the effect of initial inequality on meritocracy a voting experiment on tax redistribution abstract according to alesina and angeletos 2005 societies are less redistributive but more efficient when the median voter believes that effort and talent are much more important than luck in determining income we test these results through a lab experiment in which participants vote over the tax rate and their pre tax income is determined according to their performance in a real effort task with leisure time subjects receive either a high or a low wage and this condition is either obtained through their talent in a tournament or randomly assigned we compare subjects decisions in these two different scenarios taking into consideration different levels of wage inequality in our framework this initial income inequality turns out to be crucial to support the theoretical hypothesis of alesina and angeletos 2005 overall we find that only if the wage inequality is high subjects choose a lower level of income redistribution and provide a higher effort level in the scenario in which high wage subjects are selected based on their talent through a tournament than when it is randomly assigned thus we confirm almost all theoretical results in alesina and angeletos 2005 when the wage inequality is high enough the big exception is for efficiency measured as the sum of total payoffs since theoretical results are not significant for both wage inequality scenarios

a political economy model of congressional careers our main goal is to quantify the returns to a career in the united states congress we specify a dynamic model of career decisions of a member of congress and estimate this model using a newly collected dataset given estimates of the structural model we assess reelection probabilities estimate the effect of congressional experience on private and public sector wages and quantify the value of congressional seat moreover we assess how an increase in the congressional wage or the imposition of term limits would affect the career decisions of politicians and the returns from a career in congress

inequality aversion and voting on redistribution some people have a concern for a fair distribution of incomes while others do not does such a concern matter for majority voting on redistribution fairness preferences are relevant for redistribution outcomes only if fair minded voters are pivotal pivotality in turn depends on the structure of income classes we experimentally study voting on redistribution between two income classes and show that the effect of inequality aversion is asymmetric inequality aversion is more likely to matter if the rich are in majority with a poor majority we find that redistribution outcomes look as if all voters were exclusively motivated by self interest

pocketbook voting social preferences and expressive motives in referenda we develop and test a theory of voting and turnout decisions that integrates self interest social preferences and expressive motives our model implies that if pocketbook benefits are relevant voters either perceive their impact on the outcome to be non negligible or expressive motivations do not play a role in the decision on how to vote conversely if own pocketbook benefits do not explain voting then voting is expressive if the perceived probability of being pivotal is non negligible social preferences and expressive concerns are observationally equivalent our empirical analysis studies collective choices which are analogous to decisions on local public goods we consider referenda among university students on whether to collectively purchase deeply discounted flat rate tickets for public transportation and cultural amenities individual usage data allow quantifying the monetary benefits associated with each ticket as voters had precise information on the individual costs and benefits our setting comprises a real world laboratory of direct democracy we find that monetary benefits strongly influence participation and voting however social or expressive motives such as stated altruism environmental concerns and paternalism are decisive for a significant minority our results rule out purely expressive voting and imply that a substantial share of the electorate perceived their impact on the outcome to be non negligible

monotone stochastic choice models the case of risk and time preferences suppose that when evaluating two alternatives x and y by means of a parametric utility function low values of the parameter indicate a preference for x and high values indicate a preference for y

wealth and health at the base of the pyramid modelling trade offs and complementarities for fast moving dairy product case abstract this paper models the localized base of the pyramid bop supply and demand chain of a fast moving dairy product within its social and business environment for identifying the effects of various pricing strategies on wealth and health of the poor population of bangladesh the joint venture of the grameen bank and danone gd in bangladesh is a showcase of integrative bop projects it produces fortified yoghurt in a micro plant and distributes it through micro entrepreneurs following a strictly localized approach the objective of this bop project is twofold 1 integrating as many people as possible into productive processes and paying decent prices wages and commissions wealth and 2 regularly serving as many people as possible with fortified yoghurt health by means of dynamic simulation we analyse how volatility in raw material prices affects the economic viability of the business model and hence both objectives the gd case provides the motivation as well as empirical data for the presented research and has been used for model validation additionally we use further literature sources our results show the outstanding importance of sales effectiveness for buffering against negative consumer reaction to sudden price increases sales effectiveness aggregates various performance factors regarding product distribution and perceived product quality and value in this respect awareness raising campaigns by governmental and civil society organizations as well as changes regarding distribution mode and selection of distributors may enhance sales effectiveness

the role of ignorance in the emergence of redistribution abstract our study investigates the emergence of redistribution societies when individuals vote on distribution rules with their feet the choice of a distribution rule is a strategic decision since individuals differ in the productivity of their investments and hence total income depends on the types of individuals who have chosen the same distribution rule in our laboratory experiment we find that compared to full information the amount of redistribution increases if individuals face uncertainty about their productivity at the time they choose a distribution rule moreover we find a coexistence of libertarian and redistributive societies as well as imperfect segregation for all degrees of uncertainty so that heterogeneous redistribution societies turn out to be sustainable throughout

environment market share and market power in this paper we develop a process model relating market share to firm profits in particular we specify average price and average cost equations as a function of previous year market share position changes in market share environmental conditions and interactions of environmental conditions with the lagged market position and market share change variables we estimate these equations using pims data after controlling for unobservable factors our results suggest that firms with high market shares derive no extra market power benefits except if they operate in environments with little buyer power instead environmental factors and changes in market share most strongly influence price and cost an analysis of the market share associated with maximal firm profits indicates that for the majority of firms in our sample steadily increasing market share does not always associate with increasing profits giving credence to the proposition that more market share is not always better

a measurement error approach for modeling consumer risk preference von neumann morgenstern vn m utility theory is the dominant theoretical model of risk preference recently market researchers have adapted vn m theory to model consumer risk preference but most applications assess utility functions by asking just n questions to specify n parameters however any questioning format especially under market research conditions introduces measurement error this paper explores the implications of measurement error on the estimation of the unknown parameters in vn m utility functions and provides procedures to deal with measurement error we assume that the functional form of the utility function but not its parameters can be determined a priori through qualitative questioning we then model measurement error as if question format and other influences cause the consumer to choose the unknown risk parameter from a probability distribution and to make his decisions accordingly we provide procedures to estimate the unknown parameters when the measurement error is eith

assessing individual risk attitudes using field data from lottery games we use information from the television game show with the highest guaranteed average payoff in the united states hoosier millionaire to analyze risktaking in a high stakes experiment we characterize gambling decisions under alternative assumptions about contestant behavior and preferences and derive testable restrictions on individual risk attitudes based on this characterization we then use an extensive sample of gambling decisions to estimate distributions of risk aversion parameters consistent with the theoretical restrictions and revealed preferences we find that although most contestants display risk averse preferences the extent of the risk aversion implied by our estimates varies substantially with the stakes involved in the different decisions

job exit behavior of older men a dynamic programming model of job exit behavior and retirement is constructed and estimated using the method of simulated moments the model and estimation method allow for both unobserved individual effects and unobserved job specific match effects the model is estimated using two different assumptions about individual discount factors first a static model with the discount factor equal to zero is estimated then a dynamic model with the discount factor equal to 95 is estimated in both models it is found that bad health age and lack of education increase the probability of retirement the dynamic model performs better than the static model and has different implications for retirement behavior the job specific effects are an important source of unobserved heterogeneity copyright 1991 by the econometric society

modeling multiattribute utility risk and belief dynamics for new consumer durable brand choice this paper proposes a brand choice model to aid in the prelaunch management of a new consumer durable entry in an existing category the model contributes to theory by integrating the critical phenomena of multiattribute preference risk and dynamics in an individual level expected utility framework the integration is based on established theoretical constructs in utility bayesian decision analysis and discrete choice theory measurement and estimation procedures are presented an application is described and the managerial relevance of this work as a planning and forecasting tool is examined

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

support for public provision of a private good with top up and opt out a controlled laboratory experiment abstract this paper presents the results of a revealed choice experiment testing the theoretical predictions of political economy models regarding public support for a publicly provided private good financed with proportional income taxes when individuals can purchase the good privately and either continue to consume public provision top up or forego public provision opt out but in each case continue to pay income taxes our laboratory results confirm behavior is consistent with the predicted majority preferred tax rate under mixed financing with top up but we identify preferences for significantly higher rates of public provision than predicted under mixed financing with opt out using non parametric regression analysis we explore the relationship between individuals top up and opt out decisions and both their income levels and the implemented tax rates

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

would you like to shrink the welfare state a survey of european citizens welfare state reform a survey of what europeans want the fundamental problems facing european welfare states high unemployment and unsustainable public pensions plans in particular have been in the political debate for years so why have we seen so little reform to find out we surveyed the opinions of citizens in france germany italy and spain on their welfare states and on various reform options this is what we found first most workers underestimate the costs of public pensions though they are aware of their unsustainability second the status quo is a majoritarian outcome a majority of citizens opposes cuts to social security and welfare spending but also opposes further increases since population ageing without reform implies an automatic expansion our results suggest that most citizens would favour reforms that stabilize but do not shrink the current welfare states third many would welcome changes in the allocation of benefits a large number of workers in italy and germany would be willing to opt out of public pensions and replace them with private pensions though the details of how this scheme is formulated matter for its popularity and many italians and spaniards would welcome an extension of the coverage of unemployment insurance fourth conflicts over the welfare state are mainly shaped by the economic situation of the respondent while political ideology plays a limited role disagreements are found along three dimensions young versus old rich versus poor and outsider versus insider in terms of labour market status from a practical point of view this suggests that there is scope to bundle reforms strategically in order to build a large and mixed coalition of supporters tito boeri axel borsch supan and guido tabellini

on credible delegation by oligopolists a discussion of distribution channel management several papers in the recent marketing literature have suggested that delegation in distribution e g the use of independent middlemen helps manufacturers to precommit strategically to profit enhancing competitive actions further the literature suggests that the profitability of such actions depends on market structure we challenge these conclusions here this is done in two steps first we perform an analysis of the entire class of models which have been used in the literature using internally consistent assumptions about market structure and contracting the only subgame perfect equilibrium is one in which all distribution channels have infinitely many levels of delegation obviously this is not what we see in the real world next we relax a key hidden assumption namely that all intra channel agreements are observable to competitors without this assumption the usual results unravel unless channel members can offer credible guarantees that unobservable agreements do not exist the strategic effects of delegation disappear since these guarantees are virtually impossible to maintain credibly we would expect to reject the hypothesis in the earlier literature relating channel structure to competition in an empirical study controlling for observability we conclude that mechanisms other than strategic ones must be responsible for the existence of delegated channels and make some suggestions about promising avenues for future theory research in channel structure

social image concerns and welfare take up abstract using a laboratory experiment we present first evidence that social image concerns causally reduce the take up of an individually beneficial transfer our design manipulates the informativeness of the take up decision by varying whether transfer eligibility is based on ability or luck and how the transfer is financed we find that subjects avoid the inference both of being low skilled ability stigma and of being willing to live off others free rider stigma using a placebo treatment we exclude other explanations for the observed stigma effects although stigma reduces take up elicitation of political preferences reveals that only a minority of taxpayers vote for the public transfer

a micro econometric analysis of risk aversion and the decision to self insure this study estimates a von neumann morgenstern utility function using market data and micro econometric methods we investigate the decision whether to purchase insurance against the risk of telephone line trouble in the home using the choices of approximately 10 000 residential customers we determine the shape of the utility function and the degree of risk aversion we find that risk aversion varies systematically in the population and varies with the level of income and that the observed choice behavior is consistent with expected utility maximization we are unable to detect the presence of ambiguity effects or over weighting of low probability events

measuring the value of children by sex and age using a dynamic programming model one of the important determinants of fertility is the value of children as perceived by parents this paper estimates gender and age specific values of children using a dynamic programming model the underlying hypothesis is that observed fertility outcome for any couple is the solution to their life cycle optimization problem findings from the korean data indicate that children impose net costs when young and net benefits when old both the early costs and the later benefits are larger for male children than female children and for better educated women than lowereducated women simulation studies which use estimated values of children suggest that a decrease in the costs of abortion and pre natal gender screening tests may raise the male birth ratio through gender selective abortions

a little fairness may induce a lot of redistribution in democracy we use a model of self centered inequality aversion suggested by fehr and schmidt 1999 to study voting on redistribution we theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda we test the predictions of the adapted inequality aversion model in a simple redistribution experiment and flnd that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self interest

heterogeneity in risky choice behaviour in a broad population we analyse risk preferences using an experiment with real incentives in a representative sample of 1 422 dutch respondents our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics utility curvature loss aversion preferences towards the timing of uncertainty resolution and the propensity to choose randomly rather than on the basis of preferences we find that all four parameters contribute to explaining choice behaviour the structural parameters are significantly associated with socio economic variables but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data

voting for redistribution under desert sensitive altruism we endow individuals that differ in skill levels and tastes for working with altruistic preferences for redistribution in a voting model where a unidimensional redistributive parameter is chosen by majority voting in a direct democracy when altruistic preferences are desert sensitive i e when there is a reluctance to redistribute from the hard working to the lazy we show that lower levels of redistribution emerge in political equilibrium we provide empirical evidence based on the issp 1992 dataset that preferences for redistribution are not purely selfish and that desert sensitive motivations play a significant role we estimate that preferences for redistribution are significantly more desert sensitive in the us than in europe we believe that differences in desert sensitive preferences for redistribution help explain the different social contracts that prevail in both continents

choosing justice in experimental democracies with production we examine in a laboratory setting how direct participation in choosing a principle of distributive justice and a tax system impinges on subjects attitudes and subsequent productivity when they participate in a task produce income and then experience losses or gains according to the tax system experience with a redistributive principle and its associated taxation system in a production environment does not detract from overall acceptance of the distributive principle particularly for subjects who participate in choosing the principle participation in discussion choice and production increases subjects convictions regarding their preferences for these subjects especially recipients of transfers productivity rises significantly over the course of the experiments no such effect is evident for subjects who do not participate in setting the regime under which they are to labor the results implications for questions of democratic participation and the stability of income support programs are drawn

the value of marketing expertise this paper has three objectives 1 to construct a theoretical model that aids in evaluating marketing expertise 2 to use that theoretical model to identify factors influencing the value of marketing expertise and 3 to empirically test the model by observing how different market conditions influence whether companies emphasize marketing expertise we accomplish these objectives as follows first we use decision theory to find an expression for the expected value of marketing expertise we do not use decision analysis in the normative tradition nor do we assume that firms actually use formal decision analysis rather we assume that firms are rational and that decision theory describes their actions given that assumption we predict how firms should evaluate marketing here marketing expertise helps a firm make better marketing decisions at least on average hence the value of marketing expertise increases as marketing decisions become more important second consistent with decision theory

individual preferences for political redistribution what drives people s support of governmental reduction of income inequality we employ data from a large international survey in order to evaluate the explanatory power of three competing forces referred to as the homo oeconomicus effect the public values effect and the social rivalry effect the empirical analysis reveals that at the aggregate level all three effects play a significant role in shaping individual preferences for political redistribution attitudes of citizens in formerly socialist countries turn out to differ from those of western citizens in a systematic way 2002 elsevier science b v all rights reserved

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

redistributive policies with heterogeneous social preferences of voters abstract there is growing evidence on the roles of fairness and other regarding preferences as fundamental human motives call voters with fair preferences as in fehr and schmidt 1999 fair voters by contrast traditional political economy models are based on selfish voters who derive utility solely from own payoff in a general equilibrium model with endogenous labor supply a mixture of fair and selfish voters choose optimal policy through majority voting first we show that majority voting produces a unique winner in pairwise contests over feasible policies the condorcet winner second we show that a preference for greater fairness leads to greater redistribution an increase in the number of fair voters can also lead to greater redistribution third we show that in economies where the majority are selfish voters the decisive policy could be chosen by fair voters and vice versa fourth while choosing labor supply even fair voters behave exactly like selfish voters we show how this apparently inconsistent behavior in different domains voting and labor supply can be rationalized within the model

supply and demand for livestock credit in sub saharan africa lessons for designing new credit schemes abstract based on analysis of credit supply in ethiopia kenya uganda and nigeria it is shown that public credit institutions do not have sufficient funds to meet the demand for livestock credit and cannot mobilize savings from their clients or other commercial sources for one reason or another in addition available credit does not reach those who need it the most and with whom it could have the greatest impact due to the application of inappropriate screening procedures and criteria to determine creditworthiness the analysis of demand based on borrowing and nonborrowing sample households using improved dairy technology it is shown that not all borrowers borrowed due to liquidity constraint while some borrowers and some nonborrowers had liquidity constraint but did not have access to adequate credit logistic regression analysis show that sex and education of the household head training in dairy prevalence of outstanding loan and the number of improved cattle on the farm had significant influence on both borrowing and liquidity status of a household though the degree and direction of influence were not always the same in each study country based on the findings it is suggested that combining public and commercial finance could solve the problem of inadequate credit supply while inventory finance to community level input suppliers and service providers might help in getting credit to worthy and needy smallholders at lower cost than providing credit to smallholders directly

an estimable dynamic stochastic model of fertility and child mortality this paper develops a finite horizon dynamic stochastic model of discrete choice with respect to life cycle fertility within an environment where infant survival is uncertain the model yields implications for the number timing and spacing of children a tractable estimation method is developed for the linear constraint quadratic utility case that is intimately tied to the dynamic optimization problem and the method is applied to malaysian household data estimation is based on integrating the numerical solution of the dynamic programming model of behavior with a maximum likelihood procedure

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

mental accounting of public funds the flypaper effect in the lab abstract we report evidence from a series of laboratory experiments that focus on mental accounting of public funds groups of three players decide upon how much to redistribute within the group we measure the preference to redistribute when transfers are made either out of individual accounts the players own money or out of a common account the group s money since the common account is dissolved after each round and paid out to individuals its size should not affect the decision to redistribute the experiment is designed to control for anchoring as a potential confounding effect we find that the size of the common account significantly affects redistribution behavior specifically the transfer increases in the size of the common account this effect is significantly more pronounced when the transfer is paid out of the common account instead of the individual account we interpret these findings as evidence for a flypaper effect due to mental accounting

discriminatory taxes are unpopular even when they are efficient and distributionally fair abstract we explore the political acceptance of taxation in commodity markets participants in our experiment earn incomes by trading and must collectively choose one of the two tax regimes to raise a given tax revenue a uniform tax ut imposes the same tax rate on all markets and is fair in that it yields the same but low income to participants in all markets the discriminatory tax dt imposes a higher burden on markets with inelastic demand and is therefore efficient but it is also unfair in that incomes are unequal across markets we find that dt is unpopular as predicted surprisingly however dt remains unpopular when they are both efficient and produce a fair equal distribution we conclude that non discrimination equal treatment is a salient fairness principle in taxation that shapes voting on commodity taxes above and beyond concerns for efficiency and equal distribution

is more always better a survey on positional concerns abstract we use survey data to provide some empirical information about concerns regarding relative standing respondents chose between a world where they have more of a good than others and one where everyone s endowment of the good is higher but the respondent has less than others questions asked about education attractiveness and intelligence for one s child and oneself income vacation time approval and disapproval from a supervisor and papers to write half of the respondents preferred to have 50 less real income but high relative income concerns about position were strongest for attractiveness and supervisor s praise and weakest for vacation time

social preferences and voting on reform an experimental study debating over efficiency enhancing but inequality increasing reforms accounts for the routine business of democratic institutions fernandez and rodrik 1991 hold that anti reform bias can be attributed to individual specific uncertainty regarding the distribution of gains and losses resulting from a reform in this paper we experimentally demonstrate that anti reform bias arising from uncertainty is mitigated by social preferences we show that paradoxically many who stand to lose from reforms vote in favor because they value efficiency while many who will potentially gain from reforms oppose them due to inequality aversion

incorporating a stochastic element into decision theories abstract recent papers by harless and camerer 1994 and hey and orme 1994 have employed two rather different models of errors in decision making under uncertainty the present paper develops a third approach and shows how different stochastic specifications of the same deterministic core theory may generate very different and sometimes surprising hypotheses

the behavioural economics of climate change this paper attempts to bring some central insights from behavioural economics into the economics of climate change in particular it discusses i implications of prospect theory the equity premium puzzle and time inconsistent preferences in the choice of discount rate used in climate change cost assessments and ii the implications of various kinds of social preferences for the outcome of climate negotiations several reasons are presented for why it appears advisable to choose a substantially lower social discount rate than the average return on investments it also seems likely that taking social preferences into account increases the possibilities of obtaining international agreements compared to the standard model however there are also effects going in the opposite direction and the importance of sanctions is emphasized

optimal conflict in preference assessment conflict arises indecision making when the choice alternatives present strong advantages and disadvantages over one another that is when the trade offs involved are large conflict affects human response to choice in particular it increases decision difficulty and response unreliability on the other hand larger trade offs i e higher conflict reveal more information about an individual s preferences and mitigate the influence of measurement unreliability on preference model estimation this suggests somewhat counterintuitively that there may exist some optimal level of conflict for efficient measurement of preferences how to determine this level this issue is examined from behavioral and analytical angles we outline a general analysis of the interaction between trade off size and modeling accuracy and demonstrate its application on a simple example the kind of analysis developed here can be conveniently implemented in a computer spreadsheet and would be especially valuable when large amounts of preference data are to be collected as in consumer preference studies experimental research and contingent valuation surveys

political self serving bias and redistribution we explore the impact of the self serving bias on the supply and demand for redistribution we present results from an experiment in which participants decide on redistribution after performing a real effort task dependent on individual performance participants are divided into two groups successful and unsuccessful participants success is exogenously determined because they are randomly assigned to either a hard or easy task however because participants are not told which task they were assigned to there is ambiguity as to whether success or failure should be attributed to internal or external factors participants take two redistribution decisions first they choose a supply of redistribution in a situation where no personal interests are at stake second they choose a redistributive system behind a veil of ignorance our results confirm and expand previous findings on the self serving bias successful participants are more likely to attribute their success to their effort rather than luck and they opt for less redistribution unsuccessful participants tend to attribute their failure to external factors and opt for more redistribution we demonstrate that the self serving bias contributes to a polarization of the views on redistribution

discrimination in a deprived neighbourhood an artefactual field experiment abstract we present a field experiment designed to examine the discriminatory motives of an understudied demographic the poorest people in england subjects are first asked to divide 10 between two strangers and then play a 10 dictator game with another stranger we subtly vary the ethnicity of the receivers by providing subjects with surnames randomly drawn from the electoral register including treatments that allow us to parse behaviour into either in group favouritism or out group negativity an important behavioural distinction that is typically overlooked in the discrimination literature our results suggest that the observed discriminatory attitudes are the result of out group negativity rather than in group favouritism we advance the literature on discrimination through the estimation of a structural model of group contingent social preferences which we exploit to perform counterfactual simulations our results provide insights into the behaviour of this unique demographic and provide a rationale for why they may support discriminatory policies in their voting behaviour

measuring future grandparents preferences for equality and relative standing individuals aversion to risk and inequality and their concern for relative standing are measured through experimental choices between hypothetical societies it is found that on average individuals are both fairly inequality averse and have a strong concern for relative income the results are used to illustrate welfare consequences based on a utilitarian swf and a modified crra utility function it is shown that the social marginal utility of income may then become negative even at income levels that are far from extreme

balancing the desire for privacy against the desire to hedge risk abstract an individual s desire to hedge risks as implied by risk aversion is accepted as a normative paradigm and documented as valid descriptively insurance markets satisfy this desire wherein the individual s aversion to bear risk allows firms to demand a markup on the expected value of the insured loss insurance firms incrementally introduce digital monitoring technology into their policies making policyholder s behavior transparent we analyze the implications of such transparency insurance contracts for willingness to pay in a framed behavioral experiment and find that the loss of privacy in such contracts marginalizes the potential profits that insurers could earn on their policies in particular our results suggest that the reduction in willingness to pay from introducing digital monitoring is in the range of 25 50 of the expected loss while an absolute as opposed to a relative monetary valuation concept of privacy appears more likely to explain our data we cannot clearly confirm this conjecture empirically heterogeneous treatment effects for risk preferences are suggestive for increasing utility losses from transparency policies with increasing risk aversion but we also observe indications of nonlinearities in this relationship probability misperception is a salient characteristic of our experimental population suggesting that profitability is less threatened under low frequency risks as opposed to high frequency risks

temporal stability of time preferences abstract the preferences assumed to govern intertemporal trade offs are generally considered to be stable economic primitives though evidence on this stability is notably lacking we present evidence from a large field study conducted over two years with around 1 400 individuals using incentivized intertemporal choice experiments aggregate choice profiles and corresponding estimates of discount parameters are unchanged over the two years and individual correlations through time are high by existing standards however some individuals show signs of instability by linking experimental measures to administrative tax records we showthat identified instability is uncorrelated with both levels and changes in sociodemographic variables

the relationship between credit and productivity in chinese agriculture a microeconomic model of disequilibrium credit is an important element in agricultural production systems it allows producers to satisfy the cash needs induced by the production cycle which characterizes agriculture preparation planting cultivation and harvesting of the crops are typically done over a period of several months in which very little cash revenue is earned while expenditures on materials purchased inputs and consumption must be made in cash cash income is received a short time after the harvest in the absence of credit markets farmers would have to maintain cash reserves so as to facilitate production and consumption in the next cycle the availability of credit allows both greater consumption and greater purchased input use and thus increases welfare of the farmers

cognitive imprecision and small stakes risk aversion observed choices between risky lotteries are difficult to reconcile with expected utility maximization both because subjects appear to be too risk averse with regard to small gambles for this to be explained by diminishing marginal utility of wealth as stressed by rabin 2000 and because subjects responses involve a random element we propose a unified explanation for both anomalies similar to the explanation given for related phenomena in the case of perceptual judgments they result from judgments based on imprecise and noisy mental representations of the decision situation in this model risk aversion results from a sort of perceptual bias but one that represents an optimal decision rule given the limitations of the mental representation of the situation we propose a quantitative model of the noisy mental representation of simple lotteries based on other evidence regarding numerical cognition and test its ability to explain the choice frequencies that we observe in a laboratory experiment

limited rationality and strategic complements the implications for macroeconomics this paper considers the implications of heterogeneity in information processing abilities for macroeconomic models that exhibit strategic complements the latter is the same concept that has received much attention in the recent macro literature under the headings keynesian coordination problems and positive trading externalities we consider environments in which agents vary in terms of their ability to form expectations and ask whether it is the sophisticated agents or the naive agents who have a disproportionately large effect on macroeconomic equilibrium we find that if macroeconomic interaction exhibits strategic complementarity then it is the naive agents who have a disproportionate impact

risk preferences in the psid individual imputations and family covariation unobserved heterogeneity greatly complicates empirical analysis in economics unobserved heterogeneity in preferences is particularly troublesome because there are so few theoretical restrictions on the distribution of preference parameters in the population therefore despite potential pitfalls we have developed direct survey measures of preference parameters based on hypothetical choices and appropriate econometric techniques for dealing with the inevitable measurement error in any such measures our work on survey measures of preference parameters focuses on risk tolerance robert b barsky f thomas juster kimball and shapiro 1997 bjks hereafter and kimball claudia r sahm and shapiro 2008 kss hereafter time preference and the elasticity of intertemporal substitution bjks and labor supply elasticities kimball and shapiro 2008

anyone for higher speed limits self interested and adaptive political preferences swedish survey evidence indicates that variables reflecting self interest are important in explaining people s preferred speed limits and that political preferences adapt to technological development drivers who believe they drive better than the average driver as well as drivers of cars that are newer and hence safer bigger and with better highspeed characteristics prefer higher speed limits in contrast elderly people prefer lower speed limits furthermore people report that they themselves vote more sociotropically than they believe others vote on average indicating that we may vote less sociotropically than we believe ourselves one possible reason for such self serving biases is that people desire to see themselves as socially responsible

risk sharing versus low cost credit systems for international development low cost credit programs in developing countries have failed to achieve agricultural technology adoption goals this research attributes the failure to the inabiiity of poor farmers to bear the combined business and financial risks p sed ly adopting new technologies and develops proposals for the design of credit programs that reduce these risks agronomic and socioeconomic data are combined through simulation and mathematical programming to analyze problems of decision making under risk for developing countries the results will assist iii the design of new rural financial institutions conducive to the adoption of new production technologies by subsistence

revealed preference rational inattention and costly information acquisition we develop a revealed preference test for optimal acquisition of costly information the test encompasses models of rational inattention sequential signal processing and search we provide limits on the extent to which attention costs can be recovered from choice data we experimentally elicit state dependent stochastic choice data of the form the tests require in simple cases tests con rm that subjects adjust their attention in response to incentives as the theory dictates

redistribution and market efficiency an experimental study abstract we study the interaction between competitive markets and income redistribution that reallocates unequal pre tax market incomes away from the rich to the poor majority in one setup participants earn their income by trading in a double auction da with exogenous zero or full redistribution in another setup after trading they vote on redistributive tax policies in a majoritarian election with two competing candidates this results in virtually full redistribution even when participants have the opportunity to influence taxes by transferring money to the candidates we find that the high redistribution reduces trading efficiency but not as much as predicted if market participants trade randomly this is because rather than capitulating to the much lower trading incentives many participants respond to redistribution by asking and bidding more conservatively in the da and in this way help to prevent further efficiency losses

contrasting rational and psychological analyses of political choice we contrast the rational theory of choice in the form of expected utility theory with descriptive psychological analysis in the form of prospect theory using problems involving the choice between political candidates and public referendum issues the results showed that the assumptions underlying the classical theory of risky choice are systematically violated in the manner predicted by prospect theory in particular our respondents exhibited risk aversion in the domain of gains risk seeking in the domain of losses and a greater sensitivity to losses than to gains this is consistent with the advantage of the incumbent under normal conditions and the potential advantage of the challenger in bad times the results further show how a shift in the reference point could lead to reversals of preferences in the evaluation of political and economic options contrary to the assumption of invariance finally we contrast the normative and descriptive analyses of uncertainty in choice and address the rationality of voting

preferences for redistribution in the land of opportunities this paper explores how individual preferences for redistribution depend on future income prospects in addition to estimating the impact of individuals socioeconomic background and of their subjective perceptions of future mobility we employ panel data to construct dobjectivet measures of expected gains and losses from redistribution for different categories of individuals we find that such measures have considerable explanatory power and perform better than dgeneral mobilityt indexes we also find that preferences for redistribution respond to individual beliefs on what determines one s position in the social ladder ceteris paribus people who believe that the american society offers equal opportunities are more averse to redistribution d 2004 published by elsevier b v

moral bias in large elections theory and experimental evidence in this article we provide evidence that voters in large elections tend to vote against their material self interest and to vote for a morally or ethically appealing alternative it may seem puzzling that voters might behave differently in small elections than they do in large ones however we show that such behavior is a logical consequence of voters having a conflict between obtaining a better material outcome and choosing a moral action we develop a simple model of this conflict and show that decreasing the probability that a single vote is decisive i e pivot probability reduces the importance of outcomes relative to actions in voter decision making because pivot probability is generally small in large elections alternatives that are understood by voters to be morally superior are more likely to win in large elections than in small ones thus compared to the preferences of voters election results will be biased in favor of moral alternatives 1 the model produces a set of predictions that we test in a laboratory experiment to clarify ideas consider a situation in which two outcomes are possible a and b assume that b gives

risk sharing and group decision making in a decision making problem where a group will receive an uncertain payoff which must be divided among the members of the group the ultimate payoff of interest is the vector of individual payoffs received by the members of the group in this paper preferences are quantified in terms of cardinal utility functions for such vectors of payoffs these utility functions can represent preferences concerning equitable and inequitable vectors of payoffs as well as attitudes toward risk the individual utility functions are aggregated to form a group utility function for the vector of payoffs and this latter function is in turn used to generate a group utility function for the overall group payoff and a sharing rule for dividing the group payoff into individual payoffs the resulting group decisions are pareto optimal in utility space properties of the sharing rule and the group utility function are investigated for additive and multilinear group utility functions

deal or no deal decision making under risk in a large payoff game show we examine the risky choices of contestants in the popular tv game show deal or no deal and related classroom experiments contrary to the traditional view of expected utility theory the choices can be explained in large part by previous outcomes experienced during the game risk aversion decreases after earlier expectations have been shattered by unfavorable outcomes or surpassed by favorable outcomes our results point to reference dependent choice theories such as prospect theory and suggest that path dependence is relevant even when the choice problems are simple and well defined and when large real monetary amounts are at stake

long term evidence of retrospective voting a natural experiment from the german democratic republic abstract the paper investigates long lasting electoral punishment decades of communist socialization and the repressive rule of a single party have left their left wing fingerprint on east germany in this paper we show that voters act rationally given negative life circumstances experienced under the rule of the communist party they display retrospective voting even decades later our insight is based on the analysis of 19 years of revealed and stated party preferences we argue that life at the border region to west germany was particularly hard and find that east german voters who lived close to the inner german border before the reunification of the two states are 5 9 percentage points less likely to lean toward the successor party to east germany s communists given that over the years roughly every fifth person has revealed preferences for the communists in the east this translates to over thirty percent reduction we confirm the preferences with administrative data the electoral punishment estimated at the district level amounts to a reduction of 1 3 percentage points of votes for the party

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

social preferences self interest and the demand for redistribution preferences for redistribution may be influenced by values and beliefs about distributive justice as well as by self interest people may prefer more redistribution to the poor if they believe that poverty is caused by circumstances beyond individual control therefore beliefs about the causes of income may affect demand for redistribution alternatively the effect of these beliefs on redistributive preferences may be spurious if they are correlated with income and self interest is not properly controlled for they may also measure incentive cost concerns using social survey data i find that self interest cannot explain the effect of these beliefs on redistributive preferences 2001 elsevier science b v all rights reserved

rural credit markets and institutions in developing countries lessons for policy analysis from practice and modern theory this article presents evidence of the failure of government intervention in rural credit markets of ldcs in the past three decades it then shows how lessons for policy analysis can be drawn from modern theory particularly those theories focussing on credit rationing in competitive markets and interlinking of credit contracts with labor and land contracts the article outlines the policy implications of these theories and finds them insufficient to account for the empirical evidence it contends that a more systematic and rigorous analysis of institutions and institutional environments is essential for understanding and implementing effective policy reforms of rural credit markets it presents suggestions for undertaking such an analysis

collective trust behavior this paper investigates trust behavior in situations where decision makers are large groups and the decision mechanism is collective theories from behavioral economics and psychology suggest that

higher order risk attitudes demographics and financial decisions we conduct an experiment to study the prevalence of the higher order risk attitudes of prudence and temperance in a large demographically representative sample as well as in a sample of undergraduate students participants make pairwise choices between lotteries of the form proposed by eeckhoudt and schlesinger 2006 the choices in these lotteries isolate prudent from imprudent and temperate from intemperate behavior we relate individuals risk aversion prudence and temperance levels to demographics and financial decisions we observe that the majority of individuals decisions are consistent with risk aversion prudence and temperance in both the student and the demographically representative sample an individual s level of prudence is predictive of his wealth saving and borrowing behavior outside of the experiment while temperance predicts the riskiness of portfolio choices our findings suggest that the coefficient of relative prudence for a representative individual is approximately equal to two

credit constraints and smallholder dairy production in the east african highlands application of a switching regression model abstract accurate assessment of farmers credit constraint condition is important in order to understand the circumstances under which credit would have its greatest impact in this study a switching regression model was used to determine the impact of credit on smallholder dairy farms in the east african highlands using farm level data from ethiopia and kenya farmers were classified as credit constrained or credit non constrained based on their responses from the farm level surveys no consistent relationship was found between farmers credit constraint condition and their borrowing status most of the variation in milk output per farm was explained by the number of crossbred milking cows in the dairy herd as credit is likely to facilitate investment in crossbred dairy cows it will have substantial impacts on smallholder dairy farms especially if it is targeted to credit constrained farms

the political feasibility of pension reform options the case of switzerland this paper investigates the political feasibility of different hypothetical reform options of an unsustainable pay as you go public pension system in calibrating the model to the swiss economy we find that low internal rates of return and high distortions can reduce political support for an increase in earmarked taxes up to a point where a reduction in the size of the social security program receives a majority of votes our simulations show that the consideration of non social security taxes is crucial in welfare analysis this is especially true for countries in which the public pension system is explicitly or implicitly subsidized

voting when money and morals conflict an experimental test of expressive voting abstract moral considerations may matter much in voting because the costs of expressing support for a morally worthy cause may be low in a referendum these costs depend on whether a voter expects to affect the outcome of the referendum to test the low cost theory of expressive voting we experimentally investigate a proposal to tax everyone and to donate tax revenues the analysis of expectations and voting decisions shows that the low cost theory fails to explain voting decisions instead we find that voters tend to approve of the proposal if they expect others to approve too

measurement of income inequality experimental test by questionnaire abstract we reconsider some of the basic assumptions of the literature on inequality analysis students views on the meaning of inequality comparisons were elicited by means of a questionnaire involving both numerical and verbal questions the responses suggest that two important axioms the principle of transfers and decomposability are not universally accepted

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

voting over taxes the case of tax evasion this paper studies majority voting on taxes when tax evasion is possible we characterize the voting equilibrium where the agent with median taxed income is pivotal since the ranking of true incomes does not necessarily correspond to the ranking of taxed incomes the decisive voter can differ from the median income receiver in this case we find unconventional patterns of redistribution e g from the middle class to the poor and the rich

the impact of prior decisions on subsequent valuations in a costly contemplation model this paper develops and tests a model of how recall of information from past decisions affects subsequent related decisions a boundedly rational individual has to determine her willingness to pay for a good that she previously considered purchasing at a given price or provide valuations for a set of goods that she previously ranked in order of preference the individual is ex ante uncertain about her utility from consumption of the goods and can exert costly cognitive effort to reduce this uncertainty we show that incorporating information from a prior decision has three primary effects a valuations are expected to exhibit higher variance in particular the spread of valuations between the most and least preferred alternatives increases b decision makers will in expectation exert more effort during the valuation phase and c the relative impact of prior decisions on valuation spread increases the more each attribute contributes to overall utility the model predictions are then tested in a series of controlled lab experiments