government policy with time inconsistent voters behavioral economics presents a paternalistic rationale for benevolent government intervention this paper presents a model of public debt where voters have self control problems and attempt to commit using illiquid assets in equilibrium government accumulates debt to respond to individuals desire to undo their commitments which leads individuals to rebalance their portfolio in turn feeding into a demand for further debt accumulation as a consequence i large and distortionary government debt accumulation occurs and ii banning illiquid assets could improve individuals welfare these results offer a new rationale for balanced budget rules in constitutions to restrain governments responses to voters self control problems

consumer exploitation and notice periods firms often set long notice periods when consumers cancel a contract and sometimes do so even when the costs of changing or canceling the contract are small we investigate a model in which a firm offers a contract to consumers who may procrastinate canceling it due to naive present bias we show that the firm may set a long notice period to exploit naive consumers

the carbon footprint of uk households 1990 2004 a socio economically disaggregated quasi multi regional input output model this paper presents a socio economically disaggregated framework for attributing co2 emissions to people s high level functional needs based around a quasi multi regional input output qmrio model the study in theory takes into account all co2 emissions that arise from energy used in production of goods and services to satisfy uk household demand whether the emissions occur in the uk or abroad results show that co2 emissions attributable to households were 15 above 1990 levels in 2004 and that although absolute decoupling occurred between household expenditure and co2 during the uk s switch from coal to gas in the early 1990s since then only slight relative decoupling is evident the proportion of co2 that arises outside uk borders in support of uk consumption is rising and reducing these emissions is particularly problematic in a global trading system investigation into the carbon footprint of different segments of the uk population shows wide variation the segment with the highest carbon footprint emits 64 more co2 than the segment with the lowest results show that recreation and leisure are responsible for over one quarter of co2 emissions in a typical uk household in 2004 we conclude that expanding lifestyle aspirations are significant factors in driving household co2 emissions but the study also emphasizes that attention must be paid to the infrastructures and institutions that result in considerable amounts of co2 being locked up in basic household activities through which people meet their everyday needs for subsistence protection and communication with family and friends the findings highlight the sheer scale of the challenge facing uk policy makers and suggest that policies should be targeted towards segments of society responsible for the highest carbon footprints

time preferences and mortgage choice abstractmortgage decisions have important consequences for consumers lenders and the state of the economy more generally mortgage decisions are also prototypical of consumer financial choices that involve a stream of expenditures and consumption occurring across time the authors use heterogeneity in time preferences for both immediate present bias and long term outcomes to explain a sequence of mortgage decisions including mortgage choice and the decision to abandon a mortgage the authors employ an analytic model and a survey of mortgaged households augmented by zip code level house price and foreclosure data the model suggests and data confirm that consumers with greater present bias and long term discounting tend to choose mortgages that minimize up front costs however greater present bias decreases homeowners willingness to abandon a mortgage locking them into the contract long term patience increases mortgage abandonment this reversal across mortgage decisions is difficult for alternati

overconfident consumers in the marketplace when consumers sign contracts expectations about future usage of the product or service matter for instance the value provided by car insurance depends on how likely a consumer believes she is to file a claim the value provided by a gym membership depends on how often a consumer anticipates going to the gym and the value provided by a cellular phone contract depends on how many gigabytes of data a consumer anticipates using the standard modeling paradigm makes the expedient assumption that consumers have rational expectations imposing rational expectations drastically simplifies models and eliminates the need to directly measure beliefs as they coincide with the distribution of observed outcomes yet a large literature shows that consumer beliefs often deviate substantially from rational expectations in systematic ways this has important consequences for contract design firm profits consumer welfare and public policy the term overconfidence is used broadly in the psychology literature referring to both overoptimism and overprecision overoptimistic individuals overestimate their own abilities or prospects either in absolute terms or in comparison to others in contrast overprecise individuals place overly narrow confidence intervals around forecasts thereby underestimating uncertainty these biases can lead consumers to misforecast their future product usage or to overestimate their abilities to navigate contract terms in consequence consumer overconfidence causes consumers

information school choice and academic achievement evidence from two experiments we examine a natural experiment and a field experiment that provided direct information on school test scores to lower income families in a public school choice plan receiving information significantly increases the fraction of parents choosing higher performing schools parents with high scoring alternatives nearby were more likely to choose nonguaranteed schools with higher test scores using random variation from each experiment we find that attending a higher scoring school increases student test scores the results imply that school choice will most effectively increase academic achievement for disadvantaged students when parents have easy access to test score information and good options from which to choose

how hyperbolic discounting preference affects chinese consumers consumption choice between conventional and electric vehicles abstract this paper presents a theoretical model and addresses several issues related to life cycle cost analysis to illustrate how time inconsistent preferences affect consumer choice the particular case study selects involved consumer choice between a vehicle with high initial acquisition cost but low ownership cost e g an electric vehicle ev and one with a low initial acquisition cost but high ownership cost e g a conventional internal combustion engine vehicle icev to test our theoretical analysis we conduct an empirical study on how time discounting rates affect consumer choice between icevs and evs with different initial cost ratios from the survey results we find that individuals with higher present bias showed irrational purchase behavior even when controlling for wealth level specifically people making some stronger bias to present decisions chose higher total cost icevs with lower initial cost but higher ownership cost over lower total cost evs with higher initial cost and lower ownership cost however people s long term discount is not correlated with irrational vehicle purchase behavior furthermore we study the present bias and long term discount rate in one scenario and found present bias to be correlated with irrational behavior

selling to overconfident consumers consumers may overestimate the precision of their demand forecasts this overconfidence creates an incentive for both monopolists and competitive firms to offer tariffs with included quantities at zero marginal cost followed by steep marginal charges this matches observed cellphone service pricing plans in the us and elsewhere an alternative explanation with common priors can be ruled out in favor of overconfidence based on observed customer usage patterns for a major us cellular phone service provider the model can be reinterpreted to explain the use of flat rates and late fees in rental markets and teaser rates on loans nevertheless firms may benefit from consumers losing their overconfidence

the role of collateral in credit markets with imperfect information abstract the paper analyzes the structure of credit market equilibrium under imperfect information collateralization and credit rationing are compared as alternative means to cope with problems of adverse selection and moral hazard it is shown that lenders may use collateral as a self selection and incentive mechanism rationing occurs only if the borrowers collaterizable wealth is too small to allow perfect sorting or to create sufficiently strong incentives whenever there is rationing in an equilibrium some borrowers are charged the maximum amount of collateral

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

job search and hyperbolic discounting structural estimation and policy evaluation this paper estimates the structural parameters of a job search model with hyperbolic discounting and endogenous search effort it estimates quantitatively the degree of hyperbolic discounting and assesses its implications for the impact of various policy interventions aimed at reducing unemployment the model is estimated using data on unemployment spells and accepted wages from the national longitudinal survey of youth nlsy the likelihood function explicitly incorporates all the restrictions implied by the optimal dynamic programming solution to the model both observed and unobserved heterogeneity are accounted for the results point to a substantial degree of hyperbolic discounting especially for low and medium wage workers the structural estimates are also used to evaluate alternative policy interventions for the unemployed estimates based on a model with exponential discounting may lead to biased inference on the economic impact of policies jel c6 c73 d90 j64 j68

regulating consumer financial products evidence from credit cards we analyze the effectiveness of consumer financial regulation by considering the 2009 credit card accountability responsibility and disclosure card act we use a panel data set covering 160 million credit card accounts and a difference in differences research design that compares changes in outcomes over time for consumer credit cards which were subject to the regulations to changes for small business credit cards which the law did not cover we estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1 6 of average daily balances with a decline of more than 5 3 for consumers with fico scores below 660 we find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit taken together we estimate that the card act saved consumers 11 9 billion a year we also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments we detect a small increase in the share of accounts making the 36 month payment value but no evidence of a change in overall payments jel codes d0 d14 g0 g02 g21 g28 l0 l13 l15

job search and impatience workers who are more impatient search less intensively and set lower reservation wages the effect of impatience on exit rates from unemployment is therefore unclear if agents have exponential time preferences the reservation wage effect dominates for sufficiently patient individuals so increases in impatience lead to higher exit rates the opposite is true for agents with hyperbolic time preferences using two large longitudinal data sets we find that impatience measures are negatively correlated with search effort and the unemployment exit rate and are orthogonal to reservation wages impatience substantially affects outcomes in the direction predicted by the hyperbolic model

consumer biases and mutual ownership abstract we show how ownership of the firm by its customers as well as nonprofit status can prevent firms from using contractual terms that take advantage of consumer biases by eliminating an outside residual claimant with control over the firm these alternatives to investor ownership reduce the incentive of the firm to offer such terms however customers who are unaware of their behavioral biases may fail to recognize this advantage of non investor owned firms we present evidence from the consumer financial services market that supports our theory comparing contract terms we find that mutually owned firms offer lower penalties such as default interest rates and higher up front prices such as introductory interest rates than do investor owned firms however consumers most vulnerable to these penalties are no more likely to use mutually owned firms

commitment flexibility and optimal screening of time inconsistency this paper develops a theory of optimal provision of commitment devices to people who value both commitment and flexibility and whose preferences differ in the degree of time inconsistency if time inconsistency is observable both a planner and a monopolist provide devices that help each person commit to the efficient level of flexibility however the combination of unobservable time inconsistency and preference for flexibility causes an adverse selection problem to solve this problem the monopolist and possibly the planner curtail flexibility in the device for a more inconsistent person at both ends of the efficient choice range moreover they may have to add unused options to the device for a less inconsistent person and also distort his actual choices this theory has normative and positive implications for private and public provision of commitment devices

paying not to go to the gym how do consumers choose from a menu of contracts we analyze a novel dataset from three u s health clubs with information on both the contractual choice and the day to day attendance decisions of 7 752 members over three years the observed consumer behavior is difficult to reconcile with standard preferences and beliefs first members who choose a contract with a flat monthly fee of over 70 attend on average 4 3 times per month they pay a price per expected visit of more than 17 even though they could pay 10 per visit using a 10 visit pass on average these users forgo savings of 600 during their membership second consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year this is surprising because monthly members pay higher fees for the option to cancel each month we also document cancellation delays and attendance expectations among other findings leading explanations for our findings are overconfidence about future self control or about future efficiency overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences

are younger generations higher carbon emitters than their elders inequalities generations and co2 emissions in france and in the usa abstract proper understanding of the determinants of household co2 emissions is essential for a shift to sustainable lifestyles this paper explores the impacts of date of birth and income on household co2 emissions in france and in the usa direct co2 emissions of french and american households are computed from consumer budget surveys over the 1980 2000 time period age period cohort estimators are used to isolate the generational effect on co2 emissions i e the specific effect of date of birth independent of the age the year and other control variables the paper shows that french 1935 55 cohorts have a stronger tendency to emit co2 than their predecessors and followers the generational effect is explained by the fact that over their lifespan french baby boomers are better off than other generations and live in energy and carbon inefficient dwellings in the usa the absence of a generational effect on co2 emissions can be explained by the fact that intergenerational income inequalities are weaker than in france persistence of the generational effect once income and housing type is controlled for in france can be explained by the difficulty for french 1935 55 cohorts to adapt to sober energy consumption patterns

packaging of sin goods commitment or exploitation abstract we consider the shopping and consumption decision of an individual with a self control problem the consumer believes that restricting the consumption of a sinful product such as chips is in his long run interest but when facing the actual decision he is tempted to overeat we ask how firms react to such self control problems and possibly exploit them by offering different package sizes in a competitive market either one or three package sizes are offered in contrast to common intuition the large and not the small package might be a commitment device the latter may serve to exploit the naive consumer

tax incidence when individuals are time inconsistent the case of cigarette excise taxes abstract one of the most cogent criticisms of excise taxes is their regressivity with lower income groups spending a much larger share of their income on goods such as cigarettes than do higher income groups we argue that traditional quantity based measures of incidence are only appropriate under a very restrictive time consistent model of consumption of sin goods a model that is much more consistent with existing evidence on smoking decisions is a time inconsistent formulation where excise taxes on cigarettes serve a self control function that is valued by smokers who would like to quit but cannot this self control function benefits lower income groups more since they have a significantly higher price sensitivity of smoking calibrations show that as a result cigarette taxes are much less regressive than previously assumed and are even progressive for a wide variety of parameter values

unplanned purchases and retail competition i propose a framework in which consumers have biased beliefs about their future purchase probabilities leading them to make unplanned purchases us ing this framework i examine the phenomenon of below cost pricing and the welfare eects of banning it when the market is covered a ban on below cost pricing raises social surplus although consumers need not gain they are only guaranteed to ben et if the market is perfectly competitive when the market is not covered a ban always hurts at least some consumers also there is a pro competitive justica tion for the observation that larger rms sometimes charge below cost on the core product lines of smaller rms consumer bias is crucial for this justication multi product retailers sometimes sell certain products beneath cost with the hope of at tracting additional customers who will also buy other higher margin items this practice often referred to as loss leading is controversial with below cost pricing having been banned in a number of countries including belgium germany france and ireland and in approximately half of all us states 1 many us cities also have such prohibitions in this article i examine the welfare consequences of prohibitions on below cost pricing in a market where multi product retailers compete for boundedly rational consumers who practice one stop shopping that is visit at most one store when rivals are symmetric and the market is covered so that all consumers shop a ban on loss leading raises social surplus but when the market is not covered a ban presents a social welfare tradeo fewer consumers choose to shop although those who do generate higher levels of social surplus perhaps surprisingly for those consumers who shop both before and after a ban a ban is guaranteed to make them better o if the market is perfectly competitive but otherwise may harm them taken together these results indicate that it is simplistic to argue that by limiting the scope of competition below cost pricing bans must hurt consumers and society but i also assess below cost pricing laws in the presence of asymmetric competition as when a large rm with a full product line competes against a small rm with a limited product

luxury or lock in an exploration of unsustainable consumption in the uk 1968 to 2000 abstract sustainable consumption demands the ability to understand the patterns of resource consumption associated with changing lifestyles this paper explores changes in resource consumption patterns in the uk between 1968 and 2000 using an environmental input output model the paper tracks the fossil resource requirements attributable to 8 high level functional purposes and finds that overall fossil resource consumption increased 35 over the 32 year period the four functional purposes most closely related to the provision of basic material needs showed little change over the period the bulk of the increase in fossil resource requirements was attributable to two specific functional purposes 1 recreation and entertainment 2 commuting and business travel the authors discuss the relevance of these findings for the continuing debate over the question whether rising consumption is being driven by expanding social aspirations luxury or whether it is the result of structural lock in

carbon taxation when climate affects productivity optimal carbon taxation is evaluated in a model where climate change affects productivity with a numerical us economy model with preexisting taxes the optimal carbon tax is found to exceed marginal social damage by 53 percent and marginal private damage the sum of households marginal willingness to pay by 73 percent the welfare gain from optimal carbon taxation is estimated at 3 58 billion per year when marginal damages are 40 ton employment also increases setting the carbon tax at the pigouvian rate raises welfare by only 3 17 billion the contrasting results in the tax interaction literature are due to the use of marginal private damage when applied to amenity externalities

the political economy of regulation in markets with naive consumers in a model of a competitive industry selling base goods and add ons we investigate the conditions under which citizen consumers will support policies that eliminate behavioral inefficiencies induced by naive consumers unregulated competitive markets have two effects they produce deadweight losses and they redistribute income away from biased consumers both unbiased and naive consumers believe that they benefit from this redistribution the naive consumers are wrong so support for efficiency improving regulation is limited extending our model to consumers with partial sophistication about their naivete we predict patterns of regulation consistent with the form and timing of the credit card accountability responsibility and disclosure card act of 2009

time inconsistency and welfare program participation evidence from the nlsy we empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time inconsistent preferences using panel data on the choices of single women with children from the nlsy 1979 we provide estimates of the degree of time inconsistency and of its influence on the welfare take up decision with these estimates we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

does ecological economics have a future contradiction and reinvention in the age of climate change abstract this paper addresses the role of neoclassical methodologies in ecological economics and the contradictions these methodologies pose to the field s critical founding principles we first consider robert costanza s treatment of nicholas stern s global deal and then survey climate change related articles published in this journal over the past five years this survey reveals how mainstream neoclassical methodologies dominate discourse and do so by marginalizing more critical political economy analyses this situation imperils the field s founding vision of a no growth steady state it also fails to address the related growth dynamics of capitalism without such a critical treatment the field s formal embrace of methodological pluralism actually entails an ideological empiricism that renders ecological economics theoretically incoherent this situation undermines the field s historical promise as an alternative economic paradigm ecological economics now faces a problematic future its survival in a form faithful to its founding vision will require an explicit choice to address its internal contradictions and reinvent itself in ways relevant to our contemporary context without such a choice ecological economics will likely succumb to an implicit acceptance of the hegemony of mainstream economic methodologies and their pro growth imperatives

protecting buyers from fine print buyers typically do not read the fine print in contracts providing an incentive for a monopolist to draft terms which are unfavorable to buyers we model this problem proving that trade must then be inefficient we show that regulation which mandates efficient terms raises welfare more interestingly regulations which prohibit the least efficient terms may reduce welfare by inducing the monopolist not to offer favorable terms we extend these results to markets in which some buyers are naive showing that prohibiting the least efficient terms may also harm the naive buyers

sin licenses revisited abstract we analyze personalized regulation in the form of sin licenses to correct the distortion in the consumption of a harmful good when consumers suffer from varying degrees of self control problems we take into account preference uncertainty which generates a trade off between flexibility and commitment provided by sin licenses we also account for the possibility that consumers may trade the sin good in a secondary market which partially erodes the commitment power of sin licenses we show that if sophisticated consumers are allowed to choose any general individualized pricing scheme for sin goods they will choose a system of sin licenses nevertheless sin licenses do not implement the social optimum in our general setting we derive a simple criterion for assessing whether switching to a system of sin licenses improves welfare over linear sin taxes

income inequality and carbon consumption evidence from environmental engel curves abstract i investigate the relationship between income inequality and the carbon dioxide co2 content of consumption i quantify the co2 content of household expenditure using input output analysis and estimate environmental engel curves eecs which describe the income emissions relationship using eecs for the united states between 1996 and 2009 i decompose the change in co2 over time and the distribution of emissions across households in both cases income is an important driver of household carbon finally i describe a potential equity pollution dilemma progressive income redistribution may raise the demand for aggregate greenhouse gas emissions i estimate that transfers raise emissions by 5 1 at the margin and by 2 3 under complete redistribution

addiction and cue triggered decision processes we propose a model of addiction based on three premises 1 use among addicts is frequently a mistake 2 experience sensitizes an individual to environmental cues that trigger mistaken usage 3 addicts understand and manage their susceptibilities we argue that these premises find support in evidence from psychology neuroscience and clinical practice the model is tractable and generates a plausible mapping between behavior and the characteristics of the user substance and environment it accounts for a number of important patterns associated with addiction gives rise to a clear welfare standard and has novel implications for policy

micro finance competition motivated micro lenders double dipping and default abstract we develop a tractable model of competition among socially motivated mfis so that the objective functions of the mfis put some weight on their own clients utility we find that the equilibrium involves double dipping i e borrowers taking multiple loans from different mfis whenever the mfis are relatively profit oriented further double dipping necessarily leads to default and inefficiency and moreover borrowers who face relatively higher transactions costs optimally decide to double dip interestingly an increase in mfi competition can increase the extent of double dipping and default further the interest rates may go either way with the interest rate likely to increase with more competition if the mfis are very socially motivated

intra generational equity and sustainable welfare a time series analysis for the uk and sweden this paper discusses the importance of intra generational equity to sustainable development it outlines a number of methodologies for measuring income inequality in the economy and presents several possible ways of incorporating the impact of distributional effects into measures of welfare in the economy the authors highlight in particular an index developed by atkinson atkinson a b 1970 distributive politics and economic growth q j econ may 465 490 based on the social welfare model this method possesses two main advantages over other methods firstly it is expressed directly in terms of social well being secondly value judgements incorporated into the measure are made explicit through the parameter o which expresses society s degree of aversion to income inequality the paper calculates the value of the atkinson index for two case study countries sweden and the uk between 1950 and 1996 for a central estimate of o0 8 the results show that the welfare loss due to inequalities in the distribution of income varied between 5 and 10 for sweden and between 6 and 14 for the uk with the higher values coming towards the end of the period the paper explores the sensitivity of these results to changes in the value of o for the case of the uk and discusses the relevance of the work to the measurement of sustainable welfare 2000 elsevier science b v all rights reserved

optimal capital structure and investment decisions under time inconsistent preferences based on a continuous time model of quasi hyperbolic discounting this paper provides an analytically tractable framework of entrepreneurial firms capital structure and investment decisions under time inconsistent preferences inefficiency in both investment and default is caused due to time inconsistency if we view the time consistent benchmark as efficient compared to the standard trade off theory in corporate finance we clarify that debt financing under time inconsistent preferences brings a new trade off between the alleviation effect on investment inefficiency and the aggravation effect on default inefficiency the impact of time inconsistent preferences depends on the entrepreneurs belief regarding their future time inconsistent behavior i e sophisticated or naive concretely we find that naive entrepreneurs always choose higher leverages while sophisticated ones are more likely to choose lower leverages compared to the time consistent benchmark therefore time inconsistency can explain the observed leverage puzzle i e why firms choose different leverages even with similar fundamentals moreover we demonstrate that time inconsistent preferences delay investment and hasten default due to the interaction among the three effects option value effect payoff value effect and leverage effect in particular naive entrepreneurs invest later and default earlier than sophisticated ones leading to a shorter operating period these results support the empirical findings in entrepreneurial finance

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

measuring resource inequalities the concepts and methodology for an area based gini coefficient abstract although inequalities in income and expenditure are relatively well researched comparatively little attention has been paid to date to inequalities in resource use this is clearly a shortcoming when it comes to developing informed policies for sustainable consumption and social justice this paper describes an indicator of inequality in resource use called the ar gini the ar gini is an area based measure of resource inequality that estimates inequalities between neighbourhoods with regard to the consumption of specific consumer goods it is also capable of estimating inequalities in the emissions resulting from resource use such as carbon dioxide emissions from energy use and solid waste arisings from material resource use the indicator is designed to be used as a basis for broadening the discussion concerning food deserts to inequalities in other types of resource use by estimating the ar gini for a wide range of goods and services we aim to enhance our understanding of resource inequalities and their drivers identify which resources have highest inequalities and to explore trends in inequalities the paper describes the concepts underlying the construction of the ar gini and its methodology its use is illustrated by pilot applications specifically men s and boys clothing carpets refrigerators freezers and clothes washer driers the results illustrate that different levels of inequality are associated with different commodities the paper concludes with a brief discussion of some possible policy implications of the ar gini

prices as signals of product quality this paper is concerned with the provision of quality in markets in which consumers have only imperfect information the analysis focuses on a market for a product that can be produced at different quality levels all consumers prefer higher to lower quality but they may differ in their willingness to pay for quality producers can produce any quality they like but higher qualities are more costly to produce the information in this market is imperfect in the sense that the exact quality chosen by a firm is known only to the firm itself some information about the quality of a firm s product will however reach its potential customers even if they do not make any special effort to acquire it within the framework suggested here two conclusions are drawn first prices may serve as signals which exactly differentiate the available quality levels that is there exists a fulfilledexpectations equilibrium at which each price signals a unique quality level second the pricesignals are not arbitrary each price signal exceeds the marginal cost of producing the quality it signals such a mark up depends on the nature of the product specific information received by consumers the poorer the information the higher the mark up

optimal sin taxes abstract we investigate sin taxes on unhealthy items such as fatty foods that people may by their own reckoning consume too much of we employ a standard optimal taxation framework but replace the standard assumption that all consumers have 100 self control with an assumption that some consumers may have some degree of self control problems we show that imposing taxes on unhealthy items and returning the proceeds to consumers can generally improve total social surplus because such taxes counteract over consumption by consumers with self control problems while at the same time they naturally redistribute income to consumers with no self control problems who consume less such taxes can even create pareto improvements finally we demonstrate with some simple numerical examples that even if the population exhibits relatively few self control problems optimal taxes can still be large

attention driven demand for bonus contracts abstract in many markets supply contracts include a series of small regular payments made by consumers and a single large bonus that consumers receive at some point during the contractual period but if for instance its production costs exceed its value to consumers such a bonus creates inefficiencies we offer a novel explanation for the frequent occurrence of bonus contracts which builds on a model of attentional focusing our main result identifies market conditions under which bonus contracts should be observed while a monopolist pays a bonus to consumers if at all only for low value goods firms standing in competition always i e independent of the consumers valuation offer bonus contracts thus competition does not eliminate but rather exacerbates inefficiencies arising from contracting with focused agents common contract schemes in markets for electricity telephony and bank accounts are consistent with our model but cannot be reconciled with alternative approaches such as models on consumption smoothing quasi hyperbolic discounting or switching costs

life insurance and life settlement markets with overconfident policyholders abstract we analyze how the life settlement market the secondary market for life insurance may affect consumer welfare in a dynamic equilibrium model of life insurance with one sided commitment and overconfident policyholders in our model policyholders may lapse their life insurance policies when they lose their bequest motives however they are overconfident in the sense that they may underestimate the probability of losing their bequest motives we show that in the competitive equilibrium without life settlement overconfident consumers will buy life insurance contracts with too much reclassification risk insurance for later periods the life settlement market can impose a limit on the extent to which primary insurers can exploit overconfident consumers we show that the life settlement market may increase the equilibrium consumer welfare of overconfident consumers when they are sufficiently vulnerable in the sense that they have a sufficiently large intertemporal elasticity of substitution of consumption our result is robust to alternative specifications where i insurers cannot observe the subjective or objective probability that policyholders will lose their bequest motives ii insurers can include health contingent cash surrender values csvs in the life insurance contract and iii policyholders underestimate their future mortality risk

learning self control this article examines how a decision maker who is only partially aware of his temptations learns about them over time in facing temptations individuals use their experience to forecast future self control problems and choose the appropriate level of commitment i demonstrate that rational learning can be perpetually partial and need not result in full sophistication the main result of this article characterizes necessary and sufficient conditions for learning to converge to full sophistication i apply this result to a consumption savings environment in which a decision maker is tempted by present bias and establish a learning theoretic justification for assuming sophistication in this setting an individual who finds himself continuously repudiating his past plans may learn to distrust his future behavior and may do something about it strotz 1955

regional differences in china s fossil energy consumption an analysis for the period 1997 2013 abstract measuring regional differences in fossil energy consumption is the first step to the study of natural resource allocation and utilization this paper employs annual and cumulative consumption gini indexes as well as the deviation index to discuss regional differences in the per capita consumption of fossil energy and related products across 30 chinese provinces from 1997 to 2013 the results show that chinese inter provincial gini ratio of fossil energy consumption is below 0 3 in recent years and change in per capita energy consumption is the key factor behind the decline in the overall gini index unlike existing studies based only on annual flows of energy consumption this paper also focuses on cumulative energy consumption moreover decomposing annual and cumulative consumption gini coefficients by type group and incremental variation is rarely seen in other studies based on the above positive analysis the paper provides some policymaking suggestions

global patterns of materials use a socioeconomic and geophysical analysis abstract human use of materials is a major driver of global environmental change the links between materials use and economic development are central to the challenge of decoupling of materials use and economic growth dematerialization this article presents a new global material flow dataset compiled for the year 2000 covering 175 countries including both extraction and trade flows and comprising four major material categories biomass construction minerals fossil energy carriers and ores industrial minerals first we quantify the variability and distributional inequality gini coefficients in international material consumption we then measure the influence of the drivers population gdp land area and climate this analysis yields international income elasticities of material use finally we examine the coupling between material flows and between income and material productivity measured in economic production per tonne material consumed material productivity is strongly coupled to income and may thus not be suitable as an international indicator of environmental progress a finding which we relate to the economic inelasticity of material consumption the results demonstrate striking differences between the material groups biomass is the most equitably distributed resource economically the most inelastic and is not correlated to any of the mineral materials the three mineral material groups are closely coupled to each other and economic activity indicating that the challenge of dematerializing industrial economies may require fundamental structural transformation our analysis provides a first systematic investigation of international differences in material use and their drivers and thus serves as the basis for more detailed future work

choice and procrastination author s o donoghue ted rabin matthew abstract recent models of procrastination due to self control problems assume that a procrastinator considers just one option and is unaware of her self control problems we develop a model where a person chooses from a menu of options and is partially aware of her self control problems this menu model replicates earlier results and generates new ones a person might forego completing an attractive option because she plans to complete a more attractive but never to be completed option hence providing a non procrastinator additional options can induce procrastination and a person may procrastinate worse pursuing important goals than unimportant ones

when can carbon abatement policies increase welfare the fundamental role of distorted factor markets abstract this paper employs analytical and numerical models to assess the welfare effects of a revenue neutral carbon tax and nonauctioned carbon emissions permits taking into account preexisting tax distortions in factor markets the presence of preexisting taxes significantly raises the general equilibrium costs of both policies this cost increase is much greater under emissions permits since this policy does not generate revenues to reduce distortionary taxes under our central estimates emissions permits cannot increase welfare unless environmental damages exceed about 18 per ton of carbon in contrast an appropriately scaled carbon tax is welfare improving so long as environmental damages are positive

futile attempts at self control we investigate costly yet futile attempts at self control when consumption of a harmful product has a binary breakdown no breakdown nature and individuals tend to underestimate their need for self control considering time inconsistent preferences as well as temptation disutility we show that becoming more sophisticated can decrease welfare and investigate what kind of mistaken beliefs lead to low welfare with time inconsistent preferences being close to perfectly understanding one s preferences but assigning zero probability to true preferences induces the worst outcome jel d03 d11 d91

uncertain demand consumer loss aversion and flat rate tariffs we consider a model of firm pricing and consumer choice where consumers are loss averse and uncertain about their future demand possibly consumers in our model prefer a flat rate to a measured tariff even though this choice does not minimize their expected billing amount a behavior in line with ample empirical evidence we solve for the profit maximizing two part tariff which is a flat rate if a marginal costs are not too high b loss aversion is intense and c there are strong variations in demand moreover we analyze the optimal nonlinear tariff this tariff has a large flat part when a flat rate is optimal among the class of two part tariffs

inferior products and profitable deception we analyse conditions facilitating profitable deception in a simple model of a competitive retail market firms selling homogenous products set anticipated prices that consumers understand and additional prices that naive consumers ignore unless revealed to them by a firm where we assume that there is a binding floor on the anticipated prices our main results establish that bad products those with lower social surplus than an alternative tend to be more reliably profitable than good products specifically 1 in a market with a single socially valuable product and sufficiently many firms a deceptive equilibrium in which firms hide additional prices does not exist and firms make zero profits but perversely 2 if the product is socially wasteful then a profitable deceptive equilibrium always exists furthermore 3 in a market with multiple products since a superior product both diverts sophisticated consumers and renders an inferior product socially wasteful in comparison it guarantees that firms can profitably sell the inferior product by deceiving consumers we apply our framework to the mutual fund and credit card markets arguing that it explains a number of empirical findings regarding these industries

optimal environmental taxation in the presence of other taxes general equilibrium analyses this paper examines the optimal setting of environmental taxes in economies where other distortionary taxes are present we employ analytical and numerical models to explore the degree to which in a second best economy optimal environmental tax rates differ from the rates implied by the pigovian principle according to which the optimal tax rate equals the marginal environmental damages both models indicate contrary to what several analysts have suggested that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the pigovian principle moreover the optimal rate is lower the larger are the distortions posed by ordinary taxes numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre existing taxes this abstract was borrowed from another version of this item

overconfidence insurance and paternalism it is well known that when agents are fully rational compulsory public insurance may make all agents better off in the rothschild and stiglitz 1976 model of insurance markets we find that when sufficiently many agents underestimate their personal risks compulsory insurance makes low risk agents worse off hence behavioral biases may weaken some of the well established rationales for government intervention based on asymmetric information

measuring fossil resource inequality a case study for the uk between 1968 and 2000 this paper quantifies fossil resource inequalities amongst income quintiles in the uk between 1968 and 2000 it calculates a resource based gini coefficient using an input output based resource allocation model the results show that the gini coefficient for total fossil resource consumption grew by 24 over the time period by comparison the gini coefficient for overall household expenditure rose by only 13 the increase in resource inequality was prompted by the rising demand by high income quintiles for goods and services such as fuel and light heating and lighting the home car use private transportation recreation travel and other services the analysis shows further that the gini coefficient for direct fossil resources fuel and light and car use was lower and rose less steeply than the gini coefficient for fossil resources embodied in other goods and services indirect fossil resource requirements investigation into the drivers behind direct and indirect resource inequalities suggests a number of policy conclusions firstly it is clear that policy initiatives to reduce fossil resource requirements and the associated climate change impacts must pay careful attention to distributional differences additionally increased attention needs to be paid to the inequalities associated with indirect fossil resources consumption as well as the more visible direct resource inequalities

self control financial literacy the co holding puzzle we use uk survey data to analyze the puzzling co existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets which we name the co holding puzzle approximately 12 of households in our sample co hold on average 3800 of revolving consumer credit on which they incur interest charges even though they could immediately pay down all this debt using their liquid assets co holders are typically more financially literate with above average income and education in most estimates co holding is also associated with impulsive spending behavior on the part of the household our results provide empirical support to theoretical models in which households co hold as a means of managing self control problems

price complexity and buyer confusion in markets abstract this paper reports a duopoly market experiment that examines the effects of price complexity on market prices in my experimental posted offer markets each seller offers an identical good to buyers with homogeneous preferences first sellers simultaneously decide on the price and the tariff structure of their good then buyers make their choices each seller can choose to have a one two or three part tariff the tariff structure affects neither the value nor the price of the good but influences buyers ability to calculate the good s price the main results show that high price sellers choose high complexity more often than low price sellers if buyers are simulated in accordance with the bounded rationality model of carlin 2009 however the evidence for this effect is weaker if the buyers are human subjects importantly prices are higher when the sellers can confuse buyers using price complexity than when sellers interact with perfectly rational robot buyers

naivete based discrimination we initiate the study of naivete based discrimination the practice of conditioning offers on external information about consumers naivete knowing that a consumer is naive increases a monopolistic or competitive firm s willingness to generate inefficiency to exploit the consumer s mistakes so naivete based discrimination is not pareto improving can be pareto damaging and often lowers total welfare when classical preference based discrimination does not moreover the effect on total welfare depends on a hitherto unemphasized market feature the extent to which the exploitation of naive consumers distorts trade with different types of consumers if the distortion is homogeneous across naive and sophisticated consumers then under an arguably weak and empirically testable condition naivete based discrimination lowers total welfare in contrast if the distortion arises only for trades with sophisticated consumers then perfect naivete based discrimination maximizes social welfare although imperfect discrimination often lowers welfare if the distortion arises only for trades with naive consumers then naivete based discrimination has no effect on welfare we identify applications for each of these cases in our primary example a credit market with present biased borrowers firms lend more than is socially optimal to increase the amount of interest naive borrowers unexpectedly pay creating a homogeneous distortion the condition for naivete based discrimination to lower welfare is then weaker than prudence

commitment savings in informal banking markets abstract i study the provision of commitment savings by informal banks to sophisticated hyperbolic discounters since a consumer is subject to temptation in the period that he signs a contract banks might exploit his desire for instant gratification even as they help him to commit for the future without banking savings decisions and welfare are not monotonic in the degree of time inconsistency consequently commitment savings will lower welfare for moderately time inconsistent agents if loan contracts are enforceable pure commitment savings will disappear this will further lower welfare if the lender is a profit maximizing bank but raise welfare if the lender is a welfare maximizing ngo finally i consider the coexistence of a bank and ngo there will be zero takeup of ngo provided commitment savings if there is competition from a moneylender but the ngo s offer will raise the agent s reservation utility thus reducing the surplus that can be extracted by the moneylender

competitive pooling rothschild stiglitz reconsidered we build a model of competitive pooling which incorporates adverse selection and signaling into general equilibrium pools are characterized by their quantity limits on contributions households signal their reliability by choosing which pool to join in equilibrium pools with lower quantity limits sell for a higher price even though each household s deliveries are the same at all pools the rothschild stiglitz model of insurance is included as a special case we show that by recasting their hybrid oligopolistic competitive story in our perfectly competitive framework their separating equilibrium always exists even when they say it does not and is unique

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

the theory of moral hazard and unobservable behaviour part i principal agent models are studied in which outcomes conditional on the agent s action are uncertain and the agent s behaviour therefore unobservable for a model with bounded agent s utility conditions are given under which the first best equilibrium can be approximated arbitrarily closely by contracts relating payment to observable outcomes for general models it is shown that the solution may not always be obtained by using the agent s first order conditions as constraint general conditions of lagrangean type are given for problems in which contracts are finite dimensional 1 the moral hazard situation

restoring rational choice the challenge of consumer financial regulation abstract this lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively the lecture argu

conceptualizing urban household energy use climbing the energy services ladder this article begins by defining energy services and identifying how they differ according to sector urban and rural areas and direct and indirect uses it then investigates household energy services divided into three classes lower income middle income and upper income it finds that the primary energy technologies involved with low income households involve a greater number of fuels and carriers ranging from dung and fuelwood to liquefied petroleum gas and charcoal but a fewer number of services middle income households throughout the world tend to rely on electricity and natural gas followed by coal liquefied petroleum gas and kerosene these homes utilize energy to produce a much broader range services the upper class or rich have access to the same energy fuels carriers and technologies as middle income homes and families but consume more energy and more high luxury items the study highlights how focusing on energy services reorients the direction of energy policy interventions that energy services are neither uniform nor innate and by noting exciting areas of potential research

exploiting naivete about self control in the credit market we develop a model of the credit market where competitive lenders oer long term contracts specifying a non linear schedule of possible repayment schedules to borrowers who may dier both in their taste for immediate gratication and their prior beliefs about that taste the equilibrium contract to a borrower with given beliefs is discontinuous it features an advantageous option involving fast repayment and a penalty for deviating and repaying later these predictions seem to resemble some salient features of many credit card and mortgage contracts for fully sophisticated borrowers the discontinuity acts as a commitment device and yields fast repayment but all other borrowers even those with an arbitrarily small amount of naivete end up delaying repayment despite the penalty and receive little benet from commitment furthermore because they believe they will repay early they underestimate the cost of credit and hence borrow too much non sophisticated borrowers cross subsidize sophisticated borrowers while sophisticated borrowers discipline rms by preventing very exploitative contracts we identify natural conditions under which the above results obtain even if

contracting with diversely naive agents in standard contract theoretic models the underlying assumption is that agent types differ in their preference or cost parameters and the principal s objective is to design contracts in order to screen this type we study a contract theoretic model in which the heterogeneity among agent types is of a cognitive nature in our model the agent has dynamically inconsistent preferences agent types differ only in their degree of sophistication that is their ability to forecast the change in their future tastes we fully characterize the menu of contracts which the principal offers in order to screen the agent s sophistication the menu does not exclude any type it provides a perfect commitment device for relatively sophisticated types and exploitative contracts which involve speculation with relatively naive types more naive types are more heavily exploited and generate a greater profit for the principal our results allow us to interpret real life contractual arrangements in a variety of industries

what do consumers really pay on their checking and credit card accounts explicit implicit and avoidable costs consumers in the united states make billions of transactions each year using cash checks debit cards and credit cards bank and credit card accounts provide consumers with liquidity to clear and settle these transactions in return consumers pay a variety of fees and both explicit and implicit interest charges the importance of retail banking and credit markets to economic activity drives interest in many open policy and research questions do households borrow too much relative to a neoclassical benchmark christopher d carroll 2001 why do many households leave a substantial amount of money on the table in managing their accounts sumit agarwal et al 2006 david gross and nicholas souleles 2002 do firms structure pricing to exploit consumer cognitive biases or limitations stefano dellavigna and ulrike malmendier 2004 xavier gabaix and david laibson 2006 how do learning sumit agarwal john driscoll and gabaix 2008 and disclosure regulation stango and zinman 2009b interact with consumer decision making and firm strategy to determine market outcomes this paper examines some threshold questions that should inform the questions above what do people really pay to use their bank and credit card accounts and which cost components are the largest of all the costs that people pay which could they easily avoid by making different day to day choices and how stable are both the level of costs and the share of costs that are avoidable for a given person over time what do consumers really pay on their checking and credit card accounts explicit implicit and avoidable costs