the average earnings index survey data are widely used to provide indicators of economic activity ahead of the publication of offcial data this paper proposes an indicator based on a theoretically consistent procedure or quantifying firm level survey responses that are ordered and categorical firms survey responses are assumed to be triggered by a latent continuous random variable as it crosses thresholds breaking tradition these thresholds are not assumed time invariant an application to firm level survey data from the confederation of british industry shows that the proposed indicator of manufacturing output growth outperforms traditional indicators that assume timeinvariant thresholds

re examination of uniform commodity taxes under a non linear income tax system and its implication for production efficiency abstract this paper shows that the result of uniform commodity tax under nonlinear income taxation by atkinson and stiglitz 1976 no longer holds if the production side of an economy is taken into the consideration in particular imposing a non uniform commodity tax can pareto improve welfare even under nonlinear income taxation in addition the paper shows that if the government uses a nonlinear income tax system for income redistribution then the introduction of distortions in the public sector can pareto improve welfare contrary to the results in diamond and mirrlees 1971

optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

taxing top ceo incomes we use a firm ceo assignment framework to model the market for ceo effective labor in the model s equilibrium more talented ceos match with and supply more effort to larger firms taxation of ceo incomes affects the equilibrium pricing of ceo effective labor and hence spills over and affects firm profits absent the ability to tax profits or a direct concern for firm owners a standard prescription for high marginal income taxes emerges however given such an ability or concern the optimal marginal tax rates are much lower

the incidence of personal income taxation evidence from the tax reform act of 1986 abstract this paper studies the short run incidence of personal income taxation in the us by examining how the wage structure shifted after the tax reform act of 1986 i calculate the marginal tax rate for the median worker of each occupation during the 1980s to determine the professions whose workers were most affected by the tax change when controlling for trends over time in the wage structure by occupation i find that individuals in occupations that experienced large decreases in their median marginal tax rates received lower pre tax wages after 1986 as the number of workers and the hours worked in those professions increased the results suggest that consideration of the wage effects of tax reforms is important when using these reforms to identify behavioral parameters and evaluating their distributional consequences

optimal monopolist pricing under demand uncertainty in dynamic markets we examine pricing policy for a monopolist facing uncertain demand in a market characterized by dynamics on the demand side such as diffusion or saturation effects and or on the cost side experience curve effects our model explicitly incorporates the impact of demand uncertainty and thus allows us to analyze the implications of uncertainty on the optimal price path by contrasting the stochastic policy with the corresponding deterministic policy we begin with an analysis of the general model and then focus on several special cases based on well known demand specifications to gain more specific insights and to suggest directional guidelines for dynamic pricing decisions in an uncertain environment in general the interaction among uncertainty demand and or cost dynamics and firm s discount rate thus farsighted firms operating under dynamic market conditions with high demand uncertainty such as high tech companies with innovative products for consumer or industrial markets should attach partic

the ramsey problem for congestible facilities abstract in recent years a new set of models drawing on vickrey 1969 has been developed to analyze the economics of congestible facilities these models are structural in that they derive the cost function from consumers time of use decisions and the congestion technology standard models in contrast simply assume the general form of the cost function we apply the new approach to analyze the ramsey problem for a congestible facility and show that the solution generally entails cost inefficiency standard models have failed to reveal this result because they treat the cost function as completely determined by technology

optimality of workfare with heterogeneous preferences with the standard non linear income taxation framework with heterogeneity of preferences in this paper the optimality of workfare as a screening tool is examined it is assumed that workfare does not serve as a human capital investment participation is mandatory and administrative costs are negligible imposing alternative cardinalizations on individuals utilities allows for the possibility that the government optimally redistributes income to or from high disutility of labour individuals under either case it is never optimal to impose workfare on these individuals it is also shown that non productive workfare can be an e cient policy tool in contrast to the results found in besley and coate 1995 brett 1998 and beaudry and blackorby 1997 jel classification h21 h23 optimalite du workfare en presence de preferences heterogenes l auteur examine l timalite du workfare en tant qu instrument de tamisage a l aide du cadre conceptuel traditionnel d imposition non lineaire des revenus en presence de preferences heterogenes on postule que le workfare n est pas un processus d investissement en capital humain que la participatioun est obligatoire et que les couts d administration sont negligeables quand on postule aussi des utilites cardinales differentes pour les individus il devient possible pour le gouvernement de redistribuer optimalement les revenus en faveur ou au detriment des individus pour qui le travail a une tres grande desutilite dans l un et l autre cas on montre que le workfare n est jamais une politique optimale on montre aussi que le workfare dans des activites non productives peut etre un instrument de politique publique e cient contrairement a ce qu a rment besley et coate 1995 brett 1998 et beaudry et blackorby 1997

optimal environmental road pricing abstract an optimal first best road charge should not only be differentiated with respect to factors that affect the direct external environmental and time costs from the road user himself indirect effects such as the fact that others cars will be more polluting when congestion increases should also be taken into account

welfare implications of piracy with dynamic pricing and heterogeneous consumers abstract we present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate the dynamic pricing problem faced by a legal seller is solved using a flexible numerical procedure with demand discretisation and sales tracking three offsetting pricing mechanisms occur skimming compressing price changes and delaying product launch a novel trade off in piracy s effect on welfare is identified we find that piracy quickens sales times and raises welfare in fixed size markets and does the opposite in growing markets in our model consumers benefit from very high rates of piracy legal sellers always dislike it and pirate providers like moderate but not very high rates

positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion one approach is to elicit the relevant moral criteria from real world policy choices converting a normative decision into a positive inference as in the recent surge of inverse optimum research we find that capitalizing on the potential of this approach is not as straightforward as we might hope we perform the inverse optimum inference on u s tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations

software piracy an analysis of protection strategies software piracy by users is generally believed to harm both software firms through lower profits and buying customers through higher prices thus it is thought that perfect and costless technological protection would benefit both firms and consumers the model developed here suggests that in some circumstances even with significant piracy not protecting can be the best policy both raising firm profits and lowering selling prices key to the analysis is joining the presence of a positive network externality with the fact that piracy increases the total number of program users the network externality exists because consumers have an incentive to economize on post purchase learning and customization costs

tax competition and revelation of preferences for public expenditure this paper considers a federal country composed of local jurisdictions that differ in their inhabitants tastes for public goods and which finance local public expenditure through a source based tax on capital income the taste for public goods is the private information of local governments the central government seeks an optimal policy in which grants to local governments are conditioned on local tax rates the uninformed central government seeks both to allocate capital efficiently among jurisdictions and to induce jurisdictions to provide an efficient mix of private and public consumption it is shown that there persist at this constrained optimum both some misallocation of capital and some violation of the samuelson rule for optimal public good provision in every jurisdiction c 1998 academic press

second best taxation of emissions and polluting goods abstract this paper studies the problem of the design of an integrated system of second best emission and output taxes in a model where production costs are negatively correlated with their emissions it shows that i the first best pigouvian rule of equating the marginal private benefit of emissions in production to the marginal social damage of emissions must be modified in the second best ii implementation of the modified pigouvian rule requires all firms to face the same marginal emission tax equal to the marginal social damage of emissions plus an adjustment term reflecting optimal tax objectives iii it may not be necessary to directly tax the polluting goods the latter taxes can be subsumed in the emission tax function iv output taxes must be set solely on the basis of optimal tax objectives no pigouvian adjustment is required v if emission taxes are restricted to be proportional and commodity taxes are constrained the modified pigouvian rule will no longer be optimal vi if preferences are weakly separable in emissions and other goods the pigouvian rule remains valid the marginal emission tax is pigouvian and emission and commodity tax instruments can be set separately to address different objectives a proportional emission tax corrects for externalities while commodity taxes are determined solely on the basis of optimal tax considerations

analysis of protection and pricing strategies for digital products under uncertain demand abstract we analyze pricing and protection digital rights management strategies in a two echelon supply chain that consists of a manufacturer and a retailer of digital products the demand for the legal non pirated product which depends on both price and monetary investment in protection is assumed to be uncertain three different supply chain models are analyzed manufacturer stackelberg retailer stackelberg and vertical integration we show that the retailer s utility function has no effect on the equilibrium strategies and suggest schemes to find these strategies for any utility function of the manufacturer further results are obtained under assumptions of either a multiplicative or an additive demand model we study the players strategies under different profit criteria reflecting different attitudes toward risk specifically the expectation criterion and the target criterion and for each criterion we obtain the dependence between the pricing and the protection investment we show that there are situations in which the manufacturer can increase his profit by giving up his leadership to the retailer even if the power balance is in his favor

income maintenance and labor force participation the paper studies the optimal tax subsidy schedules in an economy where the only decision of the agents is to work or not with an application to the case of france given an income guarantee provided by the welfare state the tax schedule that maximizes government revenue provides a benchmark the laffer bound above which it is inefficient to tax in fact under mild conditions a feasible allocation is second best optimal if and only if the associated taxes are lower than the laffer bound the only restriction that efficiency puts on the shape of the tax scheme is this upper laffer bound the laffer tax scheme itself can be computed from the joint distribution of the agents productivities and work opportunity costs depending on the economy it can take widely different forms and exhibit for instance negative marginal tax rates after estimating the joint distribution of productivities and work opportunity costs on french data i compute the laffer bound for two subpopulations single women and married women with two children or more quite surprisingly the actual incentives to work appear to be very close to the bound

piracy on the internet accommodate it or fight it a dynamic approach abstract this paper uses a dynamic stochastic model to solve for the optimal pricing policy of music recordings in the presence of p2p file sharing networks eroding their sales we employ a policy iteration algorithm on a discretized state space to numerically compute the optimal pricing policy the realistically calibrated model reflects the real world figures we observe and provides estimates of the optimal pricing policy as well as comparative statics figures the pricing policy is such that for a given p2p network size prices are increasing in the number of buyers of the product and for a given number of buyers of the product prices are non monotonic in the p2p network size surprisingly in the presence of p2p networks increases in production costs and decreases in the valuation of the product increase the consumer and total surplus a higher valuation of the product leads to a lower steady state price increased switching costs have a negative effect on prices and profits so the long term incentive to attract new consumers dominates the short term incentive to harvest loyal consumers the full enforcement of intellectual property rights has adverse effect on both consumer surplus and total welfare

road congestion the diagrammatic analysis this paper is a commentary on an article by de meza and gould 1987 that discusses the change in income distribution resulting when a common property resource to which everyone formerly had free access is taken into private ownership the author of this commentary takes issue with the de meza and gould example that applied to the use of a congested road in their analysis of the problem de meza and gould use what appears to a reader to be the standard graphical analysis of a problem involving demand and supply however the author believes it is incorrect to apply the graphical approach in this form to the analysis of road congestion and in showing that their conclusion is incorrect shows that the conventional graphical approach is incorrect as well the author attempts to prove his contention by showing that the conventional graphical analysis of the economics of road congestion may be incorrect if a conventional downward sloping demand curve is drawn relating traffic flow to cost

squatting as rent seeking and pressure group competition a south african case study a new squatting phenomenon in south africa is analysed from a rent seeking pressure group perspective while such squatting may play an expanded role in privatising publicly and even privately held land and in redistributing wealth over the near future in the longer term its expansion will tend to be limited by rent protecting and counter innovation as long as this rent seeking competition stays within the bounds set by constitutional government

optimal domestic regulation under asymmetric information and international trade a simple general equilibrium approach we investigate the design of domestic incentive regulations in a small economy opened to trade and its implications for international specialization and for trade openness to remain welfare improving more specifically we append to an otherwise standard 2 2 heckscher ohlin model of a small open economy a continuum of intermediate sectors producing nontradable goods used in tradable sectors those goods are produced by privately informed regulated firms asymmetric information induces distortions with general equilibrium impacts the small economy becomes relatively richer in the informationally sensitive factor so that asymmetric information might reverse trade patterns free trade is pareto dominated by autarky when it exacerbates agency distortions

optimal strategic pricing of reproducible consumer products this paper investigates the strategic pricing of consumer durable products which can be acquired through either purchase or reproduction e g computer software as copy piracy results in an opportunity loss its adverse effect on profits needs to be incorporated in strategic decisions such as pricing using a dual diffusion model which parsimoniously describes sales and copying and employing control theory methodology optimal price trajectories are derived for the period of monopoly the results indicate that a in absence of any protection skimming pricing strategies are generally optimal and b copy protection is warranted only when sales diffuse much faster than copying and the protection technology does not significantly raise the marginal production cost

screening with convex menus and optimal flow taxation abstract this paper considers a family of screening problems in which the principal is constrained to offer only convex menus applications include i optimal flow taxation when individuals can substitute consumption and leisure inter temporally ii optimal product design for a linear pricing monopolist iii non exclusive cum linearly priced annuity markets a modified version of a myerson 1979 mirrlees 1971 direct mechanism in which standard incentive compatibility constraints are replaced by no convexification constraints can be used to compute optimal allocations in this family of problems in the flow taxation application the optimal tax schedule necessarily features progressive marginal tax rates typically features distortions at the top and can be analyzed by adapting standard ironing techniques

pareto efficient income taxation with stochastic abilities abstract this paper studies pareto efficient income taxation in an economy with finitely lived individuals whose income generating abilities evolve according to a two state markov process the study yields three main results first when individuals are risk neutral in any period the only individuals whose earnings are distorted are those who currently are and have always been low ability in addition the degree to which these perpetual low ability types have their earnings distorted decreases over time converging to zero if the time horizon is long enough second the earnings distortions are continuous with respect to the degree of risk aversion at the risk neutral solution third pareto efficient income tax systems can be time consistent even when the degree of correlation in ability types is large the condition for time consistency suggests a novel theoretical reason why the classic equity efficiency trade off may be steeper in a dynamic environment than previously thought

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

optimal policies of yield management with multiple predetermined prices it is a common practice for industries to price the same products at different levels for example airlines charge various fares for a common pool of seats seasonal products are sold at full or discount prices during different phases of the season this article presents a model that reflects this yield management problem the model assumes that 1 products are offered at multiple predetermined prices over time 2 demand is price sensitive and obeys the poisson process and 3 price is allowed to change monotonically i e either the markup or markdown policy is implemented to maximize the expected revenue management needs to determine the optimal times to switch between prices based on the remaining season and inventory major results in this research include 1 an exact solution for the continuous time model 2 piecewise concavity of the value function with respect to time and inventory and 3 monotonicity of the optimal policy the implementation of optimal policies is fairly facile because of the existence of threshold points embedded in the value function the value function and time thresholds can be solved with a reasonable computation effort numerical examples are provided

education policies and taxation without commitment we study the implications of limited commitment on education and tax policies set by benevolent governments consistent with real world practices a government can decide to subsidize different levels of education at different rates a lack of commitment however affects the optimal structure of education subsidies the direction of the effect depends on how labor taxes are designed with linear labor tax rates and a transfer for redistribution subsidies become more progressive by contrast if the government is only constrained by informational asymmetries when designing taxes subsidies become more regressive

technical change wage inequality and taxes this paper considers the normative implications of technical change for tax policy design a task to talent assignment model of the labor market is embedded into an optimal tax problem technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks the overall optimal policy response is to reduce marginal income taxes on low to middle incomes while raising those on middle to high incomes the reform favors those in the middle of the income distribution reducing their average taxes while lowering transfers to those at the bottom jel d31 h21 h23 h24 j31 o33

digital pricing with piracy and variety seeking abstract this paper aims to explore behavioral digital pricing which incorporates realistic consumer behavior into firms pricing and anti piracy investment models we consider a duopoly market with an original company and a pirated group selling digital products the demand is sensitive to both parties prices we extend the traditional hotelling model by taking into account the effects of externality on both parties we then propose three types of price competition games i cournot model ii stackelberg model with the original company as the leader and iii the stackelberg model with the pirated group as the leader in model ii if the value of externality effects is lower than a threshold the original company will benefit from the government anti piracy policy that tolerates some piracy finally we investigate the behavior of consumer variety seeking in a two period cournot model with the presence of variety seeking both the original and pirated parties will adopt higher prices in the first period surprisingly variety seeking brings higher profits to both parties in two periods

the effect of piracy on the market penetration of subscription software software piracy is not necessarily harmful to a software firm seeking to launch a new product when strategically managed through the use of price and protection measures piracy establishes the initial adopters of the software who in turn influence other users to buy the product we examine the role of piracy in affecting the adoption of subscription software products we present an individual level model in an adaptive population setting intended to determine the price protection mix that maximizes the discounted profit stream over the life of the software an extension for nonsubscription software is also discussed

dynamic optimal income taxation with government commitment abstract we analyze the optimal income tax problem when consumers work for many periods can information about abilities learned in one period be used later to attain more redistribution than is possible in a one period world when the government can commit to future policies and has the same discount rate as individuals intertemporal nonstationarity of tax schedules can lead to pareto improvements by relaxing lifetime self selection constraints analogous to randomization in a one period world more significant use of information is possible when the social discount rate is less than individuals rates the taxes converge over time to a nondistortionary schedule

tax policy and present biased preferences paternalism under international capital mobility this paper deals with tax policy responses to quasi hyperbolic discounting earlier research on optimal paternalism typically abstracts from capital mobility if capital is mobile between countries it may no longer be possible for national governments to control domestic savings via capital taxation as in a closed economy in this paper we take a broad perspective on public policy responses to self control problems by showing how these responses vary i between closed and open economies ii between small open and large open economies and iii depending on whether or not both source based and residence based capital taxes can be used

optimal linear income taxation with general equilibrium effects on wages abstract the paper argues that the endogeneity of wages may make a considerable difference to optimal linear tax rates in this case there is not only the usual direct redistribution via the fiscal system but also the general equilibrium redistribution due to the change in wages depending on the elasticity of substitution of the production function and the labour supply elasticities these may be reinforcing or opposing it is shown that the general equilibrium effect may plausibly outweigh the direct effect so that net redistribution to the lower paid involves a wage subsidy financed by a lump sum tax

measuring macroeconomic performance in the oecd a comparison of european and non european countries abstract we study the macroeconomic performance of 19 oecd countries over the period 1970 1990 performance is defined in terms of the ability of a country s macroeconomic managers to provide four services to their citizens a high level of real gdp per capita a low rate of inflation a low rate of unemployment and a favorable trade balance we use linear programming techniques to construct a best practice macroeconomic performance frontier and to measure the performance of each country in each year relative to the frontier we then add two environmental disamenities carbon and nitrogen emissions to the service list and repeat the analysis to see if the performance rankings change throughout the analysis emphasis is placed on a comparison of the performance of 14 european oecd countries with that of five non european oecd countries we find that performance rankings do change and that the relative performance of the european countries declines when the environmental disamenities are added to the service list

the optimal two bracket linear income tax abstract we investigate two bracket piecewise linear income tax structures in a two class economy pareto efficient tax schedules of this type feature at least one marginal tax rate equal to zero and that the marginal tax rate may be increasing and declining we then investigate the optimal structure of taxation when the social welfare function utility function and distribution of abilities are characterized as in the standard optimal linear income tax problem in all cases the second marginal tax rate is less than the first rate but progressivity in the sense of a uniformly rising average tax rate generally obtains

perishable asset revenue management with markovian time dependent demand intensities many industries face the problem of selling a fixed stock of items over a finite horizon these industries include airlines selling seats before planes depart hotels renting rooms before midnight theaters selling seats before curtain time and retailers selling seasonal items with long procurement lead times given a sunk investment in seats rooms or winter coats the objective for these industries is to maximize revenues in excess of salvage value when demand is price sensitive and stochastic pricing is an effective tool to maximize expected revenues in this paper we address the problem of deciding the optimal timing of price changes within a given menu of allowable possibly time dependent price paths each of which is associated with a general poisson process with markovian time dependent predictable intensities we show that a set of variational inequalities characterize the value functions and the optimal possibly random time changes in addition we develop an efficient algorithm to compute the optimal value functions and the optimal pricing policy

privatization and the distribution of income in the commons abstract the explicit treatment of heterogeneity among the users of the commons leads to results that differ from those that are now generally accepted in the literature the owner of the fixed factor is not able to expropriate the rents of privatization rather the resulting distribution of income to the free factor after privatization depends on the technology and the institutional arrangements this result extends to more than two goods if the decline in the price of the good produced in the commons is sufficient to offset the decline in the marginal product of labor in the rest of the economy

private information coasian bargaining and the second welfare theorem abstract most of the debate about coasian bargaining in the presence of externalities relates to the first welfare theorem is the outcome under bargaining efficient this debate has involved the definition and importance of transaction costs the significance of private information and the effect of entry there has been little analysis of how coasian bargaining relates to the second welfare theorem even if the bargaining outcome is efficient does the process limit the set of pareto optimal allocations which can be achieved we consider a model in which individuals utilize a common resource and may affect each other s output the individuals differ in their productivities or tastes and this information is private to each of them the government can manage the common resource and use nonlinear taxes to correct for the externality or it can turn the common resource over to a private owner who can charge individuals to utilize it with a nonlinear fee schedule the government and the owner have the same information about tastes and productivities of the individuals except for the private information there are no bargaining or administrative costs for collecting the taxes or fees whether there is public or private ownership the government desires to redistribute but it faces self selection constraints we show that the outcome of coasian bargaining is constrained pareto efficient that is given the information constraints no pareto improvement is possible however private ownership may limit what pareto optimal allocations the government can achieve the private owner in seeking to maximize profits always proposes contracts which counteract the government s attempts to redistribute across individuals with different characteristics under public management any pareto optimum can be sustained in this context private ownership while not inefficient does limit the government s ability to redistribute

commons as insurance and the welfare impact of privatization abstract it is shown here that despite the efficiency gains from privatization when markets are incomplete all individuals may be made worse off by privatization even when the resource is equitably privatized such market incompleteness is common in the developing world and can explain the often encountered resistance to efficiency enhancing privatizing reforms especially in the case of village level landholdings and forests the advantage of common held property arises because of its superior insurance properties which tend to provide income maintenance in low states sufficient conditions are established under which any feasible insurance scheme under private property cannot ex ante pareto dominate allocations under the commons

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

direct versus indirect taxation the design of the tax structure revisited this article studies the optimal direct indirect tax mix problem when individuals differ in several unobservable characteristics productivity and endowments it presents general expressions for the optimal commodity tax rates and proves that contrary to atkinson and stiglitz s 1976 result differential commodity taxation remains a useful instrument of tax policy even if preferences are separable between labor and produced goods when cross substitution effects are zero the expressions resemble traditional many households ramsey rules in a cobb douglas illustration where endowments differ only in good 1 interpreted as wealth the tax on good 2 provides an indirect way to tax the unobservable wealth

public goods with costly access abstract we examine the optimal allocation of excludable public goods with a private access cost that some consumers may not be able to afford the full information benchmark is presented first then individuals access costs and income levels are private information when high income consumers have low access cost asymmetric information increases the cost of subsidizing the poor for accessing the public good and inequality increases when the low access cost consumers have the lower income subsidizing the poor may involve countervailing incentives but inequality decreases finally monopoly provision exacerbates underprovision of the poor particularly of those with low access cost

partial enclosure of the commons abstract we examine the efficiency distributional and environmental consequences of assigning spatial property rights to part of a spatially connected natural resource while the remainder is competed for by an open access fringe we refer to this as partial enclosure of the commons we obtain sharp analytical results regarding partial enclosure of the commons including 1 while second best it typically improves welfare relative to no property rights 2 all resource users can be made better off 3 positive rents arise in the open access area and 4 the resource maintains higher stocks under spatial heterogeneity we also characterize spatial regions that are ideal candidates for partial enclosure typically society should seek to enclose those patches with high environmental productivity and high self retention but whether high economic productivity promotes or relegates a patch may depend on one s objective

optimal starting times for end of season sales and optimal stopping times for promotional fares many industries face the problem of selling a fixed stock of items over a finite horizon these industries include airlines selling seats before planes depart hotels renting rooms before midnight theaters selling seats before curtain time and retailers selling seasonal goods such as air conditioners or winter coats before the end of the season given a fixed number of seats rooms or coats the objective for these industries is to maximize revenues in excess of salvage value when demand is price sensitive and stochastic pricing is an effective tool to maximize revenues in this paper we address the problem of deciding the optimal timing of a single price change from a given initial price to either a given lower or higher second price under mild conditions we show that it is optimal to decrease resp to increase the initial price as soon as the time to go falls below resp above a time threshold that depends on the number of yet unsold items

optimal pricing and quantity of products with two offerings this paper analyzes the decision of a firm offering two versions of a product a deluxe and a regular while both products satisfy the same market the deluxe version is sold at a high price relative to its cost and is aimed at the high end of the demand curve the regular version is sold at a low price relative to its cost and is targeted to customers at the low end of the demand curve this two offering strategy is especially popular with book publishers where a paperback book is introduced some time after the hardbound version is introduced the time between the introduction of the two versions of the product is accompanied by a downward shift in the demand curve due to customers losing interest in the product or satisfying their demand from a secondary used market we solve a profit maximization model for a firm using a two offering strategy the model is solved for linear and exponential deterioration in demand which is assumed to be deterministic also a model with linear deterioration in demand which is assumed to be stochastic is solved the results indicate that substantial improvements in profit can be obtained by using the two offering strategy numerical sensitivity analysis and examples are used to illustrate the results

using data envelopment analysis to assess macroeconomic policy performance it is common practice to summarize the macroeconomic performance of countries in terms of the four well known dimensions captured by the magic diamond of the oecd this study provides a comparison of several synthetic indicators that merge the four separate indicators into one single statistic these indicators are inspired by data envelopment analysis dea based models which allow for unequal weighting of the different economic objectives the calculated weights then act as proxies for the true policy priorities comparison of the models focuses on the underlying assumptions as well as on the empirical results they generate

peasants against private property rights a review of the literature land is the main if not the only asset for a majority of people in developing countries the definition and allocation of rights over land are thus naturally essential aspects of individuals daily lives as well as critical determinants of social and economic development the privatization of land rights has long been seen as a necessary process enhancing both efficiency and equity however privatized land rights have not always emerged endogenously while exogenously driven programs of land privatization have not always been successful nor popular this has raised questions about the expected benefits of land rights privatization this paper aims at summarizing the main arguments and studies both theoretical and empirical on this issue with a specific focus on the factors that can make privatization inefficient or detrimental for the most concerned individuals

industrial pricing theory and managerial practice we organize the existing theoretical pricing research into a new two level framework for industrial goods pricing the first level consists of four pricing situations new product competitive product line and cost based the second level consists of the pricing strategies appropriate for a given situation for example within the new product pricing situation there are three alternative pricing strategies skim penetration and experience curve pricing there are a total of ten pricing strategies included in the framework we then identified a set of cost product market and information conditions which determine what pricing situation s a firm is facing as well as which strategies are appropriate within a given situation some of these determinant conditions are common to many pricing strategies e g highly elastic demand while others are unique to a given strategy within a particular pricing situation for example within the product line situation the profitability of supplementary sales is a unique determinant of the complementary product pricing strategy razor and blade pricing using this framework as a basis for an empirical study we examined how well current industrial pricing practice matches the prescriptions from the existing research our sample consisted of 270 respondents 27 response rate of these more than 50 indicated that they used more than one pricing strategy in formulating their most recent pricing decision for a high value industrial product sold in the united states as in previous research cost plus pricing was the most often cited pricing strategy 56 of the respondents since the respondents were able to indicate their use of more than one pricing strategy the data are of the pick k from n variety in order to model the managers pricing strategy choices we constructed a stacked binary logit with a separate observation for each strategy within a given pricing situation the signs of the determinant variables were estimated as interaction terms the new product pricing strategies skim penetration experience curve were used for new models in the market skim pricing was used in markets with high levels of product differentiation by firms at a cost disadvantage due to scale penetration pricing was used by firms with a cost advantage due to scale in markets with high level of overall elasticity but low brand elasticity experience curve pricing was used for minor innovations by firms with low capacity utilization in markets with a high level of differentiation the competitive pricing strategies leader parity and low price supplier were used in mature markets parity pricing was used by firms in a poor competitive situation i e high costs low market share low product differentiation these firms were also unable to take advantage of high levels of elasticity since their capacity utilization was high in contrast the low price supplier strategy was used by firmswith low costs due to scale advantages since they have low utilization these firms can take advantage of elastic brand demand none of the determinants were significantly related to the choice of leader pricing product line pricing strategies bundling complementary product and customer value pricing were more likely to be used by firms which sell substitute or complementary products bundle pricing was used for per sale contract pricing in markets with high levels of brand elasticity complementary product pricing razor and blade was used by firms that enjoyed high profitability on its supplementary sales using customer value pricing a firm offers a stripped down version of its current products to appeal to more price sensitive segments or to leverage new distribution channels this strategy was used to target a narrow segment in high growth markets where price changes are difficult to detect cost based pricing was more likely to be used in marketswhere demand is very difficult to estimate in such a situation cost based pricing makes a great deal of sense in general the results show that the managers pricing strategy choices are consistent with normative pricing research however questions about how managers combine their strategies to arrive at a final price as well as the organizational influences on pricing strategies remain important areas for future research

redistribution and small coalitions of friends when side marketing trade is perfect linear taxation of retradeable commodities is the only scheme that survives attempts to arbitrage in this paper i discuss tax schemes when side trading is imperfect in the sense that commodities can only be re exchanged within coalitions no larger than two people in the framework of a two class economy i identify coalitions which might have an incentive to form and provide a characterisation for the pareto efficient tax scheme the tax formula has a very simple form and strongly resembles the formula for the no side trade case in a numerical exercise the constraints imposed on policy by an imperfect side trading process are found to be almost as tough as those imposed by perfect side trading

optimal redistributive taxation in a search equilibrium model this paper characterizes optimal non linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets redistributive taxation distorts labour demand and wages compared to their efficient values gross wages unemployment and participation are lower average tax rates are increasing marginal tax rates are positive even at the top finally numerical simulations suggest that redistribution is much more important in our setting than in a comparable mirrlees type setting

containing piracy with product pricing updating and protection investments we consider a monopolistic producer offering software that is updated periodically but by the end of one period a pirated version is available at a transaction cost this presents the consumers who are different in terms of their willingness to pay for the original compared to the pirated version with possible strategies for either buying a new product or pirating it we address pricing and protection investment strategies to regain the profits affected by the piracy in particular we find that even when the transaction cost is exogenous the producer does not necessarily want to fully price out the piracy the decisive factor in such a case is the level of product newness relative to the transaction cost if the producer is able to achieve high newness for the updated product relative to the transaction cost then a high retail price ensures that he will gain the largest profit possible even though some of the demand will be lost due to piracy on the other hand when the transaction cost is endogenous the producer may have two alternatives in terms of profit for dealing with the piracy pricing the software out or investing heavily in software protection as newness levels rise the option of pricing out the piracy becomes increasingly preferable

the impact of digital channel distribution on the experience goods industry abstract we explore the impact of a digital channel for experience goods on the profitability and behavior of players in the supply chain and on piracy we consider a firm which can sell an experience good in physical form in digitized form or both we analyze different pricing schemes price for whole album on the retail channel and linear and nonlinear pricing for songs on the digital channel consumers are divided into a retail captive segment whose consumers are limited to the retail channel and a hybrid segment whose consumers have access to both retail and digital channels our findings indicate that for realistic problems the dual distribution channel is most profitable the profitability of the retail channel increases with the size of the retail captive segment and the number of desirable songs on an album relative to the total number of songs on it we show that a skimming pricing strategy is best for the retail channel the ability to sell the product in digitized form on the internet erodes much of the power once enjoyed by the record labels the digital channel may be the best way to promote new artists especially when the hybrid consumer segment is large we also find that piracy has a significant effect on channel profits for both the retail and digital channels piracy has the strongest negative impact on the exclusive retail channel consumers access to the digital channel reduces piracy in both digital and dual channel distribution dual channel suffers least from piracy because it allows retail captive consumers to still legally obtain the product

free access versus private property in a resource income distributions compared distributions of income are compared under the alternative regimes of free access to and private property in a resource it is shown that in several analytically distinct cases all those deprived of free access on conversion of a resource to private property can be better off even though no compensating transfers are made this resu lt can hold even if the granting of private property rights also conf ers monopoly or monopsony power copyright 1987 by university of chicago press

pareto improvements from lexus lanes the effects of pricing a portion of the lanes on congested highways abstract though economists have long advocated road pricing as an efficiency enhancing solution to traffic congestion it has rarely been implemented primarily because it is thought to create losers as well as winners this paper shows that a judiciously designed toll applied to a portion of the lanes of a highway can generate a pareto improvement before using the revenue a sufficient condition being that drivers with a high value of time travel at the peak of rush hour i obtain these new theoretical results by extending a standard dynamic congestion model to reflect an important additional traffic externality extra traffic does not simply increase travel times but also introduces frictions that reduce throughput the analysis draws attention to a practical policy that may help overcome the widespread opposition to road pricing

optimal pricing for information goods with piracy and saturation effect we analyze the pricing decision of a firm selling a product for which there is a significant and continuous saturation effect over time and that can be pirated assuming that the firm uses a skimming strategy we solve three profit maximization models given demand that is linearly decreasing in price few prices can be used over the life of the product the effects of both piracy and saturation are combined in the first model in the second model the firm can invest in technology or copyright enforcement to reduce piracy the third model describes the case in which piracy leads to increased awareness of the product and increased demand numerical sensitivity analysis and examples are used to illustrate the results the results indicate that under strong piracy and saturation effects a skimming strategy is suboptimal

monopoly price dispersion under demand uncertainty when a monopolist sets its price before its demand is known then it may set more than one price and limit the availability of its output at lower prices this article adds demand uncertainty and price rigidities to the standard model of monopoly pricing when there are two states of demand and the ex post monopoly price is greater when demand is high then the monopolist s optimal ex ante pricing strategy is to set two prices and limit purchases at the lower price

competitiveness in a globalised world michael porter on the microeconomic foundations of the competitiveness of nations regions and firms in this paper we provide the text of an interview with professor michael porter discussing his research and ideas relating to the microeconomic foundations of global competitiveness the discussion provides a microeconomic perspective on some of the key issues relating to recent research on competitiveness productivity clusters us economic leadership economic growth and development

smoking skydiving and knitting the endogenous categorization of risks in insurance markets with asymmetric information we analyze the efficiency and market equilibirum effects of endogenous categorization where insurance companies classify risks on the basis of insureds voluntary consumption of products that are correlated with underlying loss propersities and we show that the use of such categorization may permit the attainment of first best allocations as competitive nash equilibria the optimal insurance premium involves a trade off between the use of categorization to correct moral hazard externalities generated by the consumption of the product and the use of differential consumption to sort heterogeneous consumers thereby mitigating the social costs of adverse selection the efficiency consequences of taxing or subsidizing aggregate as opposed to individual consumption is also considered

a taxonomy and research overview of perishable asset revenue management yield management overbooking and pricing this paper proposes the term perishable asset revenue management to denote the field that combines the areas of yield management overbooking and pricing for perishable assets after summarizing the characteristics common to problems in this field the paper discusses the objectives and constraints faced by decision makers then it offers a comprehensive taxonomy with 14 different elements and reviews the research that has been done related to each element finally it suggests some important areas of future research that can help bridge the gap between theory and application

tax competition and tax coordination in an optimum income tax model abstract the paper uses the self selection approach of stiglitz 1982 to study tax competition and tax coordination in a many country optimum income tax model in the model the government can impose a non linear tax schedule on wage income and a source based tax on mobile capital in an uncoordinated equilibrium it turns out that countries can use the capital tax instrument to weaken the self selection constraint the paper presents examples where positive and negative capital taxes are optimal from a single country perspective if the production function is weakly separable between labor and capital it can be shown that the optimal capital tax is zero the paper also shows that contrary to the standard tax competition model the uncoordinated equilibrium can be efficient if the wealth distribution the endowments with capital among individuals is egalitarian a coordination of capital taxes does not affect welfare for non egalitarian wealth distributions a coordinated increase in capital taxes can raise or lower welfare depending on the redistributive impact of a higher capital tax

negative marginal tax rates and heterogeneity the bulk of the theory of optimal taxation recommends that the marginal tax rate be everywhere positive labor supply is distorted downwards compared with laissez faire the conditions under which the result holds continuous labor supply or intensive margin unobserved productivity constant opportunity cost of work utilitarian planner with a redistributive motive towards lower incomes have been thoroughly investigated jesus seade 1977 1982 ivan werning 2000 martin f hellwig 2007 the purpose of the present paper is to describe how negative marginal tax rates can be optimal keeping with the intensive set up largely studied in the literature when there are multiple dimensions of heterogeneity indeed james a mirrlees 1976 in its section iv indicates along a line that will be pursued further here that the sign of the marginal tax rate cannot be predicted when the agents in the economy differ along several dimensions of heterogeneity workers differ in both their productivities and opportunity costs of work under utilitarianism heterogeneity comes into play through its impact on cardinal utilities how social weights or marginal utilities of income vary with income determines the shape of the optimal tax scheme conditionally on income utility and more importantly its derivative with respect to income may either decrease or increase with work opportunity costs this may vary according to circumstances depending on whether the cost is associated with poor living conditions i e a handicap or reflects a taste for leisure or opportunities outside the labor market such as gardening at home or black market activities for a given income the social weight is proportional to the expected marginal utilities where the expectation is taken over the distribution of work opportunity costs at this income level therefore the social weight curve depends on both the specification of the cardinal utility function and on how the distribution of work opportunity costs changes with income the fact that heterogeneity can blur the redistribution motive through the possible correlation between ability and onerousness of work has been discussed in models where agents have a finite number of types a pioneer work is that of joseph e stiglitz 1982 who shows that the high skilled individual should face a negative marginal tax rate if the low skilled individual s upward incentive constraint binds which is the case if social weights are increasing in type the importance of this observation for policy was pointed out in katherine cuff 2000 who is the first to explicitly link social weights to the opportunity cost of work using alternative choices of cardinal utilities in a model with four types combining two values for productivity and two values for the cost of work robin boadway et al 2002 showed how it can be optimal to have binding upward incentive constraints when high opportunity costs are associated with small social weights

the impact of institutional and land use change on local incomes in chilean patagonia many developing rural economies depend on natural capital stocks for generating income and wealth however common property natural resources are often over exploited one method of solving over ex

competitiveness and productivity a case study of italian firms the purpose of this article is to obtain a synthetic measure of the multi dimensional concept of firm competitiveness and to analyse the role of different factors such as productivity firm size and cluster of industries for determining firm competitiveness in italy an adequate firm specific data set is constructed from balance sheets by using imputation methods for handling missing values the synthetic measure of competitiveness is obtained using a data envelopment analysis dea approach then a tobit model is considered to measure the influence of different factors on the measured competitiveness the results obtained are very interesting and coherent with the characteristics of the italian firms

optimal participation taxes addressing extensive labour supply responses the literature has established a case for larger transfers to the working poor than to even poorer non working people this paper casts new light on this result i argue that the result hinges crucially on the labour supply responses of people in income brackets above that of the working poor then distinguishing between more and less poor working people i show that if a single working type faces a negative tax it is the poorer one who does finally i endogenize wages and show that key conditions will be of the same form as before

a pareto improving minimum wage this paper shows that a graduated minimum wage in contrast to a constant minimum wage can provide a strict pareto improvement over what can be achieved with an optimal income tax the reason is that a graduated minimum wage requires high productivity workers to work more to earn the same income as low productivity workers which makes it more difficult for the former to mimic the latter in effect a graduated minimum wage allows the low productivity workers to benefit from second degree price discrimination which increases their income

decentralized fiscal federalism revisited optimal income taxation and public goods under horizontal leadership this paper concerns optimal taxation and public goods in an economic federation with decentralized leadership where one lower level government is the first mover also in the horizontal dimension under plausible assumptions horizontal leadership reinforces the incentives created by decentralized leadership

political competition and mirrleesian income taxation a first pass we study downsian competition in a mirrleesian model of income taxation the competing politicians may dier in competence if politicians engage in vote share maximization the less competent politician s policy proposals are attractive to the minority of rich agents whereas those of the competent politician are attractive to the majority of poor agents the less competent politician wins with positive probability which gives rise to a political failure in the sense of besley and coate 1998 political failures are avoided if politicians maximize winning probabilities nevertheless the two equilibria cannot be pareto ranked the minority may be better o under vote share maximization

in praise of frank ramsey s contribution to the theory of taxation frank ramsey s brilliant 1927 paper modestly entitled a contribution to the theory of taxation is a landmark in the economics of public finance nearly a half century later through the work of diamond and mirrlees 1971 and mirrlees 1971 his paper can be thought of as launching the field of optimal taxation and revolutionising public finance ramsey f p 1927 a contribution to the theory of taxation economic journal vol 37 145 pp 47 61

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages

public good provision and the comparative statics of optimal nonlinear income taxation comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs an income tax schedule for redistributive purposes and provides a public good optimally there are two types of individuals distinguished by their skill levels who have the same quasilinear preferences for labor supply and the consumption of a private and a public good comparative statics are obtained for the weights in a weighted utilitarian social welfare function the prices of the two goods a taste parameter that measures the onerousness of working and the skill levels

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic