Testing separability of public consumption in household decisions

In this paper we propose a sequential strategy, based on the microeconomic approach of the demand theory, in order to test for separability between private and public consumption. The aim of the present work is to verify, using a conditional almost ideal demand system, whether the different components of public consumption exert conditioning effects on the allocative structure of private spending. The empirical estimation of the model and the separability tests are developed for both a demand system in five functional categories of private spending, and for a demand system in six categories, where the private expenditures on those goods and services which can also be offered by the public sector are enclosed in a single functional category. The results of the separability tests, obtained using UK data for the 1974–2000 period, show that public individual consumption plays an important role in modifying consumer choices, while public collective consumption does not affect private consumption behaviours. The relationships between the different components of private spending and public individual consumption are both of substitutability and complementarity; in particular, we find that public individual consumption and the corresponding private expenditures on ‘Health, education, recreation and social protection’ are complements.     

Heterogeneous Beliefs, Speculation, and the Equity Premium

Agents with heterogeneous beliefs about fundamental growth do not share risks perfectly but instead speculate with each other on the relative accuracy of their models' predictions. They face the risk that market prices move more in line with the trading models of competing agents than with their own. Less risk‐averse agents speculate more aggressively and demand higher risk premiums. My calibrated model generates countercyclical consumption volatility, earnings forecast dispersion, and cross‐sectional consumption dispersion. With a risk aversion coefficient less than one, agents' speculation causes half the observed equity premium and lowers the riskless rate by about 1%.     

Private Information in the BBV Model of Public Goods

To analyze the private provision of a public good in the presence of private information, we explore the connections between two frameworks: the binary public good model with threshold uncertainty and the standard continuous model à la Bergstrom et al. Linearity of best responses in others' contributions is key to matching the two frameworks. We identify all utility functions that display this linearity, and we provide conditions ensuring that the minimal properties that Bergstrom et al. require for utilities are satisfied. Using techniques developed in the threshold uncertainty framework, we show existence and uniqueness of the Bayes‐Nash equilibrium—thus generalizing existing results—and we analyze its comparative statics properties. In particular, under the reasonable assumption that agents' income is stochastic and private information, we complement the full‐information crowding‐out and redistribution results of Bergstrom et al. If the government taxes agents' income proportionally and redistributes (expected) revenues lump sum, equilibrium public good provision can increase or decrease, even if the set of contributors is unchanged. Similarly, we show that crowding‐out can be one‐for‐one, less than one‐for‐one, or more than one‐for‐one. Finally, we extend our results to a multidimensional framework in which agents' unit costs of contributions are also private information.     

The consumption of radio broadcast technologies in Hong Kong,c.1930–19601

This article uses previously under‐exploited quantitative and qualitative primary sources in Hong Kong, the US, and the UK to chronicle how radio broadcast technologies extended in a Less Developed Country. As incomes were rising and the price of radio receiving sets was falling, demand‐side forces were strong in Hong Kong. Yet, these forces alone cannot explain the pattern of diffusion observed. Innovations accelerated the take‐up of radios. The liberalization and de‐regulation of radio broadcasting provided pre‐requisites for these supply‐side shifts.     

International Pricing in a Generalized Model of Ideal Variety

We examine international markups and pricing in a generalized version of an "ideal variety" model. In this model, entry causes crowding in variety space, so that the marginal utility of new varieties falls as market size grows. Crowding is partially offset by income effects, as richer consumers will pay more for varieties closer matched to their ideal types. We show theoretically and confirm empirically that declining marginal utility of new varieties results in: a higher own-price elasticity of demand (and lower prices) in large countries and a lower own-price elasticity of demand (and higher prices) in rich countries. The model is also useful for generating facts from the literature regarding cross-country differences in the rate of variety expansion.     

An Incentive Approach to Banking Regulation

We examine the optimal design of a risk-adjusted deposit insurance scheme when the regulator has less information than the bank about the inherent risk of the bank's assets (adverse selection), and when the regulator is unable to monitor the extent to which bank resources are being directed away from normal operations toward activities that lower asset quality (moral hazard). Under a socially optimal insurance scheme: (1) asset quality is below the first-best level, (2) higher-quality banks have larger asset bases and face lower capital adequacy requirements than lower-quality banks, and (3) the probability of failure is equated across banks.     

Declining Union Strength and Labor Cost Inflation in the 1980s

This paper explores the hypothesis that the declining strength of labor unions underlies the moderation of labor cost inflation in the 1980s, which is not explained by standard Phillips curve equations. Data on union density, union certification and decertification election results, and work stoppages are used as proxies for union strength. No support is found for the declining union strength hypothesis at either the aggregate level (using economywide or union-sector labor cost series) or the industry level.