why you can t find a taxi in the rain and other labor supply lessons from cab drivers i replicate and extend the seminal work of camerer et al labor supply of new york city cabdrivers one day at a time quarterly journal of economics 112 1997 407 441 who find that the wage elasticity of daily hours of work for new york city taxi drivers is negative and conclude that their labor supply behavior is consistent with reference dependence in contrast my analysis of the complete record of all trips taken in nyc taxi cabs from 2009 to 2013 shows that drivers tend to respond positively to unanticipated as well as anticipated increases in earnings opportunities additionally using a discrete choice stopping model the probability of a shift ending is strongly positively related to hours worked but at best weakly related to income earned i find substantial heterogeneity across drivers in their elasticities but the estimated elasticities are generally positive and rarely substantially negative i find that new drivers with smaller elasticities are more likely to exit the industry whereas drivers who remain quickly learn to be better optimizers have positive labor supply elasticities that grow with experience these results are consistent with the neoclassical optimizing model of labor supply and suggest that consideration of gain loss utility and income reference dependence is not an important factor in the daily labor supply decisions of taxi drivers jel codes d01 d03 j22

transfers to sustain dynamic core theoretic cooperation in international stock pollutant control international environmental agreements aiming at correcting negative externalities generated by transboundary pollution are difficult to achieve for many reasons important obstacles arise from asymmetry in costs and benefits and instability may occur due to the fact that coalitions of countries may attempt to do better for themselves outside of any proposed agreement in a static context it has already been shown that it is possible to achieve stability in the sense of the core of a co operative game by means of appropriately defined transfers between the countries involved however the transboundary pollution problems that are most important are caused by accumulated pollutants so that a dynamic analysis is required this paper provides a transfer scheme that yields a core property in a dynamic context the possibility of computing such transfers numerically is discussed

utilitarian aggregation of beliefs and tastes harsanyi s utilitarianism is extended here to savage s framework we formulate a pareto condition that implies that both society s utility function and its probability measure are linear combinations of those of the individuals an indiscriminate pareto condition has been shown to contradict linear aggregation of beliefs and tastes we argue that such a condition is not compelling society should not necessarily endorse a unanimous choice when it is based on contradictory beliefs our pareto condition is restricted to choices that involve identical beliefs only

rationally inattentive seller sales and discrete pricing prices tend to remain constant for a period of time and then jump in the literature this rigidity is usually interpreted to reflect a cost of adjusting prices this article shows that price rigidity can alternatively reflect optimal price setting when there are no adjustment costs namely if the seller is rationally inattentive the model generates non trivial pricing patterns that are consistent with the data and that are hard to explain with the traditional adjustment cost model in particular prices are adjusted frequently but move back and forth between a few given values hazard functions are downward sloping and responses to persistent shocks are sluggish these results are obtained in a model that implements rational inattention without simplifying assumptions on the functional forms of the processed signals

an empirical analysis of the daily labor supply of stadium venors this paper analyzes the daily labor supply behavior of food and beverage vendors at a single stadium over an entire baseball season this labor market is attractive for the study of labor supply both because ofvendors unilateraly decide whether to participate on each game date and because canges in product demand conditions across days are large and highly predictable generating exogenous game to game variation in the vendor wage i exploit the observable shift in product demand conditions across games to esumate the labor supply participation elasticity of stadium vendors estimates that recognize that demand conditions and vendor labor supply decisions simultancously determine the venofdor wage always find substantial labor supply elasticities typically in the 55 65 range in contract estimates that ignore the endoreneity of the ties these results highlight the imporatance of using demand shift markets

ex ante and ex post welfare optimality under uncertainty it is widely believed by economic theorists that if there were no transactions costs and if all information about the economy were perfectly shared by all then arrow debreu contingent commodity markets should bring about an ideal allocation the basis for this belief seems clear we have the two efficiency theorems of welfare economics which assure us that in the absence of external effects any competitive allocation is pareto efficient and that any pareto efficient allocation is competitive provided that appropriate lump sum transfers are made of course there are some reservations that need to be made local satiation and non convexities are well known to cause problems but these are not the problems i wish to discuss here to return to the usual argument the next step involves noticing how with contingent commodity markets the efficiency theorems of welfare economics carry over to an economy with uncertainty as explained for instance in chapter 7 of debreu s theorpj of value the fundamental value judgment that gives these efficiency theorems their normative interest is what may be called consumer sovereignty it is an assumption that the social welfare ordering should respect the preferences that govern consumers market behaviour it is a serious value judgment more serious than most economists have been prepared to concede but its seriousness increases when there is uncertainty we know full well that individuals misperceive the probabilities of certain events assuming that they even perceive any probabilities at all see for example kahneman and tversky 1979 nor are we always willing to accept as appropriate the attitudes to risk of individuals who seem either extremely reckless or extremely cautious societies are often willing to make some gestures towards property owners who have not insured themselves adequately against damage from fire flood or tempest and not just because of imperfect insurance markets or even misperceptions of probabilities in addition the inequalities of income that arise when some individuals take more risks than others are not necessarily seen to be desirable particularly if an individual has undertaken a useful but risky activity and has a very low income as a result of failure such gestures are examples of contingent lump sum transfers it seems clear that if such transfers occur to a sufficient extent they could supplant completely the securities markets which are usually sufficient to bring about pareto efficiency they may even be able to go further and correct the imperfections of an arrow debreu market allocation when individuals do misperceive probabilities or else have wrong attitudes to risk this is the main question i wish to consider here the idea that consumer sovereignty should not always extend to economies with uncertainty is not new it can be found in work by diamond 1967 dr6ze

how many pears would a pear packer pack if a pear packer could pack pears at quasi exogenously varying piece rates abstract we examine labor supply using a unique dataset collected from a large pear packing factory pear packers face both expected and unexpected shocks to their wages and we use this to evaluate different models of inter temporal labor supply we find strong evidence for reference dependent preferences but only mixed support for models of rational expectations based targets

disruptive change in the taxi business the case of uber in most cities the taxi industry is highly regulated and utilizes technology developed in the 1940s ride sharing services such as uber and lyft which use modern internet based mobile technology to connect passengers and drivers have begun to compete with traditional taxis this paper examines the efficiency of ride sharing services vis a vis taxis by comparing the capacity utilization rate of uberx drivers with that of traditional taxi drivers in five cities the capacity utilization rate is measured by the fraction of time a driver has a fare paying passenger in the car while he or she is working and by the share of total miles that drivers log in which a passenger is in their car the main conclusion is that in most cities with data available uberx drivers spend a significantly higher fraction of their time and drive a substantially higher share of miles with a passenger in their car than do taxi drivers four factors likely contribute to the higher capacity utilization rate of uberx drivers 1 uber s more efficient driver passenger matching technology 2 the larger scale of uber than taxi companies 3 inefficient taxi regulations and 4 uber s flexible labor supply model and surge pricing more closely match supply with demand throughout the day

the flypaper effect what happens to a state s spending when it receives an unconditional grant from the federal government the standard theoretical analysis predicts that the increase in spending will be the same as that generated by an equivalent increase in local incomes or roughly 5 10 percent for most states in contrast numerous empirical analyses have found that spending increases by much more with some estimates near 100 percent this result is known as the flypaper effect since the money appears to stick where it hits the authors review this evidence as well as other studies that find similar behavior in firms

environmental innovation and the cost of pollution abatement revisited it is widely assumed in the literature that environmental innovation reduces the marginal cost of pollution abatement in this paper we show that this is not necessarily the case and we provide some unexpected outcomes

generalized utilitarianism and harsanyi s impartial observer theorem harsanyi s impartial observer must consider two types of lotteries imaginary identity lotteries accidents of birth that she faces as herself and the real outcome lotteries life chances to be faced by the individuals she imagines becoming if we maintain a distinction between identity and outcome lotteries then harsanyi like axioms yield generalized utilitarianism and allow us to accommodate concerns about different individuals risk attitudes and concerns about fairness requiring an impartial observer to be indifferent as to which individual should face similar risks restricts her social welfare function but still allows her to accommodate fairness requiring an impartial observer to be indifferent between identity and outcome lotteries however forces her to ignore both fairness and different risk attitudes and yields a new axiomatization of harsanyi s utilitarianism

expectations based reference dependent life cycle consumption this study incorporates a recent preference specification of expectations based loss aversion which has been applied broadly in microeconomics into a classic macro model to offer a unified explanation for three empirical observations about life cycle consumption first loss aversion explains excess smoothness and sensitivity that is the empirical observation that consumption responds to income shocks with a lag intuitively such lagged responses allow the agent to delay painful losses in consumption until his expectations have adjusted secondly the preferences generate a hump shaped consumption profile early in life consumption is low due to a first order precautionary savings motive however as uncertainty resolves over time this motive is dominated by time inconsistent overconsumption that eventually leads to declining consumption towards the end of life thirdly consumption drops at retirement prior to retirement the agent wants to overconsume his uncertain income before his expectations catch up post retirement however income is no longer uncertain and overconsumption is associated with a sure loss in future consumption as an empirical contribution i structurally estimate the preference parameters using life cycle consumption data my estimates match those obtained in experiments and other micro studies and generate the degree of excess smoothness observed in macro consumption data

utilitarianism egalitarianism and the timing effect in social choice problems two theorems are derived about social choice functions which are defined on comprehensive convex subsets of utility allocation space theorem 1 asserts that a linearity condition together with pareto optimality implies that a social choice function must be utilitarian theorem 2 asserts that a concavity condition together with pareto optimality and independence of irrelevant alternatives implies that a social choice function must be either utilitarian or egalitarian these linearity and concavity conditions have natural interpretations in terms of the timing of social welfare analysis before or after the resolution of uncertainties and its impact on social choices

information markets and the comovement of asset prices traditional asset pricing models predict that covariance between prices of difierent assets should be lower than what we observe in the data this model generates high covariance within a rational expectations framework by introducing markets for information about asset payofis when information is costly rational investors will not buy information about all assets they will learn about a subset because information production has high flxed costs competitive producers charge more for low demand information than for high demand information a price that declines in quantity makes investors want to purchase a common subset of information if investors price many assets using a common subset of information then a shock to one signal is passed on as a common shock to many asset prices these common shocks to asset prices generate excess covariance the cross sectional and time series properties of asset price covariance are consistent with this explanation

comparative risk aversion abstract even when some risk prospects have no certain equivalents increases in risk aversion are equivalent to concave transformations of the utility function strict or sharp increases in risk aversion correspond to concave and non linear or strictly concave transformations respectively

choice simplification a theory of mental budgeting and naive diversification we develop a theory of how an agent makes basic multiproduct consumption decisions in the presence of taste consumption opportunity and price shocks that are costly to attend to we establish that the agent often simplifies her choices by restricting attention to a few important considerations which depend on the decision at hand and affect her consumption patterns in specific ways if the agent s problem is to choose the consumption levels of many goods with different degrees of substitutability then she may create mental budgets for more substitutable products e g entertainment in some situations it is optimal to specify budgets in terms of consumption quantities but when most products have an abundance of substitutes specifying budgets in terms of nominal spending tends to be optimal if the goods are complements in contrast then the agent may consistent with naive diversification choose a fixed unconsidered mix of products and if the agent s problem is to choose one of multiple products to fulfill a given consumption need e g for gasoline or a bed then it is often optimal for her to allocate a fixed sum for the need

a sparsity based model of bounded rationality this article defines and analyzes a sparse max operator which is a less than fully attentive and rational version of the traditional max operator the agent builds as economists do a simplified model of the world which is sparse considering only the variables of first order importance his stylized model and his resulting choices both derive from constrained optimization still the sparse max remains tractable to compute moreover the induced outcomes reflect basic psychological forces governing limited attention the sparse max yields a behavioral version of basic chapters of the microeconomics textbook consumer demand and competitive equilibrium i obtain a behavioral version of marshallian and hicksian demand arrow debreu competitive equilibrium the slutsky matrix the edgeworth box roy s identity and so on the slutsky matrix is no longer symmetric nonsalient prices are associated with anomalously small demand elasticities because the consumer exhibits nominal illusion in the edgeworth box the offer curve is a two dimensional surface rather than a one dimensional curve as a result different aggregate price levels correspond to materially distinct competitive equilibria in a similar spirit to a phillips curve the arrow debreu welfare theorems typically do not hold this framework provides a way to assess which parts of basic microeconomics are robust and which are not to the assumption of perfect maximization jel codes d01 d03 d11 d51

mental budgeting and consumer decisions consumers often set budgets for categories of expenses e g entertainment and track expenses against their budget because budgets cannot perfectly anticipate consumption opportunities people may earmark too much or too little money for a particular category this leads them to overconsume or underconsume goods in that category the results of three studies suggest that consumers do indeed set budgets and that budgeting may lead to underconsumption to show that consumers track expenses the studies demonstrate that budgeting effects are larger for purchases that are highly typical of their category such purchases reduce the amount people spend in a category and block the purchase of other typical items the studies control for satiation and income effects thus budgeting adds predictive power to standard economic consumer theory

quadratic social welfare functions john harsanyi has provided an intriguing argument that social welfare can be expressed as a weighted sum of individual utilities his theorem has been criticized on the grounds that a central axiom that social preference satisfies the independence axiom has the morally unacceptable implication that the process of choice and considerations of ex ante fairness are of no importance this paper presents a variation of harsanyi s theorem in which the axioms are compatible with a concern for ex ante fairness the implied mathematical form for social welfare is a strictly quasi concave and quadratic function of individual utilities

how to design and use the clean development mechanism under the kyoto protocol a developing country perspective under the kyoto protocol industrialized countries committed to emission reductions may fullfil part of their obligations by implementing emission reduction projects in developing countries in doing so they make use of the so called clean development mechanism cdm two important issues surround the implementation of the cdm first if the cheapest abatement measures are implemented for cdm projects developing countries may be left with only more expensive measures when they have to meet their own commitments in the future the so called low hanging fruits lhf issue second a choice must be made on the type of baseline against which emission reductions are measured an absolute baseline or a relative to output one the baseline issue the purpose of this paper is to study the interactions between these two issues from the point of view of the developing country two major results are obtained first when possible future commitments for developing countries and irreversibility of abatement measures are taken into account we show that the industry where cdm projects are implemented enjoys larger profits under an absolute baseline than under a relative one second concerning the lhf problem the financial compensation required by the developing country for implementing too many cdm projects is larger under the relative baseline

naive diversification strategies in defined contribution saving plans there is a worldwide trend toward defined contribution saving plans and growing interest in privatized social security plans in both environments individuals are given some responsibility to make their own asset allocation decisions raising concerns about how well they do at this task this paper investigates one aspect of the task namely diversification it is shown that some investors follow the 1 n strategy they divide their contributions evenly across the funds offered in the plan consistent with this naive notion of diversification it is found that the proportion invested in stocks depends strongly on the proportion of stock funds in the plan

signal extraction and rational inattention i introduction the objective of this paper is to compare two theories of information frictions in the first theory agents observe the state of the world with exogenously imposed noise we refer to this environment as the signal extraction se model 1 the second theory permits agents to design the distribution of noise terms by focusing limited attention on certain variables at the expense of others following sims 2003 we refer to this model as the rational inattention ri model 2 in both models agents respond to changes in the true underlying state slowly because it takes time for them to learn exactly what the new state is the key difference is that the noise distribution under ri is an outcome of optimal choice and thus can adapt to changing circumstances in the economy whereas under se the noise distribution is technologically fixed our goal is to explore this crucial distinction we explore the distinction between se and ri within a linear quadratic gaussian lqg setting we first study a univariate case for which the variance covariance matrix of the noise shocks can be solved in closed form first we note that at least within the lqg framework any variance covariance structure for the noise shocks derived from the ri problem can be exogenously imposed in the se environment so there is a sense in which the two environments are observationally equivalent the next result we find is that if the variance of the noise itself is fixed we can use a policy experiment to distinguish se from ri suppose that the variance of an exogenous shock is scaled up because of a change in policy in the se problem where the distribution of noise is exogenous an increase in the variance of the shock will lead to a different solution for the conditional variance and kalman gain consequently the change in policy will lead to a change in the model s dynamic behavior and the agent s payoffs in contrast in the ri problem if channel capacity is fixed a change in the variance of the exogenous shock will lead to the same change in the conditional variance of the state and the variance of the noise but will not affect the kalman gain that is inattentive agents with fixed capacity will behave as if they face noise shocks whose nature changes systematically as the dynamic properties of the economy change with policy furthermore we show that if we assume that the marginal cost of information is fixed capacity will be elastic with respect to a change in policy consequently the kalman gain in this case will also adjust in response to the policy change the losses of agents due to imperfect information depend on the value of the kalman gain therefore in general se and ri imply different policy recommendations in contrast we also find that in the univariate case if the ratio of the variance of the exogenous shock to that of the noise i e the signal to noise ratio snr is fixed the se and ri problems are observationally equivalent in the sense that they lead to the same dynamics of the model economy when the ratio of the conditional variance to that of the noise in the se problem equals a particular function of the channel capacity in the ri problem our results do not depend on the presence or absence of correlation between fundamental and noise shocks specifically in the presence of the correlation a change in the variance of the exogenous shock does not change the dynamic behavior of the model in the fixed capacity case whereas it changes the model s dynamics in the fixed information processing cost case in which both the variance of noise and the kalman gain are affected by the interactions between the correlation the variance of the fundamental shock and the conditional variance we then move on to study the multivariate case in this case given channel capacity the conditional variance covariance matrix can be obtained by solving a semidefinite programming problem in which the inattentive agent minimizes the expected loss due to information processing constraints

frictions in a competitive regulated market evidence from taxis this paper presents a dynamic equilibrium model of a taxi market the model is estimated using data from new york city yellow cabs two salient features by which most taxi markets deviate from the efficient market ideal are first matching frictions created by the need for both market sides to physically search for trading partners and second regulatory limitations to entry to assess the importance of these features we use the model to simulate the effect of changes in entry alternative matching technologies and different market density we use the geographical features of the matching process to back out unobserved demand through a matching simulation the matching function exhibits increasing returns to scale which is important to understand the impact of changes in this market and has welfare implications for instance although alternative dispatch platforms can be more efficient than street hailing platform competition is harmful because it reduces effective density

the environmental kuznets curve semi parametrically revisited this paper re examines the existence of an environmental kuznets curve ekc across countries using a semi parametric regression estimator which places no restrictions on the functional form our results using cross country panel data on sulfur and carbon dioxide strongly suggest that the relationship between wealth and environmental degradation is not bell shaped as suggested by an ekc rather that there is a positive link for the very poorest countries and no clear relationship for richer countries

the behavioral life cycle hypothesis self control mental accounting and framing are incorporated in a behavioral enrichment of the life cycle theory of saving called the behavioral life cycle blc hypothesis the key assumption of the blc theory is that households treat components of their wealth as nonfungible even in the absence of credit rationing specifically wealth is assumed to be divided into three mental accounts current income current assets and future income the temptation to spend is assumed to be greatest for current income and least for future income considerable empirical support for the blc theory is presented primarily drawn from published econometric studies

a theory of entrepreneurship and institutional uncertainty abstract uncertainty and institutions are each vital concepts in entrepreneurship research however little work has been done to combine them into a consistent conceptual framework for analyzing the dynamic aspects of entrepreneurial action uncertainty and institutional change using insights from new institutional economics we develop a model that explains the institutional uncertainty resulting from conflicts between institutions on different levels of social activity we further explain how entrepreneurs can both cause and mitigate this uncertainty through market and institutional action finally we focus on a special case of institutional uncertainty regime uncertainty wherein entrepreneurs are left without reliable means to overcome uncertainty in political institutions

the price of silence markets for noise licenses and airports this article presents a market design for the management of noise pollution created by aircraft traffic around airports a local market for noise licenses allows noise generators to compensate noise victims and to meet social acceptability we show that the market allows the market designer to implement the social planner s optimal allocation of flights as long as the latter does not put too high a weight in his her objective function on firms profits compared to the disutility of noise pollution the fact that local representatives of noise victims may be strategic players does not fundamentally alter this finding because of the market auctioneer s information constraints noise licenses are likely to distribute windfall gains to residents which alters the urban structure in the long run

how are snap benefits spent evidence from a retail panel we use a novel retail panel with more than six years of detailed transaction records to study the effect of participation in the supplemental nutrition assistance program snap on household spending we frame our approach using novel administrative data from the state of rhode island the marginal propensity to consume snap eligible food mpcf out of snap benefits is 0 5 to 0 6 the mpcf out of cash is much smaller these patterns obtain even for households for whom snap benefits are economically equivalent to cash in the sense that benefits do not cover all food spending we reject the hypothesis that households respect the fungibility of money in a semiparametric framework a model with mental accounting can match the facts

are long term wage elasticities of labor supply more negative than short term ones standard models imply that the wage elasticity of labor supply is more negative the longer a wage change lasts i observe decreasing daily hours during short term wage increases but not during a long term one daily income goals adjusted in the long term

why environmental management may yield no regret pollution abatement options empirical evidence supports the existence of pollution abatement possibilities at negative costs the so called no regret options we provide a microeconomic rationale for the existence of such potential at the firm level an econometric application confirms that pollution abatement cost curves with no regret options are compatible with a standard production function as stated in our theoretical model c 2008 elsevier b v all rights reserved

drivers of disruption estimating the uber effect abstract a frequent belief is that the rise of so called gig work has led to the displacement of workers in a wide range of traditional jobs this paper examines the impacts of the flagship of the gig economy uber on workers employed in conventional taxi services our analysis exploits newly collected data on the staggered rollout of uber across metropolitan areas in the united states and a difference in differences design to document that incumbent taxi drivers experienced a relative earnings decline of about 10 percent subsequent to uber s entry into a new market while there are no significant effects on their labor supply additional evidence from a battery of placebo tests event study estimates and specifications using google trends data to capture differences in treatment intensity underlines these findings a triple differences design that compares changes among taxi drivers relative to bus tractor and truck drivers that were unaffected by the arrival of uber provides further supporting evidence that the diffusion of uber has reduced the earnings potential of incumbent drivers in conventional taxi services in the united states

the pareto principle of optimal inequality the pareto principle is often viewed as a mild requirement compatible with a variety of value judgements in particular it is generally thought that it can accommodate different views on the desirable degree of equality we show that this is generally not true in intertemporal models where some uncertainty prevails to do so we formalize the concept of inequality aversion we show that different degrees of inequality aversion are not possible in typical models of time consistent dynamic decision under uncertainty

revealed preference rational inattention and costly information acquisition we develop a revealed preference test for optimal acquisition of costly information the test encompasses models of rational inattention sequential signal processing and search we provide limits on the extent to which attention costs can be recovered from choice data we experimentally elicit state dependent stochastic choice data of the form the tests require in simple cases tests con rm that subjects adjust their attention in response to incentives as the theory dictates

a note on clean technology adoption and its influence on tradeable emission permits prices in this paper we give an example in which the price of tradable emission permits increases despite firms adoption of less polluting technology a result that is in contrast with montero j environ econ 44 23 44 2002 and parry j regul econ 14 229 254 1998 among others if two cournot players switch to a cleaner technology the price for permits may increase due to an increase in the net demand for permits and a decrease in the net supply of permits after the clean technology is adopted this is only the case when output demand is quite elastic

wealth accumulation and the propensity to plan why do similar households end up with very different levels of wealth we show that differences in the attitudes and skills with which they approach e nancial planning are a signie cant factor we use new and unique survey data to assess these differences and to measure each household s propensity to plan we show that those with a higher such propensity spend more time developing e nancial plans and that this shift in planning is associated with increased wealth these e ndings are consistent with broad psychological evidence concerning the benee cial impacts of planning on goal pursuit those with a high propensity to plan may be better able to control their spending and thereby achieve their goal of wealth accumulation we e nd direct evidence supporting this effortful self control channel in the very strong relationship we uncover between the propensity to plan and budgeting behavior

the psychological lives of the poor abstract all individuals rely on a fundamental set of mental capacities and functions or bandwidth in their economic and non economic lives yet many factors associated with poverty such as mal

constraining equitable allocations of tradable co2 emission quotas by acceptability since the signing of the kyoto protocol future commitments are likely to be framed in terms of tradable quotas the discussions on the allocation of the quotas among countries will be based at least partly on rules corresponding to a certain conception of equity for instance allocating quotas in direct proportion to population in relation to gdp or according to past emissions has been advocated taking a long term perspective we compute such allocations of tradable quotas with a dynamic closed loop model the total amount of quotas to be distributed at each period corresponds to the world optimal amount of emissions to be realized at each period we observe that most equitable allocation rules do not make the agreement individually rational for every country along the entire time path we then propose a mechanism which determines allocations of quotas that are as close as possible to any equitable allocation while satisfying individual rationality

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

goals and bracketing under mental accounting abstract behavioral economics struggles to explain why people sometimes evaluate outcomes separately narrow bracketing of mental accounts and sometimes jointly broad bracketing we develop a theory of endogenous bracketing where people set goals to tackle self control problems goals induce reference points that make substandard performance painful evaluating goals in a broadly bracketed mental account insulates an individual from exogenous risk of failure but because decisions or risks in different tasks become substitutes there are incentives to deviate from goals that are absent under narrow bracketing extensions include goal revision naivete about self control income targeting and firms bundling strategies

offering versus choice in 401 k plans equity exposure and number of funds records of over half a million participants in more than 600 401 k plans indicate that participants tend to allocate their contributions evenly across the funds they use with the tendency weakening with the number of funds used the number of funds used typically between three and four is not sensitive to the number of funds offered by the plans which ranges from 4 to 59 a participant s propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among offered funds the paper also comments on limitations on inferences from experiments and aggregate level data analysis how much and how to save for retirement is one of the most important financial decisions made by most people defined contribution dc pension plans such as the popular 401 k plans are important instruments of such savings by 2001 year end about 45 million american employees held 401 k plan accounts with a total of 1 75 trillion in assets holden and vanderhei 2001 an important characteristic of these plans is that the participant has responsibility over his savings among a plan s various funds how responsibly do the participants behave in particular how sensitive are participants choices to possible framing effects associated with the menu of choices they are offered to explore these questions this paper analyzes a data set recently provided by the vanguard group consisting of records of more than half a million participants in about 640 dc plans these plans offer between 4 and 59 funds in which participants can invest all plans offer at least one stock fund 635 plans

a controversial proposal concerning inequality measurement abstract an axiom system on a policy maker s preferences is proposed and shown to characterize the class of linear inequality measures a measure for the policy maker s degree of equality mindedness is then developed the essay concludes with an exploration of the interplay between the policy maker s preferences and the prevailing tax structure the controversial aspect lies in an attempt to use the tax structure to retrieve the policy maker s preferences through the principle of equal sacrifice

assessing risky social situations this paper reexamines the welfare economics of risk it singles out a class of criteria the expected equally distributed equivalent as the unique class that avoids serious drawbacks of existing approaches such criteria behave like ex post criteria when the final statistical distribution of well being is known ex ante and like ex ante criteria when risk generates no inequality the paper also provides a new result on the tension between inequality aversion and respect of individual ex ante preferences in the vein of harsanyi s aggregation theorem

choosing between risky prospects the characterization of comparative statics results and location independent risk we consider expected utility maximizers choosing from a family of risky prospects and examine how choice is influenced by the decision makers attitude to risk if the family of risky prospects can be ordered so that as decision makers are more risk tolerant they choose a gamble higher in the ordering then it is natural to say that the family of risky prospects admit a comparative static result the paper characterizes when comparative static results of this sort exist an application is to propose a criterion of location independent riskiness

optimal sticky prices under rational inattention this paper presents a model in which price setting firms decide what to pay attention to subject to a constraint on information flow when idiosyncratic conditions are more variable or more important than aggregate conditions firms pay more attention to idiosyncratic conditions than to aggregate conditions when we calibrate the model to match the large average absolute size of price changes observed in micro data prices react fast and by large amounts to idiosyncratic shocks but only slowly and by small amounts to nominal shocks nominal shocks have strong and persistent real effects we use the model to investigate how the optimal allocation of attention and the dynamics of prices depend on the firms environment jel e 3 e5 d8

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

analyzing the extent and influence of occupational licensing on the labor market this study examines occupational licensing in the united states using a specially designed national labor force survey estimates from the survey indicated that 35 of employees were either licensed or certified by the government and that 29 were licensed another 3 stated that all who worked in their job would eventually be required to be certified or licensed bringing the total that are or eventually must be licensed or certified by government to 38 we find that licensing is associated with about 18 higher wages but that the effect of governmental certification on pay is much smaller