assessing the effects of wives earnings on family income inequality we argue that the effect of wives earnings can be assessed meaningfully only by comparing the observed distribution of income with a reference distribution the components of the standard decomposition of the gini coefficient have no implicit reference distribution and therefore should not be interpreted as a measure of the effect of an income source on inequality we suggest several intuitive counterfactual reference distributions and illustrate their use with 1979 and 1989 u s data we conclude that wives earnings reduced inequality in that the income distribution would have been less equal in their absence alternative measures of the impact have mixed results

price inertia and market structure empirical evidence from austrian manufacturing 1993 price inertia and market structure empirical evidence from austrian manufacturing applied economics vol 25 no 9 pp 1175 1186

labor supply of husbands and wives a simultaneous equations approach labor supply functions for married men and women are formulated as a dynamic simultaneous equations system which is estimated using panel data controlling for fixed individual effects allows marginal labor supply responses to be disentangled from permanent patterns in hours worked due to assortative mating the results suggest that the labor supply of husbands and wives without pre school children is not jointly determined in the short run while families with young children exhibit strong interactions in work hours and negative cross earnings effects neither the joint utility model of family labor supply nor an ad hoc traditional family model is supported by these results the data are for the united states and concern 381 couples from the denver income maintenance experiment excerpt

determinants of redistributive politics an empirical analysis of land reforms in west bengal india we investigate political determinants of land reform implementation in the indian state of west bengal using a village panel spanning 1974 1998 we do not find evidence supporting the hypothesis that land reforms were positively and monotonically related to control of local governments by a left front coalition vis vis the right centrist congress party combined with lack of commitment to policy platforms instead the evidence is consistent with a quasi downsian theory stressing the role of opportunism reelection concerns and electoral competition jel d72 013 017 q15

dynamic pricing with real time demand learning in many service industries the firm adjusts the product price dynamically by taking into account the current product inventory and the future demand distribution because the firm can easily monitor the product inventory the success of dynamic pricing relies on an accurate demand forecast in this paper we consider a situation where the firm does not have an accurate demand forecast but can only roughly estimate the customer arrival rate before the sale begins as the sale moves forward the firm uses real time sales data to fine tune this arrival rate estimation we show how the firm can first use this modified arrival rate estimation to forecast the future demand distribution with better precision and then use the new information to dynamically adjust the product price in order to maximize the expected total revenue numerical study shows that this strategy not only is nearly optimal but also is robust when the true customer arrival rate is much different from the original forecast finally we extend the results to four situations commonly encountered in practice unobservable lost customers time dependent arrival rate batch demand and discrete set of allowable prices

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

simultaneously learning and optimizing using controlled variance pricing price experimentation is an important tool for firms to find the optimal selling price of their products it should be conducted properly since experimenting with selling prices can be costly a firm therefore needs to find a pricing policy that optimally balances between learning the optimal price and gaining revenue in this paper we propose such a pricing policy called controlled variance pricing cvp the key idea of the policy is to enhance the certainty equivalent pricing policy with a taboo interval around the average of previously chosen prices the width of the taboo interval shrinks at an appropriate rate as the amount of data gathered gets large this guarantees sufficient price dispersion for a large class of demand models we show that this procedure is strongly consistent which means that eventually the value of the optimal price will be learned and derive upper bounds on the regret which is the expected amount of money lost due to not using the optimal price numerical tests indicate that cvp performs well on different demand models and time scales this paper was accepted by assaf zeevi stochastic models and simulation

linear learning in changing environments abstract the decision maker receives signals imperfectly correlated with an unobservable state variable and must take actions whose payoffs depend on the state the state randomly changes over time in this environment we examine the performance of simple linear updating rules relative to bayesian learning we show that a range of parameters exists for which linear learning results in exactly the same decisions as bayesian learning although not in the same beliefs outside this parameter range we use simulations to demonstrate that the consumption level attainable under the optimal linear rule is virtually indistinguishable from the one attainable under bayes rule although the respective decisions will not always be identical these results suggest that simple rules of thumb can have an advantage over bayesian updating when more complex calculations are more costly to perform than less complex ones we demonstrate the implications of such an advantage in an evolutionary model where agents learn to learn

rising u s earnings inequality and family labor supply the covariance structure of intrafamily earnings this paper studies the labor supply contributions to individual and family earnings inequality during the period of rising wage inequality in the early 1980 s working couples have positively correlated labor market outcomes which are almost entirely attributable to permanent factors an intertemporal family labor supply model with this feature is used to estimate labor supply elasticities for husbands of 0 05 and wives of 0 40 this implies that labor supply explains little of the rising annual earnings inequality for married men but over 20 percent of the rise in family inequality and 50 percent of the modest rise in female inequality

fiscal federalism and redistributive politics abstract we consider the interaction between redistributive politics at central and local levels in a federal system and characterize the factors influencing success in redistributive politics in both federal and unitary systems we examine how the political characteristics of different states and groups give them better or worse outcomes in a federal system as opposed to a unitary system we examine possibilities of multiple equilibria with divided government between the two layers we analyze the choice between block grants and matching grants we also examine the impact of federalism on the incentives for geographic mobility

non cooperative competition among revenue maximizing service providers with demand learning this paper recognizes that in many decision environments in which revenue optimization is attempted an actual demand curve and its parameters are generally unobservable herein we describe the dynamics of demand as a continuous time differential equation based on an evolutionary game theory perspective we then observe realized sales data to obtain estimates of parameters that govern the evolution of demand these are refined on a discrete time scale the resulting model takes the form of a differential variational inequality we present an algorithm based on a gap function for the differential variational inequality and report its numerical performance for an example revenue optimization problem

price inertia in a macroeconomic model of monopolistic competition this paper discusses the consequences of price setting by firms under monopolistic competitio n in dynamic models it is assumed that costs of price adjustment are speed dependent the keynesian regime prevails when firms choose a p oint on the demand curve if real labor costs are relatively high cu stomers may be rationed after analyzing firm behavior in a partial e quilibrium setting demand is made endogenous in a full scope macroec onomic model numerical examples are worked through by applying the t echnique of multiple shooting it is found that relatively small cost s of price adjustment give rise to substantial macroeconomic effects copyright 1988 by the london school of economics and political science

learning from coarse information biased contests and career profiles an organization s promotion decision between two workers is modelled as a problem of boundedly rational learning about ability the decision maker can bias noisy rank order contests sequentially thereby changing the information they convey the optimal final period bias favours the leader reinforcing his likely ability advantage when optimally biased rank order information is a sufficient statistic for cardinal information the leader is favoured in every period in other environments bias in early periods may i favour the early loser ii be optimal even when the workers are equally rated and iii reduce the favoured worker s promotion chances this paper presents a model of boundedly rational learning by an organization the aims are to represent in a simple form the costs of gathering processing or transmitting information and to analyse their implications for the procedures selected to handle information as well as for the decisions actually made like other recent work on the internal organization of firms this work explores to what extent organizational structure and behaviour as well as organizational performance can be explained by adaptation to the costs associated with information in the learning model we formulate the decision maker not only selects a rule specifying what action to take as a function of his observations but also chooses sequentially the information partitions generating those observations this general problem is interpreted in the context of an organization which needs to make an important promotion decision and which attempts to maximize the value of the information generated during the observation periods that precede the decision one of the motivations for this analysis was the finding by organizational sociologists that earnings and promotions in the later stages of a worker s career are strongly correlated with earnings and promotions in the early stages kanter 1977 rosenbaum 1984 later success is positively associated with early success even when one controls for the effect of observable characteristics likely to affect performance such as education one obvious source of this correlation is differences in ability that persist over time and that are not captured by the observable covariates in this paper we focus on differences in ability which are initially unobservable by organizations and their workers as well as by researchers we present a simple model of an organization trying to learn about differences in ability and show

actively learning about demand and the dynamics of price adjustment by observing the quantity demanded at particular prices a firm may learn about the parameters of its demand curve in such an environment price changes obstruct the learning process by inducing additional noise the authors paper constructs a dynamic model where a price setting firm endogenously controls the speed of learning the model provides a possible explanation for price inertia as a stable pricing policy allows the firm to learn more rapidly which improves future expected profits furthermore even in the long run learning continues to affect the firm s optimal price copyright 1990 by royal economic society

learning about variable demand in the long run this paper studies the problem of a monopoly who is uncertain about the demand it faces and learns about it over time through its pricing experience the demand curve facing the monopoly is not constant it changes over time in a markovian fashion we characterize the monopoly s optimal policy and inquire how it differs from an informed monopoly s policy it turns out that even when the rate at which the demand varies is negligible the stationary probability with which the monopoly s policy deviates from its informed counterpart is nonnegligible as long as the discount factor is below 1

keynesian involuntary unemployment and sticky nominal wages this paper presents a model in which sticky nominal wages and keynesian involuntary unemployment result as a consequence of the intertemporal optimisation decisions of profit maximising monopsonistic firms and fully rational and informed workers in an uncertain environment uncertainty associated with the business cycle and its impact on product price generates disequilibrium wages and identifies the labour demand function in contractions and the supply of labour in expansions the theoretical prediction of a negative relationship between real wages and employment during contractions and a positive relationship during expansions is strongly supported by the empirical evidence presented central to keynesian macroeconomics is the concept of involuntary unemployment the existence of which once was a commonly agreed upon stylised fact however as noted by hoover i988 and mccafferty i990 among others existing models either fail to provide a satisfactory reason why wages do not adjust to clear the market or seek some sort of equilibrium explanation in which unemployment is not strictly involuntary in the sense of keynes moreover the failure of recent empirical studies to support the keynesian prediction of a countercyclical wage has led some to doubt the relevance of keynesian economics and even the meaningfulness of the notion of involuntary unemployment lucas 1978 farmer 1993 keynes i 939 cited findings of a countercyclical real wage during the great depression argued that the relationship between real wages and employment depends upon whether changes in employment are due to changes in effective demand or due to other factors and recommended that observations on real wages ought to be classified by periods of contraction and expansion an examination of us data for the period 1920 89 presented in section ii of this paper confirms the importance of keynes s argument and motivated the development of the new keynesian model of employment and wages presented in section iii the model is characterised by a market structure in which representative monopsonistic firms post nominal wage rates which they may find optimal to partially but not totally index in advance of knowing product price and of hiring labourers who may have complete knowledge relevant to their choices price forecasts are assumed to be rational while prices vary with the state of the economy the theoretical framework i incorporates all of the characteristics of keynesian involuntary unemployment while not attributing the cause of unemployment to the supply behaviours of labourers 2 provides an explanation of why wages do not adjust to clear the market that is based explicitly on the optimising behaviour of firms and implicitly on that of

earnings inequality and the changing association between spouses earnings increases in the association between spouses earnings have the potential to increase inequality as marriages increasingly consist of two high earning or two low earning partners this article uses log linear models and data from the march current population survey to describe trends in the association between spouses earnings and estimate their contribution to growing earnings inequality among married couples from 1967 to 2005 the results indicate that increases in earnings inequality would have been about 25 30 lower than observed in the absence of changes in the association depending on the inequality measure used three components of these changes and how they vary across the earnings distribution are explored

incentives to cultivate favored minorities under alternative electoral systems a simple model is used to compare under different electoral systems the incentives for candidates to create inequalities among otherwise homogeneous voters by making campaign promises that favor small groups rather than appealing equally to all voters in this game model each candidate generates offers for voters independently out of a distribution that is chosen by the candidate subject only to the constraints that offers must be nonnegative and have mean 1 symmetric equilibria with sincere voting are analyzed for two candidate elections and for multicandidate elections under rank scoring rules approval voting and single transferable vote voting rules that can guarantee representation for minorities in multiseat elections generate in this model the most severely unequal campaign promises

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

the political economy of public goods some evidence from india we are interested in how public goods get allocated by a centralized state we use data on public goods and social structure from parliamentary constituencies in rural india to understand the allocation of these goods over the 1970s and 1980s national policies and political agendas during this period emphasized universal access to basic amenities and financed a rapid expansion in rural infrastructure we find evidence of considerable equalization in many of these facilities reflecting perhaps the importance of these commitments among the historically disadvantaged social groups those that mobilized themselves politically gained relative to the others measures of social heterogeneity that have been emphasized in the recent empirical literature on public goods are relevant but not overwhelming in their importance

history social divisions and public goods in rural india we examine the influence of three historically important sources of social divisions on the availability of public goods in rural india colonial power landowner peasant relations as determined by the land tenure system and social fragmentation based on the hindu caste system and the presence of sizable religious minorities using data on public goods from 1991 we find that regions that were under british colonial power in the pre independence period and those where agrarian power was concentrated in the hands of landlords have lower access to these goods as do areas with high levels of social fragmentation jel h41 p16

paralyzed by fear rigid and discrete pricing under demand uncertainty we propose a new theory of price rigidity based on firms knightian uncertainty about their competitive environment this uncertainty has two key implications first firms learn about the shape of their demand function from past observations of quantities sold this learning gives rise to kinks in the expected profit function at previously observed prices making those prices both sticky and more likely to reoccur second uncertainty about the relationship between aggregate and industry level inflation generates nominal rigidity we prove the main insights analytically and quantify the effects of our mechanism our estimated quantitative model is consistent with a wide range of micro level pricing facts that are typically challenging to match jointly it also implies significantly more persistent monetary non neutrality than in standard models allowing it to generate large real effects from nominal shocks

learning and stock effects in environmental regulation the case of greenhouse gas emissions abstract this paper concerns the optimal regulation of greenhouse gases that lead to global climate change in particular we focus on uncertainty and learning which over time resolves uncertainty we present an empirical stochastic model of climate economy interactions and present results on the tension between postponing control until more is known vs acting now before irreversible climate change takes place uncertainty in our model is in the damage caused by global warming the results suggest that a temporary carbon tax may dominate a permanent one because a temporary tax may induce increased flexibility

trade and poverty in the poor countries now widely regarded as economically benign in the sense that it increases the size of the pie the recent anti globalization critics have suggested that it is socially malign on several dimensions among them the question of poverty 2 their contention is that trade accentuates not ameliorates and that it deepens not diminishes poverty in both the rich and the poor countries the theoretical and empirical analysis of the impact of freer trade on poverty in the rich and in the poor countries is not symmetric of course we focus here only on the latter in doing so we distinguish between two different strands of argumentation static and dynamic

learning about the arrival of sales abstract we analyse optimal stopping when the economic environment changes because of learning a primary application is optimal selling of an asset when demand is uncertain the seller learns about the arrival rate of buyers as time passes without a sale the seller becomes more pessimistic about the arrival rate when the arrival of buyers is not observed the rate at which the seller revises her beliefs is affected by the price she sets learning leads to a higher posted price by the seller when the seller does observe the arrival of buyers she sets an even higher price

political competition policy and growth theory and evidence from the us this paper develops a simple model to analyse how a lack of political competition may lead to policies that hinder economic growth we test the predictions of the model on panel data for the us states in these data we find robust evidence that lack of political competition in a state is associated with anti growth policies higher taxes lower capital spending and a reduced likelihood of using right to work laws we also document a strong link between low political competition and low income growth

inflation variability and gradualist monetary policy this paper considers the optimal approach to reducing inflation when the cost of inflation is its conditional variability inflation is stochastically related to money growth with unobservable time varying autonomous and induced components a sharp reduction in money growth provides information about the responsiveness of inflation to money but also induces variability as the economy heads into unknown territory gradual policy is always optimal and the model explains why moderate inflation countries adopt a much more gradual money growth reduction than high inflation countries additionally the analysis sheds light on the more general problem of learning with two unobservable parameters

actively learning by pricing a model of an experimenting seller this article presents a model of a rational seller who is actively learning the slope of his demand curve via his pricing strategy consequently this seller optimally experiments with his price resulting price patterns show a tendency for discreteness as observed in the data which has proved to be a major challenge to most price setting models the experimentation motive can also replicate the observation that prices are more volatile than costs as well as the presence of many idiosyncratic price changes in the data it can do so without a need to assume the existence of large idiosyncratic shocks

factor demand under conditions of product demand and supply uncertainty the paper develops a theory of factor demand under uncertainty that encompasses neo classical factor demand and keynesian effective factor demand as special cases the model allows factor demand and output to move positively with product demand even with a constant product price this in turn permits real wages to move pro cyclically in response to product demand shocks in addition the model provides a new perspective on the adding up problem which posits that total factor payments exceed output if increasing returns to scale exist and generates positive uncertainty profits that are similar in spirit to those of frank knight

healthcare investment and income inequality abstract this paper examines how the relative shares of public and private health expenditures impact income inequality we study a two period overlapping generation s growth model in which longevity is determined by both private and public health expenditure and human capital is the engine of growth increased investment in health reduces mortality raises return to education and affects income inequality in such a framework we show that the cross section earnings inequality is non decreasing in the private share of health expenditure we test this prediction empirically using a variable that proxies for the relative intensity of investments private versus public using vaccination data from the national sample survey organization for 76 regions in india in the year 1986 87 we link this with region specific expenditure inequality data for the period 1987 2012 our empirical findings though focused on a specific health investment vaccines suggest that an increase in the share of the privately provided health care results in higher inequality

toward a theory of rigidities this paper presents a theory of rigidity or more properly inertia in the responses of economic variables to changing environments the theory rests on three fundamental assumptions 1 that firms are risk averse 2 that firms are uncertain of the impacts of changing decision variables and 3 that this uncertainty increases with the size of deviations in decision variables from appropriately defined past level under these circumstances an optimal portfolio of incremental decision variable adjustments exists which a takes variance minimizing adoptions to environmental change as a point of departure and then b is weighted in favor of changes in variables whose effects are less uncertain in considering price and quantity adjustments this implies that price and wage adjustments should largely incorporate expected inflation and from that point should be small relative to quantity adjustments since in most situations the uncertainties associated with the consequences of quantity adjustment should be smaller than those associated with price adjustments this abstract was borrowed from another version of this item

style goods pricing with demand learning for many industries e g apparel retailing managing demand through price adjustments is often the only tool left to companies once the replenishment decisions are made a significant amount of uncertainty about the magnitude and price sensitivity of demand can be resolved using the early sales information in this study a bayesian model is developed to summarize sales information and pricing history in an efficient way this model is incorporated into a periodic pricing model to optimize revenues for a given stock of items over a finite horizon a computational study is carried out in order to find out the circumstances under which learning is most beneficial the model is extended to allow for replenishments within the season in order to understand global sourcing decisions made by apparel retailers some of the findings are empirically validated using data from u s apparel industry

optimal pricing with costly adjustment evidence from retail grocery prices in many theoretical models it is assumed that there are costs associated with adjusting prices in this paper the existence type and magnitude of such costs are investigated empirically a discrete choice dynamic programming model that nests fixed and variable costs is developed and econometric estimates of the adjustment cost function are obtained the data used to implement the model consist of weekly retail prices and sales of three brands of saltine crackers sold by four chains of grocery stores in a small u s town the study has several distinguishing characteristics first the data are highly disaggregate at the level of brand and store second variables are sampled at weekly intervals third the model nests fixed and variable adjustment costs and can therefore determine their relative importance finally the discrete choice model is both structural and dynamic

combined pricing and inventory control under uncertainty this paper addresses the simultaneous determination of pricing and inventory replenishment strategies in the face of demand uncertainty more specifically we analyze the following single item periodic review model demands in consecutive periods are independent but their distributions depend on the item s price in accordance with general stochastic demand functions the price charged in any given period can be specified dynamically as a function of the state of the system a replenishment order may be placed at the beginning of some or all of the periods stockouts are fully backlogged we address both finite and infinite horizon models with the objective of maximizing total expected discounted profit or its time average value assuming that prices can either be adjusted arbitrarily upward or downward or that they can only be decreased we characterize the structure of an optimal combined pricing and inventory strategy for all of the above types of models we also develop an efficient value iteration method to compute these optimal strategies finally we report on an extensive numerical study that characterizes various qualitative properties of the optimal strategies and corresponding optimal profit values

inequality among american families with children 1975 to 2005 from 1975 to 2005 the variance in incomes of american families with children increased by two thirds in attempting to explain this trend labor market studies emphasize the rising pay of college graduates while demographers typically highlight the implications of family structural changes across time in this article we join these lines of research by conceiving of income inequality as the joint product of the distribution of earnings in the labor market and the pooling of incomes in families we develop this framework with a decomposition of family income inequality using annual data from the march current population survey our analysis shows that disparities in education and single parenthood contributed to income inequality but rising educational attainment and women s employment offset these effects most of the increase in family income inequality was due to increasing within group inequality which was widely shared across family types and levels of schooling

dynamic pricing with online learning and strategic consumers an application of the aggregating algorithm we study the problem faced by a monopolistic company that is dynamically pricing a perishable product or service and simultaneously learning the demand characteristics of its customers in the learning procedure the company observes the sales history over consecutive learning stages and predicts consumer demand by applying an aggregating algorithm aa to a pool of online stochastic predictors numerical implementation uses finite sample distribution approximations that are periodically updated using the most recent sales data these are subsequently altered with a random step characterizing the stochastic predictors the company s pricing policy is optimized with a simulation based procedure integrated with aa the methodology of the paper is general and independent of specific distributional assumptions we illustrate this procedure on a demand model for a market in which customers are aware that pricing is dynamic may time their purchases strategically and compete for a limited product supply we derive the form of this demand model using a game theoretic consumer choice model and study its structural properties numerical experiments demonstrate that the learning procedure is robust to deviations of the actual market from the model of the market used in learning

inequality and poverty in united states the effects of rising dispersion of men s earnings and changing family behaviour using semiparametric density estimation techniques we analyse the effect of rising dispersion of men s earnings and related changes in family behaviour on increasing inequality in the distribution of family income in the united states for the period 1969 1989 the growing dispersion of men s earnings and changing family structure can account for most of the rise in family income inequality by contrast the increase in labour force participation by women offset this trend inequality grew at a slower rate in the 1990s than in earlier decades largely because of stabilization in the relative earnings of men from low income families

electoral goals and center state transfers a theoretical model and empirical evidence from india we construct a model of redistributive politics where the central government is opportunistic and uses its discretion to make transfers to state governments on the basis of political considerations these considerations are the alignment between the incumbent parties at the central and state levels and whether a state is a swing state or not a testable prediction from the model is that a state that is both swing and aligned with the central government is especially likely to receive higher transfers we test this prediction using indian data for 14 states from 1974 75 to 1996 97 we find that a state which is both aligned and swing in the last state election is estimated to receive 16 higher transfers than a state which is unaligned and non swing

effects of growing wage disparities and changing family composition on the u s income distribution abstract u s income inequality soared after 1979 the present paper estimates the contribution of increased earnings inequality to the surge in overall income inequality between 1979 and 1996 the direct contribution of increased earnings inequality is surprisingly modest even if male and female earnings inequality had remained unchanged at their 1979 levels about two thirds of the observed increase in overall u s inequality would have occurred other factors contributing to higher overall inequality include the growing correlation of husband and wife earned incomes and the increasing percentage of americans who live in single adult families families that typically have much more unequal incomes than husband wife families

long term trends in earnings inequality what the cps can tell us abstract changes in current population survey cps topcoding rules in the 1990s artificially increased measured earnings inequality we create a time consistent cps data series and compare trends in earnings inequality from 1975 to 2001

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

how much does sorting increase inequality some commentators argue that increased sorting into internally homogeneous neighborhoods schools and marriages is radically polarizing society calibration of a formal model however suggests that the steady state standard deviation of education would increase only 1 7 percent if the correlation between neighbors education doubled and would fall only 1 6 percent if educational sorting by neighborhood disappeared the steady state standard deviation of education would grow 1 percent if the correlation between spouses education increased from 0 6 to 0 8 in fact marital and neighborhood sorting have been stable or even decreasing historically sorting has somewhat more significant effects on intergenerational mobility than on inequality

information acquisition for capacity planning via pricing and advance selling when to stop and act this paper investigates a capacity planning strategy that collects commitments to purchase before the capacity decision and uses the acquired advance sales information to decide on the capacity in particular we study a profit maximization model in which a manufacturer collects advance sales information periodically prior to the regular sales season for a capacity decision customer demand is stochastic and price sensitive once the capacity is set the manufacturer produces and satisfies customer demand to the extent possible from the installed capacity during the regular sales period we study scenarios in which the advance sales and regular sales season prices are set exogenously and optimally for both scenarios we establish the optimality of a control band or a threshold policy that determines when to stop acquiring advance sales information and how much capacity to build we show that advance selling can improve the manufacturer s profit significantly we generate insights into how operating conditions such as the capacity building cost and market characteristics such as demand variability affect the value of information acquired through advance selling from this analysis we identify the conditions under which advance selling for capacity planning is most valuable finally we study the joint benefits of acquiring information for capacity planning through advance selling and revenue management of installed capacity through dynamic pricing

changes in relative wages and family labor supply the large changes in relative wages that occurred during the 1980s provide fertile ground for studying the behavioral responses of married couples to the wage changes of husbands and wives i find estimates of own wage and cross wage elasticities for men that are very small the own wage elasticity for women is positive and the cross wage elasticity for women suggests a strong negative response of female labor supply to changes in their husband s wages family labor supply behavior determines how changes in individual wage rates translate into family earnings changes the responses of women to changes in their husband s wages attenuated somewhat the increases in individual wage inequality at the family level the results suggest that the earnings of the wives of low income men would actually have fallen over the decade if women s labor supply did not respond to changes in their husbands wages however assortative mating implies that wage changes of husbands and wives are correlated and so family earnings inequality still grew during the decade of the 1980s

bayesian learning growth and pollution abstract environmental problems such as climate change have great uncertainties current expectations are that uncertainties about climate change will be resolved quickly we examine this hypothesis theoretically and computationally we consider bayesian learning about the relationship between greenhouse gas levels and global mean temperature changes a key uncertainty learning is non trivial because of a stochastic shock to the realized temperature we find theoretically the expected learning time which is related to the variance of the shock and the emissions policy implying a tradeoff between the benefits of controlling emissions and information we imbed the learning model into an optimal growth model with a climate sector and solve the resulting dynamic program we find computationally that learning takes on average over 90 yr far longer than currently believed

learning by doing and the value of optimal experimentation abstract recent research on learning by doing has provided the limit properties of beliefs and actions for a class of learning problems in which experimentation is an important aspect of optimal decision making however under these conditions the optimal policy cannot be derived analytically because bayesian learning about unknown parameters introduces a nonlinearity in the dynamic optimization problem this paper utilizes numerical methods to characterize the optimal policy function for a learning by doing problem that is general enough for practical economic applications the optimal policy is found to incorporate a substantial degree of experimentation under a wide range of initial beliefs about the unknown parameters dynamic simulations indicate that optimal experimentation dramatically improves the speed of learning and the stream of future payoffs furthermore these simulations reveal that a policy which separates control and estimation and does not incorporate experimentation frequently induces a long lasting bias in the control and target variables while these sequences tend to converge steadily under the optimal policy they frequently exhibit non stationary behavior when estimation and control are treated separately

electoral uncertainty income inequality and the middle class we investigate how electoral competition affects the income distribution in society we utilise a standard probabilistic voting setup where parties compete at two stages our model delivers that greater electoral competition in a district results in equalisation of incomes therein we check for these relationships using data from indian national elections which are combined with consumption expenditure data rounds from the national sample survey organization 1987 8 and 2004 5 to yield a district level panel our ols 2 sls and iiv analyses consistently inform that close elections lead to lower inequality and polarisation indicating a larger middle class

a partially observed markov decision process for dynamic pricing in this paper we develop a stylized partially observed markov decision process pomdp framework to study a dynamic pricing problem faced by sellers of fashion like goods we consider a retailer that plans to sell a given stock of items during a finite sales season the objective of the retailer is to dynamically price the product in a way that maximizes expected revenues our model brings together various types of uncertainties about the demand some of which are resolvable through sales observations we develop a rigorous upper bound for the seller s optimal dynamic decision problem and use it to propose an active learning heuristic pricing policy we conduct a numerical study to test the performance of four different heuristic dynamic pricing policies in order to gain insight into several important managerial questions that arise in the context of revenue management

exchange rate shocks and the speed of trade price adjustment 1 introduction theoretical and empirical work in the international trade literature dealing with the relationship between exchange rate and trade prices has been dominated and guided by the static pass through and profit markup model see e g feinberg 1986 mann 1986 fisher 1989 hooper and mann 1989 knetter 1989 gagnon and knetter 1995 feenstra gagnon and knetter 1996 and lee 1997 the shortcoming of such models is well captured by william branson 1989 p 333 difference in adjustment response signals to me the need for a reconsideration of the theoretical framework for the analysis of the pass through question by now we should be thinking about optimizing price policy for investors and exporters who know that they face an exchange rate that follows some sort of stochastic process over time these differences call for a revision of pass through theory along the lines of time series analysis our explicit incorporation of profit maximizing firms facing adjustment costs develops the model introduced by krugman 1987 it transforms the traditional markup and pass through model to explain from first principles a dynamic markup and a price adjustment speed both depending on fundamental characteristics of the firms involved krugman 1989 concludes his paper on pricing to market by calling for further research on the adjustment cost model regarding the adjustment cost approach he states krugman 1989 p 44 it is still a speculative idea not grounded in solid empirical tests but it is a good story and if it is correct it has extremely important implications for economic policy the present paper provides the quantity adjustment cost approach that krugman calls for as such it complements the work of gagnon 1989 and kasa 1992 while gagnon and kasa employ quantity adjustment cost models with many of the same features as the model developed here they provide only approximate solutions and focus on a quite different set of issues gagnon examines the effect of exchange rate variability on trade volume kasa investigates the importance of mean reversion in exchange rates as an explanation for the pricing to market hypothesis in contrast our focus is on the relation between adjustment speeds and pass through thus our contribution relative to gagnon 1989 and kasa 1992 is that we provide the passthrough issue in a dynamic context with exact analytical solutions that relate the degree of passthrough to adjustment speeds and identify the determinants of commodity specific adjustment speeds in response to exchange rate shocks the remainder of the paper is organized as follows in section 2 we develop a partial equilibrium model taking exchange rates as given of the pricing policies of a profit maximizing firm competing in foreign markets and subject to a convex quantity adjustment cost section 3 develops testable implications directly from the model section 4 discusses the data and empirical methodology for preliminary two stage time series and cross sectional tests section 5 provides the tentative estimation and section 6 concludes 2 a simple partial equilibrium model consider a representative firm producing fox export that maximizes the expected discounted value of infinite horizon real profits the firm generates its revenue abroad in foreign currency it has no influence on the exchange rate may adjust its price at any point in time but is subject to a convex cost of quantity adjustment the firm maximizes where x is the exogenously given real exchange rate at time t we define x as the units of domestic currency per unit of foreign currency multiplied by the export destination country s price index and divided by the home country s price index instantaneous profits are discounted at a rate r which is specific to the firm this rate accounts for a standard risk premium inherent in the riskiness of the firm s activities