price promotions in choice models promotions are used in marketing to increase sales and drive profits by temporarily decreasing the price per unit of a good some price promotions apply to all quantities 20 off some have limits on the number of units that can be purchased at a reduced price and others only offer the discount if the volume purchased is sufficiently high we develop a model of price promotions in the context of a direct utility model where its effects are incorporated through the budget constraint price promotions complicate the estimation and analysis of direct utility models because they induce kinks and points of discontinuity in the budget set we propose a bayesian approach to addressing these irregularities and demonstrate the ability of the direct utility model to be used in counterfactual analyses of price promotions we investigate the stability of utility function estimates for consumers under alternative price promotions and find that the majority of the effect of a price promotion is through the budget s

efficiency and equity effects of reforming the british system of direct taxation a utility based simulation methodology the simulation model presented in this paper shows how an estimated utility index defined over net income and leisure can be used to replicate labor supply behavior individual by individual this methodology is used to evaluate the efficiency and equity effects of two specific revenue neutral reforms of the british system of direct taxation the first reform involves abolishing the married m an s tax allowance the second abolishes this allowance only when the wife exhausts her own tax allowance the second reform is the most efficient and it may also be preferable on distributional grounds copyright 1988 by the london school of economics and political science

the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

measuring heterogeneous reservation prices for product bundles this paper develops a model for capturing continuous heterogeneity in the joint distribution of reservation prices for products and bundles our model is derived from utility theory and captures both within and among subject variability furthermore it provides dollarmetric reservation prices and individual level estimates that allow the firm to target customers and develop customized and nonlinear pricing policies our experiments show that regardless of whether the products are durables or nondurables the model captures heterogeneity and predicts well models that assume homogeneity perform poorly especially in predicting choice of the bundle furthermore the methodology is robust even when respondents evaluate few profiles self stated reservation prices do not have any informational content beyond that contained in the basic model the direct elicitation method appears to understate overstate the variation in reservation prices across consumers for low priced high priced products and bundles hence this method yields biased demand estimates and leads to suboptimal product line pricing policy the optimization results show that the product line pricing policy depends on the degree of heterogeneity in the reservation prices of the individual products and the bundle a uniformly high price strategy for all products and bundles is optimal when heterogeneity is high otherwise a hybrid strategy is optimal

implicit understandings in channels of distribution formal agreements can be used to achieve coordination among channel members these agreements work by exerting explicit control over the members who make the agreements however implicit understandings can be used as a partial substitute for more formal agreements in this paper we show that implicit understandings can develop as channel members learn about each other s behavior we show that this learning leads to the use of the implicit influence each channel member has over the other s behavior the learning leading to an implicit understanding requires some form of experimentation or historical observation this learning results in an oscillating retail price when only one channel member learns the other s behavior both channel members obtain greater profits than when neither member learns and both channel members obtain less profits than when both members learn however the member who does not learn obtains more profits than the member who learns we also show that implicit understandings r

the effect of impact fees on the price of new single family housing this paper provides new evidence on the effects of impact fees on housing prices using an inventory of single family housing sale transactions in the 38 cities and towns within king county washington for the period 1991 2000 although the effect of impact fees on housing prices has been examined previously earlier studies have been limited by methodological deficiencies this paper examines the effect of impact fees on new housing and their differential effect on housing price based on the quality of housing and finds that the effect of impact fees on the price of new housing is quite significant and elastic raising new home prices by about 166 per cent of the amount of the fee the increase is 358 per cent for the higher quality homes and is statistically insignificant for the lower quality homes

equilibrium behavior in the conservation easement game conservation easements allow landowners to collect earnings from their land while reducing their tax burdens because the land cannot be sold into development conservation assures open space amenities for nearby residents however the residents bear a tax increase that offsets the owner s tax reduction we develop a gametheoretic model of the private monetary incentives induced by conservation easement programs and use an experiment to verify that conservation decisions are made based on private incentives and without consideration of the public goods conservation provides this implies that unless land trusts are discriminating conservation easements need not lead to optimal conservation and may even reduce social welfare

satiation in discounted utility in this paper we propose a model of intertemporal choice that explicitly incorporates satiation due to previous consumption in the evaluation of the utility of current consumption in the discounted utility du model the utility of consumption is evaluated afresh in each time period in our model the utility of current consumption represents an incremental utility from the past level when the time interval between consumption periods is large and there are therefore no carryover effects our model coincides with the du model for short time intervals between consumption periods the satiation due to previous consumption lowers the utility of current consumption several implications of our model are examined and comparisons with the du model and the habituation model are made

is water policy limiting residential growth evidence from california rapid population growth and increasing water costs have led western states to condition development on long term water availability using original survey data this paper examines the effects of water screening policies on california s housing supply from 1994 to 2003 panel regressions indicate that these policies significantly slowed housing growth however impact fees based on the costs of residential water connections do not have this effect and may constitute a preferred policy to enhance the social efficiency of screening policies regulators should encourage the adoption of conservation oriented water rates which are associated with significant savings in residential water use

incentive aligned conjoint analysis abstract because most conjoint studies are conducted in hypothetical situations with no consumption consequences for the participants the extent to which the studies are able to uncover true consumer preference structures is questionable experimental economics literature with its emphasis on incentive alignment and hypothetical bias suggests that more realistic incentive aligned studies result in stronger out of sample predictive performance of actual purchase behaviors and provide better estimates of consumer preference structures than do hypothetical studies to test this hypothesis the authors design an experiment with conventional hypothetical conditions and parallel incentive aligned counterparts using chinese dinner specials as the context the authors conduct a field experiment in a chinese restaurant during dinnertime the results provide strong evidence in favor of incentive aligned choice conjoint analysis in that incentive aligned choice conjoint outperforms hypothetical choice conjo

competitive pricing behavior in the auto market a structural analysis in a competitive marketplace the effectiveness of any element of the marketing mix is determined not only by its absolute value but also by its relative value with respect to the competition for example the effectiveness of a price cut in increasing demand is critically related to competitors reaction to the price change managers therefore need to know the nature of competitive interactions among firms in this paper we take a theory driven empirical approach to gain a deeper understanding of the competitive pricing behavior in the u s auto market the ability motivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy boulding and staelin 1995 we use arguments from the game theoretic literature to understand firm motivation and abilities in different segments of the auto market we then combine these insights from the game theoretic literature and the ability motivation paradigm to develop hypotheses about competition in different segments of the u s auto market to test our hypotheses of competitive behavior we estimate a structural model that disentangles the competition effect from the demand and cost effects on prices the theory of repeated games predicts that firms with a long run profitability objective will try to sustain cooperative pricing behavior as a stable equilibrium when conditions permit for example markets with high concentration and stable market environments are favorable for sustaining cooperative behavior and therefore provide firms with the ability to cooperate the theory of switching costs suggests that in markets in which a firm s current customers tend to be loyal firms have a motivation to compete very aggressively for new customers recognizing the positive benefits of loyalty from the customer base in the long run as consumer loyalty in the market increases the gains from increasing market share by means of aggressive competitive behavior are more than offset by losses in profit margins firms therefore have the motivation to price cooperatively empirically we find aggressive behavior in the minicom pact and subcompact segments cooperative behavior in the compact and midsize segments and bertrand behavior in the full size segment these findings are consistent with our theory based hypotheses about competition in different segments in estimating a structural model of the auto market we address several methodological issues a particular difficulty is the large number of car models in the u s auto market existing studies have inferred competitive behavior only in markets with two to four products they also use relatively simple functional forms of demand to facilitate easy estimation functional forms of demand however impose structure on cross elasticities between products such structure when inappropriate can bias the estimates of competitive interaction we therefore use the random coefficients logit demand model to allow flexibility in cross elasticities we also use recent advances in new empirical industrial organization neio to extend structural estimation of competitive behavior to markets with a large number of products we use the simulation based estimation approach developed by berry et al 1995 to estimate our model a frequent criticism of the neio approach is that its focus on industry specific studies limits the generalizability of its findings in this study we retain the advantages of neio methods but partially address the issue of generalizability by analyzing competitive behavior in multiple segments within the auto industry to see whether there is a consistent pattern that can be explained by theory theoretical modelers can use our results to judge the appropriateness of their models in predicting competitive outcomes for the markets that they analyze a by product of our analysis is that we also get estimates of demand and cost apart from competitive interactions for the market managers can use these estimates to perform what if analysis they can answer questions about what prices to charge when a new product is introduced or when an existing product s characteristics are changed

reservation price as a range an incentive compatible measurement approach abstract drawing from the literature on buyers uncertainty in preference and product knowledge the authors suggest and empirically test the proposition that a consumer s reservation price for a product is more meaningfully and accurately represented as a range than as a single point given this conceptualization they propose an approach for incentive compatible elicitation of a consumer s reservation price range icerange that builds on becker degroot and marschak s 1964 point of purchase method two empirical applications of the approach provide an assessment of its practicality and its predictive performance relative to current methodologies for reservation price elicitation the results demonstrate that the proposed method significantly outperforms the benchmark approaches in terms of predictive validity and yields valuable incremental information about uncertainty in product valuation

how should consumers willingness to pay be measured an empirical comparison of state of the art approaches abstract this study compares the performance of four commonly used approaches to measure consumers willingness to pay with real purchase data real the open ended oe question format choice based conjoint cbc analysis becker degroot and marschak s bdm incentive compatible mechanism and incentive aligned choice based conjoint icbc analysis with this five in one approach the authors test the relative strengths of the four measurement methods using real as the benchmark on the basis of statistical criteria and decision relevant metrics the results indicate that the bdm and icbc approaches can pass statistical and decision oriented tests the authors find that respondents are more price sensitive in incentive aligned settings than in non incentive aligned settings and the real setting furthermore they find a large number of none choices under icbc than under hypothetical conjoint analysis this study uncovers an intriguing possibility even when the oe format and cbc analysis generate

optimization and analysis of the profitability of tariff structures with two part tariffs abstract service providers often offer tariff structures with several two part tariffs that consist of a fixed fee and a usage price such that consumers may pick the tariff they prefer prices of tariffs have significant impacts on service providers profit because they simultaneously influence consumers tariff choices and their usage the number of tariffs also plays an important role because more tariffs segment the market better but also increase the administrative burden and require more marketing effort this article presents a mixed integer nonlinear programming optimization problem to determine profit maximizing tariffs compares several heuristic search methods in particular the gradient method stochastic search and simulated annealing to solve this problem analyses the profitability of different tariff structures and outlines the factors that drive differences in profitability across various tariff structures the results show that especially for large samples of more than 100 consumers simulated annealing performs best and deviates only 0 2 from the optimum structures with fewer two part tariffs are generally sufficient because additional two part tariffs only negligibly increase service providers profit

augmenting conjoint analysis to estimate consumer reservation price consumer reservation price is a key concept in marketing and economics theoretically this concept has been instrumental in studying consumer purchase decisions competitive pricing strategies and welfare economics managerially knowledge of consumer reservation prices is critical for implementing many pricing tactics such as bundling tar get promotions nonlinear pricing and one to one pricing and for assessing the impact of marketing strategy on demand despite the practical and theoretical importance of this concept its measurement at the individual level in a practical setting proves elusive we propose a conjoint based approach to estimate consumer level reservation prices this approach integrates the preference estimation of traditional conjoint with the economic theory of consumer choice this integration augments the capability of traditional conjoint such that consumers reservation prices for a product can be derived directly from the individuallevel estimates of conjoint coefficients with this augmentation we can model a consumer s decision of not only which product to buy but also whether to buy at all in a category thus we can simulate simultaneously three effects that a change in price or the introduction of a new product may generate in a market the customer switching effect the cannibalization effect and the market expansion effect we show in a pilot application how this approach can aid product and pricing decisions we also demonstrate the predictive validity of our approach using data from a commercial study of automobile batteries

an empirical estimation of the price effects of development impact fees empirical analysis of the price of vacant lots sold in three toronto suburban municipalities during the 1977 86 period shows that development impact fees directly increased lot prices by approximately 1 2 times the size of the fee the extent of the increase was related to city growth rates in general the faster the rate of growth the lower was the price effect of development impact fees the effects of growth however were not consistent across the three municipalities as one municipality appeared to be lowering its fees in response to reductions in growth rates the policy environment within which fees are implemented and the way fees are adjusted appear to influence their effect on lot prices the estimated model also suggests that increases in expected future construction costs reduce current lot prices general increases in the consumers shelter costs tend to inflate the price of vacant lots the expectation of future increases in the cost of land development whether it is due to increases in ma

labour supply tax evasion and the marginal cost of public funds an empirical investigation abstract in this paper we extend the concept of marginal cost of public funds itmcf to incorporate tax evasion in the labour market mcf values are also computed from various tax reforms applied to the province of quebec canada 1985 for this purpose a utility based labour supply model that allows for both regular and irregular work activities is used at the benchmark situation the mcf associated with an increase in marginal income tax rates ranges between 1 39 and 1 53 depending upon whether we consider rationing or not moreover the presence of the irregular sector accounts for between 0 02 and 0 05 of this mcf although small in magnitude the impact of the irregular sector increases rapidly with the level of marginal tax rates

why do hot dogs come in packs of 10 and buns in 8s or 12s a demand side investigation this paper presents a theory that yields insight into the determination of package prices and sizes consumer heterogeneity in consumption rates storage costs and transactions costs costs of making trips to the store explains differences in package sizes and unit prices in the model fully informed consumers and a monopolist seller pursue optimizing behavior the seller chooses package sizes and prices to maximize profits and the consumers select package sizes that maximize their utilities the authors show that consumer heterogeneity may induce the seller to offer more than one size and that larger sizes would be sold either at unit price discounts or unit price premiums welfare implications and empirical tests of the theory are presented copyright 1987 by the university of chicago

the optimal size of a tax collection agency the condition that characterizes the optimal size of a tax collection agency is derived and then given a simple interpretation in terms of excess burden the paper clarifies an earlier finding of sandmo which suggests that the optimal degree of enforcement is higher than a simple cost benefit calculation would indicate the appropriate condition is that at the margin the resource cost of increasing enforcement should equal the saving of excess burden due to the decline in exposure to risk the increased revenue gained from stricter enforcement does not enter the expression because it merely represents a transfer among the economy s identical agents

a reservation price model for optimal pricing of multiattribute products in conjoint analysis a significant application of conjoint analysis is in pricing decisions for new products conceptually profit maximization is an important criterion for selecting the price of a product however t

impacts of land development charges this paper analyzes the impacts of development charges on urban land development the way in which the burden of a development charge is shared between land supplier devel oper and land consumer as well as its impact on demand and on developer s profit depends on a complex range of factors including the elastici ties of land supply and demand the relationships between the development charge the developer s fixed costs and the raw land and developed land prices before charges are exacted the policy im plications of these findings are discussed jel r52

labor supply and taxation in france this paper provides sequential labor supply estimates for french married men and women under specifications analogous to those used by hausman to account for the effects of taxation upon the budget constraint results suggest that even though labor force participation follows the expected pattern work hours are quite rigid most of the variation in the latter being attributed to measurement errors the second part of the paper concentrates on the simultaneous estimation of male and female labor supply conditional maximum likelihood techniques are shown to permit the separate estimation of work hours for both spouses with an appropriate set of instruments aimed at correcting for the biases arising from simultaneity selectivity and the nonlinearity of the budget constraint although consistent the resulting estimates apparently contradict the usual rationality restrictions on family labor supply behavior and seem to confirm the lack of flexibility in work hours

dynamic allocation of pharmaceutical detailing and sampling for long term profitability the u s pharmaceutical industry spent upwards of 18 billion on marketing drugs in 2005 detailing and drug sampling activities accounted for the bulk of this spending to stay competitive pharmaceutical managers need to maximize the return on these marketing investments by determining which physicians to target as well as when and how to target them in this paper we present a two stage approach for dynamically allocating detailing and sampling activities across physicians to maximize long run profitability in the first stage we estimate a hierarchical bayesian nonhomogeneous hidden markov model to assess the short and long term effects of pharmaceutical marketing activities the model captures physicians heterogeneity and dynamics in prescription behavior in the second stage we formulate a partially observable markov decision process that integrates over the posterior distribution of the hidden markov model parameters to derive a dynamic marketing resource allocation policy across physicians we apply the proposed approach in the context of a new drug introduction by a major pharmaceutical firm we identify three prescription behavior states a high degree of physicians dynamics and substantial long term effects for detailing and sampling we find that detailing is most effective as an acquisition tool whereas sampling is most effective as a retention tool the optimization results suggest that the firm could increase its profits substantially while decreasing its marketing spending our suggested framework provides important implications for dynamically managing customers and maximizing long run profitability

infrastructure financing and urban development abstract historically additions to public infrastructure necessitated by urban growth have been financed under a cost sharing approach in the last several decades however financing of growth has increasingly relied on land use exactions where new residents pay for the cost of incremental infrastructure despite the emergence of a formal growth control literature there has been virtually no formal analysis of the connection between infrastructure financing and urban development to provide such an analysis this paper investigates three different schemes for financing incremental infrastructure within an urban growth model the analysis compares an impact fee scheme to two types of cost sharing schemes deriving the effects on urban growth and land values of switching to the impact fee scheme the efficient financing scheme is also identified

a conjoint model of quantity discounts quantity discount pricing is a common practice used by business to business and business to consumer companies a key characteristic of quantity discount pricing is that the marginal price declines with higher purchase quantities in this paper we propose a choice based conjoint model for estimating consumer level willingness to pay wtp for varying quantities of a product and for designing optimal quantity discount pricing schemes our model can handle large quantity values and produces wtp estimates that are positive and increasing in quantity at a diminishing rate in particular we propose a tractable wtp function that depends on both product attributes and product quantity and that captures diminishing marginal wtp we show how such a function embeds standard wtp functions in the quantity discount literature as special cases we also demonstrate how to use the model to estimate the consumer value potential which is the product of the premium a consumer is willing to pay and her volume potential finally we propose a parsimonious experimental design approach for implementation we illustrate the model using data from a conjoint study of online movie rental services the empirical results show that the proposed model has good fit and predictive validity in addition we find that marginal wtp in this category decays rapidly with quantity we also find that the standard choice based conjoint model results in anomalous wtp distributions with negative wtp values and nondiminishing marginal willingness to pay curves finally we identify four segments of consumers that differ in terms of magnitude of wtp and volume potential and we derive optimal quantity discount schemes for a monopolist and a new entrant in a competitive market

the urban impacts of the endangered species act a general equilibrium analysis we consider the general equilibrium implications of environmental regulations which result in a reduction of otherwise profitable residential development critical habitat designation under the endangered species act is an important example if the regulations affect a significant amount of land they may have important effects on the rest of the regional economy increasing rents and densities on lands not subject to the regulation causing the conversion of lands from alternative uses increasing the net developed area in the region and decreasing consumer welfare we develop a flexible general equilibrium simulation of the economic effects of critical habitat designation explicitly considering the distributional effects upon owners of different types of land and upon housing consumers the results of our simulation show that the most significant economic effects of critical habitat occur outside of the designated area the prices and rents of non critical habitat lands increase significantly incomes are redistributed across landlords and the well being of housing consumers is further affected through these linkages

tax evasion is not a gamble a report on two experiments abstract a tax evasion experiment and an equivalent gambling experiment indicate that contrary to the standard model of evasion tax evasion and gambling are quite different although the standard model provides a good basis for analysis of evasion

silver bullet or trojan horse the effects of inclusionary zoning on local housing markets in the united states many local governments are adopting inclusionary zoning iz as a means of producing affordable housing without direct public subsidies in this paper panel data on iz in the san francisco metropolitan area and suburban boston are used to analyse how much affordable housing the programmes produce and how iz affects the prices and production of market rate housing the amount of affordable housing produced under iz has been modest and depends primarily on how long iz has been in place results from suburban boston suggest that iz has contributed to increased housing prices and lower rates of production during periods of regional house price appreciation in the san francisco area iz also appears to increase housing prices in times of regional price appreciation but to decrease prices during cooler regional markets there is no evidence of a statistically significant effect of iz on new housing development in the bay area

referendum models and economic values theoretical intuitive and practical bounds on willingness to pay innovations in the estimation of referendum type contingent valuation models have led to willingness to pay wtp measures inconsistent with consumer preferences and unbounded from above or below we propose a set of criteria which guarantee a bounded measure of wtp the criteria reject the traditional random utility model with unrestricted error terms in favor of the random wtp model with bounds on wtp once wtp is bounded by zero and income the form of the distribution is less consequential a new model for wtp is developed based on the beta distribution and is compared to previously estimated models

a choice model for packaged goods dealing with discrete quantities and quantity discounts utility maximizing solutions to economic models of choice for goods with either discrete quantities or non linear prices cannot always be obtained using standard first order conditions such as kuhn tucker and roy s identity when quantities are discrete there is no guarantee that derivatives of the utility function are equal to derivatives of the budget constraint moreover when prices are nonlinear as in the case of quantity discounts first order conditions can be associated with the minimum rather than the maximum value of utility in these cases the utility function must be directly evaluated to determine its maximum this evaluation can be computationally challenging when there exist many offerings and when stochastic elements are introduced into the utility function in this paper we provide an economic model of demand for substitute brands that is flexible parsimonious and easy to implement the methodology is demonstrated with a scanner panel data set of light beer purchases the model is used to explore the effects of price promotions on primary and secondary demand and the utility of product assortment

does uncertainty matter consumer behavior under three part tariffs in communication information and other industries three part tariffs are increasingly popular a three part tariff is defined by an access price an allowance and a marginal price for any usage in excess of the allowance empirical nonlinear pricing studies have focused on consumer choice under two part tariffs we show that consumer behavior differs under three part tariffs and assess how consumer demand uncertainty impacts tariff choice we develop a discrete continuous model of choice among three part tariffs and estimate it using consumer level data on internet usage our model extends prior work in accommodating consumer switching to competitors thereby capturing behavior in competitive industries more accurately our empirical work shows that demand uncertainty is a key driver of choice among three part tariffs consumers expected bill increases with the variation in their usage steering them toward tariffs with high allowances consequently demand uncertainty decreases consumer surplus and increases provider revenue a further analysis of consumers responsiveness to the different elements of a three part tariff under the provider s current pricing structure reveals that prices affect a consumer s tariff choice more than her usage quantity and that the allowance plays a strong role in consumer tariff choice based on our results we derive implications for pricing with three part tariffs

a general choice model for bundles with multiple category products application to market segmentation and optimal pricing for bundles abstract the attribute based approach to study customer choices cannot deal with bundles of heterogeneous components which are usually drawn from different product categories the authors develop the comparability based balance model which is a unified framework for modeling bundle choices the model can be employed for any bundle regardless of the heterogeneity of bundle components under a pure bundling strategy the conjoint model and balance model are special cases of the general model the authors use mixture distributions in a hierarchical bayesian framework to incorporate consumer heterogeneity in a more flexible manner than the extant approaches such as latent class and random coefficient models the empirical tests of the model show that most attribute effects are significant and consistent with the model s predictions the model is superior to those that do not consider the issues of comparability of attributes latent class structure and heterogeneity among respondents the authors show how