incremental cost in the convention on biological diversity the convention on biological diversity stipulates the principle of incremental cost for the international financing of biodiversity conservation the international debate about the exact meaning of the concept and about its practical application focuses on the issues of baseline determination and treatment of incremental domestic benefits this paper uses some standard tools of partial equilibrium demand analysis to illustrate theoretical solutions to the indeterminacy of the convention the allocation of resources resulting from an incremental cost scheme is compared with a domestic optimum and with a hypothetical global optimum regarding the behaviour of the country hosting biodiversity a distinction is proposed between quantity and transfer taking behaviour the issue of price distortions in the baseline is also addressed it is shown that both the host country h and the rest of the world row will have incentives for agreeing on a transfer of resources that entails only partial deduction of domestic incremental benefits this transfer despite failing to reach the utilitarian global optimum still represents a pareto improvement over the pre convention status quo by imposing a particular multiplicative functional form on the utility of both host and row additional results can be obtained in particular the optimal transfer implies a clawback factor decreasing with relative income differentials and incremental cost financing dominates the domestic optimum even when price distortions are present in the host country if removal of price distortions is a precondition for incremental cost funding the analysis illustrates the magnitude of incentives necessary for the host to give up the distorted baseline

international bargaining in the presence of global environmental change this model deals with the greenhouse effect that is to say with a problem of international pollution through a description of the bargaining process it aims to determine the different forms that may be taken by cooperation agreements between the countries involved we demonstrate in particular that under some conditions it is always possible for the countries to reach an agreement such agreements are the work of a group of so called leader countries characterized by their commitment in favour of cooperation these leader countries use transfers to induce other countries to join them but they can be insufficiently attractive to convince all the countries to cooperate so as we show in the discussion the cooperation is not necessarily total therefore the key of a common problem can be a partial cooperation and not necessarily a common cooperation

renewable natural resource management and use without markets natural resources by their nature are not readily bent to the status of private property efficient resource use is complicated by jurisdictional externalities public goods non use values and beneficiaries spatially separated from the location of resources the task is made more challenging by ecological complexity that obscures cause benefits and effects costs and dramatic time lags between individual actions and subsequent social consequences that together with substantial uncertainty introduce the chance of irreversibilities resource economists have played a major role in the literature on externalities the development of individual transferable quotas non market valuation techniques and common property management

financial mechanism and enforceability of international environmental agreements we examine how international coordination among countries generates a trend towards establishing an international institution for the provision of global public goods in the present model the forces creating international agreement are a politician s motive for re election and a financial mechanism for compliance if a politician expects another politician in a neighboring country to signal his good performance to his citizen by participating in the agreement and is aware that his ex post deviation will be deterred by the financial mechanism he too decides to participate in the agreement which then corrects externality problems

a market discovery algorithm to estimate a general class of nonparametric choice models we propose an approach for estimating customer preferences for a set of substitutable products using only sales transactions and product availability data the underlying demand framework combines a general nonparametric discrete choice model with a bernoulli process of arrivals over time the choice model is defined by a discrete probability mass function pmf on a set of possible preference rankings of alternatives and it is compatible with any random utility model an arriving customer is assumed to purchase the available option that ranks highest in her preference list the problem we address is how to jointly estimate the arrival rate and the pmf of the rank based choice model under a maximum likelihood criterion since the potential number of customer types is factorial we propose a market discovery algorithm that starts with a parsimonious set of types and enlarge it by automatically generating new types that increase the likelihood value numerical experiments confirm the potential of our proposal for a realistic data set in the hospitality industry our approach improves the root mean square errors between predicted and observed purchases computed under independent demand model estimates by 67 to 93 this paper was accepted by serguei netessine operations management

employer matching and 401 k saving evidence from the health and retirement study abstract employer matching of employee 401 k contributions is often touted as a powerful incentive to save for retirement and is a key component in pension plan design in the united states using detailed administrative contribution earnings and pension plan data from the health and retirement study this analysis formulates a life cycle consistent econometric specification of 401 k saving and estimates the determinants of saving accounting for non linearities in the household budget set induced by matching the participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k participation by 5 percentage points the parametric and semi parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401 k saving by 365 in 1991 dollars overall the analysis reveals that the 401 k saving response to matching is quite inelastic and hence matching is a rather poor policy instrument with which to raise retirement saving

the biodiversity supergame this paper considers the ability of developed countries to sustain a cooperative agreement to compensate developing countries for the incremental costs of biodiversity conservation it is shown that depending on certain parameter values and the model specification such an agreement could only codify the non cooperative outcome or achieve the full cooperative outcome where global net benefits are maximized however where the agreement can sustain the full cooperative outcome net benefits will be only slightly larger than in the noncooperative outcome

estimation of consumer demand with stock out based substitution an application to vending machine products the occurrence of temporary stock outs at retail is common in frequently purchased product categories available empirical evidence suggests that when faced with stock outs consumers are often willing to buy substitute items an important implication of this consumer behavior is that observed sales of an item no longer provide a good measure of its core demand rate sales of items that stock out are right censored while sales of other items are inflated because of substitutions knowledge of the true demand rates and substitution rates is important for the retailer for a variety of category management decisions such as the ideal assortment to carry how much to stock of each item and how often to replenish the stock the estimated substitution rates can also be used to infer patterns of competition between items in the category in this paper we propose methods to estimate demand rates and substitution rates in such contexts we develop a model of customer arrivals and choice between goods that explicitly allows for possible product substitution and lost sales when a customer faces a stock out the model is developed in the context of retail vending an industry that accounts for a sizable part of the retail sales of many consumer products we consider the information set available from two kinds of inventory tracking systems in the best case scenario of a perpetual inventory system in which times of stock out occurrence and cumulative sales of all goods up to these times are observed we derive maximum likelihood estimates mles of the demand parameters and show that they are especially simple and intuitive however state of the art inventory systems in retail vend ing provide only periodic data i e data in which times of stock out occurrence are unobserved or missing for these data we show how the expectation maximization em algorithm can be employed to obtain the mles of the demand parameters by treating the stock out times as missing data we show an application of the model to daily sales and stocking data pooled across multiple beverage vending machines in a midwestern u s city the vending machines in the application carry identical assortments of six brands since the number of parameters to be estimated is too large given the available data we discuss possible restrictions of the consumer choice model to accomplish the estimation our results indicate that demand rates estimated naively by using observed sales rates are biased even for items that have very few occurrences of stock outs we also find significant differences among the substitution rates of the six brands the methods proposed in our paper can be modified to apply to many nonvending retail settings in which consumer choices are observed not their preferences and choices are constrained because of unavailability of items in the choice set one such context is in store grocery retailing where similar issues of information availability arise in this context an important issue that would need to be dealt with is changes in the retail environment caused by retail promotions

the arms trade the arms trade winners and losers the arms trade is highly controversial and raises difficult policy issues the controversies tend to concentrate on the moral military and political dimensions of arms exports decisions quite a lot of light can be shed on this murky market by asking basic economic questions and using standard economic models we begin with a structured economic description of the evolution of the international arms market in terms of the factors that influence demand and supply and thus prices and quantities then we review the policy issues faced by eu members in particular whether a common control regime is needed to harmonize their regulation of arms exports to address these policy issues we present some models of the market that we have developed and examine their implications for the interesting interactions that characterize the trade paul levine and ron smith

estate and gift taxes and incentives for inter vivos giving in the us abstract this paper describes the current estate and gift tax rules that apply to intergenerational transfers in the us it summarizes the incentives for inter vivos giving gifts from a donor to a recipient while the donor is alive as a strategy for reducing estate tax liability it shows that the current level of intergenerational transfers is much lower than the level that would be implied by simple models of dynastic utility maximization moreover even among elderly households with net worth in excess of 2 5 million roughly four times the net worth at which us households became liable for estate tax in 1995 only about 45 take advantage of the opportunity for tax free inter vivos giving cross sectional regressions using the 1995 survey of consumer finances suggest that transfers rise with household net worth possibly reflecting the impact of progressive estate taxes households with a preponderance of their net worth in illiquid forms such as a private business are less likely to make transfers than their equally wealthy counterparts with more liquid wealth those with substantial unrealized capital gains for whom the benefits of basis step up at death under the income tax are greatest are less likely to make large inter vivos transfers than similarly wealthy households with higher basis assets

the carnegie conjecture some empirical evidence this paper examines tax return generated data on the labor force behavior of people before and after they receive inheritances the results are consistent with andrew carnegie s century old assertion that large inheritances decrease a person s labor force participation for example a single person who receives an inheritance of about 150 000 is roughly four times more likely to leave the labor force than a person with an inheritance below 25 000 additional albeit weaker evidence suggests that large inheritances depress labor supply even when participation is unaltered warren kendall heir to an insurance company fortune says he s worth about 5 million and has an income of about oh 300 and some thousand a year h e has never held a job or wanted to going down to sea in cruise ships is his full time pursuit he estimates that he has taken about 250 cruises over the past couple of decades spending at least 50 percent to 70 percent of the year afloat morgenthaler 1991 p al

adaptive ordering and pricing for perishable products we consider the combined problem of pricing and ordering for a perishable product with unknown demand distribution and censored demand observations resulting from lost sales faced by a monopolistic retailer we develop an adaptive pricing and ordering policy with the asymptotic property that the average realized profit per period converges with probability one to the optimal value under complete information on the distribution the pricing mechanism is modeled as a multiarmed bandit problem while the order quantity decision made after the price level is established is based on a stochastic approximation procedure with multiplicative updates

a nonparametric approach to modeling choice with limited data choice models today are ubiquitous across a range of applications in operations and marketing real world implementations of many of these models face the formidable stumbling block of simply identifying the right model of choice to use because models of choice are inherently high dimensional objects the typical approach to dealing with this problem is positing a priori a parametric model that one believes adequately captures choice behavior this approach can be substantially suboptimal in scenarios where one cares about using the choice model learned to make fine grained predictions one must contend with the risks of mis specification and overfitting underfitting thus motivated we visit the following problem for a generic model of consumer choice namely distributions over preference lists and a limited amount of data on how consumers actually make decisions such as marginal information about these distributions how may one predict revenues from offering a particular assortment of choices an outcome of our investigation is a nonparametric approach in which the data automatically select the right choice model for revenue predictions the approach is practical using a data set consisting of automobile sales transaction data from a major u s automaker our method demonstrates a 20 improvement in prediction accuracy over state of the art benchmark models this improvement can translate into a 10 increase in revenues from optimizing the offer set we also address a number of theoretical issues among them a qualitative examination of the choice models implicitly learned by the approach we believe that this paper takes a step toward automating the crucial task of choice model selection this paper was accepted by yossi aviv operations management

international trade and environmental quality a survey abstract international trade has been incorporating various aspects of environmental issues since 1970 the extent to which environmental problems might affect many facets of trade or vice versa has been the subject of considerable debate over these years in this article we have attempted to establish some of the links between international trade and environmental quality by performing a comprehensive literature review we discuss issues such as establishing direct and indirect effects of international trade on environmental quality effects of trade on economic development environmental quality and energy and their relation with each other and finally the role of governments and international organizations in this context studies have so far revealed some linkages between trade and environment through conventional trade theory however interactions between international trade and types of pollution their sink and assimilative capacity need to be analyzed using a general equilibrium approach currently very little knowledge and agreement on the nature of interactions between trade theories development process and environmental quality exist existing studies have shown that the structure of environmental regulations should be modified to reflect the existence of trade under imperfect competition therefore further research on the interaction between new trade theory and environmental regulation is needed also theoretical and quantitative analysis regarding the effects of environmental regulations on competitiveness and location decision is needed the intensity and type of environmental measures vary across issues and countries therefore harmonizing environmental measures creates an inefficient atmosphere and to assume that trade restrictions will either improve or reverse the environmental damages is a serious mistake given the dynamic and intricate nature of the problem trade and environment debate continues despite vast research and poses a challenge for researchers and policy makers in the foreseeable future

gift taxes and lifetime transfers time series evidence the tax treatment of lifetime transfers was altered on a number of occasions since the enactment of gift tax six decades ago trends in gifts by the wealthy show a dramatic response to these changes in this paper i examine this trend and gauge its response to taxes transitory and permanent over a period of 65 years results suggest that gifts are highly elastic with respect to taxes particularly in the short run tax minimization seems to be an important consideration in the timing of intergenerational transfers published by elsevier b v jel classification d19 h31

economic growth and transboundary pollution in europe an empirical analysis the existing empirical evidence suggests that environmental kuznets curvesonly exist for pollutants with semi local and medium term impacts ansuategi and perrings 2000 have considered the behavioral basis for thecorrelation observed between different spatial incidence of environmentaldegradation and the relation between economic growth and environmentalquality they show that self interested planners following a nash typestrategy tend to address environmental effects sequentially addressingthose with the most immediate costs first and those whose costs aredisplaced in space later this paper tests such behavioral basis in thecontext of sulphur dioxide emissions in europe

behavioral responses to inheritance tax evidence from notches in france abstract for the first time we exploit quasi experimental variation to investigate the impact of inheritance taxation on wealth accumulation using bunching and difference in differences methods we directly estimate several behavioral responses during lifetime rather than relying solely on observations at death our empirical findings shed new light upon wealth accumulation and bequest motives taken together the small responses to inheritance tax estimated cannot be supported by the desire to retain control over wealth

management of transnational commons coordination publicness and treaty formation this paper focuses on the formation of treaties to manage transnational commons when efforts must be coordinated among a minimal sized group so as to make cooperation worthwhile by focusing on mixed strategy equilibria we are con cerned with instances where the intentions of others are uncertain the number of required participants the pattern of payoffs transaction costs and the underlying technology of public supply aggregation are key factors behind the achievement of coordina tion we apply our analysis to explain the outcome of negotiations on stratospheric ozone depletion global warming acid rain and tropical deforesta tion jel q20 d70

dying to save taxes evidence from estate tax returns on the death elasticity this paper examines data from u s federal tax returns to shed light on whether the timing of death is responsive to its tax consequences we investigate the temporal pattern of deaths around the time of changes in the estate tax system periods when living longer or dying sooner could significantly affect estate tax liability we find some evidence that there is a small death elasticity although we cannot rule out that what we have uncovered is ex post doctoring of the reported date of death

how should capital be taxed this survey discusses how capital should be taxed in advanced economies we review the theoretical optimal tax literature survey empirical studies on the distribution of capital and the distortion

the problem of global environmental protection what distinguishes global common property problems and global unidirectional externalities from the ones that arise under a single jurisdiction is that there is no global authority empowered to intervene and regulate use of global environmental resources cooperation is needed the paper discusses when cooperation is most needed and how it might be obtained cooperation might emerge from a noncooperative setting if supergames are played if the actions of any one country are explicitly contingent on the actions undertaken by other countries or if moral concerns lead countries to consider the consequences of their actions for others cooperation emerges in an explicit though limited form when countries commit to regulate themselves in signing international agreements in these cases the signatories cooperate but the agreements are self enforcing an attempt is made to relate these theoretical concepts to the practice of global environmental protection copyright 1990 by oxford university press

the assessment reforming environmental regulation in the uk quired in the light of new but highly uncertain scientific evidence research was initiated and as a result a series of largely ad hoc objectives and targets were adopted through a process of political negotiation thus the ukis now committed through a variety of international agreements to reduce emissions of sulphur dioxide by 60 per cent of their 1980 levels by the year 2003 to reduce carbon dioxide emissions to their 1990 levels by the year 2000 and more vaguely to maintain biodiversity and sustainable development european directives on bathing beaches on drinking water and on urban waste water treatment required a major investment programme in water and sewage treat ment with the further commitment to end sewage dumping at sea by 1998 added to this programme substantial and sustained real increases in the price of water services to customers became necessary

the estate tax and the demise of the family business abstract this paper uses data from san francisco probate records to estimate if and to what extent the estate tax forces the sale of family businesses and farms this question cannot be addressed with estate tax return data farmers and small business owners frequently complain that the estate tax makes it difficult to pass their operations on to their heirs if there are insufficient liquid assets in the entrepreneur s estate the heirs may be forced to sell the enterprise in order to pay the estate tax using variation in tax liability from state and federal tax changes in 1982 i estimate the effect of the estate tax on business sales estimates from models using cross year tax variation and a difference in difference strategy provide some evidence for a positive effect of the estate tax on sales although it is difficult to link this to explicit measures of liquidity need

the effect of inheritance receipt on retirement abstract this paper provides new evidence on how wealth shocks influence retirement behavior economic theory generally posits that leisure is a normal good yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply we use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement especially when the inheritance is unexpected this evidence has important implications for how public policies such as pension or tax reform may influence retirement behavior through the wealth effect

structural estimation of the effect of out of stocks we develop a structural demand model that endogenously captures the effect of out of stocks on customer choice by simulating a time varying set of available alternatives our estimation method uses store level data on sales and partial information on product availability our model allows for flexible substitution patterns which are based on utility maximization principles and can accommodate categorical and continuous product characteristics the methodology can be applied to data from multiple markets and in categories with a relatively large number of alternatives slow moving products and frequent out of stocks unlike many existing approaches in addition we illustrate how the model can be used to assist the decisions of a store manager in two ways first we show how to quantify the lost sales induced by out of stock products second we provide insights on the financial consequences of out of stocks and suggest price promotion policies that can be used to help mitigate their negative economic impact which run counter to simple commonly used heuristics

renegotiation proof equilibria in a global emission game when players are impatient in a two country model in which countries differ with respect to the perception of environmental damages and abatement costs the stability of international environmental agreements is analyzed in a dynamic framework three types of agreements are considered a socially optimal solution a uniform emission tax a tax equally applied in both countries and a uniform emission reduction quota an equal percentage emission reduction from a base year stability is checked for these agreements according to the concept of renegotiation proofness it is shown that the stability requirements depend crucially on the parameters defining the interests of the two countries and the type of agreement moreover it is demonstrated that if punishment options are restricted for some reason the stability of an agreement may suffer one important result of the paper is that if countries exhibit asymmetric interests stability in the quota regime is higher than in the tax regime and in the social optimum this might explain why emission reduction quotas have been so popular in international politics despite recommendations of economists to use market based instruments

research note structural demand estimation with varying product availability this paper develops a model that extends the traditional aggregate discrete choice based demand model e g berry et al 1995 to account for varying levels of product availability in cases where not all products are available at every consumer shopping trip the observed market share is a convolution of two factors consumer preferences and the availability of the product in stores failing to account for the varying degree of availability would produce incorrect estimates of the demand parameters the proposed model uses information on aggregate availability to simulate the potential assortments that consumers may face in a given shopping trip the model parameters are estimated by simulating potential product assortment vectors by drawing multivariate bernoulli vectors consistent with the observed aggregate level of availability the model is applied to the uk chocolate confectionery market focusing on the convenience store channel we compare the parameter estimates to those obtained from not accounting for varying availability and analyze some of the substantive implications

bayes solution to dynamic inventory models under unknown demand distribution this paper considers the periodic review inventory problem for which one or more parameters of the demand distribution are unknown with a known prior distribution chosen from the natural conjugate

tax avoidance and intra family transfers to what extent do people avoid taxes on intra family transfers be quests and gifts and how would integration unification of the dif ferent transfers taxes affect tax avoidance these issues are important for families and their welfare as well as for governments and their pos sibilities of raising revenue from transfer taxes in this paper we study the effects of transfer taxes on altruistic parents transfers to their chil dren using a theoretical model we find that altruistic parents do not necessarily tax minimize however in some cases when they do there is an infinitely large excess burden of a transfer tax we also find that integration of transfer taxes reduces tax avoidance all tax avoidance is eliminated with complete integration

inheritance and labor supply using data from the michigan panel study of income dynamics and from federal estate tax returns this paper investigates the labor disincentive caused by inheritance the results are of interest for several reasons whether or not inheritances are a strong labor disincentive figures prominently in the controversy surrounding the relative importance of inheritances and life cycle savings as sources of u s wealth also the size of the disincentive is important in determining the relationship between inheritance and inequality our results indicate that inheritances do not lead to large reductions in the labor supply of men and married women family consumption increases after an inheritance but again the effect is small

a theory of optimal inheritance taxation this paper derives optimal inheritance tax formulas that a capture the key equityeciency trade o b are expressed in terms of estimable sucient statistics c are robust to the underlying structure of preferences we consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities we limit ourselves to simple but realistic linear or two bracket tax structures to obtain tractable formulas we show that long run optimal inheritance tax rates can always be expressed in terms of distributional parameters aggregate behavioral elasticities and social preferences for redistribution importantly those results carry over with tractable modications to a the case with social discounting instead of steady state welfare maximization b the case with partly accidental bequests c the standard barro becker dynastic model in all cases the optimal inheritance tax rate increases with the concentration of bequest received and decreases with the elasticity of aggregate bequests to the net of tax rate the optimal tax rate is positive and quantitatively large if concentration is high the elasticity is low and society cares mostly about those receiving little inheritance in contrast the optimal tax rate is negative when society cares mostly about inheritors we propose a calibration using micro data for france and the united states we nd that for realistic parameters

on the efficiency of green trade policy the paper derives conditions for second best environmental policy when there are foreign countries which fail to implement appropriate environmental regulations it is shown that in such cases efficiency in the global economy will not be achieved unless domestic environmental regulations are supplemented by trade provisions the result is independent of whether environmental problems are local or international furthermore when trade provisions are implemented efficiency requires that domestic environmental taxes are fixed at the pigouvian tax rate the results imply that there is an economic rationale for regulating the trade between signatories and non signatories of international environmental agreements efficient trade regulations will either take the form of trade restrictions or trade promotions depending on whether the environmental problem is created by production or consumption activities and whether the net import of the relevant commodity is positive or negative it is argued that an efficient climate agreement signed by a group of fuel importing countries e g the oecd countries should include a subsidy on the import of fossil fuels

bequest and tax planning evidence from estate tax returns i study bequest and wealth accumulation behavior of the wealthy subject to the estate tax shortly before death the onset of a terminal illness leads to a very significant reduction in the value of estates reported on tax returns fifteen to twenty percent with illness lasting months to years and about five to ten percent in the case of illness reported as lasting days to weeks i provide evidence suggesting that these findings cannot be explained by real shocks to net worth such as medical expenses or lost income but instead reflect deathbed estate planning the results suggest that wealthy individuals actively care about disposition of their estates but that this preference is dominated by the desire to hold on to their wealth while alive

the censored newsvendor and the optimal acquisition of information this paper investigates the effect of demand censoring on the optimal policy in newsvendor inventory models with general parametric demand distributions and unknown parameter values we show that the newsvendor problem withobservable lost sales reduces to a sequence of single period problems while the newsvendor problem withunobservable lost sales requires a dynamic analysis using a bayesian markov decision process approach we show that the optimalin ventory level in the presence of censored demand ishigher than would be determined using a bayesian myopic policy we explore the economic rationality for this observation and illustrate it with numerical examples

the biodiversity bargaining problem we employ cooperative bargaining theory and nash s rational threats idea to cast light on the biodiversity bargaining problem the problem of global environmental negotiations is argued to be of the nature of a bargaining problem in which bargainers must agree on the distribution of cooperative surplus in order to move to the bargaining frontier we discuss the importance of both efficiency bargaining frontier and fairness recognition of characteristics of bargainers in the choice of the appropriate contract we show that the incremental cost contract used to resolve the biodiversity bargaining problem is of the form of an extreme point contract that fails to recognise the contributions of the south to the production of cooperative surplus a rational response to such a contract is the use of threats of biodiversity destruction contracts must evince both efficiency and fairness in order to represent lasting solutions

estimating the demand distributions of single period items having frequent stockouts abstract very often the service level of a single period newsboy type product is set at such a low level that i stockouts occur in the majority of the periods and ii a large right hand side of the empirical demand distribution is never observable this paper reports a practical approach for estimating the periodic demand distribution of such a product the approach has three components i using the non parametric product limit method to estimate the fractiles of the observable left hand side of the empirical distribution ii using a subjective approach and an extrapolation of hourly sales approach to fill in the missing right hand side of the empirical distribution iii fitting the estimates obtained in the preceding two components to a tocher curve which can handle the diversity of shapes of a realistic demand distribution and is also computationally very convenient for subsequent calculations for production inventory decisions the entire approach is shown to be simpler but more powerful than existing alternatives for the problem

the biodiversity conservation game with heterogeneous countries biodiversity is an essential resource which we classify as conditionally renewable in order to achieve conservation and sustainable use of biodiversity virtually all nation states signed the united nations convention on biological diversity in this paper we investigate how the heterogeneity of countries in regard to ecosystems and wealth influences the stability of international biodiversity conservation agreements both without and with transfers we further examine the effect of different degrees of ecosystem substitutability we model a coalition formation game with players that have a continuous conservation choice the conservation benefit is dependent on wealth and ecosystem quality aggregation of global benefits respects differences in ecosystem substitutability in case of transfers a fund redistributes coalition benefits according to a sharing rule the main finding is that in the absence of transfers compared to the homogeneous situation heterogeneity in ecosystems and wealth reduces the size of a stable coalition the destabilising effect is stronger the higher the ecosystem substitutability optimal transfers facilitate a large stable coalition

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

altruism and global environmental taxes a global externality like the ghg emissions leading to climate change are both due to free riding at the individual level as well as the government level a government aiming to maximise domestic social welfare may make individuals internalise the damage within their country but will free ride on the damage caused to other countries only a global cooperative solution could internalise global damage entirely if individuals have altruistic concern for others but continue to believe that their consumption is negligible relative to the total they will not change their behaviour however this paper shows that in a multi country setting the global equilibrium levels of consumption for both the non cooperative and cooperative solutions are affected by altruism the key results are a that non cooperative governments maximising domestic welfare will internalise some of the damage inflicted on other countries depending on the level of altruistic concern individuals have and b the cooperative global optimum also changes as altruism leads individuals to effectively experience damage in other countries as well as the direct damage to them since altruistic concern for others may vary across countries global welfare then becomes a function of the relative levels of altruistic concern between countries

revenue management under a general discrete choice model of consumer behavior customer choice behavior such as buy up and buy down is an important phenomenon in a wide range of revenue management contexts yet most revenue management methodologies ignore this phenomenon or at best approximate it in a heuristic way in this paper we provide an exact and quite general analysis of this problem specifically we analyze a single leg reserve management problem in which the buyers choice behavior is modeled explicitly the choice model is very general simply specifying the probability of purchase for each fare product as a function of the set of fare products offered the control problem is to decide which subset of fare products to offer at each point in time we show that the optimal policy for this problem has a quite simple form namely it consists of identifying an ordered family of efficient subsets s 1 s m and at each point in time opening one of these sets s k where the optimal index k is increasing in the remaining capacity x and decreasing in the remaining time that is the more capacity or less time available the further the optimal set is along this sequence we also show that the optimal policy is a nested allocation policy if and only if the sequence of efficient sets is nested that is s 1 s 2 s m moreover we give a characterization of when nesting by fare order is optimal we also develop an estimation procedure for this setting based on the expectation maximization em method that jointly estimates arrival rates and choice model parameters when no purchase outcomes are unobservable numerical results are given to illustrate both the model and estimation procedure

the cost of equality unequal bequests and tax avoidance abstract for altruistic parents desiring to bequeath their wealth to their children estate taxes can be costly in utility terms the most straightforward way to reduce the tax burden is through inter vivos transfers taking full advantage of potential tax free giving often requires that parents differentiate between children in the amounts transferred this unequal giving contrasts sharply with the presumed desire to make equal bequests this paper examines the extent to which wealthy parents take advantage of tax free giving and whether the desire to spend down an estate is sufficient to induce unequal giving i find that while wealthy parents do appear to make early bequests they rarely do so to the extent permitted by law and thus forego a substantial amount of tax savings

collective action in an asymmetric world abstract a central authority possessing tax and expenditure responsibilities can readily provide an efficient level of a public good absent a central authority voluntary arrangements must replace coercive ones and significant under provision must be expected international public goods are particularly challenging due to the substantial asymmetries among nations small interest nations have strong incentives to ride cheaply our empirical results reveal cheap riding intentions in providing for climate change mitigation a critical international public good the evidence is provided by individual nations intended nationally determined contributions voluntarily pledged for the paris climate change conference we find that larger nations made much larger pledges in proportion to both their gross national incomes and their historical emissions implications for the nordhaus climate club and carbon tax proposals are discussed to achieve pareto optimality despite disparate cheap riding incentives we propose the cheap riding efficient equilibrium that solution takes the nash equilibrium as a base point and then applies the principles of either the nash bargaining solution or the lindahl equilibrium to proceed to the pareto frontier

demand estimation and ordering under censoring stock out timing is almost all you need retailers facing uncertain demand can use observed sales to update demand estimates however such learning is limited by the amount of inventory carried when demand exceeds inventory i e when a stock out event occurs a retailer in general cannot observe actual demand we propose using observations on the timing of sales occurrences in a bayesian fashion to learn about demand and we analyze this learning method for a multiperiod newsvendor setting we find that as previously shown with the use of only stock out event observations the optimal order quantity with timing observations is greater than the optimal order quantity with full demand observations we prove this result using a novel methodology from the statistics literature on comparison of experiments although the optimal over ordering with timing observations tends to be less than that with only stock out event observations in most cases we do observe cases where the opposite is true such cases correspond to high demand uncertainty and low margins where marginal learning from timing observations is significantly higher than using only a stock out event in an extensive numerical study we find that on average and with respect to uncensored demand observations the use of timing observations eliminates 76 1 of the loss in expected profit from using only stock out event observations we show that for poisson and normal demand with unknown mean the proposed learning method is tractable as well as intuitively appealing the information contained in the timing of sales occurrences is fully captured by a single number the timing of stock out we also investigate checkpoint models in which the newsvendor can make observations only at predetermined times in a period and illustrate its convergence to the models with timing and stock out event observations

bequest taxes inter vivos gifts and the bequest motive abstract this paper investigates the existence of an operative bequest motive by testing whether state bequest taxes influence the giving of inter vivos gifts a significant positive relation between bequest tax rates and both the probability and level of inter vivos gifts is found suggesting that at least some portion of bequests is intentional

interior matching equilibria in a public good economy an aggregative game approach abstract if the equilibrium generated by a matching mechanism is to be the desired pareto optimal outcome it is necessary for every player to be at an interior solution at that equilibrium using the aggregative game approach developed by cornes and hartley 2003 2007 this paper analyzes the conditions under which matching mechanisms in a public good economy lead to interior matching equilibria at which all agents make strictly positive flat contributions to the public good in particular we show that the distribution of income among the agents is crucial for both the existence of interior matching equilibria and warr neutrality in the case of matching

using notches to uncover optimization frictions and structural elasticities theory and evidence from pakistan we develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches discontinuities in the choice sets of agents introduced by tax and transfer policies notches create excess bunching on the low tax side and missing mass on the high tax side of a cutoff and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world by combining excess bunching observed response attenuated by frictions with missing mass in the dominated region frictions it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long run behavior we apply our framework to tax notches in pakistan using rich administrative data while observed bunching is large and sharp optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives the combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large but the underlying structural elasticity driving this response is nevertheless modest this highlights the inefficiency of notches by creating extremely strong price distortions they induce large behavioral responses even when structural elasticities are small

wto ministerial conference in singapore environmental diversity versus harmonization 1 introductionin december 1996 a newera of the international trade regime started with the rstwto ministerial conferencein singapore substantialprogress hasbeenachievedin freeing trade in information technology products and a north south collision oninternational labour standards has been averted however these successes over shadow the apparant stagnation in the area of trade and environment at last aftermanyyearsofintensivediscussions manyhadhopedthatthe rstwtoministerialconferencewouldaddressthissensitivepolicy eld outofthewiderangeofissuesthat can be dealt with under this heading two gure prominently trade measurespursuantto multilateral environmentalagreementsandeco labellingschemes thisnote rstly tries to explain why exactly these two issues draw most of the atten tion of policymakers and secondly discusses how these issues can be resolvedagainst the background of established welfare theory it also tries to make clearwhy the ministers in singapore pussyfooted around these issues and only decidedthat the wto committee on trade and environment has to continue its explora tory work to come to grisp with these issues insights from the literature on thetrade environment interface are rst summarized in eight propositions 2 propositions on trade and environmentbefore setting forth the propositions it is good to knowthat in analyticalstudies ontrade and environment the following distinctions are usually made first there areon the one hand local and national environmental problems and on the other handtransboundary i e international and global environmental problems the formerrefer to externalities caused by domestic environmental distortions that do notexpell beyond national borders the latter refer to environmental problems thataffect welfare both in the home country and in one or more foreign countries

regulating global biodiversity what is the problem we distinguish between local problems of biodiversity loss and global ones where international cooperation is required global biodiversity regulation involves choosing the optimal stopping rule regarding global land conversions in order to ensure that some areas of unconverted natural reserves remain to support the production sector that exists on converted lands the basic difficulty with implementing a solution to this global problem lies in the asymmetry in endowments between those states that have previously converted and those that have not we demonstrate that the fundamental problem of global biodiversity regulation is similar to the bargaining problem analysed by nash rubinstein and others there are benefits from global land conversion and there must be agreement on their distribution before the conversion process can be halted since the institutions addressing global biodiversity problems are either highly ineffectual benefit sharing agreements prior informed consent clauses or very extreme incremental cost contracts the biodiversity bargaining problem remains unresolved for this reason we anticipate that suboptimal conversions will continue to occur as a way of protesting the ineffective and unfair approaches employed in addressing this problem to date

progressive estate taxation we present a model with altruistic parents and heterogeneous productivity we derive two key properties for optimal estate taxation first the estate tax should be progressive so that parents leaving a higher bequest face a lower net return on bequests second marginal estate taxes should be negative so that all parents face a marginal subsidy on bequests both properties can be implemented with a simple nonlinear tax on bequests levied separately from the income tax these results apply to other intergenerational transfers such as educational investments and are robust to endogenous fertility choices both estate or inheritance taxes can implement the optimal allocation but we show that the inheritance tax has some advantages finally when we impose an ad hoc constraint requiring marginal estate taxes to be nonnegative the optimum features a zero tax up to an exemption level and a progressive tax thereafter

adaptive data driven inventory control with censored demand based on kaplan meier estimator using the well known product limit form of the kaplan meier estimator from statistics we propose a new class of nonparametric adaptive data driven policies for stochastic inventory control problems we focus on the distribution free newsvendor model with censored demands the assumption is that the demand distribution is not known and there are only sales data available we study the theoretical performance of the new policies and show that for discrete demand distributions they converge almost surely to the set of optimal solutions computational experiments suggest that the new policies converge for general demand distributions not necessarily discrete and demonstrate that they are significantly more robust than previously known policies as a by product of the theoretical analysis we obtain new results on the asymptotic consistency of the kaplan meier estimator for discrete random variables that extend existing work in statistics to the best of our knowledge this is the first application of the kaplan meier estimator within an adaptive optimization algorithm in particular the first application to stochastic inventory control models we believe that this work will lead to additional applications in other domains

learning consumer tastes through dynamic assortments how should a firm modify its product assortment over time when learning about consumer tastes in this paper we study dynamic assortment decisions in a horizontally differentiated product category for which consumers diverse tastes can be represented as locations on a hotelling line we presume that the firm knows all possible consumer locations comprising a finite set but does not know their probability distribution we model this problem as a discrete time dynamic program each period the firm chooses an assortment and sets prices to maximize the total expected profit over a finite horizon given its subjective beliefs over consumer tastes the consumers then choose a product from the assortment that maximizes their own utility the firm observes sales which provide censored information on consumer tastes and it updates beliefs in a bayesian fashion there is a recurring trade off between the immediate profits from sales in the current period exploitation and the informational gains to be exploited in all future periods exploration we show that one can partially order assortments based on their information content and that in any given period the optimal assortment cannot be less informative than the myopically optimal assortment this result is akin to the well known stock more result in censored newsvendor problems with the newsvendor learning about demand through sales when lost sales are not observable we demonstrate that it can be optimal for the firm to alternate between exploration and exploitation and even offer assortments that lead to losses in the current period in order to gain information on consumer tastes we also develop a bayesian conjugate model that reduces the state space of the dynamic program and study value of learning using this conjugate model

the convention on biological diversity and agriculture implications and unresolved debates1 summary the convention on biological diversity addresses two controversies that surround plant genetic resources pgrs one debate has been over property rights governing pgrs and the distribution of benefits from their use the second has been over the adequacy of measures to maintain crop genetic diversity this paper examines how these two debates are linked and reviews previous multilateral attempts to address them the convention signals wider international acceptance of stricter property rights over pgrs and the need for multilateral assistance for pgr conservation however current proposals to implement the convention appear too limited in scope to achieve their stated conservation objectives while several areas of controversy remain these include debates over i intellectual property protection for biological inventions ii control over pgrs in international gene banks iii the international biosafety protocol regulating biotechnology iv mechanisms to finance pgr conservation and v the allocation of funds between in situ and ex situ conservation q 1998 elsevier science ltd all rights reserved

bilateral or multilateral bargaining in the face of global environmental change this model deals with the problem of the greenhouse effect a problem of transfrontier pollution it consists of determining through the description of a bargaining process the conditions under which it is preferable for the developing countries to speak with a united voice and those conditions under which it is preferable for them to negotiate separately one from the other in particular it is shown that the agreements arising from the bargaining cannot be equitable and for that reason they include only a limited number of countries

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

business incomes at the top business income constitutes a large and increasing share of income and wealth at the top of the distribution we discuss how tax policy treats and shapes how businesses are organized and how they distribute economic gains to owners with the focus on closely held and pass through firms these considerations influence whether and how labor and capital income is observed in economic data and feed into research controversies regarding the measurement of inequality and the progressivity of the tax code we discuss the importance of these issues in the us and highlight that limited evidence from other countries suggests that they are likely to be important elsewhere

stalking information bayesian inventory management with unobserved lost sales retailers are frequently uncertain about the underlying demand distribution of a new product when taking the empirical bayesian approach of scarf 1959 they simultaneously stock the product over time and learn about the distribution assuming that unmet demand is lost and unobserved this learning must be based on observing sales rather than demand which differs from sales in the event of a stockout using the framework and results of braden and freimer 1991 the cumulative learning about the underlying demand distribution is captured by two parameters a scale parameter that reflects the predicted size of the underlying market and a shape parameter that indicates both the size of the market and the precision with which the underlying distribution is known an important simplification result of scarf 1960 and azoury 1985 which allows the scale parameter to be removed from the optimization is shown to extend to this setting we present examples that reveal two interesting phenomena 1 a retailer may hope that compared to stocking out realized demand will be strictly less than the stock level even though stocking out would signal a stochastically larger demand distribution and 2 it can be optimal to drop a product after a period of successful sales we also present specific conditions under which the following results hold 1 investment in excess stocks to enhance learning will occur in every dynamic problem and 2 a product is never dropped after a period of poor sales the model is extended to multiple independent markets whose distributions depend proportionately on a single unknown parameter we argue that smaller markets should be given better service as an effective means of acquiring information

bretton woods blueprint for a greenhouse gas agreement abstract this paper describes the remarkable parallels between the problems faced in the drafting of the 1944 bretton woods agreement which established the rules and institutions governing the international financial system and the problems faced in drafting a greenhouse gas agreement the parallels include the need to induce countries to sacrifice economic sovereignty in order to provide a public good the need to facilitate capital investment and provide adjustment loans to be fair to developing versus developed nations to offer technical assistance monitor behavior punish offenders and promote a globally efficient allocation of resources it is claimed that between them the organizations which emerged from the bretton woods agreement namely the imf gatt and world bank have the necessary attributes of the needed global atmospheric control agency furthermore it is argued that there are striking parallels between the reserve accounts at the imf and the crediting and debiting of greenhouse gas emissions and absorptions between special drawing rights sdrs and rights for greenhouse gas emissions as well as in numerous other characteristics the paper concludes by noting that the almost half century of influence of the bretton woods institutions suggests we might borrow from their charters organizational designs membership incentives and procedures for adaptation and change

the co2 abatement game costs incentives and the enforceability of a sub global coalition abstract this paper studies the economic incentives and the institutional issues governing the outcomes of a short term climate change policy package guided by the united nations framework convention on climate change and the berlin mandate initiatives game theoretic tools and the global trade environment interface are explored within a 26 region 13 commodity computable general equilibrium framework to characterize the incentives of oecd regions to comply with a non binding agreement in a carbon abatement coalition the results showed that in the absence of side payments the achievement of such a coalition might require the design of suitable trade instruments

bequest taxes and capital gains realizations abstract contrary to popular view capital gains do not escape taxation at death as they are subject to the estate tax the presence of the step up in basis increases the lock in effect of capital gains taxes as individuals are induced to hold assets until death this effect however is mitigated by the estate tax which applies to assets passed to heirs using a sample of matched income and estate tax records in a period that straddles significant changes in capital gains and estate tax rates the estate tax is found to have an unlocking effect on capital gains realizations the realization elasticity with respect to the estate tax rate is estimated at 0 36 in the basic model

thinking economically about climate change abstract uncertainty over both the regional impacts and timing of climatic changes the way they tend to magnify the likelihood of so called natural disasters and their irreversibility require careful analysis of policy options from an economic standpoint the best approach is to apply cost benefit thinking the essential trade off is between doing nothing now and investing in either important preventive or adaptive measures the choices involve analysis of incurring costs now against the benefits of reducing vulnerability and future damage costs for any given level of warming the aim is to minimize the sum of policy costs and costs of adaptation by individuals any resulting policy decision will have to address issues of international cooperation and compensation these considerations may in turn influence the resulting policy choices between carbon taxes marketable permits and regulatory restrictions

conditional cooperation and climate change it is widely believed that international cooperation can arise through strategies of reciprocity in this paper we investigate whether citizens in the united states and 25 other countries support reciprocity to deal with climate change we find little public enthusiasm for intrinsic reciprocity in which countries restrain their consumption of fossil fuels if and only if other countries do the same in contrast we find significant support for extrinsic reciprocity in which countries enforce cooperation by linking issues citizens support economic sanctions against polluters and are willing to shame them in international forums especially when the polluters are violating a treaty cooperation could therefore emerge from efforts to link climate with other issues and to embed climate commitments in international law

corruption and air pollution in europe this paper examines how the effectiveness of regulatory framework influences levels of sulphur emissions in a scenario where to reduce its emission tax payments a polluting firm may under report emissions level at the risk of being audited and fined first a model to explain how changes in regulatory framework e g audit effectiveness and transboundary spillovers affect both actual and reported emissions is developed then the theoretical predictions using data for 39 european countries from 1999 to 2003 are tested and inferences about true emission levels are made the empirical analysis supports the theoretical predictions with significant implications for the interpretation of pollution data reported to international monitoring agencies countries with effective regulation are likely to have relatively high reported emissions of sulphur but this should not automatically be interpreted as weak environmental performance because their actual pollution levels are likely to be lower than in nations with less effective regulation

the effect of succession taxes on family firm investment evidence from a natural experiment this paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control using a 2002 policy change in greece that substantially reduced the tax on intrafamily transfers of businesses i show that succession taxes lead to a more than 40 decline in investment around family successions slow sales growth and a depletion of cash reserves furthermore succession taxes strongly affect the decision to sell or retain the firm within the family i conclude by discussing implications of my findings for firms in the united states and europe

taxation and wealth transmission in france abstract this paper studies inter vivos transfers and bequests in france and their relation to the french inheritance law and taxation using administrative records and a national households survey transmission behavior is highly responsive to changes in the fiscal system inter vivos gifts increased after a 1992 law made them partly tax free moreover the probability of giving to children is greater ceteris paribus if parents wealth is taxable for children the probability of receiving a gift over the life cycle increases with their permanent income the amount received increases with current income it increases or bears no relation to permanent income depending on the specification thus we find no direct support for the altruistic nor for the exchange motive these results are compatible with a model where parents transfer to the best endowed child

active vs passive decisions and crowd out in retirement savings accounts evidence from denmark using 41 million observations on savings for the population of denmark we show that the effects of retirement savings policies on wealth accumulation depend on whether they change savings rates by active or passive choice subsidies for retirement accounts which rely on individuals to take an action to raise savings primarily induce individuals to shift assets from taxable accounts to retirement accounts we estimate that each 1 of government expenditure on subsidies increases total saving by only 1 cent in contrast policies that raise retirement contributions if individuals take no action such as automatic employer contributions to retirement accounts increase wealth accumulation substantially we estimate that approximately 15 of individuals are active savers who respond to tax subsidies primarily by shifting assets across accounts 85 of individuals are passive savers who are unresponsive to subsidies but are instead heavily influenced by automatic contributions made on their behalf active savers tend to be wealthier and more financially sophisticated we conclude that automatic contributions are more effective at increasing savings rates than subsidies for three reasons i subsidies induce relatively few individuals to respond ii they generate substantial crowd out conditional on response and iii they do not increase the savings of passive individuals who are least prepared for retirement jel codes h2 h3

do estate and gift taxes affect the timing of private transfers abstract proposals to alter the estate tax are contentious and have been considered largely in an empirical vacuum this paper examines time series and cross sectional variation to identify the effects of estate and gift taxation on the timing of private transfers the analysis is based on data from the 1989 1992 1995 1998 and 2001 surveys of consumer finances legislative activity during this period reduced the tax disadvantage of bequests relative to gifts moreover the magnitude of this reduction differed systematically across identifiable household categories we find that households experiencing larger declines in the expected tax disadvantages of bequests reduced inter vivos transfers relative to households experiencing small declines in the tax disadvantages of bequests this finding is consistent with the hypothesis that the timing of transfers is responsive to applicable gift and estate tax rates the results also provide evidence of a systematic bequest motive for high wealth households

choosing between gifts and bequests how taxes affect the timing of wealth transfers abstract a number of theories have been advanced to explain the size and timing of intergenerational transfers one factor only recently explored is the effects of taxes and in particular the estate tax on such transfers this paper represents the first attempt to explore how capital gains and gift taxes in addition to the estate tax interact to influence incentives in the timing of transfers using estate tax data and exploiting variations in state inheritance gift and capital gains tax rates this paper finds taxes to be an important consideration in the choice between gifts and bequests in particular each of capital gains and gift taxes are found to be important determinants of the timing of transfers these findings are robust to a number of specifications that control for borrowing charitable bequests marital status and the portfolio composition of wealth transfers

coalitions in transboundary pollution reduction during emission reductions countries render services to each other by reducing transboundary pollution which should be recognized as an additional source of benefit since transboundary pollution fluxes are often significant the underestimation of this factor can substantially affect the choice of emission reduction strategies and eventually restrain pollution reduction this factor is a specific feature of the transboundary pollution problem that in the taxonomy of m iler 1990 relates to the case of regional reciprocal externalities cooperation in the case of regional reciprocal externalities has been often studied explicitly or implicitly in terms of cooperative games with transferable utilities tu one reason for this is that within this approach side payments are allowed which theoretically give higher gains to participants as compared to the approach with non transferable utilities ntu another reason is that the theory of ntu games is not yet sufficiently developed as compared with the theory of tu games but the standard tu approach to regional environmental regulation shows significant drawbacks discussing the analyses of the canadian american agreement on the columbia river by krutilla 1966 1968 and of the mexican american agreement on the colorado river by kneese 1988 m iler 1990 points out that the countries do not use side payments in the explicit form moreover the amounts of implicit side payments seem to be in contradiction with the criteria of economic benefits producing an impression of irrationality of the countries choices mner 1990 in this paper the tu approach is abandoned in favour of the ntu approach to treat the case of regional reciprocal externalities from the viewpoint of the ntu game an irrational behaviour of a participant occurs when his preferences involve hidden goals while his implicit side payments favourably affect the other participants expected choices of strategies with respect to these hidden goals the ntu approach becomes immune to irrational behaviour if it allows consideration of the participants utilities reflecting their respective hidden goals through the above mechanism of transposed preferences non transferability of utilities generally means incommensurability of