the optimality of consumer stockpiling strategies the ability of consumers to make rational sequential purchase quantity decisions under imperfect knowledge about future prices in a product category is explored normatively a consumer should make such decisions by defining a series of reservation prices which define how many buying periods supply should be held given an observed price an experiment is reported in which consumers make sequential purchase quantity decisions under variations in the shape of the distribution of prices and its trend over time results suggest a number of systematic deviations from optimality when facing stationary uniform and bimodal price distributions for example subjects tend to systematically overbuy when small purchases are called for and underbuy when large purchases are called for likewise when facing ascending or descending series behavior is the opposite of that predicted by the normative analysis there is an increasing tendency to defer purchases given increasing prices and accelerate purchases given descending prices an explanation for the findings in terms of a prospect theory type loss function in expenditures is offered

observable and unobservable determinants of replacement of home appliances despite the dominant role of replacement purchases in many consumer durable categories the research in this area has not been extensive only in the last few years has the economic theory made progress towards a more rigorous analysis of the dynamic nature involved in replacement decisions as a consequence of this applied researchers have switched from conventional discrete choice models to new econometric techniques e g duration analysis that allow for richer relationships between socioeconomic variables characteristics of the durable good and the likelihood of its replacement over time our study focuses on two home appliances taken from the residential energy consumption survey recs based on a duration model that allows for unobserved heterogeneity across households we conclude that household demographics and product features both observable and unobservable in general have statistical power to explain replacement decisions over time

working wives and major family expenditures replication and extension this paper updates and replicates an earlier study comparing purchases by working wives employed outside the home and nonworking wives and the amounts spent for time saving durables other durables and hobby and recreation items using a 1977 data base similar to one gathered a decade earlier wife s labor force behavior was again found not to be significantly related to either purchase or expenditure decisions for time saving durables when income stage of life cycle and other situational variables were held constant

a generalization of the endogenous grid method abstract this paper extends carroll s 2005 the method of endogenous gridpoints for solving dynamic stochastic optimization problems national bureau of economic research technical working paper 309 endogenous grid method to perform value function iteration in models with more than one control variable we propose to mix the endogenous grid method with standard value function iteration to achieve higher efficiency we illustrate the method using the stochastic neoclassical growth model with and without labor leisure choice we report important gains in efficiency that make value function iteration an attractive computational method in terms of both computing time and accuracy

heuristics and biases in timing the replacement of durable products the process by which individuals make recurrent decisions about when to replace durable goods is examined two experiments are reported in which subjects play the role of purchasing agents who must repeatedly decide whether to keep a currently owned manufacturing device or replace it with a superior new one given uncertainty about the future performance of new and currently owned machines replacement patterns are compared with those that would be predicted if subjects made decisions as rational economic agents following the principles of optimal replacement theory this comparison reveals a number of systematic departures from optimality that do not vanish with experience among these are a tendency to replace at a slower rate than would be predicted by normative theory and a tendency to weigh opportunity costs arising from obsolescence greater than those arising from product deterioration in addition subjects display a bias against making replacement purchases given short lapses of time since the previous replacement the findings are interpreted in terms of known biases in decision making under uncertainty in dynamic and static settings

taxes benefits and careers complete versus incomplete markets abstract an incomplete market life cycle model with indivisible labor makes career lengths and human capital accumulation respond to labor tax rates and government supplied non employment benefits we compare aggregate and individual outcomes in this individualistic incomplete market model with those in a comparable collectivist representative family model with employment lotteries and complete insurance markets the incomplete and complete market structures assign leisure to different types of individuals who are distinguished by their human capital and age these microeconomic differences distinguish the two models in terms of how macroeconomic aggregates respond to some types of government supplied non employment benefits but remarkably not to labor tax changes

the inada conditions for material resource inputs reconsidered it is shown that the thermodynamic law of conservation of mass the so called materials balance principle implies that the marginal product as well as the average product of a material resource input are bounded from above this means that the inada conditions one of the standard assumptions of economic growth theory when applied to material resource inputs are inconsistent with a basic law of nature the analysis is based on a model of multi level production where intermediate goods are produced from elementary resources and an all purpose final commodity is produced from these intermediates

is neoclassical microeconomics formally valid an approach based on an analogy with equilibrium thermodynamics abstract the relation between thermodynamics and economics is a paramount issue in ecological economics two different levels can be distinguished when discussing it formal and substantive at the formal level a mathematical framework is used to describe both thermodynamic and economic systems at the substantive level thermodynamic laws are applied to economic processes in ecological economics there is a widespread claim that neoclassical economics has the same mathematical formulation as classical mechanics and is therefore fundamentally flawed because 1 utility does not obey a conservation law as energy does 2 an equilibrium theory cannot be used to study irreversible processes here we show that neoclassical economics is based on a wrong formulation of classical mechanics being in fact formally analogous to equilibrium thermodynamics the similarity between both formalisms namely that they are both cases of constrained optimisation is easily perceived when thermodynamics is looked upon using the tisza callen axiomatisation in this paper we take the formal analogy between equilibrium thermodynamics and economic systems far enough to answer the formal criticisms proving that the formalism of neoclassical economics has irreversibility embedded in it however the formal similarity between equilibrium thermodynamics and neoclassical microeconomics does not mean that economic models are in accordance with mass energy and entropy balance equations in fact neoclassical theory suffers from flaws in the substantive integration with thermodynamic laws as has already been fully demonstrated by valuable work done by ecological economists in this field

modelling the consumer s decision to replace durable goods a hazard function approach this article analysis the consumer s durable good replacement decision using hazard models in contrast to the typical limited dependent variable model often used in durable good demand studies hazard models allow for much richer replacement to illustrate the technique a recursive system consisting of a regression equation and a hazard model is used to examine home heating system replacement decisions by residencial customers of a major southeasten us electric utility the results indicate that overall system replacement rates decline over time and that the probability of replacement for specific households depends negatively on the age of the head of household abd the availability of natural gas and positively on system age and higher than expected household energy use

entropy limits to growth and the prospects for weak sustainability in this paper we analyze the consequences of mass and energy conservation and the second law of thermodynamics for economic activity in contrast to former studies we deduce our results formally from a general model of production and consumption we show that in a static setting for economies containing irreversible processes a non zero resource input as well as non zero emissions are necessary to sustain a positive level of consumption we generalize this result to a dynamic setting and apply it to the growth discussion and the sustainability discourse thereby we show that limits to growth of production and consumption are likely to exist and that the concept of weak sustainability is either morally unattractive or physically infeasible d 2005 elsevier b v all rights reserved

technological expectations and adoption of improved technology abstract attention is focused upon the adoption demand rather than the creation supply of new technology which improves from time to time based on the expected flow of technological progress over which the firm demander has no control it must decide either to adopt the current best available technology or to postpone adoption the distinguishing features of the model are that more than one technological innovation is anticipated and expectations about the likelihood of such innovations are revised as time passes since the last innovation our analysis shows that the firm will adopt the current best practice if its technological lag exceeds a certain threshold moreover as time passes without new technological advances it may become profitable to purchase a technology that has been available even though it was not profitable to do so in the past

quantitative versus qualitative growth with recyclable resource we reassess the issue of limits to growth in an endogenous growth model of a decentralized economy where final productions require a recyclable essential material input the model follows a material balance approach and relies on technological assumptions consistent with the material balance principle and on explicit distinction between the material content and the quality of produced goods growth follows from research activities that allow firms to improve the quality of their output and to reduce the material resource intensiveness of their production process even though recycling is assumed perfect we show that 1 the material balance constraint affect the whole transitory dynamics of the growth process 2 quantitative growth i e positive growth of material output can only be a transitory phenomenon long term economic growth taking exclusively the form of perpetual improvements in the quality of final goods a long term growth path is characterized by constant values of material variables or in a less favorable scenario by a constant negative growth rate of those variables we establish the existence conditions of a growth path based on quality improvements and constant material variables it may fail to exist in a decentralized framework even though it is quite feasible from a purely physical point of view

the optimum quantity of debt abstract we find that the welfare gains to being at the optimum quantity of debt rather than the current us level are small and therefore concerns regarding the high level of debt in the us economy may be misplaced this finding is based on a model of a large number of infinitely lived households whose saving behavior is influenced by precautionary saving motives and borrowing constraints this model incorporates a different role for government debt than is found in standard models and it captures different cost benefit trade offs on the benefit side government debt enhances the liquidity of households by providing an additional means of smoothing consumption and by effectively loosening borrowing constraints on the cost side the implied taxes have adverse wealth distribution and incentive effects in addition government debt crowds out capital via higher interest rates and lowers per capita consumption

targeted transfers and the fiscal response to the great recession abstract between 2007 and 2009 government expenditures increased rapidly across the oecd countries while economic research on the impact of government purchases has flourished in the data most of the increase in expenditures was in government transfers after documenting this fact we argue that future research should focus on the positive impact of transfers towards this we present a model in which there is no representative agent and ricardian equivalence does not hold because of uncertainty imperfect credit markets and nominal rigidities targeted lump sum transfers are expansionary both because of a neoclassical wealth effect and because of a keynesian aggregate demand effect

a micromodeling approach to investigate the advertising sales relationship the purpose of this paper is to derive a model of advertising effects on the firm s sales a micromodel is postulated and aggregated across individuals and over time to produce a macromodel of the aggregate sales advertising relationship for a single product the micromodel postulated is very simple it incorporates two factors reach of the ads and rate of decay of their effectiveness over time this approach to modeling advertising effects is shown to be fruitful in several respects 1 the coefficients of the aggregate equation are easily interpretable in terms of the reach and decay parameters 2 the model derived is nonlinear yet estimable 3 a special case of the model is very similar to lag models that have been in use 4 the model can be used whatever the unit of time is 5 the carryover effect of advertising as commonly defined is not constant but depends upon the previous spending levels and 6 the model helps illustrate that the duration of advertising may be greatly overstated if aggregate lagged dependent variable models are simplistically interpreted

heterogeneity and government revenues higher taxes at the top abstract how effective is a more progressive tax scheme in raising revenues we answer this question in a life cycle economy with heterogeneity across households and endogenous labor supply our findings show that a tilt of the u s income tax schedule towards high earners leads to small increases in revenue maximal revenue in the long run is only 6 8 higher than in our benchmark about 0 8 of initial gdp while revenues from all sources increase by just about 0 6 our conclusions are that policy recommendations of this sort are misguided if the aim is to exclusively raise government revenue

technical note a price vector model of demand for consumer durables preliminary developments although considerable research has been conducted on optimal pricing policies for manufacturers relatively little work has been done on how price enters the consumer choice process in this paper a model is developed for durables purchasing which integrates both economic and behavioral research by specifying a vector of five price concepts which affect purchasing behavior of particular interest are variables relating to future price expectations due to data limitations a revised model is estimated and the results provide preliminary support for the general model

the effectiveness of government debt and transfers as insurance abstract government debt and redistributive taxation can help people to smooth consumption when facing uninsurable individual specific risk i examine the effects that variations in public debt and transfers have on risk sharing efficiency and the distribution of resources i find that risk sharing can be improved significantly by both debt and transfers but that debt has adverse effects on equity when used in isolation debt will enhance welfare if transfers are lower than optimal however the beneficial effects of public debt vanish if transfers are used optimally

capital is back wealth income ratios in rich countries 1700 2010 how do aggregate wealth to income ratios evolve in the long run and why we address this question using 1970 2010 national balance sheets recently compiled in the top eight developed economies for the united states united kingdom germany and france we are able to extend our analysis as far back as 1700 we find in every country a gradual rise of wealth income ratios in recent decades from about 200 300 in 1970 to 400 600 in 2010 in effect today s ratios appear to be returning to the high values observed in europe in the eighteenth and nineteenth centuries 600 700 this can be explained by a long run asset price recovery itself driven by changes in capital policies since the world wars and by the slowdown of productivity and population growth in line with the s g harrod domar solow formula that is for a given net saving

taxes transfers and employment in an incomplete markets model the consequences of increases in the scale of tax and transfer programs are assessed in the context of a model with idiosyncratic productivity shocks and incomplete markets the effects are contrasted with those obtained in a stand in household model featuring no idiosyncratic shocks and complete markets the main finding is that the impact on hours remains very large but the welfare consequences are very different the analysis also suggests that tax and transfer policies have large effects on average labor productivity via selection effects on employment

buyer uncertainty and information search preliminary measures of pre purchase uncertainty were developed through focus group interviews and were administered to a nationwide sample of recent appliance purchasers responses indicated the presence of two general types of uncertainty knowledge uncertainty uncertainty regarding information about alternatives and choice uncertainty uncertainty about which alternative to choose in exploring how each of these uncertainty dimensions was related to search behavior we found that choice uncertainty appeared to increase search but knowledge uncertainty had a weaker negative effect on search implications of the findings for previous research on the relationship between uncertainty and search are discussed along with research directions

environmental emissions and production economics implications of the materials balance in modeling emissions the literature has usually specified an explicit emission function or treated emissions as a production input we examine the validity of these approaches taking into account the materials balance principle we show that a technology can equivalently be described by i a production function with material and nonmaterial inputs and bounded marginal product of the material input ii a well behaved production function with emissions as an input and iii a well behaved emission function if the materials balance is accounted for as an additional condition we offer a forma derivation of common but not rigorously established modeling approaches

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

finding common ground between ecological economics and post keynesian economics abstract post keynesian economics and ecological economics have in common that they are considered to be heterodox schools of thought aside from that there has not been a strong connection between them previous books on post keynesian economics contain no chapter on environmental or ecological issues this neglect has led leading ecological economists to criticize post keynesians for succumbing to the same growth paradigm as the neoclassical school this paper argues that the two approaches are complementary in the sense that they each have different strong points ecological economics has correctly pointed out that the growth of the global economy may not be welfare improving anymore whereas post keynesians have gained valuable insights into the functioning of the capitalist growth process to determine the feasibility of a synthesis between the two schools the paper compares their approaches to the problems of production consumption and economic dynamics as well as the associated policy recommendations it shows that on a theoretical level the two schools have much in common but their policy conclusions differ with regard to the desirability of further growth the paper concludes that a synthesis of both approaches may lead to a better understanding of how a capitalist economy operates in a natural environment with limits to growth and to better informed policy advice

public versus private provision of liquidity is there a trade off abstract to what extent is public debt private liquidity much policy advice given in the aftermath of the financial crisis rests on the assumption that increasing public debt relaxes borrowing constraints of private households this is the case for ad hoc debt limits which are exogenous to public policy instead if debt limits are fully endogenous as e g in the case of the natural borrowing limit public debt has no impact we assume that borrowing limits arise because of limited contract enforceability and are therefore determined as equilibrium outcomes using an incomplete markets economy in which households are subject to uninsurable earnings shocks we show that public debt provides some liquidity but less so than it would if constraints were imposed ad hoc we show that generating borrowing constraints as an equilibrium outcome substantially alters the answers to other important questions such as for the welfare effects of government debt or its impact on real economic activity

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

georgescu roegen versus solow stiglitz daly is right to be concerned about our society s use of resources environmental degradation and the wasteful use of natural resources or any resources for that matter are of concern daly s tirade concerning our work seems motivated by two concerns a lack of consistency with basic laws of physics and the alleged implication that growth can continue unabated without eventually facing constraints imposed by the limited supply of natural resources part of the problem arises from a lack of understanding of the role of the kind of analytic models that we and others have formulated they are intended to help us answer questions like for the intermediate run for the next 50 60 years is it possible that growth can be sustained what does this possibility entail we write down models as if they extend out to infinity but no one takes these limits seriously for one thing an exponential increase in the population presents almost unimaginable problems of congestion on our limited planet in this intermediate run capital can substitute for natural resources and this is true even though capital itself uses resources more precise machines made out of resources that are relatively abundant can reduce wastage of resources that are relatively scarce technical change some of which is the result of investments in rd and increased efficiency in production may imply less wastage of bauxite and less coal or oil to produce the energy used to make a pound of aluminum or consider the resources that were required to run a regression only a half century ago pounds and pounds of heavy calculating machines replaced by mere ounces of a modern calculator changes in technology also allow us to recycle resources more efficiently so that the amount that is not recaptured for future production may be reduced perhaps the most important question is where does all of this lead us resources are scarce and markets when they function well reflect that scarcity economizing on the use of resources there are important instances especially where the environment and natural resources are concerned where markets do not work well there are for instance the classic problems posed by pollution externalities when markets do not

the intertemporal dynamics of consumer lock in this article examines how dynamic changes in information cost structure and time preferences affect consumers search and switching behavior over time and lead to lock in the information cost structure is conceptualized as a trade off of initial setup costs and ongoing usage costs lock in is defined as consumers decreased propensity to search and switch after an initial investment which is determined both by a preference to minimize immediate costs and by an inability to anticipate the impact of future switching costs the results of three experiments support the proposed mechanism experiment 1 shows that a small initial investment is sufficient to produce lock in experiment 2 shows that the results of a prior investment on lock in are not due to psychological commitment but to a shift in relative costs of incumbent and new options experiment 3 shows that respondents fail to anticipate how their prior investment will lock them in

fund flow versus flow flow in production theory reflections on georgescu roegen s contribution abstract the paper discusses nicholas georgescu roegen s contribution to production theory comparing it with the contributions of john von neumann and piero sraffa and emphasizing the problem of the choice of technique it is shown that georgescu roegen s fund flow approach in which fixed capital is taken to be an immutable agent can be misleading and cannot address issues that are easily handled by the alternative flow flow approach that reduces fixed capital to circulating within a joint products framework and allows adequate treatment of the wear and tear of machines as well as the problem of capital utilization

optimal environmental taxes and standards implications of the materials balance abstract this paper investigates the implications of the materials balance for optimal environmental policy we find that neglecting the materials emissions relationship as is common in models of optimal environmental regulation implies biases whose sign depends on the regulatory instrument chosen when emissions are regulated through an emission tax the seemingly optimal tax is too high when regulation proceeds through the use of an emission standard the seemingly optimal standard is too lax

the horizontally s shaped laffer curve in a neoclassical growth model with incomplete markets and heterogeneous liquidity constrained agents the properties of the laffer curve depend on whether debt or transfers are adjusted to balance the government budget constraint the laffer curve conditional on public debt is horizontally s shaped two opposing forces explain this result first when government wealth increases the fiscal burden declines calling for lower tax rates second because the interest rate decreases when government wealth increases fiscal revenues may also decline calling for higher taxes for sufficiently negative government debt the second force dominates leading to the odd shape of the laffer curve conditional on debt

endogenous partial insurance and inequality in this paper we propose a model of endogenous partial insurance and we investigate its implications for macroeconomic outcomes such as wealth inequality asset accumulation interest rate and consumption smoothing to this end we include participation costs to state contingent asset markets into an otherwise standard aiyagari 1994 model we highlight the resulting nonmonotonic relationship between wealth and insurance market participation when insurance is costly poor households remain uninsured middle class households participate in the insurance market whereas rich households decide to self insure by only purchasing risk free assets after theoretically characterizing the endogenous partial insurance equilibrium we quantify its effect emphasizing the roles of a participation channel and an interest rate channel

choosing the right exchange old for new programs for durable goods with a rollover abstract by offering to trade in one unit of old product at a discounted price while selling new products exchange old for new eon programs have been considered efficient ways of expanding market for durable goods starting from the choice behavior of customers this paper studies optimal pricing and remanufacturing decisions for firms that adopt the eon program specifically considering a supply chain that consists of one manufacturer and one retailer we investigate two business models i in the manufacturer initiated scenario the manufacturer launches an eon program and owns all the old items that are returned he remanufactures all or a portion of the old items and sells them to a secondary market ii in the retailer initiated scenario any old items that are returned belong to the retailer she remanufactures the old items and sells them to the secondary market an in depth comparison between the optimal decisions in the two models is conducted in this paper we show it is possible that a firm may be even more profitable from being a free rider instead of offering an eon program by himself herself based on a centralized supply chain as a benchmark an exchange discount sharing contract is proposed to coordinate the supply chain and to improve the overall welfare of customers numerical experiments are conducted to show the profit impact for the supply chain members which uncover some interesting managerial insights for the proper adoption of the most efficient eon programs

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines