approximating wtp and wta for environmental goods from marginal willingness to pay functions abstract willingness to pay wtp and willingness to accept wta for a change in the quantity of an environmental good can be represented by corresponding hicksian welfare measures the paper suggests a simple method of approximating wtp and wta given the information about the marginal willingness to pay mwtp for it it demonstrates that a polynomial based on the mwtp function allows to approximate the hicksian measures which may differ considerably much better than consumer s surplus in quantity space

existence of equilibrium and comparative statics in differentiated goods cournot oligopolies abstract we show that under horizontal differentiation pure symmetric cournot equilibria exist if firms react to a rise in competitors output in such a way that their market price does not rise this condition is related to strategic complementarity but not to convexity or differentiability we rule out multiple equilibria under some additional conditions and discuss stability and regularity of equilibria with ordinal methods following entry equilibrium price decreases only if competitors outputs enter inverse demand aggregated into a single number otherwise it may increase even in stable equilibria the comparative statics of quantities and profits for all equilibria are given

parametric recoverability of preferences revealed preference theory is brought to bear on the problem of recovering approximate parametric preferences from consistent and inconsistent consumer choices we propose measures of the incompati

efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

the theory of mixed demand functions abstract the properties of samuelson s mixed demand functions which express demand as a function of a mixed set of prices and quantities are derived by analyzing compensated or substitution effects and uncompensated effects the relationships between mixed demand functions and conditional or rationed demands are examined this provides insights on the behavioral implications of consumer theory for alternative demand specifications

public goods as characteristics of non market commodities in benefit cost analysis it is useful to model public goods as the quality of privately consumed nonmarketed goods this strategy is often pursued in valuing environmental amenities the theoretical foundations of this model have not been fully developed in this paper comparative statics results are derived for quality changes of nonmarket goods the results reveal some common misconceptions about welfare measurement of quality changes conditions are presented for a quality induced change in the marshallian consumer surplus of the nonmarket good to approximate the true compensated welfare measure the conditions are equally necessary for obtaining exact welfare measures copyright 1993 by royal economic society

the lechatelier principle the lechatelier principle in the form introduced into economics by paul a samuelson asserts that at a point of long run equilibrium the derivative of long run compensated demand with respect to own price is larger in magnitude than the derivative of short run compensated demand the authors introduce an extended lechatelier principle that applies also to large price changes and to uncompensated demand as well as to a wide range of concave and nonconcave maximization problems outside the scope of demand theory this extension also clarifies the intuitive basis of the principle copyright 1996 by american economic association

impact of cost shocks on consumer prices in vertically related markets the case of the french soft drink market we develop a structural econometric model of the vertical contracts between soft drink manufacturers and retailers to assess the impact of taxes or changes in production costs on consumer prices using individual data on food purchases from a representative survey of 19 000 french households in 2005 we estimate consumer demand using a random utility approach among a set of possible vertical relationships we select the model that best fits the data we evaluate the pass through rate of changes in input costs sugar or of taxes and show that the industry over shifts cost changes or excise taxes to the consumers this result challenges the belief that firms do not pass on the full extent of cost changes or excise taxes to consumers

on the existence of cournot equilibrium this paper examines the existence of n firm cournot equilibrium in a market for a single homogeneous commodity it proves that if each firm s marginal revenue declines as the aggregate output of other firms increases which is implied by concave inverse demand then a cournot equilibrium exists without assuming that firms have nondecreasing marginal cost or identical technologies also if the marginal revenue condition fails at a potential optimal point there is a set of firms such that no cournot equilibrium exists the paper also contains an example of nonexistence with two nonidentical firms each with constant returns to scale production

the money pump as a measure of revealed preference violations we introduce a measure of the severity of violations of the revealed preference axioms the money pump index mpi the mpi is the amount of money one can extract from a consumer who violates the axioms it is also a statistical test for the hypothesis that a consumer is rational when behavior is observed with error we present an application using a panel data set of food expenditures the data exhibit many violations of the axioms mostly the mpi for these violations is small the mpi indicates that the hypothesis of consumer rationality cannot be rejected

regulating consumer financial products evidence from credit cards we analyze the effectiveness of consumer financial regulation by considering the 2009 credit card accountability responsibility and disclosure card act we use a panel data set covering 160 million credit card accounts and a difference in differences research design that compares changes in outcomes over time for consumer credit cards which were subject to the regulations to changes for small business credit cards which the law did not cover we estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1 6 of average daily balances with a decline of more than 5 3 for consumers with fico scores below 660 we find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit taken together we estimate that the card act saved consumers 11 9 billion a year we also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments we detect a small increase in the share of accounts making the 36 month payment value but no evidence of a change in overall payments jel codes d0 d14 g0 g02 g21 g28 l0 l13 l15

cournot oligopoly and the theory of supermodular games abstract we reconsider the cournot oligopoly problem in light of the theory of supermodular games invoking the recent ordinal version of this theory proposed by milgrom and shannon we generalize novshek s existence result derive the associated uniqueness result give an extension of a classical existence result under symmetry and provide conditions making a cournot oligopoly into a log supermodular game with the natural order on the action sets we also provide extensive and precise insight as to why decreasing best responses are widely regarded as being typical for the cournot model with production costs several illustrative examples are provided journal of economic literatureclassification numbers c72 l10 l13

estimating the precision of welfare measures abstract three methods for constructing standard deviation and or confidence intervals for welfare estimates have been employed in the recreation demand literature a taylor s series approximation the bootstrap and a method proposed by krinsky and robb this paper presents the results of two sets of simulation experiments designed to examine the accuracy of these methods the first simulation examines the methods accuracy in estimating the standard deviation of welfare estimates the second simulation examines the accuracy of the methods in constructing confidence intervals

tax incidence in differentiated product oligopoly abstract we analyze the incidence of ad valorem and unit excise taxes in an oligopolistic industry with differentiated products and price setting bertrand firms both taxes may be passed on to consumers by more than 100 percent and an increase in the tax rate can increase short run firm profits and hence the long run number of firms we provide summary conditions for these effects to arise the conditions depend on demand curvatures and are written in elasticity form surprisingly the analysis largely corroborates cournot results with homogeneous demand

aggregation in a model of price competition abstract in a model of price competition single product firms compete for consumers consumers purchase a variable quantity of one of the differentiated goods the paper provides results on equilibrium existence when consumers are heterogeneous in their evaluation of the differentiated goods among each other their evaluation of the differentiated goods relative to the outside good and heterogeneous in income furthermore i provide sufficient conditions for dominance solvability and monotone comparative statics journal of economic literature classification numbers d43 d11

errors in the numerical assessment of the benefits of price stabilization this paper presents a simple computational procedure for determining a consumer s willingness to pay to have a price stabilization policy implemented numerical simulations are then provided which demonstrate that the commonly used expected surplus measures whether hicksian or marshallian can in fact seriously misstate the true benefits of price stabilization these simulations also illustrate the extent to which the results may be dependent upon the assumptions made implicitly or explicitly regarding the consumer s attitudes toward risk thereby underscoring the need to conduct sensitivity analyses to determine the robustness of cost benefit assessments with respect to these assumptions

on measuring the benefits of lower transport costs despite large amounts invested in rural roads in developing countries little is known about their benefits this paper derives an expression for the willingness to pay for a reduction in transport costs from the canonical agricultural household model and uses it to estimate the benefits of a hypothetical road project estimation is based on novel cross sectional data collected in a small region of madagascar with enormous yet plausibly exogenous variation in transport cost a road that essentially eliminated transport costs in the study area would boost the incomes of the remotest households those facing transport costs of about usd 75 ton by nearly half mostly by raising non farm earnings this benefit estimate is contrasted to one based on a hedonic approach

the welfare effects of environmental taxation on a green market where consumers emit a pollutant this paper examines the welfare impact of emission taxes and subsidies in a green market where consumers emit a pollutant through their usage of products produced by duopolists for this purpose we employ a discrete continuous model including both consumer choice and usage of an environmentally differentiated product in a utility consistent framework the findings indicate that an emission tax is always welfare dominant over a subsidy on consumer purchases of the clean product because of its contribution to a reduction in environmental damage it does this by both inducing firms to improve the environmental qualities of their products and by constraining consumer usage of these products

regional welfare loss meaures of the 1973 oil embargo a numerical methods approach 1987 regional welfare loss meaures of the 1973 oil embargo a numerical methods approach applied economics vol 19 no 10 pp 1317 1327

revealed preference and household production abstract the paper deals with the possibilities of recovering the underlying preference ordering from observed behavior when nonmarket goods are employed in household production the problem is relevant for the evaluation of environmental goods and for the measurement of welfare in environmental policy it is shown that preferences can be recovered if and only if a corresponding mixed demand system can be integrated this system can be derived from observable behavior and the household production functions imposed the conditions for its integrability are presented and can be checked therefore the approach suggested is operational and allows to decide whether the behavior observed and the household production functions chosen as maintained hypothesis are consistent this result is important since the evaluation of nonmarket goods in this framework crucially depends on the choice of the household production functions

evaluation of nonmarket goods recovering unconditional preferences a new approach is proposed for the evaluation of nonmarket goods starting from a complete or incomplete conditional demand system for market goods which is observable and depends on nonmarket goods this information is not sufficient to recover the underlying preference ordering of the representative consumer the central idea is to employ additional marginal willingness to pay functions for the nonmarket goods since they can be estimated either together with the demand system or in a separate step they are less arbitrary than the assumptions or hypotheses usually made if the entire system is weakly integrable the underlying ordering and appropriate welfare measures can be derived in this article i investigate the relationship between conditional and unconditional demand systems present sufficient conditions for weak integrability and demonstrate the practicability of the procedure proposed by means of three examples

can proximity to urban green spaces be considered a luxury classifying a non tradable good with the use of hedonic pricing method abstract environmental goods are sometimes considered a luxury that only the rich can afford this is no less true in the case of green spaces however a typical microeconomic lens is not relevant to study the potential luxury of non tradable goods typically the distributional interpretation of the income elasticity of the willingness to pay wtp for such goods would involve stated preferences valuation methods the possibility to describe the luxury of green space proximity based on revealed preferences methods has not been evaluated yet through this study we would like to fill this gap we proposed a three step analysis of the apartment market in lodz poland based on the hedonic pricing method to check how the marginal wtp mwtp for proximity to parks forests differs among apartment price sub segments we discuss whether and to what extent the variability of the mwtp could be linked with the presumed luxury of green space proximity we found that proximity does not result in increased apartment prices for all parks and forests the estimated mwtp for the proximity to selected parks rises in consecutive apartment price sub segments this could be interpreted as a sign of the luxury of living close to these parks by apartment buyers

measuring rationality with the minimum cost of revealed preference violations abstract we introduce a new measure of how close a set of choices is to satisfying the observable implications of rationality and apply it to a large balanced panel of household level consumption data this new measure the minimum cost index is the minimum cost of breaking all revealed preference cycles found in choices from budget sets unlike existing measures of rationality it responds to both the number and severity of revealed preference violations

testing static oligopoly models conduct and cost in the sugar industry 1890 1914 we explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior direct measures of marginal cost and conduct indicating small market power serve as benchmarks the more competitive models yield better cost estimates the best cost estimates occur when conduct is estimated as a free parameter which in turn only slightly underestimates our direct measure it also tracks the decline in market power accompanying the industry s structural changes the methodology is largely validated although partial cost information can improve its predictive power conclusions are robust to demand function

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

heterogeneity of preferences for local public goods the case of private expenditure on public education abstract revealed preference techniques are used to investigate the degree of heterogeneity of local public good preferences by testing the hypothesis that demographic characteristics are correlated with preferences for expenditure on public education the test relies on a goodness of fit index which is on an estimation of wasted consumer expenditure we use bootstrap techniques to estimate the distribution of the test statistic preference heterogeneity is found to be common however democrat protestant households are found to have similar tastes and to a lesser extent so are households with school age children where at least one other trait is held in common republicans exhibit the greatest degree of preference heterogeneity

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

welfare effects of taxation in oligopolistic markets this paper discusses how marginal costs of public funds are related to various market characteristics under imperfect competition under a quite general tax scheme these costs turn out to be lower the wider the firms product ranges the lower the degree of market concentration and the lower the degree of product differentiation moreover marginal costs of taxation are lower in bertrand markets compared to cournot markets in cases when marginal costs of public funds cannot easily be assessed we ask if pass through rates can provide useful information for policy makers the market characteristics that we analyze are shown to have opposite effects on pass through and marginal costs of public funds it is also demonstrated that the marginal cost of public funds is generally lower for ad valorem taxes than for unit taxes the main results are based on a linear demand system but a number of extensions confirm that our main results are reasonably robust

averting behavior and the benefits of reduced soiling abstract the individual s choice of cleaning frequency is examined theoretically under assumptions more general than those of previous authors the individual is assumed to maximize utility over cleanliness and a general commodity where cleanliness is determined by frequency of cleaning and ambient pollution allowance is made for the possibility that the cost per cleaning episode is positively affected by pollution and negatively affected by the frequency of cleaning the present framework is used to make comparisons and comments regarding the assumptions and results of watson and jaksch j environ econ manag 9 1982 248 262 and courant and porter j environ econ manag 8 1981 321 329

a note on different approaches to index number theory the central question in a recent paper by j peter neary 2004 concerning real incomes and the penn world tables is what exactly do the numbers mean this question is important because these data are widely used in empirical research more generally index number data including indicators of inflation and economic growth are used so extensively in research throughout the profession that it indeed seems helpful to understand what they actually indicate in the literature two approaches to index numbers are distinguished the axiomatic approach and the economic approach in this note we would like to discuss the way in which these two approaches differ and how that affects what the numbers mean in neary s paper the difference is described as one between an approach that does and an approach that does not assume that quantities arise from optimizing behavior this is in line with a tradition in index number theory that can be traced back to ragnar frisch 1936 we will argue that a more accurate description is that the difference lies in whether or not optimizing agents or representative consumers are assumed to optimize the same utility function it is exactly this distinction that sets the differ ent limitations of both approaches for constructing a meaningful indicator of real income those limitations will be described in some detail and being aware of them is helpful for assessing the value of results from both the axiomatic and the economic approach they also suggest ways in which the two approaches may be complementary for constructing meaningful index numbers introducing the geary allen international accounts gaia system neary combines taking the economic approach with judging the resulting indices in view of some axioms we think that this makes his paper a suitable point of departure for the discussion of how the two approaches handle differences in relative prices on the one hand and differences in preferences on the other

are alcohol tax hikes fully passed through to prices evidence from alaska on 1 october 2002 the state of alaska increased taxes on malt beverages from 0 35 per gallon to 1 07 per gallon increased taxes on wine from 0 85 per gallon to 2 50 per gallon and increased taxes on distilled spirits from 5 60 per gallon to 12 80 per gallon the net effect is that the tax on a standard serving rose from about 3 cents for beer 2 cents for wine and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage this paper uses primary data on alcoholic beverage prices in alaska to study a very basic question what was the impact of the tax hikes on prices an alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol related problems such as drunk driving the impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health economic theory and previous empirical studies mainly of taxes on goods other than alcoholic beverages do not provide very much guidance on what to expect following a tax hike it is an empirical question to answer the question i conducted telephone surveys just before and a year after the tax hike of on premise and off premise alcohol retail establishments across alaska

welfare measurement in the household production framework the household production approach to consumer behavior developed from the work of gary becker william gorman and kelvin lancaster has considerable descriptive appeal in modelling the decisions of households the approach derives from the observation that households frequently purchase market goods that do not yield utility directly but are combined to produce commodity service flows which the household values thus observed behavior is determined by household production technology as well as by tastes the advantage of this distinction is that we can pose reasonable hypotheses about characteristics of technology though we rarely possess useful a priori information regarding tastes the putative advantages of the household production approach are questioned on empirical and conceptual grounds by robert pollak and michael wachter 1975 they show that jointness in production or nonconstant returns to scale cause implicit commodity prices to depend on both tastes and technology raising serious econometric difficulties in the estimation of commodity demand functions in addition since commodity prices become functions of the commodity bundle consumed the analogy to traditional demand theory breaks down joint production occurs when a good enters several production processes simultaneously or equivalently when a good in one production process also enters directly into the individual s utility function the most common example is time which provides the context for all production processes and is often associated with the production of several commodities simultaneously since joint production in the household is likely to be pervasive the critique by pollak and wachter cannot be ignored in response to the comment by william barnett pollak and wachter 1977 suggest dispensing with the notion of commodity prices and treating the demand for commodities as a function of goods prices this approach confounds tastes and technology but it eliminates the troublesome concept of commodity prices as parameters when in fact they are likely to be endogenous in this paper we show that results from positive analysis such as the critique by pollak and wachter have implications for the use of the household production framework for welfare analysis the household production function approach has had considerable appeal for measuring welfare effects of public actions in the environmental and natural resource areas gardner brown john charbonneau and michael hay elizabeth wilman yet traditional approaches to welfare measurement are frequently inapplicable we argue that welfare measurement in this framework is complicated by the difficulties of unravelling tastes and technology we extend pollak and wachter s results by demonstrating that marshallian demand functions for commodities cannot be uniquely defined thus marshallian functions cannot be used to derive exact compensated functions in the manner of jerry hausman and of george mckenzie and i f pearce nor can compensating and equivalent variation measures be bounded by marshallian consumer s surplus estimates following robert willig in fact duality results that normally allow us to move between marshallian and hicksian functions are not assistant and associate professors respectively department of agricultural and resource economics university of maryland college park md 20742 this paper is scientific article no a3404 contribution no 6476 of the maryland agricultural experiment station we wish to thank darrell hueth james opaluch v kerry smith and elizabeth wilman for comments on an earlier draft

what s the use welfare estimates from revealed preference models when weak complementarity does not hold abstract in this paper we consider the theoretical and empirical ramifications of welfare measurement in revealed preference models when weak complementarity does not hold in the context of a kuhn tucker model of recreation demand we show that while it is possible to estimate preferences that do not appear to exhibit weak complementarity the calculation of welfare measurements from these models requires a cardinal interpretation of preferences that cannot be tested furthermore we reiterate the under appreciated fact that even traditional use value estimates require a cardinal restriction on preferences that while often intuitive also cannot be tested we demonstrate empirically that the choice of restrictions can have significant ramifications as use value estimates can vary based on the assumed preference structure

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

axiomatic foundations of hicksian measures of welfare change abstract the aggregate hicksian measures i ev i and i cv i are characterized by three simple properties one property concerns the ranking of two states the measures are paretian a second property expresses the postulate that welfare changes are to be evaluated in money the third one deals with redistributions of incomes distributional considerations are taken into account by employing variable distributional weights i

testing data for consistency with revealed preference the author develops a method of hypothesis testing for revealed preference tests this method is particularly well suited to tests of commonality of tastes or tests of preference stability he devises a metric based on an estimate of the fraction of expenditure wasted in maximizing utility if all consumers in the sample share the same utility function this metric increases in size with increases in the proportion of observations having different tastes and with increasing differences in tastes the author proposes bootstrap methods for estimating the distribution of the test statistic copyright 1995 by mit press

evaluating the performance of alternative municipal water tariff designs quantifying the tradeoffs between equity economic efficiency and cost recovery the design of municipal water tariffs requires balancing multiple criteria such as financial self sufficiency for the service provider equity among customers and economic efficiency for society a modeling framework is developed for analyzing how alternative municipal water tariff designs affect these three criteria it is then applied to a hypothetical community in which a municipal water utility provides metered piped water and wastewater services to 5 000 households we analyze how the shift from a uniform volumetric tariff to different increasing block tariff ibt designs affects households water use and water bills and how these changes in turn affect measures of equity and economic efficiency for two different financial self sufficiency targets we calculate how changes in assumptions about 1 the correlation between household income and water use and 2 households response to average or marginal prices affect the tariffs performance in terms of these three criteria the results show that ibts perform poorly in terms of targeting subsidies to low income households regardless of the magnitude of financial subsidies that a utility receives from high level government when cost recovery is low the distribution of subsidies under ibts is even worse if the correlation between water use and household income is high ibts introduce price distortions that induce economic efficiency losses but we show that these welfare losses are relatively small especially when households respond to average prices

the benefits of in kind government programs abstract in this paper i present a methodology to calculate the benefits of in kind programs such as public housing which restrict consumption of some goods to the levels offered by the government most previous studies begin with an a priori specification of the direct utility function i begin with the ordinary demand function and then integrate demand to recover the indirect utility function and the expenditure function i argue that this approach gives additional flexibility in choosing a functional form which best describes the data i then use this methodology to estimate the benefits of the u s government s section 8 housing program

averting expenditure and the cost of pollution the paper considers the relationship between the willingness to pay for environmental quality and averting expenditures that is the costs of measures undertaken in efforts to counteract the consequences of pollution the models used assume perfect mobility among locations with different levels of environmental quality the major results are i averting expenditures are not in general a good measure of willingness to pay 2 averting expenditures are not always even a lower bound on willingness to pay 3 even when averting expenditures are a lower bound the difference between the level of such expenditures and willingness to pay carmot be attributed to the unavertible aesthetic consequences of pollution for almost every kind of environmental unpleasantness we face there are averting expenditures we can make to reduce and sometimes completely remove the damage for air pollution house paint air conditioners soap for water pollution wells bottled water purifiers for noise pollution storm windows thicker walls economists have long been aware that averting behavior is both possible and practiced and they have often suggested that expenditures on such behavior can be used as a measure of the costs imposed on society by various forms of pollution the literature on this subject is difficult to characterize but to the extent that a consensus has been reached it is that averting expenditures provide a lower bound estimate of the total costs imposed by pollution and the divergence between averting expenditures and the total costs of pollution arises from the fact that some consequences of pollution e g the simple unpleasantness of breathing dirty air cannot be averted 2 3 in this note we develop two simple models of the response of utility maximizing consumers to small changes in the level of pollution which they face in the first model we assume that environmental quality is desired solely because it reduces the need for averting expenditure we show that 1 the level of averting expenditure may be either a lower bound or an upper bound estimate of the consumer s

comparing open ended choice experiments and experimental auctions an application to golden rice we use two experimental valuation methods to estimate consumer demand for genetically modified golden rice the first is an open ended choice experiment oece where participants name the quantities of golden rice and conventional rice demanded at each of several price combinations one of which will be randomly chosen as binding this allows us to estimate market demand by aggregating demand across participants this estimate of market demand also allows us to estimate own price elasticity and consumer surplus for golden rice comparing willingness to pay wtp estimates from the oece with those from a uniform price auction we find that oece wtp estimates exhibit less affiliation across rounds and the effects of positive and negative information under the oece are more consistent with prior expectations and existing studies we also find that while auction wtp estimates more than double across five rounds oece wtp estimates are stable across rounds and are always roughly equal to those from the final auction round

nonparametric analysis of technical and allocative efficiencies in production in this paper we extend varian s 1984 nonparametric production analysis to situations when the set of observed output input and price data is not consistent with profit maximization for at least one firm in such cases varian s results imply that no production possibility set containing all observations can rationalize the observed data we identify each firm whose performance given the prices faced by it may be found consistent with profit maximization relative to some production possibility set containing all observed output input vectors we show that the set 4 of all such firms can itself be weaklv rationalized in the sense that there exists a closed convex and monotone production possibility set that contains all the observations and relative to which the performance of all the firms in the set 8o is consistent with profit maximization given their respective prices by definition firms not included in this largest set d of efficient observations unambiguously deviate from profit maximizing behavior for any production possibility set containing all observations we follow farrell 1957 and analyze these deviations into technical and allocative efficiency measures considering as admissible all closed convex and monotone production possibility sets relative to which the performance of each firm in the set g remains consistent with profit maximization we then describe nonparametric methods for determining the tightest upper and lower bounds on the technical allocative and aggregate efficiency measures evaluated relative to all such admissible production possibility sets it is seen that the tightest upper bound on the technical efficiency measure is the same as the value computed by the nonparametric efficiency evaluation technique known as data envelopment analysis thus establishing a link between this literature in management science operations research and the nonparametric production analysis in economics

the evolution of price dispersion in the european car market car prices in europe are characterized by large and persistent differences across countries the purpose of this paper is to document and explain this price dispersion using a panel data set extending from 1980 to 1993 we first demonstrate two main facts concerning car prices in europe i the existence of significant differences in quality adjusted prices across countries with italy and the u k systematically representing the most expensive markets 2 substantial year to year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations these facts are analysed within the framework of a multiproduct oligopoly model with product differentiation the model identifies three potential sources for the international price differences price elasticities generating differences in markups costs and import quota constraints local currency price stability can be attributed either to the presence of a local component in marginal costs or to markup adjustment that is correlated with exchange rate volatility the latter requires that the perceived elasticity of demand is increasing in price we find that the primary reason for the higher prices in italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm fiat in the u k higher prices are mainly attributed to better equipped cars and or differences in the dealer discount practices the import quota constraints are found to have a significant impact on japanese car prices in italy france and the u k with respect to local currency price stability a large percentage of the documented price inertia can be attributed to local costs and a smaller fraction to markup adjustment that is indicative of price discrimination based on these results we conjecture that the emu will substantially reduce the year to year volatility observed in the car price data but without further measures to increase european integration it will not completely eliminate existing cross country price differences

on measuring the value of a nonmarket good using market data we use line integral theory to lay out in a more general theoretical framework the conditions under which it is possible to measure with market data the welfare effects of a change in a nonmarket good we present in detail a numerical method of measuring the value of nonmarket goods using market data under either weak neutrality or weak complementarity our numerical method is more flexible than the existing analytical method because it can be used with any well behaved marshallian demand function and can be used even when the willig condition does not hold

a general theory of pass through in channels with category management and retail competition i provide a general formulation of the channel pass through problem as a comparative static of the retail price equilibrium and i analyze the impact of category management and retail competition on pass through focusing on brand and retailer differences and the nature of the cost change being passed through whether it is brand specific retailer specific both or neither with category management a retailer s response to a brand specific cost change is not limited to that brand in general a retailer will also change the prices of other brands the cross brand effect can be positive or negative and depending on its sign it either enhances or attenuates pass through i explain the cross brand effect as an interaction between two forces a demand substitution force that pushes for a negative cross brand effect and a strategic complementarity force that pushes for a positive cross brand effect retail competition adds another layer of strategic complementarity causing other retailers to respond even for retailer specific cost changes and increasing pass through of categorywide cost changes but its effect for brand specific cost changes is ambiguous i apply the theory to two commonly used demand functions linear demand and nested logit and show that they have significantly different pass through properties the paper concludes with a discussion of how the theory relates to the empirical literature including the companion piece by besanko et al besanko d j p duba s gupta 2005 own brand and cross brand retail pass through marketing sci 24 1 123 137

markets and the measurement of value consumer s surplus and the hicksian measures of compensating and equivalent variation have a long history in empirical economic analysis however at both the theoretical and the empirical level economists psychologists and public choice theorists have not been able to reach a significant consensus regarding the usefulness of these measures economic theorists have only recently dissected the differences which exist between alternative welfare measures in a systematic and transparent fashion in willig 1976 hausman 1981 and takayama 1984 the role of income in determining the correct theoretical measurements of compensating and equivalent variations was exposed during this same period of time theoretical results obtained by the psychologists kahneman and tversky 1979 indicated that the fundamental structure of preferences upon which the theoretical economic results are based is flawed the so called prospect theory of decision developed by these authors indicated that measured of welfare based upon payment will differ from measures of welfare based upon compensation because of the fact that individuals will value losses at a greater marginal rate than gains this difference was then predicted to dominate any income effect important in the economist s model finally this period recorded the emergence of many demand revealing processes which provide individuals with appropriate incentives to accurately reveal their preferences as summarized in coursey and schulze 1986 one interpretation of the literature on incentive compatibility suggests a set of well defined guidelines for improving both the accuracy and validity of compensating and equivalent variation measures these differences in professional preferences regarding what is important in improving the accuracy of economic welfare measurements led john

welfare losses due to market power hicksian versus marshallian measurement this paper warns against the use of marshallian welfare loss in applied analysis of market power we show how to compute the hicksian deadweight loss from an ordinary demand then from an experiment using real data on twenty one sectors of the french food industry we find that the marshallian deadweight loss poorly approximates the exact hicksian measure hence it is advisable to use the latter in applied welfare analysis copyright 2001 oxford university press

on the measurement of welfare for market and nonmarket goods a numerical approach extending vartia s 1983 framework the paper presents a simple numerical approach to the measurement of welfare for market and nonmarket goods on the basis of an incomplete mixed demand system the method allows the determination of exact welfare measures it provides a flexible and well founded alternative to ad hoc methods based on consumer surplus

weak complementarity path independence and the intuition of the willig condition abstract weak complementarity is usually invoked for valuing public goods using information on private goods however using uncompensated demands requires a second condition the willig condition this paper present an intuitive explanation of the willig condition and shows that the alternative versions are equivalent to a path independence condition for line integrals this condition is fulfilled for compensated demands but not uncompensated demands except in restrictive special cases it is shown that this is a type of quasi homotheticity and requires that the income flexibility of quality must equal the income elasticity of the weak complement the importance and restrictiveness of the willig condition are shown using three alternative functional forms

welfare and distribution effects of water pricing policies in this paper distribution and welfare effects of changes in block price systems are evaluated a method is discussed to determine for a marshallian demand function equivalent variation in case of a block price system the method is applied to compare for the metropolitan region of sao paulo alternative pricing policies on the basis of their demand welfare and distribution effects of changing water prices results show that there is a trade off between average welfare and income distribution a pro poor price system may result in lower average welfare than a flat price system but in higher individual welfare for the poor moreover there is a trade off between revenues for the water company and income distribution even though pro poor price systems may not be as good for average welfare as flat price systems their direct effects on poverty are important introducing pro poor price systems however may have financial consequences for the water companies

recovering weakly complementary preferences abstract this paper demonstrates a method for recovering weakly complementary expenditure and indirect utility functions while integrating back from marshallian demand specifications that do not intrinsically embody weak complementarity weak complementarity of a good with quality provides information about how the constant of integration over price must behave with respect to quality and this information can be incorporated into the process of recovering preferences the weakly complementary expenditure and indirect utility functions are recovered for the linear demand specification and for the stone geary utility function with any value of the subsistence parameter

evaluating policy interventions with general equilibrium externalities abstract we report on the results of analytical and numerical models that describe the effects of non separable externalities or public goods on public policies with important general equilibrium consequences in the numerical exercise we calibrate a general equilibrium model with non separable air quality benefits in order to measure the excess burden and total net benefits of transportation and energy taxes in the 1995 u s economy the change in the physical level and the economic value in air quality associated with a given policy is a function of the substitution patterns between air quality and market goods that we assume the size of the deadweight loss due to pre existing distortions such as a tax on labor income is substantially affected by these substitution patterns

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

the taxation of drivers and the choice of car fuel type in this paper the choice of the car fuel type is studied in the dutch situation three types are important gasoline diesel and lpg with 80 of the cars using gasoline incentives for using diesel or lpg are provided by the tax system that implies higher fixed cost but lower variable cost for users of these fuel types we start by studying fuel type choice on the basis of a logit model and move on to estimate demand functions for kilometres driven for social purposes while correcting for the possible selectivity bias we find that diesel and lpg are in general regarded as inferior alternatives but that monetary incentives are sufficiently strong to overcome this hurdle for drivers with a large demand for kilometres we also find that there are significant effects of the lower variable cost for diesel and lpg drivers on their demand for kilometres the conclusions are confirmed by estimation of a structural model in which fuel type choice and demand for kilometres are consistently explained on the basis of one set of preferences and unobserved heterogeneity is taken into account

approximating compensated income from ordinary demand functions abstract this paper proposes a re versible s econd or der t aylor resort approximation to compensated income from ordinary demand functions resort yields the malmquist vartia m v algorithm as a first order case using the slutsky equation resort obtains the substitution matrix and checks it for symmetry and negative semi definiteness to validate compensated income this validation procedure is an improvement over m v

expenditure function estimates of the efficiency and distributive impact of indirect taxes in the united kingdom abstract this paper uses the expenditure function to consider the efficiency and distributional impact of indirect taxes in the united kingdom estimates of the parameters of the linear expenditure system of demand equations are employed to measure the compensating variation and equivalent variation costs of taxes on households in different income groups in addition distributional weights are used to consider the overall impact of different taxes and tax changes on social welfare finally we consider other types of demand system estimates which might be used in this kind of exercise

accounting for changes in tastes health concerns are thought by many to have shifted consumption away from red meats though econometric evidence is mixed testing for structural change is difficult especially when one time series is used for both estimating demand equations and testing their stability specification errors may suggest a shift where none has occurred using nonparametric demand analysis we find that meat consumption patterns in the united states and australia can be explained using only relative prices and expenditures only imposing particular functional forms can reverse the conclusion suggesting that specification errors in econometric demand studies can account for findings of taste changes

lechatelier samuelson principle in games and pass through of shocks abstract the lechatelier samuelson principle states that as a reaction to a shock an agent s short run adjustment of an affected action is smaller than its long run adjustment when the agent can also adjust other related actions we extend the principle to strategic environments where the long run adjustment also accounts for other players adjusting their strategies we show that the principle holds for supermodular games strategic complements satisfying monotone comparative statics and provide sufficient conditions for the principle to hold in games of strategic substitutes heterogeneity we discuss the principle s implications for cost pass through of multiproduct firms

revealed preference for public goods the most serious problem for the modern theory of optimal public expenditure is that although it has to be based on some social welfare function individual preferences for public goods which constitute the elements of any individualistic social welfare function are hard to assess it is argued that since every individual can freely participate in the consumption of a public good there is an incentive for him to either underreport or overreport his preferences depending on how the reported preferences are used in the financing process of the public good i this argument will be correct if an individual s preferences for public goods can be expressed only directly in many cases however the consumption of a public good has some technical or objective relationship with the consumption of some private goods thus the benefit an individual derives from free highways depends on how much he spends on a car and gasoline even the benefit an individual derives from the judicial system depends on how much he spends to hire the services of lawyers also an individual can enjoy the same security police provide by hiring private guards and installing locks and so on in these cases if we know the technical relationships between the consumption of private goods and the consumption of public goods then from the market data relating the amounts of private goods bought to prices and the data on the existing amounts of public goods we might be able to infer i the amounts of final goods consumed say the number of trips from one point to another the degree of justice the security from robbery etc and ii their opportunity costs which the individual was willing to pay but if we succeed in this inference then all that remains to be done in order to find the individual s utility function will be to integrate back the relationship between the amounts of final goods consumed and their opportunity costs a trivial example can be provided by assuming that each public good is perfectly substitutable with a private good let yi be the quantity of the ith public good and xi be the quantity of a private good which is a perfect substitute for the ith public good then the benefit derived from the ith public good and its perfect substitute can be measured by xi yi suppose we have ascertained an individual consumer s demand functions for private good when all the yi are zero we know from the revealed preference theory that if these demand functions satisfy a certain condition namely the symmetry of the slutsky matrix then there exists a utility function unique up to a monotone transformation

nonparametric tests of utility maximization and weak separability for consumption leisure and money some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer s utility function this paper contains results from nonparametric tests of these assumptions about consumer behavior the authors find that quarterly per capita data on consumption goods le isure and monetary assets are consistent with utility maximization further consumption goods and leisure meet necessary and sufficient conditions for weak separability additionally one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability they also test and find no evidence of homothetic prefe rences copyright 1987 by mit press

vertical bargaining and retail competition what drives countervailing power this article investigates the effects of changes in market concentration on the equilibrium prices in a supply chain results are derived from a theoretical model of bilateral bargaining between upstream and downstream firms which allows for general forms of demand and retail competition whether countervailing buyer power arises in the form of lower input prices following greater concentration downstream depends on the pass through rate of input prices to retail prices countervailing buyer power generally does not translate into lower retail prices because of heightened market power at the retail level

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

a consistent semiparametric estimation of the consumer surplus distribution abstract in this paper we examine the consequences of demand function heterogeneity for the estimation of the consumer surplus in particular we show that given a linear demand function with random coefficients one can consistently estimate the consumer surplus distribution without making parametric assumptions about the coefficient distribution the approach is illustrated using data on gasoline consumption

a model of add on pricing this paper examines competitive price discrimination with horizontal and vertical taste differences consumers with higher valuations for quality are assumed to have stronger brand preferences two models are considered a standard competitive price discrimination model in which consumers observe all prices and an add on pricing game in which add on prices are naturally unobserved and firms may advertise a base good at a low price in hopes of selling add ons at high unadvertised prices in the standard game price discrimination is self reinforcing the model sometimes has both equilibria in which the firms practice price discrimination and equilibria in which they do not the analysis of the add on pricing game focuses on the chicago school argument that profits earned on add ons will be competed away via lower prices for advertised goods a conclusion is that add on practices can raise equilibrium profits by creating an adverse selection problem that makes price cutting unappealing although profitable when jointly adopted using add on pricing is not individually rational in a simple extension with endogenous advertising practices and costless advertising several models that could account for add on pricing are discussed

on the effects of entry in cournot markets in the framework of symmetric cournot oligopoly this paper provides two minimal sets of assumptions on the demand and cost functions that imply respectively that as the number of firms increases the minimal and maximal equilibria lead to i decreasing industry price and increasing or decreasing per firm output and ii increasing industry price and decreasing per firm output in both cases per firm profits are decreasing the analysis relies crucially on lattice theoretic methods and yields general unambiguous and easily interpretable conclusions of a global nature as a byproduct of independent interest new insight into existence of cournot equilibrium is developed

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

a non parametric analysis of productivity the case of u s and japanese manufacturing a nonparametric analysis of technology technical change and productivity is presented in the context of cost minimizing behavior a number of nonparametric tests concerning the existence and nature of technical change are applied to u s and japanese manufacturing data nonparametric measures of technical change are presented copyright 1990 by american economic association

environmental food taxes and inequalities simulation of a meat tax in sweden abstract this paper investigates the distributional effect of an environmental tax on meat in sweden if such a tax was to be introduced welfare effects are measured as compensation variation cv for multiple price changes where hicksian cross price elasticities household expenditures and price changes are included in the calculations results show that taxes on meat are almost neutral over households when expenditures on meat are used as welfare indicators and regressive if income is used this can be explained by the households similar shares of total expenditures on meat the households with the smallest income levels need to be compensated with 904 sek per person and year equivalent to euro 86 6 per year in the year 2009 exchange rate to feel that utility is not lowered if taxes on meat are introduced and the households with the highest income levels need to be compensated with 1141 sek euro 109 3 per person and year for the year 2009 these compensations correspond to 0 74 and 0 78 of total expenditures for the low and high income group respectively when instead comparing the compensation with income levels the effects correspond to 0 99 for the households with the smallest income levels and to 0 51 for the households with the largest income

frequency of price adjustment and pass through we empirically document using u s import prices that on average goods with a high frequency of price adjustment have a long run pass through that is at least twice as high as that of low frequency adjusters we show theoretically that this relationship should follow because variable mark ups that reduce long run pass through also reduces the curvature of the proflt function when expressed as a function of the cost shocks making the flrm less willing to adjust its price lastly we quantitatively evaluate a dynamic menu cost model and show that the variable mark up channel can generate signiflcant variation in frequency equivalent to 37 of the observed variation in the data on the other hand the standard workhorse model with constant elasticity of demand and calvo or state dependent pricing has di culty matching the facts

patterns of pass through of commodity price shocks to retail prices commodity prices have been rising at unprecedented rates over the last two years the primary objective of this paper is to assess if and how firms pass through upstream cost increases to final good prices first we investigate what happens to the shelf prices the regular prices of goods that contain significant amounts of a commodity whose price has changed the objective is to document patterns of price rigidity depending on the share of the commodity in the final good that is sold to consumers for example given an abnormal commodity price change in wheat what happens to the shelf regular price of bread wheat cereals and other goods that contain wheat commodity pass through patterns for ready to eat cereal smallest share of commodity in final product and fresh chicken largest share of commodity in final good are investigated second we also assess what happens to the net prices consumers pay that is the regular price net of discounts offered one possible way to pass through a cost increase is to reduce the frequency of promotional discounts or offer smaller discounts to consumers upstream commodity input prices used in our investigation are wheat and corn futures prices to account for upstream inputs and flour and chicken feed producer price sub indices for downstream cost shocks we combine several datasets for this empirical analysis commodity prices commodity price indices and scanner data on prices for a variety of goods over a four year time period and across several stores in california belonging to a large retail chain we construct quantity weighted price indices within two product categories sold in the supermarket where prices are weighted by pre determined quantity weights to obtain shelf price indices and net price indices for each of the commodities regressions will be run using store level product upc weekly data the reduced form regressions consist of projecting the shelf price index as well as the net price index on commodity prices other explanatory variables and on region and time dummies the point estimates measure the effect of residual changes in commodity prices net of seasonal and regional effects on the prices consumers face when making purchase decisions we also construct a variable that measures the frequency of price discounts and relate that variable to the same explanatory variables we estimate pass through behavior using the above three different measures of retail price activity controlling for cost proxies store level fixed effects and regional time trends using panel data estimation techniques results suggest that an important part of retail price variation comes from promotional activities and the usual shelf price index would underestimate the true pass through coefficient to deal with omitted variables and price stickiness we included a lagged dependent variable using the arellano bond dynamic panel estimator for chicken the results show that using standard information on regular shelf price leads to an underestimation of the true pass through coefficient for cereal using standard shelf prices leads to an overestimation of the pass through coefficient reflecting the importance of storability faced by consumers and retailers and industry characteristics in the sale dynamics not only do our cost pass through estimates account for sales we also provide dynamic multipliers for grain commodity price increases to supermarket shelf prices the estimated dynamic elasticities are not as small as one might expect from a naive model the elasticity of cereal price with respect to flour is over 1 and the elasticity of chicken price with respect to chicken feed was 30 percent these estimates would imply a very large price increase in cereal and chicken over the last several years there are fewer sales when commodity prices go up from this we would conclude that net prices should be used for pass through analysis

information provision and consumer behavior a natural experiment in billing frequency abstract in this study i estimate a causal effect of increased billing frequency on consumer behavior i exploit a natural experiment in which residential water customers switched exogenously from bimonthly to monthly billing customers increase consumption by 3 5 5 in response to more frequent information this result is reconciled in models of price and quantity uncertainty where increases in billing frequency reduce the distortion in consumer perceptions using treatment effects as sufficient statistics i calculate consumer welfare gains equivalent to 0 5 1 of annual water expenditures heterogeneous treatment effects suggest increases in outdoor water use

an examination of preferences for local public sector outputs relatively unique data on the costs of public services for local governments in victoria australia are used to estimate a system of demand equations and to test alternative specifications of the underlying preferences using a translog model symmetry conditions are rejected so the data are not consistent with constrained utility maximization a nonparametric test confirms that result conditional on symmetry tests reject homogeneity and the additivity of preferences and also the separability of personal and property services copyright 1988 by mit press

sufficient decisions in multi sided and multiproduct markets we show that in many models where firms make multiple decisions analysis can be made more tractable by re formulating the model into one in which each firm makes a single choice which we call a sufficient decision the transformation allows application of standard techniques in these settings including pass through for tax incidence and upward pricing pressure for merger analysis the transformation works because the assumption of profit maximization links the firms decisions together examples include models of monopoly and oligopoly in two sided markets where a natural sufficient decision may be the number of transactions that the firm facilitates and multiproduct markets

imperfect competition with complements and substitutes abstract i study price competition in settings where end products are combinations of components supplied by different monopolists nesting standard models of perfect complements and imperfect substitutes i show sufficient conditions for a discrete choice demand system to yield demand for each product which is log concave in price and has log increasing differences in own and another product s price leading to strong comparative statics results many results familiar from simple models like the price effects of mergers or changes in marginal costs extend naturally to this more complex setting