willingness to pay for stochastic improvements of future risk under different risk aversion abstract within a general intertemporal decision making framework this work shows one individual with more k th degree k 2 n ross risk aversion always chooses more current paying to improve his future payoff distribution when such stochastic improvement satisfies the n th degree mean preserving stochastic dominance moreover when stochastic improvement of the future payoff distribution is not mean preserving the notions of linearly quadratically restricted more ross risk aversion proposed by eeckhoudt liu and meyer 2017 can help provide a clear cut comparative statics analysis

urban sustainability assessment of taiwan based on data envelopment analysis abstract the rapid process of urbanization brings forth growing concerns about the sustainability of cities this study adopts an extended urban metabolism framework to assess urban sustainability and utilizes a data envelopment analysis dea model with undesirable outputs that takes pollutions into account in order to measure the aggregate urban input output efficiency of taiwan s 22 administrative regions the model not only compares aggregate urban efficiency but also identifies which input or output item should be adjusted and what the target values are the results indicate that taipei city and lienchiang county are the most sustainable cities in taiwan this study also proposes several indices categorized as resource efficiency and pollution efficiency in terms of resource efficiency the findings present that taiwan needs to improve its electricity and water efficiencies the most with regard to pollution efficiency garbage efficiency performs the best finally industrial structure has a strong influence on resource efficiency and pollution efficiency

intergenerational economic mobility in the united states 1940 to 2000 we estimate trends in intergenerational economic mobility by matching men in the census to synthetic parents in the prior generation we find that mobility increased from 1950 to 1980 but has declined sharply since 1980 while our estimator places greater weight on location effects than the standard intergenerational coefficient the size of the bias appears to be small our preferred results suggest that earnings are regressing to the mean more slowly now than at any time since world war ii causing economic differences between families to become more persistent however current rates of positional mobility appear historically normal

a distributional theory of government growth this article presents a closed form solution for time consistent taxation and public spending in a dynamic game between government and median voter extending meltzer and richard s static analysis of government size the article offers a theory of growth of government at low stages of economic development the median voter identified as a relatively poor worker prefers to have no or only small redistributive taxation in order to foster savings through this channel he expects improvements of his labor productivity and wage at higher stages of development however when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller the incentive to tax and redistribute income rises yet in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times hence government growth is solely driven by an expanding welfare state

tests of a rational theory of the size of government in many countries the political party holding power changes more frequently than the trend growth rates in government spending and taxes shifts of political power are often preceded by rhetoric about meeting needs or cutting taxes which post election performances rarely match yet changes in the size of government up and down occur on average the size of government measured by the share of taxes or spending to output has increased in many countries during the past century but changes in size occur at diffrent rates and at times the relative size of government declines

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

on the simple economics of advertising marketing and product design we propose a framework for analyzing transformations of demand such transformations frequently stem from changes in the dispersion of consumers valuations which lead to rotations of the demand curve in many settings profits are a u shaped function of dispersion high dispersion is complemented by niche production and low dispersion is complemented by mass market supply we investigate numerous applications including product design advertising marketing and sales advice and the construction of quality differentiated product lines we also suggest a new taxonomy of advertising distinguishing between hype which shifts demand and real information which rotates demand

spend it like beckham inequality and redistribution in the uk 1983 2004 a main activity of the state is to redistribute resources standard political economy models predict that a rise in inequality will lead to more redistribution this paper shows that for the uk in the period 1983 2004 a plausibly exogenous rise in income inequality has not been associated with increased redistribution we explore this example of the paradox of redistribution using attitudinal data we show that standard political economy models of the individual demand for redistribution do have explanatory power but that other attitudes and beliefs are also very important moreover these attitudes and beliefs change quite quickly so are very important in explaining variation in the demand for redistribution

skewness preference risk aversion and the precedence relations on stochastic changes this paper provides a general choice theoretic characterization of the trade off between risk and skewness whose importance in understanding risk taking behavior is well documented in empirical studies the condition under which the prudence measure kimball 1990 characterizes the strength of an individual s downside risk aversion against his own risk aversion is identified and interpreted in a unifying framework based on the concept of one stochastic dominant change preceding another and that of the desirability of a stochastic change the framework is also shown to be useful for a better understanding of the arrow pratt measure the stronger ross measure and the coincidence of the characterizations of downside risk aversion and prudence as well as the relationship between stochastic dominances of different degrees

optimal voting schemes with costly information acquisition a group of individuals with identical preferences must make a decision under uncertainty about which decision is best before the decision is made each agent can privately acquire a costly and imperfect signal we discuss how to design a mechanism for eliciting and aggregating the collected information so as to maximize ex ante social welfare we first show that of all mechanisms a sequential one is optimal and works as follows at random one agent at a time is selected to acquire information and report the resulting signal agents are informed of neither their position in the sequence nor of other reports acquiring information when called upon and reporting truthfully is an equilibrium we next characterize the ex ante optimal scheme among all ex post efficient mechanisms in this mechanism a decision is made when the precision of the posterior exceeds a cut off that decreases with each additional report the restriction to ex post efficiency is shown to be without loss when the available signals are sufficiently imprecise on the other hand ex post efficient mechanisms are shown to be suboptimal when the cost of information acquisition is sufficiently small

the effects of logrolling on congressional voting the theoretical public choice literature suggests that vote trading is an important determinant of congressional voting behavior yet empirical voting models do not allow for vote trading these models recognize that observed ideology may influence legislative behavior but do not correct for unobserved ideology this study devises new tests for logrolling and ideology the empirical model controls for logroll agreements and unobserved ideological interest via the correlation of unobserved variables the results reflect the presence of vote trading coalitions on some votes but not on others the results cast doubt on the importance of personal ideological interests of legislators copyright 1992 by american economic association

voting behavior and information aggregation in elections with private information we analyze two candidate elections in which voters are uncertain about the realization of a state variable that affects the utility of all voters each voter has noisy private information about the state variable we show that the fraction of voters whose vote depends on their private information goes to zero as the size of the electorate goes to infinity nevertheless elections fully aggregate information in the sense that the chosen candidate would not change if all private information were common knowledge equilibrium voting behavior is to a large extent determined by the electoral rule i e if a candidate is required to get at least x percent of the vote in order to win the election then in equilibrium this candidate gets very close to x percent of the vote with probability close to one finally if the distribution from which preferences are drawn is uncertain then elections will generally not satisfy full information equivalence and the fraction of voters who take informative action does not converge to zero

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

constitutional rules and fiscal policy outcomes we investigate the effect of electoral rules and forms of government on fiscal policy outcomes in a large sample of democracies we rely on different estimation methods to address prospective problems of statistical inference due to non random selection of these constitutional rules the findings are consistent with our theoretical priors presidential regimes induce smaller governments than parliamentary democracies while majoritarian elections lead to smaller governments and smaller welfare programs than proportional elections

does the median voter model explain the size of government evidence from the states despite an attempt by its own authors it is difficult to argue that the influential model of the size of government developed by meltzer and richard 1981 has had convincing empirical backing in this paper we adapt that model to a model of state government size the main testable hypothesis is that as income inequality grows government size as measured by the percentage of income devoted to government redistribution grows we test the model using panel data from the us states from 1979 1991 in contrast to the results found by meltzer and richard 1983 we find little evidence to support the model the results are robust to several model specifications and estimation techniques

the comparative statics on asset prices based on bull and bear market measure abstract for single period complete financial asset markets with representative investors we introduce a bull market measure for uncertain state occurrence and its associated ordering between representative investors in markets based on their marginal rate of substitution between equilibrium consumption allocations among possible states these concepts combine and generalize the likelihood ratio dominance relation between probability prospects of state occurrence and the arrow pratt ordering of risk aversion in expected utility settings by analyzing the comparative statics for bull market effects on equilibrium asset prices we derive some monotone properties of the risk free rate and discounted prices of dividend monotone assets

voting under ignorance of job skills of unemployed the overtaxation bias abstract usual models on voting over basic income flat tax schedules rest on the assumption that voters know the whole distribution of skills even if at equilibrium some individuals do not work if individuals productivity remains unknown until they work it may be more convincing to assume that voters have only beliefs about the distribution of skills and that a learning process takes place in this paper at each period individuals vote according to their beliefs which are updated when getting new information from the job market the voting process converges towards some steady state equilibrium that depends on both the true distribution of skills and the initial beliefs the equilibrium tax rate is higher than or equal to the tax rate achieved in the perfect information framework an illustration is provided on french data if voters are over pessimistic as to the potential productivity of unemployed people majority voting may lock the economy in an informational trap with a high tax rate and a high level of inactivity

costs of taxation and the size of government existing theory on the form of government suggests that a parliamentary system promotes a larger size of government than does a presidential system this paper extends the existing theory by allowing for distortionary taxation a main result is that if taxation is sufficiently distortionary the parliamentary system may promote a smaller size of government than the presidential system the proposed mechanism appears consistent with several empirical patterns in the data that cannot be explained by other theories

redistributive public employment abstract politicians may use disguised redistributive policies in order to circumvent opposition to explicit tax transfer schemes first we present a theoretical model that formalizes this hypothesis next we provide evidence consistent with the prediction of the model namely that in u s cities politicians use public employment as such a redistributive device we find that city employment is significantly higher in cities where income inequality and ethnic fragmentation are higher

mean gini portfolio theory and the pricing of risky assets this paper presents the mean gini mg approach to analyze risky prospects and construct optimum portfolios the proposed method has the simplicity of a mean variance model and the main features of stochastic dominance efficiency since mean gini is consistent with investor behavior under uncertainty for a wide class of probability distributions gini s mean difference is shown to be more adequate than the variance for evaluating the variability of a prospect the mg approach is then applied to capital markets and the security valuation theorem is derived as a general relationship between average return and risk this is further extended to include a degree of risk aversion that can be estimated from capital market data the analysis is concluded with the concentration ratio to allow for the classification of different securities with respect to their relative riskiness

overconfidence ceo selection and corporate governance we develop a model that shows that an overconfident manager who sometimes makes value destroying investments has a higher likelihood than a rational manager of being deliberately promoted to ceo under value maximizing corporate governance moreover a risk averse ceo s overconfidence enhances firm value up to a point but the effect is nonmonotonic and differs from that of lower risk aversion overconfident ceos also underinvest in information production the board fires both excessively diffident and excessively overconfident ceos finally sarbanes oxley is predicted to improve the precision of information provided to investors but to reduce project investment

investment in risky r d programs in the face of climate uncertainty we analyze how the socially optimal technology rd and that uncertainty in damages interacts with uncertainty in the returns to rd and r d that reduces the emissions to output ratio and argue that this is a good representation of r d into fossil fuel technologies for r d programs into non carbon technologies optimal investment is higher in riskier programs our empirical model indicates that the optimal investment in a risky program is about 3 1 2 times larger than in a program with certain returns for r d programs aimed at reducing emissions in fossil fuel based technologies our results show that qualitatively investment is higher in less risky programs under most uncertain damage scenarios our empirical model shows however that the risk profile of fossil fuel based r d programs generally has little quantitative impact on optimal investment the exception is that when the probability of a catastrophe inducing full abatement is very high investment is about twice as high in risky programs compared to programs with certain returns

social mobility and the demand for redistribution the poum hypothesis this paper examines the often stated idea that the poor do not support high levels of redistribution because of the hope that they or their offspring may make it up the income ladder this prospect of upward mobility poum hypothesis is shown to be fully compatible with rational expectations and fundamentally linked to concavity in the mobility process a steady state majority could even be simultaneously poorer than average in terms of current income and richer than average in terms of expected future incomes a e rst empirical assessment suggests on the other hand that in recent u s data the poum effect is probably dominated by the demand for social insurance in the future everyone will be world famous for e fteen minutes andy warhol 1968

logrolling in the u s congress i introduction a long standing question in political science is whether exchange occurs in legislatures as it is expected in any economy where the intensity of demand varies the issue was originally raised by buchanan and tullock 1962 and expanded by coleman 1966 and mueller 1967 the subsequent literature has produced numerous models of vote trading haefele 1971 riker and brams 1973 koford 1982a much of the work suggests that vote trading leads to chaotic results see for example riker and brams 1973 kramer 1977 and mckelvey 1976 currently vote trading s quantitative importance and optimality are unknown references to logrolling go back to the early literature in political science bentley 1907 refers to it and since then scholars such as mayhew 1966 and ferejohn 1974 have provided primarily anecdotal evidence for logrolling the economic analysis of logrolling has mostly been theoretical and little work has been done to assess the qualitative and quantitative importance of vote trading in legislatures however much might be learned from such analysis given the apparent puzzle that for most roll calls votes on parts of bills only a minority of districts stand to gain yet such proposals get passed until recently vote trading has not been identified empirically stratmann 1992 is the only paper that identifies vote trades statistically and it looks only at vote trades among agricultural interests however it would be interesting to know whether logrolling is prevalent in circumstances other than farm commodity programs we need to identify logrolling coalitions to assess how widespread logrolling agreements are we expect them to be common if the intensity of demand for legislation varies related to the issue of vote trading is the question of what factors determine congressional voting behavior major elements in a legislator s voting decision are constituency interests ideology party and perhaps vote trading one segment of the literature on congressional voting has focused on the role of political parties as an important force determining a legislator s voting decision some authors have argued that parties provide an organizational framework within which logrolling will happen see for example fiorina 1974 koford 1987 weingast and marshall 1988 johnson and stratmann 1992 alternatively lindsay and maloney 1988 suggest that party discipline forces a legislator to vote for or against a piece of legislation the latter view implies that on some issues party affiliation forces the legislator to vote against constituency interests 1 whether party affiliation is a signal to constituencies of one s overall propensity to vote on bills or a means to build coalitions or whether both elements are important is an unresolved question voting along party lines can be due to party loyalty or party pressure promoting the interests of one s constituency or logrolling within the party to answer questions about voting along party lines and about vote trading and coalitions within a quantitative framework one has to distinguish empirically between party loyalty and logrolling coalitions that are organized within a party empirical studies have typically included a party dummy variable in regression equations however if logrolling coalitions are organized within a party such a dummy variable will measure both potential party loyalty or potential party discipline and membership in a logrolling coalition this paper uses a different approach to separate the logrolling variable from the party loyalty variable and so distinguishes between voting for a proposal because of membership in a log rolling coalition organized by a party and because of potential party discipline this paper analyzes a broad range of votes where logrolling has been reported the analysis spans two congresses 1959 to 1962 and examines trades between interests favoring subsidies for city interests labor interests and farm interests

ideology tactics and efficiency in redistributive politics we model the electoral politics of redistribution when voters and parties care about inequality in addition to their private concerns for consumption and votes respectively ideological concerns about income redistribution lead each party to adopt a general proportional income tax adjusted to appeal to the ideological leanings of high clout groups with disproportionately many swing voters which the parties also ply with pork barrel projects our results relate to director s law which says that redistributive politics favors middle classes at the expense of both rich and poor

uncertainty and the size of government abstract voters decide on a proportional income tax uncertainty about government revenue can lead to a larger or smaller tax rate depending on the voters degree of prudence it is possible for rich voters to be better off under uncertainty

imperfect information and the meltzer richard hypothesis standard majority voting models predict that redistribution is positively linked to the mean to median income ratio but empirical evidence is mixed this paper shows that the different empirical reactions to rising mean to median income ratios can be rationalized in a simple romer roberts meltzer richard framework with imperfect information in such a model it is important to consider the source of rising mean to median ratios income growth of the poor can lead to less redistribution as more agents perceive themselves to be rich which tends to reduce the support for redistribution an empirical application reveals that the model can explain a substantial part of the first reagan tax cut

the political economy of redistribution under asymmetric information abstract this paper examines the political economy of redistribution when voters have asymmetric information about the redistributive preferences of politicians and the latter cannot make credible policy commitments the candidates in each party are endogenously selected by a process of nash bargaining between the competing factions in equilibrium there is partial convergence of redistributive policies support for director s law the possibility of policy reversals across the parties and inter term tax variability political budget cycles during the tenure of a politician the effect of inequality on the magnitude of the redistributive activity depends in important ways on the incentives and constraints facing politicians

risk aversion and the choice between risky prospects the preservation of comparative statics results most results in what can be termed the comparative statics of risk aversion are obtained when there is only one source of uncertainty the primary example which originally motivated the definition of risk aversion is that more risk averse people are willing to pay a higher premium for insuring against risk it is known that the results do not generally carry over when there is another source of uncertainty the paper develops conditions under which comparative statics results are robust against the introduction of additional sources of uncertainty

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

does risk sharing increase with risk aversion and risk when commitment is limited i consider a risk sharing game with limited commitment and study how the discount factor above which perfect risk sharing is self enforcing in the long run depends on agents risk aversion and the riskiness of their endowment when agents face no aggregate risk a mean preserving spread may destroy the sustainability of perfect risk sharing if each agent s endowment may take more than three values with aggregate risk the same can happen with only two possible endowment realizations with respect to risk aversion the intuitive comparative statics result holds without aggregate risk but it holds only under strong assumptions in the presence of aggregate risk in simple settings with two endowment values i also show that the threshold discount factor co moves with popular measures of risk sharing

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

understanding the tax revolt eight explanations numerous explanations of the tax revolt have been offered since california s adoption of proposition 13 in 1978 unfortunately many of these explanations remain untested or have been tested inappropriately and the explanations are often jumbled together in a fashion that precludes theoretical clarity we extract eight explanations from the literature each of which assumes that the tax revolt is a systematic national phenomenon that is a function of individual level social economic and political factors having tested these explanations by means of a discriminant analysis of data from the 1978 american national election study we find little empirical corroboration for any of them this leads us to consider two alternative research programs one of which interprets the tax revolt within a symbolic politics framework

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

inequality the politics of redistribution and the tax mix political economy literature generally predicts a positive relationship between income inequality and redistribution however there is no clear empirical evidence supporting such a relationship by incorporating an informal sector that evades income taxes we account for the tax base effect that along with the political channel determines the equilibrium redistribution and tax mix we find a non monotonic relationship between inequality and redistribution and explore under which conditions an unequal society relies more heavily on indirect taxes to finance redistribution ultimately this paper shows the limitations of the income tax to finance redistribution in developing countries even when taxes are democratically chosen

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

choosing between risky prospects the characterization of comparative statics results and location independent risk we consider expected utility maximizers choosing from a family of risky prospects and examine how choice is influenced by the decision makers attitude to risk if the family of risky prospects can be ordered so that as decision makers are more risk tolerant they choose a gamble higher in the ordering then it is natural to say that the family of risky prospects admit a comparative static result the paper characterizes when comparative static results of this sort exist an application is to propose a criterion of location independent riskiness

self confidence and personal motivation the maintenance and enhancement of self esteem has always been identified as a fundamental human impulse philosophers writers educators and of course psychologists have all emphasized the crucial role played by self image in motivation affect and social interactions the aim of this chapter is to bring these concerns into the realm of economic analysis and show that this has important implications for how agents process information and make decisions conversely the tools of economic modelling can help shed light on a number of apparently irrational behaviours documented by psychologists

last place aversion evidence and redistributive implications we present evidence from laboratory experiments showing that individuals are last place averse participants choose gambles with the potential to move them out of last place that they reject when randomly placed in other parts of the distribution in modified dictator games participants randomly placed in second to last place are the most likely to give money to the person one rank above them instead of the person one rank below last place aversion suggests that low income individuals might oppose redistribution because it could differentially help the group just beneath them using survey data we show that individuals making just above the minimum wage are the most likely to oppose its increase similarly in the general social survey those above poverty but below median income support redistribution significantly less than their background characteristics would predict jel codes h23 d31 c91