revealed preference analysis of non cooperative household consumption we develop a revealed preference approach to analyse non unitary household consumption behaviour that is not cooperative or pareto efficient we derive global necessary and sufficient conditions for data consistency with the model we show that the conditions can be verified by means of relatively straightforward mixed integer programming methods which is particularly attractive in view of empirical analysis our framework extends to tests for separate spheres and joint contribution to public goods an application to data drawn from the russia longitudinal monitoring survey demonstrates the empirical relevance of the non cooperative consumption model

semiparametric estimation and consumer demand this paper considers the implementation of semiparametric methods in the empirical analysis of consumer demand the application is to the estimation of the engel curve relationship and uses the british family expenditure survey household composition is modelled using an extended partially linear framework this is shown to provide a useful method for pooling non parametric engel curves across households of different demographic composition c 1998 john wiley sons ltd

revealed preference and its applications this note contains a short history of my work on the foundations of revealed preference emphasising the intellectual influence of sydney afriat i also present a few novel applications of revealed preference analysis drawn from some areas of applied economics

on behavioral complementarity and its implications we study the behavioral definition of complementary goods if the price of one good increases demand for a complementary good must decrease we obtain its full implications for observable demand behavior its testable implications and for the consumer s underlying preferences we characterize those data sets which can be generated by rational preferences exhibiting complementarities the class of preferences that generate demand complements has leontief and cobb douglas as its as extreme members

the money pump as a measure of revealed preference violations we introduce a measure of the severity of violations of the revealed preference axioms the money pump index mpi the mpi is the amount of money one can extract from a consumer who violates the axioms it is also a statistical test for the hypothesis that a consumer is rational when behavior is observed with error we present an application using a panel data set of food expenditures the data exhibit many violations of the axioms mostly the mpi for these violations is small the mpi indicates that the hypothesis of consumer rationality cannot be rejected

household energy prices and inequality evidence from german microdata based on the easi demand system abstract this paper studies the distributional effects of rising energy costs for households in contrast to most of the previous literature our specification differentiates between electricity and heating demand and still models other consumption goods in realistic detail we use a yet unexplored data set on household expenditures in germany and extend the recently developed easi demand system for the analysis of inequality and welfare at the individual and social level the easi system reveals non linearity of engel curves which when neglected can lead to biased estimates of distributional effects we find that increases in heating prices are more regressive than those in electricity furthermore current proposals for social tariffs are found to be less effective than targeted compensation schemes

the macroeconomic implications of a resource discovery in an open economy this paper analyses the macroeconomic impact on an economy of the discovery of significant quantities of a natural resource the resource will be termed oil and the analysis is intended to be suggestive of the effects on the u k economy of the discovery of north sea oil and of possible policy responses our motivation is what appears to be an inconsistency between the commonly expressed view that north sea oil has generated unemployment by causing the exchange rate to appreciate2 and the contention of proponents of the new classical macroeconomics that the oil discovery creates no special macroeconomic problems 3 in order to abstract from microeconomic questions we shall assume that oil is perfectly tradable and that there are no extraction costs 4 we also assume that the foreign currency oil price is exogenous and rises at the foreign interest rate the effect of these assumptions is that for the economy as a whole the oil discovery can be considered as a foreign exchange windfall of fixed magnitude and we define the term oil revenue in a permanent income sense as the infinite term foreign exchange annuity value of this windfall oil revenue as defined is independent of depletion policy it accrues whether or not depletion is occurring at any date since it includes capital gains on the oil stock and depends in no way on whether the oil is exported or used domestically it will be assumed throughout that the economy operates with a flexible exchange rate and that international capital mobility is perfect at the date of discovery the economy is assumed to be at zero inflation full employment with both current and capital accounts balanced we are primarily interested in the dynamics of adjustment to the oil discovery but comparative static analysis5 provides a convenient point of departure for this purpose only we suppose that depletion is managed so as actually to realise the oil revenue each year if all the oil revenue is saved then there are no effects on demand prices or

measuring global poverty why ppp methods matter abstract we present theory and evidence to suggest that in the context of analyzing global poverty the eks approach to estimating purchasing power parities yields more appropriate international comparison of real incomes than the geary khamis approach our analysis of the 1996 and 2005 international comparison project data confirms that the geary khamis approach substantially overstates the relative incomes of the world s poorest nations and this leads to misleading comparisons of poverty across regions and over time the eks index of real income is much closer to being a true index of economic welfare and is therefore preferred for assessment of global poverty

coffee economic fluctuations and stabilisation an intertemporal disequilibrium model with capital market imperfections abstract this paper develops a two period disequilibrium model of a small open economy under keynesian unemployment to analyse the effects of temporary anticipated and permanent coffee price shocks the model includes a government sector that administers a commodity price stabilisation fund and allows for capital market imperfections the type of capital market imperfection makes an important difference to the results of the model in particular when the government borrows on more favourable terms than individuals the coffee price stabilisation fund reduces the multiplier effects of temporary and permanent shocks not only in the first but also in the second period by contrast when individuals face an upward sloping supply of capital curve the stabilisation fund shifts some of these effects from the first to the second period

an analysis of substitution bias in measuring inflation 1959 851 we analyze the substitution bias in laspeyres type price indexes such as the cpi using 1959 1985 nipa consumption data for 101 commodities we employ two methodological approaches to calculation of the bias first we construct the tightest theoretical bounds on the col by applying nonparametric methods using algorithms developed by afriat and by varian second following diewert we construct superlative price index formulas namely tomqvist and fisher s ideal indexes under a chain as well as a fixed base specification homothetic preferences are found to be consistent with the data and sensitivity tests indicate that this result is not vacuous if the hypothesis of homotheticity is maintained the col bias has upper and lower limits of 0 22 and 0 14 percent per year respectively using the superlative indexes as the measure of the col the bias is about 0 18 percent per year for the period 1959 85 this estimate is somewhat larger than found in earlier studies our use of more disaggregated data is found to be responsible for part of the difference with the size of the estimated bias directly related to the extent of the aggregation

coffee export booms and monetary disequilibrium some evidence for colombia the theoretical models that analyse the monetary consequences of export booms show that under a regime of fixed exchange rates they affect not only the demand for money via real income but also the money supply via foreign exchange accumulation within this theoretical framework this study proposes an empirical approach to determine whether the coffee booms of the second half of the 1970s and mid 1980s led to excess money supply in the colombian economy the findings provide evidence in favour of a direct association between coffee export booms and excess money supply implying that external disturbances jeopardize the ability of the economic authorities to carry out successful monetary policy

upward bias in the consumer price index under the zero inflation economy abstract this study estimates the demand system using japanese microdata and calculates the cost of living index coli in the recent zero inflation situation the consumer price index cpi can approximate the coli while there are upward biases in the cpi during the 1980s

how substitutable is natural capital one of the recurring themes in the sustainability literature has been the extent to which a loss of natural capital can be made up for in welfare terms by an increase in other forms of capital this issue was raised early on in the debate on sustainability by pearce and has never really been resolved this paper is an empirical attempt to measure the degree of substitutability between different forms of capital a nested ces production function is used to allow flexibility in the estimated elasticities of substitution also within this specification natural resources and other inputs are combined in different levels of the function thus allowing for different levels of substitutability institutional and economic indicators are also incorporated in the production function estimated results show that the elasticities derived from functions involving land resources were generally around one or greater implying a fairly high degree of substitutability furthermore changes in trade openness and private sector investment have a statistically significant and direct relationship on the efficiency of production and hence on income generation no statistically significant relationship between income and any of the institutional indicators was found

opening the black box of intra household decision making theory and non parametric empirical tests of general collective consumption models we provide revealed preference tests of general collective consumption models that account for public consumption and externalities within the household we further propose a novel approach to model special cases of this model which imply alternative assumptions regarding the sharing rule our application uses the panel data from the russia longitudinal monitoring survey we find that the general model together with a large class of special cases cannot be rejected by contrast we do reject the standard unitary model since our tests are entirely nonparametric this provides strong evidence in favor of models focusing on intrahousehold decision making

an experiment on the pure theory of consumer s behaviour by checking whether consumer demand satisfies the axioms of revealed preference one can test the empirical validity of the neoclassical theory of consumer behaviour however applying the axioms to actual consumer purchase data is difficult if not impossible since it poses serious problems of both a methodological and a practical nature after commenting on the few existing empirical studies in this field we summarise the results from an experimental approach to revealed preference theory data were obtained through a controlled experiment that involved real consumption of the goods chosen we find that most subjects violated the axioms

oil prices and rural migration the dutch disease goes south abstract we construct a two period general equilibrium model to evaluate policies affecting agricultural migration and exports the model is applied to mexico for the period 1986 1987 to obtain certain qualitative policy conclusions related to the dutch disease brought about by oil price increases dutch disease phenomena can be brought about both as the result of real exchange rate changes as well as price changes caused by migration out of agriculture in the short run it may be possible to use fiscal policy such as value added subsidies to agriculture to at least partially negate the effects of an oil price increase on agricultural exports jel f31 f41

the revealed preference approach to collective consumption behaviour testing and sharing rule recovery we present a revealed preference methodology for empirically analysing collective consumption behaviour first we introduce an integer programming ip methodology for testing data consistency with collective consumption models that account for publicly as well as privately consumed goods this ip methodology can include information on assignable quantities for private goods next we show that the ip methodology allows for recovering the personalized lindahl prices for the public goods and the personalized quantities for the private goods in turn this implies recovery of the sharing rule i e personalized income share levels an empirical application demonstrates the practical usefulness of the

on the intergenerational allocation of natural resources it is known hartwick and others that under standard assumptions a society that invests in reproducible capital the competitive rents on its current extraction of exhaustible resources will enjoy a consumption stream constant in time it is shown here that this result can be interpreted as saying that an appropriately defined stock of capital including the initial endowment of resources is being maintained intact and that consumption can be interpreted as the interest on that patrimony this seems like a useful rule of thumb for policy

best nonparametric bounds on demand responses this paper uses revealed preference inequalities to provide the tightest possible best nonparametric bounds on predicted consumer responses to price changes using consumer level data over a finite set of relative price changes these responses are allowed to vary nonparametrically across the income distribution this is achieved by combining the theory of revealed preference with the semiparametric estimation of consumer expansion paths engel curves we label these expansion path based bounds on demand responses as e bounds deviations from revealed preference restrictions are measured by preference perturbations which are shown to usefully characterize taste change and to provide a stochastic environment within which violations of revealed preference inequalities can be assessed

the engel curve for alcohol and the rank of demand systems this paper shows that the quadratic shape of the engel curve for alcohol is induced by preference heterogeneity between drinkers and abstainers in a japanese data set with controlling the heterogeneity it is shown that the engel curve for alcohol slopes monotonically downwards for drinkers and that the probability of being a drinker is an increasing function of total expenditure these two relationships generate a quadratic shape for the engel curve for alcohol other goods in this data set appear to have nearly linear engel curves so if the alcohol engel curve for drinkers is also linear then after controlling for this preference heterogeneity the rank of this demand system would be two copyright 2006 john wiley sons ltd

behavioral heterogeneity and the income effect inspired by the recent literature on aggregation theory this paper introduces hits a semiparametric model of consumer demand that allows for diversity in tastes the strong variation of budget shares observed across income groups has two possible origins the individual income effect and taste differences between poor and rich households consumer surveys reporting repeated cross sections do not permit the direct measurement of these two effects in hits linear heterogeneity allows the gmm estimation of structural coefficients on an aggregate series the joint density of spending and tastes is then recovered from cross sections by a nonparametric procedure involving a deconvolution we estimate the model on british data 1968 1998 and report that taste heterogeneity explains a large fraction of the variation of budget shares with income

measuring rationality with the minimum cost of revealed preference violations abstract we introduce a new measure of how close a set of choices is to satisfying the observable implications of rationality and apply it to a large balanced panel of household level consumption data this new measure the minimum cost index is the minimum cost of breaking all revealed preference cycles found in choices from budget sets unlike existing measures of rationality it responds to both the number and severity of revealed preference violations

the hartwick rule myths and facts we shed light on the hartwick rule for capital accumulation and resource depletion by providing semantic clarifications and investigating the implications and relevance of this rule we extend earlier results by establishing that the hartwick rule does not indicate sustainability and does not require substitutability between man made and naturalcapital we use a new class of simple counterexamples i to obtain the novel finding that a negative value of net investments need not entail that utility is unsustainable and ii to point out deficiencies in the literature

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

characterizing sustainability the converse of hartwick s rule this note offers a general proof of the converse of hartwick s rule namely that in an economy with stationary instantaneous preferences and a stationary technology an efficient constant utility path is characterized by the value of net investments being zero at each point in time in a one consumption economy with two stocks a stock of a natural resource and a stock of man made capital this means that if consumption remains constant at the maximum sustainable level then the accumulation of man made capital always exactly compensates in value for the depletion of the natural resource

oil production and macroeconomic adjustment in the indonesian economy abstract this paper is concerned with identifying and modelling the macroeconomic contribution of the oil sector to the indonesian economy a brief overview of macroeconomic developments for indonesia is conducted for the period 1970 1991 focusing upon the contribution of oil revenues to gdp the current account and government revenue in addition a simple theoretical macroeconomic model incorporating oil is presented and used for numerical simulation purposes to identify and analyse potential macroeconomic developments for indonesia arising from oil related shocks the overview suggests that oil price shocks are of particular interest in the context of indonesia as are therefore the simulation results derived from this case consideration is also given to the effects upon macroeconomic outcomes arising from various policy responses to oil related shocks in particular emphasis is given to the use of oil revenues for the purpose of stimulating domestic demand or the supply side of the economy and the adoption of a more or less export oriented policy towards oil production

demand systems with and without errors revealed preference theory assumes that each consumer has demands that are rational meaning that they arise from the maximization of his or her own utility function in contrast econometric or statistical demand models assume that each consumer s demands equal a rational systematic component derived from a common utility function plus an individual specific additive error term this paper reconciles these differences by providing necessary and sufficient conditions for rationality of statistical demand models given individual consumer rationality

transformations of the commodity space behavioral heterogeneity and the aggregation problem aggregation in exchange markets is studied by imposing restrictions on distributions of the households characteristics approximate bounds for market demand price elasticities that depend upon specific measures of behavioral heterogeneity are provided increasing behavioral heterogeneity makes aggregate expenditures more independent of prices this has strong consequences for the prevalence in the aggregate of the weak axiom of revealed preference of gross substitutability and on uniqueness and stability of the walrasian exchange equilibrium these strong macroeconomic regularities are obtained essentially through distributional assumptions as no rationality requirements are imposed on individual demand functions other than homogeneity and walras law journal of economic literature classification numbers d11 d41 d50 el 1992 academic press lnc there are still quite a few unpleasant gaps nowadays between macroanalysis and microanalysis of socioeconomic systems a leading instance drawn from social choice theory is arrow s celebrated impossibility theorem 1 which states that any attempt to aggregate individual preferences into a consistent social ordering or a collective choice procedure satisfying a few appealing requirements is bound to fail the impossibility arises however only if one insists that the procedure should work for every possible environment or in other words for all distributions of individual preferences a possible resolution of the problem is therefore to identify broad classes of distributions of preferences for which aggrega the bulk of the research reported in this paper was essentially done at yale university during the fall semester of 1990 i thank all my colleagues for their support and comments especially martin shubik herbert scarf and truman bewley i also had very useful conversations with jorgen weibull mike jerison andreu mas colell christian gouri6roux camille bronsard guy laroque bruno jullien and bernard caillaud i am much indebted to ai klevorick for his comments on an earlier draft but my greatest debt is to werner hildenbrand whose pioneering insights and stubborn insistance have over the years kept quite a few of us struggling beyond the fads of the moment with the aggregation problem our profession is fortunate indeed to have him around

how demanding is the revealed preference approach to demand a well known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory or a warning that these conditions are so undemanding that almost anything goes this paper allows researchers to make this distinction our approach uses an axiomatic characterization of a measure of predictive success due to selten 1991 we illustrate the idea using a panel dataset the results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory

who is more rational we report on the results of a large scale field experiment that enables us to test for consistency with utility maximizing behavior and to investigate the correlation between individual behavior and demographic and economic characteristics we conducted the experiment with the centerpanel a representative sample of over 2 000 dutch households using procedures similar to those used by choi et al 2007b in a setting with risk we find a high level of consistency in the individual level decisions there is also considerable heterogeneity in subjects consistency scores high income and high education subjects display greater levels of consistency men are more consistent than women and young subjects are more consistent than those who

a nonparametric revealed preference approach to measuring the value of environmental quality we develop an approach to valuing non market goods using nonparametric revealed preference analysis we show how nonparametric methods can also be used to bound the welfare effects of changes in the provision of a non market good our main context is one in which the non market good affects the marginal utility of consuming a related market good this can also be framed as a shift in the taste for or quality of the market good a systematic approach for incorporating quality taste variation into a revealed preference framework for heterogeneous consumers is developed this enables the recovery of the minimal variation in quality required to rationalise observed choices of related market goods the variation in quality appears as a adjustment to the price for related market goods which then allows a revealed preference approach to bounding compensation measures of welfare effects to be applied

a note on different approaches to index number theory the central question in a recent paper by j peter neary 2004 concerning real incomes and the penn world tables is what exactly do the numbers mean this question is important because these data are widely used in empirical research more generally index number data including indicators of inflation and economic growth are used so extensively in research throughout the profession that it indeed seems helpful to understand what they actually indicate in the literature two approaches to index numbers are distinguished the axiomatic approach and the economic approach in this note we would like to discuss the way in which these two approaches differ and how that affects what the numbers mean in neary s paper the difference is described as one between an approach that does and an approach that does not assume that quantities arise from optimizing behavior this is in line with a tradition in index number theory that can be traced back to ragnar frisch 1936 we will argue that a more accurate description is that the difference lies in whether or not optimizing agents or representative consumers are assumed to optimize the same utility function it is exactly this distinction that sets the differ ent limitations of both approaches for constructing a meaningful indicator of real income those limitations will be described in some detail and being aware of them is helpful for assessing the value of results from both the axiomatic and the economic approach they also suggest ways in which the two approaches may be complementary for constructing meaningful index numbers introducing the geary allen international accounts gaia system neary combines taking the economic approach with judging the resulting indices in view of some axioms we think that this makes his paper a suitable point of departure for the discussion of how the two approaches handle differences in relative prices on the one hand and differences in preferences on the other

sustainable development the hartwick rule and optimal growth defining sustainable development as non declining utility the consistency of this concept with the hartwick rule and optimal growth is explored when resources are exhaustible a simple proof that a generalized hartwick rule is necessary and sufficient for constant consumption is derived the existence of a maximal constant consumption path is shown to depend critically on the elasticity of substitution if this is less than 1 consumption declines if it is greater than 1 then consumption is not maximal if it is equal to 1 the cobb douglas case then existence is proved consumption can increase along an optimal path if the pure rate of time preference is 0 if it is non zero then consumption declines

national accounts and environmental resources in the paper optimal growth theory is used to derive the appropriate definition of the net national product concept when there are environmental resources and environmental damage to take into account the basic conclusions are that conventional defined np should be corrected by deducting environmental damage and adding the value of the net change of all resources

how revealing is revealed preference this lecture address the following two key criticisms of the empirical application of revealed preference theory when the rp conditions do not reject they do not provide precise predictions and when they do reject they do not help characterize the nature of irrationality or the degree direction of changing tastes recent developments in the application of rp theory are shown to have rendered these criticisms unfounded a powerful test of rationality is available that also provides a natural characterization of changing tastes tight bounds on demand responses and on the welfare costs of relative price and tax changes are also available and are shown to work well in practice

estimating engel curves under unit and item nonresponse summary this paper estimates food engel curves using data from the first wave of the survey on health aging and retirement in europe share our statistical model simultaneously takes into account selectivity due to unit and item nonresponse endogeneity problems and issues related to flexible specification of the relationship of interest we estimate both parametric and semiparametric specifications of the model the parametric specification assumes that the unobservables in the model follow a multivariate gaussian distribution while the semiparametric specification avoids distributional assumptions about the unobservables copyright 2011 john wiley sons ltd

constant savings rates and quasi arithmetic population growth under exhaustible resource constraints in the dasgupta heal solow stiglitz dhss model of capital accumulation and resource depletion we show the following equivalence if an efficient path has constant gross and net of population growth savings rates then population growth must be quasi arithmetic and the path is a maximin or a classical utilitarian optimum conversely if a path is optimal according to maximin or classical utilitarianism with constant elasticity of marginal utility under quasi arithmetic population growth then the gross and net of population growth savings rates converge asymptotically to constants

nonparametric engel curves and revealed preference this paper applies revealed preference theory to the nonparametric statistical analysis of consumer demand knowledge of expansion paths is shown to improve the power of nonparametric tests of revealed preference the tightest bounds on indifference surfaces and welfare measures are derived using an algorithm for which revealed preference conditions are shown to guarantee convergence nonparametric engel curves are used to estimate expansion paths and provide a stochastic structure within which to examine the consistency of household level data and revealed preference theory an application is made to a long time series of repeated cross sections from the family expenditure survey for britain the consistency of these data with revealed preference theory is examined for periods of consistency with revealed preference tight bounds are placed on true cost of living indices

sharing rule identification for general collective consumption models we propose a method to identify bounds i e set identi cation on the shar ing rule for a general collective household consumption model unlike the eects of distribution factors it is well known that the level of the sharing rule cannot be uniquely identi ed without strong assumptions on preferences across households of dierent compositions our new results show that though not point identi ed without these assumptions narrow bounds on the sharing rule can be obtained we get these bounds by applying revealed preference restrictions implied by the collective model to the household s continuous aggregate demand functions we obtain informative bounds even if nothing is known about whether each good is public private or assignable within the household though having such infor mation tightens the bounds we apply our method to us 1999 2009 psid data this application obtains tight sharing rule bounds that yield useful conclusions regarding the eects of income and wages on intrahousehold resource sharing and on the prevalence of individual as opposed to household level poverty

intertemporal equity and hartwick s rule in an exhaustible resource model in a standard exhaustible resource model it is known that if along a competitive path investment in the augmentable capital good equals the rents on the exhaustible resource known as hartwick s rule then the path is equitable in the sense that the consumption level is constant over time in this paper we show the converse of this result if a competitive path is equitable then it must satisfy hartwick s rule

can an oil discovery lead to a recession a comment on eastwood and venables in a recent paper in this journal eastwood and venables ev present an analysis of the macroeconomic consequence of an oil discovery in an open economy model which assumes perfect international capital mobility rational exchange rate expectations and sluggish adjustment of domestic goods prices in this note the authors attempt to reconcile this apparent contradiction in the literature in particular the authors show that ev s results hinge crucially on their failure to allow for a direct impact of higher oil wealth on money demand even when all the oil revenue accrues to the government this should raise private sector wealth through the anticipated reduction in future tax liabilities in any case the authors find it difficult to conceive a situation in which an oil discovery will raise spending but leave money demand permanently unaffected the purpose of this note is to show the important implications of this observation for the effects of an oil discovery when appropriate monetary accommodation does not take place

a household based nonparametric test of demand theory a nonparametric test of demand theory determining the consistency of price expenditure data with the generalized axiom of revealed preference is applied to household macroeconomic data for the first time the fraction of consumption bundle comparisons that violate the generalized axiom of revealed preference is proposed as a summary statistic to indicate the consistency of a data set with revealed preference axioms this violation rate is calculated among consumption pairs with similar expenditures to increase the power of the test the results suggest that similar households consumption choices and budget constraints are generally consistent with the joint hypotheses of optimizing behavior and common preferences copyright 1995 by mit press

the collective model of household consumption a nonparametric characterization we provide a nonparametric characterization of a general collective model for household consumption which includes externalities and public consumption next we establish testable necessary and sufficient conditions for data consistency with collective rationality that only include observed price and quantity information these conditions have a similar structure as the generalized axiom of revealed preference for the unitary model which is convenient from a testing point of view in addition we derive the minimum number of goods and observations that enable the rejection of collectively rational household behavior

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

tax reform and welfare measurement do we need demand system estimation the exact measurement of the welfare costs of tax and price reform requires a detailed knowledge of individual preferences typically first order approximations of welfare costs are calculated avoiding detailed knowledge of substitution effects the authors derive second order approximations which unlike first order approximations require knowledge of the distribution of substitution elasticities this paper asks to what extent simple approximations can be used to measure the welfare costs of tax reform and evaluates the magnitude of the biases for a plausible size tax reform in the authors empirical examples first order approximations display systematic biases second order approximations always work well

measuring consumer welfare with mean demands the welfare change from a price increase for example the compensating variation cv is often calculated using the expenditure function from an estimated demand if there is unobserved preference heterogeneity then the estimated demand is an average over households with different preferences and the cv from the mean demand does not generally equal the mean cv we give conditions ensuring that the cv from the mean demand equals the mean cv is less than the mean cv and approximates the mean cv better than the change in consumers surplus a necessary condition is that demands become more dispersed as income rises

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

the rise fall and sustainability of capital resource economies in debates about green accounting it is sometimes argued that a positive value of aggregate investments indicates that an economy is developing sustainably asheim 1994 and pezzey 1994 have shown that this is wrong using a version of the well known dasgupta heal economy with one capital and one non renewable resource stock as a counterexample asheim s proof referred to the unproved assumptions that in such an economy a higher rate of time preference induces higher initial consumption and vice versa and that optimal consumption is initially rising and then falling here we show that these assumptions do hold true under certain circumstances thereby also proving some of dasgupta and heal s other conjectures about sustainability

improving revealed preference bounds on demand responses there are three key dimensions by which revealed preference bounds on consumer demand responses can be improved the first relates to the improvements that arise from using expansion paths for given relative prices e bounds the second concerns the addition of new price information thirdly there are improvements due to assuming separability our previous research has examined the first two cases in this article we show how to impose separability assumptions within a fully nonparametric analysis and distinguish between weak and homothetic separability we also apply these ideas to the analysis of demand responses using united kingdom household level data

measuring the substitution bias in japan the demand system approach and a superlative index this study estimates the demand system using japanese micro data and calculates the cost of living index coli to assess the substitution bias in the consumer price index the estimated bias during the sample period of 1982 2000 is about 0 06 percentage points which is larger than the estimates calculated from a superlative index the difference between the coli and a superlative index can be explained with the upward movements of the average utility level in japan since the cost of living for the rich has grown more rapidly than that for the poor

revealed preference analysis of characteristics models characteristics models have been found to be useful in many areas of economics however their empirical implementation tends to rely heavily on functional form assumptions in this paper we develop a revealed preference approach to characteristics models we derive the necessary and su cient empirical conditions under which data on the market behaviour of heterogeneous price taking consumers are nonparametrically consistent with the consumer characteristics model where these conditions hold we show how information may be recovered on individual consumer s marginal valuations of product attributes in some cases marginal valuations are point identi ed and in other cases we can only recover bounds where the conditions fail we highlight the role which the introduction of unobserved product attributes can play in rationalising the data we implement these ideas using consumer panel data on the danish milk market

the effect of oil discoveries on the british economy theoretical ambiguities and the consistent expectations simulation approach the finding of oil in the north sea has stimulated the interest of u k economists in the effect of resource discoveries on an open economy this has spawned a large number of theoretical papers including those by neary 1983 eastwood and venables 1982 buiter and miller 1981 and neary and purvis 1981 these papers are primarily concerned with the various dynamic effects which are likely and have typically assumed perfect capital mobility and perfect foresight in order to keep the analysis tractable however it turns out that these models can say nothing about the dynamic response to an oil discovery unless some unrealistic assumptions are made about the associated monetary effects this is demonstrated in the first part of the paper this point has been made independently by neary and wijnbergen 1982 the second part of the paper describes some results obtained by simulating the treasury macroeconomic model under similar assumptions to those used in the theoretical literature in an attempt to throw some empirical light on these ambiguities

presidential address how revealing is revealed preference this lecture address the following two key criticisms of the empirical application of revealed preference theory when the rp conditions do not reject they do not provide precise predictions and when they do reject they do not help characterize the nature of irrationality or the degree direction of changing tastes recent developments in the application of rp theory are shown to have rendered these criticisms unfounded a powerful test of rationality is available that also provides a natural characterization of changing tastes tight bounds on demand responses and on the welfare costs of relative price and tax changes are also available and are shown to work well in practice jel

economies of scale in the household puzzles and patterns from the american past i introduction in one example of economies of scale households with multiple members are able to achieve the same standard of living at lower per capita expenditures on public goods than smaller households for example if two adults unite to form one household the couple will be better off as they can share public goods such as housing lowering per capita expenditure on them the couple can funnel these savings into increased consumption of public goods more spacious housing than either could afford separately making each member better off than they were when they lived by themselves the basic idea has strong intuitive appeal living standards for households of different sizes could be equated with lower per capita expenditures for larger households who are able to economize on public goods household economies of scale are therefore fundamental to the measurement of living standards measuring the distribution of income the costs of children the extent of poverty and poverty thresholds necessitates an accounting for these economies of scale one difficulty with household economies of scale is that it can be difficult to estimate the size of the scale economy and household economies of scale are not as well defined as scale economies in production while economies of scale are a function of the size of the household the demand for goods and services generally derives from both household size and composition when researchers turned their attention to economies of scale in the household they overcame the problem of detection and measurement by concentrating on adult only households as in nelson 1988 measuring economies of scale for households where all members are the same type have identical tastes and are treated equally will not aid in the measurement of poverty the distribution of income and the costs of children where compositional heterogeneity matters a second difficulty lies in the income and substitution effects that scale economies have on private goods while both the income and substitution effects imply increased consumption of public goods the income and substitution effects work in opposite directions for private goods and it is not possible to know which effect will dominate unless we know more about the private good private goods that have low own and cross price elasticities and sizable income elasticities are goods whose consumption is likely to increase with household size the increased consumption of those private goods could be taken as a measure of household economies of scale where larger households are better off in terms of private consumption due to scale economies in public consumption using this insight deaton and paxson 1998 suggested that food would be a good choice for a private good where the income effect will dominate because food has few substitutes and they argue that substitution away from food will be less likely for households close to subsistence this implies that food expenditures should increase with household size the savings realized on public goods would be funneled to food a necessity that has few substitutes rather than increasing with household size deaton and paxson found that food expenditure per capita decreases with household size after considering and dismissing a number of possible explanations they conclude that their empirical results are a puzzle a literature analyzing this food puzzle has developed deaton and paxson 2003 gan and vernon 2003 gardes and starzec 2000 gibson 2002 gibson and kim 2007 horowitz 2002 perali 2001 vernon 2005 but research on household scale economies has yet to look at how or if scale economies change over time just as knowledge about scale economies at a point in time allows us to estimate the extent of poverty and inequality knowledge about changes in scale economies are useful for analyzing changes in living standards over time even more knowledge about changes in scale economies is important since average household size has changed over time

predictive power in behavioral welfare economics when choices appear inconsistent duet obehavioral biases there is a theoretical debate about whether or not it is necessary to impose the structure of a model in order to provide meaning ful welfare guidance based on such choices to address this question empirically we evaluate the predictive power of the model free and non parametric approach to welfare analysis proposed by bernheim and rangel 2009 in two standard choice settings we show that for most hypothetical demands this approach does not offer clear welfare guidance however we find that for most observed demands this approach can be used to make tight predictions even though these demand functions exhibit inconsistencies for the experimental choices of manzini and mariotti 2010 we show that the welfare guidance provided by these predictions is consistent with delaya version eventhough the guidance provided by revealed preferences is more ambiguous

natural resources national accounting and economic depreciation abstract the current value hamiltonian in an aggregate optimal growth problem with heterogeneous capital stocks including exhaustible renewable and environmental stocks is the nnp function routine substitutions reveal that the using up of natural resource stocks is representable as easy to interpret economic depreciation magnitudes we obtain true nnp inclusive of natural resource stock diminution implications for actual national accounting practices are also discussed

additive general error models for production cost and derived demand or share systems many empirical studies of production specify a deterministic model of the firm derive the implied behavioral equations input demand or share system and then embed this system in a stochastic framework by tacking on linear error terms in contrast this paper proposes general error models gems in which the error specification is an integral part of the optimization model these models are the statistical embodiment of stigler s view that apparent observed inefficiencies reflect the investigator s ignorance of the true optimization problem additive gems are proposed and interpreted specification tests indicate that a translog additive gem is superior to the standard translog specification

nonparametric welfare and demand analysis with unobserved individual heterogeneity abstract this paper combines revealed preference and nonparametric estimation techniques to obtain nonparametric bounds on the distribution of the money metric utility and demand functions over a population of heterogeneous households our approach is independent of any functional specification on the household utility functions our method applies the weak axiom of revealed preference to a population of heterogeneous households although this does not produce the sharpest bounds we show that it is computationally attractive and provides narrow bounds we demonstrate the usefulness of our results by applying it to the consumer expenditure survey a us cross sectional consumption data set jel codes d12 c14

homothetic efficiency theory and applications we provide a nonparametric revealed preference approach to demand analysis based on homothetic efficiency homotheticity is widely assumed often implicitly because it is a convenient and often useful restriction however this assumption is rarely tested and data rarely satisfy testable conditions to overcome this we provide a way to estimate homothetic efficiency of consumption choices the method provides considerably higher discriminatory power against random behavior than the commonly used afriat efficiency we use experimental and household survey data to illustrate how our approach is useful for different empirical applications and can provide greater predictive success

nigeria during and after the oil boom a policy comparison with indonesia nigeria and indonesia provide an interesting contrast with regard to performance and policy during and after the oil boom roughly a decade after the first oil shock nigeria is faced with several economic problems including a serious decline in its agricultural sector and a deteriorating external debt situation while some decline in the nonoil traded goods sector reflects efficient adjustment to the oil boom policy with regard to public expenditure exchange rates pricing and the trade regime could exacerbate such decline and impede readjustment as the boom subsides the links between oil prices deficits inflation and real exchange rate appreciation are analyzed and nigerian and indonesian fiscal and exchange rate and agricultural and foreign borrowing strategies are compared it is concluded that with the exception of cuts in the deficit since 1984 nigerian policy following the boom has not been conducive to adjustment to the current period of low oil prices and high real interest rates corrective measures and policy options are discussed

a comprehensive approach to revealed preference theory we develop a version of afriat s theorem that is applicable in a variety of choice environments beyond the setting of classical consumer theory this allows us to devise tests for rationalizability in environments where the set of alternatives is not the positive orthant of a euclidean space and where the rationalizing utility function is required to satisfy properties appropriate to that environment we show that our results are applicable amongst others to choice data on lotteries contingent consumption and intertemporal consumption

market structure and multiple equilibria in airline markets we provide a practical method to estimate the payoff functions of players in complete information static discrete games with respect to the empirical literature on entry games originated by bresnahan and reiss 1990 and berry 1992 the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions we allow the effects that the entry of each individual airline has on the profits of its competitors its competitive effects to differ across airlines the identified features of the model are sets of parameters partial identification such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data we apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the u s airline industry we find evidence of heterogeneity across airlines in their profit functions the competitive effects of large airlines american delta united are different from those of low cost carriers and southwest also the competitive effect of an airline is increasing in its airport presence which is an important measure of observable heterogeneity in the airline industry then we develop a policy experiment to estimate the effect of repealing the wright amendment on competition in markets out of the dallas airports we find that repealing thewright amendment would increase the number of markets served out of dallas love

fiscal policy and the real exchange rate abstract this paper reconsiders some conventional notions about fiscal policy under flexible exchange rates using an extended version of the dornbusch overshooting model the extension allows for a long run link between output and the real exchange rate unanticipated permanent fiscal policy affects both current and long run output while the long run effect is always in the expected direction it is possible that the current effect is perverse both fiscal and monetary policy must cause either nominal exchange rate overshooting or perverse domestic interest rate effects the results suggest that real shocks are a potential source of high exchange rate variability

macro policy responses to natural resource windfalls and the crash in commodity prices policy prescriptions for managing natural resource windfalls are based on the permanent income hypothesis none of the windfall is invested at home and saving in an intergenerational swf is dictated by smoothing consumption across different generations furthermore with dutch disease effects the optimal response is to intertemporally smooth the real exchange rate smooth public and private consumption and limit sharp fluctuations in the intersectoral allocation of production factors we show that these prescriptions need to be modified for the following reasons first to cope with volatile commodity prices precautionary buffers should be put in a stabilisation fund second with imperfect access to capital markets the windfall must be used to curb capital scarcity invest domestically and bring consumption forward third with real wage rigidity consumption must also be brought forward to mitigate transient unemployment fourth the real exchange rate has to temporarily appreciate to signal the need to invest in the domestic economy to gradually improve the ability to absorb the extra spending from the windfall fifth with finite lives the timing of handing back the windfall to the private sector matters and consumption and the real exchange rate will be volatile finally with nominal wage rigidity we show that a taylor rule is a better short run response to a crash in commodity prices than a nominal exchange rate peg

admission tuition and financial aid policies in the market for higher education we present an equilibrium model of the market for higher education our model simultaneously predicts student selection into institutions of higher education financial aid educational expenditures and educational outcomes we show that the model gives rise to a strict hierarchy of colleges that differ by the educational quality provided to the students we also develop a new estimation procedure that exploits the observed variation in prices within colleges identification is based on variation in endowments and technology it does not rely on observed variation in potentially endogenous characteristics of colleges such as peer quality measures and expenditures we estimate the structural parameters using data collected by the national center for education statistics and aggregate data from peterson s and the national science foundation

the cost of living with the rpi substitution bias in the uk retail prices index this paper uses revealed preference restrictions and nonparametric statistical methods to bound the true cost of living index which corresponds most closely to the uk retail prices index rpi this is used to assess the rpi formula for substitution bias we show that neither the direction nor the existence of bias in the rpi forumla can be established on a priori theoretical grounds however we find empirical evidence of a variable but generally positive bias in the rate of inflation recorded by the rpi formula

long term relationships of major macro variables in a resource related economic model of australia a cointegration analysis abstract the paper reports the results of a simple cointegration analysis applied to bivariate causality models using data on resource output oil prices terms of trade current account and output growth to investigate the long term relationships in the sense of granger among these major macroeconomic aggregates in a resource related economic model of australia for the period 1960 90 the empirical evidence indicates that these five macro variables as formulated in our model are not random walks in addition resource production and oil prices are significantly cointegrated and they are also significantly cointegrated with the current account terms of trade and economic growth these findings provide support to the long term adjustments foundation of our resource related model

nonparametric estimation of exact consumers surplus and deadweight loss we apply nonparametric regression models to estimation of demand curves of the type most often used in applied research from the demand curve estimators we derive estimates of exact consumers surplus and deadweight loss which are the most widely used welfare and economic efficiency measures in areas of economics such as public finance we also develop tests of the symmetry and downward sloping properties of compensated demand we work out asymptotic normal sampling theory for kernel and series nonparametric estimators as well as for the parametric case the paper includes an application to gasoline demand empirical questions of interest here are the shape of the demand curve and the average magnitude of welfare loss from a tax on gasoline in this application we compare parametric and nonparametric estimates of the demand curve calculate exact and approximate measures of consumers surplus and deadweight loss and give standard error estimates we also analyze the sensitivity of the welfare measures to components of nonparametric regression estimators such as the number of terms in a series approximation

boom or gloom examining the dutch disease in two speed economies traditional studies of the dutch disease do not account for productivity spillovers between the booming resource sector and other domestic sectors we put forward a simple theory model that allows for such spillovers we then identify and quantify these spillovers using a bayesian dynamic factor model the model allows for resource movements and spending effects through a large panel of variables while also identifying disturbances to other shocks using australia and norway as representative cases studies we find that a booming resource sector has substantial productivity spillovers on non resource sectors effects that have not been captured in previous analysis

the random utility hypothesis and inference in demand systems in this paper the authors examine the consequences of adopting the random utility hypothesis as an approach for randomizing a system of demand equations random utility models are appealing since they allow the usual assumption of deterministic utility maximizing behavior by each consumer to coexist with the apparent randomness across individuals that is exhibited by data their results show that the use of random utility models implies that the disturbances of the demand equations may not be homoskedastic but must be functions of prices and or income copyright 1989 by the econometric society

investing exhaustible resource rents and the path of consumption we set out dollar valued net national product for an economy with a wasting essential stock oil deposit we take up maintaining capital intact and locally unchan ging consumption the percentage change in net investment or genuine savings relative to the market rate of interest denotes whether current consumption is rising

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

resource price turbulence and macroeconomic adjustment for a resource exporter a conceptual framework for policy analysis abstract increased global demand for energy and other resources particularly from the rapidly developing economies of china and india and the opening up of global resource markets to global investors and speculative activity has resulted in considerable recent turbulence in resource prices the recent magnitude of change in resource prices both positive and negative and their macroeconomic implications is of considerable contemporary importance to both resource importing and exporting economies for a resource exporting economy such as that of australia the recent resource price boom has resulted in increased government taxation revenue increased employment and wages in the resource and resource related sectors increased spending in the domestic economy that contributed to buoyant economic growth increased resource exports to the booming economies of china and india and contributed to a stronger domestic currency with beneficial effects upon inflation on the other hand these developments have had adverse effects on the non resource sector by subjecting it to more intense competition for limited resources contributing to a loss of international competitiveness and reduced exports arising from a stronger exchange rate reducing employment in the relatively more labour intensive non resource sector and contributing to an eventual slow down in the overall economy these positive and negative effects and the overall impact of a resource price boom require a fundamentally closer analysis of the structure of the economy under scrutiny in this context the policy response by government is likely to be pivotal in determining the overall macroeconomic outcomes from a resource price boom the aim of this paper is to develop a generic analytical framework to appraise economic outcomes in the wake of a resource price boom for a resource producing and exporting economy to this end a dynamic long run macroeconomic model is developed emphasising the important role and contribution of government fiscal policy in influencing subsequent macroeconomic outcomes the adjustment process in the model arising from a resource price shock emphasises a spending or wealth effect an income effect a revenue effect a current account effect and an exchange rate effect which facilitate a robust analysis of subsequent macroeconomic outcomes from such a shock as well as related policy responses