Decision neuroscience and consumer decision making

This article proposes that neuroscience can shape future theory and models in consumer decision making and suggests ways that neuroscience methods can be used in decision-making research. The article argues that neuroscience facilitates better theory development and empirical testing by considering the physiological context and the role of constructs such as hunger, stress, and social influence on consumer choice and preferences. Neuroscience can also provide new explanations for different sources of heterogeneity within and across populations, suggest novel hypotheses with respect to choices and underlying mechanisms that accord with an understanding of biology, and allow for the use of neural data to make better predictions about consumer behavior. The article suggests that despite some challenges associated with incorporating neuroscience into research on consumer decision processes, the use of neuroscience paradigms will produce a deeper understanding of decision making that can lead to the development of more effective decision aids and interventions.     

Preferences, Technology, and the Environment: Understanding the Environmental Kuznets Curve Hypothesis

We derive a simple expression for the income-pollution path using the standard static model of the environmental Kuznets curve (EKC). This expression makes it straightforward to identify the general characteristics of utility and pollution functions that lead to such a curve. We show that suitable preferences can always lead to an EKC while there is no technology that yields an EKC for all types of preferences, and we derive a sufficient condition for technology that leads to an EKC for almost all types of preferences. Our results hold for a model with multiple goods with different pollution intensities and for a production economy with nonconstant relative price of consumption and environmental effort. We derive our results without assuming specific functional forms and we encompass several other models as special cases.     

TIME‐VARYING DYNAMICS OF THE REAL EXCHANGE RATE: AN EMPIRICAL ANALYSIS

We use a time‐varying structural vector autoregression to investigate evolving dynamics of the real exchange rate for the UK, euro area and Canada. We show that demand and nominal shocks have a substantially larger impact on the real exchange rate after the mid 1980s. Real exchange rate volatility, relative to fundamentals, also shows a marked increase after this point in time. However, there is some evidence suggesting a closer business cycle co‐movement of the real exchange rate and fundamentals. Simulations from an open‐economy DSGE model show that these results are consistent with a decline in exchange rate pass‐through. Copyright © 2012 John Wiley & Sons, Ltd.     

The Welfare Analysis of a Free Trade Zone: Intermediate Goods and the Asian Tigers

We analyse trade reform among the ASEAN countries, which recently began removing all mutual trade barriers. The standard method to avoid complete specialisation in traded goods is to distinguish goods both by physical type and place of origin (the so‐called Armington assumption). This methodology is not suitable for the sort of intermediate goods produced by the ASEAN countries. We develop a computational approach in the context of a non‐Armington dynamic general equilibrium model. Analysing the results of a calibrated version of the model, we find that trade liberalisation is generally welfare improving for the ASEAN countries.     

Further Support for Ranking Candidates in Elections

We compare the Condorcet Efficiencies of the plurality rule, the negative plurality rule, and the Borda rule to examine what might be gained by using a voting rule that requires candidate rankings. Previous analyses have considered (1) voting situations for which the three rules determine different candidates as winners (and the Condorcet Efficiencies might actually differ across the three rules) as well as (2) refined measures of Group Mutual Coherence that assess the presence of underlying models of rational behavior that governs voter preferences. In this paper, we present the final step of this particular line of analysis by analyzing (1) and (2) simultaneously. We conclude that there is a considerable benefit on the basis of Condorcet Efficiency from asking voters to submit candidate rankings in three-candidate elections.     

Nonlinear effects of government spending shocks in the USA: Evidence from state‐level data

This paper uses state‐level data to estimate the effect of government spending shocks during expansions and recessions. By employing a mixed‐frequency framework, we are able to include a long span of annual state‐level government spending data in our nonlinear quarterly panel VAR model. We find evidence that for the average state the fiscal multiplier is larger during recessions. However, there is substantial heterogeneity across the cross‐section. The degree of nonlinearity in the effect of spending shocks is larger in states that are subject to a higher degree of financial frictions. In contrast, states with a prevalence of manufacturing, mining and agricultural industries tend to have multipliers that are more similar across business cycle phases.     

Sources of Public Revenue that Make Nations Richer

Among sources of public revenue that make nations richer, the most beneficial are charges for harms, such as pollution and congestion, and charges for the private benefits from public services. Increases in the money supply sufficient to keep price changes in line with expectations are also beneficial. Taxes on concentrations of wealth are beneficial if wealth inequality is considered harmful. Properly administered taxes on land do no harm and are beneficial when markets are imperfect. Among taxes that cause harm, the combination of a tax on labour income and a tax on inheritances is probably the least damaging.     

The advantage of avoiding the Armington assumption in multi-region models

Most computable general equilibrium models that describe interactions between multiple regions employ the so-called Armington assumption that goods that are produced in different regions are imperfect substitutes for each other. The paper describes an alternative algorithm based on the assumption of perfect substitutability that accommodates the observation that each region produces all traded goods. For models with many regions and less-that-perfectly mobile factors, the alternative algorithm greatly reduces convergence time. The algorithm is illustrated by comparing two static multi-region models of the 50 U.S. states and the District of Columbia, with and without the Armington assumption. The model without the Armington assumption is then extended to a dynamic 51-region model with agents that have perfect foresight over 6 periods.