inequality and polarisation in health systems responsiveness a cross country analysis the world health report 2000 proposed three fundamental goals for health systems encompassing population health health care finance and health systems responsiveness the goals incorporate both an efficiency and equity dimension while inequalities in population health and health care finance have motivated two important strands of research inequalities in responsiveness have received less attention in health economics this paper examines inequality and polarisation in responsiveness bridging this gap in the literature and contributing towards an integrated analysis of health systems performance it uses data from the world health survey to measure and compare inequalities in responsiveness across 25 european countries in order to respect the inherently ordinal nature of the responsiveness data median based measures of inequality and polarisation are employed the results suggest that in the face of wide differences in the health systems analysed there exists large variability in inequality in responsiveness across countries

inequality reduction through the income tax income taxation typically has an inequality reducing impact this would be explained by theory were it the case that all income units were taxed according to a common progressive schedule but this is not so we lack a theoretical explanation for the observed finding this paper explains how income taxes that take nonincome attributes such as marital status into account can act to reduce overall income inequality copyright 1993 by the london school of economics and political science

changing income inequalities within and between nations new evidence fresh data sources on cross national income are examined to document recent changes in the composition of world income inequality within and between nations new evidence shows that during the 1980s and 1990s the composition of world income inequality experienced a fundamental change characterized by the diminishing significance of between nation income differences and the growing prominence of within nation inequalities two competing trends account for this change 1 steady growth in the average level of income inequality within nations and 2 a decline in income inequality between nations these recent trends signify a reversal in one of the major legacies of the industrial revolution the internationalization of world income inequality across national borders the findings raise important questions for future studies of cross national inequality and development

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

growth habit formation and catching up with the joneses when habits are introduced multiplicatively in a capital accumulation model the consumers objective function might fail to be concave in this paper we provide conditions aimed at guaranteeing the existence of interior solutions to the consumers problem we also characterize the equilibrium path of two growth models with multiplicative habits the internal habit formation model where individual habits coincide with own past consumption and the external habit formation or catching up with the joneses model where habits arise from the average past consumption in the economy we show that the introduction of external habits makes the equilibrium path inefficient during the transition towards the balanced growth path we characterize in this context the optimal tax policy

psychological factors and stock option exercise we investigate stock option exercise decisions by over 50 000 employees at seven corporations controlling for economic factors psychological factors influence exercise consistent with psychological models of beliefs employees exercise in response to stock price trends exercise is positively related to stock returns during the preceding month and negatively related to returns over longer horizons consistent with psychological models of values that include reference points employee exercise activity roughly doubles when the stock price exceeds the maximum price attained during the previous year

comparing poverty rates internationally lessons from recent studies in developed countries studies comparing poverty in different countries frequently inform the evaluation of past policies and the formulation of future policies for reducing poverty if the comparisons are to be a valid foundation for such assessments in particular if they are to be a guide to the effective allocation of funds the underlying concepts must be examined and defined this article discusses four issues that are critical in this respect the choice of poverty indicator the determination of the poverty line the unit of analysis and the choice of equivalence scale a selection of studies of poverty in countries that belong to the organization for economic co operation and development is used to show how the choices made in defining these indicators affect the findings about the extent and composition of the poor population although the context is different the experience of rich countries may yield useful lessons for developing countries

growth dynamics and education spending the role of inherited tastes and abilities we present an overlapping generations model with endogenous growth in which children inherit human capital and standard of living aspirations from the previous generation adults evaluate their own consumption with respect to a baseline requirement which depends on their parents past consumption the interaction between these two intergenerational externalities leads to rich dynamics first starting with too high aspirations or with too low human capital will conduct the economy into a poverty trap second the growth rate and the savings rate are characterized by oscillations third a repelling cycle may delimit a basin of attraction around the balanced growth path this may lead countries starting with too high human capital to a boom followed by an irreversible decline c 2001 elsevier science b v all rights reserved

equity in the finance of health care some international comparisons this paper presents the results of a ten country comparative study of health care financing systems and their progressivity characteristics it distinguishes between the tax financed systems of denmark portugal and the u k the social insurance systems of france the netherlands and spain and the predominantly private systems of switzerland and the u s it concludes that tax financed systems tend to be proportional or mildly progressive that social insurance systems are regressive and that private systems are even more regressive out of pocket payments are in most countries an especially regressive means of raising health care revenues

evaluating impact effects of tax reforms abstract this survey paper provides coverage of the inputs from the theory side which go into the empirical analysis of impact effects of tax reforms inequality social welfare progressivity and horizontal inequity effects are considered the value judgements inherent in selecting the target group for analysis specifying welfare through household utility equivalizing incomes and otherwise incorporating differences in household needs into utilitarian analysis are all explained the evaluation procedures described include dominance checks and index comparisons the inequality and social welfare tests are also applicable to other comparisons of income distribution standard computer software to sort cumulate and compute covariances is all that is required to undertake the necessary computations using microdata

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

horizontal equity uncertainty and economic well being the result of a national bureau of economic research income and wealth conference held in december 1983 this volume looks at theconcept of economic well being and the ways that analysts have tried to measure it in addition to income economists have begun to consider such factors as pensions wealth health and environment when measuring the well being of a particular group they have also begun to measure how consumers respond successfully or unsuccessfully to such economic uncertainties as inflation divorce and retirement using new data and techniques the contributors to this book concentrate on issues of uncertainty and horizontal equity the equal treatment of individuals within a defined group their work points to better ways of determining how various groups in a society are faring relative to other groups economists and policy analysts therefore will be in a better position to determine how government programs should be applied when well being is used as a test

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

loss aversion and the asymmetric transmission of monetary policy there is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity while price responses display no sizeable asymmetry to rationalize these facts we develop a dynamic general equilibrium model where households utility depends on consumption deviations from a reference level below which loss aversion is displayed state dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption generate competing effects on output and inflation contractions face the central bank with higher responsiveness of output to interest rate changes as well as a flatter aggregate supply schedule

progressivity horizontal equity and reranking in health care finance a decomposition analysis for the netherlands this paper employs the method of aronson et al 1994 to decompose the redistributive effect of the dutch health care financing system into three components a progressivity component a classical horizontal equity component and a reranking component results are presented for the health care financing system as a whole as well as for its constituent parts a final section sets out to uncover the relative importance in terms of their effects on progressivity horizontal equity and reranking of the key institutional features of one component of the dutch system the awbz social insurance scheme

a measure of horizontal inequity politicians academicians and the general public alike have perceived that the status quo tax and transfer legislation creates inequities among living units tax laws create numerous situations in which living units with seemingly equal abilities to pay are taxed quite different amounts state by state differences in welfare eligibility rules benefit schedules and administrative procedures the general unavailability of cash welfare to childless nonaged healthy couples and single individuals and other features of transfer programs similarly provide vastly different levels of income support to units with equal needs advocates of major tax and welfare reform have marshalled such evidence into a central argument in favor of their proposals while there is wide agreement that the process of redistributing incomes abounds with inequities there have been few attempts to quantify their extent 2 this paper develops a measure of horizontal inequity and illustrates its use section ii discusses the concept of horizontal equity then builds upon familiar lorenz curve gini coefficient analysis to derive the inequity index the third part considers some problems of implementing the measure and illustrates it section iv provides a short conclusion

the redistributive effect of health care finance in twelve oecd countries the oecd countries finance their health care through a mixture of taxes social insurance contributions private insurance premiums and out of pocket payments the various payment sources have very different implications for both vertical and horizontal equity and on redistributive effect which is a function of both this paper presents results on the income redistribution consequences of the health care financing mixes adopted in twelve oecd countries by decomposing the overall income redistributive effect into a progressivity horizontal inequity and reranking component the general finding of this study is that the vertical effect is much more important than horizontal inequity and reranking in determining the overall redistributive effect but that their relative importance varies by source of payment public finance sources tend to have small positive redistributive effects and less differential treatment while private financing sources generally have larger negative redistributive effects which are to a substantial degree caused by differential treatment

equity equality and welfare this paper argues that horizontal equity he and vertical equity ve are two of the basic commands of social justice and can be seen as hierarchical the information content of the ve command is sufficient also to implement he a general vector specification of inequity is proposed for a tariff treatment system which does not satisfy he and ve in the case of the income tax the distinction between the he and ve commands and the nr no reranking criterion which has coexisted in the income tax literature with these for the last 15 years is drawn a complication not recognised by he and ve is the effect of pursuing the common interest efficiency goal of the tariff the paper concludes with a call for further work on the meaning and implementation of concepts of justice in direct taxation and on the common interest dimension

optimal growth when tastes are inherited we address the issue of optimal growth when standard of living aspirations are transmitted from one generation to the next we derive the condition for the optimal solution to be stable in the saddle point sense and show that this optimal solution may display damped oscillations even when the planner does not discount the utility of future generations golden rule case the decentralization of the optimal solution aims at correcting the inter generational externality by use of an investment subsidy and allows to avoid socially damaging rushes on consumption in expansion periods it also allows to stabilize output in the case of competitive economies displaying endogenous fluctuations

optimal inattentive length in macroeconomic models abstract this paper proposes an approximate solution of firm s optimal inattentive length in a standard macroeconomic model the approximate solution conceptually fits a sticky information model better and predicts empirically more plausible inattentive length than the one proposed by reis reis r 2006 inattentive producers review of economic studies 73 793 821

thank goodness for stickiness unravelling the evolution of income related health inequalities before and after the great recession in europe the great recession in europe sparked concerns that the crisis would lead to increased income related health inequalities irhi did this come to pass and what role if any did government transfers play in the evolution of these inequalities motivated by these questions this paper seeks to i study the evolution of irhi during the crisis and ii decompose these evolutions to examine the separate roles of government versus market transfers using panel data for 7 eu countries from 2004 to 2013 we find no evidence that irhi persistently rose after 2008 even in countries most affected by the crisis our decomposition reveals that while the health of the poorest did indeed worsen during the crisis irhi were prevented from increasing by the relative stickiness of old age pension benefits compared to the market incomes of younger groups austerity measures weakened the irhi reducing effect of government transfers

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

optimal portfolio choice under loss aversion this paper analyzes the optimal investment strategy for loss averse investors assuming a complete market and general ito processes for the asset prices the loss averse investor follows a partial portfolio insurance strategy when the investor s planning horizon is short less than 5 years he or she considerably reduces the initial portfolio weight of stocks compared to an investor with smooth power utility the empirical section of the paper estimates the level of loss aversion implied by historical u s stock market data using a representative agent model we find that loss aversion and risk aversion cannot be disentangled empirically

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

the concept and measurement of horizontal inequity abstract this paper discusses the concept of horizontal equity and presents three formal principles as a basis for making comparisons of the extent of horizontal inequity produced by different redistributions a condition analogous to the lorenz criterion used for inequality comparisons is established under which the horizontal inequities of redistributions can be ranked without recourse to a cardinal measure of inequity ordinal comparisons are not possible in many cases the three principles suggest three properties that reasonable measures of horizontal inequity should possess a class of measures which satisfies the properties is proposed most other existing measures are found not to satisfy them

empirical measurement of horizontal inequity abstract horizontal inequity is the unequal treatment of equals a crucial problem arising when measuring its extent is how should differential treatment which has some equity justification be distinguished from that which does not the literature to date has suggested that genuine equals can be identified and thence the problem solved by adjusting incomes prior to calculations using equivalence scales the paper argues that there are some good reasons for considering an alternative approach labelled partial symmetry in this the emphasis is on measuring horizontal inequity within each group of households with the same equity relevant characteristics rather than on adjusting incomes and then using the same measure for all households in the population the approaches are compared theoritically with reference to summary indices based on the generalised entropy family and to the conditions required to make partial orderings of different redistributions exploratory empirical work suggests there has been a substantial reduction in the horizontal inequity of u k direct taxes between 1976 and 1981 whichever approach is used the sources of the inequity observed are analysed in detail

the social cost of living index abstract household cost of living indexes reflect household preferences analogous indexes for groups of households require a corresponding concept of group preferences in this paper i investigate the social cost of living index a group index based on the bergson samuelson social welfare function i first define the index and examine its properties under the assumption that the investigator constructing it expresses his distributional judgments in an explicit bergson samuelson social welfare function i then examine the maximizing society and the independent society two cases in which the index can be constructed from the information contained in the market demand functions in these two cases a laspeyres index i e the fixed weight index based on the reference consumption pattern is an upper bound on the exact social cost of living index in general however the assumptions required to place bounds on the social cost of living index are much more likely to be satisfied than those required to place analogous bounds on a household s cost of living index

equity during an economic crisis financing of the argentine health system this article analyses the redistributive effect caused by health financing and the distribution of healthcare utilization in argentina before and during the severe 2001 2002 economic crisis both dramatically changed during this period the redistributive effect became much more positive and utilization shifted from pro poor to pro rich this clearly demonstrates that when utilization is contingent on financing changes can occur rapidly and that an integrated approach is required when monitoring equity from a policy perspective the argentine health system appears vulnerable to economic downturns mainly due to high reliance on out of pocket payments and the strong link between health insurance and employment

a comparison of two new measures of tax progressivity recently n c kakwani i977 and daniel suits i977 independently and simultaneously developed new measures of the degree of tax progression both measures are related to the gini ratio of income inequality and are distinct from conventional elasticity measures of progressivity in that each yields a summary statistic while standard elasticity measures of progressivity vary as the tax base changes in this paper we briefly describe the measures identify their important characteristics and establish the analytical relation between them empirical calculations of the progressivity of the u s income tax system for the period i 962 76 reveal that the two measures display different magnitudes of change in progressivity more importantly in three out of fourteen years the measures moved in opposite directions

do bad risks know it experimental evidence on optimism and adverse selection abstract subjects who overestimate their performance in experimental tasks unrelated to travel are less willing to insure against failing in the task and also less inclined to buy travel insurance this suggests intrinsic optimism influences insurance demand and diminishes adverse selection

lifetime versus annual tax and transfer progressivity sweden 1968 2009 in this paper we analyze the evolution of tax and transfer progressivity in sweden over both annual and lifetime horizons using a rich micro panel covering the period 1968 2009 we calculate tax rates over a cohort s entire working life cycle our main finding is that taxes are considerably less progressive over the lifetime than in any single year social insurance transfers to transitory low income earners account for most of this result we offer a number of robustness checks of the measurement of lifetime incomes and progressivity but none of them changes our overall findings

equity well being and economic choice a review of horizontal equity uncertainty and economic well being edited by martin david and timothy smeeding chicago university of chicago press for the national bureau of economic research

inference tests for gini based tax progressivity indexes distribution free statistical inference procedures for changes in lorenz and gini based indexes of tax progressivity are developed and applied related but distinct tests for the reynolds smolensky index of residual progression and the kakwani index of liability progression are provided the inference procedures are illustrated by applying them to luxembourg income study microdata for sweden the united kingdom and the united states before and after periods of tax reform in each country a finding of significant change depends on the choice among progressivity indexes no single index exhibits a consistent pattern of significant change in all countries across time

measures of distributional change an axiomatic approach in recent years a number of interesting papers have appeared in the general field of the analysis of changes in a frequency distribution the most common applications of such analysis are in the areas of income and wealth re distribution and the contributions have usually focussed on a particular specialised issue such as mobility of individuals within a structure or of horizontal inequity as opposed to vertical inequality implicit in the comparison of two distributions a number of approaches to each of these problems have been suggested and indeed several specific practical indices of mobility or inequity have been proposed 1 whilst some of these can be shown to have very useful features in their application it is probably fair to say that most derive from an ad hoc approach to the particular aspect of the problem on which the author had focussed it is interesting to note that comparatively few papers attempt to exploit the similarities involved in each of these issues all this contrasts rather sharply with the state of play in an obviously closely related game that of the measurement of inequality much of the essential foundation of the problem of measuring inequality as we presently understand it seems to be more or less sorted out in a systematic fashion roughly speaking what may be done is as follows given

how basic are behavioral biases evidence from capuchin monkey trading behavior behavioral economics has demonstrated systematic decision making biases in both lab and field data do these biases extend across contexts cultures or even species we investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys and recovering their preferences over a range of goods and gambles we show that capuchins react rationally to both price and wealth shocks but display several hallmark biases when faced with gambles including reference dependence and loss aversion given our capuchins inexperience with money and trade these results suggest that loss aversion extends beyond humans and may be innate rather than learned

redistribution effect and unequal income tax treatment decomposing the post tax gini coefficient across groups of pre tax equals reveals the separate contributions to the redistributive effect of an income tax of 1 the effective schedule the vertical effect 2 the unequal treatment of equals arising from departures from this effective schedule the horizontal effect and 3 the reranking of unequals as a result of such departures the reranking effect the methodology is applied to u k microdata throughout the period 1978 91 reranking understates the negative contribution to redistributive effect of unequal tax treatment by about one third and is far outweighed by the vertical effect copyright 1994 by royal economic society

equity in health care finance in palestine the triple effects revealed this paper presents an application of the urban and lambert upgraded ajl decomposition approach that was designed to deal with the problem of close income equals in equity analysis and as applied to the area of health care finance contrary to most previous studies vertical and horizontal inequities and the triple effects of inter groups intra group and entire group reranking of various financing schemes are estimated with statistical significance calculated using the bootstrap method application is made on the three financing schemes present in the case of the occupied palestinian territory results demonstrate the relative importance of the three forms of reranking in determining overall inequality the paper offers policy recommendations to limit the existing inequalities in the system and to enhance the capacity of the governmental insurance scheme

equity in the finance and delivery of health care some tentative cross country comparisons textabstractequity is widely acknowledged to be an important goal in the field of health care indeed mclachlan and maynard 1982 have gone so far as to suggest that the vast majority of the population would elect for equity to be the prime consideration p 556 a view endorsed by mooney 1986 p 145 several researchers have investigated how successful their own country s delivery and or financing system is in achieving its stated equity goals in general the strategy of these studies is to compare the current situation with some ideal or target situation le grand 1978 for example in what has become a classic study in the field compares the distributions across socio economic groups of illness and public expenditure on health care in britain in 1972 and concludes that the national health service nhs has failed to achieve equity in the delivery of health care

reranking and pro poor growth decompositions for china and vietnam abstract reranking in the move from one income distribution to another makes it impossible to infer from changes in lorenz and generalised lorenz curves how income growth among those toward the bottom of the initial income distribution compares to that among those toward the top and whether there has been income growth among those who were initially poor decompositions allowing for reranking indicate that economic growth in china and vietnam has been better for households who were initially poor than changes in the lorenz and generalised lorenz curve and poverty growth curve would suggest

a new measure of horizontal equity in this paper we propose a new measure of horizontal equity that overcomes many of the shortcomings of previous proposed measures our starting point is the observation that a well behaved social welfare function need not evaluate global vertical equity differences in after tax income using the same weights it applies to local horizontal equity differences even though this constraint has been applied in the past following work on the structure of individual preferences we show that a social welfare function can imply different preferences toward horizontal and vertical equity adopting the general approach to the measurement of inequality developed by atkinson 1970 we use such a social welfare function to derive measures of inequality that are decomposable into components naturally interpreted as indices of horizontal and vertical equity in particular the former index measures deviations from the fundamental principle that equals be treated equally finally we apply our new measure to two tax return data sets evaluating the degree to which the horizontal equity of the us personal income tax has changed over time and how horizontal equity would be altered by one version of recent proposals to do away with the so called marriage penalty this abstract was borrowed from another version of this item

optimal growth with decreasing marginal impatience abstract this paper analyses the long run dynamics of a continuous time infinite horizon optimal growth model with identical households where the households rate of time preference is endogenously determined however unlike the existing literature we assume that households have decreasing marginal impatience i e the instantaneous discount rate is negatively related to the current consumption with this assumption we analyse the stability and uniqueness of the long run equilibrium we show that contrary to the general belief a negative relationship between the instantaneous discount rate and the household s current consumption does not necessarily result in instability of the dynamic system however even a stable system may be characterized by multiple equilibria so that the initial condition becomes important in determining the long run behaviour of the economy we derive a set of sufficient conditions for stability and uniqueness in this context

perceived inflation under loss aversion building on prospect theory we apply the concept of loss aversion to the formation of inflation perceptions and test empirically for nonlinearities in the inflation perceptions relation for a panel of 10 euro area countries specifically under the assumption of loss aversion inflation changes above a certain reference rate will be perceived more strongly rejecting rationality of inflation perceptions in general under symmetric loss and in a majority of cases under flexible loss functions panel smooth transition models give evidence of nonlinearities in the inflation perceptions relation regarding both actual inflation and time this result is confirmed by dynamic fixed effects estimates where the slope of the estimated value function is significantly steeper in the loss region and the implied average reference inflation rate is found close to 2

static versus dynamic measures of aggregate concentration the case of fortune s 500 studies of business concentration have usually made a distinction between market concentration which is concerned with the dominance of individual markets by the leading firms therein 4 182 and aggregate concentration which looks at the degree of control exercised over a large portion of some aggregate of economic activity assets sales value added by a small absolute or relative number of firms 17 239 various indexes such as the concentration ratio the hirschman herfindahl the rosenbluth the hannah and key or the entropy index have been proposed to measure such a concentration 17 22 but the general idea has always been that a higher degree of concentration of output or sales implies a greater extent of monopoly power in a given market or industry some authors have however questioned the choice of such concentration indices in particular those looking at the relative size of leading firms as measures of market control demsetz 7 3 has for example criticized the public policy implications which are too often derived from analyses of market structure if rivals seek better ways to satisfy buyers or to produce a product and if one or a few succeed in such endeavors then the reward for their entrepreneurial efforts is likely to be some short term monopoly power and this may be associated with increased industrial concentration to destroy such power when it arises may very well remove the incentive for progress this is to be contrasted with a situation in which a high rate of return is obtained through a successful collusion to restrict output here there is less danger to progress if the collusive agreement is penalized in fact as argued by gort 14 51 a high degree of concentration may be consistent with considerable instability in the market shares of individual firms in judging the intensity of competition in an industry the ability of leading firms to maintain their relative position in a market is probably more significant than the extent of concentration at a single point in time this is why simon and bonini 32 616 suggested that a measure of mobility for firms would appear to provide a better index of what we mean by equality of opportunity than do the usual measures of concentration such a point of view was also shared by joskow 19 113 when he stated that

habits and time preference this paper proposes a utility function incorporating both habit formation and an endogenous rate of time preference in a manner consistent with the intuition of irving fisher regarding the influence of past consumption on impatience it is shown that the ne w specification is tractable and generates new predictions in the cont ext of three model economies 1 a closed economy with heterogeneous agents 2 a small open economy with one traded good and one nontra ded good and 3 a small open economy with a traded good and domestic money copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

assessing equitable health financing for universal health coverage a case study of south africa abstractthis article argues that an assessment of progressivity over time can provide an indication of progress towards a more progressive or a less regressive health financing system and can be useful to policymakers it introduces a framework to characterize shifts in progressivity in health financing between two time periods using the popularly known kakwani index of progressivity and other associated indices it also decomposes the shifts in progressivity into the relative contributions of the changes in income distribution and the changes in the distribution of health payments further it proposes graphics that statistically analyses how the shifts in progressivity vary along the distribution of income a pro poor pro rich shift implies that the health financing mechanism is becoming more less progressive or less more regressive between two time periods a proportional shift means that progressivity is constant between the two periods this framework is applied to nationally represen

investment dynamics with information costs investment in physical capital at the micro level is infrequent and large or lumpy the most common explanation for this is that firms face non convex physical adjustment costs the model developed in this paper shows that information costs make investment lumpy at the micro level even in the absence of non convex adjustment costs when collecting and processing information is costly the firm optimally chooses to do it sporadically and to be inactive most of the time this behavior results in infrequent and possibly large capital adjustments the model fits plant level investment rate moments well and it also matches some higher order moments of aggregate investment rates keywords investment dynamics information costs inattentiveness lumpy investment jel classification d21 d83 d92 e22

evaluating effective income tax progression abstract an algorithm to compute effective income tax progression is devised for use when taxes are a function of both money income and other socioeconomic attributes and the data is in grouped summary form suppressing non income information effective progression can be evaluated at percentiles in the distribution of either money or equivalent income the normative significance of the new measures is explained in both cases the methodology is illustrated by application to u s individual income tax annual data for 1950 1987 yielding contour plots which show how effective progression has varied across the income distribution and with the passage of time

loss aversion in aggregate macroeconomic time series abstract prospect theory has been the focus of increasing attention in many fields of economics however it has scarcely been addressed in macroeconomic growth models neither on theoretical nor on empirical grounds in this paper we use prospect theory in a stochastic optimal growth model thereafter the focus lies on linking the euler equation obtained from a prospect theory growth model of this kind to real macroeconomic data we will use generalized method of moments gmm estimation to test the implications of such a non linear prospect utility euler equation our results indicate that loss aversion can be traced in aggregate macroeconomic time series

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

statistical inference for the measurement of the incidence of taxes and transfers we establish the asymptotic sampling distribution of general functions of quantile based estimators computed from samples that are not necessarily independent the results provide the statistical framework within which to assess the progressivity of taxes and benefits their horizontal inequity and the change in the inequality of income which they cause by the same token these findings characterise the sampling distribution of a number of popular indices of progressivity horizontal inequity and redistribution they can also be used to assess welfare and inequality changes using panel data and to assess poverty when it depends on estimated population quantiles we illustrate these results using micro data on the incidence of taxes and benefits in canada

comparing households with different structures the problem of equity design of equitable tax and transfer schemes and analyses of the distribution of well being among members of society are complicated by the fact that households differ in structure during the 1970 s a major reexamination of the questions of optimal income tax progressivity and the horizontal equity of taxes has taken place following the seminal work of james mirrlees these analyses differ from earlier treatments of tax equity because of the recognition that individuals may value leisure time as well as income this reexamination of tax equity has for the most part assumed a world of identically structured households with only one potential worker the present paper surveys issues in tax equity and analyzes them allowing for one and two adult households which may differ in their work behavior

household portfolio diversification a case for rank dependent preferences the proliferation of novel preference theories in financial economics is hampered by a lack of non experimental evidence and by the theories additional complexity which has not been shown to be critical in applications in this article i present arguments in support of preferences with rank dependency using the survey of consumer finances data i document two widespread patterns inconsistent with expected utility i many households simultaneously invest in well deversified funds and in poorly diversified portfolios of stocks and ii some households with substantial savings do not invest anything in equities i show that portfolio choice models with rank dependent preferences plausibly parameterized and under fully rational assumptions are quantitatively consistent with the observed diversification these results call for further efforts to integrate the models of rank dependent preferences in portfolio theory and asset pricing the decision theoretic literature has long acknowledged the shortcomings of the expected utility theory of von neumann and morgenstern 1944 several generalizations of the theory are inspired by the experimental evidence and aimed at improving its descriptive accuracy however there are few applications of new models of preferences in finance and expected utility continues to dominate the field 1 two principal hurdles slow the proliferation of novel preferences in financial economics first the lack of empirical non experimental or field data confirming that the behavior motivating non expected utilities is widespread outside the laboratory settings second the additional and often significant complexity of the alternative preferences which has not been shown to be critical in applications where the models based on expected utility fall short of reasonable predictions this article presents empirical and theoretical this paper was previously circulated under the title household portfolio diversification the paper has benefited from the comments of shlomo benartzi luca benzoni markus brunnermeier john dickhaut maria perozek raj singh hersh shefrin and workshop participants at minnesota finance bag lunch 2003 wharton conference household financial decision making and portfolio choice and 2003 summer meetings of econometric society i would like to thank cam harvey the editor and an anonymous referee for many helpful comments and suggestions a special thanks to jack kareken for comments and editorial help on an earlier draft i am grateful to donna zerwitz for editorial assistance the views expressed herein are those of the author and not necessarily of the federal reserve bank of minneapolis or the federal reserve system all errors and omissions are the sole responsibility of the author address correspondence to valery polkovnichenko finance 3 122 csom 319 19 th

prospect theory much ado about nothing prospect theory is a paradigm challenging the expected utility paradigm one of the fundamental components of prospect theory is the s shaped value function the value function is mainly justified by experimental investigation of the certainty equivalents of prospects confined either to the negative or to the positive domain but not of mixed prospects which characterize most actual investments we conduct an experimental study withmixed prospects using for the first time recently developed investment criteria called prospect stochastic dominance psd and markowitz stochastic dominance msd we reject the s shaped value function showing thatat least 62 76 of the subjects cannot be characterized by such preferences we find support for the markowitz utility function which is a reversed s shaped function exactly the opposite of the prospect theory value function it is possible that the previous results supporting the s shaped value function are distorted because the prospects had only positive or only negative outcomes presenting hypothetical situations which individuals do not usually face and which are certainly not common in financial markets

macroeconomic expectations of households and professional forecasters economists have long emphasized the importance of expectations in determining macroeconomic outcomes yet there has been almost no recent effort to model actual empirical expectations data instead m acroeconomists usually simply assume that expectations are rational this paper shows that while empirical household expectations are not rational in the usual sense expectational dynamics are well captured by a model in which households views derive from news reports of the views of professional forecasters which in turn may be rational the model s estimates imply that people only occasionally pay attention to news reports this inattention generates stickyness in aggregate expectations with important macroeconomic consequences

redistributive effect progressivity and differential tax treatment personal income taxes in twelve oecd countries this paper decomposes the redistributive effect of the personal income taxes pits of twelve oecd countries into four components i an average rate effect ii a departure from proportionality or progressivity effect iii a horizontal equity effect and iv a reranking effect the product of i and ii indicates the vertical redistribution associated with the pit and the sum of iii and iv indicates the impact on the distribution of income of differential tax treatment the average tax rate is found to be low in france and high in the nordic countries and the pit is found to be most progressive in france ireland and spain and least progressive in denmark and sweden taking i and ii together denmark and the us achieve broadly similar levels of vertical redistributive effect differential treatment is found to have a much smaller effect on income redistribution as a proportion of redistributive effect than the vertical redistribution caused by progressivity though there are differences between countries these differences appear to be due principally to a different emphasis on deductions such as tax deductibility of mortgage interest payments and insurance premiums and on local income tax

an econometric analysis of health care expenditure a cross section study of the oecd countries this paper is an empirical examination of the determinants of aggregate health care expenditure the paper presents a systematic analysis of relationships across 19 oecd countries showing the effects of aggregate income institutional and socio demographic factors on health care expenditure the results indicate that institutional factors of the health systems in addition to per capita gross domestic product gdp contribute significantly to the explanation of the health care expenditure variation between countries for example the way physicians in outpatient care are paid and the mixture of public private funding and inpatient outpatient care

violations of cumulative prospect theory in mixed gambles with moderate probabilities in a classroom choice experiment with mixed gambles and moderate probabilities we find severe violations of cumulative prospect theory cpt and of markowitz stochastic dominance our results shed new light on the exchange between levy and levy 2002 and wakker 2003 in this journal

comparing shocks and frictions in us and euro area business cycles a bayesian dsge approach this paper estimates a dsge model with many types of shocks and frictions for both the us and the euro area economy over a common sample period 1974 2002 the structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments our main conclusion is that each of these characteristics is remarkably similar across both currency areas copyright 2005 john wiley sons ltd

consumption paths under prospect utility in an optimal growth model this paper studies the cass koopmans ramsey model of optimal economic growth in the presence of loss aversion and habit formation the representative agent s preferences for consumption can be gradually varied between the standard constant intertemporal elasticity of substitution cies case and kahneman and tversky s prospect utility we find that the transitional dynamics of optimal consumption paths differ distinctly from the standard model in particular consumption smoothing is more pronounced we also show that prospect utility can cause the economy to remain in a steady state with low consumption and low capital

the paradox of redistribution and strategies of equality welfare state institutions inequality and poverty in the western countries the structure of welfare state institutions 2 a trade off exists between the degree of low income targeting and the size of redistributive budgets 3 outcomes of market based distribution are often more unequal than those of earnings related social insurance programs we argue that social insurance institutions are of central importance for redistributive outcomes using new data our comparative analyses of the effects of different institutional types of welfare states on poverty and inequality indicate that institutional differences lead to unexpected outcomes and generate the paradox of redistribution the more we target benefits at the poor and the more concerned we are with creating equality via equal public transfers to all the less likely we are to reduce poverty and inequality social scientists and social reformers have long debated how the welfare state and social policies should be designed so as to best reduce poverty and inequality this debate involves two different issues one question concerns whether social policies should be targeted or universal that is should they be organized for the poor only or should the welfare state include all citizens in the context of nontargeted programs another question concerns the level of benefits should benefits be equal for all or should they be related to previous earnings and in

ramsey meets laibson in the neoclassical growth model the neoclassical growth model is modified to include a variable rate of time preference with no commitment ability and log utility the equilibrium features a constant effective rate of time preference and is observationally equivalent to the standard model the extended framework yields testable linkages between the extent of commitment ability and the rates of saving and growth the model also has welfare implications including the optimal design of institutions that facilitate household commitments steady state results are obtained for general concave utility functions and some properties of the transitional dynamics are characterized for isoelastic utility

the fed s monetary policy rule and u s inflation the case of asymmetric preferences abstract this paper investigates the empirical relevance of a new framework for monetary policy analysis in which the decision makers are allowed but not required to weight differently positive and negative deviations of inflation and output from the target values the estimates of the central bank s euler equation indicate that the preferences of the fed had been asymmetric only before 1979 with the interest rate response to output contractions being larger than the response to output expansions of the same magnitude we show that this asymmetry on output implied an average inflation bias around 1 5 while the implicit inflation target also declined the asymmetric preferences induced inflation bias appears to account for a sizable fraction of the historical decline in the inflation mean

poverty inequality and income distribution in comparative perspective the luxembourg income study lis the luxembourg income study is a unique database that makes possible comparisons between countries at the individual and family levels seven countries are in the database at present and more are being added on a regular basis this book describes the technical and methodological aspects of the lis database and uses lis data to compare income distribution and redistribution poverty and the relationship between age and income across nations

equity in the finance of health care some further international comparisons this paper presents further international comparisons of progressivity of health care financing systems the paper builds on the work of wagstaff et al wagstaff a van doorslaer e et al 1992 equity in the finance of health care some international comparisons journal of health economics 11 pp 361 387 but extends it in a number of directions we modify the methodology used there and achieve a higher degree of cross country comparability in variable definitions we update and extend the cross section of countries and we present evidence on trends in financing mixes and progressivity

guidelines on searching for a dalton improving tax reform an illustration with data from indonesia this article documents the search for a dalton improving tax and expenditure reform using a methodology developed by yitzhaki and slemrod 1991 and mayshar and yitzhaki 1995 the methodology overcomes the need to define a specific social welfare function by searching instead for reforms that improve each social welfare function belonging to a wide class of functions the authors apply the method to the energy sector of indonesia ignoring distributional constraints and find that both the subsidy on kerosene and the tax on gasoline should be reduced but taking distributional concerns into account the present structure of energy taxes is reasonable and the country may benefit by increasing the subsidy to kerosene taxing electricity and reducing the gasoline tax these conclusions are robust to changes in the relevant parameters representing the indonesian economy

europe and central asia s great post communist social health insurance experiment aggregate impacts on health sector outcomes abstract the post communist transition to social health insurance in many of the central and eastern european and central asian countries provides a unique opportunity to try to answer some of the unresolved issues in the debate over the relative merits of social health insurance and tax financed health systems this paper employs regression based generalizations of the difference in differences method on panel data from 28 countries for the period 1990 2004 we find that controlling for any concurrent provider payment reforms adoption of social health insurance increased national health spending and hospital activity rates but did not lead to better health outcomes

longitudinal analysis of income related health inequality this paper considers the characterisation and measurement of income related health inequality using longitudinal data the paper elucidates the nature of the jones and lopez nicolas 2004 index of health related income mobility and explains the negative values of the index that have been reported in all the empirical applications to date the paper further presents an alternative approach to the analysis of longitudinal data that brings out complementary aspects of the evolution of income related health inequalities over time in particular we propose a new index of income related health mobility that measures whether the pattern of health changes is biased in favour of those with initially high or low incomes we illustrate our work by investigating mobility in the general health questionnaire measure of psychological well being over the first nine waves of the british household panel survey from 1991 to 1999

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

progressivity horizontal inequality and reranking caused by health system financing a decomposition analysis for switzerland abstract this paper presents an application of the duclos et al duclos j y jalbert v araar a 2003 classical horizontal inequity and reranking an integrated approach research on economic inequality 10 65 100 decomposition to an analysis of the 1998 swiss health system financing we see that in addition to measuring horizontal inequality in the classical sense this decomposition is more efficient and flexible than earlier ones it is also pointed out that methods involving a nonparametric estimation lead to asymptotically biased vertical and horizontal effects a procedure to estimate this bias is given finally it is shown that despite a major reform health system financing is still very regressive and social health insurance is more regressive than direct financing

utilitarianism and horizontal equity the case for random taxation this paper establishes that far from being able to derive the principle of horizontal equity from utilitarianism the principle is actually in consistent with utilitarianism in a variety of circumstances we derive conditions under which a it is optimal to impose random tax schedules ex post randomization and b it is optimal to randomize the tax schedules imposed on a set of otherwise identical individuals ex ante randomization the implications for optimal tax theory are discussed more generally it is shown that there are a number of potentially important economic situations with which the principle of horizontal equity may be inconsistent not only with utilitarianism but even with pareto optimality this abstract was borrowed from another version of this item

loss aversion under prospect theory a parameter free measurement agrowing body of qualitative evidence shows that loss aversion a phenomenon formalized in prospect theory can explain a variety of field and experimental data quantifications of loss aversion are however hindered by the absence of a general preference based method to elicit the utility for gains and losses simultaneously this paper proposes such a method and uses it to measure loss aversion in an experimental study without making any parametric assumptions thus it is the first to obtain a parameter free elicitation of prospect theory s utility function on the whole domain our method also provides an efficient way to elicit utility midpoints which are important in axiomatizations of utility several definitions of loss aversion have been put forward in the literature according to most definitions we find strong evidence of loss aversion at both the aggregate and the individual level the degree of loss aversion varies with the definition used which underlines the need for a commonly accepted definition of loss aversion