economics psychology and the history of consumer choice theory this paper examines elements of the complex place role influence of psychology in the history of consumer choice theory the paper reviews and then challenges the standard narrative that psychology was in consumer choice theory early in the neoclassical revolution then strictly out during the ordinal and revealed preference revolutions now possibly back in with recent developments in experimental behavioural and neuroeconomics the paper uses the work of three particular economic theorists to challenge this standard narrative and then provides an alternative interpretation of the history of the relationship between psychology and consumer choice theory copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

companies and markets economic theories of the firm and a concept of companies as bargaining agencies the depiction of the firm in neoclassical theory in terms of a production function is widely recognised as unsatisfactory economists have sought to provide more realistic theories of the firm through attributing to them functions of minimisation of transaction costs accommodation of bounded rationality assembly of information etc these functions are seen as supplementary to their role as participants in a broadly neoclassical market framework this paper suggests that the theories do nothing to increase the understanding of the firm rather they deepen the misconceptions that arise from the neoclassical model the paper proposes a theory of companies as bargaining agencies meeting a viability condition in the context of situation related consumer demand the proposed concept integrates the important phenomena of technological innovation and distance fully into the concept of company operations

situation as determinant of selection and valuation this article investigates the proposition that situation is the determinant of selection and valuation it investigates the ways in which various types of situation dictate selections and valuations and contrasts this process with the marginal model of economic theory rational and behavioural approaches to theory are compared it is suggested that situation related selection provides a more realistic account of consumer selection than neoclassical theory the situations that govern choice are seen as established through a process of support bargaining whereby individuals adjust their behaviour and opinions to gain the support of those around them this process forms also the abstract situations embodied in theories about the nature of the world and society the individualism of neoclassical theory is displaced in the process of support bargaining the idea of support bargaining focuses attention on the dependence of neoclassical theory on support to offset its fundamental faults it is suggested that it be replaced with the theory of support bargaining and associated situation related selection

the assessment decentralisation and the economics of local government by almost universal agreement local government in the uk and especially its finance is in a mess after the major layfield committee of inquiry in the 1970s into local government finance after numerous other reports green papers and white papers the conservative government embarked on a radical attempt at reform firstly it tightened central control on the level of local authority spending through changes to the block grant and more recently ratecapping secondly it abolished theglc and other upper tier authorities in metropolitan areas thirdly it forced through a much wider use of tendering and subcontracting for local government services and finally it launched into a wholesale reform of local government finance based on the programme outlined in the 1986 green paper this includes centralising control over non domestic rates and replacing domestic rates with a new household tax the community charge to be paid at a flat rate by all adults

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

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

quantities qualities and multiple public services in the tiebout model abstract this paper introduces a new more realistic characterization of local public services this characterization fits education parks and streets none of which are a pure samuelsonian good it is shown that tiebout s hypothesis holds for this new type of services provided correct user charges are adopted introducing several local services considerably affects the results the paper emphasizes the difference in tastes with regard to quality as opposed to quantity earlier literature is shown to apply to the role of quality and ignores the role of quantity the effect of the latter makes mixed communities more efficient than segregated ones it is shown that efficient allocation with mixed communities is an equilibrium in a costless mobility tiebout type setting

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

taxes and the capital structure of partnerships reit s and related entities academic finance has explored the effect of taxes on corporate capital structure in great detail by contrast the effect of taxes on the capital structure of partnerships reit s and related entities has received little attention the present paper shows that under general conditions the values of partnerships and reit s are invariant to leverage contradicting the sparse literature in the area a proof similar to that of modigliani miller is employed the effect of real world imperfections is also examined the theoretical relationship between corporate taxes and corporate capital structure has been thoroughly investigated e g miller 1977 and modigliani and miller mm 1958 1963 in contrast the relationship between taxes and the capital structure of partnerships real estate investment trusts reit s and related entities has been largely ignored in the literature perhaps the current thinking on the subject is best summarized in an article entitled capital structure theory and reit offerings by howe and shilling 1988 they state p 983 that theory suggests that the net tax gain to corporate borrowing is unambiguously negative for a reit they expand this viewpoint with non taxpaying firms must compete in the debt markets with firms for which interest expense results in tax savings these firms can afford to pay a higher interest on debt and thus there is a strong tax disadvantage to the use of debt for non taxpaying firms the present paper disputes the above reasoning it is argued that under a quite general model the value of a partnership reit or related entity is invariant to leverage this result is a strong one since it holds regardless of the competition mentioned in howe and shilling 1988 between taxpaying and nontaxpaying firms a model mirroring the essential features of partnerships reit s and related entities is presented in section i our basic invariance result is developed in this section specific complications in the current tax code are considered in section ii conclusions are also presented in this section

positive freedom markets and the welfare state the comparative merits of market and certain distinguished non market resource allocation mechanisms have continually been at the centre of debate in economics and political philosophy doubtless it will remain there for here one faces the grandest of human concerns embracing as it does issues bearing on liberty and welfare the aspirations of people their potential and re alized capabilities and the fulfillment of their needs it enables us to see individuals in a social context to ask about the possible features of a civil society the obligations that people may have to themselves to one another and to agencies then again we are able to enquire into the obli gations that agencies have to people and to one another the extent to which responsibility needs to be delegated among offices and persons the role that dispersed information may play in an swers to these and so on the debate is central to any discussion of the kind of society we ought to aspire to be members of

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

making markets for structured mortgage derivatives abstract this paper distinguishes between securitization in which simple pass through instruments are created and structuring in which mortgages derivative claims are created the point is to explain how structuring a transaction brings value to a deal s underwriter briefly an underwriter must defeat arbitrage between pass throughs and derivatives the potential for market segmentation and price discrimination by the underwriter is used to analyze the structuring process in the course of the analysis the legal rules for trusts the algebraic rules for structuring and the limits on permissible price discrimination are discussed results for an actual transaction illustrate the important features of the analysis

home owner residential property taxes and their burden on net personal wealth an empirical study for australia domestic residential property taxes can be viewed as a substitute for a tax on personal wealth this paper measures the formal distributional characteristics of residential property taxes in australia with respect to the net wealth of home owners and the net wealth of all households in the personal sector net wealth is estimated by a combination of investment income and survey methods the study emphasises three major findings first on controlling for stage in the life cycle the formal incidence of residential property taxes on home owners net wealth is clearly regressive with respect to the income of home owners secondly residential property taxes are a relatively high burden on young home owner households net personal wealth finally though tenants are not liable for residential property taxes in australia and the choice of owner occupation is income elastic the residential property tax burden on personal sector wealth is not distributed progressively

the contributions of the economics of information to twentieth century economics in the e eld of economics perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information it is now recognized that information is imperfect obtaining information can be costly there are important asymmetries of information and the extent of information asymmetries is affected by actions of e rms and individuals this recognition deeply affects the understanding of wisdom inherited from the past such as the fundamental welfare theorem and some of the basic characterization of a market economy and provides explanations of economic and social phenomena that otherwise would be hard to understand i introduction the century coming to a close has seen vast changes in economics in both ideas and methodology upon ree ection it is remarkable however how many of the seeds of advances in this century were sowed in the previous i would argue that perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information the recognition that information is imperfect that obtaining information can be costly that there are important asymmetries of information and that the extent of information asymmetries is affected by actions of e rms and individuals has had profound implications for the wisdom inherited from the past and has provided explanations of economic and social phenomena that otherwise would be hard to understand in this essay i wish to argue that information economics has had directly and indirectly a profound effect on how we think about economics today eighteenth and nineteenth century antecedents to be sure marshall and other nineteenth century economists talked about problems of imperfect information but with one exception discussions of information were obiter dicta caveats at the end of the analysis they were never at the center

clubs local public goods and transportation models a synthesis abstract clubs local public goods and transportation models are analyzed within a unified model the emphasis is on the derivation of optimal allocation pricing and the size of the sharing group we derive the conditions under which optimal prices will yield surplus or deficit as well as those under which competitive provision will be efficient given heterogeneous tastes we prove that segregation according to tastes is generally efficient although several cases where this result does not hold are also discussed we show that the existing literature is unnecessarily restrictive and that the unified approach suggested here considerably extends the existing analysis of clubs local public goods and the transportation problems

imputed rental income taxation and income distribution in finland in most western countries owner occupied housing is tax favoured compared with other investments and housing tenure modes this paper analyses the effects of imputed rental income and its tax treatment on income distribution in finland using household data from the 2004 wealth survey produced by statistics finland it is found that imputed rental income has a major effect on homeowners well being as it constitutes on average almost 10 per cent of homeowner households disposable income furthermore including imputed rental income in household disposable income decreased overall inequality measured by the gini index the tax subsidy resulting from non taxation of imputed rental income is skewed towards high income households however the effects of a new tax on imputed rental income on overall inequality would depend vitally on the way the increased government tax revenue is transferred back to the households

changes in organizational structure and shareholder wealth the case of limited partnerships this paper analyzes the consequence for shareholders of a change in organizational form the conversion of a corporation or the spin off of a unit into a limited partnership theory suggests that prior to the tax reform act of 1986 the tax benefits of conversion to a limited partnership and the creation of a new entity separate from the parent corporation should have a positive effect on shareholder wealth on the other hand the increase in agency costs of such an organizational change should decrease the wealth of shareholders empirical results lend support to hypotheses that predict an increase in stock price at the announcement of the conversion but cannot identify the source of the gain

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

the robot the party animal and the philosopher an evolutionary perspective on deliberation and preference this paper examines the evolutionary fitness of a variety of ways of reaching decisions in early hunter gatherer societies in order to derive insights about how economists should view modern consumers it challenges conclusions reached by mainstream economists robson rayo and becker about why hunter gatherers needed sensory rewards and about the kinds of preference systems that would have conferred evolutionary fitness it argues that evolution favours those with a variety of ways of reaching decisions programmed deliberative intuitive and go with the flow and that the prospect of sensory rewards serves an evolutionary role by diverting people from thinking too much about what they are doing in situations in which deliberation might interfere with survival or reproduction the evolutionary role of a reluctance or failure to make trade offs is also considered along with the benefits of developing a relatively fixed identity rather than being all things to all men

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

choice of mortgage instrument liquidity constraints and the demand for housing debt in the uk the research uses microdata to estimate reduced form mortgage demand equations based on truncated regressions dissagregated by choice of mortgage instrument the choice is between a standard annuity mortgage and a balloon type mortgage the endowment the estimates are used to indicate the differential impact of credit market rationing and financial liberalization on households the results indicate significant variations in mortgage demand by choice of mortgage instrument econometric testing demonstrates that the choice between an endowment and a repayment mortgage can be used as an exogenous indicator of liquidity and portfolio positions and different user costs of owner occupation

the market for preferences learning processes are widely held to be the mechanism by which boundedly rational agents adapt to environmental changes we argue that this same outcome might also be achieved by a different mechanism namely specialisation and the division of knowledge which we here extend to the consumer side of the economy we distinguish between high level preferences and low level preferences as nested systems of rules used to solve particular choice problems we argue that agents while sovereign in high level preferences may often find it expedient to acquire in a pseudo market the low level preferences in order to make good choices when purchasing complex commodities about which they have little or no experience a market for preferences arises when environmental complexity overwhelms learning possibilities and leads agents to make use of other people s specialised knowledge and decision rules

do urban neighborhoods benefit from homeowners evidence from housing prices homeownership is heavily subsidized in most countries the adverse effects of this policy on economic efficiency and income distribution are well documented in the economics literature the main argument in favor of subsidizing homeownership is that it creates positive externalities that offset these adverse effects in this paper we test whether homeowners create positive externalities that capitalize into housing prices in multi storey buildings using semi parametric hedonic regressions with and without instrumental variables we find no evidence of positive externalities although the results with instrumental variables are somewhat imprecise this result is robust to several sensitivity checks and to a relaxation of the identification assumptions of our instrument using set identification

independence of allocative efficiency from distribution in the theory of public goods when is the pareto optimal amount of public goods independent of income distribution subject to some regularity conditions the answer is when preferences of every individual i can be represented by a utility function of the form u x i y a y x i b i y where x i is i s consumption of private goods and y is the amount of public goods

evolution and human nature from an economic perspective on individual decision making human beings have three key characteristics preferences beliefs and rationality beliefs are the probabilities with which people think various outcomes will occur conditional on information that might be available preferences are the rankings over the set of gambles that are based on such beliefs over the outcomes rationality is the extent to which people succeed in choosing optimal actions in the light of their beliefs and preferences and the extent to which their beliefs are appropriately modified by their information economists typically impose only rather weak assumptions on preferences for example preferences are taken to be transitive and sometimes less explicitly exogenous and unchanging stronger assumptions are typically imposed on preferences in specific contexts however for example preferences over time might be represented by an additively separable function with constant rate of discount despite widespread recognition that this case is a special one further attitudes to risk are often represented by the expected utility theorem which rests on assumptions that are strong if also appealing the assumptions made on rationality in particular are usually very strong that is rationality in economic models usually entails the exact optimization of preferences and modification of beliefs in accordance with bayes theorem the economist s basic picture of preferences beliefs and rationality has been subject to challenges from a growing number of empirical anomalies the proposed explanations of these anomalies involve relaxing the assumptions that economists make on these preferences beliefs or rationality for example preferences

the assessment policy options for the uk previous issues of this review have generally considered particular problems or particular areas of policy the concern of this assessment is rather different to consider the broad range of policy options available to the united kingdom focussing on the main areas of disagreement where economic analysis should be helpful it draws where appropriate not only on the articles on microeconomic and macroeconomic policy included below but also on previous themes covered by the oxford review of economic policy the aim is to delineate the key questions which are or which should be on the policy agenda there is no doubt that the terms of the policy debate have shifted markedly in recent years some disagreements such as those between monetarists and keynesians seem much less important whilst others such as those about the nature and role of the market have sprung to prominance

the rationale of taxation why do governments raise taxes when should they impose taxation in preference to other in struments of economic intervention at first sight the answers to these questions appear obvi ous the purpose of taxation is to raise revenue but this answer although correct in a limited sense is evidently inadequate the traditional role of government was to provide public goods such as defence and police and to obtain funds for the purpose with minimum fuss or cost but this is now a minor part of total fiscal activity in all western economies much of government ex penditure is now devoted to the provision to users at prices well below cost of services such as health and education which could be privately provided and which normally were privately pro vided before public expenditure achieved its present scale direct grants to individuals through social security expenditures form another major element of public budgeting these three ser vices alone now account for over half of uk government spending thus most of the financial transactions of government now involve either taxing some activities to subsidise others or tax ing some individuals to subsidise others the traditional separation between revenue and ex penditure which remains characteristic of british budgetary procedure dates from an era in which the activities of public authorities were very different in both scope and scale

the distribution of housing tax expenditures and subsidies in an urban area this paper examines the distribution of housing tax expenditures and subsidies among households in the owner occupied and public rented sectors in the birmingham area uk subsidies to tenants are defined as the difference between market rents and the rents actually set tax expenditures to owner occupiers are defined as the absence of tax on imputed rental income and capital gains the results presented indicate that tax expenditures tend to be more regressively distributed than subsidies to tenants arising from non market pricing the benefits from the latter are more dependent on a household s location and property type than on income the paper concludes that efficiency and equity objectives are not met by the current housing finance system