time orientation and asset prices we analyze a general equilibrium asset pricing model where a small subset of the consumers investors have a short run urge to save that is their attitude toward consumption in the long run is a standard one f they do place zero weight on consumption far enough out in the future f but their short run effective rates of discount may be negative our model which is an elaboration on the framework proposed by faruk gul and wolfgang pesendorfer does not feature time inconsistencies thus we view consumers as fully rational but subject to specific internal frictions in the form of temptation and self control problems the model nests the mehra prescott model and we use it as a way of interpreting the wealth and asset pricing data some aspects of these data we argue can possibly be better understood using our model than the standard one r 2002 published by elsevier science b v

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

rich and powerful subjective power and welfare in russia abstract does empowerment come hand in hand with higher economic welfare in theory higher income is likely to raise both power and welfare but heterogeneity in other characteristics can either strengthen or weaken the relationship survey data on russian adults indicate that higher individual and household incomes raise both self rated power and economic welfare the individual income effect is primarily direct rather than through higher household income there are diminishing returns to income though income inequality emerges as only a minor factor reducing either aggregate power or welfare at given income the identified covariates have strikingly similar effects on power and economic welfare

robustness of subjective welfare analysis in a poor developing country madagascar 2001 the authors analyze the subjective perceptions of poverty in madagascar in 2001 and their relationship to objective poverty indicators they base their analysis on survey responses to a series of subjective perception questions the authors extend the existing empirical methodology for estimating subjective poverty lines on the basis of categorical consumption adequacy questions based on this methodology they calculate the household specific subjective poverty lines and compare the poverty profiles derived from different subjective welfare questions the results show that the aggregate poverty measures derived from consumption adequacy questions accord quite well with the poverty measures based on objective poverty lines the subjective welfare analysis can be used in poor developing countries for evaluating socioeconomic and distributional impacts of various policy interventions

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

temptation self control and competitive nonlinear pricing abstract standard pricing theories consider consumers without temptation with temptation and costly self control consumers dislike choice sets with tempting alternatives we study firms strategy against such consumers using gul pesendorfer preferences and a game where firms compete by offering menus

measuring poverty using qualitative perceptions of consumption adequacy we show that subjective poverty lines can be derived using simple qualitative assessments of perceived consumption adequacy based on a household survey we implement the method using survey data for jamaica and nepal respondents were asked whether their consumptions of food housing and clothing were adequate for their family s needs the implied poverty lines are robust to alternative methods of dealing with other components of expenditure the aggregate poverty rates accord quite closely with those based on independent objective poverty lines however there are notable differences in the geographic and demographic poverty profiles

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

international dimensions of obesity and overweight related problems an economics perspective obesity is a growing concern new world health organization who figures indicate that obesity is spreading around the world as a global epidemic according to the who there are more people suffering from overweight related problems than malnutrition globally there are more than 1 billion adults who are overweight and at least 300 million of them are clinically obese while 800 million suffer from malnutrition who 2004 the economic costs due to obesity can be burdensome currently in the united states medical costs associated with obesity and smoking account for about 9 each of all health expenditures finkelstein fiebelkorn and wang u s obesity attributable medical expenditures reached 75 billion in 2003 obesity however is important not only from an economic perspective but also from a social perspective the social consequences of obesity are serious and multiple studies have shown that obesity affects in a negative and statistically significant way personal and working relations earnings and wages particularly for females cawley overall obesity is a complex phenomenon several recent economic studies have explored the role of different cultural and sociodemographic factors on obesity rates leaving genetics aside obesity is caused by the consumption of too many calories and or low expenditures of calories i e low physical activity consequently most published economic research provided a justification for the increased growth of obesity rates by analyzing several factors that may contribute to this imbalance of caloric consumption and usage see chou grossman and saffer cutler glaeser and shapiro lakdawalla and philipson philipson and posner there are mainly two arguments that could justify the growth of overweight problems around the world some researchers argue that obesity growth is mainly due to a higher intake of calories while others state that obesity is mainly caused by a lower expenditure of caloies in daily activities in line with the calorie consumption argument cutler glaeser and shapiro stated that americans have become more obese over the past twenty five years primarily due to the consumption of more calories analyzing changes in food consumption between the mid 1970s and the mid 1990s for

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

self rated economic welfare in russia abstract most of those russian adults who feel that they are poor are not classified as such in the poverty statistics and most of those who are classified as poor don t feel that way we study the determinants of peoples perceptions of their economic welfare in an unusually rich socioeconomic survey while income is a highly significant predictor subjective economic welfare is influenced by many other factors including health education employment assets relative income in the area of residence and expectations about future welfare insights are obtained into how objective data should be weighted in assessing economic welfare

aid and agency in africa explaining food disbursements across ethiopian households 1994 2004 abstract we use a principal agent framework and data from the ethiopian rural household survey between 1994 and 2004 to understand biases in the distribution of food aid in ethiopia we show that even when aid is systematically misallocated aid recipients may match official classifications of needy households if agents deviate from allocation rules in ways that are difficult to monitor agent behavior is therefore best understood by comparing aid along dimensions of need that are visible to the principal with those that are difficult to observe outside the village we do this by using data on a panel of 943 households observed over six rounds of the ethiopian rural household survey in support of our model we find that while the demographics of aid recipients do match official criteria disbursements are increasing in pre aid consumption self reported power and involvement in village level organizations we conclude that the extent to which food aid insulates some of the world s poorest families from agricultural shocks depends on a nuanced interaction of policy constraints and informal structures of local power

re evaluating the role of energy efficiency standards a behavioral economics approach abstract the economic models that prescribe pigovian taxation as the first best means of reducing energy related externalities are typically based on the neoclassical model of rational consumer choice yet consumer behavior in markets for energy using durables is generally thought to be far from efficient giving rise to the concept of the energy efficiency gap this paper presents a welfare analysis of energy policies that is based on a behavioral model of temptation and self control introduced by gul and pesendorfer 23 24 we find that in the presence of temptation i pigovian taxes alone do not yield a first best outcome ii when viewed as substitutes energy efficiency standards can dominate pigovian taxes and iii a policy combining standards with a pigovian tax can yield higher social welfare than a pigovian tax alone implying that the two instruments should be viewed as complements rather than substitutes

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

choosing the wrong calling plan ignorance and learning when a firm offers several tariff options to its customers the possibility arises that they will make an ex post mistake in tariff choice this occurs since consumers cannot commit to a certain purchase level at the time they subscribe to the service option and thus they might find out later that a different choice of tariff could have resulted in a lower payment for their actual level of consumption this is a common feature of increasingly important subscriptions markets in which buyers and sellers maintain long term nonanonymous relations and where learning induces interesting dynamics on the one hand buyers may learn their taste over time thus making the right choice as times goes by on the other hand the seller may design options to identify the type of each buyer and if possible to extract a higher proportion of their consumer surplus by offering tariff options that are better tailored to the profile of the consumer this paper focuses on the first type of learning in turn i document buyer behavior in a subscriptions market using data from a tariff experiment run by south central bell scb in kentucky during the second half of 1986 the most frequently studied case of subscriptions markets is the choice among optional calling plans ocps in the telephone industry this paper shows that contrary to the conven

children and household economic behavior this paper looks at some of the methodological issues that arise in modeling the effects of children on household behavior and presents some estimates for selected areas for our purposes household behavior will be taken to refer to household decisions on labor supply the allocation of expenditure to different periods and the decision as to what to do with the difference between income and expenditure i shall be concerned mainly with the effects of dependent children and i restrict attention largely to western societies excerpt

nonlinear pricing with self control preferences a basic assumption of economics is that consumers choose what they want however many consumers find it difficult to stop overeating overspending smoking procrastinating etc even though they want to in reality consumers have temptation and it is psychologically costly to exercise self control to clarify the implications of the existence of temptation and self control costs this paper studies a firm s optimal selling strategy exploiting the behavioral features of consumers we characterize optimal nonlinear pricing schemes for a monopoly when self control is costly for consumers since consumers have a preference for commitment the firm faces a trade off between offering a small menu that makes the consumers self control easier and offering a large menu that achieves better price discrimination we show that the optimal menu resembles the one in the standard nonlinear pricing problem with a price ceiling where the upper bound on prices is determined endogenously by a participation constraint the ceiling motivates the firm to offer a relatively flat and compact price schedule serving more consumers with low demand the characterization also shows that the firm may earn less if consumers have temptation

subjective economic welfare beyond growth it is common that economists are used to establish a direct relationship between growth and welfare nevertheless the link among these variables not always is so virtuous this suspicion went in the last years to investigating about the perception of people on your proper welfare the slogan was to know if the positive variations in the growth the revenue or the employment generate earnings of welfare it is necessary to consult the individuals the subjective studies of welfare increased substantially since then confirming the suspicions improvements in the objective indicators of welfare not always are perceived as such by the individuals the intention of this work will be to develop an index of economic welfare that allows measure the welfare perceived by the population the results obtained in the argentine economy between 2005 and 2008 will be presented and his results will be compared with the evolution of the objective indicators

incentives for procrastinators we examine how principals should design incentives to induce time inconsistent procrastinating agents to complete tasks efficiently delay is costly to the principal but the agent faces stochastic costs of completing the task and efficiency requires waiting when costs are high if the principal knows the task cost distribution she can always achieve first best efficiency if the agent has private information the principal can induce first best efficiency for time consistent agents but often cannot for procrastinators we show that second best optimal incentives for procrastinators typically involve an increasing punishment for delay as time passes

monopoly and quality distortion effects and remedies a monopolist that sells in a market in which consumers differ in their willingness to pay for quality will distort and enlarge the range of products offered for sale we examine the positive and normative impacts of remedies used to counteract such distortions for the case of a price ceiling the monopolist improves quality at the low quality end of the market offsetting the distortion induced by the unregulated exercise of monopoly power social welfare can be shown to increase for a sufficiently slight degree of price regulation for minimum quality standards the social welfare implications are ambiguous because the standards may exclude some consumers from the market