how does advertising depend on competition evidence from u s brewing the relationship between market structure and advertising has been extensively studied but has generated sharply opposing theoretical predictions as well as inconclusive empirical findings likely because of severe endogeneity concerns we exploit the 2008 merger of miller and coors in the u s brewing industry to examine how changes in local concentration affect firms advertising behavior well established regional preferences over beer brands and the sharp increase in concentration from the merger make this an excellent setting to analyze this question we find a significant positive effect of local market concentration on advertising expenditures a 100 point increase in the herfindahl hirschmann index measure of concentration increases advertising per capita by about 5 our findings shed light on how and when firms choose to deploy advertising the online appendix is available at https doi org 10 1287 mnsc 2017 2889 this paper was accepted by eric anderson marketing

efficiency and equity effects of reforming the british system of direct taxation a utility based simulation methodology the simulation model presented in this paper shows how an estimated utility index defined over net income and leisure can be used to replicate labor supply behavior individual by individual this methodology is used to evaluate the efficiency and equity effects of two specific revenue neutral reforms of the british system of direct taxation the first reform involves abolishing the married m an s tax allowance the second abolishes this allowance only when the wife exhausts her own tax allowance the second reform is the most efficient and it may also be preferable on distributional grounds copyright 1988 by the london school of economics and political science

a re examination of the relationship between industry structure and economic performance the objective of this study is to develop a simultaneous equations model of profitability concentration advertising expenditures and research and development outlays the data used in the estimation are subjected to regression diagnostics in an effort to determine the importance to the estimation results of a subset of the data that can have a disproportionate influence the estimation results especially for the advertising expenditures relationship and the research and development outlays equation do change when a truncated data sample based on the omission of the outliers is used this serves partly to explain why there is some disagreement in the literature on market structure and economic performance with regard to the impact of several economic factors

marginal commodity tax reforms a survey as noted 30 years ago by martin feldstein optimal taxes may be useless for practical purposes and emphasis should instead be placed on the possibility of enhancing welfare by reforming existing tax rates in this perspective marginal commodity tax reforms are gaining increasing attention due to political and economic constraints on large reforms of direct or indirect taxation in this paper we summarize the main features and results of the literature on marginal commodity tax reforms pioneered by ahmad and stern further developed by yitzhaki and thirsk and recently reinterpreted by makdissi and wodon we establish new links to other fields of research namely the literature on the use of equivalence scales and on poverty measurement we also critically examine some issues associated with the implementation of marginal tax reforms with special reference to the calculation of welfare weights and revenue effects finally we suggest directions for future research on poverty reducing commodity tax reforms

ownership consolidation and product characteristics a study of the us daily newspaper market this paper develops a structural model of newspaper markets to analyze the effects of ownership consolidation taking into account not only firms price adjustments but also the adjustments in newspaper characteristics a new dataset on newspaper prices and characteristics is used to estimate the model the paper then simulates the effect of a merger in the minneapolis newspaper market and studies how welfare effects of mergers vary with market characteristics it finds that ignoring adjustments of product characteristics causes substantial differences in estimated effects of mergers jel g32 l13 l82 m37 do mergers affect product characteristics standard merger analyses typically study price effects only and ignore changes in product characteristics this paper endogenizes both it is likely that firms would adjust the features of their products after a merger ignoring this aspect of firm decisions in a merger analysis can lead to a bias in estimated welfare effects specifically i study how ownership consolidation affects product characteristics and welfare in the us daily newspaper market the newspaper market provides an ideal environment for analyzing the effect of mergers on product features for both econometric and economic reasons first of all individual newspapers often circulate in local markets there is substantial variation in demographics and ownership structure across these markets this variation is crucial for this study secondly the characteristics of newspapers are obviously important for welfare for example after an ownership consolidation do newspaper publishers improve or diminish the content quality do they enlarge or shrink the local news ratio do they increase or decrease content variety to address these questions i set up a structural model of the us daily newspaper

dalton improving indirect tax reform a tax reform is dalton improving if it improves social welfare for all possible social welfare functions that conform to hugh dalton s principle of transfers according to this principle there exists a prior social ranking of households and a transfer is approved if it it distributes from high ranking rich to low ranking poor households without altering the ranking itself in this paper the authors develop a procedure for identifying marginal dalton improving reforms in the context of indirect taxation the methodology is illustrated using data on excise taxes in the united kingdom copyright 1995 by american economic association

labour supply specification and the evaluation of tax reforms this paper investigates the practical importance of the functional specification of labour supply equations for the analysis of tax benefit reform we consider two labour supply specifications one derived from stone geary preferences and the other from a generalisation that relaxes some of the more critical restrictions in that model we use these equations to contrast the effects of two reforms to the u k income tax system one involves income effects almost exclusively while the other implies a significant number of large increases in marginal tax rates

welfare analysis and intertemporal substitution abstract this paper explores the structure of welfare comparisons when direct utility is weakly separable over time the lifetime welfare effect of a reform is then the sum of atemporal hicksian variations and intertemporal variations reflecting intertemporal substitution these latter are shown to be of only second order importance in lifetime welfare comparisons approximations to the intertemporal variations when preferences are intertemporally additive are derived pointing to the welfare significance in this context of not only the intertemporal elasticity of substitution but also within period income effects numerical examples illustrate the analysis and suggest possible orders of magnitude

aggregate consumer behaviour and the measurement of inequality this paper presents an approach to inequality measurement based on an econometric model of aggregate consumer behaviour the novel feature of this model is that systems of individual demand functions can be recovered uniquely from the system of aggregate demand functions we present methods for evaluating social welfare based on an explicit social welfare function this social welfare function incorporates measures of individual welfare based on indirect utility functions for all consumer units we develop indexes of inequality based on actual and potential levels of social welfare

the economics of development a survey i the subject our definition of the subject will be the use of economic analysis to understand the economies of poor or developing countries this includes in particular how standards of living in the population are determined and how they change over time and further how policy can or should be used in the influence of these processes the definition contains in principle much or most of analytical methods in economics insofar as they can be put to use in the examination of the issues of interest this is as it should be but it poses a problem for a survey in a journal a comprehensive treatment is infeasible so we shall follow a different route the survey will focus on what i take to be the major themes and approaches which characterise the productive aspects of the subject there is therefore no pretence at being exhaustive the purpose is rather to highlight some of the advances many of these have been of real substance there are a number of possible purposes for a survey and it is important to be clear at the outset for whom it is intended what it is and what it is not this survey is addressed to economists and students of economics who know the tools of their trade but not necessarily how they have been applied to and fashioned for the analysis of the economics of developing countries it is a description of the ways in which problems can be productively formulated and approached in terms of examples chosen for their intrinsic importance and interest the vastness of the subject means that we have to be highly selective it does not seek to provide a summary evaluation of the current view of the appropriate response to immediate policy questions it is not a history of thought nor a research manifesto nor an attempt to adjudicate or settle the major debates where they arise naturally from the major purpose some judgements on these subjects will be offered but they do not themselves constitute the primary intent of this survey there are three lines of enquiry or sets of questions which have i suggest been distinctive of the most fruitful work in development economics they will

welfare analysis of tax reforms using household data abstract this paper discusses a methodology for calculating the distribution of gains and losses from a policy change using data for a large sample of households estimates are based on the equivalent income function which is money metric utility defined over observable variables this enables calculations to be standardised and a computer program to compute the statistics presented in the paper is available for a general demand system equivalent income is related to measures of deadweight loss and standard errors are computed for each of the welfare measures an application to u k data for 5 895 households is given which simulates a reform that involves eliminating housing subsidies

understanding the price effects of the millercoors joint venture we document abrupt increases in retail beer prices just after the consummation of the millercoors joint venture both for millercoors and its major competitor anheuser busch within the context of a differentiated products pricing model we test and reject the hypothesis that the price increases can be explained by movement from one nash bertrand equilibrium to another counterfactual simulations imply that prices after the joint venture are 6 8 higher than they would have been with nash bertrand competition and that markups are 17 18 higher we relate the results to documentary evidence that the joint venture may have facilitated price coordination

measuring the inefficiences of tax systems abstract the properties of the procedure for measuring inefficiency developed by debreu 1951 1954 are summarised and the advantages of such an input based approach in analysing taxation discussed exact expressions for the debreu measure of deadweight loss are derived and the measure proposed by kay 1980 shown to be a special case the approach is pursued to construct and interpret a measure of the overall welfare loss from taxation which decomposes conveniently into efficiency and distributional components in one special case the corresponding index of total effectiveness is the product of debreu s coefficient of resource utilisation and an atkinson equality index

a decade of tax and benefit reforms in sweden effects on labour supply welfare and inequality sweden has experienced a sequence of tax and benefit reforms during the last decade in this paper we evaluate these reforms from labour supply welfare and inequality points of view we depart from a household labour supply model simulation of the model reveals that tax and benefit reforms have led to a considerable reduction of the excess burden regarding social welfare and inequality we show that the results depend to a large extent on the income inequality measure and the measure of social welfare as well as the income concept household disposable income or money metric utility

housing reform in urban china efficiency distribution and the implications for social security we investigate the distribution of a measure of housing consumption among public tenants in cities of two chinese provinces using household survey data we find the resulting distribution roughly consistent with the outcome of a market rental system for fixed supply and ces preferences there is surprisingly little evidence of allocative inefficiency in the present bureaucratic allocation system we estimate the possible effects of market oriented housing reform under alternative assumptions about the system of cash transfers used to compensate for a move to market rents we investigate the distributional impact of reform and the likely need for supplementary cash benefits for low income households

the impact of economic contractions on the effectiveness of r d and advertising evidence from u s companies spanning three decades the critical role of research and development r d and advertising in the marketing strategy of the firm is well established this paper conceptually and empirically examines why and how much the effectiveness of these two marketing instruments differs between times of economic expansions versus periods of economic contractions and whether these results depend on the cyclicality of the industry in question we consider a key marketing metric market share and a key financial metric firm profit our empirical setting is 1 175 u s firms across a time period spanning over three decades we find that r d and advertising contribute to firm performance but that their effectiveness is not constant across the business cycle increasing advertising share in contractions has a stronger effect on profit and market share than increasing advertising share in expansions likewise investments in r d in contractions lead to higher gains in market share and profit than r d investments in expansions albeit only in subsequent years if in contractions the firm faces tight budget constraints and has to choose between either maintaining r d or advertising our simulation results show that maintaining r d is associated with better company performance we find that advertising effectiveness in general and in contractions in particular is systematically moderated by the degree of cyclicality of the industry in which the firm operates in relatively stable industries advertising effects are small or even nonsignificant and they do not go beyond the year the firm advertises however in highly cyclical industries advertising effects are long lasting its total effect being 50 larger market share and 200 larger profits than in industries of average cyclicality the effect of industry cyclicality on advertising effectiveness is especially pronounced in contractions collectively these findings provide valuable and actionable insights into how firms should respond to contractions in order to grow profits and market share

measuring welfare changes in settings with imposed quantities abstract an intuitively attractive money metric utility measure is developed which is applicable in settings where individuals receive fixed quantities of one or more goods one use of this measure is in cost benefit analyses of imposed quantity changes the approximate measures typically used are shown to be subject to relatively large approximation errors however techniques are presented which can always be used to numerically evaluate the exact welfare measure provided that one knows the uncompensated demand function s or marginal willingness to pay function s of individuals

an index of inequality with applications to horizontal equity and social mobility horizontal equity and social mobility are discussed in terms of a non utilitarian social welfare function which takes account of the process by which an ex ante distribution is mapped into an ex post distribution by the tax system for example an index of inequality is proposed which decomposes into two components corresponding to vertical and horizontal equity respectively a functional form for the social welfare function is derived for the purposes of empirical work and an application to data for 5895 uk households is presented the paper contains a theoretical application of the index to a model of optimal taxation it is conventional to assess the merits of alternative public policies in terms of a trade off between equity and efficiency in practice however a change in say the tax system involves three effects first it may have incentive or disincentive effects leading to efficiency gains or losses secondly it may alter the distribution of welfare levels thirdly it may alter the ranking of individuals or households within the distribution these three effects correspond to efficiency vertical equity and we shall argue certain aspects of horizontal equity respectively and any assessment of a tax change must take into account all three the principal assumption of this paper is that government is concerned about the trade off between these three effects a strict utilitarian is concerned only with the consequences of an action and in the evaluation of a particular reform a utilitarian measure of social welfare is defined over the vector of ex post utilities no account is taken of the process by which the vector of ex ante utilities is mapped into the ex post vector and no ethical status is awarded to the ex ante distribution one does not have to adopt an entitlement theory of justice to believe that the utilitarian approach may ignore some relevant considerations such as the fairness of the redistributive process a striking example of this arises in the model used by mirrlees 11 to examine optimal income taxation in that model individuals have identical preferences defined over consumption and leisure and differ only in respect of their potential wage rates or ability levels clearly in the absence of taxation individual utility is an increasing function of ability suppose the government uses redistributive lump sum taxes to achieve the first best optimum then as mirrlees 11 12 shows the first best optimum for a utilitarian social welfare

distributional consequences of fisheries regulations an empirical methodology for evaluating fisheries regulations in terms of both rent gains and employment losses is proposed a royalty tax and a change in catch distribution among competing vessel types are compared with the status quo of restricted access the case study is the british columbia commercial salmon fishery results suggest that rent gains associated with the alternatives are not always sufficient to compensate for losses in fishing income

three sides of harberger triangles prevailing economic wisdom is highly critical of injudicious tax policies or government regulations uncorrected externalities unchecked monopolistic practices and various other market failures when economists are challenged to quantify the economic costs of associated price distortions it is standard practice and has been since the 1960s to use a small number of assumptions and selected elasticities to estimate areas of the relevant harberger triangles this simple and straightforward exercise has numerous applications and the virtue of producing answers rather than conjectures harberger triangles come in many shapes and sizes figure 1 offers an illustration of such a triangle for the simple case of an excise tax point a of figure 1 at which the demand and supply schedules intersect denotes market equilibrium in the absence of the tax with quantity q1 transacted at price p1 introduction of an excise tax at rate t payable by firms selling the commodity shifts the supply schedule upward by t at the new market equilibrium firms sell q2 units of the commodity at a market price of p2 receiving after tax p3 a p2 0 t market equilibrium at point a in figure 1 has the feature that marginal consumption benefits equal marginal production costs the excise tax drives a wedge between marginal benefits and marginal costs at consumption level q2 consumers are willing to pay any amount up to p2 for additional units of the good and suppliers would readily provide additional units of the good for any price of p3 or greater but these additional transactions do not take place due to the effect of the tax wedge the loss associated

distributional effects of housing subsidies in the united kingdom this paper examines the first round distributional effects of subsidies to public sector tenants and tax concessions to owner occupiers in the united kingdom excluding income related housing benefits the average values per family of the two are found to be of similar magnitude local authority rates property taxes are found to have provided a roughly equivalent offset to the shortfall from economic rents for local authority tenants and the lack of taxation of owner occupiers imputed rents their abolition substantially improves the position of housing compared with other forms of consumption or investment

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

on reforming the welfare system abstract using a simulation model for a small open economy quebec 1986 various negative income tax nit and workfare schemes are compared from the point of view of efficiency and equity the main finding is that there exist workfare schemes that are superior both to the quebec regime of 1986 and to a nit characterized by a 100 percent implicit tax rate however these workfare schemes are dominated by some nit programs this suggests that it may be necessary to have work requirements that vary across socio demographic classes for a workfare plan to be superior to any nit combining workfare with an nit could also be the prescription

the relationship between the marginal cost of public funds and marginal excess burden a large literature has recently developed which attempts to measure the marginal cost shadow price of public funds the motivation for much of this literature is the recognition that many of the tax instruments used by governments generate substantial amounts of excess burden deadweight loss jerry a hausman 1981 for example estimates that for an average prime aged american male with a wage of ten dollars in 1975 the excess burden generated by the federal income tax was over fifty percent of the revenue raised from taxing that individual one might suspect that such large excess burden estimates would require a change in the way government project costs are calculated in benefit cost analysis if the revenue required to finance a project is raised through distortionary taxation then intuition would suggest that the excess burden generated by the increase in tax rates needed to finance the project should be incorporated into the cost of the project however this analysis is not entirely consistent with the theoretical literature on the optimal provision of public goods which are financed by distortionary taxation when distortionary taxes are used to finance public goods and the level of public good provision does not affect consumption of the taxed goods the standard samuelsonian rule which equates the sum over consumers of the marginal rates of substitution between a private good and a public good with the marginal rate of transformation between the two goods must be modified to account for the marginal effect of increases in tax rates on the revenue raised from the existing taxes 2 the intuition behind this result is that we need to correct for indirect leakages from existing government revenue sources when considering an incremental expenditure if the increase in tax rates needed to finance the project causes a reduction in the revenue raised by the current tax structure then we need to account for this loss in calculating the cost of the project it is important to note that this result concerns the values of uncompensated demand elasticities an example first provided by atkinson and stern 1974 illustrates this point consider a world where the only tax is on labor earnings and incremental expenditure on the public good does not affect the demand for leisure in this case the marginal rate of transformation will overstate the cost of the public good as long as the uncompensated wage elasticity of labor supply is negative this is because an increase in the tax rate causes an increase in labor supply leading to an indirect increase in government revenue from the excess burden perspective described earlier this example is very puzzling it is well known that even if the uncompensated own price elasticity of a good is zero a tax on that good can still result in a large deadweight loss we instead need the compensated elasticity to be zero to ensure that there will be no excess burden however the department of economics university of california davis ca 95616 this paper is based on chapter two of my dissertation at the university of wisconsin madison i wish to thank the members of my dissertation committee martin david robert haveman chair and arthur goldberger for very helpful advice and comments i have also benefited from comments by don fullerton and bruce hamilton an anonymous referee provided unusually helpful comments and corrected an error in the figure 1don fullerton 1989 provides a recent survey and analysis of this literature 2this is shown by anthony atkinson and nicholas h stern 1974 and david e wildasin 1979 the effect of provision of the public good on consumption of the taxed goods must also generally be taken into account

the design of direct taxation and family benefits abstract the subject of this paper is the design of the personal income tax and social security benefits that vary with the size of the family it is concerned with the analytical problems of policy design that arise from constraints on the instruments which may be used from differences in social judgements about the desirability of redistribution and from differences of view about the disincentive effects of taxation the paper considers these issues in the context of the french tax benefit system and the implications of the french system being harmonised towards certain features of the british system

the measurement of deadweight loss in an open economy there are many approaches to the measurement of the resources wasted in an economy arising from an inappropriate system of taxation and government regulation the existing literature on this topic is too voluminous for us to summarize in this introduction 1 in the remainder of this introduction therefore we simply outline what we hope to add to the literature in this paper at the outset it should be mentioned that we are going to consider only the deadweight loss generated by inappropriate systems of taxation the losses generated by monopolistic behaviour on the part of producers could be modelled in a similar fashion but we leave this generalization to the reader 2 in section i below we illustrate our two alternative measures of deadweight loss by means of some simple diagrams from the diagrammatic viewpoint neither loss measure has a clear cut advantage over the other however when we move to our algebraic analysis of the loss measures and to quadratic approximations then it turns out that our allais debreu loss measure allais 1943 pp 610 616 debreu 1951 1954 has a clear cut advantage over the hicks boiteux measure hicks 1941 1942 boiteux 1951 at least when the number of households in the economy exceeds one it should be mentioned that we are restricting our attention to loss measures that are well defined when a there is an arbitrary number h of households in the economy b there is an arbitrary number n of domestic goods and an arbitrary number m of internationally traded goods in the economy 3 and c there is an arbitrary number k n of constant or diminishing returns to scale sectors in the production sector of the economy the last restriction turns out to be important because the case where n the number of domestic goods equals k the number of sectors leads to measures of deadweight loss that have substanitally lighter informational requirements in section ii we lay out our model of the economy using duality theory in order to reduce the number of variables and equations in section iii we develop a measure of loss arising from tariff and tax distortions which is due essentially to boiteux 1951 conceptually the boiteux loss measure is simply a sum of hicksian 1941 1942 p 128 equivalent variations applied to each consumer s expenditure function so we call our loss measure a hicks boiteux loss measure however boiteux 1951 p 128 provided a quadratic approximation to his loss measure which decomposed into additive consumer and producer terms whereas hicks and others did not accomplish this additional step we obtain the same kind of decomposition as boiteux but generalized to an open economy 5 it should be noted that the loss measure developed in this section collapses down to the standard

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

optimal tax and public investment rules for congestion type of externalities optimal government policy is considered in a second best framework where consumers and producers cause an externality of the congestion type and income distribution issues are taken into account the theoretical results of the optimal tax literature are adapted using the concept of the net social pigouvian tax an illustrative age model uncovers the relative importance of its components the model demonstrates that the level of the externality tax does not depend strongly on distribution concerns as reoptimization of the other taxes ensures that the income distribution objective is reached the model also allows us to study the interaction between externality taxes and public abatement

a simple theory of advertising as a good or bad our analysis treats advertisements and the goods advertised as complements in stable metautility functions and generates new results for advertising by building on and extending the general analysis of complements by assimilating the theory of advertising into the theory of complements we avoid the special approaches to advertising found in many studies that place obstacles in the way of understanding the effects of advertising we also use this approach to evaluate advertising from a welfare perspective whether there is excessive or too little advertising depends on several variables the effects on consumer utility the degree of competition in the market for advertised goods the induced changes in prices and outputs of advertised goods and whether advertising is sold to consumers

optimal non linear income taxation for the alleviation of income poverty there has been much discussion recently of structuring tax and transfer programs to ensure that resources go to the poor with minimal leaks to the nonpoor the poor have no incentive to earn income with 100 percent marginal tax rates but how high or low the marginal rate of taxation should be and how they should vary with income is a complex issue and opinions vary social security schemes that withdraw benefits represent an extremely high effective marginal tax rate other schemes call for relatively low marginal tax rates at the bottom of the income distribution which tax transfer schedule does most to reduce poverty the issue is one of optimal nonlinear income taxation the authors show that one of the key theoretical results of the welfarist literature is overturned if it is desirable for everybody to work the optimal marginal tax rate on the very poorest individuals is strictly negative they argue that the nonwelfarist perspective points toward lower marginal tax rates in the lower part of the income distribution than does the welfarist perspective but numerical simulations suggest that the effect is of limited quantitative significance using conventional functional forms and parameter values optimal marginal tax rates on the poor are in the 60 70 percent range

endogeneity in the concentration price relationship causes consequences and curses the ordinary least squares estimator of the effect of concentration on price is biased for two reasons first performance feeds back into structure causing a simultaneous equations bias second as a function of outputs or revenues measured concentration is correlated with determinants of price that are at best measured with error so measured concentration is correlated with the error term with panel data fixed effects procedures can be combined with instrumental variables to eliminate bias from both sources in concentration price regressions for the airline industry the bias can be substantial and negative copyright 1993 by blackwell publishing ltd

labour supply welfare rankings and the measurement of inequality abstract this paper presents an analysis of inequality using utility based measures of welfare derived from different approaches to modelling household labour supplies the almost ideal demand system specification of preferences is selected for the estimation of a neoclassical household model and of individual decision models which incorporate different assumptions concerning the intra household distribution of income using the rosen 1976 tax perception methodology the study also explores the implications of a model which does not constrain time at home to leisure welfare rankings and inequality measures defined on equivalent income are compared for each type of model the analysis uses australian unit record data on 3 352 households drawn from the australian bureau of statistics 1981 82 income and housing sample survey file the results indicate the sensitivity of welfare orderings and inequality measures to the choice of decision model and to the specification of lump sum transfers between family members a comparative study of equivalent incomes and selected money income variables also illustrates the limitations of observed household and individual incomes as welfare indicators for the analysis of inequality and for policy design

concentration and advertising in consumer and producer markets the effect of concentration on advertising has long been the subject of debate on the theoretical side two approaches may be distinguished starting with kaldor i 949 50 an analysis in which the assumed purpose of advertising is to make profits but not necessarily maximum profits has been developed by sutton i974 additionally building on the original work of dorfman and steiner i954 and others cable i972 has provided a profit maximising model of the way in which concentration affects the optimal amount of advertising both approaches predict a systematic non linear relationship between concentration and advertising in sutton s terms this is rationalised by pointing to the different opportunities and incentives for advertising under different market structures cable s analysis is based on various hypotheses concerning the magnitudes of the price and advertising demand elasticities and reactions under different market structures basically they both argue that it is difficult to internalise the benefits of advertising in low concentration industries and monopoly gives no incentive for competitive advertising in between oligopoly provides the structure most conducive to advertising as reviewed in a later section however the empirical evidence is somewhat conflicting some reject the hypothesis of a positive relationship but other evidence has confirmed the existence of a linear or inverted u shaped relation three main issues have been examined in these studies the existence and shape of the underlying relationship between concentration and advertising the influence of product and market characteristics and more recently the direction of causality the second though has probably been the source of most debate the issue has been that differences in product and market characteristics will ceteris paribus affect the amount of advertising carried out samples are then chosen and or variables included which attempt to account for these differences in particular researchers generally attempt to distinguish between consumer and non consumer goods samples it is argued in this paper that such apparently judicious selection of samples may be misguided and seriously affect the results the main reason is that even if it were possible to define a consumer good in principle in general firms as well

axiomatic foundations of hicksian measures of welfare change abstract the aggregate hicksian measures i ev i and i cv i are characterized by three simple properties one property concerns the ranking of two states the measures are paretian a second property expresses the postulate that welfare changes are to be evaluated in money the third one deals with redistributions of incomes distributional considerations are taken into account by employing variable distributional weights i

the theory of reform and indian indirect taxes abstract given a set of value judgements an initial state and a model of the economy one can ask whether some feasible tax change would increase welfare we do this by defining the marginal cost in terms of welfare of raising an extra rupee from the i th good the inverse optimum problem is the calculation of non negative welfare weights on households which imply that the initial state is optimum if no such welfare weights exist then a pareto improvement is possible we illustrate the concepts and results using data from the indian economy for 1979 1980 directions of tax reform for a number of specific social welfare functions and for pareto improvements are presented

the effects of region on the welfare and monetary income of spanish families in this paper we carry out a regional study aimed at measuring the effects of different regions on the welfare and income of spanish families this has in turn allowed us to calculate the inequality in welfare and income that exists between these households the results confirm the relation between welfare and monetary income for those spanish households in which both spouses work furthermore we find that the welfare level in the east and madrid regions is higher than elsewhere with the lowest welfare level being found in the south the comparison between regions allows us to rank them from the lowest to the highest welfare levels with this ranking adopting the order north centre east south and madrid

labour supply incentives and the taxation of family income taxing family income richard blundell and ian walker will lower marginal rates of income tax increase incentives to work the traditional theoretical argument ignores the fact that many individuals are members of households with more than one potential participant in paid employment the theory of optimal income tax is utilized to argue that the tax system should discriminate between individuals in the same household if their labour supply responses are different empirically the response of labour supply to changes in after tax wages is largest for secondary workers particularly married women hence the largest beneficial incentive effect is obtained if such individuals face lower tax rates since these individuals typically have below average pre tax earnings this suggests a simple way to implement our proposal establish a progressive income tax with individual earnings as the basis of assessment this might have additional advantages of fairness but its primary purpose would be to ensure that low earning but highly responsive individuals face low marginal tax rates while high earning but relatively unresponsive individuals face higher marginal tax rates contrary to popular wisdom a flat rate tax system would be less favourable for work incentives we illustrate this theoretical argument using an empirical model of labour supply embedded in a micro computer programme capable of simulating alternative tax systems

tax reform and housing demand the distribution of welfare gains and losses abstract we study distributional effects of a recent reform of the swedish system of income taxation which affects the price of owner occupied housing in calculating the welfare effects we account both for the non linearities of the income tax schedule and the dichotomous choice aspect of housing demand to own or to rent small and rosen 1981 have shown how the standard harberger type approximation formulae can be adapted to handle discrete choices and we modify their analysis for a non linear budget constraint

reference price independent welfare prescriptions abstract a number of studies have evaluated the social welfare impact of price and income changes using equivalent incomes that are computed at some reference price vector and an aggregator with these equivalent incomes as arguments in place of a social welfare function this paper investigates the impact of the choice of the reference price vector on the results of such exercises distinguishing the case of individualized prices from the constrained case where all individuals face the same price vector we characterize preferences and aggregators leading to reference price independent welfare prescriptions

labor supply and targeting in poverty alleviation programs the introduction of variable labor supply raises some fundamental issues in analyzing the targeting of poverty alleviation programs in developing countries it forces a reconsideration of the standard objective function which is based on income or expenditure and so makes no allowance for the effort made in earning that income the authors show that alternative views on the appropriate valuation of effort have very different implications for commodity based targeting rules they also establish a benchmark for marginal effective tax rates inclusive of benefit withdrawal in income tested schemes and show that indicator targeting rules may also have to be modified significantly when labor supply responses are recognized

assessing indirect tax reform in a tourism dependent developing country summary the paper investigates the effects of reform of the current structure of indirect taxes in mauritius a relatively tourism dependent economy it uses a computable general equilibrium model to explore the relative efficiency of changing sales tax rates on tourism and nontourism related sectors and allowing for equity considerations the efficiency of tax reforms are also distinguished for cases where tourist arrivals are exogenously set and where they endogenously adjust to changes in relative prices the simulation results show that the tourism sectors are currently undertaxed additionally taxing tourism sectors is found to be the most socially efficient means of raising tax revenue

price and advertising effectiveness over the business cycle abstract firms are under increasing pressure to justify their marketing expenditures this evolution toward greater accountability is reinforced in harsh economic times when marketing budgets are among the first to be reconsidered to make such decisions managers must know whether and to what extent marketing s effectiveness varies with the economic tide however surprisingly little research addresses this issue therefore the authors conduct a systematic investigation of the business cycle s impact on the effectiveness of two important marketing instruments price and advertising to do so they estimate time varying short and long term advertising and price elasticities for 150 brands across 36 consumer packaged goods categories using 18 years of monthly u k data from 1993 to 2010 the long term price sensitivity tends to decrease during economic expansions whereas long term advertising elasticities increase during contractions the long term own and cross price elasticities increase moreover

paying a premium on your premium consolidation in the us health insurance industry we examine whether and to what extent consolidation in the u s health insurance industry is leading to higher employer sponsored insurance premiums we make use of a proprietary panel dataset of employer sponsored healthplans enrolling over 10 million americans annually between 1998 and 2006 to explore the relationship between premium growth and changes in market concentration we exploit the differential impact of a large national merger of two insurance firms across local markets to estimate the causal effect of concentration on market level premiums we estimate real premiums increased by approximately 7 percentage points in a typical market due to the rise in concentration during our study period we also find evidence that consolidation facilitates the exercise of monopsonistic power vis a vis physicians whose absolute employment and relative earnings decline in its wake

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

the welfare cost of housing standards theory with application to jakarta abstract housing standards are likely to impose quantity constraints on the consumption possibilities of the poor this paper shows how an exact money metric of the welfare loss from such standards can be derived for any well behaved preference ordering recent results from the theory of consumer behavior under rationing permit the cost of standards to be interpreted in terms of the compensated demand function for the standardized good a housing demand function for the poor in jakarta is estimated using household level data and is used to calculate numerically the cost to them of introducing uniformly binding housing standards at unsubsidized prices estimates are also presented of the rate of price subsidy on housing needed for compensation

the measurement of horizontal inequality an alternative approach to the measurement of horizontal inequality is developed this measure of inequality is based on an explicit social welfare function which is formulated so as to be consistent with the basic principles of social choice the arguments of the social welfare function are welfare functions that depend on prices total expenditure and the demographic composition of the household the level of horizontal inequality is defined to be the difference between the level of social welfare attained at a perfect horizontally egalitarian distribution of welfare and the level of social welfare attained at the existing distribution of individual welfare the level of horizontal inequality induced by the introduction of commodity taxes is evaluated for the united states over the period 1947 85 copyright 1989 by mit press

estimating life cycle labor supply tax effects we present an econometrically tractable life cycle labor supply model for panel data including intertemporally progressive taxes on uncertai wage and nonwge incomes our two stage fixedeffects generalized method of moments approach first extimates intretemporal and then intertemporal preferences specification testing domonstrates the value of incorporating joint progressive taxation of labor and nonlabor incomes results for prime age men emphasize the roles played by hourly wage endogeneity worker specific effects the measure of the rate of pay and intemporal budget constaint nonseparability simulations indicate that recent tax reform while not self financing stimulated made labor supplied by about 3 percent and reduced deadweight loss about 16 percent

on the structure of us unemployment disaggregated by race ethnicity and gender abstract we present empirical evidence regarding the structure of unemployment in the us disaggregated by race ethnicity and gender popp s 2008 unit root test reveals that the dynamics of unemployment for all groups is characterized by the hysteresis hypothesis except for hispanic males

a computational procedure for calculating optimal commodity taxes with illustrative evidence from indian budget data a simple procedure for calculating optimal commodity taxes is proposed which takes into account the simultaneous interdependence of taxes expenditure and price levels responses the method also allows for the social marginal utility of income to depend on prices besides expenditures in a manner implied by the assumed preference functional form illustrative calculations on indian budget data provide evidence not only in favor of the procedure but of considerable sensitivity of directions of marginal tax reforms to the data set rural or urban used and of optimal tax estimates to demand functional form copyright 1989 by the editors of the scandinavian journal of economics

a pigovian rule for the optimum provision of public goods abstract the integrated treatment of optimal taxation and public expenditure presented here is based on the dual relationship between the prices of private goods and the quantities of public goods the conditions for optimum public good provision can be expressed as a modification of the samuelson conditions with extra terms representing a the distortionary effect of taxes on the willingness to pay for the public good and b distributional effects the former captures pigou s notion of the indirect damage caused by the need to finance public expenditure out of distortionary taxes and we call this the pigou term in certain cases a very simple benefit cost ratio for public projects emerges that is equivalent to measuring benefits as if they were taxed

measuring long term inequality of opportunity abstract in this paper we introduce a new family of rank dependent measures of inequality and social welfare consistent with the equality of opportunity eop principle the proposed framework can be used to measure long term as well as short term eop depending on whether we let permanent income or snapshots of income form the basis of the analysis furthermore it allows for both an ex ante and an ex post approach to eop there is long term ex post inequality of opportunity if individuals who exert the same effort have different permanent incomes in comparison the ex ante approach focuses on differences in the expected permanent income between groups of individuals with identical circumstances to demonstrate the empirical relevance of a long run perspective on eop we exploit a unique panel data from norway on individuals incomes over their working life span this allows us to examine how well analysis of opportunity inequality based on snapshots of income approximate the results based on permanent income

urban rural cost of living differentials in a developing economy abstract casual observations suggest that the cost of living is substantially greater in urban than rural areas of developing economies with implications for sectoral welfare comparisons an aids demand model for housing and foodgrains is estimated on a household level data set for java after adjusting housing rents for heterogeneity in quality the retrieved cost function indicates that the cost of utility at the urban price vector exceeds its rural value although the differential has been substantially overestimated in the past the relative cost of urban living is found to increase as reference rural income increases

household equivalence scales and the measurement of inequality transfers from the poor to the rich could decrease inequality abstract the use of equivalence scales when measuring income inequality can lead to the paradoxical result that transferring money from poor to wealthy households may reduce measured inequality this paper explains this result and restates the pigou dalton transfer axiom in a way that gets around this counterintuitive outcome

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

national television and the market for local products the case of beer information technology lowers the cost of distributing information to dispersed consumers because national firms reap larger benefits from new media than firms serving only local consumers media innovations may reduce the market for local products this paper considers the effect of television on the market for local beer using market level data on television penetration local breweries and brewery production from 1945 1960 results show that increases in television penetration are associated with fewer local breweries and less local beer production the results indicate that the industrial organization of media markets can affect the structure of markets for local products

decomposition of s concentration curves for any given order of inverse stochastic dominance standard concentration curves are decomposed into three components called contribution curves those compo nents correspond to within group inequalities between group inequalities and transvari ational inequalities we prove for all orders that contribution curve dominance implies systematically welfare improving tax reforms and conversely accordingly as welfare ex pansions may be costly in terms of particular inequalities we propose targeted fiscal reforms jel classification d63 h20

first degree price discrimination goes to school personalized pricing is widely discussed but seldom observed making studies of its efficacy rare yet first degree price discrimination is common in the pricing of higher education and i use data on prices and the characteristics of students admitted to a professional graduate program at a public university to estimate a matriculation demand function i then derive linear pricing functions that maximize revenue for a target number of students by allowing these functions to depend on progressively richer sets of observables i explore the effect of personalization of pricing on profit tailoring prices to a one dimensional measure of student quality would raise revenue by 2 2 per cent above the revenue with uniform pricing pricing based on both student quality and state residency raises revenue by 8 4 per cent and further tailoring based on available observables raises prices 9 0 per cent above the maximum revenue under uniform pricing pricing that obeys current statutory tuition limits raises revenue less but still by just over half as much i also infer the welfare weights that the pricing process implicitly attaches to student characteristics

market power vertical integration and the wholesale price of gasoline this paper examines empirically the relationship between vertical integration and wholesale gasoline prices we use discrete and differential changes in the extent of vertical integration generated by mergers in west coast gasoline refining and retailing markets to test for incentives to raise rivals costs the research design allows us to test for a relationship between vertical integration and wholesale prices controlling for horizontal market structure cost shocks and trends we find evidence consistent with the strategic incentive to raise competitors input costs this suggests that vertical integration can have a significant impact on wholesale prices

advertising restrictions and concentration the case of malt beverages the relationship between state imposed advertising restrictions and state level market concentration in the malt beverage industry is examined the authors find that the presence of proscriptions on price advertising significantly increases market concentration at the state level both absolutely and relative to a measure of national concentration the evidence also indicates that banning local nonprice advertising in addition to price advertising yields no marginal significant change in either measure of state level concentration analysis of individual brewers market shares suggests that large national brewers gain at the expense of smaller brewers when price advertising is restricted copyright 1995 by mit press

the measurement of deadweight loss revisited modities such as various consumer goods and labor m fixed factors such as land natural resources and various types of fixed capital and a government which taxes commodities and fixed factors in order to finance various govern ment expenditures it is well known2 that if the government can raise its required revenue by taxing the fixed factors alone then the resulting allocation of resources is pareto optimal no single household s utility or real income can be increased without decreasing the utility of some other household suppose we are at an initial equilibrium where government revenue is being raised by taxing the fixed factors alone then the resulting equilibrium can be rationalized by maximizing a certain weighted sum of utility functions subject to various feasibility constraints now think of the government replacing the taxes on fixed factors with distortionary commodity taxes in section 3 we calculate the second order directional derivative of the above weighted sum of utility functions with respect to any feasible direction of tax change evaluated at the initial equilibrium which is pareto optimal of course the first order directional derivatives of the weighted sum of utility functions with respect to feasible directions of tax change are zero evaluated at this initial equilibrium we obtain a measure of economic loss due to tax distortions which is virtually identical to that of boiteux 3 p 113 and which bears a resemblance to the dead loss of hotelling 22 p 254 the consumer s surplus measures of hicks 19 20 pp 330 3 and the deadweight loss measure of harberger 16 p 61 17 p 788 in section 4 we calculate a measure of welfare loss based on debreu s 4 5 coefficient of resource utilization which is a modification of a measure of loss due to allais 1 2 and we show that under certain conditions the hotelling

carbon taxation prices and welfare in new zealand abstract this paper examines the effects on consumer prices arising from imposing a carbon tax in new zealand using information about inter industry transactions and the use of fossil fuels by industries the welfare effects of the carbon tax are examined for a range of different household types finally overall measures of inequality are reported

does amd spur intel to innovate more we estimate an equilibrium model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the personal computer microprocessor industry firms make dynamic pricing and investment decisions while consumers make dynamic upgrade decisions anticipating product improvements and price declines consistent with schumpeter we find that the rate of innovation in product quality would be 4 2 percent higher without amd present though higher prices would reduce consumer surplus by 12 billion per year comparative statics illustrate the role of product durability and provide implications of the model for other industries

towards a household model of uk domestic energy demand abstract most existing analyses of domestic energy demand in the uk are conducted at the aggregate level the paper argues the case for modelling at the level of the individual household some results are presented from a microeconometric model estimated using microdata on some 90 000 uk households separate equations are estimated for gas demand electricity demand for households with a gas supply and electricity demand for those without price and income elasticities are presented these show considerable variation with household characteristics

equity and efficiency consequences of unemployment insurance reform in canada the importance of sensitivity analyses this paper conducts an evaluation of the equity and efficiency consequences of proposals for the reform of the canadian unemployment insurance program the sensitivity of results to the measure of welfare chosen and to the model employed to simulate individual behavioral responses is illustrated copyright 1991 by the london school of economics and political science

equity and policy effectiveness with imperfect targeting abstract we propose a general approach that jointly integrates horizontal and vertical equity criteria in the assessment of poverty alleviation programs with the strength of each criterion being captured through its own inequity aversion parameter this contrasts with the assessment of poverty alleviation programs done with simple under coverage and leakage ratios or with other methods that do not take into account the heterogeneity of the poor and that do not address directly the social benefits of achieving normative criteria our methodology is illustrated using tunisian data and two alternative poverty alleviation policies we find inter alia that the social ranking of commodity and socio demographic targeting in tunisia depends on the policymaker s comparative preference for vertical and horizontal equity

efficiencies brewed pricing and consolidation in the u s beer industry merger efficiencies provide the primary justification for why mergers of competitors may benefit consumers surprisingly there is little evidence that efficiencies can offset incentives to raise prices following mergers we estimate the effects of increased concentration and efficiencies on pricing by using panel scanner data and geographic variation in how the merger of the brewers miller and coors was expected to increase concentration and reduce costs all else equal the average predicted increase in concentration led to price increases of 2 but at the mean this was offset by a nearly equal and opposite efficiency effect

the dynamic efficiency cost of not taxing housing traditional welfare cost estimates of tax subsidies for owner occupied housing are less than 0 5 of gnp in the united states and canada this paper argues that these static measures understate the true cost of the tax subsidy increasing the capital income tax makes untaxed housing more valuable delivering a windfall bonus to existing homeowners at the expense of future generations this intergenerational transfer has real efficiency effects in the presence of pre existing tax distortions when housing is in fixed supply the dynamic efficiency cost of preferential tax treatment for housing is as much as 2 2 of gnp or 120 billion dollars in 1990

advertising price and welfare evidence from the u s brewing industry the welfare effect of advertising has been a subject of controversy among economists for some time one obvious concern is simply the cost of advertising in 1990 for example americans spent 130 1 billion on advertising to put this figure into perspective this amounted to 523 per capita 2 35 percent of gross national product and roughly 80 percent of the national deficit 1 much of the early debate regarding the social desirability of advertising stems from different preconceptions regarding its purpose 13 14 8 49 for example according to the kaldor 29 hypothesis advertising is primarily persuasive or deceptive in nature it changes consumer preferences creates brand loyalty and persuades consumers to favor commodities that they did not previously desire an opinion survey by bauer and greyser 5 indicates that consumers believe that much of advertising is persuasive and greyser and reece 27 158 find that 85 percent of the over 2 700 harvard business review subscribers surveyed believe that advertising persuades people to buy things they do not need if advertising is purely deceptive then it can be classified as a bad and reduces welfare

international comparisons of living standards by equivalent incomes we propose a measure of living standards for international comparisons based on gdp per capita the measure incorporates corrections for international flows of income labor risk of unemployment healthy life expectancy household demography and inequalities the method for comparing populations that differ in some non income dimension consists of computing the equivalent variation of income that would make each population indifferent between its current situation and a reference situation with respect to the non income dimension this is applied to 24 oecd countries the obtained ranking of countries differs substantially from the gdp ranking