the demand for food safety market imperfections and the role of government abstract this article reviews and comments upon a number of models of consumer choice of foods and diets with different real or perceived risks and benefits associated with them the article proceeds to discuss the imperfections and externalities in the market which result in a market solution which may provide too much or more typically too little food safety for individual consumers and for society the likely societal magnitudes of some of the costs of food borne ill health are also discussed the case for government intervention is quite clear but care must be taken not to impose too high a level of food safety

equal employment opportunity law and firm profitability based on a sample of 260 cases reported in the wall street journal between 1964 and 1986 this study finds that the equity value of firms charged with violating equal employment opportunity eeo laws fell at the time that a suit decision or settlement was announced most dramatically the value of firms involved in class action suits fell 15 6 percent on average around the time of the suit further the average loss to shareholders exceeds the amount firms are required to spend to settle the case this may be due to the expected costs of changing employment practices or to the information about the firm s management that is revealed by the case a staggering number of statutes amendments and court decisions regulating equal opportunity in employment have been passed during the past 25 years firms found guilty of violations of equal employment opportunity laws have been required to pay millions of dollars in back pay and to alter their employment practices to comply with the laws this study measures the costs to firms resulting from government and private lawsuits and the further costs of losing those suits i address this question by examining changes in the market value of the equity of firms at the time a lawsuit is filed for a violation of an equal employment opportunity eeo law and at the time a decision of guilty or a settlement

a test for risk averse expected utility we provide a universal condition for rationalizability by risk averse expected utility preference in a demand based framework with multiple commodities our test can be viewed as a natural counterpart of a classical test of expected utility due to fishburn 1975 in a demand setting

the economic consequences of the osha cotton dust standards an analysis of stock price behavior in a celebrated 1981 decision the supreme court upheld the occupational safety and health administration s osha standards limiting the exposure of textile workers to respirable cotton dust this decision represented the culmination of a rule making process the beginnings of which are traceable to seminal scientific studies first released almost ten years earlier on the incidence of so called brown lung disease reputed to be quite costly 1 the standards attracted more media attention as well as more congressional white house and judicial involvement than almost any regulation issued in recent years the purpose of this study is to assess the effect of major events in the development of the standards on the expected profitability of firms in the textile industry by examining the behavior of security prices at the time of those events while little formal research exists on the ecomomic effects of the cotton dust standards beyond an analysis prepared for osha before the standards were issued 2 a study by maloney and mccormick3 m m offers

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

shareholder wealth effects of legislative events the case of airline deregulation this paper presents empirical evidence about the impact on shareholder wealth of legislative events leading to the enactment of the airline deregulation act of 1978 in contrast to prior regulatory event studies this paper examines not only the final legislative enactment but also the congressional hearings that preceded it no significant effect on shareholder wealth is indicated when averaged across all airline firms and all legislative events impact of deregulation however was expected to be different for trunk airlines than for local airlines moreover market expectations likely changed with the change in the political climate during the course of deregulation deliberations from an industry financial health emphasis under a republican ford administration to a consumer welfare emphasis under a democratic carter administration we find that trunk airlines experienced significant positive abnormal returns during the ford administration but negative abnormal returns during the carter administration in contrast local airlines exhibited significant negative abnormal returns during both the ford and carter eras systematic risk of both trunk and local airlines also increased with the change in the political climate

can rents run uphill a note on the theory of regulation no one familiar with the history of regulation would be surprised that inefficient firms can benefit at the expense of the efficient yet this outcome has not been analyzed within the standard rent seeking models this paper has derived conditions under which less efficient firms can profitably secure regulation that imposes costs on their more efficient rivals the possibility that less efficient firms can form a profitable coalition does not mean that they will actually do so we have analyzed only the polar situations in which inefficient firms form a coalition to put efficient firms out of business and efficient firms try to block the regulation by offering counter bids the actual formation of coalitions will depend on political entrepreneurship mcchesney 1987 the opportunity costs of various producers fort and hallagan 1987 and the particular cost functions of forming a coalition functions that may well differ among various firms i have placed these influences in the ceteris paribus pound in order to analyze the demand and supply conditions that are conducive to successful rent seeking by less efficient firms the theoretical demonstration that less efficient firms can outbid their more efficient counterparts for legislation and still earn profits helps explain a common regulatory outcome

expected utility maximization and demand behavior abstract this paper extends the non parametric approach to consumer demand analysis to the case of expected utility maximization we provide necessary and sufficient conditions for a set of price quantity pairs to be consistent with expected utility maximization and investigate their relationship to revealed preference conditions extensions to incomplete markets and intertemporal resolution of uncertainty are also considered

the political economy of environmental regulation towards a unifying framework there are several theories that attempt to explain various aspects of environmental policy building on insights from this theoretical work and recent advances in our understanding of instrument performance this paper constructs a more complete theory of environmental regulation there are two primary contributions of this research the first is to provide more satisfactory explanations for a number of observed patterns of environmental policy for example there is as yet no satisfactory theory about the emergence of incentive based mechanisms such as marketable permits and effluent fees the second contribution of this paper is to develop a parsimonious framework for understanding many important aspects of environmental policy this framework suggests the outputs of environmental policy emerge from a struggle between key interest groups

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

shared quality uncertainty and the introduction of indeterminate goods the purpose of this paper is to introduce a new category of goods indeterminate goods which will be compared with the classical framework of experience search and credence goods nelson 1970 darby and karni 1973 this concept sheds new light on the nature and status of quality uncertainty through the following hypothesis uncertainty about the product s quality can be shared by all agents of the market and this uncertainty can be non neutral and disrupt the market we identify three types of shared uncertainty about the product s characteristics and the corresponding problems that can arise shared uncertainty due to the emergence of a product hirschman 1974 shared uncertainty concerning the past of a product basing ourselves on the art market and finally shared uncertainty regarding the future impacts of a product through empirical data on product safety

savage in the market we develop a behavioral axiomatic characterization of subjective expected utility seu under risk aversion given is an individual agent s behavior in the market assume a finite collection of asset purchases with corresponding prices we show that such behavior satisfies a revealed preference axiom if and only if there exists a seu model a subjective probability over states and a concave utility function over money that accounts for the given asset purchases

strength of preference and risky choice this paper provides conditions under which a utility function under risk can be legitimately interpreted to measure strength of preference between consequences these conditions require that if a decision maker regards the preference difference between acts a and b to be the same as the preference difference between acts a and b for every state of the world then the preference difference between a and b should be regarded as equivalent to the preference difference between a and b a key assumption is that a decision maker s preference differences between acts given one state of the world should be independent of common consequences given other states of the world usefulness of this result is discussed

afriat s theorem and some extensions to choice under uncertainty the first part of the paper reviews the methodology developed by sydney afriat for determining whether a finite set of price and quantity data are consistent with utility maximizing behavior by a consumer some extensions of his basic model to models of consumer behavior where the structure of preferences is restricted in some way are also explained examples of special structures are homotheticity separability and quasilinearity of the utility function the second half of the paper is devoted to developing afriat type consistency tests for expected and nonexpected utility maximizing behavior

systemic failure in the provision of safe food abstract many deficiencies in the capacity of a food system to deliver safe products are systemic in nature we suggest a taxonomy of four general ways in which a systemic failure might occur one relates to the connectedness or topology of the system another arises from mistrust on the part of downstream parties concerning signals on product attributes production processes and the performance of regulatory mechanisms a third arises when asymmetric information leads to low incentives for preserving food quality finally inflexibilities in adapting to different states of nature may leave the system vulnerable to failures innovations in information technology and institutional design may ameliorate many problems while appropriate trade industrial organization science and public infrastructure policies may also fortify the system

competition policy in the united states an overview this paper provides a summary of the basic policies in the united states that affect the state of competition in u s markets much of the paper focuses on antitrust policy but a substantial fraction of the paper is devoted to regulatory policies for both types of policies the paper explains the basic structures of the policies and also provides discussions of recent developments copyright 1993 by oxford university press

attractive compounds of unattractive investments and gambles a compound of many independent replicas of an investment or gamble may be attractive to some risk averters who do not accept the individual investment or gamble this can happen if there is a chance that the compound leads to a wealth level where the degree of risk aversion is lower than at the initial wealth level it can also happen if the investor has some sort of limited liability the von neumann morgenstern utility functions with the property that sufficiently long sequences of repetitions of any fair gamble are preferred to all finite wealth levels are characterized in this paper

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

note further tests of aspiration level effects in risky choice behavior this note extends the work reported in payne laughhunn and crum payne j w d j laughhunn r crum 1980 translation of gambles and aspiration level effects in risky choice behavior management sci 26 1039 1060 on the need to incorporate a target return reference point or aspiration level concept in the analysis of risky choice behavior two experiments are reported the first experiment provides a more complete test of the model of reference point effects developed by payne laughhunn and crum a translation of outcomes procedure which adds a constant to all outcomes was used to vary the relationship of pairs of gambles to an assumed target or reference point the results fully support the model the second experiment provides evidence of the conceptual validity of the model by using explicit instructions to vary the target levels of managers while holding gamble values constant

the impact of corporate pollution on market valuation some empirical evidence abstract this paper investigates the relation between the market valuation of publicly listed corporations and their social performance as measured by their pollution record relative to environmental regulations expectations are that corporations with a good bad environmental record should be valued at a premium discount by the stock market such a relation results from the emergence of ethical or green investing and from an increased awareness by investors of the potential negative consequences from corporate environmental damages two significant innovations are introduced in this study first using governmental data a pollution index is computed for each sample firm second the relevance of social information for investors purposes is directly assessed by looking at the relation between the pollution index and a firm s market valuation within the accounting identity framework modigliani and miller 1958 results suggest that a firm s pollution performance is interpreted by market participants as providing information about its environmental liabilities furthermore results weakly support the existence of a premium discount in the stock market valuation of firms that meet do not meet environmental regulations thus lending some credence to the existence of a demand by some stock market participants for ethical or green investments this suggests that the disclosure of audited social information of a non financial nature in a firm s annual report could be beneficial to market participants

revealed preferences over risk and uncertainty ludovic renou would like to acknowledge financial support from the french national research agency anr under the grant cigne anr 15 ce38 0007 01

asset demand based tests of expected utility maximization we provide conditions under which contingent claim and asset demands are consistent with state independent expected utility maximization the paper focuses on the case of a single commodity and demands are allowed to be functions of probabilities and not just prices and income we extend prior analyses by deriving three distinct tests for demands to be rationalized by expected utility i a contingent claim analogue to the certainty strong axiom of revealed preference ii a characterization of the functional form for demand and iii necessary and sufficient conditions based on the slutsky matrix jel d01 d11 d81 the neoclassical certainty model of consumer behavior postulates that a consum er s demand can be described as having been derived from utility maximization sub ject to a budget constraint one is then naturally led to ask what this model implies about observed demand behavior this question has been addressed using two quite distinct approaches the first originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions for utility maximization assum ing knowledge of the consumer s demand functions the second approach known as revealed preference following the classic work of samuelson 1938 provides necessary and sufficient restrictions on a finite set of demand price pairs such that the demand behavior of a consumer is consistent with utility maximization in this paper we extend both approaches to a classic portfolio choice problem where consumers possess state independent expected utility preferences and there is a single commodity in each state we focus only on the complete market case where the financial asset setting is equivalent to the contingent claim setting and hence it is only necessary to discuss demand tests for the latter we depart from the standard contingent claim theory by assuming that state of nature probabilities are not fixed and we model demand as a function of probabilities as well as prices and income for the revealed preference approach with the restriction of a single commodity in each state we derive a much simpler test for expected utility maximization than those that currently exist in the literature for example the formulation of green and

the marginal utility of income does not increase borrowing lending and friedman savage gambles there has been a great deal of discussion about whether the marginal utility of income rises with income most notably milton friedman and leonard j savage argued in their classic paper that the willingness to gamble implies that the marginal utility of income is rising over a range the discussions of rising marginal utility and of friedman savage gambles have proceeded independently of the literature on time preference although the issues are in fact related logically drawing on this logical relationship we shall show 1 that at least when intertemporal utility is separable the stable levels of consumption that are usually observed imply that the marginal utility of income decreases as income rises 2 even if the marginal utility of income does increase friedman savage gambles normally will not maximize utility saving and dissaving can attain the levels of consumption which generate the most utility per dollar of income at a lower cost than gambles unless imperfections in the capital market are severe 3 even when the utility function is not temporally separable repeated gambling cannot be a rational way of dealing with a rising marginal utility of income we therefore conclude that observed gambling is seldom if ever explained by the logic set out in friedman and savage s seminal paper in view particularly of the stability of consumption levels and the lack of friedmansavage gambles we conclude that marginal utility of income does not rise with income i a conceptual framework

consistency and heterogeneity of individual behavior under uncertainty by using graphical representations of simple portfolio choice problems we generate a very rich dataset to study behavior under uncertainty at the level of the individual subject we test the data for consistency with the maximization hypothesis and we estimate preferences using a two parameter utility function based on faruk gul 1991 this specification provides a good interpretation of the data at the individual level and can account for the highly heterogeneous behaviors observed in the laboratory the parameter estimates jointly describe attitudes toward risk and allow us to characterize the distribution of risk preferences in the population

a risk return model with risk and return measured as deviations from a target return two attribute risk and return models are very popular in the economics and finance literature for analyzing decisions under uncertainty their popularity stems primarily from the intuitive appeal of the dichotomy into risk and return and from the ease with which the concepts can be diagrammed in two dimensions the most commonly used risk return model is the mean variance model in which risk is measured as the variance and return by the mean of the probability distribution over outcomes the mean variance model has a number of shortcomings which are widely known but of particular concern here are the facts that 1 mean variance dominance is neither necessary nor sufficient for second degree stochastic dominance 2 unless the form of the probability distribution is restricted mean variance is consistent with von neumann morgenstern utility theory only if the utility function is quadratic and 3 as peter fishburn has noted

food safety regulation an overview of contemporary issues abstract this article discusses a number of issues that are influencing the evolution of food safety regulation in developed and to a lesser extent developing countries whilst not definitive it aims to highlight those factors which are considered crucial to an understanding of contemporary food safety controls in both the public and private spheres these issues include criteria applied to assess the need justification for food safety regulation relationships between public and private food safety control systems alternative forms that public food safety regulation can take strategic responses to food safety regulation and the trade implications of national food safety controls the article serves as an introduction to these issues which are discussed at greater length in the other papers that make up this special issue of food policy

investor response to health care cost containment legislation is american health policy designed to fail two failed congressional attempts to control escalating health costs are examined the data show that investors apparently anticipated their failure with the implementation of a policy encouraging market competition however investors expected larger firms to benefit and firms with previously high profit growth rates to lose from the viewpoint of the politics of structural choice it appears that identifiable structural flaws were deliberately designed into both laws in ways that would promote failure and protect key interest groups

commodity choice behavior with pigeons as subjects starting from an initial baseline budget line income compensated price changes always resulted in substitution effects consistent with the slutsky hicks theory this behavior cannot be explained by a simple random behavior model similar changes in relative prices that did not originate from the initial baseline budget line resulted in undersubstitution effects the composition of consumption changed in the expected direction but the magnitude of change was not large enough to be consistent with the initial commodity bundle chosen these undersubstitution effects are not explainable by shifting preference patterns or anchoring effects found in inconsistent choice sequences with human subjects