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

unauthorized immigration and fiscal competition abstract reflecting upon recent enforcement policy activism of us states and countries within the eu towards unauthorized workers we examine the overlap of centralized federal and decentralized state or regional enforcement of immigration policies in a spatial context among other results we find that if interstate mobility is costless internal enforcement is overprovided and border enforcement and local goods are underprovided when regions take more responsibility in deciding policies this leads to higher levels of unauthorized immigration under decentralization interregional migration costs moderate such over underprovision moreover income distributive motives in the host country may shape the design of immigration policies in specific ways the basic model is extended in several ways first we study how the policies change when regions can exclude unauthorized immigrants from the consuming of regionally provided goods or services second we assume that the potential number of unauthorized immigrants is endogenous and finally we examine the effect of considering an alternative spatial configuration that includes border and interior regions

secular cost changes and the size of government towards a generalized theory abstract baumol s cost disease account of government growth is contrasted with that of kau and rubin who focus on decreasing costs of tax collection over time the apparent paradox wherein the first theory explains government growth by cost increases and the second by way of cost decreases is technically resolved why both theories seem to be able to stand up to empirical tests even though they use similar data is then explained finally public choice analysis is employed to reveal further potential for the ultimate construction of one all embracing secular cost change theory of government growth

pricing and lot sizing decisions for perishable goods when demand depends on selling price reference price product freshness and displayed stocks abstract price is an important factor affecting demand rate based on economic and marketing theory in addition today s health conscious consumers prefer a product further from its expiration date because it is fresher and can be stored longer furthermore a large display of goods in a supermarket induces customers to buy more due to its visibility variety and seasonality as a result we develop a joint pricing and lot sizing model for retailers selling perishable products in which the demand depends on not only the selling price and reference price but also the product freshness linked to expiration date and displayed stock level we then formulate the problem as a deterministic model in which the retailer determines the optimal selling prices and ending inventory levels to maximize the discounted total profit furthermore we discuss the retailer s optimal decisions under two scenarios of demand behavior loss neutrality and loss aversion our theoretical analysis shows that the optimal pricing and ending inventory level strategies are both monotonic in time and the equilibrium of the system is unique for these two scenarios of demand behavior finally a set of structural properties and sensitivity analysis is also developed to characterize the impacts of model parameters on the optimal decisions

decentralization and intra country transfers in the great recession the case of the european union empirical evidence is found supporting the assignment of the redistribution function to the central government viewing the great recession or recessions in general as a shock it is found that a

factor mobility and income redistribution in a federation abstract jurisdictions in a federation redistribute income by taxing capital and providing transfers to labor capital and labor move to earn higher returns net of taxes or gross of transfer benefits between jurisdictions in determining its redistributive policy the government for each jurisdiction thus takes into account the effects of its policy on the movement of factors from and to the jurisdiction hence the extent of redistribution depends on the mobility of factors the mobility of capital or labor leads to less redistribution than under autarky however mobility of both capital and labor may lead to more redistribution than if only capital moves as a consequence increased mobility of factors is not necessarily harmful to redistribution

optimal dynamic pricing for deteriorating items with reference price effects when inventories stimulate demand abstract in this paper we incorporate reference price effects into a deteriorating inventory problem when the demand rate depends on displayed stock level and selling price simultaneously reference price effects are formed empirically by customers to adjust current price perception on the basis of past purchases the market demand is assumed to be responsive to the difference between the current selling price and the reference price which is perceived as a loss or a gain we consider three scenarios of market demand loss neutrality loss aversion and loss seeking an optimal dynamic pricing model is established to determine a pricing strategy maximizing the discounted total profit over an infinite time horizon theoretical results are derived to demonstrate the existence of the optimal solutions and to explore the relationships between optimal pricing decisions and an initial reference price based on mild assumptions numerical example and sensitivity analysis are presented to illustrate the theoretical results and managerial insights finally concluding remarks are offered

optimal retailer investments in green operations and preservation technology for deteriorating items abstract this paper examines the impact of dynamic retailer investments in green operations while considering the reference price effect a replenishment problem based on joint pricing dynamic investment in green operations preservation technology and optimal replenishment times for deteriorating items is considered as a way to maximize retailer profit in this problem the demand rate depends on the sales and reference prices as well as green concern level optimal control theory is employed to obtain a dynamic investment rate and a simulated annealing algorithm is used to find the solution of the nonlinear constraint optimization problem which determines the price preservation technology investment and replenishment cycle time in addition computational simulations and sensitivity analyses are carried out to offer managerial insights the findings suggest that continuous investment in green operations and preservation technology can significantly improve the retailer s financial performance the consumer reference price is an important influence on the retailer s decision to invest in green operations furthermore results show that the higher price sensitivity of the market always discourages the retailer from investing in green operations the retailer needs to invest more in green operations for products with relatively high unit value

technical note intertemporal price discrimination via reference price effects we consider the dynamic pricing problem a monopolistic seller faces when customers arrive in heterogeneous time periods and their purchase decisions are affected by reference prices formed from their past observations of prices we illustrate that a new form of price discrimination opportunity exists in such situations where the seller s optimal pricing strategy is a cyclic one even when the customers are loss neutral and their demand functions are identical this result differs from those of prior studies where the optimal price paths are shown to be asymptotically constant and thus is unique due to the interaction between the heterogeneous arrivals and the reference price effects we also provide the cycle length of the optimal pricing policy when the demand function is linear and when customers are loss neutral in this era when customer information is easier accessible our results suggest the sellers consider this new dimension of price discrimination in conjunction with the old ones to take advan

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

state government cash and in kind benefits intergovernmental fiscal transfers and cross program substitution abstract us states provide both cash and health insurance benefits for the poor partially financed by fiscal transfers from the federal government the 1996 welfare reform drastically reduces federal support for cash transfers at the margin lowering the relative price to states of providing benefits to the poor through medicaid this paper analyzes the comparative statics response of state governments to such changes in intergovernmental transfers showing in central cases that they can contribute not only to reductions in state expenditures on cash benefits but to increases in expenditures on medicaid whether or not beneficiary populations are mobile among states

behavioral anomalies in consumer wait or buy decisions and their implications for markdown management the decision to buy an item at a regular price or wait for a possible markdown involves a multidimensional trade off between the value of the item the delay in getting it the likelihood of getting it and the magnitude of the price discount such trade offs are prone to behavioral anomalies by which human decision makers deviate from the discounted expected utility model we build an axiomatic preference model that accounts for three well known anomalies and produces a parsimonious generalization of discounted expected utility we then plug this behavioral model into a stackelberg nash game between a firm that decides the price discount and a continuum of consumers who decide to wait or buy anticipating other consumers decisions and the resultant likelihood of product availability we solve the markdown management problem and contrast the results of our model with those under discounted expected utility we analytically show that accounting for the behavioral anomalies can result in larger markdowns a

real government size automatic feedback rules and the measured effectiveness of fiscal policy this paper argues that as intervention fiscal policy means more than simply any change in government spending and this requires of fiscal analysis a measure that separates the allocative from the counter cyclical activities of government defining intervention as an optimal policy rule that responds automatically to privately unanticipated variations in output a general equilibrium model is built to separate the supply side effects of desired changes in the size of government from demand side interventions designed to stimulate aggregate demand the model is tested using the results of a public choice investigation of the real size of government ferris and west 1996 that exercise produces a measure of desired size and through its residual an implicit measure of intervention the paper tests the prediction that increases in desired size increase aggregate supply and that ex post measures of fiscal intervention can be recovered and tested for their effect on aggregate output the test uses citibase

dynamic pricing strategies with reference effects we consider the dynamic pricing problem of a monopolist firm in a market with repeated interactions where demand is sensitive to the firm s pricing history consumers have memory and are prone to human decision making biases and cognitive limitations as the firm manipulates prices consumers form a reference price that adjusts as an anchoring standard based on price perceptions purchase decisions are made by assessing prices as discounts or surcharges relative to the reference price in the spirit of prospect theory we prove that optimal pricing policies induce a perception of monotonic prices whereby consumers always perceive a discount respectively surcharge relative to their expectations the effect is that of a skimming or penetration strategy the firm s optimal pricing path is monotonic on the long run but not necessarily at the introductory stage if consumers are loss averse we show that optimal prices converge to a constant steady state price characterized by a simple implicit equation otherwise the optimal policy cycles the range of steady states is wider the more loss averse consumers are steady state prices decrease with the strength of the reference effect and with customers memory all else equal offering lower prices to frequent customers may be suboptimal however if these are less sensitive to price changes than occasional buyers if managers ignore such long term implications of their pricing strategy the model indicates that they will systematically price too low and lose revenue our results hold under very general reference dependent demand models

cost disease versus leviathan explanations of rising government cost an empirical investigation in this paper we reexamine the apparently conflicting empirics of borcherding et al 1977 versus those of barry and lowery 1984 the latter designed to test the cost disease versus bureau voting power hypotheses on us citibase annual data between 1947 to 1979 was retested for the longer period available through 1989 second and more importantly we isolate and test for the presence of a second channel for the exercise of bureaucratic power that channel is the bureau s ability to use its information advantage to capture a portion of newly generated government rents through higher personal benefits such as higher salaries such an analysis following west 1991 requires first that those factors generating new rents for government actually result in successful bureaucratic rent seeking in the form of higher compensation levels in addition the analysis requires that these artificial increases in bureaucratic wages show up as significant determinants of the higher cost of providing government services incorporating a constructed kau rubin variable into the barry and lowery database is then shown to improve the predictive power of both the cost disease and bureaucratic power hypotheses for us annual data between 1948 and 1989

dynamic quality policies with reference quality effects abstractdynamic pricing policies with reference price demand have been intensely analysed less studied are dynamic quality policies with reference quality demand this article studies the dynamic quality policy of a firm whose consumers use a reference point in their decision making in line with the principles of behavioural economics more specifically i consider reference quality formation in an optimal control setting by solving on the basis of pontryagin s maximum principle i obtain analytical solutions to the optimal quality policy the managerial implications of quality reference for dynamic quality policy are discussed

migration and income redistribution responsibilities this study examines whether afdc benefits determine or discourage state to state migration flows in the united states a pooled cross section time series model is developed to estimate afdc benefits in a state and recipients and whether benefits in one state affect benefits in other states a second model using data from the 1980 census and the panel study of income dynamics estimates migration of afdc recipients and the level of benefits in in migration and out migration states both models indicate that small but statistically significant amounts of migration occur which may be quite important but only in the long run movers although small in number are much more likely to move to a state with higher benefits states perceive this migration as important indicating that states should have less control and the federal government more control over income redistribution

are markets with loss averse consumers more sensitive to losses behavioral pricing and revenue management aim to incorporate realistic consumer behavior into firms pricing and inventory models the key input to these models is market demand which is often assumed to inherit the characteristics of consumer behavior as when for example one assumes that a market consisting of loss averse consumers is more responsive to losses than to gains yet market demand and consumer behavior need not be related and so we argue that approach to modeling market demand is misguided this paper proposes an approach that accounts for the heterogeneity in consumer valuation we aggregate the demand of individual loss averse consumers to obtain market demand and show that market demand may be more responsive to gains or losses or it may be equally responsive our results have profound implications not only for how best to characterize the market demand of behaviorally biased consumers but also for determining the firm s optimal pricing policy this paper was accepted by serguei net

the impact of heterogeneity in purchase timing and price responsiveness on estimates of sticker shock effects the notion that individuals have an internal reference price against which they compare observed prices is well supported by several psychological theories empirically several papers in the marketing literature employing scanner panel data have modeled the impact of reference prices on brand choice via the sticker shock formulation in which consumers evaluate choice alternatives using differences between shelf prices and reference prices most of the studies reported thus far have not accounted for heterogeneity in price response among consumers and have typically imputed reference prices from the shelf prices of brands that a consumer is supposed to have observed on previous purchases in the category since category marketing activity can differentially affect the purchase timing of households we argue that this measure of reference price may follow certain systematic patterns across consumers and when combined with unaccounted for price response heterogeneity may result in a spurious sticker shock effect specifically we show that estimates of sticker shock are biased upward if households that are price sensitive in the brand choice decision are also more responsive to category promotion activity in their purchase timing decision we discuss some general conditions under which the bias occurs and conduct a simulation experiment to confirm our specific hypotheses our simulation results show that changes in purchase timing are a critical determinant of the bias in the sticker shock effect we also show that unaccounted for price response heterogeneity can in itself result in a biased sticker shock parameter however this requires very large differences in price sensitivities across consumers far greater than what is normally observed we develop a hierarchical bayes version of the nested logit model which models heterogeneity via individual level parameters in a continuous random effects framework we estimate the model on scanner panel data from the yogurt and ketchup categories we find in both categories that the 95 probability interval of the posterior distribution of the mean sticker shock coefficient contains the value zero therefore at least for the data used in this study there is no evidence for the sticker shock effect at the aggregate level in contrast the corresponding coefficient from a standard model which ignores this heterogeneity is highly significant and supports the existence of a possibly spurious sticker shock effect consistent with our explanation of the underlying cause of the bias households that are more price sensitive in the choice decision are also found to be more responsive to category promotion activity in their decision to purchase in the category the results highlight the measurement problems associated with imputing reference prices from past prices since the frequency duration and price level of a retailer s promotional program depend on its size and prevalence accurate estimates of the sticker shock effect are essential for formulating optimal promotion strategies an adequate accounting of consumer heterogeneity is critical to this effort

testing theories of real government size u s experience 1959 89 in a recent article west 17 argued that the existence of so many strands of analysis attempting to explain the growth of government calls ultimately for one consolidated or generalized theory accordingly he produced a model that integrated four such theories two on the cost side and two on the demand side the purpose of the present paper is to derive empirical measures of all four theories using u s data for the period 1959 1989 the presumption is that each one separately might contribute in its own way to a composite explanation of government growth and that what is currently most needed is a set of jointly determined empirical estimates showing relative importance while all our measures of government size consolidate federal state and local government expenditures two other measurement issues should be emphasized since they distinguish our work from other contributions to this literature the government component of our main dependent variable the real size of government is measured in two different ways the first uses the national accounts definition of government purchases which excludes transfer payments from the measure of size whereas the second includes final purchases plus net government transfer payments since we are interested in the effects of changes in the productivity of supplying government services the first of these definitions is expected to be more relevant and is so used as the basis of our empirical work however since there is a sense in which changes in the productivity of government may affect the output of transfers we also use the second definition to produce a more complete empirical exercise the other distinguishing feature of our analysis is that both definitions of government size are analyzed in real as distinct from the more usual nominal share of government in gross domestic product gdp this distinction becomes immediately more striking when it is pointed out that while most authors hitherto have attempted to explain the phenomenon of positive growth in the ratio of nominals over the past half century the ratio of reals has actually fallen for most of our

health care education and the cost disease a looming crisis for public choice an economic specter haunts the democratic governments of the world s most prosperous economies the rising cost of health care and education casts a shadow over virtually every election while increasing costs of other services play a part in the growth of the homeless population and the deteriorating sanitation of city streets it will be shown here that both an explanation and a solution in principle are available however while the solution is in one sense simple and straightforward in another it poses a problem of frightening magnitude for public choice if the citizens of these countries are willing to do what is necessary for the supply of educational health care and other related services to keep up with the expansion in overall economic output made possible by rising productivity then if my analysis is correct a difficult choice will be required either ever more of gross national product will have to be channeled through the public sector with all the problems we know that to entail or alternatively these services will have to be transferred to private enterprise in fields where private business firms can hope to succeed only if granted an improbably immunity from the temptation of unwise governmental interference this is indeed scylla and charybdis in spades

optimal design of social comparison effects setting reference groups and reference points in this paper we study how social planners should exploit social comparisons to pursue their objectives we consider two modes of social comparison referred to as behind averse and ahead seeking behaviors depending on whether individuals experience a utility loss from underperforming or a utility gain from overperforming relative to their peers modeling social comparison as a game between players we find that ahead seeking behavior leads to output polarization whereas behind averse behavior leads to output clustering a social planner can mitigate these effects in two ways i by providing the full reference distribution of outputs instead of an aggregate reference point based on the average output and ii by assigning players into uniform rather than diverse reference groups social planners may thus need to tailor the reference structure to the predominant mode of social comparison and their objective a performance focused social planner may set the reference structure so as to maximize the output of either the top or the bottom player depending on whether she puts greater marginal weight to larger or smaller outputs when the social planner also cares about utility she faces a dilemma because performance optimization may not be aligned with utility maximization inevitably the social planner will have to confront equity issues because better performance may not reflect greater effort or greater ability this paper was accepted by serguei netessine operations management

dynamic stochastic inventory management with reference price effects we analyze the joint inventory and pricing decisions of a firm when demand depends on not only the current selling price but also a memory based reference price and customers are loss averse the presence of reference price effect leads to a nonconcave one period expected revenue in price and reference price we introduce a transformation technique that allows us to prove under some mild assumptions the optimality of a reference price dependent base stock list price policy which is characterized by a base stock level and a target reference price in addition we show that the target reference price is increasing in the reference price but except in the loss neutral case the base stock level is not monotone in the reference price we also show that in the steady state of the model with the reference price effect the optimal price is lower while the optimal base stock level is higher than their counterparts in the model without the reference price effect

assistance to poor households when income is not observed targeted in kind and in cash transfers abstract policymakers frequently design self targeting programs or target poor areas to assist poor families when income is not observed self targeting schemes take advantage of differences in participation costs in assistance programs across households geographic targeting assumes that transfers are solely determined by the region of residence to receive the benefits households not initially present in the targeted areas must relocate away from their original place of residence and live with the poor which entails a cost that can also be interpreted as a participation cost in the assistance program the paper shows that a combination of in kind and in cash transfers tied to the consumption of a publicly provided private good targeted to the poor becomes very useful when non poor households have different participation costs by distinguishing users and non users of public facilities additional in cash transfers can be directed to the poor more effectively the paper demonstrates that the publicly provided good ends up being undersupplied and the distortion becomes less important as participation costs rise more importantly it shows that this kind of redistributive program dominates a pure in cash scheme

redistribution within and across the regions of a federation the authors reconsider the literature on redistribution within a federation with mobile agents they conclude that redistribution is a function best assigned to the national government local governments with diverse preferences for redistribution distort individual migration decisions the authors also examine the fiscal externality literature which has made an efficiency argument for interregional transfers they show that if local governments have the same preferences for redistribution the nash equilibrium is efficient if preferences are diverse the authors show that nationally imposed interregional transfers do not address the source of the inefficiency nevertheless interregional transfers are shown to be a part of decentralized behavior

a bound testing analysis of wagner s law in nigeria 1970 2006 this study tests wagner s law the tendency for government activities to expand along with economic expansion for nigeria using annual time series data between 1970 and 2006 it adopts the bounds test approach proposed by pesaran et al 2001 based on unrestricted error correction model uecm and toda and yamamoto s 1995 granger noncausality tests empirical results from the bounds test indicate that there exists no long run relationship between government expenditure and output in nigeria in addition toda and yamamoto s 1995 causality test results show that wagner s law does not hold for more than the period being tested rather we found a weak empirical support in the proposition by keynes that public expenditure is an exogenous factor and a policy instrument for increasing national income

does foreign aid promote the expansion of government building on the literature on public finance i seek to advance our understanding of variations in government size by exploring the impact of official development assistance on fiscal policy i hypothesize that foreign aid operates in accordance with the flypaper effect systematically generating incentives and opportunities for the expansion of government spending results from a time series cross sectional regression analysis of growth in government spending over the 1970 99 time period are consistent with the hypothesis for middle and lower income nations aid represents an important determinant of government expansion looking at the tax and revenue side of the equation however reveals a more perverse pattern of response aid promotes not only increased spending but also reduced revenue generation the results have important implications from both a theoretical and policy perspective inter alia they point to the potentially self defeating nature of efforts to promote market oriented programs of state retrenchment via development assistance as well as to the importance of incorporating international transfers into future research on government spending

is there a bias toward excess in u s government budgets or deficits do the political institutions of a majoritarian representative democracy and in particular those of the united states systematically produce either levels of public spending or budget deficits that are excessive should u s political institutions be altered by constitutional amendment to deal with these problems i will start by examining the issue of public spending and then turn to the question of budget deficits

multiattribute loss aversion and reference dependence evidence from the performing arts industry we study the prevalence of multiattribute loss aversion and reference effects in a revenue management setting based on data of individual level purchases over a series of concert performances the reference dependence that drives consumer choice is not only based on the price but also on observed sales as a fraction of the seating capacity during their past visits we find that consumers suffer from loss aversion on both prices and seats sold consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references we suggest pricing policies that can address consumer decisions driven by such reference dependence and loss aversion this paper was accepted by vishal gaur operations management

price coordination in distribution channels a dynamic perspective abstract in this study we investigate two important questions related to dynamic pricing in distribution channels i are coordinated pricing decisions efficient in a context where prices have carry over effects on demand ii should firms practice a skimming or a penetration strategy if they choose to coordinate or to decentralize their activities to answer these questions we consider a differential game that takes place in a bilateral monopoly where the past retail prices paid by consumers contribute to the building of a reference price the latter is used by consumers as a benchmark to evaluate the value of the product and by firms to decide whether to adopt a skimming or a penetration strategy we then compute and compare strategies total channel profits and individual profits under vertical integration and decentralization at steady state and along the optimal time paths one of our main findings states that for some values of the initial reference price there is a time interval where channel decentralization performs better than coordination during this transition period at least one of the channel members could be tempted to end his cooperation especially if he is not farsighted and if there are no binding agreements with the other channel partners

government decision making and the incidence of federal mandates abstract this paper analyzes the effects of federally mandated program changes on state spending and revenues incorporating and evaluating the predictive value of several common theories of the state decision making process using several sources of exogenous increases in public medical spending i estimate that the entire state portion of the burden of mandated spending is borne by decreases in other public welfare spending while federal mandates may influence the composition of benefits at the state level it is much more difficult for them to change the total level of state transfers comparison of state reactions to different shocks suggests that these reductions are due in part to the substitutability of programs in the voter utility function but also in part to the stickiness of spending within budget categories states with greater racial differences between recipients and voters and states with less generous neighbors reduce other public welfare spending by even more alleviating the burden the medical expansions imposed on their taxpayers mandates may thus serve only to increase inequality across states

the causes of government expenditure growth a survey of the u s evidence abstract the growth of government budgets can be broken down into a institutional and institutional components the former component the familiar substitution income and population public goods tax sharing effects is estimated to contribute about two fifths of the growth of u s government spending the latter component rent seeking political redistributions bureaucracy and perceptual informational impedimentia is important too but an exact imputation cannot be asserted given the state of the art in empirical public choice theory the cross effects on spending of the growth of regulation and tax preferences or tax expenditures though interesting is not pursued

assistance to the poor in a federal system abstract this paper explores the roles of different levels of government in assisting the poor using a model incorporating utility interdependence the paper first presents some theoretical results indicating how levels of poor relief vary with the extent of mobility of the poor under both centralized and decentralized systems of support it then provides a survey of the empirical work on migration of the poor along with a brief historical discussion of the experience under the english poor laws the concluding section turns to normative issues and contends that mobility of the poor is a basic source of inefficiency in wholly decentralized systems of support this inefficiency along with certain other equity considerations establishes a role for the central government in assistance to the poor

tax evasion and the marginal cost of public funds tax evasion and deadweight loss have similar implications for the rules of public finance the optimal mix of taxes can be derived from the minimization of the sum of aggregate deadweight loss and aggregate cost of tax evasion similarly the marginal cost of public funds includes allowances for marginal deadweight loss and marginal cost of tax evasion per dollar of public revenue acquired

empirical generalizations from reference price research considerable theoretical justification for consumers use of psychological reference points exists from the research literature from a managerial perspective one of the most important applications of this concept is reference price an internal standard against which observed prices are compared in this paper we propose three empirical generalizations that are well supported in the marketing literature first there is ample evidence that consumers use reference prices in making brand choices second the empirical results on reference pricing also support the generalization that consumers rely on past prices as part of the reference price formation process third consistent with other research on loss aversion consumers have been found to be more sensitive to losses i e observed prices higher than reference prices than gains we also propose topics for further research on reference prices

pricing and revenue management the value of coordination the integration of systems for pricing and revenue management must trade off potential revenue gains against significant practical and technical challenges this dilemma motivates us to investigate the value of coordinating decisions on prices and capacity allocation in a stylized setting we propose two pairs of sequential policies for making static decisions on pricing and revenue management that differ in their degree of integration hierarchical versus coordinated and their pricing inputs deterministic versus stochastic for a large class of stochastic price dependent demand models we prove that these four heuristics admit tractable solutions satisfying intuitive sensitivity properties we further evaluate numerically the performance of these policies relative to a fully coordinated model which is generally intractable we find it interesting that near optimal performance is usually achieved by a simple hierarchical policy that sets prices first based on a nonnested stochastic model and then uses these prices to optimize nested capacity allocation this tractable policy largely outperforms its counterpart based on a deterministic pricing model jointly optimizing price and allocation decisions for the high end segment improves performance but the largest revenue benefits stem from adjusting prices to account for demand risk this paper was accepted by yossi aviv operations management

decentralized income redistribution and immigration abstract we analyze the welfare and other effects of immigration on a system of jurisdictions with a common labor market mobile capital and redistributive tax transfer policies comparative statics analysis of a model of nash non cooperative equilibria in tax transfer policies shows that the welfare effect of immigration depends on whether immigrants are net fiscal contributors or burdens any one jurisdiction s redistribution and immigration policies generate fiscal externalities for others in the system which a central government can internalize by appropriate taxes and subsidies

federalizing benefits the introduction of supplemental security income and the size of the safety net abstract in 1974 supplemental security income ssi federalized cash welfare programs for the elderly blind and individuals with disabilities imposing a national minimum benefit and differentially raising payment levels in states that paid below its benefit floor we show that this increased disability participation but shrank non disability cash transfer programs for every four new ssi recipients three came from other welfare programs each dollar of per capita ssi income increased total per capita transfer income by just over 50 cents federalizing part of a patchwork safety net need not increase redistribution by as much as traditional models of fiscal federalism suggest

on the internal revenue service s service and enforcement i introduction the internal revenue service irs services as well as audits taxpayers the irs provides taxpayer service through a variety of channels including its website toll free telephone lines and the taxpayer assistance center for fy 2008 the irs budget request includes 3 6 billion for taxpayer service and 7 2 billion for enforcement everson 2007 in the assessment of the fy 2009 irs budget request the government accountability office gao 2008 1 points out that effective tax administration requires a balance of service and enforcement and enforcement efforts should be combined with taxpayer service because both affect compliance although taxpayer service is an important activity of the irs s operation to our knowledge there is no formal model to address the connection between service and enforcement and more importantly its policy implications in the context of tax compliance this article seeks to take a step to fill this void we consider a simple tax compliance model which is built upon the seminal work of graetz reinganum and wilde 1986 hereafter grw unlike the classical contribution of allingham and sandmo 1972 and yitzhaki 1974 which treats the irs actions as exogenous in their analysis of tax evasion the grw model views the irs as a strategic player that interacts with taxpayers the grw model also differs from the principal agent tax evasion model first introduced by reinganum and wilde 1985 as pointed out by grw the principal agent model suffers from the time inconsistency problem as it requires that the irs announce and commit to an audit policy even though the precommitted audit policy will typically prove suboptimal once taxpayers submit their reported income grw emphasize that their interactive model follows the natural temporal sequence of decisions first taxpayers report their income and only then does the irs decide whether to perform tax audits this sequence is what we typically observe in the real world 1 however like other models on tax compliance grw consider the enforcement part but leave out the service part of the irs activities we extend the grw model to the real world in which the irs services as well as audits taxpayers similar to grw we assume that a taxpayer has either high income or low income to incorporate the role of the irs s service we also assume that taxpayers are uncertain about whether their incomes are eligible for deduction exemption and may seek advice from the taxpayer service provided by the irs to mitigate the uncertainty an important feature of our model is that in equilibrium all net tax revenues collected by the irs are from those taxpayers who voluntarily report high incomes to the irs to maximize the population of the taxpayers in this group the irs will not provide the most accurate service but only maintain an intermediate level of quality the optimal level of accuracy will be increasing as the difficulty in identifying the true income eligibility increases which may be due to more complicated tax laws moreover there exists a conflict between the irs and the society with regard to the optimal taxpayer service in that the society s preferred quality of taxpayer service is likely to be sufficiently high the conflict tends to be intensified as the cost of tax audits becomes lower our result is consistent with the trend in the united states regarding the resources allocated to the taxpayer service in the past few decades we also extend our model in the following two directions the first extension is to address the issue of corruption in tax administration many developing countries suffer from inefficiencies in tax administration and corruption arising from enforcement some authors argue that it is important for developing countries to recognize the service paradigm of tax compliance which emphasizes not only the role of enforcement but also the role of taxpayer service

high price or low price an experimental study on a markdown pricing policy abstract this study examines whether strategic customers behavioral patterns remain consistent in different pricing scenarios under a markdown pricing policy these customers decision patterns have been widely discussed because they significantly influence the expected monetary output contrary to rational assumptions the behavioral research literature indicates that customers behavioral biases manifest in their reference dependency risk and loss attitudes and fill rate misperceptions however the relationship between behavioral biases and various pricing scenarios has not been carefully examined accordingly we conducted laboratory experiments to observe customers behavioral performance in a series of pricing scenarios to provide pricing suggestions for sellers our experimental results demonstrate that behavioral factors reflecting risk and loss attitudes as well as reference dependency can clearly describe customers behavioral biases meanwhile our estimation shows that the degrees of risk and loss attitude are not constant but depend on price settings the lower the full price in the initial period the higher the degrees of aversion to both risk and loss given such behavioral patterns we suggest that sellers should set their full prices lower than the normative value when the fill rate in period two is low and set them higher than the normative value when the fill rate in period two is high

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

fiscal decentralization and the size of government a european country empirical analysis this article is an original contribution to the understanding of the relationship between fiscal decentralization and government size using a panel data set of the eu 15 countries we analyse the effect of decentralization on aggregate national and subnational government sizes by separating the long run effects of decentralization from its short run dynamics in the long run tax autonomy reduces central expenditure but increases and to a greater extent subnational public expenditure leading to higher aggregate public expenditure we find also that vertical imbalances tend to increase the sizes of subnational national and aggregate governments

revenue management with costly price adjustments we consider a novel variant of the perishable inventory profit management problem faced by a firm that sells a fixed inventory over a finite horizon in the presence of price adjustment costs in economics literature such price adjustment costs are widely studied and are typically assumed to include a fixed component e g advertising costs an inventory dependent component e g inventory relabeling costs as well as a component that depends on the magnitude of the price adjustment e g cognitive and coordination managerial costs we formulate the firm s profit management problem as a finite horizon dynamic program in which the state of the system is described by the inventory level as well as the current price level we derive first order properties of the optimal value function and give a complete characterization of optimal policies for the case of ample inventory through a set of examples we demonstrate the complex and counterintuitive nature of optimal price adjustment policies consequently we focus on developing easily computable and implementable heuristics with demonstrably good performance to this end we develop and solve a fluid model based on the original stochastic dynamics and propose three fluid based heuristic policies we derive expressions for the expected profit generated by each one of these heuristics when applied to the stochastic problem and derive sufficient conditions for the asymptotic optimality of the policies when the initial inventory levels and planning horizons are proportionally scaled up we test the performance of the heuristics in a numerical study and demonstrate a robust near optimal performance of one of the heuristics which we call the fluid time heuristic for a wide range of problem parameters finally we demonstrate the importance of proper accounting of price adjustment costs in several alternative business settings

designing pricing contracts for boundedly rational customers does the framing of the fixed fee matter the format of pricing contracts varies substantially across business contexts a major variable being whether a contract imposes a fixed fee payment this paper examines how the use of the fixed fee in pricing contracts affects market outcomes of a manufacturer retailer channel standard economic theories predict that channel efficiency increases with the introduction of the fixed fee and is invariant to its framing we conduct a laboratory experiment to test these predictions surprisingly the introduction of the fixed fee fails to increase channel efficiency moreover the framing of the fixed fee does make a difference an opaque frame as quantity discounts achieves higher channel efficiency than a salient frame as a two part tariff although these two contractual formats are theoretically equivalent to account for these anomalies we generalize the standard economic model by allowing the retailer s utilities to be reference dependent so that the up front fixed fee payment is perceived as a loss and the subsequent retail profits as a gain we embed this reference dependent utility function in a quantal response equilibrium framework where the retailer is allowed to make decision mistakes due to computational complexity the key prediction of this behavioral model is that channel efficiency decreases with loss aversion for sufficiently nash rational retailers consistent with this prediction the estimated loss aversion coefficient is 1 37 in the two part tariff condition significantly higher than 1 27 in the quantity discount condition at the same time loss aversion dominates contract complexity in explaining the data lastly we conduct a follow up experiment to confirm the central role of loss aversion as a behavioral driver in one condition the retailer becomes less loss averse when we temporally compress the fixed fee payment and the realization of retail profits which supports the loss aversion theory in the other condition the retailer s contract acceptance rate does not decline when we reward the manufacturer a higher cash payment for each experimental point earned which rules out the competing hypothesis that the retailer rejects contract offers due to fairness concerns

mental health expenditure in england a spatial panel approach we empirically investigate the determinants of local authority mental health expenditure in england we adopt a reduced form demand and supply model extended to incorporate possible interaction among authorities as well as unobserved heterogeneity the model is estimated using an annual panel dataset that allows us to explore both time series and cross municipality variation in mental health expenditure results are consistent with some degree of interdependence between neighbouring municipalities in spending decisions this first attempt to apply spatial panels in investigating health expenditure offers insights and raises new questions

the size of government most research on the causes of growth in government expenditure has focused on the demand for government services in this paper we argue that in fact this growth may have occurred because of changes in supply changes in technology leading to increased specialization and thus increased opportunity costs of self production have led to increased market production and increased record keeping also female labor force participation has increased both of these factors serve to reduce the efficiency cost of collecting taxes if the demand for government spending has not changed this increase in supply would lead to a larger public sector we estimate a system of simultaneous equations for the period 1929 1970 incorporating this hypothesis and the results are consistent with the theory we are able to explain virtually all of the growth of government increases in female labor force participation seems to be a very important variable in this explanation

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

dynamic capacity management with uncertain demand and dynamic price inspired from practices of chinese real estate firms we study dynamic capacity management problems for a firm that sells homogeneous goods over a finite or infinite selling horizon provided that demand is uncertain retail price is exogenous but changes according to an auto regressive process and there is holding cost for remaining inventory in each period the capacity problems facing the firm include to determine an initial stock at the beginning of the selling season and to allocate the remaining quantity for the current and future sale in each period to maximize the firm s total expected discounted profit by using markov decision processes we show the optimality of a so called save up to level policy i e it is optimal to allocate as much as the save up to level to future periods if possible in each period and the existence of the optimal initial stock moreover we characterize monotone properties of the optimal save up to level and the optimal initial stock numerical analysis shows that compared to the policy with zero save up to level i e always allocating all the remaining inventory to the current period the advantage of the policy proposed in the present paper is significant when price rising trend is large holding cost is low initial price is high or demand variation is either high or low

asymmetric consumer learning and inventory competition we develop a model of consumer learning and choice behavior in response to uncertain service in the marketplace learning could be asymmetric that is consumers may associate different weights with positive and negative experiences under this consumer model we characterize the steady state distribution of demand for retailers given that each retailer holds a constant in stock service level we then consider a noncooperative game in steady state between two retailers competing on the basis of their service levels the demand distributions of retailers in this game are modeled using a multiplicative aggregate market share model in which the mean demands are obtained from the steady state results for individual purchases but the model is simplified in other respects for tractability our model yields a unique pure strategy nash equilibrium we show that asymmetry in consumer learning has a significant impact on the optimal service levels market shares and profits of the retailers when retailers have different costs it also determines the extent of competitive advantage enjoyed by the lower cost retailer

tiebout or not tiebout the market metaphor and america s devolution debate the market metaphor of intergovernmental choice as a spur to efficiency formalized by charles m tiebout is often invoked to support the shift away from washington and toward the states but the model translates badly to governments governmental entry and exit is costly public sector co11usion often serves citizens interests heterogeneous mobility distorts the signals sent by interstate migration and while tiebout and followers condition efficiency predictions on optimal distribution the u s devolution movement coincides with rising inequality and has gone furthest where distribution matters most the metaphor is misapplied devolution will likely do more to enfeeble government than to improve it

explicit solutions of optimization models and differential games with nonsmooth asymmetric reference price effects models in marketing with asymmetric reference effects lead to nonsmooth optimization problems and differential games which cannot be solved using standard methods in this study we introduce a new method for calculating explicitly optimal strategies open loop equilibria and closed loop equilibria of such nonsmooth problems application of this method to the case of asymmetric reference price effects with loss aversive consumers leads to the following conclusions 1 when the planning horizon is infinite after an introductory stage the optimal price stabilizes at a steady state price which is slightly below the optimal price in the absence of reference price effects 2 the optimal strategy is the same as in the symmetric case but with the loss parameter determined by the initial reference price 3 competition does not change the qualitative behavior of the optimal strategy 4 adopting an appropriate constant price strategy results in a minute decline in profits

efficient algorithms for the dynamic pricing problem with reference price effect we analyze a finite horizon dynamic pricing model in which demand at each period depends on not only the current price but also past prices through reference prices a unique feature but also a significant challenge in this model is the asymmetry in reference price effect which implies that the underlying optimization problem is nonsmooth and no standard optimization methods can be applied we identify a few key structural properties of the problem which enable us to develop strongly polynomial time algorithms to compute the optimal prices for several plausible scenarios we complement our exact algorithms by proposing an approximation heuristic and provide an upper bound on the optimal objective value finally we conduct numerical experiments to study the optimal price path and demonstrate the value of dynamic pricing when demands are seasonal we further compare numerically one of the exact algorithms with the heuristic and offer managerial suggestions this paper was accepted by yinyu ye optimization

american federalism welfare policy and residential choices the relationship between welfare benefit levels and the residential choices of the poor raises two issues for federalism in the united states do state benefit levels affect the residential choices of the poor do residential choices of the poor affect the level at which a state sets its benefit levels empirical studies have seldom studied the interconnection between these two issues this research estimates simultaneously the mutual effects of welfare benefits and poverty rates while controlling for other economic and political variables when benefit levels become high the size of the poverty population increases conversely when poverty rates become high benefit levels are cut the findings are consistent with the claim that state determined benefit levels distort policy and residential choices

technical note dynamic pricing with gain seeking reference price effects we study a dynamic pricing problem of a firm facing reference price effects at an aggregate demand level where demand is more sensitive to gains than losses we find that even the myopic pricing strategy belongs to one type of discontinuous maps which can exhibit complex dynamics over time our numerical examples show that in general the optimal pricing strategies may not admit any simple characterizations and the resulting reference price price dynamics can be very complicated we then show for a special case that a cyclic skimming pricing strategy is optimal and we provide conditions to guarantee the optimality of high low pricing strategies

the impact of reference price effects on the profitability of price promotions this paper investigates the impact of reference price effects on retailer price promotions and describes why these effects can make promoting profitable first we analyze the profit impact of reference price effects generated by a single period of promotion the promotion can increase profit if the gain that these effects create in the promotion period outweighs the loss they create in future periods we then describe how retailers can estimate the optimal strategy of recurring promotions that maximizes profits from reference price effects over a time horizon examples of such strategies are presented for a retailer selling a national brand of peanut butter we obtain insights into how promotion prices timing and profits are affected by changes in costs interest rates consumers reactions to reference price effects and error in estimates used in the model the retailer s optimal reaction to a trade deal is also examined this strategy involves a phase of increased promotion activity sandwiched between phases of decreased activity we explain these results using the effects described in the single period model

the decline of welfare benefits in the u s the role of wage inequality welfare benefits in the u s have experienced a much studied secular decline since the mid 1970s we explore a new hypothesis for this decline related to the increase in wage inequality in the labor market and the decline of real wages at the bottom of the distribution we posit that voters prefer benefits which are tied to low skilled wages we test the hypothesis using a 1969 1992 panel of state level data an additional contribution of our analysis is the use of general social survey data on voter preferences for welfare which we combine with current population survey data to determine the voter in each state who has the median preferred welfare benefit level our analysis reveals considerable evidence in support of a role for declining real wages in the decline of welfare benefits

migration the life cycle and state benefits how low is the bottom i show that among women likely to use welfare movers move to higher benefit states i also find that the probability likely welfare users will move at all is lower in higher benefit states this effect is concentrated early in the life cycle as theory predicts i construct a theoretical framework to measure the impact of welfare migration on optimal state benefits simulation results suggest little impact in higher benefit states but possibly a more substantial impact in other states finally evidence suggests little reason for concern due to welfare migration in using cross state variation in welfare generosity to identify incentive effects of the welfare system on other outcome variables

an investigation of reference price segments abstract empirical research on reference price has typically assumed that consumers use either an internal reference price irp or an external reference price erp but not both in brand choice decisions in this article the authors assume that consumers use both irp and erp but may consider one of them more salient than the other the authors develop a model that segments consumers on the basis of the differences in the importance they assign to each type of reference price as well as in their brand preferences and responses to marketing mix variables the authors calibrate the model on data for four categories liquid detergents ketchup tissue and yogurt in all four categories the proposed model performs significantly better than the one that assumes that consumers use either irp or erp exclusively the authors discuss the managerial implications of this finding

studying the role of political competition in the evolution of government size over long horizons here we argue for the use of cointegration and error correction analysis to combine economic factors that are nonstationary with political factors that are stationary into an empirical model of the evolution of public policy over long periods the approach is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the government of canada over 130 years political competition emerges as the primary political factor affecting government size

income distribution and tax structure empirical test of the meltzer richard hypothesis abstract the meltzer richard hypothesis that more unequal income distribution will create a majority for more redistribution has generated much research but little empirical support the empirical literature has concentrated on cross country studies and the size of the public sector and the results broadly do not indicate more redistribution with more inequality this analysis suggests that the hypothesis should be investigated in a more homogenous setting with comparable institutions and with an explicit decision about redistribution here tax structure new data on poll tax and property tax in decentralized government in norway are exploited we show how the multi dimensional decision can be analyzed as majority rule assuming intermediate preferences in the econometric analysis instruments are used to account for endogeneity of income level and income distribution the estimated model supports the understanding that more unequal income distribution implies a shift in the tax burden from poll tax to property taxes and thereby gives more redistribution

pricing and manufacturing decisions when demand is a function of prices in multiple periods in most deterministic manufacturing decision models demand is either known or induced by pricing decisions in the period that the demand is experienced however in more realistic market scenarios consumers make purchase decisions with respect to price not only in the current period but also in past and future periods we model a joint manufacturing pricing decision problem accounting for that portion of demand realized in each period that is induced by the interaction of pricing decisions in the current period and in previous periods we formulate a mathematical programming model and develop solution techniques we identify structural properties of our models and develop closed form solutions and effective heuristics for various special cases of our models finally we conduct extensive computational experiments to quantify the effectiveness of our heuristics and to develop managerial insights

markdown or everyday low price the role of behavioral motives we study a seller s optimal pricing and inventory strategies when behavioral nonpecuniary motives affect consumers purchase decisions in particular the seller chooses between two pricing strategies markdown or everyday low price and determines the optimal prices and inventory level two salient behavioral motives that impact consumers purchase decisions and the seller s optimal strategies are anticipated regret and misperception of product availability regret arises when a consumer initially chooses to wait but encounters stockout later or when the consumer buys the product at the high price but realizes that the product is still available at the markdown price in addition consumers often perceive the product s future availability to be different than its actual availability we determine and quantify that both regret and availability misperception have significant operational and profit implications for the seller for example ignoring these behavioral factors can result in up to 10 profit

supermarket competition the case of every day low pricing every day low pricing edlp strategy has proved to be a successful innovation resulting in higher profits to supermarkets adopting it in competition with promotional pricing promo conventional wisdom attributes this success either to lower costs or to edlp better serving time constrained consumers while discouraging cherry pickers who seek promotions however it is unclear that such cost savings are being fully realized since edlp stores also engage in price promotions also continued existence of promo stores means that costs are not the only factor and they compete effectively without relying just on the cherry pickers furthermore experimental evidence suggests that a supermarket cannot obtain higher profits by merely setting constant low prices leading to the question exactly what makes edlp successful this question is of particular relevance to both academics and practitioners who have been intrigued by the success of this retailing strategy more generally the retailing issues addressed in this paper the economic analysis of competition and the empirical findings should be of interest to the broader community of researchers and managers we investigate the factors contributing to edlp s success by analyzing the competition between supermarkets through a game theoretic analysis of a market consisting of both time constrained consumers and cherry pickers key features of our model are consumers shop and purchase a basket of goods based on price announcements by stores and rational expectations of unannounced prices stores carry more than one good and compete through prices service convenience and appropriate communication strategies and no exogenous cost asymmetries we derive the conditions under which retailers choosing different strategies edlp and promo is a perfect nash equilibrium our analysis shows that the edlp store s offering of constant every day low prices is an equilibrium outcome endogenously determined successful implementation of the edlp strategy involves communication of relative basket prices implying that merely setting constant low prices is not viable we further demonstrate that while time constrained consumers find every day low prices at edlp attractive and cherry pickers the promotions at promo clientele effects are in fact more complicated specifically in equilibrium the promo store offers a higher service level as desired by time constrained consumers and the edlp store a lower service level in keeping with the needs of cherry pickers this choice of service by the two stores results in a cleaner segmentation of the market the higher relative basket price and service at the promo store results in a larger base of time constrained consumers to shop at the promo store and a larger base of cherry pickers to shop at the edlp store even though some cherry pickers continue to visit the promo store to avail of the price specials in this way our results contradict the conventional wisdom on edlp strategy as being mainly geared towards time constrained consumers finally industry profits are higher in an edlp promo equilibrium than when stores adopt identical strategies our analysis and results also offer a more complete characterization of the edlp and promo strategies indeed we show that edlp and promo strategies are positioning strategies rather than merely pricing strategies with different elements price promotions service and communications while the edlp store uses basket prices to attract both segments the promo store uses service and price specials to compete in the time constrained and cherry picking segment respectively given these different approaches of the two stores the communication strategies of the edlp and the promo stores emphasize these differences as well in this way we show as suggested by corstjens and corstjens 1994 that positioning in a retail context involves developing multidimensional strategies appealing to all segments while each element of the strategy may focus on a different consumer segment this is in contrast to the traditional view of segmentation in which different products in a product line for example are designed to appeal to different segments we complete the analysis by examining the data from the trade press and a survey conducted in a major metropolitan area these data while limited in scope support our theoretical results

reference price and price perceptions a comparison of alternative models reference price effects on consumer price perceptions are often explained by helson s adaptation level theory in which the cognitive representation of reference price is the prototype of the relevant category however recent conceptualizations and empirical evidence suggest the possibility of an exemplar model which may be specified using volkmann s range theory or parducci s range frequency theory in two experiments these three contextual models of reference price effects are pitted against one another based on the manova and model fitting range frequency theory accounted for reference price effects that the other theories could not suggesting that consumers compare the target price against specific members of the category rather than the category prototype a third experiment demonstrated that range and frequency effects are moderated by the stimulus presentation condition suggesting that consumers place greater weight on extreme prices anchoring the range for internal reference prices than for external reference prices

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

trending economic factors and the structure of congress in the growth of government 1930 2002 we investigate the role of congress in the growth of federal public expenditure since 1930 building on the work of kau and rubin public choice 113 389 402 2002 the model incorporates majority party strength and the extent of party control of congress in addition to the median ideological position of elected representatives we first provide estimates of the relative importance of the state of congress and of trending supply and demand side economic factors in the evolution of federal spending the resulting models are then used to simulate the consequences of the radical and historically unprecedented shift to the right of congress in 1994 95

a model of mental accounting and reference price adaptation consumers possess a mental account that stores the worth of items purchased and yet to be consumed reference prices act as the book values of these items movements in the account the comparison between the reference price and the price paid at entry and the comparison between the benefit of consumption and the reference price at exit yield hedonic benefits the reference price is determined by a psychological process of adaptation to the price evoked by the trade the model is integrative in that it explains a wide array of observed anomalies such as sunk cost effects payment depreciation reluctance to trade preference for prepayment and the flat rate bias the model also generates new testable implications this paper was accepted by james smith decision analysis

dynamic pricing with loss averse consumers and peak end anchoring we study the dynamic pricing implications of a new behaviorally motivated reference price mechanism based on the peak end memory mode this model suggests that consumers anchor on a reference price that is a weighted average of the lowest and most recent prices loss averse consumers are more sensitive to perceived losses than gains relative to this reference price we find that a range of constant pricing policies is optimal for the corresponding dynamic pricing problem this range is wider the more consumers anchor on lowest prices and it persists when buyers are loss neutral in contrast with previous literature in a transient regime the optimal pricing policy is monotone and converges to a steady state price which is lower the more extreme and salient the low price anchor is our results suggest that behavioral regularities such as peak end anchoring and loss aversion limit the benefits of varying prices and caution that the adverse effects of deep discounts on the firm s optimal prices and profits might be more enduring than previous models predict

where have all the union members gone this paper examines trends in union membership during the twentieth century the hypothesis is advanced that the provision of certain social welfare benefits by government substitutes for the private provision by unions thereby reducing the attractiveness of union membership the empirical implications of this hypothesis are examined using time series data on aggregate union membership for the period 1904 80 and using pooled state data for the period 1964 80 these latter data are used to examine the effect of departures from the traditional doctrine of employment at will both the time series and the cross section evidence suggest that government supply of union like services reduces union membership

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