premuneration values and investments in matching markets we analyze a model in which agents make investments and then match into pairs to create a surplus the agents can make transfers to reallocate their pretransfer ownership claims on the surplus mailath postlewaite and samuelson 2013 showed that when investments are unobservable equilibrium investments are generally inecient in this paper we work with a more structured model that is suciently tractable to analyze the nature of the investment ineciencies we provide conditions under which investment is ineciently high or low and conditions under which changes in the pretransfer ownership claims on the surplus will be pareto improving as well as examine how the degree of heterogeneity on either side of the market aects investment eciency

status seeking income taxation and efficiency abstract it is well known that status seeking produces distortions in consumption competition to achieve status leads to over consumption of those goods which confer status it has been found that taxing such goods may even lead to pareto improvements in this paper we extend a model of status which relies on a signalling equilibrium approach to include the individual labour supply decision and an income tax we show that a pareto improving income tax can exist even with the simplest tax benefit scheme a number of results follow the model is extended to a two period analysis to accommodate the reputation building element of status achievement without altering the conclusions

a model of educational investment social concerns and inequality we consider a model in which educational investments entail productivity gains signaling power and social status the latter depends on the agent s relative achievement in one of three dimensions innate skills level of schooling and income we study the three scenarios separately and characterize the conditions under which social concerns increase or decrease educational and income inequality inequality increases decreases if education lowers the stigma suffered by low skilled workers less more than it boosts the prestige enjoyed by high skilled workers we discuss the expected results of some policies in light of these findings

modeling food consumption decisions as a two step process this article evaluates the suitability of tobit analysis of food consumption patterns by comparing results generated by a tobit model and a modification with a two step decision process two samples of adult women were selected from the 1977 78 nationwide food consumption survey and the 1985 continuing survey of food intakes by individuals results show strong statistical evidence for questioning tobit analysis in examining food consumption decisions determinants of the decision to consume food within a particular food group often differ from the determinants of how much to consume particularly for more highly defined food groupings analysis of u s food consumption patterns and their dietary aspects with respect to consumer behavior has a long history traditionally ordinary least squares ols or some variant has been used in many studies where ols was not appropriate the tobit method was applied tobit allows for a discrete mass point for observations as well as a continuous range of values for the dependent variable this nonlinear method has yielded good results in a variety of studies e g mccracken and brandt lane and devaney and fraker this article examines the suitability of the tobit method for analysis of food consumption patterns the tobit method assumes that the decision to consume a given food item is the same as the decision about the amount of the food to consume ignoring the two step nature of the decision process may hamper understanding of true behavioral patterns lead to erroneous conclusions and generate incorrect policy recommendations this article compares results generated by a tobit model and a modification with a two step decision process in the next section the statistical methods used to test whether food consumption is a one or two step decision process are described the following sections discuss the variables and data present the results and consider the conclusions

the social basis of interdependent preferences abstract most economists are sympathetic to the idea that concerns for relative position are an important aspect of many economic problems there has traditionally been a reluctance to include such concerns primarily because models that included them often allow such a broad range of behavior that there are few if any restrictions on equilibrium behavior and hence such models would have little or no predictive power in this paper we discuss how reduced form models may naturally give rise to utility functions that depend in part on relative standing there are several advantages of modelling concern for relative standing in reduced form utility functions even when there is no similar concern in the deep preferences it provides structure and constraints on the way that relative standing affects utility and further it can yield testable implications about the way that changes in the underlying environment affect the concern for relative standing we discuss the advantages and disadvantages of modelling social concerns in this way and provide examples that illustrate how concerns for relative standing can affect savings investment and labor choice decisions

prices and quality effects in cross sectional demand analysis a conceptual clarification of the sources and meaning of cross sectional price variability is used to motivate a theoretical and econometric framework for the estimation of cross sectional demand functions quality effects are distinguished from supply related price variability to identify cross sectional demand for disaggregated food commodities an empirical application using data from the 1977 78 nationwide food consumption survey indicates that parameter differences resulting from a failure to adjust cross sectional prices for quality effects are likely to be small for relatively homogenous disaggregated food commodities in demand analysis with cross sectional household budget data it is usually assumed that prices are constant allen and bowley prais and houthakker george and king given this assumption engel functions are estimated where expenditure or quantity is regressed on income or total expenditures family size and other demographic characteristics the assumption that cross sectional price effects are absent or are captured adequately by spatial and temporal dummy variables has not been evaluated empirically whether cross sectional price effects can be treated in this manner has implications for the specification of cross sectional demand functions as well as the estimation of engel functions there is a considerable literature on estimating price elasticities with cross sectional data most of the applications utilize timeseries cross sectional data annual or quarterly household consumption surveys and

social culture and economic performance the connection between obtaining higher paying jobs and undertaking some seemingly irrelevant activity is interpreted as social culture in the context of a society trying to adopt a new technology i show that by allowing the firms to give preferential treatment to workers based on some cultural activity the society can partially overcome an informational free riding problem therefore social culture may affect the economic performance by altering the effective production technology of the economy jel p17 z1 what is social culture what is the role of social culture in economic performance in a provocative article kenneth arrow 1971 argued that norms of social behavior including ethical and moral codes are reactions of society to compensate for market failure somewhat surprisingly this idea of the role of social culture has not been further pursued in the literature in this paper i take arrow s viewpoint seriously and construct a simple model to examine the possibility that social culture may alleviate market failure i consider a society that is deciding whether to adopt a new technology three important assumptions are made about the economy first adoption decisions are made by entrepreneurs or firms but the operators of the new technology are workers second the new technology can be successfully operated only when the worker has invested in some imperfectly observable requisite skills and third it is costly for the workers

analysis of household attitudes toward the purchase of livestock products and fish in cameroon the need for additional information on household demand for meat and fish in cameroon is addressed probit analysis involving the heckman selectivity correction procedure is used to estimate the effects of individual and household characteristics on demand for beef chicken pork and fish results indicate that fish is a relative necessity in cameroon and is often substituted for beef and chicken by households whose profiles include being of low income levels having large household sizes are of middle age and are less educated whereas chicken and pork substitute each other they are each complementary to beef the profiles of households likely to purchase beef include being married middle age educated and of the muslim faith profiles for households most likely to increase their purchases of chicken include being of high income levels and are public sector employed some policy implications are provided

incentives and social norms in household behavior in a broad psychological perspective both economic incentives and social norms may be be regarded as giving rise to purposesful or rational behavior by this i simply mean that individuals act in accordance with expected reward or punishment even though the form these take differs substantially in the two cases whereas economic incentives imply material rewards or favors that can be traded for such rewards including leisure social norms imply social rewards the latter basically take the form of approval or disapproval from others and related feelings of pride or shame moreover once a social norm has been internalized in an individual s own value system behavior in accordance with or against the norm will also result in feelings of self respect or guilt all this suggests that not only economic incentives but also social norms may be analyzed by means of utility theory as will be illustrated below many social norms may not have much to do with economic incentives elster 1989 in some cases it is however useful to study the interaction between them indeed this is the basic message of the paper my discussion will be limited to three norms of apparent importance for household behavior i work norms ii norms against wage underbidding and iii saving and consumption norms thus the paper deals with norms concerning willingness to work ability to get a job and the use of income this abstract was borrowed from another version of this item

social status in economic theory social distinction or status is an important motivation of human behaviour this paper provides a selective survey of recent advances in the economic analysis of the origins and consequences of social status concerns first a selection of empirical research from a variety of scientific disciplines is discussed to underpin the further theoretical analysis i then consider the origins and determinants of tastes for status discuss the endogenous derivation of such preferences for relative standing and assess the different formalizations of these preferences subsequently the consequences of preferences for status are studied for a variety of problems and settings the last section discusses a number of implications of status concerns for normative economics and public policy

wealth seeking reconsidered abstract if individuals are interested in their relative wealth position they engage in contests for wealth this leads to a steady state with overaccumulation in a simple growth model it is shown that if some individuals are engaged in wealth seeking activity but others are not the latter might benefit however wealth seeking is not welfare enhancing under usual assumptions concerning production technology the steady state equilibrium is characterized by a marginal productivity of capital that is below the steady state rate of time preference and by emergence of a class structure

social status education and growth this paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth we consider two sources of heterogeneity among workers nonwage income and innate ability a greater emphasis on status may induce the wrong individuals that is those with low ability and high wealth to acquire schooling causing workers with high ability and low wealth to leave the growth enhancing industries this crowding out effect taken alone discourages growth growth may be enhanced by a more egalitarian distribution of wealth which reduces the demand for status

on relative wealth effects and the optimality of growth abstract we present a model of endogenous growth in which a desire for social status lead individuals to care about their relative wealth the growth rate of the economy is socially optimal if the status motive is sufficiently important but the presence of status seeking may also lead to excessive growth

a spillover based theory of credentialism i propose a model in which credentials such as diplomas are instrumentally valuable to workers the model avoids an important criticism of standard job market signalling models by tying a worker s wage to their output a worker s productivity is influenced by the skills of their co workers where such skills arise from an ability augmenting investment that is made prior to matching with co workers credentials allow workers to demonstrate their investment to the labour market thereby allowing them to match with high skill co workers in equilibrium despite the positive externality associated with a worker s investment i show how overinvestment is pervasive in equilibrium

optimal investment and consumption when allowing terminal debt we analyze a dynamic optimization problem which involves the consumption and investment of an investor with constant relative risk aversion for consumption but with a risk aversion for final wealth which does not necessarily imply that terminal wealth must always be positive we require risk aversion for terminal wealth to be positive but not monotone there is a point of maximal risk aversion at zero wealth and the investor may continue to consume when wealth is negative using dual optimization methods we can derive explicit solutions and we find that the optimal solution differs in a fundamental way from the case where risk aversion is monotone it turns out that the optimal consumption function is convex and concave at different wealth levels and that the optimal investment strategy may no longer be monotone as a function of the remaining time to invest and consume

on limiting the market for status signals abstract in many societies individuals care how others view them in their efforts to impress such individuals engage in consumption signals which attempt to establish higher levels of status than their true status type this leads to an inefficiency which offers the possibility of a pareto improving tax policy the impacts of tax policy and benefits on the signalling equilibrium are considered

running to keep in the same place consumer choice as a game of status if individuals care about their status defined as their rank in the distribution of consumption of one positional good then the consumer s problem is strategic as her utility depends on the consumption choices of others in the symmetric nash equilibrium each individual spends an inefficiently high amount on the status good using techniques from auction theory we analyze the effects of exogenous changes in the distribution of income in a richer society almost all individuals spend more on conspicuous consumption and individual utility is lower at each income level in a more equal society the poor are worse off

dress to impress brands as status symbols abstract we analyzed the market for indivisible pure status goods firms produce and sell different brands of pure status goods to a population that is willing to signal individual abilities to potential matches in another population individual status is determined by the most expensive status good one has there is a stratified equilibrium with a finite number of brands under constant tax rates a monopoly sells different brands to social classes of equal measure while in contestable markets social classes have decreasing measures under optimal taxation contestable markets have progressive tax rates while a monopoly faces an adequate flat tax rate to all brands in contrast with extant literature subsidies may be socially optimal depending on the parameters in both market structures

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

cooperation harassment and involuntary unemployment an insider outsider approach the authors present a theory of involuntary unemployment which explains why the unemployed workers outsiders are unable or unwilling to find jobs even though they are prepared to work for less than the prevailing wages of incumbent workers in siders the outsiders do not underbid the insiders since were the y to do so the insiders would withdraw cooperation from them making their work unpleasant with harassment and thereby reducing the prod uctivity and increasing the reservation wages of the underbidders th e resulting labor turnover costs create economic rent which the insid ers tap in wage setting and as a result involuntary unemployment ma y arise copyright 1988 by american economic association

design innovation and fashion cycles a model of fashion cycles is developed in which designs are used as a signaling device in a dating game a monopolist periodically creates a new design over time the price of the design falls as it spreads across the population once sufficiently many consumers own the design it is profitable to create a new design and thereby render the old design obsolete this paper gives conditions under which all consumers would be better off by banning the use of fashion competition among designers may lead to less frequent changes in fashion and to higher prices than monopoly copyright 1995 by american economic association

food consumption changes of adult women between 1977 and 1985 nationally representative samples of u s women aged nineteen to fifty are used to examine comparable food group consumption data collected in 1977 and 1985 changes in the proportion of women consuming each food group quantities consumed by users and the determinants of consumption changes over time are identified significant shifts in consumption of food groups defined by fat and dietary fiber criteria are measured in this research while standard demographic and socioeconomic factors explain significant amounts of cross section food group consumption variation the effects of these factors vary considerably between 1977 and 1985 and explain most of the food group consumption trends

domestic tourism demand of urban and rural residents in china does relative income matter abstract the aim of this research is to investigate the domestic tourism demand of urban and rural residents in china based on the data from the national household tourism survey we specify chinese domestic tourism demand as a function of absolute income relative income domestic tourism price and substitute price as a major contribution of this study relative income is measured using the distance between individual income and average income over a city province based on the estimation results from multilevel models this paper highlights the effect of relative income on domestic tourism demand in some sub regions of china furthermore regional differences between residents in different sub regions and different patterns of determinants between urban and rural residents are identified and discussed

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

investment and competitive matching we study markets in which agents first make investments and are then matched into potentially productive partnerships equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches but we focus on markets in which agents must first sink their investments before matching additional equilibria may arise in this sunk investment setting even though our matching market is competitive these equilibria exhibit inefficiencies that we can interpret as coordination failures all allocations satisfying a constrained efficiency property are equilibria and the converse holds if preferences satisfy a separability condition we identify sufficient conditions most notably quasiconcave utilities for the investments of matched agents to satisfy an exchange efficiency property as well as sufficient conditions most notably a single crossing property for agents to be matched positive assortatively with these conditions then forming the core of sufficient conditions for the efficiency of equilibrium allocations

fluid milk purchases a multivariate tobit analysis we formulate an econometric model of fluid milk expenditures taking into account two important characteristics expenditures may be censored at zero and may be interdependent across milk type censoring of fluid milk expenditures is addressed with a generalized tobit system estimator interdependence of milk expenditures is examined through a likelihood function with no restrictions on elements of the engel curve error covariance matrix expenditure function parameters are estimated using a march 1991 to march 1992 u s consumer panel

portfolio insurance and prospect theory investors popularity and optimal design of capital protected financial products abstract portfolio insurance strategies are used on both the institutional and the retail side of the asset management industry while standard utility theory struggles to provide an explanation this study justifies the popularity of portfolio insurance strategies in a behavioral finance context we run monte carlo simulations as well as historical simulations for popular portfolio insurance strategies and benchmark strategies in order to evaluate the outcomes using cumulative prospect theory our simulation results indicate that most portfolio insurance strategies are the preferred investment strategy for a prospect theory investor moreover the analysis provides insights into how portfolio insurance products should be designed and structured to meet the preferences of prospect theory investors as accurately as possible

pre match investment with frictions the paper explores an environment in which agents are motivated to make unproductive investments with the sole aim of improving their matching opportunities in contrast to existing work i add frictions by allowing the investment to be imperfectly observed the analysis allows for a deeper understanding of the trade off inherent in related models investments waste resources but facilitates more efficient matching patterns i show that greater frictions i do not always lead to inferior matching patterns and ii can force the economy into to a pareto preferred equilibrium

crime and conspicuous consumption we study how property crime distorts consumption decisions using an incomplete information model we argue that consuming conspicuous goods reveals information to criminals seeking bountiful victims and increases the likelihood of being victimized thus property crime reduces the consumption of visible goods even when these cannot be directly stolen but simply carry information about a potential victim s wealth we exploit the large decline in property crime in the u s during the 90s to test this mechanism using data from the u s consumer expenditure survey from 1986 to 2003 we find that households located in states experiencing sharper reductions in property crime increased significantly their consumption of visible goods even when these goods are not generally stolen both in absolute terms and relative to other consumption goods our findings hold when we instrument the decline in property crime during the 90s using a variety of strategies

an index of loss aversion to a considerable extent risk aversion as it is commonly observed is caused by loss aversion several indexes of loss aversion have been proposed in the literature the one proposed in this paper leads to a clear decomposition of risk attitude into three distinct components basic utility probability weighting and loss aversion the index is independent of the unit of payment the main theorem shows how the indexes of different decision makers can be compared through observed choices

consumption and portfolio policies with incomplete markets and short sale constraints the infinite dimensional case abstract we employ a martingale approach to study a dynamic consumption portfolio problem in continuous time with incomplete markets and short sale constraints we introduce a notion of minimax local martingale and transform the dynamic problem into a static problem of maximizing expected utility over the consumption bundles that satisfy a single budget constraint formed using that measure we establish the existence of and characterize the minimax local measure provide sufficient conditions for the dynamic consumption portfolio problem to have a solution and relate the optimal policies to the solution of quasi linear partial differential equation

social organization in an endogenous growth model we develop an endogenous growth model in which individuals form matches in order to consume goods that are not explicitly traded the matching process endogenously generates a concern for relative wealth and is thereby beneficial for capital accumulation and economic growth we then study how social segmentation in the matching process affects economic growth under strong segmentation social competition over mates occurs inside homogeneous groups this homogeneity increases the severity of the rat race of wealth accumulation and fosters economic growth

veblen effects in a theory of conspicuous consumption the authors examine conditions under which veblen effects arise from the desire to achieve social status by signaling wealth through conspicuous consumption while veblen effects cannot ordinarily arise when preferences satisfy a single crossing property they may emerge when this property fails in that case budget brands are priced at marginal cost while luxury brands though not intrinsically superior are sold at higher prices to consumers seeking to advertise wealth luxury brands earn strictly positive profits under conditions that would with standard formulations of preferences yield marginal cost pricing the authors explore factors that induce veblen effects and they investigate policy implications copyright 1996 by american economic association

why do people care about social status abstract this paper shows that complementary interaction can induce people to care about social status because it serves as a signal of non observable abilities there is a unique separating equilibrium in which everyone cares about social status in this equilibrium a person s social status perfectly reveals his abilities and everyone matches with a person of like ability the analysis shows that people s instrumental concern for social status has important welfare and policy implications indeed peoples efforts to keep up with the joneses may be welfare enhancing

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth