quite inelastic and hence matching is a rather poor policy instrument with which to raise retirement saving

an egalitarian system breeds generosity the impact of redistribution procedures on pro social behavior in a meritocratic system people are compensated on the basis of their individual ability whereas in an egalitarian system people are equally compensated essentially in the latter system high performers are taxed and subsidize underperformers would differences in income redistribution procedures affect people s pro social behavior in experiments we found that people are more generous toward strangers in an egalitarian treatment than in a meritocratic treatment interestingly being taxed does not reduce the generosity of high performers whereas being subsidized significantly increases the generosity of low performers jel c91 d63 d64 i introduction numerous experimental studies have established that humans exhibit other regarding behavior camerer 2003 that is humans care not only about their own material payoffs but also about fairness reciprocity and other people s well being some explanations for this other regarding behavior have been offered in the literature becker 1974 and andreoni 1989 assert that people are altruistic becker focuses on the notion of pure altruism and argues that caring for others is inherent in human nature andreoni focuses on the notion of impure altruism or warm glow and argues that a person is altruistic because he she receives some private benefit from the altruistic act itself rabin 1993 and levine 1998 point out the importance of the reciprocity based motive where a person s behavior toward another person is driven by the expected intention of the other person fehr and schmidt 1999 and bolton and ockenfels 2000 on the other hand argue that other regarding behavior is driven primarily by the final distribution of payoffs among people in the reference group all these studies share one common thread they focus on factors directly related to allocation decisions such as the intentions behind those decisions the consequences of those decisions on the allocators and the recipients and the expectation of how the recipients will respond to those decisions but the studies are silent on a factor seemingly unrelated to but that could potentially influence allocation decisions namely the procedure by which a money endowment or income is redistributed among allocators in reality this procedure is determined by the prevailing social system governing the way individual effort is rewarded it also differs greatly across societies in this paper we study how this endowment redistribution procedure shapes people s pro social behavior consider two distinct social environments inhabited by people of different abilities the first is characterized by a meritocratic system in which people are compensated on the basis of their individual ability and performance the second is characterized by an egalitarian system in which everybody is compensated equally regardless of his her individual ability the former resembles a pure capitalist system with no taxation and the latter acts like a socialist system with an egalitarian income redistribution essentially in the latter the low performers are subsidized whereas the high performers are taxed a natural question that emerges is whether people s pro social behavior will differ between these two social environments we postulate two factors associated with the endowment redistribution procedure that could potentially influence this pro social behavior the first is the working of serial reciprocity which encourages an individual who benefits from a kind act rendered by somebody to forward the received kind act to a third party in an egalitarian system underperformers are treated nicely by the system which could motivate them to reciprocate by treating other people nicely as well thus being treated nicely may inculcate a pay it forward spirit this notion of serial reciprocity differs from the more common form of reciprocity namely direct reciprocity which refers to recipients of the kind act returning the deed by behaving nicely back toward the person who treated them nicely

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

substitution effects in cvm values there is increasing recognition that statistical estimates of the average willingness to pay for environmental programs may be biased by the failure of respondents or of the statistical methodology to consider the effect of substitute programs and goods we design and implement a cvm survey that estimates the impact of substitution effects on the willingness to pay for an environmental program we find a statistically significant impact and suggest that the set of potential substitutes is very large

separability partial demand systems and consumer s surplus measures abstract in practice complete demand systems are not estimated rather either an incomplete demand system is estimated or separability is invoked and a partial demand system is estimated this paper considers the relationship between the conventional compensating variation equivalent variation and the corresponding welfare measure that can be derived from a partial demand system and the current budget allocation to the separable group even assuming the separability assumption invoked is appropriate these partial measures provide in general only a limited amount of information about the compensating variation and no information about the equivalent variation great care is therefore needed when using partial welfare measures to evaluate policy

optimal incentive contracts under inequity aversion we analyze the classic moral hazard problem with the additional assumption that agents are inequity averse the presence of inequity aversion alters the structure of optimal contracts when the concern for equity becomes more important there is convergence towards linear sharing rules the sufficient statistics result is violated depending on the environment contracts may be either overdetermined i e include non informative performance measures or incomplete i e neglect informative performance measures finally our model delivers a simple rationale for team based incentives implying wage compression 2010 elsevier inc

commitment flexibility and optimal screening of time inconsistency this paper develops a theory of optimal provision of commitment devices to people who value both commitment and flexibility and whose preferences differ in the degree of time inconsistency if time inconsistency is observable both a planner and a monopolist provide devices that help each person commit to the efficient level of flexibility however the combination of unobservable time inconsistency and preference for flexibility causes an adverse selection problem to solve this problem the monopolist and possibly the planner curtail flexibility in the device for a more inconsistent person at both ends of the efficient choice range moreover they may have to add unused options to the device for a less inconsistent person and also distort his actual choices this theory has normative and positive implications for private and public provision of commitment devices

do reminders of substitutes and budget constraints influence contingent valuation estimates a test is performed of the recommendation by the noaa panel on contingent valuation that respondents be reminded about other substitute resources and their budget constraint prior to answering the willingness to pay wtp question the context for this experiment is a cvm study of the benefits from reducing fire hazards to old growth forests in oregon the test was performed using two mail surveys that were otherwise identical except for the inclusion of reminder statements prior to the wtp question the dichotomous choice logit equations were not statistically different between versions and the mean wtp results were identical

investment under uncertainty and time inconsistent preferences abstract while standard real options models assume that agents possess a constant rate of time preference there is substantial evidence that agents are impatient about choices in the short term but are patient when choosing between long term alternatives we extend the real options framework to model the investment timing decisions of entrepreneurs with time inconsistent preferences the impact on investment timing depends on such factors as whether entrepreneurs are sophisticated or naive in their expectations regarding their future time inconsistent behavior and whether the payoff from investment occurs all at once or over time the model is extended to the case of a competitive equilibrium

time tradeoff sequences for analyzing discounting and time inconsistency this paper introduces time tradeoff tto sequences as a general tool to analyze intertemporal choice we give several applications for empirical purposes we can measure discount functions without requiring any measurement of or assumption about utility we can quantitatively measure time inconsistencies and simplify their qualitative tests tto sequences can be administered and analyzed very easily using only pencil and paper for theoretical purposes we use tto sequences to axiomatize quasi hyperbolic discount functions we demonstrate the feasibility of measuring tto sequences in an experiment in which we tested the axiomatizations our findings suggest rejections of several currently popular discount functions and call for the development of new ones it is especially desirable that such discount functions can accommodate increasing impatience

fairness and inflation persistence we argue that peoples concern for fairness may explain an unsolved puzzle in macroeconomics the persistence of ine ation we extend a 1990 wage contracting model of bhaskar in which workers disutility from being paid less than other workers exceeds their utility from being paid more this model generates a continuum of equilibria over a range of wages and unemployment rates if workers expectations are based on the past behavior of wage growth these beliefs will be self fule lling generating ine ation persistence within but not outside of this range based on quarterly u s data over the period 1955 2000 we e nd evidence that ine ation is more persistent between unemployment rates of 4 7 and 6 5 than outside these bounds jel e31 e3 e5

a satisfactory benefit cost indicator from contingent valuation abstract standard economic concepts are used to develop a model of individual behavior when subject to the constraints of the contingent valuation choice context the model yields refutable consequences that are consistent with previously reported empirical findings including some that have been thought to be anomalous the model is used to show that different contingent valuation formats have predictably different performance characteristics notably the hicksian compensating measures are satisfactory benefit cost indicators when elicited using any one of several formats identified in the text of the formats examined one form of a policy referendum appears to have the most satisfactory characteristics overall we conclude that contingent valuation is a progressing research program

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

substitution effects in the valuation of multiple environmental programs abstract a theoretical framework for understanding substitution and complementary effects between environmental programs is derived a multiple program valuation function is specified and its structure analyzed a maximum likelihood estimator is derived to estimate the parameters of the valuation function using referendum type contingent valuation data the empirical analysis shows that the conventional benefit aggregation approach of independent valuation and summation overstates the benefits of two and three program policies by an average of 24 and 54 respectively

hyperbolic discounting and the phillips curve using a standard dynamic general equilibrium model we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long run effects on real variables

modelling time inconsistent preferences abstract the paper reviews some recent theoretical contributions on the modelization of time inconsistent preferences as well as implications for individual behavior the focus is on the interpretation of the concepts and the link with concepts in psychology

time inconsistent preferences investment and asset pricing in this paper we present a production based asset pricing model in which agents have time inconsistent preferences we find that the time inconsistent preferences lead to under investment over consumption and higher interest rate these variables are distorted more in the economy with naive agent than the economy with sophisticated agent in particular the sophisticated agent invests more and consumes less than the naive agent but invests less and consumes more than the time consistent agent the interest rate in the sophisticated agent economy is lower than that in the naive agent economy but higher than that in the time consistent agent economy

decisiveness attitude expression and symbolic responses in contingent valuation surveys abstract despite suggestions that respondents to contingent valuation studies often follow alternate models of individual decision making few theoretical models have been developed the paper presents a theoretical model of symbolic and attitude expressive contingent valuation responses drawing on relevant contributions in psychology and political science it is argued that the highly symbolic and emotional nature of many environmental issues often activates the need for individuals to express their attitudes and values which when coupled with a perceived non decisiveness of individual questionnaire responses can result in value expressive considerations dominating some cvm responses at the expense of the desired outcome appraisal economic tradeoffs the implications for some topical issues in cvm are explored

self control and incentives an analysis of multiperiod quota plans it is well known that individuals often fail to exert proper self control in organizational settings this can lead to reduced productivity and profits we use the literature on present biased preferences to model employees self control problems and examine how firms can design compensation plans to reduce the negative consequences of their employees self control problems our results suggest that firms can mitigate self control problems by delaying payment to the employees this can be achieved by using multiperiod quotas such as annual quotas to compensate employees for their cumulative performance although such plans are prevalent in the market there is little theoretical research that shows when multiperiod quota plans can be optimal the paper provides one potential explanation for the widespread use of such quota plans interestingly we find that such plans may be optimal despite the fact that they encourage more procrastination we also find that such plans lead to higher effort by the employees and can sometimes improve the welfare of not only the firm but also the employees

the role of uncertainty in the relationship between fairness evaluations and willingness to pay participants in contingent valuation studies may be uncertain about a number of aspects of the policy and survey context the uncertainty management model of fairness judgments states that individuals will evaluate a policy in terms of its fairness when they do not know whether they can trust the relevant managing authority or experience uncertainty due to insufficient knowledge of the general issues surrounding the environmental policy similarly some researchers have suggested that not knowing how to answer wtp questions participants convey their general attitudes toward the public good rather than report well defined economic preferences these contentions were investigated in a sample of 840 residents in four urban catchments across australia who were interviewed about their wtp for stormwater pollution abatement four sources of uncertainty were measured amount of prior issue related thought trustworthiness of the water authority insufficient scenario information and wtp response uncertainty a logistic regression model was estimated in each subsample to test the main effects of the uncertainty sources on wtp as well as their interaction with fairness and proenvironmental attitudes results indicated support for the uncertainty management model in only one of the four samples similarly proenvironmental attitudes interacted rarely with uncertainty to a significant level and in ways that were more complex than hypothesised it was concluded that uncertain individuals were generally not more likely than other participants to draw on either fairness evaluations or proenvironmental attitudes when making decisions about paying for stormwater pollution abatement

rational irrationality some economics of self management abstract the paper first reviews some of the main challenges posed to our received economic paradigm by a variety of behaviors documented by psychologists and discusses possible responses to this challenge it then describes a specific attempt at unifying a number of themes in social psychology using a parsimonious modeling of human behavior

present biased preferences self awareness and shirking abstract we model a mechanism design problem in which the principal owns a project that requires work effort by an agent but agents may have time inconsistent present biased preferences and lack complete self awareness of these preferences the self control problem and naivete of an agent may lead him to agree to a contract but later shirk or slack off even though doing so is observable when the principal cannot severely punish shirking and agents are completely naive the second best solution entails allowing a present biased agent to slack off in order to avoid a greater loss due to shirking with greater self awareness among present biased agents the principal may do better by screening some from accepting the contract furthermore when shirking can be severely punished this does not lead to contracts that eliminate effects of the self control problem instead the principal may exploit present biased agents by offering a contract that allows them to slack off which agents fail to foresee they will choose to do but at the expense of foregoing much compensation

reconsidering the moral hazard risk avoidance tradeoff the received model for optimal demand side cost sharing trades off moral hazard and risk avoidance this model appears to lie behind recent increases in initial cost sharing such as those embodied in health savings accounts and health reimbursement accounts at the same time there is evidence that lower cost sharing for certain drugs can reduce future total health care costs and or improve future health and this may be true of other medical services as well to the degree that individuals remain in the same common insurance pool lower cost sharing that induces increases in certain services that reduce total costs including future costs represents a classic case for a subsidy and will minimize an employer s labor costs even if total costs increase the value of a change in health could increase more in that case such a subsidy is consistent with recent work in behavioral economics for those with self control problems

repeated moral hazard with a time inconsistent agent abstract i consider a repeated principal agent model with moral hazard in which the agent has preferences which are widely used to capture time inconsistency i analyze the case where the agent is sophisticated in the sense that he is fully aware of his inconsistent discounting i characterize the optimal wage scheme for such an agent and compare it to time consistent benchmarks the marginal cost of rewarding the agent for high output today exceeds the marginal benefit of delaying these rewards until tomorrow in this sense the principal does not smooth the agent s rewards over time when facing a sophisticated agent it is optimal for the principal to reward the good performance more and punish the bad performance more in the early period relative to the optimal wage scheme for a time consistent agent

using contingent valuation to explore willingness to pay for renewable energy a comparison of collective and voluntary payment vehicles abstract this study uses a split sample dichotomous choice contingent valuation survey of 1574 u s residents to explore willingness to pay wtp for renewable energy under collective and voluntary payment vehicles and under government and private provision of the good we also evaluate the impact of participation expectations on stated wtp we find some evidence that when confronted with a collective payment mechanism respondents state a somewhat higher wtp than when voluntary payment mechanisms are used similarly private provision of the good elicits a somewhat higher wtp than does government provision we also find that contingent valuation responses are strongly correlated with expectations for the wtp of others our results shed light on strategic response behavior and the incentive compatibility of different cv designs and offer practical insight into u s household preferences for how to support renewable energy

business fluctuations in a behavioral switching model gridlock effects and credit crunch phenomena in financial networks abstract in this paper we characterize the evolution over time of a credit network in the most general terms as a system of interacting banks and firms operating in a three sector economy with goods credit and interbank market credit connections change over time via an evolving fitness measure depending from lenders supply of liquidity and borrowers demand of credit moreover an endogenous learning mechanism allows agents to switch between a loyal or a shopping around strategy according to their degree of satisfaction the crucial question we investigate is how financial bubbles and credit crunch phenomena emerge from the implemented mechanism

discursive ethics in ecosystems valuation and environmental policy abstract discursive ethics has its origin in the frankfurt school of critical theory as an applied ethic it is also associated with practical philosophy in this paper discursive ethics is discussed as a conceptual and practical framework for ecosystems valuation and environmental policy the discussion focuses on three main strengths of discursive ethics 1 it offers an integrated process for ecosystems valuation 2 it offers a decision making framework for responding to uncertainty and risk and the reality of action in indeterminacy 3 it offers a process for deconstructing common valuation concepts and identifying conditions for their critical reconstruction the theoretical discussion is followed by a case study example which illustrates the usefulness of discursive ethics in identifying valuation biases hidden behind disciplinary assumptions and conceptual norms these include cultural norms of rationality information biases which consider hard facts over soft values and disciplinary valuation biases which distinguish between hard and soft expert contributions as the case study illustrates a successful application of discursive ethics in ecosystems valuation and environmental policy demands sensitivity to such underlying biases beyond its policy relevance discursive ethics may also offer a framework for an extended peer discourse through which new foci in research and education can be identified

gain loss and personal responsibility the role of motivation in resource valuation decision making the paper examines the issue of whether willingness to pay wtp or willingness to accept wta is the most appropriate indicator of the benefits or costs that people realize from a change in an environmental asset specifically the paper addresses the disparity between estimates obtained in contingent valuation research with these different measures and it suggests a reason for the disparity that requires an expanded model of valuation the model focuses on the context in which valuation decisions are made accounting for the role of change position gain or loss and motives like personal responsibility and altruism in influencing resource values the paper also calls for an expanded inductive approach to researching the issues raised by the model it reports some initial results from inductive research that suggest that wtp is the most appropriate indicator but the paper calls for further research that addresses the issues this finding raises

incentive compatible guaranteed renewable health insurance premiums theoretical models of guaranteed renewable insurance display front loaded premium schedules such schedules both cover lifetime total claims of low risk and high risk individuals and provide an incentive for those who remain low risk to continue to purchase the policy questions have been raised of whether actual individual insurance markets in the us approximate the behavior predicted by these models both because young consumers may not be able to afford front loading and because insurers may behave strategically in ways that erode the value of protection against risk reclassification in this paper the optimal competitive age based premium schedule for a benchmark guaranteed renewable health insurance policy is estimated using medical expenditure data several factors are shown to reduce the amount of front loading necessary indeed the resulting optimal premium path increases with age actual premium paths exhibited by purchasers of individual insurance are close to the optimal renewable schedule we estimate finally consumer utility associated with the feature is examined

valuation in morally charged situations the role of deontological stances and intuition for trade off making abstract the contingent valuation method is a widely used yet controversial approach for valuating unpriced public goods in environmental and ecological economics there is ongoing debate about the validity of the willingness to pay statements this method elicits particularly then when ethically or morally charged public goods are assessed it has been assumed that a considerable portion of the public holds deontological stances toward and applies analytical moral reasoning to such goods which distort willingness to pay statements and subsequent cost benefit analyses based on stated economic values results from studies in developmental and moral psychology however indicate that the majority of people base moral choice and subsequently trade offs on social norms affective reactions and moral intuition rather than on analytical moral reasoning this article presents a small focus group study of people in the uk n 18 exploring whether their responses supports the idea that a considerable percentage of the public holds deontological stances towards the environment that influence their willingness to pay for environmental goods the article contributes to the discourse on the validity of willingness to pay statements from a broader perspective it scrutinizes the importance of analytical moral reasoning and suggests that affective judgments and intuition are relevant to environmental valuation

family specific investments and divorce with dynamically inconsistent households marital contracts and policy abstract this paper bridges two distinct areas of inquiry the economic theory of the family and behavioral research on time inconsistent preferences motivated by anecdotal and survey evidence suggesting that present bias plays a role in intra household decision making we propose a model in which hyperbolic discounting couples engage in home production activities thereby accumulating family specific capital over time at any given point in time the gains to continued marriage depend on the accumulated stock of this capital and a temporary random shock to match quality couples whose match quality deteriorates may choose to divorce and this is more likely to happen if past investments in family specific capital have been low we obtain three main sets of results first present biased preferences induce couples to underinvest in family specific capital and to overdivorce second sophisticated couples but not naive ones may choose to enter marriage on terms which make divorce more costly to obtain third the inefficiencies in the behavior of time inconsistent couples can be completely undone by means of earnings and divorce taxes that vary over the marital life cycle

hyperbolic discounting and secondary markets does the existence of secondary markets for durable goods affect price and allocation on primary markets we study competitive equilibria for durable goods where the possibility of future trade on secondary markets does not affect consumer behaviour in the primary market provided consumers are exponential discounters if consumers are hyperbolic discounters however secondary markets are no longer neutral as they allow consumers to postpone their purchasing decisions in this case the equilibrium price in the primary market is decreasing in the number of periods in which the good can be traded hence primary producers have an incentive to close down secondary markets if secondary markets never close hyperbolic discounters may use collusive intrapersonal strategies which lead to a pareto improvement for all incarnations of the same consumer we characterise the set of all stationary equilibrium prices and show that the competitive equilibrium allocation may be inefficient

towards an ecological economics of sustainability abstract persistent disagreement both as to the interpretation to be given to sustainability and as to the relation between ecological and economic sustainability has hindered the development of an ecological economics of sustainable resource use this paper identifies the main concepts of sustainability deriving from the two disciplines in order to explore the difference implied by an ecological approach to the problem it is argued that present economic and ecological approaches are largely disjoint and that they address basically different phenomena by combining the efficiency requirements of what is usually thought of as economic sustainability with the stability requirements of an ecological approach it is shown that an intertemporally efficient allocation of resources that satisfies the conditions for constant levels of consumption is not necessary to assure ecological sustainability ecological sustainability requires that the allocation of economic resources should not result in the instability of the economy environment system as a whole

valuing riverside wetlands the case of the donau auen national park abstract for two decades the establishment of the donau auen national park east of vienna has been on the political agenda in austria since 1991 concrete proposals have been worked out for several variants of a national park including hydraulic engineering concepts and hydroelectric power stations within this planning process a cost benefit analysis was carried out to estimate the economic impacts of the proposed projects one crucial question was how to value the ecological quality of wetlands these environmental goods were valued by means of a willingness to pay wtp survey two different kinds of variables were defined 1 costs and benefits depending on direct anthropocentric use including energy production with hydroelectric power stations shipping groundwater protection stabilisation of the river bed to stop channel erosion visitors benefits forestry farming fishing hunting and the costs of establishing a national park based on these variables the net present value for variants with hydroelectric power stations is higher than for variants without electricity production on the contrary the internal interest rate and the benefit cost ratio is higher for a pure national park without electricity production 2 taking also the austrians wtp for the donau auen national park as a substitute measure for ecological values into account only 20 percent of the wtp which was measured by means of contingent valuation is needed to make the net present value of the best national park variant equal to that of the best hydroelectric power variant this shows that the protection of natural goods like wetlands in a natural state might be more efficient from an economic viewpoint than development projects

self coordination in time inconsistent stochastic decision problems a planner doer game framework abstract time inconsistency has been a thorny issue in many economic and financial decision making problems especially when risk measures are involved in performance criteria we develop in this paper a two tier planner doer game framework with self coordination by aligning the global interest of the planner and the local interests of the doers by applying suitable penalty functions a degree of internal harmony measured quantitatively by the expected cost of self coordination can be achieved by the self coordination policy we establish an axiom system for modified preferences under which the self coordination policy can be obtained by solving a corresponding optimization problem we then apply our game framework successfully in dynamic mean variance portfolio selection

a box cox double hurdle model of wildlife valuation the citizen s perspective abstract a stated preference approach is used to elicit the attitudes of the general public towards coyote conservation the payment vehicle is presented in a way that explicitly prompts respondents to adopt a citizen perspective rather than a consumer perspective when responding to the survey to deal with the large numbers of zero responses a box cox double hurdle specification is used to model separately individuals choices about whether to support conservation or not and their choice about the level of support the results show that simpler analyses that do not account explicitly for these two different decisions would lead to misleading conclusions in the study of nuisance wildlife the study uses primary data from prince edward island canada

money on the table some evidence on the role of liquidity constraints in 401 k saving abstract using health and retirement study data on contributions earnings and pension plans we examine the role of liquidity constraints in explaining why employees fail to take full advantage of employer matching contributions in 401 k plans leaving money on the table

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

the timing of choice enhancing policies abstract recent studies investigate policies motivating consumers to make an active choice as a way to protect unsophisticated consumers we analyze the optimal timing of such choice enhancing policies when a firm can strategically react to them in the model a firm provides a contract with automatic renewal we show that a policy intending to enhance consumers choices when they choose a contract can be detrimental to welfare by contrast a choice enhancing policy at the time of contract renewal increases welfare more robustly our results highlight that policies should be targeted in timing to the actual choice inefficiency

choice and procrastination author s o donoghue ted rabin matthew abstract recent models of procrastination due to self control problems assume that a procrastinator considers just one option and is unaware of her self control problems we develop a model where a person chooses from a menu of options and is partially aware of her self control problems this menu model replicates earlier results and generates new ones a person might forego completing an attractive option because she plans to complete a more attractive but never to be completed option hence providing a non procrastinator additional options can induce procrastination and a person may procrastinate worse pursuing important goals than unimportant ones

how people respond to contingent valuation questions a verbal protocol analysis of willingness to pay for an environmental regulation abstract this paper investigates what a respondent is thinking when answering a willingness to pay question in a contingent valuation using a think aloud technique from psychology called verbal protocol analysis the willingness to pay responses we observed seem to be constructed from a variety of considerations including an obligation to pay a fair share of the cost of the solution and signaling concern for a larger set of environmental issues the finding that respondents seem to construct their values at the time they are asked rather than reporting a more well defined value is seen as consistent with over two decades of research on the psychology of decision making potential uses of verbal protocols in contingent valuation studies are also discussed

protest beliefs in contingent valuation explaining their motivation abstract the definition and treatment of protest responses in contingent valuation cv can have a significant influence on the estimated values of the good in question if these responses are censored in order to understand how protest responses are motivated in a cv about forest biodiversity in germany we used an item battery to identify respondents protest beliefs the items were measured for all respondents irrespective of their willingness to pay wtp in principle then a scale based on these beliefs is taken as a dependent variable of regression analyses in addition to environmental concern we used norms the warm glow of giving and dilemma concern as further explanatory variables the latter focuses on cooperation problems in protecting the environment our results show that protest beliefs are significantly influenced by the explanatory factors furthermore the protest beliefs themselves have a significant effect on the decision to be wtp as well as on the amount of money stated by those who are wtp the censoring of protest responses may therefore be indefensible

decreasing impatience a criterion for non stationary time preference and hyperbolic discounting despite recent interest in hyperbolic discounting there has been little discussion of exactly what property of time preferences is instantiated by hyperbolic or quasi hyperbolic functional forms the paper revives an earlier proposal in prelec 1989 that the key property is prattarrow convexity of the log of the discount function which corresponds to decreasing impatience di at the level of preferences di provides a natural criterion for assessing the severity of departure from stationarity in that greater di is equivalent to more choices of dominated options in two stage decision problems as well as greater convexity of the log of the discount function inefficient choices may arise as intentional precommitments or as unintended reversals of preference by naive agents

intertemporal coordination with delay options abstract this paper studies equilibrium selection in intertemporal coordination problems with delay options the risk dominant action of the underlying one shot game is selected when frictions are arbitrarily small larger frictions introduce real option effects in the model and inhibit coordination

self regulation through goal setting goals are an important motivator but little is known about why and how people set them we address this issue in a model based on two stylized facts first goals serve as reference points for performance second present biased preferences create self control problems we show the power and limits of self regulation through goals goals increase an individual s motivation but only up to a certain point furthermore they are painful self disciplining devices thus greater self control problems may result in tougher goals but for a severe present bias goals either lack a motivating force or are too painful to be accepted

efficiency and equilibrium when preferences are time inconsistent abstract we consider an exchange economy with time inconsistent consumers whose preferences are additively separable if consumers have identical discount factors then allocations that are pareto efficient at the initial date are also renegotiation proof in an economy with a sequence of markets competitive equilibria are pareto efficient in this sense and for generic endowments only if preferences are locally homothetic

incentives for procrastinators we examine how principals should design incentives to induce time inconsistent procrastinating agents to complete tasks efficiently delay is costly to the principal but the agent faces stochastic costs of completing the task and efficiency requires waiting when costs are high if the principal knows the task cost distribution she can always achieve first best efficiency if the agent has private information the principal can induce first best efficiency for time consistent agents but often cannot for procrastinators we show that second best optimal incentives for procrastinators typically involve an increasing punishment for delay as time passes

unforeseen contingency and renegotiation with asymmetric information this article considers a buyer seller contracting model in which the seller possesses private information about all relevant aspects of the state of nature including how much each action is worth to the buyer i argue that given asymmetric information the buyer may not entirely dismiss an unforeseen contingency claim by the seller then if the buyer lacks the foresight awareness to expect the unexpected the model admits an equilibrium in which a seemingly complete contract is written and then renegotiated along its outcome path to generate inefficiency ex post

what have you done for me lately release of information and strategic manipulation of memories how should a rational agent politician employee advertiser release information in order to manipulate the memory imperfections of his forgetful assessor electorate supervisor consumer this article attempts to answer this question using a memory model based on the principles of recency similarity and repetition i show that the problem of a rational agent who releases information to a forgetful assessor can be modelled as a standard dynamic optimisation problem and we describe the properties of the optimal profile for releasing information the theoretical results are applicable in a wide range of social and economic contexts such as political campaigns employee performance evaluations and advertising strategies

environmental norms society and economics abstract environmental norms seem to be on the upsurge everywhere norm orientation is however neglected in neoclassical economics which is fixed on homo economicus as the model of human behaviour the paper addresses the question whether homo economicus needs to give way to a norm oriented concept in environmental economics this question is tackled in an interdisciplinary and evolutionary approach using economics concepts forces are identified which are detrimental to or which promote environmental norms in the process of civilisation this investigation provides some clues on the likely importance of environmental norms in a future ecologically oriented society these clues provide in turn one answer to the fundamental question posed whether the neoclassical concept of human behaviour will likely remain or cease to be the standard tool in environmental economics rather than tackling the question in greatest generality the analysis takes recourse to an example the problem of the commons the commons is particularly suited for this investigation because it is well roamed by all the disciplines which are of relevance for the undertaking

nonlinear pricing with self control preferences a basic assumption of economics is that consumers choose what they want however many consumers find it difficult to stop overeating overspending smoking procrastinating etc even though they want to in reality consumers have temptation and it is psychologically costly to exercise self control to clarify the implications of the existence of temptation and self control costs this paper studies a firm s optimal selling strategy exploiting the behavioral features of consumers we characterize optimal nonlinear pricing schemes for a monopoly when self control is costly for consumers since consumers have a preference for commitment the firm faces a trade off between offering a small menu that makes the consumers self control easier and offering a large menu that achieves better price discrimination we show that the optimal menu resembles the one in the standard nonlinear pricing problem with a price ceiling where the upper bound on prices is determined endogenously by a participation constraint the ceiling motivates the firm to offer a relatively flat and compact price schedule serving more consumers with low demand the characterization also shows that the firm may earn less if consumers have temptation

contingent valuation and the activation of environmental norms abstract this paper uses contingent valuation cvm as the context in which to explore the implications of a model of altruistic norm activation a model is presented which provides a framework for thinking about the factors that individuals consider when formulating their responses to cvm questions and the processes by which they bring such factors together the activation of personal environmental norms and hence positive willingness to pay depends on four main categories of belief awareness and acceptance of environmental need consequences of personal action responsibility for personal action and acceptance of policy initiatives the model is illustrated with a qualitative case study and some of the implications for cvm are considered in light of these findings it is argued that whilst notions of fairness may not present problems from a demand prediction economic standpoint such notions may be more problematic for the cost benefit analysis use of results

mixing methods within stated preference environmental valuation choice experiments and post questionnaire qualitative analysis abstract assessing public preferences for natural resources is a difficult task the complexity of the research problem has encouraged practitioners to adopt qualitative approaches as exploratory and diagnostic tools within the conventionally more quantitative stated preference research building on best practice from previous studies this paper reports the findings of post questionnaire focus group analysis investigating the adequacy of a choice experiment ce valuation exercise and its public acceptability the specifics of the scenario and design choices are shown to markedly reduce problems of charity like and bid realism fair share responses observed in previous studies and significant sensitivity to good characteristics is observed however a less tractable problem of valuing unfamiliar goods remains with insights given regarding public acceptability and the usefulness of the findings to environmental decision making

self control and bargaining abstract this paper examines a bargaining game with alternating proposals where sophisticated quasi hyperbolic discounters negotiate over an infinite stream of payoffs in markov perfect equilibrium payoffs are almost always unique and a small advantage in self control can result in a large advantage in payoff in subgame perfect equilibrium a multiplicity of payoffs and delay can arise despite the complete information setting markov perfect equilibria are the best subgame perfect equilibria for the agent with more self control and the worst for the agent with less self control naivete can help a player by increasing their reservation value

measuring the existence value of wildlife what do cvm estimates really show two research programs are brought together to contribute to the growing body of work on alternatives to standard welfare based approaches to environmental valuation and policy the first is the theoretical literature undermining the new welfare

contracting with diversely naive agents in standard contract theoretic models the underlying assumption is that agent types differ in their preference or cost parameters and the principal s objective is to design contracts in order to screen this type we study a contract theoretic model in which the heterogeneity among agent types is of a cognitive nature in our model the agent has dynamically inconsistent preferences agent types differ only in their degree of sophistication that is their ability to forecast the change in their future tastes we fully characterize the menu of contracts which the principal offers in order to screen the agent s sophistication the menu does not exclude any type it provides a perfect commitment device for relatively sophisticated types and exploitative contracts which involve speculation with relatively naive types more naive types are more heavily exploited and generate a greater profit for the principal our results allow us to interpret real life contractual arrangements in a variety of industries