what drives the cross country growth and inequality correlation we present a neo classical model that explores the determinants of growth inequality correlation and attempts to reconcile the seemingly conflicting evidence on the nature of the growth inequality relationship the initial distribution of human capital determines the long run income distribution and the growth rate by influencing the occupational choice of the agents the steady state proportion of adults that innovates and updates human capital is path dependent the output elasticity of skilled labour barriers to knowledge spillovers and the degree of redistribution determine the range of steady state equilibria from a calibration experiment we report that a skill intensive technology low barriers to knowledge spillovers and high degrees of redistribution characterize the industrial countries with a positive growth inequality correlation a negative correlation between growth and inequality arises for the group of non industrial countries with the opposite characteristics jel classification e1 o4 qu est ce qui sous tend la correlation transversale entre la croissance des pays et son niveau d inegalite on presente un modele neo classique qui explore les determinants de la correlation croissance inegaliteet on tente de reconcilier les resultats qui semblent contra dictoires ace propos la distribution initiale de capital humain determine la distribution des revenus along terme et le taux de croissance en influant sur le choix occupationnel des agents

does right or left matter cabinets credibility and fiscal adjustments abstract this paper tests the widely held assumption that left wing cabinets favor higher public spending and examines whether cabinet ideology affects the persistence of major fiscal adjustments in a panel of large fiscal adjustments in oecd countries during the last 40 years we find evidence that left wing and right wing cabinets are partisan the left tends to reduce the deficit by raising tax revenues while the right relies mostly on spending cuts our testable hypothesis is that cabinets can signal commitment by undertaking fiscal adjustments in ways that are not favored by their constituencies in other words the left gains credibility when it cuts spending while the right becomes more credible when it increases tax revenues probit estimates of the determinants of persistence in fiscal adjustments confirm that spending cuts by the left and tax increases by the right are associated with persistent adjustments the effect is significant for cuts in public spending public consumption wage or nonwage increases in total revenues direct taxes on businesses and other taxes we test for the role of several other determinants of persistence confirming that coalition and majority cabinets are associated with less persistence while periods of high or rising levels of indebtedness favor persistence the estimates of the impact of ideology and other variables on gdp and its components show that it is the size of the spending cut rather than cabinet ideology that is most important

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

oligarchy democracy inequality and growth abstract this paper analyses the dynamics of inequality democratization and economic development in a political economy model of growth where education is both the engine of growth and a determinant of political participation in a context with imperfect capital markets we investigate the incentives for an educated oligarchy to subsidize the poor s education and to initiate a democratic transition we characterize the equilibrium patterns of political institutions income distribution and growth as a function of the initial income and inequalities in particular we identify circumstances under which the elite promotes the endogenous emergence of a middle class for purely political economy reasons a simple linear infinite horizon framework is then presented in this setting we discuss the importance of historical dependence for long run social stratification and redistribution

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

an absence of transparency the charitable and political contributions of us corporations although stockholders may benefit from information regarding the frequently substantial charitable and political contributions of the corporations they own us corporations are typically not required to disclose any information about such payments in annual financial statements or information submitted periodically to regulatory agencies this lack of transparency is confounded by disclosure requirements of private foundations which a corporation may choose to establish for the purposes of administering charitable giving for the corporation the resulting disclosure fog engendered by extant regulations may be confusing to those corporation owners who would like to know what corporation contributions are being made to charities and politicians this article enumerates the magnitude of the charitable and political gifts of 40 of the most generous public corporations in the usa the current disclosure requirements for public companies the role of foundations rationales for withholding relevant information from owners and ethically questionable strategies that corporations may use to manage those disclosures for their benefit

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

on efficiency and distribution this paper is a theoretical study of alternative ways of allocating resources in an exchange economy in which individual preferences are subject to unpredictable shocks that cannot be monitored efficiency in this economy requires wealth inequality to increase over time the paper is based on the author s 1991 harry johnson lecture copyright 1992 by royal economic society

inequality and redistribution evidence from u s counties and states 1890 1930 abstract does economic inequality affect redistributive policy this paper turns to u s county data on land inequality over the period 1890 to 1930 to help address this fundamental question in political economy redistributive policy was primarily decided at the local level during this period making county level data particularly informative examining within state variation also reduces the potential impact of latent institutional and political variables the paper also uses a variety of identification strategies including historic variables as well as county weather and crop characteristics as instruments for land inequality the evidence consistently suggests that greater inequality is significantly associated with less redistribution this negative relationship is especially large in heavily rural counties where concentrated landownership implied that landed elites also controlled the majority of economic production

campaign contributions as investments the u s house of representatives 1980 1986 this paper treats the market for special interest campaign contributions and political favors as a simple asset market the model yields a simple equilibrium relationship among three variables the total amount of investor contributions a candidate receives the monetary value of the favors he has promised and his probability of winning using data on open seat races for the u s house of representatives i confront the model with a series of tests despite the starkness of the model the results of these tests are highly supportive

price discrimination in oligopoly evidence from regional newspapers recent theoretical work has shown that the incentive to target rival firms customers with low prices can increase price discrimination and that the strength of the incentive depends on a firm s market position using data on swedish newspaper subscriptions we find strong support for these predictions newspapers with a local competitor sell a larger part of their circulation at a discount than monopoly newspapers moreover in competitive markets the use of discounts is inversely related to the newspaper s market share we find no evidence that price discrimination based on observable and exogenous characteristics is influenced by the market structure

the effect on income distribution of development the growth rate and economic strategy abstract an analysis of cross section and time series data for 83 countries confirms some and contradicts other work on income distribution new findings include a dualistic socio political system is highly unfavorable for equality neither the extent of government intervention in the economy nor the rate of manufactured exports are systematically related to income distribution the analysis confirms that there is no systematic relationship between equality and the rate of economic growth educational participation and a reduction in the share of primary exports in gdp are both favorable for equality there is some support for the kuznets hypothesis that inequality increases as per capita income rises to about 400 and then declines with further income increase but the empirical support is not strong and may be weakening over time these findings lead to more optimistic conclusions then other work that rapid growth in a mixed economy is quite consistent with unchanged or even improved income distribution even at early stages of development

nonlinear capital taxation without commitment we study efficient nonlinear taxation of labor and capital in a dynamic mirrleesian model incorporating political economy constraints policies are chosen sequentially over time without commitment our main result is that the marginal tax on capital income is progressive in the sense that richer agents face higher marginal tax rates

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

divergence in economic performance transitional dynamics with multiple equilibria abstract special pairs of the utility functions and the production functions are used in this paper to uncover the transitional dynamics in a lucas model of growth the main findings are as follows a continuum of equilibria exists if the external effect of human capital in goods production is sufficiently large the process of lagging behind catching up with and overtaking that we often observe in the world economy can be explained finally some equilibrium paths are shown to have such complicated patterns that the dynamics conjectured by lucas are too simple to be correct journal of economic literature classification numbers o41 c61

the size and composition of government expenditure abstract this paper tests several leading hypotheses on determinants of government expenditure the purpose is to avoid omitted variables bias by testing the prominent theories in a comprehensive specification to identify persistent puzzles for the current set of theories and to explore those puzzles in greater depth by looking at the composition of government expenditure and the level of government at which it takes place as well as its magnitude using government financial statistics data from the imf covering over 100 countries from 1970 2000 i look at cross sectional and inter temporal variation in government expenditure and both individual categories of expenditure such as defense education health care and different levels of government central and local among other results i find a new explanation for wagner s law widespread evidence that preference heterogeneity leads to decentralization rather than outright decreases in expenditures that a great deal of the expenditure associated with increased trade openness is not in categories that explicitly insure for risk and evidence that both political access and income inequality affect the extent of social insurance

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

why do corporations give to charity this paper explores whether corporate contributions should be tax dedu ctible within the more general context of an examination of the profi t and utility maximization motives driving contributions the theoret ical section develops a formal structural model of the contributions process illustrates comparative statics and derives a set of empiri cally testable hypotheses using a new source of firm data the empir ical results indicate that profit maximization is an important motive driving contributions this finding supports the current tax deducti ble status of contributions up to a seldom encoun tered ceiling and favors a reform that allows firms to treat contributions as ordinary business expenses copyright 1988 by the university of chicago

dynamics of income distribution in this paper we have obtained closed form solutions in cass koopmans growth models with heterogeneous agents the relationship between the form of the production function and the dynamics of income distribution is made explicit we then use this relationship to determine what production structure is simultaneously consistent with facts on growth and income inequality our empirical findings give support to models with decreasing returns in the reproducible factor jel classification d3 o1 o4 dans ce memoire les auteurs obtiennent des solutions pour des modeles de croissance a la cass koopmans dans le cas ou les agents sont heterogenes on explicite la relation entre la forme de la fonction de production et la dynamique de la repartition des revenus on utilise alors cette relation pour determiner quelle structure de production est arrimee aux faits connus a la fois quant a la croissance economique et a la repartition des revenus les resultats empiriques supportent les modeles ou les rendements sur les acteurs de production reproductibles sont decroissants

earthquake fatalities the interaction of nature and political economy to say that the level of fatalities resulting from an earthquake is inversely related to a country s per capita level of income is hardly novel what makes our approach novel is that we relate fatalities to both per capita income and the level of inequality that exists within a country through their joint impact on the likelihood of collective action being taken to mitigate the destructive potential of quakes we first develop a theoretical model which offers an explanation as to why in some environments different segments of society prove incapable of arriving at what all parties perceive to be an agreeable distribution of the burden of the necessary collective action causing the relatively wealthy simply to self insure against the disaster while leaving the relatively poor to its mercy following this we test our theoretical model by evaluating 269 large earthquakes occurring worldwide between 1960 and 2002 taking into account other factors that influence a quake s destructiveness such as its magnitude depth and proximity to population centers using a negative binomial estimation strategy with both random and fixed estimators we find strong evidence of the theoretical model s predictions that is while earthquakes themselves are natural phenomena beyond the reach of humankind our collective inaction with respect to items like the creation and enforcement of building codes failure to retrofit structures and to enact quake sensitive zoning clearly plays a part in determining the actual toll that a given quake takes and it is through these and other examples of collective inaction that limited per capita income and inequality couple together with a given quake s natural destructive power in determining the actual fatalities resulting from a quake

does competition reduce price dispersion new evidence from the airline industry we analyze the effects of competition on price dispersion in the airline industry using panel data from 1993 q1 through 2006 q3 competition has a negative effect on price dispersion in line with the textbook treatment of price discrimination this effect is pronounced for routes with consumers characterized by relatively heterogeneous elasticities of demand on routes with a homogeneous customer base the effects of competition on price dispersion are smaller our results contrast with those of borenstein and rose who found that price dispersion increases with competition we reconcile the different results by showing that the cross sectional estimator suffers from omitted variable bias

price discrimination in the airline market the effect of market concentration we test the hypothesis that price discrimination increases with competition in the airline market using a large cross section of tickets offered by several carriers on various routes we approximate price discrimination with marginal implicit prices of ticket restrictions that carriers typically use to price discriminate saturday night stayover re quirements and advanced purchase discounts we find that the restrictions are associated with lower airfares but that the discounts are smaller on routes with higher market concentration the results suggest that price dispersion attributed to ticket restrictions increases as markets becomemore competitive

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

ownership structure board composition and the market for corporate control in the uk an empirical analysis this paper analyses the board composition and ownership structures of a sample of companies that have been acquired and those of a matching control sample that have not we find significant governance differences between acquired firms and the control sample firms with the following characteristics were more likely to be acquired they had the same person acting as ceo and chair a higher proportion of non executive directors larger institutional shareholdings and higher director shareholdings an analysis of small firms also found evidence of higher ceo shareholdings we also find that treating all take overs as a single group leads to a model mis specification which does not identify the incentive effects of board and ceo shareholdings present in non hostile acquisitions these results are consistent with two agency derived hypotheses financial incentives and effective monitoring we also find that targets exhibit lower growth potential but do not have worse accounting performance

inefficient lobbying populism and oligarchy this paper analyses the efficiency consequences of lobbying in a production economy with imperfect commitment we first show that the pareto efficiency result found for truthful equilibria of common agency games in static exchange economies no longer holds under these more general conditions we construct a model of pressure groups where the set of efficient truthful common agency equilibria has measure zero second we show that under fairly general assumptions the equilibrium will be biased against the group with the highest productivity of private capital reflecting the fact that on the margin less productive groups find lobbying relatively more rewarding finally as an application if lobbies representing the poor and the rich have identical organizational capacities we show that the equilibrium is biased towards the poor who have a comparative advantage in politics rather than in production if the pressure groups differ in their organizational capacity both pro rich oligarchic and pro poor populist equilibria may arise all of which are inefficient with respect to the constrained optimum

compensations as signaling devices in the political economy of reforms we propose an explanation for why efficient reforms are not carried out when losers can block their implementation and compensations are feasible in our model a government tries to sequentially implement two efficient reforms by bargaining with interest groups the organization of interest groups is endogenous compensations are distortionary and different governments care differently about distortions governments use low compensations to discourage losers who just want to receive transfers from organizing this comes at the cost of reforms being blocked by interest groups with relatively high losses resulting in a bias against payment of compensations and the implementation of reforms

life cycle savings bequest and a diminishing impact of scale on growth the present paper shows that the savings motive critically affects the size and sign of scale effects in standard endogenous growth models if the bequest motive dominates the scale effect is positive if the life cycle motive dominates the scale effect is ambiguous and may even be negative

economic inequality and its socioeconomic impact abstract income inequality is of fundamental interest not only to economists but also to other social scientists a substantial literature in economics and the social sciences has investigated the relationship between income inequality and economic growth and a variety of social phenomena the links between inequality and economic growth are explored as well as those between inequality and such key social variables as political conflict education health and crime the analysis in this paper follows a two step process first a review of the empirical evidence relating inequality to growth and to each of the above social variables is undertaken second the various causal mechanisms that have been proposed in the social science literature to explain those links are surveyed

growth and imperfect competition on factor markets increasing returns and distribution abstract although seldom modeled outside the monopolistic competition framework market incompleteness and imperfect competition are central to the new growth theories we propose here a strategic model of imperfect competition with endogenous growth and endogenous market structure where we focus on labor market issues for growth to be possible we assume increasing returns at the firm level due to heterogeneity on the labor market the market structure is not degenerate then because of increasing returns short run efficiency is maximized under monopoly and free entry implies too many firms in the market however in the long run competition can generate growth through a distribution effect whereas a monopoly leads to a zero growth steady state thus there is a trade off between static and dynamic efficiency this trade off implies the existence of a growth maximizing degree of competition in our economy

channels and policy debate in the globalization inequality poverty nexus the process of globalization has led to a much greater integration of the world economy the flows of trade capital labour technology and information across national borders have accelerated since the 1980s and created an environment conducive to faster economic growth and transmission of knowledge it is evident that the forces of globalization provide a strong potential for a major reduction in poverty in the developing world however for a number of reasons brought out in this chapter the positive impact of globalization on poverty alleviation worldwide has not been as substantial as one might have expected in this chapter we explore structural factors and policies within the world economy and national economies that impede the full transmission of the benefits of the various channels of globalization to poverty reduction

the determinants of industry political activity 1978 1986 c ampaign contributions made by corporate political action committees pacs are increasingly important and controversial in u s elections influence purchasing is often alleged by pundits and campaign finance reform is continually debated in congress in the academy social scientists have analyzed the allocation of interest group monies and have looked for possible impacts on legislation few however have tried to explain the total contributions of economic interest groups we shall analyze variations in contributions across industries and over time with an empirical model based on organizationally constrained profit maximizing behavior we assume that corporate pac contributions in an industry are raised to enhance industry profits subject to the constraints of organization costs and freeriding incentives our empirical work covers 124 industries over five election cycles from 1978 through 1986 both the costs and benefits of political activity vary across industries we argue that the benefits of political action are determined by direct contact with the government as a regulator or purchaser of industry output by government s ability to ameliorate adverse market conditions and by the industry s ability to solve collective action problems without government assistance the costs of industry political action arise mainly from collective action problems because effective political activity often requires concerted action by the constituent firms in each industry we also make a methodological contribution previous studies use statistical techniques that suffer from sample selectivity bias or else force the probability of acting politically to be explained by the same set of coefficients as is the amount of action taken we explain and employ a technique that accounts for both problems the results are consistent with the theses that industries follow investment oriented goals in deciding the amount of political action to undertake and that collective action problems are important constraints on industry political activity we can explain between 60 and 80 of the variation in contributions in our sample first we review existing work on corporate political activity particularly papers examining patterns of aggregate pac spending by industry then we present an organization cost constrained industryprofit maximizing model based on a comparison between an idealized zero organization cost industry and the more realistic case where organizing collective action is difficult the independent variables used in the analysis are also discussed and defined next we discuss the dependent variable and total industry contributions and explain our statistical method then the results are presented followed by a discussion of industry structure and political activity to make clear how our results can explain different contribution patterns we give examples using five actual industries

on hotelling s competition with non uniform customer distributions abstract hotelling s competition in a two stage location price game is examined with increasing densities of consumers towards the centre it is shown that there is a range of rather even distributions for which firms locate at opposite ends of the market as the distribution becomes more concentrated duopolists will tend to move inside the market

distributional effects of growth and public expenditures in africa estimates for tanzania and rwanda summary in this paper we explore the effects of fiscal policies and growth on measures of household welfare across the distribution of expenditures for two african countries rwanda and tanzania we explore the effect of government expenditures on expenditure growth in each quintile of the expenditure distribution and the effect of growth for each group we find that the benefits of growth are concentrated among the better off sectors of the population in these two countries perhaps to the detriment of the poorer sectors by looking at the effects within a country and across different groups of households and administrative entities we exploit variation in expenditures and growth across and within regions of each country to estimate the elasticities of expenditure with respect to fiscal expenditure and mean expenditure growth at different points of the expenditure distribution using household survey data and government expenditure data at the district level we find that overall mean expenditure growth benefits the top expenditure groups the welfare spillovers are mostly present for top 20 of the expenditure distribution with the middle of the distribution in tanzania responding slightly to these spillovers public social expenditures do not appear to affect inequality considerably but do tend to work toward decreasing inequality however mean expenditure growth is related to increases in inequality in the sense that the richest sectors of the population benefit the most from growth we find that the growth elasticity of expenditure is only above one for the top quintile in both countries in tanzania a 1 increase in average household expenditure is related to a 1 96 expenditure growth in the top quintile and 0 43 in the third quintile in rwanda a 1 increase in average household expenditure is related to a 1 93 increase in household expenditure in the top 20 of the distribution

growth income inequality and fiscal policy what are the relevant trade offs we develop an endogenous growth model with elastic labor supply in which agents differ in their initial endowments of physical capital in this context the growth rate and the distribution of income are jointly determined we then examine the distributional impact of different ways of financing an investment subsidy policies aimed at increasing the growth rate result in a more unequal distribution of pre tax income consistent with the positive correlation between income inequality and growth observed in the recent empirical literature however there is no conflict between efficiency and equity if inequality is measured in terms of the distribution of welfare

airline market power and intertemporal price dispersion this paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the u k and the republic of ireland price dispersion is measured by the gini coefficient calculated using fares posted on the internet at specific days before takeoff we control for passengers heterogeneity in their purpose of travel as well as for such peak periods as christmas and easter our finding of a negative correlation between competition and price dispersion suggests that competition is likely to hinder the airlines ability to price discriminate although this effect appears to be lessened in peak periods

the aging population and the size of the welfare state is there a puzzle abstract razin sadka and swagel razin asaf efraim sadka and phillip swagel 2002 the aging population and the size of the welfare state the journal of political economy vol 110 no 4 pp 900 918 unveil a puzzling fact the welfare state appears to be shrinking even as the dependency ratio rises while they formulate an elegant political economy model to explain the coexistence of an aging population and declining transfers the resolution of the puzzle turns out to be much simpler labor tax rates and per capita transfers are negatively correlated with the dependency ratio in advanced economies only because this measure includes children as well as retirees both labor tax rates and per capita transfers in advanced economies are in fact historically positively correlated with the ratio of retirees to the working age population and negatively correlated with the ratio of children to the working age population increasing the number of retirees shifts preferences toward higher taxes and transfers by increasing the fraction of the population that receives transfers in contrast workers with more children prefer to spend more of their lifetime income while raising dependents so they prefer smaller public pension systems these results suggest that fiscal leakage from workers to retirees is not required to explain the broad trends in the transfer policies of advanced economies

national pro poor spending programmes and their effect on income inequality and poverty evidence from vietnam abstractthis article examines the causal effects of the national pro poor targeted programmes ntps on both poverty incidence and inequality in vietnam over the period 2002 2010 while the links between ntps and poverty alleviation and income inequality have previously been analysed independently this study is the first to offer a comprehensive analysis of ntps expenditure on poverty and inequality simultaneously applying the system generalized method of moments estimator to a panel of vietnamese regional data we are unable to establish that ntps have significantly mitigated poverty incidence however we estimate that ntps have significantly increased inequality we offer possible explanations why the ntps have resulted in these unintended outcomes and discuss potential policies which can reduce both poverty and inequality

collaboration in the boardroom behavioral and performance consequences of ceo board social ties empirical research has typically rested on the assumption that board independence from management enhances board effectiveness in administering firms the present study shows how and when a lack of social independence can increase board involvement and firm performance by raising the frequency of advice and counsel interactions between ceos and outside directors hypotheses were tested with original survey data from 243 ceos and 564 outside directors on behavioral processes and dynamics in management board relationships

pecuniary emulation inequality and growth abstract we study a two class growth model in which agents care about both consumption and the social perception of their wealth rank the latter determines the social status enjoyed by agents social perceptions are based upon noisy signals of wealth and in equilibrium there is incomplete separation of classes the steady growth rate of the economy increases with the full information status differential between classes and contrary to the growth model without status it is affected by the initial level of wealth inequality both too much equality and too much inequality are detrimental to economic growth

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

increasing returns and increasing rates of growth romer 1986b documented that industrial economies have tended to have growth rates that increase over time having explained why the aggregate growth models of ramsey 1928 cass 1965 and koopmans 1965 fail to account for this observation romer proposed an alternative view of long run prospects for growth combining three elements externalities increasing returns in the production of output and decreasing returns in the production of new knowledge he constructed an equilibrium model of growth in his infinite horizon continuous time analysis qualitative conclusions were reached using the geometry of the phase plane no examples with an explicit dynamic solution were given the present paper provides a fully worked out example that fills this gap and that can serve as a confirmation of romer s claim that monotonically increasing growth rates for the capital stock and for consumption can arise in the framework he specified this paper also presents an example that can generate increasing growth rates without imposing some of the restrictions essential to romer s model those restrictions are not appealing on economic grounds and were added to his paper purely for technical reasons any infinite horizon model with increasing returns to scale must impose some restrictions to ensure the existence of both a social optimum and a competitive equilibrium otherwise the discounted sum of utility could go to infinity romer 1986b used a production function of the form f k k akvkw with v y 1 where k is the capital stock at the level of the firm and k is aggregate capital the

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

supplying information to facilitate price discrimination the authors examine the incentive of a seller to allow potential buyers to acquire private information about their tastes for the seller s product improved private information for buyers enables the seller to segment the market and charge higher prices to high value buyers however improved information can also provide rents to buyers in a variety of settings this tradeoff is optimally resolved at one of two extremes either buyers are supplied with the best available knowledge of their tastes or no information is supplied by the seller copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

campaign contributions and access an important and pervasive view of campaign contributions is that they are given to promote access to successful candidates under circumstances when such access would not ordinarily be given in this story access is valuable as it offers groups the opportunity to influence legislative decisions through the provision of policy relevant information under complete information regarding donors policy preferences i argue that this model predicts a negative relationship between contributions and the extent to which the groups and the recipient legislators preferences are similar however one of the more robust empirical findings in the literature is that this relationship is positive relaxing the informational assumption on donors preferences i reexamine the access story with a model in which campaign contributions can act as signals of policy preference and the informational value of access to any agent is endogenous

pacs and the congressional supermarket the currency is complex although pacs attempt to influence the legislative process with contributions this research finds little evidence that the contributions of 120 pacs affiliated with 10 organizations affected the voting patterns of the house members who served continuously from 1975 to 1982 in the few cases in which a relationship between contributions and a member s votes is established the analysis indicates that contributions are a surrogate measure of a more important and larger package of support for the member from the interest groups two stage least squares regression models are used to test the relationship between pac contributions and a member s votes controlling for the incumbent s ideology and party and the political leaning of the district interviews with pac officials supplement the statistical analysis

second best optimal taxation of capital and labor in a developing economy abstract as commercial integration reduces the reliance on foreign trade taxation raising tax revenue has become a major concern for the governments of developing economies this paper examines how the tax burden in a developing economy should be distributed between capital income and labor income we study a two sector model where the traditional sector is informal and consequently cannot be taxed by the government in this setup we find that the optimal second best tax structure in order to raise a certain amount of revenue requires to tax capital income at least as much as labor income and possibly more

the effects of third degree price discrimination in oligopoly retail firms and restaurants commonly offer senior citizen discounts i suspect this practice is not motivated by altruism rather the behavior can be better explained as profit maximizing price discrimination these firms are setting a low price in a market which probably has high elasticity of demand but why should the demand of senior citizens be more elastic than average one possibility is that elderly people have below average income and they would not eat out if restaurant prices were high perhaps a more plausible explanation is that retired people simply have more time on their hands to spend commuting across town to take advantage of discounts the purpose of these discounts may then be to lure senior citizens away from other restaurants rather than to get them out of the house the analysis of third degree price discrimination has a long history a c pigou 1920 joan robinson 1933 and two articles on the subject have recently appeared in this review richard schmalensee 1981 hal varian 1985 the industry structure in these analyses is monopoly but an explicit model of some form of competition is obviously needed to study discriminatory discounts meant to attract customers from rival firms and even discounts meant to get people out of the house may have an oligopoly analysis which is qualitatively different from their monopoly anlysis in this paper i present a simple duopoly model of a differentiated products industry i show that a firm s price elasticity of demand in a market can be expressed as the sum of two parts the industry demand elasticity and the cross price elasticity the first measures the tendency of consumers in a market to stay home when the price goes up the second the tendency to switch suppliers in the monopoly case in which the crossprice elasticity is zero and the collusive case in which the cross price elasticity is irrelevant discrimination between markets is due to differences in industry demand elasticity in the noncooperative oligopoly case equilibrium price differentials can be accounted for both by differences in cross price elasticity as well as differences in industry demand elasticity total industry output when the firms can discriminate between two markets is compared to what it would be if discrimination were impossible which regime has larger output depends on the sum of the adjustedconcavity condition and the elasticity ratio condition the first predominates when the rival products are poor substitutes and the firms have approximate monopoly power while the second predominates at the other extreme where the products are close substitutes and the firms have almost no market power the adjusted concavity condition compares the relative curvature of demands in the two markets and was originally discovered by robinson 1933 in her analysis of monopoly price discrimination the elasticity ratio condition compares the relative difference in industry demand elasticity between the two markets with the relative difference in cross price elasticity according to the elasticity ratio condition a discriminatory discount due to high industry elasticity of demand would be more likely to increase total output than one due to high cross price elasticity the effect of discrimination on profit is also discussed the distinction made here department of economics university of wisconsin madison madison wi 53706 this paper is a revision of part of my doctoral dissertation i am grateful to steve matthews ken judd and john panzar for guidance in this research i also thank seminar participants at wisconsin the justice department and the 1986 econometric society meetings in new orleans and the discussant martin perry the excellent comments of the referees improved the exposition of the paper

hubs and high fares dominance and market power in the u s airline industry this article estimates the importance of route and airport dominance in determining the degree of market power exercised by an airline the results indicate that an airline s share of passengers on a route and at the endpoint airports significantly influences its ability to mark up price above cost the high markups of a dominant airline however do not create much of an umbrella effect from which carriers with smaller operations in the same markets can benefit the article suggests a number of possible explanations for this asymmetry

capital taxation under political constraints this paper studies optimal dynamic tax policy under the threat of political reform a policy will be reformed ex post if a large enough coalition of citizens supports reform thus sustainable policies are those that will continue to attract enough political support in the future we find that optimal marginal capital taxes are either progressive or u shaped so that savings are subsidized for the poor and or the middle class but are taxed for the rich u shaped capital taxes always emerge when individuals political behavior is purely determined by economic motives

corporate political donations influences from directors networks motivated by contemporary debates concerning whether directors inappropriately deploy corporate funds for corporate political donations and the limited research into managerial influence on corporate political donations we examine the impact of director influences from a network perspective using a sample of large listed australian corporations and their political party donation activity during 2000 2007 we find that both the professional and non professional networks of directors influence corporate political donations we observe these influences in relation to donations at the federal and state levels and with respect to the choice of recipient political parties

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

advance purchase discounts as a price discrimination device in an intertemporal setting in which individual uncertainty is resolved over time advance purchase discounts can serve to price discriminate between consumers with different expected valuations for the product consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance purchase discount consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high we characterize the profitmaximizing pricing strategy of the monopolist furthermore adopting a mechanism design perspective we provide a necessary and sufficient condition under which advance purchase discounts implement the monopolist s optimal mechanism

intergenerational mobility and the process of development this paper offers an explanation for some evidence that intergenerational earnings mobility is higher in more developed economies and that mobility is positively correlated with wage equality in the model mobility promotes economic growth via its effect on the accumulation and allocation of human capital growth influences mobility via its effect on incentives to acquire education and its effect on liquidity constraints upon such acquisition in the process of development mobility increases and the distribution of education becomes better correlated with ability redistributive policy has a negative effect on growth in developed economies and a positive effect in developing economies

explaining international and intertemporal variations in income inequality this paper explores the propositions that income inequality is relatively stable within countries and that it varies significantly among countries a new and expanded data set provides broad support for both propositions drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality the empirical analysis shows that the predicted variables associated with the first argument a measure of civil liberties and the initial level of secondary schooling and the second argument a measure of financial depth and the initial distribution of land are indeed important determinants of inequality this paper explores two propositions regarding income inequality they are first income inequality is relatively stable within countries and second it varies significantly across countries to illustrate note that the gini coefficient in india remained almost constant for forty years 1951 92 with mean 32 6 and standard deviation 2 0 2 in contrast the variation in gini coefficients across countries is large 61 9 in honduras in 1968 compared with 17 8 in bulgaria in 1976 if substantiated these propositions have potentially significant implications for poverty the significance of the first is obvious barring any fundamental socio political change poverty reduction will depend crucially on the rate of economic growth given this the significance of the second is that in inegalitarian economies the poor will enjoy a smaller share of any national increment in income than in more egalitarian ones drawing on a new and expanded data set on inequality deininger and squire 1996a the first of the paper s three sections conducts standard statistical tests of the two propositions the sample comprises 573 observations on the most common measure of inequality the gini coefficient for 49 developed and developing countries covering the period 1947 94 the results broadly confirm our two propositions specifically analysis of variance anova shows that about 90 of the total variance in the gini coefficients

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

growth learning and redistributive policies abstract this paper develops an endogenous growth model with redistributive taxation in which the growth rate of the economy affects the agents preferences over redistributive policies and therefore the equilibrium level of taxation the main mechanism through which the growth rate affects policy preferences is by changing the ability of the agents to learn their positions in the future distribution of incomes the main result of the paper is that during periods of growth the society opts for less taxation and less redistribution the model also predicts that growing economies are characterized by higher inequality in the distribution of income and by greater mobility of agents within income classes over time

are consumption taxes really better than income taxes abstract we use political equilibrium theory and the neoclassical growth model to compare consumption and income tax systems if government outlays are used for redistribution through transfers then steady state equilibria in societies that use income taxes are not necessarily worse in welfare terms and may even be better income taxes are attractive precisely because they are more distortionary since this implies low equilibrium transfer levels we also find that switching tax systems typically does not benefit the median voter moreover a change from income to consumption taxes may make everybody worse off

inequality in the globalizing asia this article investigates the impact of globalization on the inequality of asia it is the first attempt to examine 11 asian countries panel data allowing nonlinearity between globalization and inequality from 1960 to 2003 with robustness check we also survey the literature on growth globalization and inequality and reflect their endogenous relationships to our article we found the significant turning point of globalization at which inequality starts decreasing as further globalization proceeds it will offer us policy implications for the ongoing process of globalization in the asian economies

a distributional theory of government growth this article presents a closed form solution for time consistent taxation and public spending in a dynamic game between government and median voter extending meltzer and richard s static analysis of government size the article offers a theory of growth of government at low stages of economic development the median voter identified as a relatively poor worker prefers to have no or only small redistributive taxation in order to foster savings through this channel he expects improvements of his labor productivity and wage at higher stages of development however when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller the incentive to tax and redistribute income rises yet in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times hence government growth is solely driven by an expanding welfare state

haggling over substitutes abstract using a model of substitutable goods i determine generic conditions on tastes which guarantee that fixed prices are not optimal the fully optimal tariff includes lotteries that is a profit maximising seller would employ a haggling strategy we show that the fully optimal selling strategy in a class of cases requires a seller to not allow themselves to focus on one good but to remain haggling over more than one good this throws new light on the selling strategies used in diverse industries these insights are used to provide a counter example to the no lotteries result of mcafee and mcmillan j econ theory 46 1988 335

cross country evidence on the distributional impact of fiscal policy abstractthis article provides new evidence on the distributional effects of fiscal policy using data on a panel of oecd economies over the last four decades we study how four measures of income in

effects of patent policy on income and consumption inequality in a r d growth model what are the effects of strengthening patent protection on income and consumption inequality to analyze this question this paper incorporates heterogeneity in the initial wealth of households into a canonical quality ladder growth model with endogenous labor supply in this model i firstly show that the aggregate economy always jumps immediately to a unique and stable balanced growth path given the balanced growth behavior of the aggregate economy and an exogenous distribution of initial wealth i then show that the endogenous distribution of assets in subsequent periods is stationary and equal to its initial distribution the model predicts that strengthening patent protection increases a economic growth by stimulating r d investment and b income inequality by raising the return on assets however whether it also increases consumption inequality depends on the elasticity of intertemporal substitution if and only if this elasticity is less greater than unity strengthening patent protection increases decreases consumption inequality for standard parameter values strengthening patent protection leads to a larger increase in income inequality than consumption inequality

transitional dynamics and the distribution of wealth in a neoclassical growth model abstract the evolution of the personal distribution of wealth in a standard neoclassical growth model is studied if the economy is growing toward the steady state and preferences are such that marginal utility from consumption is infinite finite at some all positive non negative consumption level s then the average saving propensity of agents is positively negatively related to their wealth if the economy is decaying toward the steady state these relationships are reversed if wealth and average saving propensity are positively negatively related the distribution of current period wealth lorenz dominates is lorenz dominated by next period s distribution of wealth

on the faustian dynamics of policy and political power this paper examines the faustian dynamics of policy and power we posit a general class of dy namic games in which current policies affect the future distribution of political power resulting in the following faustian trade off if the current ruler chooses his preferred policy he then sacrifices future political power yet if he wants to preserve his future power he must sacrifice his present policy objec tives the trade off comes from the fact that the current political ruler pivotal voter cannot uncouple the direct effect of his policy from its indirect effect on future power a policy endogenous pe equilibrium describes this endogenous transfer of power and the resulting evolution of policy and political power over time we show that the faustian trade off in a pe equilibrium is decomposed into two basic rationales the political preservation effect induces more tempered policy choices than if one s policy choice did not affect one s political fortunes however the reformation effect induces more aggressive policies in order to exploit the productivity gains from policies chosen by even more aggressive successors we distinguish between political systems that give rise to monotone faustian dynamics political power that progressively evolves towards more fiscally liberal types of leaders and cyclical faustian dynamics political power that oscillates between liberal and conservative types of leaders in each case we show that the faustian trade off moderates the choices of each type of leader

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

factor income distribution and endogenous economic growth piketty meets romer what is the relationship between the economy s long run growth rate its capital income ratio and its factor income distribution a satisfactory answer requires an endogenous growth and savings rate we scrutinize piketty s 2014 theory in a richly parameterized variant of romer s 1990 seminal model with and without population growth the economy s growth and savings rate are exogenous in piketty s theory and endogenous in romer s in contrast to piketty s second fundamental law of capitalism a smaller growth rate may be associated with a smaller capital income ratio moreover it may go together with a greater or a smaller capital share jel e10 e21 e25 o33 o41

time consistent redistribution if the government cares more about workers than about capitalists and taxes capital income to finance redistribution to workers how are inequality and capital accumulation affected in the long run assuming that the government cannot commit to future taxes a time consistent equilibrium a differentiable subgame perfect markov equilibrium is characterized in this equilibrium the current government in part uses the tax via capital accumulation to manipulate future governments into setting lower taxes the equilibrium has substantially lower taxes on capital income than 100 even though workers do not save and even though the weight on capitalists in government utility is negligible

competition in the presence of individual demand uncertainty this article offers a tractable model of oligopolistic competition in differentiated product markets characterized by individual demand uncertainty the main result shows that in equilibrium firms offer advance purchase discounts and that these discounts are larger than in the monopolistic benchmark competition reduces welfare by increasing the fraction of consumers who purchase in advance that is without full knowledge of their preferences

is there a double bonus from reducing inequality i introduction in the 1990s a number of empirical studies found an economically and statistically significant negative relationship between inequality and long run growth a huge literature that has investigated the effect of inequality on growth much of it emphasizes the negative effect can be broadly classified into three branches 1 the first branch of the literature regards an endogenously determined redistributive policy as a catalyst bertola 1993 persson and tabellini 1994 it asserts that in more unequal economies greater distortion because of higher redistributive tax which is determined endogenously by vote is likely to impede more investment the second branch of the literature argues that more inequality will lead to more sociopolitical instability which in turn will discourage investment alesina and rodrik 1994 benhabib and rustichini 1996 grossman and kim 1996 the third branch of the literature focuses on investment in human capital 2 these papers show that when credit markets are imperfect more inequality implies less people being able to invest in human capital which in turn implies slower growth the idea that low income inequality and high long run growth are consistent objectives appeared to be a common agreement until the late 1990s when it started being challenged by the empirical literature for instance forbes 2000 and li and zou 1998 although their focus is the effect in the short run 5 10 years showed the positive effect of initial inequality on growth burro 2000 and deininger and squire 1998 separate their samples into two according to some criteria such as an income level or a degree of democracy suggest the nonmonotonic effects of inequality on subsequent growth banerjee and duflo 2003 also cast a doubt on the validity of a linear structure that is assumed in the empirical literature assessing the relationship between inequality and growth in the meantime the third branch of the literature mentioned earlier has been extended by incorporating endogenous fertility this new strand of the literature postulates that fertility and investment in human capital are jointly determined by the individuals optimizing behavior 3 and emphasizes the fertility difference between the rich and poor it claims that more unequal economies have higher fertility differentials accumulate less human capital and hence have lower economic growth 4 the endogenous fertility literature appears to reemphasize the negative effect of initial inequality on subsequent growth in this paper we hope to further extend the literature by arguing that the effect of inequality on growth can be non monotonic even when the fertility differential is taken into account to this end we employ an overlapping generations olg model that follows a model by ehrlich and lui 1991 hereafter e l a representative agent in their model maximizes her his utility by choosing how much to invest in quality and quantity of human capital caring about current and future consumption as well as companionship by her his children in the future in contrast to e l who focus only on the representative agent we look at heterogeneous dynasties that comprise an economy by allowing education to have external effects we define an economy as a set of dynasties that can affect one another through externality in education it turns out that a dynasty s behavior differs according to the human capital stock it inherits as well as the economy s average level of human capital hence the initial distribution of human capital in an economy has strong implications for subsequent growth of that economy our main interest is to assess from our theoretical model how inequality affects long run growth of an economy say over 25 years however this is a somewhat tricky exercise because 25 years correspond to only one generation in our three period olg model

education economic growth and measured income inequality in this paper education simultaneously affects growth and income inequality more education does not necessarily decrease inequality when the latter is assessed by the lorenz dominance criterion increases in education first increase and then decrease growth as well as income inequality when measured by the gini coefficient there is no clear functional relationship between growth and measured income inequality the model identifies regimes of this relationship which depend crucially on the production and schooling technology conventional growth regressions with human capital and inequality as regressors may miss the richness of the underlying nonlinearities but viewed as approximations may still provide important information on the nonlinear relationship between growth and education

income inequality government expenditures and growth this paper investigates the relationship between income inequality and growth by utilizing the recently published deininger squire data set most of the recent empirical growth literature suggests a negative relationship between inequality and growth on the basis of reduced form growth equations this is also found in the author s study some effort is made to discuss the argument behind the perceived negative relationship between inequality and growth according to the fiscal policy approach a high level of income inequality leads to a higher demand for redistribution which in turn affects growth through resource allocation out of investment or through incentive distorting taxes needed to fund the redistribution it is suggested that the last mentioned relationship between government expenditure and growth is more likely to be non linear positive with small amounts and negative with large amounts such a relationship however is only found for public goods thus government expenditure on law and ord

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

comments on dynamics of income distribution using the ramsey cass koopmans model with heterogeneous agents this note presents the explicit relationship between the individual s asset holding and the aggregate capital stock with the aid of this relationship is examined the dynamics of income distribution as the economy expands finally some examples are presented contrary to the conjecture made in li xie and zou 2000 showing that the income can still improve over time even when the aggregate production function is convex jel classification d3 o1 o4 commentaires sur dynamique de la distribution du revenu a l aide d un modele de type ramsey cass koopmans avec des agents heterogenes cette note presente la relation explicite entre le stock d actif detenu par l individu et le stock de capital agrege a l aide de cette relation on examine la dynamique de la distribution du revenu a proportion que l economie croit enfin certains exemples sont presentes qui contredisent la conjecture proposee par li xie et zou 2000 a savoir que le revenu peut s accroitre dans le temps meme quand la fonction de production agregee est convexe

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

advance purchase discounts and monopoly allocation of capacity optimal pricing by a monopoly airline that faces capacity constraints during the peak demand period is studied the existence of capacity constraints means that in order to expand output the airline must divert demand from the peak period to the off peak period a particular advance purchase discount policy is shown to be the profit maximizing method of selling tickets if the advance purchase requirement were infeasible output and total surplus would both be lower jel l12 substantial discounts for air travel are generally available to travelers who are willing to purchase tickets a week or more in advance of the departure date this paper demonstrates why the imposition of an advance purchase requirement may be a profit maximizing strategy for a monopoly airline facing capacity constraints during times of peak demand 1 the practice of imposing an advance purchase requirement on discount tickets is also placed in a favorable light in terms of its impact on social

equilibrium price dispersion under demand uncertainty the roles of costly capacity and market structure when capacity is costly and prices are set in advance firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price i show that the optimal price strategy of a monopolist and the unique pure strategy nash equilibria of oligopolists both exhibit intrafirm price dispersion moreover as the market becomes more competitive prices become more dispersed a pattern documented in the airline industry while generating similar predictions the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

factor shares in olg models of growth abstract in standard infinite horizon optimizing models of balanced growth aggregate savings are positively related to private rates of return on investment or for a given technology to the share of accumulated factors of production in aggregate income a relationship of opposite sign may however obtain in overlapping generations olg models where higher rates of return on older agents wealth imply lower disposable income for young laborers with high saving propensity this paper explores such issues in the context of a continuous time olg model deriving simple parametric restrictions conductive to results of either type and discussing how infinite horizon results may carry over to olg settings