return policies market outcomes and consumer welfare the effect of return policies on market outcomes is studied in a model where consumers differ in their valuations of time product reliability is identified with defect rates producers first choose reliability levels and then compete in prices for given defect rates allowing returns makes products closer substitutes enhancing competition and reducing prices being closer substitutes makes higher reliability less worthwhile which reduces reliability while the decrease in reliability reduces consumer welfare the decrease in prices raises it the latter dominates so that aggregate consumer welfare increases with return policy l effet des politiques de remboursement sur les resultats du marche est examine dans le cadre d un modele ou les consommateurs ont des evaluations differentes de la valeur de leur temps la fiabilite des produits est mesuree par leur taux de defectuosite les producteurs choisissent d abord des niveaux de fiabilite et ensuite se concurrencent par les prix pour des niveaux de defectuosite donnes permettre de retourner le produit rend les produits davantage des substituts accroit la concurrence et reduit les prix une plus grande substituabilite rend la fiabilite moins importante et donc reduit la fiabilite alors que la chute de la fiabilite reduit le bien etre du consommateur la chute des prix l accroit ce second effet domine ce qui fait que le bien etre agrege du consommateur s accroit quand il y a politique de remboursement

if we knew ability how would we tax individuals abstract the suggestion to tax people on earnings capacity instead of earnings has been around for a long time and is attractive in terms of economic efficiency in this paper we reflect on the feasibility of such a system and give an exploratory empirical implementation we apply the leyden welfare function of income a survey based measure of an individual s welfare associated with income to derive implications for ability taxation under the assumption that iq and schooling reflect earnings capacity we derive the tax functions using different criteria to distribute the utility loss due to taxation

rich and powerful subjective power and welfare in russia abstract does empowerment come hand in hand with higher economic welfare in theory higher income is likely to raise both power and welfare but heterogeneity in other characteristics can either strengthen or weaken the relationship survey data on russian adults indicate that higher individual and household incomes raise both self rated power and economic welfare the individual income effect is primarily direct rather than through higher household income there are diminishing returns to income though income inequality emerges as only a minor factor reducing either aggregate power or welfare at given income the identified covariates have strikingly similar effects on power and economic welfare

intertemporal consumption with directly measured welfare functions and subjective expectations euler equation estimation of intertemporal consumption models requires many often unverifiable assumptions these include assumptions on expectations and preferences we aim at reducing some of these requirements by using direct subjective information on respondents preferences and expectations the results suggest that individually measured welfare functions and expectations have predictive power for the variation in consumption across households furthermore estimates of the intertemporal elasticity of substitution based on the estimated welfare functions are plausible and of a similar order of magnitude as other estimates found in the literature the model favored by the data only requires cross section data for estimation

household cost functions and equivalence scales we describe a simple method to estimate household cost functions and family equivalence scales it is an alternative to standard methods as it does not assume strong postulates about utility maximization nor any functionally specified model equations the data requirements are extremely modest we assume interpersonal ordinal comparability in the sense of sen 1976 and use empirical evidence for eight european countries and the u s to show the feasibility of the method and the stability of its results we also show that subjective data like those provided by income evaluation questions may be used without adopting a cardinal utility framework

voting and optimal provision of a public good in this paper we study the optimal provision of a costly public good using an average efficiency criterion for every fixed cost we identify a quota mechanism as the optimal mechanism among those that are dominant incentive compatible deficit free and kind moreover we also consider the asymmetric case and demonstrate that a committee mechanism is optimal for a large class of mechanisms in particular this mechanism dominates all vcg pivotal mechanisms

dying to win olympic gold medals and longevity abstract this paper compares mortality between gold and silver medalists in olympic track and field to study how achievement influences health contrary to conventional wisdom winners die over one year earlier than losers i find strong evidence of differences in earnings and occupational choices as a mechanism losers pursued higher paying occupations than winners according to individual census records i find no evidence consistent with selection or risk taking how people respond to success or failure in pivotal life events may produce long lasting consequences for health

tax evasion on a social network abstract we relate tax evasion behavior to a substantial literature on social comparison in judgements taxpayers engage in tax evasion as a means to boost their expected consumption relative to others in their social network the unique nash equilibrium of the model relates optimal evasion to a bonacich measure of network centrality more central taxpayers evade more given that tax authorities are now investing heavily in big data tools that aim to construct social networks we investigate the value of acquiring network information we do this using networks that allow for celebrity taxpayers whose consumption is seen widely and who are systematically of higher wealth we show that there are pronounced returns to the initial acquisition of network information especially in the presence of celebrity taxpayers

the estimation of welfare levels of a cardinal utility function in order to measure an individual s welfare function of income wfi van praag 1968 1971 the individual is confronted with various welfare levels and asked to associate income levels with them the welfare levels are given as verbal qualifications like good sufficient bad etc it is assumed that these verbal qualifications correspond to intervals of equal length of the range of the wfi here we want to test this assumption a first principal component model is applied the intervals of the range of the wfi associated with the verbal qualifications are estimated and a test of their equality is performed

changes in the perception of the poverty line during the depression in russia 1993 96 economic transition in russia was accompanied by a precipitous decline in real income for most of the population this article analyzes how the decline affected people s perception of the minimum level of income needed to make ends meet individual level data collected from repeated surveys between march 1993 and september 1996 reveal that the elasticity of subjective minimum income with respect to actual median income was 1 5 or that people s subjective estimate of the minimum income for an adult russian fell about 1 7 percent each month this sharp reduction in the face of a decrease in real income meant that the percentage of the population who felt that they were poor declined even though poverty remained at a very high level more than 60 percent of the population throughout the period this self perception is in marked contrast to an objective measure of poverty the percentage of the population whose income was less than a given real poverty line rose

foundations of dominant strategy mechanisms wilson 1987 criticizes applied game theory s reliance on common knowledge as sumptions in reaction to wilson s critique the recent literature of mechanism design has adopted the goal of finding detail free mechanisms in order to eliminate this re liance in practice this has meant restricting attention to simple mechanisms such as dominant strategy mechanisms however there has been little theoretical foundation for this approach in particular it is not clear the search for an optimal mechanism that does not rely on common knowledge assumption would lead to simpler mechanisms rather than more complicated ones this paper tries to fill the void in the context of an expected revenue maximizing auctioneer we investigate some foundations for using simple dominant strategy auctions

robustness of subjective welfare analysis in a poor developing country madagascar 2001 the authors analyze the subjective perceptions of poverty in madagascar in 2001 and their relationship to objective poverty indicators they base their analysis on survey responses to a series of subjective perception questions the authors extend the existing empirical methodology for estimating subjective poverty lines on the basis of categorical consumption adequacy questions based on this methodology they calculate the household specific subjective poverty lines and compare the poverty profiles derived from different subjective welfare questions the results show that the aggregate poverty measures derived from consumption adequacy questions accord quite well with the poverty measures based on objective poverty lines the subjective welfare analysis can be used in poor developing countries for evaluating socioeconomic and distributional impacts of various policy interventions

how sensible is the leyden individual welfare function of income a reply abstract in this paper we react to seidl s 1994 critique on the leyden approach our conclusion is that seidl s critique is ill founded as a serious critique on the leyden approach

measuring poverty using qualitative perceptions of consumption adequacy we show that subjective poverty lines can be derived using simple qualitative assessments of perceived consumption adequacy based on a household survey we implement the method using survey data for jamaica and nepal respondents were asked whether their consumptions of food housing and clothing were adequate for their family s needs the implied poverty lines are robust to alternative methods of dealing with other components of expenditure the aggregate poverty rates accord quite closely with those based on independent objective poverty lines however there are notable differences in the geographic and demographic poverty profiles

how sensible is the leyden individual welfare function of income abstract the leyden economists contend that the individual welfare function utility function of income is best represented by a lognormal distribution function they have presented ample data to document the good empirical fit of the lognormal hypothesis this paper presents reexamines and criticises the theoretical foundations of the lognormal hypothesis and finds that this edifice is not built on solid ground neither from the point of view of economic theory nor of experimental psychology moreover it investigates the paradox of the good empirical fit of the lognormal hypothesis in spite of its theoretical deficiencies it is shown that the lognormal hypothesis is observationally equivalent to the logarithmic power welfare function when respondents evaluate welfare according to a normal lognormal distribution function

monopoly provision of product quality and warranties an exploration in the theory of multi dimensional screening we address the monopoly problem of designing and pricing a product line of goods distinguished by different quality and warranty levels consumers vary in their evaluations of these attributes so that the problem is one of screening it is sufficiently complex that the local approach commonly used does not work instead we use new techniques for dealing with incentive constraints between nonadjacent consumer types these techniques allow us to characterize optimal allocations that may not be monotonic in particular although the more eager types of buyer do pay higher prices and yield the monopoly higher profit they may receive lower quality or lower warranty coverage we find preference restrictions that restore monotonicity concave risk tolerance implies that warranty coverage increases in type and constant absolute risk aversion implies that quality increases in type

relativity rank and the utility of income relative utility has become an important concept in several disjoint areas of economics i present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time utility levels correspond to the leyden individual welfare function while utility differences yield a version of the prospect theory value function thereby providing a new and shared derivation of each i offer an explanation of some long standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion

who wants to redistribute the tunnel effect in 1990s russia abstract support for governmental redistribution tended to be greater for the poor than the rich in a representative sample of russian adults in 1996 however support for redistribution is higher amongst those who expect their welfare to fall and this effect is strongest amongst the currently well off a rising trajectory inhibits demand for redistribution support is also stronger in rural areas amongst those with less schooling those who fear losing their job the elderly and amongst women our results are consistent with albert hirschman s idea of a tunnel effect whereby prospects of mobility in both directions influence demand for governmental redistribution

biased perceptions of income distribution and preferences for redistribution evidence from a survey experiment abstract individual perceptions of income distribution play a vital role in political economy and public finance models yet there is little evidence regarding their origins or accuracy this study examines how individuals form these perceptions and explores their potential impact on preferences for redistribution a tailored household survey provides original evidence on systematic biases in individuals evaluations of their own relative position in the income distribution the study discusses one of the mechanisms that may generate such biases based on the extrapolation of information from endogenous reference groups and presents some suggestive evidence that this mechanism has significant explanatory power the impact of these biased perceptions on attitudes toward redistributive policies is studied by means of an experimental design that was incorporated into the survey which provided consistent information on the own ranking within the income distribution to a randomly selected group of respondents the evidence suggests that those who had overestimated their relative position and thought that they were relatively richer than they were tend to demand higher levels of redistribution when informed of their true ranking

weakly relative poverty prevailing measures of relative poverty are unchanged when all incomes grow or contract by the same proportion this property stems from seemingly implausible assumptions about the disutility of relative deprivation and the cost of social inclusion the authors propose weakly relative lines that relax these assumptions on calibrating our measures to national poverty lines and survey data we find that half the population of the developing world in 2005 lived in poverty only half of whom were absolutely poor the total number of poor rose over 1981 to 2005 despite falling numbers of absolutely poor with sustained economic growth the incidence of relative poverty became less responsive to further growth the number of relatively poor rose just as the numbers of absolutely poor fell

the price and utility dependence of equivalence scales evidence from indonesia the purpose of this research is to estimate equivalence scales and evaluate their price and utility dependencies to do this we unify two strands of the empirical literature on this topic one that relies on demand data and one that relies on subjective evaluations of wellbeing this way we are able to employ the strengths of both kinds of information equivalence scales are not identified from demand data alone this is because changes in demographics could affect wellbeing directly i e in ways that are not revealed by changes in behavior the demand based literature rules out such effects a priori and restricts parameters that measure them in this paper we do not rely on such restrictions and instead use subjective evaluations of wellbeing as an additional source of information because demand data are highly informative about some of the other parameters of the model its use increases efficiency this becomes critical once we specify complex preference structures that allow for the equivalence scale s dependence on price and utility our model nests the typical models used in the subjective and the demand literature and we are able to test down both kinds we find evidence for direct utility effects this rejects the validity of some of the restrictions applied by the demand literature within the indonesian context we estimate equivalence scales that are of reasonable magnitude and decrease in utility we also find that the scales increase in the food to nonfood price ratio for poor households whereas we do not find price dependence for more affluent households

estimating earnings poverty in 1939 a comparison of orshansky method and price indexed definitions of poverty official poverty lines do not exist for the united states for years prior to 1959 in this paper a poverty line comparable to the seminal line is constructed for 1939 using the orshansky method poverty rates are then calculated using the earnings data of the 1940 public use microdata sample of the u s census a comparison with similar work by ross et al 1987 demonstrates the degree to which continual price indexing of the poverty line results in inappropriate estimates a trend of increasing incidence of poverty among female headed households prior to 1960 is also revealed

food security and health status in the united states food security is defined as access by all times to enough food for an active healthy life this paper explores the relationships between food security and women s self evaluated health status a theoretical model is developed which suggests that our primary interests can be served by estimating health and food security production functions we find that food security has a significant influence on a woman s self evaluated health status however the exact manifestations are difficult to quantify they may be psychological or physiolgical the most food insecure women tend to be poor and less educated tobacco use lack of physical exercise and obesity also weigh heavily good health status

climate equivalence scales an application of a general method abstract in this paper we investigate the dependency between household cost and climate conditions on the basis of a large european data set a climate index is constructed and a climate compensation scale is derived examples are given for european cities

returns to education a further international update and implications this paper updates evidence on the returns to investment in education by adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60 the new cross country evidence confirms and reinforces earlier patterns namely that returns are highest for primary education the general curricula the education of women and countries with the lowest per capita income the findings have important implications for directing future investment in education which for efficiency and equity purposes should concentrate on these priority areas

on the income dependence of equivalence scales household consumption exhibits economies of scale as the number of household members increases we collect survey data from two countries germany and france in order to obtain direct subjective estimates of household consumption economies of scale and in particular to examine an additional dimension whether household consumption economies of scale change as living standards go up our data from both countries indicate strongly that household economies of scale increase as the living standard goes up we discuss the robustness of our survey method and compare our results to these of alternative estimation methods in the literature

loss aversion in a consumption savings model abstract we propose a model of consumption and saving based on kahneman and tversky s prospect theory that implies a fundamental asymmetry in consumption behavior inconsistent with other models of consumption when there is sufficient income uncertainty a person resists lowering consumption in response to bad news about future income this resistance is greater than the resistance to increasing consumption in response to good news we present empirical evidence from five countries that confirms this behavior

revealed community equivalence scales abstract this paper estimates the equivalence scale revealed by discretionary community allocations of welfare benefits to poor households i apply the proposed approach to a subsidized rice program in indonesia in which villages designated program beneficiaries and estimate the equivalence scale implicit in the beneficiaries they selected i find that the revealed community equivalence scale for this program lies much closer to per capita expenditure than traditional demand based equivalence scales particularly in the poorest communities this suggests that per capita expenditure may be closer to how poor communities actually compare households when allocating aid than previously thought

self rated economic welfare in russia abstract most of those russian adults who feel that they are poor are not classified as such in the poverty statistics and most of those who are classified as poor don t feel that way we study the determinants of peoples perceptions of their economic welfare in an unusually rich socioeconomic survey while income is a highly significant predictor subjective economic welfare is influenced by many other factors including health education employment assets relative income in the area of residence and expectations about future welfare insights are obtained into how objective data should be weighted in assessing economic welfare

on the equivalence of bayesian and dominant strategy implementation we consider a standard social choice environment with linear utilities and independent one dimensional private types we prove that for any bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus the short proof is based on an extension of an elegant result due to gutmann kemperman reeds and shepp 1991 we also show that the equivalence between bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

the s shaped value function as a constrained optimum almost since the expected utility hypothesis euh was first introduced evidence has accumulated that decision makers systematically violate it in various ways one early response to the evidence was to develop ad hoc alternatives the best known of which is prospect theory daniel kahneman and amos tversky 1979 1 more recent responses have relaxed the independence axiom or other axioms underlying the euh see mark machina 1987 for a very readable survey of the evidence and responses despite the high intellectual caliber of much of this work there is an important sense in which it has been retrograde theory is adjusted to the evidence by weakening not strengthening its predictive power in other areas such as the theory of the firm or the theory of money economists have followed a different research strategy more subtle constraints such as transactions costs or informational imperfections are sought to explain data that seem anomalous according to received theory when successful such a strategy more clearly delineates the realm in which the older theory is applicable and makes new testable predictions outside that realm thus theory is progressively strengthened to my knowledge only jonathan leland 1986 1988 has adopted such a progressive strategy in a theoretical investigation of euh anomalies the key assumptions of his approximate expected utility theory aeu are 1 inexperience and or cognitive limitations make the true utility function inaccessible so some approximation must be used but 2 decision makers efficiently allocate finite resources so as to minimize the resulting errors he formalizes these assumptions which he applies to probability assessments as well as to utilities in terms of a constraint on the number n of steps allowed in a step function approximation with the optimal approximation defined as that minimizing expected squared error his aeu theory is able to explain many of the major euh anomalies and reduces to ordinary euh in areas in which relevant experience accumulates for example in competitive markets as noted by peter knez vernon l smith and arlington w williams 1985 and don l coursey john l hovis and william d schultze 1987 the prevalence and magnitude of anomalies seems to decline in such settings the purpose of this note is to present a variant on leland s aeu i propose an approximate utility function or value function in which utility increments are weighted by a sensitivity function the resource constraint is that overall sensitivity is limited but prior to observable decisions it can be allocated freely along the continuum of potential wealth increments my approach has three advantages it predicts an s shaped value function when agents maximize expected sensitivity at actual choice opportunities given very plausible assumptions regarding the distribution of such opportunities recall that the assumption that decision makers maximize an s shaped value function such as that depicted in figure 1 is the centerpiece of prospect theory economics department university of california santa cruz ca 95064 i appreciate the comments of jonathan leland amos tversky and two anonymous referees on earlier drafts of this paper the usual caveat definitely applies ithe authors of prospect theory call their model descriptive as opposed to normative but do not consider it ad hoc because of its connections with the psychophysical literature however no substantial connections of prospect theory with generally accepted economic principles for example optimality have previously been demonstrated it is in this narrow economist s sense that i use the term ad hoc the more recent work of ariel rubinstein 1988 and tversky and kahneman 1986 underscores the difficulty of reconciling such a descriptive approach to the expected utility hypothesis

characterizations of the pivotal mechanism the pivotal mechanism is strategyproof demand revealing in public decision problems where preferences are quasi linear moreover no agent has an incentive to free ride by withdrawing from the committee and consuming whatever decision is taken by the remaining agents strategyproofness plus no free ride characterize the pivotal mechanism this mechanism is anonymous and neutral yet together strategyproofness anonymity and neutrality do not characterize it they will however if reasonable lower or upper bounds on final utilities are imposed our last characterization of the pivotal mechanism uses the no free ride axiom and two mild monotonicity properties but not strategyproofness

wages seniority and the demand for rising consumption profiles abstract in many occupations wages rise faster than productivity over the life cycle other authors have suggested a variety of explanations for this pattern we argue that these explanations fail for at least two occupations commercial airline pilots and intercity bus drivers we then explore an alternative explanation based on the assumption that satisfaction depends on not only the level of consumption but also its rate of change we argue that upward sloping wage profiles are an expedient substitute for personal savings as a means for achieving upward sloping consumpion profiles

the effects of a calamity on income and wellbeing of poor microfinance borrowers the case of the 2004 tsunami shock abstract we investigate the effects of the 2004 tsunami on a sample of microfinance borrowers our findings show that the severe loss of income of damaged borrowers only partially explains the dip in wellbeing this is because the latter is also related to economic losses not measured by current income that is loss in wealth or in permanent income and by psychological or emotional effects finally we find that the role of risk on the tsunami impact is partially captured by the interaction of the damage dummy with borrowers productive activity

evaluation of welfare functions of environmental amenities a case of forest biomass fuels in mount kilimanjaro tanzania abstract this study is an empirical investigation of welfare functions of forest biomass fuels in mount kilimanjaro tanzania the want parameter of welfare function was found to vary with household s current fuel consumption which reflects people s amenity aspirations shift with the amenity level attained furthermore current wood consumption and welfare sensitivity parameter are also influenced by individual s environmental entitlements rather than economic entitlements resource scarcity induced by physical scarcity or institutional legal constraints leads to resource conserving attitude but not without loss in perceived well being communal conservation of energy is also observed whereby large households are more energy conserving than small households regarding biomass use and consumption monetary income does not guarantee satisfaction but heightens people s wants thus rural development programs should not focus on economic empowerment only but also on environmental sustainability and fair resource use rules

the theory of warranty contracts abstract this paper surveys theories of the existence and design of warranty contracts insurance signalling and incentive motives are used to explain the existence of warranties the incorporation of imperfections that prevent warranties from serving their basic purposes in a first best way describes actual warranty practices

are wages habit forming evidence from micro data although utility functions play a central role in economics the axiom that utility depends only on the absolute levels of its arguments is rarely tested this paper uses panel data on 2000 british employees who remain with the same employer and who are not promoted from one wave to the next it is shown that one important measure of well being overall job satisfaction is strongly positively correlated with the change in the worker s pay between waves but is unrelated to the current level of pay empirical tests suggest that a reference dependent satisfaction function where individual well being depends on current pay relative to past pay is more consistent with these regression results than are productivity or agency explanations of increasing wage profiles some evidence is presented of greater job satisfaction effects of pay rises for lower paid less well educated and younger workers these results provide some micro evidence consistent with the theory widespread in social science of habituation individuals may become used to any given level of consumption or income as such they tie in with the finding that a country s well being as measured by the average happiness of its citizens is only weakly correlated with its per capita gnp

family labor supply with taxes over the period 1960 1983 the proportion of federal tax revenue raised by taxation of labor supply has risen from 57 77 percent in this paper we specify and estimate a model of family labor supply which treats both federal and state taxation husbands and wives labor supply are treated jointly rather than in aseparate manner as in previous research a method to calculate the virtual wage for nonworking spouses is used within a utility maximizing framework to treat correctly the joint family labor supply decision joint family efforts are found to be important the efficiency cost deadweight loss of labor taxation is estimated to be 29 6 of tax revenue raised the effect of the new 10 deduction to ease the marriage tax for working spouses leads to a prediction of 3 8 increase in wives labor supply and a 9 decrease in husbands labor supply overall taxes paid are predicted to decrease by 3 4 this abstract was borrowed from another version of this item

implementation of first best allocations via generalized tax schedules abstract the classical problem of optimal taxation introduced by j mirrlees rev econ stud 38 1971 175 208 is addressed and it is argued that by using generalized tax schedules i e schedules which depend not only on individual income but also on the whole profile of incomes announced by the society a planner can implement any pareto optimum which stands in great contrast with the set of second best pareto optima attainable via classical tax schedules the mechanism relies crucially on the fixed probability distribution of characteristics and on a finite number of agents journal of economic literature classification numbers d78 d82 h21

relative income effects on subjective well being in the cross section abstract recent work suggests that a person s subjective well being swb depends to a large degree on relative income focusing on the underlying identification this paper makes four contributions to this literature it describes the aggregation problem with past studies implements an estimation strategy to overcome this problem finds micro level evidence in support of the hypothesis that relative income does matter in individual assessments of swb and uses cross section estimates to replicate the aggregate time series the evidence further indicates that relative income effects may be smaller at low income levels the results are obtained from ordered probit techniques and the general social survey gss

disneyland monopoly interlinkage and usurious interest rates abstract interlinkage between labour and credit markets is interpreted as a consequence of a monopolistic moneylender s attempt to extract consumer s surplus from the borrower by levying a two part tariff this analogy enables us to draw on the literature on non linear pricing to high light issues in agrarian structure the consequence of policy interventions like taxes and minimum wage legislation is studied it is shown that the moneylender will charge usurious interest rates if wages are rigid downwards or there is a tax on agricultural income or borrowers have heterogeneous preferences some geometry for analysing interlinkage is developed and used for deriving some of the results

too poor to be green consumers a field experiment on revealed preferences for firewood in rural guatemala the paper reports on a field experiment that investigates whether households in guatemala are willing to surrender a small material gain in order to buy legal rather than illegal firewood given the ineffectiveness of command and control policies to curb the problem of illegal logging in guatemala the experiment assesses the potential viability of market oriented solutions local consumers in developing countries are generally believed to be too poor to pay a premium for green ethical products therefore little information has been gathered on willingness to pay wtp for such products and its determinants in non affluent consumer markets while our experiment on firewood consumption in central guatemala only implies a weak and indirect test of wtp for green products the results indicate that it is premature if not unwarranted to assume that the poor are not ready to make pro ethical choices in the marketplace moreover we find that information on the legal procedures for firewood extraction significantly affects consumer choice between legal and illegal firewood

a survey measure of risk aversion abstract we use survey data on the well being of individuals to measure attitudes toward risk risk neutrality cannot be rejected by the data

defects in disneyland quality control as a two part tariff this paper shows that firms endowed with monopoly power can utilize an optional service contract form of guarantee as an instrument for effecting a surplus extracting two part tariff the monopolist finds it optimal to produce guarantee and replace defective units even if a zero defect rate could be achieved at no additional production cost it is also shown that the price per unit is greater than the effective marginal cost it may even be higher than the pure monopoly price moreover the monopolist is unable to extract all of the consumers surplus thus that optional service contract policy can provide an effective yet defensible form of price discrimination as an alternative to possible illegal tie ins quantity discounts and simple two part tariffs a guarantee is a risk sharing insurance contract tailored to the risky or uncertain flow of consumption services from a commodity see heal 1976 guarantees provide for full or partial replacement repair or refund for expected and unexpected short falls in service indeed appelbaum and scheffman 1978 have provided an example in which the refund exceeds the purchase price the guarantee may come into force in a variety of circumstances ranging from specifically named contingencies to general promises of satisfaction guaranteed or your money back guarantees may be offered as a mandatory tie in with purchase or may be optional we refer to the latter as service contracts they may be priced on a per unit basis or offered at a fixed fee invariant of number of units purchased

quality uncertainty and guarantee this paper presents a monopoly model with product quality uncertainty in which optional quality guarantee is used to effectively segment the monopolist s potential market and price discriminate among consumers having different incomes the optional guarantee pricing is seen to dominate pure monopoly pricing either with tied in guarantee or no guarantee in terms of maximum expected profits in the optional guarantee equilibrium the monopolist captures a larger part of his potential market by charging a lower price for an unguaranteed product and a higher price for a guaranteed product than does either of the pure monopoly solutions

consumption over the life cycle facts from consumer expenditure survey data this paper uses consumer expenditure survey data and a seminonparametric statistical model to estimate life cycle profiles of consumption controlling for demographics cohort and time effects we construct age profiles for total and nondurable consumption as well as expenditure patterns for consumer durables special emphasis is placed on the comparison of different approaches to control for changes in demo graphics over the life cycle we find significant humps over the life cycle for total nondurable and durable expenditures changes in household size account for roughly half of these humps bootstrap simulations suggest that our empirical estimates are tight in that standard errors are small

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

swedish tax rates labor supply and tax revenues effective marginal tax rates on labor income for the representative swede have increased from roughly 50 percent in 1959 to 80 percent today the effects of this increase in the level of taxation are examined using a two sector model parameterized to correspond to the swedish economy the model contains a single household which allocates labor to either taxed essentially market or untaxed largely household uses the estimated long run effects are sufficient to explain up to 75 percent of the recent decline in the measured growth rate of the swedish gnp calculations of total tax revenues are also derived from the model these peak when the tax rate is approximately 70 percent indicating that sweden is presently on the downward sloping portion of its laffer curve

the estimation of the quantities in the ieq regression abstract the maintained hypothesis that the evaluation question in the measurement of individual welfare functions is answered according to equal intervals of the 0 1 scale is tested under the assumption that the welfare function can be approximated by a lognormal distribution function the quantiles corresponding to the intervals are estimated jointly with the individual parameters of the welfare function the estimation results for the quantiles reject the equal interval hypothesis

the equilibrium distribution of income and the market for status this paper explores the implications for risk taking behavior and the equilibrium distribution of income of assuming that the desire for status positions is a powerful motive and that it raises the marginal utility of consumption in contrast to previous analyses we consider the case in which status positions are sold in a hedonic market we show that such a complete hedonic market in status positions can be perfectly replicated by a simpler arrangement with a status good and a social norm that assigns higher status to those that consume more of this good the main result is that for a wide range of initial conditions the equilibrium distribution over income status and consumption is the same that this allocation requires inequality of income and consumption and that this allocation coincides with the optimum of a utilitarian planner

mortality and immortality the nobel prize as an experiment into the effect of status upon longevity it has been known for centuries that the rich and famous have longer lives than the poor and ordinary causality however remains trenchantly debated the ideal experiment would be one in which extra status could somehow be dropped upon a sub sample of individuals while those in a control group of comparable individuals received none this paper attempts to formulate a test in that spirit it collects 19th century birth data on science nobel prize winners correcting for potential biases we estimate that winning the prize compared to merely being nominated is associated with between 1 and 2 years of extra longevity

variable risk preferences and adaptive aspirations abstract observations of human decision making indicate that risk preferences depend on the values of possible outcomes relative to levels of aspiration a model of such variable risk preference is specified it suggests that some risk averse behavior may result from a human tendency to focus on targets and from the adaptation of those targets to experience rather than from a fixed trait of risk aversion in addition the model shows how risk preferences varying around adaptive aspirations produce both a greater long run likelihood of survival and a higher average return for survivors than do fixed risk preferences

what determines gender inequality in household food security in kenya application of exogenous switching treatment regression this paper explores the link between the gender of a household head and food security in rural kenya the results show that the food security gap between male headed households mhhs and female headed households fhhs is explained by their differences in observable and unobservable characteristics fhhs food security status would have been higher than it is now if the returns coefficients on their observed characteristics had been the same as the returns on the mhhs characteristics even if that had been the case however results indicate that fhhs would still have been less food secure than the mhhs due to unobservable characteristics

poverty and the measurement of individual welfare a review article this review of hagenaars the perception of poverty gives a lengthy presentation and evaluation of the leyden approach of measuring the individual welfare function of income the key feature of the approach is the claim that welfare can be measured on a 0 1 scale the review discusses the book s wealth of material on poverty in europe within this theoretical framework

adult equivalence scales and the size distribution of income 1990 adult equivalence scales and the size distribution of income applied economics vol 22 no 11 pp 1611 1623

do workers prefer increasing wage profiles we present survey data challenging the assumption implicit in analyses of labor supply that all else being equal workers prefer declining over increasing wage profiles we test several explanations for our results including that a there is something special about wages e g their association with productivity as opposed to other types of payments that induces the preference for increasing wages b utility depends not only on absolute levels of consumption but also on changes in consumption over time and c respondents who prefer increasing wage profiles are irrational and would change their behavior if the rationale for preferring declining wages were explained

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

the sub optimality of the majority rule abstract we consider collective choice from two alternatives ex ante each agent is uncertain about which alternative she prefers and may be uncertain about the intensity of her preferences an environment is given by a probability distribution over utility vectors that is symmetric across agents and neutral across alternatives in many environments the majority voting rule maximizes agents ex ante expected utilities among all anonymous and dominant strategy implementable choice rules but in some environments where the agents utilities are stochastically correlated other dominant strategy choice rules are better for all agents if utilities are stochastically independent across agents majority voting is ex ante optimal among all anonymous and incentive compatible rules we also compare rules from an interim viewpoint

status the distribution of wealth private and social attitudes to risk this paper supposes an individual cares about his her own wealth not only directly but also via the relative standing that this wealth induces the implications for risk taking are investigated in particular such a model provides a natural explanation of the concave convex concave utility described by friedman and savage however there are a number of key differences between the present model and any model based on own wealth alone for example an equilibrium wealth distribution here may have a middle class further the status interaction involves an externality and an equilibrium wealth distribution may be pareto inefficient but also about the implied relative standing in the distribution of wealth has a long but checkered history an early exponent of such ideas was of course veblen 1899 it is indeed a notion which most economists reject albeit usually without explicit comment a notable and articulate exception however is frank 1985 for example see also the references frank cites on pp 33 34 it is however a notion with substantial intuitive appeal and it seems useful to ascertain its consequences before coming to a final judgement as to its merits the present paper is concerned with deriving the consequences of such valuation of status for risk taking what seems to be the sharpest possible model is adopted here this assumes that what is essentially ordinal rank in the wealth distribution enters von neumann morgenstern utility as an argument in addi tion to wealth itself thus higher wealth increases utility not only directly but also indirectly via higher status in the interests of both simplicity and drama it is typically assumed here that all individuals have identical utility functions which are concave in wealth but convex in status section 2 discusses how the model provides a natural explanation of the fundamental phenomenon addressed by friedman and savage 1948 that individuals may simultaneously purchase insurance and participate in lotteries although each individual here has a utility function which is concave in wealth itself utility can nevertheless be convex in wealth over some range when the indirect effect via status is included this effect is enhanced by the convexity of utility in status but will follow in any case if increasing wealth entails moving up in status much more rapidly than losing wealth entails moving down it is shown

the trade off between equality and efficiency this paper uses a 1976 microdata base to estimate the marginal cost of reducing income inequality with a policy that has distributional effects similar to the present tax transfer system the analysis uses a simulation methodology in which only the labor supply effects are evaluated other behavioral effects are ignored the most striking finding is that marginal cost is quite high even for modest labor supply elasticities for example in the benchmark case with a weighted average economy wide uncompensated wage elasticity of 0 2 and compensated elasticity of 0 31 the disposable money income of upper income quintiles of households is depressed by 9 51 for each dollar increase in the disposable money income of lower income quintiles when income equivalent values that take account of the value of leisure are compared the marginal cost for this case is estimated to be 3 49

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