conditions that cause risk pooling to increase inventory abstract we say product a is a partial substitute for product b if a fraction of the customers who prefer b are willing to accept a when b is out of stock when demand is uncertain it is intuitive and true that a larger willing to substitute fraction implies larger expected profits a higher willing to substitute fraction allows one to pool the risk of individual products it may also be intuitive that a larger willing to substitute fraction might result in lower optimal total inventory for the full substitution structure several researchers have shown that for certain distributions such as the exponential this latter intuition is not true we show that this full substitution anomaly can occur with any right skewed demand distribution we assume i i d demand distributions unless we indicate otherwise we also show that the anomaly can occur for a number of realistic situations of partial substitution with commonly used demand distributions such as normal exponential poisson and uniform we also demonstrate the anomaly for more than one period with backlogging lost sales more than two products and with setup costs

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

tax policy and aggregate demand management under catching up with the joneses this paper examines the role for tax policies in productivity shock driven economies with catching up with the joneses utility functions the optimal tax policy is shown to affect the economy countercyclically via procyclical taxes i e cooling down the economy with higher taxes when it is overheating in booms and stimulating the economy with lower taxes in recessions to keep consumption up thus models with catching up with the joneses utility functions call for traditional keynesian demand management policies but for rather unorthodox reasons

the design of multidimensional auctions procurement auctions usually require the bid to specify several characteristics of the contract to be fulfilled in this article i study the design of such mechanisms allowing for a special case of correlation of the firm s costs i describe the properties of optimal mechanisms and study the design of multidimensional auctions contrary to the independent costs model to implement the optimal outcome the procurer will need to use a two stage auction in the first stage the procurer selects one firm in the second stage he bargains to readjust the level of quality to be provided

the social basis of interdependent preferences abstract most economists are sympathetic to the idea that concerns for relative position are an important aspect of many economic problems there has traditionally been a reluctance to include such concerns primarily because models that included them often allow such a broad range of behavior that there are few if any restrictions on equilibrium behavior and hence such models would have little or no predictive power in this paper we discuss how reduced form models may naturally give rise to utility functions that depend in part on relative standing there are several advantages of modelling concern for relative standing in reduced form utility functions even when there is no similar concern in the deep preferences it provides structure and constraints on the way that relative standing affects utility and further it can yield testable implications about the way that changes in the underlying environment affect the concern for relative standing we discuss the advantages and disadvantages of modelling social concerns in this way and provide examples that illustrate how concerns for relative standing can affect savings investment and labor choice decisions

status the distribution of wealth and growth we analyze a simple model of endogenous growth in which individuals care about both consumption and their rank in the distribution of wealth we show that the steady growth rate of the economy increases with both the strength of the status seeking motive and the initial equality of the wealth distribution contrary to the basic model of endogenous growth the equilibrium growth rate is not necessarily smaller than in the social optimum and we identify the circumstances under which the two coincide

the dark side of chinese growth declining social capital and well being in times of economic boom summary over the last two decades subjective well being in china declined using data from the world values survey we identify predictors of the trend in life satisfaction in china during 1990 2007 social comparisons and the decline of social capital explain the decrease in well being and they are strictly connected to the increasing orientation of chinese people toward materialistic values the increasing role of social comparisons is also a key factor in the increase of well being inequalities between income classes

contagion and risk sharing on the inter bank market abstract increasing inter bank lending has an ambiguous impact on financial stability using a computational model with endogenous bank behavior and interest rates we identify the conditions under which inter bank lending promotes stability through risk sharing or provides a channel through which failures may spread in response to large economy wide shocks more inter bank lending relationships worsen systemic events for smaller shocks the opposite effect is observed as such no inter bank market structure maximizes stability under all conditions in contrast deposit insurance costs are always reduced under greater numbers of inter bank lending relationships a range of regulations are considered to increase system stability

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

inventory cost rate functions with nonlinear shortage costs this article considers five cost rate models for inventory control each summarizing the expected holding and shortage costs per period as a function of the inventory position all models have linear holding costs and shortage cost coefficients of dimension unit period unit and period the latter two coeficients may be the shadow costs of a fill rate and a ready rate service constraint respectively one of the cost rate models is a new suggestion intended to facilitate modeling of periodic review inventory systems if and only if conditions on the demand process are presented for which the cost rate is quasi convex in the inventory position the typical sufficient condition requires that the cumulative demand distribution be logconcave a condition that is met by most demand distributions commonly used in the inventory literature the results simplify optimization and extend the known optimality of s s and nq r policies to cost structures common in applications and to the presence of typical service constraints as a prerequisite for the study a series of new monotonicity results are derived for compound renewal processes

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

social status and economic performance a survey abstract this survey combines ideas and results from sociology and economics recognizing that economic decisions are often shaped by social concerns and influences based on the sociological literature we define social status and describe its measurement we then describe the role of social status in economic analysis of saving and consumption wages and economic growth we review recent work on status determination in equilibrium including evolutionary models we conclude with some remarks on the need for further interaction between sociology and economics

social organization status and savings behavior abstract we develop a model of status seeking in the presence of incomplete information and derive its implications for aggregate savings status seeking endogenously takes the form of conspicuous consumption its impact on savings depends on the scheduling of the contests for status over the life cycle if individuals engage in conspicuous consumption when old aggregate savings are increased we also study the role of social segmentation while social segmentation reduces the inequality across status seekers and fuels social rivalry under complete information we show that under incomplete information social segmentation weakens the incentive to strive for greater status

optimal taxation when consumers have endogenous benchmark levels of consumption i examine optimal taxes in an overlapping generations economy in which each consumer s utility depends on consumption relative to a weighted average of consumption by others the benchmark level of consumption as well as on the level of the consumer s own consumption the socially optimal balanced growth path is characterized by the modi ed golden rule and by a condition on the intergenerational allocation of consumption in each period a competitive economy can be induced to attain the social optimum by a lump sum pay as you go social security system and a tax on capital income

interdependent preferences and the competitive wage structure this article shows by example that when workers care about relative income and are free to choose their coworkers the equilibrium distribution of wages within firms must be less dispersed than the corresponding distribution of marginal products an implicit market for within firm status is shown to produce welfare gains by sorting workers among firms in accordance with how much they are willing to pay for high rank the resulting equilibrium pareto dominates allocations in which each worker is paid his marginal product

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

wealth seeking reconsidered abstract if individuals are interested in their relative wealth position they engage in contests for wealth this leads to a steady state with overaccumulation in a simple growth model it is shown that if some individuals are engaged in wealth seeking activity but others are not the latter might benefit however wealth seeking is not welfare enhancing under usual assumptions concerning production technology the steady state equilibrium is characterized by a marginal productivity of capital that is below the steady state rate of time preference and by emergence of a class structure

the impact of heterogeneous trading rules on the limit order book and order flows in this paper we develop a model of an order driven market where traders set bids and asks and post market or limit orders according to exogenously fixed rules agents are assumed to have three components to the expectation of future asset returns namely fundamentalist chartist and noise trader furthermore agents differ in the characteristics describing these components such as time horizon risk aversion and the weights given to the various components the model developed here extends a great deal of earlier literature in that the order submissions of agents are determined by utility maximisation rather than the mechanical unit order size that is commonly assumed in this way the order flow is better related to the ongoing evolution of the market for the given market structure we analyze the impact of the three components of the trading strategies on the statistical properties of prices and order flows and observe that it is the chartist strategy that is mainly responsible of the fat tails and clustering in the artificial price data generated by the model the paper provides further evidence that large price changes are likely to be generated by the presence of large gaps in the book

design competition through multidimensional auctions this article studies design competition in government procurement by developing a model of two dimensional auctions wherefirms bid on both price and quality and bids are evaluated by a scoring rule designed by a buyer three auction schemes first score second score and second preferred offer are introduced and related to actual practices if the buyer can commit to a scoring rule in his best interest the resulting optimal scoring rule underrewards quality relative to the buyer s utility function and implements the optimal outcome for the buyer underfirst and second score auctions absent the commitment power the onlyfeasible scoring rule is the buyer s utility function under which 1 all three schemes yield the same expected utility to the buyer and 2 first and second score auctions induce the first best level of quality which turns out to be excessive from the buyer s point of view

auctioning supply contracts this paper studies a procurement problem with one buyer and multiple potential suppliers who hold private information about their own production costs both the purchase quantity and the price need to be determined an optimal procurement strategy for the buyer requires the buyer to first design a supply contract that specifies a payment for each possible purchase quantity and then invites the suppliers to bid for this contract the auction can be conducted in many formats such as the english auction the dutch auction the first priced sealed bid auction and the vickrey auction the winner is the supplier with the highest bid and is given the decision right for the quantity produced and delivered applying this theory to a newsvendor model with supply side competition this paper establishes a connection between the above optimal procurement strategy and a common practice in the retail industry namely the use of slotting allowances and vendor managed inventory also discussed in the newsvendor context are the role of well known supply contracts such as returns contracts and revenue sharing contracts in procurement auctions the scenarios where the buyer and suppliers may possess asymmetric information about the demand distribution and how the cost of supply demand mismatch is affected by supply side competition finally this paper compares the optimal procurement strategy with a simpler but suboptimal strategy where the buyer first determines a purchase quantity and then seeks the lowest cost supplier for the quantity in an auction

the price of launching a new product empirical evidence on factors affecting the relative magnitude of slotting allowances slotting allowances are a relatively recent trend particular to the retail food industry these allowances are lump sum up front transfer payments from manufacturer to retailer when the manufacturer launches a new product the practice has attracted some scrutiny because of uncertainty about its purposes and consequences we draw from the extant literature to identify factors that potentially influence the relative magnitude of slotting allowances based on analysis of primary survey data from retailers and manufacturers we observe that charging and paying of slotting allowances are affected by the relative strength of the players among retailers the relative magnitude of slotting fees increases with retailers informational advantage over the manufacturer about the likely success of the new product even when retailers recognize that the product is likely to be successful additionally and consistent with the first finding retailers with lower costs i e potentially more efficient and powerful retailers received higher slotting allowances furthermore retailers charge higher slotting fees even when concerns about manufacturers fulfilling postlaunch advertising commitments are minimal implying that relatively powerless manufacturers are asked to provide credible commitments regarding postlaunch activitiesand are asked to pay relatively high slotting fees among manufacturers the relative magnitude of slotting fees paid is lower for those who have a strong market share position we discuss the theoretical managerial and public policy implications of our findings

on the benefits of pooling in production inventory systems we study inventory pooling in systems with symmetric costs where supply lead times are endogenously generated by a finite capacity production system we investigate the sensitivity of the cost advantage of inventory pooling to various system parameters including loading service levels demand and production time variability and structure of the production system the analysis reveals differences in how various parameters affect the cost reduction from pooling and suggests that these differences stem from the manner in which the parameters influence the induced correlation between lead time demands of the demand streams we compare these results with those obtained for pure inventory systems where lead times are exogenous we also compare inventory pooling with several forms of capacity pooling

auctions with endogenous quantity this article studies auctions in which several sellers compete for the right to sell to a market characterized by a negatively sloped demand curve in this environment the quantity traded becomes endogenous this effect leads to three results concerning the outcomes of open versus first price sealed bid auctions first an open auction yields a higher expected price than does sealed bidding second and more important the open auction captures less of the potential gains from trade than does the sealed bid auction third for broad classes of demand curves the efficiency gains from switching to sealed bids from an open auction accrue to both sellers and the buyer so that all concerned parties would agree to the change a direct application of the theory is to procurement the heavy use of sealed bidding in procurement is seen as rational in light of these results auction models with endogenous quantity could be an alternative to price setting oligopoly models for the study of price formation in general for the latter impose strong information requirements on agents and yield only equilibrium price vectors not equilibrium processes for determining prices

decentralized procurement in light of strategic inventories the centralization versus decentralization choice is perhaps the quintessential organizational structure decision in the operations realm this choice is particularly critical when it comes to the procurement function why firms may opt to decentralize procurement has been often studied and confirmed to be a multifaceted choice this paper complements existing studies by detailing the trade offs in the centralization versus decentralization decision in light of firms strategic use of inventories to influence supplier pricing in particular we demonstrate that a firm s decision to cede procurement choices to its individual divisions can help moderate inventory levels and provide a natural salve on supply chain frictions this paper was accepted by serguei netessine operations management

social status culture and economic performance in analysing the differences in productive capacity among economies it is usual to concentrate on the physical aspects of the population the different attributes of capital including human capital and on the available production technologies societies also differ in culture in ways which are relevant for economic performance the sociological literature recognises that different occupations have different social status and that workers benefit not only from the wage they receive but also from being associated with a particular occupation cultural differences among societies may translate into different status of occupations and can therefore affect the choice of education and occupation and consequently the equilibrium level of output and wages conversely the economic choices of individuals influence the social status of occupations in particular it is well established by sociological research that the social status of an occupation is influenced by economic attributes such as the average wage and the average level of education in the occupation a major objective of our work is to illustrate that sociological and economic approaches can be combined within a unified framework this is in contrast to some social scientists who view the two approaches as competing with each other phelpsbrown i 977 ch 4 in this paper we construct a simple general equilibrium model in which both wages and status are determined endogenously we show that changes in the demand for status triggered by changes in preferences or in income distribution influence the wage structure the level of aggregate output and economic welfare the link between status and aggregate output is created by the fact that differences in occupational status imply occupational wage differences among workers of the same skill the larger is the demand for status the larger is the wage gap and the lower is aggregate output our discussion of status is closely related to the economic analysis of discrimination against ethnic or racial groups becker i 97 i arrow i 973

social rewards externalities and stable preferences this paper examines the role of social rewards as a corrective mechanism for activities which generate externalities the focus of this paper is on the circumstances under which social rewards provide effective and feasible incentive mechanism that may replace laws and regulations in particular social mechanism is effective only in a society in which individuals who care about their standing in the society can survive in the long run we show that the nature of economic interaction between matched players influences whether the socially minded individuals survive in the long run and restricts the effectiveness of social rewards however circumstances exist where the socially minded survive even though relative fitness is determined only by economic payoff 1998 elsevier science s a all rights reserved

when information dominates comparison abstract we propose a micro econometric evaluation of the relation between life satisfaction and income distribution using a balanced panel survey of the russian population russian longitudinal monitoring survey rlms running from 1994 to 2000 covering 4685 individuals we show that in the context of the very volatile russian environment hirschman s q j econ 87 1973 544 tunnel effect conjecture seems to be confirmed variables reflecting income distribution do not influence satisfaction through social comparisons individuals rather seem to use their informational content in order to form their expectations the reference group s income thereby exerts a positive influence on individual satisfaction which contrasts with other studies on the subject inequality indices do not affect individual welfare

a supplier s optimal quantity discount policy under asymmetric information in the supply chain literature an increasing body of work studies how suppliers can use incentive schemes such as quantity discounts to influence buyers ordering behaviour thus reducing the supplier s and the total supply chain s costs various functional forms for such incentive schemes have been proposed but a critical assumption always made is that the supplier has full information about the buyer s cost structure we derive the optimal quantity discount policy under asymmetric information and compare it to the situation where the supplier has full information

job satisfaction and co worker wages status or signal we use matched employer employee panel data to show that individual job satisfaction is higher when other workers in the same establishment are better paid this runs counter to substantial existing evidence of income comparisons in subjective well being we argue that the difference hinges on the nature of the reference group we here use co workers their earnings not only induce jealousy but also provide a signal about the worker s own future earnings in our data this positive future earnings signal outweighs any negative status effect this phenomenon is stronger for men and in the private sector but weaker for those nearer retirement

the effect of the interbank network structure on contagion and common shocks abstract this paper proposes a dynamic multi agent model of a banking system with central bank banks optimize a portfolio of risky investments and riskless excess reserves according to their risk return and liquidity preferences they are linked via interbank loans and face stochastic deposit supply comparing different interbank network structures it is shown that money centre networks are more stable than random networks evidence is provided that the central bank stabilizes interbank markets in the short run only systemic risk via contagion is compared with common shocks and it is shown that both forms of systemic risk require different optimal policy responses

quantity discounts managerial issues and research opportunities marketing managers frequently administer pricing policies involving substantial quantity discounts however our understanding of the precise role of these discounts and their design is quite limited this paper reviews and integrates the economics and marketing literature and presents a detailed analysis of the policies of four firms in order to i specify the variety of motivations for quantity discounts ii provide guidelines to managers in designing quantity discount schedules and iii set out the most fruitful directions for future research

adaptation anticipation and social interaction in happiness an integrated error correction approach abstract adaptation anticipation and social reference effects on happiness are strongly interrelated phenomena however in the existing empirical literature these phenomena are mainly studied in isolation from each other therefore using soep panel data for the years 1984 2007 this study offers an integrated investigation of the implications of these three phenomena for the dynamics of individual life satisfaction i focus on the short and long run effects of income and social reference income but i control for similar dynamics with respect to a large set of control variables gmm estimates for instrumented income variables in an error correction model indicate an insignificant future income effect a significant and positive current income effect and an insignificant long run income effect on life satisfaction with significant hedonic adaptation social reference income has a significant negative and strong impact in the long run but not in the short run consequently increasing own income and reference income by the same percentage tends to have an insignificant effect in the long term but a significant and positive effect in the short term adaptation to an income shock and reinforcement of a reference income shock take place for more than 90 within three years on the basis of these results a more comprehensive explanation of the easterlin paradox than those given in the literature is presented

liaisons dangereuses increasing connectivity risk sharing and systemic risk the recent financial crisis poses the challenge to understand how systemic risk arises endogenously and what architecture can make the financial system more resilient to global crises this paper shows that a financial network can be most resilient for intermediate levels of risk diversification and not when this is maximal as generally thought so far this finding holds in the presence of the financial accelerator i e when negative variations in the financial robustness of an agent tend to persist in time because they have adverse effects on the agent s subsequent performance through the reaction of the agent s counterparties 2012 elsevier b v all rights reserved

jealousy and equilibrium overconsumption the idea that the happiness of an individual depends upon the consumption of others is widely viewed as an important feature of our shared social existence recent research in finance has used this idea through consumption externalities to explore asset pricing anomalies consumption externalities potentially break the link between pareto optimality and competitive equilibria and open the door for beneficial government intervention e g lars ljungqvist and harald uhlig 2000 in this paper we delineate two effects that a consumption externality may have an increase in aggregate consumption may a raise the marginal utility of individual consumption relative to leisure and or b lower an individual s utility level we refer to a as keeping up with the joneses henceforth kuj following jordi gali 1994 and we refer to b as jealousy jealousy is a distinct concept from kuj under kuj an individual derives greater utility from additional own consumption relative to leisure when others consume more at the same time higher per capita consumption holding fixed individual consumption can trigger either jealousy so that individual utility falls or admiration so that individual utility rises in section i of this paper we show that jealousy implies that the laissez faire equilibrium consumption level is greater than the optimal level whether preferences exhibit kuj is not necessary for this main result intuitively in the presence of jealousy consumption is similar to pollution overpollution exists because individuals do not take into account the cost of polluting on others not because an increase in economywide pollution makes the return to individual polluting higher similarly overconsumption exists because individuals do not take into account the negative effect of own consumption on jealous others things go in the opposite direction when individuals are admiring in section ii we consider a functional form that encompasses several existing models we show that jealousy determines the optimal tax to correct overconsumption and that kuj is mainly important for asset pricing

economics and identity this paper considers how identity a person s sense of self affects economic outcomes we incorporate the psychology and sociology of identity into an economic model of behavior in the utility function we propose identity is associated with different social categories and how people in these categories should behave we then construct a simple game theoretic model showing how identity can affect individual interactions the paper adapts these models to gender discrimination in the workplace the economics of poverty and social exclusion and the household division of labor in each case the inclusion of identity substantively changes conclusions of previous economic analysis

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

social network structure segregation and equality in a labor market with referral hiring abstract we examine the effects of social network structure on inequality in a model of referral hiring that focuses on groups rather than individuals more random social networks yield higher employment rates than less random ones if the population is integrated or job vacancy information flows are random however less random social networks allow for better containment of job information inside a group in a segregated population with non random job information flows resulting in higher employment rates we report on the robustness of these findings with respect to the size of minority and majority groups and the amount of social segregation

procuring fast delivery sole sourcing with information asymmetry this paper studies a queuing model in which a buyer sources a good or service from a single supplier chosen from a pool of suppliers the buyer seeks to minimize the sum of her procurement and operating costs the latter of which depends on the suppliers lead time the selected supplier can regulate his lead time but faster lead times are costly although the buyer selects the supplier to source from possibly via an auction and dictates the contractual terms the buyers bargaining power is limited by asymmetric information the buyer only has an estimate of the suppliers costs while the suppliers know their costs precisely we identify a procurement mechanism that minimizes the buyers total cost procurement plus operating this mechanism is not simple it is a numerically derived nonlinear menu of contracts therefore we study several simpler mechanisms e g one that charges a late fee and one that specifies a fixed lead time requirement no menus no nonlinear functions we find that simple mechanisms are nearly optimal generally within 1 of optimal because asymmetric information conveys significant protection to the supplier i e the supplier is able to retain most of the benefit of having a lower cost renegotiation is another concern with the optimal mechanism because it does not minimize the supply chains cost the firms can be both better off if they throw away the contract and start over interestingly we find that the potential gain from renegotiation is relatively small with either the optimal or our simple mechanisms we conclude that our simple mechanisms are quite attractive along all relevant dimensions buyers performance supply chain performance simplicity and robustness to renegotiation

relative deprivation and migration preferences in this letter we overcome the existing shortages with respect to the assignment of individuals to reference groups and are the first to show that individual aversion to relative deprivation plays a decisive role in shaping migration preferences

identifying vulnerability to poverty a critical survey in the economic literature on poverty various methods have been proposed for measuring a phenomenon known as vulnerability however after more than a quarter century of research no consensus has been reached on how to identify such vulnerable individuals within a given population some misunderstandings have also arisen from the overlapping of other closely related concepts such as the expectation of being poor expected poverty multi period poverty and risk exposure this paper offers a detailed conceptual discussion on vulnerability to poverty and its related elements reviewing a wide range of identifying criteria provided in the literature it is found that according to the state of the art in this field of research two key elements stand out in identifying vulnerable individuals an expected well being below the poverty line and a relevant risk of falling into poverty due to downside deviation from a reference level of well being the traditional classification of vulnerability approaches has been updated into four groups i those that stress the element of exposure to risk ii those that emphasize the element of expected poverty iii those that define vulnerability through a utility gap and iv those that are supported by a mean risk dominance criterion

does pooling purchases lead to higher profits consider two buyers facing uncertain demands who need to purchase a common critical component from a powerful sole source supplier if the two buyers pool their demands and purchase from the supplier as a single entity will they necessarily earn higher profits than purchasing separately we show that when a powerful supplier extracts profits from the buyers through optimal contract design the demand variability reduction achieved by pooling can harm the buyers because it makes extracting profits easier for the supplier we characterize cases when pooling is disadvantageous and also provide insights into when it is still advantageous our result is in contrast to the case where the price of the component is exogenous typically assumed in most of the pooling literature in which case pooling demands is always beneficial for the buyers

people do not adapt new analyses of the dynamic effects of own and reference income on life satisfaction abstract do people adapt to changes in income in contradiction to much of the previous literature i find no evidence of adaptation to income in gsoep 1984 2015 and ukhls 1996 2017 data furthermore i find that people also do not adapt to changes in reference income instead reference income effects may be subject to reinforcement over time following the empirical approach of vendrik 2013 i obtain these findings by estimating life satisfaction equations in which contemporaneous and lagged terms for a respondent s own household income and their estimated reference income are simultaneously entered additionally i instrument for own income and include lags of a large set of controls what was found to be adaptation to raw household income in previous studies turns out to have been driven by reinforcement of an initially small negative effect of household size that grows large over time implications of this result for the estimation of equivalence scales with subjective data are discussed

optimal clearing arrangements for financial trades abstract clearinghouses support financial trades by keeping records of transactions and by providing liquidity through short term credit that participants clear periodically we study efficient clearing arrangements for exchanges where traders must clear with a clearinghouse and for over the counter otc markets where traders can clear bilaterally when clearing is costly it can be efficient to subsidize otc clearing by charging a higher clearing price for transactions conducted on exchanges the clearinghouse then operates across both markets since clearinghouses offer credit intertemporal incentives are needed to ensure settlement when liquidity costs increase concerns about default lead to a tightening of liquidity provision

rfq auctions with supplier qualification screening we consider a manufacturer using a request for quotes rfq reverse auction in combination with supplier qualification screening to determine which qualified supplier will be awarded a contract supplier qualification screening is costly for the manufacturer for example involving reference checks financial audits and on site visits the manufacturer seeks to minimize its total procurement costs i e the contract payment plus qualification costs although suppliers can be qualified prior to the auction prequalification we allow the manufacturer to delay all or part of the qualification until after the auction postqualification using an optimal mechanism analysis we analytically explore the trade offs between varying levels of pre and postqualification although using postqualification causes the expected contract payment to increase bids from unqualified suppliers are discarded we find that standard industrial practices of prequalification can be improved upon by judicious use of postqualification particularly when supplier qualification screening is moderately expensive relative to the value of the contract to the manufacturer

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

heterogeneous beliefs in over the counter markets the behavior and stability of over the counter markets is of central concern to regulators little is known however about how the structure of these markets determine their properties in this paper we consider an over the counter market populated by boundedly rational heterogeneous traders in which the structure is represented by a network stability is found to decrease as the market becomes less well connected however the configuration of connections has a significant effect the presence of hubs such as those found in scale free networks increases stability and decreases volatility whilst small world short cut links have the opposite effect volatility in the fundamental value increases market volatility however volatility in the riskless asset returns has an ambiguous effect

information percolation with equilibrium search dynamics we solve for the equilibrium dynamics of information sharing in a large population each agent is endowed with signals regarding the likely outcome of a random variable of common concern individuals choose the effort with which they search for others from whom they can gather additional information when two agents meet they share their information the information gathered is further shared at subsequent meetings and so on equilibria exist in which agents search maximally until they acquire sufficient information precision and then search minimally a tax whose proceeds are used to subsidize the costs of search improves information sharing and can in some cases increase welfare on the other hand endowing agents with public signals reduces information sharing and can in some cases decrease welfare

individual well being in a dynamic perspective this paper explores the determinants of individual well being as measured by self reported levels of satisfaction with income making full use of the panel data nature of the german socio economic panel we provide empirical evidence for well being depending on absolute and on relative levels of income in a dynamic framework this finding holds after controlling for other influential factors in a multivariate setting the main novelty of the paper is the consideration of dynamic aspects individual s own history as well as the relative income performance with respect to the others living in the society under analysis do play a major role in the assessment of well being

emulation inequality and work hours was thorsten veblen right we investigate the manner in which a desire to emulate the rich influences individuals allocation of time between labour and leisure greater inequality inducing longer work hours as a result data on work hours in ten countries over the period 1963 98 show that greater inequality is indeed associated longer work hours these veblen effects are large and the estimates are robust using country fixed effects and other specifications because consumption inequality is a public bad a social welfare optimum cannot be implemented by a flat tax on consumption but may be accomplished by more complicated progressive consumption taxes at the close of the nineteenth century thorsten veblen proposed what he termed pecuniary emulation as the foundation of a theory of consumption spending he maintained is driven by relative status considerations that is by the desire to be a particular type of person as much as bythedesire to enjoytheconsumer goodsper se the joneses with whom one had to keep up were not the neighbours but the rich theirleveloflivingbecamethenever attainableobjectiveinaconsumptionarmsrace among the less well to do in the theory of the leisure class he wrote the motive is emulation the stimulus of an invidious comparison especially in any community in which class distinctions are quite vague all canons and reputability and decency and all standards of consumption are traced back by insensible gradations to the usages and thoughts of the highest social and pecuniary class the wealthy leisure class 1934 p 81 while valued by some economists as capturing common sense aspects of consumption as a form of status seeking veblen s view of social preferences was soon eclipsed by the simpler and more tractable neoclassical theory of the consumer relegated to the underworld of economics veblen s ideas have nonetheless resonated over the ensuing years in the writing of duesenberry 1949 leibenstein 1950 and galbraith 1958 at the middle of the past century and schor 1998