revealed social preferences of dutch political parties we measure the redistributive preferences of dutch political parties using unique detailed information from their election proposals by employing the inverse optimal tax method we calculate the political weights across the income distribution for each political party we find that all dutch political parties give a higher political weight to middle incomes than to the poor moreover the political weights of the rich are close to zero furthermore we detect a strong political status quo bias as the political weights of all political parties hardly deviate from the weights implied by the pre existing tax system we argue that political economy considerations are key in understanding these results

optimal regulation with unknown demand and cost functions abstract this paper presents an analysis of optimal regulation of a firm that has private information about both its cost and demand functions an earlier paper on the same topic lewis and sappington rand j econ 19 1998 438 457 is reviewed a difficulty with their analysis is discussed and an alternative formulation of their model is proposed two broad classes of problem are considered i the case where social and private incentives are roughly aligned which implies optimal prices are weakly above marginal costs and ii the case where social and private incentives diverge which implies pricing below marginal cost may be optimal journal of economic literature classification numbers d42 d82 l51

pigou meets ramsey gender based taxation with non cooperative couples abstract this paper explores the implications of gender based income taxation in a non cooperative model of household behavior in a first step we show how gender based taxes can act as pigou taxes and correct the externality induced by a non cooperative household equilibrium we find that the first best pigou tax rules are solely determined by spouses relative marginal rates of substitution between the public household good and private consumption breaking down this general rule into the primitives of the model the spouse with a comparative advantage in home production should be taxed at a higher rate in a second step we embed our non cooperative framework in a standard second best planning problem in which taxes serve a revenue raising purpose in this case the optimal structure of differential taxation by gender is partly determined by a ramsey type inverse elasticity rule and partly by a pigouvian tax element we show that these two forces work in opposite directions in determining whether men or women should be taxed at a higher rate and that either one could be dominant depending on the revenue raising position of the government this result is robust to the introduction of two groups of households that differ in their mode of decision making which can be either cooperative or non cooperative

policy watch the marriage penalty many government programs have implicit penalties or subsidies for marriage for example many couples pay higher income taxes when married than their combined tax liabilities as single filers while many other couples receive a marriage subsidy because their joint taxes fall with marriage likewise most low income couples are eligible for higher welfare benefits if they are separated rather than married this article discusses the marriage penalty with a particular focus on tax and transfer programs why does it exist who faces it to what extent does it affect marriage and labor market behavior what tradeoffs are involved in reducing it

multi dimensional screening a user s guide abstract multi dimensional screening models have many potential applications but economists have so far been hindered by the considerable technical difficulties involved in their resolution this paper studies the simplest formulation of the general screening model and we provide a complete solution to this case we then show how this model can be applied to multi product nonlinear pricing and to multi product monopoly regulation finally we discuss how the model has been applied to other economic situations of interest including auction design and optimal taxation

trade and factor movements with three factors and two goods abstract with three factors and two goods there are two extreme and one middle factor regardless of technical complementaries in the individual production functions the extreme factors must be enemies and the middle factor the other factor s friend with constant product prices

a new method of estimating risk aversion i show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model i derive a formula for the coefficient of relative risk aversion in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor i bound the degree of complementarity using data on consumption choices when labor supply varies across states using labor supply elasticity estimates i find a mean estimate of 1 then show generating 2 requires that wage increases cause sharper labor supply reductions jel d81 j22

taking versus taxing an analysis of conscription in a private information economy most countries currently man their militaries through conscription i e a draft conventional wisdom suggests that by lowering the budgetary cost of the military a draft reduces distortionary taxation especially when military needs are large we find that this intuition is misguided when income taxes are set optimally voluntary enlistments lead to less distortionary taxation than a draft because the tax base left behind by a volunteer army tends to be more productive than that after a draft for reasonable parameter values drafts are more distortionary and less socially desirable when military needs are large

the tax unit and household production under a progressive income tax conventional wisdom is that taxing individuals rather than households is preferred from an efficiency point of view the reason is that secondary workers whose labor supply elasticity is high will be taxed at a lower marginal rate than primary workers whose labor supply elasticity is low here we argue that once household production is taken into account things are more complicated since tax design should also not distort the input of family members time in household production factor input distortions as well as ramsey considerations thus need to enter the choice of the tax unit we provide a numerical example of an economy for which a move from an individual to a household basis in the income tax can be efficiency improving we then use a general equilibrium model parameterized using australian tax rates and data whose results clearly show that welfare gains can occur under changes from an individual to a household basis for an existing income tax our results th

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

optimal taxation under regional inequality abstract we study how regional productivity differences and labor mobility shape optimal mirrleesian tax transfer schemes when tax schedules are not allowed to differ across regions productivity enhancing inter regional migration exerts a downward pressure on optimal marginal tax rates when regionally differentiated taxation is allowed marginal tax rates in high low productivity regions should be corrected downwards upwards relative to the benchmark without migration simulations of the productivity differences between metropolitan and other areas of the us indicate that migration affects the optimal tax transfer schedule more strongly in the regionally differentiated rather than in the undifferentiated case

earmarked taxation welfare versus political support abstract compared with the traditional public finance approach of a monolithic fully informed planner earmarking of taxation is less likely to be optimal if a principal agent setting is considered where taxing and spending are performed by two separate agents which are monitored by the parliament we assume that the parliament either maximizes welfare or expected votes vote maximizers are more inclined to choose earmarking but at the price of inefficiently high costs

taxation and household labor supply we evaluate reforms to the u s tax system in a life cycle setup with heterogeneous married and single households and with an operative extensive margin in labor supply we restrict our model with observations on gender and skill premia labor force participation of married females across skill groups children and the structure of marital sorting we concentrate on two revenue neutral tax reforms a proportional income tax and a reform in which married individuals flle taxes separately separate flling our flndings indicate that tax reforms are accompanied by large increases in labor supply that difier across demographic groups with the bulk of the increase coming from married females under a proportional income tax reform married females account for more than 50 of the changes in hours across steady states while under separate flling reform married females account for all the change in hours

multidimensional incentive compatibility and mechanism design abstract incentive compatibility conditions are characterized in general for problems in which several goods are to be allocated and agents types are multidimensional two questions of monopoly pricing under multidimensional uncertainty are then analyzed first we find the optimal nonlinear pricing scheme when the monopolist knows only the distribution of an arbitrarily parameterized family of demand curves and second we solve for the optimal bundling policy for a multiproduct monopolist

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

optimal tax treatment of the family married couples abstract this paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples for a population of taxpaying couples which differ in earning capacity we drive the optimal tax rates for each potential earner these rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates our results suggest that the current system of income splitting in the united states under which husbands and wives face equal marginal tax rates is nonoptimal using results from recent econometric studies and allowing for a sensitivity analysis the optimal tax rates on secondary workers in the family are much lower than those on primary earners indeed our best estimate is that the secondary earner would face tax rates only one half as high as primary earners

price discrimination by a many product firm determining the optimal selling strategy for a multiproduct firm facing consumers with unknown tastes is a difficult task this paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products becomes large

contracts with endogenous information abstract i study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition when posteriors satisfy two dimensional versions of the standard first order stochastic dominance and concavity convexity of the distribution function conditions a first order approach is justified under the same conditions informativeness and riskiness of reports are equivalent high powered contracts that make the agent s informational rents more risky are used to increase incentives for information acquisition insensitive contracts are used to reduce incentives for information gathering the value of information to the agent is always positive the value of information to the principal is ambiguous

household bargaining and the design of couples income taxation this paper studies the design of couples income taxation when consumption and labor supply decisions within the couple are made by maximizing a weighted sum of the spouses utilities bargaining weights are given but specific to each couple information structure and labor supply decisions follow the mirrleesian tradition however while the household s total consumption is publicly observable the consumption levels of the individual spouses are not observable with a utilitarian social welfare function we show that the expression for a spouses marginal income tax rate includes a pigouvian paternalistic and an incentive term the pigouvian term favors a marginal subsidy tax for the high weight low weight spouse whose labor supply otherwise tends to be too low high the sign and the magnitude of the incentive term depends on the weight structure across couples in some cases both terms have the same sign and imply a positive marginal tax for the low weight spouse who may be female and a negative one for the high weight spouse possibly the male this is at odds with the traditional boskin and sheshinski results our conclusions can easily be generalized to more egalitarian welfare functions finally we present numerical simulations based on a calibrated specification of our model the calculations confirm that the male spouse may well have the lower and possibly even negative marginal tax rate

perfectly discriminatory policy towards international capital movements in a dynamic world a large country is able to affect its trading partners accumulation of capital and so it can alter future market conditions capital movements can be regulated by perfectly discriminatory policy to maximize the welfare of the large country by exploiting this link this policy implies that resource allocation is efficient along the optimal path in contrast to the use of perfectly discriminatory policy in a static world it is not always optimal for the large country to fully exploit its market power copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

bargaining and distribution in marriage the standard economic model of the family is a common preference model that assumes that a family maximizes a single utility function and implies that family behavior is independent of which individuals receive income or control resources in recent years this model has been challenged by game theoretic models of marriage that do not impose pooling and are therefore consistent with empirical evidence that income controlled by husbands and wives does have different effects on family behavior in this paper the authors review a number of simple bargaining models and relevant empirical evidence and discuss their implications for distribution within marriage

international narcotics trade foreign aid and enforcement i introduction it is widely accepted that the problems that a country may face as a direct result of narcotics related activities are numerous 1 moreover drug production and trade are intimately tied to other serious international concerns notably the financing of insurgencies and terrorist activities shughart 2006 keefer loayza and soares 2008 intriligator 2010 piazza 2011 a prime example is the involvement of the taliban in afghanistan in the production and trafficking of heroin see blanchard 2009 clemens 2013a 2013b similar issues are observed in colombia and mexico hence the indirect costs of narcotics related activities are also substantial nonetheless the enforcement of prohibitions on the production consumption and movement of narcotics remains among the most controversial issues in international relations not least because the global response has met with somewhat limited success 2 even taking the objective of reducing global consumption of narcotics as given it is unclear which of the available policy tools are likely to be the most effective at meeting the objective the consumption and distribution in narcotics importing countries can be targeted directly although the history of the past one and a half centuries indicates that it is very difficult alternatively and more realistically the supply side can be targeted law enforcement authorities in narcotics exporting countries can be used to eradicate production facilities and to interdict trafficking and alternative production activities can be encouraged by providing technical assistance or by direct subsidization in all cases involving the supply side however it must be recognized that the global production of narcotics is concentrated in developing economies many of these countries lack the enforcement resources to engage effectively against well funded producers and well armed traffickers and their supporting terrorist and rebel groups therefore foreign aid to finance law enforcement activities is essential 3 alternative development policies may also be supported through foreign technical assistance or by directing foreign aid toward alternative production subsidies the effects of these policies on narcotics exporting economies have not however been adequately addressed in the literature our work adds a new dimension to the existing literature on the economics of narcotics 4 we construct a theoretical model that explores the effects of foreign financing of anti narcotics enforcement activities in narcotics producing exporting countries along with other potential policy interventions while previous literature has taken a partial equilibrium approach to analyzing related issues our work differs substantially in adopting general equilibrium methods as martin and symansky 2006 note opium production in afghanistan for example accounted for approximately 27 of economic activity in 2005 2006 given this fact substantial general equilibrium effects must be present and deserve full exploration we focus attention on the consequences of the multitude of severe distortions that narcotics production and enforcement introduce to factor markets we envisage an economy where workers engage in both licit and illicit activities are paid a premium for the risk of incarceration or seizure of their marginal product involved in the latter and a nonproductive law enforcement sector uses real resources to combat illicit activity our work draws on a number of strands of economic theory including tied aid factor market distortions dual economies illicit markets and law enforcement a number of important new results emerge from our analysis foreign aid will increase enforcement activity and will generally lower narcotics production the more market power the narcotics producing country has the less effective foreign aid will be however in fact aid intended for anti narcotics enforcement may effectively be siphoned into the wages of narcotics workers

the formation of expected future price a reference price for forward looking consumers among numerous possible reference prices expected future price is important a consumer s expectation of the future price of a brand plays a crucial role in the decision to buy now or later failure to characterize reference price as a forward looking concept a common practice in the reference pricing literature violates premises of neoclassical economic theory and leads to questionable modeling applications explicit measures of future price expectations were obtained and used to test various models of expectations formation providing insight into the effect of expected future price on consumers responses to price promotions and brand choice decisions

optimal taxation social preferences and the four worlds of welfare capitalism in europe drawing on the formal setting of optimal taxation theory this paper identifies the degree of rawlsianism poverty aversion exhibited by european social planners beginning with the observation of actual data and redistribution systems the paper contributes to the comparative research on the structure and typology of welfare capitalism the social preferences implicit in tax benefit systems are recovered by inverting the optimal taxation model for all european countries using european union statistics on income and living conditions data the results are discussed in light of the four worlds of welfare capitalism classification proposed by esping andersen

do husbands and wives pool their resources evidence from the united kingdom child benefit common preference models of family behavior imply income pooling a restriction on family demand functions such that only the sum of husband s income and wife s income affects the allocation of goods and time testing the pooling hypothesis is difficult because most family income sources are not exogenous to the allocations being analyzed in this paper we present an alternative test based on a natural experiment a policy change in the united kingdom that transferred a substantial child allowance to wives in the late 1970s using family expenditure survey data we find strong evidence that a shift toward greater expenditures on women s clothing and children s clothing relative to men s clothing coincided with this income redistribution

a comparison of optimal tax policies when compensation or responsibility matter this paper examines optimal redistribution in a model with high and low skilled individuals with heterogeneous tastes for labor we compare the extent to which optimal policies based on different normative criteria obey the principles of compensation for differential skills and responsibility for preferences for labor when labor supply is along the extensive margin with heterogeneity in skills and preferences traditional welfarist criteria including utilitarianism present unappealing policy recommendations in some scenarios as they fail to take compensation and responsibility issues into account criteria from the social choice literature perform better in this regard in first and second best more importantly these equality of opportunity criteria push the second best policy away from an earned income tax credit and in the direction of a negative income tax

factor intensities and factor substitution in general equilibrium abstract this article examines how factor intensity rankings between industries and the economy wide asymmetry in the degree of factor substitution combine to influence the manner in which changes in relative commodity prices affect the factoral distribution of income the reciprocal influence of factor endowment changes on the composition of outputs is also discussed the analysis is undertaken in a general three factor two commodity framework the minimal sized model that allows both influences to affect factor prices and admits of the possibility of complementarity between factors factors which are good substitutes find their returns behave somewhat similarly when commodity prices change while factors which are complements experience strongly asymmetrical fortunes a crucial role is played by a comparison of the share of the middle factor in each sector

international factor movements commodity trade and commercial policy in a specific factor model two events in the decade of the 1970s had a major impact on world trade and factor movements the collapse of the bretton woods fixed exchange rate system and opec s success in raising petroleum prices the enormous current account surplus accruing to some of the opec members was successfully recycled by the international capital markets to among others the oil importing developing countries in addition the vastly increased tempo of investment in the capital rich labour poor opec members in west asia attracted migration of labour skilled as well as unskilled to these countries from some of the oil importing developing countries the remittances from these workers in turn eased the problem of the labourexporting countries in adjusting to the increased cost of oil imports thus both borrowing from private capital markets and export of labour became very important elements in cushioning the oil shock for a number of countries the post opec movements of labour and financial capital while dramatic are only the more recent instances of a phenomenon of much greater antiquity the seventeenth and eighteenth centuries saw vast migration of people out of europe though these movements were the result of conquests and colonization rather than movements from one sovereign state into another but the nineteenth century particularly the latter half saw migration of the latter kind from europe to countries of north and south america as well as capital investment by residents of europe in these

regulation and pricing of pharmaceuticals reference pricing or price cap regulation we study the relationship between regulatory regimes and pharmaceutical firms pricing strategies using a unique policy experiment from norway which in 2003 introduced a reference price rp system called index pricing for a sub sample of off patent pharmaceuticals replacing the existing price cap pc regulation we estimate the effect of the reform using a product level panel dataset covering the drugs exposed to rp and a large number of drugs still under pc regulation in the time before and after the policy change our results show that rp significantly reduced both brand name and generic prices within the reference group with the effect being stronger for brand names we also identify a negative cross price effect on therapeutic substitutes not included in the rp system in terms of policy implications the results suggest that rp is more effective than pc regulation in lowering drug prices while the cross price effect raises a concern about patent protection

sharing the sacrifice minimizing the pain optimal wage reductions abstract faced with temporary revenue shocks employers may implement wage reductions a common response to covid 19 for u s universities i provide a framework for optimal reductions when labor is inelastic wherein a planner balances minimizing the pain and sharing the sacrifice i show that for a broad class of utility functions the optimal schedule includes 1 a cutoff wage below which the reduction is zero and 2 weakly progressive reduction rates above the cutoff wage i illustrate the results using data from a large u s university

knowledge of future job loss and implications for unemployment insurance this paper studies the implications of individuals knowledge of future job loss for the existence of an unemployment insurance ui market learning about job loss leads to consumption decreases and spousal labor supply increases this suggests existing willingness to pay estimates for ui understate its value but it yields new estimation methodologies that account for and exploit responses to learning about future job loss although the new willingness to pay estimates exceed previous estimates i estimate much larger frictions imposed by private information this suggests privately traded ui policies would be too adversely selected to be profitable at any price

the organization and scope of agents regulating multiproduct industries abstract a mechanism design problem with two dimensional uncertainty is solved to derive the optimal policy for regulating a monopolist with private information about the marginal cost of producing two different goods the paper establishes that informational economies of scope or incentive complementarities arise when one firm produces both goods the regulator should weigh these economies against the benefits of relative performance incentives when choosing between integrated and decentralized organizations unless the marginal costs of the two products are sufficiently positively correlated the optimal ex ante policy gives control of both markets to a single firm journal of economic literature classification number s d82 l22 l51

direct versus indirect taxation the design of the tax structure revisited this article studies the optimal direct indirect tax mix problem when individuals differ in several unobservable characteristics productivity and endowments it presents general expressions for the optimal commodity tax rates and proves that contrary to atkinson and stiglitz s 1976 result differential commodity taxation remains a useful instrument of tax policy even if preferences are separable between labor and produced goods when cross substitution effects are zero the expressions resemble traditional many households ramsey rules in a cobb douglas illustration where endowments differ only in good 1 interpreted as wealth the tax on good 2 provides an indirect way to tax the unobservable wealth

a synthesis of the heckscher ohlin and the neoclassical models of international trade a comment abstract batra and casas 1976 have asserted that in the two sector three factor neoclassical model an increase in the supply of one factor at constant commodity prices will increase the output of the commodity using the expanding factor relatively intensively and thereby reduce the output of the other commodity the present note points out that there is a case against their assertion

optimal income taxation with endogenous participation and search unemployment we characterize optimal redistributive taxation when individuals are heterogeneous in their skills and their values of non market activities search matching frictions on the labor markets create unemployment wages labor demand and participation are endogenous average tax rates are increasing at the optimum this shifts wages below their laissez faire value and distorts labor demand upwards the marginal tax rate is positive at the top of the skill distribution even when the latter is bounded these results are analytically shown under a maximin objective when the elasticity of participation is decreasing in the skill level and are numerically confirmed under a more general objective under the maximin above approximately 20 000 per year our model recommends higher marginal tax rates than a comparable competitive setting

taxes and the labor market participation of married couples the earned income tax credit a distinguishing feature of recent changes to the us system of public assistance is its increasing focus on working families and reliance on the tax system to transfer dollars to needy families after a decade in near total obscurity the earned income tax credit eitc was expanded to become the largest cash transfer program for lower income families with children advocates of the eitc argue that unlike traditional welfare the credit helps promote both the values of family and work indeed empirical evidence consistent with economic theory suggests that the eitc promotes employment among eligible unmarried women with children to target benefits to lower income families however the eitc is based on family income leading to traditional welfare type disincentives for most eligible secondary earners in fact the eitc is likely to reduce overall family labor supply among married couples this paper examines the labor force participation response of married couples to eitc expansions between 1984 and 1996 the effect of the credit is estimated using both quasiexperimental and traditional reduced form labor supply models results from both models show the same qualitative conclusion that the eitc expansions reduced total family labor supply of married couples in all cases we find a decline in labor force participation by married women that more than offsets any rise in participation by their spouses while the labor force participation rate of married men increased by about 0 2 percentage points that of married women decreased by just over a full percentage point these aggregate effects mask substantial heterogeneity in the population women facing the strongest disincentives were more than 2 percentage points less likely to work after the expansions these findings imply that the eitc is effectively subsidizing married mothers to stay home and therefore have implications for the design of the program d 2003 elsevier b v all rights reserved

the value of information and optimal organization the paper addresses the issue of optimal organization of production i compare three organizational forms centralization one agent produces difierent inputs decentralization each of the two agents produces a difierent input and contracts directly with the principal and delegation two agents produce difierent inputs the principal contracts with one of them only the optimal organizational form depends on the degree of complementarity substitutability between the inputs in the flnal use the degree of complementarity substitutability also determines whether delegation is payofi equivalent to the two agent mechanism from the point of view of the principal in the context of delegation i consider which of the two agents should serve as the primary contractor i also address the issue of collusion between the agents in a decentralized organization and characterize the conditions under which a stake of collusion exists jel fields d2 d82 l23

green payments and dual policy goals abstract we use a mechanism design framework to analyze the optimal design of green payment policies with the dual goals of conservation and income support for small farms each farm is characterized by two dimensions of attributes farms size and conservation efficiency the policymaker may not be able to use the attributes as an explicit criterion for payments we characterize optimal policy when conservation efficiency is unobservable to policymakers and when farm size is also unobservable an income support goal is shown to reduce the conservation distortion caused by asymmetric information the cost of optimal green payment mechanisms is shown to depend crucially on whether large or small farms have greater conservation efficiency

the optimal income taxation of couples this paper analyzes the general nonlinear optimal income tax for couples a multidimensional screening problem each couple consists of a primary earner who always participates in the labor market but makes an hours of work choice and a secondary earner who chooses whether or not to work if second earner participation is a signal of the couple being better worse off we prove that optimal tax schemes display a positive tax subsidy on secondary earnings and that the tax subsidy on secondary earnings decreases with primary earnings and converges to zero asymptotically we present calibrated microsimulations for the united kingdom showing that decreasing tax rates on secondary earnings is quantitatively significant and consistent with actual income tax and transfer programs

price discrimination and majority voting the theory of second degree price discrimination for group behavior mixes the difficulties of incentive theory with those of social choice theory we present a special environment where all these difficulties can be solved easily

price expectation and price recall error an empirical study expectations are known to affect the encoding and recall of stimuli in this study the impact of deviations from price expectation reference price on price recall error is assessed we found that an assimilation pattern most adequately represents the relationship between deviation from price expectation and price recall error when individuals err in price recall they err in the direction of their price expectation i e an expectation effect as hypothesized this effect is much stronger and more consistent for less involving products than for more involving products

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

household labor supply and the gains from social insurance the marginal gains from social income insurance programs are captured by the gap in the marginal utility of consumption across states of nature to identify this gap in the context of the household this paper offers a new labor supply based approach that leverages household level economic interactions and optimality conditions we demonstrate that in frameworks of efficient household allocations spousal labor supply responses to shocks have direct implications for the gains from more generous government benefits to households we show that this holds for both intensive and extensive margin responses under fairly general conditions our analysis illustrates how labor market data can be used for assessing marginal welfare gains in a general class of social insurance schemes including the large and important programs of disability insurance and survivors benefits hence household labor supply behavior and responses to shocks which are widely studied in theoretical and empirical work hold valuable information for the optimal design of social insurance

the organization of regulated production complementarities correlation and collusion we analyze the choice between vertical separation vs and vertical integration vi when two regulated firms produce complementary inputs with correlated costs and are protected by ex post break even constraints first in the absence of collusion the regulator prefers vi vs for negative and weak positive respectively strong positive correlation second if the firms can collude under vs and know all costs then vs is equivalent to vi however if firms collude under asymmetric information then collusion does not affect the choice between vs and vi since the regulator takes advantage of the transaction costs created by asymmetric information

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

international factor mobility and national advantage abstract in this paper we prove rigorously v k ramaswami s proposition that in bilateral trade between two countries sharing the same technology represented by a strictly concave production function with positive marginal productivities of capital and labor the policy active country can gain more by importing monopsonistically the relatively scarce factor than by placing monopolistic restrictions on the export of the relatively abundant one we show that what matters is not the location but the constraints within which maximization takes place hence the monopsonistic results can be replicated by appropriate export arrangements the analysis is extended to consider the welfare implications to the policy passive country

milestone payments or royalties contract design for r d licensing we study how innovators can optimally design licensing contracts when there is incomplete information on the licensee s valuation of the innovation and limited control over the licensee s development efforts a licensing contract typically contains an up front payment milestone payments at successful completion of a project phase and royalties on sales we use principal agent models to formulate the licensor s contracting problem and we find that under adverse selection the optimal contract structure changes with the licensee s valuation of the innovation as the licensee s valuation increases the licensor s optimal level of involvement in the development directly or through royalties should decrease only a risk averse licensor should include both up front and milestone payments moral hazard alone is not detrimental to the licensor s value but may create an additional value loss when combined with adverse selection our results inform managerial practice about the advantages and disadvantages of the different terms included in licensing contracts and recommend the optimal composition of the contract

redistributive taxation in the roy model we consider optimal redistribution in a model where individuals can self select into one of several possible sectors based on heterogeneity in a multidimensional skill vector we show that when the government does not observe the sectoral choice or underlying skills of its citizens the constrained pareto frontier can be implemented with a single non linear income tax we derive formulas for this optimal tax schedule if sectoral inputs are complements a many sector model with self selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single sector model under natural conditions however they are more progressive than in a multi sector model without occupational choice or without overlapping wage distributions as in stiglitz 1982

taxing women a macroeconomic analysis based on well known evidence on labor supply elasticities several authors have concluded that women should be taxed at lower rates than men we evaluate the quantitative implications and merits of this proposition relative to the current system of taxation setting a proportional tax rate on married females equal to 4 8 increases output and married female labor force participation by about 3 9 3 4 and 6 9 4 0 respectively gender based taxes improve welfare and are preferred by a majority of households nevertheless welfare gains are higher when the u s tax system is replaced by a proportional gender neutral income tax 2011 published by elsevier b v

optimal taxation with rent seeking we develop a framework for optimal taxation when agents can earn their income both in traditional activities where private and social products coincide and in rent seeking activities where private returns exceed social returns either because they involve the capture of pre existing rents or because they reduce the returns to traditional work we characterize pareto optimal income taxes that do not condition on how much of an individual s income is earned in each of the two activities these optimal taxes feature an externality corrective term the magnitude of which depends both on the pigouvian correction that would obtain if rent seeking incomes could be perfectly targeted and on the relative impact of rent seeking externalities on the private returns to traditional and to rent seeking activities if rent seeking externalities primarily affect other rent seekers for example the optimal correction lies strictly below the pigouvian correction a calibrated model indicates that the gap between the pigouvian and optimal correction can be quantitatively important our results thus point to a hefty informational requirement for correcting rent seeking externalities through the income tax code

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

informing consumers about their own preferences we analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences e g about their future demand for a utility such as electricity or telecommunication when more consumers become informed we show that this benefits also those consumers who remain uninformed as it reduces the firm s incentives to extract information rent by reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage policy can further improve welfare as contracts become more efficient the last observation stands in contrast to earlier findings by cremer and khalil american economic review 1992 where all consumers are uninformed

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

on the choice between capital and labour mobility trade theorists since the pioneering work of kemp 1966 have considered the question of national advantage from international factor mobility by considering only one factor to be so mobile kemp analyzed elegantly the question of optimal policies in 2 x 2 x 2 model and showed that since monopoly power could exist in both the goods and factor markets in consequence of international capital mobility the optimal policy intervention would generally involve two policy instruments tariffs cum subsidies on goods and duties cum subsidies on international capital flows jones 1967 subsequently extended kemp s argument to the secondbest context by examining the optimal level of one of these instruments when the other was arbitrarily set at zero elsewhere in this issue brecher 1983 shows in an elegant and original contribution that the jones policy problem is in fact a third best rather than a second best problem as generally believed and that if only one of the tariff and capital mobility taxes cumsubsidies can be used it is generally possible to improve welfare further by admitting an altogether different domestic policy instrument namely a production or consumption tax cum subsidy as the case may be the research of bhagwati was supported by the german marshall fund grant no l 34015 the problem analyzed in the paper was posed in bhagwati 1979 and an early ingenious and neglected analysis in ramaswami 1968 was noted by bhagwati we have profited greatly from these contributions also from reading webb 1970 ramaswami 1970 and a recent paper of calvo and wellisz 1983 on this problem this result is in consonance with the results of bhagwati ramaswami and srinivasan 1969 for the case without international capital mobility but the consonance is intuitive only after the result was established for the case with international capital mobility

international factor movements and the ramaswami argument in a succinct but classic article appearing in economica in 1968 ramaswami put forth an argument supporting the superiority of a policy that attracts foreign factors over a policy that allows a relatively abundant factor to emigrate in each case the active home country is assumed to levy taxes on factor flows so as to capture for itself the discrepancy in return to the same factor at home and abroad the asymmetry reflected by this policy ranking rests on a basic propeity of production functions the convexity of technology plus the ability of the active home country to hire or rent out factors at wages or rentals prevailing in the foreign country briefly put the ramaswami argument proceeds as follows suppose the active home country is capital abundant and has levied on optimal tax on earnings of its own capital operating abroad now consider repatriating this capital and allowing for the first time some inflow of foreign labour in particular suppose the home country allows a level of immigration identical to the labour force previously employed with the home capital that is being repatriated such a transfer of home capital and foreign labour out of the foreign country leaves factor proportions abroad undisturbed and thus does not alter the wage that must be paid to attract the requisite bundle of foreign workers although the home country thus avoids any increase in factor costs in foreign markets it can increase output since the capital labour ratiooriginally employed at home at high home wage rates is greater than the ratio in the freshly acquired bundle from abroad by adopting a uniform capital labour ratio over all factors now employed at home output and thus real income rises there may be even further gains to be had by allowing yet a different optimal level of immigration in the home country which has now banned capital exports 2 essential to the ramaswami argument is the ability of the home country to extract a bundle of factors previously employed abroad without disturbing factor prices in that country indeed jones coelho and easton 1983 have suggested that in the context of the ramaswami discussion the original argument could be pursued to suggest that the home country gains not only from repatriating its own capital but from actually encouraging foreign capital to be employed at home such a capital flow is admittedly uphill the home country would have to pay out more in rentals than such capital can earn at home despite this fact such an import of capital and labour in the same proportions found abroad does not alter foreign factor prices but does via the same ramaswami type argument on the convexity of the technology result in gains at home although ramaswami s own discussion starts with a repatriation of home capital previously invested abroad his argument can be applied directly to the foreign autarky factor endowment bundle if technology exhibits constant returns to scale and if all both factors are indeed internationally

optimal income taxation of lone mothers an empirical comparison of the uk and germany optimal tax rules are used to evaluate the optimality of taxation for lone mothers in germany and britain the theoretical model is combined with elasticities derived from the structural estimation of lone mothers labour supply for both countries we do not find that in work credits with marginal tax rates are optimal however we show that when the government has a low taste for redistribution out of work transfers and transfer for the working poor are very similar implying very low marginal tax rates further the current tax and transfer systems in both countries are shown to be optimal only if governments have a much higher welfare value for income received by the non workers than the working poor government run transfer and redistribution programmes are of major importance in most developed countries such countries spend large amounts of public funds to provide income support to the poor although the precise structure of these pro grammes differs substantially as expenditures on public income support programmes count for a sizeable share of the government s budget in welfare states and because of their alleged negative work incentive effects there is an ongoing public debate about policy reforms in this area this controversy can be best described by the trade off between equity and efficiency income transfers increase the disposable income of the disadvantaged and thus their well being but the programmes introduce distortions that might lead to substantial disincentives in the labour market the aim of this article is to apply recent results from the optimal tax literature to analyse the design of personal income tax and welfare benefits empirically and to discuss its optimality we focus on the tax and transfer systems for lone mothers in germany and the uk

effects of payment mechanism on spending behavior the role of rehearsal and immediacy of payments past expenses have been shown to influence future spending behavior by depleting available budgets however a prerequisite for this relationship is the accurate recall of past payments and the experiencing of the full aversive impact associated with them this article shows that the use of different payment mechanisms influences both these factors and hence moderates the effects of past payments on future spending specifically past payments strongly reduce purchase intention when the payment mechanism requires the consumer to write down the amount paid rehearsal and when the consumer s wealth is depleted immediately rather than with a delay immediacy two experiments show support for the proposed theoretical framework

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

bundling and optimal auctions of multiple products we study the optimal i e revenue maximizing auction of multiple products we make three major points first we extend the relationship between price discrimination and optimal auctions from the single product case to the multiple product case a monopolist setting prices for multiple products may offer discounts on purchases of bundles of products similarly the optimal auction of multiple products facilitates price discrimination by allocating products inefficiently to customers who are willing to purchase both products second we demonstrate that optimal auctions are qualitatively distinct from monopoly sales of multiple products because of uncertainty about the values of other consumers two products are bundled probabilistically in an optimal auction for a customer who is willing to buy both of them a customer may then receive a discount on a lower valued product without receiving a higher valued product third we show that in an optimal auction of two products the allocation of one product may vary with the amount of competition for the other product

the theory of international factor flows the basic model abstract the basic model used to discuss the simultaneous international flow of labor and capital is a one commodity model in which a common technology is shared between countries the ramaswami result wherein an optimal restriction of labor inflows is superior to an optimal restriction on capital outflows for a capital abundant country is extended to reveal that optimality requires inflows of both factors box diagrams and iso welfare contours are used to show how optimal policy rankings are reversed if foreign labor must be paid higher home wages

differentiated price loss aversion in destination choice the effect of tourists cultural interest abstract this article looks into the differentiated effects of loss aversion depending on whether individuals show cultural interest when choosing a destination based on the fact that perceived value implies not only sacrifices but also the expectations of a certain level of quality and prospects of satisfaction together with the idea the prospect theory applies to tourism prices the article states the hypothesis that interest in culture when choosing a destination lowers people s loss aversion by incorporating the reference dependent model into a multinomial logit model with random parameters which controls for heterogeneity the empirical application shows that culture interested tourists are less loss averse i e the negative effect of finding a higher than expected price diminishes with cultural interest the expectation of enjoyment of these attributes and the more conscious attitude toward maintenance restoration activities of cultural sites are hypothesized to lead prices to be evaluated differently when selecting a destination

social insurance and the marriage market social insurance is often linked to marriage existing evidence suggests small marital responses to financial incentives and stems from settings where benefits are realized in the near future i an

sellers with misspecified models principals often operate on misspecified models of their agents preferences when preferences are such that non local incentive constraints may bind in the optimum even slight misspecification of the preferences can lead to large and non vanishing losses instead we propose a two step scheme whereby the principal 1 identifies the model optimal menu and 2 modifies prices by offering to share with the agent a fixed proportion of the profit she would receive if an item were sold at the model optimal price we show that her loss is bounded and vanishes smoothly as the model converges to the truth finally two step mechanisms without a sharing rule like 2 will not yield a valid approximation

optimal policy toward international factor movements with a country specific factor abstract this paper examines the optimal taxation of factor movements in a three factor model where two factors are potentially mobile results emphasize the role of substitutability or complementarity between factors in determining the optimal pattern of factor flows in particular a result analogous to the ramaswami result on the desirability of factor importing over factor exporting will hold if factors are complements but may not hold if they are substitutes also a capitalexporting country that cannot tax imported labor should allow labor imports when capital and labor are substitutes but may not allow labor imports if they are complements

optimal tax and transfer programs for couples with extensive labor supply responses this paper analyzes the optimal design of general nonlinear tax transfer schedules for couples under unitary and collective approaches to family decision making we consider a double extensive model of labor supply where each spouse makes a labor force participation choice for given hours of work we present simple and intuitive optimal tax rules that generalize existing findings on the optimal taxation of single person households with extensive responses saez 2002 to the case of two person households with double extensive responses without income effects on labor supply optimal tax rules as a function of sufficient statistics are the same under the unitary and collective approaches with income effects on labor supply optimal tax rules under the two approaches continue to depend on the same sufficient statistics but the collective model features an additional pigouvian term arising from a within family participation externality finally we present microsimulations of tax reform for 15 european countries suggesting that a reduction of tax rates on secondary earners relative to primary earners is associated with strong welfare gains in all countries

optimal participation taxes addressing extensive labour supply responses the literature has established a case for larger transfers to the working poor than to even poorer non working people this paper casts new light on this result i argue that the result hinges crucially on the labour supply responses of people in income brackets above that of the working poor then distinguishing between more and less poor working people i show that if a single working type faces a negative tax it is the poorer one who does finally i endogenize wages and show that key conditions will be of the same form as before

optimal commodity taxation and redistribution within households using a collective model of consumption we characterize optimal commodity taxes aimed at targeting specific individuals within the household the main message is that distortionary indirect taxation can circumvent the agency problem of the household essentially taxation should discourage less the consumption of a certain group of goods those for which the slope of the engel curves is larger for the targeted person

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

perspectives on buy outs and the ramaswami effect abstract in a simple two factor one commodity model in which foreign labor can be hired at low foreign wage rates and technology is common to both countries optimal strategy at home involves hiring almost all factors abroad at their autarky prices a buy out strategy this paper shows that when technologies differ partial or times complete buy out of factors from the technologically superior country may still be optimal alternatively a partial buy out may be appropriate when there exists a third internationally immobile productive factor

multi attribute procurement contracts abstract we consider the design of multi attribute procurement contracts when the supplier possesses multi dimensional private information specifically we consider a buyer who must design a contract to procure a single product whose value is a function of two attributes the potential supplier s cost structure is two dimensional including one component for each attribute and is unknown to the buyer in contrast to the existing one dimensional models we find that in some cases the buyer can extract all of the channel profits without distorting the specifications of the final product and we identify conditions under which that will be the case in other words with more dimensions to leverage the buyer may be able to discern the supplier s type without paying any information rents thus reducing her procurement costs it is also possible that the buyer can extract all the channel profits by distorting the product specifications downward finally we demonstrate how our results can be extended to a setting with multiple customer classes where the valuation for the product attributes varies across the classes we find that greater differentiation in customer valuation leads to a setting in which the buyer is less likely to extract all of the channel profit without distortion

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic