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

money back guarantees and market experimentation abstract we study the use of money back guarantees as a form of market experimentation in a market for experience goods with repeat purchases we show that extending the customer base in the second period by using a money back guarantee can be optimal only if a monopolist faces an uncertain distribution of buyers within the second period a money back guarantee allows the monopolist to discriminate between new and repeat purchasers while a pure price reduction does not thus whenever money back guarantees are feasible an optimal experimentation strategy includes a money back guarantee in the second period but not necessarily a price reduction

openness central bank independence and the sacrifice ratio traditional explanations of the negative correlation between openness and inflation presume that an inverse relationship between the degree of openness and the sacrifice ratio reduces the inflation bias of descretionary monetary policy temple 2002 concludes however that such a relationship fails to emerge in cross country data our analysis of the same cross country data considered by temple indicates that once the degree of central bank independence and its interaction with greater openness and the sacrifice ratio in addition increased openness lessens the positive effect of central bank independence on the sacrifice ratio

needs and targeting this paper shows that when in the manner of the recent targeting literature the resources available for poverty relief are allocated across heterogeneous groups so as to minimize a well behaved index of aggregate poverty the optimal response to an increase in the needs of some group may be to reduce the resources allocated to it necessary and sufficient conditions for optimally targeted benefits to be inversely related to needs are established under two polar forms of poverty alleviation strategy pure contingency and strict means testing and the wider methodological implications of this possibility discussed copyright 1992 by royal economic society

poverty dynamics empirical evidence for canada poverty low income dynamics are explored using tax filer data covering the period 1992 to 1996 the distributions of short and long term episodes are identified and reveal substantial differences by sex and family type entry and exit models explore the relationships between poverty transitions and sex family status and other personal and situational attributes duration effects on exiting and re entering poverty are found to be important and models including past poverty experiences point to strong occurrence dependence for poverty entry and incidence fixed effect panel data models confirm the above and reveal asymmetries in the impacts of household transitions on poverty jel classification i3 la dynamique de la pauvrete resultats empiriques pour le canada les auteurs examinent la dynamique de la pauvrete bas revenus a l aide des donnees disponibles pour les citoyens qui ont soumis leurs rapports d impot entre 1992 et 1996 on identifie les distributions d episodes courts et longs de pauvrete et celles ci revelent des differences significatives selon le sexe et les attributs familiaux les modeles d entree et sortie identifient les relations entre le statut de pauvrete le sexe le statut familial et d autres attributs personnels et situationnels il appert que les effets de duree sur les periodes de sortie et de re entree dans un statut de pauvrete sont importants les modeles qui prennent en compte les episodes de pauvrete anterieurs montrent qu il y a une forte correlation occurrence dependence tant pour le passage au statut de pauvrete que pour l incidence de tels episodes les resultats des etudes transversales confirment ces resultats et revelent des asymetries dans les impacts des transitions dans les menages sur la pauvrete

the impact of market structure and learning on the tradeoff between r d competition and cooperation this paper compares r d competition and cooperation when firms can devote resources to a safe investment or a risky r d investment when the discovery of a new product creates positive externalities on non discovering firms equilibrium investment flow ex ante investment and welfare under r d competition are less than or equal to what they are under research cooperation with negative externalities r d cooperation results in the same or lower ex ante investment than under r d competition and social welfare may also be less our results have relevance for empirical studies of the impact of r d cooperation on r d outcomes

optimal anti poverty programmes horizontal equity and the paradox of targeting the paper examines the problem of optimal targeting when households differ in needs additively decomposable poverty measures based on the households deprivation are employed needs are modelled carefully household size and needs are reflected by equivalence scales and weights the paradox of targeting corresponds to a situation in which the benefits given to a household type could decrease if the type s needs measured by the respective scale value are increased i find that poverty programmes are horizontally equitable if and only if the weight attached to each household type equals the respective equivalence scale value the paradox cannot then occur either differences in household size and needs the present paper deals with this topic considering optimal poverty alleviation programmes two questions are investigated first are optimal programmes horizontally equitable this question is related to the second one does an increase in needs lead to an increase in benefits in view of some results in the literature it seems that the answers can be negative for instance ebert 1997 demonstrates that the living standard of different household types may be different in an optimal income distribution given a social welfare function keen 1992 describes what he calls the paradox of targeting it may be that optimal targeting requires that an increase in the needs of some group be met by a reduction in the resources allocated to it thus the answers may be troubling it is obvious that the outcome of the analysis depends on the framework chosen and the researcher s objective there are several ingredients that determine optimal programmes given different needs and sizes a distribution of household income has to be adjusted in order to reflect these differences in practice incomes are often converted to equivalent incomes measured for a reference type and weights are attached furthermore the poverty lines of different groups have to be chosen appropriately an optimal outcome also

poverty in canada and the united states measurement trends and implications although canada and the united states are two of the richest countries in the world many canadians and americans perceive themselves and are perceived by others to be poor which raises the issue of how best to measure poverty within canada there are widespread worries that the self image of canada as a place with relatively little poverty somewhat kinder and gentler than the united states may be a bit outdated see graves dugas and beauchamp 1999 angus reid 1999 poverty in canada has been rising while in the united states it has been falling in recent years which raises the issues of why that has been happening and what it will mean in the longer term for canada and the united states as a whole in this paper therefore i begin by asking how poverty in affluent countries should be measured before examining recent evidence on poverty intensity and its social significance in section 1 the use of the sen shorrocks thon index of poverty intensity is advocated and the poverty box is introduced as a summary graphical representation in section 2 recent data are presented on poverty in europe and north america and it is noted that between 1994 and 1997 canadian provinces became quite similar to many u s states in poverty intensity a fixed effects model is used in section 3 to examine whether changes in trade exposure the unemployment rate unemployment insurance and social assistance are significant determi

learning and capacity expansion under demand uncertainty a competitive dynamic model of entry into a new industry is set up and both its positive and normative aspects are studied the main assumptions are that entry is sequential that it occurs under imperfect information on the size of the market and that better information becomes available as time goes on the gradual improvement in information is due to the fact that later waves of entrants are able to observe the profitability of earlier entrants the major results reported here under suitable restrictions are that the equilibrium rate of entry is monotonically decreasing over time and that at any given point in time it is smaller than the socially optimal one when a new market opens as a result of a product being newly invented for instance or when an existing market starts to expand uncertainty with respect to its size is likely to prevail as a result of this uncertainty entry of firms into such markets typically will occur in waves some firms will enter initially while others will wait to see the consequences of that initial entry if the experience of early entrants is favourable entry will continue otherwise entry will cease hence with the introduction of a new product two phases are associated the growth phase typified by positive operating profits for existing firms and expansion of productive capacity due to entry of new firms and the mature phase typified by erosion of profits and fixed total productive capacity empiricists estimating the time pattern of investments during the growth phase have found an s shaped diffusion curve see mansfield 1986 and gort and klepper 1982 the purpose of the present paper is to theoretically characterize these time patterns and to investigate their welfare properties any attempt to model the type of entry described above must account for differences in both entry dates and resultant earnings in other words the theory must explain why the realized earnings of different cohorts of firms are not equal often such ex post differences are reconciled by assuming heterogeneity with respect to some latent underlying characteristic managerial ability for instance and attributing differences in earnings to differences in that characteristic in this paper instead earning differentials are attributable to luck only ex ante all firms are technologically identical and equally capable of forecasting market prospects and rationally acting upon those forecasts ex post some firms turn out to have entered at the right time and are for that reason more profitable the model developed in this paper analyzes a parametric example of a sequential entry problem in which the uncertainty over market size is gradually resolved over time in a bayesian setting in an environment of perfect competition and constant returns toscale a free entry equilibrium concept is introduced and the aggregate implications of the time path of investments are derived i then compare this actual time path to the optimum this comparison is interesting because the equilibrium is analysed under the

dynamic pricing in the presence of individual learning abstract this paper studies price dynamics in a setting in which a monopolist sells a new experience good over time to many buyers and the seller can neither price discriminate among the buyers nor commit to a price rule buyers learn from their own experiences about the effectiveness of the product individual learning generates ex post heterogeneity which affects the buyers purchasing decisions the monopolist s pricing strategy and efficiency when learning occurs through good news signals buyers receive a rent because of the possible advantageous belief caused by short lived deviations if a good news signal arrives the price can instantaneously increase or decrease depending on the arrival time of this signal the equilibrium is inefficient because the monopolist s incentive to exploit known buyers leads to inefficient early termination of exploration when learning occurs through bad news signals ex post heterogeneity has no such effect since only homogeneous unknown buyers purchase the experience good

openness and inflation a new assessment romer 1993 uses a barro gordon type model to argue that openness puts a check on the government s incentive to engage in unanticipated inflation because of induced exchange rate depreciation 2 therefore in the absence of precommitment in monetary policy more open economies will tend to have lower inflation rates romer finds that empirically over a large sample of countries and over a broad time frame average inflation rates are lower in smaller more open economies this relationship is significant quantitatively large and robust moreover these findings suggest that models in which the absence of precommitment in monetary policy leads to inefficiently high average levels of inflation are essential to understanding inflation in most of the world this comment suggests that the negative link between inflation and openness romer found may be largely driven by the responses of severely indebted countries sics to the debt crisis of the 1980s figures i and ii show the scatterplots of the logarithms of average inflation and openness for the subperiods 1973 to 1981 predebt crisis and 1982 to 1990 the debt crisis period different groups of countries are separated according to their indebtedness level 3 the solid lines in the figures represent the predicted value of inflation obtained from a regression of openness on inflation for the countries in each group as the scatterplots show there is indeed a strong negative relation between openness and inflation among sics during the debt crisis

learning from private and public observations of othersʼ actions we study how a continuum of agents learn about disseminated information by observing others actions every period each agent observes a public and private noisy signal centered around the aggregate action taken by the population the public signal represents an endogenous aggregate variable such as a price or a quantity the private signal represents the information gathered through private communication and local interactions we identify conditions such that the average learning curve is s shaped learning is slow initially intensifies rapidly and finally converges slowly to the truth we show that increasing public information always slows down learning in the long run and under some conditions reduces welfare lastly optimal diffusion of information requires that agents strive to be different agents need to be rewarded for choosing actions away from the population average

a consistent multidimensional pigou dalton transfer principle abstract the unidimensional pigou dalton transfer principle demands that a regressive transfer in income a transfer from worse off poor to better off rich decreases social welfare in a multidimensional setting the direct link between income or any other attribute and individual well being is absent we interpret the social welfare level of a distribution in which each individual has the same bundle as the individual well being level we define regressivity on the basis of this individual well being ranking in a setting with both transferable and non transferable attributes the imposition of the ensuing consistent pigou dalton principle forces individual well being to have a quasi linear structure in the transferable attributes since we allow for transferable and non transferable attributes our result provides a normative underpinning for criteria in the distinct literatures of multidimensional inequality measurement only transferable attributes and of needs one transferable and one non transferable attribute

ethically flexible measures of poverty this paper introduces new measures of both relative and absolute poverty using the notion of representative income of a community corresponding to the censored income distribution these new measures satisfy the monotonicity and transfer axioms proposed by sen 1976 in all cases

equivalent expenditure functions and expenditure dependent equivalence scales abstract this paper presents and investigates a new class of equivalent expenditure functions that is a generalization of the one that corresponds to exact independent of base equivalence scales it provides less restrictive household demands especially for children s goods and has associated equivalence scales that may depend on expenditure we show that under certain conditions equivalent expenditure functions and the associated expenditure dependent equivalence scales can be uniquely estimated from demand data we estimate them using canadian data and find that the resulting scales are both plausible and expenditure dependent the estimated equivalence scales for households with children decline significantly as expenditure increases

openness exchange rate regimes and the phillips curve abstract recent research suggests that the phillips curve slope measured using sacrifice ratios from the period 1961 88 is positively related to trade openness contradicting the romer 1993 openness and inflation theory and evidence quarterly journal of economics 108 869 903 hypothesis that disinflations are less costly in open economies in this paper i consider sacrifice ratios and output inflation trade offs from 1981 98 and allow their dependence on openness to vary with the exchange rate regime sacrifice ratios are weakly negatively related to openness but the strength of the relationship does not increase with exchange rate flexibility output inflation trade offs are negatively related to openness and the strength of the relationship increases with exchange rate flexibility

does less inequality among households mean less inequality among individuals abstract consider an income distribution among households of the same size in which individuals equally needy from the point of view of an ethical observer are treated unfairly individuals are split into two types those who receive more than one half of the family budget and those who receive less than one half we look for conditions under which welfare and inequality quasi orders established at the household level still hold at the individual one a necessary and sufficient condition for the generalized lorenz test is that the income of dominated individuals is a concave function of the household income individuals of poor households have to stand more together than individuals of rich households this property also proves to be crucial for the preservation of the relative and absolute lorenz criteria when the more egalitarian distribution is the poorest extensions to individuals heterogeneous in needs and more than two types are also provided

price competition for an informed buyer abstract this paper investigates price competition with private information on the demand side two sellers each offer a different variety of a good to a buyer endowed with a private binary signal on their relative quality the model provides an informational foundation to differentiation in hotelling s price competition game equilibrium comparative statics is performed with respect to the prior belief and the precision of the private information competition is fierce when the prior strongly favors one seller and private signals are relatively uninformative sellers equilibrium profits may fall with the revelation of public information and are nonmonotonic in the prior belief journal of economic literature classification numbers c72 d43 d82 l15

consistent income tax structures when households are heterogeneous the paper examines the redistributive impact of income taxation for heterogeneous populations an equivalent income function is introduced in order to adjust the incomes of different types of households and the redistributive performance of the tax system is evaluated by comparing the lorenz curves of the distributions of before and after tax equivalent incomes inequality reduction after tax imposes mild consistency conditions which are met by most current tax systems if the inequality reducing effect of taxation is required to be independent of the reference household type then the structure of the equivalent income function is fully determined by the inequality concept journal of economic literature classification numbers d31 d63 h24

a class of poverty indices a review of a number of well known poverty indices shows that two axiomatic requirements to a pover ty index are never satisfied simultaneously the choice between these two axioms depends on the nature of the poverty line a class of pov erty indices is developed as an application of the dalton and atkinso n inequality to poverty measurement almost all other poverty indices are seen to be a member of the class the formulation of this class clarifies the basic problems involved in poverty measurement copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

acquisition of project specific assets with bayesian updating we study the impact of learning on the optimal policy and the time to decision in an infinite horizon bayesian sequential decision model with two irreversible alternatives exit and expansion in our model a firm undertakes a small scale pilot project to learn via bayesian updating about the project s profitability which is known to be in one of two possible states the firm continuously observes the project s cumulative profit but the true state of the profitability is not immediately revealed because of the inherent noise in the profit stream the firm bases its exit or expansion decision on the posterior probability distribution of the profitability the optimal policy is characterized by a pair of thresholds for the posterior probability we find that the time to decision does not necessarily have a monotonic relation with the arrival rate of new information

exchange rate pass through openness and the sacrifice ratio abstract considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation output trade off and suggests that the ultimate effect of openness on the output inflation relationship is influenced by a variety of factors in this paper we consider the impact of exchange rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio we develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output inflation relationship next we empirically explore the nature of these two variables and their interaction results indicate that greater pass through increases the sacrifice ratio that there is statistically significant interaction between pass through and openness and once the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio such as central bank independence openness fails to exert an empirically robust effect on the sacrifice ratio

schooling and economic well being the role of nonmarket effects standard estimates of the economic value of additional schooling based on earnings differences associated with differences in the level of schooling attained cover only a portion of the total effects of education that are valued by citizens we first identify a catalog of nonmarketed effects many of which have been recently studied by economists and then propose a procedure for estimating a willingness to pay value for these effects using empirical estimates of the magnitude of a selection of these effects found in the literature we calculate willingness to pay values using our proposed procedure these illustrative calculations suggest that standard estimates of the benefit of incremental schooling substantially understate the full value of such investments

does globalisation discipline monetary policymakers abstract this paper analyses globalisation using a small general equilibrium model it concludes that whether increased openness a reduction in the costs of international trade helps to discipline monetary policy in large open economies depends on the type of trade costs moreover to the extent that globalisation induces stronger competition in the goods market this may also have an adverse effect on monetary policy discipline the latter is due to international expenditure switching which becomes a more forceful channel as competition intensifies thus the answer to the question in the title is not necessarily affirmative

openness and the effects of monetary policy abstract economic theory suggests that an economy s openness reduces the ability of monetary policy to affect output while increasing its effects on inflation using annual data from the 1953 1990 period for a panel of 38 countries the paper s empirical results support the theoretical predictions the more open the economy the smaller larger the output inflation effects of a given change in the money supply this finding is robust across all the different specifications and estimation methods examined

sequential dominance and weighted utilitarianism abstract one well known way to make heterogeneous welfare comparisons comparing distributions in which households differ in both income and needs is atkinson and bourguignon s atkinson a b bourguignon f 1987 income distribution and differences in needs in feiwel g r ed arrow and the foundations of the theory of economic policy macmillan london pp 350 370 sequential generalized lorenz dominance criterion we show that it suffices to be a weighted utilitarian with higher weights for the more needy to accept the sequential generalized lorenz dominance criterion

experimentation in markets we present a model of entry and exit with bayesian learning and price competition a new product of initially unknown quality is introduced in the market and purchases of the product yield information on its true quality we assume that the performance of the new product is publicly observable as agents learn from the experiments of others informational externalities arise we determine the markov perfect equilibrium prices and allocations in a single market the combination of the informational externalities among the buyers and the strategic pricing by the sellers results in excessive experimentation if the new product is launched in many distinct markets the path of sales converges to the efficient path in the limit as the number of markets grows in multi agent learning situations informational externalities may reduce the number of experiments undertaken below the socially efficient level as buyers choose among new experience goods or firms decide whether to adopt a new technology the availability of information from others decisions gives rise to a free rider problem rather than perform a costly experiment herself a buyer may opt to wait and see how the market evaluates the new product in this paper we develop a simple market model of experimentation and analyse the informational effects in a model with buyers and sellers in contrast to the one sided experimentation problems we find that equilibrium experimentation often exceeds the pareto optimal level in two sided models the first model we consider is a dynamic duopoly in continuous time with homogeneous buyers two firms with differentiated products engage in price competition over time one product has a known value while the other is new and its true value is initially uncertain to all the parties in the model the value of the product is determined by the quality of the match between consumer preferences and product characteristics additional information is acquired only through repeat purchases in each period buyers observe a noisy signal of the true value of the product we assume that all signals are publicly observable and that all uncertainty is about a common value component with this assumption all buyers and sellers condition their behaviour on the same information and we can abstract from individual differences in past observations this is justified in economic situations where public data on other buyers choices is available and informative for example when choosing among providers of communication or transportation services such as mail delivery firms or airlines it is reasonable to rely on consumer reports and other published data in addition to one s private experience we also show that our model has an alternative interpretation as one where a flow of buyers make a once and

entry and experimentation in oligopolistic markets for experience goods abstract we investigate a two period bertrand market in which one seller introduces an experience good the new product competes with an alternative good of known quality ex ante neither sellers nor consumers know the value of the new product while consumers can learn their valuation for the new good by actual consumption experimentation sellers cannot observe experimentation outcomes thus asymmetric information arises if the buyer experiments as a result the equilibrium is inefficient and too little entry occurs

optimal search for product information consumers often need to search for product information before making purchase decisions we consider a tractable continuous time model of gradual learning in which consumers incur search costs to learn further product information and update their expected utility of the product at each search occasion we characterize the optimal stopping rules for either purchase or no purchase as a function of search costs and of the importance informativeness of each attribute this paper also characterizes how the likelihood of purchase changes with the ex ante expected utility search costs and the importance informativeness of each attribute we discuss optimal pricing the impact of consumer search on profits and social welfare and how the seller chooses its price to strategically affect the extent of the consumers search behavior we show that lower search costs can hurt the consumer because the seller may then choose to charge higher prices discounting creates asymmetry in the purchase and no purchase search thresholds and may lead to lower prices if search occurs in equilibrium or higher prices if there is no search in equilibrium this paper also considers searching for signals of the value of the product heterogeneous importance of attributes endogenous intensity of search and social learning this paper was accepted by pradeep chintagunta marketing

trade openness and inflation the role of real and nominal price rigidities the paper revisits the long standing question of the impact of trade openness on the inflation output trade off by accounting for the effects of product market competition on price flexibility the study develops a new keynesian open economy dynamic stochastic general equilibrium model with non constant price elasticity of demand and calvo price setting in which the frequency of price adjustment is endogenously determined it demonstrates that trade openness has two opposing effects on the sensitivity of inflation to output fluctuations on the one hand it raises strategic complementarity in firms pricing decisions and the degree of real price rigidities which makes inflation less responsive to changes in real marginal cost on the other hand it strengthens firms incentives to adjust their prices thereby reducing the degree of nominal price rigidities and increasing the sensitivity of inflation to changes in marginal cost the study explains the positive relationship between competition and the frequency of price adjustment observed in the data it also provides new insights into the effects of global economic integration on the phillips curve

exchange rate determination the role of factor price rigidities and nontradeables this paper introduces factor labor markets into the intertemporal monetary model of obstfeld and rogoff and combines this richer market structure with a new utility independent representation of nontradeables this allows us to explore the international monetary transmission mechanism for factor price wage rigidities under different degrees of macroeconomic openness factor price rigidities imply similar properties for the international transmission mechanism as domestic producer price rigidities nontradeables give raise to interesting new effects under asymmetric monetary shocks they create short run ppp deviations increase exchange rate volatility relative to price level volatility and reduce positive consumption and negative output comovements 2000 elsevier science b v all rights reserved

social welfare when needs differ an axiomatic approach if the social welfare of households of different demographic type has to be evaluated we observe considerable disagreement about the way the composition of households is to be taken into account this paper makes an attempt to differentiate some of the various approaches it deals with four methods in order to make their normative content transparent an axiomatic approach is employed the methods are completely characterized and some of their implications are demonstrated

openness inflation and the phillips curve a puzzle models of open economies with nominal rigidities are often thought to predict a correlation between openness to trade and the slope of the output inflation trade off or phillips curve using a variety of measures of the trade off and a standard measure of openness this paper argues that the direct evidence for a correlation is not strong in turn this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by romer 1993 the paper considers some alternative explanations for the romer evidence

the new keynesian phillips curve closed economy versus open economy abstract the paper extends woodford s optimizing models with nominal rigidities chapter 3 of interest and prices foundations of a theory of monetary policy princeton university 2000 unpublished manuscript analysis of the closed economy phillips curve to an open economy with both commodity trade and capital mobility we show that consumption smoothing which comes with the opening of the capital market raises the degree of strategic complementarity among monopolistically competitive suppliers thus rendering prices more sticky and magnifying output responses to nominal gdp shocks

macroeconomic effects of regulation and deregulation in goods and labor markets product and labor market deregulation reduce and redistribute rents leading economic players to adjust to this new distribution it typically comes with distribution and dynamic effects to study these effects we build a macroeconomic model on two central assumptions monopolistic competition in the goods market which determines the size of rents and bargaining in the labor market which determines the distribution of rents product market regulation determines entry costs and the degree of competition labor market regulation determines the bargaining power of workers we show the effects of deregulation we then use our results to discuss the political economy of deregulation and recent macroeconomic evolutions in europe

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

learning and strategic pricing we consider the situation where a single consumer buys a stream of goods from different sellers over time the true value of each seller s product to the buyer is initially unknown additional information can be gained only by experimentation for exogeneously given prices the buyer s problem is a multi armed bandit problem the innovation in this paper is to endogenize the cost of experimentation to the consumer by allowing for price competition between the sellers the role of prices is then to allocate intertemporally the costs and benefits of learning between buyers and sellers we examine how strategic aspects of the oligopoly model interact with the learning process all markov perfect equilibria mpe are efficient we identify an equilibrium which besides its unique robustness properties has a strikingly simple seemingly myopic pricing rule prices below marginal cost emerge naturally to sustain experimentation intertemporal exchange of the gains of learning is necessary to support efficient experimentation we analyze the asymptotic behavior of the equilibria

openness the sacrifice ratio and inflation is there a puzzle abstract the standard time inconsistency based explanation for the negative correlation between openness and inflation requires an inverse relationship between the sacrifice ratio and openness but daniels et al 2005 openness central bank independence and the sacrifice ratio journal of money credit and banking 37 2 371 379 have provided evidence that controlling for central bank independence reveals a positive relationship this paper embeds the time inconsistency approach within a model of a multisector imperfectly competitive open economy in this setting greater openness raises the sacrifice ratio but reduces the inflation bias thus failure to observe an inverse relationship between openness and the sacrifice ratio does not necessarily imply that the time inconsistency approach is irrelevant to understanding the openness inflation relationship

promise and pitfalls in the use of secondary data sets income inequality in oecd countries as a case study this paper examines the role of secondary data sets in empirical economic research taking the field of income distribution as a case study we illustrate problems faced by users of secondary statistics showing how both cross country comparisons and time series analysis can depend sensitively on the choice of data after describing the genealogy of secondary data sets on income inequality we consider the main methodological issues and discuss their implications for comparisons of income inequality across oecd countries and over time the lessons to be drawn for the construction and use of secondary data sets are summarized at the end of the paper

financial speculators underperformance learning self selection and endogenous liquidity we develop an equilibrium model of learning by rational traders to reconcile several empirical regularities cross sectionally most individual speculators lose money large speculators outperform small speculators past performance positively affects subsequent trade intensity most new traders lose money and cease speculation and performance shows persistence learning from trading generates substantial endogenous liquidity reducing bid ask spreads and the impact of exogenous liquidity shocks on asset prices but amplifying the effects of real shocks introducing slightly overconfident traders increases bid ask spreads hurting all traders finally behavioral theories cannot reconcile all of these empirical regularities

strategic waiting for consumer generated quality information dynamic pricing of new experience goods in this paper we study the impact of consumer generated quality information e g consumer reviews on a firm s dynamic pricing strategy in the presence of strategic consumers such information is useful not only to the consumers that have not yet purchased the product but also to the firm the informativeness of the consumer generated quality information depends however on the volume of consumers who share their opinions and thus depends on the initial sales volume hence via its initial price the firm not only influences its revenue but also controls the quality information flow over time the firm may either enhance or dampen the quality information flow via increasing or decreasing initial sales the corresponding pricing strategy to steer the quality information flow is not always intuitive compared to the case without consumer generated quality information the firm may reduce the initial sales and lower the initial price interestingly the firm may get strictly worse off due to the consu

about the right weights of the social welfare function when needs differ abstract when equivalence scales are used to compute the well being of individuals using them as weights has been proposed by ebert the criticism against this method on the grounds that it does not respect anonymity vanishes in the standard microeconomic setting

from income inequality to economic inequality i begin by recounting a true story a rather trivial and innocuous story as it happens but one with something of a lesson some years ago when i went to give a lecture at another campus i chose economic inequality as the title of my talk on arrival i found the campus covered with posters announcing that i was speaking on income inequality when i grumbled about it slightly i encountered gentle but genuine amazement that i wanted to fuss about such an insignificant difference indeed the identification of economic inequality with income inequality is fairly standard and the two are often seen as effectively synonymous in the economic literature if you tell someone that you are working on economic inequality it is quite commonly assumed that you are studying income distribution this implicit identification can be found in the philosophical literature as well for example in his interesting and important paper equality as a moral ideal harry frankfurt 1987 the distinguished philosopher provides a closely reasoned critique of what he calls economic egalitarianism defining it as the doctrine that there should be no inequalities in the distribution of money p 21 the distinction however is important many of the criticisms of economic egalitarianism as a value or a goal applies much more readily to the narrow concept of income inequality than it does to the broader notions of economic inequality for example giving a larger share of income to a person with more needs say due to a disability can be seen as militating against the principle of equalizing incomes but it does not go against the broader precepts of economic equality since the greater need for economic resources due to the disability must be taken into account in judging the requirements of economic equality well the subject of this paper is precisely the difference between economic inequality and income inequality it will be argued that we ought to pay much more attention than we conventionally do to economic inequality in an appropriately broad sense taking note of the fact that income inequality on which economic analysis of inequality so often concentrates gives

multidimensional welfare distributions empirical application to household panel data from vietnam this article explores the empirical application of theoretical multidimensional welfare distribution analysis techniques to real household welfare distributions the article operationalizes recent conceptual developments in multidimensional distribution theory and assesses their usefulness for the measurement of multidimensional household inequality the results strongly highlight the importance of bringing nonmonetary aspects of household welfare into the forefront of inequality analysis agreement over the various approaches to the measurement of multidimensional inequality entails however nontrivial decisions that may limit the practical usefulness of these measures we suggest that the use of multidimensional inequality ranges and the application of restrictive dominance criteria to multidimensional welfare distributions may open significant scope for further developments in the empirical analysis of multidimensional inequality

dynamic price competition with capacity constraints and a strategic buyer we analyze a simple dynamic durable good model two incumbent sellers and potential entrants choose their capacities at the start of the game we solve for equilibrium capacity choices and the necessarily mixed pricing strategies in equilibrium the buyer splits the order with positive probability to preserve competition making it possible that a high and low price seller both have sales sellers command a rent above the value of unmet demand by the other seller a buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller

optimal experimentation in a changing environment this paper studies optimal experimentation by a monopolist who faces an unknown demand curve subject to random changes and who maximizes profits over an infinite horizon in continuous time we show that there are two qualitatively very different regimes determined by the discount rate and the intensities of demand curve switching and the dependence of the optimal policy on these parameters is discontinuous one regime is characterized by extreme experimentation and good tracking of the prevailing demand curve the other by moderate experimentation and poor tracking moreover in the latter regime the agent eventually becomes trapped into taking actions in a strict subset of the feasible set

common value experimentation abstract in many economic environments agents often continue to learn about the same underlying state variable even if they switch action for example a worker s ability revealed in one job or when unemployed is informative about her productivity in another job we analyze a general setup of experimentation with common values and show that in addition to the well known conditions of value matching level and smooth pasting first derivative this implies that the second derivatives of the value function must be equal whenever the agent switches action this condition holds generally whenever the stochastic process has continuous increments the main appeal of our approach is its applicability which is demonstrated with two applications featuring common value experimentation strategic pricing and job search with switching costs

market diffusion with two sided learning we analyze the diffusion of a new product of uncertain value in a duopolistic market both sides of the market buyers and sellers learn the true value of the new product from experiments with it buyers have heterogeneous preferences over the products and sellers compete in prices the pricing policies and market shares in the unique markov perfect equilibrium are obtained explicitly the dynamics of the equilibrium market shares display excessive sales of the new product relative to the social optimum in early stages and too low sales later on the diffusion path of a successful product is s shaped

competitive targeted advertising over networks recent advances in information technology have allowed firms to gather vast amounts of data regarding consumers preferences and the structure and intensity of their social interactions this paper examines a game theoretic model of competition between firms that can target their marketing budgets to individuals embedded in a social network we provide a sharp characterization of the optimal targeted advertising strategies and highlight their dependence on the underlying social network structure furthermore we provide conditions under which it is optimal for the firms to asymmetrically target a subset of the individuals and establish a lower bound on the ratio of their payoffs in these asymmetric equilibria finally we find that at equilibrium firms invest inefficiently high in targeted advertising and the extent of the inefficiency is increasing in the centralities of the agents they target taken together these findings shed light on the effect of the network structure on the outcome of marketing co

contextual inference in markets on the informational content of product lines context can influence decisions this malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings in a market equilibrium however context conveys payoff relevant information to consumers consequently these consumers rationally violate naive formulations of standard choice theoretic principles i identify informational asymmetries under which apparently anomalous behaviors namely the compromise effect and choice overload arise as market equilibria firms respond to consumers contextual inference in case of the compromise effect a firm may introduce premium loss leaders expensive goods of overly high quality that increase the demand for other goods

waterfall versus sprinkler product launch strategy influencing the herd a seller decides the price and sequence in which a product of unknown value is introduced to consumers consumers inspect the product before consumption and observe past prices and sales consumption at a high price is informative for later consumers as it indicates that the product is likely to be of high value i show that on an average prices decrease over time however expected revenue on an average rises over time for a high enough discount factor i find that for extreme beliefs the firm introduces the product to all consumers but for intermediate values the product is introduced only to one consumer

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

short run subsidies and long run adoption of new health products evidence from a field experiment short run subsidies for health products are common in poor countries how do they affect long run adoption a common fear among development practitioners is that one off subsidies may negatively affect long run adoption through reference dependence people might anchor around the subsidized price and be unwilling to pay more for the product later but for experience goods one off subsidies could also boost long run adoption through learning this paper uses data from a two stage randomized pricing experiment in kenya to estimate the relative importance of these effects for a new improved antimalarial bed net reduced form estimates show that a one time subsidy has a positive impact on willingness to pay a year later inherit to separately identify the learning and anchoring effects we estimate a parsimonious experience good model estimation results show a large positive learning effect but no anchoring we black then discuss the types of products and the contexts inherit for which these results may apply

globalization the output inflation tradeoff and inflation abstract this paper provides comprehensive evidence on the relation between inflation and globalization defined here as trade and financial openness using a large cross section of 91 countries over the period 1985 2004 we establish two main empirical regularities both higher trade and financial openness i reduce central banks inflation bias yielding lower average inflation and ii are associated with a larger output inflation tradeoff this evidence is at odds with the standard barro gordon framework which would require globalization to have a negative effect on the output inflation tradeoff to yield lower equilibrium inflation but it is consistent with a recent strand of new keynesian models emphasizing the role of imperfect competition and nominal rigidities our findings also support the relevance of the time inconsistency hypothesis which underlies the theoretical models predicting a relation between globalization and inflation for the oecd subsample however we do not find an effect of openness on inflation the output inflation tradeoff suggesting that these countries have created an institutional framework for central banks that eliminates distortions due to the time inconsistency problem

monopoly pricing in the presence of social learning a monopolist offers a product to a market of consumers with heterogeneous quality preferences although initially uninformed about the product quality they learn by observing past purchase decisions and reviews of other consumers our goal is to analyze the social learning mechanism and its effect on the seller s pricing decision consumers follow an intuitive non bayesian decision rule under conditions that we identify we show that consumers eventually learn the product s quality we show how the learning trajectory can be approximated in settings with high demand intensity via a mean field approximation that highlights the dynamics of this learning process its dependence on the price and the market heterogeneity with respect to quality preferences two pricing policies are studied a static price and one with a single price change finally numerical experiments suggest that pricing policies that account for social learning may increase revenues considerably relative to policies that do not this

preemption games with private information preemption games are widely used to model economic problems such as patent races we introduce private information into these games and allow for this information to stochastically change over time this reflects e g how r d competitors improve their innovations over time and keep these innovations secret before patenting them the analysis initially appears intractable because of the complexity of the equilibrium updating of beliefs on opponents information however we demonstrate the existence of a class of equilibria and calculate these equilibria in closed form we find that the expected durations in these equilibria are longer than when players information is public but in some cases shorter than in the collusive outcome hence r d secrecy slows down innovation disclosure

measuring poverty and differences in family composition the equivalence scales used to adjust for differences in family composition when measuring poverty exhibit considerable variation this paper suggests an alternative approach that allows for differences in social judgements regarding the treatment of different types of family and examines the relation with the choice of poverty measure the resulting dominance criteria cannot provide a complete ranking but allow the extent of disagreement to be identified their application is illustrated by the example of changes in child benefits copyright 1992 by the london school of economics and political science

strategic firms and endogenous consumer emulation better informed consumers may be treated preferentially by firms since their consumption serves as a quality signal for other customers for normal goods this results in wealthy individuals being treated better than poor individuals we investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically consumers search for high quality firms and condition their choices on observed actions of other consumers when they observe consumers who are more likely to have identified a high quality firm uninformed individuals will optimally emulate those consumers one group of consumers arises endogenously as leaders whose consumption behavior is emulated follow on sales induce firms to give preferential treatment to these lead consumers which reinforces their learning

equity regarding poverty measures differences in needs and the role of equivalence scales the paper investigates the definition of equity regarding poverty measures when there are different household types in the population it demonstrates the implications of a between type regressive transfer principle for poverty measures for the choice of poverty lines and for the measurement of living standard the role of equivalence scales which are popular in empirical work on poverty measurement is clarified ce memoire examine la definition de mesures de pauvrete fondees sur l equite quand existent differents types de menages dans la population on montre les implications d un principe de transfert regressif entre types de menages pour les mesures de pauvrete pour la definition des seuils de pauvrete et pour la mesure du niveau de vie on clarifie le role des echelles d equivalence qui sont d un usage generalise dans les travaux sur la mesure de la pauvrete

asymmetric information information externalities and efficiency the case of oil exploration in this article we examine the efect of private information and information externalities on the ex post eficiency of investment in oil exploration we show that too much drilling tends to occur ifjirms believe that the area is likely to contain a sizeable pool of oil and too little drilling occurs if the opposite is true bargaining with well defined property rights to the information externality can eliminate underinvestment but overinvestment remains a problem because firms have an incentive not to disclose their private information

impact of bayesian learning and externalities on strategic investment we investigate the interplay between learning effects and externalities in the problem of competitive investments with uncertain returns we examine a game theoretic duopoly investment model in which i a firm can learn about the profitability of the investment by observing the performance of the first mover and ii externalities exist between the investments of two firms we find a region of a war of attrition between the two firms in which the interplay between externalities and learning gives rise to counterintuitive effects on investment strategies and payoffs in particular we find that contrary to the conventional war of attrition where an increase in benefits for the follower generally delays the first move an increase in the rate of learning which tends to benefit the follower can hasten the first investment this paper was accepted by james smith decision analysis

information revelation and strategic delay in a model of investment we model investment as an n player game with a pure informational externality each player s payoff depends only on his own action and the state of nature however because a player s action reveals his private information players wait to see what other players will do equilibrium is inefficient because delay is costly and information is imperfectly revealed we characterize the unique symmetric perfect bayesian equilibrium and study the robustness of delay which turns out to be sensitive to the reaction speed and the number of players we establish the following results i when the period length is very short the game ends very quickly and there is a form of herding or informational cascade which results in a collapse of investment ii as the period length increases the possibility of herding disappears iii as the number of players increases the rate of investment and the information flow are eventually independent of the number of players adding more players simply increases the number who delay iv in the limit the time profile of investment is extreme a period of low investment followed either by an investment surge or a collapse

inflation in open economies abstract this paper relates the time consistent inflation rate to the degree of trade openness of an economy the mechanism linking the welfare effects of monetary surprises and hence the incentives to inflate to openness does not rely on a large country terms of trade effect but rather is due to imperfect competition and nominal price rigidity in the non traded sector the empirical evidence supports the main predictions of the model 1997 elsevier science b v

aggregate poverty measures the way poverty is measured is important for an understanding of what has happened to poverty as well as for anti poverty policy evaluation sen s 1976 pathfinding work has motivated many researchers to focus on the way poverty should be measured a poverty measure argued by sen should satisfy certain properties or axioms and the desirability of a poverty measure should be evaluated by these axioms during the last two decades many researchers have adopted the axiomatic approach pioneered by sen to propose additional axioms and develop alternative poverty measures the objective of this survey is to provide a clarification on the extensive literature of aggregate poverty measures in this survey we first examine the desirability of each axiom the properties of each poverty measure and the interrelationships among axioms the desirability of an axiom cannot be evaluated in isolation and some combination of axioms may make it impossible to devise a satisfactory poverty measure some axioms can be implied by other axioms combined and so are not independent some others are ad hoc and are disqualified as axioms for poverty measurement based on the interactions among axioms we identify the core axioms which together have a strong implication on the functional form of a poverty measure we then review poverty measures that have appeared in the literature evaluating the interrelationships among different measures and examining the properties of each measure the axioms each measure satisfies violates are also summarized in a tabular form several good poverty measures which have not been documented by previous surveys are also included

unemployment shocks and income distribution how did the nordic countries fare during their crises we study the inequality of disposable income in denmark finland norway and sweden during the late 1980s and early 1990s when unemployment rose dramatically in all four countries a standard measure of inequality the gini coefficient was surprisingly stable in all countries during this period by decomposing the gini into income components we test hypotheses about the reasons for this stable income distribution our most straightforward hypothesis that rising unemployment benefits counteracted the impact of more unequally distributed earnings receives only limited support more complex mechanisms seem to have been at work jel classification d30 d31 j60

demand and supply in new markets diffusion with bilateral learning i explore the endogenous joint evolution of demand and supply in new markets firms and consumers learn in a bayesian fashion by observing the behavior of other firms and consumers respectively as a result endogenous information diffusion takes place on both sides of the market in equilibrium entry occurs in waves and its level depends on two distinct informational effects the model identifies an externality that provides a natural explanation for s shaped diffusion paths entry reveals information to the consumers about the value of the new product and thus early waves of entry affect the expected profitability of subsequent entry

competitive experimentation with private information the survivor s curse we study a winner take all r d race between two firms that are privately informed about the arrival rate of an invention over time each firm only observes whether the opponent left the race or not the equilibrium displays a strong herding effect that we call a survivor s curse unlike in the case of symmetric information the two firms may quit the race nearly simultaneously even when their costs and benefits for research differ significantly