the hidden persuaders institutions and individuals in economic theory in his classic book the hidden persuaders vance packard claimed that large corporations manipulated consumers using advertising techniques john kenneth galbraith and others have repeated a similar view against this gary becker and george stigler have claimed that advertising is essentially informative rather than manipulative in contrast it is argued here that both of these opposed accounts of human agency neglect the more subtle and undesigned processes by which institutions bear upon and mould individuals this paper proposes a concept of reconstitutive downward causation in which institutions act upon individual habits and dispositions the mechanisms involved do not fall foul of past critiques of holism or methodological collectivism this argument involves a rehabilitation of the concept of habit in social science with far reaching implications

the deer hunter the unintended effects of hunting regulations abstract to control the deer population state game commissions regulate the types of deer that can be legally harvested these regulations however might have an unintended effect on hunting related accidents by changing the care hunters take when firing their rifles a moral hazard effect or changing the composition of hunters using detailed data on hunting accidents and regulations in pennsylvania counties from 1990 to 2005 we find compelling evidence that harvesting restrictions increase the care hunters take in a manner consistent with moral hazard thus these regulations have a positive safety externality

rockets and feathers the asymmetric speed of adjustment of uk retail gasoline prices to cost changes abstract the paper develops a quadratic quantity adjustment model to test the hypothesis put forward in the recent monopolies and mergers commission report that the speed of adjustment of uk retail gasoline prices to cost changes is more rapid when costs rise than when they fall and that the adjustment path is more concentrated around the mean value on the upswing using data from 1982 to 1989 evidence of faster and more concentrated responses to cost increases were found

is status quo bias consistent with downward sloping demand by now there is a large experimental literature showing some kind of status quo bias 1 if the subject is given a coffee mug candy bar and later given the possibility of trading it for a candy bar coffee mug of equal value the subject is likely to stick with the original allocation knetsch 1989 here we ask whether status quo bias can be made consistent with downward sloping demand curves this paper thus differs in intent from a large body of research that incorporates a different notion of status quo bias into a more general formulation of revealed preference e g masatlioglu and ok 2005 sagi 2006 such research demonstrates that there are different sets of primitives that lead to different axioms of revealed preference in this paper we do not care which set of primitives holds or whether such results can be incorporated into the neoclassical model of consumer behavior as munro and sugden 2003 have done 2 instead we undertake a strict behavioralist approach individuals display status quo bias and downward sloping demand curves whether such behavior can be derived from a consistent set of assumptions is irrelevant to our purpose indeed we do not require the existence of a preference relation that rationalizes choices at all all that is required is choice behavior what we want to find out is the implications of such observed behavior in particular we want to determine whether status quo bias and downward sloping demand curves are consistent with each other the short answer is yes but the consumer will display addictive behavior 3 the remainder of the paper will be devoted to demonstrating this result we will make the following set of assumptions ai there are two goods x candy and y wine which are continuously divisible a2 prices and incomes are exogenously determined that is the person has a budget line and budget set a3 the individual chooses a point on the budget line a4 strictly downward sloping demand if the person chooses x sub t y sub t for a given budget set b sub t and then the person is faced with a different budget set b sub t l that goes through x sub t y sub t but where the relative price of x has gone down up then x sub t 1 x sub t and y sub t 1 y sub t 4 i an intuitive example before proceeding with the formal exposition it is useful to consider the intuition behind the argument to make the logic as accessible as possible in the intuitive example i will assume that individuals have indifference curves and that these indifference curves are homothetic before the subjects come to the experiment they made choices based on their individual budget sets and preferences the budget sets of these various individuals have the same slope the market prices facing the individuals are the same but the richer individuals have budget sets that are farther out if individuals have status quo bias then each individual s choice is based on his her budget set and his her unique set of indifference curves which in turn are based on the reference point established by the individual s experiences and history while we can use any time period for the analysis let us suppose here that the time period of analysis is daily so that before and after the experiment individuals decide each day how much candy and wine to choose the experimenter divides the subjects into three groups in the first group the experimenter gives the subjects 10 and then each subject gets to choose either candy or wine or some combination in between knetsch actually did this with candy and coffee cups and found that the subjects split evenly between the two choices in the second group the subjects are given 10 worth of candy and then later are allowed to trade in some or all of the candy for the equivalent value of wine

consumption self control by rationing purchase quantities of virtue and vice consumers attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers pricing policies addressing theoreticians and practitioners alike this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self control problems for example many regular smokers buy their cigarettes by the pack although they could easily afford to buy 10 pack cartons these smokers knowingly forgo sizable per unit savings from quantity discounts which they could realize if they bought cartons by rationing their purchase quantities they also self impose additional transactions costs on marginal consumption which makes excessive smoking overly difficult and costly such strategic self imposition of constraints is intuitively appealing yet theoretically problematic the marketing literature lacks operationalizations and empirical tests of such consumption self control strategies and of their managerial implications this paper provides experimental evidence of the operation of consumer self control and empirically illustrates its direct implications for the pricing of consumer goods moreover the paper develops a conceptual framework for the design of empirical tests of such self imposed constraints on consumption in consumer goods markets within matched pairs of products we distinguish relative virtue and vice goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences for example ignoring long term health effects many smokers prefer regular relative vice to light relative virtue cigarettes because they prefer the taste of the former however ignoring these short term taste differences the same smokers prefer light to regular cigarettes when they consider the long term health effects of smoking these preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption this creates a potential self control problem because these consumers will be tempted to over consume the vices they have in stock at home purchase quantity rationing helps them solve the self control problem by limiting their stock and hence their consumption opportunities such rationing implies that per purchase occasion vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts we first test this prediction in two laboratory experiments we then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain wide store level demand across a variety of different pairs of matched vice regular and virtue reduced fat calorie or caffeine etc product categories the analyses of these experimental field and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as among others potato chips chocolate chip cookies cream cheese beer soft drinks ice cream and frozen yogurt chewing gum coffee and beef andturkey bologna vice consumers demand increases less in response to price reductions than virtue consumers demand although their preferences are not generally weaker for vices than for virtues constraints on vice purchases are self imposed and strategic rather than driven by simple preferences we suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption as a result of purchase quantity rationing however vice buyers forgo savings from price reductions through quantity discounts effectively paying price premiums for the opportunity to engage in self control thus purchase quantity rationing vice consumers are relatively price in sensitive from a managerial and public policy perspective our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self control they can charge premium prices for small sizes of vices relative to the corresponding quantity discounts for virtues virtue consumers on the other hand will buy larger amounts even when quantity discounts are relatively shallow a key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self constraining consumer behaviors empirically moreover this research is the first to extend previous theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making

economic conditions and alcohol problems this study investigates the relationship between macroeconomic conditions and two alcohol related outcomes liquor consumption and highway vehicle fatalities fixed effect models are estimated for the 48 contiguous states over the 1975 1988 time period alcohol consumption and traffic deaths vary procyclically with a major portion of the effect of economic downturns attributed to reductions in incomes rather than employment the intake of hard liquor is the most sensitive to the state of the macroeconomy there is no evidence however that fluctuations in economic conditions have a disproportionate impact on the drunk driving of young adults

consumer habituation this paper examines how consumers willingness to pay for goods is determined by past patterns of consumption the central result is atheorem of interior maximum which states that willingness to pay for a good is maximized at a moderate level of habitual consumption the theorem is derived from a simple model of adaptive behavior that involves a shifting s shaped value function the detailed analysis of the impact of consumption frequency and intensity on willingness to pay reveals an unsuspected implication of diminishing sensitivity even as it leads to a formalization of consumer habituation patterns including sensitization habituation and response recovery upon withdrawal that matches and integrates the most robust empirical regularities attendant on nonassociative learning in neurobiology and behavioral psychology an examination of the implications for demand dynamics and pricing highlights deterministic recurrent and transient patterns of consumption at higher price points

affective decision making a theory of optimism bias abstract optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk and uncertainty such as expected utility theory subjective expected utility and prospect theory we therefore propose an alternative model of risky and uncertain choice where decision weights affective or perceived risk are endogenous affective decision making adm is a strategic model of choice under risk and uncertainty where we posit two cognitive processes the rational and the emotional process the two processes interact in a simultaneous move intrapersonal potential game and observed choice is the result of a pure strategy nash equilibrium in this game we show that regular adm potential games have an odd number of locally unique pure strategy nash equilibria and demonstrate this finding for affective decision making in insurance markets we prove that adm potential games are refutable by axiomatizing the adm potential maximizers

economic methodology in a nutshell he literature on economic methodology is concerned mainly with questions of theory confirmation or disconfirmation or empirical theory choice the central question is usually how one can tell whether a particular bit of economics is good science economists would like methodologists to provide the algorithm for doing good economic science and they want the algorithm to vindicate their own practice and to reveal the foolishness of those who do economics differently for example milton friedman 1953 tells economists that good theories are those that provide correct and useful predictions while paul samuelson 1947 1963 tells economists to formulate theories with operational concepts that are ideally logically equivalent to their descriptive consequences in my view not only are these and most other specific views on theory appraisal mistaken but the concern with problems of empirical appraisal is exaggerated for there are also interesting methodological questions to consider both normative and descriptive concerning the structure strategy goals and heuristics of various economic theories for example few writers on economic methodology recognize that the activities of formulating economic models and investigating their implications are a sort of conceptual exploration instead most mistakenly regard these activities as offering empirical hypotheses and assess them in terms of some philosophical model of confirmation or falsification as a tendentious survey of standard methodological literature this essay will however share its preoccupation with the empirical appraisal of theory microeconomic theory in particular i shall in particular discuss four approaches to praising or damning microeconomic theory that have dominated methodological discussions

are oil shocks inflationary asymmetric and nonlinear specifications versus changes in regime this paper identifies a structural break in core u s inflation phillips curves such that oil prices contributed substantially before 1981 but since that time pass through has been negligible this characterization is robust to a variety of re specifications and fits the data better than asymmetric and nonlinear oil price alternatives evidence does not support the hypotheses that declining energy intensity or deregulation of energy producing and consuming industries played an important role monetary policy did not itself become less accommodative of oil shocks but may have helped create a regime where inflation is less sensitive to price shocks more generally

are wages habit forming evidence from micro data although utility functions play a central role in economics the axiom that utility depends only on the absolute levels of its arguments is rarely tested this paper uses panel data on 2000 british employees who remain with the same employer and who are not promoted from one wave to the next it is shown that one important measure of well being overall job satisfaction is strongly positively correlated with the change in the worker s pay between waves but is unrelated to the current level of pay empirical tests suggest that a reference dependent satisfaction function where individual well being depends on current pay relative to past pay is more consistent with these regression results than are productivity or agency explanations of increasing wage profiles some evidence is presented of greater job satisfaction effects of pay rises for lower paid less well educated and younger workers these results provide some micro evidence consistent with the theory widespread in social science of habituation individuals may become used to any given level of consumption or income as such they tie in with the finding that a country s well being as measured by the average happiness of its citizens is only weakly correlated with its per capita gnp

juvenile crime and punishment evidence from japan over the last decade juvenile crime has become a serious social problem in japan the juvenile law was revised in 2001 to impose harsher punishment on juvenile offenders this revision makes it possible to impose criminal punishment on 14 and 15 year old criminal offenders while those offenders aged 16 19 have always faced criminal punishment both before and after the revision using this revision as a natural experiment this study conducts a difference in differences estimation to examine the effect of punishment on juvenile crime the analysis provides evidence that punishment can deter juvenile crime in addition this research examines the criminal behaviour of 13 year olds who face no change in punishment but who soon will in the near future the results suggest that the revision also had a negative impact on the criminal behaviour of these younger offenders

a cue theory of consumption psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue based complementarities the presence of the cue raises the marginal utility derived from consumption in this paper such dynamic preferences are embedded in a rational choice model behavior that arises from this model is characterized by endogenous cue sensitivities costly cue management commitment and cue based spikes in impatience the model is used to understand addictive habit forming behaviors and marketing the model explains why preferences change rapidly from moment to moment why temptations should sometimes be avoided and how firms package and position goods

inflation responses to commodity price shocks how and why do countries differ this paper relates the inflationary impact of commodity price shocks across countries to a broad range of structural characteristics and policy frameworks over the period 2001 2010 using several approaches the analysis suggests that economies with higher food shares in cpi baskets fuel intensities and pre existing inflation levels were more prone to experience sustained inflationary effects from commodity price shocks countries with more independent central banks and higher governance scores seem to have contained the impact of these shocks better the effect of the presence of inflation targeting regimes however appears modest and not evident during the 2008 food price shock the evidence suggests that trade openness financial development dollarization and labor market flexibility do not significantly influence the way in which domestic inflation responds to international commodity price shocks

a nearly global look at the dynamics of youth smoking initiation and cessation the role of cigarette prices this study investigates the role of cigarette prices on smoking initiation and cessation among youth in a sample of eight primarily non western low middle and high income countries with a particular focus on a subsample of 40 low and middle income countries lmics using split population duration models on longitudinally transformed individual data from the global youth tobacco survey gyts the average impact of cigarette prices in the presence of unobserved country heterogeneity and shifting cultural norms within countries is identified by the variation of cigarette prices within countries over time price increases are found to effectively reduce initiation in early youth and girls are considerably more responsive than boys the price elasticity of initiation in lmics is 0 82 for the combined gender analysis 0 46 for boys only and 1 5 for girls only there is some indication that youths in developing countries may be slightly less responsive to price changes than in high income countries no

the economics of consumer knowledge while approaches to measuring the state of a consumer s knowledge are well developed much less is known about the relationship between knowledge and consumer choice and information search the purpose of this article is to explore these relationships by treating consumer knowledge as human capital which affects the full price of consumption and search activities using this framework models are presented to explain life cycle consumption patterns lifestyles brand loyalty choice of features and search behavior this economic perspective is compared and contrasted to other consumer research on these topics including recent qualitative research that examines consumption behavior

the red and the black mental accounting of savings and debt in the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone the reality of consumer hedonics is different when people make purchases they often experience an immediate pain of paying which can undermine the pleasure derived from consumption the ticking of the taxi meter for example reduces one s pleasure from the ride we propose a double entry mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics a central assumption of the model which we call prospective accounting is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption but not after is buffered by thoughts of the benefits that the payments will finance another important concept is coupling which refers to the degree to which consumption calls to mind thoughts of payment and vice versa some financing methods such as credit cards tend to weaken coupling whereas others such as cash payment produce tight coupling our model makes a variety of predictions that are at variance with economic formulations contrary to the standard prediction that people will finance purchases to minimize the present value of payments our model predicts strong debt aversion that they should prefer to prepay for consumption or to get paid for work after it is performed such pay before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future likewise when paying beforehand the pain of paying is mitigated by thoughts of future consumption benefits contrary to the economic prediction that consumers should prefer to pay at the margin for what they consume our model predicts that consumers will find it less painful to pay for and hence will prefer flat rate pricing schemes such as unlimited internet access at a fixed monthly price even if it involves paying more for the same usage other predictions concern spending patterns with cash charge or credit cards and preferences for the earmarking of purchases we test these predictions in a series of surveys and in a conjoint like analysis that pitted our double entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments our model provides a better fit of the data for 60 of the subjects the discounting formulation provides a better fit for only 29 of the subjects even when allowing for positive and negative discount rates the pain of paying we argue plays an important role in consumer self regulation but is hedonically costly from a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption so that paying evokes thoughts about the benefits being financed but consumption is decoupled from payments so that consumption does not evoke thoughts about payment from an efficiency perspective however it is important for consumers to be aware of what they are paying for consumption this creates a tension between hedonic efficiency and what we call decision efficiency various institutional arrangements such as financing of public parks through taxes or usage fees play into this tradeoff a producer developing a pricing structure for their product or service should be aware of these two conflicting objectives and should try to devise a structure that reconciles them

can uncertainty alleviate the commons problem global commons problems such as climate change are often affected by severe uncertainty the paper examines the effect of uncertainty on pollution emissions and welfare in a strategic context we find that emissions are always lower under uncertainty than under certainty reflecting risk reducing considerations we show that uncertainty can have a net positive impact on the welfare of risk averse polluters we extend the analysis to increases in risk increases in risk aversion and to risk heterogeneity jel d81 c72 q54 h23

inflation target and a symmetries in the oil price pass through to inflation in this paper we employ state space models to estimate the pass through of oil price changes to consumer prices for a large sample of countries from 1970 to 2017 by controlling for self selection bias and endogeneity and allowing for different responses to positive and negative price changes we asses the differences between explicit inflation targeting it countries and a control group surprisingly perhaps our results suggest that the pass through is higher for it countries our main contribution is to show that these is mainly due to it countries having a significant higher pass through than non it countries when the oil price decreases a 10 drop in oil price leads about a 0 11 drop in inflation in iters of which 4pp are explained by the monetary regime importantly we show that adopting it reduces the asymmetry of the pass through we run several robustness checks and conclude that falling oil prices are more welcomed by the central banks with an it framework in particular during deflationary episodes or when inflation is above the target jel classification e31 e42 q43

the duration of the smoking habit i introduction most smokers smoke out of habit once the habit is ended many of smoking s most harmful effects decline rather quickly preventing and ending cigarette addiction is therefore the straightest path toward preventing the health damage done by cigarette smoking consequently the related questions of why people start smoking and why they quit are central to formulating and evaluating effective antismoking policies duration or hazard models are designed to measure the probability of transition between states and are thus ideal for investigating the structural determinants of the transition between addiction and non addiction nevertheless most previous work in the economics literature uses the aggregate smoking participation rate defined as the percentage of people who currently smoke or an individual s probability of participation rather than a hazard rate to measure the attractiveness of habitual smoking this paper models the hazard rates of both starting and quitting the cigarette smoking habit the starting hazard rate is the probability that an individual will start smoking in a given time period conditional on being a nonsmoker until then the quitting hazard rate is the probability of quitting smoking in a given time period conditional on being a smoker since the starting date both of these rates should rise and fall in response to changes in the attractiveness of smoking the two rates will respond differently to different stimuli since the starting hazard reflects the point of view of nonsmokers and the quitting hazard reflects the point of view of smokers hazard or duration models possess several advantages over smoking participation models most obviously smoking participation rates cannot directly distinguish between increased starting rates and decreased quitting rates but the hazard models can also in a participation rate model it is difficult to control for the effect of the duration of the habit whereas duration models are designed specifically to allow for and measure the dependence of the hazard rate on duration another advantage is that the participation rate at any one time will oversample the number of long term smokers relative to those who had a short term habit whereas a duration model is designed to avoid this source of bias one drawback however is that because of their inherent panel nature the data requirements of duration models are somewhat more difficult to satisfy as shall be seen the only previous work in the economics literature that estimates the hazard rate of starting smoking is douglas and hariharan 1994 my paper improves upon douglas and hariharan in at least three important ways first it estimates the hazard rate of quitting smoking as well as that of starting second it takes into account variation in state level regulation third its time varying covariate model allows hazard rates to respond dynamically to changes in cigarette price regulation and information variables the use of time varying covariates is important because it brings the empirical model into much closer accord with theory the decision whether or not to start or quit smoking is an ongoing decision made one day at a time on the basis of current information the hazard of starting is greatest when the cost of the habit appears lowest and its benefit appears highest this comparison of cost and benefit changes through time as price information income and life cycle variables change while douglas and hariharan 1994 used price information from the potential smoker s most vulnerable age on the theory that its marginal effect is greatest at that time the model used in this paper allows each individual s hazard rate to respond to changes in price and public information as they occur the leading theoretical model of the decision to smoke is the rational addiction model of becker and murphy 1988 which assumes that consumers of addictive goods begin smoking only after fully weighing the costs and benefits of the habit

optimism and pessimism in games this paper considers the impact of ambiguity in strategic situations it extends the earlier literature by allowing for optimistic responses to ambiguity ambiguity is modelled by ceu preferences we propose a new solution concept for players who may express ambiguitypreference then we study comparative statics of changes in ambiguity attitude in games with strategic complements this gives a precise statement of the impact of ambiguity on economic behaviour

regional obesity determinants in the united states a model of myopic addictive behavior in food consumption obesity is considered one of the largest public health problems in the united states today the premise for our study is a body of results from medical research showing that sweetened foods i e an increased consumption of sugars leads first to sugar addiction and second to carbohydrate addiction and increased consumption of fats the latter feature is actually responsible for the increase in body mass index bmi but the trigger that produces cravings for extra calories is sugar and sweeteners based on our results a myopic model of addictive behavior in food consumption seems to capture the food consuming habits and related outbreak of obesity among the american population our results indicate that lower current and past real prices of sugar contribute significantly to higher values of bmi and increase the likelihood of becoming obese in the united states

the implications of heterogeneous habit in consumer beverage purchases on soda and sin taxes abstract in this article we study the heterogeneity of habit strength in households demand for regular carbonated sweetened beverages csbs and beer in the united states a demand model that nests a smooth transition function is used to describe habit based consumption patterns revealing heterogeneous strengths of habits among households we find that more habitual consumers those with a strong preference for a particular product are not as sensitive to price or expenditure as the aggregate population this finding is further supported by simulations of the potential effects of soda and beer taxes we find the aggregate response to soda and beer taxes is smaller than when the influence of habit is assumed to be homogeneous

employment wages and alcohol consumption in russia 1 introductionconcerns regarding the relationship between alcohol consumption and labor market productivity are well grounded if problem drinking or alcoholism is considered a disease then it may have depressant effects on labor market productivity causing reductions in employment earnings and other labor market outcomes mullahy and sindelar 1993 1996 kenkel and ribar 1994 however there is a medical literature that documents a u shaped relationship between alcohol consumption and the risk of cardiovascular disease according to this literature moderate drinkers have a lower risk of cardiovascular disease than do either abstainers or heavy drinkers beaglehole and jackson 1992 doll et al 1994 consistent with this evidence several economists have found a positive association between moderate drinking and earnings berger and leigh 1988 french and zarkin 1995 heien 1996 hamilton and hamilton 1997 zarkin et al 1998 macdonald and shields 2001 this article investigates the impact of alcohol consumption on employment and wages in russia the primary contributions of the article are twofold first it enhances the economic literature on the relationship between alcohol consumption and labor market behavior by using data from a longitudinal survey the use of a longitudinal data set enables the estimation of a fixed effects model which helps avoid the potential bias caused by unobserved individual factors not captured in cross sectional models the use of a fixed effects model is an important extension to the literature because the data sets used in previous studies are cross sectional and usually lack adequate variables that could serve as identifying instruments to control for the endogeneity of alcohol consumption 1 furthermore the richness of the data set used in this article allows for the application of three alternative measures of alcohol consumption in the empirical analysis this is important because the relationship between alcohol consumption and labor market outcomes may be sensitive to the alcohol measure that is used the second notable contribution of this article is that it provides the first empirical evidence on the association between alcohol consumption and labor market outcomes in russia excessive alcohol consumption is a widespread problem in russia where per capita alcohol consumption is around 14 liters per year the world health organization who considers 8 liters to be a sign that a country has a critical consumption level for health problems quinn judge 1997 furthermore the dramatic fluctuations in mortality rates experienced in russia over the past 15 years have generated considerable attention to the potential effect of alcohol consumption on the overall health of the russian population it is important to investigate how labor market outcomes would be affected by alcohol consumption in a country which demonstrates such dramatic fluctuations in alcohol consumption and mortality consistent with the previous studies cross sectional results generally support the hypothesis of an inverse u shaped relationship between alcohol consumption and wages and employment results from the fixed effect models are found to be quite different from those of cross sectional models the positive effect of alcohol consumption on employment disappears for both males and females once the individual fixed effects are controlled for the results of the wage model lend support to a small and linear return to alcohol consumption but the effects are significant only at the 10 level the fixed effects estimates are smaller in magnitude and estimated with less precision compared with cross sectional estimates section 2 reviews the previous literature section 3 discusses the conceptual issues and empirical strategy section 4 introduces the data set section 5 provides a discussion of the results and sensitivity analyses section 6 concludes the article

on the existence of balanced growth equilibrium the authors characterize the class of dynamic models that allow for the most commonly used types of sustained economic growth balanced and asymptotically balanced they show that under a constant returns to scale technology asymptotically constant discount rate and asymptotically constant elasticity of marginal felicity are not only necessary but also sufficient conditions for the existence of a n asymptotically balanced growth equilibrium path the authors provide examples of recursive utility models that accept a n asymptotically balanced growth equilibrium and discuss their implications on cross country differences in growth rates as well as on savings behavior and wealth distribution copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

oil prices and inflation dynamics evidence from advanced and developing economies abstract we study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015 we find that a 10 increase in global oil inflation increases on average domestic inflation by about 0 4 percentage points on impact with the effect vanishing after two years and being similar between advanced and developing economies we also find that the effect is asymmetric with positive oil price shocks having a larger effect than negative ones the impact of oil price shocks however has declined over time due in large part to a more credible monetary policy and less reliance on energy imports we further examine the transmission channels of oil price shocks on domestic inflation during the recent decades by making use of a monthly dataset from 2000 to 2015 the results suggest that the share of transport in the cpi basket and energy subsidies are the most robust factors in explaining cross country variations in the effects of oil price shocks during the period

agency relationships in family firms theory and evidence does owner management necessarily eliminate the agency costs of ownership drawing on agency literature and on the economic theory of the household we argue that private ownership and owner management expose privately held owner managed firms to agency threats ignored by jensen s and meckling s 1976 agency model private ownership and owner management not only reduce the effectiveness of external control mechanisms they also expose firms to a self control problem created by incentives that cause owners to take actions which harm themselves as well as those around them jensen 1994 p 43 thus shareholders have incentive to invest resources in curbing both managerialand owner opportunism we extend this thesis to the domain of the family firm after developing hypotheses which describe how family dynamics and specifically altruism exacerbate agency problems experienced by these privately held owner managed firms we use data obtained from a large scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory finally we discuss the implications of our theory for research on family and other types of privately held owner managed firms

a double hurdle approach to modelling tobacco consumption in italy this article analyzes the determinants of tobacco expenditures for a sample of italian households a box cox double hurdle model adjusted for heteroscedasticity is estimated to account for separate individual decisions concerning smoking participation and tobacco consumption and to correct for nonnormality in the bivariate distribution of the error terms nested univariate and bivariate models are found to be excessively restrictive supporting the adequacy of a generalized specification estimation results show that consumption decisions are significantly affected by income and demographic characteristics in particular income positively impacts tobacco expenditure while participation probability substantially declines as age increases the existence of significant gender differences in both smoking participation and tobacco consumption patterns is found while high education and white collar occupation reduces the likelihood to smoke and tobacco expenditure levels single adult households have a lower

the discourse of bounded rationality in academic and policy arenas pathologising the errant consumer this article draws on perspectives in philosophy and the sociology of knowledge to critically review the discourse of bounded rationality within contemporary economics it is argued that the discourse pathologises consumers who are susceptible to sub optimal market outcomes treating their behaviour as abnormal and treating individuals as deviants in need of rehabilitation it is claimed that by this means new forms of policy are legitimated specifically behavioural remedies designed to draw apparently errant consumers towards behaviour that conforms more closely to the standard that is neoclassical model of decision making it is argued that the upsurge of interest in these behavioural remedies distracts attention from facets of the individual s environment such as the characteristics of markets and the behaviour of firms and also the set of norms and beliefs underpinning the economic system copyright oxford university press

welfare without happiness normative analysis asks how we as a society should make trade offs between individuals behavioral welfare economics extends the scope of this analysis to a single individual asking how the individual should trade off potential motives we argue that any faith in economists behavioral or otherwise abilities to resolve such problems in moral philosophy cannot be based on past accomplishments of welfare economics and that the best way to understand welfare economics is to view it as a part of positive economics with no normative content we distinguish three types of welfare analysis we refer to them as welfare i ii and iii welfare i identifies pareto efficient outcomes within a particular model and relates those to equilibrium outcomes welfare i includes results such as the first theorem of welfare economics or the myerson and satterthwaite theorem on two sided bargaining results that show when an efficient outcome must or cannot be attained in equilibrium such results are used to explain the persistence of certain economic institutions such as competitive markets or derive limitations on what can be achieved within any institutional framework such as bargaining or auctions welfare ii posits an objective function for a policymaker and evaluates different policies or institutions according to that objective function in other words welfare ii analyzes the implications of a policymaker s preferences policymakers often pursue sophisticated objectives that cannot be captured by the standard functional forms used to describe simple selfinterested economic agents moreover evidence regarding policymakers preferences is typically limited hence discussions of policymaker

economic factors affecting the increase in obesity in the united states differential response to price abstract a sharp increase in obesity during the last 15 years in the united states became one of the nation s main public health problems the theory of rational addiction seems to explain human behavior in food consumption leading to obesity reasonably well the interesting thing about our results is that the tax policy normally used to correct various distortions is to serve in this case as the preventive policy additional taxes on future prices of the addictive sweet foods contribute to lower sugar consumption and bmi at present time on the other hand increasing education level is usually considered a preventive type of policy in this case it leads to lowering the levels of the bmi in already overweight and obese population

taxation or regulation looking for a good anti smoking policy abstract this paper investigates the relative ability of two anti smoking policies taxes and regulation in inducing reductions in cigarette consumption and in providing incentives to stop smoking or not to start to our results based on canadian data show that cigarette demand responds to taxes elasticity of 0 28 but not to regulation while the converse is true for the proportion of smokers in the population

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

the economic functioning of online drugs markets abstract the economic functioning of online drug markets using data scraped from online platforms is studied analysis of over 1 5 million online drugs sales shows online drugs markets tend to function without the significant moral hazard problems that a priori one might think would plague them only a small proportion of online drugs deals receive bad ratings from buyers and online markets suffer less from problems of adulteration and low quality that are a common feature of street sales of illegal drugs furthermore as with legal online markets the market penalizes bad ratings which subsequently lead to significant sales reductions and to market exit the impact of the well known seizure by law enforcement of the original silk road and the shutdown of silk road 2 0 are also studied together with the exit scam of the market leader at the time evolution there is no evidence that these exits deterred buyers or sellers from online drugs trading as new platforms rapidly replaced those taken down with the online market for drugs continuing to grow

life cycle consumption of a harmful and addictive good david goldbaum this article demonstrates that the endogenous desire to quit smoking can result from a rational consumption path chosen at the time the consumer begins smoking this result is obtained without relying on hidden costs or unknown preferences a finite lived agent chooses a path of consumption of a harmful and addictive good to maximize present discounted utility the consumer chooses his consumption rate to account for the future health consequence of smoking and the withdrawal costs of quitting a consumer may choose to smoke even if it means a lowered utility level for the majority of the time spent smoking jel d91 c61 i12 i introduction some of what we consume for pleasure can be harmful economists assume that consumers take measure of the potential harm and balance it against the pleasure derived from consumption when both the pleasure and the harm occur at the time of consumption the decision is straightforward some goods though impose a cost borne at some future date requiring intertemporal planning these present a greater challenge to the consumer and to the economist trying to explain the consumer s behavior at times observed behavior implores us to question whether the consumer is properly weighing the costs and benefits in a manner that maximizes his or her utility theoretically for each item under consideration the rational consumer properly balances the lifetime benefits derived from the consumption against the lifetime costs some observed behavior seems to contradict this rational approach to consumption in particular it is common for people to begin smoking cigarettes during their youth only to endogenously make a decision to quit at a future date to integrate this behavior with rationality modelers have proposed hidden costs multiple selves changing preferences or other strategies that limit the decision making ability of the youth in all of these cases for some consumers the decision to smoke is a mistake made during youth that has to be reversed at some cost as a middle aged adult this article aims to demonstrate that a lifetime path of consumption in which a person consumes a harmful and addictive good while young and quits at some later date is a path that is perfectly consistent with rational behavior it is not necessary to assume that mid life quitters are displaying irrational or time inconsistent behavior if all information regarding a good s harmful properties is revealed some consumers will still choose a path that requires quitting mid life this paper primarily examines the consumption of cigarettes but also includes analysis of a nonaddictive unhealthy good both of these harmful goods provide the consumer with immediate pleasure but at the cost of decreasing life expectancy background becker and murphy 1988 bm introduced the concept of rational addiction the idea that addicts are forward looking rational consumers present consumption choices reflect not only current utility considerations and budget constraints but also incorporate the anticipated impact of present consumption on future utility and budget constraints bm examine the behavior response of addicts to exogenous shocks changes from a steady state including the desire to quit originate only from exogenous shocks such as a change in the relative price of the good or a revelation about the detrimental health consequences of the addictive good that alters the consumer s utility derived from consumption the model offers no mechanism by which smokers may choose to alter behavior endogenously in contrast to bm s smokers many of today s smokers appear to quit in absence of an external shock anyone who began smoking after 1966 has been subjected to the legislated health warnings appearing on cigarette packages since that time 1 antismoking messages in radio and television advertisements during the 1950s and 1960s also helped to make the health consequences of smoking common knowledge

inflation targeting a new framework for monetary policy he world s central bankers and their staffs meet regularly in venues from basle to washington to share ideas and discuss common problems perhaps these frequent meetings help explain why changes in the tactics and strategy of monetary policymaking such as the adoption of money growth targets in the 1970s the intensification of efforts to reduce inflation in the 1980s and the recent push for increased institutional independence for central banks tend to occur in many countries more or less simultaneously whatever their source major changes in the theory and practice of central banking are of great importance for both individual countries and the international economy in this article we discuss a new strategy for monetary policy known as inflation targeting which has sparked much interest and debate among central bankers and monetary economists in recent years this approach is characterized as the name suggests by the announcement of official target ranges for the inflation rate at one or more horizons and by explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy other important features of inflation targeting include increased communication with the public about the plans and objectives of the monetary policymakers and in many cases increased accountability of the central bank

the possibility of impossible stairways tail events and countable player sets abstract in classical game theory players have finitely many actions and evaluate outcomes of mixed strategies using a von neumann morgenstern utility function allowing a larger but countable player set introduces phenomena that are impossible in finite games even if players have identical payoffs no conflicts of interest 1 this payoff may be minimized in dominant strategy equilibria and 2 games so alike that even the consequences of unilateral deviations are the same may have disjoint sets of payoff dominant equilibria moreover a class of games without pure or mixed nash equilibria is constructed

dynamic corrective taxes with time varying salience abstract economies across the globe are becoming increasingly cashless and many payment systems have become automated driving a temporal wedge between consumption and payment and generally making the costs of consumption intermittently salient since this inconsistent price salience alters demand elasticities it is a particular concern for goods that generate externalities and the price based policies deployed to address them this paper derives optimal dynamic corrective taxes for suboptimal and persistent consumption decisions these taxes depend on the agent s ability to commit to a future consumption path we also characterize a second best constant tax and the excess burden from time invariant tax rates when calibrated to u s residential electricity consumption the model shows that the second best constant tax is more than twice the marginal external cost of carbon emissions

can neuroscience inform economics rationality emotions and preference formation the interaction between neuroscience and economics has gained much prominence recently leading to the emergence of the new and expanding field of neuroeconomics i will argue that although there is much insight to be gained from the interaction between neuroscience and economics the implications of recent developments in neuroscience and neuroeconomics for the deductivist methodology of mainstream economics and its emphasis on prediction of events have not been sufficiently addressed in fact much research on neuroeconomics has contributed to the formulation of deductivist models aimed at the prediction of events when the more fruitful use of neuroscience in economics consists rather in the utilisation of its insights for the development of an explanation of social behaviour that moves beyond the mainstream deductivist methodology the somatic marker hypothesis developed by damasio and others working closely with him will be suggested as an alternative framework for conceptualising the emergence of social behaviour from a neurobiological substrate

tax incidence with strategic firms in the soft drink market abstract because soft drink sd consumption is considered to be a contributor to the epidemic of obesity there is a growing interest in evaluating the impact on sd consumption of alternative tax policies in this paper we propose a methodology to evaluate the impact of taxation of a food market taking into account the strategic price response of both manufacturers and retailers we apply this methodology to the french sd market and simulate the impacts of ad valorem and excise taxes we find that firms behave differently when facing an ad valorem tax or an excise tax an excise tax is overshifted to consumer prices while an ad valorem tax is undershifted to consumer prices we find that an excise tax based on the sugar content of sd is the most effective at reducing sd consumption our results also indicate that ignoring strategic pricing by firms leads to misestimations of the impact of taxation by between 15 and 40 depending on the products and the tax implemented in the short term that is ignoring positive long term health effects a 9 cents l excise tax has a small negative welfare effect about 1 person year

the lulling effect the impact of child resistant packaging on aspirin and analgesic ingestions in 1972 the food and drug administration imposed a protective bottlecap requirement on aspirin and other selected drugs this regulation epitomizes the technological approach to social regulation the strategy for reducing children s poisoning risks was to design caps that would make opening containers of hazardous substances more difficult this engineering approach will be effective provided that children s exposure to hazardous products does not increase if however parents leave protective caps off bottles because they are difficult to open or increase children s access to these bottles because they are supposedly child proof the regulation may not have a beneficial effect indeed in this case there was no significant impact of the regulation on aspirin poisoning rates but there has been an alarming upward shift in the trend of analgesic ingestion rates since 1972 the source of this pattern appears to be attributable to a general reduction in parental caution with respect to such medicines which has had an adverse spillover effect on unregulated products the economic mechanisms involved can be best understood by considering the nature of individuals response to regulatory protection

private values of risk tradeoffs at superfund sites housing market evidence on learning about risk this paper incorporates a bayesian learning model into a hedonic framework to estimate the value that residents place on avoiding cancer risks from hazardous waste sites we show that residents are

does inflation targeting improve fiscal discipline abstract we explore the performances of inflation targeting it adoption in terms of fiscal discipline fd while most existing studies focus exclusively on the role of fd as a precondition for it adoption using a sample of developing and developed countries we show that it adoption exerts a positive and significant effect on fd a result robust to a wide variety of alternative specifications in addition this effect is statistically significant only in developing countries a result that may fuel the current debate regarding the relevance of it adoption in general and particularly for developing countries

welfare implications of the interaction between habits and consumption externalities we analyze the welfare properties of the equilibrium path of a growth model where both habits and consumption externalities affect the utility of consumers our analysis highlights the crucial role played by complementarities between externalities and habits in order to generate an infficient dynamic equilibrium in particular we show that the competitive equilibrium is inefficient when consumption externalities and habit adjusted consumption are not perfect substitutes

smoking cessation a model of planned vs actual behavior for time inconsistent consumers we offer a simple model of intertemporal choice to characterize how planned versus actual behaviors evolve for time inconsistent smokers our results suggest that smokers participation and cessation decisions are governed by the interplay between three effects the cessation effect leads smokers to advance their plans to quit smoking whereas the procrastination effect leads them to consecutively revise their planned quitting age upwards consequently the duration of smoking is effectively governed by which one of these two effects is dominant finally for certain consumer segments a threshold effect causes an all or nothing type of extreme smoking behavior based on certain critical values of present biased preferences our results provide some preliminary evidence that both marketing efforts by tobacco firms and public policy initiatives can have a significant influence on smoking behavior in particular we find that reductions in the age at which individuals start smoking may not only vastly extend their duration of smoking but also convert potential never smokers into lifetime smokers finally we estimate a hazard model using survey data from over 800 smokers to provide evidence in support of our theoretical model

can expected utility theory explain gambling we investigate the ability of expected utility theory to account for simultaneous gambling and insurance contrary to a previous claim that borrowing and lending in perfect capital markets rules out a demand for gambles we show that expected utility theory with non concave utility functions can still explain gambling when the rates of interest and time preference are equal agents will seek to gamble unless income falls in a finite set of exceptional values when these rates differ there will be a range of incomes for which gambles are desired in both cases repeated gambling is not explained but market imperfections such as different borrowing and lending rates can account for persistent gambling provided the rates span the rate of time preference

consumer willingness to pay to reduce the probability of retail foodborne pathogen contamination abstract the us department of agriculture applies a cost of illness approach to value reductions in morbidity which may understate the projected benefits from proposed food safety improvements by ignoring costs such as pain suffering and worry we use a national survey with a hypothetical food choice experiment to estimate a more comprehensive measure of consumer willingness to pay for food safety improvements our approach differs from previous evaluations of food safety improvements because we 1 provide the respondent with information about the promised change in the probability of pathogen contamination in retail food packages rather than changes in the probability of becoming ill 2 elicit changes in respondents subjective probability of becoming ill and 3 elicit predicted changes in the quantity demanded for products that have enhanced food safety properties we estimate the consumer s choice between a safety enhanced and an existing product the change in subjective probability of contracting foodborne illness associated with the enhanced product and the change in demand for the enhanced product in a manner that recognizes the correlation among unobserved elements the aggregated results suggest benefit estimates that are significantly larger than previous estimates for similar improvements

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

to be consumed with moderation abstract we study the optimal behavior of a hyperbolic discounting agent who has incomplete information about his own preferences and can only learn them through consumption we show that even if moderate current consumption and moderate future consumption always dominates abstinence the agent may optimally decide not to consume as a commitment device against inefficient learning that would lead to future excesses this provides a rationale for why smokers gamblers or compulsive buyers stick to second best personal rules of behavior such as abstinence without invoking standard habit formation arguments we also study how urges modify the strategy of the individual

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

price knowledge in household demand for utility services a household s decision to acquire price knowledge is endogenous in the demand for utility services and may affect elasticities and consumption levels a simultaneous equation model with endogenous switching is developed to evaluate the effects of price knowledge and other sources of heterogeneity results indicate informed households were more responsive to average and marginal price signals informed households also use less water but this is due to heterogeneity rather than price knowledge controlling for heterogeneity price knowledge actually increases monthly water usage the implications of accounting for differences in price knowledge in utility demand modeling and demand management policy are discussed

motives for private transfers over the life cycle an analytical framework and evidence for peru abstract this paper tests for the motives for private income transfers we consider two motives altruism and exchange the question of private transfer motives is important because such motivation can influence the effects of public income transfers on the distribution of income using a household survey for peru we find that transfer amounts received increase with recipient pre transfer income which contradicts a key prediction of the strong form of the altruism hypothesis but is consistent with exchange we also find that capital market imperfections are likely to be an important cause of private transfers and that social security benefits crowd out the incidence of private transfers

illicit drug use and labour market achievement evidence from the uk this study using data from the british crime survey bcs examines the effect of drug use on occupational achievement it starts by attempting to overcome the identification problem that results from the limited set of drug use questions presented in the bcs taking this into account and allowing for the endogeneity of drug use in equations for unemployment and labour market outcomes that a mild positive association with soft drugs and occupational achievement is observed that diminishes with age this relationship holds for males but not for females in contrast it is also found that past use of hard drugs significantly increases the likelihood of current unemployment although it appears to be unrelated to occupational success conditional on achieving employment

keeping off the grass an econometric model of cannabis consumption in britain this paper presents estimates of a dynamic individual level model of cannabis consumption using data from a 1998 survey of young people in britain the econometric model is a split population generalization of the non stationary poisson process allowing for separate dynamic process for initiation into cannabis use and subsequent consumption the model allows for heterogeneity in consumption levels and behavioural shifts induced by leaving education and the parental home copyright 2004 john wiley sons ltd

the simple analytics of tobacco taxation with illegal supply this paper examines the impact of tobacco excise taxes where legal and illegal supplies coexist the government s objective is to minimize cigarettes smoked in the economy or to maximize revenue or to minimize illegal activity it reacts to a competitive illegal supply in an adjoining jurisdiction a model of consumer choice is used to demonstrate how demand response to tax changes can yield counterintuitive results while the model mimics the canadian market similar situations characterize the us and european markets a novel element of the paper is the treatment of externalities on the supply side rather than the demand side resume analytique simple des taxes sur le tabac quand il y a offre illegale ce memoire examine l impact des taxes sur la vente de tabac quand des offres legale et illegale coexistent l objectif du gouvernement est de minimiser les cigarettes fumees dans l economie ou de maximiser le revenu fiscal ou de minimiser l activite illegale il doit prendre en compte l offre concurrentielle illegale dans une juridiction contigue on utilise un modele de choix du consommateur pour montrer comment la reaction de la demande aux changements dans les taxes peut engendrer des resultats contre intuitifs bien que le modele soit concu pour le marche canadien on trouve des situations avec des caracteristiques similaires dans les marches americain et europeens un element novateur du memoire est sa prise en compte des externalites du cote de l offre plutot que du cote de la demande

a stable international monetary system emerges inflation targeting is bretton woods reversed a stable international monetary system has emerged since the early 1990s a large number of industrial and a growing number of developing countries now have domestic inflation targets administered by independent and transparent central banks these countries place few restrictions on capital mobility and allow their exchange rates to float the domestic focus of monetary policy in these countries does not have any obvious international cost inflation targeters have lower exchange rate volatility and less frequent sudden stops of capital flows than similar countries that do not target inflation inflation targeting countries also do not have current accounts or international reserves that look different from other countries this system was not planned and does not rely on international coordination there is no role for a center country the imf or gold it is durable in contrast to other monetary regimes no country has been forced to abandon an inflation targeting regime succinctly it is the diametric opposite of the post war system bretton woods reversed

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

facilitating healthy dietary habits an experiment with a low income population abstract this paper tests an intervention aimed at facilitating cognitively the adoption of healthy dietary habits we provide easy to understand information about the risks of developing diabetes or heart diseases and give easy to follow dietary recommendations to minimize these risks we implement two variations one consisting of generic information the other consisting of information tailored to the individual the latter resembling newly developed on line health assessment tools on top of the information treatment we implement a second experimental variation encouraging people to spend more time thinking about their decisions we find evidence that the information intervention leads to healthier choices in the short run but mostly in the generic treatment surprisingly we find that people are on average pessimistic about their health and therefore receive good news on average when the information is tailored to them we find no evidence that increasing the time available to make choices leads to healthier choices and find no evidence of long term changes in habits these results do not support a bounded rationality explanation for poor dietary choices

do people anticipate loss aversion there is growing interest in the use of loss contracts that offer performance incentives as up front payments that employees can lose standard behavioral models predict a trade off in the use of loss contracts employees will work harder under loss contracts than under gain contracts but anticipating loss aversion they will prefer gain contracts to loss contracts in a series of experiments we test these predictions by measuring performance and preferences for payoff equivalent gain and loss contracts we find that people indeed work harder under loss than gain contracts as the theory predicts surprisingly rather than a preference for the gain contract we find that people actually prefer loss contracts in exploring mechanisms for our results we find suggestive evidence that people do anticipate loss aversion but select into loss contracts as a commitment device to improve performance using one bias loss aversion to address another dynamic inconsistency data as supplemental material are a

habits costly investment and current account dynamics abstract we analyze the current account dynamics for a small country model with habit forming consumers and costly investment the model has several empirical and policy implications i it is consistent with stylized facts regarding the effects of productivity shocks and increases in fiscal spending and regarding the savings investment co movement ii the long run effect of a temporary shock on net foreign assets is often opposite to that of a permanent shock iii under strong habit persistence the welfare dynamics are sluggish so that a beneficial tax financed fiscal policy may have a harmful hangover effect on welfare

habit formation in children evidence from incentives for healthy eating we present findings from a field experiment conducted at 40 elementary schools involving 8000 children and 400 000 child day observations which tested whether providing short run incentives can create habit formation in children over a 3 or 5 week period students received an incentive for eating a serving of fruits or vegetables during lunch relative to an average baseline rate of 39 providing small incentives doubled the fraction of children eating at least one serving of fruits or vegetables two months after the end of the intervention the consumption rate at schools remained 21 above baseline for the 3 week treatment and 44 above baseline for the 5 week treatment these findings indicate that short run incentives can produce changes in behavior that persist after incentives are removed

commodity price pass through and inflation regimes abstract does an increase in the energy and commodity prices drive consumer prices the energy and commodity markets affect the inflation process through international trade this poses policy implications for monetary policy to forecast inflation and also smooth the impact of international relative price movements we investigate the pass through of a broad range of agricultural and energy commodity prices to inflation across different inflation regimes our distinctive regime varying methodology captures asymmetric response of inflation to the world commodity prices we establish the first evidence of the pass through of commodity prices to inflation across different periods of low and high inflation regimes and also stable and unstable inflation regimes the results show that the duration of staying in an unstable inflation regime is smaller in the commodity markets both short run and long run pass through of agricultural food and energy commodities are higher compared to other commodities the energy commodity particularly drives the inflation process for advanced economies emerging economies and also the european union countries overall the dynamics of inflation and commodity prices change in the inflation environment pointing to implications for conducting optimal monetary policy

testing for forward looking behaviour evidence from the enactment of smoking restrictions abstractthis paper develops a new test for forward looking behaviour based on the establishment of public smoking restrictions given that the announcement of these restrictions effectively increases the future cost of smoking we should expect forward looking smokers to curb their consumption before the restriction is effective due to complementarity between present and future consumption i perform the estimation using detailed high frequency household level purchase data the results provide evidence against the forward looking behaviour of smokers households do not reduce their cigarette purchases before announced public smoking restrictions are established they only do so once the restriction is in effect

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

aggregate cigarette demand and regional differences in china national educational level final consumption expenditure average propensity to cigarette consumption apcc and cigarette price are adopted to research the regional and national aggregate cigarette demand of china under the condition that the effects of anti smoking education in the chinese current educational system are not remarkable the theoretical model shows that cigarette demand will increase with the increase of national educational level empirical analysis points out that cigarette demand increases with the increase of educational level estimates also suggest that cigarette price consumption expenditure and apcc will affect cigarette demand significantly and that there are great differences for cigarette demand by region

waves in consumption with interdependence among consumers this paper presents a model to analyze the development of consumption patterns when there are social interactions among consumers in particular a consumer in this model recognizes three reference groups a peer group of similar consumers with whom the consumer wishes to share consumption activities a distinction group from which the consumer wishes to distinguish him or herself and an aspiration group to which the consumer does not belong but wishes that he she did and with whom the consumer would like to share consumption activities the interplay of aspiration and distinction can lead to waves in consumption these can happen when for example the avant garde consumption of up market pioneers is copied by other types of consumer as the latter aspire to emulate the former the former in turn seek to distinguish themselves from these unwelcome companions by varying their consumption in consequence a particular consumption activity may start up market an then gradually proceed down the social spectrum more complex patterns with continuing cycles in consumption can also be found the paper argues that this model is not only applicable to the consumption behaviour of an elite or would be elite but is relevant in a wide range of consumption settings

habit formation and demand for sugar sweetened beverages using scanner data we estimated demand for nine nonalcoholic beverages under habit formation we found strong evidence for habit formation although demand for sugar sweetened beverages by low income households is less elastic to own price changes compared with high income households there is evidence that high income households consider beverages to be more substitutable than low income households do a half cent per ounce tax on store purchased sugar sweetened beverages will result in a moderate reduction in consumption of sugar sweetened beverages for both income strata because of habit formation long run national tax revenue from a sugar sweetened beverage tax is about 15 to 20 lower than short run revenue

economic foundations of the current regulatory reform efforts raditional economic regulation focused on issues such as antitrust and setting prices for public utilities but in the last few decades the emerging role of environmental and risk regulation has transformed the role of reg ulation in the american economy rough estimates of the economic costs of gov ernment regulations exceed 500 billion hopkins 1992 this total can be divided up in various ways more than half the cost is attributable to paperwork require ments arising out of regulation but there is also more than 200 billion in direct costs of regulation including costs to business more than half of this amount is due to environmental regulation and much of the remainder is attributable to various forms of risk regulation about 100 billion involves government transfers such as the effects of the minimum wage while the rest involves costs paid by businesses regulatory benefits reduce the net burden of these efforts on society but there are no good estimates of the total of regulatory benefits regulatory interventions often have a sound economic foundation many econ omists would agree that markets have a difficult time spontaneously organizing to address all forms of environmental pollution and that consumers are unable to assess the risks associated with say prescription drugs however the existence of a rationale for some sort of government intervention in no way eliminates the need for obtaining the greatest benefit to society that can be derived from these regu latory expenditures during 1995 and 1996 the 104th congress has considered a flurry of bills intended to foster more cost effective regulatory policies by imposing greater

rational exuberance at the mall addiction to carrying a credit card balance the becker murphy model of rational addiction is tested with new zealand credit card debt data the results clearly favour the rational addiction model over the myopic backward looking model the estimated short run and long run price elasticities are 0 58 and 2 32 respectively and the estimated rate of time preference is 6 7 per quarter

neuroeconomics why economics needs brains neuroeconomics uses knowledge about brain mechanisms to inform economic theory it opens up the black box of the brain much as organizational economics opened up the theory of the firm neuroscientists use many tools including brain imaging behavior of patients with brain damage animal behavior and recording single neuron activity the key insight for economics is that the brain is composed of multiple systems which interact controlled systems executive function interrupt automatic ones brain evidence complicates standard assumptions about basic preference to include homeostasis and other kinds of state dependence and shows emotional activation in ambiguous choice and strategic interaction

optimal sharing of foodborne illness prevention between consumers and industry the effect of regulation and liability consumers and the food industry can both prevent foodborne illness two questions are explored what is the socially optimal level of preventative effort by each and can tort and regulatory instruments induce such behavior analysis is complicated by two aspects of food safety technology one party s effort can affect the marginal effectiveness of the other party s effort and damage functions can be nonconvex previous analysis of accidents under torts and regulation fails to consider these generalizations indeed results concerning the ability of tort and regulatory instruments to induce first best and second best behavior often contradict previous results in the literature

the brain as a hierarchical organization based on recent neuroscience evidence we model the brain as a dual system organization subject to three conflicts asymmetric information temporal hori zon and incentive salience under the first and second conflicts we show that the uninformed system imposes a positive link between consumption and labor at every period furthermore decreasing impatience endogenously emerges as a consequence of these two conflicts under the first and third conflicts it becomes optimal to set a consumption cap finally we discuss the behavioral implications of these rules for choice bracketing and expense tracking and for consumption over the life cycle jel dil d74 d82 d87 d91

an empirical investigation of lawn mower safety regulation 1990 an empirical investigation of lawn mower safety regulation applied economics vol 22 no 6 pp 795 804

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

alcoholism work and income this article reports on an empirical analysis of the relationships between alcoholism and income and working we show that the relationships between alcoholism and labor market success have important age or life cycle dimensions we present evidence that alcoholism may affect income more by restricting labor market participation than by affecting the wages of workers finally we demonstrate that the effects of alcoholism on earnings depend on the extent to which one controls for other covariates associated with alcoholism as such we suggest that there may be important indirect as well as direct effects of alcoholism on labor market success

tariffs habit persistence and the current account this paper emphasizes the importance of habit persistence in determining the effect of a permanent distortionary tariff on the current account a distortionary tariff reduces real permanent income requiring a fall in the standard of living if the marginal utility of real consumption is strongly increasing in the habitual standard of living then aggregate savings falls and the country runs a current account deficit however if the marginal utility of real consumption is not sufficiently strongly increasing or is decreasing in the habitual standards then the tariff leads to a rise in savings and a current account surplus

valuing changes in health risks a comparison of alternative measures essential to efficient provision of health safety and the environment is correct valuation of risks to human health in a world of scarcity difficult decisions concerning tradeoffs between health and other desirables are unavoidable in this paper we develop a model of health investment under uncertainty which yields a general expression for values of changes in risks to human health the preference based values of morbidity risks and mortality risks are ex ante dollar equivalents of changes in expected utility associated with risk changes the preference based values are related to two alternative measures costs of illness and preventive expenditures which are thought to be lower bounds on the value of risk reductions we demonstrate that these alternative measures are not even special cases of the more general measure and that the size relationships among the three measures are complex also we derive the relationship between the willingness to pay for risk changes and the consumer surpluses associated with health changes which occur with certainty the next section contains a brief review of the approaches to valuing changes in health