optimism and pessimism a cross country comparison optimism and pessimism influence economic choices if consumers are optimistic they tend to spend a greater proportion of their budget shares on luxuries and a lesser proportion on necessities many models of consumer expenditure do not take into account the influence of optimism and pessimism this paper demonstrates a way to indirectly measure optimism and pessimism by focusing on patterns in engel curve residuals for necessities and luxuries using the revised international comparison program icp 2005 data covering 144 countries this paper presents economy wide optimism and pessimism indicators these indicators provide a useful complement to traditional economic measures of standard of living such as real gross domestic product gdp in purchasing power parity ppp terms these indicators are non economic in traditional terms however since they are constructed as residuals from an economic analysis they could act as a very useful complement to traditional economic indicators and as such may be termed quality of life indicators

sticky prices and deviations from the law of one price evidence from mexican micro price data abstract this paper uses a novel dataset of weekly sampled store level prices to study the impact of sticky prices on the volatility and persistence of intranational deviations from the law of one price lop the volatility of lop deviations is found to be increasing both on the distance separating two locations and on the degree of price stickiness sticky prices are also found to be systematically related to the persistence of lop deviations half lives of lop deviations are systematically larger for goods with stickier prices these observations are shown to accord well with the predictions of a dynamic general equilibrium model featuring real market segmentation and calvo pricing i also find evidence of remarkably fast convergence to the lop average half lives of lop deviations are in the order of 3 6 weeks and show that previously reported convergence estimates may be afflicted by a positive temporal aggregation bias

losses from effluent taxes and quotas under uncertainty recent theoretical papers by adar and griffin j environ econ manag 3 178 188 1976 fishelson j environ econ manag 3 189 197 1976 and weitzman rev econ studies41 477 491 1974 show that different expected social losses arise from using effluent taxes and quotas as alternative control instruments when marginal control costs are uncertain key assumptions in these analyses are linear marginal cost and benefit functions and an additive error for the marginal cost function to reflect uncertainty in this paper empirically derived nonlinear functions and more realistic multiplicative error terms are used to estimate expected control and damage costs and to identify empirically the mix of control instruments that minimizes expected losses

regulating stock externalities under uncertainty abstract using a simple analytical model incorporating benefits of a stock costs of adjusting the stock and uncertainty in costs we uncover several important principles governing the choice of price based policies e g taxes relative to quantity based policies e g tradable permits for controlling stock externalities as in weitzman rev econom stud 41 4 1974 477 the relative slopes of the marginal benefits and costs of controlling the externality continue to be critical determinants of the efficiency of prices relative to quantities with flatter marginal benefits and steeper marginal costs favoring prices but some important adjustments for dynamic effects are necessary including correlation of cost shocks across time discounting stock decay and the rate of benefits growth applied to the problem of greenhouse gases and climate change we find that a price based instrument generates several times the expected net benefits of a quantity instrument

quality quantity and nutritional impacts of rice price changes in vietnam summary asian governments intervene in the world rice market to protect domestic consumers whether consumers are nutritionally vulnerable depends on the elasticity of calories with respect to rice prices common demand models applied to household survey and market price data ignore quality substitution and force all adjustment onto the quantity calorie margin this paper uses data from vietnam on market prices food quantity and quality a 10 increase in the relative price of rice reduces household calorie consumption by less than 2 but this elasticity would be wrongly estimated to be more than twice as large if quality substitution is ignored

black white differences in inflation 1974 1991 abstract food s budget share for blacks fell substantially relative to that of whites from 1974 to 1991 much of this decline cannot be explained by improvements in blacks cpi deflated income or any other variables i attribute this unexplained fall in food s share much larger for blacks than whites to an unmeasured rise in income in the case of whites the unmeasured rise in real income is attributable to cpi bias in the case of blacks i believe that in addition to cpi bias there is a pattern of declining race specific price premia from 1974 1991

prices and regional variation in welfare one would expect regional differences in prices to influence conclusions concerning levels and distributions of well being although there is anecdotal evidence of significant price dispersion across regions there is no governmental source of data that measures differences in price levels in this paper i integrate estimates of regional prices with expenditure data from the consumer expenditure surveys to assess the influence of price differences on living standards in the united states while prices have little effect on inequality estimates of poverty and the standard of living change substantially with the inclusion of regional price variation

comparing costs of living across world cities this paper compares costs of living across world cities the international comparison program icp reports price levels across world economies in its calculation of purchasing power parity through

measuring the spatial price differences in china with regional price parity methods the measurement of prices has been an important field in economics and a spatial price index is very useful in comparing the standards of living and well being across regions in a country this paper intends to measure the regional price parities rpps across different provincial areas in china with an urban sample of 140 goods and services in 2015 according to the framework of the international comparison program icp methodology the results show that the rpps that were estimated with commonly used approaches such as the gini elteto koves szulc geks geary khamis gk and weighted country product dummy wcpd are only slightly different the rpps of three regions including guangdong shanghai and zhejiang are greater than 1 with beijing 1 while the other 27 regions are all lower than 1 which represents price levels that are less than beijing in the extrapolation of the rpps from 2000 to 2014 a significant descending trend is found for the standard deviation series of the rpps over time that shows that the price differences across regions decreased during the extrapolating period this finding provides evidence of a phenomenon of spatial price converging in china finally a study on the deflation of provincial aggregates with the rpps reveals that the spatial price adjustment will change the ranks or relative importance of different regions in the country especially the measurement of income inequality proves that the gini coefficients of provincial income deflated by the rppgeks are all lower than the gini coefficients of unadjusted incomes

international income inequality measuring ppp bias by estimating engel curves for food there are large differences between rich and poor people in the world this is of major concern to economists as well as to policy makers the magnitude of the dif ferences however depends on the measure used for comparisons to illustrate per capita income in china is more than five times larger if one uses penn world table pwt 1 incomes rather than exchange rate based ex incomes in this paper we study pwt incomes which aim at correcting for price level dif ferences across countries and identify the bias in them by estimating engel curves for food furthermore we study the relationship between the bias and the income of a country the pwt produces purchasing power parity ppp adjusted incomes and thus the associated bias is referred to as the ppp bias having estimated the bias in pwt incomes we provide new estimates of real income and refer to these as the engel curve ec incomes by comparing the estimated ec incomes and the pwt incomes the issue of how the bias influences estimated inequality is discussed finally we discuss whether ex incomes which simply transform each country s nominal income into one common currency provide better estimates of income than do pwt incomes this paper reports three main findings first there is substantial and systematic ppp bias in the pwt incomes the poorer the country the more its income tends to be overestimated 2 second the ppp bias causes a substantial and robust underesti mation of international inequality the gini index increases substantially when one adjusts for the bias third whereas pwt incomes provide better estimates than the ex incomes for the richer countries the ex incomes which implicitly assume that ppp holds provide better estimates for the poorer countries as we know that price levels differ across countries there is consensus that the seminal work on establishing the pwt was a well founded initiative and the data have been extensively used 3 still although many studies rely on pwt data few focus on the ppp bias in this dataset some contributors focus on one component of the bias however the so called substitution bias and use macro data to measure this

should renewable energy policy be renewable political flexibility brings about trade offs for policy makers aiming to support the deployment of renewable energy sources res on the one hand it allows incorporating new information on ex ante uncertain benefits and costs of res policy on the other hand it may deter res investments this paper scrutinizes how these trade offs play out economically and politically when res policy makers choose the degree of flexibility as well as the instruments to implement flexibility the analysis builds on a theoretical framework distinguishing between flexibility by design and by adjustment it is complemented by a discussion of three case studies res support schemes in germany and the united kingdom and the eu emissions trading scheme theoretical as well as empirical results suggest that the politically chosen degree of flexibility by policy design may be sub optimally low in contrast flexibility by policy adjustment is often excessively high

quality quantity and spatial variation of price this paper develops and implements a method for estimating price elasticities of demand using cross sectional household survey data geographically clustered households report unit values which when corrected for quality effects and for measurement error indicate the underlying spatial variation in prices and can be matched to variation in demand patterns a simple model of quality choice is proposed while the correction for measurement error exploits the clustered design of such surveys data from a 1979 household survey from the ivory coast are used to estimate price elasticities for beef meat fish cereals and starches copyright 1988 by american economic association

squatting as rent seeking and pressure group competition a south african case study a new squatting phenomenon in south africa is analysed from a rent seeking pressure group perspective while such squatting may play an expanded role in privatising publicly and even privately held land and in redistributing wealth over the near future in the longer term its expansion will tend to be limited by rent protecting and counter innovation as long as this rent seeking competition stays within the bounds set by constitutional government

correlated uncertainty and policy instrument choice abstract for two decades environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments but that cost uncertainty matters with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions but in the presence of simultaneous correlated uncertainty such policy instrument recommendations may be inappropriate with plausible values of relevant parameters the conventional identification of a price instrument will be reversed to favor instead a quantity instrument the opposite reversal from the choice of a quantity instrument to a price instrument seems less likely to occur

the evolution of engel curves and its implications for structural change theory the tendency for expenditure engel curves to flatten out at high income levels is frequently cited as evidence that major shifts in household spending patterns take place as households become more affluent empirically little has been done to examine i how pervasive this tendency is across the engel curves of different goods and services ii whether the rate at which engel curves flatten out may significantly change over time and iii how robust engel curves are in the face of changes in the income distribution of households using data from the uk family expenditure survey we find evidence that the tendency for engel curves to flatten out which we dub saturation is indeed widespread across a wide range of goods and services however a tendency for their shape to shift over time and for these shifts to co move with changes in the income distribution of households casts some doubt on whether the declining slope of engel curves can be used to predict slowdowns in the growth rate of demand for particular goods and services

regulation with anticipated learning about environmental damages a regulator anticipates learning about the relation between environmental stocks and economic damages for a model with linear quadratic abatement costs and environmental damages and a general learning process we show analytically that anticipated learning decreases the optimal level of abatement at a given information set if learning causes the regulator to eventually decide that damages are higher than previously thought learning eventually increases abatement learning also favors the use of taxes rather than quotas using a model that is calibrated to describe the problem of global warming we show numerically that anticipated learning causes a significant reduction in first period abatement and a small increase in the preference for taxes rather than quotas even if the regulator s initial priors about environmental damages are much too optimistic he is able to learn quickly enough to keep the expected stock trajectory near the optimal trajectory

on the correspondence between individual and aggregate food consumption functions evidence from the usa and the netherlands this paper provides evidence from the us and dutch budget surveys that income elasticity of family food consumption is a function of family income and other observable characteristics of the household it also finds that the conditional variance of family food consumption depends on family income this complicated pattern of dependence of family food consumption on income breaks the exact correspondence between the family and the aggregate food consumption functions simple dynamic models for aggregate food consumption are developed which are used for forecasting 1997 john wiley sons ltd

affluence and food a simple way to infer incomes accurate and timely measures of cross country real incomes are still a rarity as the share of expenditure devoted to food is readily available we use engel s law in reciprocal form to measure affluence analysis of real income data for over 100 countries indicates that this approach is viable to recognize the role of uncertainty in the analysis we present the results in the form of stochastic cross country income comparisons

a democratic model of the rent sought benefit cycle assume that an individual or a group has secured a rent sought benefit or transfer from the bureaucracy assume further that this benefit is not like a monopoly right which in the nature of things cannot be replicated but is like a transfer payment or a tax exemption which in principle others might be lucky enough to receive how might the rest of the community react to the benefit received by the successful rent seekers if for example the rent sought benefit is financed by higher taxes that fall on the community as a whole the remainder i e that part of the community that did not receive the benefit will be forced to transfer resources to the benefit recipients one possible response is for the remainder to engage in rent seeking in an attempt to secure the benefit that is currently enjoyed by the recipients we shall refer to this as the bandwaggon option since the remainder tries to jump on the bandwaggon of bureaucratic largesse the other possible response is the protest option according to which the remainder objects to the unfairness of the benefit concession and takes action to prevent the few from benefiting at the expense of the many in this paper we discuss the factors that are likely to influence the choice between the bandwaggon and protest options in doing so we explain why it might be that society sometimes protests at the arbitrary concession of benefits while at other times it tacitly or even actively condones them we also explain why the concession of benefits might spread and correspondingly why the bureaucracy and taxation might grow over time following on from this we consider at what point if any the spread of benefits will cease because society prefers a reform that at once will curtail benefits and reduce taxes finally we consider the conditions under which this cycle of rent sought benefits might be repeated the model that is proposed has two central characteristics first democratic behaviour is assumed if a majority of the public wishes to put an end to the

squatters rights and urban development an economic perspective up to 35 per cent of urban dwellers in third world cities are squatters the characteristics of the squatting phenomenon are both varied and puzzling of particular interest are the observations that 1 landowners often do not collect rent from squatters for use of the land and 2 costly evictions are sometimes used without subsequent development of the land which in many cases is resettled by squatters we present an economic model of landowner squatter interaction which is consistent with these observations this model is then used to enlighten certain aspects of socially optimal land management policy for squatter areas the phenomenon of squatting in third world cities is widespread and growing recent studies have shown that up to 35 per cent of the total urban population of developing countries lives in squatter settlements the current and mostly non economic literature has mixed views regarding whether squatting is a problem or a solution to efficient urbanization attitudes concerning squatter settlements range from disgust concerning living conditions in such illegal or quasi illegal spontaneous settlements to admiration for the resourcefulness of the inhabitants as they provide themselves with at least some shelter using the minimal inputs available the literature has consequently not provided a useful conceptual framework to guide government policy in this paper we develop a formal economic model to understand the various forms of squatting in third world cities we then use the model to address some vexing policy questions do private landowners evict squatters too frequently or too infrequently should any or all squatters be evicted should they be provided with basic infrastructure services should they be given unambiguous property rights to the land they occupy applying the coase theorem to the squatting problem we might conclude that the observed rate of evictions was just right evictions occur only if the value of land use to squatters is less than the sum of the alternative development value to the landowner plus the cost of evictions this economic logic follows since squatters would outbid any competing use of the land if indeed they valued it more thus any policy that gave more property rights to squatters would be a pure transfer from landowners to squatters social welfare would be unaffected however transaction and bargaining costs associated with the transfer of ownership of land to squatters which are likely to be important in the squatting problem can invalidate this simple intuition 2 landowners incur costs when they try to enforce property rights either by collecting rent or evicting collect ing rent formalizes the relationship between renter and landowner the land owner would then have to incur the costs of providing basic services water

learning and stock effects in environmental regulation the case of greenhouse gas emissions abstract this paper concerns the optimal regulation of greenhouse gases that lead to global climate change in particular we focus on uncertainty and learning which over time resolves uncertainty we present an empirical stochastic model of climate economy interactions and present results on the tension between postponing control until more is known vs acting now before irreversible climate change takes place uncertainty in our model is in the damage caused by global warming the results suggest that a temporary carbon tax may dominate a permanent one because a temporary tax may induce increased flexibility

commitment versus discretion in climate and energy policy to decarbonize the power sector policy makers need to commit to long term credible rules for climate and energy policy otherwise risk of opportunistic policy making will impair investments into low carbon technologies however the future benefits and costs of decarbonization are subject to substantial uncertainties thus there may also be societal gains from allowing policy makers the discretion to adjust the policies as new information becomes available we examine how this trade off between policy commitment either unconditional or state contingent and discretion affects the optimal intertemporal design of market based instruments in the power sector using a dynamic partial equilibrium model we show that commitment to a state contingent level of ambition for the market based instrument leads to higher welfare than both unconditional commitment and discretion with benefit uncertainty the choice between the practically more feasible approaches of unconditional commitment and discretion is analytically ambiguous a basic numerical illustration suggests that policy discretion may outperform unconditional commitment in terms of welfare however this result is reversed when only a limited fraction of benefit uncertainty resolves in reasonable time when future policy makers have own agendas or when investors are risk averse with cost uncertainty policy discretion is welfare superior if the government can commit to a technology deployment target

quality change in price indexes price indexes provide the fundamental building blocks for measuring the general price level along with real incomes and real output but the most important single price index for the united states the cpi has been criticized as significantly underestimating the pace of quality change this paper sketches the issues involved in the measurement of quality change in price indexes it reviews the theory of quality change discusses how the bureau of labor statistics deals with quality change and provides examples of measurement issues in practice it concludes with a proposal to resolve the massive uncertainties in this area

rent seeking from a property rights perspective james buchanan 15 15 has suggested that rent seeking analysis can readily be incorporated within the property rights approach and as with public choice the theory of rent seeking can be interpreted as an appropriate extension yet no one has really explored rent seeking or revenue premium tariff or directly unproductive profit seeking from a property rights perspective buchanan 14 15 16 17 clearly indicated that property rights assignments actually underlie the rent seeking process and others have also recognized this 4 20 23 28 but there are further insights into the workings of the political economy which can be derived for instance lobbying activities with nonpecuniary goals clearly fit into the rent seeking framework when viewed through the property rights paradigm this contrasts strikingly with the perception of rent seeking held by some writers 9 10 11 12 13 furthermore a property rights approach to rent seeking provides predictions of a spiraling process of government growth since successful rent seeking by one interest group generally requires expansion of bureaucratic powers while at the same time creating incentives for the formation of additional rent seeking interest groups legislative responses to these new groups requires further expansion of the bureaucracy and creates incentives for more rent seeking so the growth process continues in this paper a brief summary of the conclusions of the rent seeking literature will be presented followed by an explanation of how the same conclusions have been deduced using the property rights paradigm various extensions of the rent seeking concept such as those alluded to above are then obtained by emphasizing a property rights approach following this the terms used to describe rent seeking e g directly unproductive profit seeking etc will be discussed to determine which if any is the most appropriate characterization of the phenomenon

designing climate mitigation policy this us paper provides an exhaustive review of critical issues in the design of climate mitigation policy by pulling together key findings and controversies from diverse literatures on mitigation costs damage valuation policy instrument choice technological innovation and international climate policy the authors begin with the broadest issue of how high assessments suggest the near and medium term price on greenhouse gases would need to be both under cost effective stabilization of global climate and under net benefit maximization or pigouvian emissions pricing the remainder of the paper focuses on the appropriate scope of regulation issues in policy instrument choice complementary technology policy and international policy architectures

the myth of post reform income stagnation evidence from brazil and mexico economic policies are often judged by a handful of statistics some of which may be biased during periods of change we estimate the income growth implied by the evolution of food demand and durable good ownership in post reform brazil and mexico and find that changes in consumption patterns are inconsistent with official estimates of near stagnant incomes that is attributed to biases in the price deflator the estimated unmeasured income gains are higher for poorer households implying marked reductions in real inequality these findings challenge the conventional wisdom that post reform income growth was low and did not benefit the poor

might makes rights a theory of the formation and initial distribution of property rights this paper is a theoretical and empirical investigation into the formation and initial distribution of property rights violence is singled out as a major constraint on this formation process its role is explicitly modeled in a choice theoretic framework and some of the implications are tested using data collected from contracts written during the california gold rush of 1848

regulation of stock externalities with correlated abatement costs we study a dynamic regulation model where firms actions contribute to a stock externality the regulator and firms have asymmetric information about serially correlated abatement costs with price based policies such as taxes or if firms trade quotas efficiently the regulator learns about the evolution of both the stock and costs this ability to learn about costs is important in determining the ranking of taxes and quotas and in determining the value of a feedback rather than an open loop policy for a range of parameter values commonly used in global warming studies taxes dominate quotas regardless of whether the regulator uses an open loop or a feedback policy and regardless of the extent of cost correlation

regional prices and real incomes in the uk official figures on regional incomes in the uk are compiled on a nominal basis this paper develops a contemporary measure of relative regional prices in the uk which suggests that the impact on r

the real real price of nonrenewable resources copper 1870 2000 over the past 40 years economists have devoted considerable effort to estimating long run trends in real commodity prices the results indicate that the real prices for many commodities have fallen suggesting to the surprise of many that resource scarcity is declining over time almost all of this work however uses the u s producer price index or other standard price deflators which recent research shows overestimate inflation for several reasons this article examines copper prices with adjusted deflators designed to eliminate this bias it finds that the trend over time which is significantly downward when no adjustment is made to the deflator displays no tendency in either direction or is significantly upward depending on the magnitude of the deflator adjustment employed these findings suggest that real resources prices provide less support than widely assumed for the hypothesis that resources are becoming more available or less scarce over time

prices engel curves and time space deflation impacts on poverty and inequality in vietnam many developing countries lack spatially disaggregated price data some analysts use no price methods by using a food engel curve to derive the deflator as that needed for nominally similar households to have equal food shares in all regions and time periods this method cannot be tested in countries where it is used as a spatial deflator since they lack suitable price data in this paper data from vietnam are used to test this method against benchmarks provided by multilateral price indexes calculated from repeated spatial price surveys deflators from a food engel curve appear to be a poor proxy for deflators obtained from multilateral price indexes to the extent that such price indexes reliably compare real living standards over time and space these results suggest that estimates of the level location and change in poverty and inequality would be distorted if the engel method deflator was used in their stead

measuring and understanding behavior welfare and poverty angus deaton delivered his prize lecture on tuesday 8 december 2015 at the aula magna stockholm university these are the lecture slides this abstract was borrowed from another version of this item

the race for property rights economics literature on the evolution of property rights has increasingly emphasized the optimal timing for establishing those rights yoram barzel dale mortensen 2 and partha dasgupta and joseph stiglitz 3 for example have shown that competition among firms for the rents associated with innovative devices and ideas can lead to the dissipation of those rents in the process when property rights and the rents therefrom are up for grabs it is possible for expenditures to establish rights to fully dissipate the rents leaving the efficiency gains from privatization in question 4 before any conclusions about the welfare gains from establishing property rights can be reached attention must be paid to the evolutionary

cooperation on climate change mitigation abstract we analyze conditions under which it is possible to achieve efficient mitigation of greenhouse gas emissions with a self enforcing international agreement in which all countries find it in their self interest to abide by the agreement we model the choice of emissions by countries as a dynamic game we use a two part punishment scheme for deviations from an agreement that is renegotiation proof and show when this scheme supports the efficient outcome as a subgame perfect equilibrium using numerical examples we show that an efficient subgame perfect equilibrium exists for a range of reasonable parameter values the existence of such equilibrium may be non monotonic in the discount rate and the ratio of slope of marginal abatement cost and marginal damages

sources of bias and solutions to bias in the consumer price index four sources of bias in the consumer prices index cpi have been identified the most discussed is substitution bias which creates a second order bias in the cpi three other changes besides prices changes create first order effects on a correctly measured cost of living index coli i explain in this paper that a pure price based approach of surveying prices to estimate a coli cannot succeed in solving the 3 problems of first order bias i discuss economic and econometric approaches to measuring the first order bias effects as well as the availability of scanner data that would permit implementation of the techniques

calculating rural urban food price differentials from unit values in household expenditure surveys a comparison with existing methods and a new procedure while purchasing power parity ppp between countries has received a great deal of attention ppp calculations within countries have received less attention the idea that one unit of currency has the same purchasing power in all regions in large countries is false this paper addresses this limitation by proposing a methodology for calculating rural urban ppp in india the paper introduces a concept of item specific ppp that exploits the analogy with an item specific equivalence scale the methodology relies on demographically varying preferences to estimate ppp the results underline the need to incorporate spatial differences in ppp calculations in countries with heterogeneous preferences copyright 2012 oxford university press

dynamic regulation design without payments the importance of timing abstract we consider a two period model of optimal regulation of a firm subject to marginal compliance cost shocks the regulator faces an asymmetric information problem the firm knows current compliance costs but the regulator does not both the regulator and the firm are uncertain about future costs in our basic framework the regulator may not offer payments to the firm we show that the regulator can vary the strength of regulation over time to induce the firm to reveal its costs and increase welfare in the optimal mechanism the regulator offers stronger weaker regulation in the first period and weaker stronger regulation in the second period if the firm reports low high compliance costs in the first period low cost firms expect compliance costs to rise in the future and thus prefer weaker regulation in the second period high cost firms expect costs to fall in the future and thus prefer regulation which becomes stricter over time thus the regulator offers the low high cost firms slightly weaker stronger regulation in the second period in exchange for much stronger weaker regulation in the first period thereby timing the regulation if the regulator can make payments then the optimal mechanism to some degree times the regulation as long as a positive marginal cost of funds exists if the marginal cost of funds is high enough then under the optimal mechanism the regulator will not use payments and use our timing mechanism exclusively

the demand for tenure security in developing countries abstract we use survey data for manila the philippines to estimate hedonic functions for formal and squatter housing values we show that on average a rented squatter unit in manila would rent for 15 percent more if it were a formal sector unit an owned squatter unit would sell for 25 percent more if it were a formal sector unit these percentages are interpreted as eviction risk discount for squatter dwellings we conclude that assistance projects that provide secure tenure over a wide area will bestow comparatively greater benefits on lower income households and to those in newer less established settlements since the risks that they bear initially are greater

taxes and quotas for a stock pollutant with multiplicative uncertainty we compare taxes and quotas when firms and the regulator have asymmetric information about the slope of firms abatement costs damages are caused by a stock pollutant we calibrate the model using cost and damage estimates of greenhouse gasses taxes dominate quotas as with additive uncertainty this model with multiplicative uncertainty allows us to compare expected stock levels under the two policies and to investigate the importance of stock size and the magnitude of uncertainty on the policy ranking

measurement bias in the hicp what do we know and what do we need to know the harmonized index of consumer prices hicp is the primary measure of inflation in the euro area and plays a central role in the policy deliberations of the european central bank ecb the ecb defines its treaty mandate of price stability as a year on year increase in the harmonised index of consumer prices hicp for the euro area of below 2 to be maintained over the medium term among the rationales given for defining price stability as prevailing at some positive measured inflation rate is the possibility that the hicp as published incorporates measurement errors of one sort or another that may cause it to systematically overstate the true rate of inflation in the euro area this paper reviews what currently is known about the scope of measurement error in the hicp we conclude that given the vague conceptual framework of the hicp the scant research on price measurement issues in the eu and the ongoing improvements in the hicp there is very little scientific basis at this time for a point or even an interval estimate of a positive bias in the hicp copyright blackwell publishers ltd 2004

the war between the rent seekers in conclusion it seems some states have experienced spending growth to the point where economic and political constraints on that growth have led to a situation where rent seekers can gain only at the expense of other rent seekers as that fact becomes recognized peaceful cooperative political action between rent seeking groups that prevailed when such action resulted in a larger expenditure rent pool might give way to war between the rent seekers if state and local spending continues its relative growth we would expect the war between rent seekers to spread to other jurisdictions

free access versus private property in a resource income distributions compared distributions of income are compared under the alternative regimes of free access to and private property in a resource it is shown that in several analytically distinct cases all those deprived of free access on conversion of a resource to private property can be better off even though no compensating transfers are made this resu lt can hold even if the granting of private property rights also conf ers monopoly or monopsony power copyright 1987 by university of chicago press

does the cpi mirror the cost of living engel s law suggests not in norway there is considerable interest in identifying the magnitude of the difference between increases in the cpi and the cost of living in this paper the technique proposed by hamilton 2001 to measure this discrepancy is used and extended for norway in the 1990s while hamilton finds that the cpi in the united states overstates the cost of living for the period 1974 1991 application of his technique to norwegian data for 1990 1999 indicates that the cpi understates the cost of living the norwegian cpi rose by 22 percent but a typical household behaved as if the cost of living had increased by 35 percent for some household types the increase was substantially larger

the substitution bias of the laspeyres price index an analysis using estimated cost of living indexes the most commonly used measure of the cost of living the consumer price index cpi published by the bureau of labor statistics is essentially a laspeyres price index it is well known however that a laspeyres price index provides an upward biased estimate of the cost of living because in keeping the same base period basket of goods as weights it does not take into account substitution among commodities induced by relative price changes the magnitude of the bias is an empirical question which is the focus of this study an estimate of the substitution bias may be obtained by taking the difference between the laspeyres price index and an estimated true cost of living index the true cost of living index cli is based on the theory of consumer demand it is the ratio of the minimum expenditures under two different price regimes necessary to maintain a constant level of utility as opposed to the constant basket of goods in the laspeyres index the size of the bias depends on two factors 1 the size of consumption substitution elasticities if there is no commodity substitution then the cli and laspeyres index coincide regardless of changes in relative prices and 2 the magnitude of relative price changes if all prices move together then the cli and laspeyres index again coincide regardless of the size of substitution elasticities in order to compute a true cli it is necessary to specify a particular utility function and estimate the parameters of the resulting system of demand equations see for example louis phlips p 135 several estimates of the magnitude of the substitution bias have appeared in the literature but all previous studies suffer from a common weakness they are all based on a very small number of commodities essentially because of econometric problems involved in estimating large systems of demand equations in one group of studies demand models have been estimated using highly aggregated data in which total consumption is grouped into four to nine aggregate commodites such as housing durables or clothing arthur goldberger and theodore gamaletsos for example estimate the linear expenditure system les demand model using data on five aggregate goods for several european countries and compare the resulting cli for one of the countries greece to the corresponding laspeyres price index tran van hoa estimates costof living indexes for six australian provinces using data on nine aggregate goods phlips cites work by r sanz ferrer who computed a cli for belgium from data on eight aggregate commodities in such studies using highly aggregated data the estimate of the substitution bias may be understated because the aggregation obscures substitution in consumption within categories which is perhaps more prevalent than substitution between gross aggregates another shortcoming of these three aggregate studies is the fact that they use only a single demand system and hence do not explore the sensitivity of the cli to a priori u s bureau of labor statistics the groundwork for this study was my dissertation i would like to thank the chairman and members of my committee r robert russell llad phillips and robert deacon for their support and helpful suggestions and jack triplett robert pollak richard j mcdonald and a referee for valuable comments on an earlier version the views expressed are my own and do not necessarily reflect the policies of the bureau of labor statistics for a theoretical discussion of cost of living indexes see robert pollak 1971b and paul samuelson and subramanian swamy

dynamic taxes and quotas with learning we compare dynamic taxes and quotas when a regulator and non strategic firm have asymmetric information the regulator learns by using either a tax or a quota that can be slack with a tax the information asymmetry is resolved in one period optimal learning using a quota is less transparent but we show that learning never takes place gradually in the first period the regulator either acts myopically or he tries to improve his information but he never experiments in subsequent periods we use this result to assess the informational advantage of taxes compared to quotas under asymmetric information

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

cpi bias and real living standards in russia during the transition abstract the economies of the former soviet bloc experienced large declines in output during the decade of transition which began with the collapse of the soviet union in 1991 yet there are many reasons to believe that measured output and official deflators provide a poor proxy for the change in real living standards in transition economies this paper uses the engel curve methodology developed by hamilton hamilton b 2001 using engel s law to estimate cpi bias american economic review 91 3 619 630 to examine changes in real living standards in russia during the transition period and to provide an estimate of how much the official russian cpi has overstated consumer inflation we also examine changes in consumer durables home production and subjective well being to further evaluate changes in living standards our findings indicate that cpi bias has caused a substantial understatement of the growth performance of the russian economy during the transition even just allowing household final consumption to be deflated with bias we find that the level of real per capita gdp in 2001 may be understated by up to 30 compared with using a bias corrected deflator our analysis of consumer durables home production and subjective well being supports the conclusion that the decline in living standards has been substantially less than what is inferred by looking at official statistics on real output

the role of stocks and shocks concepts in the debate over price versus quantity recent literature showed that the choice between a price or quantity control depends in part on the dynamic structure of cost uncertainty temporary shocks to abatement cost favors the use of a price control while permanent shocks favor a quantity control unfortunately the importance of this assumption to the optimal choice has not yet received wide attention among economists we analyze the regulatory sproblem in an alternative setting and reproduce these results our contribution is the simplicity of the model and the accessibility of the results which reinforce the critical role played by the assumed structure of uncertainty

using engel curves to estimate bias in the canadian cpi as a cost of living index semiparametric engel curves are used to infer bias in the canadian cpi as a cost of living index the budget share of food has long been used as an indicator of welfare we compare households with the same levels of cpi deflated total expenditure over the period 1978 2000 differences in the expenditure share of food are attributed to the cpi failing to capture changes in costs of living we employ a novel econometric approach using a single index penalized linear spline model over the period we find that the cpi overstated changes in the cost of living between 1 33 and 1 86 for the four household types considered jel classification d1 c1 l utilisation des courbes d engel pour evaluer la distorsion de l ipc en tant qu indice du cout de la vie on utilise les courbes semi parametriques d engel pour identifier le biais de l ipc comme indice du cout de la vie au canada la part du budget qui va a la nourriture a depuis longtemps ete utilisee comme un indicateur de bien etre on compare des menages qui ont les memes niveaux de depenses totales degonflees par l ipc pour la periode de 1978 a 2000 les differences dans la portion des depenses qui va a la nourriture sont attribuees au fait que l ipc ne saisit pas les changements dans les couts de la vie on emploie une approche econometrique inedite utilisant une fonction spline lineaire avec penalites pour produire un seul indice sur l etendue de la periode on decouvre que l ipc surevalue les changements dans le cout de la vie de 1 33 a 1 86 pour cent pour les quatre types de menages etudies

estimating real income in the united states from 1888 to 1994 correcting cpi bias using engel curves this paper provides the first estimates of overall cpi bias prior to the 1970s and new estimates of bias since the 1970s it finds that annual cpi bias was 0 1 percent between 1888 and 1919 and rose to 0 7 percent between 1919 and 1935 annual cpi bias was 0 4 percent in the 1960s and then rose to 2 7 percent between 1972 and 1982 before falling to 0 6 percent between 1982 and 1994 the findings imply that we have underestimated growth rates in true income in the 1920s and 1930s and in the 1970s

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

the law of one price evidence from the transitional economy of china abstract this paper applies the recently developed econometric methods of panel unit root tests and nonlinear mean reversion to investigate price convergence in china the largest transitional economy in the world we find that prices did converge to the law of one price in china for an overwhelming majority of goods and services based on a large panel data set the finding sheds light on the extent of the market economy in china and casts doubt on young s proposition that the economic reform has led to the fragmentation of chinese domestic markets