exchange rate volatility and irish uk trade 1979 1992 this study examines how exchange rate volatility affected ireland s exports to its most important trading partner the united kingdom from 1979 to 1992 to ensure reliable inferences regarding income and price elasticities and the impact of exchange rate volatility on exports the time series properties of the series used are investigated the analysis here is conducted at both aggregate and 2 digit sitc division levels since exchange rate volatility can reasonably be presumed to affect sectors differently since expectations matter for exchange rate determination real volatility was generated according to a first order garch process both real and nominal volatility were important determinants for over 35 of irish uk trade with positive effects predominating this may be due to the nature of irish firms operating in a small open economy where they have little option in dealing with increased exchange rate risk except to weather the storm for fear of losing market share or facing costs of either exit

if we knew ability how would we tax individuals abstract the suggestion to tax people on earnings capacity instead of earnings has been around for a long time and is attractive in terms of economic efficiency in this paper we reflect on the feasibility of such a system and give an exploratory empirical implementation we apply the leyden welfare function of income a survey based measure of an individual s welfare associated with income to derive implications for ability taxation under the assumption that iq and schooling reflect earnings capacity we derive the tax functions using different criteria to distribute the utility loss due to taxation

household cost functions and equivalence scales we describe a simple method to estimate household cost functions and family equivalence scales it is an alternative to standard methods as it does not assume strong postulates about utility maximization nor any functionally specified model equations the data requirements are extremely modest we assume interpersonal ordinal comparability in the sense of sen 1976 and use empirical evidence for eight european countries and the u s to show the feasibility of the method and the stability of its results we also show that subjective data like those provided by income evaluation questions may be used without adopting a cardinal utility framework

changes in the perception of the poverty line during the depression in russia 1993 96 economic transition in russia was accompanied by a precipitous decline in real income for most of the population this article analyzes how the decline affected people s perception of the minimum level of income needed to make ends meet individual level data collected from repeated surveys between march 1993 and september 1996 reveal that the elasticity of subjective minimum income with respect to actual median income was 1 5 or that people s subjective estimate of the minimum income for an adult russian fell about 1 7 percent each month this sharp reduction in the face of a decrease in real income meant that the percentage of the population who felt that they were poor declined even though poverty remained at a very high level more than 60 percent of the population throughout the period this self perception is in marked contrast to an objective measure of poverty the percentage of the population whose income was less than a given real poverty line rose

how sensible is the leyden individual welfare function of income abstract the leyden economists contend that the individual welfare function utility function of income is best represented by a lognormal distribution function they have presented ample data to document the good empirical fit of the lognormal hypothesis this paper presents reexamines and criticises the theoretical foundations of the lognormal hypothesis and finds that this edifice is not built on solid ground neither from the point of view of economic theory nor of experimental psychology moreover it investigates the paradox of the good empirical fit of the lognormal hypothesis in spite of its theoretical deficiencies it is shown that the lognormal hypothesis is observationally equivalent to the logarithmic power welfare function when respondents evaluate welfare according to a normal lognormal distribution function

relativity rank and the utility of income relative utility has become an important concept in several disjoint areas of economics i present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time utility levels correspond to the leyden individual welfare function while utility differences yield a version of the prospect theory value function thereby providing a new and shared derivation of each i offer an explanation of some long standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion

the price and utility dependence of equivalence scales evidence from indonesia the purpose of this research is to estimate equivalence scales and evaluate their price and utility dependencies to do this we unify two strands of the empirical literature on this topic one that relies on demand data and one that relies on subjective evaluations of wellbeing this way we are able to employ the strengths of both kinds of information equivalence scales are not identified from demand data alone this is because changes in demographics could affect wellbeing directly i e in ways that are not revealed by changes in behavior the demand based literature rules out such effects a priori and restricts parameters that measure them in this paper we do not rely on such restrictions and instead use subjective evaluations of wellbeing as an additional source of information because demand data are highly informative about some of the other parameters of the model its use increases efficiency this becomes critical once we specify complex preference structures that allow for the equivalence scale s dependence on price and utility our model nests the typical models used in the subjective and the demand literature and we are able to test down both kinds we find evidence for direct utility effects this rejects the validity of some of the restrictions applied by the demand literature within the indonesian context we estimate equivalence scales that are of reasonable magnitude and decrease in utility we also find that the scales increase in the food to nonfood price ratio for poor households whereas we do not find price dependence for more affluent households

the long run relationship between the real exchange rate and terms of trade in oecd countries using the null hypothesis of cointegration it is shown that the real exchange rate and the terms of trade of the seven major oecd countries are cointegrated in the long run our results also confirm the granger proposition that there is granger causality in at least one direction when two variables are i 1 and cointegrated we find that exchange rate changes granger cause changes in the terms of trade for five out of the seven oecd countries while the causation runs in the opposite direction for the remaining two countries

pricing and welfare in health plan choice premiums in health insurance markets frequently do not reflect individual differences in costs either because consumers have private information or because prices are not risk rated this creates inefficiencies when consumers self select into plans we develop a simple econometric model to study this problem and estimate it using data on small employers we find a welfare loss of 2 11 percent of coverage costs compared to what is feasible with risk rating only about one quarter of this is due to inefficiently chosen uniform contribution levels we also investigate the reclassification risk created by risk rating individual incremental premiums finding only a modest welfare cost

comparison friction experimental evidence from medicare drug plans consumers need information to compare alternatives for markets to function efficiently recognizing this public policies often pair competition with easy access to comparative information the implicit assumption is that comparison friction the wedge between the availability of comparative information and consumers use of it is inconsequential because information is readily available and consumers will access this information and make effective choices we examine the extent of comparison friction in the market for medicare part d prescription drug plans in the united states in a randomized field experiment an intervention group received a letter with personalized cost information that information was readily available for free and widely advertised however this additional step providing the information rather than having consumers actively access it had an impact plan switching was 28 percent in the intervention group versus 17 percent in the comparison group and the intervention caused an average decline in predicted consumer cost of about 100 per year among letter recipients roughly 5 percent of the cost in the comparison group our results suggest that comparison friction can be large even when the cost of acquiring information is small and may be relevant for a wide range of public policies that incorporate consumer choice

the effects of macroeconomic stability on foreign trade an analysis for spain 1986 2000 two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade the reduction of its volatility and the current trend towards price stability the objective of this study is to analyse the effects of the process of nominal convergence required of the european member states for the fulfilment of monetary integration on foreign trade flows the case of spain which is especially interesting in this context is studied for the period 1986 to 2000 the results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants income and prices how it has caused a significant structural change in the real exchange rate and finally how it has laid the explanatory bases for transactions in the twenty first century with the single currency the euro

on the income dependence of equivalence scales household consumption exhibits economies of scale as the number of household members increases we collect survey data from two countries germany and france in order to obtain direct subjective estimates of household consumption economies of scale and in particular to examine an additional dimension whether household consumption economies of scale change as living standards go up our data from both countries indicate strongly that household economies of scale increase as the living standard goes up we discuss the robustness of our survey method and compare our results to these of alternative estimation methods in the literature

revealed community equivalence scales abstract this paper estimates the equivalence scale revealed by discretionary community allocations of welfare benefits to poor households i apply the proposed approach to a subsidized rice program in indonesia in which villages designated program beneficiaries and estimate the equivalence scale implicit in the beneficiaries they selected i find that the revealed community equivalence scale for this program lies much closer to per capita expenditure than traditional demand based equivalence scales particularly in the poorest communities this suggests that per capita expenditure may be closer to how poor communities actually compare households when allocating aid than previously thought

sinking swimming or learning to swim in medicare part d under medicare part d senior citizens choose prescription drug insurance offered by numerous private insurers we examine nonpoor enrollees actions in 2006 and 2007 using panel data our sample reduced overspending by 298 on average with gains by 81 percent of them the greatest improvements were by those who overspent most in 2006 and by those who switched plans decisions to switch depended on individuals overspending in 2006 and on individualspecific effects of changes in their current plans the oldest consumers and those initiating medications for alzheimer s disease improved by more than average suggesting that real world institutions help overcome cognitive limitations

designed to fail the medicare auction for durable medical equipment we examine the theoretical properties of the auction for medicare durable medical equipment two unique features of the medicare auction are 1 winners are paid the median winning bid and 2 bids are nonbinding we show that median pricing results in allocation inefficiencies as some high cost firms potentially displace low cost firms as winners further the auction may leave demand unfulfilled as some winners refuse to supply because the price is set below their cost we also introduce a model of nonbinding bids that establishes the rationality of a lowball bid strategy employed by many bidders in the actual medicare auctions and recently replicated in caltech experiments we contrast the median price auction with the standard clearing price auction where each firm bids true costs as a dominant strategy resulting in competitive equilibrium prices and full efficiency jel d44 i11 h57

the medium term impact of medicare part d on pharmaceutical prices medicare part d began coverage of prescription drugs in 2006 using data from the first year of the program we found that part d reduced pharmaceutical prices for medicare recipients with these effects driven by enrollees previously without drug coverage in this paper we extend our analysis through 2009 the fourth year of the program to investigate whether plans continued to extract price concessions in return for favorable formulary placement or if consumer inertia or other factors caused prices to bounce back after their initial decline we find price declines persisted through at least the third year of the program

paying a premium on your premium consolidation in the us health insurance industry we examine whether and to what extent consolidation in the u s health insurance industry is leading to higher employer sponsored insurance premiums we make use of a proprietary panel dataset of employer sponsored healthplans enrolling over 10 million americans annually between 1998 and 2006 to explore the relationship between premium growth and changes in market concentration we exploit the differential impact of a large national merger of two insurance firms across local markets to estimate the causal effect of concentration on market level premiums we estimate real premiums increased by approximately 7 percentage points in a typical market due to the rise in concentration during our study period we also find evidence that consolidation facilitates the exercise of monopsonistic power vis a vis physicians whose absolute employment and relative earnings decline in its wake

the cms auction experimental studies of a median bid procurement auction with nonbinding bids we report on the experimental results of simple auctions with i a median bid pricing rule and ii non binding bids winning bids can be withdrawn the two central pillars of the competitive bidding program designed by the centers for medicare medicaid services cms comparisons between the performance of the cms auction and the performance of the excluded bid auction reveal the problematic nature of the cms auction the cms auction fails to generate competitive prices of goods and fails to satisfy demand in all proposed efficiency measures we find the excluded bid auction significantly outperforms the cms auction

terms of trade and the exchange rates of new zealand and australia effects of the terms of trade on the bilateral exchange rate of new zealand and australia and of each of these countries with the usa are evaluated there is strong evidence of cointegration of the exchange rates and a ration of the respective national price levels when the relative terms of trade of the countries are included in dynamic models while evidence that the long run equilibrium relationships satisfy purchasing power parity is mixed relative improvement of a country s terms of trade results in real appreciation of its currency in all cases the terms of trade are also found to be exogenous for the parameters of the long run new zealand australia exchange rate equilibrium

exchange rate pass through abstract the resilience of trade balances of the major industrialized economies to changes in their exchange rates has evoked interest in the exchange rate pass through relationship so far there has not been a comprehensive survey of this literature the paper aims to fill this gap in two ways first it pieces together the theoretical literature on exchange rate pass through second it provides a critical survey of the empirical literature on exchange rate pass through emphasis is placed on the data and methodology employed in previous work this is done in order to guide future work in this growing area of research

poverty and the measurement of individual welfare a review article this review of hagenaars the perception of poverty gives a lengthy presentation and evaluation of the leyden approach of measuring the individual welfare function of income the key feature of the approach is the claim that welfare can be measured on a 0 1 scale the review discusses the book s wealth of material on poverty in europe within this theoretical framework

medicare part d are insurers gaming the low income subsidy design this paper shows how in medicare part d insurers gaming of the subsidy paid to low income enrollees distorts premiums and raises the program cost using plan level data from the first five years of the program i find multiple instances of pricing strategy distortions for the largest insurers instrumental variable estimates indicate that the changes in a concentration index measuring the manipulability of the subsidy can explain a large share of the premium growth observed between 2006 and 2011 removing this distortion could reduce the cost of the program without worsening consumer welfare