spatial competition and the theory of differentiated markets an introduction spatial economics has been both in the very center of microeconomic theory and at its periphery it has been at the center to the extent that it has followed a tradition taking its roots in hotelling s classic stability in competition paper 15 and has used spatial concepts to explain by analogy the pricing of differentiated commodities it has been at the periphery to the extent that it has considered spatial pricing as observed in real life situations and tried to rationalize and evaluate observed spatial pricing techniques the former approach focuses on f o b pricing which is apparently taken for granted the latter focuses on discriminatory pricing which appears as the most frequently used technique in the industrial world the purposes of this special issue are to bring those two approaches together and to explore some of their analytical possibilities and limitations the philosophy of this introductory paper is to show the need for an integration of both avenues in an analysis of differentiated markets we begin by discussing the assumptions of what we will call the hotellinglosch approach and their implications in terms of the problems they allow us to tackle several papers in this issue contribute new insights in this respect we then undertake a similar exercise for what may be called the greenhutohta approach focusing on spatial price discrimination to discover the possibilities it may provide for an analysis of quality choice at the outset we note that its spatial approach typically implies partition of the

distribution of research gains in multistage production systems research irrespective of the incidence of the levy and benefits no longer is valid we have no disagreement with this important observation but we are concerned about the lack of reliable estimates of the elasticity of substitution building on muth s analysis for which we suggest some changes we explore further the sensitivity of the effects of the distribution of benefits of research to different ways in which research can impact on a multistage production system and to the effects of the elasticities

efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

the role of price in multi attribute product evaluations the potentially multifaceted role of price in product evaluations is investigated with an empirical analysis of surveyed beliefs attitudes and intentions regarding automobile brands it is found that price beliefs both influence and are influenced by beliefs about a brand s quality thereby contributing to the attribution definition process however price is not a significant determinant of overall attitude it is also found that price becomes a negative factor when behavioral intentions are involved lending support to an economic interpretation of price

the dual structure of incomplete demand systems integrability of incomplete demand systems is discussed the concepts of weak integrability quasi expenditure function quasi indirect utility function and quasi utility function are defined their relationships to the expenditure function indirect utility function and utility function are developed the dual structure of the quasi functions permits exact welfare analysis and reveals the conditional preference structure for the commodities of interest new results relating the uniqueness and exactness of consumer s surplus to the structure of the expenditure and indirect utility functions are obtained

a factor analytic probit model for representing the market structure in panel data internal market structure analysis infers both brand attributes and consumer preferences for those attributes from preference or choice data the authors exploit a new method for estimating probit models from panel data to infer market structures that can be displayed in few dimensions even though the model can represent every possible vector of purchase probabilities

competitive maps the structure underlying asymmetric cross elasticities a special case of three mode factor analysis is used to portray the systematic structure underlying asymmetric cross elasticities for a broad class of market share attraction models analysis of the variation over retail outlets and weeks reveals competitive patterns corresponding to sales for the major brands in the market as well as patterns reflecting shelf price competition analysis of the brand domain results in a joint space one set of brand positions portrays how brands exert influence over the competition the other set of points portrays how brands are influenced by others the interset distances angles provide direct measures of competitive pressures maps are formed as spatial representations of each of the competitive patterns discovered

an ideal point probabilistic choice model for heterogeneous preferences this paper presents a new ideal point probabilistic choice model unlike the model suggested by cooper and nakanishi cooper l g m nakanishi 1983 two logit models for external analysis of preferences psychometrika48 4 607 619 which attempts to capture choices via a single ideal point the proposed model though based on aggregate data allows for heterogeneity in preferences by estimating a distribution of ideal points the model accounts for substitutability among choice alternatives and alleviates one of the major sources for the violation of the independence from irrelevant alternatives property it is demonstrated that the final form of the model is a multinomial probit with a covariance matrix that depends on the relative position of the choice alternatives an empirical application is provided and the resulting parameters are compared to the distributions of ideal points and attribute weights obtained via linmap at the individual level and via both the logit and probit versions of the model proposed by cooper and nakanishi at the aggregate level

estimating fishing and hunting leisure spending shares in the united states abstract we apply a bivariate censored demand system to estimate hunting and fishing trip related spending shares in the united states using data from off site surveys the approach considers fishing and hunting destination decisions and includes respondents who were inactive i e did not hunt or fished in a particular season the statistical significance of correlation coefficient parameter supports the use of a joint e g bivariate rather than separate e g univariate decision modeling process for fishing or hunting share equations most individual characteristics are statistically significant as explanatory variables respondents holding recreation licenses tended to spend significantly more on recreation than those without licenses all own price and cross price elasticities are statistically significant and suggest that hunting and fishing are complements the results also suggest that the popularity of hunting may decline as the population ages

evaluating the uncertainty in estimates of the economic impacts of bovine leukosis virus in u s dairy cows an examination of the economic impacts of bovine leukosis virus indicated that reduced milk production attributed to the presence of bovine leukosis virus in dairy cows reduced consumer surplus by 2 7 2 3 billion us bus and resulted in a total partial equilibrium loss of 720 560 million us mus to the u s economy in 1996 most of the economic surplus lost by consumers was transferred to producers whose economic surplus increased by 2 0 1 8 bus as a result of reduced milk production attributed to the presence of bovine leukosis virus in dairy cattle uncertainty analysis showed that an estimate of the milk production decline per percent increase in the prevalence of bovine leukosis virus in dairy cows accounted for most of the uncertainty in the economic impact estimates if bovine leukosis virus had not been present in u s dairy cows then milk production would have increased by 2 0 billion 1 5 billion kg the price would have fallen by 3 8 3 2 cents kg and the value of the milk produced would have decreased by 2 1 1 9 bus guidelines delineated by the international organization for standardization for evaluating and expressing uncertainty in measurement are discussed and proposed for use in the context of broad national estimates for which the economic impacts of bovine leukosis virus serve as an example the principal advantages of the methodology are the clarity and transparency of results and the ability clearly to identify major uncertainty contributors

microeconometric analysis of residential water demand this paper develops a structural model for obtaining price elasticities and evaluating consumer s response to changes in nonlinear tariffs when only panel data on household consumption are available the model and the empirical strategy address problems implied by nonlinear tariffs existence of a fixed cost and use of limited data giving rise to a random effects model with a nonlinear individual effect results show that the estimated model does well at fitting data and demand is inelastic although elasticity varies by initial consumption block then i estimate welfare consequences of implementing several demand policies

evaluating returns to agricultural research a review this paper reviews and compares the most common approaches used to evaluate public agricultural research investment ex post studies fall into two major groups a consumer and producer surplus analyses estimating average rates of return to research and b production function analyses estimating marginal rates of return to research ex ante studies fall into four groups a those using scoring models to rank research activities b those employing benefit cost analysis to establish rates of return to research c those using simulation models and d those using mathematical programming to select an optimal mix of research activities

us dairy policy alternatives under bovine somatotropin a dynamic optimal control model is constructed to study us dairy policy alternatives under bovine somatotropin bst the results indicate that the adoption of bst might be slower than that indicated by the early surveys even if adoption is widespread the government can have the potentially large milk surplus problems under control with a combination of price support generic milk advertising and a cow buy out with bst adoption the government would set lower support prices and would increase assesment for milk advertising compared with the no bst case the higher adoption rates the lower the support prices and the higher the advertising assesments it is found that bst adoption is socially beneficial consumers gain at the expense of producers the government can however help produces by giving a larger policy weight to producers in setting the optimal levels of policy variables finally it is found that the current levels of generic advertising are too low and the allocation of advertising bet

the effects of supply shifts on producers surplus changes in the supply curve caused by technological improvements in production or changes in national policy may or may not benefit producers as a whole depending on the type of shift in the supply curve a structured analysis of different changes in the supply curve that model this situation is given and the change in producers surplus is examined depending on quantitative aspects of the supply and demand curves for supply and demand curves that are linear or power functions a small downward pivot of the supply curve will increase producers surplus only if the equilibrium point is far enough into the elastic region of the demand curve and any downward pivot of the supply curve will decrease producers surplus if the equilibrium point is in the inelastic region of the demand curve similar results are obtained for the more general case of convex supply and demand curves

price changes supply elasticities industry organization and dairy output distribution long run price elasticities of milk supply are decomposed into price elasticities of yield herd size and farm population for northeastern u s dairy farms these elasticities are shown to vary with farm size because of size related differences in capital intensity specialization yield and herd size variability and rates of entry exit into dairy in the short run price responsiveness is shown to decrease with farm size in the long run large farms are shown to be most price responsive results suggest that lower milk prices could make revenue distribution less equal in both the short and long run by altering output and population distributions

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

returns to public irrigation development recently returns to public investment in general and irrigation investment in particular have received critical attention from economists young martin two of the important interrelated issues are a how to measure beneficial impacts of irrigation projects and b who should pay for this public investment once we know the magnitude of benefits created and the beneficiaries we should be able to recommend who should pay for this investment and how much they should pay for simplicity we classify the beneficiaries of public irrigation into two major groups producers and consumers most studies freeman keleta u s water resources council u s department of the interior and references cited in young young and gray and martin on returns to irrigation emphasize production gains from irrigation the gains enjoyed by consumers are typically omitted the exception being martin s work the implicit assumption here is that the relevant commodity demand curves are perfectly elastic as martin argues this assumption may be valid for a particular project but not for the general equilibrium context taking into account all the projects undertaken in a period thus the proper demand curve to use is not perfectly elastic but downward sloping for a valid evaluation of benefits of public irrigation one should account for both consumer and producer surpluses doing that will provide us with objective criteria concerning who should pay how much for irrigation investment thus the specific objectives here are a to derive analytical expressions for measuring consumer and producer surpluses when public irrigation investment shifts the supply function for commodities and b to derive expressions for the exact distribution of gains between consumers and producers i consumers and producers surpluses with irrigation

consumer s surplus versus compensating variation revisited consumer s surplus and a second order approximation to compensating variation are compared to the exact compensating variation for a subsystem of several commodities an empirical application to the relative retail price distortions created by the u s dairy program is presented in the application a new specification for weakly integrable incomplete demand models is developed and estimated the integrable demand model has sufficient flexibility that it is not rejected by the data both welfare approximations are found to introduce large errors in the measurement of deadweight losses

using neoclassical consumer choice theory to produce a market map from purchase data this article presents a new model for estimating the spatial representation of objects and preference vectors from actual choice behavior of individuals or households it is based on neoclassical economic theory of consumer choice the model integrates both decisions of which good s to buy and the quantity of purchase overall preference is decomposed into price effects and intrinsic preference for the good a maximum likelihood method for estimating the model parameters is described and illustrated using choice data of ketchup brands collected by the use of electronic supermarket scanners

a discrete continuous choice approach to residential water demand under block rate pricing reply waldman is quite correct in noting that the microeconomic theory of block rate pricing in hewitt and hanemann hh 1995 is given for the general case of a k block rate structure whereas the econometric theory is largely confined to the case of exactly two blocks the extension in waldman to the more general case of k blocks is correct although the extension itself could be even more general if it addressed the nonnegativity of demand as is demonstrated below that no apparent attention was paid to the nonnegativity of demand in hh may be attributed to the fact that the need to do so was negated by a fortuitous assumption in the earlier work although that assumption that the errors are multiplicative and lognormally distributed was only maintained and not tested in hh i now estimate two models with the more common assumptions of linear demand and additive and normally distributed errors both with and without a modification for

dynamic and stochastic behavior of coefficient of demand uncertainty incorporated with eoq variables an application in finished goods inventory from general motors dealerships abstract the objective of this paper is to investigate finished goods inventory in the u s automobile industry using an econometric method known as the variable mean response vmr estimation the research uses the classical economic order quantity eoq model as a starting point different from the usual form of the model here we relax certain assumptions inherent to the eoq and treat demand as uncertain rather than deterministic in this research eight models are developed and applied empirically the results of the proposed models and methodology provide inventory decision makers with different managerial implications and strategic improvements overall the empirical results demonstrate many avenues for considering new inventory policies

demand and distributional effects of water pricing policies abstract worldwide water scarcity threatens delivery of water to urban centers water pricing is often recommended to reduce demand in this paper demand and distributional effects of water pricing policies are examined in a block pricing model that is applied to the metropolitan region of sao paulo water demand functions are estimated using marginal and average price models based on monthly data for the period 1997 2002 price elasticities of water demand range between 0 45 and 0 50 and income elasticities between 0 39 and 0 42 for the current combined regressive progressive block price system the poor spend almost 4 2 to 4 7 of their income on water the rich only pay 0 4 to 0 5 of their income whereas they consume more than twice as much a progressive block price or an income dependent price system may result in a more equalized income distribution however the analysis shows that there is a trade off between a more equalized income distribution and revenues earned by the water company more pro poor pricing systems may result as well in lower revenues for the water company

choice map inferring a product market map from panel data this paper describes choice map a model that infers a product market map from panel data choice map is a stochastic brand choice model a random utility quantal choice model and a multidimensional scaling procedure choice map combines the parsimony of stochastic choice models the rationale of random utility models and the ability of multidimensional scaling procedures to simultaneously infer both brand positions and consumer preferences from preference choice data choice map assumes that consumers have stationary purchase probabilities for the observational period which makes the model best suited to frequently bought mature product categories neither experimental nor survey data are required traditional mapping methods that scale such data may not yield the same structure for low involvement products as will a procedure like choice map that scales behavioral data choice map s descriptive and predictive validity exceeds that of an alternative stochastic brand choice model the dirichlet multinomial for a test data set

estimation of a composite food demand system for the united states this study develops statistical procedures for computing the parameters of a complete demand system a constrained maximum likelihood method has been applied and parametric restrictions derived from classical demand theory are introduced by a substitution approach the procedures are then applied to u s data for estimating a composite food demand system covering 12 food categories and one nonfood sector

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

modeling linkages between climate policy and land use an overview agriculture and forestry play an important role in emitting and storing greenhouse gases for an efficient and cost effective climate policy it is therefore important to include land use land use change and forestry lulucf explicitly in economy climate models this article gives an overview and assessment of existing approaches to include lulucf into partial and general equilibrium economy climate models for each class of models we describe different examples their treatment of land and their potential for and applicability to policy analysis as well as their shortcomings we identify data requirements and conceptual problems and provide suggestions for future research

compensating variation consumer s surplus and welfare the compensating variation was defined by j r hicks 1942 as the amount one would have to deduct from a person s income to make him just as well off after a change in prices and income as he had been in the initial situation if the compensating variation is positive the individual is better off under the new situation since the compensating variation furnishes a uniquely defined numerical cardinal indicator of welfare improvement it provides an implicit ranking of alternative prospective situations not only relative to the initial situation but also relative to each other in practice this appears to be how this and other tools of cost benefit analysis are actually used one is interested in knowing not only whether a particular bridge or a particular excise tax will lead to an improvement in welfare but which out of a set of alternative bridges or alternative tax systems will improve welfare the most 1 in this paper we analyze conditions under which the compensating variation can be validly used in this generalized sense these turn out to be precisely the same as conditions previously derived see our 1976 paper for the valid use of consumer s surplus as a welfare measure in our final section we analyze the problem of deriving the generalized equivalent and compensating variations either exactly or approximately from observable demand functions by means of generalizations of or alternatives to consumer s surplus

regional and temporal impacts of technical change in the u s dairy sector the regional and temporal impacts of technical change in the u s dairy industry are assessed in terms of production and income distribution through a dynamic equilibrium model dynamic duality is used to obtain the production equations the traditional milk producing regions of the northeast and lake states will maintain their base of national output while the pacific region increases its base at the expense of the remaining regions regional dairy income varies temporally advancements in technology are likely to accelerate the treadmill process in agriculture the most dramatic impacts may initially occur in the dairy sector where growth hormones may soon be approved commercially given the anticipated productivity gains and adjustment problems an ex ante assessment of the distributional impacts of new technologies in the dairy sector

inflation stabilization and welfare the case of a distorted steady state this paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price setting rotemberg and woodford 1997 and woodford 2002 have shown that under certain conditions a local approximation to the expected utility of the representative household in a model of this kind is related inversely to the expected discounted value of a conventional quadratic loss function in which each period s loss is a weighted average of squared deviations of inflation and an output gap measure from their optimal values zero however those derivations rely on an assumption of the existence of an output or employment subsidy that offsets the distortion due to the market power of monopolistically competitive price setters so that the steady state under a zero inflation policy involves an efficient level of output here we show how to dispense with this unappealing assumption so that a valid linear quadratic approximation to the optimal policy problem is possible even when the steady state is distorted to an arbitrary extent allowing for tax distortions as well as market power and when as a consequence it is necessary to take account of the effects of stabilization policy on the average level of output we again obtain a welfare theoretic loss function that involves both inflation and an appropriately defined output gap though the degree of distortion of the steady state affects both the weights on the two stabilization objectives and the definition of the welfare relevant output gap in the light of these results we reconsider the conditions under which complete price stability is optimal and find that they are more restrictive in the case of a distorted steady state we also consider the conditions under which pure randomization of monetary policy can be welfare improving and find that this is possible in the case of a sufficiently distorted steady state though the parameter values required are probably not empirically realistic

regulation in a dynamic market the u s dairy industry an econometric model of the u s dairy market is estimated for the period 1950 80 the economic costs of the dairy program for the period 1965 80 are calculated using ex ante ex post and long run demand and supply functions results indicate that the costs of the dairy program averaged from 430 to 590 million 1980dollars per year depending upon the choice of economic surplus measure the cost estimates depend only slightly on the year that the dairy program is assumed to have been terminated

urban residential demand for water in the united states further discussion using a new model formulation and data from a sample of colorado utilities we investigated the price specification controversy marginal price versus average revenue when estimating residential water demand the improved statistical fit using average

the calculation of research benefits with linear and non linear specifications of the demand and supply reply this paper provides a comparison of research benefits for linear and nonlinear constant elasticity nlce specifications of supply and demand with a pivotal supply shift framework the comparison allows for a sensitivity test of results to different values for demand and supply elasticity the main finding is that the values of the gross annual research benefits calculated for the nlce specification are larger than those calculated for the linear specification with price elastic supply but are smaller with price inelastic supply the analysis suggests that the use of an nlce specification and a pivotal shift due to research is usually preferable to use of a linear supply curve with pivotal shift

the transmission of monetary policy in a multisector economy this article constructs and estimates a sticky price dynamic stochastic general equilibrium model with heterogeneous production sectors firms in different sectors vary in their price rigidity production technology and the combination of material and investment inputs in particular firms buy inputs from all sectors using the actual input output matrix and capital flow table of the u s economy by relaxing the standard assumption of symmetry this model allows idiosyncratic sectoral dynamics in response to monetary policy shocks the model is estimated by the generalized method of moments using sectoral and aggregate u s time series

tracing the evolution of the aggregate u s milk supply elasticity using a herd dynamics model the u s dairy sector is characterized by increasing volatility of milk prices and consolidation in production as evidenced by declining number of dairy farms with an increasingly larger share of milk supplied from a small number of very large farms using aggregate national data we build a mixed frequency herd dynamics econometric model of the u s milk supply that updates and substantially amends the model first proposed by chavas and klemme we implement a dynamic residual based bootstrap technique that can be used in testing for changes in nonmarginal simulated long run supply responsiveness and trace the evolution of long run milk supply elasticity from 1975 through 2010 several papers in the past have suggested that long run supply elasticity increases with dairy farm size which implies that increased importance of large farms would increase aggregate long run supply responsiveness contrary to this conclusion we find a declining trend in long run supply elasticity from 1975 through 2005 persistence of such a decline would be a major cause for worry as ever larger price swings would be needed to equilibrate the market in face of demand shocks however we find that milk supply is becoming more responsive since 2005 both to milk and feed price changes increasing responsiveness to feed prices further justifies focusing the next generation of the dairy policy instruments on managing dairy profit margins rather than just revenue streams

homogeneity and supply supply functions in the ubiquitous gorman class are examined for their homogeneity properties homogeneity places surprisingly strong restrictions on functional forms these forms facilitate testing of aggregability given homogeneity or homogeneity given aggregability or testing both

lin b jiang z 2012 designation and influence of household increasing block electricity tariffs in china energy policy 42 pp 164 173 how biased is the measurement of household s loss abstract the three tier inclining block tariff ibt issued by the chinese government in 2010 is focusing attention of energy economists among whom lin and jiang 2012 designation and influence of household increasing block electricity tariffs in china energy policy 42 164 173 who assert that the issued tariff is unsuited to meet the social and environmental objectives it was designed for these authors offer an alternative four tiered ibt the performance of which they show by evaluating its welfare and income distribution effects taking the current uniform tariff as reference to measure the surplus loss to a representative household in a given block the authors use the trapezoid approach but because of the limited data on demand they calculate the household s response by using a constant point estimate of the own price elasticity of electricity demand in this note i show there is an incompatibility between these two modeling assumptions combining them is causing an upward bias in the surplus loss which is of significance given the large price change associated with the ibt i then offer a correction to this bias

efficiency and equity in natural resources pricing a proposal for urban water distribution service this paper focuses on the design of optimal prices for urban water distribution service in this context pricing should be aimed at achieving efficiency equity financial aspects and or public acceptability and transparency the proposed tariffs are based on the theoretical frameworks suggested by ramsey 1927 and feldstein 1972 as a prior step estimations of urban water demands and water costs are carried out for the spanish municipality of seville finally an empirical comparison in welfare terms is conducted between the proposed tariffs and those applicable in the year 2000

estimation and welfare calculations in a generalized corner solution model with an application to recreation demand the kuhn tucker model of wales and woodland 1983 provides a utility theoretic framework for estimating preferences over commodities for which individuals choose not to consume one or more of the goods due to the complexity of the model however there have been few applications in the literature and little attention has been paid to the problems of welfare analysis within the kuhn tucker framework this paper provides an application of the model to the problem of recreation demand in addition we develop and apply a methodology for estimating compensating variation relying on monte carlo integration to derive expected welfare changes

trend inflation and firms price setting rotemberg versus calvo we compare the calvo and rotemberg price setting mechanisms in a new keynesian model with trend inflation we show that the long run relationship between inflation and output is positive in rotemberg and negative in calvo the dynamics of the two models differ even to a first order approximation positive trend inflation enlarges the determinacy region in the rotemberg model whereas it shrinks it in the calvo model the responses of output and inflation to technology shocks are amplified by trend inflation in calvo whereas they are dampened in rotemberg the two models imply differing non linear adjustments after a disinflation

an interregional analysis of price discrimination and domestic policy reform in the u s dairy sector the u s dairy sector has experienced several reforms in both government price support and classified pricing under state and federal milk marketing orders an interregional spatial market equilibrium model of the u s dairy sector is used to provide quantitative measures of the aggregate and regional impacts of alternative domestic deregulation scenarios the model simulates the allocation of farm milk used in the production of nine dairy products in a way consistent with milk component balances for milk fat protein and carbohydrate both within and across regions results suggest current policies induce substantive aggregate and regional distortions relative to an unregulated policy

evaluating the welfare effects of reforming municipal water prices abstract despite the strong criticisms by economists of water utility pricing practices and the presence of well articulated theoretical models of efficient pricing alternatives few empirical studies have documented the magnitude of the efficiency gains from altering water prices the structures of water supply costs and water demands are estimated using data from vancouver canada a simulation program uses these estimated relationships to compute the impact upon a representative water utility s output and deficit and upon aggregate consumer surplus of a move from its current practice to efficient prices simulation results show that a move to seasonally differentiated pricing with an annual charge calculated to recoup the resulting deficit raises aggregate surplus by approximately 4 this result contrasts with recent water pricing studies that found welfare improvements of approximately 1

water demand under alternative price structures we estimate the price elasticity of water demand with household level data structurally modeling the piecewise linear budget constraints imposed by increasing block pricing we develop a mathematical expression for the unconditional price elasticity of demand under increasing block prices and compare conditional and unconditional elasticities analytically and empirically we test the hypothesis that price elasticity may depend on price structure beyond technical differences in elasticity concepts due to the possibility of endogenous utility price structure choice observed differences in elasticity across price structures may be due either to a behavioral response to price structure or to underlying heterogeneity among water utility service areas

a dynamic analysis of market structure based on panel data internal market structure analysis infers brand positions in an attribute space from preference and choice data given a market in which consumers have heterogeneous tastes for attributes previous market structure models have adopted a static framework e g elrod 1988 chintagunta 1994 elrod and keane 1995 furthermore they assumed that consumer perceptions of brand attributes do not vary across consumers yet these approaches may render inaccurate representations of market structure if there is state dependence in consumer choice behavior this paper attempts to incorporate consumer choice dynamics into market structure models by specifying the source of choice dynamics explicitly in particular the process by which past purchases affect current choices is modeled in a framework which captures both consumer habit persistence and variety seeking behavior more specifically consumer preferences for brand attributes are modeled to depend on the attributes of brands bought on the previous purchase occasion furthermore the modeling approach adopted incorporates heterogeneity in both consumer preferences and perceptions of brand attributes the audience of this paper includes practitioners and academics interested in understanding consumer choice processes and inferring market structure from consumer choice data the proposed models are estimated on nielsen scanner panel data for margarine peanut butter yogurt and liquid detergent using simulated maximum likelihood techniques the empirical results suggest that accounting for choice dynamics improves both in sample and out of sample fit the results indicate that the average consumer is habit persistent in all the product categories studied this result is consistent with the findings of kannan and sanchez 1994 who conducted an aggregate analysis of consumer variety seeking behavior across product categories however the results obtained in this paper suggest that consumers are heterogeneous with respect to the processes by which past purchases affect current purchases these results provide strong evidence for habit persistence and variety seeking in brand attributes to be the behavioral source of consumer choice dynamics in food categories thus consumer tastes utility weights seem to be affected by the attributes of the brands consumed in the past given the empirical result that a large proportion of consumers are habit persistent this suggests that tastes are reinforced by the brand attributes consumed in the past the empirical results also show that not accounting for state dependence in market structure models for panel data may produce misleading results that is depending on consumer behavior patterns models that do not account for state dependence may distort the true nature of competition among brands more specifically the results confirm the expectation that if there is habit persistence that is if consumer tastes are reinforced by attributes of brands consumed in the past models that do not capture this choice dynamics will overestimate the distance between similar brands furthermore the policy experiments conducted suggest that 1 static models overestimate the short run impact of a price cut on the sales of the brand on promotion 2 price cuts hurt the sales of the more similar brands more and 3 free samples affect relatively less similar brands the most finally this paper studies variety seeking and habit persistence across brands over purchase occasions however variety seeking behavior may also involve the purchase of a portfolio of brands or items at a purchase occasion consumers may buy multiple items knowing that prior to the next trip they may want to consume different items simanson 1990 walsh 1995 this type of behavior can be modeled within the context of dynamic expected utility maximization with forward looking consumers the development and estimation of market structure models that include forward looking consumers who maximize expected utility over a planning horizon incorporating their future tastes and needs and shopping for an inventory of brands remain an important future research issue

the inflation bias under calvo and rotemberg pricing new keynesian models rely heavily on two workhorse models of nominal inertia price contracts of random duration calvo 1983 and price adjustment costs rotemberg 1982 to generate a meaningful role for monetary policy these alternative descriptions of price stickiness are often used interchangeably since to a rst order of approximation they imply an isomorhpic phillips curve and if the steady state is ecient identical objectives for the policy maker and as a result in an lq framework the same policy conclusions

comparing residential water demand estimates under decreasing and increasing block rates using household data using a new model formulation and data from a sample of colorado utilities we investigated the price specification controversy marginal price versus average revenue when estimating residential water demand the improved statistical fit using average

welfare and distribution effects of water pricing policies in this paper distribution and welfare effects of changes in block price systems are evaluated a method is discussed to determine for a marshallian demand function equivalent variation in case of a block price system the method is applied to compare for the metropolitan region of sao paulo alternative pricing policies on the basis of their demand welfare and distribution effects of changing water prices results show that there is a trade off between average welfare and income distribution a pro poor price system may result in lower average welfare than a flat price system but in higher individual welfare for the poor moreover there is a trade off between revenues for the water company and income distribution even though pro poor price systems may not be as good for average welfare as flat price systems their direct effects on poverty are important introducing pro poor price systems however may have financial consequences for the water companies

an analysis of 1980s dairy programs and some policy implications excessive government purchases of dairy surpluses during the early 1980s prompted three corrective measures the milk diversion program dairy termination program and lower support prices an eight equation econometric model of the dairy sector simulates these programs and shows them to be incomplete or impermanent in their effects however further analysis shows that a more aggressive policy of lower support prices would be effective in reducing costs to government and consumers and lowering transfers to producers

symposium on spatial competition and the theory of differentiated markets inclusion of assumptions of the hotelling losch approach spatial price discrimination in the greenhut ohta approach analysis of quality choice spatial approach that typically implies partition of the buyers in sales areas which do not overlap from ebsco

the econometrics of nonlinear budget sets traditional empirical analysis of consumer demand has usually made the assumption of linear budget sets that is the consumer is assumed to purchase any desired quantity at a constant price subject to a budget constraint the major exception to this framework is the analysis of demand when some goods are rationed 2 in the rationed case the price is constant up to a quantity limit in contrast to the rationed case here i consider the situation where the price varies with the amount of the good purchased empirical situations with nonconstant prices come readily to mind and of course they have received much recent attention from theorists since mirrlees 44 paper on optimal nonlinear taxation the following examples are meant to give a partial listing of cases when nonlinear budget sets occur i electricity prices many electric utilities engage in declining block pricing that is the marginal price of successive kwh s of electricity decrease at a given number of points determined by total demand thus the budget set is piecewise linear houthakker 36 was the first to propose an approach to this problem taylor 51 analyzes the problem at length and hausman kinnucin and mcfadden 31 use an instrumental variables estimator to provide consistent estimates of the demand function

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

a dual approach to modeling corner solutions in recreation demand abstract the dual approach of lee and pitt to estimating demand systems for which individuals often choose not to consume one or more of the available goods provides a utility consistent framework for estimating preferences over visits to recreation sites because of the complexity of the model however this approach has not been applied in the recreation demand literature this paper provides the first application of the model to recreation demand and develops a methodology for conducting welfare analysis relying on monte carlo integration to derive estimates of compensating variation the methods are applied to the demand for fishing in the wisconsin great lakes region

the effects of variable omission in the travel cost technique the travel cost technique is probably the most widely used method for estimating outdoor recreation demand functions consequently problems of specification have attracted much attention specification errors due to the omission of travel time and congestion effects have received the most recent attention with the consensus being that the travel cost technique underestimates the true value of recreational resources if these variables are omitted gum and martin 1975 wetzel 1977 mcconnell and duff 1976 yet the effect of variable omission is likely to vary depending upon the type of activity the existence of substitutes and related factors for this reason we reexamine from both an empirical and theoretical perspective the magnitude and nature of potential specification errors due to variable omission

dynamics of beef cow herd size an inventory approach cow herd inventories are the primary determinant of beef supply the principal decisions determining inventories are studied in a dynamic framework short run and long run impacts of one time shocks in economic factors influencing culling and replacement decisions are estimated via simulations changes in economic factors have the greatest impact on younger members of the herd these changes have long term impacts on inventories through their influence on age dynamics impacts on age dynamics could influence the cattle cycle

price and income elasticities of residential water demand a meta analysis this article presents a meta analysis of variations in price and income elasticities of residential water demand meta analysis constitutes an adequate tool to synthesize research results by means of an analysis of the variation in empirical estimates reported in the literature we link the variation in estimated elasticities to differences in theoretical microeconomic choice approaches differences in spatial and temporal dynamics as well as differences in research design of the underlying studies the occurrence of increasing or decreasing block rate systems turns out to be important with respect to price elasticities the use of the discrete continuous choice approach is relevant in explaining observed differences

seigniorage maximizing inflation under sticky prices what is the seigniorage maximizing level of inflation three models formulae for the seigniorage maximizing inflation rate smir are compared a sticky price model prescribes a somewhat lower smir to cagan s formula and a variant of a flex price model due to kimbrough 2006 the models differ markedly in how inflation distorts the labor market the sticky price calvo model implies that inflation and output are negatively related and that output is falling in price stickiness interestingly if our version of the calvo model is to be believed the level of inflation experienced recently in advanced economies such as the united states and the united kingdom may be quite close to the smir

functional forms exogenous shifts and economic surplus changes conditions for exact welfare measures in equilibrium displacement modeling are examined these relate to the functional form of supply and demand the nature of the exogenous shift and the definition of percentage changes approximation errors when these conditions are not met in empirical applications are investigated and analytical expressions for the errors derived significant errors are possible when a proportional shift is assumed the assumptions underlying alston and wohlgenant s empirical findings are identified the restriction that supply must be elastic is shown to be unnecessary

the long run performance of increasing block pricing in taiwan s residential electricity sector abstract this article examines the performance regarding efficiency and equity of increasing block pricing ibp in taiwan s residential electricity sector by using long term nationwide household data 1999 2014 actual variations in ibp rate structure are explored empirical results show that cross subsidization under ibp have resulted in inefficient over consumption by the poor and inefficient under consumption by the rich in addition the financial burden increased with decreases of household s income levels and a relatively high percentage of subsidies mistakenly went to non poor households the upward price adjustments and broadened first block in recent years have increased the household s financial burden and the rates of wrongly excluding the poor and wrongly including the rich to enjoy the subsidy being unable to take family size into consideration and send correct price signals to all users are two serious problems for ibp which may hinder the achievement of equity and efficiency in electricity use

evidence on the specification of price in the study of domestic water demand the development of lakefront property in northern wisconsin has prompted in several towns minimum frontage zoning stricter than the state standard such zoning generates an economic loss by constraining development development effect and an economic

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

linear demand functions in theory and practice abstract integrability conditions for an incomplete system of linear demand functions are considered the parameter restrictions consistent with integrability are identified and the structure of the conditional preference map is obtained it is found that the conditional preferences for a set of linear demand functions are either quadratic or leontief from a translated origin welfare analysis with linear demand models is also considered

genetic improvements in major us crops the size and distribution of benefits the distribution of welfare gains of genetic improvements in major us crops is estimated using a world agricultural trade model multi market welfare estimates were 75 larger than estimates based on the price exogenous change in revenue method frequently used by plant breeders annual benefits of these genetic improvements range from us 400 600 million depending on the supply shift specification of this 44 60 accrues to the us 24 34 accrues to other developed countries developing and transitional economies capture 16 22 of the welfare gain the global benefits of a one time permanent increase in us yields are us 8 1 billion discounted at 10 and us 15 4 billion discounted at 5 gains to consumers in developing and transitional economies range from us 6 1 billion 10 discount rate to us 11 6 billion 5 discount rate

potential for pricing policies in water resource management estimation of urban residential water demand in zaragoza spain this paper presents an empirical study to estimate the urban residential water demand in zaragoza spain this allows the testing of the short run sensitivity of water demand to changes in a set of

second order approximation to the rotemberg model around a distorted steady state social welfare objectives are investigated when changing prices is costly rotemberg 1982 a quadratic welfare function is derived with a distorted steady state implying inflation and output stabilization goals economic distortions influence inflation aversion in a way that differs from calvo models

structural change in the demand for meat economists have long thought that shocks in the economy sometimes lead to permanent changes in behavioral relationships hence supply or demand elasticities estimated from econometric models may change over time the source of such structural change may be technological adoption a shift in consumer preferences or an institutional change one way to handle this problem in linear models is to allow the parameters to change as the situation changes so that the model provides a local approximation of the behavioral relationship this approach is an attractive way to deal with structural change problems econometricians have extended the classical