the impact of the 1992 cable act on household demand and welfare i measure the benefit to households of the 1992 cable act in light of strategic responses by cable systems to the regulations mandated by the act a discrete choice differentiatedproduct model of household demand for all offered cable television services forms the basis of the analysis aggregation over households and service combinations to the level of the data permits estimation on a cross section of cable markets from before and after the act the results indicate that while the regulations mandated price reductions of 10 17 for cable services observed system responses yielded no change in household welfare post act changes in cable prices are responsible for most of the difference

multidimensional mechanism design for auctions with externalities abstract in an auction with externalities a buyer s type is multidimensional and specifies the payoff he would get for each of the n 1 possible outcomes the seller keeps the object or buyer i i 1 n gets the object we provide a characterization of multidimensional incentive compatible mechanisms similar to that for one dimensional mechanisms although reservation utilities are endogenous and type dependent the participation constraint is binding for only one critical type a main difficulty in a multidimensional setting is the integrability condition we present a geometric characterization for discontinuous conservative vector fields in auctions where the buyers submit scalar bids and the seller transfers the object to one of the buyers for sure a second price auction maximizes revenue with two buyers this auction remains optimal even if the seller can set a reservation price journal of economic literature classification numbers c7 c72

information and time of usage decisions in the bottleneck model with stochastic capacity and demand abstract this paper analyzes the effects of information on participation and time of use decisions for a facility subject to queueing congestion when there are predictable and unpredictable fluctuations in capacity and demand with constant elasticity demand and schedule delay cost functions expected social surplus is greater with perfect than with imperfect information but imperfect information can reduce welfare by inducing adverse changes in individuals times of usage this finding has implications for the design of emerging technologies such as advanced traveller information systems that provide information about usage conditions

green price indices abstract this paper suggests two theoretically consistent and empirically tractable ways that a cost of living index can be expanded to include the environment and other public goods in addition it presents an empirical illustration of such an index for los angeles california incorporating air quality and other spatially varying public goods using a hedonic model the results indicate that the required information can be recovered and that including public goods can make a substantial difference in the index

location and competition in retail banking abstract we investigate the impact of banking deregulation during the 1990s on consumer welfare we estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance traveled this is important given the substantial changes in banks branch networks observed in the data our model indicates that cross price elasticities between banks whose branches are close to consumers close banks are larger than those between far banks and more than double the cross price elasticity of close banks with respect to far banks we distinguish between thrifts and other banks and find that within thrift competitive effects are stronger than within bank effects or those between thrifts and banks we use our estimates to predict the effect of changes in market structure on consumer welfare following the branching deregulation of the riegle neal act of 1994 our results indicate that the median household gained around 60 per year from the changes approximately two thirds of the gains come from within market changes in market structure the gains were greater in markets with high initial numbers of banks than elsewhere

meta analysis in model implementation choice sets and the valuation of air quality improvements this research illustrates how the methods developed for meta analysis can serve to document and summarize voluminous information derived from repeated sensitivity analyses our application is to the sensitivity of welfare estimates derived from discrete choice models to assumptions about the choice set these assumptions affect welfare estimates through both the estimated parameters of the model and conditional on the parameters the substitution among alternatives in our specific application the evaluation is in terms of estimated benefits of air quality improvements in los angeles based on discrete choices of neighborhood and housing copyright 2007 john wiley sons ltd

information policy in road transport with elastic demand some welfare economic considerations abstract this paper analyses the welfare impacts of providing different types of information to a group of potential road users two groups of drivers are considered informed and uninformed ones and three kinds of information are dealt with perfect imperfect and no information the link travel cost functions are assumed to be stochastic and the information concerns these random fluctuations the analysis is limited to a one and two link network and it is further assumed that the actors in the model base their decision making on rational expectations under the assumptions that demand and link travel cost functions are linear and that the population of travellers consists of a homogeneous group except for their respective willingness to pay for making a trip it is found that both the provision of perfect and imperfect information leads to a strict pareto improvement furthermore the analysis reveals that the more perfect the information the more efficient the use of the transport network finally the analysis concerning the two link network two routes running in parallel shows that beneficial route split effects only exist when 1 the number of informed drivers is relatively small and 2 the stochastic shocks in the link travel cost function are relatively large in these cases the benefits to informed drivers are substantially larger than when only mode split effects take place

social networks and new product choice to successfully market new products in a social network it is essential to identify influential individuals whose product recommendations influence the consumption choices of their peers in this study we use spatial econometric methods to determine how individuals revise their preferences for product attributes when exposed to product recommendations from peers and how different individuals who vary in their degree of network connectedness exert influence on the product choices of others we find evidence that consumers look to others for guidance from peers in their preference for subjective taste specific parameters but tend not to respond to peer price choices our spatial methods allow us to empirically determine the influence exerted by individual members on the consumption choices of other members of the social network we find that connected members of the social network are not always the most influential in revising the consumption choices of others our estimates reveal that network proximity explains only 8 8 of influence

uniform versus peak load pricing of a bottleneck with elastic demand abstract this paper considers commuting to work across a bottleneck such as a bridge or tunnel with elastic demand with no toll there is wasteful queueing the optimal peak load toll eliminates queueing and leaves total traffic unchanged the second best uniform toll cannot eliminate queueing but reduces total traffic the second best uniform toll may be larger or smaller than the maximum value of the optimal peak load toll

local incentive compatibility with transfers we consider locally incentive compatible mechanisms with deterministic allocation rules and transfers with quasilinear utility we identify a rich class of type spaces which includes the single peaked type space where local incentive compatibility does not imply incentive compatibility our main result shows that in such type spaces a mechanism is locally incentive compatible and payment only incentive compatible if and only if it is incentive compatible payment only incentive compatibility requires that a mechanism that generates the same allocation at two types must have the same payment at those two types our result works on a class of ordinal type spaces which are generated by considering a set of ordinal preferences over alternatives and then considering all non negative type vectors representing such preferences

valuing product innovation genetically engineered varieties in us corn and soybeans we develop a discrete choice model of differentiated products for us corn and soybean seed demand to study the welfare impact of genetically engineered ge crop varieties using a unique data set spanning the period 1996 2011 we find that the welfare impact of the ge innovation is significant in the last five years of the period analyzed our preferred counterfactual indicates that total surplus due to ge traits was 5 18 billion per year with seed manufacturers appropriating 56 of this surplus the seed industry obtained more surplus from ge corn whereas farmers received more surplus from ge soybeans

new products quality changes and welfare measures computed from estimated demand systems this paper examines the construction of a price index based on an estimated demand system in principle the method examined can produce a price index that takes account of the introduction of new p

the welfare analysis of product innovations with an application to computed tomography scanners the main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric that is equating the magnitude of innovations with the welfare gains they generate this research design is applied to the case of computed tomography scanners a revolutionary innovation in medical technology the econometric procedure centers on the estimation of a discrete choice model the nested multinominal logit which yields the parameters of a utility function defined over the changing quality dimensions of the innovative product the estimated flow of social gains from innovation is used to compute a social rate of return to r d to explore the interrelation between innovation and diffusion and to trace the time profile of benefits and costs the latter suggesting the possible occurrence of technological cycles

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

when are local incentive constraints sufficient we study the question of whether local incentive constraints are sufficient to imply full incentive compatibility in a variety of mechanism design settings allowing for probabilistic mechanisms we give a unified approach that covers both continuous and discrete type spaces on many common preference domains including any convex domain of cardinal or ordinal preferences single peaked ordinal preferences and successive single crossing ordinal preferences local incentive compatibility suitably defined implies full incentive compatibility on domains of cardinal preferences that satisfy a strong nonconvexity condition local incentive compatibility is not sufficient our sufficiency results hold for dominant strategy and bayesian nash solution concepts and allow for some interdependence in preferences

a reconsideration of hedonic price indexes with an application to pc s this paper compares hedonic to matched model indexes matched model indexes are averages of the price changes of goods that remain on sampled stores shelves since goods that disappear tend to have falling market values matched model indexes select from the right tail of price changes the bls can construct hedonic indexes that correct for this selection and are justified by standard arguments in an empirical study of pc s hedonics produce sharp price declines while matched model indexes are near zero also though there are modifications to hedonics that seem desirable they are not those in current use

how government statistics adjust for potential biases from quality change and new goods in an age of digital technologies a view from the trenches abstract a key economic indicator is real output to get this right we need to measure accurately both the value of nominal gdp done by bureau of economic analaysis and key price indexes done mostly by bureau of labor statisticcs all of us have worked on these measurements while at the bls and the bea in this article we explore some of the thorny statistical and conceptual issues related to measuring a dynamic economy an often stated concern is that the national economic accounts miss some of the value of some goods and services arising from the growing digital economy we agree that measurement problems related to quality changes and new goods have likely caused growth of real output and productivity to be understated nevertheless these measurement issues are far from new and based on the magnitude and timing of recent changes we conclude that it is unlikely that they can account for the pattern of slower growth in recent years first we discuss how the bureau of labor statistics currently

measuring consumerwelfareinthe cpu market anapplication of the pure characteristics demand model in this article i estimate demand for the personal computer central processing unit and measure consumer welfare using the pure characteristics demand model the model is based on a quasilinear utility function with multiplicative random variables and does not have the idiosyncratic logit error term so that consumer welfare directly reflects consumers valuation of product characteristics welfare calculations show that consumer surplus comprises approximately 90 of total social surplus and that large welfare gains have resulted from the introduction of new products

valuing consumer products by the time spent using them an application to the internet for some goods the main cost of buying the product is not the price but rather the time it takes to use them only about 0 2 of consumer spending in the u s for example went for internet access in 2004 yet time use data indicates that people spend around 10 of their entire leisure time going online for such goods estimating price elasticities with expenditure data can be difficult and therefore estimated welfare gains highly uncertain we show that for time intensive goods like the internet a simple model in which both expenditure and time contribute to consumption can be used to estimate the consumer gains from a good using just the data on time use and the opportunity cost of people s time i e the wage the theory predicts that higher wage internet subscribers should spend less time online for non work reasons and the degree to which that is true identifies the elasticity of demand based on expenditure and time use data and our elasticity estimate we calculate that consumer surplus from the internet may be around 2 of full income or several thousand dollars per user this is an order of magnitude larger than what one obtains from a back of the envelope calculation using data from expenditures this abstract was borrowed from another version of this item

the us gains from trade valuation using the demand for foreign factor services about 8 cents out of every dollar spent in the united states is spent on imports what if because of a wall or some other extreme policy intervention imports were to remain on the other side of the us border how much would us consumers be willing to pay to prevent this hypothetical policy change from taking place the answer to this question represents the welfare cost from autarky or equivalently the welfare gains from trade in this article we discuss how to evaluate these gains using the demand for foreign factor services the estimates of gains from trade for the us economy that we review range from 2 to 8 percent of gdp

a markov perfect equilibrium model of the impacts of price controls on the performance of the pharmaceutical industry i introduce a computable dynamic equilibrium model of the pharmaceutical industry parameterize it using industry facts and use it to predict what happens if the united states adopts price controls or one or more non u s countries abandon their controls the model generates implications for firm value research and development r d the flow of new drugs and consumer welfare i highlight the sensitivity of the results to alternative assumptions about r d costs market size technological opportunities consumer heterogeneity the extent to which choices internalize prices barriers to entry in r d the extent to which r d outcomes are correlated and the nature of the controls

quality adjusted price indexes and the willig condition abstract this paper provides a graphical explanation of willig s condition for developing consistent price indexes for quality change the framework also describes how the single crossing condition generalizes the willig condition

can information costs affect consumer choice nutritional labels in a supermarket experiment this paper investigates whether information costs under currently regulated nutritional labeling prevent consumers from making healthier food choices we implement five nutritional shelf label treatments in a market level experiment these labels reduce information costs by highlighting and summarizing information available on the nutritional facts panel following a difference in differences and synthetic control method approach we analyze weekly store level scanner data for microwave popcorn purchases from treatment and control stores our results suggest that consumer purchases are affected by information costs implemented low calorie and no trans fat labels increase sales in contrast implemented low fat labels decrease sales suggesting that consumer response is also influenced by consumers taste perceptions a combination of these claims into one label treatment increases information costs and does not affect sales significantly

implications of a sugar sweetened beverage ssb tax when substitutions to non beverage items are considered abstract using the 2006 homescan panel we estimate the changes in energy fat and sodium purchases resulting from a tax that increases the price of sugar sweetened beverages ssbs by 20 and the effect of such a tax on body weight in addition to substitutions that may arise with other beverages we account for substitutions between ssbs and 12 major food categories our main findings are that the tax would result in a decrease in store bought energy of 24 3 kcal per day per person which would translate into an average weight loss of 1 6 pounds during the first year and a cumulated weight loss of 2 9 pounds in the long run we do not find evidence of substitution to sugary foods and show that complementary foods could contribute to decreasing energy purchases despite their significantly lower price elasticity the tax has a similar effect on calories for the largest purchasers of ssbs

the effect of prices on nutrition comparing the impact of product and nutrient specific taxes this paper provides an analysis of the role of prices in determining food purchases and nutrition using very detailed transaction level observations for a large nationally representative sample of us consumers over the period 2002 2007 using product specific nutritional information we develop a new method of partitioning the product space into relevant nutritional clusters that define a set of nutritionally bundled goods which parsimoniously characterize consumer choice sets we then estimate a large utility derived demand system over this joint product nutrient space that allows us to calculate price and expenditure elasticities using our structural demand estimates we simulate the role of product taxes on soda sugar sweetened beverages packaged meals and snacks and nutrient taxes on fat salt and sugar we find that a 20 nutrient tax has a significantly larger impact on nutrition than an equivalent product tax due to the fact that these are broader based taxes however the costs of these taxes in terms of consumer utility are only about 70 cents per household per day a sugar tax in particular is a powerful tool to induce healthier nutritive bundles among consumers

insurer pricing and consumer welfare evidence from medigap this article examines the welfare impact of imperfect competition in the medicare supplement insurance medigap market two firms control nearly three fourths of the medigap market and premiums exceed claims by over 25 i find that a low price elasticity and consumers brand preferences lead firms to engage in substantial marketing and price above cost therefore the strategic behavior of insurers facing relatively inelastic demand is critical in explaining poor market performance i also find that insurers do not capture all of the rents in this market rents also accrue to actors who perform marketing functions including agents and brokers

free to choose reform choice and consideration sets in the english national health service choice in public services is controversial we exploit a reform in the english national health service to assess the effect of removing constraints on patient choice we estimate a demand model that explicitly captures the removal of the choice constraints imposed on patients we find that post removal patients became more responsive to clinical quality this led to a modest reduction in mortality and a substantial increase in patient welfare the elasticity of demand faced by hospitals increased substantially post reform and we find evidence that hospitals responded to the enhanced incentives by improving quality this suggests greater choice can raise quality

random matching under dichotomous preferences we consider bilateral matching problems where each person views those on the other side of the market as either acceptable or unacceptable an acceptable mate is preferred to remaining single and the latter to an unacceptable mate all acceptable mates are welfare wise identical using randomization many efficient and fair matching methods define strategyproof revelation mechanisms randomly selecting a priority ordering of the participants is a simple example equalizing as much as possible the probability of getting an acceptable mate across all participants stands out for its normative and incentives properties the profile of probabilities is lorenz dominant and the revelation mechanism is group strategyproof for each side of the market our results apply to the random assignment problem as well

hedonic price indexes with unobserved product characteristics and application to personal computers we show that hedonic price indexes may be biased when not all product characteristics are observed we derive two primary sources of bias the first source is a classical selection problem that arises due to changes over time in the values of unobserved characteristics the second comes from changes in the implicit prices of unobserved characteristics next we show that the bias can be corrected for under fairly general assumptions using extensions of factor analysis methods we test our methods empirically using a new comprehensive monthly dataset for desktop personal computer systems for these data we find that the standard hedonic index has a slight upward bias of approximately 1 4 per year we also find that omitting an important characteristic cpu benchmark causes a large bias in the index with standard methods but that this bias is essentially eliminated when the proposed correction is applied

optimal multi object auctions this paper analyses optimal auctions of several objects in the first model bidders have a binary distribution over their valuations for each object in which case the optimal auction is efficient the optimal auction takes one of two formats either objects are sold in independent auctions or a degree of bundling is introduced in the sense that the probability a bidder wins one object is increasing in her value for the other the format of the optimal auction may depend upon the number of bidders in the second model the restriction to binary distributions is relaxed and the optimal auction is then inefficient

keeping it fresh strategic product redesigns and welfare abstract product redesigns happen across virtually all types of products yet there is little evidence on the market and welfare effects of redesigns we develop a model of redesign decisions in a dynamic oligopoly model and use it to analyze redesign activity in the u s automobile market we find automobile model redesigns are frequent despite an estimated average cost around 1 billion our estimates also suggest that redesigns lead to large increases in profits and welfare due to the strong preferences consumers have for redesigns we show that welfare would be improved if redesign competition were reduced allowing redesign activity to be more responsive to the planned obsolescence channel the net effect of these changes would reduce total redesigns by roughly 10 increasing total welfare by roughly 3 the high valuation that consumers put on newly designed models drives frequent redesigns and gives automobile manufacturers fairly substantial market power with a 2 to 1 ratio of firm profits to consumer surplus

program duplication in higher education is not necessarily bad abstract public systems of higher education have recently attempted to cut costs by providing financial incentives to cut duplicated programs i e programs that are offered at different institutions we study the profit and welfare effects of reducing program duplication against the background of a funding system reform in flanders belgium we find that dropping duplicated programs at individual institutions tends to be socially undesirable due to the students low willingness to travel to other institutions and to the limited fixed cost and variable cost savings furthermore we find that the financial incentives offered to drop programs may be very ineffective leading to both undesirable reform and undesirable status quo these findings emphasize the complexities in regulating product diversity in higher education and serve as a word of caution towards the various decentralized financial incentive schemes that have recently been introduced

information and usage of congestible facilities under different pricing regimes uncertainty about usage conditions is common in many congestible facilities in this paper the authors consider the effects of providing information to prospective users under three regimes free access nonresponsive congestion tolling and responsive tolling based on current information with either free access or nonresponsive tolling better information can induce changes in usage that reduce expected social surplus but responsive tolling assures that better information is welfare improving the joint welfare gains from providing information and tolling can be larger or smaller than the sum of the gains from implementing each independently superadditivity is likely to obtain when demand is price elastic

economics of a bottleneck abstract drawing on vickrey amer econ rev 59 251 261 1969 and subsequent literature this paper provides a thorough economic analysis of the simplest bottleneck model of road congestion with peak load demand in the morning rush hour a fixed number of identical individuals one per car must travel from home to work between which is a bottleneck of given capacity the costs of travel include queuing time and schedule delay time early or late for work the frequency distribution of departure times adjusts so that in equilibrium all individuals have the same travel costs the paper extends the previous literature by examining a coarse toll and solving for optimal capacities the application of congestion tolls can generate efficiency gains by altering the frequency distribution of departure times previous estimates of the efficiency gains from congestion tolling are likely to be substantially downward biased because they have ignored this effect