do relative income and income inequality affect consumptionq evidence from the villages of rural china abstract this article examines how a household s consumption rate is affected by its relative income and income inequality within a community based on the theory of social status seeking in consumption we test hypotheses related to these factors using a unique panel data set of rural households in china observed within a few hundred villages between 2003 and 2006 we find that the household s consumption rate is negatively related to the relative income position after controlling for the absolute income and positively related to the income inequality of the village we confirm these with different measurements of relative position

dynamic responses to changing demand a model of the reallocation process in small and large municipalities in norway local government priorities between local services are analysed in a community preference model emphasizing income effects and demographic factors the model is built into a partia adjustment framework with endogenous speed of adjustment to study the dynamic responses of local governments to shifting demand the empirical analysis of the reallocation process separates between small and large municipalities in terms of population size serious sluggishness of the adjustment is documented with large municipalities experiencing stronger inertia than the small the small authorities have been able to respond more effectively to the restructuring pressure from demographic shift

beauty and the labor market the authors examine the impact of looks on earnings using interviewers ratings of respondents physical appearance plain people earn less than average looking people who earn less than the good looking the plainness penalty is 5 to 10 percent slightly larger than the beauty premium effects for men are at least as great as for women unattractive women have lower labor force participation rates and marry men with less human capital better looking people sort into occupations where beauty may be more productive but the impact of individuals looks is mostly independent of occupation suggesting the existence of pure employer discrimination copyright 1994 by american economic association

long run welfare under externalities in consumption leisure and production a case for happy degrowth vs unhappy growth in this paper we contribute to the debate on the relationship between growth and well being by examining an endogenous growth model where we allow for externalities in consumption leisure and production we analyze three regimes a decentralized economy where each household makes isolated choices without considering their external effects a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities and a planned economy with a fully informed planner we first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path we provide a number of findings first in a decentralized economy growth or labor or both are greater than in the regime with a fully informed planner and hence are sub optimal from a welfare standpoint second a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime third we provide a case for happy degrowth a transition to the optimal balanced growth path that is associated with downscaling of production a reduction in private consumption and an ongoing increase in leisure and well being

the effects of moral licensing and moral cleansing in contingent valuation and laboratory experiments on the demand to reduce externalities recent field experiments show that peer information can induce people to reduce their production of negative externalities related work in psychology demonstrates that inducing feelings of relative culpability in one domain can induce spillover pro social behavior in another domain we use a contingent valuation and parallel lab experiment to explore patterns of cross domain responses to norm based interventions asymmetric responses between those whose impacts are above or below the norm are found to be robust across decision settings substantial heterogeneity in responses is observed across a number of dimensions not explored in large field experiments raising questions about the universality of peer information effects and the design of such programs

status seeking and material affluence evaluating the hirsch hypothesis abstract when individuals hold a preference for high relative consumption competition to achieve social status can lead to inefficiently high levels of production and consumption contributing to natural resource depletion and environmental degradation in the 1970s fred hirsch argued that an increasing portion of expenditure is allocated to status seeking as average income rises this paper critiques this hypothesis from two points of view first we note examples from the historical and anthropological literatures suggesting that status seeking is often important in societies with relatively low incomes second we consider a set of analytical models that focus on the economic consequences of status seeking when social status is defined in terms of the algebraic difference between an individual s consumption of a status good and the average consumption level in society hirsch s hypothesis holds true and growth in the level of productivity and output can lead to declines in human welfare if on the other hand status is linked to the ratio of individual and average consumption hirsch s hypothesis is valid only if social status and non status goods are poor substitutes the paper also considers two cases in which social status is defined in terms of the amount of time people devote to status oriented activities under this assumption productivity growth leaves time use unchanged though the value of time devoted to status signaling increases in proportion to total expenditure

how economic contractions and expansions affect expenditure patterns in this study we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion the common assumption is that a household s tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions expansions would simply be due to changes in the consumption budget standard economic models translate these budgetary effects into lateral movements along a set of fixed engel curves which relate category expenditure shares to total expenditures we propose and test a conceptual framework based on the notion of relative consumption which prescribes that for any given total consumption budget expenditure shares for positional goods services will decrease during a recession while shares for nonpositional goods services will increase i e shifting the entire engel curve upward or downward depending on the nature of the expenditure category and the economic conditions

do positional goods inhibit saving evidence from a life cycle experiment abstract we investigate the effect of positional goods goods for which one s consumption relative to others matters on saving based on results from a life cycle consumption saving experiment in a group treatment we allow inter personal comparisons by assigning subjects to groups and displaying rankings based partly on consumption a baseline individual treatment is similar but without the additional information we find more under saving saving less than the optimal amount and lower money earnings for subjects in the group treatment both effects are economically relevant with magnitudes of roughly 6 7 of expected income and 7 8 of average earnings respectively additional analysis shows that the result is driven by those subjects who are not ranked in the top three in their group keeping up with the joneses and males in particular

optimal emissions tax rates under habit formation and social comparisons abstract the existing climate models ignore the behavioral anomalies of households and conclude that the optimal environmental tax rate should comove with business cycles however this assumption has received extensive criticism recently to this end this paper studies the optimal emissions tax rate when households are bounded rational in particular we calculate the optimal climate policy in a dynamic stochastic general equilibrium dsge model that features households with habit formation internal habits and social comparisons external habits compared to the benchmark model without consumption externality the social comparisons model amplifies consumption volatility but produces a similar response of pollutant emissions in the presence of the three types of economic shocks considered in contrast the habit formation model decreases the volatility of both consumption and pollutant emissions in contrast to the previous result that the optimal emissions tax rate should be procyclical we find that the social comparisons model largely mitigates the procyclicality of optimal emissions tax rates and the optimal emissions tax rates under the habit formation model remain constant in response to all the economic shocks considered

habit prisoner s dilemma and americans welfare cost of working much more than europeans europeans work much less than americans some studies claim this is due to high taxes in europe which would benefit by adopting us tax rates and work time others find that taxes have little or no impact on work time i examine the hypothesis that americans would benefit by reducing work time to europe s level empirical and experimental studies show utility falls as other people s income rises due to its historical experience europe is able to internalize this and other negative externalities by restricting work time through minimum vacation time and maximum weekly work hours while the us is not resulting in a prisoner s dilemma overworking trap equilibrium a simple model and work time data are used to derive the us welfare gain from reducing work time to europe s level findings are i parameter values are consistent with experimental results on the relative impact of own and other people s income ii the welfare gain s present value is about 120 percent of annual welfare and iii even if europe s policy reduces work time excessively it does remain beneficial as long as the reduction is less than twice the optimal one

moral self licencing and social dilemmas an experimental analysis from a taking game in madagascar this article explores whether previous good deeds may license antisocial behaviour such as appropriating a social surplus for private benefits in a developing country context namely madagascar we design a two step framed experiment with one control treatment a neutral task and three test treatments tasks enabling subjects to earn moral credits in three different ways followed by a taking game in which subjects are given the opportunity to take an amount from a fund allocated to their university on average we find that participants in the three licencing conditions appropriate more than those in the control group and that further differences emerge according to the way the moral credits have been earned

matching demand and supply in the agricultural knowledge infrastructure experiences with innovation intermediaries abstract the privatization of agricultural research and extension establishments worldwide has led to the development of a market for services designed to support agricultural innovation however due to market and systemic failures both supply side and demand side parties in this market have experienced constraints in effecting transactions and establishing the necessary relationships to engage in demand driven innovation processes to mitigate these constraints a field of intermediary organizations has emerged to assist agricultural entrepreneurs to articulate demand forge linkages with those that can provide innovation support services and manage innovation processes this article aims to give an overview of the different kinds of the so called innovation intermediaries that have emerged in the netherlands and to report on their contributions and the tensions that are being experienced with regard to their functioning the article concludes with a discussion in which it is argued that the state should play a role as a market facilitator by funding such innovation intermediaries

running to keep in the same place consumer choice as a game of status if individuals care about their status defined as their rank in the distribution of consumption of one positional good then the consumer s problem is strategic as her utility depends on the consumption choices of others in the symmetric nash equilibrium each individual spends an inefficiently high amount on the status good using techniques from auction theory we analyze the effects of exogenous changes in the distribution of income in a richer society almost all individuals spend more on conspicuous consumption and individual utility is lower at each income level in a more equal society the poor are worse off

jealousy and equilibrium overconsumption the idea that the happiness of an individual depends upon the consumption of others is widely viewed as an important feature of our shared social existence recent research in finance has used this idea through consumption externalities to explore asset pricing anomalies consumption externalities potentially break the link between pareto optimality and competitive equilibria and open the door for beneficial government intervention e g lars ljungqvist and harald uhlig 2000 in this paper we delineate two effects that a consumption externality may have an increase in aggregate consumption may a raise the marginal utility of individual consumption relative to leisure and or b lower an individual s utility level we refer to a as keeping up with the joneses henceforth kuj following jordi gali 1994 and we refer to b as jealousy jealousy is a distinct concept from kuj under kuj an individual derives greater utility from additional own consumption relative to leisure when others consume more at the same time higher per capita consumption holding fixed individual consumption can trigger either jealousy so that individual utility falls or admiration so that individual utility rises in section i of this paper we show that jealousy implies that the laissez faire equilibrium consumption level is greater than the optimal level whether preferences exhibit kuj is not necessary for this main result intuitively in the presence of jealousy consumption is similar to pollution overpollution exists because individuals do not take into account the cost of polluting on others not because an increase in economywide pollution makes the return to individual polluting higher similarly overconsumption exists because individuals do not take into account the negative effect of own consumption on jealous others things go in the opposite direction when individuals are admiring in section ii we consider a functional form that encompasses several existing models we show that jealousy determines the optimal tax to correct overconsumption and that kuj is mainly important for asset pricing

measuring future grandparents preferences for equality and relative standing individuals aversion to risk and inequality and their concern for relative standing are measured through experimental choices between hypothetical societies it is found that on average individuals are both fairly inequality averse and have a strong concern for relative income the results are used to illustrate welfare consequences based on a utilitarian swf and a modified crra utility function it is shown that the social marginal utility of income may then become negative even at income levels that are far from extreme

does the flypaper model stick a test of the relative performance of the flypaper and conventional models of local government budgetary behaviour two of the most widely referred to models of local or state budgetary behaviour are developed and tested the models considered are a variant of the flypaper model see for example courant et al 1979 and oates 1979 and a conventional model which builds on the seminal work of wilde 1969 1971 the models are developed in a manner which allows them to be tested empirically using data for english local governments two types of test are employed the ability of the two models to explain the variations in expenditure levels across local governments within any given fiscal year the ability of the models to predict future levels of expenditure given changes to local government budget constraints as brought about for example by changs in grants in aid from central government

consumption externalities habit formation and equilibrium efficiency we analyze the welfare properties of the competitive equilibrium in a capital accumulation model where individual preferences are subject to both habit formation and consumption spillovers using an additive specification for preferences according to which the argument in the utility function is a linear combination of present and past values of own consumption and consumption spillovers we analyze the circumstances under which these spillovers are a source of inefficiency it is shown that consumption externalities have to interact with habits in order to generate an inefficient dynamic equilibrium finally we characterize optimal tax policies aimed at restoring efficient decentralized paths

advertising and aggregate consumption a bayesian dsge assessment aggregate data reveal that advertising in the u s absorbs approximately 2 of gdp and has a well defined pattern over the business cycle being strongly procyclical and highly volatile because the purpose of brand advertising is to foster sales we ask whether such spending has an appreciable effect on the pattern of aggregate consumption and through this avenue on economic activity this question is addressed by developing a dynamic general equilibrium model in which households preferences for differentiated goods depend on the intensity of brand advertising which is endogenously determined by profit maximizing firms once the model is estimated to match the u s economy it argues that the presence of advertising in the long run raises aggregate consumption and hours worked eventually fostering economic activity we also find that advertising has a relevant impact on fluctuations in consumption investment and markup over the business cycle all of the abovementioned effects are proven to epend crucially on the degree of competitiveness of advertising at the firm level

the effect of religiosity and religious festivals on positional concerns an experimental investigation of ramadan this article examines the effect of religion on positional concerns using survey experiments we focus on two of the dimensions of religion degree of religiosity and religious festivals by conducting the experiments during both the most important day of ramadan the night of power and a day outside ramadan we find that ramadan overall has a small and negative impact on positional concerns detailed analyses based on the sorting of individuals degree of religiosity reveal that the decrease in the degree of positional concerns during ramadan is mainly explained by a decrease in positionality among individuals with a low degree of religiosity

should public policy respond to positional externalities abstract a nice suit is one that compares favorably with those worn by others in the same local environment more generally a positional good is one whose utility depends strongly on how it compares with others in the same category 1 a positional externality occurs when new purchases alter the relevant context within which an existing positional good is evaluated 2 for example if some job candidates begin wearing expensive custom tailored suits a side effect of their action is that other candidates become less likely to make favorable impressions on interviewers from any individual job seeker s point of view the best response might be to match the higher expenditures of others lest her chances of landing the job fall but this outcome may be inefficient since when all spend more each candidate s probability of success remains unchanged all may agree that some form of collective restraint on expenditure would be useful in such cases however it is often impractical to negotiate private solutions do positional externalities then become legitimate objects of public policy concern in attempting to answer this question i employ the classical libertarian criterion put forth by john stuart mill 3 who wrote the state may not legitimately constrain any citizen s freedom of action except to prevent harm to others i argue that many positional externalities appear to meet mill s test causing not just negative feelings but also large and tangible economic costs to others who are ill equipped to avoid them i also discuss an unintrusive policy remedy for positional externalities one modeled after the use of effluent charges to curb environmental pollution the paper is organized as follows section 1 notes the deep similarity between the conditions that give rise to positional arms races and those that give rise to conventional military arms races section 2 follows with a review of evidence concerning the strength of concerns about relative position section 3 describes some of the tangible economic costs that people experience as a result of positional externalities arising from such concerns section 4 takes up the question of whether collective action directed against positional externalities is consistent with respect for individual rights section 5 describes how a progressive consumption tax could neutralize many of the most costly effects of positional externalities

returns to job satisfaction in the presence of horizontal mismatch in this paper we study the relationship among horizontal mismatch job satisfaction and wages using data from the 2013 scientists and engineers statistical data system sestat estimates from 2sl

conformity and the demand for environmental goods the existing literature on eco labeling and green consumerism has been framed within a classical market context where price and quality are the drivers of consumer choice however it seems possible that consumers are also concerned about the choices made by other consumers in fact it is unclear that people s consumption decisions are made independently of social context for instance under the desire to conform to certain social norms or in the presence of status concerns some individuals may be willing to pay a higher price premium for green products the more widespread green consumerism is in society we test this hypothesis using a choice experiment where the respondents were asked to choose among coffee products varying with respect to their share of ecological beans share of fair trade beans and price three treatments were used differing only in the information given about the choices made by other consumers we find different responses to the treatments across individuals and we can only confirm our hypothesis of conformity for women although men appear to have stronger preferences for ecological coffee than women have

does government r d policy mainly benefit scientists and engineers conventional wisdom holds that the social rate of return to r d significantly exceeds the private rate of return and therefore r d should be subsidized in the u s the government has directly funded a large fraction of total r d spending this paper shows that there is a serious problem with such government efforts to increase inventive activity the majority of r d spending is actually just salary payments for r d workers their labor supply however is quite inelastic so when the government funds r d a significant fraction of the increased spending goes directly into higher wages using cps data on wages of scientific personnel this paper shows that government r d spending raises wages significantly particularly for scientists related to defense such as physicists and aeronautical engineers because of the higher wages conventional estimates of the effectiveness of r d policy may be 30 to 50 too high the results also imply that by altering the wages of scientists and engineers even for firms not receiving federal support government funding directly crowds out private inventive activity this abstract was borrowed from another version of this item

weakly relative poverty prevailing measures of relative poverty are unchanged when all incomes grow or contract by the same proportion this property stems from seemingly implausible assumptions about the disutility of relative deprivation and the cost of social inclusion the authors propose weakly relative lines that relax these assumptions on calibrating our measures to national poverty lines and survey data we find that half the population of the developing world in 2005 lived in poverty only half of whom were absolutely poor the total number of poor rose over 1981 to 2005 despite falling numbers of absolutely poor with sustained economic growth the incidence of relative poverty became less responsive to further growth the number of relatively poor rose just as the numbers of absolutely poor fell

the social contingency of wants abstract economic models typically assume that individual wants are determined by forces exogenous to the economic system social psychology and consumer research in contrast support the view that the perceived benefits of goods and services are strongly affected by endogenously determined social norms we present a selective overview of the literature on the relationship between consumption and well being exploring the ways in which informal arguments from social science might be linked to formal models of economic behavior we find that the fixed preferences hypothesis leads to the systematic undervaluation of environmental services and the underprovisioning of environmental goods

conspicuous consumption and political regimes evidence from east and west germany abstract this paper investigates the influence of political regimes on the relative importance of conspicuous consumption we use the division of germany into the communist gdr and the democratic frg and its reunification in 1990 as a natural experiment relying on household data that are representative for germany our empirical results strongly indicate that conspicuous consumption is relatively more important in east germany significantly although we find some convergence a considerable gap in conspicuous consumption expenditures remains even 18 years after the german reunification

a little fairness may induce a lot of redistribution in democracy we use a model of self centered inequality aversion suggested by fehr and schmidt 1999 to study voting on redistribution we theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda we test the predictions of the adapted inequality aversion model in a simple redistribution experiment and flnd that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self interest

the econometrics of piecewise linear budget constraints a survey and exposition of the maximum likelihood method in this article maximum likelihood techniques for estimating consumer demand functions when budget constraints are piecewise linear are exposited and surveyed consumer demand functions are formally derived under such constraints and it is shown that the functions are themselves nonlinear as a result the econometric problems in estimating such functions are exposited and the importance of the stochastic specification is stressed in particular the specification of both unobserved heterogeneity of preferences and measurement error econometric issues in estimation and testing are discussed and the results of the studies that have been conducted to date are surveyed

using alsace moselle local laws to build a difference in differences estimation strategy of the employment effects of the 35 hour workweek regulation in france france s 1998 implementation of the 35 hour workweek has been one of the greatest regulatory shocks on labor markets few studies evaluate the impact of this regulation because of a lack of identification strategies for historical reasons due to the way alsace moselle was returned to france in 1918 the implementation of france s 35 hour workweek was less stringent in that region than in the rest of the country which is confirmed by double and triple differences yet it shows no significant difference in employment with the rest of france which casts doubt on the effectiveness of this regulation

calvin s restrictions on interest guidelines for the credit crisis calvin s view on the legitimacy of interest has had a great impact on the economic development of western society although calvin took a fundamentally positive attitude to interest he also proposed several restrictions on the charging of interest in this article we investigate the relevance of these restrictions to the current credit crisis we find that each of them provides a relevant interpretation of what went wrong in the buildup of the credit crisis and gives directions to improve policies of banks and governments as well

on the simultaneity problem in the aid and growth debate this paper shows that foreign aid has a significant positive average effect on real per capita gross domestic product gdp growth if and only if the quantitatively large negative reverse causal effect of per capita gdp growth on foreign aid is adjusted for in the growth regression instrumental variables estimates show that a 1 percentage point increase in gdp per capita growth decreased foreign aid by over 4 adjusting for this quantitatively large negative reverse causal effect of economic growth on foreign aid shows that a 1 increase in foreign aid increased real per capita gdp growth by around 0 1 percentage points

relative consumption and tax evasion abstract relative consumption effects or status concerns that feature jealousy in the sense of dupor and liu 2003 boost consumption expenditure if consumption is financed by labour income such status considerations increase labour supply and hence the tax base a higher taxable income in turn can make tax evasion more attractive we show for various specifications of preferences that the tax base effect generally dominates consequently relative consumption effects tend to reduce tax evasion this is true irrespective of whether tax parameters are exogenous guarantee a balanced budget or are set optimally

are we consuming too much this paper articulates and applies frameworks for examining whether consumption is excessive we consider two criteria for the possible excessiveness or insufficiency of current consumption one is an intertemporal utility maximization criterion actual current consumption is deemed excessive if it is higher than the level of current consumption on the consumption path that maximizes the present discounted value of utility the other is a sustainability criterion which requires that current consumption be consistent with non declining living standards over time we extend previous theoretical approaches by offering a formula for the sustainability criterion that accounts for population growth and technological change in applying this formula we find that some poor regions of the world are failing to meet the sustainability criterion in these regions genuine wealth per capita is falling as investments in human and manufactured capital are not sufficient to offset the depletion of natural capital

optimal environmental taxes under relative consumption effects abstract this paper explores the interactions between carbon dioxide emissions taxes and a pre existing income tax in a numerically calibrated model of climate change and the world economy based on evidence from the recent empirical literature the model allows for the presence of relative consumption effects in the specification of preferences in the absence of relative consumption effects optimal emissions taxes would rise from us 44 to us 229 per tonne of carbon in year 2000 dollars over the course of the next century these tax rates which arise when emissions tax revenues are used to reduce taxes on personal income are slightly above the present value marginal benefits of emissions control given realistic assumptions concerning the empirical magnitude of relative consumption effects the optimal emissions tax rises from us 63 per tonne in 2005 and us 384 per tonne in 2105 accounting for relative consumption effects reduces the perceived social benefits of consumption thus increasing social willingness to pay for environmental quality while reducing both the costs of tax interaction effects and the benefits of efficient revenue recycling taken together these factors support the implementation of comparatively high environmental taxes in the face of relative consumption effects

labor search and matching in macroeconomics abstract the labor search and matching model plays a growing role in macroeconomic analysis this paper provides a critical selective survey of the literature four fundamental questions are explored how are unemployment job vacancies and employment determined as equilibrium phenomena what determines worker flows and transition rates from one labor market state to another how are wages determined what role do labor market dynamics play in explaining business cycles and growth the survey describes the basic model reviews its theoretical extensions and discusses its empirical applications in macroeconomics the model has been developed against the background of difficulties with the use of the neo classical frictionless model of the labor market in macroeconomics its success includes the modelling of labor market outcomes as equilibrium phenomena the reasonable fit of the data and when inserted into business cycle models improved performance of more general macroeconomic models at the same time there is evidence against the nash solution used for wage setting and an active debate as to the ability of the model to account for some of the cyclical facts

getting ahead of the joneses when equality increases conspicuous consumption among bottom tier consumers it is widely believed that increasing the equality of material possessions or income in a social group should lead people at the bottom of the distribution to consume less and save more however this prediction and its causal mechanism have never been studied experimentally five studies show that greater equality increases the satisfaction of those in the lowest tier of the distribution because it reduces the possession gap between what they have and what others have however greater equality also increases the position gains derived from status enhancing consumption since it allows low tier consumers to get ahead of the higher proportion of consumers clustered in the middle tiers as a result greater equality reduces consumption when consumers focus on the narrower possession gap but it increases consumption when they focus on the greater position gains i e when consumption is conspicuous social competition goals are primed and the environment is competitive

piece wise or differentiable budget constraint estimating labour supply function for finnish females various estimation approaches have been used in recent literature to study the effect of nonlinear income taxation on labour supply different techniques and data sets have produced a wide range of income and substitution elasticities in this study we utilize register data provided by the tax authorities this gives us good possibilities to construct detailed budget constraints for each individual in our sample we estimate labour supply function using the piece wise linear budget constraint approach and the differentiable budget constraint approach suggested by macurdy et al 1990 our results support the view that if one is able to mimic the actual budget set closely and if the degree of progression is high then these two methods are likely to produce similar results some sensitivity analysis is also carried out using alternative assumptions concerning the budget sets

emulation inequality and work hours was thorsten veblen right we investigate the manner in which a desire to emulate the rich influences individuals allocation of time between labour and leisure greater inequality inducing longer work hours as a result data on work hours in ten countries over the period 1963 98 show that greater inequality is indeed associated longer work hours these veblen effects are large and the estimates are robust using country fixed effects and other specifications because consumption inequality is a public bad a social welfare optimum cannot be implemented by a flat tax on consumption but may be accomplished by more complicated progressive consumption taxes at the close of the nineteenth century thorsten veblen proposed what he termed pecuniary emulation as the foundation of a theory of consumption spending he maintained is driven by relative status considerations that is by the desire to be a particular type of person as much as bythedesire to enjoytheconsumer goodsper se the joneses with whom one had to keep up were not the neighbours but the rich theirleveloflivingbecamethenever attainableobjectiveinaconsumptionarmsrace among the less well to do in the theory of the leisure class he wrote the motive is emulation the stimulus of an invidious comparison especially in any community in which class distinctions are quite vague all canons and reputability and decency and all standards of consumption are traced back by insensible gradations to the usages and thoughts of the highest social and pecuniary class the wealthy leisure class 1934 p 81 while valued by some economists as capturing common sense aspects of consumption as a form of status seeking veblen s view of social preferences was soon eclipsed by the simpler and more tractable neoclassical theory of the consumer relegated to the underworld of economics veblen s ideas have nonetheless resonated over the ensuing years in the writing of duesenberry 1949 leibenstein 1950 and galbraith 1958 at the middle of the past century and schor 1998

cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

two stage group rent seeking with negatively interdependent preferences the purpose of this paper is to compare the rate of rent dissipation in a group rent seeking contest in which rent seeking activities take place in two stages with those of a one stage individual contest specifically the effect of the extension by introducing rent seekers with negatively interdependent preferences is analyzed focusing on the relationship between contest structure and preference type we find that rent dissipation given absolute as opposed to relative payoff maximization is lower in a two stage contest than in a one stage contest given players with negatively interdependent preferences we find the reverse

a model of educational investment social concerns and inequality we consider a model in which educational investments entail productivity gains signaling power and social status the latter depends on the agent s relative achievement in one of three dimensions innate skills level of schooling and income we study the three scenarios separately and characterize the conditions under which social concerns increase or decrease educational and income inequality inequality increases decreases if education lowers the stigma suffered by low skilled workers less more than it boosts the prestige enjoyed by high skilled workers we discuss the expected results of some policies in light of these findings

signaling and indirect taxation commodities communicate we investigate optimal indirect taxation when both the intrinsic qualities of goods and signaling motivate consumption choices optimal indirect taxes are introduced into a monotonic signaling game we provide sufficient conditions for the uniqueness of the d1 sequential equilibrium strategies in the case of pure costly signaling signaling goods can in equilibrium be taxed without burden when commodities serve both intrinsic consumption and signaling optimal taxes are characterized by a ramsey rule which deals with distortions resulting from signaling

the market for knowledge brokers a widely used policy to diminish the market failure on the market for innovations is the provision of rd ii obtaining research proposals iii monitoring the research efforts and iv disseminating the research results it can be expected that creation of such a market yields a better match between demand and supply on the market for r d yields a higher quality research product for a given price and that it increases the dissemination of research results

economic growth inequality and well being in advanced industrial societies rising levels of inequality have contributed strongly to the observed gap that has emerged between per capita income and the index of sustainable economic welfare isew which in its current versions is known as the genuine progress indicator gpi yet the isew gpi approach to measuring the social costs of inequality has been criticized as ad hoc the present paper reviews the literature on this topic and efforts to resolve it based on the construction of indicators grounded in a a classical utilitarian ethical framework and b empirical evidence on the relationship between income and well being in the united states after tax income per capita grew at an annual rate of 1 7 between 1979 and 2011 a growth rate of 1 2 per year arises when income is adjusted to account for the social costs of inequality the most common adjustment used in isew gpi studies yields a similar growth rate despite much smaller subtractions from baseline income

are positional concerns stronger in some domains than in others for more than one hundred years economists have discussed the concept of positional goods that the utility conferred by many perhaps even most goods depends not only on the amount the individual consumes but also on the amount others consume e g thorstein veblen 1899 james duesenberry 1949 john k galbraith 1958 robert frank 1985 while economic interest in positional goods is increasing e g mark pingle and mike mitchell 2002 kenneth arrow et al 2004 ed hopkins and tatiana kornienko 2004 the literature remains largely theoretical rather than empirical if status concerns affect all items in the utility function equally leisure as well as goods the positional effect would operate like a lump sum tax reducing well being without changing the allocation of time or money arrow et al 2004 however if positional concerns are stronger for some things than for others then in order to understand how people can become better off in well being not simply in wealth we must investigate how interpersonal competition interacts with material gains frank 1997 evidence about what goods are more positional than others is essential for correct policy recommendations gregory besharov 2002 but little is actually known about the relative positional rankings of items in the typical consumer s utility function four hypotheses proposed in the literature are

the evolution of engel curves and its implications for structural change theory the tendency for expenditure engel curves to flatten out at high income levels is frequently cited as evidence that major shifts in household spending patterns take place as households become more affluent empirically little has been done to examine i how pervasive this tendency is across the engel curves of different goods and services ii whether the rate at which engel curves flatten out may significantly change over time and iii how robust engel curves are in the face of changes in the income distribution of households using data from the uk family expenditure survey we find evidence that the tendency for engel curves to flatten out which we dub saturation is indeed widespread across a wide range of goods and services however a tendency for their shape to shift over time and for these shifts to co move with changes in the income distribution of households casts some doubt on whether the declining slope of engel curves can be used to predict slowdowns in the growth rate of demand for particular goods and services

social status in economic theory social distinction or status is an important motivation of human behaviour this paper provides a selective survey of recent advances in the economic analysis of the origins and consequences of social status concerns first a selection of empirical research from a variety of scientific disciplines is discussed to underpin the further theoretical analysis i then consider the origins and determinants of tastes for status discuss the endogenous derivation of such preferences for relative standing and assess the different formalizations of these preferences subsequently the consequences of preferences for status are studied for a variety of problems and settings the last section discusses a number of implications of status concerns for normative economics and public policy

is public r d a complement or substitute for private r d a review of the econometric evidence is public r d spending complementary and thus additional to private r d spending or does it substitute for and tend to crowd out private r d conflicting answers are given to this question we survey the body of available econometric evidence accumulated over the past 35 years a framework for analysis of the problem is developed to help organize and summarize the findings of econometric studies based on time series and cross section data from various levels of aggregation laboratory firm industry country the findings overall are ambivalent and the existing literature as a whole is subject to the criticism that the nature of the experiment s that the investigators envisage is not adequately specified we conclude by offering suggestions for improving future empirical research on this issue

choosing your pond location choices and relative income do individuals care about their relative income while this is a long standing hypothesis revealed preference evidence remains elusive we provide a unique test by studying residential choices in

first in village or second in rome though individuals prefer high quality peers there are advantages to being high up in the pecking order within a group in this environment sorting of agents yields an overlapping interval structure in the type space segregation and mixing coexist in a stable equilibrium with transfers this equilibrium corresponds to a competitive equilibrium where agents bid for relative positions and entails less segregation than the efficient allocation more egalitarianism within organizations induces greater segregation across organizations but can improve the allocation efficiency since competition is most intense for intermediate talent effective personnel policies differ systematically between high quality and low quality organizations

are some lives more valuable an ethical preferences approach we develop a theoretical model of the ethical preferences of individuals combining individual social welfare functions and random utility theory the model is applied by conducting a choice experiment regarding safety enhancing road investments that target different age groups and road user types the relative value of a saved life is found to decrease with age such that the present value of a saved life year is almost independent of age at a pure rate of time preference of a few percent moreover a saved pedestrian is consistently valued higher than a saved car driver of the same age

asymmetric and non atmospheric consumption externalities and efficient consumption taxation abstract we analyze the effects of a generalized class of negative consumption externalities asymmetric and non atmospheric on the structure of efficient commodity tax programs households are not only concerned about consumption reference levels that is they gain utility from keeping up with the joneses but they also exhibit altruism two sets of efficient tax regimes are compared based on a welfarist and a non welfarist optimality criterion respectively altruism turns out not to be at odds with the consumption externalities rather altruism implicates a bound on efficient utility allocations a non welfarist government tolerates less inequality than a welfarist one in the welfarist non welfarist case first best personalized commodity tax rates respond highly sensitively barely to whether or not a consumption externality is asymmetric or non atmospheric if personalized commodity tax rates are not available second best case the tax rate on a non positional good is typically different from zero for corrective reasons for plausible functional forms and parameter values numerical simulations suggest that second best tax rates are rather insensitive with respect to both the optimality criterion and the nature of the consumption externality

money status and the ovulatory cycle each month millions of women experience an ovulatory cycle that regulates fertility previous consumer research has found that this cycle influences women s clothing and food preferences the authors propose that the ovulatory cycle actually has a much broader effect on women s economic behavior drawing on theory in evolutionary psychology the authors hypothesize that the week long period near ovulation should boost women s desire for relative status which should alter their economic decisions findings from three studies show that women near ovulation seek positional goods to improve their social standing additional findings reveal that ovulation leads women to pursue positional goods when doing so improves relative standing compared with other women but not compared with men when playing the dictator game for example ovulating women gave smaller offers to a female partner but not to a male partner overall women s monthly hormonal fluctuations seem to have a substantial effect on consumer behav

positional concerns and social network structure an experiment abstract we experimentally study the positional concerns of individuals embedded in social networks in the game individuals compete for positional advantage with their direct neighbors by purchasing a positional good the nash equilibrium consumption is determined by the katz bonacich centrality of the individual s network position while the efficient outcome requires a lower consumption level for most network positions the gameplay converged to the nash equilibrium except for local centers that consumed less of the positional good than the nash prediction despite this the consumption of the positional good increased in the individual s centrality the evolution of the gameplay was explained by the myopic best response dynamics model

social network structure and status competition in status competition studies the utility of heterogeneous individuals typically depends on an economy wide average indicator of status in our model emulative and jealous agents are embedded in an exogenous network where agent specific reference group is determined by the direct link emanating from the agent similarly to ghiglino and goyal 2010 but in a somewhat different framework we show that individual consumption is proportional to the agent s outbound katz bonacich network centrality measure and equilibrium is generally inefficient more important the negative externality associated with each agent depends on her inbound centrality measure the conspicuousness index a tax based on this index combined with a uniform lump sum transfer attains efficiency

home ownership as a social norm and positional good subjective wellbeing evidence from panel data much attention has been devoted to examining the absolute benefits of home ownership e g security and autonomy this paper by contrast is concerned with conceptualising and testing the relative benefits of home ownership those benefits that depend on an individual s status in society home ownership has previously been analysed as a social norm implying that the relative benefits costs associated with being an owner renter are positively related to relevant others home ownership values the theoretical contribution of this paper is to additionally conceptualise home ownership as a positional good implying that the status of both home owners and renters is negatively related to relevant others home ownership consumption the empirical contribution of this paper is to quantitatively test for these relative benefits in terms of subjective wellbeing we run fixed effects regressions on three waves of the british household panel study we find that 1 a strengthening of relevant others home ownership values is associated with increases decreases in the subjective wellbeing of home owners renters and 2 an increase in relevant others home ownership consumption decreases the life satisfaction of owners but has no effect for renters overall our findings suggest that 1 the relative benefits of home ownership are both statistically significant and of a meaningful magnitude and 2 home ownership is likely to be both a social norm and a positional good without explicitly recognising these relative benefits policymakers risk overestimating the contribution of home ownership to societal wellbeing

reign in hell or serve in heaven a cross country journey into the relative vs absolute perceptions of wellbeing abstract questionnaires exploring the relativist vs absolutist perception of wellbeing are administered to 3883 students in eight different countries four low income countries bolivia brazil kenya and laos 1924 respondents and four high income countries italy sweden switzerland and the uk 1959 respondents our data reveal that wellbeing is perceived mainly in relative terms with the strength of relativism being higher for respondents in high income countries however when the satisfaction of some basic needs is at stake the absolutist concern becomes powerful personal characteristics such as gender and background of studies have a significant role in determining respondents perception of wellbeing finally additional insights emerge from our study interpersonal comparisons take place by looking both upward and downward along the income scale not only income ranking but also the magnitude of reference incomes plays a role and the perception of wellbeing is more elastic to absolute rather than relative income

public policy towards r d in oligopolistic industries the importance of determining optimal policy towards r d cannot be exaggerated given the worldwide interest in fostering r d and given the significant differences between european and u s policies towards interfirm cooperation on r d moreover the problem is an inherently difficult one because of the complex nature of the r d process since r d is a component of fixed costs industries where it is important tend to be concentrated hence r d policy must go hand in hand with competition policy at the same time r d is like any form of investment in that it precedes the production stage hence issues of time consistency and strategic commitment inevitably arise in considering the choice of r d policy finally r d by one firm typically leads to spillovers wbich benefit other firms so that r d exhibits many of the character department of economics university college dublin belfield dublin 4 ireiatid for helpful discussions and comments we are grateful to two anonymous referees to pedro bartos steve martin massimo motta and damien neven and to participants at seminars in birmingham st andrew s and warwick at a cepr workshop on r d spillovers in lausanne at erwit 94 in caslel gandolfo eea 95 in prague the 1996 conference on industrial economics at universidad carlos iii de madrid and a meeting of the dublin economics workshop this paper was produced as part of the international economic performance programme of the centre for economic performance london school of economics supported by the u k esrc an earlier version was circulated as cepr discussion paper no 1243 see alexis jacquemin 1988 and stephen martin 1996 istics of a public good albeit one that is mostly privately produced tbe degree to which such spillovers occur and can be internalized is another crucial influence on the desirable pattem of intervention

optimal incentive schemes with many agents the grossman hart principal agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting under the assumption that the principal chooses incentive schemes to implement agent actions as nash equilibria necessary and sufficient conditions are derived for the optimality of independent contracts of rank order tournaments and for attainability of the first best in this context the relation of the principal s welfare to the correlation between the underlying randomness in outputs of different agents is also investigated finally some problems with the nash equilibrium implementation assumption are discussed in this paper we extend the grossman hart analysis of the principal agent problem to a multiple agent setting in this version of the problem a risk neutral principal is assumed to observe the output or a performance index for each risk averse agent the output of any agent depends on a privately observable action chosen by the agent and an exogenous random variable the realization of which is not observed either by the principal or by the agent before choosing its action we especially focus attention on the role of relative performance evaluation in optimal incentive contracts and the way this depends on properties of the underlying production technology and the joint distribution of the random variables affecting the outputs of different agents in section 2 of the paper we consider the principal s problem of finding an optimal incentive scheme and an action tuple for agents subject to the constraint that the latter be implemented as a nash equilibrium between agents by the chosen incentive scheme where agents must attain at least their reservation utilities a characterization of optimal incentive schemes is derived analogous to the grossman hart characterization for the single agent problem this characterization is then utilized to find sufficient and generically necessary conditions for a optimal contracts for any agent to be independent of the performance of other agents and b optimality of rank order tournaments where payments depend solely on ordinal comparisons of output across agents we then describe a necessary and sufficient condition for the principal to extract maximum advantage from relative performance clauses i e achieve the first best level of expected utility in the multiagent situation an implication of this result is that under fairly weak conditions perfect correlation in the underlying production uncertainties for different agents enables the principal to attain the first best if and only if sufficiently heavy penalties can be inflicted on agents we then enquire what happens in intermediate cases of non perfect correlation it turns out that while in general the principal s welfare is a continuous function of the correlation coefficient it is not always nondecreasing in the latter because the correlation coefficient is not a general measure of association between two random variables but rather a measure of linear association between them

relative wage positions and quit behavior evidence from linked employer employee data the authors analyze the importance of relative wage positions within firms in western germany in the context of individual quit decisions as an inverse measure of job satisfaction using a linked employer employee data set liab for the years 1996 2005 whose sample consists of full time male prime age workers in western germany without college degrees they ascertain whether workers find status or signal effects stronger motivators for quit decisions they find that workers with higher relative wage positions within their firms are on average more likely to quit their jobs than those with lower relative wage positions and that workers who experience a loss in their relative wage positions are also more likely to accept a wage cut associated with their job transition overall results suggest that a signal effect is on average stronger than a status effect

status effects public goods provision and excess burden abstract most studies of the optimal provision of public goods or the excess burden from taxation assume that individual utility is independent of other individuals consumption this paper investigates public good provision and excess burden in a model that allows for interdependence in consumption in the form of status relative consumption effects in the presence of such effects consumption and labor taxes no longer are pure distortionary taxes but have a corrective tax element that addresses an externality from consumption as a result the marginal excess burden of consumption taxes is lower than in the absence of status effects and will be negative if the consumption tax rate is below the pigouvian rate correspondingly when consumption or labor tax rates are below the pigouvian rate the second best level of public goods provision is above the first best level contrary to findings from models without status effects for plausible functional forms and parameters relating to status effects the marginal excess burden from existing u s labor taxes is substantially lower than in most prior studies and is negative in some cases

a brief history of long work time and the contemporary sources of overwork what are some of the key historical trends in hours of work per worker in us what economic social psychological organizational and institutional for ces determine the length of individuals working hours how much of the trend toward longer working hours among so many workers may be attributable to workers preferences workplace incentives or employers con straints when can work become overwork or worka holism an unforced addiction to incessant work activity which risk harm to workers families or even economies the first part of this article traces the history of the length of working hours and its recent polarization the second part develops a multi disciplinary model to identify motivations behind working longer hours individuals desired work hours will stem from the weighted contri bution of five sources 1 current real wage rates 2 forward looking wage trajectories 3 relative status associated with hours of labor 4 intrinsic rewards process benefits or amenities acquired through work 5 hours demanded by the employer and other structural constraints to which workers may adapt employers and their established conditions of work have influenced the course of long run trends labor supply and in work time structures the final section suggests policies that might address the persistence of long hours

how relative income affects work hours preferences abstractin this article we look at explanations for why people want to change their working hours we focus on the role of income and differentiate between the effect of household income personal

conformism and structural change using a simple multisector model of endogenous growth we show that commodity specific consumption externalities can be a source of structural change when the degrees of consumption externalities are different between goods each sector grows at a different rate however the aggregate economy exhibits balanced growth in that capital stock and expenditure grow at the same constant rate a three sector version of our model may reconcile kaldor s stylized facts with empirically plausible profiles of industrial structure transformation

the tragedy of the commons in a fishery when relative performance matters this paper presents a simple model of a common access fishery where fishermen care about relative performance as well as absolute profits our model captures the idea that status which depends on relative performance in a community influences a person s well being in our main specification relative performance depends on the absolute difference in after tax profits we show that overharvesting resulting from the tragedy of the commons problem is exacerbated by the desire for higher relative performance leading to a smaller steady state fish stock and smaller steady state profit for all the fishermen we also consider alternative specifications where status depends on the absolute difference in harvests or relative difference in profits or where there is heterogeneity in the degree to which status matters or allowing for the possibility of extinction in all these specifications status further reduces the steady state fish stock we examine taxes and an individual quota as policy alternatives and find support for using the direct quantity method to implement the socially efficient stock level

are people inequality averse or just risk averse individuals preferences for risk and inequality are measured through choices between imagined societies and lotteries the median relative risk aversion which is often seen to reflect social inequality aversion is between 2 and 3 most people are also found to be individually inequality averse reflecting a willingness to pay for living in a more equal society left wing voters and women are both more risk and inequality averse than others the model allows for non monotonic swfs implying that welfare may decrease with an individual s income at high income levels which is illustrated in simulations based on the empirical results

is more always better a survey on positional concerns abstract we use survey data to provide some empirical information about concerns regarding relative standing respondents chose between a world where they have more of a good than others and one where everyone s endowment of the good is higher but the respondent has less than others questions asked about education attractiveness and intelligence for one s child and oneself income vacation time approval and disapproval from a supervisor and papers to write half of the respondents preferred to have 50 less real income but high relative income concerns about position were strongest for attractiveness and supervisor s praise and weakest for vacation time

does advertising increase labour supply time series evidence from the uk wages in industrialized countries have risen considerably during the last 50 years whereas hours worked for manual workers at least have decreased only marginally in europe one policy response has been to attempt to protect workers from pressure to work long hours by placing legal restrictions on the amount of hours that may be worked each week this paper examines the possibility that in fact observed hours may be the result of a desire of workers to work longer due to a shift in their preferences from leisure to increased consumption caused by the huge increase in mass media advertising a cointegrating var framework is used to test this hypothesis on uk time series data for both males and females from 1952 to 1997 advertising is shown to be positively associated with hours worked for both male and female series causality tests indicate unidirectional causality for males and females from advertising to hours worked these results suggest that the european policy response is more likely to re

an incremental budgeting model of local public expenditure setting in the presence of piecewise linear budget constraints this paper develops and tests an incremental budgeting model of local government expenditure decisions using data on british local government the model introduces two distinctive feautures into the incremental budegeting literature firstly it takes explicit account of the availability of an independent source of revenue for jurisdictions in this example a local property tax and secondly it shows how it is possible to develop satisfactory emperical models when budget constraints are only piecewise linear the model is shown to perform well both in explaining within year variability in budgeting decisions and in predicting subsequent budgets under revised budget constraints

the relevance of relative distribution favoritism information and vote choice in africa relative distribution whether one is favored or disfavored by government seems to matter to voters in many african countries but why i demonstrate theoretically that voters who do not have inform

advertising and the aggregate c 0 onsumption function the economic effects of advertising have been a much studied and hotly debated topic for a number of years by now there is fairly general agreement that inter alia advertising is important as a barrierto entry see joe bain william comanor and thomas a wilson leonard weiss and that advertising does succeed in shifting demand for individual products see neil borden nicholas kaldor robert dorfman and peter steiner lester telser 1962 kristian palda but there is little agreement as to the effect of advertising on aggregate consumption john kenneth galbraith would have us believe that much of consumers spending is managed from madison avenue but such a view has still to find universal acceptance 2 what is surprising however is that no one who has been party to the rather spirited debate generated by the tall gentleman s thesis has seen fit to examine by econometric methods the proposition that advertising has an impact on the aggregate consumption function to undertake this is the purpose of this paper in a modest yet not insignificant way we feel that we have made some progress based on an analysis of advertising expenditures in the aggregate our results suggest that advertising does in fact tend to increase consumption at the expense of saving but as to what the causal mechanism underlying this is we unfortunately cannot say it may be that advertising actually succeeds in altering tastes a la galbraith but then again it may be that advertising is simply serving to bring new goods and services to the attention of consumers as already noted our analysis concentrates on the effects of advertising in the aggregate and is conducted in the framework of the state adjustment model of hendrik houthakker and lester taylor as applied to aggregate consumption following houthakker and taylor two variants of the model have been employed the first focuses on consumption and the second on personal saving section i presents a brief description of the houthakker taylor h t model and discusses the ways that it can be extended to accommodate advertising this section also provides a short description of the data and methods of estimation sections ii and iii are empirical section ii being devoted to a presentation of results and section iii to their critical evaluation the paper is then concluded with some final observations in section iv

aspects of r d subsidization it is well known that the market fails to provide the socially optimal level of r d expenditure because of the public properties of information see arrow 1963 and usher 1964 in the frictionless perfectly competitive market with no barriers to the use of information the market will provide no r d investment one widely used policy approach to deal with this appropriability problem is patent protection which temporarily assigns the property right to the patented information for some period of time investment in r d can be further stimulated through subsidization though issues in patent protection have been extensively discussed in the literature see nordhaus 1967 1972 scherer 1972 stiglitz 1969 and romano forthcoming the economics of r d subsidization have been largely ignored in spite of its frequent use as a policy tool 1 the purpose of this paper is to explore the usefulness of r d subsidization in markets where patent protection is available with the opportunity to secure a patent firms will have an incentive to invest in r d however only in exceptional circumstances will the market produce the socially optimal r d outlay subsidization can be a useful supplemental policy tool the usefulness of r d subsidization depends on a number of variables including the length of the patent life the character of competition for the patent and on the extent of any excess burdens associated with subsidization our focus is on how optimal subsidization is affected by these variables it is shown that when there is monopoly in the research market the optimal subsidy is always positive no matter how long is the finite patent life or how high is any finite excess burden associated with subsidization in contrast when there are no barriers to entering the research market the optimal subsidy is zero if the patent life is long or the excess burden is high moreover

the estimation of british local government expenditure decisions under a piecewise linear budget constraint in the light of the reforms that have affected local government finance in britain the empirical analysis of local government responses to the changes in the grant system has become a topical subject because of its policy implications barnett et al proposed different models to predict the likely impact of the reforms on local government expenditure but never tested ofr the validity of the functional form used in their model the main reason for this omission is related to the piecewise nature of the budget constraint faced by local authorities which complicated the estimation techniques and restricted the choice of the functional forms that could be used the presented here tests for the validity of the functional form using data for the three fiscal years that preceded the poll tax reform namely 1986 87 to 1988 89 and suggests specific tests to compare the parameters obtained using different models the main conclusion of the analysis is that only the behaviour of metropolitan districts is consistent

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

relative consumption of housing marginal saving subsidies and income taxes as a second best policy this paper analyzes whether marginal taxation of labor and capital income are useful second best instruments for internalizing the externalities caused by conspicuous housing consumption when the

advertising s elusive economic rationale public policy and taxation advertising and its effects have been debated for well over a century in the last fewdecades a generally sceptical view of the benefits of advertising has been overturned by a series ofacademic advances in economics that detail a variety of ways in which advertising may affect theeconomy and society this academic work has however been paralleled by a growing popular andpolitical opposition to advertising and its social effects in this paper the positive economic case foradvertising is challenged by an assessment of the main channels of its influence and by a review ofthe associated empirical findings on its economic and wider impact a policy response of limitingthe tax deductibility of business advertising is explored

the macroeconomic relationship between advertising and consumption profit maximizing firms advertise in order to increase the demand for the goods they produce hence we would expect increases in a firm s advertising to be associated with increases in consumption of the firm s goods ceteris paribus the increased demand for the firm s goods may be associated with decreased demand of their rivals goods at the market level increases in advertising by the industry may not be accompanied by increased consumption of the industry s output this is because changes in the levels of advertising among firms in a particular industry could merely rearrange market shares if this is true then in that industry a firm which increases its advertising relative to its rivals will gain sales at the rivals expense advertising in this case is a zero sum game when we aggregate across markets to consider advertising at the national level the question of the effect of advertising upon consumption has still different implications if increased advertising levels for the economy are associated with increased consumption this suggests that consumers are increasing current consumption at the expense of future consumption i e savings if this is true then advertising affects aggregate consumption and the business cycle in this paper we consider the relationship between aggregate advertising and aggregate consumption while previous research e g ashley granger and schmalensee 2 and schmalensee 24 has suggested that consumption affects advertising most previous empirical studies of the causal relationship between aggregate advertising and aggregate consumption reject the hypothesis that advertising affects consumption 6 section 8 3 12 an early study was verdon mcconnell and roesler 28 who studied the relationship between advertising and aggregate demand gnp while they found advertising to be pro cyclical and to have a positive effect on aggregate demand correlations between various leads and lags led them to conclude that no clear pattern existed this study was followed by ekelund and gramm 14 who faulted the verdon mcconnell and roesler study for considering the relationship between advertising and aggregate demand instead ekelund and gramm concentrated upon the relationship between advertising and