A note on quantitative trade restrictions, income effects and wage inequality

This paper examines the effects of conversion of one type of physical trade restrictions into another on the intra-country wage inequality in a standard 2 × 2 × 2 Heckscher–Ohlin–Samuelson model. It shows that a conversion of an import-quota into an equivalent voluntary export restraint raises wage-inequality in the country importing the unskilled-labor intensive good and lowers the wage-inequality in its trading partner. This result does not depend on whether the unskilled-labor intensive good or the skilled-labor intensive good was initially subject to an import quota. Conversion of the import-quota into an equivalent import tariff, on the other hand, may lead to a rise in wage inequality in both countries. The driving force behind these results is the real income effect that conversion of one type trade restriction instrument into another results in.     

A note on undominated Bertrand equilibria

This note shows that the conventional outcome associated with Bertrand competition with homogenous products and different marginal costs is obtained in every Nash equilibrium in which firms use undominated strategies. This strengthens an existence result due to Blume (2003).     

A note on duality in consumer theory

Summary. In this paper we will show that upper semicontinuity of the indirect utility function implies the upper semicontinuity of the direct utility function. By strengthening the assumptions, one can also deduce the continuity of the utility function. Based on indirect utility functions a model of consumer behavior will be established. Received: December 26, 1996; revised version: August 25, 1997     

A note on representability of consumer's behavior

Summary. We offer an alternative approach to the study of representability of choice behavior in a competitive framework that is based on recent advances in utility theory (cf. Alcantud and Rodrí guez-Palmero (1999)). Our technique enables us to tackle this classical problem efficiently in fairly general situations, thus obtaining alternative sufficient conditions as well as different proofs and generalizations of prior results. Received: July 14, 1999; revised version: February 15, 2001     

A note on representativeness and household finance

Previous research has shown that social households have a higher probability of owning risky assets. Using a representative sample of the German population, we demonstrate that the sociability effect is much stronger among people younger than 50.     

Multiplicative habit formation and consumption: A note

A multiplicative form of the habit term in the utility function has some undesirable properties if the habit function is itself still additive (Wendner, 2003). A geometric form for the way the stock of habit accumulates can resolve these shortcomings.     

A systematic analysis of the links amongst the Marshallian,Hicksian, and Frischian demand functions: A note

Three types of demand functions are central to contemporary consumer theory: the Marshallian, the Hicksian, and the Frischian demand functions. This paper presents a systematic definition of the analytical relationships amongst these demand functions under the maintained hypothesis that the decision maker is a profit maximizer.     

Context effects: A representation of choices from categories

This paper studies a model of reference-dependent choice from sets of options grouped into categories. The proposed model is consistent with experimental evidence documenting context effects in a variety of choice situations. In our model, the reference point for any given category is subjective, and corresponds to the least preferred element in the category under consideration. Every object in a category is evaluated relative to the corresponding reference point; this may distort the objective ranking of options across different categories, and thus possibly give rise to a context-effects bias. The resulting representation is essentially unique. We also provide an economic application of the preferences that we axiomatize to principal-agent models. We show how sellers facing consumers exhibiting the context-effects bias can increase their profits by exploiting their bounded rationality.     

Monopolistic competition and income dispersion

We develop a model of monopolistic competition that accounts for consumers’ heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers’ tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.     

A note on locally constant income elasticities

A simple proof of Willig's theorem that all non-unitary income elasticitiesthat are constant must be equal to one another is given. It is also shown that multiplicatively separable demand implies locally constant income elasticity.     

Errors of aggregation and errors of specification in a consumer demand model: a theoretical note

Abstract .  Consumer demand models based on the concept of a representative or average consumer suffer from aggregation error. Misspecification of the underlying micro utility-maximizing model, which is virtually inevitable, also results in error. This note provides a theoretical investigation of the relationship between the two types of error. Misspecified expenditure support functions for demand systems at the micro level induce the same misspecified structure in the corresponding expenditure functions at the macro level, and the errors at the two levels are shown to be of similar order.     

A note on recursive multiple-priors

This note fills a gap in the proof of recursive multiple-priors utility [L. Epstein, M. Schneider, Recursive multiple priors, J. Econ. Theory 113 (2003) 1-31].     

A note on the core of an income redistribution game

We consider a redistribution of income by an n-person game in which each member is levied a proportional income tax under some fixed rule. It is shown that the redistribution that will be achieved by a specific negative income tax is in the core of the game, which means that the redistribution can not be upset by any coalition of members acting strategically to evade the full taxation.     

A note on comparative downside risk aversion

We provide comparative global conditions for downside risk aversion, which are similar to the ones studied by Ross for risk aversion. We define a coefficient of downside risk aversion, and study its local properties.     

A note on redistributive fairness and economic reform

To understand reasons for possible failures of ‘good’ economic reforms, we consider an institution which is always successful in making the best public decision from the utilitarian perspective. We show it is bound to introduce inequality if costs of a reform are privately known: the losers can not be always compensated. Thus, if equity is a primary concern, then some reforms with positive aggregate net gain might not be undertaken. If the utilitarian welfare is the only guide for making public decisions, implementing a reform might require the ability to ignore the associated social costs of inequality.     

A simple explanation of some key time preference anomalies

Abstract Individual time discounting behaviour experimentally exhibits important anomalies that are inconsistent with the standard discounted utility model. These include the time preference reversal characteristic of hyperbolic discounting, the magnitude effect and the extreme sign effect. I propose a simple explanation of discounting that accounts for these three anomalies simultaneously, within the context of the expected utility model with uncertainty, risk aversion, and preference for precautionary saving.     

A theory of (relative) discounting

We derive a representation theorem for time preferences (on the prize-time space) which identifies a novel notion of relative discounting as the key ingredient. This representation covers a variety of time preference models, including the standard exponential and hyperbolic discounting models and certain non-transitive time preferences, such as the similarity-based and subadditive discounting models. Our axiomatic work thus unifies a number of seemingly disparate time preference structures, thereby providing a tractable mathematical format that allows for investigating certain economic environments without subscribing to a particular time preference model. This point is illustrated by means of an application to sequential bargaining theory.     

A class of incomplete and ambiguity averse preferences

This paper characterizes models of ambiguous beliefs in the absence of the completeness axiom. We axiomatize multiple-selves versions of some of the most important examples of complete and ambiguity averse preferences, and characterize when those incomplete preferences are ambiguity averse.     

On the distributional effects of income in an aggregate consumption relation

Abstract .  In this paper we analyse the influence of characteristics of the income distribution in modelling aggregate consumption expenditure. We model the aggregate consumption relation of a heterogeneous population, using a statistical distributional approach of aggregation, and apply it to UK-Family Expenditure Survey data. A bootstrap test based on a non-parametric estimation methodology, which accounts for the presence of continuous and discrete variables, suggests that the mean and the dispersion of the income distribution significantly influence aggregate consumption expenditure. Also, the parameters of the aggregate relation are time varying. These findings have implications for constructing empirically sound models of aggregate consumption expenditure.     

A note on cheap talk and burned money

Austen-Smith and Banks [Cheap talk and burned money, J. Econ. Theory 91(1) (2000) 1-16] study how money burning can expand the set of pure cheap talk equilibria of Crawford and Sobel [Strategic information transmission, Econometrica 50(6) (1982) 1431-1451]. I identify an error in the main Theorem of Austen-Smith and Banks, and provide a variant that preserves some of the important implications. I also prove that cheap talk can be influential with money burning if and only if it can be influential without money burning. This strengthens a result of Austen-Smith and Banks, but uncovers other errors in their analysis. Finally, an open conjecture of theirs is proved correct.